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"The assets of a business count for nothing without the existence of customers"

A long-term relationship needs workA confession. Although I work in the customer relationship marketing arena, I'm wary about the term 'CRM'. This probably means I should also be suspicious of similar terms like '1-2-1' marketing, 'customer-centric' management and the latest incarnation, 'demand chain network' management. And I am, so let me explain.

These labels create the impression that there are a whole host of CRM variants. This has been amplified in recent years by a proliferation of software applications. There are currently over 5,000 companies around the world offering CRM systems solutions. Yet why is it, and there is plenty of evidence, that there's such a high failure rate on implementation?

Initial relationship management theory sought to apply technology to deliver information about customers for use by marketers. This gave rise to software development and consulting endorsement, contending that the new technology would result in massive increases in revenue via acquisition, retention, cross-selling and reduction in costs. The reality has been different.

Following the Second World War, the fragmentation of mass markets left companies wondering how to regain customers. The development of many new products and services gave consumers choice as never before. With increasing competition for customers towards the end of last century, marketers found that they had to work hard to optimize limited budgets. Today, the talk is less about gaining a customer than of obtaining a share of that person's wallet. And it's getting harder! The way we do business is going to evolve again in the next decade, with customers increasingly in control of the contact points. Integrating 'on-' and 'off-line' marketing will present a major challenge. Keeping track of customers will be vital, whatever channel they use to enquire or purchase.

The broad effect of all this activity will raise customer expectations yet further. That alone is cause for getting client relationships right. But is CRM actually any different from what went before? The rules are pretty much the same but with growing competitive pressures, the costs of acquiring customers are very much tighter, and for many businesses, frequently in excess of the initial sales revenue. Firms must therefore look to generate profit by building a relationship with customers that achieves additional sales over time. The longer that relationship exists, the more valuable the potential income stream.

A shrewd observer recently commented that "marketing is too big to be left to marketers", and in a nutshell this describes the problem most companies have in making CRM work. If we consider a broad definition of marketing as the task of 'satisfying customer needs profitably', it seems obvious that this requires the involvement of the main customer-facing parts of an organisation and back-office support functions as well.

CRM implementations typically fail where there are gaps in developing a co-ordinated approach. This also occurs where technology solutions are emphasised ahead of a business-led approach that identifies the attitudinal and organizational shifts required to place customer rather than product revenue first. It's therefore worth considering a few basic questions that help to bring relationship marketing and management into focus.

  • Who are your most valuable customers? There is an obvious answer in terms of income and profitability, but equally, some customers also fulfil a valuable role by recommending your business to others.
  • What do you need to know about your customers to be able to answer their needs?
  • Which members of your organisation are directly involved at the customer contact points and what other areas do they rely on to meet customer expectations?
  • How do you measure the results of customer relationship marketing and management initiatives?

We have found that a practical way to begin answering these questions is to map the customer touch-points. Finding all of these, however trivial, shows how the business and customers communicate, the value and opportunities presented by each contact and which business areas have influence over the result.

Relevant measures for customer relationship marketing and management should focus on three elements: income (sales volumes and revenue), efficiency (the costs required to achieve sales) and goodwill (customer satisfaction and referral).

Although this is clearly a simplification of requirements, identifying the answers to these questions will help to form the basis on which firms can determine the value of a CRM approach to their business - and subsequently the strategy, organisational design, processes and technology for initiatives in this area. With the global economy facing uncertain times in the near future, the relevance of retaining long-term customer business is becoming all too apparent.

Ross Macleod

ross@affinityworks.net