M2988.1
Marketing Decision Sciences:
Building Businesses
and Customer Relationships
Not Models
DiaMondSUG 2001
Mark Van Clieaf
mark@mvcinternational.com
MVC Associates International
www.mvcinternational.com
416-489-1917 / 813-891-6644
Toronto • Chicago • Tampa
© Copyright 1988, 2000, MVC Associates International
M2988.2
Customer Insight:
Taking Organizations to a
Brave 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
CRM / 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 )
© Copyright 1999, MVC Associates International
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
• Real Time
– McKenna
• NetGain
– Hagel & Armstrong
• Digital Darwinsim
– Schwartz
• Futerize Your Enterprise
– Siegel
• Customers.Com
– Seybold
• Now or Never
– Modahl
– Gertz & Baptista
© Copyright, MVC Associates International, 1998
M2988.5
Companies Want A Single, Integrated
View, But Have Work To Do
“Do you have a single, integrated view of the customer today?
Will you in two years?”
Yes
2%
Somewhat
10%
Unlikely
22%
Yes
38%
Not at all
36%
Now
Source: Forrester Research
Not really
52%
Probably
40%
2001
MVC Associates International
M2988.6
Marketing Investment
Optimization Across An
Integrated Growth Framework
Branding
Product Attribute
Bundling
Bonding
Customer
1) Value
2) Processes
3) Segments
4) Information Management
Billing
© Copyright, MVC Associates International, 1998
M2988.7
Internet Shifts Purchasing Power
to 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
© Copyright 1999, MVC Associates International
M2988.8
Mass Marketing Skills
Applied to the Internet
+300%
Note for comparison: Amazon.com
is 4,444% above IPO price
+250%
+200%
+150%
+100%
egghead.com
Stock price relative +50%
to IPO
0
-50%
-100%
Retailer
Value America
eToys
Ashford.com
egghead.com
drugstore.com
Source: Forrester Research
10/99
11/99
Peak market cap
(millions)
$3,323
$10,370
$1,562
$1,456
$3,221
12/99
Date
4/99
10/99
11/99
11/99
7/99
1/00
2/00
3/00
Current market cap as
of 3/31/00 (millions)
$145
$1,066
$211
$261
$607
drugstore.com
Ashford.com
eToys
Value America
- 96%
- 90%
- 87%
- 82%
- 81%
MVC Associates International
M2988.9
Pets.com
Mass Marketing vs.. Target Marketing Skills
MVC Associates International
M2988.10
E-Commerce vs.. E-Business
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
© Copyright 1999, MVC Associates International
M2988.11
Growing Shareholder Value
and 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
© Copyright 1999, MVC Associates International
M2988.12
Customer Centric Results
New 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
© Copyright, MVC Associates International, 1998
M2988.13
Analysts / Data Miners and
Marketers Must Recognize
Which Wave They Are On ?
• Wave 1 - Frequency / Loyalty
• Wave 2 - Customer Value Optimization
• Wave 3 - Dynamic Customer Management
© Copyright, MVC Associates International, 1998
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 ?
© Copyright, MVC Associates International, 1998
M2988.15
Wave 1
Loyalty 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
© Copyright, MVC Associates International, 1998
M2988.16
Loyalty Program Trends
in 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 ?
© Copyright, MVC Associates International, 1998
M2988.17
Loyalty Programs
# 2 application for Smart Cards
Percent of 51 Card Issuers Interviewed
Stored Value
65%
31%
Loyalty Program
27%
Internet Security
16%
Micropayments
10%
Transit
Secure Electronic Transactions
4%
Ticketing
4%
Electronic Benefits Transfer
4%
Telephone
4%
4%
Other
20%
Undecided
0
Source: Forrester Research
10
20
30
40
50
60
70
MVC Associates International
M2988.18
Loyalty Programs Online
But 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
© Copyright 1999, MVC Associates International
M2988.19
Wave 2
Optimizing Customer
Value & 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
© Copyright, MVC Associates International, 1998
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
© Copyright, MVC Associates International, 1998
M2988.21
Too Many Marketers / Data-Miners Are
Campaign vs Customer Centric
Strategy
Organization
Capability
Customer, Product,
Channel, P&L Goal &
Resource Alignment
Customer Centric
Business Strategy
Customer Portfolio
Organization
Information
Technology
Integrated Customer,
Product, & Channel
Compensation
Customer Processes
Customer Segments
Customer Information
Mgmt
Customer Marketing
Marketing Skills
Value Proposition
Development
Customer Contact
& Campaign Mgmt
Mass Customized
Product Attributes &
Benefits (bundling &
co-marketing)
Inbound / Outbound
Contact Strategy &
Goals
Mass Customized
Channel Access &
Customer Contact
Process Design
Coordinating &
Sequencing
Evaluation &
Measurement
Back End Analysis,
Customer Learning, &
Recommendations
Targeting Models &
Test & Control Tactics
Customer, Product &
Channel Goal
Value / Risk Based
Pricing Strategy &
Payment Options
Mass Customized
Communications
Strategy & Creative
Development
Process Evaluation
Mass Customized
Promotion to Create
Trial
Customer Information
Mgmt & Campaign
Tape Production
Customer Portfolio
Review & Recalibration
of Models & Customer
Insight
Dynamic Customer Focused Test, Learn, & Value Creation
© Copyright, MVC Associates International, 1998
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 !
