A Forrester Total Economic
Project Directors:
Impact™ Study
Sarah Musto
Commissioned By
Shaheen Parks
Pegasystems
The Total Economic
Impact™ Of Pega
Marketing
Cost Savings And Business Benefits
Enabled By Pega Marketing
March 2016
Table Of Contents
Executive Summary .................................................................................... 3
Disclosures .................................................................................................. 4
TEI Framework And Methodology ............................................................ 5
Analysis ........................................................................................................ 6
Financial Summary ................................................................................... 17
Pega Marketing: Overview ....................................................................... 18
Appendix A: Total Economic Impact™ Overview ................................. 19
Appendix B: Forrester And The Age Of The Customer ....................... 21
Appendix C: Glossary ............................................................................... 22
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3
Executive Summary
Pegasystems commissioned Forrester Consulting to conduct
a Total Economic Impact™ (TEI) study and examine the
potential return on investment (ROI) enterprises may realize
by deploying Pega Marketing with its Customer Decision Hub.
The purpose of this study is to provide readers with a
framework to evaluate the potential financial impact of the
Pega Marketing solution on their organizations.
“After deploying the application, what we saw was
an increase in handle time, and when we dug
deeper, it was good handle time. It was handle
time spent on closing more sales. We saw a
reduction in churn, an increase in our revenue,
and an increase in treatment rates — all key
metrics for our business.”
~Senior director of retention marketing
To better understand the benefits, costs, and risks associated
with this implementation, Forrester interviewed an existing
customer with multiple years of experience using Pega
Marketing. Pega Marketing is a customer-centric marketing solution that leverages predictive and adaptive analytics to
provide real-time marketing offers and treatments that help drive customer lifetime value. It enables marketers to design
cross-channel strategies that look at customer history while the system adjusts in real time based on customer interactions.
Prior to using Pega Marketing, the interviewed organization had limited analytics capabilities and no standardized customer
service strategy to help customer service agents navigate multiple systems and select optimal offers for customers. This
meant that proposed marketing strategies could not be thoroughly tested before launch, results of offer strategies could not
be tracked, and customer service agents faced process inefficiencies and suboptimal call results. With Pega Marketing, the
organization was able to use the tool’s analytics capabilities to optimize marketing strategies as well as provide prioritized
offer recommendations to customer service agents based on real-time call intent and proactive offers based on customer
data. This resulted in retention improvements and incremental revenue, as well as process improvements for the marketing
team and in the call center.
PEGA MARKETING IMPROVES RETENTION, ENABLES INCREMENTAL SALES, AND CREATES EFFICIENCIES
Our interview and subsequent financial analysis found that the interviewed organization experienced the risk-adjusted ROI
and benefits shown in Figure 1.
The analysis points to benefits of $170 million over three years versus hardware, software, and implementation costs of
$31.5 million, adding up to a net present value (NPV) of $138 million. Forrester notes that this is a look at the total return on
investment, including all costs and benefits (as differentiated from a marketing return on investment [ROMI] calculation. For
more detail on the ROMI of this analysis, please see the Benefits section).
With Pega Marketing, the organization is able to achieve $139 million in improved retention impacts and $30 million in
incremental sales associated with upsell/cross-sell opportunities. It is also able to save time on implementing new strategies
as well as save time in the call center from streamlined processes.
FIGURE 1
Financial Summary Showing Three-Year Risk-Adjusted Results
ROI:
438%
Source: Forrester Research, Inc.
NPV:
$138 million
Payback:
4.7 months
Improved
retention:
$139 million
4
›
Benefits. The interviewed organization experienced the following risk-adjusted benefits:
• Improved retention, creating up to $63.5 million per year in additional value. The Pega Marketing application
provides customer service agents with prioritized offers that adapt in real time, improving close rates, and the
marketing team can run detailed tests and analysis to optimize retention strategies.
• Prioritized, contextual offers, creating $13.8 million per year in incremental sales. The organization is able to
use customer data and call intent to upsell/cross-sell premium subscription services to customers to generate
incremental revenue from the existing customer base.
• Marketing and call center operational efficiencies. While not quantified for this study, the Pega Marketing tool
allows the organization to streamline key processes for the marketing team and in the call center.
