Spending on customer relationship management (CRM) will soar from $23 billion in 2000 to $76.3 billion in 2005. This estimate from Gartner assumes that clients committed to CRM will be successful in reaping the greatest returns on their investments.
To achieve these elevated returns, companies implementing CRM will have to view their markets as consisting of buyers with differing needs, economics and propensities to try new products and services. Cost-effective and profitable CRM, whether in B2B or B2C, is linked to an in-depth understanding of each customer's motivations. Knowing why targets want a product or service and the meaning it has for them enables companies to target only receptive customers in their databases.
Together, demographics and behaviors account for perhaps 40 to 60 percent of the reason why someone purchases a particular product or service. The rest of the purchasing equation is propelled by the buyer's attitudes and motivations. Demographics can tell us, for example, that a person can afford to buy a product. In the luxury car market, for example, only 15 percent of those who can buy such a car actually own one. It is motivations that differentiate those who are receptive buyers of luxury vehicles and explain this gap. When no behavioral data exists, as in the case of a new product or service, an in-depth understanding of a market's attitudinal or motivational segments is absolutely critical.
A profitable CRM program focuses on targeting qualified segments with differing motivational needs determined by an attitudinal segmentation study. Such a study explores not only buyers' motivations, but optimally ties them to behaviors and demographics, media and Internet usage, as well as other sources of information. Together, all of these critical insights concerning potential buyers gathered from one study provide the most actionable profile of the most profitable buyer.
By understanding how all of these dimensions work together, companies can prospect more effectively, position their offerings more relevantly and ultimately sell more. This type of research study can be applied to a wide range of marketing problems, including database marketing. Entire databases, for example, can be classified into attitudinally based segments through the use of models that correlate demographics and behaviors with targeted motivations. Because buyers' needs are being met more precisely and they are receiving messages they consider relevant, the goals of cross-selling and up-selling will be more easily achieved.
In this article, we will use an actual study of executives who influence the purchase of CRM products and services to illustrate this process. Typically, industries are segmented by the grouping of companies in some logical way (e.g., by SIC codes or revenues). Another common way to organize a segmentation is to use statistical analysis to arrive at a set of variables that group companies based on the ways in which they conduct business. The study described in this article is unusual because it created segments based on executives' attitudes and motivations.
Commissioned by Interelate, Inc., a business service provider (BSP) specializing in CRM consulting and hosting, the study was completed in the fall of 2000. This national study of CEOs, CMOs, CFOs, CIOs and sales executives sought to understand the market for CRM. The study was conducted by Strategic Directions Group, a St. Paul, Minnesota-based firm specializing in segmentation research. A seven-page questionnaire was completed by 244 executives at companies with median revenues of $750 million concentrated in financial services, travel and leisure, retail, pharmaceuticals and Internet commerce.
The research determined what would motivate executives to implement CRM strategies and how they would do so. A comprehensive picture of the market was achieved by correlating attitudes with the companies' current CRM practices, as well as their revenues, IT budgets and other attributes.
CRM has many meanings to many people. In general, it focuses on relating to each customer or prospect in a way that strengthens the relationship between the seller and the buyer. The strategy requires measuring each customer's value to the enterprise, storing all relevant transactional data and ensuring positive contacts. Implementation of such a strategy requires a significant technological investment in computing hardware and software, personnel and customer contact systems. A major effort is required to make these contact systems, generally called touchpoints, easy to use and relevant to the buyers.
Abbreviated descriptions of the five attitudinally based segments developed from this research project follow, along with a few of their attributes. To protect key proprietary findings, some attributes are not disclosed. The data provided illustrates how this type of segmentation can yield information critical to effective positioning, database marketing and product/service design.
As the name implies, this segment is extremely sophisticated and technologically savvy about database marketing, CRM, IT and application service providers (ASPs). Real-time recommendations using knowledge about the customer to tailor offerings over the Internet or in call centers appeal to Internal Sophisticates.
Internal Sophisticates feel pressured by competition to make more effective use of databases and become more targeted in customer acquisition. Internal Sophisticates see their IT departments as having CRM as a top priority and being able to provide any insights about CRM the organization requires. Because of their confidence in their IT departments, Internal Sophisticates are adverse to outsourcing. Internal Sophisticates are open to consultants with new analytic methods who can help them increase the effectiveness of their CRM efforts.
This segment claims to have no data-handling problems; the IT departments are able to cope with all database needs. The No Needs consider themselves to be technically savvy and believe they know the type of insights they need to extract from their customer databases.
Unlike Internal Sophisticates, No Needs are hostile to consultants as they believe consultants don't live up to the expectations they create. They see outside resources for CRM as unresponsive and working for their competitors. The likelihood of a sale to the close-minded No Needs is remote.
It's critical for this segment to identify profitable customers and increase the profitability of marginal customers. The Low Priorities do not see their companies' overworked IT departments sharing these concerns.
Those in this segment own up to a lack of technical expertise. Integration of all customer data to make their CRM programs work more effectively is not a critical need, nor do those in this segment feel pressured to gain more insight from customer databases.
