Customer Marketing Organization : The Key to Turbocharging Customer Marketing Performance

Marketing Practice
Customer Marketing
Organization
The Key to Turbocharging
Customer Marketing Per formance

---

---

Stronger customer relationships have grown increasingly vital to the
strategy of companies vying for competitive advantage in today’s complex
multi-channel marketplace. Many proactive players, acknowledging the
need for a greater focus on strengthening customer relationships, have
invested millions of dollars in the databases and technology required to
support a customer-centric approach. And they have been quick to
launch pilot programs in many product areas. In spite of their efforts,
many of these marketers have failed to elevate CRM performance to
their targeted level.
Organization is a
Clearly, the challenges are daunting. Many of these marketers – lacking the customer-
critical and often
centered talent and skills to bring about signi?cant change – have struggled to get
overlooked factor
their programs off the ground. They have found it challenging to work beyond
in driving CRM
their traditional business silos and to inspire managers to “embed the customer”
initiatives to better
in the fundamentals of how they run their businesses. Even after successful pilots
performance
in several product areas, they become deadlocked over how to pursue cross-
business opportunities that might offer even greater potential.
What then, is the missing piece of the puzzle needed to support companies in
establishing more powerful CRM programs?
CRM programs that create substantial value require four integrated elements:
1) a strategy for managing customer relationships that is tied to business economics;
2) compelling, well-executed programs that can drive customer value levers;
3) technology to support key activities, both data management and customer
experience; and 4) the organization that underpins the ability to deliver and sustain
the ?rst three elements over time. (See Table 1.)
Our research1 has shown that organization is a critical and often overlooked factor
in driving CRM initiatives to better performance. We talked to marketers at four
distinct performance levels (see Table 2) and identi?ed 10 speci?c organizational
characteristics of marketers who are achieving their performance goals. All of our
interviewees placed organization among their top three critical challenges and over
60 percent cited organization as one of their top two challenges. One marketing
executive was particularly emphatic. “Building the organization to develop and
execute ideas,” he said, “is the real showstopper.”
McKinsey Marketing Practice
1

---

Table 1
Integrated Elements of CRM Programs
Target customers
Value levers
Strategy
Channel leverage
Accessible customer information
Customer insights
Compelling customer offerings
Capabilities
Integrated customer experience/touchpoints
Test and learn disciplines
Adaptable IT architecture
Flexible data capture and management
Technology
Customer management tools
Customer-enabled structure
Critical suppor ting skills
Organization
Customer-driven business processes
These 10 organizational characteristics fall into three distinct categories – structure,
skills, and processes. And high performers have the structure, skills, and processes
that enable them to leverage existing assets like customer data and successful pilots,
mitigate con?ict over customer “ownership,” and create the insights and programs
to serve customers more effectively within and across products and channels.
The 10 Distinctive Characteristics That Drive
Successful Customer Marketing
Structure
Most companies think of structure as the lines and boxes that make up an organi-
zation chart, and that simply shifting job responsibilities or adding customer-
segment managers will create a customer-focused organization. However, winners
rede?ne critical roles and responsibilities among and outside the boxes, integrate
work across functions, and build cross-functional teams to capture opportunities.
McKinsey Marketing Practice
2

---

Table 2
Four Levels of CRM Performance
High-Performing CRM Players
Level 4

Dynamic, seamless
Level 3
approach to customer
development embedded
Multiple competencies
in business
Level 2
without full cross-
business, -product,
• Select direct financial
Leveraging key
or -channel linkages
services providers and
Level 1
competency to drive
Internet companies
select customer-
• Select catalogers
approaching this level
Early efforts*
focused initiatives**
• Select direct insurers
• Most store-based
• Club-based direct
• Select credit card
retailers
mailers
companies
• Many traditional
• Many catalog
• A few retail banks
insurers
companies
• A few Internet
Industry examples
• Some packaged
• Most airlines
companies
goods companies
• Many Internet
• Some telecom
companies
ser vice providers
• Select retailers (e.g.,
high end, strong credit)
• Some direct financial
services companies
• Select entertainment/
travel companies
* Examples include best customer programs, mass loyalty programs with some tiering, early use of basic customer
segments to tailor offers/messages
** Examples include favorable access to data and/or high-frequency/low-cost customer interactions; strong analytic
skills and data-driven culture; strong mass loyalty program with significant customer/segment differentiation
Winners rede?ne
1. The senior leadership team proactively manages trade-offs around critical
critical roles and
roles and resource access for building customer relationships.
responsibilities,
Senior teams at high performers make critical choices to focus strategic decision
integrate work across
making around the customer. They avoid internal deadlocks by carefully managing
functions and build
the respective roles of corporate, individual channels, and frontline staff in creating
cross-functional
stronger customer relationships. The senior team integrates CRM initiatives across
teams to capture
businesses and geographies, realigns budget control to assure adequate funding,
opportunities
de?nes the role of each channel in building the customer relationship, and deter-
mines the degree of freedom frontline groups have in interacting with customers.
McKinsey Marketing Practice
3

