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CRM Customer Analysis

CRM customer analysis presentation.

CRM Customer Analysis

  1. 1. Extracting and Using Customer Knowledge Eric Smith eric.smith@diamondcluster.com© 2001
  2. 2. Agenda § Key elements of CRM – a mental model § What do we want “it” to do? § Extracting customer knowledge § The data© 2001 2
  3. 3. Just like an engine converts fuel into work… Fuel Combustion Transmission Work • Transportation • Production • Comfort/ Convenience •Drilling •Energy Conversion •Utility Conversion •Refining Chemical Mechanical Energy Work •Distribution Turbo More for less© 2001 3
  4. 4. …well-implemented CRM should convert raw customer data into profit-enhancing actions 4 3 2 1 Data Analysis Action Profits • Retention • Up-selling Profit • Targeting • Efficiency Marketing $ • Share of wallet •Capturing •Knowledge Extraction •Knowledge Conversion •Storing Data Knowledge •Manipulating Information Processes •Transmitting Knowledge Tasks Incentives Learning New ideas/ offerings 5© 2001 4
  5. 5. CRM is the structured synchronization, of customer information flows, to scale intelligent actions Organizational Reach Structured Unstructured Used regularly Used occasionally Impact by many by few Strategic ($$$) ABC (customer profitability, share of wallet, segmentation, etc.…) CVM Managerial ($$) Contact (call center efficiency, CRM Mgmt. campaign management, etc…) Campaign Mgmt. Operational ($) Order Mgmt Call Center (fulfillment accuracy Transaction Mgmt. etc…) Syst.© 2001 5
  6. 6. Agenda § Key elements of CRM – a mental model § What do we want “it” to do? § Extracting customer knowledge •Knowledge Conversion Knowledge Processes § The data Tasks Incentives© 2001 6
  7. 7. 9 critical questions to justify the CRM effort: 1. What do we want to know about customers, and why? 2. What is this knowledge worth to us? I. Preparation 3. Who needs to do what with this knowledge, and when? 4. Do we have the data structure/application to execute? 5. How should people’s decision rights change? II. Pilot/Test 6. What should our incentive structure look like? 7. How do we know if we’re doing the right things? 8. Where does it hurt the most? III. Roll-out 9. Can we build on - or modify - what we already have?© 2001 7
  8. 8. Opportunity Inventory: What CRM should (and can) help us do Goals: Penetrate Customer Demand Sales & existing retention Optimize Win new chain marketing customers (less churn) profitability customers efficiency efficiency Actions: Stop doing ‘stupid’ Product substitution things Pricing strategy Share of wallet Market growth Cost to serve Product mix Steal share Start doing ‘smart’ things Eventually do ‘amazing’ things Shareholder Value Return© 2001 8
  9. 9. Opportunity Inventory: Example from packaging materials company Penetrate Goals: existing Product Optimize Steal share substitution operations Actions: customers Decouple the Not know what Stop doing Sell business we goes INSIDE our sales process from inventory ‘stupid’ things already have customers allocation packages decisions Benchmark * Systematic Start doing account pene- screening of high tration – target ‘smart’ things “low hanging potential targets to aid prospecting fruit” Manage Real-time Eventually Under-price inventory mgmt, inventory and competitors high- do ‘amazing’ predict value customer order tracking, things customer’s and account /prospect base management ordering cycle Grow Sales Raise Profits© 2001 9
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  12. 12. CRM … for what purpose? Grocery ‘deals’ Discounts Discounts Discounts Discounts Approach customer data like an “Specials” “Specials” ANTRHOPOLOGIST “Specials” “Specials” Coupons Coupons Coupons Coupons© 2001 12