© Copyright, MVC Associates International, 1998
M2988.23
Wave 3
Dynamic 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
© Copyright, MVC Associates International, 1998
M2988.24
C-Commerce
(Marketing Principles change from outbound communications to
in/out-bound customer interaction, customer choice & mass customization
by channel preferences and value proposition bundles)
Phone IVR E-mail Web Teleweb ITV PDA’s
• Business rules database
• Customer profile database
• Interactive history database
© Copyright 1999, MVC Associates International
M2988.25
10,000,000 Customers
Offshore
Die Broke
Affluent Wealth
Edge Walker
DINK
Classic Family
Young Wannabees
Just Started
College
Number of Customers
$ 5,000 per customer
Average Annual Profit Contribution per Customer
The Customer Portfolio
Current Value
• Transaction driven customer segments
related to product and channel usage
and lifestage / lifestyle
negative $ 2,000 per customer
© Copyright, MVC Associates International, 1998
M2988.26
Better Practices in Customer Value Investment
700,000 Customers
Future Value Potential
H
M
L
Double Income No Kids
Current
Share of
Customer
1
2
3
M
4
5
6
L
7
8
9
Current Annual Value
H
M
L
H
Duration /
Attrition
• Transaction driven customer segments
related to product and channel usage
and lifestage / lifestyle
H
1
2
3
M
4
5
6
L
7
8
9
Targeting
Your Highest Value
Customers
© Copyright, MVC Associates International, 1998
M2988.27
10,000,000 Customers
Offshore
Edge Walker
DINK
Profit
Potential &
Value Gap
Die Broke
$ 5,000 per customer
Affluent Wealth
Future Value
Classic Family
Young Wannabees
Just Started
College
Number of Customers
Customer Value Tactics
Customer Value Strategies
Average Annual Profit Contribution per Customer
Strategic vs Tactical Analytics
Current Value
• Transaction driven customer segments
related to product and channel usage
and lifestage / lifestyle
negative $ 2,000 per customer
© Copyright, MVC Associates International, 1998
M2988.28
Data Mining To Create Optimization
Customers / Products / Channel Goals &
Marketing Investment / ROI
Current
Enterprise / Product Goals
=
Future
Customer Goals
Revenue / Cashflow
1 and 3 Year Goals
M
L
• ROA
• Contribution Margin by Product
Translate /
Align
Development
• SG&A / Expense Ratio
• EBIT
• Free Cashflow / EVA / SVA
Segment A
• Fee / Revenue by Product
Segment B
Acquisition
• ROE
Segment C
H
Win-Back
© Copyright, MVC Associates International, 1998
M2988.29
CRM / E- CRM Consolidates Rules
Across Channels And Functions
Customer-handling rules silos
Field
Call
center
Common business rules
Web
Routing
Manual
e-mail,
phone
Phonecentric
Automated
multichannel
Routing
Workflow
Manual
e-mail,
phone
Manual and
autoqueuing
Automated
crosschannel
messaging
Workflow
On-the-spot
dealmaking
Static
campaign
script
Dynamic
cross-sell/
upsell
Personalization
Source: Forrester Research
MVC Associates International
M2988.30
Designing
The Customer Experience
(Entertainment, Information / Content , Information-Based Marketing
Online Purchase, Customer Service)
BoardWear.com
Color
Blue
Size
XL
Qty.
One
Blue
3ON TOUR NOW . . . NEW RELEASE
Green
ENTER THE CONTEST
And Get . . .
$10 OFF
your next
purchase
Buy The CD!
