B2B Resource Allocation: Optimizing your CRM investment and coverage effectiveness, prt 2

If you watch the kids, they seem to be able to do everything simultaneously and to do so 24/7.
The rest of us have limitations. In business there are resource limitations - we can't do or be everything for everyone.
We live and work in a time in which each of us faces allocation constraints pertaining to use of money, time, and people. Furthermore, the competitive arena we operate in is wholly unlike that of just a few years ago.
Consider this quandary: If you have a million dollars, where do you invest it to maximize your return? How do you approach solving the problem and answering the question correctly.
[Personally, I always liked Len Schlesinger's 2 X 2 matrix he termed "the Marketing Optimization Model"].

The marketer’s Holy Grail is to get the right message, product, and/or service to the right person, at the right time, in the format that customers have indicated they prefer. In fact, this is the primary goal of an optimal allocation model.
An optimal coverage model would also:
• Support a retention – and loyalty-focused, customer-based business design
• Make effective use of the organization’s limited resources
• Make investment decisions based on reciprocal commitment or mutual interdependence of your Ideal, Best customer and channel partners
• Establish integration and synergy across the three functional areas responsible for servicing the customers: i.e., product marketing, sales, and customer service.
Stepping Back: there are two reasons that customer relationship Marketing is so powerful when implemented properly. First, the firm focuses on acquiring the Ideal, best customer, and, second, the company manages its customers as a portfolio of assets – investing its limited resources proportionately to the level of commitment that customers and prospects make to the organization.
My contention is that there is a fairly well-defined path the enterprise can take when analyzing and assessing its allocation challenges. This path is mapped out through the use of the tools, templates, and planning by the data-based, relationship marketer.
Resource allocation must also bring to bear the relationship marketer’s theories about managing the point of contact, managing the customer across their lifecycle of interactions with the company, managing the value of the customer portfolio, and managing knowledge across the company and across the value chain. Fred Reichheld called it “the customer corrridor, graphically illustrated above. In effect, this metaphor illuminates the challenge of resource allocation relative to your customers’ lifecycle relationship with your firm.
Specifically, there is a spectrum, or “continuum of relevant customer contact activities,” that needs to be mapped to create an optimal and effective resource allocation model.
The first step many organizations will need to undertake is to conduct an audit of their marketing, sales, and customer service activities so as to surface the key interdependencies between them, as well as with site logistics. Think of it as “the programming” phase of dealing with an architect. The Master Builder will want to know how you want to live and function in the new space. This is a reflective exercise. The goal is to be in a position to produce cooperation and coordination across and between all functional areas that deal with customers and their issues. We need to:
• Make visible and apparent where integration between the functional areas is necessary
• Make apparent where non-discretionary accountability must reside
• Revisit the current account selection process
• Revisit key account management practices
• Objectively verify whether an account is relationship – or transaction-oriented
• Assess the skills, training, and behavioral components of the relevant customer contact people in each of the functional areas
• Assess degree of cooperative, cross-functional teamwork along with supporting account planning, communications, and contact management tools

Resource Allocation for the B2B CRM Practitioner

It’s no longer a secret. The evidence is compelling. It is well documented, both at the academic level and in practice. Enterprise-wide Customer Relationship Management (CRM and CEM) – when properly implemented - can achieve impressive results. The primary results:
• Increased sales Effectiveness and Efficiency
* Increased Profits
* Increase in customers served and products placed within customer accounts
• Increased Customer/Employee Satisfaction
• Decreased cost-to-serve
The second “secret” is that virtually every organization has limited resources: People, Money, Time.
Optimization of the respective coverage models - sales, customer service, marketing and channels - still has not been exhaustively studied. The models and tools of the eCRM practitioner provide almost a dot-to-dot like template with which to assure coverage optimization and hence optimal use of the firm’s limited resources.
The third “secret” is that our customers represent a portfolio of assets that we must proactively manage in order to maximize shareholder and stakeholder value.
Whether the resource is time, money, or people, the optimal allocation of resources is a critical issue, a critical challenge, for almost every business organization. Since no enterprise has unlimited resources, it is worth investigating how customer relationship marketing models can provide a critical key to unlock the answer to this problem.

In no functional area of business is this resource allocation problem more true than in sales, marketing, and servicing customers and/or prospects. In fact, the search for the optimal allocation of resources in these functional areas is something akin to the search for the Holy Grail.


In business-to-business marketing the characteristics of the target customer group can commonly be depicted visually as a pyramid, with the largest accounts at the top of the pyramid, and moving down through a group of middle accounts trying to grow larger and support the pyramid are "minor" accounts.
The pyramid graphically shows how, in most mature, competitive industries, the sales function (together with service and product marketing) is faced with:
• Price and margin pressure at the top of the pyramid, where the size of the targeted accounts is the largest
• Margin (cost-to-serve) pressures at the bottom of the pyramid, where the largest number of accounts exist
• An eventual overabundance of competition – once all your competitors realize where you are making your money - in the middle, where the most profit is initially available
• A shrinking middle layer

If, as has been suggested for the last 15 plus years, we elevate Customer Relationship Management, as core strategy, and Sales to a strategic boardroom issue, we can create the greatest synergy by applying the models of customer relationship marketing, customer insight, and knowledge management to the problem of resource allocation.
One Observation
In addition to the five key inevitable outcomes that result from a well-executed customer relationship marketing competence, other implicit problems are remedied:
• Increased sales
• Increased service levels
• Increased customer and employee satisfaction
• Increased customer and employee retention
• Decreased cost to serve
• Faster product introduction, i.e., speed to market
• More controlled management of product migration by targeted segment
• Decreased cost of doing business as a percentage of sales, i.e., sales expense to revenue ratio (E:R)
The Thesis
The planning tools, operational models, feedback loops, and performance metrics of relationship marketing
are templates that create optimal resource allocation and coverage models. What we have created and replicated across multiple firms in the B2B realm is a roadmap for optimizing the allocation of resources, together with the attendant analysis and implementation.

