Best practice in CRM - take a stand and deliver

It is not the software that failed the first wave of CRM but how it was implemented. Stewart Baines argues that businesses need to become customer-centric organisations before technology can do its stuff.

The key tenet of CRM is as true today as it was a decade ago when the concept of customer-centric business was emerging. It is considerably easier and cheaper to sell new services to existing customers than it is to sell existing services to new customers – up to five times cheaper. Customer retention costs less than customer acquisition.

Selling more services to existing customers requires customer intelligence – knowing who would want what and when. But for most large companies, having a true one-to-one relationship with every customer would be almost impossible. If you can’t dedicate the same individual to case-work every single customer, then maybe technology can do it for you? And when you 'know' that customer, you can sell him further products and you can encourage him to be more loyal.

This was the promise of many high-end CRM implementations that promised to transform companies. The only problem is few companies have been successfully transformed by CRM systems.

“When CRM was first invented everyone thought 'Aah a new software solution like ERP - buy it, plug it in and away it goes'. It was difficult to grasp that CRM was a philosophy that the whole company has to adopt from the MD down to the receptionist,” says Margaret Holden, marketing manager, Cincom Systems, a developer of document personalisation software to the financial services industry. “This is where the first wave of CRM solutions came unstuck. Everyone thought a software solution would solve their problems. It didn't.”

Understanding why the first wave of CRM failed provides clues as to how the second wave can succeed.

Obsessed with numbers

The customer database can be sliced and diced in a multitude of ways – yet few companies have identified the key metric relevant to them. How do you measure customer satisfaction? Is it a sales metric like offer-to-win ratios, average revenues per user or sales closure cycles? Or maybe a marketing metric like lifetime value, churn rate or level of complaints.

Churn analysis only looks at the actively dissatisfied. It cannot identify the passively dissatisfied that will leave when your competitors get their act together to win your customers away. Similarly fault resolution only identifies extremes.

Can segmenting the customers in pre-defined categories accurately predict their future behaviour? “Segmentation definitely brings insight into decision making and it's useful for much more that just cross selling or up selling. It's also evidence of where your already had success. That’s valuable business intelligence,” says Michel Robert, solutions group director, Dimension Data. “But the trick of segmentation is data – you need good quality data. The better the data, the better the decisions. The devil is in the detail.”

Customer centricity

Segmentation has led to some scary conclusions from hard-nosed businessmen, particularly when it is used to work out the 10 per cent least valuable customers. For many organisations, this segment can actually cost them more money to service than can be earned. The answer: abandon them. You may have noticed this when you’re in stuck an IVR queue and no option will let you get anywhere near a live agent. Your supplier probably already thinks you’re not worth it.

With hindsight, CRM purists are beginning to see the lowest decile as an opportunity not a burden. All customers, they would argue, have the potential to be your best customers. “CRM should not be used to abandon less profitable customers,” Charles Born, VP global marketing, Amdocs, points out. “At its core, it is about creating valuable customer relationships, understanding your customers' needs and preferences, and presenting relevant product and service offers based on this insight that supports a company's ability to grow profitable relationships.”

The opposite end of the segmentation pyramid is also fraught with pitfalls. Your top 10 per cent of customers may provide you with 50 or 60 or 70 per cent of your gross profits. The inclination is to milk them for more. They will typically be flooded with offers, discounts and paraphernalia, much of it unwanted. This is a sure way to drive them off.

Ian Turner, UK MD of call centre software firm Blue Martini, says: “CRM should be about having a dialogue with customers and too often it's about blasting customers with offers and one-way communication. A dialogue is a two-way process and people always feel more valued when they are listened to."

Somewhere in the middle of these extremes are a lot of customers that you may have neglected, presuming their contentedness with your service. They may have had a number of problems with your products, services or delivery but have never told you about. They are passive malcontents, quietly waiting for apathy to recede and a better offer to land on the doormat. Customers that haven’t churned do not equate to loyal customers – it just means they haven’t churned yet.

Employee relationship management

Your staff are in the frontline in the war on customer apathy – sales, marketing, accounts and fulfillment all have their part to play. Any time they deal with customers they have an opportunity to impress them.

“CRM software will not reveal how much fuss and interaction a particular client likes - only properly trained staff can do that and must be an integral part of the CRM budget,” argues Annalize Cuthill, managing consultant at training company Skill4. If your staff are demoralised, demotivated and denigrated – think of your average call centre – how can they treat your customers well?

Another challenge is identifying the right person to champion the CRM case. According to The Merchants Global Contact Centre Benchmarking Report from Dimension Data, over half of CRM projects are overseen by IT departments, despite it being a business process that should be driven by sales, marketing, support or even a customer relations supremo.

According to DiData's Michel Robert: “The role that IT should play in CRM is an enabler and a supporter of business strategy, functions and processes, and not the lone driver for the change.”

Internal champions are a must if CRM is to be implemented properly and maintained as a core business process.

“Seen as a solo solution CRM life span will be limited - it will fail as sponsors move on and other initiatives replace it or the expected ROI will not be achieved," warns Jonathon Ambrose, head of CRM at integrator Digiterre. “Effective CRM should touch all parts of an organisation and become embedded in employee attitudes, planning documents, process flows, key performance indicators and research surveys. CRM needs senior board-level business sponsorship. IT sponsorship alone will not work for CRM.”

This leads to the biggest single point of failure in early CRM implementations. The industry is still suffering the hangover. Firms did not identify business goals before designing and implementing a CRM system.

“The appetite to invest heavily in large-scale CRM projects has been dampened. A lot of people have been let down by big CRM – they were sold promises. And I think many enterprises expected the CRM systems to transform their company without doing any hard work,” says Dimension Data’s Robert.

And there’s the nub. Trained and enthusiastic frontline staff, customer-centric thinking and business objectives all need to be carefully aligned before CRM systems – front and back office – will be able to transform the bottom line.