CRM: Driving Loyalty by Managing the Total Customer Experience
Introduction
In order for CRM to reach its true potential and for those implementing CRM
to move beyond the "minimal success" ratings that dominate, organizations need
to establish a strategic direction that can have a significant impact on the
organization. A roadmap must then be established that ensures CRM investments
support this direction and are integrated into something that fundamentally
improves the total customer experience. The real impact of these technologies
will be realized only when CRM technologies are used to support a strategic
direction - rather than as a strategic direction.
CRM is a Strategic Initiative
Making a commitment to technology-enabled CRM should be a strategic decision
with an end goal of having a real impact on the way the company competes in
the market. This impact can only be realized if CRM is implemented in a strategic
context - where the technologies are used to support a strategic direction rather
than become the strategic direction. CRM should be about managing (and improving)
the customer's total experience with the organization:
- Across all touchpoints (call center, Web, kiosks, service technicians etc.)
- Across all company divisions or departments
- Across all experiential elements (pre-sales activity, product/service experience, post sales support etc.)
A significant impact on the organization can only be realized when the Total Customer Experience (TCE) is the focus for improvement. This is not to suggest that companies will dedicate the time and resources to implement a complete CRM solution - that addresses all experiential elements - as one large project. In fact, companies will need to start very small and expand as they go and learn. However, these incremental investments and projects need to be done in a coherent and integrated manner. The CRM mantra needs to change from "move quickly and reap early rewards" to "move quickly and work towards achieving a strategic objective." The prevailing short-term focus immediately places emphasis on doing things in a compartmentalized manner (e.g., the call center operations of the consumer products group) with little coordination across other elements of the Total Customer Experience. As each department implements its own "point solution," the enterprise ends up with a series of disjointed initiatives, each somewhat unsatisfactory in its impact on the organization.
The vast majority of CRM projects do not involve an enterprise perspective or a strategic objective. The technology is purchased and implemented through the initiative of a sales, service, or marketing manager within a specific product group or department. The focus is on improving a particular process or function and is generally motivated by short-term tangible benefits. In research we have recently completed on CRM, businesses site four primary drivers of their CRM projects:
- Attract new customers
- Increase sales per customer
- Reduce costs through optimization of business processes
- Improve customer relationship/increase loyalty
When we investigate what specifically most businesses have done and how they are measuring success, all the focus is on some combination of the first three of these objectives. Increased customer loyalty is a "nice to have" rather than the reason for the CRM initiative. The vast majority of the projects are really focused on targeting customers better, cross selling more effectively, or handling customer requests more cost efficiently. There is little attention on how to alter or improve the customer's experience with the organization. This is partially due to the fact that CRM technologies are naturally about customer data and workflows, not about relationship building. Relationship building requires the creative thinking necessary to operationalize the data and workflows into a better customer experience. This creative or strategic thinking is conspicuously absent from most of the CRM projects we have examined.
In this age of decreasing customer loyalty, increased customer choice, deregulation, changing competitive boundaries, and "stealth-like" Internet competitors, the focus of CRM projects should be improving customer loyalty. In fact, research conducted with CEO's indicates that improving customer relationships and increasing loyalty is the number one priority of businesses within the U.S. It appears that somewhere in between the CEO's business priority and the sales and marketing manager's need to move quickly and justify a budget, the focus on improved customer loyalty gets lost.
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Moving
Beyond Better Customer Interaction
Improving customer relationships and increasing loyalty isn't simply about managing
customer interaction better or targeting them better. It is about serving them
in a fundamentally improved way - generally requiring changes outside of the
sales and marketing area in order to redefine the customer's experience with
the organization in some meaningful way.
Organizations that have taken this broader, more strategic view of leveraging CRM technology have benefited tremendously. The success realized by Dell Computer in building a structure that allowed its customers to custom build their own PC is well known. Their focus on using technology to "interact and serve" customers in an improved manner rather than simply "interact" more effectively has created a significant shift in market share and a new basis of competition.
Pitney Bowes is an organization that has recently leveraged CRM technology as a means of serving the customer better and driving customer satisfaction. Customer loyalty and satisfaction were being severely hampered by Pitney's inability to accurately configure their complex mailing systems to customer specification. Using CRM technologies, the organization is now able to sit down with a customer and configure, quote and order a system on a real time basis — allowing for real time adjustments based on pricing, availability and delivery times. Six months after implementing the system, the number of order cancellations is down by 27% and order-processing times have been cut by 45%. Serving the customer in a more accurate, timely manner will drive increased loyalty and advocacy - ultimately increasing market share.
