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.
Evolution of Customer Relationship Management
CRM is as old as business itself. In order to understand the current shortcomings, one needs to evaluate the strengths shown by previous incarnations of CRM systems. The following case study of CRM in the 1960s illustrates the need for an effective system to manage client data.
The case study: The setting is a shoe department in an upscale retail store. There are no computers. The salespeople keep small notepads of basic information about their best customers. Every few weeks a new style of shoe arrives with only a few pairs per size/width. When the shoes come to the store, each salesperson consults his/her notepad to determine which customers would like the shoes, then places a call to the customer describing the product and asking to personally deliver the shoes to them. The shoes are pulled from inventory and left with the customer for a few days, after which they are either purchased or returned to inventory.
In the 1960s, CRM was all about direct service, however, there were severe shortcomings. First, only the salespeople were deploying CRM and their knowledge was not harnessed to identify customer preferences. This hindered the creation of an effective inventory ordering process and prevented accurate sales predictions. Ultimately, this situation led to substantial product waste, resource allocation issues and less than desirable corporate financial decisions. In addition, since the salesperson was the only true connection to the customer, when he/she left the company, the customer typically followed.
Transitioning Data from Salesperson to Software
One of the goals of current versions of Customer Relationship Management is to transition customer data from the salesperson to software and from software to corporate knowledge. Management involvement in bringing a CRM software system to a company must start well before a decision is made to buy the software tool. Gaining an understanding of what it takes to use technology to increase profits and change the business paradigm is the key. In addition, agreement is necessary on the expectations of the CRM system. Successful CRM companies will understand which customers can benefit from the special skills, services and products that the company has to offer as well as the best way to approach them. A smooth integration of CRM requires preplanning in several areas including the following:
- Training of salespeople and management on the use of the new CRM system.
- Training of salespeople on the optimum way to approach customers in order to gather CRM data.
- Resource allocation management to account for the additional workload required to enter and maintain CRM data.
- Creation of a process to enter, maintain and use the system in a way that dispenses information efficiently to all key personnel.
- Benchmarking against competitors with established CRM systems.
- Gaining the buy-in of customers to willingly provide CRM data.
CRM Users Need to Know What Data Is Important
It is essential for an organization planning to use a CRM system, to determine exactly what data constitute the most important inputs. The answers to this question vary across industries, companies, customer sub-segments and salespeople. The answers also vary by products that have different sales cycles and require different sales approaches.
For example, in the 1060s the Lane Furniture Co. used a unique analytical system to predict future sales. With its growing market share, the company needed to predict the sales of furniture in the United States six months in advance. Through data mining efforts, company statisticians determined that the strongest predictor of furniture sales six months in the future was the current month’s new car sales figures. The lower the car sales were for the current month, the higher furniture sales would be in six months. Armed with this data, Lane consistently made correct decisions regarding inventory, when to buy other companies with excess supply or capacity and when to advertise to a receptive market. Lane used data that gave it an advantage over competitors. The company provided its data analysis to employees and managers, positioning them with the intelligence to know when to push sales with advertising and sales force expansion and when to hit the brakes.
CRM Today Is About Tracking and Analyzing Information
Customer Relationship Management today is about tracking and analyzing explicit information on current customers as well as sales prospects. The software products require a significant cash and time investment and deployment of the software requires a rigorous, disciplined and coordinated effort. To achieve CRM’s promised potential, organizations must decide on the main goal of the system. Is it to guide future behavior of employees to drive increases in sales and satisfied customers, as well as reduce turnover of key sales personnel? Or, is the goal to predict future sales so that the company can position itself appropriately to meet expected demand? Once a CRM system is implemented and some success is realized, the entire software and process will require periodic reassessment. Without rigorous oversight of data input, a CRM system can easily go awry and lose its power either to predict the future or to help a company use this strategic intelligence to shape the future.
Hallmark uses its CRM system to track credit card purchases by shoppers. When a shopper purchases a product on March 15 using their credit card the information is recorded. The following year as March 15 approaches, a note is sent to the customer thanking that shopper for last year’s purchase. This note gives Hallmark an additional sales opportunity to offer similar products to specific shoppers using strategic timing. Many people who shop at Hallmark have annual needs to purchase date sensitive gifts. The process allows Hallmark to predict annual buying trends as well as help create real customers from its list of potential customers. This CRM system shows a thorough understanding of its value using easily available customer data.
Plans for Customer Relationship Management systems must be comprehensive. They must chart the move of every person in the organization who will touch or be touched by the data going in, the information coming out and the customer, who is the ultimate beneficiary of such a system. It doesn’t do any good to identify a customer who might buy shoes as soon as they arrive at the store, if there isn’t a salesperson or delivery service able to get the shoes to the customer’s house the same day. Without the marriage of a customer service system and a customer relationship system, a company could easily have great insights and no ability to act with the speed required in today’s fast-paced world.
CRM software is only a tool. But the implementation and use of this tool in sales is as important as good equipment in any professional endeavor. As with most efforts critical to a company’s success, this tool requires total immersion from management down through all levels of the organization and a discipline that produces winning results.