Market-at-risk Analysis

The Quality movement in the US came to the forefront in the mid-80's. Satisfaction and loyalty became the next banners brought into the battle. Today it appears as though satisfaction and loyalty have slipped to a lower focus of attention. Corporate social responsibility, corporate reputation, and customer experience management are more "top-of-mind" than at any time in my career.
Yes, customer satisfaction is still important. In fact a new "standard" for reporting satisfaction has emerged. Borne from Fred Reichheld's ground-breaking studies while at Harvard, Net Promoter can be a powerful tool and quite a number of firms have chosen Net Promoter as their scoring mechanism.

If you want to find out exactly where to concentrate your efforts to improve and or fix issues ready to your company's product, delivery, and service issues: Market-at-risk analysis is the way to go!
Developed by John Goodman and brought to the marketplace and placed under its scrutiny and spot-light by TARP (quality firm, not asset relief), Market-at-risk analysis allows your firm to stack rank the 10 or so top reasons why customers will not buy from you or why they won't refer or why they will DEFECT as soon as they can.
Stack ranking by economic impact caused to your business : fix it and win big!

thought-starter # 3, loyalty versus frequency

Thought-starter # 3: Loyalty versus frequency

“At the core of any successful enterprise, enabling its very existence is the value creation process. Value creation generates the energy which holds the business together… The forces of loyalty are measurable in cash flow terms

because of the linkages between loyalty, value and profits. Loyalty is inextricably linked to the creation of value.”

-Fred Reichheld, Bain

Examining the historical purchase behavior, captured in our marketing database, we can define the value our customers have had in prior years. We can also project out what these same customers might be worth over the next five to ten years. Most of us know this projection as lifetime value (LTV). As we examine

the value of our customers to make the decision to establish loyalty bonds, it’s essential that we recognize three things:

1. LTV is a projection based on historical behavior.

2. LTV has more to do with how we treat our customers after

we have acquired them than how we acquired them.

3. LTV is most effectively measured by measuring the re l a t i o n s h i p

we have with our customers, not with measuring transactions.

Frequency Programs vs. Loyalty Programs

This brings us to frequency programs. Frequency programs are usually transaction-focused, non-selective and often destructive. Most of us participate in a multitude of them. Initiated in the early 1980s by the airlines to entice business travelers, many companies have successfully replicated these once highly successful programs.

All too often, however, frequency programs are created as me-too administrative programs, programs that merely respond to competitive offerings, programs that shift-the-burden away from a true loyalty solution. Following this logic, a poorly conceived or executed frequency program will not help us select the best customers for our business. A frequency program may cause us to acquire customers we cannot service adequately or, even worse, diminish the perceived value of our product offering. In short, frequency programs and loyalty programs are two distinctly different animals.

Executed as relationship-welding, relationship-enhancing efforts, loyalty programs must be derived from the strategic corporate mission. The best loyalty programs aim to create value-based relationships with our best customers. The determinant variables in this equation are:

1. How well do your external service values align with your customers’ needs?

2. Do your external service values align with your core competencies?

3. Do your core competencies rest on a foundation of loyal employees?

Let us offer this simple comparative matrix to allow you to evaluate the purpose of your own loyalty effort.

Loyalty Focus Frequency Focus

Recognizes… • Heterogeneity • Homogeneity

• Employee contribution • Responses to mailings

• Value-added • Transaction-based

• Customer-focused • Competitive-focused

• Needs-based • Incentive-driven

• Relationship-focused • Payout-focused

• Two-way dialog • One-way communications

• One size fits one • One size fits all

• Needs-based • Mailing list bias

• Outside-in focus • Inside-out focus

• Focused targeting • Indiscriminate targeting

Measures… • Share of customer • Response rate

• Share of requirement • RFM

• Duration of relationship • Cost per response

• E:R for customer • E:R for mailing

Loyalty Management and Customer Experience Management at their foundation use the best tools and practices of the data-based, integrated, direct marketing practitioners to build, develop and foster relationships and loyalty where appropriate. Always based upon the delivery of value. Data-based relationship marketing affords you the opportunity to redefine the traditional “value chain.” Today’s loyalty-based marketer is more about building community: mutually interdependent alliances of stakeholders including employees, customers and vendors. All predicated on delivering value to the relationship and relevance in each and every individual contact. Fully recognizing that value changes with each new touch, or contact, between your customers and your company.

Customer Retention Strategies and Tactics

Thought-starter # 2, the calculus of loyalty

Thought-starter # 2: the calculus of loyalty

There is a calculus of loyalty. Experience, coupled with the latest findings published by Bain and TARP, now demonstrate this. In business, as in our personal lives, loyalty (etymologically related to the Latin lex or “law, faithfulness”) has definite rewards. The single most compelling reason for a business to exist is to create value for its customer community. If your purpose in life (for your business) is to create value, you’ll prosper and grow and loyalty will be the single largest contributing factor. If not, you’ll be out of business in the next five to ten years.

