Know Thy Customer (Data)

Building customer intimacy

creates customer & company benefits

Thursday, March 18
1:00PM Eastern, 10:00 Pacific

©2010 Peppers & Rogers Group. All rights reserved.

1to1® is a registered trademark of Peppers & Rogers Group.
 Know Thy Customer (Data)
Building customer intimacy
creates customer & company benefits

Tom Hoffman
Executive Business Editor

©2010 Peppers & Rogers Group. All rights reserved.

1to1® is a registered trademark of Peppers & Rogers Group.
 Know Thy Customer (Data)
Building customer intimacy
creates customer & company benefits

Colin Shearer Don Peppers

SVP Strategic Analytics Founding Partner

©2009 Peppers & Rogers Group. All rights reserved.

©2010
1to1® is a registered trademark of Peppers & Rogers Group.
Event logistics

Please turn off your pop-up blocker

o You will not be able to participate in today’s post event survey
Downloading a PDF of today’s slides
o Click on the “download presentation” button
o If that doesn’t work, let us know by using the “submit question” button
Have a question for the presenters?
o Click the “submit question” button in the lower left-hand portion of your screen
Post-event survey preparation
o Please turn off your pop-up blocker
Helpful tools
o Use the “enlarge slide” button to view a complex slide
o Use the help link for a list of FAQs just to the right of the “enlarge slide” link
Today’s agenda

Topic of discussion:
o Define customer intimacy
o Explain how customer intimacy encompasses enterprise feedback
management (EFM), (CEM), (VOC) and other elements of a customer
relationship strategy
o Discuss what data you need and how you can use it to build customer intimacy
o Examine the benefits of building customer intimacy
o Reveal how you can use customer data and related information to increase
customer satisfaction – and ultimately, boost revenue

Questions and answers

Post-event survey
CRM benefits each of these strategies
Customer
Benefits depend on Intimacy
the nature of the Involve customers:
business strategy • Conduct “value exchange” with the customer
being pursued • Identify high-value customers and customize
your offering based on their needs
• Build trusted advisor relationship

Align resources:
• Identify low-value customers and reduce
or rationalize services
• Eliminate unnecessary communications
or unvalued services
• Leverage VMI and other approaches to
create supplier-customer transparency

Product
Leadership
Foresee the future:
• Identify latent needs to seed new product ideas
• Spot trends and reallocate development resources
• Use near-real-time input to redesign offerings
Operational
Excellence
Source: Treacy, Michael, Fred Wiersema. The Discipline of
Market Leaders. NY, NY: Addison-Wesley Publishing, ©1995.
Roadmap to customer intimacy

o Single customer view

o Customer collaboration
o Customer process automation
o Create personalized customer portals
o Measure and optimize key customer metrics

source: webMethods
How to measure customer
intimacy (via sentiment analysis)

o Blog posts
o Blog comments
o Discussion forums
o Call center feedback
o Search traffic generated by a branded search term

source: Econsultancy
A different dimension of competition

“Customer Intimacy” is a
customer-centric form of
competition

One way to understand it is

to contrast it with product-
centric competition
A different dimension of competition
Customer
Needs
Satisfied

Customers Reached
A different dimension of competition
Customer
Needs
Satisfied

Product-Centric Competition
Market share

Customers Reached
A different dimension of competition
Customer
Needs
Satisfied

Customer-Centric Competition
Share of
customer

Product-Centric Competition
Market share

Customers Reached
A different dimension of competition
Customer
Needs
Satisfied

Customer-Centric Competition
Share of
customer

Customer intimacy requires

customer relationships
Product-Centric Competition
Market share

Customers Reached
Many strategies fold into one
“A systematic approach for incorporating the needs of Voice of the
customers into the design of customer experiences.” Customer
- Gartner

Capture
“An enterprise-wide, multichannel surveying capability,
designed to drive a better understanding of customers,
Enterprise
products, and processes.”
Feedback
- Gartner
Management

