M2988.1 Marketing Decision Sciences: Building Businesses and Customer Relationships Not Models...

M2988.1

Marketing Decision Sciences:Marketing Decision Sciences:Building Businesses Building Businesses

and Customer Relationshipsand Customer RelationshipsNot ModelsNot Models

DiaMondSUG 2001

Mark Van Clieaf [email protected]

MVC Associates Internationalwww.mvcinternational.com

416-489-1917 / 813-891-6644Toronto • Chicago • Tampa

© Copyright 1988, 2000, MVC Associates International

M2988.2

Customer Insight:Customer Insight:Taking Organizations to a Taking Organizations to a

Brave New World Of Customer Centric MarketingBrave New World Of Customer Centric Marketing

• Mass vs. Target Marketing & Shareholder Value

• What the Internet has taught us about CRM

• Key CRM Measurement Principles

• Three Waves of Customer Centric– Wave 1 - Loyalty / Frequency

– Wave 2 - Customer Value Optimization

– Wave 3- Dynamic Customer Management ( true CRM )

• Datamining - Customer Not Campaign Centric• Branding in a Digital / CRM World - customer processes and models integrated

• Integrating Different inputs of Customer Insight ( online & offline )

• From Analyst to General Manager the New Career Path

© Copyright 1999, MVC Associates International

M2988.3

Customer Relationship Management Customer Relationship Management CRM / E-CRMCRM / E-CRM

• Has become a catch-all term for many - confusion !

• Most enterprises do not really understand the organizational / change management / metric issues of true implementation

• Forrester Research suggests the Web will assist in technology migration around legacy systems

• The web is fragmenting marketing applications for CRM / E-CRM because technology vs. client driven: ( separate suppliers / datamarts for e-mail / affiliate programs, call centers / e-promotions / banners etc )


M2988.4

A New Marketing Mindset

• One to One Enterprise– Peppers & Rogers

• The Loyalty Effect– Reicheld

• All Consumers Are Not Created Equal

– Hallberg

• The New MaxiMarketing– Rapp & Collins

• The Profit Zone– Slywotzky & Morrison

• Grow to Be Great– Gertz & Baptista

• Real Time – McKenna

• NetGain– Hagel & Armstrong

• Digital Darwinsim– Schwartz

• Futerize Your Enterprise– Siegel

• Customers.Com– Seybold

• Now or Never– Modahl

© Copyright, MVC Associates International, 1998

M2988.5

Companies Want A Single, Integrated Companies Want A Single, Integrated View, But Have Work To DoView, But Have Work To Do

Somewhat10%

Not really52%

Not at all36%

Yes2%

Probably40%

Unlikely22%

Yes38%

Now 2001

“Do you have a single, integrated view of the customer today? Will you in two years?”

Source: Forrester ResearchMVC Associates International

M2988.6

Marketing InvestmentOptimization Across An

Integrated Growth Framework


Pro

du

ct A

ttri

bu

te

Geo

grap

hy /

Cha

nnel

Customer 1) Value2) Processes3) Segments4) Information Management

Branding

Bu

nd

ling

Bo

nd

ing

Billing

M2988.7

Internet Shifts Purchasing PowerInternet Shifts Purchasing Powerto the Consumerto the Consumer

• Reduces consumer search cost for information

• Reduces value of the brand that was information based

• Connects consumers with the most relevant vendors in a timely fashion

• Extracts as much value for consumers as possible

• Price will become a commodity factor and re-define its role in the purchase decision


M2988.8

Mass Marketing SkillsMass Marketing SkillsApplied to the InternetApplied to the Internet

Value AmericaeToysAshford.comegghead.comdrugstore.com

$3,323 $10,370

$1,562 $1,456$3,221

Retailer$145

$1,066$211$261$607

- 96%- 90%- 87%- 82%- 81%

Peak market cap(millions)

Current market cap asof 3/31/00 (millions)

10/9911/9911/99 7/99

Date

Stock price relative to IPO

egghead.com

drugstore.com

eToysAshford.com

Value America-100%

-50%

0

+50%

+100%

+150%

+200%

+250%

+300%

3/002/001/0012/9911/9910/99

Note for comparison: Amazon.com is 4,444% above IPO price

4/99

MVC Associates InternationalSource: Forrester Research

M2988.9

Pets.comPets.comMass Marketing vs.. Target Marketing SkillsMass Marketing vs.. Target Marketing Skills

MVC Associates International

M2988.10

E-Commerce vs.. E-Business E-Commerce vs.. E-Business Marketers Must Recognize The Difference !Marketers Must Recognize The Difference !

