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Customer Relationship Management (CRM)

Future of CRM: future, customer relationship marketing, McKinsey study

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The future of Customer Relationship Marketing is uncertain. Reported results have been disappointing
with respect to campaign management, call center management and marketing analytics. According to
a recent McKinsey Study, only 35% of the managers responsible for those operations were satisfied
with attainment of objectives. In fact, while most IT based initiatives don't garner CEO visibility,
CRM initiative must begin at the top levels of a corporation to be successful. CRM initiatives are extremely
expensive, time consuming and require an organizational commitment to be successful. A
typical CRM initiative within a major corporation can cost well over $ 80 million and take 3 years to
complete. The size of investment alone warrants senior management involvement; but it is the revenue
opportunity for CRM programming that truly requires senior management direction.

The shortcomings in implementing CRM programs have become abundantly clear. Targeted revenue
goals, for example, are not often achieved. Most initiatives expect at least a 10% improvement in
revenue, but corporations in the U.S. are experiencing half that result. In addition, budgeted costs are
generally exceeded and timetables are not met. Budget overruns can exceed estimated amounts by
300%. Failure to achieve revenue forecasts, budget overruns and poor performance of CRM can lead
employees to stop using the system, further eroding performance. This was the case at a leading computer
wholesaler and retailer where telephone sales representatives, upset with system performance,
stopped entering data. Some companies have abandoned CRM initiatives as a result of such problems.
Will CRM survive? The answer will be found in an organization's ability to stay the course and remain
committed to the objectives of their programs. What is required is dedication to CRM principles
by senior management and technical support personnel. Success will be gained by a team approach
across disciplines. Cross-functional resources are necessary because the CRM effort requires technical
skill to identify problems and the authority to resolve them.

The start of any CRM turnaround entails the revision and refinement of objectives. Goals must be
reevaluated, clearly articulated and clearly prioritized to ensure that resources will be properly allocated
to meet the most important goals of a company. For example, how should an organization prioritize
the following goals?

  • increase customer base,
  • increase revenue from existing customers,
  • convert competitive customers,
  • decrease turnover of profitable customers?

These goals all have varying rates of return. Each must be considered in terms of ROI. Only after
determining which objectives provide maximum return can strategy provide a clear vision as to how
business improvement is to be accomplished.

An organization's strategy will determine the requirements of the system and which tactical activities
should be employed to achieve intended results. In fact, only after the strategic possibilities are addressed
and tactics determined can organizational requirements for the initiative be addressed.

The involvement and commitment of the entire organization is critical for a CRM strategy to work
given the large number of consumer touch points that cut across many departments . It is important to
know who will do the work and what work will be required. One example is sufficient to illustrate the
point. Consider a customer service representative who has no incentives for entering data which will
benefit manufacturing. Without understanding the importance of the information or the reason for its
use, valuable information may be lost.

The technological basis for CRM programming is most often an integrated suite from suppliers like
Oracle, PeopleSoft, SAP, Siebel Systems or IBM. These suites are meant to be all encompassing solutions
that are mutually exclusive. One system will satisfy the needs of the entire company. While these
powerful solutions can work effectively, they may be too far reaching for the needs of a company and
provide features that may not be employed until much later in a CRM initiative. It is important to

evaluate products based on need and stage in a company's relationship marketing efforts to ensure that
the proper product is purchased.

What are the key lessons that practitioners have learned regarding CRM to date?

  • Use your current customer database more effectively. One industry where this is particularly
    important is auto insurance. Companies like GEICO and Progressive Insurance are experts at using
    segmentation to direct policy offerings. CRM efforts allow GEICO to direct offerings to low
    risk motorists, while Progressive segments and effectively targets products to the high-risk motorist
  • Identify the value of market segments. Most industries have key factors that represent customer
    leverage points. In the credit card industry, for example, those factors would be monthly margin
    of a customer, longevity of a customer and customer acquisition costs. Capital One has learned
    that encouraging existing customers to increase their charge volume produces higher returns than
    attracting new customers. Consequently, the real focus for the industry is customer lifetime value
    or the profitability of purchases over time.
  • Build customer relationships. Too often we focus our attention on the size of customer databases.
    Consider the database for frequent shoppers for the Safeway grocery chain. It exceeds 28 million
    households in size. Nonetheless, Safeway's promotional efforts tend to be transaction focused
    and not relationship oriented.
  • Segmentation is a means to discriminate. If you have the information to differentiate offers, do it!
    Consider United Airlines Mileage Plus Program. They have the flight history of each passenger at
    their disposal and therefore offer incentives to their best customers accordingly. They differentiate
    based on miles flown and revenue earned per customer.

We believe the future for CRM is bright. To achieve success we must focus the resources of a corporation
specifically on the task at hand. Senior management and users of the system must work together
establishing objectives, strategies and tactics that will be understood and agreed to by all within the
company. Technology must be selected for a particular environment with consideration for the appropriate
scope of the initiative. CRM must be exercised with good business judgment and within the
personality of an industry. Success in CRM can and will be attained through leadership, teamwork,
initiative and an appreciation for the complexity of the undertaking.
Future of CRM

  1. History and theory: customer relationship management
  2. Field concerns and data collection: customer data integration
  3. Issues regarding communication and CRM: social issue, consumer privacy
  4. Future of CRM: future, customer relationship marketing, McKinsey study