The three most read posts on Alen’s Think Place

The three most read articles at www.gojceta.com during the past year

After more than a year of posting to www.gojceta.com, it seems that the most popular articles were those written with intention to be posted to Alen’s Think Place. In competition with English translations of my articles published in Croatian business and technology magazines during the past decade, the winners were the two posts created out of pure intellectual joy, reflecting my thoughts, without expectation for a financial reward.

The most read article on www.gojceta.com was the story of my experience at the first McCafe’ in Zagreb: “A coffee shop in the hamburger kingdom“. It explored the business model and the McCafe’ service in general.

The other most read article, missing only one visit to equal the McCafe’s score was the story about brand extension of Cedevita multivitamin drink to their line of tea. “Dad does it dissolve in water?” was doomed to be written the day when my son confirmed to me that my own confusion with the brand message goes beyond my own perception.

The third most accessed article was “The bdp triangle – my framework to managing successful proactive telephone campaigns described in an article in Croatian business magazine Lider. Despite the fact that the “triangle” was around 10% behind the two winners, I’m very proud of this concept and I believe that it has deserved the position.

The most read articles at www.gojceta.com:

  1. A coffee shop in the hamburger kingdom
  2. Dad does it dissolve in water?
  3. The bdp triangle

The above articles are copyright of Alen Gojčeta

©2006-2010 Alen Gojčeta

Brief History of CRM

The post presents the history of Customer Relationship Management (CRM) within the context of academic research and business applications. This is the excerpt English from the article published in Croatian in April 2010 in “Mreza”, magazine for IT professionals. The CRM history is described from its starts in mid eighties to day, with a view on the years to come.

The history of CRM can’t be observed without considering the development of business applications with contemporary academic research.

Eighties, THE second half

MARKETING SCHOLARS: After the concept of services marketing, particularly developed within the so-called Nordic school of marketing, a new concept has emerged. Early definitions of Relationship Marketing could be found mid eighties (1985 Jackson).

BUSINESS APPLICATIONS: Sales Force Automation (SFA) and Customer Service (CS) applications were still considered as part of the wide family of ERP solutions. Few years later a new and distinct software solution category emerged and SFA and CS became part of so called Customer Relationship Management (CRM) software.

Nineties, the first half

MARKETING SCHOLARS: Relationship Marketing has been studied by Morgan and Hunt (1994) and Reichheld (1996). In 1995 Relationship Marketing was defined by Koiranen as “approach to establishing, keeping and enhancing the long-term relationships with customers and other shareholders.”

BUSINESS APPLICATIONS: Analysts from the first half of the nineties still did not recognize the rising strength of CRM. SFA and CS were classified as a small sub-segment of the ERP market. In 1994 the total CRM software (SFA and CS) market amounted to around 200 million US dollars, compared to the 6.4 billion of the global ERP sales.

Nineties, the second half

MARKETING SCHOLARS: Unlike Relationship Marketing, the CRM was studied relatively late by the academics. First academic definitions of CRM were written relatively late compared to Relationship Marketing. In the 1999 Srivastava, Shervani and Fahey described CRM as a broader concept than Relationship Marketing defining it as “a process that identifies customers, creates knowledge about customers, builds relationships with customers, and forms customers’ perception around the organization and its offerings.”

BUSINESS APPLICATIONS: Towards the end of the nineties, CRM fever heats up. The awareness of the big new market is rapidly growing. Everyone sees the opportunity for a continued growth in a somewhat saturated ERP market. During previous years, ERP applications have generated and stored an impressive amount of data about customers, so indispensible to fuel successful CRM initiatives.

Year 2000 to date

MARKETING SCHOLARS: Despite some terminological dissonance, academics are better aligned with the business practice. Through basic research, they contribute to the development of business concepts that are being embedded within CRM.

BUSINESS APPLICATIONS: Many applications are experiencing their maturity, backed up by better understanding of business processes as well as motivation agendas of individuals and departments within organizations . This maturity was influenced by the evolution of information technologies backed up by cheaper and faster data storage systems, accessible broadband and flexible IT environments, like service-oriented architecture (SOA), SAAS (software as a service) and cloud computing.

