consumer products

VOLUME THREE

NUMBER 2

DECEMBER 2004

Philips Consumer Electronics to Realize 26% IRR on its mySAP CRM Investment
olding the number 10 position on Fortunes list of global electronics corporations, Royal Philips Electronics N.V. (Philips) boasts sales of over 29 billion and operates in numerous businesses, from consumer electronics to domestic appliances, and from lighting to medical imaging. Philips consumer electronics (CE) businesswhich accounts for over 30% of revenuesis an international leader in connected displays, home entertainment sets and mobile solutions. In fact, one in seven television sets worldwide contains a Philips picture tube, and 60% of all telephones contain Philips products. As a leading global consumer electronics player, THE PLAN: Philips CE is facing industry-wide challenges. Improve the customer experience to lock-in Characterized by shrinking margins, an influx of new long-term customer loyalty competitors, the proliferation of distribution channels and the constant push for innovation, the consumer electronics industry today offers consumers more product options than ever before. As a result, the battle for customers has become even more aggressive, making brand alone less of a competitive differentiator. The ability to adjust flexibly to consumer demand and customers needs has become increasingly crucial for consumer electronics firms to differentiate and sustain competitive advantage. In addition to competing fiercely in the most sought-after product lines, Philips CE looked to its customers needs to forge a visionary response to these market pressures. The goal: strengthen customer relationships to lock in long-term loyalty while building upon its legacy of product innovation. To enhance consumer preference for our products, we needed to better meet our business and end-user customers varying needs, says Alexander Bakkeren, VP of Global CRM, Customer Service and E-Business. The Web was the starting point on our journey for increased customer focus, allowing us to interact with customers more effectively and efficiently. To enable its approach, Philips CE chose mySAP CRM to facilitate more efficient and effective Web interactions with its direct-to-consumer (D2C) customers in the U.S. and business-to-business (B2B) customers in Europe. According to Peppers & Rogers Group, Philips CE will realize an Internal Rate of Return (IRR) of 26% through 2007 attributable to its mySAP CRM investment. With an information-rich approach to increase productivity and lift revenue today, Philips CE has set a foundation for long-term customer loyalty.

FEATURED CUSTOMER:

Philips Consumer Electronics will see 26% IRR through 2007

Reduced costs from order desk automation
Process automation will contribute $7.5 million in cost savings

Increased revenue contribution

Growth of online sales will contribute $7 million to the bottom line

Cost elimination
Retirement of third-party legacy systems reduced costs by $3.28 million

Increased response rates

More targeted marketing campaigns will result in higher campaign response rates, contributing $3.5 million

The CRM ROI Review is published by Peppers & Rogers Group, 20 Glover Ave., Norwalk, CT 06850. For more information, please call 1-800-283-1SAP, or visit www.sap.com/solutions/crm/ customersuccess/roi.asp Please refer to material no. 50071587. For our summary of this ROI Review, please refer to material no. 50071588.

1 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

Contents
Philips at a Glance Innovating the Market-Driven Brand D2C: Leveraging the Web on a Worldwide Level B2B: Bringing Business Customer Relationships to the Forefront Starting the Integration Journey Making the Most of Customer Adoption The ROI of CRM Forging a Profitable Future About the ROI Review 2

Philips Consumer Electronics Company Overview

n 1891, Gerard Philips laid the foundation for Royal Philips Electronics by establishing a company in Eindhoven, Netherlands to manufacture incandescent lamps and other electrical products. Today, Philips is one of the worlds leading electronics companies and Europes largest, with sales of 29 billion in 2003. Philips is organized into five divisions: consumer electronics, medical systems, lighting, domestic appliances and semiconductors. Characterized by a commitment to product innovation, the company holds more than 100,000 patents and trademarks in a number of industry technologies. Statistics illustrate the span of Philips reach: Approximately 30% of the worlds offices, 55% of major soccer stadia, and 30% of hospitals are lit by Philips products. One out of every three cars incorporates Philips car radio chipsets. One of Philips primary businesses, Philips Consumer Electronics is the third largest consumer electronics company in the world and a leader in the development of digital television systems and compact disc applications. In 2003, worldwide sales totaled $10.4 billion. Philips vision is to create innovative technology that is advanced and easy to experience. The business is organized into four worldwide regions Europe, North America, Latin America and Asia-Pacificand reaches consumers through retail trade and wholesalers as well as specialist chains and department stores. In Europe, dealers are the primary distribution channel and include PC/IT distributors, corporate or incentive sales, system integrators, telecommunications operators and broadcasters. Responding to strong competition in the U.S. market, Philips CE has launched online direct-toconsumer sales in North America to supplement sales through its retail partners.

