Blattberg - The problem is that the computer technology has overwhelmed the concept CRM in that I think a lot of people have lost the R in it. When we think about CRM we have to ask the following question: it's not just profitable customers but what type of relationship does that customer want? You can be a highly profitable customer and not want a relationship. For example, I don't want a relationship with my gas station, although I may be a very profitable customer. How do I want to manage each customer and what does that customer want in the relationship? I think that's a critical issue.
How Should We Measure Customer Value?
Q: Rogers - The next obvious question is that a lot of companies are turning to customer value analysis or asset management or whatever we want to call it because we're uncomfortable with that implied emotion in the term relationship. What are companies doing, what should they be doing, to measure the asset of the customer base?
Bolton - We marketers in particular have tried to turn CRM into some sort of direct marketing that involves software — a lot of touches to the customer. One of the things that I worry about is that this is a lot of one-way communication, and not very much what the customers experiences. Companies are sitting on this incredible amount of information which affects acquisition, retention, cross-selling — things like how long did the customer wait? How many people did we have out there? How many engineers were allocated to work on this problem for this business customer? This tells us a whole lot about the relationship from the customer's standpoint, without us having to go out and survey them.
Reibstein - For customer evaluation, we need to be explicit and look at what the revenue stream has been and at the margins from that and then try and project that forward, for example, how likely are we to do any cross-selling? We add that up for a particular customer and we come up with a value for that particular customer. What I worry about missing is if we have a customer who hasn't been buying very much from us but has been buying from others, we might think that that customer is not very valuable, and the part that I worry about is whether or not we've captured the customer's potential. There is not one customer value number that gets stamped on a consumer's forehead. It's very conditional on a scenario-what we do, what the competition does, what the past experiences of that particular customer are.
Blattberg - I think in certain industries it's easier. I just co-authored a paper about how well can we predict the future value of customers.1 About 55% of the people who will be in your top 20% of customers in two years, are not among your best customers today. When you start looking into the future, a high percentage of those people that you're not offering a strong relationship with turn out to be your best customers. Demographics are not very accurate to predict best customers.
CRM... Here to Stay?
Q: Rogers - Some analysts say the CRM honeymoon is over, but it's not the technology that has failed except in a very tiny percent of cases, and yet we hear numbers like 70% of CRM efforts fail. What accounts for that? Why aren't we seeing more success stories? Because the success stories we do see have spectacularly happy endings. Do we think this [CRM] is a fad?
Bolton - I've found that you can do things to touch a customer that will have a positive impact in one area of their purchase behavior, and a negative impact in another area, and so you have to figure how does that all net out. Then we aggregate it across customers. You have to measure something to manage it. Disentangling and figuring out what's effective and what isn't is way harder than people think. That's where people are getting stuck and not able to get their arms around the measurement issue.
Blattberg - It would be interesting to see if a company has really changed its strategy because it has a CRM program. It's one thing to have a database and outbound communications. It's another to manage all the various key communications many of which are uncontrolled in the firm. It's also important to understand does the top management of the company really believe in CRM. These are enormous organizational and business strategy issues. Putting some hardware and software in a company doesn't change the way a company does business.
Reibstein - Customer remains king now. Everyone's trying to fight for gaining the customer. And with that we have to be more focused on what the customer wants and how to keep them coming back. As [Dr. Blattberg] said, there are three components to customer valuation strategies: acquisition, retention, and cross selling. Those all have different time frames and profitability potential. Acquisition is a short-term process, but doesn't offer much payoff, for example, whereas cross selling is long term but has much higher potential for payoff.
Wrap-Up: Key take-away advice on CRM
Blattberg - Focus on measuring customer value and how to bring it to the balance sheet.
Bolton - Think more broadly about what a customer relationship means. It's not just about you touching a customer with various instruments; it's about their service experiences.
Reibstein - Don't look at just what customers' actual behavior has been, but try and get a good handle on their potential.
About the moderator and panelists:
Martha Rogers, Ph.D., is an expert in customer-focused strategy, customer relationships and increasing demand chain, and managing CRM and DCM ROI, and customer equity. With Don Peppers, she has co-authored five books on these subjects. All five have been international best sellers, including the latest book, The One to One Manager: Real-World Lessons in Customer Relationship Management. The books have sold over a million copies and appear in a total of 14 languages. Dr. Rogers is a Partner of Peppers and Rogers Group, a customer-focused strategy consulting firm based in Norwalk, CT, with 15 offices around the world. As an Adjunct Professor at the Fuqua School of Business at Duke University, Dr. Rogers is helping to spearhead the CRM coursework at the MBA level. She is also the co-director of the Teradata Center for Customer Relationship Management at Duke University.
Robert Blattberg, Ph.D., is currently the director of the Center for Retail Management in the Kellogg Graduate School of Management. In addition to his teaching, writing and research responsibilities, Blattberg consults to leading retailers, consumer goods manufacturers and database marketers. His clients have included Advanta, A.C. Nielsen, Anheuser Busch, Sears, Kroger and The Northern Trust, Kroger. Professor Blattberg is a frequent speaker at the Direct Marketing Association, Food Marketing Institute and American Marketing Association events. He also serves as a Director of First Tennessee Bank Corporation, Price Chopper, and the Factory Card Outlet of America. Blattberg's book Customer Equity (with Integral Director Gary Getz and Academic Affiliate Jacquelyn Thomas, Ph.D.) focuses on how companies can maximize the value of their customer relationships in the emerging hybrid world of e-commerce and land-based commerce.
Ruth Bolton, Ph.D., is Professor of Management (Marketing) at Owen Graduate School of Management, Vanderbilt University. Her business experience involves a variety of consulting projects addressing services marketing, customer satisfaction and quality management issues in the telecommunications and information services industries. Bolton's earlier published research investigates how organizations' customer service and pricing strategies influence customer satisfaction and loyalty. She serves on the Editorial Boards of the Journal of Retailing, Marketing Science, Marketing Letters, the Journal of Marketing Research, and the Journal of Service Research. She has published articles in these and other journals. Bolton is currently the editor of the Journal of Marketing.
Dave Reibstein, Ph.D., is the William S. Woodside Professor and Professor of Marketing at The Wharton School of the University of Pennsylvania. Together with ACS co-founder Mark Chussil, he developed ACS's ValueWar® competitive-strategy simulator. He developed and coordinated Wharton's Executive Seminar on New Product Development and Marketing Research, as well as several others. He has consulted and run executive programs for a number of companies including AT&T, General Electric, Digital Equipment Company, Rohm and Haas, Dean Witter Reynolds, Campbell's Soup, and numerous others. Reibstein is co-author (with Mark Chussil) of Strategy Analysis with ValueWar, published in the Scientific Press series by boyd & fraser. He is also the author of Marketing: Concepts, Strategies, and Decisions (Prentice-Hall), and has co-authored and co-edited other books, and authored numerous articles appearing in major marketing journals
