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Facts about customer relations
• Cost of selling to a new customer is six times as high as to existing customer
• Odds of selling to a new customer = 1/7 to an existing customer = 1/2
• Each dissatisfied customer tells 8 to 10 people• 70% of dissatisfied customers will do business again
if they feel their complains are handled well• 1 extra % of customer retention can boost turnover
by as much as 15%• Many companies don’t have proper customer support• CRM = doing things right + turning defence into
attack!
retention
Industry % Increase inCustomer NPV
Advertising Agency 95
Life Insurance 90
Bank 85
Insurance 84
Car Service 81
Credit Card 75
Laundry 45
Software 35
Impact of a 5% Increase in Retention Rate on Customer Net Present Value
CRM definition
• ultimate “customer centric” approach • Business philosophy which places the customer
at the heart of organisations processes, activities and culture
• IT is just a tool to implement this
“a sales and service business strategy where the organisation wraps itself around the customer [such that] whenever there is interaction, the message is appropriate for that customer”
Curley, B. (1999) “Profiting from the relationship” Insurance and Technology, 24 (3), pp. 34-38.
Why CRM?
• Customers don’t care about their suppliers’ internal difficulties
• They want to be able to access product and services at the least cost
• They want a single point of entry• Existing loyalty programmes don’t go far
enough• Cost of selling to different customers is
also different => CPA
A bit of history
• In the 50’s mass marketing• In the 1970’s market segmentation• In the 1990’s personalised marketing• Since: relationship marketing
– acquiring customers is far more expensive than keeping them • knowledge about individual customers is required to
guide highly focused marketing strategies – More intense, global competition– more fragmentation of markets– high level of product quality
• With the Internet, switching suppliers is merely a couple of mouse clicks away.
• Shift in power from the seller to the consumer
Piecemeal or Full Monty CRM?
• 80% of CRM initiatives are quick win projects• Important to have clearly define goals
– Reduce call numbers– Produce more finely tuned products– Sell more unit per deal– How much do you want to spend
• CRM should probably be profit making• But lack of internal collaboration could stand in
the way (50% of top 500 firms said so)• And only 30% of companies have metrics in
place
The 3 phases of CRM
• Acquiring new customers– by promotion– leading edge product backed by superior service
• Enhancing profitability of existing customers– cross-selling and up-selling (one stop shopping)– additional services
• Retaining most profitable customers– best customer list– customer profitability analysis– make best offer to best customer
Novelty of the CRM Approach
• Complete and integrated solution - breaks down the walls of conventional functional areas
• Most companies are good at one of the 3 activities - CRM concentrates on all 3
• Overall corporate objective of providing customer satisfaction – systems in place to collect, store, exploit CRM info– active distribution of information about customers
• Offer single point of entry for customer queries
Clear obstacles
• Lack of collaboration• Outright conflict between departmental
needs• Fragmentation of existing processes vis a
vis customers– Most unstructured area on the playground
• Idiosyncrasy leads to scope creep• Customer frustration may lead to
excessive demands
Develop common goals centred on the customer
• Composition of CRM team as important as in the case of ERP
• Understand the implications for everyone of some key scenarios
• Work out conflicts and fill gaps in understanding with creativity
• Involve trusted customers when applicable• Go fact finding on how customers are dealt with today
– Process mapping– rules and procedures– Be realistic with “borderline methods”
Mapping process change
• CRM from marketing to after sales
• Assign clear roles and responsibilities
• Integration of customer content
• integration of customer contact
• integration of end-to-end business processes
• Integration between ERP and activities never computerised before
CRM tools
• Data capture, data organisation and decision support
• Data mining to explore and model large amounts of customer data
• discover patterns and correlations– Customer segmentation models
• predictive models of customer behaviour,• identification of key events that trigger behavioural changes• soliciting data from customers
– Data Warehouse
ABC of data mining in CRM
• Affinity analysis: odd / unexpected patterns in customer behaviour.
• Clustering sorting customers into similar groups based on certain attributes or behaviours.
• Predictive modelling uses historical purchase data plus information about promotions to predict future behaviour.
• Segmentation like clustering; but used to support the development of tailored offerings– Eg: Chase Manhattan Bank, mines data from various sources to
develop new products.
• Tapscott: help to perform ‘surgical strikes’ instead of ‘carpet bombing’
Data Issues
• Bad data quality or no data will be a problem– Data stewards– Building up to a DQM strategy– Dynamic process of tidying up
• Interface into existing systems– Front and back office– All communication channels– 360° view
• New data collection mechanisms => increased cost
Metrics
• Sales analysis • Returns• Warrant service requests• Calls / complaints• Time to closure• New contacts generation• Sales conversion• Customers retention• Campaign tracking• Pricing strategy changes
Staff buy in
• Even more so than for ERP, CRM requires total buy in.