• E-Process - (automating / optimizing processes through the internet)

– Napster, E-Loan, Pets.com, E-Toy and many others

• E-Commerce (selling online through the internet)– LL Bean, AMEX, Wells Fargo, American Airlines

• E-Business (transforming the business model & value chain and becoming a customer led enterprise through the internet)

– Dell, Cisco, Schwab, Enron

• E-Industry ( transforming the industry structure through the internet - i.e. B to B exchanges )

– ( GM/Ford/Daimler-Chrysler ) = Covisint


M2988.11

Growing Shareholder ValueGrowing Shareholder Valueand Linking to Customer Valueand Linking to Customer Value

• Analysts need to be educated about new metrics to monetize the customer

base (inaccurate valuations)

• New Customer Metrics & Incentives Required !!– Depth of Relationship

– Breadth of Relationship

– Duration of Relationship

– Revenue & profitability of relationship

– Future profit potential of the relationship

– LTV

• Measures at the individual and customer portfolio level to drive shareholder value


M2988.12

Customer Centric ResultsNew Structure & New Skills

• Case Study– Reinvented Customer Centric Business Model

– 1993 - 3 million customers and NO marketing department

– 1997 - 3.5 million customers and 21st Century marketing department

– in 3.5 years 6 X revenue increase - $ today 700 million +

– in 3.5 years 2.5 X NOPAT increase with $ 10 to 15 million technology investment

– on the same # of customers ( Not Marketshare )

– just better customers and management of the customer relationship over time


M2988.13

Analysts / Data Miners and Marketers Must RecognizeWhich Wave They Are On ?


• Wave 1 - Frequency / Loyalty

• Wave 2 - Customer Value Optimization

• Wave 3 - Dynamic Customer Management

M2988.14

The Customer Centric Scorecard !• Are you driving a customer strategy ?

• Are you measuring at an individual level:– annual customer profitability - P&L - NOPAT $

– customer duration / attrition

– share of customer in $

– future customer potential in $

• Do you allocate your marketing investments based on customer value at the individual customer level or micro-segment ?

• Do you have a formal org. with SVP, VP, Dir owning each of the following:

– Customer Processes, Customer Segments, CIM, Mkt $

• Shared Product & Customer P&L objectives with compensation tied to 1 & 3 yr objectives ?


M2988.15

Wave 1Loyalty Has Gone Mainstream

• American, United, Continental, Delta, Air Canada, CDN

• Marriott, Four Seasons, Hilton, Hyatt, Holiday Inn

• Dayton Hudson, Sears, Saks, Neiman Marcus, Bay

• Blockbuster, Eddie Bauer, Toy-R-US, Waldenbooks, LL Bean

• Harley Davidson, BMW, Nissan, General Motors, (Ford)

• AOL/First USA, American/ Citibank, ( Schwab / Household), (Blockbuster / Nationsbank) , Ameritech / Household, Sprint / MBNA, Hilton / AMEX,

• AT&T, MCI, Ameritech, Bell South, Stentor

• Check out Frequency Marketing’s Web Site


M2988.16

Loyalty Program Trendsin the 21st Century

• Simplify Programs

• Control and Decrease Costs

• Make Relevant to the Customer

• Define & Measure Program Financial & Customer Results

• Shut Down where Not Adding Value to Customer & Shareholder rel’shp

• Re-position as part of broader Customer Strategy ?


