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Don't Forget Analytics When Managing Customer Relationships: Four Areas for Quick Insights into Your Customer-Facing Processes

by Christopher J. Eldredge | SAPinsider

January 1, 2004

by Christopher J. Eldredge, SAP SAPinsider - 2004 (Volume 5), January (Issue 1)
 

Successful customer relationship strategy involves more than skillfully managing every customer touch point from the initial contact onward. After all, how do you know you’re reaching the right customers in the first place? Are you investing your marketing dollar effectively, targeting the most profitable audience, and promoting the right products for up-selling? And, perhaps most importantly today, how can you ensure the loyalty of your current customer base?

The answers to these questions are typically scattered across the company in sales, service, marketing, finance, and operations. So an analytical approach to CRM will require a complete platform — one that provides access to customer and backend information across the company, a broad range of analytical methods to properly evaluate customers, mechanisms to develop recommendations, and strategies to apply these insights for improvements to customer-facing processes.

SAP offers this platform with mySAP Customer Relationship Management (mySAP CRM) and SAP NetWeaver. Working together with your SAP solutions, they supply the analytics, applications, and technology to:

  • Measure: mySAP CRM includes over 300 standard queries to measure customer value and CRM effectiveness.

  • Predict: Powerful predictive modeling capabilities required for analyzing potential customer attrition or automated customer segmentation are included as part of the Data Mining Workbench, part of SAP NetWeaver.

  • Plan: Forecasting, planning, and budgeting is accomplished with an integrated planning framework (see the sidebar).

  • Optimize: Analytical applications are integrated with or embedded in mySAP CRM applications to transfer this information into the optimization of your business processes.

mySAP CRM allows you to immediately tap into the analytics that are woven into all its key applications. And if you don’t yet have mySAP CRM, it’s still possible to make use of analytics available in your current SAP solutions and running standalone on the NetWeaver platform.1 In either case, these capabilities are an excellent foundation for evaluating the state of your customer information and customer-facing processes and for identifying the next steps in your CRM strategy.

Four Analytics That Can Enhance Your CRM Vision

You can begin using analytics now to gain greater insight into your customers, add controls to current CRM processes, uncover low-hanging fruit for immediate returns on customer-facing initiatives, and identify your highest-priority process and application needs. This article highlights just four examples from the full menu of SAP’s reporting and analytic capabilities across your company:

Cross-Selling

Customer Retention

Customer Segmentation

Marketing Optimization

Select one or more of these analytics as a key starting point in moving toward a more comprehensive view of your customers and strategies.

Cross-Selling to Drive Sales

By expanding the product portfolio being sold to each customer, a company can gain greater “wallet share” within its current customer base. Many companies already have cross-selling rules in place based on logical product groupings for use by e-commerce and interaction centers. (For instance, when customers buy a PC, they’re likely to need a monitor as well.) Analytics help quantify the quality of these product relationships, both from a strength-of-relationship perspective as well as a profitability perspective, and can even identify non-intuitive cross-selling trends.

SAP provides the ability to define cross-selling rules for use in CRM applications (Internet Sales, Interaction Center, etc.) such as:

  • Association Analysis, for more automated creation of cross-selling rules (also known as Market Basket Analysis), which evaluates products sold to identify the products most likely to sell together. The results drive the creation of new cross-selling rules.

  • Customer Lifetime Value Analysis, a more sophisticated approach to cross-selling. Here, you can identify the customers that have provided the highest value over the lifetime of their relationship with the company. The customers are then automatically segmented and prioritized. Once customers are segmented, marketers can understand the attributes of the high-value customers and target prospects with similar attributes. With customer lifetime values identified, companies can put together the appropriate selling strategy for each customer group or segment and focus on profitably achieving the value potential of each customer.

With mySAP CRM Analytics, cross-selling rules like these can be evaluated to identify their effectiveness and frequency of use.

A Holistic Approach to Planning

Once you have a more complete view of your customer, you can more confidently plan your marketing, sales, and service initiatives. But although every customer-facing strategy must be tailored to your specific industry, products, and types of customers, financial and supply chain information plays a significant role as well.

After all, the sales forecast that is so critical to setting sales targets is also the same basic information your financial team needs to create budgets and your operations management needs to drive an overall production plan. However, these planning efforts are often duplicated (even triplicated!) when isolated teams use disconnected methods for collecting and disseminating data. This can lead to weeks, sometimes months, of reconciliation effort.

New demands for more transparent business reporting also affect this process. In the US, for example, the Sarbanes-Oxley Act requires managers to establish and maintain adequate internal control structures and procedures for financial reporting. These structures and procedures — including the planning processes that lead to reporting of financial targets and pro forma statements — will involve additional steps, as they are subject to third-party audit.

Happily, SAP provides an integrated planning platform on which all relevant data is consolidated and, in most cases, immediately reconciled. Where appropriate, planning applications are embedded in the operational processes of mySAP CRM, and all are accessible using SAP Enterprise Portal. In addition, mySAP CRM includes several “out-of-the-box” planning applications: Sales Planning, Opportunity Planning, Marketing Budgeting, Key Account Management, and Territory Planning. Consumer products companies can also take advantage of Trade Promotion Planning.

As a result, companies can achieve shorter planning cycles and more accurate plan data — and ultimately, with this high level of built-in integration, lower total cost of ownership.

