Firms look
to CRM for competitive edge by Liz Murby
Many major companies are focusing on customer relationship management
(CRM) to achieve long-term competitive advantage, having realised
the limited potential of cost-cutting. This is the conclusion
of an international survey of business managers in 2005 by consultant
Bain and Co.
The objective of a CRM approach is to optimise the organisation’s
relationship with its customers (their needs, wants and purchasing
behaviour). It also aims to manage this relationship in a
way that supports both the customer value proposition and
the organisation’s mission. A detailed knowledge of
customers’ changing needs and an awareness of the organisation’s
own capabilities and operating conditions allow the organisation
to operate efficiently in its market. CRM promises an effective
way of acquiring this knowledge.
More than just IT
Detailed knowledge of the customer base and its constituent
segments is vital. Investment in software that captures the
salient details of customer behaviour (what they have bought
in the past, where they bought it, how they paid for it, etc)
is therefore important. The organisation can then consider
developing customised goods and services for existing customers
and devise ways of keeping them hooked.
An organisation may have a specific business concern to remedy,
or objective to achieve (for example, financial returns are
falling because sales have levelled off). A detailed assessment
of why this is the case, and how it can be remedied, is necessary.
CRM may provide clues to the answers, but the costs should
be weighed against the expected returns.
The rationale for investing in CRM solutions should follow
consideration of the organisation’s original customer
value proposition and business strategy. From these, it should
draw up a customer acquisition and retention strategy, which
considers:
- how much product customisation is appropriate and profitable
for the strategy to succeed
- the potential value of increasing customer loyalty and
how much this varies between different customer segments
- how much time and money the organisation can afford to
devote to implementing a CRM solution.
Are you fit to start CRM?
Many organisations that are lured by the potential returns
of CRM immediately start thinking of software or data analysis
projects. They may be right to do so. However there are at
least two parties in every relationship. Before considering
the value-adding potential of any CRM solution, however hi-tech,
an organisation should consider its own role in this relationship.
Will it still be able to keep customers happy now and in the
future?
The questions that must be addressed are:
- what are our customers’ present and future needs
and wants?
- are we equipped to service these needs?
- if not, what would be the costs of any required reorganisation?
Collecting and collating customer data may help in resolving
the first question but the second is equally, if not more,
important.
The New York Times followed the method outlined above in
the development of its customer strategy. With falling returns
(attributed to reducing sales, rather than cost, price or
other changes in the customer relationship) the newspaper
could simply have “dumbed down” its editorial
content to increase circulation. But this would have been
an expensive and uninformed guess about the preferences and
changing needs of its customers. The product wasn’t
meeting customer needs, but to rectify this, management needed
to be aware of exactly where in the supply process the problem
lay. Was it the product itself, its price, availability, or
some other aspect?
Inexpensive solution
The company needed to analyse its relationship with customers
– the compatibility of the paper’s nature, price,
promotion and delivery against demand – to establish
where the glitch existed. So the newspaper established a relatively
inexpensive database of customers’ purchasing habits
as a means of familiarising itself with their needs and wants.
Analysis of the database suggested that the problem lay with
the paper’s distribution and availability, rather than
with its content. Thus a fundamental question was addressed.
Appropriate and cost-effective measures were taken to rectify
the distribution problem to the benefit of both parties. A
CRM approach became part of the solution, based on analysis
of customers’ preferences held in the data warehouse.
But IT did not drive the project, indeed the paper avoided
potentially expensive investment in software development.
In some cases the appropriate CRM solution may be even more
low-tech, requiring little organisational overhaul and minimal
investment in IT. For example, the mailing of hand-written
thank-you notes to clients of Florida-based tour operator
Grand Expeditions proved a simple and cost effective way of
strengthening relationships in an industry where the costs
of customer acquisition are high and clients are risk averse.
Major overhaul
For highly integrated organisations, where processes and
operations are interdependent, a significant overhaul of key
business processes and structures may be required for CRM
to be embedded throughout the organisation. This may be a
long and costly exercise. Kimberley Clark began its CRM project
with a modest, customised IT system (termed the profit calculator).
It collected customer-based data about aspects of the company's
sales promotions to identify the profitability of its customer
segments. Over time, the profit calculator was integrated
with product planning, sales, shipment data and customer information,
to form a tool called the Business Planner. It was used by
sales people to design promotional packages for specific retailers
and by marketing staff to plot broader promotional plans.
Over time the Business Planner became responsible for the
management of 2,300 promotional events, and the redirection
of $30m of marketing spend. Most importantly, it changed the
outlook of staff. Previously concerned with managing sales,
they focused instead on data consistency and business rules/management.
Before committing resources to a refreshed CRM initiative,
any organisation should assess the financial viability of
such an investment by considering:
- the needs and wants of its customers (collecting supplementary
data of customer behaviour may assist in this)
- its own structure, processes, performance measures, and
job descriptions etc
- the extent to which these are aligned to satisfying customer
needs
- the extent to which these would need to change to meet
customer needs and how much this would cost
- the foreseeable returns.
Liz Murby is Projects manager, CIMA Technical Services. This article is contributed by CIMA (The Chartered Institute of Management Accountants) and it first appeared in Insight, CIMA's on-line newsletter for its members.
