What to Expect
Today, customers are in charge. It is easier than ever for customers to comparison shop and, with a click of the mouse, to switch companies. As a result, customer relationships have become a company's most valued asset. These relationships are worth more than the company's products, stores, factories, Web addresses, and even employees. Every company's strategy should address how to find and retain the most profitable customers possible.
Today's customers make the rules; if organizations are to survive, they must do business in any way the customer wants. However, this is easier said than done. Most companies consider them- selves customer focused, but in reality, they're product-centric. Meanwhile, e-commerce has in- creased customer expectations, which have raised the bar on service levels. If they fail to leap over this hurdle of ever-rising service standards, companies are out of the game.
Creating a customer-focused company starts with a customer relationship management (CRM) strategy, which must include process reengineering, organizational change, incentive-program change, and a totally revamped corporate culture. In this chapter, we'll take the often vague notion of customer focus and put it in a concrete application framework. We'll dissect customer relationship management and show you how to add it to your arsenal. We'll present the tools you'll need to build an excellent customer relationship infrastructure.
Customer dissatisfaction with service is widespread, and the expectations of customers interacting with companies are higher than ever. When you consider what's possible in customer service, it's easy to understand why customers expect more. For example, you call your insurance company with a question about your homeowner's policy. The agency's telephone system identifies you and greets you by name. The agent knows your policy, answers your question, and asks whether you would like information on a new line of auto insurance that could save you money. You say yes and begin to rattle off your address, but the agent already has it and says that the information will be in the mail to you that day.
Your customers and prospects are continually asking, Does your company deserve my patronage and loyalty? Customers are taking what used to be exceptional service as a baseline, or starting point. As competition intensifies, they are expecting more from companies they have ongoing rela- tionships with. Customers are continually raising the bar for customer service to a higher level. As they attempt to meet new customer expectations, organizations with long-standing customer bases often find that they lack the information and data enabling them to make good service decisions and therefore make less than optimal decisions. As a result, companies are unable to satisfy customers.
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For ongoing customer relationships to remain strong, companies must view the service encounter through their customers' eyes. Firms must take a customer-focused view and move away from the more traditional account- or product-centric perspective. Old paradigms for interacting with cus- tomers are becoming less successful, and failure to move toward a CRM environment will result in suboptimal business practices. Ask yourself, Has my company taken an outside-in view in creating a service experience?
When developing your company's CRM approach, remember these facts.[1]
• It costs six times more to sell to a new customer than to sell to an existing one.
• A typical dissatisfied customer will tell eight to ten people about his or her experience. The primary reason for dissatisfaction: lack of customer service. Of the 15 most-cited complaints, 12 were related to poor customer service, from busy phone lines to unanswered e-mail queries.[2]
• The odds of selling a product to a new customer are 15 percent, whereas the odds of selling a product to an existing customer are 50 percent.
• Seventy percent of complaining customers will do business with the company again if the com- plaint is quickly addressed.
• More than 90 percent of existing companies don't have the necessary sales and service inte- gration to support e-commerce.
The Basics of Customer Relationship Management
Customers don't care how a company stores information or how data from various sources must be combined to give them what they want. They don't even care if they've called the wrong location.
All customers know is that they want excellent service and want it now. The timely delivery of ex- cellent service is customer relationship management.[3]
CRM, a combination of business process and technology, seeks to understand a company's cus- tomers from a multifaceted perspective: Who are they, what do they do, and what do they like? Is CRM critical to the survival of companies in the age of the never-satisfied customer? Industry leaders believe so. Increased competition, globalization, the growing cost of customer acquisition, and high customer turnover are major issues in such disparate industries as financial services, telecommu- nications, and retail.
Research shows that effective management of customer relationships is a source of competitive differentiation. Statistics such as those cited earlier are driving an enormous investment in CRM.
When competition is fierce, the best companies go back to basics: creating value for the customer.
Many company executives now find themselves contemplating new value creation issues. In the 1980s, cost cutting and downsizing led to record corporate earnings and stock price performance.
