CRM Spending Likely to Shift Toward Marketing, Analysts Say

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Businesses are expected to sink more dollars into customer relationship management technology over the next few years, but will shift much of the spending from customer service to marketing applications, industry analysts say.

Of the $9.7 billion spent on CRM technology last year, 54 percent went toward customer service, according to a Jupiter Media Metrix study released last month. Jupiter predicted that CRM spending would rise to $16.5 billion in 2006.

Yet the definition of so-called CRM applications has been watered down. As noted by Eric Schmitt, senior analyst for Forrester Research, Cambridge, MA, part of the reason for the spending growth is that the buzzword "CRM" is being applied to an ever-growing list of technologies.

"The liberal use of the term is partially responsible for the numbers you're seeing," Schmitt said.

Customer service CRM technologies, as opposed to database marketing software, are attractive on two fronts, the analysts said. They attack a known cost -- customer service expenses -- and promise immediate savings. They also hold the promise of increased customer retention through better service.

However, a Jupiter analyst warned that businesses should not rely too much on technology to please customers. As prices are essentially equal in the Internet market, customer service often differentiates among competitors, said David Daniels, senior analyst for Jupiter.

"Customer service is the thing that is going to decide where the customer goes," he said.

The CRM market looks very different than it did two years ago, when customer relationship management was focused on cross-selling and marketing applications, Schmitt said. However, as the economy begins to improve, the marketing side of CRM is coming back into vogue.

"We're finally turning the corner," Schmitt said. "People are embracing it."

Analytical and marketing software will account for the bulk of CRM investment in 2006, according to the Jupiter study. Instead of focusing on the channels by which companies communicate with customers, companies will look to get more out of the information they have about their customers, share it among segments of their business and use it to improve offerings to consumers.

That companies still have not fully embraced CRM's outbound marketing potential shows how much money they spent preparing for the now-forgotten Y2K bug, Daniels said.

After investing so much capital in Y2K preparedness, many companies weren't ready to sink too much cash into technology. The Jupiter study found that while 97 percent of executives surveyed said they planned to boost CRM spending in the next 24 months, only 7 percent said they planned to spend to improve customer profiling and targeting.

"People look back and have sticker shock," Daniels said. "They think, 'We just did that last year.'"

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