M2988.17

20%

4%

4%

4%

4%

10%

16%

27%

65%31%

4%

0 10 20 30 40 50 60 70

Percent of 51 Card Issuers Interviewed

Loyalty Programs Loyalty Programs # 2 application for Smart Cards# 2 application for Smart Cards

Stored Value

Loyalty Program

Internet Security

Micropayments

Transit

Secure Electronic Transactions

Ticketing

Electronic Benefits Transfer

Telephone

Other

Undecided

Source: Forrester Research MVC Associates International

M2988.18

Loyalty Programs OnlineLoyalty Programs OnlineBut not Re-inventedBut not Re-invented

• MVC Loyalty Program Research - 1998/2000– Launched due to competitive issues NOT good business case

– No true understanding of long term financial impact on profits and balance sheet liability

– Failed to differentiate segments based on customer economic value Acquisition not retention focus - really promotional points

– Mix of hard and soft benefits not well researched and way too complicated

– Subsidized already loyal customers

– Failed to use modeling and customer information to customize reward & recognition, communications and create one to one relationship


M2988.19

Wave 2Optimizing CustomerValue & Relationship

• De-averaging Product Costs

• De-averaging Customer Value

• De-averaging Risk

• De-averaging Price

• Optimizing Product Proposition and Marketing Investments at a micro-segment or one to one level


M2988.20

World Class Customer Information Management (CIM)

• AMEX, Capital One, Lands End, Advanta, Providian, Schwab, Fingerhut, Signature Group, First USA, etc

• Large Acquisition and Customer databases– different customer information for each that drives modeling

( descriptive, financial, predictive )

– customer valuation - real profit drivers NOT response

– targeting and tailoring of offer

– customer contact with extensive test, control and experimental design

– closed loop process with measurement, feedback and customer learning based on results and “real behavior” over time

• Cycle time 24 hours to 2 weeks - 10 million + customers

• Thousands of mass customized offers based on segmentation thru marketing technologies


M2988.21

Too Many Marketers / Data-Miners AreToo Many Marketers / Data-Miners AreCampaign vs Customer CentricCampaign vs Customer Centric

Customer Centric Business Strategy

Customer Portfolio

Organization

Information Technology

Strategy

Customer, Product, Channel, P&L Goal & Resource Alignment

Integrated Customer, Product, & Channel Compensation

Customer Processes

Customer Segments

Customer Information Mgmt

Customer Marketing Marketing Skills

Organization Capability

Mass Customized Product Attributes & Benefits (bundling & co-marketing)

Mass Customized Channel Access & Customer Contact Process Design

Value / Risk Based Pricing Strategy & Payment Options

Mass Customized Promotion to Create Trial

Value Proposition Development

Inbound / Outbound Contact Strategy & Goals

Coordinating & Sequencing

Targeting Models & Test & Control Tactics

Mass Customized Communications Strategy & Creative Development

Customer Information Mgmt & Campaign Tape Production

Customer Contact & Campaign Mgmt

Back End Analysis, Customer Learning, & Recommendations

Customer, Product & Channel Goal

Process Evaluation

Customer Portfolio Review & Recalibration of Models & Customer Insight

Evaluation & Measurement

Dynamic Customer Focused Test, Learn, & Value CreationDynamic Customer Focused Test, Learn, & Value Creation


M2988.22

Business Strategy

• For an enterprise with multiple product categories and or Lines of Business which business strategy ? ( i.e. FI, Telecom )

• Leveraging Customer Info to drive:– Product Strategy

– Truly Customer Centric Strategy with Dynamic Customer Management - integrates customers / products / channels across Lines of Business (LOB’s) , real time / 24 hr batch

– CAN’T do both - creates confusion of decision authorities !» optimizing value of relationship, bundled value proposition, sequencing

customer contact, relationship pricing, risk mgmt, channel optimization, etc

• Build organization, analytic strategy and technology capabilities around business strategy !


