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The R in CRM Stands for Risk & Respect from Customers, not Relationships Huw Davis European Managing Director of Brann Discovery Brann Worldwide © Huw Davis, 2001 A statement on CRM © Huw Davis, 2001 The Boundaries of CRM • It is not about just calling your marketing database - “a customer relationship database” • It is not about just re-badging your Direct Marketing Department - Customer Relationship Department • It is not about customer rather than product profitability • It is not about loyalty schemes, cards and magazines © Huw Davis, 2001 The Boundaries of CRM • Its about – you understanding the type of relationships your customers want with you – knowing when to invest in the relationship – knowing when to reap the benefits of the relationship It’s about customer Risk and Respect © Huw Davis, 2001 Customer Risk Management • Risk with respect to; – – – – – – – financial loss consumer perception brand image competitors missed opportunities to invest in the customer missed opportunities to offer more product knowing how the customer will react to the signals your company sends out © Huw Davis, 2001 1 Net Worth 2 + Marketing Effort 3 Time 4 - © Huw Davis, 2001 ? How to Manage this Risk and Respect Through Information © Huw Davis, 2001 Two Prerequisite for a Marketing Data Strategy Quality Data Rational Information Delivery Statistical Techniques © Huw Davis, 2001 Two Views of the World Yours and Your Customer’s © Huw Davis, 2001 The Customer’s Viewpoint © Huw Davis, 2001 This Room is on Fire and There 100 People in the Room! • Option A has 50% chance of saving 95 people and a 50% chance of saving 5 people • Option B has 50% chance of saving 60 people and a 50% chance of saving 40 people Which do you Choose? © Huw Davis, 2001 Customer Decision Making Social Cost Social Cost Social Cost 0 1 2 . . . . . . . . . . 100 0 1 2 . . . . . . . . . . 100 0 1 2 . . . . . . . . . . 100 No. of Lives Lost at One Time No. of Lives Lost at One Time No. of Lives Lost at One Time Curve 1 Curve 2 Curve 3 © Huw Davis, 2001 Customer Decision Making Choice 1 Cash Coupons Book Worth Gift Package A £20 - Gift Package B £10 £18 Cash Coupons Book Worth Gift Package A £14 - Gift Package B £10 £18 Choice 2 76% 52% © Huw Davis, 2001 Customer Decision Making • • • • • Justification and Choice Framing Information Processing Anchoring and Adjustment Value-focused Thinking © Huw Davis, 2001 Value-focused Thinking DECISION PROBLEMS - evaluation of alternatives DECISION OPPORTUNITIES - Creation of Alternatives Objectives MultiAttributes Utility Function Objectives Hierarchies SingleAttributes Utility Function Attributes COMMUNICATION - language - education PERSONAL INTERACTION - bargaining -one-side bargaining -negotiation -Basis for consensus USEFUL INFORMATION - data collection -value of information © Huw Davis, 2001 Incorporating these Factors into a Data Strategy • What factors of value-focused thinking can be encapsulated - hard vs. soft data • Identifying the moments of truth that allow you to influence the utility functions of decision • What points in the customer contact cycle can these attributes and factors by collected and monitored © Huw Davis, 2001 Your Viewpoint © Huw Davis, 2001 The Internal Data Model Customer Identity Product Transactions Marketing History © Huw Davis, 2001 The Total Data Model Household Information Customer Identity Individual’s Lifestyle Product Transactions Intentions / Plans Marketing History Competitor Information © Huw Davis, 2001 The Total Data Model Household Information Customer Identity Individual’s Lifestyle Product 70% to 80% Transactions predictability Intentions / Plans Marketing History Competitor Information © Huw Davis, 2001 Looking for Signals © Huw Davis, 2001 Creating Customer Relationships Prospect Purchase Complaint “The Signal Machine” “Moments of Truth” Signals Derived Signals © Huw Davis, 2001 Creating Customer Relationships Prospect Purchase Complaint “The Signal Machine” Information Thank You Lesson to Learn © Huw Davis, 2001 Financial Evaluation of the Segmentation Initial ROI and LTV Modelling Concept © Huw Davis, 2001 Acquisition, Trialist and Retention © Huw Davis, 2001 Calculating Value of Customer Segments Time A GV1 B Effort needed to Move segment GV2 © Huw Davis, 2001 Developing the Value Model n n t =1 t =1 GV = N ∑ (Qtπ t ) − N ∑ ( At + Tt + Rt ) GV = a given segments Group Value for a given time period Q= Average volume of purchases per period A,T,R= Average cost of acquisition, trialist and retention π = Margin per average purchase N = Number of consumers in group / segment Adapted from original source - Customer Connections - Robert Wayland & Paul Cole - HBS Press © Huw Davis, 2001 Developing the Value Model G = [aCn Ν − A(Cn )] + [drCeE − T (Ce )] − [(1 − r )CeE + R (Ce )] G= total growth in segment portfolio value a= attraction rate of new customers, expressed as new divided by potential customers Cn= number of potential new customers to the company A(Cn)= acquisition cost function N= value of each new customer d= development rate(increase of value) of remaining customers E= value of an existing customer Ce= number of existing customer at beginning of the period T(Ce)= trialist cost function r= retention rate of existing customers (1-r)= switching rate R(Ce) =retention cost function Adapted from original source - Customer Connections - Robert Wayland & Paul Cole - HBS Press © Huw Davis, 2001 Modelling Factors • • • • • • • Demographics Regionality Activity Types Budget allocation Proximity of competitor brands / pricing Existing market share Continuous evaluation and adaptation due to success levels of campaigns © Huw Davis, 2001 Summary • The need to identify where best to spend your marketing effort • Understand the relationship the customer wants with you • Appreciate the effect your marketing effort has on the customer • No when to stop © Huw Davis, 2001 Huw Davis European Managing Director of Brann Discovery Brann Worldwide [email protected] © Huw Davis, 2001