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The CRM Model: Analyzing Data and Understanding the Benefits

Many companies that practice customer relationship management (CRM) rely on a simple model to guide them strategically. Here is a simple example of such a model:

CRM Model

A simple CRM model can provide strategic guidance.

As you can see, a good CRM strategy turns strangers into customers, customers into friends, and friends into advocates for your business.

CRM and Data

Data is central to the success of CRM initiatives. Knowing who your customer is and what they want makes a CRM strategy successful. Data gathering can begin even before your prospect becomes a customer. Matching a prospect's profile to the product or offer is the first step.

But data on its own is meaningless if it is not analyzed and acted upon. Through analysis, data can be turned into insights, which can then inform the various CRM processes and, indeed, the business itself.

Data should be used to drive consumer loyalty across all possible touchpoints. Consider the consumer who shops on her store card at a retail outlet. Her transactions are recorded against her card. She is sent offers that detail the latest fashion trends and earns points on her card shopping for these items. At some point, her transactional data shows that she has started shopping for baby clothes. She can now be cross-sold products related to babies and rewarded with double points when she buys them. Now she is upping her spend in the store, cross-shopping for both herself and her family, and being rewarded for this spending, thus ensuring that the retail outlet is offering her value and retaining her business.

Customer Data 

A good CRM program begins with data. Who are my customers and what do they want? Why did they choose me in the first place? How many of them are active and continue doing business with me? Why do the others stop?

Often, you will need to research this information. If the company has a database, conducting surveys, focus groups, or dipstick telephonic research can help you get an idea. Consider that an Audi Q7 driver is vastly different from an Audi A1 driver, for instance. They both pick the brand for the same reasons, but their motivations behind choosing the products vastly differ.

Data can give you these insights. It can enable a company to create real value for the customer and thereby gain true loyalty. There is little point in running a customer insights survey without putting into action any changes suggested by the results. It also means customers are less likely to take part in surveys going forward, and quite rightly so—what's in it for them? Conversely, if you do perform changes, customers will feel increased ownership in the brand and its offering.

The actual database in which you choose to gather and collate data is also crucial. Remember that there are many facets to CRM, and the quality and accessibility of the data will have a major impact on how well these processes run.

When looking at data, it is essential to keep in mind the Pareto principle. The Pareto principle, or the 80/20 rule, holds that in many situations approximately 80 percent of profits are delivered by 20 percent of customers. Also keep in mind that 20 percent of customers are responsible for 80 percent of problems related to service and supply (Koch, 2008). As such, it is prudent to design solutions with efforts directed at the 20 percent of customers who generate the most profits. To do this, you should segment customers effectively.

You'll also want to consider the exact data to collect. While this will depend largely on your business objectives, here are some considerations to keep in mind:

· Information should be commercially relevant.

· Capture additional contact details from the customer at every interaction—on purchases, contracts, negotiations, quotes, conversations, and so on.

· Capture any information you send out to the customer.

· Consider anything that adds value to the relationship.

· Note any legal implications around capturing data, particularly web-based behavioral data, as the user's privacy must always be taken into account.

Where and How to Gather CRM Data 

CRM data is gathered from a variety of touchpoints. Let's look at some of the possible opportunities for CRM data capture and analysis. Each avenue discussed in the sections below collects a range of data from whichever touchpoints the business deems valuable.

Traditional CRM System Data 

Most traditional CRM systems are used to capture data for sales, support, and marketing. On top of simply creating a central repository for data access, these systems and their related databases also offer basic analytics. The actual range of data collected within the traditional CRM system is dictated by the CRM objectives. For instance, data could include the following items:

· demographic details on potential leads, current leads and contacts, such as age, gender, income, etc.

· quotes, sales, purchase orders and invoices (transactional data)

· psychographic data on contacts such as customer values, attitudes, interests, etc.

