PDF File: 

CRM3_wp_sullivan.pdf

Unica Corporation

Today, companies are leveraging analytical CRM and marketing automation applications to manage customer interactions and optimize value.

Introduction

The number of acronyms being bantered about in the CRM arena is daunting. And new descriptors are popping up all the time — e-CRM (electronic CRM), EMA (enterprise marketing automation), ERM (enterprise relationship management). Regardless of the acronym used, the marketing landscape has changed, as have the supporting business strategies and technologies, over the last few years. As the vernacular implies, the focus today is on "customer centricity."

Consumers have become adept at tuning out the majority of the estimated 3,000 marketing messages that bombard them every day. They have also become much more sophisticated in their decision-making, buying patterns, as well as their expectations of how they want, and demand, to interact with companies. Internet technologies, email, and Web personalization have made the marketing arena much more competitive and rich with choices for the consumer. Not only has the Internet enabled traditional brick-and-mortar companies to expand their reach into the online world and gain additional dollars from online consumers, it has also fostered a new breed of companies whose initial existence developed from the online space. The sophisticated breed of consumer and emerging breeds of companies have created a new paradigm for how marketing, sales, and service are now performed.

Companies looking for the competitive edge need to focus their organizational and technology infrastructures, business processes, and external presence in a very customer-centric way. Because the consumer has a choice of channels — email, Web, and telephone — marketing, sales, and service opportunities can no longer be treated as discreet events. A customer call into a call center becomes a marketing and selling opportunity. An abandoned shopping cart on a Web site becomes a service and marketing opportunity. The multiple touch points and channels need to be integrated in a way that provides timely and relevant exchanges and dialogue between the customer and company. A June 2000 study by the Gartner Group revealed that by the end of 2000, real-time Web and email campaign management had become a standard requirement in CRM applications.

The Gartner Group also predicted that by 2002 online communications would be used to pretest at least 30 percent of all multichannel marketing efforts. As organizations integrate these channels, there is an increased value proposition provided to the consumer and an enhanced brand experience with that company. And although the Internet has provided a new channel for companies and customers alike, dot-coms have learned the hard lesson that those who forget traditional marketing approaches will likely fail. A study by HMS Partners of Columbus, Ohio, reveals that ad spending does not equate to brand recognition and Internet success. Companies like eBay and CDNow have significantly higher brand recognition per ad dollar spent than larger ad spenders such as E-Trade and Ameritrade. eBay spent $5.5 million on advertising in 1999 but achieved top-of-mind brand awareness with 22 percent of consumers. In contrast, Ameritrade spent $103.7 million on ads and achieved only 1 percent awareness. A June 2000 article in DM News revealed that many of the dot-coms are spurning the attitude of "spend now, earn later" for basic marketing principles, such as the cost per customer and lifetime value, to ensure longevity of their business.

The world moves at such lightening speed that the time to create a positive impression on a new prospect or retain an existing customer has gone from months of cultivating a relationship to a few mere minutes where timeliness, relevancy, value, and appropriate channel are critical ingredients. A company's ability to develop its organization so that the customer vantage point is considered from any context will reap the greatest rewards in this new millennium.

What Is Analytical CRM and Enterprise Marketing Automation?

To leverage the full value of a company's information assets, many companies are leveraging analytical CRM and marketing automation applications. Analytical CRM and marketing automation are the "brains" behind CRM customer-centric strategies and address customer understanding and marketing planning to manage customer interactions and optimize customer value. Analytical CRM provides the insight and intelligence that drive marketing campaigns by leveraging such techniques as segmentation, predictive modeling, scoring, and testing before, during, and after campaigns occur. EMA addresses the planning, execution, and response management of marketing campaigns. Together, these technologies enable companies to maximize customer value, which translates into increased retention rates, loyalty, and more profitable customer relationships.