  13. 13. Need to learn first-hand about customers’ “exposed nerves” Maslow’s Hierarchy of Needs ¢ How does your customer think Self- about value? Actualization e It’s never just economics enc Ego Needs eri Tim Exp ing nal Social Needs rso Pe Security Needs Biological / Physical Needs Social Situation© 2001 13
  14. 14. CRM … for what purpose? Grocery ‘deals’ WHY NOT: • No-wait check out for “Platinum” members • 1 free home delivery per $1,000 of purchase ? • Taste any bottle of wine for “Sommelier” members ? • etc.© 2001 14
  15. 15. Agenda § Key elements of CRM – a mental model § What do we want “it” to do? Profit § Extracting customer knowledge Marketing $ •Knowledge Extraction § The data Data Information Knowledge© 2001 15
  16. 16. A large foodservice distributor attacked under-performing distribution centers with the classic mantra… Value Added Chain DC ROI Variance (% of sales) 3% Profit Corporate Dictate Hurdle ROI (~30%) 3% OHD 3% Selling 5% Transport 6% Warehouse Sell more !! Asset Turns Cut costs !! Investment Components (% of sales) 80% 5% A/P A/R 8% COGS PPE 6% Inventory 6%© 2001 16
  17. 17. … and salespeople were compensated for selling higher-margin products “Perceived” Product Economics Fresh Tissues & Frozen Boned Average Lettuce Towels Fish Meats $ Revenue 0.73 / lb. 5.80 / box 3.23 / lb. 1.80 / lb. Gross Margin 21.5% 0.18 24.7% 1.96 33.8% 0.45 14.1% 0.20 11.0% Sales Commission 5.4% 0.04 6.2% 0.53 9.1% 0.08 2.4% 0.03 1.5% “Contribution” 16.1% 0.13 18.5% 1.43 24.7% 0.38 11.7% 0.17 9.5% Push these… …not these© 2001 17
  18. 18. Analysis of product cost dynamics revealed that they were focusing on the wrong metric “Real” Product Economics Fresh Tissues & Frozen Boned Average Lettuce Towels Fish Meats $ Revenue/Cube 26.09 7.26 5.80 129.06 72.16 Gross Profit/Cube 5.61 21.5% 1.79 24.7% 1.96 33.8% 18.20 14.1% 7.94 11.0% Op. Expenses/Cube 4.12 15.8% 2.31 31.9% 2.11 36.4% 10.87 8.4% 5.73 7.9% Warehouse 0.86 3.3% 0.55 7.6% 0.35 6.0% 1.42 1.1% 0.55 0.8% Transportation 1.10 4.2% 1.10 15.2% 1.10 19.0% 1.16 0.9% 1.10 1.5% Selling 1.40 5.4% 0.45 6.2% 0.53 9.1% 3.09 2.4% 1.11 1.5% Admin/OHD 0.76 2.9% 0.21 2.9% 0.17 2.9% 3.74 2.9% 2.09 2.9% ROS 1.49 5.7% (0.52) (7.2%) (0.19) (3.2%) 8.78 6.8% 3.08 4.3% Push these…© 2001 18
  19. 19. CRM allows sales managers and reps to sell the “right products” and focus on profits Customer Profitability Exception Report Drop YTD Selling Transport Operating Drop Site Sales TGP Expense Expense Expense TGP Drops / Site # Name ($ 000) (% sls) % % % ROS% $/Cube Week 108127 Peppe Pizza 6.3 11.4 1.6 10.4 19.1 -7.7 1.8 2.0 169455 Chez Louis 2.6 9.0 2.1 5.4 13.2 -4.2 1.6 3.0 Standard Sales Rep. Report YTD Drop / Average Sales Sales Sales TGP Commis. Week / Drop TGP District Rep ($ 000) (% sls) % Site Size $ ROS% $/Cube Product Mix View Drop: Peppes Pizza 1 John Alvez 366.0 12.0 2.1 1.2 2,412 8.2 6.24 Period: YTD 1 Martha Williams 238.0 12.0 2.3 1.3 834 6.8 5.10 Sales Sales Sales TGP Prod. # Descr. Units ($ 000) % Tot. $/Cube 457890 Eggs,doz 671 2,123 2.1% 1.3© 2001 19
  20. 20. An insurer’s use of “average cost to serve” to measure agency performance greatly distorted true agency profitability Combined Ratio Analysis by Individual Agency 120% 110% Unprofitable Loss Ratio (as % of premium) 100% Individual agencies 90% “True” 80% Profita bility L *using ACTUAL ine * 70% cost to serve 60% ** using AVERAGE “Practiced” Profitability Line ** cost to serve 50% 40% 30% Profitable 20% 20% 25% 30% 35% 40% 45% 50% 55% Actual Cost to Serve (as % of premium)© 2001 Source: Typical client example 20
  21. 21. Commissions appeared completely random when adjusted for the agent’s mix of business 18 Actual Commission Rate Commission Rate Adjusted for Commission Rate (%) 16 Mix of Business 14 12 10 Average Commission Rate 8 6 Agency 11 Agency 16 Agency 21 Agency 26 Agency 31 Agency 36 Agency 41 Agency 46 Agency 51 Agency 56 Agency 61 Agency 66 Agency 1 Agency 6 Source: Typical client example© 2001 21