· service and support records

· customer reviews or satisfaction surveys

· web registration data

· shipping and fulfilment dates, such as when orders were shipped and delivered

Data Mining 

Data mining involves analyzing data to discover unknown patterns or connections. It is usually conducted on large datasets and looks for patterns that are not obvious. Data is analyzed with statistical algorithms that look for correlations. It is used by businesses to better understand customers and their behavior, and then to use this data to make more informed business decisions. For instance, women might traditionally be shopping for nappies during the week. But on the weekend, men become the primary nappy-shoppers. The things that they choose to purchase on the weekend, such as beer or chips, might dictate different product placement in a store over a weekend.

Analytics Data

Analytics data is generally captured through specialized analytics software packages. These packages can be used to measure most, if not all, digital marketing campaigns. Web analytics should always look at the various campaigns being run. For example, generating high traffic volumes by employing CRM marketing tactics like email marketing can prove to be a pointless and costly exercise if the visitors that you drive to the site are leaving without achieving one (or more) of your website's goals.

Social Media Monitoring Data 

There are many social media metrics that are important to monitor, measure and analyze, and some of these can provide valuable insights for CRM implementation. This can cover everything from quantitative data about number of fans and interactions, to qualitative data about the sentiment toward your brand in the social space.

Collating and Organizing Your Data 

Typically, you'll find that a business has the following components to organize data:

· one or more databases (e.g., email, customer, mobile, or call centre databases)

· a point-of-sale system where product purchase data is stored

· web data (e.g., display or search networks, keyword research, site analytics, social media, or email marketing)

· social media profiles on sites like Twitter, Facebook, or LinkedIn (which can also be considered databases of sorts)

CRM software can be used to automate lead and sales processes and to collect all of this customer information in a centralized place, allowing a company to get a holistic view of the customer. From this view, meaningful data insights can emerge.

Organizations can be large, and a customer often speaks to several members of the organization, depending on the nature of the communication. It would be extremely frustrating for the customer to have to explain all previous dealings with the organization each time, and equally frustrating for an organization not to know who has spoken previously with a customer and what was dealt with. This could be a touchpoint at which a company falls down and leaves a less than positive impression with the customer.

Fortunately, there are many technological options that help to record all this information in one place. Most of these services can also schedule elements of the sales process and set reminders where appropriate for follow-up action.

Some notable examples include SalesForce (www.salesforce.com), Genius (www.genius.com) and Highrise (www.highrisehq.com) from 37signals. Bespoke technology tailored to business problems can have remarkable results.

Keeping Data Fresh 

Call it what you will, but "stale," "outdated," or "unhealthy" data doesn't benefit anyone. Some generic older data can help you assess trends over time, but identifiable customer data is usually useless if it is not up to date. People move to new houses, update their contact numbers and email addresses, and change jobs. They earn more or less money, stop working, start working, have kids, retire. All of these changes mean that their needs change, and their avenues of contact change, so maintaining a customer relationship and delivering the things they want becomes more difficult.

So, how do you keep your data fresh? For generic data (like web analytics), you must continuously monitor trends and note what causes changes over time. This is also useful for monitoring trends and identifying gaps in data when a business evolves. For instance, if you know that you generally receive increased website and store visits during December, but your sales drop, you know that you need to gather more data around your inventory and in-store environment during that time.

Keeping identifiable data current means you need to facilitate regular dialogue with contacts on your database. Whether it's through a call centre, an online prompt, or a quick question at your in-store point of sale, there needs to be a plan for updating details at regular intervals.

Analyzing Data for Marketing 

One of the most powerful features of interactions and transactions over the internet is that everything is tracked and recorded. This practice provides a wealth of data that can be analyzed to make business decisions.

For CRM, this means that the customer acquisition source can be recorded and analyzed against sales data. This leads to a very accurate return on investment (ROI) calculation and indicates where CRM and marketing efforts should be focused.

