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Facts about customer relations


									        Facts about customer
• 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

       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
• 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
      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
• 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
• Understand the implications for everyone of some key
• Work out conflicts and fill gaps in understanding with
• 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
• Integration between ERP and activities
  never computerised before
                     CRM tools
• Data capture, data organisation and decision
• 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
•   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
• 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
       • Eg: BGE
  Integration of customer contact
• All channels
• 24 / 7
• Available to all CCP (customer Contact
  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
            Customer Interface

        Front Office CRM Processes

Sales           Marketing           Services

         Data Mining and Analysis                                              Storage
                                                   Back Offices and External
          Data Warehousing
         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
       Business Intelligence
• Making sense
• Identifying problems
• Understanding cause and effect
• 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



                                                Purge or Archive

              Data Marts
 Flat Files
 Systems                              Marketing

                         Sales          Sales
                    Human Resources

                        Data           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
8. Intuitive data manipulation
9. Flexible reporting
10. Unlimited dimensions and
  aggregation levels
   Multidimensional Database
Customer  Store

                     Time                     Time

          SALES                  FINANCE

Product                     GL_Line

The data is found at the intersection of
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
• 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

      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
  – 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
         Key decisions for ROI
• What costs must be absorbed? – see lecture on TCO for
   – 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
• 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
• 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
• 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
   • 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-
• changes required would be so great it would
  involve ‘starting all over again’.
• Piecemeal approach followed – over next 5
            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
• 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
                                          AIB   Eircom   Insurance Co   Irish Life
Poor Customer Segmentation
                                          X     X        X              X
Process not Standardised
Competitive Environment
                                          X     X        X
Regulatory Environment
                                          X     X
Inefficient use of customer data
                                          X     X        X              X
Automation of customer centric business
    processes                                   X                       X
Improve Campaign Management
Predictive Customer Modelling
                                          X              X
   Summary – Goals and Objectives
          Company                                             Insurance
                                               AIB   Eircom               Irish Life
Goals and Objectives                                          Co

Holistic view of the customer
                                               X     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
Communicate        more   effectively   with
   customers                                   X     X                    X
                      Summary - priorities
Important                           AIB   Eircom   Insurance Co   Irish Life

Holistic view of the customer
Customer retention
Target Marketing
Increase in revenue
                                    X              X              X
Better use of information
Improve the customer relationship
                             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 hits per month               285K                426K substitutable contacts       20%                 35%
 Summary – problems encountered
Limitations                       AIB   Eircom   Insurance Co   Irish Life

Getting ‘buy-in’ from users
                                  X     X
Unwillingness to change
                                  X     X
No large scale processing power
Lack of ‘fool proof’ systems
                                  X     X
Lack of integration
                                  X              X              X
No real time CRM
                                  X              X              X
Economic limitations
                                                 X              X
Lack of service function
                                                 X              X
• Complete range of CRM projects
• From complete to piecemeal approach
• From vendor driven to in-house
• Benefits are obtained in all cases, but
  more so when CRM strategy is complete

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