The Low Priorities do not know much about outsourcing to an ASP. If they did use an ASP, it would only house their customer data, not analyze it. The Low Priorities claim that their problems are unique and require custom solutions.
The ASP Interested, who consider themselves very technically savvy, admit they have data handling problems and are convinced that their data can yield greater insights. Those in this segment are willing to use off-the-shelf software to gain insights into their customers now, rather than wait for the perfect solution.
The ASP Interested would like to use consultants to help them determine how to apply and use insights from customer files. They are highly familiar with ASPs and would outsource their CRM. An ASP performing high-level analytic tasks would free them to focus on their core business.
As their name suggests, the Boxed are constrained by overworked IT departments giving CRM a low priority, the inability to find help to make greater use of customer files and intransigent organizations. Even having an ASP host their data would meet with considerable opposition from many in their companies.
According to the Boxed, their managers are frustrated by attempting to obtain CRM information from overworked IT departments for whom CRM is a low priority. The Boxed believe they have significant data-handling problems, but don't feel they require custom solutions.
Correlating Attitudes and Behavior
After determining the segments, Interelate had to evaluate the differences between the segments based on company characteristics, personal attributes of decision-makers and other easily measurable variables. With this information, Interelate recast the company's strategic vision and was able to direct its sales force to present its integrated CRM business services so they would be relevant to potential clients in its target segments.
While the study we have described was conducted on individual executives at various corporations rather than the corporations themselves, it is frequently the case that a corporation's culture drives it to hire persons who are often concentrated in a few segments. These persons naturally seem to "fit in." While it is also true that several executives typically impact the purchase of a corporation's products and services, a salesperson faced with multiple decision- makers can only benefit from knowing the specific motivations of each person surrounding that purchase.
Imagine a salesperson from a BSP selling CRM products and services in a meeting with three executives: one is a No Need, another is an ASP Interested and the third is an Internal Sophisticate. A salesperson can identify what is driving each of these executives regarding CRM services by relating their motivations to the segments. The salesperson might first work to diffuse the No Need. A key point of division between the two remaining executives is the fundamental question of outsourcing itself. If the salesperson can focus discussion on that area and propel a resolution, he or she has a better chance of making a sale.
There are significant demographic and behavioral differences, including company size, between the segments. As shown in Figure 1, more of the Boxed work at the largest companies with revenues above $250 million, as compared to the other Interelate segments. Their attitudes indicate that they are frustrated by organizational intransigence, often a problem in large bureaucracies. The Low Priorities work for the smallest companies, 57 percent of which have revenues of under $250 million.
Figure 1: Size of Company Affects Attitudes
By combining a variety of attributes, Interelate computed mathematical models in order to identify prime prospects in their customer relationship database. By combining primary research with customer databases, a powerful method for efficient marketing is created that can be applied to customer acquisition, cross-sell, up-sell and pricing.
Marketing to Attitudinal Segments
It should be clear that some of the five segments are prime prospects, while others are a waste of time. The Internal Sophisticates and the ASP Interested are the most relevant segments for selling CRM products and services. The other segments do not believe CRM is an important priority for their organizations or, in the case of the Boxed, are hemmed in by their own bureaucracies.
Pairing attitudinal segments with demographic and behavioral data means that a marketer has three major marketing variables under his or her control.
Product: Knowing what the segments want provides direction for product design, pricing and packaging. For example, BSPs offering CRM solutions have to provide the ASP Interested with packaged solutions that interface seamlessly into their IT operations. Internal Sophisticates are more interested in acquiring leading-edge custom software and hardware to be used internally by their own IT departments. With a particular interest in real-time recommendation, systems offered to this segment must have this capability.
Message: Different advertising campaigns or sales messages can be crafted to appeal to the most important motivations of critical segments. Internal Sophisticates need to hear that CRM products will allow them to be far more targeted in their customer acquisition efforts, thus enabling them to cut costs a major concern for this group. The ASP Interested would relate to a message from a BSP regarding how its services would relieve an overworked IT department of the burden of running both the transaction-based operational system as well as the more specialized analytic system used for CRM efforts.
Media: Communicating the relevant message through appropriate channels is critical to CRM. Specific appeals can be sent to each customer, depending on his or her attitudinal segment. Combining propensity-to- buy scores with classification in a particular attitudinal segment results in a powerful way to target customers with the greatest payoff. If the data mart contains information about conference attendance, periodicals read and sources of information, multiple channels can be used to communicate the appropriate message to the prime prospect.
Not all buyers are equal. This premise is the essence of segmentation. By understanding which customers and prospects represent the greatest potential profitability to the enterprise, companies can plan strategy and implement tactics to reach them.
CRM philosophy dictates that companies differentiate their customers and customize their offerings to make the customer experience as positive as possible. To ensure that this will happen, companies should organize their CRM data marts around attitudinally based segments. In this way, product planning, message development and media selection can all work together to ensure that customers will be delighted and the greatest profitability will be attained.
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