But by the early 1990s, executives realized that this success was a house built on sand. As their focus shifted from cutbacks to growth, many senior managers saw how their zeal to run lean had caused them to lose touch with their customers, who were slipping away. To complicate matters, those customers remaining had grown—and continue to grow—more sophisticated and discerning.
Today, any advantage based on a company's product or service innovation is short-lived; instead, continuously creating new value propositions for customers is key to survival in an increasingly dynamic market. Executives must ask whether their companies' infrastructures allow such value creation.
Technology, in the form of the Web, has definitely acted as a catalyst for CRM. Customer service and support tools often need to be jolted out of an inertial state. Web technology functions as a major catalyst, as companies fear disintermediation and losing touch with their customers. Estab- lished channels of distribution are in question, and several could be eliminated. New competitors, such as Yahoo! and AOL, can establish brand names quickly, with a first mover's advantage. CEOs
are reading about hot Web start-ups taking away a significant portion of market share from estab- lished companies, and no one wants to be another well-documented victim in a business school case study. Executives must ask whether their companies' existing CRM infrastructures support doing business in the e-world.
For these reasons, CRM has more visibility than ever before, moving from a sales productivity tool to a technology-enabled e-relationship strategy. Companies are racing to use technology to tie themselves more closely to their customers. At the same time, competitors are using technology to break this link. As a result, the market for CRM systems is expanding at more than 40 percent.
It's nearly a cliché, but in the contemporary world of sophisticated customers and intensifying com- petition, the only way for an organization to succeed is by focusing diligently on customer needs.
To keep the best customers, management must concentrate on quick and efficient creation of new delivery channels, capturing massive amounts of customer data, and integrating the data to create a unique customer experience. Customer incentives, such as frequent flyer loyalty programs and buy-x-amount-and-get-one-free punch cards, no longer go far enough. Only by integrating their sales and service infrastructure with all aspects of operations can a company's management expect to see a change in customer relationships. Yet few companies succeed in making customer focus a business reality, for three primary reasons. Past business models didn't require a customer focus, today's technology wasn't available, and organizational resistance to changing business models remains quite high.
The goal of this chapter is to clarify the concept of the multichannel organization. In addition, we discuss the applications that support a customer-focused business model and how marketing prac- tices and systems must be reworked in order to support the e-commerce environment.
Defining CRM
Anyone can keep one ball in the air; some can even juggle two or three. But CRM requires the whole company to work together to keep the flaming sticks, bowling pins, and razor-sharp knives of cus- tomer demands in the air. CRM is defined as an integrated sales, marketing, and service strategy that precludes lone showmanship and that depends on coordinated enterprise-wide actions. CRM software helps organizations better manage customer relationships by tracking customer interac- tions of all types. The suite of products spans all the steps of the selling and customer service cycle to help automate direct-mail marketing campaigns, telemarketing, telesales, lead qualification, re- sponse management, lead tracking, opportunity management, quotes, and order configuration.
Becoming customer focused doesn't necessarily mean improving customer service. It means having consistent, dependable, and convenient interactions with customers in every encounter. The goals of the CRM business framework include
• Using existing relationships to grow revenue. —This means preparing a comprehensive view of the customer to maximize his or her relationship with the company through up-selling and cross- selling and, at the same time, enhancing profitability by identifying, attracting, and retaining the best customers.
• Using integrated information for excellent service. —By using a customer's information to better serve his or her needs, you save the customer time and ease any frustration. For example, customers shouldn't have to repeat information to various departments again and again. Cus- tomers should be surprised by how well you know them.
• Introducing consistent, replicable channel processes and procedures. —With the proliferation of customer contact channels, many more employees are involved in sales transactions. Re- gardless of size or complexity, companies must improve process and procedural consistency in account management and selling.
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As these business goals illustrate, CRM is an integration framework and a business strategy, not a product. Putting CRM into practice requires developing a set of integrated applications to address all aspects of your front-office needs, including automating customer service, field service, sales, and marketing. Companies look to application software vendors to support this integration. In doing so, these same firms must remember that technology is only one aspect of successful CRM practice.
