15-11-2012, 12:14 PM
A Strategic Framework for CRM
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Introduction
What is Customer Relationship Management (CRM) and why is it important to my company? These are questions that many business leaders and managers are asking as CRM becomes the latest of many “hot” information technology (IT) trends. IT industry forecasts project explosive growth of the CRM market in the next few years. The Canadian CRM market, for example, is expected to grow from $35 Million in 1998 to $378 Million by 2003 . This growth will certainly be good for CRM vendors and consultants, but what will it do for the companies that invest their time, money, and effort in CRM?
In this paper we examine these questions and propose a framework from which a CRM strategy can be developed or analyzed from a business perspective. The framework highlights the linkages between specific CRM initiatives and desired outcomes. It shows, at a high level, how CRM can contribute to increased revenues, decreased costs, and ultimately to increased profits.
The framework shows the outcomes that various types of CRM initiatives lead to. This enables strategic choices to be made about which initiatives should be undertaken and which outcomes should be targeted. A CRM strategy for managing scope is critical because the number of CRM initiatives that a company can conceivably undertake invariably exceeds the number that it can successfully digest.
Choosing which initiatives to pursue is very important. A set of initiatives that trace a logical end-to-end path through the framework stands a good chance of success because it can be focused on delivering tangible results quickly. Initiatives that are not on a clear path to targeted business benefits will likely fail, because there is no payback to sustain the required investment.
What is CRM?
CRM has been defined in a variety of different ways. For some, CRM is a way to identify, acquire, and retain customers. For others, it is a way of automating the front office functions of sales, marketing, and customer service. For some vendors, whatever their current product may be, that is CRM.
This diversity of definitions is a result of differences in perspectives. The first is based on a business perspective of increasing competition that is driving companies to focus on their customers. The second is based on the relatively new phenomenon of the integration of previously separate applications such as Sales Force Automation and Customer Service Support into Enterprise Applications. The third is a result of software vendors re-positioning their information technology products and services under the CRM umbrella, to take advantage of the fast growth of the CRM market.
Why is CRM important?
CRM is important because of the changes occurring in the competitive environment. Globalization and the Internet mean that competition can now come as easily from around the world as from around the corner. Power and choice are moving to the customer as never before and leading to the commoditization of products and services in most situations.
In this environment, product quality and features are a given, and in many industries are now so undifferentiated as to provide no significant competitive advantage. As a company, you must choose whether to compete on the basis of price in a cutthroat commodity market, or on the basis of customer relationships created through a superior value proposition. This second approach is what CRM is all about. It helps you to sense ever more precisely the needs of your customers, and to respond to those needs with highly targeted offerings and marketing messages.
Fundamental Concepts
The Strategic CRM Framework is based on a number of concepts about today’s marketplace:
• Changing Customer Expectations;
• The Nature of the Customer Relationship; and
• The Difference between Loyalty and Captivity
Changing Customer Expectations
As the graphic below illustrates, following a CRM strategy is not just about implementing “point solutions” such as a Sales Force Automation system, or setting up a web site. It is about evolving a business along a number of dimensions:
• From being focused on making and selling products to sensing customer needs and responding with targeted product and service offerings. This is reflected in the “Knowing your customer” and “Increasing value-add” components of the Strategic Framework.
• From mass marketing (e.g. TV) to marketing to segments of one (e.g. through personalized Web portals). This is reflected in the “Customer interaction” components of the Framework.
The Nature of the Customer Relationship
The customer relationship is fundamentally based on the exchange of value for money between two parties. The relationship can be expected to continue only so long as both parties benefit. The partner most willing to terminate the relationship is the one that has the most power. This is why, in the new economy, power is shifting decisively to the customer as markets become more efficient and more competitive. As products and services become commoditized, the value that will differentiate one company from another will be increasingly based on the customer’s interaction experience with them.
In the CRM context, the two parties in the relationship are the company and the customer. However, being a virtual entity, a company does not have relationships per se. And increasingly, there is no one person in the company that a customer can develop a relationship with. We are then essentially left with the relationship that the customer perceives he or she has with the company. The state of this relationship is the end result of all the interactions that the customer has with the company, directly or indirectly (as through advertising). Therefore, CRM is the management of the capability to interact with the customer such that every interaction is positive and reinforces the relationship. For example, CRM should enable different departments to be aware of each other’s interactions with the customer – Sales should not target a sales campaign at a customer who has just been sent a payment overdue notice by Accounting
Previously we were targeting niche markets. We now have to break down the niche market even further, i.e. to target each customer relationship. The key to relationship management is for the company as a whole to respond to the customer in a way that shows regard for the customer as a distinct individual with a distinct set of needs and wants. This applies to all interactions in the “customer offering life cycle” - the customer’s consideration, acquisition, utilization, maintenance, and disposition of the product or service offering. This is reflected in the links in the Framework between “Knowing your customer” and “Customer Interaction”.
The Difference Between Loyalty and Captivity
Loyal customers are those that choose a company’s product or service even though a reasonable competitive alternative exists. Furthermore, the reason they choose a company is that it offers a superior value proposition, either in the produce or service itself, or in the interactions they experience in the customer offering life cycle, or both.
Captive customers are those that have no choice, either because no alternative exists or because they are “locked-in” for some reason.
The Strategic CRM Framework
In the May 2000 issue of CIO Canada, it was reported that a study by Andersen Consulting showed that “business leaders’ top priorities were:
• attracting new customers (cited by 86 per cent of respondents),
• enhancing productivity (84 per cent),
• reducing costs (81 per cent),
• improving customer service (77 per cent), and
• securing access to new markets (60 per cent)”.
However, CRM was “ranked as a high priority by only 15 per cent of business leaders, making it the lowest ranked of 14 organizational priorities outlined in the survey”. These results suggest that the role of CRM in achieving their top priorities is not evident to the senior levels of business management.
The Strategic CRM Framework provides the linkage between CRM and those priorities. It lays out the essential elements of a CRM strategy, and how they fit together to deliver a set of results desired by an enterprise. It identifies the business capabilities that need to be put in place, and how they contribute to the desired results.
The Strategic CRM Framework can be used in two ways:
• as a basis for developing a CRM strategy for a specific situation, or
• as a frame of reference for assessing a CRM initiative in terms of its alignment with the business’s top priorities.
These two uses are described in the section “Applying the Framework”.
Conclusions
The Strategic CRM Framework is very conceptual and very general. It doesn’t suggest a particular strategy; for example, focusing efforts on developing new channels versus customer care programs. It also doesn’t suggest a particular sequence of initiatives. However, it is meant to show a way of structuring the elements of a strategy, and of articulating the reasoning behind it.
Applying the Framework does not necessarily mean implementing technology. In fact, an initiative may have nothing to do with new technology, e.g. “train contact centre staff” may be an initiative that has high payback.
Any sound CRM strategy or CRM initiative should fit within the construct of the Framework. As such, the framework can be used as a starting point for developing a CRM strategy, or for assessing a CRM initiative.