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(originally published by Booz & Company)


How the Auto Industry Should Embrace CRM

Information technology is a costly enabler of customer relationship management (CRM). But CRM programs coupled with smart technology and strategy may soon mean the end of the road for mass marketing in the auto industry.

Mass marketing is clearly at a crossroads, as companies recoil from the inefficiencies they perceive in conventional media spending. Magazine advertising pages declined by 11.7 percent last year, the steepest plunge in a quarter century. Merrill Lynch & Company Inc. is predicting a 4 percent decline in U.S. television advertising spending this year, following a similar fall last year.

“Embraceable CRM starts with a simple premise: The most important part of the database isn’t the base; it’s the data.”
These actions are not simply a reflection of a weak economic cycle. They're the result of a new demand for greater accountability and increased returns from marketing spending. This is driving corporate investment in customer relationship management (CRM) systems. Analysts predict that global spending on CRM will total between $20 billion and $45 billion in 2002.

Embraceable CRM
But marketing executives are beginning to discover that CRM system implementation — in which simple database consolidation can run from $20 million to $30 million — is not an easy fix to the problem of communicating to, wooing, and retaining customers. The problem stems from a lack of connection between companies and customers that no information technology system alone can solve. The automotive industry is a classic example of this disconnect. On average, interaction between an auto company and a customer occurs 1.2 times per year. That simply does not provide enough data to answer such crucial questions as, Which people should get what offer on which product at what time?

Companies need an approach to CRM that marketers — and customers — can embrace. Embraceable CRM starts with a simple premise: The most important part of the database isn’t the base; it’s the data. To gain the information necessary to embrace the customer, relationship programs must be based on two principles:

  • First, they cannot wait until the first purchase is consummated to begin to understand consumer interests, concerns, desires, and habits. The key to unlocking value is to recognize that different customers follow different purchase paths. Effective CRM systems must dive deep into the purchase decision before the purchase is made. Call this purchase-cycle intimacy.
  • Second, because different customers follow different ownership paths, effective CRM systems must link deeply and broadly to the individual’s ownership experience — the consumer’s relationship with the car throughout the ownership cycle.

Acting on these two principles requires companies to bring otherwise separate technology programs together in complementary ways. For example, Internet-enabled communication systems make it increasingly possible to capture valuable insights about consumers in the middle of the purchase process. Interactive kiosks in dealerships — or in alternative sales venues, such as malls — are proving to be excellent tools to begin to engage consumers in dialogue. Online activity at home or in the office represents another vital opportunity to achieve purchase-cycle intimacy. The bursting of the e-commerce bubble should not obscure the fact that some 70 percent of consumers in the U.S. use the Internet at some point during the automotive purchase process.

Cross-Platform Marketing
Now consider what happens to a company’s ability to achieve and use purchase-cycle intimacy when these tailored consumer engagements move from the Internet into home entertainment centers. With personal video recorders (PVRs) like TiVo being built into set-top boxes, assisted sales processes will occur in the lean-back comfort of the family-room sofa. Although PVR penetration today is low — about 280,000 TiVos have been sold in the past two years — Forrester Research Inc. predicts more than half of U.S. households will have interactive TV capability by 2005.

“Interactive kiosks in dealerships — or in alternative sales venues, such as malls — are proving to be excellent tools to begin to engage consumers in dialogue.”
Even with privacy protections in place, the data flowing back to manufacturers and dealers will enable them to tailor follow-up campaigns that effectively bridge the gap between marketing and sales. The ability to develop incentive packages tailored to the way different sets of customers go through the purchase cycle and to get customized packages in front of receptive audiences is vastly preferable to slapping a $2,000 incentive on a vehicle and offering that same package to everybody.

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  1. “The Co-Creation Connection,” By C.K. Prahalad and Venkatram Ramaswamy, s+b, 2Q 2002 Click here.
  2. “Seize the Occasion! The Seven-Segment System for Online Marketing,” by Horacio D. Rozanski, Gerry Bollman, and Martin Lipman, s+b, 3Q 2001 Click here.
  3. “Creating Customer Value Through Industrialized Intimacy,” by Peter Kolesar, Garrett van Ryzin, and Wayne Cutler, s+b, 3Q 1998 Click here.
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