The pitch: Tracking CRM values leads to return on investment

By HANAN TADROS*

Promising ideas are judged on two levels.

The first is "gut". It feels right. Smart people with loads of experience are recommending the approach. Let's dive in.

In a rich marketplace where dollars came easily, this was fine. But let's get real. Given volatile markets and uncertain futures, this approach is no longer enough.

So enter the second and now more important judgment methodology: "Show me the ROI [return on investment]."

The cry is never louder than when embarking on customer relationship management (CRM) endeavours.

Four issues immediately come to mind when measuring the impact of a CRM strategy. Each one affects ROI:

* Pure financial measurement.* Internal business management improvements.* The ability to exploit discovered opportunities.* Increasing customer value, equity, profitability and loyalty.

Each of these defines a type of CRM value proposition. Results in these areas mean you've done the job right, rather than just saving money and boosting sales for the company.

We'll talk about some scenarios that fit into and traverse these categories in a moment, but first let's revisit a concept born many decades ago and hold it up against our CRM backdrop. Still relevant today is the measurement concept of "RFM" or "recency, frequency and monetary".

The first quotient relates to how recently a given customer has made contact with your organisation - when he or she has touched one of your channels. Measure this factor as timing, need for communications and interactions and signals of customer needs.

The second concept, "frequency", is how often a customer interacts with your organisation. Is there a pattern developing? Can we predict when and if they should contact us? Can we use this to evaluate loyalty?

The third concept, "monetary", tells us if recent and frequent customers become bookers rather than lookers. Do they return goods as a matter of course? How do customer relationships turn into profitability? Can we determine how to raise the level of monetary revenues from this customer? Is there a composite view that could increase these values?

Each of these issues affects how you communicate and how your CRM approach is measured against the four cornerstones I mentioned earlier. In other words, customer management is largely measurement that should dictate timing of messages, the size and kind of value propositions you take to market, packaging to entice upsell and the development of new products.

Ginger Conlon, in her column of the August issue of CRM Magazine, quotes Phillip Kotler of the Kellogg Graduate School at Northwestern University: "Marketers have been negligent by not being financial," Kotler said.

He suggests companies appoint a financial person to the marketing team to measure and manage budgets and expenses. Kotler also suggests "building a customer-centric organisation and aligning technology, analytics and business to run the marketing process".

In the end, measurements define what we manage. The more serious a firm is about improving its customer satisfaction, conversions, RFM values, lifetime value and referrals, the more it will guide investments toward true CRM success.

* Hanan Tadros is marketing manager for Teradata, a division of NCR Corporation.

* The Pitch is a forum for those working in advertising, marketing, public relations and communications. We welcome lively and topical 500-word contributions.
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