9 10 11 12

PHILIPS CONSUMER E LECTRONICS AT A G LANCE

BUSINESS AND PRODUCTS:

Holding the number 10 position on Fortunes list of global electronics corporations, Royal Philips Electronics N.V. (Philips) is active in a number of businesses, from consumer electronics to domestic appliances, and from lighting to medical imaging. One of Philips primary businesses, Philips Consumer Electronics is the third largest consumer electronics company in the world and a leader in the development of digital television systems and compact disc applications. In 2003, worldwide sales totaled $10.4 billion.

HEADQUARTERS: Eindhoven, Netherlands 2003 OPERATING REVENUE: 29 billion EMPLOYEES: 160,000 SOLUTIONS ENVIRONMENT:

mySAP CRM (Internet Sales, Interaction Center); SAP R/3

KEY EXECUTIVES INTERVIEWED AT PHILIPS CONSUMER ELECTRONICS: Mr. Jan Boll: CIO, SCM Mr. Alexander Bakkeren: VP, Global CRM, Customer Service and e-Business Mr. Arie van der Hoek: SAP Program Manager Mr. Warren Lavoie, Acting General Manager Ms. Kathleen Borden: Senior Business Information Management Director (North America) Mr. Bert Zoetbrood: Manager, Information Management, Europe Mr. Ton Hanraets: IT Manager, Europe Mr. Fedde Kooi: Controller, SCM and CIO Mr. Karel van de Horst: CRM & e-Business Director Mr. Marc Peeters, e-Business IT Program Manager Mr. Bernard Derouand, Global Application Architect Mr. Jan-Edzard Talsma, Global Business Process Owner, Customer Facing, Demand Management Ms. Tracy de Abreu, B2B Project Manager Mr. Tony Smith, Controller, D2C (North America) Mr. Harihar Subramanian, Controller, D2C (North America) Mr. Tim Tensen, Director, SC Systems & Processes, Tradelink (North America) Ms. Carmen Lichty, Director, Customer Service (North America)

2 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

PHILIPS

CONSUMER ELECTRONICS

Innovating the Market-Driven Brand

M distinguished by shrinking margins and a steady stream of technological
ature and highly competitive, the consumer electronics industry is breakthroughs. To increase these pressures, the rise of new competitors has many consumer electronics firms on their toes. In addition to behemoths like Sony and Samsung, Philips also faces competition from companies once considered to be players in separate industries, including Apple and Microsoft, which have now entered segments of the consumer electronics world. While maintaining its commitment to product innovation, Philips CE decided to meet these market challenges head on by implementing a customer-focused approach to brand and product awareness. Our philosophy is that meeting customers information and service needsin addition to their product preferences will differentiate us, says Bakkeren. For Philips CE, this meant building relationships with customers beyond the transaction to boost loyalty. In 2002, Philips designed the foundation of its integrated, global customerbased approach. Our overall customer strategy consists of multiple steps, but it all comes back to creating one face to the customer through our brand, says Bakkeren. Initial steps were two-fold: optimizing small business customers Web interactions in Europe, and growing its direct-to-consumer business in the United States. Bakkeren emphasizes, We wanted to ensure we were addressing our business customers and consumers needs, even beyond just the product purchase.

