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CRM? But what about DRM?

Tuesday November 27 2012

But credit expert Elliot Howard argues that now it is the time for managing debtor relationships as well

But credit expert Elliot Howard argues that now it is the time for managing debtor relationships as well


Almost all retail organisations have now mastered the basics of customer relationship management (CRM). But now a credit collection software expert is calling for a need to move to DRM or ‘debtor relationship management’.


“Retailers need to get smarter at deciding who they lend money to and on collecting what's owed and apply the same level of rigour to debt management as they do to other parts of the customer engagement process,” said Elliot Howard, director of software solutions specialist Sopra Group, which specialises in providing credit collection management software.


Refine processes to be proactive


In the same way marketers learned that bombarding customers with undifferentiated offers is expensive, ineffectual and counterproductive, retailers that insist on chasing delinquent customers with letters and calls that just get ignored have seen credit losses reach new highs. Howard said it is becoming clear that retailers need to be as good in their debt collection processes as in their customer outreach.


“The good news is that some leading retailers have started benefiting from a collection management approach from which they are deriving huge efficiency benefits. How?” he asked. “By applying customer relationship management (CRM) style analytical techniques to the issue of debt, rather than customer management.”


Howard pointed out that not all retail firms have yet reached the same insight as these pioneers. “A survey our company commissioned this year, for example, found that only a quarter of retailers describe their segmentation profiling as ‘fully optimised’ and 14% said their system needs a complete overhaul in this respect,” he continued. “The inability to analyse debtor profiles was another related focus of concern. In all, almost half of retailers admit there is definite room for improvement here.”


Improved analytics to mitigate risk


The credit collection expert stressed it is becoming more and more clear that ‘switched-on’ retailers need to apply the same level of rigour to debt management as to other parts of their core customer marketing. “That’s because improved analytics can help organisations best test new contact and risk mitigation strategies, as these strategies require robust data to support change,” he explained. “One such instance of analytics-based best practice is using postcodes as an indicator of risk, for example. Or perhaps there is a high level of delinquency on a certain product; you need to look through your books to find out which cases are connected to that product and assign resources to proactively manage them before they become problematic.”


Howard added: “The point is that targeted use of analytics in the debt collection process is really about giving the retailer, as supplier, the power to intelligently identify trends that matter and take corrective action to manage that risk, rather than having to react to it. An added bonus is that all of this good work can go upstream into underwriting.


“For instance, a given type of crediting option on a luxury good purchase is related to a high default rate; so adjust the business on that basis and fine-tune pricing and acceptance criteria. Another area is when you have a customer in default on the purchase of a luxury item. Here, a whole-customer view can be invaluable. You need to know about that customer’s mortgage, personal loan, their risky joint loan, their student loans, on-going payments on the household car and so on. In other words, you need the ability to have a consolidated view of the potentially delinquent customer, so as to provide a tailored, helpful service to address the situation before it becomes problematic.”


Move beyond chasing just debt


All in all, Howard highlighted a tough outlook for the credit function in the average UK retailer in the face of rising debt issues unless some truly radical and game-changing process overhaul is instigated. “To quote a retail manager in our survey that nicely summarises the issues so many of face: It’s all about ‘allocating more resources and more proactive collection’ and ‘implementing a debt collection strategy, not just chasing bad debtors,’” he said.


To sum up, Howard urged that now is the time to move from CRM to ‘DRM’. Why? “Because the promise of knowing both your best customers and debtors could be just the extra edge you need to manage your way through the recession and into sustainable, long-term success,” he concluded.