M2988.23

Wave 3Dynamic Customer Management

• Integrates and optimizes customers / products / channels in real time ( or batch 24 hr refresh )

• FROM Period of Contract TO Life of Customer

• FROM Relationship Building TO Community Building

• FROM Mass Customized TO Ongoing Learning


M2988.24

C-CommerceC-Commerce(Marketing Principles change from outbound communications to

in/out-bound customer interaction, customer choice & mass customizationby channel preferences and value proposition bundles)

Phone IVR E-mail Web Teleweb ITV PDA’s

• Business rules databaseBusiness rules database• Customer profile databaseCustomer profile database• Interactive history databaseInteractive history database


M2988.25

The Customer PortfolioThe Customer Portfolio10,000,000 Customers10,000,000 Customers


• Transaction driven customer segments related to product and channel usage and lifestage / lifestyle

Co

lleg

e

Just

Sta

rted

Yo

un

g W

ann

abee

s

Cla

ssic

Fam

ily

DIN

K

Ed

ge

Wal

ker

Aff

luen

t W

ealt

h

Die

Bro

ke

Off

sho

re

$ 5,000 per customer

Current ValueCurrent Value

negative $ 2,000 per customer

Nu

mb

er o

f C

ust

om

ers

Nu

mb

er o

f C

ust

om

ers

Ave

rag

e A

nn

ual

Pro

fit

Co

ntr

ibu

tio

n p

er C

ust

om

erA

vera

ge

An

nu

al P

rofi

t C

on

trib

uti

on

per

Cu

sto

mer

M2988.26

Better Practices in Customer Value InvestmentBetter Practices in Customer Value Investment

1 2 3

4 5 6

7 8 9

H M L

H

M

L

Future Value PotentialFuture Value Potential

Current Current Share of Share of CustomerCustomer

1 2 3

4 5 6

7 8 9

H M L

H

M

L

Duration /Duration /AttritionAttrition

Do

ub

le I

nco

me

No

Kid

sD

ou

ble

In

com

e N

o K

ids

700,000 Customers


TargetingTargetingYour Highest ValueYour Highest ValueCustomersCustomers


Current Annual ValueCurrent Annual Value

M2988.27

Strategic vs Tactical AnalyticsStrategic vs Tactical Analytics10,000,000 Customers10,000,000 Customers



Co

lleg

e

Just

Sta

rted

Yo

un

g W

ann

abee

s

Cla

ssic

Fam

ily

DIN

K

Ed

ge

Wal

ker

Aff

luen

t W

ealt

h

Die

Bro

ke

Off

sho

re

Customer Value Strategies

Future ValueFuture Value$ 5,000 per customer

Profit Potential & Value Gap

Current ValueCurrent Value

negative $ 2,000 per customer

Cus

tom

er V

alue

Tac

tics

Nu

mb

er o

f C

ust

om

ers

Nu

mb

er o

f C

ust

om

ers

Ave

rag

e A

nn

ual

Pro

fit

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ust

om

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vera

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An

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M2988.28

Data Mining To Create Optimization Data Mining To Create Optimization Customers / Products / Channel Goals & Customers / Products / Channel Goals &

Marketing Investment / ROIMarketing Investment / ROI

CurrentCurrentEnterprise / Product GoalsEnterprise / Product Goals

FutureFutureCustomer GoalsCustomer Goals==

1 and 3 Year Goals1 and 3 Year Goals• ROE

• ROA

• Fee / Revenue by Product

• Contribution Margin by Product

• SG&A / Expense Ratio

• EBIT

• Free Cashflow / EVA / SVA

Translate / Translate / AlignAlign DevelopmentDevelopment

AcquisitionAcquisition

Win-BackWin-Back

Se

gm

en

t A

Se

gm

en

t B

Se

gm

en

t C

Revenue / Cashflow

H M L


M2988.29

CRM / E- CRM Consolidates Rules CRM / E- CRM Consolidates Rules Across Channels And FunctionsAcross Channels And Functions

FieldCall

center

Routing

Workflow

Common business rulesCustomer-handling rules silos

Web

Routing

Workflow

Personalization

Manual e-mail, phone

Manual e-mail, phone

On-the-spot dealmaking

Automated cross-

channel messaging

Dynamic cross-sell/

upsell

Automated multi-

channel

Phone-centric

Manual and auto-

queuing

Static campaign

script


M2988.30

Designing Designing The Customer ExperienceThe Customer Experience

3

Color

Blue

Blue

XL

One

Size

Qty.

Green

BoardWear.com

$10 OFFyour nextpurchase

Click Here

ENTER THE CONTESTAnd Get . . .