ROI is key to understanding whether marketing efforts have been successful. Here's a simple example: Company A sells accounting software and makes $10,000 on each product it sells. It sends an email to its customer base—people who have bought a previous version of the software and might be interested in upgrading. The campaign has an overall cost of $100,000. Of the five thousand people who receive the email, 10 percent decide to buy. That means it costs $200 to acquire each of the five hundred customers. The company has made $5 million, an ROI of 50:1.

The key to effective use of technology in CRM is integration. Ensure that all channels can be tracked, and that this information is usable to all parties within an organization. Knowing where your customers come from, but not what they purchase, is pointless: these two metrics need to be compared in order to produce actionable insights.

Analyzing CRM data can aid marketing initiatives in a variety of ways:

· campaign analysis—Find out which marketing campaigns are leading to the best returns so you can refine them and increase ROI.

· personalisation—Customize your communications to each customer.

· event monitoring—Tie offline events, like shows or sales, to your online interactions and sales.

· predictive modelling—Predict a customer's future behavior and meet this need at the right time.

· improved customer segmentation—Includes the following methods:

· customer lifetime value (CLV) analysis—Predicting each customer's lifetime value and managing each segment appropriately (for example, offering special deals and discounts).

· advanced customer profiles—Identify certain behaviors, such as big spenders or those who look for bargains by attending sales. This information can be used to tailor marketing communications accordingly.

· customer prioritization—Target small groups of customers with customized products and service offerings that are aligned to meet customer needs, rather than simply generic current offerings. You should craft specialized retention strategies for customers with the highest CLV.

· identifying brand influencers and advocates—Consider the realm of social media, where influencers are central to the spread of content. Brands are increasingly prioritizing relationship building with social media influencers to build brand advocates who will help market the business for them. By identifying which customers are providing the most value and positively influencing others to become customers, you can focus efforts toward them and increase their loyalty, creating true brand advocates.

Understanding Customer Lifetime Value

CLV is the profitability of a customer over their entire relationship with the business. Businesses need to look at long-term customer satisfaction and relationship management, rather than short-term campaigns and quick wins. This approach leads to increased value over the entire lifetime of a customer and means that CLV is a metric central to any CRM initiative.

It's important to look at your customer base and segment them according to how often they purchase and how much they spend with your company. Very often, customers who spend more cost more to acquire, but they might also stay with the company for longer. Referrals made by a customer can also be included as part of the revenue generated by the customer.

The key is to understand these costs and then target your CRM strategies appropriately. CLV lets you decide what a particular type of customer is really worth to your business, and then lets you decide how much you are willing to spend to win or retain them.

For example, a potential customer looking to purchase a digital camera is likely to search on Google for cameras. As a company selling digital cameras, your excellent search advert and compelling offer attract the potential customer, who clicks through to your website. Impressed with your product offering, the user purchases a camera from you and signs up to your email newsletter as part of the payment process.

Analyzing the amount spent on your search campaign against the sales attributed to the campaign will give the cost per acquisition of each sale. In this case, this is the cost of acquiring the new customer.

As the user's now signed up to your newsletter, each month you send her compelling information about products she might be interested in. These newsletters could be focused on her obvious interest in photography and highlight additional products she can use with her new camera. The costs associated with sending these emails are the costs of maintaining the relationship with the customer. When she purchases from you again, these costs can be measured against the repeat sales likely to be made over the course of the customer's lifetime.

Assuming that a customer buys a new camera every three years, moves up from a basic model to a more expensive model, perhaps buys a video recorder at a certain point, a company can calculate a lifetime value and ensure that their spending on a particular customer is justified.

CRM Loyalty Programs 

There is a difference between CRM and loyalty programs; often loyalty programs actively seek to maintain customers by rewarding them with a hard currency, like points. Loyalty programs are designed to develop and maintain customer relationships over a sustained period of time by rewarding them for every interaction with the brand. For instance, you may earn points on a purchase, for shopping on certain days, completing a survey, or choosing to receive a statement by email.

