Few markets have actually suffered as much from vague vendor marketing messages as has the market for Analytical CRM solutions as software vendors each have a different definition of what comprises analytical CRM. In an immature market, all can claim to be market. The complexity and vagueness of the ACRM project is such that buyers are especially wary when purchasing products at such high cost.

What Is Analytical CRM?
Datamonitor defines Analytical CRM (ACRM) as the process through which enterprises transform customer data gathered through operational CRM into actionable customer insight.

ACRM sits at the heart of CRM. Call Centers, operational software and automation software for sales, service and marketing represent the "doing" parts of CRM; ACRM is the "thinking" part. Applied ACRM identifies trends and patterns of behaviour and extends these into predictive analysis. Analytical CRM, rather than being a single product or service, is composed of very many individual components. This process is supported by a number of tools, which enable the analysis itself, such as Data Quality, Data Warehousing, and tools that enable access to the information.

These do the following:

• Prepare the data for analysis (Data Quality, data warehousing)

• Perform the analysis itself (OLAP tools)

• Provide access to the information (Query & Reporting).

A simple example of ACRM in action would be in a telecoms supplier. Through billing, the enterprise has information about historic usage for a particular customer. Through call center software, call center interactions will be recoded. Through engineering, the enterprise will have some idea of network utilization. All of this information will be stored in one or more data repositories. ACRM will allow the operator to identify patterns of behaviour, find similar customers and hence be able to create predictions about behaviour. Once this has been modelled, opportunities to up sell new products or adjust service plans can be acted upon.

The basis for analytics is data and so companies must first invest in operational CRM systems for there to be customer data to analyze. In a sense, operational CRM is the fuel for the analytical CRM engine. Analytical CRM provides a means of deriving more value from existing investments.

Drivers And Barriers Behind The Market
Democratization Of Data
The level of decision-making is shifting. Five years ago, IT departments would own not only the infrastructure but also the data, so users would then request particular reports. Today it is more likely that the marketing department would be in charge of its own data and will need data not just for strategic decisions but also at the micro-level for tactical day-to-day decisions. Individual executives have the power to create their own reports and run their own campaigns. This democratization of data and the need for data for micro-decision making are the major drivers for access to analytics within the enterprise.

Smarter, Easier Tools
Analytics used to be the preserve of scientists with complex algorithms. For the last 2-5 years IT departments have controlled it. Only recently has its moved to be part of marketing departments' arsenals. This evolution of ownership has been mirrored in an evolution of usability, and interfaces have become easier, smarter and better. Simpler, smarter tools will encourage larger user groups within an enterprise and hence an enlargement of the market.

Increasingly Competitive User Markets
Highly competitive vertical industries such as financial services will be most inclined to buy technology to give them a competitive edge. However, different groups of users within an organization also compete with each other for budget. IT budgets are being cut and marketing budgets tend to be slashed to purely below-the-line marketing in times of recession. Analytics is unusual in that buying points may lie within IT, marketing or analyst functions and hence gives vendors 3 opportunities for every sale.

Increasingly Competitive Vendor Markets
The CRM application market is almost globally flat, and shrank within 2002. All vendors are aware that through partnering or acquisition they have a stake in a growth area. This may smell of bandwagon-ism, but it does raise the profile of analytics with all potential customers. This is because operational CRM vendors have far more visibility with customers than analytics vendors. By pushing the ACRM 'message' they are creating awareness for what analytics can do.

Negative reasons
It is clear that many customers have not achieved any return on investment in large operational CRM implementations and are trying to understand how they can maximize past investments and existing infrastructure. Many customers are therefore those who have or are in the process of buying and have begun to realize that the ongoing and maintenance cost may be much higher than expected once consultants have become immersed in the nuts and bolts of integration. Many analytics vendors have reported that customers are often those who rapidly need to get out of a CRM expenditure hole, by bringing in a small piece of software that can deliver immediate ROI and hence mitigate against the ongoing nosebleed of running a CRM strategy.

Barriers
Complexity
Analytics is still fundamentally a complex beast. By dumbing it down to make it easier to sell, many would argue that it ceases to be analytics. Its selling points are difficult: it primarily gives the enterprise knowledge upon which it may or may not choose to act. Unfortunately this smacks of the vision marketing, which ailed technology sales for many years, so it is clear why so many vendors, especially smaller ones, are having difficulty selling their version of analytics.

Legislation
In the EU there are already a number of directives in place which affect the transportation and manipulation of customer data. The most important of these is the Privacy Directive, which effectively prohibits the manipulation of customer data without clear consent. Other issues which have an effect include:

• Cross-border data flow: which prohibits the transfer to data to any country not deemed "safe". Currently, the US is not considered "safe" by EU standards;

• Distance Selling Directive, which places strict regulation on the selling by telephone of any service or product, and places severe restriction on selling financial products.

Who Needs ACRM The Most?
It is possible to group the propensity to buy ACRM technology within a particular vertical industry by assessing the following:

• Data volume, a function of customer volume, data per customer and volume of transactions

• Degree of commoditization, a function of the competitiveness within the vertical and the nature of the goods or service being sold. Highly undifferentiated, often selling intangible goods or services

• ANALYTICAL ADVANTAGE: industries which are commoditized or selling broadly undifferentiated goods or services AND possess a high data volume will be in greater need of ACRM to create Analytical Advantage.

The retail credit industry is to all intent and purposes commoditzed. There is a lot of customer data generated and worldwide, the industry is increasingly competitive. Therefore, a great deal of analytical advantage can be gained through ACRM. (See figure 1). Travel and Tourism on the other hand also generates a great deal of information and despite recent setbacks is still a highly competitive industry. However, customer loyalty is very difficult to maintain, so there is limited use for analytics.

Analytical CRM uses the data in the data warehouse to precisely segment and define customer groups and target outbound marketing. Without a solid data foundation for this, it cannot work effectively. Data Quality (DQ) is the process of consolidating and cleaning every byte of data within an enterprise. The quality of data directly affects the effectiveness of outbound marketing, analytics and customer loyalty and, more fundamentally, the ability to do business. A common misconception is that DQ is address verification; more accurately it is customer identification. As such it is critical to Analytical CRM.

Vendors who offer analytics without emphasizing Data Quality and its fundamental importance may be misleading the market. Customers need to be careful that they do not buy a solution that will not work at 100% effectiveness; vendors need to be careful that they do not become embroiled in long projects where DQ issues are insurmountable.

ACRM Market Overview
Globally the ACRM market is worth $2.35b broken down as shown in Figure 2. Overall the market is dominated by North American sales, but there are significant markets in EMEA and Asia-Pacific.

There are subtle differences in take-up by region. The primary factors influencing this are:

• Corporate demographics (number of enterprises of a particular size)

• Uptake of operational CRM which in most cases must precede the use of ACRM

• Legislation regarding the use of customer data

• Corporate structure: ACRM tends to be taken up by companies with more centralized information structures where most data tends to be held in central repositories.

Nevertheless, Datamonitor expect growth in ACRM to be fastest outside North America. The Central & Latin American markets will grow fastest, once recovered from their current economic morass. The Asia-Pacific market, which already has significant experience with analytics from local vendors, will also grow quickly reaching a CAGR of 23% between 2002 and 2007. Growth in EMEA will be driven by growth in data infrastructure (data marts, data repositories and data warehouses) which has not reached the same level of saturation as North America. Globally, most growth will be driven by the application of Business Intelligence to CRM and analytical infrastructure, notably Data Quality tools.