Can Five Elements of Data Increase Revenue by 20 percent?
Several years ago, I tired of receiving emails on Halloween, Christmas, and Easter regarding filters that we use for our heating ventilation and air conditioning system (HVAC). The company sending me emails had a great business concept. The Company sold just about any filter known to man through its website and had an excellent indexing system for finding filters on their site. But there was a problem with our customer-vendor relationship. Every six months or so, I needed to replace the filter (usually not on the holidays when they sent their emails). I would have to go through the process of finding the website, searching for the exact filter I needed, and ordering that filter online. I always ordered the filter too late in the filter's life cycle and spent far too much time re-finding the correct filter.
After receiving my second or third "It's Halloween/Christmas/Easter/4th of July, time to change your filter!" email, I stopped. It occurred to me that this company -- let's call them EZFilter (not the company's real name) -- had five vital pieces of information. These tidbits could be very easily combined to provide a computer application which would significantly improve the company's profitability and my customer experience:
I wrote an email to EZFilter customer service pointing out, by way of customer feedback, that the combination of these five data points created an enormous opportunity for the company. With this information, the company could use the useful life of the HVAC filter to send me an email telling me it was time to change the filter. Ideally, the email would contain the date of my last purchase (a fact I can never remember). It would provide a URL link to the product (there are thousands of filters out there). It could allow me to quickly log in and use the credit card information on file to purchase the replacement filter. The application could further use my name and address information to save me typing that into the forms once again. A win-win for them and me!
Stealing Defeat from the Jaws of Victory
The head of marketing at EZFilter responded to my email with enthusiasm. However, I learned later that EZFilter was a partnership. The head of IT nixed my suggestion on the basis that the database work would be too costly and inconvenient at that time.
EZFilter illustrates an all too familiar problem in many companies, which we will explore in later blog pieces. Change requires consensus, leadership, and vision, a combination that is often missing in the companies that need it most. As a result, both the consumer experience and company profitability suffer. My need to change an HVAC filter doesn't necessarily coincide with EZFilter's holiday marketing messages, making them annoying spam. Worse, every time I go online and search for filters is a new opportunity for this provider to lose me as a customer. I use search engines to find them (as many customers will). In doing so, I increase the risk that EZFilter loses a customer to someone with a similar offer. The search also adds to their acquisition cost because I click on a pay-per-click advertisement from their search engine providers. In sum, by ignoring my suggestion, the partnership managed to lower my customer lifetime value and that of the rest of EZFilter customer base by a significant measure.
Enter Stage Left Amazon.com
To make matters worse for EZFilter, Amazon.com has entered the sale of HVAC and refrigerator water filters. Amazon has raised the stakes considerably by turning a routine repurchase into an automatic one. How? Amazon has added a subscription purchase button to the product. This button allows the purchaser to receive electronic, twice-yearly shipments of filters to the address on file and billed to the customer's credit card. In so doing, Amazon has turned a routine purchase into a subscription service. The exact filters that the customer needs are shipped automatically to the customer exactly when replacement is needed. Amazon quite intelligently recognizes that it has little or no acquisition cost for the repeat purchase. This customer is engaging in a subscription arrangement and will have a much higher customer lifetime value. Amazon, therefore, passes along part of this value to the customer by providing a 15% discount. Amazon may gradually eat EZFilter's lunch. It will gain market share while at the same time, leverage the customer lifetime value equation to squeeze the margins in the filter company's business. And all this will happen because Amazon knows how to manage CRM, build databases, and increase customer lifetime value.
Examples - Small Companies With CRM Wins
Moving to more positive models, here are some instances where small and medium-sized organizations have used CRM successfully:
Each of the examples above shows the use of a customer relationship management (CRM) system in a small business or nonprofit setting to improve customer experience and profitability or outreach.
Keep It Simple at First - The Most Important Thing is to Get Started
Why should we bother with this exercise, you ask? Wharton Marketing Professor Peter Fader makes the critical distinction between companies that are "customer-centric" and "product-centric." Dr. Fader starts his course with a playful discussion of which companies are Customer-Centric. In his book, Customer Centricity, he argues that genuinely customer-centric companies are those who know enough about their customers to differentiate their approach. The companies offer to target and serve those customers who are profitable to them. At the center of this "customer-centric" model are customer relationship management and customer lifetime value:
The first step of CRM is to keep it simple. Start with simple data and then add simple queries that you want to make on that data, keeping the operational parts around it simple. Then you can build up and add complexity as the company has a genuine need for it. CRM has gotten kind of a bad reputation. I think it's undeserved. I don't think it is the fault of CRM or the vendors that sell CRM systems; the companies that are bringing it in are biting off more than they can chew in many cases.7
Dr. Fader's cautionary remarks regarding CRM Systems are on target. System vendors have incentives, financial and otherwise, to sell users as many modules as possible. For a small business, any CRM or big data solution must work on a standalone basis. Don't be afraid to begin creating a database in Excel or Access. When you do step up to a more sophisticated CRM, systems vendors provide complete company enterprise solutions. Examine them. But, be careful not to try to do too much too soon. It is wise to start with the basics. Make sure you have clean data. Focus on understanding a few basic questions. Who are your customers? Why do they buy from you? What do they want to buy again? How can you attract more people like them? Start with simple, practical opportunities to understand your customers and key customer segments. Then, drive internal efficiencies in managing your customer relationships. Finally, move onto improving experience, reducing costs, and increasing sales.
Find A Vendor Who Knows Your Industry
The above examples also bring us to a critical point about CRM. Just about every industry these days has some CRM offering tailored to the unique needs of the business or nonprofit. The case study provided by the software dental practice cited above is just one example. If you are a member of an extensive but somewhat specialized vertical, be sure to search out CRM systems specifically designed for your industry. These systems are typically cloud-based and will provide a great deal of functionality that will save your organization time and money.
Further, those CRM systems with high penetration in the marketplace, for example, salesforce.com (SFDC), have vast numbers of applications to which they have already integrated, everything from email providers, to analytics programs, to data providers. Often, using a program like SFDC, your organization can develop its customer or member scenarios, addressing unmet needs, and building differentiation in the marketplace.
Summary - Start Small, Think Big
Your company can leverage even a small amount of customer or donor information in creative ways to improve revenue and increase repeat sales. Creating a Customer Relationship Management system does not have to be expensive or technically challenging. It can start as a simple customer list in Excel or Access. Starting your CRM journey can be as simple as adding a request for email and phone numbers to every new customer interaction. Getting started is the hardest part, but once started, it is an essential step in growing both the amount of revenue and frequency of income in your organization's relationships. We'll explore how we've used CRM's to improve client profitability in upcoming blog posts.
3 Laura Cox and Sarah Walker's award-winning dental practice in Knoxville, Tennessee using smile dental messaging solution: http://www.solutionreach.com/DENTAL
4 My friend Don Holocek at Crown Cleaners in Knoxville uses a similar system. http://www.geelus.com/