Our overall customer strategy consists of multiple steps, but it all comes back to creating one face to the customer through our brand.
Alexander Bakkeren Director, Global CRM, Customer Service and E-Business

Philips Consumer Electronics is the third largest consumer electronics company in the world and a leader in the development of digital television systems and compact disc applications.

B UILDING THE CONSUMERFOCUSED B RAND

Emphasizing the attention it places on meeting consumers needs, Philips unveiled a new advertising tagline in September 2004, "Sense and Simplicity. To create its new brand communication, Philips asked the opinions of 1,650 consumers and 180 customers around the world in 120 in-depth interviews, 24 focus groups and 1,439 quantitative interviews. From this research, Philips transformed its brand to communicate a promise of technology designed around you, easy to experience and advanced. This collaborative messaging aims to communicate Philips customerfocused nature, emphasizing that simplicitynot complexityshould be the objective of technology.

D2C: Leveraging the Web on a Worldwide Level

n North America (NA), Philips chose to pursue online D2C sales as a result of market opportunity. While a significant part of Philips CEs business in North America is conducted through large retailers like Best Buy and Circuit City, there are also a significant number of consumers who choose to purchase direct from the manufacturer online. A recent National Retail Federation and Forrester Research study reports that online consumer electronics sales in the U.S. are expected to reach $7.5 billion in 2004 alonea growth of 24% over 2003. The opening was apparent and we knew customers would respond, says Kathleen Borden, Senior Business Information Management Director. Not only would compelling consumer value propositions increase awareness and brand preference among consumers, it would also drive offline retail sales, she explains. Philips CE piloted a number of D2C Web shop models to meet varying consumer needs. In August 2002, we developed four models with a variety of product mixes, pricing, sales and margin targets: partner stores, an online outlet store that features discontinued products, a direct store [www.philips.com] and a Philips employee store, says Borden. The largest growth has come from Philips CEs partners stores, which currently include over 20 affiliations with Fortune 500 companies and reach an audience of 12 million consumers. Our partner stores have a very loyal consumer base, says Warren Lavoie, acting General Manager. Philips CE began by outsourcing the entire D2C business, which includes hosting and fulfillment for the Web shops. However, with the advent of Philips CEs customer-focused strategy, we saw an opportunity to bring D2C in-house to costeffectively gain better insight into consumers buying patterns and service needs, explains Borden.

To emphasize the attention it places on consumers needs, Philips unveiled a new advertising tagline in September 2004, Sense and Simplicity.

Driving value with an integrated approach By choosing mySAP CRM Internet Sales to enable the D2C business in-house, we knew we would have more than a transactional capabilitythe functionality would give us the opportunity to collect better insight about our consumers, says Lavoie. Following the implementation of mySAP CRM and embedding credit-card processing functionality into the process, Philips launched their first partner store with AT&T on March 1, 2004 using mySAP CRM. A rapid rollout followed: All partner stores were launched on March 15, the Philips employee store on April 1 and the outlet and direct store on May 18. Today, Philips CEs Web shops are directly integrated into Philips customer service center through mySAP CRMs Interaction Center (IC), allowing agents to work from the same customer profiles stored during an internet sales transaction. Logistics were also brought in-house to reduce costs and maintain closer control of customer relationships.

4 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

PHILIPS

CONSUMER ELECTRONICS

A customer places an order through the Web and it is tagged through to the warehouse as consumer, explains Lavoie. It is then delivered and set up at the consumers location by a carrier with whom Philips has partnered. Consumers who choose in-home delivery really receive white-glove treatment, he says. Philips has bold plans for evolving the direct-to-consumer model in North America.We are exploring opportunities to

partner with industry and membership associations and leverage their audiences as potential Philips CE online consumers, says Lavoie. From a marketing perspective, we will continue growing and mining our consumer database and Web analytics to find out more about our customers needs and preferences, leveraging that information to proactively cross-sell and up-sell items, such as extended service packaging and warranties.

ORDER FEEDBACK

Whether consumers place orders at retail locations or through its Web shops, Philips Consumer Electronics order process strives to deliver a seamless, integrated consumer experience. Recently, Philips launched its In-Home Delivery service in an effort to make the total consumer experience more convenient. Philips CEs Web stores are enabled by mySAP CRM, allowing the company to have greater insight into the consumers needs.