Until recently, the rewards of business loyalty were understood only intuitively. It made sense to us as marketers that loyal customers bring with them greater profit over time. In fact, the original frequency programs were designed to capitalize on, and are direct evidence of, this intuitive knowledge.

Frequency programs and frequency measures may be destructive, however, unless the economics of loyalty are taken into account.

Loyalty reliably measures whether superior value has been delivered. Most of

us now recognize that “value” is completely customer-defined. The equation might look something like this:

your customers’ expectations for the experience – “the actual”

VALUE = ____________________________

Cost

When our customers experience continuous, reliable, and increasing value we know that they will be Loyal. Loyalty brings with it a series of second-order economic effects, which cascade through the business system:

1. Revenues and market share grow through repeat sales,

purchase of other products and referrals.

2. Costs to acquire and to serve existing customers shrink.

3. Profits go up.

4. The company culture change.

A self-renewing, continuous improvement process installs itself. Employees have increased job pride and satisfaction. Employees stay longer while customers come back.

In achieving customer loyalty, the single most important decision any company can make is selecting its customers. We can neither serve every customer well nor be all things to all customers. It’s a costly istake, a diminishing of our resources and skills, to try to retain each and every customer because, quite simply, not every customer is worth retaining. In fact, we need to learn how to identify and disengage with customers who are not profitable to serve.

To wrestle with the subject of loyalty, it’s vitally important that we define who a customer is and then define their lifetime value, expressed in net potential value (NPV) terms.

Then, we must understand how much of the customers’ “share of wallet” belongs to us today and how much of their wallet we can earn. We can then make intelligent decisions about how to invest in our current and potential customer audiences based upon their reciprocal commitment to us (as demonstrated by their pocketbooks).

What Variables Do We Me a s u re ?

We define a customer by at least two variables; e.g., a customer is someone who buys X number of dollars worth of my products over Z period of time. We can add dimension to this definition by expanding the definition;

e.g., someone who buys X number of dollars of Y number of products over Z period of time. Finally, we would want to add the contribution margin of that customer and/or net profit dollars.

Share of Customer and Lifetime Value

While this is an important step in all forms of marketing, in the business-to-business environment we further need to understand how much our customer spends on competitive products That is, the share of wallet (share of customer). For example, if Sue Ann buys $400 of our widgets and a total of $600 of widgets, her loyalty coefficient to us is much higher than if she buys a total of $7,500 worth of

widgets. (Note, however, that some buyers may have constraints on having a single source for any product family; the realization of this “truth” and including this variable in our understanding helps flesh out the calculus.)

In addition to understanding the value of our customer, it is essential that we define the rate at which we lose customers — the defection rate — as well as how many customers we acquire during a given year. Caution is called for here: a greatly skewed picture of the value of our customer community will result if we average the defection rate out, e.g., over 10 years. That’s because most companies report their defection rate is highest over the earlier years of a customer’s lifetime. Any loyalty valuation must recognize this.

I know that many of us see the admonition to “define who a customer is” and laugh or belittle the maker of the statement. But keep in mind the fate of IBM — while IBM touted the fact that everybody was their customer, millions of dollars of replacement parts and add-on business went elsewhere.

A customer, then, is someone who buys X-number of dollars of Y-product offerings in Z-period of time. That is, we define a customer by the dollar amount, the penetration or depth of products purchased, and the factor of pertinent recency.

thought starter #1: define your customers & measure the value of your marketing database

Thought-starter #1: define your customers & measure the value of your marketing database

One issue organizations often struggle with is “how to measure the value of investments made in its marketing database”. Let’s see if we can build a simple, yet practical, evaluation framework for the marketing database in your company. This approach I believe focuses more on process, information management and outcomes, and this approach is more actionable than traditional ROI measures

In today’s business environment, the highest deliverable value of your contact marketing database is the ability it gives you to target, segment and grade[1] your existing customers. Ideally, this repository of facts, through efforts to enrich the data, is transformed into a customer knowledge platform. The insight given from studying the database then is used to direct our customer[2] loyalty and retention efforts.

In the 21^st century marketing world, cutting-edge business-to-business marketing database efforts will measure at least these four dimensions:

a. external service values: i.e., what are the 3,4, or 5 primary reasons customers buy

b. why we lose customers (defection analysis)

c. operational database performance

d. social interaction and customer insight

The best of the best marketing databases in the ’80s and’90s demonstrated their excellence when measured against operational deliverables and measurements. Today, the world-class marketing database looks at why our customers buy (external service value), where/how we stand to lose them, its operational performance, and, finally, real-time, actionable research into the customer’s mind-set and definition of value.

Today we have richer information: for many of us an overwhelming richness of data & information. Our data mining tools are incredibly sophisticated. Overlay upon overlay of data can give us greater insight than ever before. In general this approach is given the umbrella title of “business intelligence”.

Easier said than done? Not really. You can gather this information initially through investigative research, and then subsequently maintain it through the ongoing contact your customer management center has with your customers, prospects and defectors, using phone, email, and social media. You can then interpret this marketing data to target, to segment and to grade your customers, sharing the data synthesis both inside your organization and with your channel partners to ensure you’re making needed improvements.

In order to add the greatest power to these efforts, you first must define your customer. Yes, define a customer, your customer! The definition of customer is the touchstone upon which all else rests. Without the definition, none of the other steps can take place, and none of this theory can touch ground and add value to your operations and its success.