ON TOUR NOW . . . NEW RELEASE

Buy The CD!

(Entertainment, Information / Content , Information-Based Marketing Online Purchase, Customer Service)


M2988.31

Executive Level Sponsorship

• Business Strategy Customer Centric - Wave 3

• CEO & Exec team committed to 2 to 5 year infrastructure investment strategy and have vision of the future of technology enabled marketing

• Have allocated investment of X marketing dollars over Y years for proof of concept

• CEO & Exec team prepared to make tough decisions on change organization structure, marketing $ allocation, measurement


M2988.32

Identifying The OrganizationalHot Buttons

• “ It was when competition heated up and there was significant price pressure, that we needed to better understand our customers, their needs / preferences, along with current and future value.

Database and Relationship Marketing is the key to optimizing our investments in our customers, and our customer contact strategy across multiple channels ”


(Vice President, Database & Relationship Marketing, Charles Schwab & Co)

M2988.33

• “ We recently spent millions of dollars to Re-engineer our acquisition process and create a leading edge Customer Information Management Capability !

The Problem is very few in our marketing team, or at our direct marketing agency can provide us any leadership on how to use this customer information to impact our bottom line”

New Skills To Action the Customer Insight


( Global Vice President Customer Information Mgmt, AMEX, HQ)

M2988.34

The Waves of Customer CentricThe Waves of Customer Centric


Product P&L

Product P&L

Product P&L

&Starting

Customer Metrics

Customer Value & Duration, Product & Channel

P&L, EVA / SVA

Compen-Compen-sationsation

Product Brand Equity

Relationship Equity

Community Equity

Marketing Marketing ObjectiveObjective

NotIn

Place

Customer Processes,

CIM

Enterprise Wide

Customer Processes, Customer Segments,

CIM

Customer Customer Org DesignOrg Design

Batch, Points&

Rewards, Outbound

Batch (2 wks-24hr)

Product Purchase

Data, Customer

Value Scoring, Outbound

Real Time, Integrated

Across LOB’s, Inbound

& Outbound

CIMCIM

Product Feature /

Benefit, Fixed&

Uniform

Mass Customized

Training, Service, Support

Customer Knowledge,

Ongoing Learning,

Anticipating Needs

Source of Source of ValueValue

Price, Delivery,

Convenience

Customer Support

Ease of Upgrade over

Time

Purchase Purchase DriversDrivers

Time of Sale

Annual Business

Plan

Period of

Contract

Life of

The Customer

Planning Planning HorizonHorizon

Product Centric

Product Centric

Product Centric

Migrating to Customer

Centric

Customer Centric

Business Business StrategyStrategy

Wave 1Wave 1

Frequency / Frequency / LoyaltyLoyalty

Wave 2Wave 2

Customer Customer Value Value

OptimizationOptimization

Wave 3Wave 3

Dynamic Dynamic Customer Customer

ManagementManagement

M2988.35

Customer Value Organization DesignCustomer Value Organization DesignHow Would You Organize to Create Customer Value ?How Would You Organize to Create Customer Value ?


Customer Value ChampionCustomer Value Champion

Process / SegmentProcess / SegmentOwnersOwners

Acquisition & Activation Acquisition & Activation Process OwnerProcess Owner

Development & Loyalty Development & Loyalty Process OwnerProcess Owner

Win-Back Win-Back Process OwnerProcess Owner

College

Just Started

Young Wannabees

Classic Family

DINKs

Edge Walker

Affluent Wealth

Die Broke

Offshore

Customer Information ManagementCustomer Information Management

M2988.36

Marketers / Data miners as Change Agentsin Riding Wave 3

• 50 % of the Customer Marketing teams role is about change management NOT marketing

• Barriers to Customer Centric - Wave 3 Implementation

– Failure to put your best marketers / analysts on the customer team

– No dedicated customer marketing resources / $

– No shared KPM’s between Customer & Product teams

– No shared incentives

– No Product Profitability Data at ALL

– Behind on product P&L business plan - will divert resources

– Lack of data access, architecture, user tools

– Lack of CEO & Exec Team Leadership Commitment & Understanding


M2988.37

The New Killer B’s of MarketingRequire a New Analytic Mindset

• From the 4 P’s to the Killer B’s

• Branding– shifts from product to enterprise branding

– shifts from snap shot to positioning and perception over the customer rel’shp life-cycle