PHILIPS CE

DISTRIBUTION CENTER

CONSUMER IN-HOME DELIVERY DISTRIBUTION CENTER

RETAILER

ORDER FLOW

PRODUCT DELIVERY

PHILIPS CE DISTRIBUTION CENTER CONSUMER IN-HOME DELIVERY DISTRIBUTION CENTER

RETAILER

POST DELIVERY FOLLOW-UP SHIPPING/PRODUCT/DELIVERY FLOW

B2B: Bringing Business Customer Relationships to the Forefront

or manufacturers in many industries, the Internet has helped in building closer, more direct consumer relationships with consumers by bringing them the information, products and services they need. Yet these same manufacturers have traditionally relied on channel partners to distribute, market and service their products to consumers. Naturally, many manufacturers have faced the challenge of continuing to strengthen consumer relationships without alienating the distributors and dealers the industry has widely relied on for so long. Philips CE understood this careful balance and chose to fortify its business customer relationships, particularly in Europe where 80% of the companys business is conducted through dealers. For Philips CE Europe, dealers and distributors are really an extension of Philips and we want to make sure we are differentiating treatment to reward volumes and frequency of business, says Bert Zoetbrood, Manager, Information Management, Europe. With more than 48,000 business customers, Philips CE Europe sells to major retailers, buying groups as well as small, independent shops, which Philips CE specifically refers to as its B2B customers. We tiered our business customers from larger retailers to small, regional B2B customers according to their value and designed the strategies to sell, market and service different types of accounts in a way that improves the quality of our relationship with each type of business, says Jan-Edzard Talsma, Global Business Process Owner, Customer Facing Demand Management. Philips CE recognized that even smaller accounts such as its B2B customers can be profitable when resources are allocated appropriately and are critical in serving the needs of the end consumer. The company saw a key opportunity to enhance the B2B relationships by more easily providing customers with the information they needed to run their businesses effectively and efficiently, while lowering Philips cost to serve them.B2B customers are important for Philips and will be for years to come, explains Ton Hanraets, IT Manager, Europe.

Our goal is to develop a bonding relationship with consumers that is not like a hard sales touch.
Kathleen Borden Senior Business Information Management Director

Philips Consumer Electronics new tagline, Sense and Simplicity, emphasizes the companys focus on technological innovation working to make consumers lives easier.

Helping customers help themselves Philips CEs existing automated order entry process was a key opportunity to improve relationships with B2B customers. As part of a series of initiatives designed to standardize and integrate business processes across the organization, automated order entry has improved effectiveness and cut costs. However, the existing technology did not offer the amount and types of information B2B customers needed. It only allowed one-way transactional communication and we needed a portal, a solution, explains Hanraets. The customer needed more information, such as self-service for frequently asked questions, order history and product information and availability. Before mySAP CRM Internet Sales, the automated order entry system did not allow customers to view order history or track orders. We would receive a large number of calls to our order desks from both our customers and our sales force, who were also being asked by customers to check in on their orders, says Zoetbrood. Without the ability to replenish a past order, customers also had to enter product identification codes by memory. With mySAP CRM, customers can be more self-sufficient, enabling order and invoice status and order history. Customers can also look up individual items within

6 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

PHILIPS

CONSUMER ELECTRONICS

an order. There is also a product catalogue with traffic lights, letting the customer know inventory status, explains Talsma. They can click on the product they need and add it into the shopping basket. Benefits of mySAP CRM were already evident after Philips CEs pilot in Benelux. After we went live with mySAP CRM, the ease of use of the system let us see three times the orders placed via B2B in a three-week period, says Arie van der Hoek, SAP Program Manager. What began as a migration project has evolved into a more

strategic building block for managing customer relationships. This project has laid the foundation for all future customer relationship projects, says Talsma. These efficiencies have not only lowered costs but have freed up sales agents time to better manage relationships, and not just be order takers or serve support functions. Now we have a way to do business with our smaller B2B customers at lower cost and higher service levels, explains Bakkeren. We wanted to offer them a portal, a solution with an optimal user experience.