Predict
“The discipline of increasing loyalty by exceeding Customer
customers’ needs and expectations.” Experience
- Forrester Management

Act
“The optimization & standardization of enterprise-wide
business processes to exceed customer expectations at Customer
the point of impact.” Intimacy
- IBM SPSS
Expanding your differentiation strategy
VOC

EFM

CEM

Customer
Intimacy

Product Operational
Leadership Excellence
Classic framework
for customer relationships

Identify Differentiate Interact Customize

…customers as …by value, …more cost - …some aspect of

unique addressable behavior and efficiently and the company’s
individuals needs effectively behavior, offerings,
or communications
Classic framework
for customer relationships

Identify Differentiate Interact Customize

…customers as …by value, …more cost - …some aspect of

unique addressable behavior and efficiently and the company’s
individuals needs effectively behavior, offerings,
or communications

Customer Insight
Classic framework
for customer relationships

Identify Differentiate Interact Customize

…customers as …by value, …more cost - …some aspect of

unique addressable behavior and efficiently and the company’s
individuals needs effectively behavior, offerings,
or communications

Customer Insight Customer Experience

“Best practice” definitions of customer value

Actual Value
“The net present value of the future financial
contributions attributable to a customer, behaving as
we expect him to behave -- knowing what we know
now, and with no different actions on our part.”

Potential Value
“The net present value of the future financial
contributions that could be attributed to a customer, if
through conscious action we succeed in changing the
customer’s behavior.”
Client Y: customer valuation scattergram
Unrealized
2000000.00 Potential Value

1750000.00

1500000.00

1250000.00

1000000.00

750000.00

500000.00

Actual
250000.00
Value

0.00
-40000.00 10000.00 60000.00 110000.00 160000.00 210000.00 260000.00 310000.00 360000.00
An organization-wide effort
Goal
Grow Business Responsibly
Result
Increased Revenues
Reduce Operating Costs
Executives
Streamline Business Processes

Goal
Goal Personalized Messages
Customer to Appropriate Channel
Personalized Interactions Marketing
Service Result
Result
Customer Feels Respected Customer Reduced Marketing Spend
Increased Open/Click Rates
Intimacy

Goal
Goal
Customer Requirements
Indentify Ideal Prospect
Incorporated in Product Design R&D Sales Pinpoint Past Buying Trends
Result
Result
Products Better Fitted to
Increased Sales
Customers & Market
Reduced Sales Cycle
CRM benefits each of these strategies
Customer
Intimacy
Customer
Service
Sales

Marketing

Executives

Marketing
Product Operational
Leadership Customer Excellence
Service
R&D
Customer experience crosses channels

Integrate all customer-

facing operations

Optimize by customer, not

by product or channel

Align enterprise-wide Interact Customize

metrics and incentives
…more cost - …some aspect of
efficiently and the company’s
Ensure cultural “buy in” effectively behavior, offerings,
by all employees or communications

Customer Experience
Consider:

o What actions should this drive?

o What are the key business process we want to improve?
o What operational systems support them?

o What data is relevant?

o What is “Nirvana” in terms of a holistic customer view?
o What subset of that data can we pragmatically use as a starting point
for the project?

o How do we connect data to action?

o What analytical approaches and techniques will most effectively
leverage the data to drive better decisions and actions?
Customer intimacy means
“optimizing by customer”
Customer
Needs
Satisfied

Customer-Centric Competition
Share of
customer

Maximize the value

each product creates

Product-Centric Competition
Market share

Customers Reached
Customer intimacy means
“optimizing by customer”
Customer Maximize the value each
Needs
Satisfied customer creates

