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Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
Overview Of Effective CRM Implementation And Operation
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Overview Of Effective CRM Implementation And Operation

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Overview of Effective CRM Implementation and Operation

Overview of Effective CRM Implementation and Operation

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  • Really good deck - common sense approach backed with sound facts.
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  • Fine presentation. very comprehensive. I would like if you can add one more slide to your presentation, that is to implementation part. changing attitudes of members of the staff in adopting to actual CRM process is one of the most difficult aspects in implementing CRM. Please dwell little more on that area.
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  • 1. Overview of Effective CRM Implementation and Operation Alan McSweeney
  • 2. Objectives • To provide an overview of effective CRM system implementation and operation February 27, 2010 2
  • 3. Agenda • Introduction to CRM • Customer Analysis and Segmentation • CRM Implementation Approach • Activity Based Costing for CRM Analysis • Data Mining • Summary February 27, 2010 3
  • 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 4
  • 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 5
  • 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 6
  • 7. What Customers Really Want – More For Less • More Of • Less Of − Value − Aggravation − Responsiveness − Time to Complete Transaction − Involvement − Rigidity − Consideration − Cost − Dependability − Bureaucracy − Flexibility − Excuses − Lack of Integration February 27, 2010 7
  • 8. What Organisations Try to Do – More With Less • More Of • Less Of − Work − Personnel − Customers − Facilities − Sales − Cost − Revenue − Margin February 27, 2010 8
  • 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 9
  • 10. Overall CRM Solution Architecture Continuous dialogue across all customer channels/touch points Personalised Consistent user experience products/services based on across all contact points customer needs and expectations Real-time access to all customer information across the enterprise February 27, 2010 10
  • 11. Technology and Application Components of a CRM Strategy Sales Force Campaign Document Call Centre Automation Management Management Automation Data Customer Profile Warehousing CRM Strategy Database Workflow and Data Mining/ Telesales Internet/ Process Modelling Automation Intranet/ Extranet February 27, 2010 11
  • 12. CRM and Related Systems Architectural Elements Business Functions Business Activities Architectural Elements Search Engines General User Targeted Customer Acquisition Mail/Email Advertising Acquisition Systems General Use General Use Call Centres Web Systems Interface Interface Call Centre Systems Targeted User Content and Banner Ads Web Content Web Applications Offers Call Centre Call Centre Scripts Applications Fulfilment Order Entry, Operational Tracking Systems Management Financial User Analysis Reporting Financial Systems External Trends February 27, 2010 12
  • 13. 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 February 27, 2010 13
  • 14. 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 February 27, 2010 14
  • 15. 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 February 27, 2010 15
  • 16. 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 February 27, 2010 16
  • 17. 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 February 27, 2010 17
  • 18. 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 February 27, 2010 18
  • 19. 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- Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 term sense • Need a balance Acquisition Cost Base Profit between customer Profit from Increased Purchases Cost Savings retention and new Referrals Price Premium customer acquisition February 27, 2010 19
  • 20. Customer Retention and Profitability • Leaky Bucket Effect Acquire Customers 50-60% (or More) Every Five Years Customers Defect to Other Suppliers (“Churn”) February 27, 2010 20
  • 21. Example of Profit Contribution by Customer Type 200% 25% High Value Loyal Low Value -125% • Not all customers have the same value • Can you identify your customers? February 27, 2010 21
  • 22. Example of Profit Contribution by Customer Type for All Customers - 1 • Customer Total profile is balanced that results Low Value in net profit Loyal High Value -150% -100% -50% 0% 50% 100% 150% 200% 250% Individual Customer Profit Contribution Percentage of Total Customers Weighted Contribution February 27, 2010 22