Only through robust analysis will customers’ profitability, preferences, motivation, and lifetime value be determined, as well as their propensity to buy a particular product or service, their likelihood to attrit, and their growth potential be identified. Analytical CRM can provide a complete model — using both historical and predictive behavioral analysis — that can guide campaign composition and execution. Marketing automation enables organizations to execute a campaign and maintain critical dialogue with customers. These tools enable marketers to adapt offers and responses based on customer actions.

Key Components of an Analytical CRM and Marketing Automation System

An analytical CRM and marketing automation system comes in a variety of configurations and features sets. Some companies use internally-developed applications, license other software, or partner to enhance their marketing automation offerings. Other companies offer an integrated suite of tools or individual components for planning, designing, executing, and managing campaign efforts. Some key components of an analytical CRM and marketing automation system include:

• Modeling/Analytics – Helps companies score, segment, valuate and perform response modeling and cross-selling that can be used to solve specific marketing problems or create marketing strategies that extend across a complete customer lifecycle. Look for a solution that has robust analytics that includes both data mining and predictive modeling capabilities.
• Campaign Management — Helps companies attract and retain customers by building campaigns and implementing interaction strategies across multiple channels and touch points. Look for a campaign management solution with built-in analytics and modeling capabilities so that campaigns take into account the intelligence garnered about customers and their behaviors.
• Email/Web Personalization Capabilities — Helps marketers leverage the power of the Internet and other real-time channels to implement personalized, permission-based marketing.
• Reporting – Helps organize critical information for monitoring, measuring, evaluating, and assessing marketing effectiveness. Look for an open, business-intelligence-based reporting framework that features a customizable Web-based "dashboard" or front-end portal to view all relevant marketing campaign information.

Analytical CRM and marketing automation software are essential for success in today's customer-focused enterprise. These customer-centric applications optimize customer relationships through any channel of communication. Companies need to analyze customer interactions to enable cross-channel understanding of behaviors enabling more effective — and more personalized — interactions. As companies embrace the concept of customer centricity, they will need to use application implementation. While the costs of analytical CRM and marketing automation applications can range from $100,000 to $1 million, the costs of not implementing such a system would be the loss of our businesses entirely. The benefits of such an initiative include:

• Creating a 360-degree view of each customer
• Knowing the potential value of each customer to the company
• Knowing the specific products — initial, upsell, and cross-sell — that appeal to unique customer segments
• Enabling real-time market analysis and decision-making
• Integrating marketing strategies across multiple channels
• Achieving maximum efficiency from the marketing workforce
• Improving the ability to create and execute marketing campaigns
• Providing a central location to view marketing activity and customer interactions
• Tracking, measuring, and reporting on campaigns, such as response rates and profitability

By being able to understand customers, many companies that implement analytical CRM and marketing automation technology have been able to predict future behaviors of customers. In so doing, they are able to offer the right product through the right channel at critical buying times. For the company, the value of the exchange is profitability and higher marketing return on investment on the campaign and, for the customer, an informative, relevant, valuable exchange that impacts their loyalty. Customer satisfaction is declining in the United States, precisely at the moment when product and service qualities are at an all time high. This is one of the findings of a recent Deloitte & Touche Global Corporate study, suggesting that marketers may have partly become victims of their own success. We know that companies are collecting more and more information about their customers. We also know that there are now more channels than ever that companies use to communicate with their customers. But few companies are positioned to take advantage of the information and use it to increase satisfaction levels and ultimate loyalty.

While many consumers understand traditional methods of building customer profiles (e.g., census records, motor vehicle registration, subscription lists, store memberships, and direct mail surveys), few understand how technology is being used to build profiles that include demographic, psychographic, and behavioral information. And while this naiveté exists, many are willing to exchange personal information for something in return. According to a 1999 study performed by AT&T Labs, 78 percent of American Internet users would allow sites to collect personal information in return for customized service. The increased sophistication of consumers has led to their willingness to exchange information with companies but is well balanced with their demand for companies to then leverage that information wisely. The fact that consumers are willing to engage and offer information is a key driver in developing meaningful dialogue between the customer and the company. Due to recent concerns and legislation regarding personalization and privacy issues over the past several months, companies should act responsibly and maturely in collecting and leveraging consumer information. The collection of information should never be perceived as an invasion of privacy, nor should personal pieces of information (i.e. financial or medical) be freely distributed among partners or indiscriminately for the sake of developing targeted campaigns and offers.