›
Costs. The interviewed organization experienced the following risk-adjusted costs:
• Pega Marketing license costs of $5.5 million and support costs of $1.1 million per year. These are
representative of costs paid to Pega for license and maintenance of the Pega Marketing application, reflecting
customary pricing for the solution for a client of this size. For reference, this customer has over $30 billion in revenue
annually and serves over 20 million customers. For more detail on the interviewed organization, please see the
Analysis section.
• Implementation and training costs. This is for the initial setup and deployment of the Pega Marketing tool, as well
as upfront and quarterly training to boost adoption within the call center.
• Upfront capital costs for five servers to support Pega Marketing. The organization procured five servers upfront
and pays maintenance costs in years 1 through 3. Note: Capital costs will vary based on factors such as the number
of customers served and number of interactions.
• Ongoing management costs of $1.6 million per year. The organization created a team, including contract
resources as well some new hires, that is fully dedicated to managing the Pega Marketing application and testing
and making incremental application enhancements. Note: Ongoing management costs will vary based on factors
such as an organization’s existing skill sets and processes.
Disclosures
The reader should be aware of the following:
›
›
›
›
The study is commissioned by Pegasystems and delivered by Forrester Consulting. It is not meant to be used as a
competitive analysis.
Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises
that readers use their own estimates within the framework provided in the report to determine the appropriateness of an
investment in Pega Marketing.
Pegasystems reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its
findings and does not accept changes to the study that contradict Forrester's findings or obscure the meaning of the study.
Pegasystems provided the customer name for the interview but did not participate in the interview.
5
TEI Framework And Methodology
INTRODUCTION
From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for
those organizations considering implementing Pega Marketing with its Customer Decision Hub. The objective of the
framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision, to help organizations
understand how to take advantage of specific benefits, reduce costs, and improve the overall business goals of winning,
serving, and retaining customers.
APPROACH AND METHODOLOGY
Forrester took a multistep approach to evaluate the impact that Pega Marketing can have on an organization (see Figure 2).
Specifically, we:
›
›
›
›
Interviewed Pega’s marketing and sales personnel, along with Forrester analysts, to gather data relative to Pega Marketing
and the marketplace for Pega Marketing.
Interviewed one organization currently using Pega Marketing to obtain data with respect to costs, benefits, and risks.
Constructed a financial model representative of the interview using the TEI methodology. The financial model is populated
with the cost and benefit data obtained from the interview.
Risk-adjusted the financial model based on issues and concerns the interviewed organization highlighted in the interview.
Risk adjustment is a key part of the TEI methodology. While the interviewed organization provided cost and benefit
estimates, some categories included a broad range of responses or had a number of outside forces that might have
affected the results. For that reason, some cost and benefit totals have been risk-adjusted and are detailed in each
relevant section.
Forrester employed four fundamental elements of TEI in modeling Pega Marketing’s impact: benefits, costs, flexibility, and
risks.
Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI
methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix
A for additional information on the TEI methodology.
FIGURE 2
TEI Approach
Perform
due diligence
Source: Forrester Research, Inc.
Conduct customer
interview
Construct financial
model using TEI
framework
Write
case study
6
Analysis
INTERVIEWED ORGANIZATION
For this study, Forrester conducted an interview with representatives from the following company:
›
An entertainment service provider based in the United States with over $30 billion in annual revenue and over 25,000
employees.
›
The organization serves over 20 million customers across the US.
›
The Pega Marketing application is currently used by over 20,000 customer service agents.
›
Pega Marketing focuses on churn reduction and incremental
revenue generation among the existing customer base.
Based on the interview, Forrester constructed a TEI framework and
an associated ROI analysis that illustrates the areas financially
affected.
INTERVIEW HIGHLIGHTS
Situation
With a large customer base and over 20,000 customer service
agents, the organization sought a solution that could help create
agent efficiencies and enable improved call results. Prior to using
Pega Marketing, the customer service agents had to choose from a
long list of offers and navigate several tools and applications to
figure out which offer to provide to each caller. The goals for a new
solution were to:
›
›
›
Reduce call handle time for the organization’s customer service
agents by simplifying the process for handling customer calls.
Reduce churn among the existing customer base with more
targeted, contextual offers.
