Business Case Studies, Executive Interviews, Don Peppers and Martha Rogers on CRM

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Executive Interviews: Interview with Don Peppers and Martha Rogers on CRM
January 2008 - By Dr. Nagendra V Chowdary

Don Peppers and Martha Rogers on CRM
Founding Partners
Peppers & Rogers Group.

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  • Smart business owners quickly learn that the biggest profits can come from a small group of free spending, easy-to-satisfy patrons, and that cheapstakes [cheapskates]who tie- up the staff should not be encouraged to return. But how can this knowledge be adapted to a big corporation that offers thousands of products to millions of customers who can come into contact with the company in many different ways in person, by phone or on the Internet?
    The trick in doing 1to1 marketing in a cost efficient manner is to differentiate customers so that you can afford to give better service to better customers. Cheapskate customers, the way you

    described them, are similar to what we call 'Below Zero' customers (or BZs) customers who for one reason or another will end up costing you more money to serve than you can earn in profit from serving them. You can do nothing to salvage this situation for your business unless you track customer transactions and your own costs, at least enough to be able to tell the highly profitable customers from the not-so-profitable, and the not soprofitable fromthemoney-losing BZs. But assuming you do have the data, then there are strategies even big companies can follow in dealing with customers like this.

    First, you should consider imposing service fees on all services, even the ones you used to give away for free. You can alwayswaive the fees for good customers, but imposing reasonable fees till have the effect of reducing demand for free services by thosewho don't really need them, and also recovering some of the costs of providing them.

    A second strategy would be to change the overall value proposition or the business model in some way to realign costs and revenues. Bundle your products and services differently, or change the channel structure, or the sales compensation, or something like that.Most large firms, for instance, pay sales commissions based on product profitability. But why not pay higher commissions based on customer profitability instead? This would be incentive to the salesforce to focus on and leverage the higher profit customers, and would probably mean fewer low-value customers showing up in your customer base.

    And third, some businesses actually encourage BZs to patronize other firms. You can do this with a polite letter, perhaps even offering a small parting gift of appreciation. But then you have to stick to it.

  • What are the best companies in the world for CRM best practices? What other companies can learn fromthem?
    An easy example frequently cited is If you are a regular Amazon customer (as I am), then when you see a book you like you just click on it and it comes automatically to your house. Amazon already has your address and your credit card number, so it's very easy to order the book. For any given book, you will almost certainly find it cheaper somewhere if you look hard enough. But that would mean re-entering all the information, and if you feel that Amazon's "recommendation" service has any value at all, then buying the book from some other site will erode its effectiveness.

    We know a credit card company that offers its card in more than 2 million varieties. These are all the possible results of combining just five different modules. Each module (interest rate, annual fee, sport team affiliation, reward structure, etc.), has a dozen or more possible 'settings'. When you multiply the possibilities together, the card can be delivered to any particular customer in more than 2 million ways. But actually, the only thing the card company is doing is specifying a few dozen options. Then the technology of interaction and process management digitally combines different options into the final card product.

    Inmost such situations, the actual cost of delivering finished goods to the customer will be less sometimes very much less than standard manufacturing. For instance, HP no longer makes separate printers with their own individual power supplies for each different region of the world, for instance. Instead, the company makes a single printer engine that can accommodate a number of different power supplies, then it ships these engines to their destination where the final power supplies are installed. HP did this to save costs. The increased cost of a 'standardized' printer engine is more than offset by the reduced inventory costs and wastage of all the separately manufactured machines that could not be transferred fromone region to another.

    The same kinds of cost savings apply to service delivery. St. George Bank in Australia has cash machines that remember customer requests. So you put your PIN code in and the machine might ask you "would you like your 'regular' $100 cash, no receipt?" Just push 'yes' and you are finished. No need to step through the series of questions—deposit, withdrawal or transfer? checking or savings or moneymarket? receipt or no receipt? From the customer's standpoint it is much more convenient to be served individually like this. But from the bank's standpoint it's less costly too, because each ATM can serve more people in the same amount of time.

    In India, Tata Telecom's customer strategy and technology investment seem to be paying dividends. The company has transformed itself from India's largest PBX equipment manufacturer to the only provider of converged solutions for enterprises voice, video and data with a yearon year annual growth rate of 25%. A technology platform, specifically mySAP CRM, played a critical role in facilitating this growth. The company's Rs. 8.3 cr ($1.85 mn) investment in mySAP CRM will yield a net return ofRs. 12.8 cr ($2.85mn) or an internal rate of return of 129%over two years. Most benefits are in sales, where productivity improvements from better data capture and forecasting have led to increased revenue.

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