Study: Financial Firms to Slow CRM Spending

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Spending by financial institutions on customer relationship management technology will be flat through 2003, prompting further consolidation among vendors in a hardscrabble economy, according to a study from Meridien Research Inc.


Global retail CRM spending, or business-to-consumer, essentially will stay at the 2001 level of $6.7 billion for this year and next, Meridien predicted in its report, "CRM Spending Update: Hitting the Wall or Taking a Time-Out?"


"It's a retrenchment," said Tom Richards, research director for CRM at Meridien, Newton, MA. "We used to see CRM spending growing at the rate of 24 percent a year. Eventually that has to stop."


Meridien expected that spending spree to temper to 14 percent to 16 percent. But the recession and terrorist attacks had a sobering effect on CRM expenditures.


"Budgets got cut or, at least, put on hold, and what folks are now doing is basically saying, 'Well, show me what return I've received so far on the CRM investments I've made,'" Richards said. "So many of these CRM projects were based on leaps of faith, and folks believed they had to do this because others were doing it. So it's getting a little more regimented in terms of the return on spending."


It likely will take until 2004 for financial institutions to handle the challenges of channel integration and data warehousing for an array of analytical decision-support applications.


Meridien's report divides retail CRM spending into operational customer information systems, data warehouse, decision-support applications and front-office channels.


The Meridien estimate reflects the spending of 55,000 financial institutions, including insurance companies, banks and brokers. The report covers IT spending for consulting, implementation, licenses, maintenance, hardware and software.


In the same study, Meridien said that corporate CRM spending, mostly by banks, will be about $3 billion this year. Like retail CRM, business-to-business CRM is not expected to recover until 2004. CRM spending by banks is expected to grow 10 percent annually through 2006.


Again, ROI from corporate CRM initiatives is under scrutiny.


"Most financial services institutions find it far simpler to justify return on investment that tends to save money," Richards said.


A drop in company revenue, especially in investment banking and asset management, is another factor in the corporate CRM spending slowdown. And then there is the rising volume of bad debts caused by cash-strapped corporate borrowers.


Richards advises marketers to improve business processes, efficiencies and thus performance. The real challenge, of course, is the allocation of money for enhancing customer equity.


"When times are difficult, that's a harder thing basically to estimate, that they're intangibles that require assumptions and those assumptions are always under enormous scrutiny," he said. "So the things that are likely to make most progress in the short run are customer-facing things and probably business processes."


Decision-support applications that help personalize, profile and anticipate customer behavior will continue to be favored. So will profitability software to understand whom the institution's best customers are.


"The area that's likely to grow slowest, in our opinion, is in the data warehousing, data mart infrastructure," Richards said. "Very, very big projects oftentimes have been difficult to justify in their own right."


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