“Previously, agents had to
choose between a huge
number of offers. They had to
navigate many different tools
and applications to figure out
what they should offer to
whom. There were a lot of
tests we couldn’t run, and we
had no insight into what offers
were being pitched.”
~ Senior director of retention marketing
Increase customer lifetime value through customized offers that
drive incremental revenue from the existing customer base.
Solution
The organization selected Pega Marketing for its ability to drive business value, speed of execution, impact and ease of use
for analytics functions and reports, and positive reviews from other current customers.
The organization began the following deployment:
›
The first phase of the deployment was a six-month pilot period prior to a full deployment. The organization deployed the
application to 800 agents from its customer service groups. At the end of the six-month pilot, the organization deployed the
application to all 20,000 agents in the call center. By Year 2, the organization deployed the tool to a few smaller groups
related to proactive customer interactions.
7
›
›
In order to mitigate adoption concerns, the Pega Marketing application was integrated into customer service agent
workflows and automatically launches when a call intent is chosen.
When the organization first launched the application, the focus was on retention. However, it quickly expanded the tool to
include revenue generation.
Results
The interview revealed that:
›
›
›
Customer service agents using Pega Marketing are able to drive better call results. While the initial goal of the Pega
Marketing implementation was to create call center efficiencies through reduced handle times, the organization noticed
that call handle times actually increased. However, this increase in call handle times was a net positive. Customer service
agents were presenting more relevant offers based on the Pega Marketing real-time prioritization and contextual customer
data, which resulted in higher offer close rates. The
incremental revenue and incremental churn reduction achieved
during these calls easily offset the increase in handle time.
Additionally, the organization is able to use the tool proactively
to reach out to customers who are at high risk for churn or who
“We created a dashboard
have disconnected. These programs provide high-risk or
where we can see the results of
recently disconnected customers with special offers from the
tool in order to reduce the churn risk or regain lost customers.
Pega Marketing enables improved marketing operations
effectiveness. The marketing team is able to use built-in
testing programs and the robust dashboard driven by the
Decision Hub platform to evaluate current strategies and test
new strategies. The capabilities within the application also
facilitate the creation of advanced analytics models. This has
allowed the organization to manage its strategies at an
individual customer level rather than based on broad
segmentations. The result is that the marketing team can
better optimize cross-sell and retention strategies used within
the tool and by customer service agents.
The Pega Marketing application provides technical
upgrades that enable improved business results. In
addition to using the predictive and adaptive analytics in the
Decision Hub to enable real-time intelligence, the organization
is able to streamline order fulfillment and make offer and
treatment changes quicker, including same-day changes. This
improves the speed of business agility and responsiveness
when making changes to marketing strategies and promotions,
and it creates efficiencies for customer service agents placing
orders.
tests and what’s happening
across our decisioning
platform. It’s very easy for
business owners to see how
their offers are performing,
how the prioritization impacts
their offers, and how tests are
performing for very specific
cohorts. It’s allowed us to
digest and analyze that data
much more easily.”
~ Senior direction of retention marketing
8
BENEFITS
Customer Retention Benefits
The interviewed organization noted that a key benefit of Pega Marketing with its Decision Hub is the impact to
customer retention. Prior to the organization using Pega Marketing, its customer care strategy was disorganized,
with customer service agents having to use multiple applications and choose from lengthy lists of offers for each
customer call. This created inefficiencies for the agents and didn’t provide them with the right information to
choose the best offers for the call intent.
With Pega Marketing, the organization is able to see improvements in several retention-related revenue drivers,
including a 0.05% increase in auto bill pay enrollment, a 0.15% increase in contract renewals, and a 0.24%
increase in equipment upgrades. For each of these categories, improvements can be tied to a specific churn
reduction value to calculate a dollar benefit (seen in rows A1 through A3). These improvements are driven by
instructions and prioritized offers presented to customer service agents within the application, driven by customer
data and real-time call intent, and a more streamlined process that reduces switching between multiple
applications. Additionally, the organization was able to run detailed tests on the effectiveness of its retention
credits and the budget available to offer discounts to retain customers. The organization revamped its credit
strategy based on the propensity model it created to predict a customer’s likelihood to respond to a credit offer.
The organization optimized and redirected $300 million in annual credit spend to positive ROI uses, driving the
benefits noted above.