OPERATING WITH CUSTOMER FOCUS

Managing customers and consumers needs requires a centralization of focus around customer-facing touchpoints, namely marketing, sales and service. From here, the necessary functionality can be determined to best meet customers requirements.

Sa le S Ef s P gn fe la ai ct nn p ive in m g ne g, Ca din ss Co g, an Cu , M lla in r n B ith , ob bo sa stom an nt, w se l les ile rat P e e tly n In ion or fo r in ec spo ng em ir e ti g de r o te te . d e gr , Sa r c rd rac rk ana ts te r ition at a M on er ts ac ba et io les M q fir er n m uot dire nt d re mp ati ri ra o ing ctl c e on m fo es, cre y wi ,p sto ng nc ay ati th Cu keti fere m Customer r re en on, a p t. m

MA RK

ET I

NG

ES AL

Relationship Management

Customer interacts directly with customer service for returns authorization, how-to help, product information.

Contact Center, Voiceover Internet Protocol, Chat, Field Service, Workforce Management

CUSTO M E R S E RVICE

Starting the Integration Journey

hilips CE knew that delivering the optimal customer experience for its B2B customers as well as its pioneering D2C business would require a more integrated infrastructure and new application abilities. In 1996, Philips CE made the move toward better integration by revolutionizing its decentralized and fragmented technology landscape. It established a common back end across the enterprise, implementing SAP R/3, SAPs enterprise resource planning (ERP) system. However, even with a unified foundation, each region retained the ability to add on applications according to their own decision criteria; at the time, there were over 190 applications in Europe alone. In 2002aligned with the advent of its customer strategyPhilips CE pushed to consolidate, standardize and integrate applications with the R/3 back end. With islands of applications, integration becomes more and more complicated, says Bernard Derourand, Global Application Architect.We first considered expanding existing solutions, but we determined it would either increase costs considerably or the applications werent scalable or easily integrated, he explains. This drive toward integration spurred an enterprise-wide strategic shift toward SAP centricity. As a strategy, Philips CE chose to expand SAP overall to maximize functionality and for Philips, we knew it would get the lowest TCO possible, says Jan Boll, Philips CEs Chief Information Officer. We first consider SAP for all projects. If it fits with our business requirements we go to SAP explains Derourand.

Everything that is done in the customer relationship always affects another part of the relationship or business.
Jan Boll Chief Information Officer

PHILIPS CONSUMER E LECTRONICS TECHNOLOGY LANDSCAPE

WEB SHOP

By implementing mySAP CRM to enable its consumer Web shops, Philips Consumer Electronics is laying the technological foundation to cultivate consumer relationships.