2010 and years to come

MARKETING SCHOLARS: The intensive progress in behavioral studies over the past two decades creates the basis for “intelligent” approach to large customer segments. In addition to corporate business systems, such segments are emerging within the social networks of the coming years.

BUSINESS APPLICATIONS: Social networks are opening a new page on the CRM agenda. Facebook, Twitter, LinkedIn, Second Life and other engaging social media networks, enable a more precise segmentation, affinity grouping, customer participation in offer definition and their impact on formulating corporate strategies, in a way that has never been possible before.

 

Social Networks' role in CRM
Social networks in CRM ecosystems enable a more precise segmentation and customer involvement. ©2010 Alen Gojčeta, Mreza magazine April 2010

This is the excerpt in English from the article published in the issue of April 2010 of Croatian magazine for IT professionals “Mreža“. The work above us the copyright of Alen Gojčeta and the Mreža magazine. The CRM history is part of the findings of the research done for author’s master degree thesis “Segmentation models in CRM”, 2006.

 

Market Segments – Value for Them and Value for Us (English translation), MarketingUP, 05/2007

One of my recent articles published in Marketing UP magazine in May 2007 and translated here to English. You can find here some classical wisdom about segmentation.

Twenty percent of customers make eighty percent of sales, Vilfredo Pareto (1911)*

The popular “20/80” metaphor of the Pareto principle reflects its simplicity and broad applicability. This is one of the most used and most cited principles in economy. Anyone who ever tried to trade on an open market can recognise this pattern.

Segmentation allows creation of manageable, homogenous groups of customers

Segmentation is a wide marketing topic, which, among other, helps understanding the value of each customer to your organization, and vice versa – it creates insight to what are the aspects of your products and services that your customers value the most. Such awareness enables adapting of business strategies to different homogeneous market  groups that we call segments. Differentiating customers with regards to the value that they ‘deliver’ to the organization became particularly important in recent decades with highly saturated markets and consumers that show great immunity to the large amounts of marketing information they have been exposed to. The marketing response to such market conditions is basically answering the question: “how to keep the most profitable customers in the most efficient and cost-effective way?”. Driven by the above mentioned transformation in market environments and by changes in technological capabilities of modern information and communication systems, the evolution of marketing has yielded some new and innovative concepts. Among those, the services marketing represents a fundamental change in the traditional market approach, followed by important concepts such as niche marketing, relationship marketing and the customer relationship management (CRM).The latter two concepts are mutually overlapping and complementing each other. Boundary between them is a wide “zone” of common postulates and shared principles. In this ‘zone’, the understanding of the value that customers ‘deliver’ to the organization, take a very prominent place. A number of segmentation tools and techniques exist that are used to support strategies aimed to identifying and retaining the most profitable groups of customers (customer segments).

The value exchange as foundation of business

The purpose of markets as well as the foundations of the marketing concept lies in exchange of value. How much are you aware of the value provided to your organization by each of clients you serve? It’s a good question indeed, because the value is not allocated only within the tangible parameters, such as actual sales figures. It is the difference between costs and revenues, but much more than that. Doing business with certain clients for your organization can be matter of image, reference, or some other “intangible” benefits. Some clients, even if they do not contribute significant revenue to your business, can be your good messengers to a wide number of potential customers. On the other side, some others will take a significant place in your business books and stand up with figures, but a deeper analysis will discover that they are actually “value destroyers”. There are different ways in which your customers can destroy value. Those can be reflected in requests for (unreasonable) product customizations or frequent urgent deliveries. Other aspects of destroying value could be wide exploiting of customer service rights, taking advantage of long delays in payment and by generating similar expenses or other extraordinary pressures to your organization’s resources. We often justify such actions by customer’s revenue figures. However, we should ask ourselves: is it the volume of transactions on our bank account the purpose of our business? Or is it perhaps the amount that remains after the transactions are completed, through a longer period of time?

