overview of effective crm implementation and operation

Overview of Effective CRM Implementation and Operation

Alan McSweeney

February 27, 2010 2

Objectives

• To provide an overview of effective CRM system implementation and operation

February 27, 2010 3

Agenda

• Introduction to CRM

• Customer Analysis and Segmentation

• CRM Implementation Approach

• Activity Based Costing for CRM Analysis

• Data Mining

• Summary

February 27, 2010 4

What is CRM?

• End-to-end customer management

• Process enabled by set of technologies

• Process designed to integrate all customer interactions through all channels

• Like all processes organisational change is needed

• CRM systems need information and applications support

• CRM processes should be consistent and repeatable

February 27, 2010 5

Illusion of Customer Relationship Management

• Myth of CRM

• Customers are not outsiders

• We are all customers – of utilities, service providers, financial institutions, government agencies

• CRM is about how WE want to be treated by our service providers

• When we talk about customers (THEM), we mean us

• How do you want to be treated by your service providers?

• That is exactly how your customers want to be treated by you

February 27, 2010 6

Customer Service and Customer Satisfaction

• Poor customer service is still pervasive despite awareness of the need for and benefits of improved customer service

• Many organisations have not changed their business processes to deliver improved customer service and provide what customers want

• Improved customer service means optimising end-to-end processes from the customer viewpoint

− Involves linking multiple internal processes to get cross-functional view from customer perspective

February 27, 2010 7

What Customers Really Want – More For Less

• More Of

− Value

− Responsiveness

− Involvement

− Consideration

− Dependability

− Flexibility

• Less Of

− Aggravation

− Time to Complete Transaction

− Rigidity

− Cost

− Bureaucracy

− Excuses

− Lack of Integration

February 27, 2010 8

What Organisations Try to Do – More With Less

• More Of

− Work

− Customers

− Sales

− Revenue

− Margin

• Less Of

− Personnel

− Facilities

− Cost

February 27, 2010 9

Balance Between Internal and External

• Need to balance management focus between “more with less” and “most for less”

• More with less focuses on internal reductions: cost, staff

• More for less focuses on external improvements

• Only a cross-functional customer-oriented view of business processes can achieve this balance

− Internal processes focus on operational functions

− Cross-functional view links internal processes to get end-to-end customer view of organisation

• Cross-functional processes are those that really affect customers – from start to end

February 27, 2010 10

Overall CRM Solution Architecture

Continuous dialogue across all customer

channels/touch points

Personalised products/services based on

customer needs and expectations

Consistent user experience across all contact points

Real-time access to all customer informationacross the enterprise


Technology and Application Components of a CRM Strategy

CRM Strategy

Sales Force Automation

Campaign Management

Document Management

Call Centre Automation

Workflow and Process

Data Mining/ Modelling

Telesales Automation

Internet/ Intranet/ Extranet

Data Warehousing

Customer Profile Database


CRM and Related Systems Architectural Elements

General User Acquisition

General Use Interface

Targeted User Content and

Offers

Fulfilment

Management

Customer Acquisition

Systems

Operational Systems

Financial Systems

Business Functions

Call Centre Systems

General Use Interface

Order Entry, Tracking

Financial Reporting

Call Centres

User Analysis

Search Engines

Targeted Mail/Email

Advertising

Call Centre Applications

Web Applications

Web Systems

Business Activities Architectural Elements

External Trends

Call Centre Scripts

Banner Ads Web Content


Why CRM

• Greater competition

• Economics of customer retention

• Available technology

• Options to increase customer profitability:

− Get more customers

− Optimise value of existing customers

− Retain right customers longer

− Implement at lower cost

• Costs of options:

− Customer acquisition 5-10 greater than retention

− Loyal customers spend more and pay premium

− Loyal customers must like and trust companies


Customer Management Trends

• Recognise customer heterogenity

• Companies want to get “up close and personal” with their customers

• Transact with customers individually

• “Joined up” customer interaction


CRM Process

• CRM is about:− Integration of customer contact points

− Synchronisation of customer information and

−management assets

− Identification highest (and lowest) value customers

− Servicing those with greatest actual or potential value

• CRM enables:− Reduction of marketing costs through effective

− targeted campaigns

− Increase in customer satisfaction and retention

− Increase in sales

− Improvement in profitability by customer and sale


Characteristics of Service Leaders

• Grow twice as fast as competitors

• 6% annual market share growth vs. 1% market loss

• Charge 10% more

• 12% average return on sales vs. 1%

• Market changes - speed to react determines success or failure

−US - 60% in Fortune 500 in 1970 are no longer on list


Which Customers?

