Connected CRM: Implementing a Data-Driven, Customer-Centric Business Strategy

Preface

There is only one valid definition of business purpose: to create a customer.

—Peter Drucker

It's been 60 years since the prolific Peter Drucker declared, Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.

After all this time and boundless technological progress, Drucker's fundamental truth still holds, maybe even more so today. Simply put, I believe when companies embrace an approach based on customer strategy as a business strategy, they can create sustainable competitive advantage.

I've spent more than two decades entrenched in the customer relationship marketing (CRM) business. And although CRM has always been centered on the objective of improving relationships with customers, it has evolved from CRM 1.0, which was heavily focused on the software and technology required to manage customer relationships, to the present-day CRM 2.0, which is more about the experience. Today's focus is more about creating a direct dialog with our customers, maximizing their lifetime value, finding new customers who behave like our best ones, and ultimately maximizing return on marketing spend and shareholder value. So what qualifies me to write a book about it?

Well, I think it's safe to say that marketing executives aren't like firefighters and rock stars. Little kids don't grow up aspiring to become CRM gurus, and I'm no exception. But as it happened, I did aspire to be an entrepreneur. Instead of doodling on my notebooks in school, I was constantly sketching product designs, business plans, and organizational structures. In fact, from the time I was eight years old, I knew my purpose in life was to be a business owner. It didn't really matter what kind of business; in fact, my first proprietorship was a landscaping company that I started in college. When I was 22, I went to work as a broker for a Philadelphia-based investment bank, with the ulterior motive of finding a way to acquire a business that had a potential for greatness.

At the time, I had a client who was looking to sell his small data processing company, called Merkle Computer Systems, Inc. Having been unsuccessful at convincing him to let me represent him in the sale, I began to consider the possibility of buying it myself. With the help of an investment from another client, I began the process of acquiring Merkle in a leveraged buyout. Before I knew it, at the age of 25, I was the CEO of a $3 million company, operating in an industry about which I knew virtually nothing. As Merkle's twenty-fourth employee, I underwent the usual onboarding procedure, with sink-or-swim training on the company, industry, and business process. What had I gotten myself into?

By the early 1990s—as data collection and management methods improved and analytics became more sophisticated, working together to inform marketing programs with targeting strategies that made response rates soar—the direct and database marketing industry began to explode. I was hooked. I could see the boundless opportunity before me, and I could visualize Merkle's potential to stand the test of time. Toward that end, my unwavering objective has been to assemble a world-class team with a common commitment to building a great company and becoming a market leader. Staying at the forefront of innovation, we evolved from data processing to database marketing to customer relationship marketing, developing solutions that help the best brands in the world build competitive advantage.

Ours was one of the first marketing services companies in the industry to introduce analytics as a core service offering, attracting iconic brands such as MCI, Procter & Gamble (P&G), Marriott Vacation Club, British Telecom, GEICO, Capital One, and Dell, to name a few, who effectively launched Merkle as a brand. Many are still clients today. And with consistent 20-plus percent compound annual growth, our company has become a $350 million enterprise, placing it among the ranks of top global CRM agencies.

In my career, I have witnessed the ongoing evolution of data, analytics, and technology. As these disciplines have gained momentum in their ability to improve marketing performance, they have made an irrefutable impact on enterprise as a whole. It's true that a highly targeted, accountable, and measurable approach enables personalized customer experiences that today make true customer centricity a reality. These optimized experiences solidify relationships, encourage loyalty, and cultivate advocacy.

Consumer expectations and buying behaviors are evolving, and it's not just about the media and channels they use to interact with brands or about how tech savvy they are. It's also about a loosening of the reins with which they control their information. Today, there are generations of consumers who have grown up in the digital age. They never knew a life without the free flow of information and therefore don't feel as threatened by it. These and other dynamics are making it possible for marketers to access vast new streams of reliable customer data. Companies that use this data and master CRM as an organizational competency will thrive. To do this, brands must put the customer at the center of their business strategy. What marketers have been talking about in theory for more than a decade is now a reality. We now have the power to communicate with individual precision to the right person with the right message at the right time through the right touchpoint.

I think it's safe to say as marketers we all have an appreciation for the value a customer-centric approach brings to the success—indeed, the survival—of our businesses. In fact, I would venture to declare, to that point, that most readers of this book will say, You had me at hello. So I've written Connected CRM: Implementing a Data-Driven, Customer-Centric Business Strategy to go beyond the what and why, with the intention of helping businesses delve into the how. How to gain vital executive sponsorship, develop overarching customer strategies, define measurement platforms, execute campaigns, and make the necessary operational preparations that will bring a customer-centric business strategy to life—in other words, how to monetize your customer strategy.