Value based segmentation

There are different methods of recognizing the value of customers for the purpose of grouping them into segments. These methods range from the most primitive measurement of sales figures to complex models that include the allocation of the current and future value creation such as potential referrals or future use of other products in your portfolio. In practice, the value of a client is measured by different surrogate measures. Some well known segmentation methods are RFM (Recency, Frequency, Monetary value), usage analysis and Customer Lifetime Value.

Within Customer Relationship Management strategy, the most suitable segmentation is the one based on the so-called Customer Lifetime Value. It is used to define the general approach to the customer set. The Customer Lifetime Value is a complex, synthetic value gained by allocation models that take into account both present and future value exchange factors. To simplify identification of present and future “value creators” marketers seek to identify visible client attributes that indicate his or her tendency toward specific behaviors that affect value creation. For example, within a costly customer lifetime value segmentation project, conducted by one of America’s leading insurers, among other findings, they understood that the size of individual’s US credit score represent a very strong “value creation” predictor.

Segmentation takes into consideration different views on customers

ABC method – earn the status

Director of Customer Service department of one of Croatian telecom operators, when arguing the substantial investment in segmentation and distinctiveness of customer service levels, said: “We started the investment when we realized that we couldn’t afford any more the highest service levels to all of our customers.” What the telecom operator actually did in that occasion was to use the ABC method to diversify approach to their customers based on their value creation. The best customers were entitled to the so-called premium service. When deciding about the granted quality of service, the CRM system was able to distinguish not only those which created value, but those who were destroying it as well. The investment in a customer’s service level was reciprocal to his or her contribution to the profitability as the operator’s measure of sustainable success.

For a better segment “visualization”, the value levels within the ABC method are often marked by descriptive terms such as “bronze”, “silver” and “gold”.

In the late nineties, the former Swiss monopoly telecommunications operator Swisscom, started a loyalty program to protect its market position during the market liberalization process*. The objectives of the program were focused on keeping the leader position, retaining the most profitable customers, while trying to avoid price wars with the newly introduced competitors. The loyalty program was delivering certain benefits to its members. Based on the data collected through the program, Swisscom was able to analyze more than 20 target groups. Four segments were chosen based on the analysis. Using the ABC analysis method, different approaches were deployed towards each of the four segments:

– Premium customers: keep them loyal at all costs

– Profitable customers: keep them loyal and intensify cross selling

– Customers with medium consumption: offer packaged services, cross sell

– Unprofitable customers: there are no benefits without increasing consumption

The ABC method can easily be recognized by clients in the banking industry. The personal banker (or clerk) service is meant to be a lever of investing in “value creators.” The remaining clients are left with the option of waiting in queues within the branches, the ATMs or other self-service systems. For the “worst ones”, which can be described as “the value destroyers”, the preferred channel of business is – the one with the competition.

Customer segmentation based on benefits

The above described segmentation will differentiate customers according to their contribution and their potential profitability. It is obvious that it puts the needs of sales organizations in the focus (which client is better for ME).On the other side, it is good to know what customers find most valuable in our offer or our general approach. We’d like to know that in particular, for those that we value the most.

Contemporary markets are often perceived as collections of different business models (within the organizational buyer) and lifestyles (in case of consumer markets). Such determinants of our clients define the reasons why they would accept our value proposal. Benefit segmentation is a mirror in which we try to figure out how our customers segment their “suppliers market” based on their perception of value. In contrast to value based segmentation, the segmentation based on benefits puts the needs of customers in the center of the segmentation effort.

A business organization, whose business model is based on low costs or minimal inventory, will value your ability of flexible, frequent and timely delivery options. Two persons that purchase the same vehicle will base their decisions on completely different reasons. While one will value a prestigious brand and design, the second will be making the purchase based on safety features and high quality service network. This understanding of value that the customer perceives within our proposal can have a powerful impact on adapting the product / service, the marketing approach, as well as the pricing strategy.

