A SAS White Paper :

Implementing the
Customer Relationship
Management Foundation
Analytical CRM
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A Changing World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

What is Customer Relationship Management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Technologies Behind Analytical CRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Data Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Data Mining and OLAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Decision Support and Reporting Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction
In todays highly competitive business environment, companies
must continuously learn from interactions with customers and
respond to the knowledge gained from those interactions. A
shift from product-driven business strategies to customer-driven
business strategies has become essential. This white paper
discusses the technological and business issues involved in
implementing progressive techniques in managing customer
relationships. It details the practice of using advanced data
management and analysis techniques to transform a large
amount of carefully chosen customer data into reliable
information to support strategic and tactical business decisions.
A Changing World
The business world is changing. Widespread deregulation,
diversification, and globalization have stimulated a dramatic rise
in competition between companies. And customers themselves
are changingnatural customer loyalty is a thing of the past.
The more consumers understand the marketplace, the more
they want to be recognized and understood as individuals, and
they will give their business to the companies that do the best
job of understanding and responding to their needs.
In response to these changes, competitive companies are
abandoning ineffective business philosophies of the past and
adopting new and innovative ways to maintain customer loyalty
and profitability. Rather than focus on internal considerations like
reducing costs and streamlining operational systems, companies
are seeking to maximize profitability by focusing on the many
facets of the customer relationship. Guided by the concept of
customer profitability, an economic view of customers that
measures how profitable a customer is to a company rather
than measuring the profitability of product lines, companies are
adopting a customer-centric strategy, stressing the importance
of optimizing the value of each customer relationship. In this
significant shift from product-driven strategies to customer-
driven strategies, customer retention is becoming more and
more important, in some cases eclipsing customer acquisition
as the primary focus. Reacting to increasing acquisition costs
and acknowledging the value of analyzing customer profitability,
many enlightened companies have realized that the key to
success is this: know everything you can about the customer.
The goal is to define the profitability of customers based on
customer lifetime value (LTV)a measurement based on the fact
that the past value of a customer, though useful information, does
not itself determine future profitability. It is what that customer is
going to do and spend in the future that will contribute to the
bottom line for the next year and beyond. This enables
companies to not only manage profitable customers in a
way that optimizes the customers LTV, but also manage
nonprofitable customers. A notion of future or lifetime value
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is essential when prioritizing and focusing resources to ensure
they are directed where they will benefit most.
One key approach in transitioning to a customer-centric strategy is
to gather enough information to group customers into categories
and tailor your interaction to each group. Segmentation is an
important starting point for understanding individual customers.
Through analytical segmentation techniques, customer
information such as demographic data and lifestyle information
can be combined with historical customer information to help
identify differences in behavior among various groups, or
segments, of customers. For key segments, these can continually
be filtered and differentiated to become segments of one, with
the goal of creating unique, individual customer profiles.
So why do many companies settle for a fuzzy definition of who
their customers are, when a detailed profile of individual
customers allows for vastly improved opportunities to meet the
customers needs? The answer for some is an unwillingness to
tackle what may appear to be an incredibly complex data
management and analysis task. After all, if you gather 100
pieces of information about each of 1000 customers, you then
have to store, manage, retrieve, and analyze 100,000 pieces of
data in real-world, operational scenarios. Even in a small-scale
example like that, the numbers can be a little daunting. This is
where data warehousing technology comes into playits the
foundation on which successful CRM strategies are built.
What is Customer Relationship
Management?
Customer Relationship Management (CRM) is a process by
which a company maximizes customer information in an effort
to increase loyalty and retain customers business over their
lifetimes. The primary goals of CRM are to
build long term and profitable relationships with chosen customers
get closer to those customers at every point of contact
maximize your companys share of the customers wallet.
CRM combines a progressive approach to gathering customer
data with advanced database and decision support technologies
that help transform that data into business knowledge. By
maximizing the use of customer information, companies can
better monitor and understand customer behavior. In response to
newly gained customer intelligence, companies retool their front-
and back-office systems to ensure that they are providing what
the customer really desires. CRM calls for increasing customer
sharethat is, retaining customers and selling them an expanded
set of products that has been tailored to their wants. This requires