Customer-Centric Competition
Share of
customer

Maximize the value

each product creates

Product-Centric Competition
Market share

Customers Reached
Customers create value in two ways…

First, they generate current-period

sales and costs

But second, they change their

intent to buy, in the future

Suppose a customer calls you

with a complaint…
Balancing short term and long term

Marketing too aggressively can

damage a customer’s lifetime value

Improving service in order to

increase lifetime value costs money today
Enterprise-wide
organizational improvements
Customer Intimacy Benefits Senior Executives’ Goals

o Customer Acquisition o 32% - Attracting New Customers

o 29% - Increasing Customer Loyalty

o Customer Cross Sell & Up Sell & Retention

o 35% - Develop New Products to

o Customer Retention Eclipse the Competition

o 26% - Using IT to Reduce Costs

o Product / Service Innovation
o 26% - Adapting to Changing Market
Conditions
o Operational Excellence
o 33% - Organizational Culture
Changes

Source: Accenture
Significant improvements throughout
A holistic approach

Descriptive Data Behavioral Data

Attributes Orders
Characteristics Transactions
Self-declared Info Payment History
(Geo)demographics Usage History
Location
A holistic approach

Interaction Data Attitudinal Data

Click Streams Opinions
Offers Preferences
Results Needs
Context Desires
Notes Moods

Descriptive Data Behavioral Data

Attributes Orders
Characteristics Transactions
Self-declared Info Payment History
(Geo)demographics Usage History
Location
A holistic approach
Customer Contact Channels
Web Site Email Agent Mail Phone PDA Branch ATM

Interaction Data Attitudinal Data

Click Streams Opinions
Offers Preferences
Results Needs
Context Desires
Notes Moods

Descriptive Data Behavioral Data

Attributes Orders
Characteristics Transactions
Self-declared Info Payment History
(Geo)demographics Usage History
Location

Enterprise Data Sources

Operational
Interaction Attitudinal Marketing Web Call Center Social Networks
A holistic approach
Customer Contact Channels
Web Site Email Agent Mail Phone PDA Branch ATM

Interaction Data Predictive Attitudinal Data

Click Streams Opinions
Offers
Analytics Preferences
Results Needs
Context Desires
Notes Moods

Descriptive Data Behavioral Data

Attributes Orders
Characteristics Transactions
Self-declared Info Payment History
(Geo)demographics Usage History
Location

Enterprise Data Sources

Operational
Interaction Attitudinal Marketing Web Call Center Social Networks
Customer lifecycle stages

Attract

Revenue Profit

Less Loss
Time
Loss
Customer lifecycle stages

Attract Grow

Revenue Profit

Less Loss
Time
Loss
Customer lifecycle stages

Attract Grow Retain

Revenue Profit

Less Loss
Time
Loss
Increasing profit with customer intimacy
More Efficient More Frequent Longer Lasting
Acquisition Up/Cross Sell Relationship

Revenue Profit

Less Loss
Time
Loss
Increasing profit with customer intimacy
More Efficient More Frequent Longer Lasting
Acquisition Up/Cross Sell Relationship

More
Profit

Revenue Profit

Less Loss
Time
Loss
Increasing profit with customer intimacy
More Efficient More Frequent Longer Lasting
Acquisition Up/Cross Sell Relationship

Even More
Profit

Revenue Profit

Less Loss
Time
Loss
Enterprise-wide
organizational improvements

o Customer Acquisition
o A leading telemarketing firm increased sales per hour by over 30% while giving the
company a significant competitive performance advantage

o Customer Cross Sell and Up Sell

o A leading department store in the United Kingdom analyzed which offers were
generating the most sales, as well as identifying "cross-sell" opportunities

o Customer Retention
o A large Swiss cable network operator reduced customer churn from 19% to 2%

o Product / Service Innovation

o A division of a major motorcycle manufacturer collaborated with customers to help
improve new product evaluation process and enhance the competitiveness of existing
products

o Operational Excellence
o A global financial services company increased the efficiency of their marketing
campaigns by tailoring programs to segmented customers
The economics of loyalty
Impact of improving acquisition cost, margins,
and retention on customer value
Customer % increase in Customer Value for a 10%
Value ($b) improvement in:
Base Case Acquisition Margin Retention
Cost
Amazon 2.54 0.51% 10.51% 28.34%
Ameritrade 1.45 1.19% 11.19% 30.18%
eBay 2.11 1.42% 11.42% 30.80%
E*TRADE 1.89 1.11% 11.11% 29.96%

