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.
