Contact me… in an adaptive way

If you will use this text for publishing or academic pursposes, be so kind to cite the author and source: Alen Gojceta, Banka, 09/2002. Thank you!

Restaurant with 150.000 tables – no thanks

Technological maturity has made possible what we call today Customer Relationship Management (CRM). The need to establish a business strategy based on technologically supported CRM philosophy, emerged from 3 factors: (1) high penetration of products and services, (2) highly saturated competitive markets, and (3) a large customer base.

When managing relationships with a relatively small number of customers, we do not need support of advanced technological solutions. On the contrary, the most effective CRM is the one based on close, frequent contact, strengthened by mutual trust and understanding.

Many of us have a favorite coffee shop where the waiter serves us with the “usual” drink, or restaurants that are part of daily gastronomic routes, where they know that we do not want vinegar in the salad, or don’t stand cakes with cinnamon. But let’s imagine that a restaurant does not have 15, but 150,000 tables all occupied by “regular” guests. In this case there is a choice: the restaurant management could allocate one waiter for every 5 tables, or make use of technological benefits. In the first case we would achieve the desired effectiveness and personalized relationship with customers, but with the same cost and a lower level of service. Actually, to help a waiter remember returning guests and their habits, the latter would be forced to sit always in the same “district” between the 150,000 tables of the giant restaurant. It is clear that gastronomic experience in such a large restaurant would be far from ideal. Let’s then rather split our tables in some 100,000 restaurants and enjoy properly for a little higher price.

Let’s consider the other case and reach for technological solutions, the same ones that lie below any contemporary CRM solution. In this scenario, we would still have 150,000 tables, but the number of waiters would not be 30,000 any more, but much less, say 10,000, keeping similar level of service. Except for the efficiency achieved by a CRM system, the reduced number of waiters may be additionally achieved by the use of different workforce management or advanced enterprise resource planning systems, often seen in conjunction with modern CRM solutions. The best part of such solution would have been the choice for a guest to sit in any part of our imaginary endless restaurant, and be served by any CRM waiter in a similar, yet adapted (personalized) manner. This is the basic idea of CRM philosophy: collecting and storing information about customers and acting upon it seamlessly across the whole organization, with the aim to establish and maintain relations adjusted to the individual customer or a customer segment. Our CRM waiters would have been equipped by hardware and software solutions that would help them to identify the customer and gain insight into their habits and aspirations. Such IT infrastructure would have enabled them to simulate mature established relationships with their guests, similar to the situation of a restaurant with 15 tables and a returning guest. All that would have been made possible despite the fact that the CRM waiter and the guest have had never met before. Unfortunately, the atmosphere of the enormous restaurant would have still been far from pleasant, but the scope of CRM is not perfection in mapping customer requirements, but rather a compromise between aspirations and wishes of individual customers, and objectives of CRM organizations.

The 150,000 tables in a restaurant is just an exaggerated picture of what’s going on during the past hundred years with dozens of industries from retail or manufacturing to tourism – the introduction of massive scale as a vehicle for maximizing revenues and reducing costs per unit of product or service. Such business model has led to the alienation of business organizations from its end users. Rapid growth of processing power on computer clients, improved database technologies and means of interaction with customers (Internet, call centers, laptops and PDAs) have enabled introduction of technologically supported customer relationship philosophy, the one that seeks to simulate intimacy of the increasingly lacking personal contact.

Dear George

Traditionally, marketing strategies have been relying on market segmentation and targeting specific market segments by different marketing initiatives.

The most primitive, the most easily applicable and the most widely used segmentation is based on revenue (who spent what with us) or, in a more advanced case, on financial potential of our customers (who has the money to buy our stuff). The theory of marketing segmentation is being developed for decades, so today we have advanced models that go beyond profitability or demographics, taking into account a number of parameters such as lifestyle, social affiliation, cultural determinants and the like.

CRM philosophy has set new standards for the segmentation. Its purpose is to recognize the most profitable or potentially profitable customers, adjust the value proposal to their profile, keep them as customers and create long-term (profitable) relations. The tendency is to use advanced technology to make interactions with customers as close as possible to their most positive expectations under a reasonable cost for the organization. The usual number of customer segments in an average organization is less than 10. It is easy to conclude that the communication strategy based on 10 groups from a large customer base is nothing less than a compromise. At the bottom line, such marketing strategies, especially those based on profitability segments, are reduced to the most profitable, or even just the wealthiest customers. Often the maximum achieved is differentiation model where those get a better service levels (better response, higher quality,…).

