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It's now going to take 12 more months and the CEO wants a sales increase of 4 percent this year. How's that going to happen, she asks herself?

Christine runs sales and marketing for a large retailer that sells four product groups: software and electronics, food and dry goods, automotive, and home and garden. Although her customers buy across these groups, market research shows that she has four distinct buying audiences that concentrate their purchases within single product groups. Ultimately her CRM system will dissect her customer data, and reveal valuable information, but she certainly can't afford to wait 12 months - she needs to drive sales today.

Christine has collected a list of 400,000 opt-in email addresses on the company Web site and at the point of sale. Twice a month she sends a promotional email that's in line with the company's Sunday circular, a blend of products selected by her merchandisers: loss leading, overstock, and high margin products. Based on controlled tests she has also discerned that her email program drives 10 percent of retail sales.

In the past it has not been cost effective for her to have a direct marketing relationship with her customers. The low relative cost of email versus direct mail has changed this. Now Christine wants to move her program forward and send four distinct emails to her four primary customer segments. She anticipates a lift in sales of 10 percent to the list, or one percent overall. All she needs to do is tie purchase data to her email addresses. Christine knows she can increase her revenue through basic segmentation, but she can't wait 12 months to begin.

The questions that haunt her are: What if the implementation takes longer than planned? What if integrating it with her online direct marketing program proves difficult? Then how far behind will she be? Christine begins to wonder if this CRM solution will get her where she needs to be - and whether she's willing to risk her job on it.

Where CRM Falls Short

So what is wrong with today's CRM solutions? They're comprehensive, robust, accept legacy data, and promise a 360-degree view of the customer. But to what end? And at what cost?

Many who have implemented CRM solutions are hindered by three primary failures. First, implementation is expensive, difficult, and time-consuming; second they don't contribute to realizing stated business objectives; and third the data they produce is often inaccessible to those in the organization who stand to benefit from it the most. In many cases companies invest tens of millions of dollars to overbuild systems without really understanding what they want the system to accomplish or what role it plays in the company.

Simply put, the broad goal of an effective CRM solution should be to deliver an understanding of the customer and to suggest action based on that understanding to achieve results. This paper discusses a solution where companies collect relevant data about their customers, and turn it into actionable intelligence that drives incremental customer value through email marketing.

Customer Intimacy: Can You Afford Not to Have it?

Implementation difficulties have long hindered CRM solution providers and more importantly, their customers. While expansive enterprise CRM systems have their place, the majority are vastly more complex than required. Waiting for two to four years to implement such a system is a dangerous decision. Given today's dynamic market, the system you purchased in 1998 may be out of touch with your needs by the time it is functional in 2002. Besides, no organization can afford to wait four years to begin better understanding its customers.

As if implementation difficulties aren't enough to motivate the purchaser of a CRM solution to ponder his or her choices, then the expense associated with most of these solutions should be. Most CRM systems cost millions of dollars and the return-on-investment analysis is dubious at best. This creates great risk for budget conscious companies in deciding to purchase a solution that takes years to implement, is costly, and returns questionable value.

Most CRM solutions are purchased, implemented, and maintained by IT departments and not the sales and marketing organizations they are designed to serve. This creates jail data: data locked up in IT and inaccessible to marketers. In an e-marketplace that changes with each passing minute, marketers must have immediate access to their customer data and it must be easy to understand and use. If Christine, our vice president of sales and marketing for the retailer, is about to get in next year's speakers and needs to clear her inventory, she wants to know all the customers who purchased a stereo system between one and three years ago so she can campaign to them. She cannot afford to wait two weeks for IT to deliver this customer list and all the associated characteristics of that particular audience. She needs it now. Her business depends on it.

In addition to inaccessibility, most CRM systems are fraught with waste. Many are designed to collect massive amounts of data. The majority of which is worthless because it is not actionable. What is the benefit of understanding every page a customer has visited on your Web site or every phone call they have made to customer service? How will you communicate differently with that customer as a result of that knowledge? Most CRM solutions collect data only to miss the critical step of translating that data into action. Next we will discuss a perspective on managing customer relationships that mitigates risk, is action oriented, is affordable, and returns value to you even as you implement it.

Seven Key Metrics for Defining Customer Value

Developing a macroscopic framework for viewing customers is a key first step in truly understanding them. Most successful companies have numerous customers - and in many cases they have numerous customers for every product or service they offer. Christine may have thousands of customers who buy garden products, thousands of different customers who buy automotive supplies, and yet thousands of other customers who buy electronics. Complicating matters further is the fact that some of the customers who buy garden products also buy automotive supplies.

The same way individual stocks in an investment portfolio are valued differently; your customers return various levels of worth based on their level of engagement with your organization. Some are just entering into the relationship and still gauging their interest. Others have purchased once, but it remains to be seen whether they will purchase again. Still others are sold on the value exchange, and are actively engaged in expressing their loyalty both with their purchasing dollars and their advocacy to friends, colleagues, and family. So, how to sort through and determine who's who? How to assign value to each group?

