"HOW MUCH DOES it cost? For you?"
If you've ever heard these words at the corner store, you've experienced CRM-driven price optimization. Throughout history, sellers have tried to get to know their customers, and then used that knowledge to optimize their dealings with them.
Today, companies want more than ever to tap their mountains of CRM data to optimize pricing for individual customers. Until recently, CRM analytics software has been better suited to planning than to actual price generation. But this is starting to change, and large companies are increasingly deploying apps that tap into both CRM and back-office systems to generate prices based on individual customer value and transaction profitability data.
Take Las Vegas-based Harrah's Entertainment, which operates 24 casinos and 16 hotels, under the Harrah's, Harveys, Rio, and Showboat brands. The company decided five years ago to adopt a "world-class CRM strategy," according to director of revenue management Eileen Moore, and built a homegrown CRM system to track the 26 million members of its Total Rewards loyalty program.
When a customer calls Harrah's for a reservation, the system generates a customized room rate for him or her, calculated to optimize profit for the company. The rate is partially based on the "customer segment" the caller falls into. Customers fall into up to 64 segments, derived from statistical techniques and based on prior activity and preferences. Each segment has a code, such as AEP for Avid Experienced Player. "We auto-classify them based on their gaming profit," Moore explains. "What is this customer's value, not just on this visit but on future visits?"
Slot machine customers are more profitable than table customers, for example. The company's 300 call-center reps can see the customer's rating on their screens, alongside the approved offers. "CRM has been done in a vacuum and revenue management has been done in a vacuum and the two never met," Moore explains. "It's what we do on the back end that's so special."
The back end consists of the company's CRM system, a reservation system from International American Data, and an RMS revenue management system from Rockville, Md.-based Manugistics, which performs the segmentation of Harrah's customers, forecasts daily hotel room demand for each segment, and calculates the rate for each segment on any given day. "The whole quoting and pricing process has been left somewhat to chance in the past," said John Hagerty, an analyst at AMR Research in Boston. "People are just out there quoting stuff, making swags."
To rectify this situation, Hagerty said, companies are increasingly migrating planning and pricing intelligence from their ERP order management systems to their CRM systems, and leveraging data from across the enterprise. "This is a natural for the CRM guys to do. ... It's taking horizontal slices through a broad swath of existing applications to optimize price."