These kinds of CRM successes require strategic insight on how to serve the customer better and senior executive involvement/commitment within the organization in order to align departments and divisions to a common strategic goal. CRM needs to be about business strategy, supported by technology, not about reducing marketing costs or simply interacting more effectively.
Loyalty is Driven by a Total
Customer Experience
Serving the customer better does not necessarily mean serving him/her in a more
expensive manner. The goal is to ensure that you have aligned your service elements
to each and every customer's need. Identifying and eliminating areas of "over
serving" can more than compensate for areas where your service or offering needs
to be enhanced to become more competitive. Where a more expensive form of serving
the customer is required, it is critical to ensure that it is done for a customer
set that the organization can afford to serve better.
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Much of the benefit of CRM technologies is in improved customer understanding. Unfortunately, many organizations have collected vast volumes of information with little understanding of how to take strategic advantage of it. This customer information is the enabler that allows new business strategy to be activated. A first step is to understand what the "business strategy" is - allowing you to then determine what elements of the varied customer information are most critical to operationalizing the strategy. It is commonly recognized that 80% of the strategic value of customer information is in 20% of the data - the difficulty is in knowing which 20%.
When this customer data is not used effectively, CRM initiatives can depersonalize the way each customer is served and therefore reduce loyalty. For example, one of the organizations that we have worked with is a manufacturer of industrial cable. Approximately 80% of their profit came from 25 large industrial accounts. One of the big issues expressed by their customers was the length of time the manufacturer required to generate quotes and confirmed delivery dates for non-standard (customized) cable orders. Custom orders required a flurry of phone calls, faxes and time consuming interaction with sub-contractors and component suppliers to produce an accurate price quotation and delivery commitment. This quotation process typically required 4-5 days while the entire manufacture process was only 3 days. The company implemented a web-based system that allowed customers to input the specifications for custom orders on-line. The system automatically routed the special requests to the most suitable sub-contractors and component providers and received back same day quotes on-line. A consolidation of quotes was done automatically and a confirmed cost and delivery schedule was generated for the end customer within 24 hours (reducing turnaround time by 75% and lowering the cost to process a custom order by 90%).
The CRM initiative was launched with huge success for the cable manufacturer, its customers and its suppliers. Customers were being served in an improved manner. However, within six months of launch, the volume of online custom orders dwindled from a high volume to close to zero and the manufacturer suspended the CRM initiative.
What the manufacturer discovered, is that their largest customers had reverted back to the physical order system for custom orders. These orders were placed through dedicated sales representatives that "advocated" for their large customers to obtain attractive pricing for custom orders. This set of informal business decision rules was not reflected in the web-based CRM system. This forced the company's senior management to establish a set of business decision rules around pricing levels for large volume customers. The CRM system was adjusted to identify a customer, determine customer profitability and adjust pricing based on the extent the manufacturer could afford to serve the customer at low margin. Once the system was re-launched, large customers returned and today over 75% of customer orders are received online. The end result is a vastly improved process that drives customer loyalty amongst the manufacturer's most important customers.
Defining a Total Customer Experience
Requires an Enterprise View
Customers define their loyalty to an organization through their total experience
with the organization. For example, their loyalty (or lack thereof) is typically
with Insurance Company X, not with the home insurance division separate from
the auto insurance division, if they happen to deal with both. Similarly, they
define loyalty through their sum of their experiences with the organization
— across all touchpoints and across all experiential elements: pre-sales,
order and delivery process, product/service experience, post-sales support etc.
The means that CRM initiatives that have improved loyalty as a key objective
need to take a holistic view of the Total Customer Experience with the organization.
Interacting with customers over the web or call center in a customized manner
while doing nothing to improve their product or service experience will have
limited impact on loyalty. Similarly, utilizing the latest CRM technology in
the home insurance division while the auto insurance division lags in the dark
ages will have little impact on loyalty for customers that deal with both.
