Analytical CRM: capturing data to cater to customers

Wining and dining customers the KM way

Customer relationship management (CRM) is a large and growing field that encompasses a diverse range of activities:

  • customer-facing applications such as sales force automation;

  • collaborative applications, including e-mail and instant messaging, which facilitate interaction with customers; and;

  • analytical CRM that uses information in data warehouses to understand, predict and shape customer behavior.;

AMR Research predicts that growth in the CRM market will exceed 40% per year over the next several years. That phenomenal expectation helps explain why enterprise resource planning (ERP) firms, whose software handles back-office functions, have reached out to the front office through aggressive acquisitions or by developing their own tools. For example, PeopleSoft purchased call center Vantive, SAP plans a front-office capability, and Oracle is already marketing an e-business suite, which adds front-office CRM capability to its back-office functionality. CRM firms, on the other hand, have not been drawn to the slower growing back-office market. Market leader Siebel, for instance, continues to focus exclusively on the front office, as do many other CRM companies.

Analytical CRM is a powerful tool, although surprisingly, it is used by only about half of CRM implementers, according to the META Group. Many types of data can be collected and analyzed, from customer purchases and complaints to clickstream data that shows where customers are encountering difficulties on Web sites.

Although significant challenges remain in integrating data from disparate sources into one data warehouse, analytical CRM provides the greatest value when it combines front- and back-office data, such as customer revenues, to guide marketing and other planning efforts. In fact, both the Gartner Group and AMR believe that CRM companies lacking a back-office component will significantly limit their client base in future years.

In addition to a comprehensive data warehouse, the other key ingredient is an analytical technique such as online analytical processing (OLAP), which produces analyses requested by the user, or data mining, which searches for patterns in the data that the user may not have suspected. The results of those analyses determine which business rules are triggered, most often implementing a market campaign but sometimes modifying workflow or other business process. The nature of marketing has changed dramatically in the past few years, in terms of both timing and focus.

“Decision support used to be about looking at quarterly data to see how sales were doing in certain regions and to adjust marketing strategy as needed,” says Mark LaRow, VP of the applications division at MicroStrategy. “Now, targeted marketing requires companies to look at an individual’s purchasing profile, compare it to other similar customers and then predict what this individual might purchase next week, not next quarter.” Data warehouses that used to be populated on a monthly cycle are now down to a weekly cycle and are moving toward a daily update.

“In addition, CRM marketing strategies revolve around integrated customer contact,” says LaRow. For most companies, that means blending their online and offline interactions, including telemarketing, direct mail marketing and e-mail marketing channels.”

MicroStrategy eCRM allows e-business as well as brick-and-mortar companies to conduct detailed analyses of their data. Kiko.com, which hosts an e-learning site, is using MicroStrategy eCRM to track membership growth and new content that is added by its members, which include educational institutions, corporations and individual teachers. The firm also monitors clickstream data to find out which links are most heavily traveled.

Learning the ABCs of customers

The company was founded as an e-teaching site by business leaders from Cisco and GeoCities to provide enriched learning opportunities for children. By analyzing the behavior and demographics of its members, Kiko is able to offer personalized tools for them, including community newsletters and announcements about new e-learning content on the site. Eventually the firm plans to offer private subscription-based “knowledge network” services to institutions at the secondary and college level.

Mike Chuli, CEO of Neteos, also talks about the compressed time frame. “In some cases, the cycle is down to almost daily decision making,” he says, “and analysis is moving from trends to event decisions. What this amounts to is instant knowledge management.”

Chuli points out that this need is particularly strong for mid-sized firms that are eager to become market leaders. “These firms are likely to take an aggressive position in learning about their customers,” he says, “and they don’t want to wait for the information.”

Neteos provides a hosted service that offers Web-based sales, marketing and support using an application service provider (ASP) model for its eRMNow software. Although most CRM products are Web-enabled now and often hosted, they are not designed for the full extent of the Internet and often are just a rental version of the same application. According to Neteos, eRMNow is well suited for small to mid-sized companies that want to avoid large capital expenditures, modestly priced and quickly implemented. The Web deployment makes it particularly appropriate for companies with offices that are geographically dispersed or that have partners who need access to the data. The software also can be licensed and self-hosted by customers who prefer that option.

Neteos customers can run business rules in the background while clients are on their e-commerce site to trigger certain events such as a call from a sales rep, and the rules can be adjusted based on daily feedback. Standard functionality includes campaign tracking that generates reports based on responses to marketing programs. If a particular campaign had a higher response rate than others for a certain industry or SIC code, more companies in that group could be targeted. eRMNow can also be customized to tie into back-office applications.

Already a dominant player in the ERP environment, Oracle is now offering customer-facing components such as call center capability in its E-Business Suite. Its Advanced Inbound product, for example, can route customer inquiries across telephony, Web and e-mail, regardless of media, or can provide channel-specific routing. Alternatively, e-mail can be analyzed and handled uniquely and while customer treatment remains constant. One of Oracle’s major strengths in the analytical CRM market is that it is in a good position to achieve the much sought-after 360-degree view of the customer. Oracle’s OLAP and data mining tools provide sophisticated analytical capabilities that can be run against information in the data warehouse.

“Companies often put years of data on their systems and do not use it,” says Lisa Arthur, VP of E-Business Suite marketing. “The reason is the fundamental organization of the data, which is departmental rather than across the enterprise.” Once the data is integrated, important questions can be answered, such as who are the company’s best customers, how much are they spending on service, and whether the customers are satisfied. Identifying best customers is key to profitability, because in some industries such as banking, 80% of the profit comes from less than 20% of the customers.

