Customer Pyramid: A Proven CRM Strategy

mThink Knowledge - Posted on 05 October 2004

Authored by: Jay Curry; PDF File: CRM5_wp_curry.pdf Customer Marketing International BV Customer marketing is a business method that uses process control techniques to measure,manage and improve customer performance and customer focus. Seventy percent of CRM projects fail to deliver positive results. The trade press and analysts have been repeating this fact for a number of years. But is it true? CRMGuru, a CRM portal, decided to find out. It commissioned a rigorous study of more than 600 CRM implementation projects and concluded that:
y y y

45 percent of the CRM implementation projects delivered a positive ROI; 20 percent of the CRM implementation projects were earning profits, with a full payback and ROI likely; and The remaining 35 percent of the CRM implementation projects were not likely to show any ROI largely because these failures were self-inflicted, with the companies not implementing what the study showed to be the critical success fa ctors of CRM.

And what were these critical success factors? There were four found to be statistically relevant: 1. The company must follow customer centric strategies, including the use of customer satisfaction data, tracking numbers of customers gained or lost and installation of voice of the customer programs. (This factor was clearly the most important.) 2. Intensive training and coaching of front-line managers and staff. 3. The ability to manage change. 4. Establishing measurable goals.

funded project ACUMAP A Customer Marketing Pilot. I elaborated the concept in my first book. recognizing the innovative character of customer marketing. I decided to resolve the issue completely. designed to validate the method and support the development of software. When invited in 1989 to present a seminar on direct marketing to a high-level audience. Customer marketing is one of these strategies. Encouraged by the response of the audience. manage. Since early in 2000. The Short Hi tory Of Customer Marketi I originated customer marketing in 1989 as an American direct marketing consultant based in Amsterdam. keeping. making. t e choice of a CRM package made no difference. For several years I had been confronted with a lot of confusion and negative attitudes about direct marketing among European CEOs. Customer Marketing International B . tools. Spain. Japan and China. Germany. Highl publicized and heavil promoted packages did not gain any more R lesser-known competitors. Customer behavior. In 1997 the European Commission. the United Kingdom. The ACUMAP project was successfully completed in June 1998. which was published in the Netherlands. Italy. has brought to market the customer marketing method and tools. The Defi ition Of Customer Marketing Customer marketing is a business method that uses process control techni ues to measure. I declared that direct marketing was actually customer marketing. which resulted in a validated method to help companies implement and profit from what is now known as customer relationship management. And I demonstrated the concept with customer pyramids and a simple 10-step action plan.Despite t e cl i s of CRM soft e suppliers. The internal customer focus factors are: y y Organization. and improve customer performance and customer focus. and training materials that could help European companies maintain a competitive advantage. Customer Marketing. and . than The conclusion: C s must first develop customer centric programs as the highest priority when considering CRM for their companies. based in Amsterdam. The customer performance factors are: y y y Customer profitability. the process of finding. and Customer satisfaction. and developing customers. Communications.

customer value is. The Customer Performance Factors Customer Value Operational profit is the result of deducting the losses from unprofitable customers from the profit generated from profitable customers. as measured in profit per customer and customer lifetime value. in the first place. A third and important customer behavior factor is share of customer: the extent to which a customer meets his needs for the kinds of products or services by doing business with you. to a large extent. Positive customer behavior means.y Information. A second customer behavior parameter is customer lifetime. Let s look at this in more detail. or the average length of time as measured in months or years that the average customer does business with you. The customer marketing method is represented graphically in a pyramid (see Figure 1). Customer Behavior While cost factors play an important role in the profitability of a customer. that a customer is a customer he buys from you. It s as simple as that. Customer Satisfaction . Hence the need to maximize customer profitability. determined by customer behavior. Customer behavior is usually measured in terms of revenue either monetary or volume of product or services ordered over a period of time.