The organization noted that the adoption ramp for customer service agents to fully trust and use the Pega
Marketing tool was three to six months on average. In order to speed and encourage adoption, the organization
set up reporting and goals related to pitch rates and tool usage, set the tool to automatically open after a call
intent is selected, and conducted an extensive PR campaign to show the performance and compensation
increases for agents who use the tool. As a result, the organization realized retention-related revenue of $37.2
million in Year 1, using an average 60% gross margin and including the six-month pilot. It then realized $63.5
million in revenue in years 2 and 3.
The interviewed organization noted areas of risk related to this benefit, including the adoption ramp for customer
service agents, adoption by the marketing team, and the ability to utilize strategy testing and evaluation to
optimize strategies. To compensate, this benefit was risk-adjusted and reduced by 8%. The risk-adjusted present
value total benefit resulting from improved retention over three years was $139,341,895. See the section on
Risks for more detail.
9
TABLE 1
Customer Retention Benefits
Ref.
Metric
Calculation
Year 1
Year 2
Year 3
A1
Increase in auto bill enrollment
$1,750,000
$3,000,000
$3,000,000
A2
Increase in contract renewals
$15,800,000
$27,000,000
$27,000,000
A3
Increase in equipment upgrades
$50,000,000
$85,000,000
$85,000,000
A4
Average industry gross margin
60%
60%
60%
At
Customer retention improvements
$40,530,000
$69,000,000
$69,000,000
$37,287,600
$63,480,000
$63,480,000
Risk adjustment
Atr
Customer retention
improvements (risk-adjusted)
(A1+A2+A3)*A4
↓8%
Source: Forrester Research, Inc.
Incremental Sales
The interviewed organization indicated that another key benefit was incremental revenue from the existing
customer base. Prior to Pega Marketing, the customer server agents would struggle to choose which offers to
pitch to each customer. Now, when a customer calls in to the call center, the customer service agents first
address the customer’s needs. They are then asked to do a proactive pitch to the customer based on the
proactive offers generated by the tool that are based on propensity to accept the offer, using various data
including the customer’s history. Along with generating retention-related revenue enhancements (see above), the
organization is also able to sell additional services to customers. As a result, the organization increased premium
sales by 0.91% and special subscription sales by 0.7%. After the average 60% gross margin, this creates $8
million in incremental revenue in Year 1, including the six-month pilot, and $13.8 million in years 2 and 3.
The interviewed organization noted areas of risk related to this benefit, including the adoption ramp for customer
service agents, adoption by the marketing team, and the ability to utilize strategy testing and evaluation to
optimize strategies. To compensate, this benefit was risk-adjusted and reduced by 8%. The risk-adjusted present
value total benefit resulting from incremental revenue over three years was $30,248,383. See the section on
Risks for more detail.
10
TABLE 2
Incremental Revenue
Ref.
Metric
Calculation
B1
Increase in premium/special
subscription sales
B2
Average industry gross margin
Bt
Incremental Revenue
B1*B2
Risk adjustment
↓8%
Btr
Incremental Revenue (riskadjusted)
Year 1
Year 2
Year 3
$14,600,000
$25,000,000
$25,000,000
60%
60%
60%
$8,760,000
$15,000,000
$15,000,000
$8,059,200
$13,800,000
$13,800,000
Source: Forrester Research, Inc.
Operational Efficiencies
The interviewed organization noted key operational efficiencies achieved with Pega Marketing, though this was
not quantified for this study. Prior to using Pega Marketing, the organization had limited testing, and the data from
these tests suffered from inaccuracies. Additionally, there was limited insight into which offers were being
pitched. When the marketing team wanted to make changes to offer eligibility and prioritizations, the team would
have to go through IT, which could take days to months. Now, the marketing team can deploy same-day offer
and treatment changes in a self-service manner, use capabilities to support robust testing to accurately measure
the impacts of proposed strategies and facilitate the creation of advanced models, and have access to improved
analytics and feedback. In the call center, prior to Pega Marketing, customer service agents would have to use
multiple systems to fulfill an order. Now, customer service agents only have to click one button, to “accept” the
offer, and the order is automatically fulfilled, saving the customer service agents time.
