Wednesday, October 15, 2008

Using Profitability Analysis to Cement Customer Connections

Published: June 19, 2007 
By Lauren Gibbons Paul
 
 
In any industry, the name of the game is to build better and more profitable customer relationships. The first step is to understand customer behavior, by merging data from many different sources into a coherent whole and making it easy for employees to access the composite view. After that is done, usually via implementation of a Customer Relationship Management (CRM) platform, your employees can take the necessary next step of segmenting customers according to their value to the organization. By overlaying profitability analysis onto the other data, an organization can sell smarter.

“You use the information to determine what level of service to provide,” says John Hagerty, vice president and research fellow at AMR Research Inc. “Some companies like to say they give great service to everyone. But you have to put your resources where they will do the most good.”

Mining CRM databases to help maximize profits will fail if your CRM system isn’t ready.

After you know who your most profitable customers are, all that remains is to provide sterling service and irresistible offers to that select group in order to make their allegiance to your firm grow. “When you begin to understand customer behavior patterns, you overlay those with product profitability models or customer profitability models,” says Michael Smith, director of marketing for Microsoft Office PerformancePoint Server.

But mining CRM databases to help maximize profits will fail if your CRM system isn’t ready. That hurdle can best be overcome by using a CRM package with a familiar interface that resembles the users’ everyday computing environment. The new generation of lightweight business intelligence (BI) tools can also significantly reduce the burden by providing a comprehensive customer picture via a portal.

The Ties That Bind
To better understand customer behavior requires pulling data from all sources into one place in an easy-to-use format.
Even midsize organizations typically have multiple sources of customer behavior data. If these customer data sources remain separate, employees from different groups will have different pictures of the same customer. A consumer who shops a lot online, for example, might look stellar to the online sales group, while the bricks-and-mortar sales group thinks she is a dud. That disjointed approach often contributes to substandard service, leaving the customer wondering why the company values her so little.

To better understand customer behavior requires pulling data from all the different sources into one place in an easy-to-use format. The vehicle for this 360-degree view of the customer might be a CRM package or a BI tool that rides on top of the other business applications.

Only then you can delve into customer profitability analysis, says Smith at Microsoft. Whether you look at profitability for the product or the customer depends on your business, he adds. “You have to take into account the factors that drive profitability and performance to the business.”

When equipped with easy access to the latest customer information, employees often become more effective company ambassadors.

The last step is quite possibly the most important-offering differentiated service levels depending on customer value. This is where your people with the most direct customer contact begin providing superior customer service. “You push this information out to the front-line customer interaction workers to inform them about how to treat different customers,” says Smith. When equipped with easy access to the latest customer information, employees often become more effective company ambassadors. For example, you might give customer-facing employees discretion to make special offers such as free shipping on the spot for the best customers.



CRM success isn't guaranteed
CRM Implementations Still Troubled
Providing different levels of service based on customer profitability often depends on a fully functional CRM system. Despite the immense benefits of empowering employees with complete customer information, many CRM implementations never reach their full potential. According to an October 2006 report from AMR Research, “Users Still Not Jumping on the CRM Train,” midmarket companies were the most likely to have experienced the failure of a CRM implementation (see chart, “CRM Success Isn’t Guaranteed”). “Companies with less than $1 billion in annual revenue represent much higher failure rates,” than their larger peers, writes AMR analyst Robert Bois.

The most pressing problems with CRM installations, according to the AMR survey, are unrelated to technology. Survey respondents cited poor user adoption, lack of training, and inadequate communication as the biggest pitfalls. Training was the single most often-cited cause of disappointment. “Comprehensive training is often neglected, frequently the first item cut back when cost and time overruns crop up,” writes Bois.

That’s where the power of a familiar interface, such as Microsoft Dynamics CRM, closes the gap. It reduces the training requirement significantly. According to the AMR survey, most CRM tools have at least nominal links to Microsoft Office Outlook or the Microsoft Office system. Some even follow certain aspects of the Microsoft Office theme for their user interfaces, further reducing training requirements, according to the report.

Bring It All Together
It is no longer enough to capture your front-line employees’ interactions with customers. That is a necessary, but not sufficient, step toward understanding who your best customers are and serving them accordingly. With a customer management implementation under your belt, the next step is to analyze customer or product profitability to obtain a clearer understanding of what contributes most to your bottom line.

The new lightweight BI tools, used together with CRM, can become powerful glue that sticks your best customers to you. “The CRM system and the transactional data are half the pie,” says Smith at Microsoft. “The other half is the analytics that can be used by everyone in the company to make better decisions about how to serve the customer.” The goal is to boost profitability by taking a more fine-grained approach to customer service.

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