Idea 14 - Customer relationship management (50 Management ideas you really need to know)

Idea 14 -  Customer relationship management

Some ideas continue to command respect among hardened management theorists years after they first appeared, and some provoke snorts of derision. Customer relationship management or CRM - around which an entire industry has been erected - gets more than its fair share of snorts.
We all experience CRM, the bad side of it, every time we get stuck in touch-tone hell, with a recorded voice asking us to 'please select one of the following options' - for the fifth time. Yet the underlying idea is perfectly logical- concentrate on your customers, learn about their needs and behaviour, use what you learn to improve the relationship and, ultimately, sell them more of what it is you're selling them.

Technology Big firms have used technology to do much of this, to capture and store customer information, to analyse it and to automate their sales and support teams. CRM has become very closely identified with technology as a result- indeed, 'CRM companies' are invariably software vendors. When CRM projects fail (as big IT projects so often do) or are poorly implemented, it chips away at CRM's reputation. And after some well-publicized and expensive project cancellations and failures, CRM's reputation is showing the scars. Technology is supposed to be the movie theatre, however, and not the movie itself. CRM emerged in the 1990s at a time when consumers in general were becoming better-informed, more discriminating and less brand loyal. Retail banks and insurers were among the first to recognize the benefits of managing their large customer bases more effectively.
They had learned that it costs far more to recruit a new customer than it does to keep and expand their 'share of wallet' of an existing one. But some customers are worth more to a business than others, in line with the 80:20 principle which suggests that 20% of clients generate 80% of the profits. The question is: how are we going to find out which ones they are?
Technology supplied the answer, in the form of 'data warehousing' and 'data mining'. Data warehousing is collecting and storing information in such a way that it can be queried and analysed. Data mining is burrowing down into this suitably warehoused information to see what comes out. What comes out can tell a lot about a customer's lifestyle, predilections buying habits and overall worth to the business. Once they have this information, organizations can tailor their customer relationships and their marketing accordingly, laced with a hefty element of
channel management.

Low-value customers can be siphoned off to a low-cost channel such as telesales or the website, while high-value prospects may be dealt with face-to-face. Information on customers and their relationships with different arms of the business are then merged into one account, so that the same file is visible to all parts of the business - to different operational divisions, to accounts, sales or support. That means that whenever the customer contacts the organization, and by whatever channel, everyone is singing from the same song sheet.

Cross-selling This centralized information can also be used to identify cross-selling opportunities. 'She's got a current account and a mortgage with us. Let's try selling her some insurance.' More detailed individual data analysis can reveal other opportunities. If the bank knows that a customer's endowment policy is about to mature, this would be a good time to suggest another investment product - mutual funds, perhaps. Keeping track of the customer's life stages and events that can trigger buying decisions means knowing when, ideally, to market mortgages, a savings plan for college fees or retirement plans. In the future, we are promised 'proactive' CRM systems that will know if and when to offer us a discount to clinch the
deal, as we ponder over the website.

Financial services and telecommunications led the way, but others were quick to follow, and CRM became both a buzzword and an industry. The principal opportunity for CRM vendors was to design and sell the systems that link and feed an organization's channels, its website, call centres physical stores, travelling reps. The systems collect data, analyse it, store it and deliver it to wherever it is needed.

The amount of data needed to make CRM do what it should is considerable, which was a problem in its early days. The Internet now allows companies to store information offsite, and Internet technology plays a much larger part in CRM structures. The increased flexibility this brings has led to increased acceptance by employees previously, acceptance by people in different parts of the organization has often got in the way of successful CRM projects.

Effective CRM is a business-wide strategy. Integration across customer-facing channels is not much use if the rest of the organization is not delivering on its promises. Ordering goods on the net at midnight is wonderful, but not if they take three weeks to arrive.

The future All this technology, by its nature, is expensive and the cost of CRM used to mean that only big companies could indulge in it. More recently, so-called application service providers have entered the market, hosting CRM software which they effectively 'rent' out to smaller companies. This has broadened the market for the CRM concept.

There are plenty of companies who have good things to say about CRM, that it resulted in double-digit revenue growth, improved productivity and increased satisfaction. On-premise CRM continues to have a patchy record, however, with well over half of all projects said to fail or perform below expectations. Its champions say there can be many good reasons for this. One of them is obvious to the customers in touch-tone hell when the company reached for CRM, the customer was the last thing it actually thought of.

Reference: 50 Management Ideas You Really Need to Know

Book by Edward Russell-Walling

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