2007 Jan 01
Measuring the Value of Superior Customer Service
by David M. Raab
Curtis Marketwise FIRST
January, buy 2007
Many financial institutions—community banks and credit unions in particular—look to personal service as a way to distinguish themselves from the competition. But setting superior service as a goal is just the start. The real challenge is delivering it.

For executives, medicine this means choosing among a near-infinite set of possible changes: in training programs, malady incentive plans, products and services, branch design and signage, marketing campaigns, business practices, and more. No organization can afford, or absorb, more than a few of these. How do you decide which to adopt? And how do you know after the fact whether you made the right choice?

Both questions have the same answer: you need a customer-level measurement system that lets you determine the anticipated value of any proposed change, and then measures its actual results when it’s complete. Traditional measurement systems won’t work because they measure profitability by product, branch or account—anything but the customer—and report only past results. Marketing campaign analysis, which shows only single promotions, is even less useful. A service improvement program—or, indeed, of any business change—must be judged by its impact on total customer behavior over a long period of time. In short, it requires measuring changes in customer lifetime value.

Organizations often shy away from lifetime value because it seems so unreliable. After all, how can anyone know what customers will be doing years from now, or what products will be offered or what business conditions will apply? Making investments on the basis of such speculative projections seems risky, if not downright foolish. And since lifetime value figures include profits from previous periods, isn’t it silly to use them to assess changes which can only affect results in the future?

These are legitimate questions, but they reflect a misunderstanding of how lifetime value is used to measure program results. When lifetime value is used for purposes such as finding the allowable acquisition cost of a new customer, the result is a single estimated value. This is often heavily discounted to allow for the uncertainty of future year results. But a calculation to measure program results yields values for at least two scenarios: one with the program in place, and one if the program had never been run. This latter value may be based on historical results or, more scientifically, by setting aside a control group and running an actual test.

Results can still be discounted for uncertainty, but the really important measure is the difference between the two calculated values, not their absolute level. After all, it’s the change in value due to the new program that really establishes what that program is worth. Any other changes in future conditions, such as deviations from expected interest rate spreads, will affect both scenarios similarly, so the difference between the two values should remain about the same. If different assumptions do yield substantial changes in the difference between the scenario results, it’s worth exploring why this happens and calling out that particular assumption as an explicit risk to consider in assessing the proposed change.

The objection to including past profits highlights an important issue: you have a portfolio of customers who are at varying stages in their lifecycles. Clearly the lifetime value calculations used to evaluate a change should only include projections of future behavior. But the impact of the change can vary greatly for customers at different life stages. To pick an obvious example, a change in new customer welcome procedures will have no impact on existing customers.

This simply means that the value of the change must be calculated for your actual inventory of existing customers, rather than some mythical “average” customer. Taking this a step further, you need to analyze how different groups of customers react to any change. You may well find that some groups are not affected, or even affected negatively. If so, you can seek ways to limit execution to customers for whom the change makes sense.

Gathering lifetime value inputs requires tracking all the activities that impact customer value—service costs as well as account transactions—and linking these to form a complete picture of each customer’s results. These statistics must be recorded at regular intervals to track any changes in behavior, and projection models must be built to estimate their future impact. The models must also allow what-if simulation to assess proposed changes before they are even tested.

None of this is easy, but the result is worth the effort: a reliable way to translate your commitment to superior service into programs that improve the results of your business. Anything less and you’re flying blind, which is the greatest risk of all.

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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.

2006 Dec 01
Trends in Financial CRM Systems
by David M. Raab
Curtis Marketwise FIRST
December, physician 2006
What are the latest trends in financial CRM? The answer really depends on where you’re looking. Activities that are old hat to some institutions are still new and exciting at others. So let’s consider three broad classes of organizations and talk about what’s happening in each.

Traditionalists. These organizations are the slowest to adopt new technologies and business approaches. Many are still moving from a basic marketing database (MCIF) environment, used primarily for outbound direct mail, to their first attempt at a CRM system that includes live customer interactions at branches and call centers. The key trends for this group are integration of data from multiple back-office and customer contact systems; making the integrated data visible to company representations at customer-facing systems; and providing basic sales functionality such as lead distribution, contact management, and sales funnel analysis. More advanced members of this group are starting to add some statistical intelligence to their marketing efforts. This can include simple predictive models to help target the best prospects for particular products and activity-based triggers to identify customers who have done something unusual enough to warrant personal attention.

Traditionalists are the most likely to use the increasingly-popular hosted CRM systems, such as Salesforce.com, which reside at an outside service agency. Such products are easy to deploy but somewhat limited in their ability to integrate with existing company systems. Particular issues are coordinating real time activities across systems and accommodating complex data structures. The hosted products appeal most strongly to buyers whose limited in-house technical resources make them willing to compromise on flexibility in return for get quick access to much-needed basic functions.

Leaders. These users are striving to make better use of the CRM systems they have already put in place, sometimes many years ago. They too are still working on integration, but from the more sophisticated perspectives of trying to coordinate activities across different channels (direct mail, email, Web, branch, ATM, call center, etc.) and different product lines. These involve organizational as well as technical issues, so the leaders find themselves worrying more about business process than pure technology.

The leaders are also making increased use of advanced analytics to help improve their customer interactions. Analytic tools include predictive models to pick the next best offer for each customer (which is more complicated than finding the most likely responders for a single offer), business intelligence systems to identify business opportunities and trends in customer behavior, and role-based dashboards to distribute customer information to everyone from senior managers to front-line agents.