  • 23. Example of Profit Contribution by Customer Type for All Customers - 2 • In this example, Total there is a high percentage of low value customers Low Value (perhaps due to high rates of customer churn Loyal and cost of new customer acquisition) • Net result is an High Value overall loss -150% -100% -50% 0% 50% 100% 150% 200% 250% Individual Customer Profit Contribution Percentage of Total Customers Weighted Contribution February 27, 2010 23
  • 24. 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 February 27, 2010 24
  • 25. Integrated CRM Sales Data Sales Force Service Calls Customer Customer Data Service Warehouse Campaigns/ Call Customer Special Offers Customer Centre Interaction Self Service Database Internet Mailing Lists Direct Mail February 27, 2010 25
  • 26. 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 February 27, 2010 26
  • 27. 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 February 27, 2010 27
  • 28. 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? February 27, 2010 28
  • 29. 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? February 27, 2010 29
  • 30. Sample Customer LTV Calculation Year 1 Year 2 Year 3 Year 4 Year 5 Revenues Customers 100,000 60,000 37,200 24,180 16,926 Retention 60% 62% 65% 70% 75% Rate Spending Per €75 €100 €125 €140 €140 Customer Per Year 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 1.00 1.04 1.08 1.12 1.17 Rate Yearly NPV Profit NPV €4,500,000 €3,461,538 €2,579,512 €1,805,658 €1,215,347 Cumulative €4,500,000 €7,961,538 €10,541,050 €12,346,709 €13,562,056 NPV Profit Customer €45 €80 €105 €123 €136 LTV • This example shows the calculation of the long-term value of a customer • This is just a simple example to illustrate the concept February 27, 2010 30
  • 31. Sample Customer LTV Calculation Number of customers each year based on the • A customer customer retention rate Year 1 Year 2 Year 3 Year 4 Year 5 retained for Revenues Customers 100,000 60,000 37,200 24,180 16,926 five years is Total revenue for all Retention 60% 62% 65% 70% 75% worth €136 Rate customers each Spending Per €75 €100 €125 €140 €140 expressed in year Customer Per current year Year Total €7,500,000 €6,000,000 €4,650,000 €3,385,200 €2,369,640 money Costs Cost Percent 40% 40% 40% 40% 40% • Increasing the Total Costs €3,000,000 €2,400,000 €1,860,000 €1,354,080 €947,856 NPV of profit Profits retention rate expressed in current year values, Gross Profit Discount €4,500,000 1.00 €3,600,000 1.04 €2,790,000 1.08 €2,031,120 1.12 €1,421,784 1.17 and based on NPV rate Rate Yearly increasing the NPV Profit NPV €4,500,000 €3,461,538 €2,579,512 €1,805,658 €1,215,347 amount spent Cumulative €4,500,000 €7,961,538 €10,541,050 €12,346,709 €13,562,056 by customer NPV Profit LTV of individual Customer €45 €80 €105 €123 €136 by upselling customer if LTV and cross- retained for that selling will number of years increase LTV February 27, 2010 31
  • 32. Sample Customer LTV Calculation With Increased Retention Rate Year 1 Year 2 Year 3 Year 4 Year 5 Revenues Customers 100,000 80,000 64,000 51,200 40,960 Retention 80% 80% 80% 80% 80% Rate Spending Per €75 €100 €125 €140 €140 Customer Per Year Total €7,500,000 €8,000,000 €8,000,000 €7,168,000 €5,734,400 Revenue 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 1.00 1.04 1.08 1.12 1.17 Rate Yearly NPV Profit NPV €4,500,000 €4,615,385 €4,437,870 €3,823,396 €2,941,073 Cumulative €4,500,000 €9,115,385 €13,553,254 €17,376,650 €20,317,723 NPV Profit Customer €45 €91 €136 €174 €203 LTV • An increased customer retention rate increases the LTV of customers February 27, 2010 32
  • 33. 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 February 27, 2010 33
  • 34. 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 February 27, 2010 34
  • 35. 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 February 27, 2010 35
  • 36. 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 February 27, 2010 36
  • 37. LTV and Campaign Example – Initial Status Segment Number of Projected Projected Segment Value Classification Customers Lifetime Sales Lifetime Profit New Customer 10,000 €2,000 €300 €3,000,000 Confirmed 30,000 €3,000 €450 €13,500,000 Customer Regular Including 60,000 €5,500 €825 €49,500,000 Last Campaign Regular But Not 35,000 €4,500 €650 €22,750,000 Last Campaign Regular But Not 25,000 €3,500 €525 €13,125,000 Last Two Campaigns Lapsed Regular 55,000 €500 €75 €4,125,000 TOTAL 215,000 €106,000,000 February 27, 2010 37
