Published in TDAN.com October 2001
Companies are spending thousands deploying customer relationship management (CRM) systems in order to gain a single view of the customer. But is viewing the customer as an individual really the
right way to identify who is most valuable?
A couple of years ago, my wife Jane and I received applications for a credit card through the mail. It was an attractive offer, with a low annual percentage rate. Excited, Jane picked up the phone
and spent a good twenty minutes completing her application. However, after divulging all of her details, Jane was told by the person on the other end of the line that she was not eligible.
According to the bank, because Jane stays at home looking after our children, she doesn’t earn a salary. Never mind the fact that I earn a very comfortable salary, for which Jane makes 99 per cent
of the spending decisions. Jane offered this news to the bank, but the bank remained adamant that she didn’t qualify. Jane was angry. I was furious, and tore up my application form. The bank lost
not one, but two potential customers.
More Than Just A Name
The bank’s decision was no doubt made using its customer relationship management (CRM) system, which it deployed in order to identify, win and retain its most valuable customers.
In terms of customer information, the “holy grail” that CRM enables is known as a “single view of the customer.” This means that across all products and interactions, the individual customer is
the highest level piece of information.
One of the important functions of a CRM system is to help identify candidates for cross-selling and up-selling. It does this by tracking how much customers spend, and what they spend it on, in
order to identify future offers that may appeal to each customer.
The bank believed it had made the right decision about Jane’s credit-worthiness based upon its view of her individual credit record. But customers are, of course, much more than individuals. For
example, Jane is also a wife and mother, and the person in our household who controls our budget. When viewed as a member of the household, Jane is an extremely valuable prospect.
Clearly, the narrow, single view taken by the bank caused it to discard a potentially valuable relationship. If the bank had been able to see Jane as a member of our household, it might have
arrived at the exact opposite conclusion.
Our Value Together
What is needed for effective CRM is an alternative view of customers — one which takes into account both their value as individuals and the value of their
relationships with others.
If marketing viewed customers by households, companies might arrive at completely different conclusions about who their most valuable customers are, and what motivates them to buy. Indeed, simply
by recognizing which customers are members of households, it could make a reasonable set of assumptions before doing any further customer segmentation.
This is because being a member of a household drives nearly all of our purchasing decisions.
It means that we are more likely to buy a “people mover” than a sports coupe … that we’ll probably opt to re-mortgage rather than take out a personal loan … and that virtually everything we
buy at the supermarket is dictated by the tastes of our families.
And of course, when we complain about a bad service or product, everyone in our household will hear about it.
Achieving The “R” In CRM
As the old marketing mantra says, it is far easier to retain customers than to win new ones. A large UK insurance company recently explained to me that its customer retention strategy is very
simple — it sends out renewal notices as late as possible in order to prevent customers from shopping around for a new deal.
In other words, its customer retention strategy relies upon the laziness of its customers. This is not unusual. Many companies’ customer retention strategies appear to be based upon inertia.
But there’s demographic evidence that the next generation — or should that be the “net generation” — is less likely to remain inert, and will switch if the price or service is right.
This raises the bar for customer service, and means that eventually companies will actually have to begin to build lasting customer relationships. But building relationships is even more difficult
than providing consistent service across multiple customer contact points.
Just like successful personal relationships, building a long-term relationship with a customer requires establishing mutual trust. In order to achieve this, each partner needs to feel that the
other partner is bringing something of value to the relationship.
Therefore, to build long-term relationships with customers, companies need to consider what they can give in return for a customer’s loyalty.
With the benefit of the household view, a company might be able to take the first steps at developing these types of relationships. For example, it could make a very special offer which signals to
customers that it recognizes the value of having the household’s business.
And through the household relationship, companies might even be able to begin to encourage loyalty in the next generation. For example, they could establish a supermarket loyalty scheme that
rewards children (Pokemon cards anyone?), rather than adults.
A New View Of Our Customers – And Ourselves
Unlike an enterprise CRM project, attaining a household view of customers does not have to take four years and consume several million dollars. Indeed, the information to start forming a household
view already exists in the customer systems of today.
Using sophisticated data correlation tools, it is possible to compare customer information using data such as house numbers, phone numbers, last names, products and accounts, and then link records
together into households.
Viewing customers by households offers a variety of advantages. It can radically change a company’s idea of which customers it considers to be the most valuable. It can be used to maximize the
profitability of customers by providing a more accurate view of the collective value of the household, as well as the relative value of each household member.
It can save money by reducing the duplication of marketing efforts, and avoiding some of the potentially damaging mistakes that occur when using customer information.
In addition, when information about our social networks is added to household data, companies will be able to do their data mining, data modeling and predictive analysis based upon who their
customers are, rather than what their names are. This will enable much more effective target-marketing and cross-selling.