Leaders are also the most likely to take advantage of the latest functions being added to high-end customer management systems. These include marketing strategy, planning and budgeting for top-down management; project management, workflow, collaboration and content management to improve operating efficiencies and relationships with service providers; and direct control by marketers of list selections, multi-step campaigns, email contents and Web offers. Direct control is important to leaders because minimizing the involvement of technical staff in marketing execution lets them react faster to customer needs and market conditions.

Futurists. These are the handful of visionaries whose firms have successfully deployed cutting-edge CRM technologies and are looking beyond CRM mechanics to true customer optimization. They are reorganizing their businesses around customer segments (although typically retaining product managers as well) and letting the segment managers try to identify and deliver the most suitable experience for each group. They are developing customer value models that analyze profitability based on specific activities and are using sophisticated statistical methods to understand how different marketing and operational experiences influence future customer behavior. They are exploring new interaction types such as social networks, blogs, RSS feeds, location-based messaging, and online communities to see how they can better meet customer needs and firmly cement relationships between the customer and their institution. At the same time, they are developing new techniques such as automated testing and data visualization to effectively manage the exploding number of interaction possibilities.

All organizations do share one trend: the pressure for compliance. Ever-tighter regulations for customer surveillance, privacy protection and financial reporting require more precise data integration, activity monitoring, and record keeping. The burden falls most heavily on the least sophisticated organizations, because their systems need the most improvement and they have the fewest resources available for the work. But more advanced systems require additional compliance techniques, so some effort is required at every level.

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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.

2006 Nov 01
Selecting a CRM System
by David M. Raab
Curtis Marketwise FIRST
November 1, click 2006

It has always been important to treat your customers well, advice but the standards today are higher than ever. Pampered by online merchants, hyper-competitive retailers and efficiency-obessed business services, customers expect personal attention, 24/7 Web sites and call centers, and up-to-the minute account information. You may know it’s a lot harder to coordinate several financial products than deliver flowers overnight to Boise, Idaho, but the customer does not see the difference—or care.

The cornerstone of your efforts to meet customer expectations is a Customer Relationship Management (CRM) system. These systems manage outbound marketing campaigns, distribute leads to salespeople, track contacts with existing customers, and ensure that service problems are resolved successfully. They are built on a master database that combines information from operational systems to build a complete picture of each customer and her transactions. Some CRM products also help the marketing department do its own work better by planning campaigns, organizing schedules, tracking costs, cataloging marketing materials, and reporting results.

That all sounds great, but where do you get such a system? Well, the technology itself has been around for at least two decades, so there’s a pretty good chance your institution already has some type of CRM product in place or people you work with have used CRM elsewhere. So you’re probably starting with an idea of what you want a new CRM system to do better or differently from what you’re doing today.

This is more important than you may realize. Knowing what you want is the most important task in the entire selection process—and you’ve already done it! Requirements are to software selection as location is to real estate: pretty much everything. Of course, you have to convert those vague notions into specific objectives. Exactly what do you want your CRM system to accomplish? Who will be involved in making that happen? What data will they need and where will it come from? What other systems will CRM need to connect with? How will you measure whether you’ve achieved your goals? After you’re accomplished your initial objectives, what will you want to do next?

Once you have your business objectives and the related requirements clearly defined, you can move into the selection cycle itself. This means identifying potential vendors, weeding out those who clearly don’t qualify, and digging into the details of those who remain. It’s good to set some parameters up front, such as the budget for the project, amount of help you can expect from your Information Technology departments, technologies you are willing to consider (Windows? Unix? Externally hosted?), and vendor background (are you willing to consider a small firm or will you stick with established industry leaders?). Once you’ve done that, scour the Internet, trade shows, industry magazines, analyst reports, and your personal network to build a list of candidate vendors. Use your general requirements to eliminate the non-starters and then focus on the rest.

The list of serious contenders will look different in each situation. Some companies need a full-blown CRM suite to integrate all departments; others need just a single capability such as sales management, marketing administration or customer support. You may find one of your existing software vendors offers a CRM add-on that meets your needs and costs so little that you needn’t look anywhere else. But in nearly every situation, you will find your list includes two types of vendors: “hosted” systems (also known as application service providers, software as a service, or on-demand) that are run by an external vendor and accessed via the Internet, or “on premise” systems that are installed and operated in-house. Each approach has its partisans but the emerging consensus is that hosted systems are cheaper, easier to install and more effective than on-premise systems, particularly at smaller organizations with little need for customization or integration with other products. Unless your company has a policy against hosted solutions—which do, after all, require sending sensitive customer data to an outside vendor—they are worth a close look.

The detailed evaluation process needs to look closely at all aspects of each vendor: functionality, technology, financial strength, future product direction, service and support mechanisms, and, of course, cost. While all are important, a system that doesn’t meet your functional requirements is worthless no matter how well it scores in other areas. To ensure functional success, develop detailed scenarios for key tasks and work through these carefully with each vendor. This not only lets you see how well the system will perform the specified tasks, but also gives an in-depth understanding of how the system works in general: something you will rarely learn from a standard vendor demonstration.

Once you’re narrowed the field to one or two final candidates, you will need to enter the actual contract negotiations. Note that software pricing is particularly flexible, especially for larger deals and toward the end of a sales quarter. You’ll get the best terms when a vendor knows you are serious, so there’s little advantage to talking money earlier in the process. Bear in mind that some components, such as professional service fees, are often easier for a salesman to bargain about on than others. Software contract negotiation is an art in itself, so be sure to employ an experienced advisor to get the best deal possible while keeping your risks to a minimum.

So there you have it: focus on requirements, know what you’re buying, and negotiate carefully. Above all, keep in mind that your real goal is to get a system that works, not to run a textbook-perfect selection project. So move ahead carefully but steadily, and get the benefits from your new system as soon as possible.

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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.