Nine years ago, I wrote an article titled “Where is the ROI in CRM”. At the time, I was working at Oracle as a product strategist for their CRM (customer relationship management) solution and was a big proponent of analytic CRM. Analytic CRM is an approach for analyzing the profitability of customers (either current or lifetime value -LTV), and then segmenting customers based on on their contributions. At the time, Oracle was one of the few vendors who could actually deliver a complete customer profitability and analytic CRM solution. Alas, I was a little ahead of my time as most companies didn’t really care about customer profitability before and during the booming dot-com era.
From the studies I did in the late 90’s for the financial services industry, customer profitability definitely followed the 80/20 rule (also known as the Pareto Principle) and in some cases, it was even worse than that ratio.
My article focused on the three simple things that companies could do once they were able to conduct a value-based customer segmentation:
- Better customer management
- Targeted selling
- Focused retention efforts
My conclusions at the time were:
In a nutshell, companies need to build a strong foundation of customer intelligence which must include detailed customer profitability, data mining and predictive modeling; they need capable marketing tools to measure and manage interaction programs; they need people with strong marketing and analytical backgrounds to plan and execute their sales, up-sales and retention programs; they need to be able to manage and distribute customer intelligence to those who need to transform it into action; and, ultimately, they need to tie this customer knowledge into all customer-facing applications.
With the explosion of social media websites and tools (such as Facebook, Twitter, LinkedIn, Yelp and others) over the last year or two, people are starting to talk about a combination of social media and CRM called social CRM.
For example, the following graph from Google Trends shows the growth of the term “social CRM” over the last 12 months. Before January, almost no one was talking about social CRM.
So what’s different about social CRM?
Basically, the customers are now in charge and expect to be part of the conversation. Pete Blackshaw wrote an interesting book last year called “Satisfied Customers Tell 3 Friends – Angry Customers Tell 3,000” that sums up the dilemma. While the title is catchy, I am not sure if the metrics are exactly accurate. In any case, companies must listen to both satisfied and unsatisfied customers because they are being heard and can have a significant positive and negative impact on your brand.
Here is my updated social CRM advice:
Monitor conversations – If your company is not monitoring the social media conversations, you are already a step or two behind. It is imperative that all companies start to listen and plan to act on what their customers are saying over the Internet.
Selectively interact with customers – Companies need to let customers know that they are being heard which means that companies need to develop a plan for action and make someone responsible for making it happen. For some companies, it may be difficult to respond to or participate in every conversation – but that should not stop you from at least responding to the most positive and negative comments. In some cases, you may want to even ignore some negative comments as you do not want your conversations to devolve into a mudsling match which could cause more negative PR. Ideally, you will want to prioritize customer interactions based on a combination of customer profitability and customer influence.
Develop new metrics – If your company already uses customer profitability or LTV, then you are a step ahead. Then you just need to develop new metrics to merge customer profitability or LTV with some measure of customer influence, reputation or voice. If your company does not have profitability, LTV or customer influence metrics, then you are really behind the eight-ball.
In case you want to explore this topic further, here are some links to resources and blog posts about social CRM:
Social CRM – Not Your Father’s Customer Relationship Management – a blog post by Brent Leary.
The Future of Twitter: Social CRM – a blog post by Jeremiah Owyang.
The Social C.R.M. Iceberg – a blog post by Ross Mayfield.
Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty is an academically focused book by V. Kumar that provides scientific insights to calculating profitability including referral value.