---

For Example…
At a major retail bank the branches had traditionally “owned” the customer.
Also, the various product groups (credit card, mortgage, retail banking) competed
for customer attention with uncoordinated, and thus inef?cient, mass mailings.
Based on an integrated understanding of customer pro?tability across products
and branches, the senior team created a new set of models for managing customer
contacts at a corporate level and empowered a strong central team to drive customer
opportunities. Corporate analytic experts then worked with the product groups
and channels to ensure the new approach penetrated the company. Within 12
months, one-third of all the bank’s branches received new leads from the corporate
group and 50 percent of each product group’s marketing spend was driven by
customer modeling generated by the corporate group, with three to four times
greater returns in response rates and pro?ts.
2. Centrally located analytic experts drive both strategic customer insights
and tactical business rules.
At the highest-performing organizations two critical analytic groups are in place.
The ?rst is focused on developing strategic insights and is often centrally located to
facilitate development of cross-business/product perspectives; the second is focused
on tactical execution and often resides in the business units or product groups. Each
group requires its own task-speci?c skills and resources.
Strategic
The strategic group integrates high-level statistics capabilities with a deep under-
analytic experts
standing of business economics. The group leverages insights into customer lifetime
facilitate insights
value, segmentation, and migration to de?ne and prioritize changes in customer
across businesses
behavioral levers that drive superior business returns. The group also proactively
and products
identi?es new opportunities to increase the value derived from the customer across
products, channels, and businesses. These opportunities can include life stage or
life cycle management, event-triggered cross-selling, or the bundling of products
and services to increase value to the customer. For multi-channel players, the group
will identify opportunities to sell to priority segments across channels, and provide
insights into customer acquisition and retention costs in each channel, along with
developing the tools required by the tactical group to implement those ideas.
The tactical group focuses on providing strong analysis to support ef?cient
execution of day-to-day business marketing decisions. The group has a rigorous
understanding of how to project and measure the ROI of each customer program.
It also analyzes and identi?es the customer behavior or program design/cost drivers
of unpro?table programs and recommends changes to subsequent initiatives. The
group’s efforts typically focus on activities such as:
McKinsey Marketing Practice
4

---

I Taking an active role in shaping customer program design to ensure an attractive
ROI. This involves recommending the best list of target customers, and de?ning
the timing, type of offer, and best sequence of contacts for each customer segment
in order to maximize response levels – all with the goal of optimizing pro?ts;
I De?ning control groups, and designing champion/challenger tests to understand
potential changes that would improve program impact (e.g., alternative pricing,
product bundles, delivery vehicles, timing); and
I Tracking Web site customer click-through patterns (e.g., home page drop-off rates,
use of information before purchase, key site-exit destinations). (See Table 3.)
Table 3
Centralized Strategic and Tactical Analytic Groups
Organization design
Key leadership areas
Strategic analytics
• Centralized
• Analyses that drive strategic decisions within and
across businesses, products, or channels:
• Requires strong corporate support
– Customer lifetime value
• Highest analytic skill levels
(e.g., Ph.D. statisticians)
– Cross-business customer segmentation
– Customer migration patterns (over time,
• Requires fundamental understanding of business
across channels)
economics and key leverage points
– Cross-selling propensities
– Strategic business rules (e.g., contact
management, segment priorities,
customer scorecards)
– Deal parameters for Internet site par tners
(e.g., customer acquisition and retention
requirements)
Tactical analytics
• Leverages definitions and rules created centrally
• Analyses that support efficient execution of
day-to-day marketing activities:
• Execution can be located either centrally or in
business groups
– Customer selection for programs/offers
(list generation)
• Leaders of groups have advanced technical
degrees or MBAs with a statistics concentration
– Test design requirements
– Champion/challenger priorities
– Response-modeling methods
– Campaign/effor t results analysis and
exception repor ting
– Click-through rates
McKinsey Marketing Practice
5

