Customer-oriented marketing metrics that measure the return on investment (ROI) for marketing programmes need to successfully target specific customer groups to produce results from expensive CRM programmes.

Many companies are spending crores of rupees on implementing CRM marketing tools. The term CRM has, in practical terms, come to mean implementing an information technology that consolidates data about a single customer on a single customer service screen. Although a noble goal, a company that cannot differentiate between customers with whom spending time can improve profits and customers who do not produce sufficient profits to warrant expensive marketing interactions will not get the results the CRM promoters promised.

Four basic issues thwart a company’s ability to achieve the promised ROI. The first is the inability to differentiate between customers who represent future value for the company and those who do not. For telecom companies, 120 per cent of profits are generated by 20 per cent of customers. Spending a disproportionate amount of time and resources on customers who are unprofitable and likely to remain so drags on CRM's return on investment. This is true even if a company has all of a customer's information in a single location.

The second is the inability to recognise how to treat a customer who is profitable or can be made to be profitable with an effort that also produces a good ROI. As an example, consider two bank customers who are equally profitable. One of the customers has 15 years of tenure, four different banking products and is retired. This customer is less likely to search for another bank, so meeting his needs and responding to him courteously and promptly is a low-cost way of maintaining an excellent relationship. The other customer uses only two of the bank's products, has two years of tenure and a history of growing balances. He may be a good candidate for a deeper and more profitable relationship if the bank actively markets new products and services.

The third basic issue is failing to develop a sense of the attributes of valuable customers. Companies can use many techniques to understand the basic motivation for making an initial buying decision and turn the customer into a loyal advocate. Marketers can identify the preferred channels of communication and determine initial product and service offerings.

Finally, once the above three elements are understood and a company has developed acquisition, cross-selling and retention marketing programmes, marketers need to develop ways to measure results. Companies must develop sales reporting that matches how the customer base is categorised. Instead of traditional product reporting, marketers should develop a top-line report that measures how well the firm acquires new customers and the revenue and profitability of newly acquired customers. The acquired customers should be matched against customers who were targeted to show that their profitability matches the company's expectations.

Existing customers should be measured separately and separated into several categories, including those who will remain profitable with little extra effort; those who will increase profits with little extra effort; those who require effort to retain their current profitability; and those with whom a sustained effort will have a large ROI. By viewing each customer type separately, a company can understand how well its efforts are paying off and how to allocate marketing funds to the various customer categories to optimise current and future profitability.

Lost customers need to be measured as well. The maxim is that retaining and growing an existing customer is more profitable than attracting a new one. But measuring lost customers can reveal whether these customers are actually causing lost profits or if their loss means an increase in profitability. In addition, this measurement can help identify those high-value customers who are defecting and identify marketing programmes to retain them.

Existing systems can take this top-line, customer-oriented measurement method and analyse ways to improve marketing performance. Marketers can identify the products that help acquire new customers profitably, along with the media that attracted those customers. Analyse marketing and advertising over longer periods of time to determine if specific efforts attract more profitable and durable customers. Reallocate funds to efforts that are working and away from programmes that are not achieving their goals.

An average customer does not exist. Customers do not bring profits to companies at equal rates nor do they respond to marketing programmes in the same way for the same reasons. A well-thought-out analysis and results measurement process that illustrates how customer groups provide differing profits and differ in their likelihood to be loyal should be a prerequisite to implementing a CRM system.

The writer is CEO and MD of CustomerLab Solutions