Understanding Customers

Understanding your customers The better you understand your customers, the more responsive you can be to their needs. The DTI drives our ambition of ‘prosperity for all’ by working to create the best environment for business success in the UK. We help people and companies become more productive by promoting enterprise, innovation and creativity. We champion UK business at home and abroad. We invest heavily in world-class science and technology. We protect the rights of working people and consumers. And we stand up for fair and open markets in the UK, Europe and the world.

By looking at the experience of one company, this brochure shows how you can gather, interpret and use information about your customers to improve customer service and market your business more effectively. This brochure is for: any business that wants to improve sales, customer service or customer loyalty. It covers: how to give your customers what they want by changing your systems and processes to help you understand more about them.

Contents 01 Introduction Achieving best practice in your business is a key theme within DTI’s approach to business support solutions, providing ideas and insights into how you can improve performance across your business. By showing what works in other businesses, we can help you see what can help you, and then support you in implementation. This brochure focuses on these solutions.

03 The benefits of understanding your customers better 04 The process 09 Implementation checklist 11 Further help and advice

Introduction WHY DOES IT MATTER? The purpose of understanding customers better is simple: to make your business more profitable by being able to offer your customers what they want, when they want it. Broadly, you do this by: • finding out about your customers’ purchasing habits, opinions and preferences. • profiling individuals and groups to market more effectively and increase sales. • changing the way you operate internally to improve customer service and marketing. Read on to see how one business got closer to its customers and what it might mean for you. ABOUT THIS BROCHURE The brochure tells the story of one company, The Everyman Theatre, and its investment in understanding its customers. Its experience should be a helpful introduction to the subject for businesses of any size. To help you apply it to your own situation, the brochure includes boxed-out sections of general advice. BEST PRACTICE – THE EVERYMAN THEATRE The Everyman Theatre in Cheltenham stages around 400 shows a year to which it sells 200,000 tickets. It has 30 employees. Like all businesses, the theatre needs to work hard to attract business and sell tickets. Its success relies not only on choosing shows and events that are attractive to its audiences, but also on effective marketing and a high level of customer service. Like many regional theatres, a high percentage of the Everyman’s ticket sales are to a group of regular theatregoers who can be relied upon to return year after year. As Philip Bernays, Chief Executive of the Theatre, says: “We have always been very keen to develop long term relationships with our customers and increase their use of the Theatre.” The problem was how to identify the business’s most valuable customers and increase the frequency of their visits. The Everyman already had a range of IT systems in place, but the marketing potential of their customer data was being lost because it was not all stored in one place or stored in a convenient way. Eventually the Theatre’s directors decided to tackle the problem by investing in ways of identifying and targeting specific customers, and by developing the ability to manage marketing campaigns with clear goals and objectives. The brief was to create a system that would ‘enable them to form individualised relationships with customers, with the aim of improving customer satisfaction and maximising profits.’ Read on to find out how they did it.

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‘But I already know my customers inside out…’ Just how well do you know your customers? If your business has a small number of big clients locked into long-term relationships, it could mean that you already provide excellent customer service. However, even with years of accumulated knowledge, there’s always room for improvement. Customer needs change over time, and technology is making it easier to find out more about customers and make sure that everyone in an organisation can exploit this information. Think about your business and ask yourself: How good is customer service? Do staff always have the right information when they speak to customers? Are customers kept waiting or put on hold? Are there complaints and how are they dealt with? Are there acceptable response times for fax and e-mail enquiries? Are customers satisfied? Is your customer retention rate good? Are customers loyal? Do you get many customer referrals? How good are sales? Are you happy with your revenue per customer? Are you happy with your customer acquisition costs? Are your marketing campaigns as successful as they could be? How good is communication? Does your support service have good links with the rest of the business? Do sales teams work closely with the rest of the business to spot opportunities and pinpoint weaknesses? Is everything you know about customers and prospects accessible to all your people? If the answer to a number of these questions is no, then you should consider how you can make your business more responsive to customer needs.

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The benefits of understanding your customers better The Everyman Theatre introduced a range of technical and process changes, including a comprehensive customer relationship management (CRM) system, to help improve its understanding of its customers. The benefits it experienced include: • Improved trading relationships – with customers, theatre companies, and other service providers such as printers and accountants. • Reduced costs and greater efficiency – through better targeting of marketing efforts, which reduced the cost per sale; streamlined administration; and automation of the booking process. • Improved competitiveness – through more effective marketing, better communication with theatre production companies, and a reputation for professionalism and advanced use of IT. • More sales – the net result of all these improvements has been a tangible increase in sales. Revenue has more than doubled in the last five years.