Achieving One-to-One Marketing

One-to-one marketing enables you to touch the right customer at the right time, with the right message, through the right channel. Merely executing a campaign successfully should be the commodity part of the process. The power lies in the robust analytics, the planning and understanding, that are used to power the campaign — to segment the audiences, to drive the offers, to choose the appropriate channels, and to integrate intelligence to respond to customer feedback and responses. Real value is derived from leveraging both historical and predictive intelligence about a consumer's behavior and putting that intelligence to work. A campaign executed without analytics will fall short of potential revenue returns. Similarly, a process that uses analytics but never leverages its intelligence will never reap the greatest rewards. One-to-one marketing provides the critical ingredient for staying ahead of customer expectations: the ability to treat each customer as if that one relationship were the entire business, outmaneuvering the competition, and building high barriers to exit by creating enduring loyalty. The one-to-one vision is to create the most robust business relationship at each individual customer level. The goal is to increase customer loyalty and value by delivering marketing that is relevant, valued, and effective.

Figure 1 - Without an analytical CRM and marketing automation solution, Company A tested three offers and took the one with the overall best response rate, regardless of price.

All Consumers Are Not Created Equal

It is important to remember that not all customers are of equal value to a business. In a study of retail banking, Deloitte & Touche found that 30 percent of customers contributed 380 percent of operating margins, and the other 70 percent contributed negatively 280 percent. Our goal as marketers is to determine how best to serve each of our customer segments, profitably. It is not just an offer or an offer-of-one. It is true relationship marketing to one creating sustainable value for both the customer and the company with each interaction. And each relationship is different because every customer is different and will be different again tomorrow, and their buying patterns, needs, and wants also change. Rather than disregarding a segment of our customer base, analytical CRM and marketing automation allow us to seek the optimum value from each segment or individual. The tools enable organizations to target offers that are both valuable to specific customers but are also profitable to the company.

Are You Ready for Analytical CRM and Marketing Automation?

Beginning an analytical CRM and marketing automation project can be daunting. Internal processes, skill sets of existing staff, and technical infrastructure impact the likelihood of success with a marketing automation project. Regardless of the industry, there are a few minimal requirements that are essential in ensuring a successful implementation and subsequent use of an analytical CRM and marketing automation system. There needs to be management level support for customer-centric database marketing and a strategic drive to improve database marketing operations and initiatives.

Without executive sponsorship it will be difficult to secure the financial funds necessary — approximately $100,000 to $1 million, depending on the components of the system chosen. There should be repeatable business processes for planning, designing, executing, tracking, and evaluating campaigns. If each campaign has a unique business process, it will be much more challenging to automate the marketing process. If the majority of the process is repeatable, then we can gain efficiencies by automating the marketing campaign process and reduce both time to market and overall production costs, such as utilizing fewer resources to execute a campaign.

An organization is usually experiencing a current level of pain in managing and executing campaigns, i.e. there is a recognizable need. For example, the company needs to get to market quicker, reduce overall mailing costs, leverage fewer resources per campaign, or use staff more efficiently — all to reduce costs and increase profitability. Or, maybe the company hasn't optimized offers so the campaign design does not propose the most profitable and cost-effective offer to each particular customer. Once a need is identified, it will be easier to choose the appropriate marketing automation solution. For marketing automation to provide greater rewards, there also needs to be a minimum volume of campaigns. Companies with very few campaigns per year won't feel the burden to implement a marketing automation system as much as one that needs to execute a greater volume of campaigns per year.

An organization needs to be poised to enter the customer-centric revolution. There needs to be repeatable business processes and a recognizable need for a marketing automation system. There also needs to exist some minimal assemblage of customer and marketing data and the resources to help staff and support the ongoing marketing automation efforts from both the business and technical organizations.

