Monday, February 21, 2005

The Real Point of CRM

I have more relationships that I can handle. I do a so-so job, managing up, down and sideways at the office. I do a little better with my gorgeous wife, great kid and lovelorn dog. I am on solid ground with my assistant who typed this column. I do a little worse with my aging mother and
doting in-laws and much worse with my annoying landlord and contentious ex-wife.

Then I struggle to manage relationships with dog-walkers, babysitters, doormen, dry cleaners, piano teachers, soccer coaches, tech guys, chorus masters, postmen, next door neighbors, visiting cousins, finance guys, college pals and professional peers. I am maxxed out.

I really don’t have room for relationships with my fabric softener, my shoes, my dishwasher, my news agent, HBO, The Mets, each of the 65 magazines I regularly read, my Palm Pilot, my cell phone provider, AOL, my toothpaste or my TV set. And even if I did, I am not sure I’d do any better relating to them.

I guess I should be thrilled that hundreds of corporations have decided to take this burden off my shoulders by investing in CRM programs. I am flattered. From multimillion-dollar software installations to guys with 3 x 5 cards, somebody out there is trying to keep up, keep track and keep selling me.

The problem is I’m an odd duck. So are most people. We don’t really do what we say. We can be distracted and rerouted by deals and offers. We change our minds easily and frequently. We take advice from unqualified strangers at cocktail parties. We can be sidetracked by slick design.
And for large categories of goods and services we either don’t care or we do care very much but we don’t show it. Marketers spend too much time buying increasingly complex “M” solutions and not enough time understanding “Cs”. The greatest enemy of CRM is unmet expectations. Gartner projects that 55% of CRM efforts in telecom will fail to demonstrate a positive ROI. All
that time, energy and money without any movement along the relationship continuum and no positive cash flow to show for it.

When all the bells and whistles are stripped away, CRM rests on three fundamental direct marketing principles. All that time, money and energy is spent trying to capitalize on these truths which drive every direct marketer.

1. Birds of a Feather Flock Together. If you can find the demographic/psychographic patterns that define your most valuable or most frequent customers – you can better serve them and find more of them easily.

2. RFM Matters. If somebody takes an action, it’s easier to get them to do it again. The sooner the better. And if you watch how much they spend you’ll get a feel for how much they could be worth to you as a customer. That’s why cataloguers put offers in your shipping bag and send you a new catalogue as soon as you buy. Its all about recency, frequency and monetary

3. 80/20 Rules. 20% of your customers yield 80% of your volume. Ideally if you can identify the 20%, you can communicate with them much more cheaply and thereby maintain volume while increasing margin. This fantasy of finding the 20% explains why packaged goods marketers keep trying to do CRM in spite of successive failures, total lack of understanding and
products that usually sell for less than five bucks.

Getting all the data entered correctly, kept current and aggregating personal info, buying stats, appended data, model scores and the results of email campaigns, coupon redemption or store visits could keep teams of programmers, analysts, coders and marketing research types busy for years. Imagine the costs and the time required, especially if you have legacy ERP systems, scanner data and warring business units with private stashes of numbers.

After all this, when a marketer gets it right it’s a beautiful thing. When they blow it, it’s a colossal waste of money. To help raise your consciousness about the room for relationships in consumer’s lives and the need to watch and respond, allow me to site a few examples from my relationship-rich life. They are not statistically significant or projectible. But I have a hunch they reflect the state of the CRM art. . . the good, the bad, the over-engineered and the unfocussed.

Norm Thompson
Fifteen years ago I saw an ad in The Wall Street Journal that read “I make the world’s most comfortable socks. If you doubt me, send me your card and I’ll send you a free pair”. Being younger, poorer and much more gullible (I thought there was a real guy named Norm in Oregon). I did it. So did ‘Norm’. His wick-dry socks are ‘the best’. ‘Norm’ sends me his catalogue, which I generally ignore. But he also sends me a flyer about my socks twice a year. And like a lab rat, my reflex instinct is to buy 3 pairs for $19 twice each year. Do the math. For the wholesale cost of a pair of socks and thirty 50 cent mailers ($15 over 15 years), Norm has built me into an annuity with a present lifetime value of $570 and a future value worth at least $38/year. It’s an ROI you or I would kill for.

American Airlines
I am a mile whore. But American seems to know when and where I fly even though they’ve never asked me a ton of nosey questions. They post my new points quickly and offer me deals on the routes I fly. They upgrade me much faster than their competitors and generally make me feel like a big shot. On most flights I get automatic upgrades often presented with handshakes from smiling gate agents. I’ve repaid their largess with frequent use, several incremental vacation package purchases, light mileage redemption and positive word-of-mouth. When I compare AA with Continental, Northwest, US Airways and United, who also are relating to me, AA seems more nimble, able to act faster and working much harder at our relationship.
The home of the original collaborative filter bedevils me. I purchase a ton of booksusing that magical, demonic ‘1 click buy’ feature. Yet they aren’t very grateful. They never write or call. When I actually took a cross-sell offer on a CD player and CDs, I wasn’t acknowledged or thanked. Even the stodgy old BOMC celebrates a change in my behavior! I ignored their mail and FSI catalogues. I tossed the postcards pushing DVDs and white goods. I think I mean more to them than I really do. I haven’t felt this way in a relationship since seventh grade.

Brooks Brothers
I have worn Brooks Brothers Oxford cloth buttoned-down shirts since I was eleven. I used to buy them with money from my paper route since they were too pricey for my Mom. Since they’ve gone cyber, I have benefited from some great discounts. But, I can’t tell if they’ve
sorted me into a “value buyer” category or if its just a coincidence that I seem to only get discount catalogues and discount HTML emails often in quick succession. I know they’ve tuned up the fashion collection. But I can’t decide if they’ve become a discounter or if it’s just a characteristic of our unique relationship? I’m trying to decide if our relationship is governed by a sophisticated profiling effort linked to an ingenious contact strategy or whether Brooks is desperate to move the goods at lower margins. The fact that they’ve never zero-ed in on what I buy, referred to my purchase history or offered me a logical cross-sell suggests that latter.

I’ve been a Gold Card holder for ten years. I still get a kick seeing my name on those digital boards and by passing the counter filled with tourists and losers. Immediately getting in the car and driving away makes me feel important and very savvy. But what’s up with their points
deal? They offer me all kinds of irrelevant coupons. If they’d look at my transaction history and my address, they’d know how lame the offers are! Is it still a relationship, when one side no longer pays attention?

David Bouley has been the “chef of the moment” in New York for 20 years, Danube is a shrine for foodies and gourmands. David keeps the checks of his 400 most frequent diners in a shoe box under the bar. His captains note wine choices and tips given. Each time you come in, they check the box so that the free ‘chef’s taste’ you get isn’t the same as last time. In my case, they remember how much I’ve come to love beef cheeks. So they bring me a free portion without asking. The box also cues the Headwaiter which drinks, wines and desserts you’ve tried, so the waiters know what to suggest and how to up-sell you. The technology is vintage 18th Century. The feeling of being pampered by one of the world’s great chefs is sublime.

Ultimately CRM is about paying attention. Technology facilitates collecting and analyzing data about your customers. But the game is won or lost in using the data at the right time with the right customers. Ideally CRM is like a friendship. With each exchange and each interaction the
parties learn more about each other. Each gently adjusts for the next encounter and generally feels good about the whole thing.


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