Save Your Money
The premise behind CRM is simple: It’s more profitable and efficient to increase sales to established customers than it is to cold-call on strangers.
Unfortunately, managers have tended to view CRM as a challenge of technology, assuming that if they just amass enough data and massage it with sufficient vigor, the best customers will naturally appear – genie-like – ready to be sold more. Toward that end, companies bent on launching CRM initiatives usually start by acquiring massive computing power and building data warehouses.
First Union Bank, for example, recently built one of the largest data warehouses anywhere (capable of holding a whopping 27 terabytes of information) to ferret out high-profit customers and devise ways for “growing” them through increased cross-selling. In this case, the investment paid off: Between 55% and 60% of First Union’s customers now rate as profitable, vs. only 10% to 30% for banks in general.
Yet behind such successes lies a bumper crop of eight-figure flops. By one estimate, seven out of 10 data warehouse projects fail to deliver on expectations. Among the most spectacular misfires: American Express ($30 million); NationsBank ($10 million); and J.C. Penney, whose catalog division spent $4 million, only to scrap its warehouse out of sheer frustration. The Gartner Group estimates that by 2002, 60% of organizations will feel “they overspent on marketing technology with no suitable results.”
What’s going wrong? It’s simple. Too often, management’s approach has been exactly backward: It invests heavily in technology (the easy part), then later tries to come to grips with who will use the data and for what. Above all, firms fail to consider their customers’ needs and use that knowledge to customize their offers.
But some do. Five years ago, Capital One Financial Corp. didn’t even exist. Today it ranks among the 10 largest issuers of credit cards nationally. How it got where it is can be attributed, in large part, to its adroit use of CRM. “Mass customization” – the ability to offer the right product to the right customer at the right time – is Capital One’s specialty. By keeping records on every customer, every transaction, every purchase, it succeeds in presenting itself a little differently to every customer. The bank offers 6,000 separate credit cards, each with different terms, requirements, benefits, and even artwork (e.g., a map of Japan or a Canadian moose).
Within a millisecond of a customer calling Capital One’s 800 number, computers loaded with background information identify the caller and retrieve all pertinent facts. The computers make an educated guess why he or she is phoning before routing the call to whichever rep is best equipped to handle it. Then the system suggests to the rep what products the caller might be interested in and recommends likely sales approaches. All this happens before the customer even hears “hello.” At every step, the system picks options based on the present and future value of the caller’s business. CEO Rich Fairbank calls Capital One’s approach to doing business a “marketing revolution” – one he thinks many other companies could imitate.
The trouble is that not even the glitziest technology can spare a company the hard, imaginative work of putting itself in its customers’ shoes. The first step in the process is to determine what data has the power to actually improve customers’ experience. What matters to your best customers?
A leading financial services company is exploring that question with its best customers now, offering targeted inducements for their answers. Program rewards include hotel, airline and cruise certificates. As information is acquired, it is fed automatically to financial consultants, who then are better able to address each participating customer’s individual needs and circumstances. The goal is to promote a conversation so satisfying to customers that it moves their attention off price and on to added value.
American Cyanamid uses its CRM program, Harvest Partners, to anticipate the agri-chemical needs of some 400,000 participating farmers. If a farmer reports a change in pesticide or fertilizer needs, the program provides an early indication of that farmer’s potential interest in other products that would enable more efficient crop production – a purchase that an ag retailer can help with.
You should also assess the customer information you already have. In many cases, companies find they’ve got enough to make a start without having to build anything as costly or exotic as a data warehouse. It typically resides within the databases of existing loyalty programs, which reward high-value customers for answering questionnaires and otherwise delineating their wants.
You also have to “explode information out.” The problem with conventional loyalty programs is that customer information stays trapped within a single “silo” – the customer service center – rather than being allowed to percolate out into the larger organization. The minute a best customer steps out of the service center, he reverts (in the eyes of line employees) to being part of the thundering herd. Best customers must be recognized at every touch point where they and employees interact. To accomplish that, explode the information stored in loyalty programs out into the hands of line employees. For CRM to work, employees need three things: knowledge of which customers qualify as “best,” the authority to offer customized service and the incentive to do so creatively. That usually means redesigning jobs, creating new ones and establishing new hiring profiles. It also means changing the way employees are compensated and how their performance is judged.
Once Bausch & Lomb adopted a CRM system, call center staff had access to customer records and the history of each account. Employees who’d been order-takers now fielded customer questions by accessing online manuals. They learned to use incoming calls as an opportunity to sell. If a customer ordered contact lenses, a call center employee could see from the client’s record what else that person might need to buy – saline solution, for example. All this required extensive retraining, as well as a revamping of compensation.
Las Vegas-based health maintenance organization Sierra Health Services, recognizing that its CRM program was only as good as the information being fed into it, made it easy for salespeople to use notebook computers to enter data wherever they might be, at home or on the road. Sierra went a step further, though: If a salesperson didn’t enter the correct information, he or she wouldn’t get paid. Other companies have gotten big payoffs from such simple changes as giving salespeople higher commissions for resigning existing customers than for bringing in new ones.
Still other CRM programs offer bonuses linked directly to customer feedback, awarding money to employees whom customers themselves vote “most helpful.” No matter what mechanism you use, the idea is to ensure employee rewards are in alignment with what customers need and want – best customers especially.
In the end, it pays to remember that you are fomenting revolution, and that to succeed, revolution needs the imprimatur of the highest possible authority – your own.
Follow this advice, and odds are you eventually will enjoy the full complement of CRM rewards while suffering few regrets.
