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Online Exclusive: CRM: Entering a Brave New World

Marketers face a new set of opportunities — and challenges — to tap into CRM's potential for their organizations. New channels and media and enhanced technological capabilities promise improved means of reaching customers effectively and profitably. To take advantage of these opportunities and avoid the pitfalls, it is time to look at how customer relationship management has changed, via a paradigm shift.

The marketing CRM paradigm — past and new. The key dimensions of CRM have radically changed:

· Drivers. Tools were the first primary focus here, but customer data, dissemination speed and analytic applications are the new order.

· Biggest challenge. Things have flipped. Originally led by technology, then data and people, the challenges now start with people, followed by data and technology.

· Priority. Where performance was once the most important priority, analytic intelligence, rapid dissemination and measurement have proven their value and emerged on top.

· Technology approach. The approach built around product and standardization has been replaced by standard flexible platforms and customization.

· Several organizations' efforts show the difference between past and new CRM approaches and the rewards to be found in between.

Up close and personal. Five years ago, a specialty retailer expressed interest in going beyond an attitudinal segmentation and establishing direct communication with customers to drive customer acquisition, conversion, upgrade and retention. Though this retailer understood the profile of its customers, it lacked an informed view of its customers at the individual or household level and therefore could neither identify its current customers nor target tailored communications to its customers. To create customer data quality and establish a database marketing platform, this retailer took these steps:

· Established a central database operation through a third party.

· Rented lists for new store openings and captured the names and addresses of customers at the point of sale who responded to the offer.

· Generalized customer data capture in all retail stores, including linking the store manager's compensation to the percentage of customers with mailable addresses and the percentage of transactions successfully matched to individual customers.

· On an ongoing basis, performed de-duplications, NCOA and other data integration processes to create a single view of a customer.

Today, this specialty retailer's customer data capture rate is consistently above 80 percent, and its database marketing capability is a substantial contributor to the bottom line.

Targeting analytically — and profitably. Predictive models have an enormous effect on driving audience selection.

Two years ago, a specialty retailer reassessed the performance of its holiday programs. After several years of improvements using traditional RFM targeting techniques, ROI and incremental revenue began to stagnate. The company decided to test the impact of predictive models on performance in early 2004.

Results were very promising, and the predictive model approach — based on projected response propensity, seasonality and product category affinity — was applied for the holiday program. The net contribution of the predictive models (incremental to RFM) was astounding:

· Incremental revenue increased 34 percent, from $74 million to $99 million.

· Incremental profit increased from $7.5 million to $13.5 million, or 80 percent.

Measuring for success. In search of profitable relationships, companies can be driven by very different performance metrics, including data capture issues, and vastly different marketing strategies.

One specialty retailer decided to perform fact-based marketing and measure all direct response campaigns. The retailer collected name and address at the point of sale and designed complex test and measurement campaigns. By testing channel combinations, messaging and timing, this retailer evolved from an average ROI of 0.9:1 to 2.5:1. Performance measurement drove this gain through improvements in audience selection strategy.

A second specialty retailer could not match transactions with individuals or households and therefore could not measure campaign performance. The retailer did, however, collect ZIP codes on 50 percent of its transactions. By monitoring trade area and ZIP code performance, this retailer refined its media plan and messaging by geographical segment.

Next steps. With this in mind, companies must assess which CRM activities are best done internally and externally through partnerships. Investing upfront millions of dollars in a marketing CRM platform, including technology and skilled people, is frequently the wrong step for companies. Most companies will find it challenging enough to manage through organizational change and keep their managers focused on high return initiatives and their core responsibilities.

In the long run, as companies learn which CRM initiatives deliver real value and adapt to the evolving, brave new world of CRM, decisions to bring certain capabilities in-house can be assessed. For example, should your company perform predictive modeling and segmentation in-house? Where should the database be hosted and who should maintain it? Should in-house staff design and execute test and measurement plans, and who should be responsible for measurement? Can internal staff create and execute segment branding across all channels?

Companies need to be deliberate about assessing which services and competencies should be in-house and which capabilities are best left to the specialized experts. If they are not, successful marketing CRM will be more of a hope than a reality in creating a sustainable competitive advantage.

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