Segmentation based on value will give us the answer to the question about who are the customers that are worth our best effort, while the segmentation based on benefits will help us to understand what this effort should look like. Modern marketing segmentation concepts keep confirming – Vilfredo Pareto was right.

*The idea use of Vilfredo Pareto’s principle in this article was  inspired by Art Weinstein’s “Hanbook of Market Segmentation – Strategic Targeting for Business and Technology Firms”, The Harworth Press, 2004


The original of this article has been published in MarketingUP, 05/2007  magazine. The article and the above English translation are copyright of Alen Gojceta.

The Swisscom business case is described in: Brown, Stanley A.; Customer Relationship Management – a strategic imperative in the world of e-business; John Wiley & Sons Canada Ltd; Toronto, 2000.

If you decide to use this article or its parts for academic or professional work, do not forget to cite the author and the source.

© 2011 Alen Gojceta

The “bdp Triangle” – my Article on challenges of telesales campaigns – (English translation), Liderpress, 11/2005

Outbound telesales campaigns take part of many contemporary channel strategies. Those are often used to cover large customer base within sales models with simple transactions. There are plenty of arguments that support such approach, but there are some rules to respect as well. I have embedded these rules into the “bdp Triangle”…

Managing proactive telephone campaigns

Alen Gojceta

Today’s organizations that operate in intensively competitive environments need to adopt comprehensive customer relationship management (CRM) strategies. These strategies are striving to integrate the one to one marketing principle. It fosters approach to each person, member of a large customer base, as an individual with his or her needs, characteristics and specific behaviors. This approach, among organizations embracing CRM, has brought customer interaction channels on top of the business agenda. In addition to traditional brick and mortar offices and ever present sales representatives, modern technologies brought new interaction channels that are by their very nature, more convenient to customers and more profitable to the organization. Besides the Internet, contact centers are the most important means of interaction with large customer base.

The power of telephone marketing

Development of management disciplines within call centers and increase of their complexity had impact on widening the area of their

Pro-active calling activities are among contact center's most challenging tasks

applicability. Sharing knowledge among inexperienced agents, conversational scripts, intelligent call routing, education and quality assurance are just some of the challenges faced by management within call centers. However, pro-active calling activities have always been among their most challenging tasks. There are two different ways of such interaction: incoming (inbound) proactive activities and outgoing (outbound) calls.

An organization can proactively act upon incoming calls by anticipating needs of their customers by proposing products or services, in addition to fulfilling the original scope of the customer call. There are a number of processes, policies and technologies that support proactive proposals during incoming calls. Those will not be further discussed in this article. The following text will investigate the topic of outgoing telephone campaigns. Its multi-disciplinary and complex challenges have to balance contact center technologies with psychology, ethics, legislation, sales techniques and marketing know-how.

According to the recent data (2005) from Direct Marketing Association (DMA), in US, telephone marketing is ranked second with 47 billion dollars behind direct mail with 49.8 billion. These data are even more significant if one takes into account other studies sponsored by the same organization, which puts telephone marketing on the throne in terms of response rate with 5.78% and the rate of return on investment (ROI) with a significant 18.2%, higher than e-mail marketing with 16%. In year 2005, direct marketing will participate with as many as 10.3% in the United States’ GDP.

About 50% of today’s call centers in the United States use the functionality of outgoing telephone campaigns. About 45% of those use this functionality for telesales and telemarketing, and about 22% of them for market research.

Telephone marketing and privacy threats

By implementing call centers with outbound functionalities and campaign management capabilities, organizations gain control over a powerful tool that can bring significant business savings as well as realize substantial added value through sales and marketing campaigns. This is a bright side of the coin. Unfortunately, telephone campaigns have their dark side too. Conducting telephone campaigns which are inconsistent with consumer’s expectations, their cultural habits or the current needs around company’s offerings, can lead to a complete disaster. The consequences can range from a complete collapse of a specific campaign to many insulted and forever lost customers.