  • 38. LTV and Campaign Example - Campaign Results Segment Number of Percent Number Average Total Amount Classification Customers Responded Responded Amount Spent 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 30,000 10% 3,000 €80 Customer €240,000 Regular Including 60,000 65% 39,000 €100 Last Campaign €3,900,000 Regular But Not 35,000 50% 17,500 €90 Last Campaign €1,575,000 Regular But Not 25,000 30% 7,500 €80 Last Two Campaigns €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 February 27, 2010 38
  • 39. LTV and Campaign Example - Changes to LTV Segment Number of Projected Projected Segment Value Number of Segment Value Change in Classification Customers Lifetime Sales Lifetime Profit Before Customers After Campaign Lifetime Value Before Campaign After Campaign Campaign New Customer 10,000 €2,000 €300 €3,000,000 13,300 €3,990,000 €990,000 Confirmed 30,000 €3,000 €450 €13,500,000 33,800 €15,210,000 €1,710,000 Customer Regular Including 60,000 €5,500 €825 €49,500,000 72,750 €60,018,750 €10,518,750 Last Campaign Regular But Not 35,000 €4,500 €650 €22,750,000 21,000 €13,650,000 -€9,100,000 Last Campaign Regular But Not 25,000 €3,500 €525 €13,125,000 17,500 €9,187,500 -€3,937,500 Last Two Campaigns 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 February 27, 2010 39
  • 40. LTV and Campaign Example - Migration Between Segments Cold Prospect Warm Prospect New Customer Confirmed Regular Regular But Regular But Lapsed Regular TO Customer Including Last Not Last Not Last Two FROM Campaign Campaign Campaigns Cold Prospect 1,800 Warm Prospect 1,500 New Customer 800 Confirmed Customer Regular 39,000 21,000 Including Last Campaign Regular But 17,500 17,500 Not Last Campaign Regular But 17,500 Not Last Two Campaigns Lapsed Regular 8,250 February 27, 2010 40
  • 41. CRM Solution Implementation Approach Vision Creation Enterprise Gap Analysis Roadmap for and Confirmation Assessment Change • How to align organisation and customer objectives • Audit of company business processes, technology, communications and structure • Gaps between current and future • Plan for change February 27, 2010 41
  • 42. 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 February 27, 2010 42
  • 43. 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 February 27, 2010 43
  • 44. 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 February 27, 2010 44
  • 45. 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” February 27, 2010 45
  • 46. 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 February 27, 2010 46
  • 47. 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 February 27, 2010 47
  • 48. 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 February 27, 2010 48
  • 49. 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.” February 27, 2010 49
  • 50. 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) February 27, 2010 50
  • 51. 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 February 27, 2010 51
  • 52. 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 February 27, 2010 52
  • 53. Roadmap for Change • Customer value alignment • Market positions and competitive directions • Business model • Success metrics and critical success factors February 27, 2010 53
  • 54. Customer Value Alignment Customer: Who is your ideal The Right Customer customer and what are his/her needs? Cost: What is the value to The Right Offer the customer? Communication: When is the right The Right Time time to communicate an offer? Convenience: How does your The Right Channel customer prefer to interact with you? February 27, 2010 54
  • 55. 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 February 27, 2010 55
  • 56. 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% February 27, 2010 56
  • 57. Knowing Your Costs: Activity Based Costing for CRM Analysis February 27, 2010 57
  • 58. Ways to Determine Cost • Organisational Element Accounting Accounting System Direct Costs Overhead February 27, 2010 58
  • 59. Ways to Determine Cost • Budgetary Cost Distribution / Commitment Accounting Accounting System Commitments and Obligations February 27, 2010 59
  • 60. Ways to Determine Cost • Traditional Cost Accounting Direct Labour Overhead Output Activities Cost Direct Materials February 27, 2010 60
  • 61. Ways to Determine Cost • Activity Based Costing Direct Labour and Overhead Output Activities Cost Direct Materials February 27, 2010 61
  • 62. 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 February 27, 2010 62
  • 63. 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 Resources Cost Drivers Activities Performance Measures Products and Customers February 27, 2010 63
  • 64. 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? February 27, 2010 64
  • 65. 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 February 27, 2010 65