6. They will buy a lot from you and will give you a large share of their business. Employees possess the necessary customer care skills and experience. if you can improve your customer focus. and userfriendly. 2. communications are interactive and stress customer benefits rather than product features. set an example for themselves. and budget time and money for customer process improvement. You make good on your explicit and implied promises. complete and up to date. The major goal of a customer satisfaction program should be to achieve preferred supplier status with as many customers as possible. But customer performance is predominantly determined by customer focus factors inside the company and has a major impact on customer performance. have a customer care attitude. Customer information systems are effective. The most appropriate methods. Putting customer performance and customer focus together brings us to a CRM model. and work in teams with others who have customer contacts. media and messages are applied to each customer (segment). 4. Customer satisfaction is derived largely from the quality and reliability of your products and services. you will improve customer performance. The model represents the idea that if your internal customer focus is strong. flexible. But customers who are just satisfied are likely to walk away for a slightly more attractive proposition from your competitor.Happy and satisfied customers behave in a positive manner. There are three primary and six secondary customer focus factors: Organization 1. and customer satisfaction is something that happens outside the company. All things being equal. Contact logistics: Customer communications are well planned. Communications 3. There is clearly a direct correlation between customer focus and customer performance. Managers are committed to customer focus. . and have no sloppiness in execution. on time. customer behavior. Information 5. your customers will be very satisfied. The Customer Focus Factors Customer performance customer value. Customer data is relevant.

and organization and identify priorities for improvement. will meet corporate goals for profitability. Realization . and satisfaction. There is a whole group of professionals out there measuring your profits the accountants. they will behave very nicely. ( Send me another thousand widgets and the invoice. sales. revenue and satisfaction targets for each customer (and prospect) that. customer behavior. customer satisfaction. communications. Planning y y Customer performance planning: You set top-down/bottom-up profitability. That s why process control techniques are also needed. Customer focus registration: You undertake a customer focus audit or self-assessment of your customer information. and organization. you can t manage them. Analysis y y Customer performance analysis: You analyze the profitability. But if you can t measure the factors in the CRM model. logistics. But is anyone measuring customer profitability. ) This positive customer behavior will lead to higher customer value and therefore more operational profit! It s quite a simple concept. communications. behavior. giving you a large part of their business. revenues. and administration: Customer marketing is carried out on a continuing basis applying the four phases of process control: Registration y y Customer performance registration: You acquire or integrate from internal sources data on customer profitability. often without any major marketing and sales effort or squeezing every cent off the price. Marketing. communications and organization. when realized. behavior. and satisfaction. Customer focus analysis: You analyze the current status of your customer information. and service must be subjected to the same process control techniques that are often used for production. and customer focus so that they can be managed and improved? The answer all too often is: not really. Customer focus planning: You make plans to make measurable improvements in your customer information.And if your customers are very satisfied. Process Control Techniques Managing customer performance and customer focus is not really possible without measuring progress and results. and satisfaction of your customers and prospects to identify problems and opportunities.

Because the European Commission funded the pilot. Customer Value Despite the entrance of competition because of deregulation.y y Customer performance realization: You execute customer performance plans.1 percent (150) went down. leading to a sharp growth in profits.7 percent (2. and 70 percent (5. only 2. . It was thus possible to see that the increased turnover was the result of improved customer behavior: 27.248 customers in the pilot region were identified and their behavior traced. the results were closely followed and highly documented. But does it work in the real world? Telecom Company Case Study The customer marketing case study illustrated in Figure 2 was a pilot project at the regional office of a national telecom company.085) remained in their pyramid position. You may well be thinking that customer marketing looks great. The pilot region was responsible for marketing and sales of telephone services to small and medium-size businesses. But marketing costs remained about the same as the previous year. in theory. Customer focus realization: You execute customer focus plans. Customer Behavior All of the 7. traffic revenues in the pilot region increased by no less than 22 percent.013) of the customers migrated up the pyramid.

. The pilot region scored substantially higher than the national company.Customer Satisfaction The percentage of highly satisfied customers in the pilot region had doubled after one year of customer marketing.

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