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Accenture

In the past two years, true growth in any industry has been hard to find. The tough economic conditions of the most recent recession have challenged even the best companies to find innovative ways to improve business performance.

However, with the recession officially declared over (at least in the United States), executives are hopeful that customers once again will soon be spending – perhaps not as freely as in the supercharged late-1990s, but more than they have been since the world economy went into its tailspin in 2001.

If only it were that easy. While optimism certainly is beginning to set in among many companies, it’s unlikely that the spending floodgates will open anytime soon – if ever. The fact is that the recession has made virtually all companies, as well as consumers themselves, much more cautious about how much they spend and how they spend it. They’re looking for more value from their suppliers – whether it’s a software vendor, consumer goods manufacturer, or grocery store down the street. And, in many cases, they’re demanding more than the simple products or services that are offered to anyone. They’re seeking help in solving their most pressing business problems or in addressing the day-today challenges of running a household.

All of which makes superior customer relationship management capabilities more critical than ever. With better times presumably just around the corner, the time is right for executives to embrace the processes, tools, and organizational structure that will help them use data and insights to dramatically improve the full spectrum of customerrelated activities – including sales, service, performance management, account planning, contact management, forecasting, order management, billing, and service delivery. Companies that do so will be positioned to substantially increase the economic value of their customer relationships.

Desire for Performance

Arguably the biggest challenge today for executives around the world is to improve business performance – i.e., generate profitable growth – particularly as the sluggish economy begins showing signs of improvement. For most if not all companies, improved business performance depends largely on how the company develops, sustains, and grows its relationships with customers. In fact, Accenture research shows that customer relationship management issues remain one of the executive suite’s biggest concerns. Three recent surveys demonstrate that, regardless of whom you ask or which areas of a company you poll, the importance of CRM to business performance is critical.

For example, in one survey focusing on how to build and sustain a high-performing workforce, increasing customer care and service was executives’ second-most critical strategic issue – cited as “important” or “very important” by 81 percent of participants.¹ Executives in the same survey also noted that sales and customer service are not only their two most-critical workforces, but also the two functions that contribute the most value to the company. A separate survey on the key elements of corporate innovation found that, in an overwhelming majority of companies, customer acquisition and retention and increasing sales volume are important strategic priorities.² This survey also revealed that companies described as “innovative” are more than twice as likely as “non-innovative” companies to use CRM technologies to help them address these priorities. Finally, a third survey geared toward identifying the most important business issues globally among senior executives discovered that increasing customer loyalty and retention and increasing revenue from current customers are among the top 10 business issues in approximately 30 percent of companies polled.³ Clearly, addressing the customer agenda is of prime interest to executives everywhere as they seek to restore growth to their operations. But what’s the best way to do so? After a decade of significant investment in CRM applications, many – if not most – companies are no closer to achieving their customer goals than when they started. In fact, research by Gartner projects that 55 percent of CRM efforts currently under way will fail to meet their objectives.⁴

Linking CRM and Business Performance

In our view, Gartner’s predictions don’t have to become reality. Companies can and should continue to focus on CRM as a key to driving revenue growth and, consequently, becoming truly high-performance businesses. However, to avoid the shortcomings of the past, companies must fully address three major aspects of CRM:

1. Turning customer data into profit;
2. Reinventing the economics of customer interaction; and
3. Transforming marketing into management science.

Turning Customer Data Into Profit

With customers growing ever more demanding and less loyal, every company must understand its customers extremely well. That includes knowing how they behave, what they buy, and what channels they prefer. Technology makes it possible to amass the data containing these insights, but much of this data is rarely if ever used to its full potential – as is evident in the fact that many organizations still lack a single, integrated view of their customers. While “know the customer” is a familiar concept, the reality is that acquiring customer knowledge – much less acting on it – requires the following sophisticated capabilities:

• Rigorous data management that delivers a single, integrated view of the customer – consistent across the entire organization and refreshed with dynamic updates as customer relationships evolve;
• Dynamic, behavioral, and value segmentation – the foundation for targeted offerings and differentiated service;
• Powerful analytical tools that yield meaningful insights and accurate predictions of customer response – essential for improving conversion and retention rates and cross-selling and up-selling effectiveness;
• Adaptive campaign management processes – to speed the creation and execution of highly effective marketing campaigns that “learn” through the test and feedback of customer responses in real time; and
• Insight-driven interactions – to link marketing campaigns with customers at the point of contact to enable intelligent, real-time offerings and the provision of differentiated, value-based service.

Without the data that serve as the foundation for “turning insight into action,” a company will find it difficult, if not impossible, to address either of the remaining two critical aspects of CRM.