Acknowledgments

For several years now, I've wanted to write a book about the role that big data, digital, and technology play in driving customer centricity. A great deal of patience and the help of the best team in the business have proved over time what I've always known in my gut to be true: Building customer strategy as a business strategy is instrumental in fueling sustainable competitive advantage for companies. For 25 years, I have worked with colleagues whose passion for world-class customer relationship marketing (CRM) runs as deep as mine. I could realistically list a few thousand contributors who have come and gone throughout the history of Merkle's CRM evolution, influencing the philosophies that our company is built upon. And although the indirect contributors are too numerous to mention by name, a handful of individuals have lent their time, talent, and unequaled expertise specifically to the creation of this text, and to them I'd like to extend my appreciation.

To my venerable team of executive partners who work side by side with me each day, with the single-minded goal of building a great company, molding the foundation upon which Connected CRM (cCRM) is built, and guiding our team through its evolution: Thank you to Craig Dempster, Steve LaValle, John Lee, and Will Bordelon for your roles in framing this book and helping me set the vision for its message. To Jeaneen Andrews-Feldman, thank you for your tireless leadership in this effort, building the strategy for the book and seeing it through from inception to completion.

For digging deep into your experience archives to contribute the colorful stories that illustrate the power of cCRM, thank you to Brian Crockett, Ed Forman, Patrick Hounsell, Matthew Mobley, Scott Nuernberger, Marc Ruggiano, Leah Van Zelm, Peter Vandre, Kevin Walsh, Mark Weninger, and Bob Wood.

A special thanks to Sherri Aycoth, without whom this project wouldn't have left the ground. Starting with our first concept meeting and through many iterations along the way, the momentum we built gave me the confidence and discipline to make this book happen. For your countless hours of contribution, for being my sounding board, for organizing my thoughts and helping bring my vision to life, you have my gratitude.

In addition, to my esteemed colleagues within Merkle; I have had the honor of working alongside hundreds of world-class brands over the years, constantly seeking ways to optimize engagement with customers and make marketing communication more effective, more efficient, and more relevant. I would like to acknowledge these valued clients and partners, whose successes, failures, and experiences in between have been the lessons that helped shape the foundation for today's brand of data-driven, technology-led CRM. And specifically to the clients who allowed us to mention them in this book, thank you for sharing your stories that helped us illustrate the cCRM phenomenon.

And finally, thank you to my family, who patiently dodged my erratic schedule while I was juggling this book with my ongoing duties as chairman and CEO of a growing corporation. The sacrifice is not lost on me, and I am grateful for your support through my every lofty goal or impulsive whim.

Part One

Connected CRM(cCRM)

Chapter 1

History: There's Never Been a Better Time to Be a Marketer

Thinking back over my 25 years of leading a marketing services organization, I can't remember a better time to be a marketer. How did we get to this place of unprecedented opportunity? Today's leaders have always talked about some form of one-to-one marketing, target marketing, database marketing, direct marketing, customer-centric marketing, or customer relationship marketing (CRM). Whatever you call it, we've always known the importance of using customer data to create and manage lasting relationships. However, execution-wise, much to our chagrin, we were limited in our ability to make it real. We lacked the capabilities to utilize the massive quantity and diversity of available data in order to cultivate individual relationships across disparate customer segments, multiple channels and media, and divergent organizational silos. But now, marketers can achieve mastery over customer engagement and create lasting competitive differentiation for their organizations.

In the past quarter-century, those in the field of marketing have made tremendous progress in using analytics and information to create effective media targeting strategies and maximize media reach and efficiency. The use of data has had a meaningful impact on marketing and, in fact, led to the extension of the entire subindustry of direct marketing. From 1990 to 2010, that industry experienced immense growth, primarily as a result of the highly targetable nature of the discipline and the impact of advanced analytics, which have become the foundation of today's CRM. Historically, CRM has largely been about creating relevant messaging, effective targeting strategies, efficiency of marketing spend, and so forth. It was more about finding specific application vendors that could drive great results for more narrowly defined media and targeting objectives, such as boosting campaign response rates, improving call center efficiencies, and increasing sales conversions on the website. We became incredibly skilled at developing very sophisticated modeling techniques, which dramatically improved results. And the direct marketing industry exploded.