Consider the health insurer Discovery and their Vitality program, which aims to keep customers healthy by rewarding them for health-related behaviors like exercising, having regular check-ups, stopping smoking, and buying fresh foods. By doing so, it reduces the burden of ill-health on the medical aid itself.

Not all loyalty programs are created equal. Many brands have embraced them as a way to improve their sales, and consumers have come to believe that they are simply a way of extorting more money from them.

To create an effective loyalty programme, consider the following guidelines:

· Carefully calculate the earning and redemption rates of points—A loyalty program needs to give the appearance of real value, while working within the company's profit projections.

· Loyalty programs are about engagement—You need to find a way to partner with the customer.

· Rewards are key to success—You need to reward the customer in a way that is real and desirable.

· Customer care is important—Technology allows for effective real-time conversations.

· Data is central to success—You need to maintain accurate records in one central place.

· Digital allows for innovation—This innovation can apply to new payment technology, digital communications channels, and more.

· Trust is pivotal to success—Customers need to know that their data is being protected and that you will honor your commitments.

· Loyalty programs are not quick wins—Consider up-front how the program might come to a close or you risk alienating and disappointing customers and undoing any positive results.

The Benefits of CRM

At its core, effective CRM promises the following outcomes:

· increased revenue and profitability

· improved customer satisfaction and loyalty

· improved service delivery and operational efficiencies

· decreased acquisition costs (keeping churn low through CRM offsets the need to spend as much on acquisition of new clients, while retention of existing ones is cheaper for obvious reasons)

Maintaining good customer relationships is critical to the success of a business. The cost associated with acquiring a new customer is generally far higher than the cost of maintaining an existing customer relationship. While an investment in a CRM communication program or platform can be large, these costs are often offset over the increased revenue generated by encouraging repeat business.

Putting a Value on CRM 

Broadly, CRM can be looked at from several perspectives:

· marketing perspective—increasing the number of people who know about your service or product

· cost perspective—decreasing the amount you spend on customers (it costs more to attract a new customer than maintain an existing one)

· sales perspective—turning the people who know about your service or product into people who have made a purchase

· service perspective—ensuring people who have interacted with you are satisfied and delighted

Effective CRM can also create a powerful new marketing and referral force for a company: its happy customers. Delighting customers fosters positive word of mouth. The first step to any CRM initiative is to understand the value of a customer relationship to a business:

relationship value = revenue generated by customer – cost.

CRM Implementations

CRM should infuse every aspect of a business (in the same way that marketing should be integral to everything you do), but it is useful to look at the different ways CRM is implemented:

· marketing

· Conduct personalized targeting and profiling across a range of marketing channels such as telemarketing, email marketing, social media marketing, and campaign management projects.

· Place the right mix of a company's products and services in front of each customer at the right time.

· Understand what customers do and want, matching that knowledge to product and service information and measuring success.

· sales

· Ensure the customer receives the correct product.

· Ensure correct sales-related processes are carried out within the organization. This could include the following:

· client or campaign management

· sales configuration (for configuring products, pricing, etc.)

· call management

· contact management

· ad management

· sales force automation (including territory)

· account and lead management systems

· Enable all parties in the transaction to interact with one another.

· Include systems that put sales reps directly in touch with customers at the point of sale.

· service and service fulfilment

· Improve the service you give to current customers through:

· email response management

· social media support systems

· telephony capabilities such as automatic call distribution

· computer-telephony integration

· queue/workflow management

· interactive voice response and predictive dialling

· Include the development of problem resolution systems, workflow automation and field service dispatch systems.

· services invoked by the customer

· Create and manage systems or capabilities that can be directly invoked by the customer:

· web self-service

· search

· instant messaging

· email queries

· voice over IP (VoIP)

· browser and application sharing

· conferencing

· "call me" capabilities

· social media support

· online forums

References 

Koch, R. (2008). The 80/20 principle: The secret of achieving more with less. New York: Doubleday.

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