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The three ages of customer relationship marketing

The three ages of customer relationship marketing

Strategy

Mar,2017

The story of customer relationship marketing is marked by defined eras and a clear path of progress. But just what is the history of CRM and where is it going?

Who better to answer the big questions of CRM then, CRM now and CRM next than our in-house oracle and head of planning, Mark Hancock? So we caught up with him for a quick chat and here’s what he had to say…

Where did it all begin?

You’ve got to go back to the time when there was some rudimentary semblance of data collection. Not quite as far back as those primitive markers of transactions and trade that predate the Romans, but as a starting point, the Rolodex was probably the first system by which people were collating and collecting information of a business nature in a systematic fashion. It was seen as a pretty groundbreaking piece of kit in its day.

From the Rolodex to the Velocity Age – how did CRM evolve?

If we zoom out, we can clearly identify three ‘ages’ of CRM. The first of those was the ‘Transaction Age’ – the annotated bits of paper tied to a purchase from about 1956 through to the early nineties.

Next, we went through a groundswell of theory and application, manifesting itself in the ‘Systems and Interactions Age’. Those bits of paper could be electronically collated into a database linking an individual’s purchase history with other disparate data sets, albeit rather crudely (many of these are still in existence today).

Finally, as technology and interconnectivity have evolved, facilitating a greater understanding of human behaviour, we find ourselves in the eye of the ‘Velocity Age’, where people’s relationships with objects and brands have changed because they have become connected, and the brand promise is manifested through the experience, not just the communication.

Tell us about the Transaction Age…

Data from the Transaction Age was mainly made up of purchase data (at this time usually the telephone number and postal address). Recording this meant that any sale or enquiry could be followed up with a direct mail pack or phone call to ensure another sale. Take the automotive sector as an example. If someone had worked out that the purchase cycle of a typical car was three years – usually through data held by the local dealer rather than the central marketing department – they would send a brochure or phone you up when they thought you were in the market for a new car. This information would have been manually updated, and relied on an individual to know when to execute any interactions.

In many cases there were only certain categories that used – or needed to use – these basic CRM practices, and the outputs were usually primitive direct marketing tools and techniques. If you were a grower of Brussels sprouts, for example, you wouldn’t have spent money on CRM or direct mail because your return on investment would have been so minimal. Instead, you would have dealt directly with customers through ‘pick your own’ signage outside your farm, or just met once a year with representatives from the buying and sourcing departments of the major grocers. These days, of course, even Brussels sprouts growers are using customer data to generate sales and build brand affinity.

At this point ‘CRM’ (though the term had not yet been coined) was not much more than coupons in direct mail or part of a letter, newspaper or periodical.

In basic terms it was about getting a form of incentive, usually a discount, into the hands of the consumer, rather than building a relationship. It couldn’t have really been called CRM because it wasn’t there to create brand affinity or relationships; it was merely there as a technique to remind you to sell something to someone you didn’t know.

How did the Systems and Interactions Age develop from this?

The Systems and Interactions Age from, say, 1995 to about 2013, was an era that came about suddenly when systems were able to give a much more rounded view of a customer because there were multiple data sources, providing mostly EPOS or point-of-purchase data. This was when segmentation started to become useful as a way of sorting those who were most valuable from those who had little lifetime value to a business.

The advent of CRM was around 1995. It was something that a few businesses did, and was mainly seen as the remit of the direct agencies. People rarely talked about ‘acquisition’, ‘churn’, ‘win-back’, ‘lifetime value’ or ‘allowable marketing costs’, and CRM was seen as part of a sales cycle rather than a relationship tool.

It was CRM, but they called it ‘direct marketing’ because CRM didn’t have a budget line at that point.

What prompted businesses and brands to start appreciating CRM?

Technology. It was no more than that. Prior to 1995, you had Enterprise Resource Planning systems. These were ‘business systems’, but no one really did any analysis with them from a marketing perspective. They were able to understand purchase cycles and volume, and they had very basic ‘Recency, Frequency and Value models’, which could tell you what you could expect to happen in the future.

In those days, there was very little interaction between Data and Creative. You would buy cold lists and mail everyone the same thing. During the Systems and Interactions Age, things changed dramatically. I think there were more systems that were able to give you the beginnings of a single customer view, even though it was relatively unsophisticated in the ‘90s. Lots of agencies claimed that this was the future, but very few client businesses had the internal discipline or structure to use the systems properly.