What it could mean for your business… Understanding your customers can bring benefits for businesses of all sizes in all sectors. Potential benefits can include: Increased sales • You can encourage existing customers to spend more by targeting them with appropriate offers and by spotting cross-selling opportunities. More effective customer acquisition • The more you know about your customers, the easier it is to identify new prospects and increase your customer base. Improved efficiency • If you have transaction, customer and billing details available centrally, it reduces error and speeds up transactions. • If errors do occur they can be resolved more quickly and more satisfactorily. • The more you know about customer demand, the more accurately you can predict buying patterns and stock requirements. Recent research shows that companies which connect their client management functions to their supply chain applications are 81% more profitable than those that do not.1 Increased customer satisfaction • Better access to customer information means that you can deal with customers faster and more appropriately. • Tailored product offerings and personalised treatment will show customers that you value their business. 1

Deloitte Research, 2002

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The process Everyman found that there are six stages in to obtaining accurate, timely information about your customers and using it wisely across your business: • collecting information; • storing information; • accessing information; • analysing customer behaviour; • marketing more effectively; and • enhancing the customer experience. This section looks at each stage, and then explains what Everyman did. STAGE ONE – COLLECTING INFORMATION The first stage is the easiest – collecting the raw data. The priority should be to capture the information you need to identify your customers and categorise their behaviour. Those businesses with a website and online customer service have an advantage here – customers can enter and maintain their own details when they buy, so reducing data entry and error. E-mailed or online customer surveys are another good way to gather data about customer likes and dislikes. Offering a prize or other incentive can be very successful at raising the response rate. Similarly, focus groups or account reviews with important customers can yield tremendously valuable information about how customers view your business and products or services. What Everyman did… What complicates this stage is that most businesses aren’t able to start from scratch. Most already have some IT systems and customer databases in place. For example, prior to the introduction of the marketing system, the Everyman Theatre was using the ticketing system “Databox” from Ticket.com. It also maintained a separate list of people and groups interested in specific shows who could be sent information individually by e-mail. This meant, although the business had plenty of valuable raw data, it was missing sales opportunities. STAGE TWO – STORING INFORMATION The most effective way to store and manage your customer information is in a relational database – a centralised customer database that will allow you to run all your systems from the same source, ensuring that everyone uses the most up-to-date information. When buying a database, choose one that can comfortably store all your data, and make sure it has room for growth – most customer databases start small but grow rapidly. Also, make sure your database is robust enough to handle the intended number of users and frequency of access. You can read about databases and information management on the Achieving best practice in your business website.

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What Everyman did… Everyman approached stage two by deciding to make its Databox database the centre of its marketing operations. When the company built a website, it made sure that all online bookings would pass straight to the database. By encouraging visitors to register their details and personal interests and to validate their personal information, Everyman was then able to build a database of accurate information for use in marketing. STAGE THREE – ACCESSING INFORMATION With information collected and stored centrally, the next stage is to make this information available to the staff in the most useful format. Options include: • Investing in caller recognition, so staff can have customer details at their desktops before they even answer the phone; • Making information available through a corporate intranet or company network so staff can find proposals, correspondence and other related information; • Enabling staff to search e-mail customer correspondence; • If appropriate, allowing staff to search financial applications to query payment and order status issues; • Giving staff easy access to external service providers like online couriers or trading partners; and • If you have a large customer base that you deal with predominantly by phone, it may be worth investing in Computer Telephone Integration (CTI) to link your staff directly to customer information stored on a computer. With all systems operating from the same data, it’s vital that this information is accurate. To ensure accuracy, clean and update records regularly to remove duplicate entries and let customer update their details online. The personal and financial information of your customers needs to be held securely to prevent fraud, hacking, accidental deletion, or any infringement of data protection and computer misuse legislation. Before you roll out your database across the business, make sure you build in adequate safety measures and review your intended use against data protection legislation. For more about data protection and information security, read our Technology and the law brochure. What Everyman did… Next, Everyman built a web services programme that interrogates new bookings to retrieve specific information such as the person’s e-mail address, whether the tickets were bought as a result of a specific promotion etc. This information is moved over to the marketing database, which was made available to all staff and which continues to grow as more relevant information is added.