Customer Retention to Sustain Profits

A truly analytical CRM solution should both capture and analyze customer satisfaction data — a key driver of customer retention. Two SAP analytical applications address issues of customer retention and leverage the rich customer data available across your SAP solution landscape.

Satisfaction & Loyalty Analysis is a customer analytic available with SAP NetWeaver.2 It provides graphical results from customer satisfaction surveys, identifies the survey questions most important to overall satisfaction, tracks development of customer satisfaction over time, provides indexes of satisfaction and loyalty, and indicates areas where performance and satisfaction are most highly correlated.

Churn Management3 is a comprehensive retention program centered on identifying and preventing lost customers. It helps determine the reasons customers were lost, predict customers most likely to leave, evaluate those “at-risk” customers, and then prioritize customers to be retained. The process requires a variety of analytic techniques and customer data such as transaction and activity history, profitability, and customer profile information.

For example, in Figure 1, a decision-tree model from Churn Management is the basis for a “what-if” prediction — a predefined Web Item available from SAP NetWeaver’s Web Application Designer that can be added to a Web or portal page.4 This particular Web Item allows a business-to-consumer company (i.e., a retail company) to predict whether a customer is likely to churn based on gender, discounts, revenue, or other factors.

Figure 1
"Whatif Prediction" Interface Based on an SAP Churn Management Scenario

Customer Segmentation to Reach the Right Audience

Customer segmentation helps to more accurately address customer wants and needs by identifying customers with similar attributes and behavior. Using this knowledge, companies can maximize the effectiveness of marketing campaigns.

SAP customers benefit from a variety of customer segmentation options. Naturally, mySAP CRM enables marketing professionals to use their expertise to manually segment customers with its Segment Builder tool. But to add a more scientific dimension, mySAP CRM Analytics provide automated customer segmentation options — such as algorithms for clustering and ABC analysis — to enhance the process based on statistically relevant factors. SAP also provides a solution to monitor customers as they migrate from one segment to another.

For example, in Figure 2, the Data Mining Workbench5 in SAP NetWeaver has created a model for a retail company. It displays customer segmentation using clustering, a technique for finding statistically relevant, homogeneous segments in a data set. The cluster model has identified five distinct customer segments. In this case, gender and marital status are the most important factors in determining the cluster to which an individual customer is assigned.

Figure 2
Customer Segmentation Using a Clustering Algorithm

Marketing Optimization to Do More with Less

Marketing optimization helps companies send the appropriate offers to the right customers through optimal channels. Not surprisingly, analytics can play a major role in how marketers decide which campaigns to execute.

SAP offers applications to help marketers maximize their resources and improve results, including:

  • Recency, Frequency, and Monetary (RFM) Analysis, which segments customers based on their likelihood to respond profitably. Customers are categorized into segments based on their respective recency, frequency, and monetary values. Once this segmentation occurs with SAP BW, the segments can be accessed from the Segment Builder within SAP CRM. Once the RFM segments are known, marketers can use the expected response rates and profit levels to predict ROIs on their marketing campaigns.

  • Marketing Optimization & Refinement (MORE), part of the Marketing Campaign Automation offering in SAP CRM 4.0, which combines the RFM model with constraints — number of calls per week in the call center, maximum marketing budget, etc. — and restraints such as only contacting customers in Ohio.

For example, in the MORE scenario in Figure 3, marketers can start with the campaign model, plug in various conditions to simulate a campaign, and produce a recommendation for the best combination of products, channels, and offers. In this example, a campaign is designed around telemarketing and direct mail, and predicted ROIs are shown for each channel. The ROIs shown are the results of the simulation.

Figure 3
Modeling and Simulating a Campaign with mySAP CRM

The Key Is Integrated Analytics

Analytics should go beyond simple reporting — they must have clear objectives and implications for improving business processes. Successful cross-selling, customer segmentation, customer retention, and marketing optimization are key to increasing the ROI of a CRM strategy. Planning and forecasting applications across sales, service, and marketing facilitate the collection of information to enable more accurate plans and strategies to execute a CRM vision.

Begin by considering the returns to be had when you make use of CRM analytics in formulating and enhancing your CRM strategy. SAP provides everything a company needs to incorporate analytics into a CRM program. With mySAP CRM, analytics are built into and integrated with key applications. And mySAP CRM runs on the SAP NetWeaver platform, which offers its own set of business intelligence functions, along with the tools and technology needed to implement these analytics across all your solutions.

For more information on analytics for mySAP CRM, visit http://service.sap.com/crm-analytics or www.sap.com/crm.


1 Many of the analytics and the planning functionality mentioned in this article are available in SAP Business Information Warehouse (SAP BW), SAP Sales & Distribution (SAP SD), SAP Logistics Information System (SAP LIS), and SAP Strategic Enterprise Management (SEM) for planning applications.

2 It is part of SAP BW Business Content, now included in SAP NetWeaver.

3 Churn Management is part of mySAP CRM Analytics, which encompasses SAP CRM and SAP BW.

4 In BW 3.0 and higher.

5 Available with SAP BW 2.1C (SP 9) and higher. SAP BW is part of the SAP NetWeaver platform.


As a Product Director at SAP, Christopher J. Eldredge is responsible for all solution strategy-related activities for mySAP Customer Relationship Management (mySAP CRM) technology on the SAP NetWeaver platform. He joined SAP in 1997 as an implementation consultant focused on reporting applications. Mr. Eldredge holds an M.B.A. from The Ohio State University and a B.A. in Economics from Ohio University.

 

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