Hail to the Customer

An Introduction to Customer Relationship Management

 By Julie Vallone

The customer is king. We have heard the mantra over and over, fervently preached by organizations ranging from local retail shops to multi-million dollar corporations. While the credo certainly is not new, it is fast becoming gospel for many IT enterprises, who are just beginning to recognize the link between their level of success and the value they place on their customers.

Spurred by fears of losing customer loyalty, which many view as their most precious asset, companies are beginning to incorporate enterprise-wide customer relationship management (CRM) tools and practices into their daily operations and long term strategies. This more comprehensive approach ties together many existing customer care units, including traditional call centers, faxes, website help systems and email, with the goal of presenting a single corporate presence to the customer.

Still, while many enterprises are taking steps to implement a cohesive CRM strategy, few have actually achieved it. According to a June 1999 survey by Cambridge, Mass.-based Forrester Research, 92 percent of respondents said the CRM concept was critical or very important to their company, yet only two percent said they had been successful thus far in presenting that single company face to the customer. In more recent months, top enterprises known for their customer service excellence, have admitted that they still have yet to achieve full integration when it comes to their CRM systems and strategies.

Enterprises, with the help of a fast-growing community of CRM vendors, may still need to iron out the kinks in their customer care systems, but the commitment to a uniform presence is alive and well. Hewlett-Packard, for example, ensures that basic customer information is accurate and uniform across multiple systems and business units. GE Capital Services spokespersons say the company's standardized approach to customer information has been a key factor in its ability to monitor lending risk for all customers, worldwide. This commitment translates to a lucrative CRM market, one that Boston-based AMR Research expects to grow 61 percent by the year 2003.

The Bottom Line and Beyond

What is behind this new focus on strengthening customer relationships? The following numbers may provide a clue. Recent statistics show that companies with a customer-centric approach:

  • grow twice as fast
  • take customers away from their competition
  • are able to charge ten percent more for their products
  • achieve a 12 percent (vs. a traditional one percent) return on sales

Moving to a customer-centric strategy can make a significant impact, regardless of the business model. One case study in the report One Size Fits One illustrates how a mid-sized bank added $400 million of profit over a span of three years, just by changing the way customers utilized services.

The consequences of devaluing customer relationships can also be sobering. Dr. Jon Anton of Purdue University points out that if a supermarket loses just one customer a day, who spends $50 per week, the actual financial loss equates to about $1.3 million per year.

Even more important than the relatively short-term financial impact is the potential for long-term brand loyalty, created by a well-conceived customer care system. In the eyes of today's customers, enterprises are no longer solely distinguished by the quality, performance, and cost of their products. Web-savvy customers want high quality service at all times, and a company's inability to provide it often means loss of the customer. Boston Consulting Group estimates that is costs $6.80 to market to existing customers via the web versus $34 to acquire a new web customer. Add to that cost the financial impact of losing a lifetime of orders from a loyal customer.

The ultimate goal of CRM is to improve customer loyalty by understanding and responding to customer needs, but CRM has many additional benefits. These include:

  • helping marketing departments identify and target better customers, and develop marketing campaigns with clear goals and objectives
  • enabling the sales department to increase sales by streamlining existing processes and sharing a database of contact information
  • identifying the most profitable customers to ensure they receive the highest level of service
  • using customer feedback to develop new and improved products or services

A Brief History of CRM

Boston University Professor Thomas Davenport, who directs Andersen Consulting's Institute for Strategic Change, identifies two trends that have intensified the focus on customer care. First, increasing competition has made it more and more difficult to distinguish between products. As a result, companies have tried to set themselves apart by the service they provide to their customers.

Second, advances in technology have enabled enterprises to efficiently gather and integrate customer data into a single system. "Until recently, we didn't have the ability to manage the complex information about customers, because information was stored in 20 different systems," says Davenport. "But as network and Internet technology has matured, CRM software has found its place in the world."

Analyst Michael Gonzales traces the growth of CRM back to the mid-1980s, when PCs became more affordable, more powerful, and more reliable. Corporations began incorporating them into their business models, while, at the same time, more customers began using PCs, and demanded more sophisticated support services. Corporate help desks and customer support centers quickly sprung up across the country, and by the end of 1996, they had become a $500 million industry.

