www.SAPtips.com
Page 1
SAPtips
Five Secrets of a Winning CRM Strategy
By Harry Joiner, Reliable Growth, LLC.
Editor's note: Harry's article
is a nice compliment to our
features on the SAP CRM product offering. In this insightful
piece, Harry details the secrets of
CRM success and explains how
to cost-justify a decision to
implement CRM.
Introduction
IT managers of all stripes are in
a jam: They are stereotyped by
general managers as being literate
in technology but illiterate in
business concepts. Nowhere is
this stereotype more counter-productive than at the border of IT
and Sales & Marketing (S&M).
By the time you
April 2003 Volume I Issue 2
SAPtips
finish this article, you'll
have the tools to kick
sand in the face of any
bully S&M manager.
Old-school S&M managers
often regard IT managers as internally-oriented geeks who know
zero about the company’s customers and even less about the
firm’s competition.
Whether or not this is true in
your particular case will soon be
irrelevant. By the time you finish this article, you’ll have the
tools to kick sand in the face of
any bully S&M manager. You’ll
know the five secrets of a winning CRM strategy.
Secret # 1: The Math
Behind CRM Is Simple
In Jay Abraham’s book
(http://wwwjayabraham.com),
Getting Everything You Can Out
of All That You’ve Got, he points
out that there are only three ways
to grow a company’s yearly sales:
1.) Increase the number of customers; 2.) Increase the number
of times they buy each year, and
3.) Increase the amount they
spend each time they buy. That’s
it. Now here’s the math:
Yearly
Revenue
=
#
Customers x Avg $ per Sale x #
of Purchases
For example, 1000 customers,
each spending $1000 per sale
twice a year, will generate revenues of $2 million. But there’s
magic in the simplicity. Increase
each of these numbers by just five
percent and your yearly sales will
increase to $2.315 million (up
15.75%). A ten percent improvement in each variable will increase
sales by 33% to $2.662 million.
At that rate, your firm would double in size every 2 years!
Now you know why so many
securities analysts have been
crazy about Amazon.com – a
paragon of Customer Relationship
Management whose CRM software systematically increases each
of the variables in Jay’s equation.
That’s the first secret of a winning
CRM strategy.
In effect, the more I use
Amazon, the more it knows about
my needs and values. Each interaction leverages my history with
it, and I never have to tell it the
same thing twice.
Because
Amazon’s system knows so much
about me, it communicates with
me in a way that’s consistent, relevant, anticipated, and personal.
And it has my permission to do so.
More importantly, Amazon’s
business model allowed me to
develop new applications for new
and used books (yes!), such as
sending them as gifts and sales collateral. In short, Amazon has
increased my number of purchases
and their dollar value by knowing
so much about my needs that it
seems to anticipate them. In the
process, I have become a rabidly
loyal, referral-generating customer.
And that is the Holy Grail of CRM.
Secret #2: Customer-centricity Is a State of Mind
For those of you who are thinking, “We don’t have Amazon’s
budget so it’s pointless of me to
benchmark their CRM efforts," my
response is: That’s B.S.! You simply need to incorporate a few of the
finer points about the intelligent
use of CRM into your business
strategy. And it needn’t cost a ton
of money. Customer-centricity is a
state of mind. If your competitors
are under-leveraging, misusing, or
simply not using CRM software,
then you have an opportunity to
get relatively closer to your shared
customers. But first you’ll need to
tackle the basics of High ROI
Customer Marketing.
According to Jim Novo,
author of Drilling Down:
Turning Customer Data Into
Profits with a Spreadsheet
( h t t p : / / w w w. j i m n o v o . c o m ) ,
40-60% of your customer base
is in the process of accelerating
or terminating its relationship
with your company right now.
Five Secrets continued on page 2
SAPtips © 2003 Klee Associates, Inc.
www.SAPtips.com
Page 2
SAPtips
Five Secrets continued from page 1
Latency (the average time
between customer events) and
Recency (the time lapsed since a
customer completed an action)
are two powerful tools for recognizing the opportunity to respond
to a customer’s behavior.
These metrics lead me to Novo’s
Golden Rule of High ROI
Customer Marketing and what I
think is a key to showing a return
on your CRM software:
1. Don’t spend until you have
to, and
April 2003 Volume I Issue 2
SAPtips
2. When you spend, spend at
the point of maximum
impact.
