CRM customer analysis presentation.

1. Extracting and Using
Customer Knowledge
Eric Smith
eric.smith@diamondcluster.com
© 2001

2. Agenda
§ Key elements of CRM – a mental model
§ What do we want “it” to do?
§ Extracting customer knowledge
§ The data
© 2001
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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
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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
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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
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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
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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
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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
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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
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10. © 2002
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11. © 2002
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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
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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
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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
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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. 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
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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
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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
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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
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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. 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
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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
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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
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cy
cy
cy
cy
cy
en
en
en
en
en
c
c
c
c
c
c
c
c
c
c
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en
en
en
en
en
en
en
en
en
en
en
en
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en
en
en
Ag
Agencies sorted from largest to smallest book of business
© 2001
Source: Typical client example
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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
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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
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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
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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. 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. …but, matching customers to transaction
data doesn’t require expensive technology
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Successful CRM is about restructuring the business
around customers – Technology is only an enabler
© 2001
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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
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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
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32. “If you torture the data
long enough …
… it will confess”
© 2001
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