In order to calculate this benefit, readers will need to measure how many full-time equivalent (FTE) hours per
year on average are saved for the offer change process and multiply this by the average hourly compensation for
those FTEs. Readers will also need to calculate how many call center hours per year on average are saved due
to reducing the need to use multiple systems and multiply this number by the average hourly call center agent
compensation. Readers should also note key risk areas; for example, operational benefits for the marketing team
and call center productivity can take time to materialize as the logic, analytics, and strategies are adjusted and
optimized and call center agents are ramped. The interviewed organization noted this ramp took six to 12
months.
Total Benefits
Table 3 shows the total of all benefits across the two areas listed above, as well as present values (PVs) discounted at 10%.
Over three years, the interviewed organization expects risk-adjusted total benefits to be a PV of more than $125 million.
11
TABLE 3
Total Benefits (Risk-Adjusted)
Ref.
Benefit Category
Year 1
Year 2
Year 3
Total
Present Value
Atr
Customer retention
improvements
$37,287,600
$63,480,000
$63,480,000
$164,247,600
$139,341,895
Btr
Incremental Revenue
$8,059,200
$13,800,000
$13,800,000
$35,659,200
$30,248,383
Total benefits (riskadjusted)
$45,346,800
$77,280,000
$77,280,000
$199,906,800
$169,590,277
Source: Forrester Research, Inc.
Return On Marketing Investment (ROMI)
In this analysis, Forrester has included all costs and benefits associated with the Pega Marketing solution, consistent with
our Total Economic Impact methodology. However, we recognize that this differs from a ROMI analysis, which would change
our benefit calculations by eliminating the factor of margin and including only incremental revenue. The table below
summarizes the benefit calculation in this case.
TABLE 4
Total Benefits (ROMI Calculation)
Ref.
Benefit Category
Year 1
Year 2
Year 3
Total
Present Value
Atr
Customer retention
improvements
$62,146,000
$105,800,000
$105,800,000
$273,746,000
$232,236,491
Btr
Incremental sales
$13,432,000
$23,000,000
$23,000,000
$59,432,000
$50,413,971
Total benefits (riskadjusted)
$75,578,000
$128,800,000
$128,800,000
$333,178,000
$282,650,462
Source: Forrester Research, Inc.
Due to this increase in the included benefit, the ROMI is significantly higher than the ROI presented in this analysis.
Consistent with this model, the ROMI calculation yields a total of 797%, with a payback period of 2.4 months.
12
COSTS
Pega Marketing License Costs
This category represents the license and maintenance costs incurred for the use of the Pega Marketing tool. The
customary license cost for an implementation of this size and scope is approximately $5 million, and the average
yearly support costs are 20% of the initial license costs, for a total $1 million per year. We assume that the first
year of maintenance is included in the upfront cost, and the second year of maintenance is paid in Year 1 and the
third year in Year 2. This cost is not the exact cost incurred by the interviewed organization, but rather a
representative cost based on the size of the organization and the scope of the implementation.
Software costs vary from organization to organization, considering different licensing agreements, what other
products may be licensed from the same vendor, and other discounts; in particular, this analysis contains a
generic number rather than an exact license cost. To compensate, this cost was risk-adjusted up by 10%. The
net present value of the risk-adjusted cost of Pega Marketing licenses over the three years was $7,409,091. See
the section on Risks for more detail.
TABLE 5
Pega Marketing License Costs
Ref.
Ct
Metric
Pega Marketing license costs
Risk adjustment
Ctr
Calculation
↑10%
Pega Marketing license
costs (risk-adjusted)
Initial
Year 1
Year 2
Year 3
$5,000,000
$1,000,000
$1,000,000
$0
$1,100,000
$1,100,000
$0

$5,500,000
Source: Forrester Research, Inc.
Implementation And Training Costs
The organization spent 110,000 total FTE hours on the implementation effort for the six-month pilot and 200,000
total FTE hours for the full deployment. Additionally, the organization invested significantly in training to
encourage adoption of the tool. The organization estimates it spent 1,000 hours for a team of 18 people to
develop training and marketing materials and present to agents. In addition to the 2.5 hours of upfront training it
provides to customer service agents, the organization spends an average of 1 hour per quarter on ongoing
training and education for all of the customer service agents.
Resource costs are more variable from organization to organization, considering some organizations outsource
and some manage in-house, training programs will differ, and resource costs will be dependent on the prior and
current environment. To compensate, this cost was risk-adjusted up by 5%. The risk-adjusted cost of
implementation and training over the three years was $19,788,858. See the section on Risks for more detail.
