CRM BUYER SPECIAL REPORT

Rules of Customer Class Warfare

Companies have been reciting the same slogan for what seems like ages: “We value your business.” Thanks to customer relationship management (CRM) systems, however, many enterprises now can figure out exactly how much they value each customer’s business.

Like it or not, CRM systems allow companies to identify customer segments, or “tiers,” and serve each one accordingly. Naturally, we’re not all top tier. And that’s fine — as long as no one tells us we’re not top tier.

So-called “tiering” systems are not new; they have been used for years in some industries. Think of airline frequent flier programs or your bank’s checking products, which vary based on your balance and average monthly transactions.

“It started with loyalty programs…. Now, CRM is taking it to the next level,” said Adam Klaber, partner and global CRM leader with IBM Business Consulting Services (BCS).

New Service Era?

Here’s how it works: By analyzing sales history, operations and customer attributes (such as how many service calls a customer requires or how often that customer responds to promotional offers), companies identify a number of tiers within their customer base. By applying predictive modeling to those tiers, the company can anticipate each segment’s needs and then respond with varied pricing and service levels. In a sense, it’s like quantifying the intuitive approach of a seasoned salesperson who knows which customers are worth his time and which can be kept waiting.

Of course, no one wants to hear, “You can wait.” But the science behind the tiering method is solid. John Ragsdale, a principal analyst with Forrester Research, pointed to the wireless phone-service market as an example of when it makes sense to make some customers wait.

“How much loyalty does a company owe to a customer who switches products four times a year?” Ragsdale said in an interview with CRM Buyer. He noted that in today’s highly competitive environment, providers need to identify low-value customers and serve them through the lowest-cost channel.

Ragsdale added that this approach might be good for consumers as well as companies. “As customers, we need to think about this in our buying decisions and relationships — and maybe even have a conversation [with the company or vendor] about it,” he said. “Ask, ‘What do you consider a higher-value customer?'”

Benefits for All?

Certainly, some of us would be insulted to find out we’ve been “tiered” — especially in the lower echelon. But Steve LaValle, CRM strategy services leader with IBM BCS, said he believes consumers could benefit from this practice.

For example, LaValle cited a healthcare company that is implementing a CRM system. Whereas the current system automatically denies claims when patients do not get referrals, the new system might pay a claim for a patient who has been diligent about getting referrals in the past. The company then could send the patient a letter explaining that in the future, it will be his responsibility to make sure his doctor sends in a referral.

Such a system would provide better customer service, LaValle said. Additionally, because denying a claim almost always generates at least one phone call from the patient or his doctor’s office, the new policy ultimately might save the company money.

The Best and the Rest

However, as companies increasingly move to identify their “best” customers and funnel them to a higher tier of support and services, what will become of the rest of us?

The situation may not be as dire as it seems. “It’s not like we went from no segmentation to some segmentation all of a sudden,” said Craig Froehle, assistant professor of operations management at the University of Cincinnati. “I get the feeling that companies are taking it slowly.” He added that nothing is set in stone: How customers are differentiated and which attributes are used to differentiate them will change as new technologies, products, services and markets emerge.

“Companies have to constantly reevaluate and compare their customers’ needs with their operational capabilities,” he said. “The role of the firm in such an environment is to make appropriate strategic decisions that best align their own products, services and operational capabilities with the needs of those segments they are trying to serve.”

Interestingly enough, as the tiering trend gathers steam, some companies might choose to differentiate themselves by establishing — and advertising — a policy of providing the same level of support to all of their customers.

“The classic example of that is Southwest Airlines,” IBM’s LaValle told CRM Buyer. The low-price carrier has no first-class seating and serves no in-flight meals. Even so, LaValle added, “What’s interesting is that Southwest also has a loyalty program.”

Goodbye, Individual Attention?

With more and more data to consider, and as companies slice and dice that data into tiers rather than organizing it by customer name or account number, will each individual customer still matter?

Whether a customer’s complaint or request still can make a difference is not the most important thing to consider, according to LaValle. Instead of looking at the impact one customer can have on service, he suggested, “look at the impact the system can have on one customer.”

Froehle noted that whether an individual customer can be heard “depends on the company’s culture and the degree to which CRM is driving decisions in the organization.”

“If you send a letter to the CEO of one company, it might trickle downand make a difference,” he said. “A letter to a different CEO might be forwarded once and then deleted.” What matters is how the company reacts to customer input and how — or whether — that input is managed within the CRM system.

“Just as two companies can take the same data and make wildly different decisions, two companies can take the same technology and make wildly different uses of it,” Froehle said.

The Next Step: Giving CRM Legs

For his part, Forrester’s Ragsdale said he believes customers will more fully enjoy the benefits of CRM once wireless solutions are viable and can be well executed. After all, field agents — such as cable servicepeople, for example — have a unique opportunity to upsell customers. Companies have known that for years, but they also know it is hard to do well.

“It’s harder for a lot of reasons,” Ragsdale said. “You can’t record the conversation, for one thing (for training purposes) … and you have the added challenge that a lot of field service agents are contractors, not employees.”

Another reason why many service agents are not using CRM in the field yet is that it takes about 18 months for a large company to implement a CRM offering. “It’s unlikely that the wireless app [that worked with your CRM system at the beginning of the implementation] is supported two years later,” Ragsdale said.

However, as CRM and wireless solutions evolve, Ragsdale noted, “companies will learn what they can do with field service.” With an integrated, wireless CRM application, for example, a cable installer could be authorized to waive a customer’s installation fee if that customer signed up for premium channels. Finally, a clear picture of the benefit of CRM.

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