CONSUMER

PRODUCT INFORMATION AND PRICING

CONSUMER REGISTRATION

SAP R/3

INVENTORY AND FORECASTING

CUSTOMER INTERACTION CENTER

CONSUMER DATABASE WAREHOUSE

mySAP CRM enabled

8 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

PHILIPS

CONSUMER ELECTRONICS

MAKING THE MOST OF CUSTOMER ADOPTION

From training to communication programs, companies agree that change management efforts for employees are critical to CRM success. But just as CRM is about treating different customers differently, not all change management efforts are created equal. Internally, employees need to see the quick hit improvements. Externally, business customers need to know how process changes will make their business experience better. Philips CE recognized that certain aspects of managing change with implementing mySAP CRM with its B2B customers would require different approaches. The company also believes that the integration of mySAP CRM and R/3 was the right thing from a change management and planning perspective. For Philips CE, this really is a change management program, says Arie van der Hoek, SAP Program Manager. Technology can not just be switched on. That will never work. Philips CE took change management one step further and sought customer feedback from its B2B pilot efforts. We wanted to pilot and test any initiatives before we completely rolled it out, says Tracy de Abreu, B2B Project Manager. We gathered all of our customer feedback from the pilot and incorporated those changes into the main rollout. Getting customers to use the B2B portal required information-based incentives. We needed to show them what was in it for them, how it would save them time, be more convenient, explains de Abreu. To that end, information-based incentives that communicated these benefits, rather than cost-based ones, were more likely to cultivate a loyal customer base instead of a one-time interaction. Gaining customer insight on how the mySAP CRM functionality is benefiting B2B customers will be an ongoing effort. We are in the process of designing customer surveys that ask all of our B2B customers in Europe about their thoughts on the solutions look, feel and functionality, explains de Abreu. While each customer and country will naturally have variant likes and dislikes, Philips CE will work with the feedback data to get a common baseline for improvements. We need to ultimately design the best shopping experience for customers.

For Philips CE, this really is a change management program. Technology can not just be switched on. That will really never work.
Arie van der Hoek, SAP Program Manager

Crafting the business core Bringing the D2C capability in-house, as well as replacing the enabling B2B technology, meant choosing a solution that would align well with infrastructure goals while meeting the business needs to improve customer interactions. Van der Hoek explains, We determined this would improve efficiencies and reduce costs, while providing Philips CE with more seamless access to customer information. In the development phase, Philips benchmarked its existing B2B automated order entry site and functionality against each countrys existing systems and against Europes largest competitors. The business and IT together had to think about how customers would react. This approach helped us to be successful, especially since much of this is new to us as an organization, says Zoetbrood. The benchmarking enabled Philips to incorporate its own best practice functionality. From the availability of product data to submitting an order, we needed to ensure we could position our B2B solution in the market to our customers as a valueadded service, not just a technology change, says de Abreu.

After analyzing business requirements, Philips CE determined that mySAP CRM Internet Sales not only met the companys business objectives, but would fit with integration needs. mySAP CRM was a strategic choice, says Boll.Integration with R/3, a distinct infrastructure cost payoff and the fact that the solution met customers information and functionality needs were integral to the mySAP CRM choice. To gain more customer information, the division also implemented mySAP CRM Interaction Center (IC) for the customer service agents dealing specifically with the D2C customers. Borden notes, Now, agents have common customer profiles integrated with the customers Internet sales activities. Boll explains that allowing customers to find the information they need at their convenience achieves greater transparency of Philips processes. This type of integration breeds the checks and balances of a transparent environment required for strengthening customer relationships, he says. It is a more integrated and scalable environment. Everything that is done in the customer relationship always affects another part of the relationship or business.
9

I NVESTMENT B REAKDOWN
This chart outlines Philips Consumer Electronics investment related to the implementation of mySAP CRM.

The ROI of CRM

hilips CE has laid a firm foundation for reaping rewards from its mySAP CRM investment. From improved productivity to the incremental revenue of its D2C activities in North America, Philips CE is set to realize 26% IRR on its investment through 2007. The IRR is based on a total benefit of $20 million on a technology investment of approximately $16.65 million. Philips CEs mySAP CRM investment includes hardware, training and consulting services.

Training and Travel

Increased revenue contribution...From the growth of its four direct-to-consumer

Consulting

online stores, most notably Philips partner/employee online sites and outlet shops, Philips has optimized a model that supplements existing channel partner relationships. Through 2007, Philips D2C efforts will contribute $7 million to the bottom line.
Reduced costs from B2B order desk automation...The implementation of mySAP CRM will continue to reduce costs for Philips B2B effort in both Europe and North America by enabling customer self-servicesuch as placing orders and checking order statusthat traditionally consumed order desk personnel time. Savings sum $7.5 million. It will also allow sales agentswho customers often ask to place orders for themto spend less time on transactional tasks and more time on cultivating customer relationships. Increase in marketing campaign response rates...Philips CE continues to collect

Hardware, Software and Maintenance

Training and Travel Consulting Hardware, Software and Maintenance

1% 30% 69%

information about consumers needs and preferences, allowing for more targeted marketing campaigns. This will result in increased response rates for marketing campaigns, contributing $3.5 million to the bottom line.
Cost elimination from legacy systems...By retiring legacy systems, Philips CE is

able to save $3.28 million in licensing fees and associated costs.

