Another in the recently launched and incredibly unsuccessful ‘30 second guide’ series.
After learning all about data warehousing, I didn’t see Sue for a while. I assumed she was working elsewhere on a long term project. However, after 18 months I finally managed to track her down.
For some inexplicable reason, she had left IT (and data warehouses behind). She lived, alone but content, in a Crofter’s cottage in a remote part of Scotland making tartan rugs. She looked a little surprised but pleased to see me on her doorstep.
‘So Sue - what about all this CRM stuff ?’
Sue sighed. ‘Norman - what do you want to know now ?’
‘Well - the let’s take this Pareto Principle for starters’
‘The Pareto Principle states that for all businesses, 20% of the customer base delivers 80% of the profit.’
‘Oh I see. Well how do I identify that elusive, profitable 20% ?’
‘That, Norman, lies at the very heart and is the central tenent of Customer Relationship Management (CRM). Solving that problem is the Holy Grail of CRM’.
‘Oh I see. I keep hearing these clever marketing types talking about “propensity to churn”. Are they feeling unwell ?’
‘Propensity to churn refers to the likelyhood of customers terminating their contract and going elsewhere. If you have always bought your gas from British Gas for 24 years, always had a BT phoneline and always used the same bank, then your ’propensity to churn’ is low. If you switch mortgages every two years chasing the cheapest rate, then your ‘propensity to churn’ is much higher.’
‘I see. So what is a segment ?’
‘A segment is a simply a set of customers. Remember sets and Venn diagrams at school. Take the set of all male customers. Take the set of customers aged 30-35. Take the set of customers earning over 40K. Take the intersection of all three sets. That is a segment.’
‘Well that’s easy enough. And what about this so-called nirvana of 1:1 marketing ?’
‘Marketing people think that the smaller and more selective a segment is, then the higher the chance of selling to that segment. The smallest segment (with the highest possible chance of selling) is obviously a single person. However, you need a lot of criteria (information about the individual) to derive a segment of one. However, that is what marketeers dream of at night.’
‘I see. What about a channel ?’
‘Telephone, TV, radio, internet, newspapers, letters, billboards - any way in which you can interact with a company’
‘Err - how do I ’interact’ with a billboard ?’
‘You may not think it but you are subliminally reading the marketing message.’
‘Lifetime value ?’
‘Exactly what it says on the tin. How much money are you worth over your lifetime to a company. One element of the Pareto Principle is that some customers (out of the 80%) are bring in less money than they cost to administer. People who pay off their credit card balance in full every month are just one example. Identifying these customers and losing them may actually be beneficial to the business.’
‘One last question. What is cross-sell and up-sell ?’
‘Cross-sell is selling you home insurance when you call to renew your motor policy. Up-sell is selling you that Uninsured Loss Recovery that no-one understands, wants or needs or the expensive travel insurance bundled with your holiday.’
‘Well Sue. Thanks a lot. That was really informative but you did drone on for rather more than 30 seconds.’
‘I know Norman. That’s the nature of CRM for you. Cliches and 24 words where 1 would suffice. Would you like a rug in the Brightside tartan to take home with you ?’