In the end, Novo’s point is that
your customers are not equal.
Customers tip their hand to what
their future actions will be through
their behavior, and by using simple customer analysis, you can do
something to either encourage or
mitigate these customer actions
before they happen. By identifying customers who are likely to
respond favorably or unfavorably
to marketing and service efforts,
you can allocate resources to where
the ROI should be highest.
Because their behaviors are different, their profit potential to your
company is different. Amazon
knows this. Dell knows this, and
by now your customers know this.
In fact, your company’s managers
probably intuitively know this, and
even realize that "serving different
customers differently" has profound implications for your company’s people, processes, and its
infrastructure.
They just don’t know yet how
those implications will manifest
themselves, and business history
is providing few clues. Here’s
why: Most Fortune 500 companies were built to serve mass
Customers
to Keep
Current Value
Potential Value
Servicing Cost
Customers
to Grow
Lifetime
Value
20%
Customers to
Shed
80:20 rule
40%
Most Valubable
60%
Missed Opportunities
80%
100%
Below Zeros
Figure 1 From the Book "Enterprise One-to-One"
markets. Mass markets called
for scalable mass production,
and that led to mass advertising.
Back when bigger was better,
companies were not designed to
service niches and sub-cultures
any more than aircraft carriers
were designed to navigate creeks.
As most industries have become
over-capacitized from increased
productivity and foreign competition, mass markets are being overserved. Therefore, new profit must
come from 1.) wringing costs from
any infrastructure that serves mass
markets, and 2.) cultivating loyalty and pricing power in the niches,
sub-cultures, and micro-markets
–- the creeks of commerce.
Secret #3: When You Own
the Problem, You Own the
Customer
While Novo’s concepts exploit
what customers do, they also help
to segment and market to your
customers based on what they are.
Building on Novo's foundation,
consider a few concepts from the
book Enterprise One-to-One by
Don Peppers and Martha Rogers.
Peppers and Rogers recommend
this approach: break your customer base up into fifths, based
on their expected Lifetime Value
(LTV) to your firm. If you don’t
know your customers’ LTVs, you
can use a proxy, like their gross
profit (Sales minus Cost of Goods
Sold). The point is that sales and
gross profit are not the same
thing, as anyone who has ever
acquired market share at a loss
will tell you.
Once you've calculated your
lifetime values, what do you see?
The graph shows a steep customer
valuation skew where 80% of the
firm’s value is created by 20% of
its customers. If that’s your situation, then you might consider
using a CRM solution that formalizes and facilitates the process of
developing customers in the second, third, and fourth quintiles.
But what if you have a flat customer valuation skew, where your
revenue is generated evenly across
your customer base? This is normal for businesses like gas stations,
where people buy pretty much the
Five Secrets continued on page 3
SAPtips © 2003 Klee Associates, Inc.
Five Secrets continued from page 2
III
Highly
Differentiated
• Airlines
IV
• Computer
➝
Systems
• Packaged
•
Goods
Manufacturers
Customer
Valuations
I
➝
www.SAPtips.com
Page 3
SAPtips
Pharmacies
II
• Gas Stations
• Bookstores
Uniform
➝
Uniform
➝
Customer
Needs
Highly
Differentiated
Figure 2 From the Book "Enterprise One-to-One"
April 2003 Volume I Issue 2
1:1
Marketing
I
II
Mass Marketing
Uniform
Niche and
Target
Marketing
Cost Efficient Interactivity
Frequency
Marketing Key
Accounts
➝
SAPtips
Customer
Valuations
IV
III
➝
Highly
Differentiated
Expand the Need Set
Customer
Needs
Uniform
Highly
Differentiated
Figure 3 From the Book "Enterprise One-to-One"
same thing in the same amounts.
In other words, customer needs and
values are uniform.
Figure 3 suggests several CRM
strategies relative to your firm’s
position in Figure 2, where
“Expanding the Need Set” refers
to cross-selling and up-selling
relevant products, as shown in
Figure 4 on the next page.
Amazon did this with music,
software, electronics, apparel,
and houseware. Wal-Mart is
doing it with groceries. And
thanks to trends in vendor consolidation, many other firms are
doing this through alliances.