amassing data from every customer contact point, analyzing that
data to find ways to better serve customers, and then effecting
changes based on the new business knowledge.
 on
Operati al CRM
Call Centers
S Analytical C Management
SA Call
Behaviour
Analysis
Monitoring
Quality of
Service
Customer Analysis
Service
Behavioural
Modeling
Web
Analysis
Sales
Analysis
E-Commerce
Web
Figure 1. CRM Overview
Effective CRM depends on datadata about who customers are,
their preferences, their behavior, their status with the company
(both past and current), their purchase history, and their
classification, based on demographic and psychographic
information. Much of the data-intensive work involved in CRM
initiatives begins with back-office processes. A repository of
customer data must be created within a single, customer-centric
data warehouse. Then, this integrated customer view can feed a
wide variety of data analysis processes, from call behavior analysis
and needs analysis to segmentation and campaign analysis.
In addition to the application of state-of-the-art data
management and analysis techniques, CRM implementation
often involves a significant change in a companys business
strategychanges that require not only retooling back-office
processes, but in many cases, reorganization of the business
functions closer to the customer. Operational processes
designed to support a product-driven strategy become
ineffective when the companys marketing focus shifts to a
customer-centric strategy. Companies must adjust those
processes to allow all information coming from customer
contact points and other customer related information to be
consolidated and analyzed. Then, newly acquired customer
intelligence is translated into real-world changes in how the
company manages customer relationships. From implementing
Web-based solutions for communicating with customers to
initiating automated campaign management strategies,
effective and flexible front-office processes are vital in any
Campaign
RM
Campaign
Analysis
Customer
Valuation
Integrated Segmentation
customer and Profiling Sales Force
view Automation
Risk Analysis
Profitability
Analysis
Needs
Analysis
ERP
Other
CRM implementation, serving as both the initial conduit for
customer data, and then, after the data is analyzed, affecting
changes based on the resulting customer intelligence.
As we explore the central concept of CRMthe notion that
customer information fuels analytical processes that in
turn yield business knowledge used to improve company
processesa clear division begins to emerge between the
primary elements of a CRM initiative. Two halves of CRM,
one focusing on operational initiatives and the other focusing
on analytical initiatives, can be further defined as follows:
Operational CRM, which, building on the notion that
customer management plays an important role in a
companys success, calls for the automation of horizontally
integrated business processes involving customer contact
points via multiple, interconnected delivery channels and
integration between front- and back-office operations.
Analytical CRM, which involves the implementation of the
advanced data management and analysis tools that make
progressive customer relationship management possible.
This is the analysis of data created by Operational CRM for
the purpose of business performance management.
As this paper focuses primarily on Analytical CRM, lets take a
closer look at the advanced analytical technologies that contribute
to an effective CRM initiative.
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The Technologies behind
Data Warehousing
Analytical CRM A data warehouse is an implementation of an informational
The technologies most commonly involved in the analytical
database used to store shareable data that originates in an
portion of a CRM initiative are
operational database-of-record and in external market data
sources. It is typically a subject database that allows users to
data warehousing
tap into a companys vast store of operational data to track
data mining
and respond to business trends and facilitate forecasting and
online analytical processing (OLAP)
planning efforts.
advanced decision support and reporting tools.
Typically, before a data warehouse can be created, a data
Before we examine each of these technologies, lets first
cleansing phase must occur. Data cleansing is the process of
examine the general flow of data and information in a CRM
manipulating the data extracted from operational systems to
initiative to get a feeling for where each technology comes
make it usable by the data warehouse. When loading data from
into play. Initially, operational data (records of business
existing operational systems, it is likely that few if any of the
transactions that have occurred between the company and
operational systems will contain data in a format that is
the customer) is gathered from customer contact points.
compatible with the data model developed for the warehouse.
This operational data, along with legacy customer data and
For example, a product number may be stored as a numeric
market data from external sources, is compiled into a data
field in one system, while a second system appends an
warehouse. At this point, OLAP tools and data mining
alphabetic suffix to the number for reporting purposes.
techniques are used to extract relevant patterns or trends in
Data cleansing is an extremely important part of creating
the data. Finally, utilizing sophisticated reporting tools such
the integrated customer view, often exposing unexpected
as Web-enabled dynamic reporting systems and executive
inconsistencies in operation data from disparate sources.
information systems, the business knowledge gleaned from
this process is used to improve operational effectiveness
It is during the creation of the data warehouse that an IT
at customer contact points, and the knowledge is also
department adds metadata, or data about the data. Metadata
deployed to back-office business activities for use in tactical
includes descriptions of what kind of information is stored
decision making.
where, how it is encoded, how it is related to other information,