Reinventing the Economics of Customer Interaction

For most companies, all customers are not created equal. Some are more profitable for the company than others, while some even cost companies money. One of the keys to the success of future CRM initiatives is the ability to align sales and service resources according to customers’ specific value and profit contribution to the company. Doing so requires answering a number of important questions:

• Do you know enough about your customers to change how you interact with them?
• Are your most loyal customers also your most profitable ones?
• Could you spend less to manage your most valuable relationships without damaging them?
• How much change is enough, and how much is too much?
• If you did know your customers better, could you afford to change how you do business with them?
• How long would it take you to stop selling your customers products, for example, and start selling them solutions?
• Are you prepared to invest less on closing new leads and more on selling add-on services?

Making customer interactions more profitable often sounds simple but seldom is. Despite having implemented costly data warehouses, many organizations still struggle to identify their most profitable customers, much less predict which will remain profitable. Many companies underestimate their cost-to-serve by measuring only direct costs, while indirect costs such as technical support or vendor management chip away at customer margins. Some businesses fear that moving more interactions to lower-cost channels will alienate customers.

However, companies that have the rich customer data, sophisticated segmentation models, and powerful analytical tools mentioned earlier are able to build a clear, complete picture of relationship costs and revenue potential – and to evaluate this information against their business objectives and financial targets. These companies also can build, deliver, and manage customer acquisition programs and customer treatment protocols that deliver the experience each customer wants across multiple touch points while maximizing profit. As just one example, several leaders have been able to successfully migrate specific customers to self-service channels by predicting customer needs based on past transactions, rather than guessing or trying to shoehorn all customers into self-service. In the process, these companies have been able to reduce the costs of serving those customers who don’t need, want, or merit “high-touch” service while avoiding alienating those who do.

In some cases, these organizations dramatically improved the efficiency of their customer contact operations by, for instance, consolidating contact centers; standardizing customer-contact processes; creating sourcing strategies better suited to their needs; and enhancing the performance of their sales and service workforces with highly effective training programs. The result has been a much lower cost structure that enables the company to generate a higher rate of return on its CRM investment.

Transforming Marketing Into Management Science

Marketing executives will agree that today’s customers are more diverse and more demanding than ever before. Yet many marketing departments still follow the practices of a bygone era to reach and influence their target audiences. In fact, the typical marketing organization remains untouched by the technology-powered changes that are optimizing other business functions such as manufacturing, sales, customer service, and human resources.

Contrary to popular opinion, marketing is neither guesswork nor a purely creative exercise. It can be quantified and optimized – and must be if a company wants to enhance its ability to reach new and existing customers and stimulate demand. New methods and tools – such as econometrics, return on investment measurement, and budget allocation software – now make possible a more scientific approach to marketing. Leading companies are already using these data-driven techniques to measure and subsequently improve the return on their marketing investment. And they are improving operating effectiveness by eliminating the historic shortcomings – poor data integration and a lack of meaningful data, to name just two – in their marketing processes, systems, and organizational structures.

Leading marketers also are expanding the traditional definition of “brand” to mean more than a slogan or logo. They understand that brand equals the sum of everything a company says and does, and how it says and does it. And they recognize that brand value is derived from a distinctive promise to the customer, executed well, delivered consistently, and measured for its quantifiable impact on the business.

A key to boosting the effectiveness of one’s marketing organization is to create a strong link between marketing and sales and service. For instance, rather than leaving channel management to the salesforce, the most successful marketers play a critical role in shaping the business-to-business relationships that increasingly influence consumer choice. In other cases, brand managers help design the call center interactions to ensure that such interactions actually strengthen, not damage, their brand’s value.

As a result of these innovations – basing marketing decisions on more sophisticated analysis, managing marketing programs and assets with more rigor and discipline, and integrating marketing with sales and service – leading companies are now able to forecast future demand in line with marketing programs and are able to effectively integrate processes across the marketing function. Most importantly, they can determine more precisely which marketing activities are losing money, which are generating money, and how much investment each merits.

Customer Insight Is Critical

In studying the experiences of companies that have successfully addressed these three aspects of CRM, we’ve found customer insight to play a critical, if not the most critical, role. In fact, we have observed that some of the best-performing businesses are those that excel at “turning insight into action”: using customer insight as the foundation of their CRM efforts so they can better understand their customers, develop more targeted campaigns, and execute marketing campaigns efficiently and effectively. These organizations are creating a unique customer experience – across all touch points – that differentiates them from competitors, generating a higher lifetime customer value and improving the overall return on their marketing investment.

Interestingly, the capabilities associated with customer insight – data management and analytics – have perhaps the greatest potential to generate an exceptional payback to the company. Our research and client work has shown that customer insight accounts for just 20 to 30 percent of total CRM investments but as much as 80 percent of the value generated. This value manifests itself in several ways:

Improved Customer Acquisition

By using customer insight to craft tailored messages and offers that are more relevant to customers – and bringing those offers and messages to customers through their preferred channel – companies have been able to more effectively connect with customers. Along the way, they have helped increase strategic customer acquisition and incremental lift by as much as 20 percent. U.S. credit card issuer Capital One is largely regarded as one of the best in using insight to acquire new customers. With roughly 1,000 marketers and statisticians, the company can sort through 45,000 variables and identify profitable customer segments comprising as few as 1,000 people (e.g., “Hispanic teenagers”). Such capabilities have been largely responsible for Capital One’s explosive growth from its founding in 1995 to a financial services powerhouse with more than 47 million customers and nearly $60 billion in managed loans.

