Sunday, June 20, 2010

Steps to Initiating CRM

A CRM initiative starts with top management taking a conscious decision towards customer orientation. Visualization of benefits should happen at this stage and should be articulated in the form of a value proposition. A discussion on CRM project’s value proposition is available here. The next step involves outlining business processes that will be impacted by CRM. As mentioned in an earlier post, the impact of CRM initiatives is not limited to the front end and customer facing processes only. While CRM applications have evolved and are industry focused and process oriented, the custom processes of the organization still need to be mapped to standard processes provided by CRM vendors. A process re-engineering team comprising of members from strategy, operations, IT and external CRM consultants should be formed at this stage to analyze custom business processes of the organization and provide clarity on the following:
1.      Time/Cost Estimates of the initiative
2.      Phasing approach (and identification of quick-win projects)
3.      Change management requirements
4.      Metrics to monitor progress/returns at every step
Subsequent to this, the CRM product vendor needs to be selected. Unlike purchasing a cell phone, where one learns after purchasing a feature rich phone first, subsequently realizes his unique needs and next time buys just the right one, CRM product selection is a one time activity unless the organization gets it completely wrong. Product vendors are aware of organizations’ penchant for features and would package numerous additional features highlighting discounts if bought as a bundle. Enterprise vendors would also bundle a few non CRM components for future opportunities. Organizations that fall into the trap may end up paying for features which they will never use. Results of the analysis phase should provide the framework within which the organization should commit its resources. A similar logic should be adopted while purchasing licenses. Organizations should however, ensure that product support and consulting from the vendor are included as part of the package as these are critical to the success of the initiative and will be costly if bought later.
The next step is to decide whether to develop the CRM application in-house or partner with a system integrator (SI). There are advantages and disadvantages of each approach which will be considered in a later post. Some key things should be considered while selecting the SI partner. Reputation and reliability are important because organizations will be exposing their customer strategy to the vendor, trust and mutual respect will play an important role in opening up and sharing knowledge. Good CRM SIs are costly because they employ technologists who in addition to understanding the unique business processes, are expected to understand the organizations customers. Being penny wise here will prove costly in the long run.
Once the organization has mapped out its business processes and selected the product and SI vendors, they are ready to create specific business requirements with help from product and SI vendor’s teams. 

Monday, June 7, 2010

Segmenting your Customer base

While organizations start with some basic understanding about their target customers, the target segment gets refined with time and may undergo significant changes once there is visibility of ground realities. In organizations that have implemented CRM solutions, the CRM application tracks information about customers across different channels. Overlaying analytics on top of CRM data, organizations can identify different segments, outlining buying habits like preferred products/services, channel, location, willingness to pay for premium services etc. A successful segmentation strategy will result in segments that are easily definable, sizable, reachable and actionable. Segments are defined in such a way that characteristics within a segment are homogenous while between segments are heterogeneous, so that different treatments can be designed for different segments. Characteristics, based on which customers can be segmented can belong to any of the four major types:
  • Geographic (e.g., country, region, climate)
  • Demographic (e.g., age, sex, income, education, # household members)
  • Psychographic (e.g., lifestyle, personality, values)
  • Behavioral (e.g., usage rate, loyalty status, usage occasion)
Geographic variables provide high level indicators. Mobile telephony customers based out of coastal regions, where one of the primary occupations is fishing, have a higher willingness to pay for weather related services and forecasts on their phones.
Demographic variables can indicate if a particular age group uses specific types of services more often than others. SMS is used more often in the age group 15-25 than in any other age group.
Psychographic variables are based on human psychology. Customers can be identified as Innovators, Adopters or Followers. High end new products or services can be targeted specifically at Innovators thereby increasing acceptance rates.
Behavioral variables are based on the presumption that past performance is a true mirror of future performance. The success of RFM methodology (Recency, Frequency and Monetary Value) to predict future revenues from customers proves the efficiency of behavioral variables. The number and value of prepaid recharges made by a customer over a period of time, in addition to time lag from the last recharge can predict to considerable accuracy whether the customer is still with the service provider; it can also predict when and of what value will be his next recharge.
Segments are rarely based on one type of variable; a combination of multiple variables of different types can provide useful insights that define a customer segment. A study conducted by a colleague and me on the upcoming 3G market in India found that young (22-28 years) medium income (9–14 lacs) basic degree holders interested in music would have the highest willingness to pay for Mobile Gaming. Get entire report from here.
Once segments are identified and selected, the next step is to design service offerings and pricing keeping the target segments in mind. There is a trade off involved between the depth of segment definition and cost; some experts, however think that one need not make an either or choice. To read more about creating service offerings for a segment size of one, refer to the blog on 1to1 Marketing