The big CRM challenge: understanding churn

One of the greatest concerns of CRM managers is customer churn. In the CRM space, involuntary churn is not of much consequence. It is very rare that a service provider in the CRM space would voluntarily cut off a customer. But voluntary churn is giving relationship managers sleepless nights.

Customer churn is a common way of referring to lost customers. The telecommunications industry started using the term customer churn a few years ago and the term has now become a standard measurement yardstick for the entire service industry. Simply put, the term refers to the percentage derived by dividing deactivated or lost customers by total customers. Typical churn rates for larger service companies fall in the low single digits, and a 2% change in churn rate can realistically translate into six months of additional service per customer. So measuring churn rate and the factors that lead to customer churn can be critical to the health of a company. If you are like most companies, you probably know what your churn rate is, but do you know which key factors are affecting customer churn and to what degree?

An alarming factor in the last two years or so, is the spiraling churn rates. While churn was more or less static in the early stages of the service industry, it is growing by leaps and bounds now.

Customer churn rates are higher than ever, and businesses haven’t figured out how to stop the bleeding. New research points to the cause: although businesses say they are devoted to loyalty, their management systems and budgets don’t back that up.

Loyalty experts agree it is more cost effective to retain customers than to acquire them, but few companies have strong programmes in place. And those that do may be focusing on the wrong things. From a recent survey, we learned that even though more than 70% of customers say poor service caused them to take their business elsewhere, business managers believe price to be a prime factor for defection. In a landscape of similar products and global competition, cutting down on defection-or churn-and building loyalty can be a significant way to grow your business. For example, churn rates for mobile telecommunications companies in Great Britain average between 25% and 35%, according to Customer Value Management expert Graham Hill. At the low end is Virgin Mobile, with about 14% of its customers leaving annually. At the high end is T-Mobile, with a 34.8% churn rate.

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CRM: More of Business, Less of Technology

It’s a manic Monday and Amol Joshi has just left for work when he receives a call on his mobile phone from an agent selling home loans. Amol is interested in a loan but the bank’s interest rate appears to be high- he tells the agent to get back with a better rate. That afternoon he receives another call on his office number from the same bank – it doesn’t take long for Amol to figure that there has been no interaction between the former and current agent.

With the amount banks have been earmarking for technology in the recent past, they are believed to have systems in place that could avoid such situations. Possibly a customer interaction tracking system that could have helped the bank avoid duplicating its efforts while still not delivering to the client, not to mention of course avoiding annoying a potential customer.

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Picking The Right CRM

Customer Relationship Management has been around in one form or another for nearly 20 years. But in the last five years it’s become far more sophisticated, more of a sales necessity, and a lot more competitive.

Since I am often asked which one I recommend, I think it’s best to develop criteria for what I feel needs to be included (you should do the same), and go from there.

Logging on to your CRM application gets you to your opening desktop screen. At a minimum there has to be an eyeful of "now." Salespeople want to see hot prospects, top proposals, a forecast, their report card, today’s appointments — a quick path to contacts and calendar — and maybe a motivational quote.

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CRM Software Key Components

Not all CRM software packages are the same. They will greatly range in price and capabilities. A thorough evaluation should be done when comparing multiple CRM software packages. The first question you should ask yourself is do you want "hosted" or "on-premise" CRM?

Traditional CRM software (on-premise) is becomming a thing of the past and "on-demand" hosted CRM is changing the way companies are now doing business. Do you own a power plant or do you rent electricity? The same theory holds true for CRM; why spend thousands if not millions of dollars for hardware and data centers when you can just rent CRM? Companies such as salesforce.com have led the way in subscription-based CRM.

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A Real CRM Strategy or Just Tracking Customers?

Exactly what is CRM?
The idea itself is nothing new; its roots have been around since trading began. The principle of looking after your customers so that they come back regularly is, after all, merely the basis of good trading. In an increasingly competitive commercial world however, strong customer relationships take on an increasing importance. With the cost of selling to a new customer being five times the cost of selling to an existing one you can’t afford to lose established business.

Yes, you still want new markets, and yes, for various reasons customers will still disappear. The important thing is to minimize this loss and make sure the reasons behind it don’t stem from something you are doing – or more significantly something you are not doing.

Which is why good Customer Relationship Management is vital – and why the process has now been refined to make it more effective than ever.

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Realizing ROI on CRM is More Science Than Religion

Despite the press that failures have received, CRM continues to emerge as the most intelligent and important way to model and run a business. CRM is the future. It’s happening. It’s being implemented successfully. But know this: planning and implementing CRM is a science. It is a methodology that begins with a sound strategy and is executed according to tactfully articulated and executed steps. Believe me, CRM implemented in an unsystematic way makes for low credibility and low replicability.

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CRM Clash – When Marketing is from Venus and IT is from Mars

CrmInherent tensions exist between marketing and IT. This is often compounded by lots of cross-talk, with each function on different channels. When tension becomes unresolved conflict, CRM strategy is impossible to execute. To avoid clashes, it helps to understand that CRM is not just about the exchange of information, it’s about the exchange of relationships. And every effective relationship includes a fair amount of conflict. The key is in how you handle it.

Conflict as a Catalyst
Conflict is a fact of work life. It can be especially pronounced when the two parties involved see the world from different lenses, as is often the case with marketing and IT. Conflict can be the catalyst for creativity resulting in innovative, productive teams. It can also be the catalyst for emotionality, polarizing people and generating counter-productive behavior. Let’s look at the following scenario to see how conflicts can be managed.

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The Disciplines of CRM

The total Customer Relationship Management (CRM) market will reach $18.1 billion by 2006, representing an annual growth rate of 29.9 percent, according to the 2005 CRM Market Forecast and Analysis prepared by IDC, the world’s leading provider of information technology data and analysis. It is highly unlikely, however, that the CRM market will reach the level of growth predicted. A recent study by the Gartner Group concluded that, "Most CRM initiatives fail to deliver the expected value because enterprises have not mastered this rapidly evolving business competency at a strategic level." CFO.com reported in 2004 that in 85 percent of all cases, CRM users could not show any quantifiable results and 12 percent of all installations were complete failures. CRM is extremely challenging and to justify the multi-billion dollar price tag, companies must use it as both a discipline and as a predictive tool.

Because of its customer-centered approach and its dependence on data instead of intuition, CRM can be considered a first cousin to Six Sigma. CRM systems provide quality professionals, as well as the sales department, with the opportunity to better understand customer wants and needs.

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Hosted or On-Premise CRM? (Part II)

You’ve already decided to implement CRM but you still dont know which flavor suits your needs. An on-premise solution with Salesforce.com CRM or another vendor, or perhaps a hosted CRM service. How do you select the best deployment method?

Is a hosted solution the best option?
Its true, hosted solutions offer a fast deployment, but where they really add the most value is after deployment.

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How Do You Want Your CRM?

CRM buyers, already burdened by understanding the differences in functionality between applications, the complexity of integration requirements and the various costs associated with the product are now facing another variable — how they purchase the software.

Traditionally purchased in bulk licenses with maintenance and support costs added on from year to year, CRM has also been available for several years as a utility where companies pay for the software on a per user per month basis. And last month, Sage Software, a subsidiary of the London-based Sage Group plc, spiced up the selection process when it unveiled a rent-to-own option. The program rebates users 50% of their hosted subscription fees if they move from Sage’s hosted software to one of its on-premise suites within 12 months.

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