The Hardest Problem in CRM

26 février

In the age of data and customer-centricity, CRM marketing continues to rely on spam-like tactics. This happens across industries, from retail to travel, from financial services to entertainment. Even luxury brands fall into this trap.

On the face of it, this is literally insane.

Why do so many high-value brands choose to bombard their customers with so many irrelevant messages?

I’ve discussed this topic with dozens of CMOs, CDOs and CRM directors. All of them told me the same story.

In an ideal world, they would get rid of batch-and-blast. Right now, 10% of their outbound messages are truly driven by customer behavior. This is the CRM marketing they’re proud of.

In an ideal world, the share of these customer-driven messages would be much larger than 10%. It would be 50%, or 80%, or 100%.

But CMOs, CDOs and CRM directors are not living in an ideal world.

In this article, we’ll see how to crack the delicate equation between customer-centricity and revenue-driven CRM campaigns. For this, we’ll see:

  • Why CRM is the solution to absorb most companies commercial pressure
  • How Splio predictive marketing solutions can help CRM marketers identify optimal campaign topics, to drive revenue without damaging customer equity

In the real world, CRM is under pressure from commerce

Most CRM messages look like spam because CRM marketing is primarily driven by commercial goals, not customer preferences.

Once they have configured all the trigger sequences and all the automated messages that make sense from a customer journey perspective, CRM teams are very far from having delivered on their traffic and revenue goals.

Each time a spam-like message lands into your inbox, it is the end result of a complex process that was initiated by one of the following two situations:

Situation #1: Someone from commerce, typically a category manager, walked into the room and said: “Hey, I have a new product (or a new promotion) to push. Can you send a newsletter about it?”

In practice, CRM teams often face multiple people making similar demands at the same time. So Situation #1 is more like 12 people walking into the room with 12 competing asks, and the CRM team struggles because they only have 2 slots. The losing content ends up at the bottom of a 5 pages long newsletter (the equivalent of being on page 2 in Google.)

Situation #2: Someone with authority walked into the room and said: “Hey, we’re 3% below our revenue goals. I want you to do something about it by the end of next week. What’s your plan?”

This is the real world and CRM teams have no choice. Because of pressure from commerce and revenue goals, they end up sending way more messages that they’d be comfortable with from a customer experience standpoint.

For many years, the top use cases of Splio customers mostly revolved around Situation #1:

  • Instead of putting a niche offer at the bottom of a newsletter where nobody will see it, what if you could predict which 5% of your customers will account for 80% of revenue on this offer (because they will really like it), and send them a targeted campaign on top of your existing plan?
  • Instead of prioritizing competing campaigns based on politics and gut-feel, what if you could rationalize the decision process and allocate content based on customer preferences and predicted value?

But some of our customers kept talking about Situation #2. We worked with them and recently launched a dedicated new feature. It generated a level of excitement that just blew our mind.

This made us realize how frustrating Situation #2 really was for marketers.

In some organizations, it is a problem that repeats itself week after week after week, although very few marketers would publicly admit it.

Late on revenue and running out of options

When a B2C company is late on its quarterly goals, there aren’t many options around:

  • Adjusting the product offering takes way too long.
  • Jacking up prices is usually stupid and counterproductive.
  • Spending more on acquisition could help, but when you’re below plan it is hard to justify increasing your ad budget.
  • There is only one button that you can always press, that always delivers some degree of revenue boost and that costs almost zero: send another newsletter.

At a very basic level, this explains why so many problems that originate somewhere else in the organization end up on the CRM team’s plate. And it also explains the current sorry state of B2C customer marketing.

  • We have excess inventory on this product?” CRM will help fix that.
  • We must drive cross-sell for this strategic new category that is our future?” CRM will promote it.
  • Our revenue is below plan?” CRM will provide a boost.

The silver lining is that CRM is much more strategic than you would guess by just looking at attributed revenue. Compared to other channels, CRM has a unique blend of agility (it can react super fast), directionality (it can be pointed toward any product or category) and low marginal costs (there is no media cost.)

But CRM teams are in a tough spot. Their mission is to grow customer equity but at the same time they are constantly pressured into sacrificing lifetime value for short-term gains.

Situation #1 is hard. CRM teams usually fend off the pressure with brutal tactics. Too many topics for your newsletter? Put them at the bottom and pretend you’ve solved the problem. Of course this is far from optimal: Splio clients report massive gains from switching to smart tactics based on targeted, data-driven campaigns.

But Situation #2 is the hardest problem in CRM. When it occurs, the CRM team is usually running out of interesting content to push. It is bad to spam your customers, it is much worse to spam them twice with the same content.

Want to know how often CRM teams run out of ideas?

Go to the “Promotions” tab of your personal inbox and count how many emails include a discount or a coupon in the subject line.

Discounts are what marketers talk about when they have nothing else to say. They provide a short-term revenue boost but destroy margins and brand equity. Plus, they are terribly addictive to both consumers and marketers.