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[1] Grading does not refer to assigning customers “grades” as our teachers did; rather grading is a valuation process, which allows you to optimize your market coverage approach and to manage the limited resources your firm has in direct proportion to the expected returns on that investment. At its center, this approach looks at customer, prospects, & defectors as the portfolio of assets that must be managed proactively.

[2] Essentially the same holds true for partner management initiatives as well.

"Sustainability", a distinctive definition

“A new and distinctive definition of sustainability.”[1]

How do you feel about how the Health Care Debate and health care reform have been handled so far? Personally, I’m fed up with, and a bit confused by, the “public conversation” over Health Care Reform. Personally, I can’t help but believe that the public is being too confused to decide, and the roots of the confusion were the words chosen by certain groups in order to make their point. The next public debate is going to be about creating a sustainable future. The multiple threads of the conversation are already glistening, popping out for examination. Among the threads we can already identify: global warming, carbon emissions, cap and trade, waste, water, soil, food, and so on. And so, as with many people, I am trying to wrap my head around the term “sustainability”.

I do not want to fall victim to lobbyists, or industry positioning, or vitriolic posturing by a faction with an axe to grind. I’ve seen how damaged the public conversation can be after witnessing the debacle over Health Care Reform. Believing that, if I read enough and talk to enough people, I can come away from these educational moments with a more balanced, more rounded, and a more thoroughly informed understanding, I set out to investigate the challenges that accompany the theme of sustainability, and how to guarantee a safe, prosperous world for our children and their grandchildren.

My educational journey has permitted me to experience the poetry of Wendell Berry and the anti-Capitalist rantings of Vandana Shiva. I’ve allowed myself to be captivated by Al Gore’s visuals; and, I discovered that I don’t have patience for the alarmists who produced Food Inc. I found E.O. Wilson too ephemeral, too “airy-fairy” for action; and I found Peter Senge’s The Necessary Revolution challenging me (and each of us) to make a difference and to help the wave move out from its center.

I was drawn to John Ehrenfeld’s deeply philosophical book, Sustainability by Design, for his definition of “sustainability. Ehrenfeld is an industrial ecologist, a systems thinker, and, philosopher. Throughout the book he makes use of the now-familiar-to-many causal loop diagrams, system archetypes, and mental maps made popular in Senge’s phenomenally successful book, The Fifth Discipline.

Ehrenfeld throws down the gauntlet by offering provocative assertions, while continuously using Senge’ Causal Archetypes as framing images, metaphors, and mental maps: Fixes that Fail, Shifting the Burden, & Limits to Growth in this profound questioning of our current situation, which he labels “the global crisis”.

“To create sustainability, we must first adopt new meanings for the words we use to tell our stories.” I certainly agree that language and the metaphors by which we live (write and speak) are more powerful than we normally realize. And, in our use of language we do have the power to shape the future. Just think for a few minutes about the language sales and marketing uses to talk about the people who buy and use your products and services. “Campaigns”, “account penetration”, - we display our cultural values through the language we choose.

Storytelling will have an important role in the public debate. We will have to decide as “The People” how we want to, and will, shape the future of our planet. Ehrenfeld points out “in the environmentalist’s conversation, we almost always speak only in terms of problems to solve, and rarely in terms of nurturing possibility.” He goes on to say: “Something is missing here. Better, many things are missing here.” Using words and causal loop diagrams, Ehrenfeld’s mantra is we need to create a new future (italics mine) because what we have been calling “sustainable development” is just painting the pig, dressing up a problem with a fix but never solving the problem with a creative solution.

His definition of “sustainability” is “the possibility that human and other life will flourish on the planet forever”. He then goes on to add that “flourishing is the key to a vision of a sustainable future, and this way of conceptualizing sustainability connects to every kind of audience.” In other words, this definition works for marketing, for sales, for scientists, etc. as well as for solving such issues as creating a sustainable future. Does it connect with you?

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[1] Sustainability by Design, pg. 6, John Ehrenfeld, Yale Press, 2008

words that work: the wisdom of calling it "a fight"

I was glancing over blog headlines today, when my eye was caught by the headline " A Food Fight."

Like so many others, there are days when I turn off my computer disgusted by the factual mistakes and blatant lies told in the press about agriculture. Growers and producers are misunderstood. Agribusiness is much more complex than almost everyone understands. Agribusiness feeds and clothes the world. American farmers have a proud history of stewardship and sustainability. To date, however, much of the public debate has done more to confuse the general audience with polarizing language and war-like tactics - tactics clearly intended to strike terror into the hearts of the intended audience.

Therefore, I certainly applaud how the industry has been drawn together to reverse public opinion and to correct the facts about farmers, farming, and the "Food industry." What causes me concern, however, is the choice of metaphor.

The blog, which appears on AgWired, starts off:

" A FOOD FIGHT got underway today with dairy farmers and beef producers joining forces to fling facts in the face of food foes."

I have to ask if there isn't another "metaphor to live by" other than the "argument is war" metaphor, which underlies the author's opening lines. Cindy, the author, goes on to say that the purpose and main message from this food fight "is to Give Thanks for food and farmers."

I get her message. Yet the words "fight" and "give thanks for" are oddly juxtaposed.

Those of us involved in agribusiness, whether we are ranchers, producers, growers, farmers, dealers, seedsmen, equipment manufacturers, or marketing consultants, should reflect upon the power of words, ideally before they escape our lips, pens, or keyboards. We don't need a repetition of what has happened in the public debate over health care reform.