One of the first customers for the E-Business Suite was Oracle itself, which improved customer service and partner relationships, beginning with its field sales force and Web store, then added telesales. As a result of automating its operations, Oracle says it saved $1 billion. But the product is also appropriate for smaller companies. In the process of migrating to an e-business, WorldSource360, as of April 1, 2001) sells authentic ethnic foods, a market that is highly fragmented.

Charles Martin, president of WorldSource360, believes that the firm will create a new paradigm in that business by linking numerous small suppliers and by automating procurement, inventory management and fulfillment. One advantage of moving to the Web in a single step is that the system will not have to integrate with existing components such as a call center but will implement them all at once. Four years of customer data will be imported into the system, which will allow a thorough understanding of historical customer interactions and guide marketing efforts.

Reducing churn

In highly competitive businesses such as telecommunications, predicting customer behavior, particularly “churn” or non-renewal, can make an enormous difference in profitability. Because it costs five to 10 times as much to acquire a new customer as it does to retain an old one, churn reduction is a top goal of telecommunications companies. SLP InfoWare uses a methodology called predictive customer relationship management (P-CRM), which leverages an existing CRM infrastructure to model, predict, and influence customer behavior. Through use of proprietary automated statistical modeling techniques, data can be quickly translated into predictive models to optimize customer interactions such as targeted campaigns. A Knowledge Object is generated containing a small amount of code that allows real-time customer scoring and can be distributed to various customer touch points.

“A key capability is not only being able to automate the knowledge production but to distribute it across multiple touch points,” says Jerome Nadel, VP of SLP InfoWare. Cellular One implemented Churn/CPS in its Puerto Rico operation and reportedly increased retention by 35%. SLP InfoWare offers other modules that support upselling, cross-selling, and debt risk assessment. Although the products are data mining tools, they go beyond the normal reach of such tools to activate a set of business rules. For example, the Knowledge Object could produce a pop-up screen at a call center to offer a particular customer a new option. Improved understanding of customer behavior is also beneficial to customer service representatives, who have greater success with retention. SLP InfoWare’s products integrate with CRM systems including Siebel’s and others through XML, and can tie into data warehouses that integrate both front- and back-office information.

CRM analysis can also be used to enhance customer service by improving workflow. Panorama, a ROLAP (relational OLAP) tool from StayinFront, was used to identify bottlenecks in the approval process for equipment leases at Bell & Howell Financial Services. The product, which is designed for non-technical users, can function as a standalone product or be used in conjunction with Visual Elk, StayinFront’s CRM suite. Visual Elk has a variety of components, including Call Center, and Pocket Elk for mobile CRM. It can be used to maintain a set of business rules that define marketing campaigns.

“If the customer is a valuable one to the company, a different decision can be made about retention efforts than if the customer produces a net loss to the firm,” says Jeremy de Silva, director of sales at StayinFront. He points out that in the crowded field of CRM, small vendors can compete by providing unique solutions that are cost-effective and implemented quickly. Government and CRM: progress reported

Federal, state and local governments provide services to millions of people. How responsive are they to their customers? For the first time, ratings of services from the federal government have caught up to those in the private sector, according to a survey published in December. Many agencies are providing services over the Internet, and citizens who use those capabilities have been generally satisfied with the expanded services.

“The federal government has embraced the concept of citizen as partner and customer,” says Leif Ulstrup, director of Public Sector CRM Practice at AMS. “This new vision began in the mid-’90s with the National Partnership for Reinventing Government, and is now a familiar and accepted concept.” The National Partnership conducted its second annual survey of government agencies in 2000.

Ulstrup points out, however, that when it comes to the analytical side of CRM, the government still lags the private sector.

“Governments are encumbered by aging infrastructures and legacy systems that make it difficult or impossible to use many of the new technologies,” he notes. Like other organizations, government agencies struggle with the integration issues, but to a greater degree. Call centers are in the early stages of implementation, for example, and are rarely if ever integrated with e-mail, which is now being used much more often by government agencies to communicate with customers. Ulstrup believes, however, that the government is headed in the right direction and will make progress as its infrastructure is upgraded.

Privacy and the Internet

Privacy is a major concern and is limiting the implementation of e-government services and private sector activities as well.

Lief Ulstrup, director of Public Sector CRM Practice at AMS, cites a recent poll by the Council for Excellence in Government that identified privacy as the number one concern for both government and industry representatives regarding the expanding use of the Internet. As a result, many potential applications are being deferred, particularly those involving healthcare. Ironically, healthcare represents one of the primary applications for e-government services, but the sensitivity of the data prevents it from being made readily available. The Health Insurance Portability Act of 1996 (HIPAA) addresses both standardization and privacy/security issues, and may open the way for options that improve the use of medical information.

Concern about privacy on the Internet is so great that one-third of online consumers give false information, according to Forrester Research. Yet personalization, which can help both the seller and the buyer, relies on detailed, accurate customer profiles. Companies can promote participation by giving users control over their data. Specifically, companies should state what information is collected and how it will be used, and should allow users to “opt in” to data collection processes rather than making them “opt out.” When customers are comfortable, they volunteer more information and companies can develop more extensive (and more profitable) relationships with their customers (see “Building One-on-One Relationships,” KMWorld, Nov/Dec 2000).

Judith Lamont is a research analyst with Zentek Corp. (Alexandria, VA), e-mail jlamont@sprintmail.com.

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