ologies, is a constant target of criticism. Cynicism in the form of humor is usu- ally a precursor to the improvements that fix shortcomings. Some of the sar- castic alternative definitions of the CRM acronym are “costs reams of money,”
“causes real migraines,” and “can’t really matter.” Traditional CI/CRM’s weak treatment of incorporating financial profitability into its analysis is an example of CI/CRM’s shortcomings.
A CRM system may give its users misleading information. Without the facts, system users may conclude that their best customers are the biggest spenders.
With ABM and profitability data, companies are routinely surprised to learn that key accounts can erode product or service line margins with excessive customer support, customization requests, and other hidden costs. This means a supplier’s customers with large sales may be unprofitable! And customers potentially like them may be attracted by a sales force that lacks an appreciation of the large hid- den costs that they can trigger.
Good customer profitability information leads to clearer thinking about where to allocate one’s limited resources. For example, with CI/CRM sys- tems, companies will experiment with customer communication programs de- signed for certain effects. However, if, for example, a company’s revised direct mail campaign attracts teenagers or pension-dependent senior citizens instead of the targeted affluent market, then the campaign’s follow-up costs may never be recovered from revenues. An ABM customer profitability sys- tem detects problems like these. A company’s total revenues might be increas- ing, but are they the right kind of revenues? Perhaps not, if the incremental costs exceed the incremental revenues.
Regardless of whether the focus is on the top line (sales) or middle line (costs), profitability measured by each customer (or customer segment) is be- coming critical. It is inevitable that customer profitability reporting will become standard reporting. Customer profitability reporting, enabled by ABM, brings marketing, sales, operations, and accounting together to analyze and improve customer profitability. By using customer profitability data, the demarcation lines for ROI cutoffs can be drawn, and the CI/CRM systems can stop wasting employee time and the company’s scarce resources on types of customers that are not worth the effort it takes to pursue them. This doesn’t mean making fool- ish decisions about customers. Analytical CI systems should be designed to send into the operational CRM systems customer intelligence derived from the prof- itability data. So, for example, a bank teller should not say to a customer,
“You’ve got a low profit score, so therefore I cannot waive your service charge,”
but rather, “I’m sorry. I can’t waive your service charge.”
Without measures of customer profitability in CI/CRM systems, proclama- tions about CRM and customer value management strategies are, at best, CUSTOMER INTELLIGENCE AND RELATIONSHIP MANAGMENT 165 ccc_cokins_17_151-172 .qxd 1/14/04 10:30 AM Page 165
statements of good intentions. One should not construct one-to-one customer propositions, a CRM tactic, unless one understands the profits and profit po- tentials of individual customers and their expected behavior from the proposi- tion. Beware of unintended consequences. CRM systems are a promising start but not the final bell. Without the measure of customer profitability, CRM sys- tems have not fulfilled their potential.
Without customer profitability data, the team using a CI/CRM system may potentially be investing greater effort and resources which, even if successful, may also be permanently unprofitable. For example, the sales function can possi- bly be selling more, earning higher commissions, yet producing lower overall profits. How? As we learned in Part Three, this can result if the mix the sales force is selling shifts from profitable to less profitable (or unprofitable) products and services. At a minimum, ABM provides data to prioritize where sales efforts should be invested.
Companies who already have ABM cost measurements can advance their ap- plication of CRM to determine if a customer is spending, or will spend, enough on the right items to warrant a higher marketing effort. Alternatively, an ABM- enabled supplier can adjust its marketing effort, including its level of marketing expenses, to optimize the expected profit from a customer segment—not more or less than is needed to maximize the return.
So why should ABM be combined with CI\CRM? CRM systems are ex- tremely customer-centric, whereas ABM is work-centric. CRM cares about cus- tomer feelings and preferences. ABM pays attention to how product and customer diversity both require and consume greater resources. In isolation, op- erational CRM provides a partial picture. When combined with ABM, CI/CRM gives a fuller picture. This allows a change in mind-set for the marketers to re- build customer behaviors on a foundation of fact.
Together, ABM and customer profitability analysis provide a basis for man- agerial decision making and actions. The information available from these meth- ods is essential to attain corporate goals and strategies and to increase profitability. The company can diagnose, understand, and alter its programs’
costs. As a bonus from analyzing customer profitability, the costs of poorly de- signed internal processes can be highlighted with the likelihood of removing profit-harming effects otherwise undetected. Customer relationship management systems without ABM are limited.
The success of ABM and customer profitability reporting systems can be measured as much by the employee awareness these systems raise as by the deci- sions and actions they directly affect. The analysis, discussion, and understand- ing of the drivers of customer-related costs can motivate managers to improve their own performance.
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