Organizations that where pioneers in using technology for accessing large customer base, have often emphasized their ability to show the names of visitors of their web sites and outbound e-mail messages as personalization. Most often, they where able only to simulate the classic “Dear George” message, which would be followed by content, usually not adapted to the message recipient. Despite the trend to call this ability personalization, use of term personification would have been much more suitable for this capability to address the message recipient by his or her name.

Personalization is a higher degree of content customization within marketing communication. It is dominant within advanced CRM oriented organizations today. Personalized message contains customized content, in addition to the simple addressing the one to which it was intended. There are more organizational and technological ways to solve “recognizing” specific user affiliations towards certain content or his/her eligibility for a particular marketing proposal. The most common, and also the easiest way to identify user preferences are different customer query forms put as part of a contract or a form that would allow access to a protected part of the company’s web site. The customer should be provided by opportunity to express his/her area of interest and communication preferences.

Such inquiries are known as permission-based marketing. The additional information collected allows classification of the customer into one of the segments defined within the organization. Additional data are gathered from the transactional history. From technological perspective, the more demanding part is later processing of customer information for the purpose of classification into segments defined within company’s marketing strategy, and further splitting within sub segments that mark propensity to buy certain products or services. For this purpose, different tools are used to search databases, analyze the stored data and predict future patterns of customer behavior. These tools and methods are database query, OLAP and data mining, known under common name of business intelligence (BI).

Advanced CRM organizations today, usually combine interest areas and preferred channels chosen by the customer with the segmentation parameters from available relevant customer data. Targeted marketing campaigns are conducted by additional selection of potential members from one or more segments by using advanced BI processing.

Dynamic micro-segmentation

The goal of a CRM strategy would be to adapt the business to the customer in an efficient and effective manner. Ultimately, this means that customer’s experience would be marked by an unexpected match of approach, communication, offer and service, still preserving the organization’s business objectives. How to achieve such combination? Organizations that have developed their businesses to the level of personalization filter large customer bases through different BI processes, using combinations of the mentioned parameters, to mark those most suitable for a specific offer or message. Such process is based on visible customer attributes (e.g. demographics) and historical behavior, disregarding the current behavior.

BI tools serve to recognize the potential behavior (e.g. purchase decision) of a targeted customer group, marked by some common features, based on the behavior of a test group or an existing (returning) customer group. Limits of personalization, such as too large segments and research on a case by case basis will be eliminated in the next stage of CRM evolution – the dynamic micro-segmentation. The prerequisite to the dynamic micro-segmentation is large amount of data about a particular customer combined with patterns gathered from a wide customer base. The quality and nature of the customer data is such that it is impossible to collect it through the traditional market research. The only way is to systematically gather information about user behavior during their interactions with the company. It is obvious that this phase of development of relationships with customers is intended only to “mature” CRM companies, i.e. to those that have a long lasting history of processing and storing of customer data.

Remark: to this view from “2002 perspective”, we could add today (2010) that “mature” CRM companies are those that are able to leverage data collection through different means of Web 2.0. as well.

George’s satisfaction

So, what is it all about? The simplest example of a dynamic micro-segmentation will be described on a case of a client of a bank calling its customer care call center. By calling the bank’s toll-free number, the client is greeted by the latest generation of IVR system, with the automated announcement: “Dear Mr. George (Oh, no. Dear George again! 😉 ), we noticed that you where searching for information on housing loans on our web site. Do you want us route you to our credit department or you would like to choose an other service? “. If the user chooses to be routed to the credit department, not only will the system do so, but the clerk receiving the call will be automatically noticed on his screen about George’s solvency and previous credit obligations. And that’s not all. The screen will show the best possible offer for Mr. George: loan repayment period in accordance with his income, and previous habits. This is just an imaginary example, similar to the many that customers of mature CRM organizations are already starting to experience. These organizations are equipped with modern technologies that enable such data processing and managing customer interactions.

Of course, implementing and managing such processes it’s not that simple. Considerable efforts of the organization are needed on the field of data integration from various sources and automation of background processes with systems that participate in customer interactions. A CRM organization in a mature stage will assure the same level of personalization through other channels as well, such as call centers or traditional “brick and mortar” offices.

Some analysts, one of them is Eric Schmitt of Forrester Research, believe that in the future the winning strategy of the majority of CRM organizations will rely on segmentation based on the traditional 10 segments instead of the infinite number of dynamic micro-segments. Schmitt believes that the advanced personalization, which may be based on a very large set of rules, is too complex for most ordinary mortals. Indeed you will not be able to achieve a level of dynamic personalization by a simple business decision. The maturity of business processes, data collection methods and information resources are required. Management understanding and tradition in collection and processing of customer data have no less importance. So why wait? Start today with the systematic collection of information about your customers and their behavior. Get ready for tomorrow’s real time market segmentation.