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DSC Tech Library
This section of our technical library presents information and documentation relating to CRM Solutions and Customer relationship management software and products. Providing customer service is vital to maintaining successful business relationships. Accurate and timely information provided in a professional manner is the key to any business and service operation.
Our CRM software application TELEMATION, was developed with this in mind. But the ability to change is just as important in this ever changing business environment.
Telemation call center software was designed from the very beginning for this environment.
Many call center managers, with unique and changing requirements, have chosen and continue to use our CRM software as their solution of choice.
Our contact center CRM solution is ideally suited for call center service bureaus.
CRM and Customer Profitability
The following is an extract from the article "Profits, One Customer at a Time " by Jason Compton from CRM Magazine:
"Quarterly profit and loss is ultimately just an abstract aggregate of countless customer interactions. But company performance is bolstered or weakened one customer at a time, which is why it is no surprise that CRM theorists and practitioners often speak of the importance of measuring and acting on the profitability of each individual customer.
"It's the top of the playbook in terms of CRM strategies to understand customer profitability and segmenting, using that to drive the behavior of sales and marketing," says Robb Eklund, vice president of CRM product marketing for Oracle. Yet in practice it is not immediately clear what, exactly, it means to attempt to capture the net value of an individual client. Nor is it immediately clear how challenging it can be. And even capturing that individual net value with a high degree of accuracy does not solve every customer profitability problem that is on the table.
Return to Revenue
Individual customer-profitability measures fell out of favor in some organizations in recent years because cost-cutting was so widespread it rarely seemed worthwhile to consider the impact of any given client. "When you get solidly into [economic] recovery mode, the issue changes to, 'How do I maximize my revenues?', and in that context people are looking for how to maximize the profitability of customers," says Robert Kugel, vice president of Ventana Research.
Attempting to be granular with profitability readings raises a question that in almost any B2B environment has no easy answer: Who, exactly, is the customer? Is it the enterprise itself, the division using the products, or the individual purchasing agent? Even in the home, questions about the decision-maker and the impact of the next generation of customer come into play. Often, the nuances of the importance of the individual behind each purchase are not even readily available between partners on the supply side.
Gartner divides the individual profitability measurement discipline into eight distinct value categories, ranging from accumulated value from prior interactions, to a current reading ranging from a span of a few months to several years (depending on the product life cycle), to measuring some level of value as a marketing and research resource. The measure of a customer's total market value provides perspective on the entire worth of the customer to the market segment in which a company competes. This value can also be used to derive share-of-wallet.
"The ideal situation is being able to reach all the way to the end consumer" to measure profitability, says Todd Bixby, managing director of consumer, industrial, and technology CRM at BearingPoint. "Banking and insurance are probably the leaders in generating those kinds of numbers; retailers are probably laggards. The data exists, it's just not shared through the value chain."
What is clear is that making sense of individual customer profitability is nearly impossible without coordination. "You have to think about data comprehensively across the organization, not just [for]the transaction at hand," Oracle's Eklund says. "It may make sense to think about [offering] a loss-leader if in fact there is a larger opportunity with that customer somewhere else in the organization," but without collaboration, those judgments cannot be made. When customer performance is treated as an enterprisewide responsibility, rather than a profit-and-loss concern for each division or product line, such decisions become easier to make.
What's in a Number?
An individual customer's profitability could be as simple as a black or red number in a spreadsheet cell, but quite often companies use proxies. They are easier to measure than finding the proper mix of fixed and variable costs to factor against a customer's revenue. Airlines are a prime example: Typically, they establish service tiers based on miles flown or flight legs completed, working on assumptions about their own cost structure that above a certain level of consumption, clients will have attained a solidly profitable standing.
One proxy some companies use is loyalty. However, Wendy Close, a Gartner research director, warns that loyalty can be a dangerously misleading value proxy, because longevity and profitability are not necessarily one and the same. "If they are emotionally loyal, they stay with you because they love your business and will advocate new business," she says. "If it is rational loyalty, they stay with you because they know how to work your system."
Fixed costs in particular pose a problem for proper profitability measurement: They tend to more closely map to the company's choices, not the customer's. Marketing expenses also skew the measurement of profitability, because any sort of mass marketing will inevitably pay to reach out to a potentially unprofitable customer, perhaps even one that the firm has opted to cut ties with.
The challenges make reaching the goal of a single, clear-cut item in each client's ledger entry a difficult proposition at best. It is with those challenges in mind that companies that have been successful with value measurement make decisions about what they will and will not attempt to measure.
"We have shied away from absolute [measures], because there are too many pitfalls that lead to potentially dangerous assumptions being made in your organization where the finance folks start to believe these are hard numbers and roll forward predictions about corporate profitability," says Steve Elioff, senior vice president of CRM for investment firm AGF Management. By focusing on a relative scoring model, AGF learned to measure the value of its broker partners on a more refined scale than simple revenue size, and shifted support resources as a result. Whereas previously one quarter of the company's most profitable partners received no sales support, AGF has dropped that figure to just 5 percent.
"The best you can do [today]--and maybe it's not the final answer--is to optimize the marketing mix in the sense of what costs and expenses you can control, and get the biggest bang for your buck," says Ray Pettit, vice president of marketing services firm Longwoods International. Except in very coordinated direct marketing campaigns, "you can't really get to the individual level and save a lot of money by not marketing to [certain] people because you know they're not going to be profitable......"
To review the entire article, visit
www.destinationcrm.com and locate the article entitled
"Profits, One Customer at a Time" or contact Executive Editor Jason Compton at jcompton@destinationCRM.com
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