THE ROI OF CRM

From improved productivity to increased sales, Philips Consumer Electronics continues to realize considerable cost savings and revenue enhancements from its mySAP CRM investment. The ROI Review calculates a projected 26% Internal Rate of Return (IRR) through 2007. The IRR is based on attributable benefits of $20 million on a technology investment of $16.65 million.

(in U.S. dollars)

2003
1.22 0.116 (1.10)

2004
5.28 2.56 (2.72)

2005
3.38 3.85 0.47

2006
2.75 5.0 2.25

2007
4.02 8.6 4.58

TOTAL
16.65 20.13 3.48

Attributable Costs Attributable Gains Yearly Net Cash Flow

ROI Calculation through 2007: IRR of 26%

*See ROI methodology on back cover.

10 Copyright 2004 SAP AG. All rights reserved. Copying prohibited.

PHILIPS

CONSUMER ELECTRONICS

Forging a Profitable Future

THE FOUR POINT TAKEAWAY
he B2B and D2C initiatives are just the start for Philips CE. Efforts in sales force automation and complaint management are already underway. We also have plans across the regions and through 2006 and beyond to continue leveraging mySAP CRM in conjunction with our customer-based strategy, including crossselling and up-selling efforts with our B2B customers based on their business needs, explains Talsma. Philips CE will continue to improve relationships with both business customers and consumers globally through a variety of sales, marketing and service initiatives. For example, the mySAP CRM portal solution offered to B2B customers is part of a larger strategy to provide all of Philips CEs business customers with the information they need. From enhancing automated order entry for B2B customers with mySAP CRM to key account management with its larger customers, Philips CE is pushing channel development forward. In consumer electronics, you have to be able to identify all of your business customers, their needs and treat them accordingly, says Talsma. Larger customers, who will continue to submit orders via Electronic Data Interchange (EDI), will soon to be able to view order history and tracking functionality through their own mySAP CRM portal. Philips CEs objective in each of its initiatives is to profitably cultivate the customer loyalty that will drive bottom-line results. Right now, we are implementing activities to differentiate treatmentsuch as special product offers and services to different customer categories, based on their needs and the business requirements to meet those needs, says van der Hoek. We want to understand more about our customers value to us and how each customer-facing touchpoint can help grow that value.

1. Pilot first Philips CE found it vital to pilot the new B2B functionality enabled by mySAP CRM before implementing a complete rollout. Bakkeren emphasizes, Companies need to pilot first and implement step by step. This was critical, especially given that it was quite a new approach for Philips. 2. Cultivate close working relationships with business and IT Time and again, CRM implementations risk failing without tight collaboration between what the business needs and ITs perspective on solutions. When implementing B2B and D2C, the business and IT together had to think about how the customers would react. This approach helped us be successful, especially since much of this is new to us as an organization, says Zoetbrood. 3. Proactively seek customer feedback When developing products or services designed to meet customer needs, successful companies look to the source their customers for valuable insight. Before and after we rolled out the B2B solution with mySAP CRM, we asked customers for feedback on the functionality and design, says de Abreu. To date, the B2B solution has generated $1.59 million for Philips CE. 4. Track your business case for real results For Philips CE, clarifying costs and benefits up front was essential for tracking success. We ensured everyone understood the context for undertaking the B2B and D2C initiatives, what it should deliver and what it would cost us, says van der Hoek. As a result, Philips CE is tracking to realize 26% IRR through 2007 from its mySAP CRM investment.

Philips Consumer Electronics is a worldwide leader in the development of consumer digital systems and applications.