  • 66. Steps to Implementing ABC General Ledger and Other Sources Departments Activities Cost Objects Calculate Profitability February 27, 2010 66
  • 67. 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 February 27, 2010 67
  • 68. Process Mapping February 27, 2010 68
  • 69. Cost Calculation • Direct Costs + Overheads = Total Cost February 27, 2010 69
  • 70. Traditional Cost Accounting View - Direct Costs • Product A • Product B − 100 units − 950 units − 1 hour direct labour @ €20/hour − 2 hours direct labour @ €20/hour − €20/unit direct cost − €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 February 27, 2010 70
  • 71. 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 February 27, 2010 71
  • 72. Traditional Cost Accounting View - Total Cost • Product A • Product B • Direct Costs = €20 • Direct Costs = €40 • + Overhead = €50 • + Overhead = €100 • Total Cost = €70 • Total Cost = €140 February 27, 2010 72
  • 73. 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 February 27, 2010 73
  • 74. ABC View - Overheads Product A Cost Product B Cost Totals Setup 1 €2,500 3 €7,500 €10,000 Machining 100 €2,000 1,900 €38,000 €40,000 Receiving 1 €2,500 3 €7,500 €10,000 Packing 1 €2,500 3 €7,500 €10,000 Engineering 500 €15,000 500 €15,000 €30,000 Total €24,500 €75,500 €100,000 February 27, 2010 74
  • 75. ABC View - Overheads • Apportioning total overheads for each product according to their demand • Product A − €24,500 / 100 = €245 • Product B − €75,500 / 950 = €79.47 February 27, 2010 75
  • 76. ABC - A Different Picture • Product A • Product B • Direct Costs = €20 • Direct Costs = €40 • + ABC Overhead = €245 • + ABC Overhead = €79.47 • Total Cost = €265 • Total Cost = €119.47 February 27, 2010 76
  • 77. Comparison Between Traditional Cost Accounting and ABC Product A Product B TCA ABC TCA ABC Direct €20 €20 €40 €40 Overhead €50 €245 €100 €79.47 Total €70 €265 €140 €119.47 February 27, 2010 77
  • 78. Which is the Right Actual Cost? • ABC provides a better understanding of consumption of resources February 27, 2010 78
  • 79. 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 February 27, 2010 79
  • 80. 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 ? February 27, 2010 80
  • 81. 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 February 27, 2010 81
  • 82. Understanding and Profiling your Customers February 27, 2010 82
  • 83. 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 February 27, 2010 83
  • 84. 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 February 27, 2010 84
  • 85. 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 February 27, 2010 85
  • 86. 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 February 27, 2010 86
  • 87. 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. February 27, 2010 87
  • 88. Data, Information/Knowledge and Action February 27, 2010 88
  • 89. 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 February 27, 2010 89
  • 90. Key Measures • Overall financial performance • Overall operational • Performance of partnerships performance and alliances • Performance relative to • Product and service line competition profitability • Delivery of profit and value to • Client profitability clients • Client acquisition and retention • Client satisfaction • Staff performance February 27, 2010 90
  • 91. 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 February 27, 2010 91
  • 92. 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 February 27, 2010 92
  • 93. 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 February 27, 2010 93
  • 94. The Data Mining Spiral Knowledge Action Information Data February 27, 2010 94
  • 95. Data Mining Methodology Sample Identify and collect data. Sample or entire dataset. Sample size and sampling technique. Explore Look for inherent trends, clusters and groups. Look for and eliminate extreme values. Reduce number of important variables. Data visualisation and statistical techniques. Modify Change the data – combine, transform, derive variables. Model Construct models that explain patterns in data. Assess Assess usefulness, reliability and repeatability of models. Apply to another sample. Test against data with known results. February 27, 2010 95
  • 96. Summary and Next Steps February 27, 2010 96
  • 97. 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 February 27, 2010 97
  • 98. 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 February 27, 2010 98
  • 99. 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 99
  • 100. More Information Alan McSweeney alan@alanmcsweeney.com February 27, 2010 100

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