In each of these examples,
switching barriers and pricing
power are created by “Product /
Service Bundling” (customizing
Billing, Packaging, Delivery,
Promotion, etc.). However, new
profit sources are created only by
proactively enhancing and satisfying the customer’s “Need Set."
And that’s the whole point of CRM:
By maintaining this nurturous dialog, everything about your company can become customer-driven.
Five Secrets continued on page 4
SAPtips © 2003 Klee Associates, Inc.
www.SAPtips.com
Page 4
SAPtips
Five Secrets continued from page 3
CORE PRODUCT
PRODUCT - SERVICE BUNDLE
ENHANCED NEED SET
Configuration
Features
Fit, Sizing
Color, Style
Timing, Frequency
Billing, Invoicing, Cost Controls
Packaging, Palletization
Delivery, Logistics
Promotion, Communication
Help Lines and Product Support
Service Operations
Related Products & Services
Strategic Alliances
Collaborative Opportunities
Value Streams
April 2003 Volume I Issue 2
SAPtips
Figure 4 From the Book "Enterprise One-to-One"
Of course, the ultimate goal of
CRM is to control what’s going on
in each channel through which your
company sells. Control the channel
and you can define the context in
which your product is consumed.
Define the consumption context
and you can own the customer’s
problem. And when you own the
problem, you own the customer.
Game over. Just ask any major
league sports franchise or visit any
McDonald’s with a playscape. The
consumer’s impression of your
product’s features and benefits are
shaped by the context in which the
customer consumes it.
That’s why Web-based businesses
such as Amazon, AOL, and Microsoft
fight so hard to control the consumer’s user interface. That’s also
why modern consumer product
advertising celebrates the consumption event more than the product’s
features and benefits.
Secret # 4: Good Channel
Design Is Critical
Many companies fail to leverage
their CRM systems because of
ineffective
channel
design.
According to channel expert Dave
Brock, how a firm positions itself
in the sales channel creates a very
powerful differentiation.
Yet
Features
Benefits
Context
quite often companies design their
sales channels from the inside out,
based on tradition or some other
company-focused issue. In reality, the most effective way to
design a high performance sales
channel starts with the customer.
• Is there a lot of customization
and integration required?
Brock believes that customerfocused channel design requires a
disciplined approach to understanding who your customers are
and how they buy. Designing a
customer-focused channel involves
answering questions such as:
• Who do our customers buy
those solutions from?
• Do we want to expand our
relationships with our current customers?
• Do we want to acquire new
customers?
• How do these customers/segments buy solutions
like those that we offer?
• Is our purchasing process
complex, with many people
involved in the buying
decisions?
• Are there complementary
services
or
products
required to provide a complete solution?
• How do they buy the solutions?
• What level of service and support is important in the buying
and implementation process?
• What channel programs do
we need to put in place to
support the channels?
Exploring these issues will help
establish the best CRM strategy to
achieve your objectives, and the
optimal channel design will
emerge through this analysis.
Click here (http://www.excellenc.com/channeldesign.pdf) to
download Brock’s article "Good
Channel Design Starts with the
Customer".
Then click here
Five Secrets continued on page 5
SAPtips © 2003 Klee Associates, Inc.
www.SAPtips.com
April 2003 Volume I Issue 2
SAPtips
Page 5
SAPtips
Five Secrets continued from page 4
(http://www.reliablegrowth.com/
channelmap.pdf) to download my
worksheet to help your company
map its sales channels.
In the end, most firms will need
more than one channel to prosper.
Yet regardless of the number of
channels your company maintains,
continually monitoring performance is critical to achieving positive
results. Your CRM software should
facilitate a feedback loop of observation, orientation, decision, and
action (OODA) (http://www.fastcompany.com/online/59/pilot.html)
by enabling every user to view, capture, and leverage customer information at every customer touch
point in your company. Also, CRM
software will need to be integrated
with other major software systems,
such as your ERP system, to ensure
that all of your "sales channels"
have access to the total picture for
the customer they are serving.
Some companies have scapegoated
their CRM systems for low return
on investment, when in fact the real
problems had more to do with putting faith in technology that needed to be integrated - not just with
other systems, but with an overall
strategy to target and build on the
most
profitable
customer
relationships.