Product Development and Bundling

In addition to boosting customer acquisition, customer insight has helped companies create more attractive stand-alone or bundled services for customers, which have contributed to an increase in revenue generated per customer of 10 to 20 percent. London-based Centrica, formed through the de-merger of venerable U.K. utility company British Gas, recognized that simply selling gas to consumers was not a growth business. Taking a bold step, Centrica launched house.co.uk, an online source that gives consumers integrated access to all products and services needed to maintain a household. The combination of the British Gas brand and the new integrated Web site enables Centrica to gain a single view of its customers – and consequently to increase its revenues by selling tailored bundles of its own products and services (which include financial services, electricity, and telecommunications) as well as complementary offerings from business partners.

Lower Cost-to-Serve

Customer insight has enabled companies to identify which customers prefer self-service options and when, thus contributing to a reduction in cost-to-serve of as much as 25 percent. American Express, for instance, has been able to cut its customer service costs dramatically by moving 80 percent of all its credit card customer service online and by leveraging its global customer support centers more effectively. The result is a cost structure that’s much lower than the industry average. As an added bonus, the company’s Web site incorporates exceptional cross-sell features that stimulate demand for the company’s myriad other products and services – thus generating even greater payback on American Express’ CRM investment.

Enhanced Customer Retention

By using insight to create more compelling offers and a superior customer experience, companies have increased the retention of their most valued customers – in some cases, by as much as 20 percent. One example is Paris-based mobile telephone operator Bouygues Telecom. In an industry notorious for customer churn, Bouygues has improved both the length and profitability of customer relationships by using customer data to make more accurate predictions of customer behavior and, thus, personalize its marketing campaigns and messages. The company launched an ambitious effort in which it integrated the data it would need to effectively analyze and predict its customers’ behavior, identify consumer trends, and pinpoint patterns that would indicate needs for particular products or services. It also developed a new marketing plan and processes – supported by new marketing automation systems – that enabled the company to leverage this data for real-time, personalized marketing campaigns targeted to ever-smaller customer segments. After implementing its CRM applications, Bouygues is retaining its best customers longer, which has boosted the company’s average return per mobile customer from last in its market to first.

More Effective Marketing Campaigns

When teamed with the latest campaign management tools, customer insight has enabled companies to reduce by as much as 50 percent the time to create and execute marketing programs – and have closed the feedback loop so they can evaluate and adjust, in near-real-time, each campaign for optimal impact and ROI. Hutchison Telecommunications Limited, the largest mobile operator in Hong Kong, recently completed an initiative in which it linked new customer data management and analytics tools with a new campaign management system. The resulting capabilities enabled the company to slash by 25 percent the cycle time of its marketing campaigns – from initial data sourcing to final evaluation of campaign performance; improve by 32 percent the efficiency of its campaign process, measured by the amount of time that the activities associated with the campaign are actually adding value to the company; improve the speed of campaign creation and execution by automating the process; and strengthen its analytical capabilities and on-demand evaluation of campaign performance.

Conclusion

To be sure, addressing the three critical aspects of CRM – turning customer data into profit, reinventing the economics of customer interaction, and transforming marketing into management science – can be daunting. Quite simply, many companies just don’t have the time or resources to build the capabilities necessary to bolster their customer relationships in a way that can dramatically improve overall business performance. Others may have the wherewithal to do so, but prefer not to assume the financial and operational risk involved. In such cases, companies should strongly consider working with an experienced third party. These organizations offer business arrangements that can substantially reduce a company’s initial CRM investment and mitigate risk – for example, by amortizing investment over a declining cost-to-serve or relocating contact center technologies and operations to outside resources to reduce the fixed-to-variable cost ratio in customer care operations. Some third parties can help a company measure how the CRM solutions perform over time, so executives can maintain predictable operating costs while having access to additional capacity if needed.

However, regardless of whether they build their own or leverage another organization’s expertise, companies will need these advanced, core capabilities to compete for customers’ attention and patronage. In fact, the ability to turn insight into action – something leading companies are beginning to develop with great success – will be a defining characteristic of high-performing businesses for the foreseeable future.

Endnotes

1 “Accenture High-Performance Workforce Study 2002/2003.” (www.accenture.com/xd/xd.asp?it=enweb&xd=services\hp\research\hp_study.xml)

2 “The Innovator’s Advantage,” published by Accenture. (www.accenture.com/innovators)

3 “Executive Issues 2003: Is Uncertainty the New Normal?” published by Accenture. (www.accenture.com/xd/xd.asp?it=enweb&xd=ideas%5Cinnovation%5Cideas_inno_exec.xml)

4 “Facing up to CRM,” Brian Caulfield, Business 2.0, August 2001. (www.business2.com/subscribers/articles/mag/0,1640,16663,00.html)