We do face a communications "opportunity", or "challenge" when it comes to the subject of food and of creating a sustainable world for future generations. A key to the success of our sustainability efforts will be our ability to come together, despite not being fully comfortable with doing so, and to collaboratively and creatively build a future. I am merely asking us to think about the metaphors we choose to help guide us to that future.

Finding "Words that work" for your customer-facing roles

"English...tends to ambiguity and obscurity of expression in any but the most careful writing."

Robert Graves, the great English poet, mythographer and translator, wrote these words in his 1943 book, The Use and Abuse of the English Language. I can only imagine how Graves might react to the language of 21^st century sales, marketing, and customer service efforts. If our written language is imperfect, what indeed can be said about our verbal skills?

For Customer Experience Management and CRM proponents, our message is this:

- there is a vital connection between your company and your customers that is forged at, and across, each touch point with them, as they move from suspect, to prospect, to trial user, to customer, and finally either to loyal customer advocate or to the position of terrorist, whose attitude threatens your reputation.

It is clear that we - each of us in those roles - must take more care, be more clear, be more precise, and more completely understandable as the company providing the service, products, solutions, and answers than our customers need be. Our front-line personnel can often feel besieged, if the customer is upset. Emotions can get in the way. In those "moments of truth", to borrow Percy Barneveld's phrase, when our frontline personnel are telling the product story, resolving an issue, or trying to sort through a complaint, the reputation and image of your company are put at risk.

Most of us understand this reality. Many of you have tried to communicate, train, and monitor your front-line people. Yet, all too often, it is the linguistic part of the interaction that causes the breakdown. I am not advocating scripting. I've never really liked the idea of any customer-facing representative having a script. I do advocate, however, guidance and planning: training, role-playing, on-going communications, and (perhaps even) a company-specific, conversational "dictionary" as actionable tools that each front-line, customer-facing individual can absorb and personalize.

In today's economy, our customers are looking for openness, resolution, and consistency. While words alone will not save or protect your reputation, words alone can sink your Customer Experience Management Efforts.

Reputation

"Reputation" is a direct borrowing from Latin. Etymologically, it means "what is thought about ", from the Latin "re" and "putare". Reputation, like Trust, is a precious treasure. As with any other treasure, it can squandered or protected, invested in, burnished or destroyed. And, in today's flat-world, dominated by social media your "reputation" not only is on the line 24/7 each day, at each touch-point across your organization, but the "Risk" associated with the slightest "wrong step" no longer can be isolated and contained.

Today, as never before, your company's reputation, brand, image, and customer experience are inextricably linked together. Customers are defining your performance and their own "receipt of value" at each and every touch-point. Have you measured how your own customers see you of late?

One company that consistently amazes its customers ,when it comes to providing outstanding customer support, is USAA. If you haven't served in the military you might not be aware of them. If, however, you, your parents, spouse or significant other has served, or is serving, or is part of the armed forces family, then you know. Not only are their products above reproach but their customer management centers provide unparalleled support and unrivalled satisfaction to their millions of customers.

USAA's success is due to their unrelenting dedication to being customer focused. Their own reputation sparkles. Here are three reasons:

1. Continuous emphasis on product knowledge and on-going training

2. Communications skills with an emphasis on listening: they understand the adage: "it's not what you say, it's what they hear", so they "seek first to understand" - as Covey would teach.

3. Consistency: internal and external values are aligned and they "walk their talk." And, if you were to ask more than one representative a question (regardless of how complex) they would play back the same answer.

How many of us can say that about our own sales, marketing and customer service personnel - the ones daily on the front line with our customers?

These are steps any firm, in agribusiness, finance, or you-name-it, can borrow and build into its daily operational values and practice. USAA'S reputation is brighter than many stars. How does your reputation sparkle today? Or, has it become tarnished? Which of their 3 steps might you adapt to your own situation. It is your reputation on the line, isn't it?

The Integrated model - the essence of best practices CRM

The Integrated Model is a Gold Mine: it’s the essence of successful CRM.

In business-to-business marketing, the integrated direct marketing model is a gold mine for the marketing group that wants to build sustainable relationships with the right customers. The Integrated Direct model is the foundation of best practices Customer Relationship Management and Customer Experience Management. The economics of the Integrated Direct model come from two primary facts:

1. Marketers have come to realize that they cannot afford to invest in all customers and prospects equally. In fact, acquisition efforts should be segregated out from cultivation, retention, and “win-back” efforts. Integrated Direct Marketing – that is the integration of your “market coverage efforts (sales, marketing and service) - allows us to do that. This delivers the promise of CRM.

2. More expensive contact types, such as face-to-face or special events, can be leveraged with tremendous effectiveness by lower contact types, such as the Internet, social media, E-mail, print, snail-mail, and phone.

Here’s what the integrated direct marketing process can do for you:

1. Reduce the expense to revenue ratio by at least 15%

2. Increase the number and frequency of value-based contacts to the right prospect or customer

3. Increase the perceived service level at the point of contact

4. Increase product penetration

5. Increase customer loyalty

Additionally, in support of particular product lines, Integrated Direct Marketing ensures:

1. Faster Introduction

2. Higher amplitude of sales

3. Segmented and sustained market position

4. More control when migrating customers to newer models, products and services.

Quoting Bob Stone, long the venerable guru of American direct marketing, a definition of direct marketing must include three phrases: “interactive system,” “using one or more contact media,” and as must all direct marketing “effect a measurable response or transaction.”

