Customer Relationship Management (CRM)

Introduction

Graphics courtesy of Spencer CooperOpens in new window Before the supermarket, the mall, and the automobile, people purchased goods at their neighborhood store. The owners and employees recognized customers by name and knew their preferences and wants. For their part, customers remained loyal to the store and made repeated purchases. Overtime, however, this personal customer relationship became impersonal as people moved from farms to cities, consumers became mobile, and supermarkets and department stores achieved economies of scale through mass marketing. Although prices were lower and products were more uniform in quality, the relationship with customers became anonymous and impersonal.

In today’s hypercompetitive marketplace, customers are increasingly powerful; if they are dissatisfied with a product and/or a service from one organization, a competitor is often just one mouse click away. Further, as more and more customers shop on the web, an enterprise does not even have the opportunity to make a good first impression in person.

With customer relationship management (CRM) systems and applications, businesses return to personal marketing. That is, rather than market to a mass of people or companies, businesses market to each customer individually.

By employing this approach, business can use information about each customer—for example, previous purchases, needs, and wants—to create offers that customers are more likely to accept. That is, the CRM approach is designed to achieve customer intimacy. This CRM approach is enabled by information technology in the form of various CRM systems and applications.

What is CRM?

Interestingly, the expression customer relationship management, has been in use since the early 1990s. Since then, there have been many attempts to define the domain of CRM, a number of which appear below.

We can resolve the debate between managerial and technological schools by conceiving of CRM as taking three main forms: strategic CRMOpens in new window, operationalOpens in new window and analyticalOpens in new window, as summarized in Table X-2 below.

CRM is not a process or a technology per se; rather, it is a customer-centric way of thinking and acting. The focus of organizationsOpens in new window today has shifted from conducting business transactions to managing customer relationships.

In general, organizations recognize that customers are the core of a successful enterprise, and the success of the enterprise depends on effectively managing relationships with them.

CRM builds sustainable long-term customer relationships that create value for the company as well as for the customer. That is, CRM helps companies acquire new customers, retain existing profitable customers, and grow relationships with existing customers. This last CRM function is particularly important because repeat customers are the largest generator of revenue for an enterprise.

Also, organizations have long understood that getting back a customer who has switched to a competitor is vastly more expensive than keeping that customer satisfied in the first place.

The Figure below depicts the CRM process. The process begins with marketing efforts, where the organization solicits prospects from a target population of potential customers. A certain number of these prospects will make a purchase, thus becoming customers.

Of the organization’s customers, a certain number will become repeat customers. The organization then segments its repeat customers into low-value and high-value repeat customers.

The organization inevitably will lose a certain percentage of customers, a process called customer churn. The optimal result of the organization’s CRM efforts is to maximize the number of high-value repeat customers while minimizing customer churn.

CRM is basically a simple idea: Treat different customers differently, because their needs differ and their value to the company also may differ. A successful CRM strategy not only improves customer satisfaction, but it makes the company’s sales and service employees more productive, which in turn generates increased profits.

In fact, researchers at the National Quality Research Center at the University of Michigan found that a 1 percent increase in customer satisfaction can lead to as much as a 300 percent increase in a company’s market capitalization, defined as the number of shares of the company’s stock outstanding multiplied by the price per share of the stock. Put simply, a minor increase in customer satisfaction can lead to a major increase in a company’s overall value.

Broadly speaking, CRM systems lie on a continuum, from low-end CRM systems designed for enterprises with many small customers to high-end CRM systems for enterprises with a few large customers. CRM systems can also link to social networking sites. Exhibit X-1, About Small Business illustrates the case of P. F. Chang’s restaurants and how they used Twitter to score a customer-relationship coup.

Although CRM varies according to circumstances, all successful CRM policies share two basic elements. First, the company must identify the many types of customer touch points. Second, it needs to consolidate data about each customer. We examine these two elements in more detail below.

Customer Touch Points

Organizations must recognize the numerous and diverse interactions that they have with their customers. These various types of interactions are referred to as “customer touch points.

Organizational CRM systems, however, must manage many additional customer touch points that occur through the use of popular personal technologies. These touch points include e-mail, websites, and communications via smart phones (See below).

Data Consolidation

Data consolidation also is critical to an organization’s CRM efforts. Customer data must be managed effectively by the organization’s CRM systems. In the past, customer data were located in isolated systems in different functional areas across the business (for example, in separate databases in the finance, sales, logistics, and marketing departments). Even if all of these data are related to the same customer, they were difficult to share across the various functional areas.

Modern, interconnected systems built around a data warehouse now make all customer-related data available to every unit of the business. This complete data set on each customer is called a 360-degree view of that customer. By accessing this 360-degree view, a company can enhance its relationship with its customers and ultimately make more productive and profitable decisions.

Data consolidation and the 360-degree view of the customer enable the organization’s functional areas to readily share information about customers. This information sharing leads to collaborative CRM.

Collaborative CRM systems also enable customers to provide direct feedback to the organization. Web 2.0 applications such as blogs and wikis are very important to companies that value customer input into their product and service offerings, as well as into new product development.

Customer relationship management is not only about the software. Sometimes the problem with managing relationships is simply time and information. Old systems may contain needed information, but the information may take too long to access and may not be usable across a variety of applications. The result is reduced time to spend with customers.

Thus, companies can implement a CRM tool that manages e-mail distribution, scheduling, billing, and customer information. This tool enables them to find everything they need in one place so they can focus on what their business is really about: providing their customers with excellence service. The main CRM software vendors include SalesforceOpens in new window, SAPOpens in new window, OracleOpens in new window, and MicrosoftOpens in new window.