Use CRM to Build Exit Barriers

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Information about how customers buy and how they want to be treated should be the main design input for defining customer relationship management investment priorities.


The goal of these technologies is to build exit barriers that keep customers in place and to create opportunities to sell more to them. To build such systems, program managers will have to factor new information about their customers into the design process.


CRM technologies offer better collection and analysis of customer information, more effective use of customer-facing resources and closer collaboration with customers. The challenge for sales and marketing executives is to learn how to use the customer information, service enhancements and collaborative tools of CRM to build exit barriers back into their most profitable customer relationships.


Technology-enabled sales and marketing channels such as the Internet are eliminating exit barriers that companies have relied on to retain customers and protect high margins. Geographic convenience is rendered meaningless by e-commerce, and brand loyalty established offline does not necessarily translate to online channels.


For some companies, proprietary standards and long-term contracts may delay the inevitable attrition of customers. However, it will become increasingly difficult (and undesirable) to rely on these methods only for retaining customers in an open and rapidly changing e-business environment.


Most companies are not thinking along these lines yet. A recent IMT Strategies study shows that the majority of executives view CRM as a set of technological tools to improve selling efficiency and provide better information about customers. Few sales and marketing executives are tackling the strategic business issue of how to use CRM programs to build exit barriers and retain profitable relationships.


Implementing a CRM program is complicated, expensive and time-consuming. IMT Strategies' survey of 50 organizations that are implementing a CRM solution showed that leading Global 2,000 organizations planned to spend more than $20 million on average during the next three years. IMT Strategies and the META Group anticipate that CRM spending will reach 10 times this figure for leading Global 2,000 companies as markets drive up the value of customer information.


Organizations risk wasting their CRM investments if they cannot design programs that keep customers from leaving. Therefore, any CRM initiative that does not use the customer as the design point is likely to fail. This means marketing leadership needs to identify and define patterns of customer behavior as the blueprint for CRM initiatives.


Buying patterns are a snapshot of how a customer wants to be served throughout the life cycle of the relationship. The object of identifying buying patterns is to discover how the most attractive customers behave when buying and to find ways to improve their buying experience using CRM technology.


There are three keys to identifying buying patterns:


• Getting more and different information about customers.


• Resegmenting customers and products.


• Creatively clustering customers based on revenue, profit and behavior.


Typical customer profiles include only some of the useful information about customers - who they are, where they can be reached and how much they probably have to spend. Understanding buying patterns requires different information that explains how customers want to be served. Marketing managers need this information to figure out how to create a better relationship and build exit barriers.


Better customer and product segmentation is critical to defining the most important customer patterns and establishing CRM priorities because exit barriers will vary among customer groups. Traditional customer segmentation, such as location, size, budget and demographics, fail to describe how customers want to be sold to or served. Online stores such as eToys are rethinking customer segmentation, identifying segments named one-click shoppers - customers who dive into a Web site, get what they want and leave quickly. Examining customer behavior has helped retailers identify and avoid certain segments, such as "cherry pickers," who buy only items on sale.


Once as much information as possible is assembled, marketing managers must search creatively for clusters or patterns of customers that demonstrate unique behavior and are attractive in terms of revenue, profitability or cross-sell potential.


For instance, if significant revenue will come from sophisticated customers who buy off-the-rack products, it probably will pay to invest in CRM solutions that enable self-service. Dell Computer Corp. and Cisco Systems Inc. had success enabling online configuration, transactions and technical support for savvy information technology professionals seeking to buy simple PCs and servers.


Likewise, a busy executive who values time over money would value a fast track CRM solution that offers speed and convenience for a select few models. Alternatively, high-maintenance customers who need hand-holding might require a high-touch approach enabled by sophisticated consultative selling systems. All of these patterns have unique needs and revenue potential and can serve as design points for prioritizing CRM solutions.


Customer relationships, not technology-enabled selling efficiencies, are the source of long-term advantage. Companies must prioritize customer retention in defining CRM program technical requirements, using these technologies to erect new exit barriers to replace eroded ones. Deploying the leading CRM solution suite is not enough. Innovative thinking, creative sales and marketing leadership must guide the process.


• Stephen Diorio is president of IMT Strategies, Stamford, CT, an affiliate of the Meta Group, which helps sales and marketing executives build e-business strategies. His e-mail address is sdiorio@imtstrategies.com.
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