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STAGE FOUR – ANALYSING CUSTOMER BEHAVIOUR The information you will have gathered will fall into one of four these categories: • Demographic data: age, gender, address, income; • Behavioural data: what they buy, where they buy it, how they pay; • Psychographic data: beliefs, interests, opinions; and • Firmographic data: business and sector demographics. Using data mining tools in spreadsheet programs you can begin to profile customers and develop sales strategies. Some companies, like Everyman, use Customer Relationship Management (CRM) packages to help them, which give sophisticated ways of identifying trends and personalising offers. To find out more, read the box on CRM. What Everyman did… Everyman developed a marketing programme as part of its CRM system. This runs from the desks of the theatre management and uses data from the Databox database. It manages information on individual users and groups and allows selection by criteria such as interest, age group, last time visited etc. STAGE FIVE – MARKETING MORE EFFECTIVELY Many businesses find that a small percentage of their best customers generate a high percentage of their profits. With a better understanding of your customers needs, desires and self-perception, you can reward and target your most valuable customers. At a simple level, this could be in the form of targeted mailshots or emails. Or, using a CRM system, you could provide automatic crossselling and up-selling suggestions on your website or to call centre staff. You can read more about sales and marketing on the Achieving best practice in your business website. What Everyman did… Originally, Everyman had little sophistication in the way it marketed to its existing customers. Now, with ever increasing knowledge of its customers’ preferences, Everyman can target specific performances to individuals based on their buying histories. The theatre’s marketing programme also generates value customer feedback by automatically e-mailing people who attended the previous evening’s show. The e-mail thanks customers for their visit and invites them to fill in a survey on the Theatre’s website. Says Philip Bernays, Chief Executive of the Theatre: “CRM has enabled the Everyman to expand its marketing operation and refocus its marketing strategy at virtually no extra cost. Once you’ve got it, you don’t know how you ever lived without it.”

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STAGE SIX – ENHANCING THE CUSTOMER EXPERIENCE Just as a small group of customers are the most profitable, a small number of complaining customers often take up a disproportionate amount of staff time. The quicker you can identify problems and resolve them, the more time your staff will have to look after your other customers. Options for improved customer experience could include: • A customer extranet or online account handling facility – this could give customers direct access to their own order history, stock levels and details of deliveries. • Some customers could be offered additional functionality – like greater flexibility to tailor and specify their orders. One Achieving best practice in your business case study company has a bespoke production process reserved for its most valuable clients, which lets them upload product designs onto an extranet to go straight to the shop floor. • Automatic notification when warranties or contracts expire, or better deals become available. Mobile phone companies analyse customer records to recommend tariffs that match customers’ phone usage. • Newsletters tailored to a customer’s specific area of interest or exclusive material for your best customers. Another case study company e-mails images and information about work in progress to its highest spending customers to help generate a buzz before launch. What Everyman did… Everyman introduced a section on the website for group bookings offering additional information and special offers. As well as making groups feel better served, this provides more profiling information for the Theatre. Having looked at what their customers wanted, the Theatre has also introduced an online booking facility to allow customers to reserve a parking place, buy a programme and order their interval drinks.

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CRM and your business As part of a move to improve customer service and sales, many businesses invest in a customer relationship management (CRM) system. CRM brings information like customer data, sales patterns, marketing data and future trends together with the aim of identifying new sales opportunities, delivering improved customer service, or offering personalised services and deals. In addition to improving sales and profitability, CRM is reckoned to be very effective in handling customer complaints and can have a tremendous effect on your reputation. One study reported that only 17% of people tell someone when they receive good service, but 41% tell others about bad customer service they receive.2 CRM solutions fall into one of four broad categories: Outsourced solutions Application service providers provide web-based CRM solutions starting at around £45 per user per month, plus an initial set up fee of around £5,000. Off-the-shelf solutions Software companies like Oracle, Navision, SAP, Peoplesoft, and Microsoft’s Great Plains offer module-based CRM applications that integrate with existing packages. Cut-down versions of such software may be more suitable for smaller businesses. Bespoke software Consultants and software engineers will customise or create a CRM system and integrate it with your existing software. However, this can be expensive and timeconsuming. If you go down this route make sure you carefully specify exactly what you want. Managed solutions A half-way house between bespoke and outsourced, managed CRM involves renting a customised suite of CRM applications as a bespoke package. For more about investing in a CRM system for your business, read the implementation checklist.

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Society of Consumer Affairs Professionals in Business, 2004

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Implementation checklist Looking at the experience of Everyman and our other case study companies, it is clear that creating a customer-focused business is a continual process. The most successful businesses monitor and refine their processes, consult with customers and test new product offerings extensively to make sure they’re always delivering what their customers want. The following is a checklist to help you to develop a CRM system for your business.

RESEARCH & ANALYSE SET OBJECTIVES Set clear measurable objectives for what you want to achieve. Do you want to attract and retain customers through better customer service, collect more customer data to improve product development and sales forecasting, or integrate customer data from different sources?

RESEARCH THE MARKET Focus on the type of CRM you need: • generic

– If renting from an ASP, include set-up and subscription fees – Will you need broadband to transfer large files? • Balance these costs against the benefits, such as increased sales and productivity, and reduced costs.

“ ” CONSULT PROFESSIONAL ADVICE If you lack the skills in-house, contact your local Business Link, or equivalent in your area, for help on how best to:

• industry-specific • special customisation

• outline your requirements

• collaborative characteristics

• establish how much you can afford to pay

• standalone

• scope the project

• networked

• implement CRM

• web-hosted

• provide training and software support.