Integrated Direct Marketing is not direct mail; it is not telemarketing; it is not transaction focused. The integrated direct marketing model is data-based and loyalty focused. Integrated Direct Marketing is highly targeted marketing that uses an integrated, organized, planned system of contacts by which we make offers to individuals using a variety of media. This system of building sustainable loyalty with our customers and prospects creates an on-going civil dialogue. It is accomplished by integrating communication across all contact media - print, the Internet, E-mail, mail, phone, field events and face-to-face visits from the field force. It’s defining characteristic is the delivery of relevant value. The value is defined for us by our customers and prospects. It provides for the delivery of relevant value-based information at the right time, in the desired delivery system, to the right individual that ensures interdependent relationships built over time.

This “Market Coverage” model makes use of the marketing database as the repository of corporate memory, storing the results of all interactions with customers and prospects.

In addition to simple facts such as demographics and product usage, today’s sophisticated marketers are building database systems that capture the complexity of buyers’ needs and purchasing behavior along with relevant complaint and/or satisfaction issues. The information then is available for product design groups, marketing, sales, research and other corporate functions. The database becomes the springboard for the organization’s need to be responsive, flexible, and dedicated to learning. Through the technology of our database, we are able to store response data by individual contact within an account. Moreover, we are able to measure our effectiveness relative to cost and to results. The measurability tracks profits, investments, expenses, account penetration (or, “share of wallet”), problems, issues, complaints and satisfaction.

Integrated Direct Marketing is a systematic method of getting close to our customers. Using this tool we can integrate our channel contacts and media efforts through a common database, which is focused on our target universe. Through testing we can validate results and expand our program and processes with great certainty.

The marketing database is mind of the IDM organization. It is serviced by a proactive outbound call center (or telemarketing unit), which becomes both a listening post to customers and the dealer channel as well as a way to leverage the field organization in building relationships and selling products. In the Integrated model the marketing database is shared with the field organization, your channel partners, and all internal departments.

The essence of a successful Integrated process is the ability to capture, centrally, information about our customers and prospects at all points of contact – and then to transform that information in actionable knowledge that is shared across and between those functional areas inside your firm that touch the customer or your channel partners. The key to success then is how well the marketer can segment within a given target audience. It is critical in the B2B arena to segment on similar sets of unfulfilled needs and purchasing behavior. This allows us to understand our customers’ need and how they buy and then to market our products and services to these identified niches.

Once the segments have been identified (keeping in mind that the entire target universe may emerge as one large segment), the next step to take is to grade accounts within segments to ensure that the investment made is the least amount of money to strengthen the relationship with the particular account.

The grading model is a valuation model. In the Business-to-Business world, the grading model no longer should be the simplistic A-B-C model. Instead, it should allow enough granularity to understand the profitability and penetration potential of each cohort or segment. I suggest 5 grades, although in certain cases, I believe 7 to be the optimal number of grades.

Grading (or, “valuation”) is the economic modeling of the Integrated Direct effort based upon an investment decision, which takes into, account the historical (actual) revenue and potential revenue from a particular segment of accounts. In other words, grading serves the marketer as an economic and analytical tool, which requires that we invest in the major segments we have created proportional to their economic history and potential.

Integrated direct marketing works both as a stealth defensive weapon, as well as a highly leverageable marketing tool. The competitive advantage it affords the skilled executioner is proprietary and affords increasing , not decreasing, economic returns. The fundamental concepts we use in loyalty-focused customer relationship management include:

1. Market to individuals … not to corporations

2. Address the unique set of needs of that buyer group (or application)

3. Individuals are clustered (i.e., segmented) around common sets of needs which define a market niche

4. All contacts with an individual, whether a customer or a prospect, must be of value as defined by them

5. The technology we use is transparent

6. Planning is critical

7. Testing is mandatory

8. Integration is the process used to ensure that the higher cost contacts are leveraged

9. Properly executed the integrated model creates a continuous improvement process that profitably drives business strategy by creating a sustainable atmosphere of cooperation and coordination across, and between, your company’s various functional areas.

10. The investment made is proportional to the level of commitment to us, to the expected return from this customer.

If "It's what people hear"...?

How often do you listen well? How well do you listen to your customers and prospects? Better yet: How well do you hear yourself?

If you are in sales, marketing, customer service, or another "customer-facing" role, what could word-choice and your use of language have to do with your success; with your customer acquisition and loyalty efforts; or, with the entire concept of customer relationship and customer experience management? Any? None? My guess is most of us never think deeply about it? Perhaps we should.

Preparation, research, scripting, and rehearsal are important parts of our pre-call planning, before meeting, or talking, with customers and prospects. If you’re in AG, you know the facts: "stuff" such as, acreage, crops planted, inputs and equipment: heck, you many even know the dog’s name. Does it matter in some way, when you talk with these customers, if you’re waging a “campaign” or having a “conversation” or developing a relationship?

social media on the farm

How is your company using "social media'? How are your dealers, distributors and grower/producer end-users making use of it? Do you have your Facebook page, your bloggers writing, twitter-followers tweeting? How effectively has your initial forray been?

While, ownership and use of those tools would seem to mean that there is a clearly defined & articulated communications and CRM strategy, intention and purpose, the situation is eirily similar to the introduction and initial use of integrated, data-based, direct marketing and sales in the mid-90's.

