Nauman Shaikh tells you why it’s important to know your customer!
If there were 10 commandments issued for a corporation, Know Thy Customer would definitely have been the first commandment. While this century old adage always seems to be dominant in all marketing material, an organization that lives by this principle is not very easily built. In the pre-computing world, the responsibility of knowing the customer lied with the sales and service people who interacted with the customers. However, that tacit knowledge was not very easily recorded, stored, shared or exploited for increased revenue and improved customer loyalty. With the advent of computing that automates all aspects of an organization, it became a little easier to understand the customer for maximizing gains. This came to be known as Direct Marketing. Customer behavior was electronically recorded and then marketing promotions and campaigns exploited that knowledge for increased sales. Along came e-business and customers started interacting with organizations through a virtual world. This sales driven customer behavior monitoring now needed the service information as well in one place. Hence, Customer Relationship Management (CRM) was born.
So knowing the customer in modern or technology driven business means information about the customer to be collected, stored, analyzed and then exploited by all functions whether they are in direct contact with the customer or not. Even demographic information from 3rd party providers and surveys or studies on customer behavior are now part of this holistic “knowing the customer” vision. Since this vision involves information, storage and analysis, it has become a required feature of IT departments world over. Centralized customer databases, 360 degree customer MIS, campaign management, customized offers and promotions, customer behavior models and improved service and support solutions are commonly found among an organization’s arsenal to live by the 1st commandment.
The importance of knowing the customer typically dawns on an organization when it is faced with competition. The nationalization of industries in mid 70s while threw us several decades back in terms of business growth, it also created monolithic organizations monopolizing the entire sectors and hence feeling no pressure to “knowing the customer”. Pakistan International Airlines could care less who was flying and whether they will fly again or not. PTCL & WAPDA were notorious with poor customer service across the board. Government hospitals didn’t have any patient records and FMCG (consumer goods) companies preferred the sales through distributor networks hence effectively disconnecting themselves from the actual customers. Agriculture and textile sectors weren’t any better either. With 20 years of corporate management without “knowing the customer”, we were left with actually not knowing the customer at all.
The world has changed for the Pakistan’s business community over the last decade. Deregulation and privatization has opened up the markets and monopolies are facing tougher competition and organizations like PIA and PTCL now have a need to know their customer on a very urgent basis.
There is obviously nothing predictable about your customer but as long as they make it into your system, you have been granted the access to track their behavior and hypothesize trends. And once you can do that, you’ve got the power to impact, influence and at times, even anticipate a great deal of the future of your business.
Information Collection
A customer’s information has to be collected electronically within the business processes that have a customer touch point. This includes point of sale or sales force interaction with a client, call center as well as marketing studies on customer feedback related to products and services. All of this information needs to be dated and should include the transaction detail.
Some examples of information collection can be
• A bank account opening form – it details some basic information about a customer sufficient to built a profile
• An insurance policy form has some pertinent information that is useful
• A service call to a call center should be properly logged as to who called and why
• A sales call by a auto or home loan salesman should be recorded
• Frequent flier cards for airline and hotel customers provides the basic customer profile against all future activities of that customer
• A store membership card (e.g. Makro) does the same thing in retail space
Information Storage
The stand alone systems within multiple divisions or departments are the biggest hurdle in building a single customer view. All of that data needs to be integrated on customers and brought into a separate environment.
In case a data warehouse is already in place within the organization, this customer data mart can be built in there otherwise a separate stand alone database needs to be created. The data integration, data quality and enhancement of 3rd party or demographic data are all linked with customer’s transactional data in this step. Not only is building the customer centric repository a critical component of a “Knowing your customer” strategy but its ongoing maintenance with fresh information on existing and new customers needs to be built within this step.
Information Analysis
Once the information on customers is centralized and available for analysis, advanced software packages are needed to fully exploit the customer database. From basic MIS reporting on customer performance to behavioral modeling and profitability scores are some basic analytical steps required to building a robust process around knowing the customer. The utilization of such a centralized customer information repository typically requires analytical software packages. Starting from open source packages in the Pentaho platform to built in services with Microsoft SQL server on the low end of pricing. The high-end packages like SAS, Hyperion, SPSS and Probe-SM run into millions of Rs in licensing fees. It is advisable to start small and simple and then move to more advanced platform for customer analytics. The evolution of utilization of a centralized customer database is depicted in the diagram below. In subsequent articles, this closed loop will be explained in greater detail. It basically starts by providing the basic search and lookup facility for any sales or service contact and moves into reporting, analytics and scoring. Scores are then built into the operational procedures for actions. Like a high scoring customer will get a better discount on a new product compared with an average scoring customer.
Customer Management
The purpose of the analysis is to manage customers through building customer segments. Similar behavior among customers is grouped into a segment and then sales, marketing and service strategies are built around the segment. The service center should know the high-profitability customers when they call. The marketing department should send them a “Thank You” greeting card for giving them the business. Dormant customers who have not shopped in a wile need to be sent a reminder and active customers should be facilitated with excellent service and product information.
There are software packages available that allow entire teams and departments to effectively do this with great ease. Some of them are Unica, Siebel (now part of Oracle) and Strategy Manager. Not only do they allow customer management through segments, they also track the profitability of a campaign or promotion to calculate the lift or the return of a marketing campaign. While it is easy to bombard customers with advertising, it is not very easy to calculate the lift coming from the advertising campaign.
The marketing departments in a highly competitive and saturating market is the best tool an organization have to increase sales, reduce churn and overall manage the customer retention, loyalty and sustained business. Direct marketing is a proven concept that works on top of advertising to actually have a customized advertising campaign or offer for customer segments. The challenge is for the CIOs to see how they can manage the technology behind direct marketing to facilitate the adoption of this concept for significant competitive edge.
In the next 3 articles of this series, I will cover the current state of marketing and advertising in major Pakistani industries and the methods marketing can employ to make use of this centralized customer information. The final article will provide a roadmap for the CIOs to start helping their organizations towards knowing their customers.