Only a doorstep is perceived as more private property than a private phone number. Knocking on the door of someone?s home by a sales representative or a call to a private phone number is the event that can create or destroy customer’s good opinion about an organization.

Business phone numbers, as well as offices, are completely differently positioned in our minds. In order to perform work, purchasing decision-makers will be happy to listen to persons who represent their providers. Business phones are used precisely for this – to support business activities. Outgoing telephone campaigns in business environments are mostly used to create sales leads, and could be characterized as a combination of market research and sales initiatives. Already in 1989, the direct marketing department in Oracle Corporation used to sell their products using combination of a call center and internally developed application for campaign management. This fact is even more interesting when taking into consideration that they where selling databases worth several hundreds thousands dollars. Many were skeptical at the time about the strategy of the department which was headed by Tom Siebel, later founder of Siebel Systems. The strategy was confirmed by almost double the sales from the previous year.

Approach to consumers by means of telephone campaigns is different in many aspects. The consumer is more sensitive to privacy issues, he is protected by law, and cultural constraints may be of critical importance, especially in multi-cultural environments.

Consumers are hunters, not prey. Although the marketing industry has been targeting customers for decades, trying to arouse need and awareness about a product or service through various forms of marketing communications, at the end the customer had the opportunity to choose among various options. Growing awareness on consumer’s rights, increased share of the educated individuals within a population and the increased customer care by organizations in deregulated and competitive markets, made the average consumer less open to the traditional marketing manipulations around attitudes and nonexistent needs. Modern consumer gradually realizes that he is the “boss.” Outgoing telephone campaigns today are more complex and challenging for marketers than ever before.

The “bdp” triangle – first rules, then calls

Proactive outbound telephone campaigns should be run when combination of conditions that border by the “bdp triangle” are fulfilled. Its corner points are marked by: benefit, debt and permission.

The "bdp Triangle" visualizes the rules to follow when triggering telesales campaigns

bENEFIT implies a reason to call that brings true value to the customer through the so-called win-win relationship. The person who just bought an apartment will be satisfied if he or she gets the call from a sales representative from a company that deals with arranging documentation for property registration. In addition to the true value for the customer, calls may be considered acceptable when referred to “public good” such as humanitarian work or survey for market or social research. It is important to keep in mind that an organization whose existence depends on selling their products or services on the market, should not afford to make “dummy” outgoing calls. Each disturbance can instantly contribute to the negative positioning of the company’s brand in customer’s mind.

dEBT in the triangle indicates situations in which the customer is indebted to the organization. An example would be delay in bill settlement. Friendly warning or a reminder will not be taken for bad. For debt collection even telephone machines are often being used. However, the preferred form of the “debt angle” is the one in which the customer “feels obliged” towards the organization because of the high level of satisfaction with the experienced products or services.

pERMISSION implies customer’s consent to be contacted. The permission may contain the desired time frame of a call, possible reason (content) and the desired (permitted) communication channel. Permission based marketing, opt-in marketing or consensual marketing are among the terms that mark the only excuse that you can use to choose the content that you will communicate to your customers, as well as the how you will do it. Permission given by a customer is a passport to overcoming all the limitations put through legislative, cultural or professional boundaries to customer relationship.

How to get a permission? Strategic imperative of modern businesses is their capability to communicate directly with customers. In such communication, customers should be able, through various means, to opt for communication channels and content. Also, a customer should be empowered to change his or her mind at any time, to change the preferred way of communication or the type of content that will be delivered.

Obviously, for successful outbound telephone campaigns several criteria should be fulfilled: calls should be triggered at times that match the timing of a need incurred, and should target periods that will not be perceived as a threat of privacy.

The recipe for a successful implementation of outbound campaigns is called Marketing Optimization (MO). MO comprises a number of technological and organizational means that enable automated creation and communication of content that is suitable for a particular consumer. Comprehensive CRM systems often support MO as its integral functionality, providing technological support for managing processes and business relevant data.

