It's the Future, Stupid: Why most CRM systems don't deliver their potential

At the core of any Customer Relationship Management (CRM) system is a very simple idea, you want to tailor your business system to deliver the best experience to those customers with the highest potential future value.  Yet, most firms treat customers differently only based on historical behavior with their firm.  Put another way, using CRM systems to drive your service system is like navigating by looking at the rear view mirror, while ignoring the scene outside the windshield.  No matter how huge and precise the rear view mirror is, it won't help. One of the few companies I know that treats customers based on potential is Harrah's Entertainment. If Harrah's sees you game at the "Diamond Level" -- their highest level of status, they begin to treat you like a Diamond customer right away.  They then track your actual behavior to decide whether or not you deserve this high level of status.  (I think the time period is six months).

Given the fact that wealthier populations tend to die out because the richer cohorts in the society usually reproduce at less than two children per couple (on average), and given the increasing average age of most affluent segments in the US, and Europe, rational managers should change their focus of CRM from rewarding only previous behavior to treating customers better based on potential future behavior.  Stealing the best customers is the leading edge of CRM practice.

What does Harrah's do differently?  Well, first they aim at a different target, they want to dominate the market share of your gaming budget.  They are not simply content to have you return, they want to know that they are the leading source of gaming for the frequent gamers.  Put another way, they measure themselves against the potential value of the customer and their share of the potential value.  Fidelity does a similar analysis.

What does this mean day to day?  Well, if at Fidelity you have a customer with $1,000,000 with the firm, they are a "good" customer.  However, if that million represents only 10% of the potential, that is the customer has $10,000,000 to invest, then Fidelity has done a terrible job, and they know it.

When a firm measures against market potential, they are maximizing their marketing strategy against the best potential value.  Most CRM does not focus on the future, and potential.  Worse yet, those firms that are poor at becoming the dominant supplier may in fact reward internal behavior that is incremental.  You might be growing an account, but losing market share.  This means that the competition will grow even faster than you, and you will never become the dominant supplier of the category you service.

This is especially acute in many consumer goods categories right now.  For example, my myriad telecommunications providers have no idea what share of my phone/cable/internet budget they have.  They are building billions of dollars worth of infrastructure, but their service delivery system has no way to do what Harrah's does, that is, try to understand my potential future value to them, and act accordingly.  Heck, Verizon barely knows that I have 5 cell phones with them along with my land lines.  They are clueless as to what I use for work, and what data card I have.  In fact, they make it difficult to consolidate the service across the entire set of services.

Car companies don't orient around potential future value.  Airlines, hotels, restaurants, even supermarkets whose markets are almost always contested, with the vast majority of Americans living within 20 minutes of two large markets, the entire competitive game is about getting more of the share of the consumer's budget in the category, yet there is nothing in a supermarket's marketing plan, or service delivery that is optimized around gathering differential market share, the way that Harrah's is.

Why is this so hard?  First, it is easier to look at the past than the future.  Second, it is often depressing to see how poorly a company does against potential.  Third, it takes a lot of work to put in place management systems that can take concerted action against potential, and then measure if the potential is being realized.

Yet, it is worth the effort, for the marketing game in the US, Japan and is more about stealing market share, than they are about fulfilling new primary demand (with the possible exception of healthcare).  But, you can't steal share effectively if you don't know the potential value you are aiming at, and CRMs aimed at the past will only make the problem worse.

An Ounce of Prevention is Worth a Ton, Not Pound, of Cure

Marketing Remix (with Antony Paoni)