BI in CRM

Customer Relations Management

BI CRM Objectives• Measure and Manage customer lifetime value• Key to sustain competitive marketplace value• Need robust/integrated technology• Employees to manage customer relations• Senior management buy in essential• Could form a BICC (communications center)• Process solutions to enable in depth, rapid customer data

gathering and analysis• Exploit operational competencies to manage and grow

customer value (historical, anticipated and network value)• Integrate these values to create a quantifiable equation and

understand components that drive CRM

BI CRM Implications• Old way: Manual searches and data entry• Finding documents only by words occurring in the documents• New way: Search web based on meanings and context rather

than specific words• Semantic web• Text/data mining software can store large amounts of

people/event info in TDWI facilities.• Similar capacity to a research librarian or intel analyst• Large data sets facilitate social network analysis or counter

intel• Stepping stone to communication machine to machine,

symbiosis, then singularity

Key to customer spending• Measure lifecycle of long life customers• Future spending evolution• Improve relationship marketing decision making• Marketing point of view• Focus on new customer’s increasing /decreasing future

spending from initial purchase info• Taxonomical granularity• Bayesian network classifiers to classify customer value

and targeting in database• Probability and statistic pattern learning algorithms• AI/BI interface to maximize data collected

Customer Lifecycle

• AI allows for much more accurate BI in identifying the lifecycle of long life customers

AI/BI vs Customer Lifetime Value

• From a 2006 Oracle white paper• Company looks to balance sheets• Often ignore soft assets (customers)• Most valuable asset• Company’s culture vs customer relations• unique, long term= sustainable advantage in the

marketplace• Most customers are poorly managed• Key to acquiring and cultivating long term highly

profitable customer relationships is:• Understanding customer lifetime value

Understanding this relationship

• Quantifies and predicts profitability for customer segments, business units, products and services

• Measure and influence factors that affect customer value over time

• Relative costs and trade-offs to acquire, retain and grow specific customer segments

• Develop actionable programs to maximize profitability

Value of Customer Asset

• Value of individual transactions

• Frequency/recency of purchases

• Cost of service

• Need to generate rich database of customer needs and behavior

• Invest in BI SaaS, OSS, TWDI, cloud computing, text/data mining etc..

Cost of a Customer

• Hardest most expensive sale is first one

• Initial cost of customer and profit generated vs long term potential

2 Key Components

• 1) Transaction Value (from historical data)

• Can be generated from similarly segmented customer groups

• 2) Network value- customer referals

Lifetime Value Equation

Transaction Value Network Value

Customer Value (minus) Acquisition/retention Costs

Transaction Value

• Historical customer behavior: most important information

• Understanding how the customer interacts with channels and consumes goods and services TODAY is key to FUTURE activity

3 Key Variables

• Frequency/recency

• Transaction size

• Customer churn rate (loss/attrition is greatest cost to companies in lost rev and to reacquire)

Evolving Habits• Customers mature, buying habits

change• Increase in value if hey are measured

and managed appropriately• Tremendous cross selling/upselling

potential• Can reduce churn rate by satisfaction

Network Value

• Large customers can provide a feed or avenue to tap into their customers

Acquisition/Retention Costs

• Acquisition costs= tot acquisition expense divided by tot new customers

• Vary by segment• Marketing cost, material/collateral, sales,

channel and resource, discount and rebate• Failure to manage will lead to rapid failure• Need AI/BI to manage effectively• (Pets.com)

Aligning Operations

• Build customer centric operations• Maximize customer lifetime value• Organization and operations• Erode profits with poor distributions or

product development w/o customer in mind

• Data mining would provide info to do this right

3 Elements of Success

• Integrate channel systems

• Marketing and incentive programs

• Product design strategies

Integrating Channels• Balance customer preferences with costs of service• Coordinate multiple channels in the customer

interaction process• Call center integration to improve sales and service• Roll of each channel to be clearly defined and

measured and managed• Value of each subsequent customer interaction will

increase to both parties

Multichannel strategy works!

• JC Penny proved it.

• 1999 internet shoppers spent $121/yr

• Retail only $194/yr

• Catalog only $242/yr

• Integrated with all three, over $1000/yr

JC PENNY

$0

$200

$400

$600

$800

$1,000

$1,200

Internet Retail Catalog All three

North3-D Column 4

JC Penny results

• By integrating channel operations to share customer information with all departments, store and catalog profits soared 83% in the third quarter 2003 year over year

• Has been key to JC Penny’s continued success

Customer incentive programs

• DRIVES REVENUE• Invest heavily in marketing efforts (incentives,

branding, discounts)• Can be a significant profit drain• When armed with in depth, reliable BI on

revenue per customer, judicious, targeted use can increase profit per customer

• Create tiered customer investment programs to match current and potential return generated by the customer

Product Design Strategies

• Meet needs of customers

• Distribution channel system

• Dell computer customization

• UPS/Dell repair facility at SDF

• Levi Strauss individual design

• Engenders customer loyalty

Role of Technology

• Key factor to measure/manage lifetime value • Captures and stores customer interactions

across all company touchpoints• Establishes more insightful customer

segmentation schemes • Facilitates a more effective dialogue and

experience for each relationship

Tech Role Con’t• CRM Tech facilitates gathering and analysis for profiling

and planning (AI/BI interface)• This is done two ways:• 1) Resources that interact with customers gather

important customer transaction, preference and profile data through data capture fields and processes

• 2) Analytical engines such as pattern learning algorithms and probability and statistics formulas (AI), segment and identify and analyze trends, customer behavior and preferences

• Use to upsell/cross sell, better serve, profit • Meet customer needs

CRM Solution

• Each channel has a defined roll

• All channels are seamlessly integrated

• Can measure and manage all channel resources based on fact-based real time reporting

Customer Management

• Extract true value from customer

• Must build process and culture to continuously monitor and manage this critical success factor

• FedEx’s focus

4 groups of customers

• Stable customers= very high value

• Growing shippers= high value

• 6 month elapsed shipping=medium

• Seasonal=low value

Stable Customers

• 3 times the lifetime value of average customer

• Marketing initiatives to retain this segment

• Adopt unique marketing techniques for each segment to increase efficiency and effectiveness

Senior Management• Must have buy in from very top• Mandate to monitor customer value• Build customer centric culture• Management, decision making and business

strategy rigorously supported by fact based analysis

• Use clear definitions for business, customer and product strategy

• Use processes to facilitate customer management through related metrics (retain customers, customer acquisition investments)

(Conclusion) CRM BI

• Measure and Manage customer lifetime value• Key to sustain competitive marketplace value• Need robust/integrated technology• Employees to manage customer relations• Senior management buy in essential• Could form a BICC (communications center)• Process solutions to enable in depth, rapid customer data

gathering and analysis• Exploit operational competencies to manage and grow customer

value (historical, anticipated and network value)• Integrate these values to create a quantifiable equation and

understand components that drive CRM