Implementing CRM also means redesigning functional roles, reengineering work processes, moti- vating people in the company to support the new approach, and then—and only then—implementing CRM technology.
By investing in CRM applications, companies hope to build better customer retention programs to maximize customer lifetime revenue. For many industries, customer retention is a driver of profita- bility. It's no wonder that business strategies for achieving close relationships between companies and their customers—while containing costs—have taken center stage in most industries.
In addition, new technologies are increasing demands on customer service. As customers assimi- late new technology, their expectations change about service, support, and how they make pur- chases. Enterprises choosing not to use application software to tie their customers on the outside with their line-of-business systems on the inside will be at a competitive disadvantage.
CRM applications are also gaining a foothold in small and midsized companies. The technology enables these organizations to enjoy the customer relationship capabilities that, until a couple of years ago, only the largest enterprises with deep pockets could afford. Integrated applications pro- viding a comprehensive view of customer information to such business functions as sales, market- ing, customer service, and accounting are now available to organizations with fewer than 100 em- ployees.
As a result, CRM is driving the next major wave of investment in information technology. Spending on this strategy will continue to grow by 25 percent to 30 percent over the next 5 years. Given the importance of CRM both today and in the future, we turn now to the three phases comprising a CRM solution.
Managing the Customer Life Cycle: The Three Phases of CRM
In a personal relationship, the level of understanding and intimacy grows over time, as long as both parties are committed to making the relationship work. The same is true in the world of business.
In today's competitive environment, this is a critical lesson to learn. Consumers are realizing that in today's marketplace, they have a wide selection of dance partners from which to choose.
CRM comprises three phases: acquiring, enhancing, and retaining. Each phase supports increased intimacy and understanding between a company and its customers. Each impacts the customer relationship differently (see Figure 6.1), and each ties your company more closely to your customer's life and dance card. These three phases are
Figure 6.1. The Three Phases of CRM
1. Acquiring new customers. —You acquire new customers by promoting your company's prod- uct and service leadership. You demonstrate how your firm redefines the industry's perform- ance boundaries with respect to convenience and innovation. The value proposition to the customer is the offer of a superior product backed by excellent service.
2. Enhancing the profitability of existing customers. —You enhance the relationship by encour- aging excellence in cross-selling and up-selling, thereby deepening and broadening the rela- tionship. The value proposition to the customer is an offer of greater convenience at low cost (one-stop shopping).
3. Retaining profitable customers for life. —Retention focuses on service adaptability—delivering not what the market wants but what customers want. The value proposition to the customer is an offer of a proactive relationship that works in his or her best interest. Today, leading companies focus on retention much more than on attracting new customers. The reasoning behind this strategy is simple: if you want to make money, hold onto your good customers.
This is not as easy as it seems.
All phases of CRM interrelate. Let's review each phase in detail and examine its business implica- tions more closely.
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Acquiring New Relationships
Beginning a new business relationship is similar to going on a first date. Both participants feel varying degrees of insecurity, hesitancy, fear, and anticipation. Only a determined suitor acts despite these feelings. Acquiring new customers demands a similar level of determination. Strategies for suc- cessful customer acquisition require a great deal of planning in order to orchestrate a rich, highly integrated purchasing and support experience for the customer. For example, imagine that you're surfing the Web, looking for a new laptop computer. You land on IBM's site. Interesting stuff, you say! The IBM ThinkPad looks like just what you need. You go to the product information page, fill out the online request form, press the Enter key, and submit the form. Then you hang around the Web site to read some more. All of a sudden, your phone rings. "Hello, this is Patti from IBM. I just received your request for information about our products." She asks about your requirements, walks you through an online demo of the product, and before you know it, you're on your way to acquiring the system you need.
Such an instantaneous response is not magical, though it can feel like it. It's the result of an intricate, well-planned, and finely tuned strategy of sales and service integration. Potential customers, or prospects, are impressed when companies call them while they're still browsing their Web site.
Preliminary market research shows that the probability of sales goes up when prospects receive a response to their request within 1 to 3 minutes. A well-executed sales-and-service strategy eases those first-date jitters and creates a smooth transition from prospect to customer.
