An article from Dr. Björn Goerke, Co-Founder & CEO CrossEngage
Considering the ROI when deploying a new marketing solution makes sense and is a necessary step. But customer-centric platforms that fundamentally revolutionize communication and processes in marketing only show their full value in the medium and long term. However, this does not make them any less important. In fact, if you miss the decisive step toward customer centricity, you will lose everything at some point.
After decades of experience in software implementation, our CEO Dr. Björn Goerke shares his insights regarding the urgency of this development given the right set of expectations.
It is not about ROI – it is all or nothing. That sounds dramatic, but it is true. We have been seeing a huge transformation for years. From static product centricity, companies are increasingly aligning strategy and operations towards the needs of their customers. This is being achieved with differing degrees of success. The mail-order company Otto stands out as an example of best practice in Germany. With the discontinuation of the Otto main catalog in 2018, it initiated an impressive development toward holistic customer centricity.
Data as The Key to Good Customer Experiences
In recent years, Otto has managed to optimize and expand the structure and business models of its online marketplace on many levels. In particular with the diversification of their partner and advertising opportunities for suppliers, Otto has succeeded in taking a decisive step forward: Customer access and customer relations, and thus probably the most important asset of modern marketing, run under the name of Otto. For example, through extensive offers for search engine campaigns, but also by taking over the purchase and order processes for partners, Otto succeeds in expanding its reach and actively managing and expanding customer relationships. The generated customer-related data is in turn used by the mail-order company for optimized customer experiences and thus valuable offers for the platform’s customers, which massively increases customer satisfaction. As a result, Otto has succeeded in optimally exploiting the advantages and opportunities of e-commerce and consistently aligning structures and processes with the needs of the end customer.
The Potential of Customer Centricity
The end of large, heavy print catalogs was a strategic milestone in the transformation to true customer centricity, and not just in Otto’s history. For the marketing program, customer-centricity means understanding customers as good as possible at all times and choosing the optimal way to address them, tailored to their individual needs, actions, and customer values. A large, widely distributed catalog does little to meet the individual needs and preferences of individual customers and also generates high costs and unnecessary paper waste. Some of our customers also continue to rely very successfully on the format, but it is being integrated into a concert of marketing activities more and more efficiently. In this way, customers are addressed in an optimized way concerning their individual predictive value and their respective needs and preferences. Especially against the backdrop of rising customer acquisition costs and the trap of the platform economy, customer-centric orientation is currently rapidly gaining in importance. For this, all signals of the customer must be understood in the best possible way – How can this succeed?
How Does Customer Centricity Succeed?
“Imagine you could always make the best possible decision in the customer relationship at any time. How much would that raise the lifetime value of each customer?”
Otto has been able to make the most of current developments. But how do companies succeed in taking the step toward customer centricity?
The beginning of every thought and process in CRM should always be with the customer. What does he/she expect, how does he/she behave, how profitable is he/she likely to be for the company, and how do I take the customer relationship to the next level?
To figure this out, marketers need to capture the customer’s signals and activities in dedicated profiles. In customer analysis, purchase activities are still classic drivers. After all, for most customer situations, the information about whether a customer spends money is very valuable. But there are many more that relate to the person, behavior, product, and media usage of the customer. What data can be collected is highly related to the business of the company conducting the advertising. Online driven business models will be more likely to be able to use data from store and app interactions, retailers might be able to track the use of loyalty cards.
To use all this data, the next step is to make it available. Customer data management platforms effortlessly capture all first-party data from every online and offline touchpoint in real time.
The signals underlying the data must then be understood in their entirety in order to make the right decisions for CRM activities. To penetrate every single customer relationship in depth is simply not possible in manual work. Concepts such as RFM (Recency, Frequency, Monetary Value) or simple algorithms have been used in the past. But these rigid and rough decision-making systems are now considered obsolete. Intelligent, customer-centric marketing management requires complex decisions that have to be made in real time, around the clock, and possibly on a global scale. Often there are hundreds, sometimes even thousands of so-called touchpoints at which decisions have to be made. Without automation, this is simply impossible.
In order not to lose orientation in the multitude of possibilities, the decisive key figure for calculating the most precise, individual, future-oriented, and economically optimized decisions possible is the future customer lifetime value (predictive CLV). It predicts the future value of each customer on the basis of complex relationships in the data and can be fed into campaigns in real time as a basis for decision-making.
The Right Platform
We still observe a strong ROI focus when implementing our Customer Data and Prediction Platform and using our No-Code Predictive Model Builder to make these decisions. Whether solved in-house or through third-party vendors, there are costs associated with customer-centric technologies and processes.
Does the lift created ultimately justify the cost? This is a fundamental question that should be asked. If, for example, you perform worse in individual use cases using machine learning (ML) algorithms than with the known methods, there is almost always a fault in the configuration of the machine learning or in the design of the campaign.
Today’s algorithms are so highly optimized that worse performance is simply not possible when implemented correctly.
However, if you take an ROI view of the software deployment too soon after implementation, you run the risk of significantly underestimating the actual value. If, for example, companies achieve relatively little lift with our no-code predictive model builder in a single use case compared to conventional selection methods such as RFM, then an ROI analysis may come to the damning conclusion that the use of the customer data and prediction platform is not worthwhile. However, initial approaches often fail to open up the immense medium- and long-term value proposition. The use of customer-centric technologies offers the opportunity to align customer management in a sustainable way in the future. Only the extensive examination beyond the purely technical components enables a meaningful measurement of success. In our experience, the following scenarios are a good starting point.
An exemplary use case raises the question of new customer development, first to second order. RFM evaluation methods are hardly effective here. By definition, all customers have a low recency at this stage. In addition, they all have the same frequency and the first shopping cart is usually relatively small, so there is still little opportunity to differentiate between customers using monetary value. However, the first purchase already contains an extremely large amount of information. Which brands and what sizes were ordered? Which channel was used to establish the customer relationship? What is the (estimated) age of the customer? These and many other pieces of information together provide important insights into the development potential of the individual customer relationship – right from the first order. Imagine the competitive advantage of investing in the right new customer relationships and thus reducing scatter losses.
This principle applies to all use cases and touchpoints along the customer lifecycle. Anyone who can (automatically) make the best possible assessment of their customers at any time in order to optimize their marketing and CRM activities in terms of customers and budget will make the leap to customer centricity.
Here is the chance to lift your own company to a whole new level of competitiveness. A saved voucher here, a switch to prepayment there because the risk of returns is high, and then again keeping a customer from leaving because you recognized in time that the customer relationship is in danger. And all of this is done automatically and on a customer-specific basis. Determining the positive added value of a software and its long-term ROI in different scenarios is the key to success.
It is all about customer centricity – and therefore about all or nothing.
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About the author: Dr. Björn Goerke is Co-CEO of CrossEngage and responsible for corporate development. He has been focusing on data science for 15 years and has made it his mission to bring this topic into the corporate landscape. He holds a Ph.D. in quantitative marketing from the University of Kiel.