CRM - November 2007 - (Page 20)

PROFITABILITY ANALYTICS rates to a specific date or time. While technically correct, the result means that customer profitability models can be thrown off and predictive analytics put into disarray.“If you want to understand the customer, the right way to allocate that $3,000, $4,000, or $10,000 is over the life of the loan,” Lovett says. “That way, if marketing wants to query the amount of revenue that customer has generated over the previous six months, they can garner an accurate profitability snapshot. If finance needs to look at product profitability, they can. By driving your methodology from the lowest possible level and storing the data that way, you’re providing a common denominator that meets the needs of all departments, and allowing that profitability data to be rolled up in multiple ways.” The result is a bulletproof metric or series of metrics that the entire organization can buy into, says Jeff Gilleland, global strategist for SAS Institute’s customer intelligence products. Instead of the corporation managing thousands of different pricing levers on the proverbial switchboard that is profitability analytics, corporate is managing just the big ones, allowing each department to drill down into the specific metrics inherent with its line of business. “Your independent departments might be calculating profitability at a very granular level, and your business might end up with 10,000 different cost metrics, but as the CFO or CMO, you don’t need all of that. You’re just going to focus on those five or six that allow you to do your financial planning and forecasting, and that give your company a competitive differentiator,” he says. By tying any results back to the transaction level, the bottom-to-top approach also helps to ensure credibility of not just the metrics but also of the methodology used to calculate them. In essence, the organization reaches the apex of credibility, says Tony Adkins, product manager of SAS profitability products. “The credibility and accuracy comes when you can tie your activity-based costing models back to the transaction level, at the point of revenue,” he says. “If you can do that, it’s a very credible way 20 to show other departments within your organization—and your customers— the reason for a business change, whether it’s a price increase or an adjustment to next year’s sales forecast.” ANALYTICS TODAY FOR PROFITABILITY TOMORROW The science of actually measuring customer profitability isn’t difficult, and usually boils down to analyzing the transactional and behavioral information so generously stored in a CRM system. Solutions from vendors such as SAS, SPSS, Teradata, Hyperion (now Profitability analytics is about being able to identify which customers are WORTH INVESTING IN NOW because you believe they’ll either stay or become incredibly profitable in the future. part of Oracle), and others automate many of the mind-numbing tasks associated with these calculations, and allow marketing, finance, and sales to group customers into a range of profitability segments, including product and channel preferences, P&L, account history, and more. But while targeting customer segments that have been historically profitable is all well and good in the short term, it’s only a matter of time before the other dollar drops, says Colin Shearer, vice president of customer analytics at SPSS. As a result, leading organizations are using the data garnered from profitability solutions to help solve for “P” in the predictive analytics equation. “Your customer base might include a lot of struggling young medical students who are poor, but boy, down the road are they going to make money for you,” Shearer says. “It’s about being able to apply models that identify which customers are worth investing in because you believe if you can keep them happy for another five years, they’ll become incredibly profitable.” Today, leading organizations are using profitability modeling at the transaction level, determining campaign and transaction triggers and real-time decisionmaking to assess a customer’s lifetime value. To that end, the customer-value metric is emerging as a centerpiece to measuring customer profitability at the transaction phase because it can account for profit cannibalization that sometimes occurs from one product or service to the next. Gilleland offers financial services as an example yet again: Typically, three out of every four cross sells in that industry actually destroy profitability. “A service agent might simply be trying to resolve a high balance on a credit card, or getting solicitation for an equity line of credit, and in the process, the bank migrates the customer’s same balance from a high-margin to a lowmargin product,” he says. “When you factor in the cost of the call, administrative costs, etc., the net impact is you’ve destroyed that customer’s profitability.” In response, Shearer says, companies are letting profitability and predictive modeling trickle down into the operational segments of their business, namely the contact center and marketing. In the contact center, some enterprises are starting to run these models at the moment the interaction is taking place, providing recommendations to agents in real time, and letting those models determine the strategy to drive customers to specific channels, such as onto the Web or into the store. On the marketing side, the newer profitability solutions are permitting marketing departments to better understand (and utilize) customer profitability and propensity before running the campaigns, with the newer, simplified user interfaces acting as “a layer of business insulation between them [the marketers] and the hardcore analytics at the heart of it,” Shearer says. “It’s bringing profitability analytics to the masses.” Smart companies are taking the www.destinationCRM.com CUSTOMER RELATIONSHIP MANAGEMENT | NOVEMBER 2007 http://www.destinationCRM.com

Table of Contents Feed for the Digital Edition of CRM - November 2007

CRM - November 2007 Contents Front Office Reality Check Customer Centricity Have You Caught It? The Mother of Enterprise Information Market Focus: Technology: The Simple Truth about Complex Manufacturing Q&A: Gianforte Talks CRM Required Reading Predicting Profitability Checking the Pulse of the Contact Center Cast a Narrow Net Modern Times, Modern Methods Primos Hunting Calls Snares Efficiency Nailing It Down Moving in on Mortgage Delinquencies RDS Delivery Delivers on Service Secret of My Success Re:Tooling The Tipping Point Pint of View

CRM - November 2007

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