Proper implementation of outbound pro-active telephone calls successfully combines ethical and cultural norms with the legal framework and detailed customer information such as profitability, demographics, past behavior and the behavior of consumers with similar characteristics. An organization that successfully manages to juggle these challenges by orchestrating their people, processes and technology, will be gaining significant advantages through marketing of relationships and cooperation.

If you will use this text for publishing or academic pursposes, be so kind to cite the author and source: Alen Gojceta, Liderpress, 11/2005. Thank you!

My Article on Organizational Gaps in CRM (translated to English), Banka magazine, March 2003

The article elaborates the problem of a “CRM organization” – the one that behaves in a consistent way throughout all of its ways of operation, including different departments, people and processes. Author has put a special focus on “non CRM” departments, such as fraud detection and collections, because those often forget to take part of an integral CRM ecosystem…

CRM organization and its gaps

If you will use this text for publishing or academic pursposes, be so kind to cite the author and source: Alen Gojceta, Banka, 03/2003. Thank you!

The main target of Customer Relationship Management is to provide consistent, yet differentiated, service based on one-to-one principle in all interactions, all functional areas and over all organizational layers to your customers. CRM starts by putting the needs of individual customers at the very center of the overall business strategy.

Mature CRM organizations are those rare that manage to provide an experience of a genuine, consistent and personalized service, simulating one to one relationship with their customers. CRM organizations acquire this kind of “CRM maturity” by a sufficient quantity and quality of collected customer data. They possess information systems that support “intelligent” interaction with a large customer base throughout business systems. Mature CRM organizations gain true acceptance of the corresponding philosophy in all aspects of their business operations including people awareness and adapted processes design. CRM is often emphasized to be a strategy, a business philosophy, rather than an IT solution. However, personalized relationship with each individual from a large customer base is achievable only by use of modern IT solutions. On the other side, it is important to understand that IT is just a part of a successful CRM story.

An often and among the most dangerous mistrusts is that it is enough to purchase a CRM solution to enhance the customer relationship. Well that’s not the whole truth. Data collection is only feasible through a lengthy and carefully designed process. Consistency in managing customer relationships is a matter of internal organization and the degree of the maturity of the related business processes.

Gaps of a CRM organization are caused by lack in managing internal business processes and missing to create a corporate culture that makes CRM an integral part of the organizational ecosystem.

The most common CRM gaps are those coming from the inconsistency of the organization itself. Simply put, they occur when CRM is managed by a separate department or departments within the organization. In such cases there is often no true intrusion of a CRM strategy throughout the organization. The “CRM departments” are usually marketing, sales or a specialized customer relationship (customer care, customer intimacy) department. Relationship with customers is not “painful” in organizational segments that are oriented toward clients by their nature. Problems arise elsewhere.

The obscure guys in the CRM team

Modern organizations often have obscure departments similar to police cells whose job is to identify and sanction “non-complying” customers. Unfortunately, these departments often maintain tradition of methods known from the time of economic system that where common throughout the world, regardless of the political system – the monopoly. One supplier and one attitude towards customers shorten to the phrase “you need us, we possess you anyway.”

The most common business processes that are managed by “anti – CRM departments” are fraud management and collections (collecting accounts receivables). Both business functions often take an integral part of financial and telecommunications industries, known as strong acceptors CRM strategy. What makes the difference between collections and fraud detection processes during the economic monopoly and today, during the era of CRM (open markets), is the starting point of observation of the resulting problem (potential fraud or unpaid obligations). CRM organizations start from exploring reasons of a customer behavior. On the other side, organizations with recurrence of monopolistic behavior begin with the assumption that they are always right, and that customer is the sinner who should be sanctioned.
The basic assumption to the selective and intelligent approach to the potential customer “sins” would be the use of information technologies that are an integral part of modern CRM system. In such scenarios, business intelligence tools can recognize potential fraud or debt. Given the user’s position within the CRM segmentation model, campaign management tools generate different messages (research or warning) or trigger different background processes (e.g. block account). The campaigns are carried by the interactive part of the CRM system, usually contact centers, and the results are forwarded to other departments such as finance or fraud management.