• One bad experience is enough• Communicate on what is being sought• And have clear performance measurements• Create programmes to show that it matters• Monitor performance and overall effect over the
long time• Measure €€ returns regularly
Integration of customer content
• Transactional data• “Human” data (obtained in conversation)
– Procter and Gamble– HD
• Try to minimise the cost of collecting such data
• Web services are interesting new channel• Intranet / CRM systems provide a platform
for distribution on a wide basis
Integration of business processes
• Sales and Services primarily• Accounting• Logistics / shipping• + all intermediaries downstream
– Distributors– Experts in position to prescribe or recommend– Contractors supporting the provision of
services• Eg: BGE
Integration of customer contact information
• All channels
• 24 / 7
• Available to all CCP (customer Contact Personnel)
Integration of front end and back end functions
• Traditional firm: stronger back office functions weak customer facing services
• Start up firm: opposite
• Adapting the structure / IT infrastructure to this problem– Different expertise– Different cultures
Customers
TelephonyInternetFace-to-FaceMailFax
Front Office CRM Processes
Sales Marketing Services
Data Mining and Analysis
Data Warehousing
Back Offices and External Systems
LegalHRFinanceR&DServersStorage
Customer Interface Infrastructure
Infrastructure for CRM
Components of CRM
• Marketing databases
• Business intelligence
• Internet / ecommerce
• Call center
Marketing databases
• Have made an incredible difference
• Reduced attrition drastically
• Reduced cost / risk of new product sales
• Data warehouse => advanced search
• Cross selling / upselling / event driven marketing…
Business Intelligence
• Making sense
• Identifying problems
• Understanding cause and effect relationships
• Anticipating future changes
• EIS / OLAP / dashboards of info
• + datawarehouses and data mining
Mainframe and non-mainframe data sources
Extraction, Transformation and Loading Tool - for data quality and integrity
Using flat-files or a staging area
Relational Database on a dedicated Server:
Normalised, Snowflake or Star data schema
Static/Flexible Reports:
Batch and on-line reporting environment
Data Mining:
Using an inductive logic engine to identify correlations and hidden relationships
Analytical Tool:
Interactive analysis -OLAP tool
User Interface Deployment:
Web deployment, Power-user client interfaces
Need to provide rich presentation visualisation, user interaction and supplementary documentation
Scrutinising MultidimensionalSummary Cubes
Surveying Transaction-level
Data
Showing Reportsand
Analytical Results
Data Warehouse Store
Source Systems
Discovering Surprise
Relationships
Data Staging for Cleansing
Basic principles
Life cycle of the DW
Operational DatabasesOperational Databases Warehouse DatabaseWarehouse Database
First time loadFirst time load
RefreshRefresh
RefreshRefresh
RefreshRefresh
Purge or ArchivePurge or Archive
MarketingSales
FinanceHuman Resources
Data Marts
Data Data WarehouseWarehouse
Data MartsData Marts
External DataExternal Data
Flat FilesFlat Files
Operational Systems Marketing
Sales
Finance
Original OLAP Rules
1. Multidimensional conceptual view
2. Transparency
3. Accessibility
4. Consistent reporting performance
5. Client-server architecture
Original OLAP Rules
6. Multiuser support7. Unrestricted cross-dimensional
operations8. Intuitive data manipulation9. Flexible reporting10. Unlimited dimensions and
aggregation levels
Multidimensional Database Model
The data is found at the intersection of dimensions.
StoreStore
GL_LineGL_Line
TimeTime
FINANCE
StoreStore
ProductProduct
TimeTime
SALES
CustomerCustomer
Customer contact point• Call centre (70% of all contact points) evolving into a
selling channel• Goals of the contact point
– Listening to the customer– creating higher levels of loyalty
– providing a better experience • CTI• Hidden cost => increased in-coming calls • But automation means complete framework for measuring
performance• Counter measures can be derived from findings• Email management provides further automation
The Internet
• Better economics– Average cost of banking transaction = €1 / 54 cents
with call centre and 13 cents on web site.
• Unlimited connectivity (in theory)• Seamless data collection• Integration with SCM• Event driven built into services / automated• click-for-help • Significant risk in integrating with back end
TCO for CRM
Too expensiveWhen more than 50 staff
Implementation costs more than softwareIntegration costs even more
Self administering DBs with no needFor DBA and / or open source licencing
Maintenance about 20% of softwareCost yearly
Upgrade around 30% of initial cost every24 months
Building the case for ROI
• Will crm improve our ablity to generate revenues?– Will it improve decision making?
• Will crm improve customer satisfaction?– Will it improve quality of service?– Will it improve quality of products?
• Will it reduce operational costs?• Will it improve employee satisfaction?
– At least will it not decrease it?
Key decisions for ROI
• What costs must be absorbed? – see lecture on TCO for ERP
– Eg: infrastructure costs– Hardware costs
• What benefits must be measured?– What is the true impact of the software?