• 20% of customers generate 80% of profit

• 5% increase in customer retention means 25%-95% increase in profitability

• New customers take 8-10 contacts before sale

• Existing customers take 2-3 contacts before sale


Customer Service

• 95% of customers who have had problems will continue to do business if problems are resolved

• For every complaint you receive there are another 20 potential complaints that have not been articulated but still represent

• Good customers tell about 3 others of their experience

• Bad customers tell about 8 of their experience

• 68% of former customers left because of poor customer service


Customer Earnings Over Time (Service Industry Example)

• Continually acquiring new customers and losing existing customers costs money

• Customer retention through increased customer satisfaction is financially worthwhile

• Better customer service makes long-term sense

• Need a balance between customer retention and new customer acquisition

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Acquisition Cost Base Profit

Profit from Increased Purchases Cost Savings

Referrals Price Premium


Customer Retention and Profitability

• Leaky Bucket Effect

Acquire Customers

Customers Defect to Other Suppliers

(“Churn”)

50-60% (or More) Every

Five Years


Example of Profit Contribution by Customer Type

200%

25%

-125%

High Value Loyal Low Value

• Not all customers have the same value

• Can you identify your customers?


Example of Profit Contribution by Customer Type for All Customers - 1

• Customer profile is balanced that results in net profit

-150% -100% -50% 0% 50% 100% 150% 200% 250%

High Value

Loyal

Low Value

Total

Individual Customer Profit Contribution Percentage of Total Customers

Weighted Contribution


Example of Profit Contribution by Customer Type for All Customers - 2

• In this example, there is a high percentage of low value customers (perhaps due to high rates of customer churn and cost of new customer acquisition)

• Net result is an overall loss

-150% -100% -50% 0% 50% 100% 150% 200% 250%

High Value

Loyal

Low Value

Total

Individual Customer Profit Contribution Percentage of Total Customers

Weighted Contribution


Role of Data Warehouse in CRM

• Technology/infrastructure core of architecture

• Allow marketers to make decisions on customer segmentations and profiles and match products/offers

• Data Warehouse enables CRM processes

• CRM elements depend on quality of information in

• Data Warehouse and accuracy of derived results

• Central common repository or all relevant allows effective data sharing and reduces latency

• “Joined-up” approach to CRM

• CRM assumes good information


Integrated CRM

Service Calls

Campaigns/Special Offers

Self Service

Mailing Lists

Sales Data

CustomerData

Warehouse

CustomerInteractionDatabase

CustomerService

CallCentre

Internet

DirectMail

SalesForce

Customer


Customer Lifetime Value

• LTV = net present value of all future contributions to overhead and profit expected from a new customer

• How much a customer is worth to you today, given the expected profit in the future


Customer Value

• Retail - lose one customer per day every day for a year (7 days per week) that spends €50 per week = annual loss of €482,000

• Car manufacturer - increase customer retention by 1% for 4 years = €160 million increase in profit

• Fast food = each customer is worth €10,000 over lifetime


Marketing Objectives

• Objectives:

−Acquire new customers

− Retain existing (profitable) customers

• How much money should be allocated to these?

• How will this affect long-term profitability?

• Does every customer deserve the same investment?


LTV Answers

• How much you can afford to spend to acquire a new customer?

• Which new customer sources generate the most profitable long-term customers?

• How much you can spend to retain/reactivate an existing customer?


Sample Customer LTV Calculation

• This example shows the calculation of the long-term value of a customer

• This is just a simple example to illustrate the concept

Year 1 Year 2 Year 3 Year 4 Year 5

Revenues

Customers 100,000 60,000 37,200 24,180 16,926

Retention

Rate

60% 62% 65% 70% 75%

Spending Per

Customer Per

Year

€75 €100 €125 €140 €140

Total €7,500,000 €6,000,000 €4,650,000 €3,385,200 €2,369,640

Costs

Cost Percent 40% 40% 40% 40% 40%

Total Costs €3,000,000 €2,400,000 €1,860,000 €1,354,080 €947,856

Profits

Gross Profit €4,500,000 €3,600,000 €2,790,000 €2,031,120 €1,421,784

Discount

Rate Yearly

NPV

1.00 1.04 1.08 1.12 1.17

Profit NPV €4,500,000 €3,461,538 €2,579,512 €1,805,658 €1,215,347

Cumulative

NPV Profit

€4,500,000 €7,961,538 €10,541,050 €12,346,709 €13,562,056

Customer

LTV

€45 €80 €105 €123 €136


Sample Customer LTV Calculation

• A customer retained for five years is worth €136 expressed in current year money

