CRMBefore There Was CRMBy Elizabeth Bennett | Posted 2005-07-08 Email Print
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Reader's Digest built its approach to computing around its customers, not its products.
The right product, at the right price, to the right person; that has been the goal of commerce since trading boats began to ply the Mediterranean Sea in 1700 B.C.
In 2005, the mantra repeats itself as the pitch for version 7.8 of Siebel Systems' software for helping companies manage their contacts with customers.
But customer relationship management is not new. In 1969, The Reader's Digest Association (RDA) built its approach to computing around its customers, not its products.
"It's a testament to the foresight of the people who created [UFS]," says Michael Stonebraker, a computer science professor at the Massachusetts Institute of Technology. "There were very few instances of commercial database systems back then."
UFS (Unified File System) provided the Digest with precise histories on each of its 50 million customerswhat they ordered, which promotions they received, which they responded to, how promptly they paid, how many promotions were sent before a purchase was made, and more. That made it possible to figure out which customers would be interested in what additional products, and whether they would pay for them. The right product to the right paying customer at the right time.
The only thing that the Reader's Digest 1969 system lacked in terms of customer management was self-service, according to Laurent Pacalin, general manager of CRM products at Siebel. But asking a customer to check an account balance or order and payment history, online, was not possible before the Internet.
UFS' capacity to easily test a direct mail campaign radically changed the game for RDA. Prior to each marketing campaign, 5,000 to 40,000 customers could be chosen as a test group with the assumption that 20,000 act like 2 million. The company could see which type of customersay, people who have subscribed to more than two books in a history serieswould respond most avidly to a promotion for a Mysteries of the Ancient World DVD. And then mail to hundreds of thousands of similar customers.
"The best predictors are what they've ordered before or what they've paid for before," says Kari Regan, recently retired vice president of database marketing services.
Learning through customer behavior allowed RDA to rank each customer in terms of promotional value. And sell moreor simply more expensiveproducts to its known universe of customers.
The ability to cross-sell and up-sell products even today is considered "CRM squared" by Siebel's Pacalin.
This was not lost on those who used UFS intimately. "The UFS was the key enabler for growth of the books and home entertainment side of the business," says RDA marketing director Kathy Gilbert Haggerty.
Here's how she might rank three sets of customers:
Group 1: Promising prospects. Accepted an offer for a first, free book in a series; paid for a few books; and canceled. Response rating of 100 and payment rating of 100.
Group 2: Teases. Accepted a free book but didn't sign up for the series. Response rating: 120; payment rating: 80.
Group 3: No response to an offer in years. Response rating: 60; payment rating: 70.
Based on the ratings, the marketing department might offer a customer in Group 3 a free gift to accept the next offer. Customers in Group 1, by contrast, might be asked to pay more than the other two groups for the same product.
The approach was so advanced, in fact, that the company could have beaten Siebel to the punch as a multi-billion-dollar supplier of CRM software. RDA's process of accessing customer records, transforming them into standardized data, modeling reactions, assessing results and then recalibrating marketing pitches has gained ground well beyond its own doors. Those five steps have become the foundation of analytics software sold by SAS Institute, according to account executive Michael Minelli. SAS has counted Reader's Digest as a customer for more than 20 years.
But what Reader's Digest did was not what marketing consultant Frederick Newell would call customer relationship management. "It wasn't CRM at all. It was database marketing at its best," says the author of Loyalty.com.
Call it targeting the interests of customers. Linking payment information with demographic data and names and addresses of customers is the heart and soul of what Robb Ecklund, vice president of customer relationship management applications marketing at Oracle Corp., calls "precision marketing."
"There are lots of businesses today that are looking to do what Reader's Digest and UFS accomplished 35 years ago," he says.
One is The Reader's Digest Association itself, which ushered out the Unified File System in May and ushered in the Marketing Systems Replacement in its place.
The new technology, says Richard Lawsky, director of data enhancement and preparation services at the Digest, comes "very close to what we were getting [with UFS]. Not better."