Commentary & Analysis
Better Together: VDP and CRM Part I
by Heidi Tolliver-
By WhatTheyThink Staff
Published: January 24, 2005
by Heidi Tolliver-Nigro The foundational component of a good CRM program is data. The trick is turning this information into something that can be used effectively. January 24, 2005 -- If one wants to look for a common denominator among successful VDP specialists, one has only to look as far as customer relationship marketing (or management) typically shortened to CRM. Some VDP specialists have CRM managers on staff. Others, while not having someone who formally handles CRM, understand this concept and it becomes a foundation of their prospecting. There are many definitions for CRM, but according to SearchCRM.com, an online CRM industry resource: CRM is an information industry term for methodologies, software, and usually Internet capabilities that help an enterprise manage customer relationships in an organized way. For example, an enterprise might build a database about its customers that describes relationships in sufficient detail so that management, salespeople [and service providers] could access information, match customer needs with product plans and offerings, remind customers of service requirements, know what other products a customer had purchased, and so forth. Sound a lot like VDP? You betcha! Sales increased more than 33% after the CRM system was installed. The foundation of a good CRM program is data -- data on customer transactions, interactions, behaviors, and so on. Many companies already collect this information and have more information than they know what to do with. The trick is turning this information into something they can use. How can they use this information? To enable their marketing departments to identify and target their best customers, manage marketing campaigns, and generate highly qualified leads for their sales teams. To assist in improving telesales, account, and sales management by optimizing information shared by multiple employees and streamlining existing processes To allow marketers to form individualized relationships with customers, with the aim of improving customer satisfaction and maximizing profits To allow marketers to identify their most profitable customers and provide those customers with the highest level of service. To provide employees with the information and processes necessary to know their customers, understand their needs, and build relationships between the company, its customer base, and distribution partners. Crash Course in CRM This is where good CRM software and implementation comes in. CRM programs are generally composed of a suite of tools, from customer tracking to transactional data analytics, that give companies something solid to work with. Once analyzed, these data form the basis for marketing strategies like segmentation, targeted marketing, and predictive modeling. Done correctly, the results can be astounding. Take this example from Johnson-Sewell, a Lincoln Mercury car dealership: Before CRM, Johnson-Sewell had no defined way of tracking customers or staying in touch with them -- and the dealership’s principals were convinced this lack of contact cost them money. Now, everything is tracked: the source of every incoming sales call, sales calls converted to appointments, appointments converted to sales. Using ADP’s Right Relationship 360, Johnson-Swell officials say that 80% of confirmed appointments show up, and a whopping 60% of those people purchase a vehicle. In fact, sales increased more than 33% after the CRM system was installed. So many companies make several efforts at CRM implementations before they succeed that the process is sometimes called the Goldilocks Syndrome. Any VDP printer worth its salt should have its wheels turning right now: “I wonder what marketing programs they used to achieve these results? Did they use print? If so, was it variable? If not, would those results have been even higher?” That’s the power of the CRM-VDP combination -- better together. But implementing CRM is not like installing a piece of hardware or desktop software. It’s a lot like TQM (Total Quality Management) -- a concept more than a technology. And implementing technology to accomplish subjective, conceptual goals can be challenging. Many companies make several efforts at such an implementation before they succeed. So many, in fact, that this conundrum now has its own nickname, the Goldilocks Syndrome, because first the solution is too big, then it’s too small, and finally it’s just right. Lifetime Customer Value Despite the challenges many customers have in implementing CRM, more and more companies are taking the plunge, and it offers tremendous opportunities for printers involved in VDP. Not only can VDP printers help their clients implement what they’ve learned from their CRM programs, but as the understanding and embracing of CRM grows, it increases the value marketers place on long-term customer relationships and reduces the sense of urgency for marketing promotions to achieve immediate ROI. Understanding and embracing CRM increases the value placed on long-term customer relationships and reduces the need for an immediate ROI. This addresses a real bugaboo that has plagued the VDP industry for years. Since the early days, marketers have had a hard time justifying the cost per piece of VDP when they are used to paying pennies for direct mail. But as the whole CRM concept takes hold, they are no longer looking at each marketing promotion or customer contact in isolation. They are looking at something called Lifetime Customer Value, which is the value of their customers as the total of their purchases over their history with the company. Lifetime Customer Value projects out those purchases forward over the lifetime of the customer. Industry consultant Ryan P. Allis puts it this way: When many businesses look at a customer they see the value of the first sale. If Sue bought a product worth $39 many companies would see Sue as being worth $39 in revenue. Then if, and only if, later on Sue buys, say, another $39 product from you will she be seen as worth $78 in revenue. Other businesses, with managers perhaps a bit more experienced, know better than to follow the above model. They know that the true value of Sue is the value of all the purchases she has made plus the value of all the purchases she is likely to make in the future (discounted to the present). This is called the lifetime value (LTV). The essence is that to obtain the lifetime value of an average customer multiply your average sales by the average number of times they come back. You can estimate these figures to come up with a rough lifetime value figure. So, to estimate your lifetime value of an average customer: Estimated Average Lifetime Value = (Average Sale) x (Estimated Number of times customers reorder) If you want to learn more about Lifetime Customer Value, you can go into any Internet search engine and type in "Lifetime Customer Value" and you’ll pull up a vast number of articles and Lifetime Customer Value calculators to help marketers estimate the long-term value each of their customers has. LCV calculators work by looking at repeat behavior since how a customer has behaved in the past is a good indicator of how they will behave in the future. Large sites with CRM analytics use this technique to predict customer value and response to promotions. Once marketers are able to measure customer value, they can then manage customer value. In other words, they can develop promotions and campaigns that will allow them to make money by creating very high ROI customer marketing campaigns. And this is where variable data printing comes in -- and where I will pick up the discussion next month.