Customer relationship management is currently one of the hottest topics in marketing. But what exactly is CRM, at what point does technology and the role of the traditional marketer converge and what tools are available to help achieve best sales and marketing practice?
Call it customer farming, relationship marketing, total customer management or dialogue marketing, they are all similar. By better understanding their clientele, large customer-facing organizations such as banks, insurers, supermarkets and telecommunications operators hope to develop more profitable relationships with their consumers and ultimately influence their purchasing behavior. However, unlike their counterparts in smaller, locally managed shops and offices, sales and marketing managers today have lost that all-important face-to-face contact. To influence customer behavior effectively, organizations need to understand what behavior patterns currently exist and how these patterns change when actions are taken to adapt customer contact. Hence, the emergence of customer relationship management and the technologies that support it. CRM is designed to recapture the benefits of one-to-one contact and help rebuild those relationships that have been reduced to a mere exchange of goods for cash.
The benefits at a glance. Correctly applied, CRM delivers benefits sales managers have previously only dreamt of. It's not unusual to find response rates to direct mail campaigns increasing from less than 5 percent to more than 10 percent. Models that predict churn rates with up to 85 percent accuracy give organizations a valuable second chance to rebuild relationships and increase profitability. Even if total consumer numbers fall, customer relationship management allows organizations to fulfill customer needs more effectively and so increase revenues by reducing recruitment costs and expanding sales.
The benefits to be gained from CRM span both the consumer and the vendor organization. The consumer is not only rewarded for his business but also enjoys superior service, increased convenience and offers that are more appropriate to his current situation. For the vendor, the primary motivation is profit. Imagine if a mobile telephone operator can reduce the number of people quitting its service by just a few percentage points. This can equal hundreds or thousands of customers, which can mean retaining millions of dollars worth of business that would have gone to a competitor.
Technology has undeniably forced the pace of change in marketing organizations. The rise of CRM in particular has been spurred on by several realizations. Firstly, organizations have come to realize that it's cheaper to retain than recruit customers. Secondly, the technology has now reached such a level of sophistication and availability that organizations can readily use it to rebuild those relationships that became marginalized with the rise of mass marketing.
The building process. There are a number of steps that will help any organization develop effective CRM activities:
* Identify your quantifiable goal. Is it reducing churn, improving cross-selling rates or reducing the number of defaulters?
* Build a team of skilled, numerate sales and marketing analysts. Every CRM activity should create business value and add to the understanding of customer behavior.
* Ensure that adequate data collection and storage mechanisms are in place. This may mean devising some sort of loyalty scheme to capture information, constructing a data warehouse or simply improving the quality of data that is already collected.
* Select the right technology to help you exploit your data such as graphical data exploration tools, fast and accurate analysis tools that can be driven by the business-user, easy-to-use campaign management tools and tools that can be integrated easily into existing operational systems.
* Communicate internally. Even the best constructed campaigns can fail for the most mundane of reasons, such as no stock or ill-informed front-line staff.
The CRM tool kit. Customer relationship management is often confused with the technologies that facilitate it. CRM is an all-encompassing approach to building an understanding of customer behavior to offer the most attractive products and services. Data warehousing, data mining, direct mail and loyalty schemes are all tools that can be employed in the process of CRM, but none alone constitute true customer relationship management.
As cornerstone CRM tools, these applications must be closely integrated, not only with each other but also with other marketing applications such as campaign management systems. The speed and efficiency with which data flows through these various systems dictates the rate at which marketers can respond to market movements.
Swamped by technology? With all this technology, who needs marketers? In reality, sales and marketing staffs have never been so important. Technology is a valuable tool in the application of CRM, but having a data warehouse or a data mining tool is simply not enough to guarantee a successful CRM program. Removing the need for IT expertise in manipulating customer data does not remove the need to understand the business context or the analysis process.
If customers are to be treated as individuals, it's vital that the technology processes are driven by marketing analysts who understand the complexities of handling customer relationships. This means that it's no longer sufficient to be either a statistician or a marketer. True CRM requires the integration of both disciplines where business acumen is the ultimate CRM tool.
Marketing for the millennium. Customer relationship management is an enterprise-wide responsibility. This means integration and management of traditional marketing practices, risk assessment, customer profitability and every aspect of customer service.
Translated literally, the term CRM intimates that the vendor organizations have control, but the balance of power will shift in the future as consumers take control of their personal information and understand their value to organizations. Information-aware individuals will trade their details with organizations that acknowledge the value of customer data and have the capacity to act on that information. CRM will evolve into a more partnership-oriented approach where the cost of switching will be measured not only in financial terms but also in terms of diminished convenience through loss of understanding.
CRM as a concept is here to stay. Regardless of what new names the marketing gurus come up with, the principle of understanding customer behavior in order to pursue mass customization will only become more important.
Fiona Neil is Decisionhouse marketing manager at Quadstone Ltd., a UK-based software development firm specializing in business information and customer behavior modeling packages.