• Increasing the retention rate and increasing the amount spent by customer by upselling and cross-selling will increase LTV

Number of customers each year

based on the customer retention

rate

Total revenue for all customers each

year

LTV of individual customer if

retained for that number of years

NPV of profit expressed in

current year values, based on NPV rate


Revenues

Customers 100,000 60,000 37,200 24,180 16,926

Retention

Rate

60% 62% 65% 70% 75%

Spending Per

Customer Per

Year

€75 €100 €125 €140 €140

Total €7,500,000 €6,000,000 €4,650,000 €3,385,200 €2,369,640

Costs

Cost Percent 40% 40% 40% 40% 40%

Total Costs €3,000,000 €2,400,000 €1,860,000 €1,354,080 €947,856

Profits

Gross Profit €4,500,000 €3,600,000 €2,790,000 €2,031,120 €1,421,784

Discount

Rate Yearly

NPV

1.00 1.04 1.08 1.12 1.17

Profit NPV €4,500,000 €3,461,538 €2,579,512 €1,805,658 €1,215,347

Cumulative

NPV Profit

€4,500,000 €7,961,538 €10,541,050 €12,346,709 €13,562,056

Customer

LTV

€45 €80 €105 €123 €136


Sample Customer LTV Calculation With Increased Retention Rate

• An increased customer retention rate increases the LTV of customers


Revenues

Customers 100,000 80,000 64,000 51,200 40,960

Retention

Rate

80% 80% 80% 80% 80%

Spending Per

Customer Per

Year

€75 €100 €125 €140 €140

Total

Revenue

€7,500,000 €8,000,000 €8,000,000 €7,168,000 €5,734,400

Costs

Cost Percent 40% 40% 40% 40% 40%

Total Costs €3,000,000 €3,200,000 €3,200,000 €2,867,200 €2,293,760

Profits

Gross Profit €4,500,000 €4,800,000 €4,800,000 €4,300,800 €3,440,640

Discount

Rate Yearly

NPV

1.00 1.04 1.08 1.12 1.17

Profit NPV €4,500,000 €4,615,385 €4,437,870 €3,823,396 €2,941,073

Cumulative

NPV Profit

€4,500,000 €9,115,385 €13,553,254 €17,376,650 €20,317,723

Customer

LTV

€45 €91 €136 €174 €203


Measuring LTV

• Customer Transaction History

• What they have purchased (preferably item level detail)

• How much they have spent

• When they have purchased

• How many returned / cancelled items

• Where they have purchased

• Potential indicators of why they have purchased: special offers, holiday promotion, etc.

• Financial Measures

• Cost of Goods (preferably at the item level)

• Fixed, Variable and Fulfillment costs

• Gross/Net Sales Ratios

• Promotion History

• How many promotions/contacts they received

• When they received the promotions

• Special offers and other promotion characteristics

• Promotional costs


Customer Segments

• Useful simple starting point

• Easy to match to campaigns

• Analyse movement between segments

• Sample segment types for a campaign:

− Cold prospect - no history

− Warm prospect - some response to previous campaigns

− New customer - bought item

− Confirmed customer - bought two items

− Regular, including last campaign - buys frequently

− including last campaign

− Regular but not last campaign

− Regular but not last two campaign

− Lapsed regular


Segmentation

• Identifying and classifying groups based on buying characteristics and profile

• Telecommunications example:

− Tariff 1

− Tariff 2

− Tariff 3

− Pre-Pay

−Migrate to Competitor 1

−Migrate to Competitor 2

−Migrate from Competitor 1 to Tariff 1

−Migrate from Competitor 1 to Tariff 2


Sales Campaign Effects on LTV

• Customers move between segments

− “Regular but not last campaign” moves to “Regular, including last campaign”