Unfortunately, as discussed at the outset of this paper, the vast majority of organizations implement CRM initiatives in a compartmentalized, "point solution" manner with no guiding principles or roadmap as to how initiatives will be brought together to alter the Total Customer Experience. The right levels of the company hierarchy are not involved in any meaningful manner to ensure this happens. CRM is viewed as a technology initiative rather than a strategic initiative, supported by technology.
Customer loyalty is driven by bringing the TCE service elements together (as illustrated in Figure 2.0).
Implementation Frustrations
Center Around Achieving an Enterprise View for CRM
Most businesses are far from achieving a redefined and integrated customer experience
today. In fact, in most cases, the data gathered and utilized in one CRM initiative
is not easily shared with other CRM initiatives. Forrester Research reports
that only 2% of businesses have an integrated or single view of their customer
data. Research we have recently conducted with businesses that have implemented
CRM solutions, indicates that they have two dominant sources of frustration
with their CRM projects:
- The inability to integrate disparate initiatives in CRM that have been driven at a departmental level
- The inability to achieve an integrated view of customer data
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These frustrations overwhelm issues associated with "ease of use" which typically dominate in emerging application areas. Businesses with experience in CRM recognize that the first frustration (lack of integration) reduces their ability to redefine a "total customer experience" and the second frustration (common data view) prevents them from making business decisions that optimize benefit to the total enterprise. Meeting these two objectives is critical to turning an organization's CRM investment into a strategic initiative that has significant upside for the organization rather than a departmental tactic with bounded potential for success.
The Need to Avoid "Siloed" Initiatives
The practical reality is that businesses will need to implement CRM through
relatively contained and simple initiatives that are cost effective in their
own right. However, these initiatives need to be part of a broader strategic
initiative that will drive customer loyalty by redefining the Total Customer
Experience. There are three imperatives to ensure CRM investments result in
strategic benefits to the organization:
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- CEO/COO level involvement and commitment to a CRM vision or TCE redefinition
- Success measures that focus in the short-term on milestones or evidence of redefining the TCE (improved order turnaround, fewer mishandled orders, higher degree of product/service customization or choice, etc). In the long-term, the focus should shift to the benefits of redefining the TCE (higher customer satisfaction ratings, lower customer churn, higher market share etc.)
- A CRM roadmap that guides the individual initiatives to ensure they are executed in a coordinated manner that works towards TCE redefinition
The most difficult of these and the one that most rarely exists is the third - a CRM roadmap to guide individual initiatives. This roadmap needs to be custom developed for each organization and must be based on a core business strategy or direction for serving the customer better. The fundamental difference between the roadmap approach and the common "siloed " approach is that each initiative is part of a complete process improvement from the customer's perspective (i.e., at least one element of the TCE is truly redefined and improved). An illustrative case is summarized below.
Conclusions/Recommendations
In order for CRM to reach its true potential and for those implementing CRM
to move beyond the "minimal success" ratings that dominate, each organization
needs to establish a strategic direction that can have a significant impact
on the organization. A roadmap then needs to be established that ensures CRM
investments support this direction and are integrated into something that fundamentally
improves the total customer experience. Only when CRM technologies are used
to support a strategic direction, rather than as a strategic direction, will
the real impact of these technologies be realized.
About McKenna Group
The McKenna Group is a Silicon Valley based consulting firm with over 25 years
of history in the information technology sector. The firm earned its reputation
early on by having defined many of the key high-tech marketing revolutions in
the 1980s and 1990s. Its work with Apple in the early 1980s was instrumental
in assisting the PC revolution. The company helped Intel launch the first microprocessor,
and it helped 3Com reposition itself and launch the LAN business. Today, the
firm's focus is on helping vendors and users of technology to anticipate, understand,
and leverage major shifts in technology. Much of this effort is concentrated
on the Internet and the impact it has on competitive strategies, as well as
the opportunity it creates for Business Re-generation and real-time customer
relationships. The firm's differentiation stems from its focus on e-business
strategy consulting, real-time marketing, and business partnering.
Visit www.mckenna-group.com for more information.
The material contained within this document is the proprietary information of The McKenna Group LLC and may not be duplicated in whole, or in part, without the express written consent of The McKenna Group LLC. To obtain reprints or to request authorization to copy, contact The McKenna Group at 1755 Embarcadero Road, Palo Alto, California, 94303, or call 650.852.0800.
