Statistical Methods in Customer Relationship Management

8.3 CRM Implementation at IBM

In this section, we will present the CRM implementation at IBM (a B2B company), from initial model development to actual field study implementation. The whole idea of the case study is to showcase how CLV was used as a useful indicator of customer profitability for IBM's marketing decisions toward maximizing the firm's value [2]. This study shows that CLV performs better in measuring customer value as compared to IBM's customer selection metric.

By implementing CLV measurement and maximization on about 35 000 customers, IBM was able to increase its revenue 10-fold without any changes in the level of marketing investment. This increase in revenue was made possible just by reallocating the marketing communication resources to the right customer groups.

8.3.1 IBM Background

IBM, a multinational technology and consulting service provider to B2B customers, aimed to maximize its overall profitability through customer-centric CRM strategies. Specifically, IBM sought to maximize its profitability by prioritizing its resource allocation to the most profitable customers. To measure customer profitability, it used Customer Spending Score (CSS), which was defined as the total revenue that can be expected from a customer in the next year. Following the scoring, IBM then ranked customers into 10 deciles according to their corresponding CSS values. The top one or two deciles were then targeted and allocated more marketing resources.

In 2004, IBM felt the need to ...