Enhancing Existing Relationships
In an established, committed personal relationship, most people do not break off the relationship when problems arise or at least not until they have discussed the issue. A healthy couple takes the time to listen to each other's concerns and to work through the problems. The result is a richer, more solid relationship. Similarly, companies prove their commitment on a daily basis when they take time to hear a customer's concerns and by developing a service focus.
For example, Best Buy, a specialty electronics retailer with more than 300 stores in 32 states, re- alizes the importance of committed relationships with its customers. The Best Buy Consumer Re- lations Call Center receives about 3,000 calls a day, with each call averaging 15 minutes. More than 50 percent of the calls are computer-related inquiries. These calls cover a wide variety of topics, as well as specific questions about Best Buy's products. Customers request assistance for many rea- sons, including determining whether a computer repair issue is a hardware or a software problem, challenging the returns policy, taking advantage of manufacturer rebates, and checking on coupons, gift certificates, or delivery schedules.
The call center's primary concern is customer satisfaction through the effective resolution of issues and concerns. As competition increases, companies such as Best Buy realize how CRM-capable call center applications are necessary for attaining and maintaining customer relationships. When a customer calls about a product, CRM applications let the agent automatically suggest a comple- mentary item, a practice known as "cross-selling." For example, a buyer who has selected a camera can be offered a tripod. Or an agent can suggest a similar product of better quality, known as "up- selling." By using technology to access and to use customer information more effectively, Best Buy can offer superior service, differentiating itself from its competitors.
Retaining Customer Relationships
Of course, no one said that relationships are easy. On the contrary, they take a lot of work, but the rewards are usually worth the effort. Just as personal commitments need patience and understand- ing, so do business relationships. Retaining customers requires as complete an understanding of the needs of the customer as possible and the determination to stay in the relationship regardless of its ups and downs.
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State Farm has chosen to make retaining customers its primary objective. State Farm is highly selective when choosing its new customers. Someone who has had an automobile accident in the past 5 years cannot become a State Farm customer, because the company has decided that it wants a different kind of customer. The company attempts to identify and to recruit the "best" customers, with whom they seek lifetime relationships through a complete life-cycle product line.
Several State Farm practices exemplify the importance the company places on customer retention.
The company's pricing policy rewards customers who continue their coverage with the firm. For example, policyholders who have been with the company for 2 or more years receive price breaks on their insurance rates. In addition, rather than monetarily rewarding agents for attracting new customers, as most insurance companies do, State Farm gives higher commissions to those agents who retain existing customers. The company measures customer retention and defection rates and distributes the results throughout the company. These financial and competitive incentives encour- age agents to work harder at keeping customers satisfied. State Farm also involves its agents in decisions affecting themselves and their customers. Such practices form the basis for State Farm's close-to-the-customer business objective.
As this example shows, the work of growing a company can focus on getting customers and keeping them. Customer retention is increasingly the strategy for companies operating in competitive envi- ronments and is likely to become a core strategy for companies everywhere as customer buying options increase and the cost of switching vendors lowers.
The New CRM Architecture: Organizing around the Customer
How does application technology work together with a CRM strategy? Technology is a critical tool for supporting a CRM implementation and the strategy's ongoing success. By answering the fol- lowing questions, you can determine how CRM and its supporting technology would work together at your firm.
• Are most of the company's applications designed simply to automate existing departmental pro- cesses?
• Are these applications capable of identifying and targeting the best customers, those who are the most profitable for the organization?
• Are these applications capable of real-time customization/personalization of products and serv- ices, based on detailed knowledge of customers' wants, needs, and buying habits?
• Do these applications keep track of when the customer contacts the company, regardless of the contact point?
• Are these applications capable of creating a consistent user experience across all the contact points the customer chooses?
If the answers to each of these questions is no, you should seriously consider implementing a CRM architecture in the near future. The timing for such an implementation couldn't be better. Corporate demand is rising for integrated applications built around customer life cycles and customer interac- tions. The IT industry is answering this demand with a smart new-generation CRM architecture capable of seamlessly integrating a company's customer-serving processes (see Figure 6.2).
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