  22. 22. In fact, agents were rewarded for unprofitable behavior 20% 15% Rate of 10% Premium Growth (1995) 5% 0% Top Second Third Bottom -5% Commission Commission Commission Commission Quartile* Quartile* Quartile* Quartile* >14% 13%–14% 12.5%–13% 10.9%–12.5%© 2001 Source: Typical client example 22
  23. 23. Analysis revealed a high degree of variance in renewal “marketing” among agencies % of Renewals Marketed to Other Carriers 100 90 80 70 60 % 50 40 30 20 10 0 Ag y 1 Ag y 3 Ag y 5 Ag y 7 Ag cy 9 Ag y 11 Ag 13 Ag y 15 Ag y 17 Ag 19 Ag y 21 Ag y 23 Ag y 25 Ag 27 Ag y 29 Ag y 31 Ag y 33 Ag 35 Ag y 37 Ag y 39 41 c c c c cy cy cy cy cy en en en en en c c c c c c c c c c c en en en en en en en en en en en en en en en en Ag Agencies sorted from largest to smallest book of business© 2001 Source: Typical client example 23
  24. 24. Only two thirds of every premium dollar “marketed” is retained Not Marketed Marketed Premium Index 100% 100% After Account Attrition 69% 86% After Premium Growth or Decline 67% 91% Source: Typical client example© 2001 24
  25. 25. The cost to serve increases dramatically when renewal business is “marketed” Cost when Lost $235 Average Cost when Marketed $271 Cost when Retained $287 Average Cost for Renewal $211 Cost when Lost Average Cost when $161 Not Marketed $206 Cost when Retained $213 Marketed renewals cost 46% more when lost, & 35% more when retained Source: Typical client example© 2001 25
  26. 26. “Agency” CRM allows for targeted nurturing of valuable bottom-line contributors Agency Priority Screen Profitable Strengthen support Maintain / Reward • Cost to serve - cost drivers •Commissions/ “True” Incentives Agency Profit • Price realization • Mix of business • etc. Unprofitable “Bottom slice”/Improve Manage profitability Small Agency Volume with XYZ Large • Agent’s book of business Individual = Agencies • Our share of book© 2001 26
  27. 27. Agenda § Key elements of CRM – a mental model § What do we want “it” to do? § Extracting customer knowledge § The data •Capturing •Storing •Manipulating •Transmitting© 2001 27
  28. 28. Online retail competitors have a big head start… Companies like Amazon have been linking transaction data directly to specific customers for years, and they take great advantage of it© 2001 28
  29. 29. …but, matching customers to transaction data doesn’t require expensive technology Deals Deals Deals Deals Deals Deals Deals Deals Deals Score big ! Enter this code at Rack up FREE stuff ! www.Foodrewards.com: • CDs • Movie 483- 245-324 • Food tickets Program runs January 18 to March 16, 2001. Must be at least 13 years old to join. For program rules and details please visit us online at www.Foodrewards.com. Deals Deals Deals Deals Deals Deals Deals Deals Deals Successful CRM is about restructuring the business around customers – Technology is only an enabler© 2001 29
  30. 30. Many companies don’t take advantage of the data and CRM capabilities they do have ?? “Is it worth it?” Customers guard their personal information and will stop providing it if they don’t see some value in return !© 2001 30
  31. 31. There are data and clues everywhere • Start with the data you have Payments/ credit cards • Look outside for enhancing data POS •Government, Demographers, 3rd A/R party vendors Data Warehouse • Get creative about how to tie Order / Fulfillment transaction data to customers Financial Systems •Account numbers, zip codes, External credit card #s, bill-to and ship-to data addresses, dial-from numbers • 80% accurate data is better than 0© 2001 31
  32. 32. “If you torture the data long enough … … it will confess”© 2001 32

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