The common goal since then has been to build an integrated and enterprise-wide view of the customer, linking the various customer-care information units. For example, a help desk representative should know that the customer on the phone has also sent three emails to the company that week. That information also needs to be organizationally integrated into the sales and marketing departments, and beyond, to set a cohesive CRM orientation. Many companies continue to gather and store customer information in back-office systems, and use it in their tactical operations, but are not doing much with it on a strategic level. Gonzales identifies this as downstream customer-care activity, supporting day-to-day company operations. "In contrast, strategic customer care would serve more of an upstream purpose, providing viable customer information that could influence corporate strategy," he writes.

CRM Players

The CRM landscape has changed dramatically over the past year, particularly within the last few months. At the end of 1998, the major players included Siebel, Vantive, and Clarify along with ERP vendors Baan Co. and Oracle Corp. These top five contributed 40 percent of overall CRM revenue, with the market leaders growing a hardy 90 percent combined in 1998.

Within the last few months, though, a plethora of partnerships and acquisitions began to change the face of the CRM market, with ERP vendors making aggressive moves to grab a larger share. Oracle continued to expand its offerings in hopes of ousting Siebel from the top spot. At the same time ERP vendor PeopleSoft acquired Vantive, and telecommunications vendor Nortel Networks acquired clarify,essentially taking those two CRM players out of the top spots. Baan is also expected to lose some steam due to recent internal problems.

Judy Andaloro, a senior analyst with AMR Research, predicts that Siebel will remain on top for a while, but Oracle and SAP, which also have been making strong inroads into this market, will pose significant challenges to Siebel's position. In the meantime, a number of other "best-of-breed" vendors like E.piphany and Broadbase will be quite successful at answering the needs of vertical markets and providing deeper functionality that suites by larger vendors are unable to address. For more information on upcoming CMR market trends, see "2000: The Year of the Customer" in this edition of Premier Content.

The Future of CRM

The CRM buzz has certainly intensified over the past year and a throng of CRM vendors are rallying to answer the needs of today's IT enterprise. Still, in the words of CIO.com Senior Editor Carol Hildebrand, "CRM is not quite ready for prime time." Even enterprises applauded for their top-notch customer care admit that all the pieces are not yet in place. Technological and organizational challenges still loom in the effort to combine the transactional needs of customer service, the analytical needs of marketing, and the remote client/server needs of the sales force. In addition, many enterprises have yet to refine their development focus, from one that places emphasis on finding customers for their products to one that creates products in response to customer needs.

Creating a homogenous CRM strategy will remain an uphill battle for even the best enterprises, but it is probably one worth fighting. Those who can ultimately distinguish themselves in this arena, restoring the customer to his or her rightful place as king, will be richly rewarded.

Sources (in addition to sites linked above):

Baljko, Jennifer L. CRM apps can enhance competitive position. Electronic Buyers News. Oct. 11, 1999

Davenport, Thomas. The Customer Software Shakeout. CIO Enterprise Magazine. May 15, 1998

Fryer, Bronwyn. So Happy Together. CFO Magazine. June 1999

Gonzales, Michael, Mining for Customer Care with Visual Warehouse, Cambridge Information Network. Jan. 1999

Heil, Gary et al. One Size Fits One, International Thompson Publishing, 1997

Hildebrand, Carol, One to a Customer, CIO Enterprise. Oct. 15 1999

International Data Corporation, 1999

Mills, Josh, CRM Overview, IT Toolbox. Oct. 20, 1999

Techguide.com. Achieving Business Success Through Customer Relationship Management (CRM), and A Practical Guide to Implementing Enterprise Customer Management. Applied Technologies Group. 1999.

Whatis?com. 1999

For additional CRM resources, check Intraware's CRM Glossary and Webography.

1/18/00


About the Author: Julie Vallone's business and technology articles have been featured regularly in a variety of online and offline publications, including Investor's Business Daily, Entrepreneur Magazine, Salon and The San Francisco Sunday Examiner. She can be reached at julie@jvallone.com.