PDF File: 

CRM3_wp_freeland.pdf

Accenture

In the days ahead, CRM will assume an even greater role in a company''s strategy for spurring profitable growth and building competitive advantage.

Few would question the importance of customer relationships on the CEO agenda. Regardless of a company's size or industry, customer issues consistently receive considerable attention in the executive suite — and for good reason. Enhancing customer value, delivering a higher level of service, and enriching the brand all play a critical role in a company's ability to grow profitably and consistently outpace its competition.

Consequently, thousands of companies embraced CRM concepts and technologies during the past decade, often creating significant benefits for their business. Furthermore, most executives recognize that keeping customer relationships strong and profitable in the future will require the right mix of innovative information technology, more effective business processes, better data management practices, and new workforce initiatives.

Nevertheless, executives have also grown increasingly skeptical about CRM, suspecting that CRM may be destined to become yet another business fad on which organizations spend huge amounts of money and still fail to achieve their objectives. An executive survey conducted by Gartner Group, for instance, reported that 55 percent of all CRM projects have not produced significant benefits, while numerous articles have appeared in the business press citing the many pitfalls encountered by CRM projects.

We believe there are two principal reasons for this skepticism, for why so far CRM seems to have fallen short of expectations:

1. The disconnect between CRM vision and execution. Many CRM projects that didn't meet expectations were doomed from the start because they focused on the mechanics — specific tools, single channels — rather than the ultimate goal: increasing the value of the customer relationship. In some cases, there were also serious flaws in how the project was carried out: lack of senior management support, poor project management, or insufficient skills for completing the project, for example. In other instances, the projects weren't designed to be sensitive to the amount of capital investment required or the long-term cost of ownership, resulting in a price tag that was difficult, if not impossible, to justify.

2. The rising standard for CRM excellence. The past decade was one of intense change and explosive innovation. Powerful new technologies arrived on the scene more frequently than ever, disrupting the stability of entire markets. Customers became more mobile, sophisticated, informed, and demanding. And competitors became more adept at quickly improving their operations. As a result, companies watched processes and technologies that once provided competitive advantage become "baseline" capabilities as competitors adopted them and customers came to expect them. With the standard of excellence continually rising, companies have been forced to outdo themselves with every new customer initiative.

In sum, companies are now challenged not only to deliver more sophisticated sales and service capability, but also to deliver and manage these capabilities more quickly and cost-effectively.

Alone, either challenge would be daunting. Combined, they might seem insurmountable. In fact, we predict companies that settle for making incremental improvements to current capabilities will find themselves losing more revenue and share with each passing year.

Given the overall track record for CRM so far, perhaps now is a good time for many organizations to think about transforming conventional practices entirely. In fact, evolution is a natural state for CRM.

The Evolving Focus of CRM

CRM has always encompassed a broad set of sales, marketing, and customer service activities associated with serving customers, and attracting new ones. The scope of CRM has changed little over time.

What has changed is the focus of CRM. The first CRM initiatives launched in the mid-1990s focused primarily on improving a single service channel — namely, the call center. Companies adopted new technologies and performance measures designed to streamline the process of answering and handling customer inquiries, hoping to increase customer satisfaction and their own operating efficiency.

Later, companies widened this focus to include sales as well, implementing new automation tools to enhance salesforce efficiency and productivity. In the late 1990s, the focus of CRM expanded yet again to include more service and sales channels — such as the Web, email, and instant messaging — giving customers alternatives for interacting with a company. This new phase of CRM, still under way today, was characterized by complex channel integration programs, intended to standardize customer treatment across channels and to gather more customer data at each contact point. Many companies also implemented data warehouses and customer analytics programs to help manage this data and mine it for deeper insights into customer preferences.

All of these previous efforts have produced important benefits. Contact center initiatives enabled companies to reduce service costs while making transactions more convenient for customers (for example, by providing more self-service options). Salesforce automation software made salespeople more efficient and boosted their ability to help customers (for example, by giving salespeople immediate access to pricing information on any product). Better channel integration made it easier for customers to deal with providers, and enabled companies to gather more information about customers. And Internet-based initiatives opened up a new avenue into customers' homes and offices for selling and serving.

Figure 1: The percentage of consumers who "try to stick to well-know brand names" continues to fall steadily.

The New Focus of CRM

Unfortunately, companies are now realizing that these investments, while necessary, are not enough to sustain a leadership position — soon, they won't be enough to maintain parity within their industry. Even as they perfect their sales and service applications, add more channels and expand their data stores, companies are discovering they must do more. Customers already expect more, and exactly what they expect changes at an ever-increasing rate. As a result, the costs of acquiring and serving customers are also skyrocketing, undermining the economics of customer interaction.

