A look at CRM and CRM strategy from a Customer Value perspective

In the past decade, technology capabilities have surged forward in Customer Relationship Management (CRM) in the Retail and FMCG industries. Data technology allows the CRM team to track customers’ behaviours throughout their journey, gathering valuable first-party data. Growing analytical capabilities empower CRM teams to extract customer insights from data that inform future marketing decisions and activities. CRM and loyalty software allow customer segmentation, personalisation, and campaign automation at a much lower cost.

CRM has transcended beyond mere product-catalogue-style emails and has evolved into a sophisticated marketing practice, teeming with technology jargon and data science intricacies. No wonder people find themselves perplexed about what CRM is nowadays.?

SO WHAT IS CRM NOWADAYS??

My preferred definition of CRM is “Customer Value Management” because it precisely captures the primary objective of CRM (the term “relationship” can be ambiguous, leaving room for various interpretations. And as I often say, if you can’t align on the definition, you can’t define the strategy!).

• Customer value is the total amount of money a customer spends with a brand within a certain time frame, plus intangible value a customer can bring to a certain business such as recommendations and referrals.?
• Customer value management is the practice of segmenting customers, strategically allocating investment across various customer segments, and engaging different segments based on their preferences and behaviours, to maximise long-term customer value.

The goal of CRM and the activities included in CRM remain unchanged. However, what has evolved significantly is how to do CRM - today, CRM strategy and activities are heavily guided and driven by data. Therefore, building a CRM strategy is a cross-disciplinary practice with marketing, data analytics, and technology teams. ?

PRINCIPLES TO BUILD A CUSTOMER VALUE FOCUSED STRATEGY

1. Cross-functional effort

Although the Marketing team traditionally leads CRM strategy, it now requires a cross-functional approach to ensure the strategy is comprehensive and actionable to maximise the potential of CRM activities.

For example, as I wrote earlier, the CRM team can track customer behaviours throughout the entire customer journey. This wealth of data enables brands to understand the customer experience end-to-end, design personalised campaigns, and identify opportunities for further growth. However, tracking customers’ behaviours requires Technology and Data teams (depending on a business’ structure) to lay the foundation at the back end - not only do the teams need time to tag customers’ activities, but the businesses also need the right technology platforms to store and clean the data.??

It is critical to ensure CRM tactics are achievable by the existing platforms and data capabilities. And it is important to align CRM ambition, strategy, and targets with technology and data roadmap.

2. Differentiating customers?

Differentiating customers is the cornerstone of CRM strategy to maximise customer value. CRM leaders need to acknowledge that not all customers are equally valuable. It doesn’t work for brands to try to deliver the optimum customer experience to every customer equally and simultaneously - it just isn’t doable. This would only strain budgets and lead to a generic, unsatisfactory experience across the board.??

Thanks to new technology capabilities, CRM teams can calculate customer value on a more granular level, such as the value of an individual customer, or aggregated value at a channel-specific level. For example, they can distinguish the customer value of those purchasing on the brand app versus those using the brand website. This helps identify which segments or sales channels hold greater value and bigger growth potential. Brands can differentiate customers in many different ways. Regardless of how brands choose to segment their customer base, differentiation helps address three strategic questions:

• Which group(s) of customers is the priority??
• How do you allocate your budget and your team’s resources to manage different groups of customers??
• What contents and activities should be activated for each group

3. Establishing two sets of KPIs

Establishing targets and KPIs is a crucial step in crafting any strategy. When developing CRM strategies, it's essential to consider two sets of targets:

• Commercial KPIs, such as total revenue from CRM customers, incremental revenue, and profit. f you have a loyalty programme, it is especially important to set a profit target so you can manage redemption costs effectively. These commercial KPIs must align with broader marketing or business objectives.
• Customer behavioral KPIs include purchase frequency, average order value (AOV), subscription numbers, and email open rates. As CRM activities aim to influence customer decisions and behaviors, this set of KPIs serves as a direct measure of CRM campaign effectiveness. Notably, these customer KPIs should roll up to commercial KPIs.?

It is important to note that the prerequisite for defining targets is to collect baseline performance data. Understanding your customers’ current behaviours is vital for charting the path toward your desired outcomes. I typically recommend brands start to gather baseline data, ideally, for six months before defining targets.

4. Including data gathering in your CRM strategy

We all know the importance of first-party data and the remarkable insights it can provide. But I want to share a pragmatic perspective - no matter how much data you have collected, you will always find yourself saying “We need more data to explain this!” I worked with a longstanding loyalty program that has millions of members' data spanning over a decade, and my team and I frequently encountered scenarios where we couldn’t fully answer certain business questions due to data limitations.

Therefore, data gathering is an always-on activity for CRM teams and it is important to make sure to integrate data as part of your CRM strategy. CRM leaders need to collaborate with the Data and Analytics team (or relevant teams depending on your company’s structure) to capture what data is needed, how the data should be gathered, and when the data can be used for analytics.

FINAL THOUGHTS

The objective of CRM activities has not changed - it is to manage and grow customer value. However, how we do CRM has evolved significantly due to the advancement in data and technology capability. To develop a data-driven, robust, and actionable CRM strategy, CRM practitioners need to closely collaborate with cross-functional teams, set up proper performance tracking, and integrate data strategy into the CRM strategy.?