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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 in Customer 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 Infrastructure for CRM Customers Telephony Internet Face-to-Face Mail Fax Customer Interface Infrastructure Front Office CRM Processes Sales Marketing Data Mining and Analysis Data Warehousing Services Legal HR Finance R&D Servers Storage Back Offices and External Systems 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 Basic principles Life cycle of the DW First time load Operational Databases Warehouse Database Refresh Refresh Purge or Archive Refresh Data Marts Flat Files Operational Systems Marketing Marketing Sales Finance Human Resources Data Warehouse Sales Finance Data Marts External Data Original OLAP Rules 1. Multidimensional conceptual view 2. Transparency 3. Accessibility 4. Consistent reporting performance 5. Client-server architecture Original OLAP Rules 6. Multiuser support 7. Unrestricted cross-dimensional operations 8. Intuitive data manipulation 9. Flexible reporting 10. Unlimited dimensions and aggregation levels Multidimensional Database Model Customer Store Store Time SALES Product Time FINANCE GL_Line The data is found at the intersection of dimensions. Three dimensions 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 Implementation costs more than software Integration costs even more Upgrade around 30% of initial cost every 24 months Maintenance about 20% of software Cost yearly Too expensive When more than 50 staff Self administering DBs with no need For DBA and / or open source licencing 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? Paradox of productivity gains Amongst other things, this shows the need for METRICS 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 Ireland Company 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 and Acquisition 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 restructuring • 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 Poor Customer Segmentation AIB Eircom Insurance Co Irish Life X X X X X X X X X X Process not Standardised Competitive Environment Regulatory Environment Inefficient use of customer data X X X Automation of customer centric business processes Improve Campaign Management Predictive Customer Modelling X X X X X X Summary – Goals and Objectives Company Goals and Objectives Insurance Co AIB Eircom Holistic view of the customer X X Customer retention X X X X Target Marketing X X X X Increase in revenue X X X X Improve customer relationship X X X X Better use of customer information X X X X X X Communicate customers more effectively with Irish Life X X Summary - priorities Company Most Important Objectives AIB Eircom Holistic view of the customer X Customer retention X Target Marketing Increase in revenue Irish Life X X Better use of information Improve the customer relationship Insurance Co X X X X Eircom success Key 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 Company Limitations Getting ‘buy-in’ from users Unwillingness to change AIB Eircom X X X X X X No large scale processing power Lack of ‘fool proof’ systems Lack of integration No real time CRM Economic limitations Lack of service function X X X Insurance Co Irish Life X X X X X X X X Conclusions • Complete range of CRM projects • From complete to piecemeal approach • From vendor driven to in-house development • Benefits are obtained in all cases, but more so when CRM strategy is complete