Secret #5: Over Time, the
Little Things Mean a Lot
As Jim Novo demonstrates, an
effective CRM strategy need not be
expensive or complicated. You
don’t need to treat every
customer differently starting
today. However, you should begin
to treat them differently based on
their recency, their locus on your
valuation skew, your channel
strategy,
and
so
on.
Marketing expert Jim Cecil
(http://www.nurturemarketing.
com/articles/garden.html) uses a
farming metaphor, where your
customer base is your "garden"
and your carrots are grown differently than your onions, tomatoes, potatoes, etc. As Cecil puts
it, "The right amount of thoughtful planning and preparation,
intelligent nurturing and diligent
cultivating – and, yes, intentional, even ruthless pruning [of customers], nearly always pay huge
dividends at harvest time."
Cecil's metaphor serves as an
excellent starting point: each segment of customers has its own
needs that we must hone in on
and cultivate if those relationships are going to thrive.
Of course, it takes an enterprisewide effort to focus in on customers and understand their specific needs and preferences. But it
needn't be a complicated project logging customer information into
a database can be as simple as
having each user ask every customer contact, “What’s the one
thing we could have done to have
made your doing business with us
a more enjoyable experience?” If
every employee in your company
did that (and management acted
on the suggestions), the resulting
competitive “moat” surrounding
your business would be awesome.
Of course, it can be a tremendous
challenge to provide "one face" to
the customer and give your people
access to the "total customer data"
they need from their ERP and
CRM systems, but it's a challenge
worth tackling. Companies are
shying away from purchasing
monolithic CRM suites, but that
doesn't mean there isn't tremendous value in the targeted use of
CRM software to leverage your
CRM strategy. Companies have
learned the hard way that you
can't look to CRM software to
"save the day" with some kind of
generic template. The best CRM
strategies are the ones you've
developed in-house to capitalize on
your unique products and/or serv-
ices. If you select the CRM software
that suits the next phase of your
own CRM strategy, you're on the
right path.
There is a powerful logic
behind a company that is
relentless about aligning every
element of its business system
behind a single, customer-driven value proposition: that company is extremely difficult to
emulate. Suppose the chance of
a competitor successfully imitating any one element of your
business design is 80 percent.
If there are two elements that
must be copied, the chance of
achieving this would be 64 percent (80% x 80% = 64%).
Given ten elements to copy, the
chance of a competitor copying
them all falls to just over ten
percent.
By leveraging this fifth and final
CRM secret, you can exploit the
fact that all businesses are perfectly designed to get the results
they get. Plus you’ll sleep a lot
easier at night.
Harry Joiner, Reliable Growth.
Harry has more than a decade of
proven leadership in domestic and
international business development in multiple industries. Before
founding Reliable Growth in
August 2001, Harry was Director
of Trading Operations for Global
Food Exchange, where he built the
B2B Internet trading department
that led the food industry in both
number of online transactions and
in pounds transacted.
Harry.Joiner@JDEtips.com
JDEtips readers are invited to sign
up for Harry's free newsletter,
Proven Ways to Get New
Customers at:
www.ReliableGrowth.com. continued on page 2
SAPtips © 2003 Klee Associates, Inc.
www.SAPtips.com
The information in our publications and on our Website is the copyrighted work of Klee Associates, Inc. and is owned by Klee Associates, Inc. NO WARRANTY: This documentation is delivered as is, and Klee Associates, Inc. makes no warranty as to its accuracy or use. Any use of this documentation is at the risk of
the user. Although we make every good faith effort to ensure accuracy, this document may include technical or other inaccuracies or typographical errors. Klee
Associates, Inc. reserves the right to make changes without prior notice. NO AFFILIATION: Klee Associates, Inc. and this publication are not affiliated with or
endorsed by SAP AG. SAP AG software referenced on this site is furnished under license agreements between SAP AG and its customers and can be used only
within the terms of such agreements. SAP AG and mySAP are registered trademarks of SAP AG. All other product names used herein are trademarks or registered trademarks of their respective owners.
April 2003 Volume I Issue 2
SAPtips
Page 6
SAPtips
continued on page 2
SAPtips © 2003 Klee Associates, Inc.