Why is Analytical CRM So Confusing?

Article published in DM Direct Newsletter

August 9, 2002 Issue

By Tom Humbarger

Why is analytical CRM so confusing? Most people agree that the analytical CRM market is
growing rapidly - but there is no standard definition or agreement of what constitutes analytical
CRM or CRM analytics. The hype has definitely arrived as witnessed by CRM analytics appearing
at the top or "Peak of Inflated Expectations" in the famous Gartner Hype Curve(Scott Nelson and
the Gartner CRM Symposium - February 2002).
Market Size and Growth

Some specific data points from multiple sources on the size and growth of the market include the
following assertions:
IDC estimates that the CRM analytics market will surpass $1.5 billion in sales by 2005.
AMR Research estimates that investments in analytical applications will grow at nearly double the
rate of operational CRM systems. The market will expand to nearly $4.4 billion by 2005, which
represents 19 percent of the CRM market.
META Group's recent survey of more than 400 enterprises found that in the next 12 to 18 months
customer analytic solutions will be purchased more than any other type of CRM offering.
Jupiter Media Metrix says that more than one-quarter of all U.S. firms will spend at least $500,000
on customer-based technologies over the next two years. Much of the investment will center on
analytic software ringing in at a healthy $8.7 billion in 2006.
Analytical CRM Definition

The market space for analytical CRM is ill defined and the term "analytics" is used differently by
nearly every vendor. The definition of analytics ranges from simple concepts such as reports and
reporting to more complex topics i.e., profitability, data mining and real-time personalization - and
everything in between. The claims of most vendors are over-hyped in regard to their analytics
capabilities and many vendors add to the confusion by including"analytics" in their product names.
What is the right definition?

Ultimately, CRM consists of both analytical and operational components, and the goal is to
maximize overall customer profitability while maintaining customer satisfaction. My analytical
CRM definition is multi-faceted - analytical CRM is the critical foundationfor intelligent analysis
and application of customer information across an enterprise. Analytical CRM also serves as the
glueor connection between the operational customer-facing applications such as sales, service and
Web channel and the analytical back-office systems, business intelligence solutions and customer
data warehouses. Finally, analytical CRM is the feedback loopon the front end of real-time
customer interactions or the back-end scorecard for analyzing what happened and how to improve
the next customer interaction. Another way to look at analytical CRM is that it fulfills the critical
first steps of the now-famous and often-copied Peppers and Rogers 1-to-1 approach to CRM. Their
1-to-1 mantra is IDIC or identify, differentiate, interact and customize. You cannot intelligently
interact with your customers or customize your products and services until you identify and
differentiate them.
Analytical CRM Components

Analytical CRM is also confusing because it consists of so many different components, many of
which are not normally considered as CRM solutions or provided by traditional CRM vendors. Note
that any one or all of these components could be considered an analytical CRM solution and that it
is not necessary to include every single subcomponent in your own solution.

Data Warehousing - Data warehousing technology and a comprehensive customer data warehouse
are keys to making analytical CRM work. Ideally, there should be a single customer repository for
all transactions, behaviors, preferences, customer profitability and valuation, and segmentation
treatments - but the reality is that most organizations have created silos of data and it will not be
easy to coordinate all of the sources initially. Data warehousing technologies include the extract,
transformation and load (ETL) functions to move data in and out of legacy systems and disparate
data marts into the comprehensive customer data warehouse.

Data Enhancement - This is a broad category consisting of data cleansing, data enhancement and
customer profitability. Data cleansing includes cleaning up, standardizing and linking the data as it
is loaded from the legacy systems. Data enhancement involves adding external data such as
demographic or spatial information. Customer profitability is the application of identifying
historical, current and projected value of your customers and then using it to improve segmentation
and to implement customer strategies. Customer profitability analysis is one of the most important
and underappreciated components of analytical CRM.

Data Mining, Personalization and Segmentation - These solutions are related but are sometimes
perceived as vastly different because of how they arrive at their answers. Ultimately, they are
performing the same task - using various modeling techniques to predict, tailor and present
customers with better messages and increase the odds of acceptance.

Business Intelligence - Business intelligence solutions range from ad hoc query and OLAP analysis
to portals, standardized reports and balanced scorecards. Business intelligence provides users with
access to the customer information and will be different for different types of users. Business
intelligence is the window into understanding the analytical information.

Marketing - The marketing or campaign management application is generally seen as the link
between the analytical and operational worlds. The marketing application manages the marketing
process by creating, executing and tracking offline batch and real-time offers to customers. The
execution of marketing offers is the link into the operational or customer-facing CRM solutions and
the reason marketing is sometimes seen as the Trojan Horse of the traditional CRM world.

Data Movement, Workflow and Integration into other CRM Applications - This last category is the
glue that will connect the analytical and operational solutions into a cohesive and seamless total
solution. Without getting into too many details, the emergence of XML as a standard for integration
will be a huge enabler. Workflow and business-rule driven capabilities are also key. Ultimately,
suites of CRM applications will dominate the landscape and minimize the integration issues - but it
will take time and money to swap existing systems for new systems.
What Does All This Mean?

In the short term, it means the following:

The analytical CRM market will remain fragmented and confusing to both the initiated and the
uninitiated.
Analytical CRM is necessary and crucial for truly understanding customer's needs and for
generating sustainable ROI on CRM investments.
Companies buying solutions and the analyst community will have to be diligent to keep the vendors
honest about their capabilities.
Companies will have to incorporate a best-of-breed or point solution approaches - no one vendor
will be able to satisfy all of your business needs.
Companies must plan for the future by defining their analytical CRM vision, but implement in a
controlled and stepwise fashion.

In the long run, analytical CRM and operational CRM will move closer together. This will probably
always be a multi-vendor solution due to the complexities and breadth of components required.
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