13
TABLE 6
Implementation And Training Costs
Ref.
D1
D2
D3
D4
D5
Dt
Metric
Internal hours spent on
implementation
Hours spent on initial
training and marketing
programs — corporate
Average corporate/IT FTE
fully loaded hourly
compensation
Average customer service
agent fully loaded hourly
compensation
Implementation and training
costs
Implementation and
training costs (riskadjusted)
Initial
Year 1
110,000
200,000
Year 2
Year 3
18,000
Hours spent on training —
customer service agents
Risk adjustment
Dtr
Calculation
((D1+D2)*D3)+(D4*D5)
↑5%
$48
$48
$48
$48
2,000
68,000
80,000
80,000
$19
$19
$19
$19
$6,192,308
$10,923,077
$1,538,462
$1,538,462
$11,469,231
$1,615,385
$1,615,385

$6,501,923
Source: Forrester Research, Inc.
Server Costs
In order to support the Pega Marketing tool, the organization procured five physical servers at a $25,000 total
cost per server, which includes indirect costs like data center space, power and cooling, and licenses. In each
year, the organization spends $5,000 per server on support and maintenance.
Server costs can vary based on differing server specifications. To compensate, this cost was risk-adjusted up by
5%. The present value of the risk-adjusted cost for servers over three years was $196,530. See the section on
Risks for more detail.
14
TABLE 7
Server Costs
Ref.
Metric
Calculation
E1
Number of servers to support
Pega Marketing
E2
Total server costs
Et
Server costs
E1*E2
Risk adjustment
↑5%
Etr
Server costs (risk-adjusted)
Initial
Year 1
Year 2
Year 3
5
5
5
5
$25,000
$5,000
$5,000
$5,000
$125,000
$25,000
$25,000
$25,000
$26,250
$26,250
$26,250

$131,250
Source: Forrester Research, Inc.
Ongoing Management Resources
The organization dedicates 15 resources for the Pega Marketing effort, including several new hires. These
resources dedicate 100% of their time to testing, project management, offer configuration/testing/development,
and making enhancements to the tool. At an average fully loaded compensation of $100,000 per year, this
results in $1.5 million in resource costs annually.
Resource costs are more variable from organization to organization, considering some organizations outsource
and some manage in-house, as well as differing uses of the tool. To compensate, this cost was risk-adjusted up
by 5%. The present value of the risk-adjusted cost of ongoing management time over the three years was
$4,289,820. See the section on Risks for more detail.
TABLE 8
Ongoing Management Resources
Ref.
Metric
Calculation
F1
FTEs dedicated to Pega
Marketing
F2
Average FTE fully loaded annual
compensation
Ft
Ongoing management resources
F1*F2
Risk adjustment
↑5%
Ftr
Ongoing management
resources (risk-adjusted)
Source: Forrester Research, Inc.
Initial
$0
Year 1
Year 2
Year 3
15
15
15
$100,000
$100,000
$100,000
$1,500,000
$1,500,000
$1,500,000
$1,575,000
$1,575,000
$1,575,000

$0
15
Total Costs
Table 9 shows the total of all costs as well as associated present values, discounted at 10%. Over three years, the
interviewed organization expects costs to total a PV of approximately $31.5 million.
TABLE 9
Total Costs (Risk-Adjusted)
Ref.
Ctr
Dtr
Etr
Ftr
Cost
Category
Pega
Marketing
license costs
Implementation and
training costs
Server costs
Ongoing
management
resources
Total costs
(riskadjusted)
Initial
Year 1
Year 2
Year 3
Total
Present Value
$5,500,000
$1,100,000
$1,100,000
$0
$7,700,000
$7,461,591
$6,501,923
$11,469,231
$1,615,385
$1,615,385
$21,201,923
$19,788,858
$131,250
$26,250
$26,250
$26,250
$210,000
$198,899
$0
$1,575,000
$1,575,000
$1,575,000
$4,725,000
$4,058,928
$12,133,173
$14,170,481
$4,316,635
$3,216,635
$33,836,923
$31,508,275
Source: Forrester Research, Inc.