Purchased Demographic Data

Standard Reporting

Legacy Systems Campaign Management

M E T A D A T A

Merge - Clean - Enrich

Customer Profitability

Customer Data Warehouse

ERP Systems

Customer Segmentation

Closed Loop
Analytical Applications
Front Office Automation
Figure 2. A Closed-Loop CRM Architecture
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where it comes from, and how it is related to your business.
The disparity in content and format of the data, coupled with
the sheer volume of information, requires the creation of
metadata that will tell users and analysts important details
about the source, format, and purpose of the data.
For business users, metadata is essential to the management,
organization, and exploitation of the data that feeds a CRM
initiative. It is very helpful for business users to be able to see,
for instance, how the profit variable was calculated, or that
perhaps sales territories were divided differently prior to a
certain date, or even just when the data was last updated. This
type of metadata, such as documented business rules, helps
extend the value of your repository of customer information.
Given the complexity of the relationship between operational
systems and decision support systems, metadata should
document all data elements from data source to data
exploitation as completely as possible.
SAS software is widely recognized as the de facto standard
data warehousing technology, highlighted by its ability to
capture and integrate data from a large number of sources and
its support for a broad range of hardware platforms and
operating systems. SAS software allows you to access, manage,
and organize all relevant customer data from operational
systems, legacy systems, value-added data providers, and
market research sourcesboth internal and external.
Data Mining and OLAP
Data mining involves specialized software tools that allow
users to sift through large amounts of data to uncover data
content relationships and build models to predict customer
behavior. For many years, statisticians have manually mined
databases looking for statistically significant patterns. Now, data
mining uses well-established statistical and machine learning
techniques to build models that predict customer behavior.
Predictive modeling can segment and profile customers, and
this information can be integrated into the data warehouse and
with other marketing oriented operational applications. SAS
Institutes data mining offerings, including the recently released
Enterprise Miner software, are acknowledged market-leading
technologies that enable analysts to model virtually any
customer activity and find patterns relevant to current business
problems. This technology enables you to define a set of
comprehensive and consistent customer profiles to better
understand customer needs, behavior, and profitability and
construct predictive models of customer behavior to fuel target
marketing and campaign management activities.
OLAP (Online Analytical Processing), also known as multi-
dimensional data analysis, offers advanced capabilities in
querying and analyzing the information in a data warehouse.
In some CRM initiatives, OLAP plays a major role in the
secondary analysis that takes place after initial customer
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segmentation has occurred. For example, in CRM-based
campaign management systems, OLAP is an excellent tool for
analyzing the success or failure of the promotional campaigns.
A pioneer in OLAP technology, SAS Institute offers the
SAS/MDDB server, a powerful tool that allows analysts to
work with multidimensional views of the data and surface
information that will aid in decision support processes.
Decision Support and Reporting Tools
Web-enabled reporting tools and executive information
systems are used to deploy the business information that
has been discovered. This enhanced customer knowledge is
distributed to executive decision-makers as well as to the
operational customer contact points. Applications equipped
with some of the same sophisticated modeling routines
developed in the data mining phase are applied to individual
contacts in real time. In some companies, the World Wide Web
and Internet/intranet technology are critical components in
managing customer relationships. They not only use Web
technology to share business knowledge from the CRM
process, giving every employee a better understanding
of customers at every point of contact, but also to collect
additional information about customers and prospects, thus
fueling further CRM activities. You can create advanced
information delivery systems like Web-enabled OLAP, query,
and reporting tools using SAS/IntrNet software. Additionally,
SAS/EIS software viewers and our Web-based data warehouse
exploitation tool called MetaSpace Explorer software are also
powerful reporting tools that help put fresh, valuable business
intelligence into the hands of those who need it.
Summary
As corporate competition continues to increase due to external
market factors and a market-savvy customer-base, companies
must discard their business philosophies of the past and adopt
new and innovative ways to maintain customer loyalty and
profitability. Building loyalty among customers involves
understanding the various ways that they are different and
using that knowledge to tailor appropriate behaviors towards
those customers. Companies must adopt a customer-centric
strategy that stresses the concept that success over time
comes from customer loyaltythat long-term profitability lies
in fostering unique lifetime relationships with small numbers
of carefully chosen customers. Companies must continuously
learn from interactions with each individual customer and
be prepared to dynamically respond to information and
knowledge gained from those interactions. What makes this
possible is CRM, a method of processing a large amount of
carefully chosen customer data in order to obtain reliable
information to support strategic and tactical business decisions.
Utilizing advanced data warehousing, data mining, OLAP, and
decision support technologies, companies can create an
integrated customer view and extract relevant patterns or
trends in the data. Business decisions based on complete and
reliable information about your customers are very difficult for
your competitors to replicate and represent a key and sustainable
competitive advantage.

SAS Institute offers the only software and services solution

that spans the entire decision support process for managing
customer relationships. SAS software is recognized as the
de facto standard data warehousing technology, providing the
capability to capture and integrate data from a large number of
sources on a broad range of hardware platforms and operating
systems. Our data mining offerings are acknowledged market-
leading technologies that enable analysts to model virtually
any customer activity and find patterns relevant to current
business problems. As a pioneer in OLAP technology, SAS
Institute offers powerful tools that allows analysts to work with
multidimensional views of the data and surface information
that will aid in decision support processes. And finally, SAS
software enables you to create advanced information delivery
systems like Web-enabled OLAP, query, and reporting tools so
you can deploy the valuable business intelligence reaped from
your CRM implementation into the hands of those who need it.

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