A mature CRM organization will, before marking a customer as a defaulter, check whether it is possible that there is a mistake made by them. They would check whether customer’s transactions where properly processed within the systems. When this is done, they would contact the customer to hear his side of the story, without anticipating the final result. Only after the verification call, the CRM organization will put the “carrot” aside and start threatening with “sticks” in form of activation of different methods of pressure or forced collection. Even when the user is actually “guilty”, CRM organization shall, before starting the “mechanism of force”, try to collaborate with the customer to negotiate a solution of mutual interest.

Comparing advanced CRM organizations that have succeeded in merging CRM philosophy with its own corporate culture and some unsuccessful companies in this regard, significant differences in the resulting relationships with customers can be noticed.
There are two most common reasons: (1) inconsistency in customer relations through the whole organizational structure and (2) the process mismatch.

A bitter experience

Everyday life is full of examples of how the experience in doing business with organizations that invest considerable effort in building advanced customer relationships can turn into a nightmare.

Recently my colleague from a neighbor country described his experience with one of their mobile operators. After he got married, his wife moved to the capitol, where he worked for some time already. When moving she required her bills to be sent to the new address. She notified the operator about her new family name. The change procedure was simple. She could have chosen between different channels of communication: Internet, fax, mail or telephone. She decided to use the Internet option, so she filled the form from the mobile operator’s portal. After a short time, she got a call from the contact center agent who wanted to verify the entries. The changed data appeared on the protected area of the internet portal.

The process was simple and perfectly comfortable. Her mobile operator was gaining credit. Everything was fine until the time when the first bill should have arrived to her new address. It was just not coming to the new destination. After ten days from the standard bill date, the woman decided to take the initiative. She sent an e-mail complaining to the customer care department. Right after, she received an answer that the bill will be sent soon to the new address. In the meantime, she began to receive SMS alerts. The new bill was not coming. After an additional 10 days, she noticed an envelope with the logo of her mobile operator put aside of the mail boxes in her building. She took a look at it, and there was her maiden name which was not located on her new family mailbox. She paid the bill with almost 30 days of delay, when she already started receiving severe threats of service termination. The next month the data was correct. On the envelope was her new family name, but her new account balance was showing properly accrued interest for the “delay” from the previous month.

Us or the client?

It is obvious that the young woman’s mobile operator, despite all the investment in modern infrastructure, was unsuccessful in aligning back-end processes. Collection and the customer service departments where simply not in sync. Detailed insight into such CRM implementation can reveal its false side. All processes that are important to support the CRM strategy arise from the needs of the mobile operator, rather than the needs of its clients. Besides a good contact center application and a convenient customer facing processes, in essence the mobile operator has cared only about itself. As a service provider their major concern was to force the customer to pay. They did not care about finding out who was to blame of the payment mistake, nor they shown effort to connect the logic of user complaints about the bill with the errors in the address directory and the penalty interest. The colleague’s wife remained faithful to the mobile operator despite the sad episode, but not without bitterness.
There are dozens of such examples on the market: a bank that accommodate their clients in leather armchairs at its branches while, on the other hand, they require travelling hundreds of miles from province to the nearest town to raise a loan; or the authorized car service with perfect kindness and state of the art customer processes with employees that forget to mention tax and cost of labor when proposing a service.
If you want to survive in today’s market by being desirable to your customers, then you need CRM, a business strategy which originates from the very top of the organization, merges all departments, and integrates with all channels of customer interaction. It’s a way of thinking embedded in all the pores of an organization, in all of its processes, including knowledge management and human resources, supply chain, partner relationships, as well as “customer punishing” processes such as fraud management and collections.

Story about Mr. S and the failed CRM project

Small insight in my latest article published in Mreza magazine (www.bug.hr/mreza). This is a story inspired by a true event and used as an descriptive introduction to the topic of CRM implementation. The complete article is available in Croatian in the April 2010 issue of Mreza magazine (www.bug.hr/mreza).