Source: Forrester Research
Click Here
MVC Associates International
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
© Copyright, MVC Associates International, 1998
M2988.32
Identifying The Organizational
Hot 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)
© Copyright, MVC Associates International, 1998
M2988.33
New Skills To Action
the Customer Insight
• “ 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”
( Global Vice President Customer Information Mgmt, AMEX, HQ)
© Copyright, MVC Associates International, 1998
M2988.34
The Waves of Customer Centric
Business
Strategy
Wave 2
Customer
Value
Optimization
Product
Centric
Source of
Value
CIM
Customer
Org Design
Marketing
Objective
Compensation
Price,
Delivery,
Convenience
Product
Feature /
Benefit, Fixed
&
Uniform
Batch, Points
&
Rewards,
Outbound
Not
In
Place
Annual
Business
Plan
Product Brand
Equity
Product
P&L
Customer
Support
Mass
Customized
Training,
Service,
Support
Batch
(2 wks-24hr)
Product
Purchase
Data,
Customer
Value Scoring,
Outbound
Customer
Processes,
CIM
Ease of
Upgrade over
Time
Customer
Knowledge,
Ongoing
Learning,
Anticipating
Needs
Real Time,
Integrated
Across LOB’s,
Inbound
&
Outbound
Enterprise
Wide
Customer
Processes,
Customer
Segments,
CIM
Product
Centric
Product
Centric
Migrating to
Customer
Centric
Wave 3
Dynamic
Customer
Management
Purchase
Drivers
Time of Sale
Wave 1
Frequency /
Loyalty
Planning
Horizon
Customer
Centric
Period
of
Contract
Life
of
The
Customer
Product
P&L
Relationship
Equity
Community
Equity
Product
P&L
&
Starting
Customer
Metrics
Customer
Value &
Duration,
Product &
Channel
P&L,
EVA / SVA
© Copyright, MVC Associates International, 1998
M2988.35
Customer Value Organization Design
How Would You Organize to Create Customer Value ?
Customer Value Champion
Customer Information Management
Process / Segment
Owners
Acquisition & Activation
Process Owner
Development & Loyalty
Process Owner
Win-Back
Process Owner
College
Just Started
Young Wannabees
Classic Family
DINKs
Edge Walker
Affluent Wealth
Die Broke
Offshore
© Copyright, MVC Associates International, 1998
M2988.36
Marketers / Data miners
as Change Agents
in 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
© Copyright, MVC Associates International, 1998
M2988.37
The New Killer B’s of Marketing
Require 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
© Copyright, MVC Associates International, 1998
M2988.38
Branding Skills For Target Marketing / CRM
Marketing
Element
Branding
Mass Marketing
Branding
Target Marketing
and
Customer
Relationship
Management
Customer
Development
Strategy
Acquisition /
Activation
Branding
Objective
Awareness,
Knowledge
& Relevance
with the
product
Value
Proposition
Linked to the
Brand
Relationship
Between
Customer &
Brand
One
dimensional
and channel
dependent
Initiated by the
marketer
Fixed / Static
Individual
product /
service level
Linked to
product benefit
Static
relationship
Marketing
Communication
Strategy
Tools for Branding
Measurement
One way
communications
developing
single message,
image & brand
perception
Advertising, Name
Development,
Package
& Collateral Material
Design, Trademark,
etc
Recall
Engineering the
total customer
Initiated by the
Complete
experience
customer & or
Customer
including
marketer
Two-way customer
Lifecycle =
processes,
dialogue tailored
Acquisition /
Enterprise level
technologies &
depending upon
Customer
Activation,
relationship
training
to ensure
stage of customer
Involvement & Flexible and
Usage
that
each
customer
relationship,
advocacy of
customized to
Dynamic
Stimulation,
touch
point
(call
customer segment,
the brand
micro-segment
involvement
Cross-Sell new
centre, mail, retail,
promise
/ individual
and current and
depending upon
products /
e-mail, website, etc)
customer
potential customer
suite of
services,
provides an
needs
profitability
products /
Retention, Winintegrated
services
back
experience
Linked to the
needed
consistent with the
brand promise
brand & relationship
Bundle of
products /
services and
channel
independent
Customer
Satisfaction
Market Share
ROI on
marketing
expense
Share of Wallet
Current or
life-time
profitability
© Copyright 1999, MVC Associates International
M2988.39
The 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
© Copyright 2000, MVC Associates International
M2988.40
From 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
© Copyright 2000, MVC Associates International
M2988.41
What Are You Doing
to Reinvent Yourselves ?
“ 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 hundreds
of 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 )
MVC Associates International