FLEXIBILITY
Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business
benefit for some future additional investment. This provides an organization with the “right” or the ability to engage in future
initiatives but not the obligation to do so. There are multiple scenarios in which a customer might choose to implement Pega
Marketing and later realize additional uses and business opportunities. Flexibility would also be quantified when evaluated as
part of a specific project (described in more detail in Appendix A).
The interviewed organization noted two areas where the Pega Marketing application enables future benefits:
›
›
As the organization continues to grow organically, as well as through mergers and acquisitions, it can easily expand Pega
Marketing to additional agents or to cover additional products. This facilitates the creation of omnichannel, multiproduct
strategies in the future and allows the organization to quickly assess where to dial up or dial down investments.
The organization noted that while the tool is not yet driving offer personalization on the website, there are plans to pursue
this, which could lead to additional retention and revenue improvements.
RISKS
Forrester defines two types of risk associated with this analysis: “implementation risk” and “impact risk.” Implementation risk
is the risk that a proposed investment in Pega Marketing may deviate from the original or expected requirements, resulting in
higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not
be met by the investment in Pega Marketing, resulting in lower overall total benefits. The greater the uncertainty, the wider
the potential range of outcomes for cost and benefit estimates.
16
TABLE 10
Benefit And Cost Risk Adjustments
Benefits
Adjustment
Customer retention improvements
 8%
Incremental revenue
 8%
Costs
Adjustment
Pega Marketing license costs
 10%
Implementation and training costs
 5%
Server costs
 5%
Ongoing management resources
 5%
Source: Forrester Research, Inc.
Quantitatively capturing implementation risk and impact risk by directly adjusting the financial estimates results provides
more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising
the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken
as “realistic” expectations since they represent the expected values considering risk.
The following impact risk that affects benefits is identified as part of the analysis:
›
Customer service agent adoption and trust of the prioritized offers provided by the tool can take time to fully materialize.
The interviewed organization noted that agents took three to six months after first using the tool to fully trust it, and even
then some agents still second guessed prioritizations or failed to make proactive pitches on calls.
The following implementation risks that affect costs are identified as part of this analysis:
›
›
Software costs vary from organization to organization, considering different licensing agreements, what other products
may be licensed from the same vendor, and other discounts.
Capital and resource costs are more variable from organization to organization, considering some organizations outsource
and some manage in-house, training programs will differ, and capital costs will be dependent on the prior and current
environment.
Table 10 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates for the interviewed
organization. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and
benefit estimates.
17
Financial Summary
The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback
period for the interviewed organization’s investment in Pega Marketing.
Table 11 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the
risk-adjustment values from Table 10 in the Risks section to the unadjusted results in each relevant cost and benefit section.
FIGURE 3
Cash Flow Chart (Risk-Adjusted)
Financial Analysis (risk-adjusted)
$180,000,000
$160,000,000
$140,000,000
Cash flows
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0
($20,000,000)
($40,000,000)
Initial
Year 1
Year 2
Year 3
Total costs
Total benefits
Cumulative total
Initial
($12,133,173)
Year 1
($14,170,481)
Year 2
($4,316,635)
Year 3
($3,216,635)
Total
($33,836,923)
Present Value
($31,508,275)
$0
$45,346,800
$77,280,000
$77,280,000
$199,906,800
$169,590,277
($12,133,173)
$31,176,319
$72,963,365
$74,063,365
$166,069,877
$138,082,002
Source: Forrester Research, Inc.
TABLE 11
Cash Flow (Risk-Adjusted)
Costs
Benefits
Net benefits
ROI
Payback period
Source: Forrester Research, Inc.
438%
4.7 months
18
Pega Marketing: Overview
The following information is provided by Pegasystems. Forrester has not validated any claims and does not endorse
Pegasystems or its offerings.
Pega Marketing with its Customer Decision Hub is a next-best-action, customer-centric approach to marketing that leverages
predictive and adaptive analytics to provide the right marketing offers and treatments at the right time to drive customer
lifetime value:
›
›
›
Marketers can create an omnichannel engagement strategy that continuously looks at a customer’s profile and behavioral
history to determine the most relevant offers or actions, best time, personalized content, and best channel to interact with
customers and prospects. The system also dynamically learns and adjusts based on every response, making every
interaction relevant and valuable and driving a positive customer experience.