Base Case: 70% customer retention

Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119
The economics of loyalty
Impact of improving acquisition cost, margins,
and retention on customer value
Customer % increase in Customer Value for a 10%
Value ($b) improvement in:
Base Case Acquisition Margin Retention
Cost
Amazon 2.54 0.51% 10.51% 28.34%
Ameritrade 1.45 1.19% 11.19% 30.18%
eBay 2.11 1.42% 11.42% 30.80%
E*TRADE 1.89 1.11% 11.11% 29.96%

Base Case: 70% customer retention

Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119
Return on CustomerSM defined
Profit from investment + Change in value of investment
ROI = Starting value of investment

Profit from customer + Change in value of customer

ROC = Starting value of customer

ROI answers the question:

How much value can I create for the money I have to use?

ROC answers the question:

How much value can I create for the customers I have to use?
Enterprise value and customer equity
Total lifetime values of all current and future customers

Customer equity = enterprise value of the firm

Therefore, ROC on customer equity is the same financial

value as “Total Shareholder Return”

Profit from customers + Change in customer equity

ROC = Starting value of customer equity
Company profit + Change in company’s value
= Starting value of company

= Total Shareholder Return

Shareholder return
must exceed the cost of capital

If your borrowing rate is higher than total shareholder return

(“TSR”), keep your money in the bank

Because ROC = TSR, it must also exceed your cost of capital,

or value is not really being created

This is a boardroom issue:

Are we building enough customer equity at
our company to support the growth we want?
Creating, harvesting,
or destroying value
Company Company Company Company Company
1 2 3 4 5

Beginning $1,000 $1,000 $1,000 $1,000 $1,000

customer equity
Ending $1,200 $1,200 $975 $950 $900
customer equity
Change in $200 $200 ($25) ($50) ($100)
customer equity
Profit during the $50 ($50) $50 $50 $50
period
Return on 25% 15% 2.5% 0 (5%)
Customer
Creating, harvesting,
or destroying value
Company Company Company Company Company
1 2 3 4 5

Beginning $1,000 $1,000 $1,000 $1,000 $1,000

customer equity
Ending $1,200 $1,200 $975 $950 $900
customer equity
Change in $200 $200 ($25) ($50) ($100)
customer equity
Profit during the $50 ($50) $50 $50 $50
period
Return on 25% 15% 2.5% 0 (5%)
Customer
Value Value Value
Creator Harvester Destroyer
ROC > Cost of capital Cost of capital > ROC > 0 ROC < 0
Consider mobile telecom companies…
Consider mobile telecom companies…

Value Value
Destroyer Destroyer

Value
Harvester

Value
Creator
What one value
creator telecom firm did

Company generated $10 billion+ in operating earnings from

2002 to 2004

During the period, customer churn was cut by half, from 2.6%
to 1.3% of retail contract customers defecting each month

This created an additional $10 billion in new and increased

customer LTV!

Average annual ROC during the period: ~70%

How did the
telecom firm accomplish this?

In a word: ANALYTICS

Predictive churn models identified customers who could be

looking at exiting

This predictive modeling also matched target customers with

specific, relevant and timely offers

The firm modeled both the likely churners AND the likely
“takers” of these offers, and then only marketed to the takers

Simultaneously, analytics helped predict the right kind of plan

for other subscribers, based on call usage pattern
 Questions&Answers

Colin Shearer Don Peppers

SVP Strategic Analytics Founding Partner

©2010 Peppers & Rogers Group. All rights reserved.

1to1® is a registered trademark of Peppers & Rogers Group.
 For additional information
please contact

Colin Shearer Don Peppers

SHEARER@uk.ibm.com Don.peppers@1to1.com

Tom Hoffman
Tom.hoffman@1to1.com

©2010 Peppers & Rogers Group. All rights reserved.

1to1® is a registered trademark of Peppers & Rogers Group.