• real-time access to sales staff in the field. TALK TO YOUR TRADING PARTNERS COST/BENEFIT ANALYSIS Try to quantify the anticipated benefits of improving CRM. How will it affect revenues, profitability and the cost of servicing customers? • Establish the costs of your CRM option:

CRM involves collaboration and information sharing inside and outside the company. Are your solutions compatible with your supply chain partners? • What are your customers and suppliers CRM requirements?

– What is the cost per user or per licence?

• What software are they using?

– How many licences do you need?

• What are their collaboration policies?

• What hardware platforms?

– If buying, allow for updates, add-ons and in-house support costs

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PLAN & TEST EVALUATE OPTIONS So, which system should you choose? The answer will vary from organisation to organisation, according to your budgetary realities, and your ambitions for your CRM system. Best practice is to: • Aim to spend less on your CRM software and associated costs (installation, training, consultancy) than 70% of the expected annual direct benefits – this should see CRM pay for itself within the first year of operation. • Aim to have at least part of your system operational, and generating return, within six months of starting your CRM project. • Pick a system simple enough so that staff can be trained on it in just a few hours. • Phase the system in, focusing first on the departments and functions that are most ready, or stand to generate the greatest immediate return. • Set up a pilot study. • Try before you buy – try out systems you are interested in for a month – many CRM vendors are flexible about evaluation timeframes. Wherever possible, install demonstration versions to compare features.

CONSIDER SECURITY AND DATA PROTECTION • Any CRM system must protect customer privacy. You need to be registered under the Data Protection Act or look at adopting BS7799. If you choose an outsourced solution, are you willing to trust valuable data to a third party such as an ASP? PLAN THE ROLLOUT PHASE • Do you plan to integrate CRM across your business processes in stages? • How long will the project take? This will depend on the type of system you are planning to use. • How will you co-ordinate team working across the supply chain? • Look at training implications – which staff will require training and how much will this cost? Make sure you allow time for them to adjust to the new system.

ACT IMPLEMENT Encourage staff involvement and feedback – this will help smooth implementation, as staff buy-in can make or break a technology project. EVALUATE

DON’T UNDERESTIMATE THE AMOUNT OF DATA YOU'LL NEED TO COLLECT

• Monitor and review the impact on your business and against your objectives.

• Do you have the resources to cope with increased customer response? Some businesses have had to close down e-mail due to being overwhelmed with customer feedback or queries. If you can't respond promptly, you may end up alienating customers.

• Get feedback from staff, customers and suppliers on the changes. • Evaluate the impact after 6 months and a year. Have you achieved your objectives? Establish how you could improve things further.

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Further help and advice Achieving best practice in your business is a key theme within DTI’s approach to business support solutions, providing ideas and insights into how you can improve performance across your business. By showing what works in other businesses, we can help you see what can help you, and then support you in implementation. ACHIEVING BEST PRACTICE IN YOUR BUSINESS To access free information and publications on best practice: • visit our website at www.dti.gov.uk/bestpractice • call the DTI Publications Orderline on 0870 150 2500 or visit www.dti.gov.uk/publications SUPPORT TO IMPLEMENT BEST BUSINESS PRACTICE To get help bringing best practice to your business, contact Business Link – the national business advice service. Backed by the DTI, Business Link is an easy-to-use business support and information service, which can put you in touch with one of its network of experienced business advisers. • Visit the Business Link website at www.businesslink.gov.uk • Call Business Link on 0845 600 9 006 MORE ON CRM www.crmassist.com – overview of CRM. www.eccs.uk.com – approaches CRM from a European perspective. www.crmuk.co.uk – a UK-based view on CRM for smaller businesses. www.crm-forum.com – an independent resource centre for CRM applications and information. www.crmdaily.com – information and news. www.crmguru.com – general CRM topics and issues.

GENERAL BUSINESS ADVICE You can also get a range of general business advice from the following organisations: England • Call Business Link on 0845 600 9 006 • Visit the website at www.businesslink.gov.uk Scotland • Call Business Gateway on 0845 609 6611 • Visit the website at www.bgateway.com Wales • Call Business Eye/Llygad Busnes on 08457 96 97 98 • Visit the website at www.businesseye.org.uk Northern Ireland • Call Invest Northern Ireland on 028 9023 9090 • Visit the website at www.investni.com

Examples of products and companies included in this leaflet do not in any way imply endorsement or recommendation by DTI. Bear in mind that prices quoted are indicative at the time it was published. Published by the Department of Trade and Industry. www.dti.gov.uk © Crown Copyright. URN 04/1724; 10/04

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