Discounts and coupons are the opioid epidemic of B2C customer marketing.

But when you’re under pressure to drive next week’s revenue and you’ve already used all the good campaign ideas, what are your options?

Predicting which marketing topics will work

Splio’s Efficiency Map isn’t the solution to all marketing problems, but it does enable CRM & commerce teams to predictively identify, among all possible marketing topics, the ones that will be successful.

When marketers are challenged to do something about revenue, it provides them with a meaningful answer: Yes, there is something we can do next week that will help with revenue without damaging customer equity (hint: it does not involve a discount or a coupon.)

How does it work? Let’s look at a concrete example. Let’s say you’re in the marketing team at an apparel retailer.

Conventional marketing

In the absence of strong product news and/or promotions, the conventional approach is to run marketing campaigns on your top-selling categories: “Discover our latest jeans, they’re gorgeous!”

If you’re making $100M per year selling jeans but only $10M with handbags, it is reasonable to assume that a jeans newsletter will be more successful than a handbags newsletter.

But guess what: you’re already sending a batch-and-blast jeans campaign every week. Can you really afford to send two next week?

The predictive approach

Once you gain the ability to predict in advance each customer’s likelihood to buy any specific item, conventional wisdom stops applying.

Let’s say that the predicted sweet spot for jeans is a 20% chunk of your customer base, predicted to drive 80% of next week’s jeans revenue.

Should you spam the remaining 80%?

If customer-centricity was your primary driver, you wouldn’t. But for their top categories, marketers often choose batch-and-blast. There is a rationale behind that: you do want to engage everyone, and your top-selling categories are your best chance.

But wait. It gets better.

Your handbags offering happens to be highly segmenting. You can identify a 5% sweet spot audience that will account for 80% of next week’s revenue on handbags.

Now you’ve got your answer: Let’s add to next week’s plan a targeted campaign on handbags, sent to the right 5% of our customers.

Why is it such a great idea?

  • You haven’t done a handbags-focused campaign in ages. You’ve tried it in the past and it was a disaster. (No wonder: your handbags are too divisive for batch-and-blast, 95% of your customers have virtually zero interest.)
  • But on the 5% sweet spot audience for handbags, revenue density is super high. You’re making $8M (80% of $10M) on 5% of your customers. Compare that with your regular batch-and-blast jeans campaign: $100M on 100% of your customers. Revenue density for handbags is 60% higher.
  • High revenue density is a sign of high specific interest. These 5% are probably fed up with your jeans and they’ll be super happy to hear about your handbags.

Net net, adding a small handbags campaign will 1/ drive short-term revenue, 2/ reactivate a bored segment of your customer base, 3/ have a net positive impact on customer engagement and lifetime value.

And of course: when you have something to say that is interesting and new, you don’t need a discount.

Efficiency Map enables marketers to identify and capture opportunities like this one.

At the most basic level, the map breaks down your recent revenue by categories (or subcategories, or collections, or anything you want…):

  • The size of the rectangle corresponds to the revenue.
  • The color represents revenue concentration. A topic like jeans, where 20% of customers make 80% of revenue, shows up in white. A topic like handbags, where 5% of customers make 80% of revenue, shows up in deep blue. The Efficiency Index measures how much better you’re compared to 20/80: for handbags, the index is 4 because concentration is 4x better.
  • What you’re looking for is blue topics (ideally deep blue or, even better, purple), and among them the larger ones (the report also displays other KPIs such as revenue trend.)
  • Based on your marketing acumen and conversations with category managers, it becomes easy to identify the most promising topics.
  • Ready to go? In a few clicks, you can extract the corresponding audiences and export them to your ESP or activate them on any other channel.

The UX is simple and interactive. Under the hood, it is powered by billions of dynamic deep learning scores (all predicted likelihoods to buy, for all customers and all topics, based on all available first party data points.)

We’ve been amazed by the level of excitement this feature generates whenever we show it. Here is how we interpret this excitement.

CRM is a support function that has limited resources and cannot solve all problems. In tough quarters, CRM is often the last line of defense, because it is the most cost-efficient way to drive revenue, and also because it is always possible to do a bit more CRM.

In the past, the inspiration for what’s in the marketing plan has mostly come from product, commerce and brand marketing. CRM and customer insights didn’t really have their say.

In fact, most B2C companies still build their marketing plan in a top-down, product-driven way. But everyone knows that the best marketing is based on customer insights.

In a dream world, the CRM campaign plan would be based on what customers are interested in. Because not all customers are the same, it would be a differentiated campaign plan.

CRM teams will never completely eliminate the pressure to communicate in a product-centric way. Nor will they eliminate the need to drive revenue and send more campaigns than they’re comfortable with.

But with Efficiency Map, marketers can turn the tide. They can start running at least some campaigns based on what their customers really want. And guess what: it works much better this way.