Total Economic Impact of Pega Marketing

A Forrester Total Economic

Impact™ Study

Commissioned By

Pegasystems

Project Directors:

Sarah Musto

Shaheen Parks

March 2016

The Total Economic

Impact™ Of Pega

Marketing Cost Savings And Business Benefits Enabled By Pega Marketing

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.

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%

NPV: $138 million

Payback: 4.7 months

Improved retention: $139 million

Source: Forrester Research, Inc.

“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

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

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.

› 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.

“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

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

have disconnected. These programs provide high-risk or

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.

“We created a dashboard

where we can see the results of

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 (A1+A2+A3)*A4 $40,530,000 $69,000,000 $69,000,000

Risk adjustment ↓8%

Atr Customer retention improvements (risk-adjusted)

$37,287,600 $63,480,000 $63,480,000


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


10

TABLE 2

Incremental Revenue


B1 Increase in premium/special subscription sales

$14,600,000 $25,000,000 $25,000,000

B2 Average industry gross margin

60% 60% 60%

Bt Incremental Revenue B1*B2 $8,760,000 $15,000,000 $15,000,000

Risk adjustment ↓8%

Btr Incremental Revenue (risk-adjusted)

$8,059,200 $13,800,000 $13,800,000


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 (risk-

adjusted) $45,346,800 $77,280,000 $77,280,000 $199,906,800 $169,590,277


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 (risk-

adjusted)

$75,578,000 $128,800,000 $128,800,000 $333,178,000 $282,650,462


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. Metric Calculation Initial Year 1 Year 2 Year 3

Ct Pega Marketing license costs

$5,000,000 $1,000,000 $1,000,000 $0

Risk adjustment ↑10%

Ctr Pega Marketing license costs (risk-adjusted)

$5,500,000 $1,100,000 $1,100,000 $0


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


D1 Internal hours spent on implementation

110,000 200,000

D2 Hours spent on initial training and marketing programs — corporate

18,000

D3 Average corporate/IT FTE fully loaded hourly compensation

$48 $48 $48 $48

D4 Hours spent on training — customer service agents

2,000 68,000 80,000 80,000

D5 Average customer service agent fully loaded hourly compensation

$19 $19 $19 $19

Dt Implementation and training costs

((D1+D2)*D3)+(D4*D5) $6,192,308 $10,923,077 $1,538,462 $1,538,462


Dtr Implementation and training costs (risk-adjusted)

$6,501,923 $11,469,231 $1,615,385 $1,615,385


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


14

TABLE 7

Server Costs


E1 Number of servers to support Pega Marketing

5 5 5 5

E2 Total server costs

$25,000 $5,000 $5,000 $5,000

Et Server costs E1*E2 $125,000 $25,000 $25,000 $25,000


Etr Server costs (risk-adjusted) $131,250 $26,250 $26,250 $26,250


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


F1 FTEs dedicated to Pega

Marketing 15 15 15

F2 Average FTE fully loaded annual

compensation

$100,000 $100,000 $100,000

Ft Ongoing management resources F1*F2 $0 $1,500,000 $1,500,000 $1,500,000


Ftr Ongoing management

resources (risk-adjusted) $0 $1,575,000 $1,575,000 $1,575,000


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. Cost

Category Initial Year 1 Year 2 Year 3 Total Present Value

Ctr Pega Marketing license costs

$5,500,000 $1,100,000 $1,100,000 $0 $7,700,000 $7,461,591

Dtr Implementa-tion and training costs

$6,501,923 $11,469,231 $1,615,385 $1,615,385 $21,201,923 $19,788,858

Etr Server costs $131,250 $26,250 $26,250 $26,250 $210,000 $198,899

Ftr Ongoing management resources

$0 $1,575,000 $1,575,000 $1,575,000 $4,725,000 $4,058,928

Total costs (risk-adjusted)

$12,133,173 $14,170,481 $4,316,635 $3,216,635 $33,836,923 $31,508,275


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%


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)


TABLE 11

Cash Flow (Risk-Adjusted)

Initial Year 1 Year 2 Year 3 Total Present Value

Costs ($12,133,173) ($14,170,481) ($4,316,635) ($3,216,635) ($33,836,923) ($31,508,275)

Benefits $0 $45,346,800 $77,280,000 $77,280,000 $199,906,800 $169,590,277

Net benefits ($12,133,173) $31,176,319 $72,963,365 $74,063,365 $166,069,877 $138,082,002

ROI

438%

Payback period 4.7 months


($40,000,000)

($20,000,000)

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

Initial Year 1 Year 2 Year 3

Cas

h f

low

s

Financial Analysis (risk-adjusted)

Total costs Total benefits Cumulative total

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 decision-

making 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 $100,000

X6 Hourly marketing/IT compensation (X5/X3) $48

X7 Average customer service agent fully loaded

annual compensation $40,000

X8 Hourly customer service agent compensation (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



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Total Economic Impact of Pega Marketing

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