Invest in CRM to prosper in a down economy

In a sluggish economy, there is a temptation to downscale business activities that seem unquantifiable in terms of their immediate payback. It is for this reason that companies often cut back on the building of sales capacity and marketing activities. In so doing, they can negatively impact the ability of the business to retain existing customers, attract new customers and fulfil their requirements.

It`s an easy rationale: it costs on average eight times more to acquire a new customer than it does to service an existing one.

Doug Leather, CEO, Knowledge Factory, a company within the Primedia Group.

It`s the same with customer relationship management (CRM). Companies will seriously review their investments in this vital part of business, when they should be doing exactly the opposite: investing more in customer insight activity.

It`s an easy rationale: it costs on average eight times more to acquire a new customer than it does to service an existing one. This fact on its own makes any successful investment in customer retention easy to justify.

Companies should focus this year on maximising the value of their existing customer relationships, and use customer data to expand these relationships and extend their brand into other markets. To fulfil these requirements, they will apply technology and strategies to retain high-value customers, convert growable customers to higher value, and reduce focus and investment in low-value customers.

In an economy such as this, individual customers will spend less than in other years, making it doubly important for companies to gain share of customer rather than share of market. This will be best accomplished by increasing the value delivered to each customer based on identified need, thereby increasing or maximising the share of each customer`s spending.

Customer value, more than ever, will become the new measure. Companies will aim to delight customers who contribute most value, satisfy the most growable tier of customers, and put in place lower-cost mechanisms for servicing low-value customers.

None of this will be delivered unless companies have engaged in customer value definition activities. This includes understanding customer value drivers, and focusing on the value contributions of different customer segments, and applying this knowledge to change the value equation for customers. Customer value will be determined by individual customer profitability.

To achieve this goal, there will need to be an unprecedented focus on getting the data equation right. The only way to understand which customers have the highest value is to identify all customers and then to differentiate by value and need.

Companies have been collecting vast amounts of customer data, but they have not used it to good effect. All indications are that this is changing: the acceleration in take-up of data integration, data warehousing, business intelligence and online analytical processing shows this to be true.

Before there can be a single customer view, customer channels need to be united. Companies continue to talk about this requirement, but international research shows few get it right; and when they don`t, promises to customers are broken and the ability to maintain a learning relationship is inhibited. A learning relationship builds loyalty or switching costs. The more a company learns about how to service the customer better through dialogue with them, the less likelihood of that customer defecting because of the investment they have made in teaching the company how to service them. The goal is to create a seamless experience for customers, and an integrated set of access mechanisms, in terms of which customers enjoy a consistent interaction, regardless of how they choose to deal with a company. This will embrace physical outlet, self-service kiosk, customer service, Web, call centre, marketing sales and more.

Of great significance, companies must move away from the short-term focus that has characterised CRM to date. CRM has been thought of as a problem requiring a point solution, when in fact its success depends on an enterprise-wide focus, with all aspects of business integrated into customer-facing systems. We will now see enterprise architecture and IT strategy being applied to the issue of CRM, with a strong focus on return on investment.

Finally, this year will see theory become reality. Companies have come to understand the vital importance of one-to-one marketing; they are investing - some for the first time - appropriately in foundational systems, and the board is taking CRM seriously. With such an approach and commitment, we will see 2002 become a year of implementation and value delivery.

I`d hazard to say this will not hold true for all companies (that`s the nature of business), but it will be the case for winning companies. Will your company be one of these?