• Choices: sales growth, customer growth and how they will be weighted (so they can be converted into € figures)
• Also consider tradeoffs (things that could not be done without the software)
Knowledge management
• Tacit knowledge• Explicit knowledge• Sales area dominated by the former• CRM is an attempt to codify knowledge and
store it for easy access• CRM is also an attempt to create new
knowledge• Finally CRM is an attempt to built knowledge into
the business processes of the firm– Event driven marketing / cross selling / up selling
A study of CRM in IrelandCompany Business Maturity CRM software
Eircom Telecom 5 years Seibel CRM, GTX, Campaign Management System
AIB Financial Services Industry 3 years Client view system, segmentation tool, Campaign Management System
Irish Life Financial Services Industry 2 year Siebel eInsurance, POS system
Insurance Co Health Care 18 months Analytical tool
Eircom: old monopoly market opened to competition in Dec. 1998
AIB: interesting because no CRM specific platform but CRM unit
Irish Life: merger of Irish Life plc and Irish Permanent plc in April 1999 andAcquisition of TSB in 2001
Insurance: over 1.56 million customers (41% of the Irish population)Annual premium income is in excess of €600 million.Over 2.5 million customer contacts re forty thousand insurance claims per year
Eircom
• Problems– poor system integration– paper based system used for order tracking and diaries– no customer contact history.– technology limited and inadequate – limited segmentation analysis and campaign management.– Legacy order management systems outdated– systems consisted of a number of disparate information systems
with no integration between the front and back offices.– Front office staff had to deal with multiple desktop applications,
Eircom solution
• Siebel CRM (1999) to manage corporate clients• GT-X system (1998) for the mass consumer
segment • Difference: Siebel geared towards relationship /
GT-X geared towards transactional efficiency• Also: total integration between front office,
customer information database, the data warehouse and back office systems
• Creation of CRM department (half IT / half business) in charge of all related projects
AIB• CRM unit has end-to-end responsibility for the delivery of
CRM projects• Mosaic of in-house systems
– the client view system• up to the minute customer information, contact history log and customer
contact diary – the segmentation system
• groups customers based on demographics, and assigns specific customers to relationship managers
– the campaign management system• For both current and potential customers• Replaced a manual system
• Never upgraded legacy systems with “proper” CRM platform because functionality was already there
“So it doesn’t have the full functionality and nice bits offered by CRM software packages,it has the core bits and all the other bits are being added and tagged on” (CRM Consultant AIB).
Irish Life - Problems
• two distinct processes. • In house semi-automated point of sale (POS) system
using Visual Basic™– not structured in terms of the information that it held or of the
processes involved.– still involved paper-based processes which were time
consuming and ineffective.
• Separate process for customer campaigns– Eg: mail shots– not automated– very hard to target the right customers with the right information– Ineffective and hard to gauge results
Irish Life - Solutions
• Complete Siebel CRM application used by some selected actors – sales department
• In parallel, developed new POS system able to generate personalised service
• Integration means sales personnel can prepare meetings with clients
• Also used for diary keeping / scheduling
Insurance - problems
• Lost monopoly in 2001• Started customer retention programme• But CRM big bang “impractical”• IT systems disparate with minimum linkages
between them.• integrating these involves contrived data re-
structuring• changes required would be so great it would
involve ‘starting all over again’. • Piecemeal approach followed – over next 5
years
Insurance - solution
• Norkom’s Alchemist Customer Interaction software• predictive application models• analytical tool used to build customer models
– data mining – propensity modelling.
• Also facilitates the collection and analysis of customer information
• Creates intelligence to increase the effectiveness of marketing campaigns.
• driven by a data warehouse that extracts and stores data from the operational systems.
• Sales people only initially• Then extension to marketing and services
Summary – drivers of projects Company Origins
AIB Eircom Insurance Co Irish Life
Poor Customer Segmentation X X X XProcess not Standardised XCompetitive Environment X X XRegulatory Environment X XInefficient use of customer data X X X XAutomation of customer centric business
processes X XImprove Campaign Management XPredictive Customer Modelling X X
Summary – Goals and Objectives
CompanyGoals and Objectives
AIB EircomInsuranceCo
Irish Life
Holistic view of the customer X X XCustomer retention X X X XTarget Marketing X X X XIncrease in revenue X X X XImprove customer relationship X X X XBetter use of customer information X X X XCommunicate more effectively with
customers X X X
Summary - priorities CompanyMostImportant Objectives
AIB Eircom Insurance Co Irish Life
Holistic view of the customerX
Customer retention X
Target MarketingX
Increase in revenueX X X
Better use of information X
Improve the customer relationshipX
Eircom successKey performance indicator 1998 2002
Customer Service Level 20% in 10 seconds 85% in 10 seconds
Calls abandoned 24% 4%
Customer wait time 150 seconds 8 seconds
Transaction handling time 480 seconds 205 seconds
Query resolution at point of contact 60% 87%
Electronic enablement 17% 50%
Cost per contact-Care Centre €4.48 €3.26
Eircom.ie hits per month 285K 426K
Eircom.ie substitutable contacts 20% 35%
Summary – problems encountered
CompanyLimitations AIB Eircom Insurance Co Irish Life
Getting ‘buy-in’ from users X XUnwillingness to change X XNo large scale processing power XLack of ‘fool proof’ systems X XLack of integration X X XNo real time CRM X X XEconomic limitations X XLack of service function X X