• Bundling– creates new value propositions that deepens rel’shp i.e. meta-level product mgmt

– creates competitive advantage with some customer segments

• Bonding– executes the Brand Promise at each “Moment of Truth” - Branded Customer Experience

– integrates all - touch points - links to channel preference, life-stage / lifestyle

• Billing– recognizes bundled pricing strategy / LTV / Risk

– recognizes preferred payment methods / evolving E-commerce


M2988.38

Branding Skills For Target Marketing / CRM

Recall

Customer Satisfaction

Market Share

ROI on marketing expense

Share of Wallet

Current or life-time

profitability

Measurement

Advertising, Name Development,

Package & Collateral

Material Design, Trademark, etc

Engineering the total customer

experience including

processes, technologies &

training to ensure that each customer

touch point (call centre, mail, retail, e-mail, website, etc)

provides an integrated experience

consistent with the brand & relationship

Tools for Branding

One way communications

developing single message, image & brand

perception

Two-way customer dialogue tailored depending upon

stage of customer relationship,

customer segment,and current and

potential customer profitability

MarketingCommunication

Strategy

Initiated by the marketer

Individual product /

service level

Static relationship

Initiated by the customer & or

marketer

Enterprise level relationship

Dynamic involvement depending

upon suite of products / services needed

Relationship Between

Customer & Brand

One dimensional and channel dependent

Fixed / Static

Linked to product benefit

Bundle of products /

services and channel

independent

Flexible and customized to micro-segment

/ individual customer

needs

Linked to the brand promise

Value Proposition

Linked to the Brand

Awareness, Knowledge

& Relevance with the product

Customer Involvement & advocacy of

the brand promise

Branding Objective

Acquisition / Activation

Complete Customer

Lifecycle = Acquisition / Activation,

Usage Stimulation,

Cross-Sell new products / services,

Retention, Win-back

Branding

Mass Marketing

Branding Target Marketing

and

CustomerRelationshipManagement

Marketing Element

Customer Development

Strategy


M2988.39

The New Skills For Customer InsightThe New Skills For Customer Insight• What Are They Worth Today / Future and Risk of Loss ?

– Financial Modeling - who are the best customers and optimization of marketing investments

• What Do They Look Like / What Did They Really Do ?– Descriptive Modeling

– Customer Profiling - need , interest, preference

– Demographic / Lifestage / Lifestyle profiling

– Credit Modeling

– Web Usability Modeling / Navigation

– Site Abandonment analysis

• What Might They Do in the Future ?– Predictive Modeling

– Risk Modeling

– Attitudinal profiling

– Channel Preference profiling

• Applying the Insight for Customer Managed Relationships– Customer Strategy Development ( integrating into the customer processes )

– Customer Experience Design and Personalization, Targeting and Tracking across ALL points of customer contact

– Value Proposition Development


M2988.40

From Analyst to General ManagerFrom Analyst to General Manager

• Analyst - building models and developing insight and

• Process owner - integrating models into customer management and interaction processes and driving change ( start to own revenue / margin / ROI )

• Strategist - creating future revenue and margin streams from new products and services and owning the investment and return ( P&L ) - leading multiple function and processes

• General Manager - building new business models and leveraging customer insight


M2988.41

“ My conviction is also growing that the media and advertising industries represent an expanding opportunity for us. Anything that can affect industries whose total revenue base is many hundredsof billions of dollars is a big deal.

I think there is one more step for Intel to take to prepare ourselves for the future. We should try to derail our own strategies and reinvent ourselves. We need to update our own genetic make-up to be more in tune with the new environment.

What I now think is noise, in fact, is a strong signal that something has significantly changed. Does this seem overkill ? Not to me. Only the paranoid survive.”

( Andy Grove, CEO Intel )

What Are You Doing to Reinvent Yourselves ?

MVC Associates International

M2988.1 Marketing Decision Sciences: Building Businesses and Customer Relationships Not Models...

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