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Data-Driven Social CRM
Posted on April 16th 2010
As I read and exchange more with my friends of the Accidental Community and others ”in real life” & through Twitter, my ideas seem to evolve constantly — every day seems to add a boatload of new perspectives.
I have been reading some very interesting books about strategies around becoming a customer-driven organization and also about the benefits of Customer Engagement Programs (more on that in later posts). In the discussion around Social CRM we agree that it is beneficial to business to engage the Social Customer, but what seems to be more difficult to articulate is the Business Value Proposition — why should a company invest in Customer Engagement Programs in conjunction with CRM? What value is in it for the company and what is in it for the customers? We also talk about the need to move from value-in-exchange thinking to value-in-use. What tangible benefits are there for companies to take a a customer Lifetime Value approach rather than concentrate on the sale? Or simply, how can Social CRM Strategies can provide a significant impact to the bottom line.
This is where Jim Novo's book “Drilling Down” got me thinking — hard (and kudo's to fellow AC-er Mike Boysen for helping me shape my thoughts). Jim Novo's premise is that the data you have in your systems about your customers will allow you to segment them based on their behavior and not sociodemographic characteristics and concentrate your resources on those that will bring you the highest value. It sounds kind of like inside-out thinking, but believe me, it is quite the opposite. Rather than concentrating on attrition and win-back of all your customers(which is far more expensive than customer retention), the method he proposes also allows you to pick up on deviation from expected behavior, use these as triggers and perform what I'd describe as “just-in-time” retention activities to keep the patronage of high-potential or high-value customers.
This excerpt is taken from the free chapters of Jim's book (you can get them here by signing up for his newsletter):
1. Past and Current customer behavior are the best predictors of Future customer behavior.
You can predict future behavior based on an understanding of past behavior, and use this knowledge to improve marketing or service programs [based on] actual behavior, not implied behavior.
2. Customers want to win at the customer game.
They like to feel they are in control and smart about choices they make, and they like to feel good about their behavior. Marketers and service providers take advantage of this attitude by offering programs and communications of various kinds to get customers to engage in a certain behavior and feel good about doing it.
3. Data-Driven programs are about allocating resources.
Data-Driven marketing and service programs are among the very few allowing you to accurately measure ROI. [It's about] reallocating capital with low return to higher return projects or programs, generating higher profits in the process.
4.Action — Reaction — Feedback — Repeat.
Data-Driven marketing and service programs are driven by creating continuous communications and interactions between the business and the customer, and analyzing these interactions for challenges or opportunities.
This is the example Jim uses to illustrate his propos:
For example, a win-back program is triggered when the customer defects. Have you switched long distance or cellular providers lately? Did you get inundated with win-back calls begging you to reconsider? “Jim, we just wanted you to know we have lowered our rates.” Yeah, well, thanks for telling me after overcharging me for the past six months! But could they have known I was about to switch by looking at my behavior?
Sure. If they had looked at the calling patterns of previously defected customers like me, they would have seen a common thread in the behavior.[...] The proper profit maximizing approach is to wait until I look like I'm going to defect, and then call me and offer a lower rate before I defect.
Too late. The customer no longer is one.
The “Drilling Down” approach is aimed at constantly improving and optimizing the value of both the company whilst ensuring a satisfactory customer experience.
What I like about Jim's approach is that they provide a concrete Business Value Proposition for implementing a Customer Retention Strategy that optimizes the allocation of the company's resources by focusing on the most profitable segments — or in Finance speak: optimize the Return On Investment. And as you probably know, the quickest way to a CFO's heart is not though his stomach, but through the figures…The only issue is that it requires the company to move away from a quarterly quota model to a customer Lifetime value approach (see the book for more details on this last remark…)
Enter The Social Customer
In Jim's example above he focuses on someone who leaves and moves on without looking back. What has now changed the game is that the Social Customer — through her interactions with her peers — can have an impact on the cost of new customer acquisition and as well as on retention, both in a positive and negative sense. No longer is the customer ‘an island' because of ubiquitous opportunities for peer to peer conversation. These can influence customer behavior patterns on a world-wide scale and thus adds a variable to the equation to the above that needs to be taken into consideration.
In a Social CRM strategy, to address the Social Customer whilst at the same time optimizing the company's resource usage and profitability, key to me will be the ability to link the conversations of your customers to the segments you have identified of high/low potential/value. This means that rather than tracking all conversations everywhere and pumping these into your database, you should be focusing on your high potential/value customers Furthermore your understanding of the customers should be aimed at identifying behavior patterns and triggers within the channels where your customers express themselves and that you can monitor. The barrier to pick up the phone [or fill in whatever channel you like] can be high for some customers and this can deprive you of the trigger needed to track a deviation and react accordingly. The conversation the Social Customers are having through these public communication means may now provide you with this trigger that you would have missed out on before. And rather than allocate your resources to responding to every person that wants to rant, you can concentrate your efforts on those that you would like to retain (whilst remaining ‘polite' with those that are not of direct interest of course).
Although I realize that this line of though does not address all the opportunities of Social CRM and Social Business Strategies, it is my first attempt at rationalizing and articulating the Business Value Proposition. With a broad stroke of the pen I have put other elements such as peer to peer support, ideation, customer experience programs, open innovation etc. under the header of Customer Retention Strategies, and I do apologize for this. I will try to work out my ideas in further posts.