I remember asking a client why they were building a marketing database: it was late '94, early '95. His honest answer: "we're not really sure what we will do with it - but everyone else is, so..."

Where does your company stand in adapting "social media"?

Clearly no one can deny its power. Most pundits will also insist that the customer insight must be incorporated into the feedback, learning, crm and customer experience management initiatives that already are in place. They also point out risk: for some, "social media" represents a reincarnation for them of "the wild, wild west."

12 keys to succesful CRM and database efforts

A number of years ago, I wrote several pieces on what's needed to ensure that database marketing has a solid foundation. I wanted to re-publish this list because I think the principles are as sound today as ever.

1. Understand that successful database marketing is not a technology issue.

2. Draw a picture or process diagram of how the marketing database needs to work.

3. Focus on any output that will be used outside of your direct control.

4. Develop an effective customer contact plan.

5. Do not equate multi-channel, integrated, direct marketing with either direct mail, nor with telemarketing or your social media efforts.

6. Build the database manually first, before you automate it. The history of database marketing and CRM efforts is replete with stories of the best marketers actually using card files before they automated the functions. Strategy, process, metrics and execution are more important than the software.

7. Collect only data that will absolutely be used in the next 12 months.

8. Be rigid, not flexible. Your potential users will come up with many wonderful ideas. Hold firm as you start.

9. Use a simple proven solution: Software as a service (aka, "cloud computing solutions"), for example, may be an ideal vehicle.

10. Centralize all data entry, and validate outside input files.

11. Build and refresh your database on-line with information from your Customer Management Center, your social media channels and customer insight work.

12. Build a prototype -- not a pilot. Leverage the power of naming, in other words. The value is in the learning from this forray into building your database; don't let what you call it give any internal opponents the fuel to jeapordize the outcome.

An attempt to define "loyalty" - B2B world

Don’t be misled in thinking of loyalty as a collection of warm fuzziness and good feelings. Neither is it a synonym for customer satisfaction, nor for frequency of purchase transactions (although these are often associated with it). In the business context, "loyalty" measures specific behavioral elements over an extended period of time to assess the quality and durability of the relationship. Examples of these would be willingness to refer others and willingness to purchase again.
Today’s successful marketers must uncover what drives their customers to be loyal to them, and use that information to help increase their loyalty levels to build long-term relationships. These loyalty factors also play a role in whom you target as prospective customers.
The phrase, "you can’t be all things to all people" has never been more true than in today’s business-to-business marketing environment. In fact, those who try are rarely able to provide superior service to anyone. Consider what happened to IBM. As the company continued to proclaim the universality of its marketplace, millions of dollars of replacement part and add-on business went elsewhere. Might not a more focused strategy have enabled Big Blue to retain customer loyalty over the full life cycle of its equipment?
As we enter a new millennium, the single most important set of decisions any business-to-business enterprise can make are those involving selection — both of the products and services you will provide, and of the customers for whom you will provide them. In fact, recent research holds that it is a costly mistake — a diminishing of your resources and skills — to try to retain each and every customer. Contrary to the traditional wisdom of acquiring as many customers as possible, a critical skill we need to learn is how to identify and disengage with customers who are not profitable to serve. Let your competitors have them.

Targeting the right customer in the first place is the first half of the loyalty equation. Some customers are inherently price-driven — constantly on the prowl for a better deal, and ready to drop a supplier at a moment’s notice should someone else shave margins a little more. No matter how hard you try to please these customers, they will never be loyal to any supplier, no matter what value they receive, and are therefore worth very little in the long run in terms of profitability.
Other customers, however, inherently understand the high value of dependable, lasting relationships with key suppliers. Purchases are not random events for these customers, they are planned through long-term partnering, and as such are immune to momentary price advantages. It is these groups that are worth your ardent pursuit.

Selectivity, then, by this definition, requires that you use segmentation to align your core competencies with your customers and prospects. Your "bundle of skills and technologies" must match up to the cluster of accounts already grouped by needs and buying behavior in a way that makes economic sense. It demands that we keep our focus on long-term loyalty between the company and its customers, rather than frequency of one-time transactions. It advocates a "marriage" to a series of one-night stands.
That’s not a strategy that comes easily to people brought up in the older school of marketing, which counts volume of sales transactions in isolation, and measures gross market share, rather than analyzing the lifetime value (versus cost) of each customer. And it can seem especially threatening to short-term thinkers, pressured by the demands of the next quarterly report to stockholders.
Nevertheless, segmentation-enhanced selectivity is essential to a long-term view which places value creation as the fulcrum for ongoing success — especially in a world of parity products, right-sizing and/or consolidation, and easy duplication of product and service offerings.

What characteristics, identifiable from a distance, let you flag potentially loyal customers? That will vary, of course, depending on the profile of your business — your core competencies, goals and service philosophies. But the likelihood is great that many of them will look a lot like the firms who are currently your most valued customers.
The planned process begins with defining your business design: What products and service values are you set up to deliver efficiently and effectively? Within the broad universe of potential customers, which are the most logical targets for this set of capabilities?
Next, you can define the word "customer" to incorporate a quantifiable concept of profitability. In this context, a "customer" is a company that does X $ in volume with you, which includes Y number of different products, within Z time duration.
The next two steps are segmentation and grading. The two are entirely different processes which together create a very powerful economic model for customer selection, the purpose being to invest an appropriate amount of resources relative to profit potential.

