There's
little doubt that the customer is king In today's business
world. The 1980s centered on downsizing and cutting costs.
Managers in the 1990s focused more on building up core competencies.
But
with the onset of the new millennium, enterprises are clearly
recognizing the importance of the customer -- or more precisely,
the importance of an effective Customer Relationship Management
(CRM) strategy in reaching the customer, particularly as
more business migrates to the web and interactions with
customers become more automated and more impersonal.
And
for good reason. Customers are the very raison d'etre for
business.
Any
sales rep worth his or her salt will tell you that "nothing
happens in business until a sale is made." And, of course,
a sale cannot be made without a customer.
Growing
use of data as an "asset"
The real news today is that businesses, which have been
collecting customer-related data for years, are now using
the data as an "asset" to launch numerous initiatives. The
goal? Capitalize on the obvious fact that selling to existing
customers is much easier than selling to new ones.
Airlines,
supermarkets, video rental stores and even auto repair shops
are just a few of the many businesses that now recognize
the extraordinary value of repeat business. In realizing
this, they have launched CRM strategies in the form of loyalty
programs that reward existing customers for purchasing additional
or incremental products and services.
But
what many of these businesses don't realize is that accurate
data is the very cornerstone of an effective CRM strategy.
And that poor quality or inaccurate data can actually impede
customer relations efforts and hinder a firm's overall CRM
strategy.
Data
accuracy impacts costs, sales and effectiveness
Three principal reasons underpin the need for accurate and
up-to-date data when communicating with customers. They
are: (1) to lower costs; (2) to increase sales and profits;
and (3) to improve internal effectiveness. Any one of these
three reasons should be sufficient to entice a business
to assure customer data quality. But when considered together,
the three are an overwhelming argument.
But
before looking at the costs involved in using inaccurate
customer data, consider just two facts. The first? Americans
like to move. An estimated one in five American families
-- about 17 percent of the population - move every year.
And
the second? Even when they don't move, consumers are not
stagnant. They get married, buy homes, have children, build
additions, get promotions, switch jobs, take vacations,
buy second homes, invest in (and roll over and draw down)
retirement plans, take up and change hobbies, enroll their
children in school, and on and on. Any CRM strategy that
fails to recognize the dynamic nature of consumers' lives
and lifestyles is likely to fall short of expectations.
Accurate
data can lower costs
The first major benefit of accurate data centers on cost
reduction and is most easily understood when the costs are
categorized as either "hard" or "soft."
Hard
costs are the most obvious. They involve processing returned
mail and include the concrete expenses of postage, paper,
envelopes, printing and labor. Additionally, because returned
mail arrives erratically, in varying quantities, and without
any advance notice, efficiencies are difficult to achieve.
The costs for reprocessing are frequently higher than those
incurred in processing an equivalent number of first-time
mail pieces.
Soft
costs, however, can be even more significant than hard costs,
especially for the enterprise as a whole.
The
most tangible soft cost involves the delay in the receipt
of revenue. If the original mail piece contained a statement,
or an invoice that requires payment, then the delay means
cash flow is being negatively impacted.
Additionally,
the delay in receipt of a bill might trigger a subsequent
customer service cost. The customer who did not receive
the statement as expected might call a customer service
center to inquire -- or complain --about the delay.
Or
the delay in delivery, and subsequent delay in payment,
may cause a customer to exceed a credit limit, resulting
in embarrassment and anger when making additional purchases.
And once customers are lost, it is very hard to get them
back. In fact, it is far cheaper to keep a customer than
it is to acquire a new one or especially re-acquire a lost
one. There is also the cost of lost sales. Admittedly, it
is hard to quantify the true cost of a lost sale or a lost
customer. But the costs are real and they do exist.
Consider
the example of a customer who moves to a new residence.
An immense amount of buying can occur when people relocate.
Home decorations and furnishings, appliances, lawn and garden
care equipment, clothing, books, light bulbs, even insurance
-- all are often purchased in connection with a change in
residence.
For
most businesses, a move is precisely the best time to stay
in touch with customers. Yet for many companies, a move
is precisely the time that they lose contact with customers.
Or they incur unnecessary extra costs and added delays in
trying to reestablish contact with customers.
Accurate
data can increase sales
Perhaps even more significant than the "downside" or the
soft costs of using inaccurate data is the "upside" or the
potential increased sales that can come from employing only
the most accurate and up-to-date customer data.
It
goes without saying that promotional offers that are custom
tailored to individual needs or highly targeted to specific
customer segments are more effective and generate higher
sales than mass broadcasts of generic appeals.
The
experience of one firm engaged in horticulture marketing
illustrates the point. The firm mailed the same promotional
offer to customers who recently moved and to customers who
had resided at the same address for several years. The firm
discovered that the mailings directed exclusively to existing
customers who moved resulted in a response 1.9 to 2.1 times
greater than the same mailings sent to customers who lived
at the same residence for many years.
Need
more proof of the value of accurate and comprehensive data?
Consider the example of Company X, which is satisfied to
know that Taylor Smith lives at 123 Main Street in Anytown
USA, and that the mail is deliverable as addressed.
Now
look at Company Y, which employs a CRM strategy using the
latest technology to append and enhance their customer data.
As a result, the savvy marketers at Company Y know that
Taylor Smith is actually a young married woman, with two
children -- a boy and a girl, age ranges between two and
four -- with a household income range of $90,000.
And
that she is the same Taylor Smith contained in two other
data bases maintained by the company. Is there any question
which company will achieve the better bottom-line results
when offering additional products or services to Ms. Taylor?
Accurate
data can improve effectiveness
The third major benefit of using accurate customer data
centers on improved enterprise-wide effectiveness. What
does that mean? It means preventing errors before they occur
and eliminating unnecessary work.
For
example, once a company determines that accurate customer
data is a priority worth achieving, the firm usually goes
through a period of investigation and analysis to determine
where and how errors occur.
Once
the source of the errors is found--such as data entry operators
who are poorly trained or motivated, existing customer records
that contain outdated information, or customers themselves
who are inconsistent when providing information--steps can
be taken much like a Total Quality approach to eliminate
the errors and their subsequent costs before they occur.
The
use of accurate and comprehensive customer data can also
reduce the number of calls to customer service call centers,
which will enable those resources to be re-deployed to higher
and more productive uses. Don't let the competition win
Lastly, even if the opportunity to reduce costs, increase
sales and improve overall effectiveness isn't enough motivation,
companies can also rely on accurate customer data to help
strengthen the customer relationship and "inoculate" customers
against the inroads and sales tactics of competitors.
Because
one of the key factors to remember in business is that the
customers and revenues you loss generally go directly to
and strengthen the competition. The $200 that a customer
doesn't spend in Sears doesn't just evaporate. It goes to
Wal-Mart, J.C. Penney, a catalog retailer or somewhere else.
Considering
the huge amount of work that goes into attracting customers
and sales in the first place, no business can really allow
inaccurate or incomplete customer data to undermine and
detract from its strategic mission.
Analyst
Reports