11

ABOUT PEPPERS & ROGERS GROUP

Peppers & Rogers Group is a management consulting firm, recognized as the worlds leading authority on customer-based business strategy. Founded in 1993 by Don Peppers and Martha Rogers Ph.D., the firm is dedicated to helping companies gain competitive advantage by identifying differences within their customer base and using that insight to maximize the value of each customer relationship. Our work is focused on driving bottom-line results from the delivery and implementation of customer initiatives. Our goal is to develop and execute customer strategies that create immediate return on investment and longterm customer value. In this way, we help clients optimize their most valuable asset: their customer base. In 2003 Peppers & Rogers Group was acquired by Carlson Marketing Group, the leader in relationship marketing. Peppers & Rogers Groups customer strategy expertise combined with Carlson Marketing Groups implementation capabilities offers an end-to-end solution for clients who are working toward the development and deployment of best-in-class customer-based business strategies. Peppers & Rogers Group maintains a significant voice in the marketplace through its media properties. These print, electronic and custom publications explore the best practices, trends and developments in customer strategy, demonstrating how customer-based initiatives are driving bottom-line impact.

About the ROI Review

The ROI Review, published by Peppers & Rogers Group, is a periodic report detailing the implementation of enterprise-wide, client-server applications, specifically the mySAP CRM customer-centric solution. ROI Methodology
To assess the overall financial impact of the mySAP CRM implementation, Peppers & Rogers Group uses two core methodologies: Peppers & Rogers Groups proprietary ValueMap tool is first used to pinpoint the financial impact of specific elements of the CRM implementation on unique customer segments and treatment types. The ValueMap takes a bottom-up approach to determine both current and prospective results. The methodology of the ValueMap is to identify customer segments and touchpoints affected by the mySAP CRM project and their related financial objectives. It identifies the specific functionality enhancements as well as key metrics impacted by each enhancement. The ValueMap assesses the post-implementation levels of the metrics and models the positive impact of the changes in cost savings or contribution enhancements. It then calculates total attributable gains plus the direct investment costs and changes in any other overhead (staffing, agency fees, etc.). The Return on Investment (ROI) calculation includes the cost of both external and internal implementation work as well as incremental hardware. In addition to the ValueMap calculations, Internal Rate of Return (IRR) is used to determine the final ROI of the implementation. IRR is the chosen ROI methodology because it is the most conservative and explicit approach. Also, it is not dependent on estimating the appropriate hurdle rate (discount rate or opportunity cost of money) to be applied. The IRR methodology is applied to net cash flows generated over the relevant time horizon measured in accordance with the Cash Flow Return on Investment (CFROI). This methodology has the advantage of eliminating the impact of company specific taxation circumstances and policies, as well as national corporate taxation conditions in the various countries in which the ROI Review studies take place.

Authors
Darren Boyd has more than 10 years of experience as a strategy consultant advising Fortune 500 companies on CRM and operations strategies. His international consulting experience has included time working in Australia, Hong Kong and the UK. Darren holds an MBA from Stanford University Graduate School of Business and a Bachelor of Engineering (First Class Honors) in Mechanical Engineering from the University of New South Wales. As Executive Editor of Marketing and Client Deliverables, Christopher Helm brings Peppers & Rogers Groups thought leadership to readers around the world. During his four-year tenure, Chris has become a valued member of the Peppers & Rogers Group ROI team, overseeing the content direction of each ROI Review. His areas of expertise include the optimum use of content to drive compelling sales and marketing messaging, editorial strategies for effectively communicating the ROI impact of a CRM technology investment, and the role of customer insight in integrating supply and demand processes to create a single value chain. As Senior Editorial Consultant at Peppers & Rogers Group, author Laura Cococcia has more than eight years experience as a marketing communications professional in both the corporate and non-profit settings. Prior to her editorial role, Laura worked with various Fortune 500 companies as a consultant on the development of customer-based strategies and implementation. Laura holds a B.A. in English from The College of the Holy Cross and is pursuing her M.S. in Strategic Management at Manhattanville College.

FOR MORE I NFORMATION

For more information on The ROI Review please call 1-800-283-1SAP or visit www.sap.com/solutions/crm/ customersuccess/roi.asp Please refer to material no. 50071587. For our summary of this ROI Review, please refer to material no. 50071588.