But the most important component of a truly customer-centric strategy remained elusive: the connections among all the working parts. We couldn't effectively bring together the comprehensive customer and prospect data from all the various media and channels—their characteristics and preferences, their expectations and demands, their purchase motivations and behaviors.

Even as access to more diverse sources of data from numerous online and offline customer touchpoints began to increase, we lacked the technology and expertise to process it in aggregate and gain insights from its bounty. The high-level models we were building were only as predictive as the data that fed them. Our analytics didn't incorporate the rich, powerful, and diverse data that today allows us to build the exceedingly complex models that drive more meaningful results. Where analytical proficiency traditionally drove results more narrowly centered around media and channels, it now encompasses the entire customer experience.

My prediction is that if we put that same analytic strength into the broader viewpoint of building customer strategy as a business strategy, we will see a similar explosive impact on industry growth. When I say customer strategy as a business strategy, I am talking about building the entire approach to business strategy based on the needs, behaviors, and lifetime value of customers across the gamut of the relationship, from marketing and sales to service and billing. A whole new breed of business model has emerged based on this concept.

A pioneer in building a world-class brand around a customer-centric business strategy, Capital One really got it right early on. From a media-based perspective, the financial giant took an unprecedented approach to building its business around direct mail and loyalty. Starting off as a small credit card spin-off of Signet Bank in the mid-1990s, the startup has become one of the most powerful players in a market full of deep-rooted giants. Its What's in Your Wallet? campaign and corresponding rewards program uses an information-based strategy that revolves around the customer and incorporates analytics, technology, and a deep, vast proprietary database. As a classic channel example, think of Amazon, which built an empire by creating a world-class consumer experience and used information to create competitive advantage. The e-retailer came out of the gate with the ability to observe, analyze, and understand purchase behavior to expose customers to the most relevant content and make meaningful recommendations at every interaction. This placed it leaps and bounds ahead of less customer-centric competitors right at the outset.

At the risk of stating the obvious, it's true that data capture is at the heart of CRM. To target at an individual level, you must have some way to connect each data point to the individual. In the early years of customer-centric marketing, all we had were names and addresses of customers and prospects. Our objective was to collect as many names and addresses as possible so that we could mail printed pieces to them. Then telemarketing evolved, and the effort shifted to compiling as many phone numbers as we could possibly connect to our customers and prospects. Then along came e-mail and the endeavor to bring electronic communication to scale. You get the picture.

With the proliferation of digital channels—indeed, the explosion of available data sources—analytic engines are now sifting through cookies, IP addresses, social handles, and any number of other digital identifiers. The granular-level data enables us to gain a more complete picture of the consumer; to allow for broader, yet more targeted, communication; to gain insights that show not just how, when, and where to reach them, but also what they're doing and what motivates them to act. We have come to a tipping point, where the amount and variety of data, combined with the analytical chops to build ever more sophisticated models, are enabling insights that drive savvy marketing decisions and ensure more meaningful customer interactions. What was only theory just a few short years ago is now a reality.

In the past 5 years, my team and I began to realize the planets were aligning in such a way that, for the first time, we would be able to create true multi-channel personalization and addressability, capabilities that we knew would fundamentally change the ongoing experience of each individual customer. We became determined to understand how to monetize this opportunity for organizations. Were we finally in the sort of new world in which we could create sustainable competitive advantage?

About that same time, as the economic downturn began to have massive implications on both the marketer (in terms of budget) and the consumer (in terms of behavior), organizations started requiring more accountability from the chief marketing officer (CMO). Marketing spend was studied with more scrutiny than ever before—and that trend hasn't let up. But I tend to look at that accountability from a different perspective. The way I see it, today's CMOs have a greater opportunity to play a critical role in the growth and performance of their organizations. The boardroom has never been more responsive, more focused on achieving a common outcome of growth. Customer-centric marketing isn't merely a tactical marketing implementation plan; executed correctly, it's a fundamental shift in the enterprise framework, which in turn causes a forward shift in the organization's trajectory. It elevates the marketing discussion to the executive level of the business and becomes a key enterprise mission—and a new source of visibility and accountability.

The C-suite, the CMO in particular, is now at a critical juncture, with a real opportunity to take a strategic seat at the executive table. The CMO can take the reins of customer strategy and lead the organization in creating and driving accountable business performance through marketing. CMOs who are successful will be able to draw a straight line between marketing performance and customer behavior.

The challenge in entering this new level of visibility and accountability is that CMOs are now required to flex new muscles in broader business and finance disciplines. A prerequisite to success is understanding technology, analytics,