Categorizing ROI in Online CRM

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1 Decision Framework, W. Janowski Research Note 21 March 2003 Categorizing ROI in Online CRM Enterprises can identify and quantify return on investment in their online customer relationship management efforts by categorizing their goals and expectations. Core Topics Customer Relationship Management: Business Strategies, Technologies and Apps. for Customer Service and Support; Creating Business Value for CRM Key Issue How can enterprises control the investments and quantify the benefits of CRM? Although the Internet has been used as a commercial business tool for almost 10 years now, many enterprises still struggle with understanding how to quantify the return on investment (ROI) of their online efforts. More often than not, this is because there was little or no understanding of the expected returns at the time a given project was conceived. In the most basic ROI calculation (ROI = benefits minus costs), deciding what benefits to expect and measure will allow you to understand how you will measure success in an online project before any resources are spent. Whether you are redesigning a Web site, adding an interactive chat function, enabling personalized interactions or starting an e- mail campaign, you must define what type of project you are planning and what you expect to get out of it (in other words, why you are doing this in the first place). Different types of efforts (see Table 1) will yield different types of results, and the metrics you use to define success must be defined accordingly. Here, Gartner defines a framework to categorize online opportunities and the results they achieve. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Table 1 Categorization of Online Opportunities Type of Effort Typical Examples Corporate public relations Branding Mass marketing Contact information, press releases, investor information Branding, identity, image Catalogs, generic promotions (for example, discounts or free shipping) Customer service Frequently asked questions, self-service, e- mail, i-chat Targeted marketing Commerce Multichannel Targeted promotions, customer retention and development Direct sales, transactions Source: Gartner Research (March 2003) Single face to customer, dialogues Corporate Public Relations (PR): At its lowest level, the Internet serves as a delivery mechanism for basic corporate PR information. Having a presence on the Web is no longer an option, but a basic business assumption. Your customers and potential customers will expect to find at least a basic Web site that offers things like contact information, press releases, investor information and job postings. Benefit potential: In general, there is little quantifiable ROI, but the greater concern is the potential negative impact of not providing this type of information. Today, having a Web site is as much of a given as being listed in the phone book, and this type of effort is more of a basic operating expense than an opportunity for hard ROI. There is some opportunity for efficiency savings over costs associated with traditional distribution of corporate information, and there is better potential for monitoring access and impressions online. Brand and Image Marketing: The next level up from basic corporate information is the opportunity to define and communicate what the company is and what it does. If corporate PR is analogous to a listing in the phone book, this is more the equivalent of having an advertisement there, but with much more opportunity for detail. More of a "grass roots" marketing effort, this tends to be the primary purpose behind most noncommerce Web sites. Primarily an opportunity for branding and imaging, this use of the Web becomes the equivalent of a detailed company brochure. Benefit potential: For a branding and imaging vehicle, the main measure of success is the number of impressions achieved. This should be considered "soft" ROI, as the intention is to generate awareness rather than revenue. This is one of the few opportunities where simple Web metrics (unique visitors, page 21 March

3 views and so on) are adequate to measure relevant results. Being able to break down metrics by customer segment can help determine how effective your efforts are for key target groups. There is also the opportunity to solicit customer feedback to help refine your branding efforts. Mass Marketing: Beyond simply promoting the company itself, the Web site offers the ability to market the company's products and services. Without using any personalized targeting, the Web allows the company to display a product catalog, describe its services and offer nontargeted promotional campaigns such as price discounts and free shipping. Benefit potential: As with any traditional product-based advertising, the obvious measure of success is increased sales, although it is necessary to measure the impact of the online effort on offline as well as online sales. This may be done on a blanket basis (Did overall sales go up the week after we changed the Web site?), or through more-detailed tracking, such as Web-only specials or print-on-demand coupons. From a softer perspective, online measurement can help determine which products generate the most customer interest or which promotions are the most effective. Customer Service: Using the online channel for customer service applications offers the opportunity for increased internal efficiencies, as well as higher levels of customer service and satisfaction through the use of functionalities such as selfservice, interactive chat, customer feedback systems and response management. Benefit potential: Enabling online customer service is often thought to be the "low-hanging fruit" for cost savings through efficiency gains that is, enabling the enterprise to process more customer interactions with fewer resources. Often, however, enterprises find themselves spending more to enable online service (see "The Six Steps for Web Self-Service in Customer Service"). Don't forget that a well-executed e-service initiative should also provide better customer service than before and will have an impact on less quantifiable metrics, such as customer satisfaction and loyalty. Targeted Marketing: Using customer data to tailor your online customer interactions through segmentation or one-to-one marketing allows you to target them better for more-effective marketing. The goal of targeted marketing is to deliver more relevant information to the customer to develop stronger and more-lasting relationships. 21 March

4 Benefit potential: Although a well-executed targeted marketing campaign will translate to increased profits, it also offers the opportunity to measure individual customer performance. Beyond considering whether overall sales were affected, enterprises should consider the impact of their efforts on an individual customer's overall loyalty and satisfaction, along with his or her lifetime value to the enterprise. Commerce: Not long ago, e-commerce was considered to be the ultimate application for the online channel. However, enterprises have come to realize that customer-direct online sales are not appropriate to every business, and, for those businesses for which it is, it is best considered as one channel of a multichannel commerce offering. Benefit potential: The success of an online commerce initiative must be measured in the context of the overall business. Most importantly, does an increase in online sales reflect an incremental increase across the enterprise, or is it siphoning sales away from another channel? If it is indeed cannibalizing another channel, is it doing so in a way that is more efficient and profitable than that other channel? From the perspective of the enterprise, for some, a sale is a sale, and funneling transactions from one channel to another may be an appropriate and profitable end result. For others, the selection of one channel over another may expand the opportunities to better understand and manage customer relationships and, therefore, may present incremental long-term value. Multichannel: The greatest value of the online channel lies not in the online channel itself, but in leveraging it to drive richer customer interactions across all channels. The online channel is the one place where every step of a customer interaction can be monitored, recorded, analyzed and combined with data from other channels to create more-robust customer profiles to enable more relevant interactions that drive customer satisfaction and loyalty. Benefit potential: Measuring the ROI of an Internet effort as a contributor to a multichannel approach is an elusive task, but it is within that multichannel customer experience that the greatest potential for building long-term customer value lies. Measurable benefits include those of the other categories above, but focused from the overall enterprise perspective of a holistic, multichannel view of the customer. With the idea of a multistep, multichannel buying process in mind (see "Delivering Linear Customer Relationships in CRM"), an enterprise can begin to quantify the online channel's role as a pre- and post-transaction influencer. 21 March

5 Bottom Line: Attempting to determine the return on investment of the Internet is as meaningless a task as trying to determine the ROI of the telephone. Considering the Internet one of many channels of communication to the customer, enterprises must identify and categorize their individual online initiatives from a goal-based perspective to determine the relative ROI of each. From there, by understanding the requirements and the actual and opportunity costs at a customer or segment level, the enterprise can design an experience that aims to provide a targeted ROI. This will allow the enterprise to track performance against that objective. 21 March