Needs-based segmentation is the clustering of customers (and later, prospects) according to common sets of needs and purchasing behaviors as they relate to your organization’s external service values. Define the four to six reasons that most customers buy from you (which typically account for 80 percent of all decisions to purchase from your company). You then list the external service values which are most important to each customer. With this input, your marketing database can divide your customer list into one or more segments, each consisting of a group of customers who share a common set of needs and way of doing business.
Ideally, grading is done only within a segment; it’s the realization of economic value within that segment. It’s also a means of estimating the revenue available from that segment, and of understanding its unique needs, so you can talk to them as a group, via the lowest contact medium within the grade. There is, however, significant value in grading your entire customer file and investing in them proportionate to their level of commitment to you and potential revenue.
Finally, you need to analyze the lifetime value (LTV) to you of customers in each of these segments of your market. Within this, understand that LTV has more to do with how you treat your customers after you’ve acquired them than with the method of acquisition. Given what it costs you to acquire, supply and service this customer, the anticipated length of time you’ll retain its loyalty, the revenue that this will generate, and how much profit will it bring to you over the next X years (expressed in Net Present Value terms)?

With this information in hand, you can identify the types of customers who currently provide you with the lion’s share of your profits — and, by extrapolation, which characteristics you should look for in acquisition targets to achieve maximum profitability. This will then allow you to make intelligent decisions about resource allocation to acquire and nurture more of this kind of business.
A loyalty focus suggests that customer selectivity should be a matter of building up, rather than cutting back. Start with your best, most loyal customers (in terms of dollar volume, relative to wallet share; variety of product offerings purchased; and number of purchasers with whom you deal at the account). Fence these off and concentrate on understanding their needs and what constitutes value for them. You are now well-positioned to focus on them, opening a dialogue, and creating a "learning relationship" in which there is both an economic and an emotional benefit.

Database marketing provides the tools to find these answers. Marketing databases are designed to help you understand as much as possible about your customers, so you can build sustainable, mutually profitable relationships with them. Such databases are also the repository for "institutional memory," recording all contact and transaction information as it occurs. This allows account histories and resulting insights to be built on and shared throughout your company, far into the future. Compare this to the proprietary, fragmented possessions of many diverse individuals. When individuals depart, so does the customer information they hold.

The other half of the loyalty equation, of course, depends on what you do to earn it. Customer loyalty is most often a response to perceived value received. What creates that perception can vary from one group of customers to another — and indeed, from one individual firm to another. Until you know how various types of customers define that "value," understanding both their priorities and their concerns, you’re flying blind.
Relationship marketing demands ongoing dialogue with your customers — especially with those who have demonstrated long-term loyalty. Note that complaints can be at least as valuable to your long-term success as praise. Armed with such information, you are able to do less of what aggravates your customers, and more of what pleases them — targeting specific activities to various segments of your market, and sometimes even to markets of one. The most successful companies have long known this intuitively, and acted upon it. But now, with database marketing in place, that process can be managed far more effectively — though it will always be 75 percent art and only 25 percent science.
Providing outrageous, "knock-your-socks-off" product/service delivery to these top-tier, most loyal customers will strengthen your internal service values. Your employees will feel better about themselves, and begin delivering higher levels of service, even beyond top-tier customer groups.

A note of caution: Be careful about basing your acquisition strategy primarily on price concessions. If that’s your definition of "value," it’s likely to become theirs as well. Ironically, in some industries programs designed to target "ideal" customers have, themselves, converted those customers into undiscriminating price-shoppers. An extremely practical tool by which to judge the appropriate investment into so-called ideal customers is to perform defection analysis.
Consider the airlines’ "frequent flyer" programs, aimed at lucrative business travelers. Initial introductions were enormously successful as relationship-builders. But as "me-too" programs proliferated, any competitive advantages in terms of customer loyalty evaporated — leaving only the liability of a lot of free travel vouchers. The lesson to be learned is that price-cutting is a game everyone can play (and probably will, once someone else initiates it).

Loyalty versus Frequency Focus
Loyalty Focus Frequency Focus
Recognizes: Heterogeneity Homogeneity
Employee Contribution Responses to Mailings
Value-Added Transaction-Based
Customer-Focused Competition-Focused
Needs-Based Incentive-Driven
Relationship Focus Payout Focused
Two-Way Dialogue One-Way Communications
One Size Fits One One Size Fits All
Mailing List Bias
Outside-In Focus Inside-Out Focus
Focused Targeting Indiscriminate Targeting
Measures: Share of Customer Response Rate
Share of Requirement RFM
Duration of Relationship Cost per Response
Expense: Revenue for Customer Expense: Revenue for Mailing

Sustainable competitive advantage in wooing customer loyalty demands deeper understanding of what those customers really want — and then responding to their concerns by adding customization, convenience, and solutions relevant to them.

From that beginning, as a natural offshoot, your service delivery system will improve for more and more of your selected customers, present and potential. You will be investing necessarily-limited resources where they will have the most powerful impact on your future profitability — and in proportion to the level of commitment those customers have demonstrated to you. Our experience has been that using the preferred medium within a segment often improves the perceived level of service delivery while decreasing the cost of doing business as a percent of revenue. Your employees and channel partners will experience renewed enthusiasm as they find themselves increasingly able to provide true value, on their customer’s terms. And, you will be well-positioned to segment your universe of potential customers, pursuing like companies to build a growing base of loyal customers.
This strategy, mightily enhanced by the insights database marketing provides, is at the heart of building customer loyalty.