−Migration changes customer value

• The campaign has costs

• Estimate net long-term benefit of campaign to organisation


LTV and Campaign Example – Initial Status

Segment

Classification

Number of

Customers

Projected

Lifetime Sales

Projected

Lifetime Profit

Segment Value

New Customer 10,000 €2,000 €300 €3,000,000

Confirmed

Customer

30,000 €3,000 €450 €13,500,000

Regular Including

Last Campaign

60,000 €5,500 €825 €49,500,000

Regular But Not

Last Campaign

35,000 €4,500 €650 €22,750,000

Regular But Not

Last Two

Campaigns

25,000 €3,500 €525 €13,125,000

Lapsed Regular 55,000 €500 €75 €4,125,000

TOTAL 215,000 €106,000,000


LTV and Campaign Example - Campaign Results

Segment

Classification

Number of

Customers

Percent

Responded

Number

Responded

Average

Amount Spent

Total Amount

for Segment

Cold Prospect 60,000 3% 1,800 €50 €90,000

Warm Prospect 30,000 5% 1,500 €60 €90,000

New Customer 10,000 8% 800 €70 €56,000

Confirmed

Customer

30,000 10% 3,000 €80

€240,000

Regular Including

Last Campaign

60,000 65% 39,000 €100

€3,900,000

Regular But Not

Last Campaign

35,000 50% 17,500 €90

€1,575,000

Regular But Not

Last Two

Campaigns

25,000 30% 7,500 €80

€600,000

Lapsed Regular 55,000 15% 8,250 €70 €577,500

TOTAL 305,000 79,350 €7,128,500

Gross Profit €1,069,275

Campaign Costs €610,000

Net Profit €459,275


LTV and Campaign Example - Changes to LTV

Segment

Classification

Number of

Customers

Before

Campaign

Projected

Lifetime Sales

Projected

Lifetime Profit

Segment Value

Before

Campaign

Number of

Customers

After Campaign

Segment Value

After Campaign

Change in

Lifetime Value

New Customer 10,000 €2,000 €300 €3,000,000 13,300 €3,990,000 €990,000

Confirmed

Customer

30,000 €3,000 €450 €13,500,000 33,800 €15,210,000 €1,710,000

Regular Including

Last Campaign

60,000 €5,500 €825 €49,500,000 72,750 €60,018,750 €10,518,750

Regular But Not

Last Campaign

35,000 €4,500 €650 €22,750,000 21,000 €13,650,000 -€9,100,000

Regular But Not

Last Two

Campaigns

25,000 €3,500 €525 €13,125,000 17,500 €9,187,500 -€3,937,500

Lapsed Regular 55,000 €500 €75 €4,125,000 72,500 €5,437,500 €1,312,500

TOTAL 215,000 €106,000,000 230,850 €107,493,750 €1,493,750


LTV and Campaign Example - Migration Between Segments

TO

FROM

Cold Prospect Warm Prospect New Customer Confirmed

Customer

Regular

Including Last

Campaign

Regular But

Not Last

Campaign

Regular But

Not Last Two

Campaigns

Lapsed Regular

Cold Prospect 1,800

Warm Prospect 1,500

New Customer 800

Confirmed

Customer

Regular

Including Last

Campaign

39,000 21,000

Regular But

Not Last

Campaign

17,500 17,500

Regular But

Not Last Two

Campaigns

17,500

Lapsed Regular 8,250


CRM Solution Implementation Approach

• How to align organisation and customer objectives

• Audit of company business processes, technology, communications and structure

• Gaps between current and future

• Plan for change

Vision Creation and Confirmation

Enterprise Assessment

Gap AnalysisRoadmap for

Change


Vision Creation and Confirmation

• Company Objectives

−Who is our ideal customer

−How should we do business “value discipline”

• Customer Objectives

− Identify and understand expectations

−Marketing from customer rather than company perspective


Identifying the Ideal Customer(s)