Establishing a macro view of these customers and determining the most beneficial way to divide them into meaningful customer groups, requires specific insight into your organization and its goals. Here are some ideas for grouping customers:

• By product or service (i.e., historical buyers of speakers)
• By category of product or service (i.e., historical buyers of consumer electronics)
• By geographic location (i.e., all customers in the Western United States)
• By purchase frequency (i.e., all customers who have purchased at least once in the last six months)
• By annual purchase value (i.e., all customers who purchased goods valued at $1,000 or more in the last year)
• By customer value (i.e., all customers who represent 20 percent of the company's business, and those who represent the remaining 80 percent)
• By lifecycle stage (i.e., prospect, free trial customer, paying customer, repeat customer, loyal customer)

Globally speaking, companies that implement CRM solutions want to identify and prioritize the customer groups that deliver the most revenue to the company. Of course, in some instances, a combination of criterion is required to best arrange your audiences. For example, your centralized customer database may be arranged by service or category of product coupled with the stages of your customer lifecycle. This provides a view of all customers, and potential customers you've come in contact with, interested in specific products that sit in the prospect group, free trial group, purchaser group, etc. Once customers are arranged in such a way you can then begin messaging to them with only relevant information designed to move them from their current lifecycle stage of free trial group to a higher value stage, such as paying customer (Figure 1).

The important thing is to clearly define what's relevant and collect only the data that fits that definition. Many organizations lose sight of the goal here, and collect every bit of information they can, only to be buried in reams of meaningless data. To avoid this trap, think in terms of how your customers have already engaged with you (requested information, participated in a free/discounted trial, purchased, advocated on your behalf) and then define the next logical action. It is critical to align specific and measurable events with each stage of your customer's lifecycle so that you can track the success of your interactions with them and their dependence on your organization. This yields more satisfied customers and ultimately delivers higher financial value per customer to the organization. Further, a profile of these best customers must be created and applied to an acquisition effort aimed at finding more prospective customers just like them.



Figure 1 - The Customer Lifecycle


Translating Customer Data into Marketing Intelligence

Once you have determined the most effective way to view your customers, you can move on to establishing a microscopic perspective. Macro audiences are comprised of individuals; determining what you want to know about each of them is critical to placing them in the appropriate customer group so your communications are relevant and compelling.

Creating individual customer profiles first requires you to define the fields of data you want to collect and append to each person's record. Profile elements may include personal information, marketing permissions, transactional history, behavioral interests, computing environment, and referral activity. Once the profile elements are defined, a storage place needs to be created in your centralized customer database to house this information. New fields of data can always be added; what is important is that the information you collect is predicated on your ability to act on it. If someone has taken advantage of a free product trial then he is primed to receive a purchase offer. If he just purchased a tent, he probably needs sleeping pads to go inside it. That is meaningful data. Follow this simple rule: If the data can be used to derive incremental value from a customer then collect it, if it cannot, why go to the trouble? It's the quality of the data that matters, not the quantity. Once the microscopic framework is created, you are ready to define a data collection strategy.

Email: The Best Way to Get to Know Your Customers

Data can be collected from a variety of sources, including imports of historical data, email surveys, direct mail surveys, responses and interactions with email and direct mail campaigns, and purchase data. Email communications are particularly effective for accruing and appending profile data. Email is a targeted method of acquiring and retaining customers, as it affords marketers the ability to test prospect lists, messages, offers, and creative formats.

Email also affords marketers the opportunity to have a two-way dialog with customers. Unlike "spam," where unwitting recipients are bombarded with unwanted offers for everything from toner cartridges to low mortgage rates to pornography, permission-based email is targeted, sent at the request of the recipient and, if done correctly, fosters mutual trust as organizations use their marketing intelligence to anticipate and meet customer needs (Figure 2).



Figure 2 - Through email campaigns, marketers can analyze various attributes of customer groups and identify key insights.

Marketers disseminate valuable information and have the privilege of monitoring the way recipients respond. Recipients see that marketers understand them and appreciate the relevant content. One of the most effective techniques for gauging customer interests and opinions is the one-question, intra-email survey, which has proven difficult for many recipients to ignore. These quick surveys are most powerful when used to turn "hunches" about customers into confirmed knowledge.

Once individual profile data begins accruing, you can aggregate individuals into the predefined audiences you established in determining your macroscopic view of your customers. Analyzing various attributes of your customer groups lets you identify key insights. Email test cycles are superior to direct mail test cycles in that they are shorter, and allow you to observe and record behavioral data that is otherwise lost.

"Observed hunches" can quickly be turned into known interests via electronic surveys in email or on your Web site. The more you understand, the more precisely you can target communications and use them to move customers to action. Over time, campaign performance will steadily improve and your bottom line will reflect that success.

CRM: A New Age Is Dawning

It is safe to assume that every organization needs to build stronger customer relationships based on understanding their customers' needs, interests, and characteristics. Further, they need to leverage this understanding to deliver more targeted products and services, and ultimately reap more rewards from those relationships. The question is whether any of them can afford to wait for a full-blown CRM implementation to arrive before they begin to reap the benefits.

Marketers of old were lucky. They needed only to match a relatively homogenous customer with a single standardized product. Times have changed. Most marketing departments have a job that is complicated by the fact that today's ever-expanding universe of competitive products makes it difficult to stand out from the crowd.

Christine found out that data collection and customer profiling was effective for creating short- and long-term customer value, but only after she had successfully defined her customers, determined the status of those customer relationships today, where she wanted to move them, and what she needed to know in order to achieve that goal. In the final analysis, it's having the right data and translating it into actionable marketing intelligence that will lead to success. And that requires a practical solution that builds value over time and enables the investment to unfold in a way that is reflective of the return it provides.