The story below is inspired by a true business case. I used it as introduction to the topic of CRM implementation in the latest issue (April 2010) of Mreza magazine (www.bug.hr/mreza). Herein translated to English.

At the end of winter 2003, Mr. S, member of the board of a large telecom operator, walked nervously from end to end of his office on the top of a glossy office building. In front of him there where two little men sitting on a leather sofa. One of them, an external consultant, was staring at the floor. The second one, the project manager from the company, was speaking with trembling voice, trying to explain the circumstances that led to the collapse of one of the largest CRM implementations in the world that year. The situation was more difficult because the bad news came too late. Mr. S has reserved, only a week ago, part of a fancy Austrian ski resort to celebrate success with project teams of a “big bang” implementation of almost all modules of the world’s leading CRM application.

Mr. S believed that the implementation of CRM applications will link his company by steady, predefined, user-oriented processes that will remove communication barriers with customers, reduce human mistakes and, ultimately, fend off new operators who where sharpening their balance sheets for the market battle against what they considered a slow telecommunication giant.

This drama has not occurred somewhere above Manhattan Avenues, but in a small Eastern European country.

How and why did tens of millions of Euros invested in the CRM project of Mr. S leak away like sand, into the pockets of consultants and software vendors? This question is asked by hundreds of companies that have decided to implement CRM and take a step forward to customer-oriented business.

The answer is individual for each of them. However, the legendary failures of CRM projects, such as that of Mr. S, or many others which have ended with much less glamour and lost resources, can be explained by few main reasons, summarized in an unique and fundamental mistake of introducing CRM. It stems from the complexity of any CRM initiative. It appears as its starting point, or simply impose itself through perception where “one doesn’t see the forest from the trees”, meaning that problems around complex IT solution make forget why the initiative had been launched at all, and which where the original indicators of its success.

Detailed elaboration of CRM processes, documented in a book of nearly 600 pages served as basis to the mastodon project of Mr. S. Despite millions of Euros invested in the project and its preparation, it was doomed to failure from its first day.

In summary, there where two main reasons. The first was the aforementioned implementation of CRM applications and overestimation of its power, with neglecting the fact that the business is run by people rather than processes drawn by a group of experienced consultants. But the project did not even survive enough to come into the hands of internal users to get the chance to crumble during the day to day operations. It failed already on the basic understanding of the role of IT within customer-centered processes and the respect for the compromise between the cost of the implementation and its return.

Unpretentiousness is the name of the game in the company of successful CRM implementations. Some processes, among hundreds designed to be embedded in the CRM application, were simply too pretentious. They demanded so many adjustments and use of artificial intelligence that those couldn’t succeed. Especially when you take into consideration that computer decision making involves the appropriate information, the same one that is achieved only after years of using CRM systems.

My Article on CRM customization (translated to English), Banka magazine, September 2002

Organizations in mature phase of managing customer relationship are becoming able to implement real time dynamic (micro) segmentation in addition to the traditional segmentation based on “obvious” customer parameters. Personalization of the content, on the level of individual customer, is possible through matrure data collection and management. The article starts by an original introduction into the topic by an example of a restaurant with 150.000 tables…

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.

Hi folks – the blog intro post

This is my first post. After having brought a difficult decision on which blog platform to use, I have chosen to install the WordPress on my domain. I must say that the people from Google’s Blogger are great and I’ll probably never know if my decision was really right.

My vision is to provide here 3 different categories of blog posts:

  1. Posts in English about leadership, sales and marketing (mostly on CRM)
  2. Posts in Croatian language about same as above + some thoughts about how to make my country better
  3. My articles, published in different Croatian business magazines. Translated here in English (I’ll post as translated one by one – the first one right after this post)

In addition there will be a separate page with my academic work. I plan to provide this work in English and Croatian (I’ll probably need a sponsor for translation :-))

You can follow me on Twitter (search agojceta, untill I install a widget on this web site).

Enjoj