• Behaviour

− Spending habits - amounts, number and type of items

− Payment preferences - cash, cheque, credit/debit card

− Visit frequency - regular, need, promotion

− Incentives redeemed - avail of loyalty schemes

• Customer Value

− Total amount spent and profit

− Frequency

− Incentives redeemed - avail of loyalty schemes

• Channels

− Branches

− Call centre

− Web


Defining Value Discipline

• Defines how to do business and why customer chooses

• Product/Service Leadership

− Best product or service available

• Operational Excellence

− Best value and convenience

• Customer Intimacy

− Pursue long-term relationship, customer attentive

• Reflects types of customers

−Different people like different ways of buying


Enterprise Assessment

• Purpose

−Audit of company business processes, technology, communications and structure

• Elements

− Identifying all customer interaction points

−Activity-based costing analysis

−Quantifying market trends and drivers

− Identifying and profiling competitors

− Identifying customer and company “pains”


Activity Costs

• Costs and revenue of interactions

• Fixed costs− Cost per mail/e-mail item

− Costs of good/services sold

− Cost per order entry

− Infrastructure costs

−Variable costs

− Service call times

− Billing/collection

− Incentives

• Calculate customer value

• Generate insights into operation of organisation


Identify Company and Customer “Pains”

• Pain = problem, business issue or missed opportunity

• Customer pains = annoyance, discontent, dissatisfaction

• Company pains = profit erosion, increases in costs, competition, errors, returns, employee turnover

• Results = lack of brand/company loyalty, customer defection, reduction in market share, reduction in profits


Gap Analysis

• Barriers that must be overcome to allow organisation to evolve from current to future state

• Assess hazards and difficulties of transition

• Categories of gaps:

− People

− Process

− Technology


People Gaps

• Impair ability to do job or reduce desire to work effectively

• Stringent policies mean inflexibility and slow response to urgent problems

• Change to customer-centric operation requires learning, training and management

− “I’m not in sales/marketing. Why are you talking to me?”

− “I’ve been here for 20 years and I don’t see why we should change now.”

− “I am willing to support the project 100% as long as it does not affect me.”

− “This is the way it’s always been done and it’s worked well up to now.”

− “I’ve got 15 minutes to talk to you. I’m very busy with important things.”


Process Gaps

• Breakdowns/bottlenecks in a process intended to produce a result

• Occur at handoffs between stages/sections, incorrectly routed requests

• Process should handle all (reasonable) eventualities and provide information at all stages

• Process can be rigid (rules for all events) or flexible (allow devolved decision making)


Technology Gaps

• Limitations in technology infrastructure to support CRM process

• Examples:

− Campaign management

− Call Centre automation

− Sales Force automation

− Customer Data Warehouse/OLAP facility

− Sufficient Internet presence

−Data Mining


Gap Resolution

• “Gap map” shows number and severity of gaps between current and future states

• Overlapping gaps should get highest priority

• Address gaps in parallel

• May not be possible to identify all gaps


Roadmap for Change

• Customer value alignment

• Market positions and competitive directions

• Business model

• Success metrics and critical success factors


Customer Value Alignment

Customer:The Right Customer

Who is your ideal customer and what are his/her needs?

Cost:The Right Offer

What is the value to the customer?

Communication:The Right Time

When is the right time to communicate

an offer?

Convenience:The Right Channel

How does your customer prefer to interact with you?


Customer Value Alignment

• Segmentation of customer base – identify types

• Implementation of customer marketing strategies

• Allow development of right time/offer/channel based on customer knowledge

• Improve customer service, reputation, loyalty


CRM Success Metrics

• Increase retention in top n% of customers by x%

• Increase bottom-line profitability by x%

• Reduce negative value customers by x%

• Increase customers in high value segment by x%

• Improve customer satisfaction index by n%


Knowing Your Costs: Activity Based Costing for CRM Analysis


Ways to Determine Cost

• Organisational Element Accounting

Direct Costs Overhead

Accounting System



• Budgetary Cost Distribution / Commitment Accounting

Commitments and Obligations

Accounting System



• Traditional Cost Accounting

Direct Labour

Direct Materials

Activities Output Cost

Overhead



• Activity Based Costing

Direct Labour and Overhead

Direct Materials

Activities Output Cost


Activity Based Costing

• Activity-based costing (ABC) is a costing model that identifies activities in an organisation and assigns the cost of each activity to all products and services according to the actual consumption of those activities by each products or services

• Used as a tool for understanding product and service and customer cost and profitability

• ABC supports strategic decisions such as pricing, investments, outsourcing and identification and measurement of process improvement initiatives

• Fallen out of favour but a very useful tool to understand costs


Activity Based Costing

• Establishing a cross-functional view of your organisation and understanding what drives your costs

• Pulling apart indirect or hidden costs and attributing them correctly to products and services

Activities

Resources

Products and Customers

Cost DriversPerformance

Measures


ABC Relationship to CRM

• CRM is about retaining your most profitable customers

• In order to determine profit, you need to know a lot about your costs

• To work out your costs, you need to work out what your organisation actually does

• Which processes are consuming your resources?