Consider just one change indicator: brand loyalty. While the shopping habits of consumers in the 1970s and 1980s were highly influenced by the brand of the product or the company that sold the item, consumers today are less likely to purchase a specific brand or patronize a particular company simply because the brands are well-known. As Figure 1 illustrates, the percentage of consumers who claim that they tend to stick with well-known brands when purchasing products and services has dropped dramatically for all age groups between 1975 and 2000. Even the percentage for individuals over 60 years old — typically among the most brand-loyal consumers — dropped 20 points in the past 25 years.¹

Many factors contribute to the erosion of brand loyalty. One is the explosion in choice: the number of companies selling to consumers has mushroomed in the past two decades. In the U.S. retail sector, for instance, the number of book retail outlets has more than tripled since 1975; the number of discount stores has nearly doubled since 1970; and the number of apparel outlets has increased by 50 percent since 1970.²

Concurrently, the variety of items available to consumers has expanded significantly. The typical U.S. supermarket now carries, on average, more than 30,000 products.³ In the financial services sector, an individual investor now has to select among 8,200 mutual funds for his or her retirement plan.⁴ Hungry consumers in the United States have almost 850,000 eatery outlets to choose from — nearly 220,000 of which are part of a regional or national chain.⁵ Given all these new options, it's not surprising that buyers are spreading their purchases around — especially in the United States and Europe, where an essentially static population bases enjoys an ever-expanding array of choices.

Accompanying the increase in choice is a huge jump in the number of messages — marketing and advertising, emails, phone calls, etc. — to which consumers are exposed. In 1985, consumers experienced an average of 650 such messages a day;6 today, that figure is 3,000.⁷ Direct mail certainly plays a role: the number of direct-mail pieces consumers receive each year has ballooned in the past two decades from 35 million in 1980 to 85.6 million in 1999.⁸ Telemarketing is also on the rise, as the average consumer receives between 60 and 90 telemarketing phone calls every month.⁹ And, the average Internet user is flooded with hundreds of email messages a week — many of them unsolicited "commercial" pitches.

Finally, customers are increasingly sophisticated, and increasingly unwilling to settle for less than the best. The Web and cable television give consumers access to more information than ever before, enabling them to compare offers from competing companies more easily.

This combination of forces ensnares companies in a vicious circle of "Can you top this?" Today's customers know they don't have to accept shoddy service, high prices, or inferior products. Through their experiences with value and service leaders such as Virgin Atlantic, FedEx, Wal-Mart, and BMW, consumers have been taught to expect more: what was once considered exceptional performance that only very high-end companies provided is now viewed as "table stakes" for any company that wishes to enter the game.

Customer expectations now increase at a faster rate than most companies can match by relying on the traditional approaches to CRM. Consider the findings of a recent study that revealed that 74 percent of online customers will shop elsewhere if their inquiries are not quickly answered, and most expect online responses within an hour.¹⁰

Consequently, many executives feel frustrated, like they're running in place. For companies to break free from this situation, the practice of CRM will need to evolve as dramatically as the business context has. Organizations will need to change the strategic focus behind their CRM programs once more, adopting the new methods and tools required to satisfy a new set of customer expectations and competitive demands. And they will also need to find new, better ways to execute their new vision to deliver the outcomes they seek.

New Guiding Principles

In the next phase of CRM, what will companies need to get right? Unlike previous efforts, which often lacked a strategic element, future investments should be based on a holistic strategy that ties together that company's customer, channel, and brand strategies and ensures the right capabilities (and only required capabilities) are developed.

Companies should also focus not only on generating customer insights, but also on using those insights to drive all customer treatment activities. In particular, they should use these insights to align the cost of serving individual customers with the revenue these relationships generate.

Finally, they should also go beyond a focus on sales and customer service to include marketing — specifically, by applying "management science" principles to improve the efficiency and effectiveness of what is too often viewed as a largely creative or artistic pursuit. As companies reshape the focus of their CRM programs, they should follow three guiding principles:

1. Customer experience is essential to creating brand value. Smart logos, catchy jingles, or memorable commercials can play a major role in generating awareness, but they're just part of the brand equation. Brand strength and brand value are the sum total of experiences that customers have with the company and all its products and services.

2. Customer insight should drive customer treatment, which is a critical component of the overall customer experience. Every contact customers have with a company contributes to their perception of the company. The more these instances of contact can be shaped and driven by deep knowledge of customers' needs, preferences, and behavior, the more positive customers' perceptions will be.

3. CRM programs should be executed in a pragmatic way that mitigates financial and delivery risk. CRM is not about building elegant capabilities (based on the latest software packages) or serving customers at any cost. Rather, companies must be pragmatic, learning how to acquire the new capabilities they need with minimal upfront investment; how to reduce financial risk by reducing operating expenses, and how to increase both the predictability and flexibility of fixed costs.

