1998 Dec 01
Partial Solutions for Relationship Management
David M. Raab
Relationship Marketing Report
December, 1998

Each generation of database marketing systems has encompassed more activities, to the point where today’s most advanced vision of “relationship management” involves coordinating all corporation systems to maximize the long-term value of each interaction with every customer. While this is a worthy and exciting goal, it is also one that requires changing virtually every system, business process and reporting structure in an organization. Some firms will have the commitment and resources to make this happen. Most won’t.

So what happens to the laggards? Professional visionaries–a group that includes academics, consultants, authors, and, yes, even newsletter columnists–often suggest that anyone who fails to follow their lead is doomed. History. Toast. And, they imply with varying proportions of pity, righteousness and glee, they will deserve it.

But the universe is generally kinder to non-believers than prophets like to admit. Very few firms fully embraced any of the great management panaceas of the past few decades–management by objectives, total quality, self-managed workgroups, reengineering, and the rest. Instead, most companies learned a little from each new vision, improving themselves slightly as they assimilated the general concepts into their existing corporate cultures. Though not as dramatic as a complete conversion–or as satisfying to the missionaries–this sort of easygoing accommodation is probably a more practical approach for most organizations.

What sort of half-measures might companies adopt to gain the main benefits of relationship management? Obviously this depends on the nature of those benefits themselves. They ultimately come down to two things:

– customer segmentation: database marketing lets companies identify significant differences among customers, so they can be treated appropriately. Ideally, this differentiation would be carefully tuned for each individual, continuously reevaluated, and explicitly considered in every company/customer interaction. But much of the benefit can be gained from a vastly simpler approach: create a half-dozen segments based on profitability or lifecycle groups and assign different standard approaches to each segment. While this lacks the nuance and optimization available in a real-time, self-adjusting, enterprise-wide systems, it is much easier to design, implement and manage.

– personal recognition: database marketing lets companies show customers that they are recognized as individuals. This is the opposite of segmentation, which occurs behind the scenes and is aimed at finding the treatments that best serve company interests. In contrast, personal recognition is a purposely public demonstration to customers that the company knows who they are and will follow their preferences–even if these decrease revenues or increase costs in the short term. The hope is that any such costs will be outweighed by greater long-term loyalty. A sophisticated recognition program may involve exhaustive data gathering, modifying operational systems to produce customized products, and enterprise-wide data sharing. A simpler program might involve no more than a customer identity card and a few bundles of predefined benefits.

Of course, only a fully implemented, integrated and optimized database marketing program can give the complete benefits of advanced relationship management. It is even possible that such a program would truly provide the insurmountable competitive advantage that its prophets predict. In that case, any half-measures would ultimately prove useless. But for companies willing to take their chances, a less-than-complete commitment to this new way of business opens up some interesting practical alternatives.

– service bureaus: if marketing and operational processes are to be seamlessly integrated, there seems little alternative to running the marketing systems in-house. (A case could be made that external systems can also be tightly integrated with internal operations, but it is far from proven.) When the relationship between marketing and operational processes is much less intimate, an externally-maintained marketing system is clearly practical. Customer segmentation programs that involve a few, stable categories and reclassify individual customers once a month can certainly rely on a service bureau to apply the appropriate codes and load these into an in-house reference table. So can recognition programs that work primarily by issuing rewards based on purchase levels. By the same logic, departmentally-run in-house systems and even the terribly unfashionable proprietary database engines are also viable in this environment.

– operational system modifications: when there are only a handful of segments and the policies for each segment do not change very often, it is practical to program these policies directly into the operational systems. It is even possible to coordinate the policies across multiple operational systems through manual administration. This sort of hand-crafted approach quickly becomes impractical with increases in the number of segments, complexity of policies, variety of operational systems and rate of change. But it will work with the simple, stable segmentation approaches that most companies will adopt when they start.

– conventional analysis: the world of complete marketing and operational integration requires some new types of very sophisticated analysis to predict and later evaluate the effects of one policy as it interacts with other policies. It also needs automated testing and optimization methods to maximize the value of customer relationships. But with a small number of segments and marketing programs, the traditional approach of comparing test vs. control groups over time, without delving too deeply into causality, will still suffice. Even this sort of group-based analysis will be foreign to direct marketers who grew up counting the responses to individual promotions, since it does imply a longer term perspective. But since it is relatively easy to execute using conventional reporting systems and analysis tools, it will not involve a major change to company systems.

– point solutions: complete marketing and operational integration is, by definition, complete. After all, the goal is to coordinate all aspects of a customer’s interaction with the company. But firms willing to accept a piecemeal approach can apply specific “point solutions”: that is, systems or policies that include only one portion of the business. These solutions may be limited to a single medium, such as a system that controls all interactions taking place through a company’s Web site but is not directly connected to other parts of the company. Or they may be limited to one channel, such as a system that coordinates all direct response marketing but excludes field sales and broadcast media. Some will be limited to specific functions, such as granting credit applications or providing technical support. They could also be limited to specific product lines where these are supported by separate operational systems. Or a program could be limited to a particular customer segment, like construction tradespeople given special service at a home improvement retailer. While the benefits from point solutions are limited, so is the disruption caused by their implementation. In many cases, this will be considered a favorable trade-off.

Is it responsible to suggest partial approaches to relationship management, or a cruel hoax? The answer depends on whether advanced database marketing follows the usual law of diminishing returns–that is, initial efforts will generate most of the value, and subsequent refinements cost more but return less. Or is relationship management more like a telephone or e-mail network that must be widely adopted before it is useful, and then gains exponenetially increasing value with every new application? My personal bet is the former, which is good news since most companies will not make the more radical change. If I’m wrong, many of you are toast.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.

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