After you've built a data warehouse, how are you going to get value from it?

To Andy Frawley, president and CEO of Boston-based Exchange Applications, the answer is obvious. Use warehouse information to optimize the value of customer relationships. But how?

Frawley and his company claim to have the answer to that as well: apply some level of their Value Exchange Optimization methodology which helps companies understand the value they receive from individual customers in exchange for the dollars invested in those customers. This information will enable firms to make smart investment allocation decisions, focusing marketing initiatives on customers with the greatest profit potential.

Companies must then apply marketing and campaign management applications that can derive and execute programs customized for different customer segments, all with high profit potential. These marketing campaigns coordinate customer communication across many otherwise disparate customer touch-point channels--not just direct mail and telemarketing, but customer care, point of sale, e-mail, interactive Web, sales force automation systems, branch office, etc. "For best results," Frawley says, "the trick is to execute multiple direct marketing campaigns that run continuously to positively impact customer behavior and manage customer relationships throughout their life cycle."

Many data warehouses, in Frawley's opinion, may be unable to deliver enterprise customer management. He cautions warehouse builders to make sure that their warehouse model and construction will support and automate the marketing process needed for the future. "Too many warehouses are designed to satisfy decision support applications but fail to contain enough granular detail on customers. Without that detailed understanding, you will be unable to manage customers down to an individual. Forget about doing that much-talked-about enterprise customer relationship management," Frawley states.

"Customer management is seminal to how companies are thinking about their business. Every management consultant worth his or her salt is telling companies to become customer focused. Companies that can actually think about their business from a customer-centric perspective and actually put processes in place are the companies that will be able to come up with an economic model of customers," explains Andy Frawley.

About three years before founding Exchange Applications, Frawley helped start a management consulting company called Exchange Partners. That group's goal was to generate the next new way of thinking about business. The hypothesis was that a company should be based around customers--that you could build a whole business model around customers, how customers behave and the economics of customer relationships.

Realizing that marketing software would be needed to turn this knowledge of customers into ROI-related action, Frawley spun off Exchange Applications in January of 1995. The advent of data warehousing and the rapid advancements in technology contributed to the development of the applications envisioned by Exchange Partners. Says Frawley, "We were seeing a radical change in technology. We were seeing breakthrough developments with the combinations of the parallel databases and the parallel hardware. So suddenly you could actually put 20 million customers in a database and do something with it."

"The origin of our company name relates to the issue that a customer relationship is a very complicated thing. It is an exchange of value. In exchange for a monetary sum, the customer purchases a product or service. Our goal is to assist enterprises in the management of these value exchanges. Anytime you're sending a message to customers, that's a component of the value exchange. Exchange Applications plays off of the notion of exchange of value, and our ValEX product name is shorthand for value exchange," explains Frawley.

Exchange Application's first year was devoted to product development. In the beginning of 1996, ValEX, the software, went into beta and into general availability that summer. ValEX software provides an open, integrated suite of marketing and campaign-management applications that collectively automates an organization's complete marketing process from planning to campaign execution, evaluation and refinement. "ValEX is a major production application--and you don't see many of those in the data warehousing world. Basically, it's a set of applications that help manage a customer relationship. It's planning customer actions and executing them in the form of a campaign," states Frawley.

Frawley stresses the importance of maximizing customer value. "The value you invest in customers and prospects must be commensurate with the potential value to be received," says Frawley. He adds, "Many organizations cannot identify the current and potential value of their customers." According to Frawley, most organizations are achieving only a fraction of their full profit potential. ValEX enables organizations to conduct targeted campaigns and then analyze the results of the campaign so it can be refined to provide an even greater return on investment. Additionally, ValEX has the ability to conduct and track multiple campaigns to multiple customer segments simultaneously.

