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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  • Why do you think some companies succeed at CRM while others fail? What makes some companies so much better at managing customer relationships than their competitors?
    While some of the problemswithCRM projects are technological, the vast majority of failures stem from other factors, including a lack of supporting vision, the absence of an enterprisewide customer strategy, failure to align new technological capabilities with management practices and business processes, inadequate education and training of personnel and insufficient attention to the kinds of success

    metrics that aremore appropriate for a customer-focused strategy. Stories of CRM implementations notmeeting expectations are plentiful and well publicized. The problems plaguing each disappointment seem to fall into three different categories:

    The information problem: Often a company will begin its CRM initiative by upgrading some aspect of its customer-facing processes, perhaps improving the contact center, or automating the salesforce, or introducing a selfservicewebsite. Ormaybe the first step will involve an analytical CRM application such as campaign management. It soon becomes apparent, however, that the full information necessary to understand and service the customer is not available to the right people in real time. How can you value a customer when you only have access to their transactions within one division? Howcan you answer an inquiry at the contact center if you can't access order status? Just as fax machines were not valuable until everybody had them, the complete set of front- and back-office customer information must be brought together to support anything beyond a transactionlevel relationship.

    The adoption problem: One-to-one marketing cannot be 'installed' like a piece of software. It must be willingly and enthusiastically adopted by all the employees, channel partners, and others involved in any customer facing activity. And, unlike most other business disciplines, such as supply chain management or product lifecycle management, many people in a variety of professional and clerical positions are typically involved inCRM.Not only marketing and sales management employees, but also contact center reps, sales reps, and other customer contact employees must have access to a CRMsystem for it to work well. Each of these players will have a different need for that information, and will be playing a different role. Many CRM implementations have been designed with insufficient consideration of how people within the enterprise will be affected. Not surprisingly, people don't respondwell to a systemthat is thrust upon them without considering their individual needs and preferences. One Gartner Group study, for instance, reported thatmore than 80%of salespeople considered the technology imposed on them in the previous 12 months to be a failure. To drive adoption, each user must be able to understand their own value proposition: "What's in it for me?" Poor adoption inevitably leads users to enter inaccurate or insufficient information into company records. Soon the organization loses confidence in the data altogether and databases become orphans.

    The strategy problem: In the rush to 'build an e channel' or match a competitor's technology initiative, many companies have moved forward on initiatives that lacked a clear business strategy. How will value be created for customers and for the company? How can the CRM strategy support the broader corporate strategy? In addition, for CRM to be successful it must return a significant benefit not only to the enterprise, but also to the customer. The central driver of success for any CRM initiative is the creation of value for customers. If you lose sight of this key issue, by focusing solely on your own business goals, such as improving your cross selling success, for instance, or finding high-value prospects, then your CRM initiative will inevitably fail. Without a strategy focused on clear business objectives that include creating genuine value for the customer, many companies have squandered their CRM resources on initiatives that ultimately had little impact. Despite some early disappointments, CRM can be an extremely powerful tool for building competitive advantage. To realize this potential, however, a company must be clear on its overall strategy for focusing resources and aligning the organization around customer initiatives that create real value. This implies tight integration between CRM initiatives and the overall business strategy; there can be no autonomous 'CRMstrategy'.

  • What is Customer Lifetime Value (CLV)? How do companies profit from this? Is it just a fad or is it here to redefine the customer relationship management practices?
    We define the LifeTime Value (LTV) of a customer as the net present value of the future stream of cash flow attributable to that customer. This future stream of cash flow would include all direct revenues and costs in handling that customer, plus indirect revenues and costs, including recommendations and referrals of other customers, and so forth. We've written several chapters in different books on the subject of LTV, and how to account for it, how to measure changes in LTV, and how to use it in balancing the long term value of a business against short-term demands for immediate revenue. LTV is definitely not a fad. And with today's analytics, doing LTV modeling is within the reach of nearly any firm in business.

  • Why do traditional CLV formulas breakdown in a networked setting, and how does your model address those shortcomings?
    We can only suggest that you read a comprehensive analysis of this problem in our most recent book, Return on Customer. If you do LTV analysis on a marginal cost basis, then in a network setting as you add more and more customers to the segment or market being analyzed, you have to roll up partially allocated costs as appropriate. On the other hand, if you do LTV analysis on a fully allocated basis, then you don't have a good economic picture ofwhat the real cost of losing a particular customer is, although you have a better handle on the business and accounting consequences of general policies. With all due respect, this is not a question that can be answered simply. It requires expertise and serious consideration. But it is not an insoluble problem.

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