Overview of Effective CRM Implementation and Operation

Overview of Effective CRM
Implementation and
Operation
Alan McSweeney
Objectives
• To provide an overview of effective CRM system

implementation and operation
February 27, 2010 2

Agenda
• Introduction to CRM
• Customer Analysis and Segmentation
• CRM Implementation Approach
• Activity Based Costing for CRM Analysis
• Data Mining
• Summary
February 27, 2010 3

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

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
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

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

What Organisations Try to Do – More With Less
• More Of • Less Of
− Work − Personnel
− Customers − Facilities
− Sales − Cost
− Revenue
− Margin
February 27, 2010 8

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
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

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

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

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-
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

Customer Retention and Profitability
• Leaky Bucket Effect

Acquire Customers
50-60% (or
More) Every
Five Years
Customers Defect to
Other Suppliers
(“Churn”)

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?
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
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
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
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

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
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
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

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
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 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

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

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

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

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

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: 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?

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
Accounting System
Direct Costs Overhead

• Budgetary Cost Distribution / Commitment Accounting
Accounting System
Commitments and Obligations

• Traditional Cost Accounting
Direct Labour Overhead
Output
Activities Cost
Direct Materials

• Activity Based Costing
Direct Labour and

Overhead
Output
Activities Cost
Direct Materials

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
Resources
Cost Drivers Activities Performance

Measures
Products and
Customers

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 • 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

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
• Direct Costs = €20 • Direct Costs = €40

• + Overhead = €50 • + Overhead = €100
• Total Cost = €70 • Total Cost = €140

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

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

• 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
• Direct Costs = €20 • Direct Costs = €40

• + ABC Overhead = €245 • + ABC Overhead = €79.47
• Total Cost = €265 • Total Cost = €119.47

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

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 • 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

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
Knowledge Action
Information
Data

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.
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

More Information
Alan McSweeney
alan@alanmcsweeney.com
February 27, 2010 100

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Overview of Effective CRM

• To provide an overview of effective CRM system

February 27, 2010 2

February 27, 2010 3

• End-to-end customer management

February 27, 2010 4

• Poor customer service is still pervasive despite awareness

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• Need to balance management focus between “more with

Continuous dialogue across

Real-time access to all

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Sales Force Campaign Document Call Centre

Data Customer Profile

Workflow and Data Mining/ Telesales Internet/

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General Use General Use Call Centres Web Systems

Fulfilment Order Entry, Operational

Management Financial User Analysis

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• Recognise customer heterogenity

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• Grow twice as fast as competitors

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• 20% of customers generate 80% of profit

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• 95% of customers who have had problems will continue to

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• Leaky Bucket Effect

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High Value Loyal Low Value

• Not all customers have the same value

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

Individual Customer Profit Contribution Percentage of Total Customers

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

Individual Customer Profit Contribution Percentage of Total Customers

• Technology/infrastructure core of architecture

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Sales Data Sales

Service Calls Customer Customer

Mailing Lists Direct

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• LTV = net present value of all future contributions to

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

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• An increased customer retention rate increases the LTV of

• Customer Transaction History

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• Useful simple starting point

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• Identifying and classifying groups based on buying

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• Customers move between segments

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Segment Number of Projected Projected Segment Value