To maximize customer value, especially in organizations with hundreds of thousands of customers, enterprises employ tactics such as direct mail campaigns. What ValEX provides for these enterprises is the ability to get value from the data in their data warehouse or marketing data mart. Frawley explains, "Right from the beginning, we had this philosophy that the warehouse by itself was not going to be enough. You build a customer information warehouse or data mart which will give you information. You do OLAP and data mining and that will give you some knowledge. But that knowledge is absolutely worthless unless you can take action. And the only way you can get action is to integrate this capability in with the business process so the business people use it. For example, you can have a genetic algorithm saying there are 247 people in Boston that will buy a sports car in the next month. But if you can't go get those people, if you can't get the message to them, if you can't give them a very compelling offer, where is the value? That's what campaign management does. It let's you take those facts and knowledge and drive interactions out to the place that companies touch their customers--the mail, the phones, the Web or the retail location." "Marketing today is very complex and there is tremendous variability among customers. To be successful, you need a process--and it is a massive exercise in multivariate testing. If you need to test a thousand different price variants or offers to different segments and if you can decrease the cycle time from idea to design, execution, measurement and improvement from six months to two months, you've got six floating iterations a year instead of two. And it's compound interest--it grows exponentially," Frawley states.

"Philosophically, value exchange and our core intellectual property--which we call Value Exchange Optimization--suggest that you should look at the capacity and value of your relationships. And then, you should invest not just against current value, but potential value. With our product you are able to understand the economics of customer relationships, measure customer value and ultimately provide incentives to change their behavior. And, in the marketing world, you need to do that, because you can't increase your value organically. It's a very competitive world," emphasizes Frawley.

Frawley is quick to sing the praises of the team he has assembled at Exchange Applications. He says, "I have this kind of mosaic management approach that you have to go out and get the different parts and fit them together like a jigsaw puzzle. That has a skill-set aspect to it and it also has a work-style aspect. I have worked hard to find a team that complements each other in style, competency and focus. It has worked very well."

Early in the development of ValEX, Frawley recognized that the firm would benefit from additional competency in actually implementing the data warehouse that would serve as the information store for ValEX. He explains, "In all candor, I was seeing a fair amount of quality problems in the implementation of data warehouses, and we didn't want to put the business in the hands of someone else. I recognized that we had to have strong technical competency in actually implementing the infrastructure. We added Wayne Townsend who came from Epsilon, and Wayne has since built up a talented staff of data warehouse professionals at Exchange Applications."

Exchange Applications is unique, according to Frawley, because they are so focused on the solution and the process. He explains, "That focus flows through the product as well as the features and the functions of the product. It flows through the 40 percent of our business that is services, and we are proud of that. There are a lot of software companies in the app space that are trying to get rid of the services part of their business, but I'm proud of our services product. We wouldn't have 100 percent referenceability if we didn't have that services group. The competency we have there is just remarkable," he concludes.

Assembling the Exchange Appli-cations team has been an ongoing process for Frawley. "We've grown from 40 employees at the end of last year to 120 today. We have about 100 employees in our Boston office and ten in London. And, we've just opened an office in Denver with another 10 employees. We've grown 300 percent each year since we started," reports Frawley.

It keeps him busy and provides him with great satisfaction. He relates, "I like the opportunity to do different things. And I love the technology. I like to keep my fingers in the product--functionally as well as where the world's going from a warehousing perspective. I have a database background, so I really enjoy understanding how all the technology really works and how it keeps evolving. The sense of accomplishment in a situation like this is enormous because we're breaking new ground every day!"

Developing a quality product and a quality organization is not easy and requires an enormous investment of talent and energy. He has not accomplished this single-handedly, but with the concerted effort of all of the employees--who obviously recognize a good thing. Frawley explains, "In three years, I think we've had only 4 or 5 people leave. That's one of the reasons we have been able to sustain our rapid growth. We have virtually no attrition in the employee base."

Frawley's only regret is that there is always more to do than there is time to do it! A familiar complaint in the high-tech world.

But he does find time for his family. "I actually do a very good job of not working on the weekends. During the week it is tough with all of the travel, but I don't do a lot of work between Friday night and Sunday night. Most of my spare time is doing family things with my twin five-year-old daughters who are as identical as they can get. And their value to my wife and me is already optimal."

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