Benefits of ABC

• Go beyond understanding your customers

−What drives costs?

−More informed macro and micro decision making

− Staff planning

−How your organisation interacts with customers - face-to-face, web, call centre and other channels


Steps to Implementing ABC

General Ledger and Other Sources

Departments

Activities

Cost Objects

Calculate Profitability


Defining Activities

• Most organisations use the cost centre structure

• Recast cost centre structure into activities

• Usually a hierarchy of activities

−Direct identification with product or service

− Process support

−Organisation and facility support

− Customer/market support

• Map from cost centre into activity hierarchy


Process Mapping


Cost Calculation

• Direct Costs + Overheads = Total Cost


Traditional Cost Accounting View - Direct Costs

• Product A

− 100 units

− 1 hour direct labour @ €20/hour

− €20/unit direct cost

• Product B

− 950 units

− 2 hours direct labour @ €20/hour

− €40/unit direct cost

• Total amount of effort for 100 units of Product A and 950 units of Product B is 2000 hours

• Assume the overheads total is €100,000


Traditional Cost Accounting View - Overheads

• Traditional Cost Accounting Overhead Costs

− = €100,000 / 2000 hours

− = €50 per hour

• Product A

− = €50 x 1 hour

− = €50

• Product B

− = €50 x 2 hours

− = €100


Traditional Cost Accounting View - Total Cost

• Product A

• Direct Costs = €20

• + Overhead = €50

• Total Cost = €70

• Product B


• + Overhead = €100



ABC View - Overheads

• Activity Total Cost Cost Driver

• Setup €10,000 Number of setups

• Machining €40,000 Number of hours

• Receiving €10,000 Number of receipts

• Packaging €10,000 Number of deliveries

• Engineering €30,000 Number of hours

• Total €100,000



€100,000€75,500€24,500Total

€30,000€15,000500€15,000500Engineering

€10,000€7,5003€2,5001Packing

€10,000€7,5003€2,5001Receiving

€40,000€38,0001,900€2,000100Machining

€10,000€7,5003€2,5001Setup

TotalsCostProduct BCostProduct A



• Apportioning total overheads for each product according to their demand

• Product A

− €24,500 / 100 = €245

• Product B

− €75,500 / 950 = €79.47


ABC - A Different Picture

• Product A


• + ABC Overhead = €245


• Product B


• + ABC Overhead = €79.47

• Total Cost = €119.47


Comparison Between Traditional Cost Accounting and ABC

€119.47€140€265€70Total

€79.47€100€245€50Overhead

€40€40€20€20Direct

ABCTCAABCTCA

Product BProduct A


Which is the Right Actual Cost?

• ABC provides a better understanding of consumption of resources


Products or Customers

• Your least profitable customers might be caused by products that appear inexpensive but actually are not

• One bank in the US found that 100% of its profits came from only 20% of its customers

• Customer Needs, Customer Cost, Convenience, Communication


The CRM Challenge

• If I know who the customers are, can someone tell me why they are profitable, can I then identify or profile others that could become profitable and tell me how I can actually do this ?


The CRM Challenge

• Who

−A data warehouse can identify customers

• Why

−Activity Based Costing will help show why some customers are more profitable than others

• How

−ABC, product design and development, campaign development and management


Understanding and Profiling your Customers


CRM Marketing Requires

• The one to one enterprise forms learning relationships with its customers

• In a learning relationship, customers teach the organisation about themselves

• The organisation uses what it learns to make the customers’ lives easier

• Customers find it easier to do business with the one to one enterprise because of what they have taught it.

−Address, language, size, seat preference, allergies, taste in music, contact preferences - method, time


CRM Marketing Requires

• To form a learning relationship with your customers

• Notice their needs

−On-Line Transaction Processing systems are the corporate eyes and ears

• Remember their activities and preferences

−A Decision Support Data Warehouse is the corporate memory

• Learn from past interactions how to serve them better in the future

−Data analysis tools provides the intelligence you need to turn memories into plans


Data and Information Gap

• Within most organisations, there is a noticeable information gap

− Timely access to information

− Access to accurate and complete information

− Access to information at an appropriate level of detail

− Inconsistent and patchy information from various business systems and units

• Which of these statements apply to you?