---

For Example…
One travel and leisure company demonstrated marked improvement in performance
by complementing business unit analysts with a central, business-driven analytic
group. Marketing directors of independent operating units, who had previously
operated autonomously with their own analytic groups, are now linked to the
central strategic group. The operating units are now more closely focused on using
their deep knowledge of local customer factors to execute customer initiatives.
Based on the strategic group’s analyses, the tactical group redesigned and executed
marketing actions to improve return on the company’s loyalty program. The
company eliminated redundant staf?ng and unproductive marketing spend, and
saved $15 million with no reduction in revenue.
3. Pivotal integrators work across functions and deliver day-to-day
customer impact.
The integrators
Skilled integrators can drive the execution of customer initiatives. The integrators
draw on the
draw on the insights of the central analytic group to create customer programs,
insights of the
speeding and energizing implementation by linking customer marketing to product
central analytic
management, customer service, IT, and other groups. The integrators may belong
group to create
to a range of functions, from the analytic group to business unit marketing. They
customer programs
act as champions in ensuring the broad participation and communication that is
required for the success of a program.
For Example…
A diversi?ed ?nancial services provider designated speci?c champions for priority
initiatives that its central analytic group had identi?ed as high value. A vice president
from central marketing, for example, served as an integrator in developing a
consumer segment that crossed product lines. Heading up a cross-functional team
that included representatives of key business units, IT and other functions, the VP
ensured that pilot programs were successfully rolled out to the targeted segment.
4. Cross-functional teams are quickly and ?uidly mobilized to capture
next-generation customer opportunities.
At high-performing organizations, cross-functional teams comprising the best
internal and external CRM resources are adept at leveraging customer data to
quickly pursue multiple opportunities. These teams have the freedom, resources,
and authority to de?ne target customers, design and launch offerings, and track
and re?ne initiatives to maximize their performance.
McKinsey Marketing Practice
6

---

For Example…
To accelerate the development and capture of customer opportunities, one ?nancial
services provider determines who will lead and make up the team based on the
nature of the opportunity. On initiatives to increase customer retention, for example,
the team includes: 1) the central analytic group, to assess the potential and construct
models to identify attrition risks; 2) analysts from the key product group, to develop
offers to retain customers; 3) operations staff, to identify the requirements to
execute the initiative; and 4) frontline managers, to create plans for required front-
line training. After the pilots are validated, the team disbands and a key business
unit takes over the program.
Skills
Building and managing critical customer skills requires more than adding technical
specialists or repurposing existing talent – mistakes many companies make. Winners
break away by cultivating a broad-based approach that leverages customer insights
and data to make key business decisions. At the same time, they also build and
maintain the deep targeted skills needed to support customer marketing efforts.
Table 4
Key Decision Makers Intensify Focus on Analytics-Based Customer Insights
Key decision makers
Training
Ingrained analytic
Business Unit
mind-set and
Leaders
• Formal and on-the-job training on using customer
focus on deep
metrics/scorecards to make decisions
customer insights
• Rotations developed to expose businesses to
marketing methods
Product
Metrics and reporting
Managers
• Customer scorecards with key per formance drivers
linked to business financials and budgets
• Flexible tools designed to suppor t “what-ifs,”
exception repor ts on customer per formance
Business Unit
Performance assessment
Marketing
Managers
• Compensation linked to customer-specific metrics
• Experimentation and identification of new
oppor tunities explicitly rewarded
McKinsey Marketing Practice
7

---

5. Obsession with customer analytics and insights across key business
decision makers.
High-performing CRM organizations have a deep-rooted sense of the importance
of the customer. They relentlessly draw on customer data in decision making; they
embed the customer-focused mind-set in recruiting and training programs; and
they link compensation to customer-speci?c metrics and the identi?cation of new
CRM opportunities. Business unit leaders, business unit marketing managers, and
product managers all share a focus on deep customer insights. (See Table 4.)
For Example…
A leading service provider leverages a rigorous, shared view of customer lifetime
value to shape decisions in critical areas such as new product development, invest-
ments, and acquisitions. This view is then used to prioritize all investments in new
and existing marketing programs. Business unit heads use customer metrics –
together with traditional sales and pro?t metrics – to assess monthly, quarterly, and
annual business performance. These metrics are also embedded in performance
reviews with product managers who are given explicit customer targets. Also,
segmentation-based attitudinal research is used to support the design of speci?c
customer programs to improve relevance and impact.
6. Carefully balanced core CRM skill sets.
Many companies generate robust customer insights but struggle to design
compelling customer programs. Or they create innovative programs, but these
programs are either too complex or the front line lacks the skills to execute them.
Also, they generate programs consumers seem to love, but they lack the ability to
High performers
track and measure results to sustain funding over time. These imbalances are key
cultivate a
drivers of underperformance for many customer initiatives. To avoid these traps,
balanced set of
the high performers cultivate a balanced set of skills to deliver and sustain high-
skills to deliver
impact customer initiatives. They actively seek balanced skills across four areas:
and sustain high
1) database and tool development capabilities; 2) the ability to tailor analytic
impact customer
approaches and interpret results; 3) skills in structuring offers, including under-
initiatives
standing of new channels; and 4) the ability to effectively deliver the program
and to track results. To maintain balanced skills, high performers develop – and
continually update – coordinated, stepwise capability development plans that
target key customer objectives. They evaluate ongoing investments area by area
based on their ability to leverage complementary areas, and they conduct ongoing
skill assessments and develop action plans to address gaps.
McKinsey Marketing Practice
8

---