Pega Marketing also leverages reusable strategy templates that fully coordinate effective inbound and outbound marketing
strategies in a single strategy flow.
The Next-Best-Action Advisor component can be used in the inbound channels like call center and web to present
dynamic bundled offers along with negotiation features, so agents and customers can reach optimal outcomes.
Next-Best-Action Marketing includes a core set of out-of-the box marketing capabilities leveraged by every module of the
solution that allows marketers to design, test, execute, deliver, and adapt marketing strategies.
Pega’s shared components include a single marketer’s portal that has a marketing calendar, collaboration environment, offer
and campaign designer, treatment designer, channel configuration capabilities, constraint optimization, response
management, and reporting dashboards.
19
Appendix A: Total Economic Impact™ Overview
Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decisionmaking processes and assists vendors in communicating the value proposition of their products and services to clients. The
TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior
management and other key business stakeholders. TEI assists technology vendors in winning, serving, and retaining
customers.
The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks.
BENEFITS
Benefits represent the value delivered to the user organization — IT and/or business units — by the proposed product or
project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze
the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal
weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on
the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand
the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established
between the measurement and justification of benefit estimates after the project has been completed. This ensures that
benefit estimates tie back directly to the bottom line.
COSTS
Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units
may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and
expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs
over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are
created.
FLEXIBILITY
Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be
the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an
investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the
initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can
potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration
feature may translate to greater worker productivity if activated. The collaboration can only be used with additional
investment in training at some future point. However, having the ability to capture that benefit has a PV that can be
estimated. The flexibility component of TEI captures that value.
RISKS
Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two
ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the
estimates will be measured and tracked over time. TEI risk factors are based on a probability density function known as
“triangular distribution” to the values entered. At a minimum, three values are calculated to estimate the risk factor around
each cost and benefit.
20
FRAMEWORK ASSUMPTIONS
Table 11 provides the model assumptions that Forrester used in this analysis.
The discount rate used in the PV and NPV calculations is 8%, and the time horizon used for the financial modeling is three
years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are
urged to consult with their respective company’s finance department to determine the most appropriate discount rate to use
within their own organizations.
TABLE 11
Model Assumptions
Ref.
Metric
Calculation
Value
X1
Hours per week
40
X2
Weeks per year
52
X3
Hours per year (M-F, 9-5)
2,080
X4
Hours per year (24x7)
8,736
X5
Average marketing/IT fully loaded annual
compensation
X6
Hourly marketing/IT compensation
X7
Average customer service agent fully loaded
annual compensation
X8
Hourly customer service agent compensation
Source: Forrester Research, Inc.
$100,000
(X5/X3)
$48
$40,000
(X7/X3)
$19
21
Appendix B: Forrester And The Age Of The Customer
Your technology-empowered customers now know more than you do about your products and services, pricing, and
reputation. Your competitors can copy or undermine the moves you take to compete. The only way to win, serve, and retain
customers is to become customer-obsessed.
A customer-obsessed enterprise focuses its strategy, energy, and budget on processes that enhance knowledge of and
engagement with customers and prioritizes these over maintaining traditional competitive barriers.
CMOs and CIOs must work together to create this companywide transformation.
Forrester has a four-part blueprint for strategy in the age of the customer, including the following imperatives to help
establish new competitive advantages:
Transform the customer experience to gain sustainable competitive advantage.
Accelerate your digital business with new technology strategies that fuel business growth.
Embrace the mobile mind shift by giving customers what they want, when they want it.
Turn (big) data into business insights through innovative analytics.
22
Appendix C: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set
their own discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of
10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment.
Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their
own environment.
Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the
discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have
higher NPVs.
Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the
discount rate). The PV of costs and benefits feed into the total NPV of cash flows.
Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs)
equal initial investment or cost.
Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated by dividing
net benefits (benefits minus costs) by costs.
A NOTE ON CASH FLOW TABLES
The following is a note on the cash flow tables used in this study (see the example table below). The initial investment
column contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cash flows
in years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the
year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the
summary tables are the sum of the initial investment and the discounted cash flows in each year.
Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as
some rounding may occur.
TABLE [EXAMPLE]
Example Table
Ref.
Metric
Source: Forrester Research, Inc.
Calculation
Year 1
Year 2
Year 3