− The data is there but getting access to it is complicated or not possible

− Finding and collating data across different information sources is often very difficult

− Performance data is not available quickly enough to act on it effectively

− There is excessive information that conceals what is really needed or important

− Some of the information required is simply not being captured


Customer Data Problem

• Today most companies have multiple repositories for customer data

• Inaccurate and incomplete view of the customer relationship

• Inability to understand the value of the customer

• Difficult to determine the correct product offer based on inaccurate customer data

• Inefficient customer service


Closing the Information Gap

• Closing the information gap is an essential pre-requisite of implementing effective and usable business process management

• Responsibility of both the business and IT working collaboratively.


Data, Information/Knowledge and Action


Data, Information/Knowledge and Action Cycle

• Data refers to the source figures and numbers. It is the raw material for analysis

− Data gap is the absence of the tools and operational processes to consistently collect, store, manage the data and make available tools to perform analyses.

• Information/Knowledge is the value extracted from the raw data

− Information gap is the absence of insight caused by the lack of defined metrics and indicators and their timely and accurate availability and usability.

• Action is the need for operational business processes to ensure that the information presented is used and acted upon

• The Data, Information/Knowledge, Action cycle means that there must be a continuum from collecting the raw data to using it effectively

• Process to achieve this must be embedded in the organisation


Key Measures

• Overall financial performance

• Performance of partnerships and alliances

• Product and service line profitability

• Client profitability

• Client acquisition and retention

• Overall operational performance

• Performance relative to competition

• Delivery of profit and value to clients

• Client satisfaction

• Staff performance


Data Mining

• Exploration and analysis, by automatic or semi-automatic means, of large quantities of data in order to discover meaningful patterns and rules

• In order to develop new products and services that are demanded by the customer, that can be delivered profitably by the organisation and to remove unwanted customers and/or products


Data Mining Styles

• Using the past to predict the future

− Prediction

− Classification

− Estimation

• Finding customer segments and other interesting things in the data

− Clustering

−Market basket

−Description


Why Data Mining

• Segment customers into groups with similar buying patterns

• Increase response rate from campaigns

• Identify loyal customers

• Identify profitable customers

• Identify campaigns that will generate responses

• Understand why customers leave

• Understand purchasing patterns

• Identify fraud

• Predict customers who will leave

• Predict future outcomes

• Assess impact of changes


The Data Mining Spiral

Data

ActionKnowledge

Information


Data Mining Methodology

Assess usefulness, reliability and repeatability of models. Apply to another sample. Test against data with known results.

Assess

Construct models that explain patterns in data.Model

Change the data – combine, transform, derive variables.

Modify

Look for inherent trends, clusters and groups. Look for and eliminate extreme values. Reduce number of important variables. Data visualisation and statistical techniques.

Explore

Identify and collect data. Sample or entire dataset. Sample size and sampling technique.

Sample


Summary and Next Steps


Business Drivers

• Greater competition is the norm

• Difficult economic conditions

• Price cuts and reduced investment

• Customer have (and know they have) a choice - capture and retain customers

• Customer-services oriented

• Cost cutting by large/corporate users

• Flattening of price disparities

• New services/markets - customers outside

• current services

• Cross-sell to existing customers

• Disintermediation

• Understand customer behaviour

• React to changes quickly

• Become and stay competitive


Customer Management Dilemma

• Customer acquisition and retention against

• competition

• Improved customer service - loyalty bonus, privileges, affiliation programs, discounts

• Cost of programmes vs. benefits

• Good customers vs. bad

• Need to direct customer service investment

• Intelligent CRM investment can yield benefits


CRM Building Blocks

• Two fundamental pre-requisites to effective CRM implementation and operation

• Data warehouse that contains a unified view of customers for other applications to query and analyse

− Provides accurate and complete customer data to all operational business processes that require customer data

− Improved and differentiated customer service

− Increased revenue via improved cross-selling

• Cost analysis exercise

−Understand where your costs really arise

February 27, 2010 100

More Information

Alan McSweeney

[email protected]