There was also a big disconnect between sales and marketing and the ownership of the customer, with lots of very big businesses deploying very expensive CRM systems, none of which worked terribly well.

We were continuing to iterate on a calendar-driven, campaign-by-campaign basis with no real personalised content to speak of. Or if it was personalised, it certainly wasn’t personal. Many businesses operate in a similar way today.

Then email came along. What difference did that make?

People created their own email accounts with Gmail, Yahoo and Hotmail as the adoption of broadband and dial-up services expanded into lots of households and the adoption curve went exponential. Suddenly there were millions of people using email technology, and we had a new and untapped channel to be exploited.

Back then, remember, systems were still very basic. Systems weren’t part of popular vernacular, and sales and marketing were still not really joined together. In the last two or three years, in what we call the Velocity Age, the pervasiveness of more sophisticated analysis tools and the rise in salaries of data scientists and analysts and their prevalence within organisations – particularly in financial services – has been extraordinary and exponential. The adoption of mobile and transactional apps has given rise to a very different environment.

We are now able to target individuals with tailored messages, using their entire transaction history in a way we never could before.

We’re now in the Velocity Age; how do we keep up?

In the Velocity Age, CRM is not necessarily about growing the number of people that you have an opportunity to engage with; it’s about growing the size of the opportunity with a particular person or segment you already have engaged with, and doing so on a repeat basis.

It is increasingly about creating the conditions in which a person, over time, will spend a disproportionate amount of time and money on your brand – not just going for the quick sale generated through a price mechanic or discount.

We used to be all about the sale. I think now the brands that are winning are those that make people’s lives easier through delightfully seamless interactions. If a brand can use technology to deliver inspirational content, as well as e-commerce tools to facilitate immediate purchase, people will naturally gravitate towards them over others that just focus on driving sales in-store.

So tech is at the core of CRM’s evolution going forward?

This is an interesting development because if you were to go back 10 years and say, ‘The future of CRM will be about designing interfaces that make it easier for people to buy stuff’, they’d say, ‘But that’s the remit of the Tech department, isn’t it?’

Now Technology and Data are both sitting with the CMO, rather than being split across business functions.

Ultimately, the thing that’s sitting behind the change in CRM is the exponential compound effect of computing power that’s doubling every year, or even every six months, and its ever-reducing cost per megabyte. That’s what’s fuelling it. So businesses will need to recruit people with different skills to enable scalable technology to match the customer, who is inevitably always ahead of the brand. In the next five years, there will be a lot of client and agency businesses that operate more like management consultancies, where the customer data drives business decision-making. Conversely, I think, in the future there will be more boutique creative agencies.

Where does CRM go from here? Is it about relationship (CRM) or experience (CXM)?

CRM will be dead in five years’ time, or at least it will be called something different. It will be more like the Transaction Age again. Systems will allow businesses to have a single customer view that is accessible to everybody in the organisation, rather than outsourcing to agencies or consultancies recording transactions in real time. People working client-side will have to be much more data-fluent and digitally fluent. I think agencies will be designing technology interfaces and platforms as opposed to just communications – so yes to CXM.

With technology enabling customers to buy or use a product or service in the way they want, a brand promise can’t just manifest through content but will have to be demonstrated through platforms and tools as well.

The communications part of it will probably just be a reminder of functional things, like how many points you accrued that month, mixed with a brand POV or something to inspire you to live a better or more fulfilled life (relevant to your personal circumstances), contextually served in real time.

Does this mean the customer really takes control?

Ultimately as you travel through the three eras, what you see is an evolution and transition from customer relationship management (CRM), through to customer-managed relationships (CMR).

The customer will always be in control because they can switch things off. No brand is ever in control – never was and never will be. No brand should ever truly claim to ‘own you’ because, thankfully, human beings are unpredictable and no amount of predictive data modelling can ever reflect real human behaviour, and no mediated communications can ever truly replace human interactions. Having said that, AI is being used to imitate natural speech patterns and is being used in customer service interfaces, so never say never!

In terms of CRM, technology is more prevalent than it ever has been and is changing the nature of our relationships with brands and objects because things are now connected. It was equally true through all three eras. From the Transaction Age to the Systems Age to the Velocity Age, every one of them changed because the technology changed. If you go way back in time, the Stone Age didn’t suddenly become the Bronze Age because we ran out of stones; it changed because something better came along.

The one constant, though, is human need states, and if you meet those you will always have a chance of winning.

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