Bring Analytical CRM and Marketing Automation to Life

Abandoned Shopping Cart

A typical challenge for many companies that offer products via their Web sites are abandoned shopping carts. Let's agree that a company has three potential offers for people who have abandoned their carts: an MP3 player, free shipping or bonus points redeemable for free air miles. The options for targeting included:

• Ad hoc: no testing
• Best overall offer
• Segment-based
• ROI optimization that leverages predictive models and considers both revenue and costs

The closer organizations get to ROI optimization above, the greater financial rewards they will enjoy. There's little reason to demonstrate how unpredictable campaign results would be with no testing if a company chooses ad hoc targeting methods. For better clarity, assume Company A, without an analytical CRM and marketing automation solution, opts to test the three offers and take the one with the overall best response rate, regardless of the cost of each of the three offers to the company. Figure 1 shows the MP3 Player had the best overall response rate of 3.2 percent.

Thus Company A chooses the MP3 Player as the offer for every individual. Company B uses analytics to segment their customer base and finds that each offer appeals to specific groups of customers, i.e. segments, including what they label as the Traveler, the Family-oriented consumer, the Executive and the younger Generation X customer. Company B then chooses this segment-based approach whereby the company chooses the best offer based on response rate for each segment. Chart 1 shows that Company B should choose to offer free shipping to the family-oriented consumer since this offer yielded the highest response at 4.7 percent for this segment. By choosing the response rate by segment, Company B was able to increase their revenue from the campaign by more than 57 percent in comparison to Company A (Figure 2).

Figure 2 - By choosing the response rate by segment, Company B was able to increase its revenue from the campaign by more than 57 percent in comparison to Company A.

The best alternative (not shown) would be to optimize marketing ROI by not only considering the offers and response rates by segment but the potential revenues and costs of each offer to each unique individual. A marketing automation system with built-in analytics can enable a company to achieve this one-to-one level of marketing. By appealing to unique interests using optimized personalization, the company provides a relevant and productive interaction with their customers. The company increases their response rates in the short term, but also increases customer loyalty for the long term.

Expanding Into New Channels

Many traditional bricks-and-mortar companies are recognizing their need to create an online presence. Similarly, many pure play dot-coms are realizing the necessity of having a physical presence to complement their lean online operations. Catalog retailers especially are evaluating their company's ability to optimize customer interactions and the ability to create single customer views across multiple communication channels. The key in balancing the new channels with the old is being able to achieve the highest return on investment possible. By implementing a marketing automation solution across Internet sites, catalogers are provided a powerful tool to build effective marketing campaigns and optimize customer relationships via online marketing efforts. Once success is proven to increase efficiency of their online efforts, catalogers can then build their traditional catalog efforts into the mix and thus maximize their overall marketing performance and their customer relationships.

Analytical CRM enable companies to answer questions like:

• Who will be my most valuable customers?
• Who is most likely to respond to this marketing campaign?
• How can I retain these customers and gain maximum "share of wallet?"
• Which customers are most likely to defect and why? How can I keep those with high potential value?
• What basic characteristics (age, income, purchase frequency, etc.) are most important for differentiating responders from non-responders?
• What factors do I control (price, feature, variations, etc.) that affect customer demand/behavior and how?
• Who should I target to maximize profits associated with my campaign?

The combination of analytical CRM and marketing automation enables companies to leverage tried and true marketing approaches for both traditional and new channels, thus enabling companies to compete more effectively.

Conclusion

Key trends in today's business environment — adoption of the Internet, volume of information, speed of buying decisions, the increased sophistication of the consumer — make it imperative for companies looking for an enduring competitive advantage, to look towards analytical CRM and marketing automation software. Consumers are demanding more personalized interactions with companies and companies need to create a consistent brand presence and overall customer view considering all channels of communications and touch points. Campaigns and offers need to be optimized to consider cost to the company, potential revenues gained, propensity of different customers to respond, and product availability. Companies must understand the different values of each customer segment and invest accordingly. Only by providing unique and continuous value propositions will companies achieve relationship maximization in this customer-centric world.