Organizing for CRM Success

Using these principles as the basis for future decisions will help produce a better return on invested capital, and better position the company to respond to customer demands. To avoid the pitfalls that have plagued past initiatives, companies will also need to address four key elements when executing their CRM vision:

• Setting the strategy
  

• Gaining customer insights
  

• Realizing greater value from customer contact activities
  

• Transforming marketing
  

Setting the Strategy

While tactically-focused solutions can deliver business benefits, these benefits pale in comparison to what's possible when companies take a more strategic, holistic view. This involves addressing four strategic components — and understanding how these components are linked to one another — before beginning any CRM project.

These are: customer strategy, identifying the customers that the company wants, based on its existing business model and corporate mission; channel strategy, selecting the most appropriate and effective channels for reaching desired customers; brand strategy, understanding how all interactions with customers — not just advertising or logos — contribute to the company's brand value; and CRM strategy, determining the most appropriate CRM capabilities for supporting the critical interaction points and channels needed to reach chosen customers and prospects.

Gaining Customer Insights

Many CRM initiatives lacked the element of customer insight — the ability to understand customer needs and accurately predict customer behavior. This has become particularly critical as customers have become more mobile, more fickle, and more demanding. Companies must have all the capability required to capture and analyze critical customer data and analyze that data to create deep insights into how customers behave, how they'd like to interact with the company, and what they truly want and need from the company. In turn, these insights should determine how the company interacts with customers in the future — what offers they make, what service options they provide, etc.

Realizing Greater Value from Customer Contact Activities

One of the great criticisms of CRM today is that it has failed to generate a solid return on capital invested. One major cause is that many companies built elegant but extremely expensive CRM infrastructures with cost structures that are now difficult to justify. At a time when money is tight for all companies, organizations must not only reduce the cost of serving their customers, but also improve the value of customer interactions across the channel portfolio. In other words, companies must ensure that what they spend on serving customers does not exceed the amount of money these interactions generate.

Transforming Marketing

Past CRM efforts did an admirable job of enhancing aspects of sales and service. By and large, however, they failed to address a third and critical area of customer relationships: marketing. This prevented companies from generating deeper customer insights, because they couldn't "close the loop" on customer information. In addition, by neglecting to apply CRM concepts and technologies to marketing, companies missed an opportunity to bring more discipline to a function that has been left to operate largely on its own terms.

Effective marketing is not a matter of guesswork or gut instinct. It can and must be quantified and optimized in ways that most have not yet attempted — just as companies streamlined their manufacturing processes or made their logistics activities more effective and efficient. Given the challenges that all companies face today in being heard above the market noise, it's essential that they begin to take a more rigorous approach to marketing — one that not only makes their activities more effective, but also identifies where money is being wasted or misspent.

Conclusion

To be sure, companies face some significant challenges in making their CRM initiatives pay off. But that doesn't mean that CRM is fated to become no more than a fad. When properly conceived and properly executed, CRM programs need not fall short of expectations, consuming significant resources while generating only incremental benefits.

As leading organizations demonstrate what can really be achieved using the right focus and right approach, CRM will assume an even greater role in the overall business strategy for spurring profitable growth and building competitive advantage. However, to follow the example set by the leaders, other companies will need to adopt a new set of imperatives. 

Endnotes

1  "Pledge of Allegiance," David Lipke, American Demographics, November 2000, pp. 40-41.

2 "Retailers Gear up for Zealous Expansion," Will Pollock, Shopping Center World, December 1997.

3   "Customer Loyalty: Going, Going…," Steve Schriver, American Demographics, September 1997, pg. 23.

4 According to the 2001 Mutual Fund Factbook, published by the Investment Company Institute, there were 8,200 mutual funds available at the end of 2000.

5  The National Restaurant Association's Foodservice 2001 Report noted that there were 844,000 total outlets in the United States serving food, including single-location and "mom-and-pop" restaurants. The Franchise Finance Corp of America's 2001 Chain Industry Review & Outlook reported that as of December 31, 2000, there were 217,917 chain restaurant locations in the U.S.

6  Wolf, Naomi, pp 78-79, The Beauty Myth, New York, Anchor/Doubleday, 1992; and "A New Era of Eros in Advertising," by Mark Muro, The Boston Globe, 1989.

7 Data Smog, David Shenk. (June 1998) Harper San Francisco.

8  Direct Marketing Association's Statistical Fact Book 2000, Direct Marketing Association.

9 Statistic reported on .com.

10 Source: Jupiter Vision Report, "E-mail Customer Service: Taking Control of Rising Customer Demand," August 31, 2000.