Customer Intelligence - Still a Long Way to Go

Business methods and products both need to change before we can realize the full promise of CRM

Customer Intelligence: This term has certainly caused a buzz in customer relationship management (CRM) circles. But what hasn't caught on in corporations is a realization of what it really takes to gain customer intelligence.

Even with a full understanding of what customer intelligence entails, however, technology has yet to meet its requirements. In the last two years, software has developed in the right direction. But this software needs to mature significantly before it will truly support customer intelligence efforts.

Our own experiences as consumers help us all relate to our customers' tribulations. Contact through various touchpoints (such as the Web, telephone, or store) with service providers (telephone companies or banks), retailers (apparel or electronics), or travel industries (airline or hotel) often frustrate us, no matter whether the vendor initiates the contact or we do. True customer intelligence can reduce this frustration, thereby gaining customer loyalty.

To fully benefit from the concepts of customer intelligence and to enhance customers' profitability by guiding their behavior, you need to build a strong information foundation that is enhanced with analytics.

Customer Opportunity

Corporations face both cultural and business challenges in streamlining customer-centric business processes and activities. For example, the business processes and software infrastructure should support cross-organizational goals at every step of the customer experience. Traditionally, however, corporations have managed separate organizational structures as business units or departments (such as customer service, sales, and marketing), each of which has its own metrics to measure and benchmark its behavior.

This conventional method does not support the customer, who probably engages in many processes with several business units to acquire products or services. Figure 1 models the four general steps of a customer experience, from the perspective of the vendor's activities: market, sell, deliver, and service.

Neglecting to address the whole customer experience can thwart business objectives. For example, organizations often focus on maximizing revenue potential with existing customer segments through up- and cross-selling. Traditionally, organizations would look to marketing to use campaign management (or now, marketing automation software) to lead the effort of optimizing customer profitability. Unfortunately, this approach alone will not achieve the objective; companies must optimize all customer touch-points, such as customer service and sales, through traditional and electronic channels of interaction.

Getting the Most From Customers

When planning your customer intelligence strategy, keep in mind the three steps to cultivating the most profitable customer relationship possible:

1. Understand the customer.

2. Optimize customer interactions.

3. Leverage customers as assets.

Understanding customers and their touchpoints with the company lets you establish a common view of customer activities as they align with business operations. Create a centralized definition of the customer and build customer experience models that align information the business gathers to the activities and touchpoints with which they're associated in the real world.

Once you build this foundation, you can apply analytics to customer information. That analysis generates a set of metrics you can then use to measure, monitor, and benchmark customers. This activity helps you figure out how best to apply organizational resources to the processes supporting customers, through existing operational applications.

Customer-centric analytic application vendors (such as Broadbase Software Inc. and Siebel Systems Inc.) or BI tool companies (such as Cognos Inc. and BusinessObjects) developed products to help organizations measure customer activities within business units such as sales, service, or marketing. Although BI tools have provided the information access and delivery capabilities, companies have had trouble applying these tools to business processes. These tools also lack an intuitive and self-sufficient user interface, necessary for broad deployment.

A new generation of applications (such as the ones by Ithena Software Inc., ThinkAnalytics Corp., and Quadstone) has begun to focus on helping companies manage customers and segments, an important part of understanding customer behavior. This method can serve as the foundation for the entire CRM area of responsibility, from sales to service to marketing.

The wave of analytic application releases in the last two years was a response to the unmet need for business process analysis, but unfortunately these releases have mostly focused on measuring business unit performance. Although we have recently begun to see innovation in analytic applications, vendor offerings have fallen short when it comes to helping us understand customer interactions along the customer experience.

But this alignment of information, however poorly supported by vendor offerings, is critical to gain insight into customer behavior and analyze the efficiency of touchpoints. To understand the customer, you will need to integrate many technologies together and therefore will have to assess the openness and extensibility of existing vendor offerings.

Optimizing customer interaction gets its momentum from the customer understanding you gain in the first step, and its goal is to influence customer behavior. Companies need, but unfortunately do not have, insight into all customer interactions and have not understood the transitions that occur between the organizational and process barriers found in marketing, sales, or service systems.

These transitions are the glue that binds together the steps of the customer experience model. (See Figure 2.) The lack of systems to support this need have left companies with little understanding of the customer experience. These transitions are critical to providing consistency across customer touchpoints to ensure continuity of customer interactions and ensure a high-quality customer experience.

After you model these transitions, you have to use behavior models to generate customer segments upon which you can base personalized interactions at any step of the customer experience. The critical aspect of this step is to use analytics (specifically, predictive models) on a common view of the customer to generate rules and resulting recommendations for specific customers.

A good example of this strategy is Broadbase acquisition ServiceSoft, which let Broadbase augment its customer analytic software to enhance collaborative interaction with customers through electronic touchpoints. Broadbase's vision is to have a way for the operational systems to query the analytic system and dynamically create targeted customer content during those electronic interactions.

We need, but don't have, software that can help analyze customer interactions at every touchpoint, not just the electronic touchpoints, and that can measure and monitor the transitions in the customer experience model. Most vendors have not expanded their products to meet this requirement; they still need to move beyond just measuring the performance of organizational unit activities such as sales, marketing, or service. To fully optimize interactions with customers at every touchpoint, you have to use analytics to drive interactions with customers. A good example of this is Blue Martini Software Inc. and its Customer Interaction System, which uses analytics to systematically drive customer interactions. Analytic techniques like this are essential to realizing the value of CRM systems.

Leveraging customers as assets means building profitable relationships that align revenue goals with correct levels of customer satisfaction and ensure sustainable relationships. This activity allows a company to be proactive instead of reactive in how it acquires and retains customers, by developing strategies that align organizational resources and business processes to specific customer objectives.

You need to do three things to leverage customers as assets, to realize customer profitability as the ultimate result of your CRM project:

First, define a strategy with goals that link together the operational CRM and supply chain business units. You can do this by using or applying the concepts of balanced scorecard applications, which provide the structure for defining and monitoring strategy execution.

Second, integrate customer information as earlier described in the first two steps with financial, employee, and supply chain information to provide a common set of performance and cost metrics.

Third, develop pricing and revenue analytics that will help you understand variables and actions required to achieve customer profitability. Dynamic pricing systems are controversial, though the airline and hotel industries have been using them for years. These industries set the precedent, and dynamic pricing has let them align pricing with profitability models. New offerings from vendors like Talus Solutions and Zilliant have begun addressing this need for more industries; they optimize pricing models based on customer behavior and segmentation.

Opportunity for Excellence

To realize the bottom-line promise of customer intelligence, companies need to understand how to use analytics as the backbone for developing or improving CRM strategies and processes that operate, optimize, and automate business operations across all channels of customer interaction. To manage customer-centric processes, companies must develop processes that break cultural and business barriers to ensure that organizational resources are aligned properly to leverage investments made in CRM. To be successful, corporations must develop strategies and models to achieve customer profitability and focus organizational resources and processes to meet company goals. To start, a company must model existing performance of the entire customer experience and apply analytics at each step and transition point of customer interaction.

Mark Allen Smith (mark.smith@fullcirclestrategies.com) is principal and founder of Full Circle Strategies and an expert in the applied use of information and analytics in the areas of business intelligence, portals, and analytic applications.