Many adopters of customer relationship management (CRM) work in silos and develop CRM strategies that are not linked to the overall corporate goals of the organization - a major mistake that causes many headaches and drives CRM initiatives to fail.
Other companies implement CRM ideas and technologies without first identifying the key levers that produce competitive advantage. They fail to understand that only certain CRM components can produce competitive advantage - the rest are simply best practices also used by rivals.
Based on the successful methods of industry leaders, Inforte has written a book entitled CRM Unplugged, which discusses three key lessons for identifying and helping implement business improvements that enhance customer value while strengthening profits and strategy as follows:
- CRM must be implemented strategically with clear business goals.
- CRM agendas should be driven by insight into customers and demand patterns.
- An enterprise-wide approach to customer management is required to coordinate tailored treatment of customers based on their value and needs.
These lessons can serve as guidelines that allow every company to think about CRM in ways that improve profitability and competitive advantage. Often, customer intelligence supports or drives these CRM initiatives and can help companies avoid the pitfalls often experienced when implementing CRM solutions.
Lesson 1: CRM must be approached strategically and treated as a business proposition that supports company strategy and is linked to clear business gains. Companies must determine which best practices, proprietary processes and technologies are absolutely necessary to avoid competitive disadvantage, while focusing the majority of their time and attention on strategic ideas, strengthening processes and technologies that help bolster the firm's competitive advantages. The key is determining the distinctive activities within the firm's value chain that will create the most value for the firm and its customers.
Figure 1: Delivering the Customer Experience
A common pattern among the leading firms is that they never forget what creates competitive advantage in the marketplace and why customers buy from them. They have not pursued big CRM programs with lofty and vague goals. Instead, they are on a continuous quest for ideas that strengthen their core value proposition.
Customer intelligence is critical to ensuring the alignment of CRM strategy and a company's business strategy because it focuses on key metrics that enable a company to develop a fact-based, decision-making culture.
Business performance management (BPM), Level 2 of the customer intelligence road map (see the October 2003 issue of DM Review), is a key tool that helps organizations align initiatives, people, processes, incentives, budgets and goals with their CRM initiatives. Leading firms use BPM as an elegant, visual way for executives to publicize the metrics and goals that the organization should work toward. Having common metrics across an organization means it will share commons goals, which creates cross-functional alignment.
By providing access to the key, cross-functional metrics that evaluate a company's most important business processes, BPM helps executives quickly understand what processes add value to and subtract value from the business and their customers.
Business activity monitoring, Level 4 on the road map, takes this type of process analytics to the real-time level and allows organizations to make adjustments to customer preferences and demand even more quickly.
Lesson 2: Insight into customers and demand patterns should drive the CRM agenda. The business strategy defines the playing field, but customer insight defines the plays.
Customer tastes, habits and expectations evolve rapidly, and meeting these changing needs requires a formal approach to capturing insight into customers and patterns of demand. Companies must first look at CRM from a customer's perspective to truly understand how each customer is different and the reasoning behind their purchasing behaviors.
CRM means a lot of things to a lot of companies. For one company, it could be extreme customer service. For another, it could be a focused, coordinated and collaborative sales effort. CRM could mean Web-based personalization for an online retailer or the drive for high satisfaction scores at a retail bank. In each of these cases, it would be very difficult to meet expectations if each company did not understand how the customer defines these objectives. What do they consider service? What do they consider value? How do they use the product or service?
Obtaining customer insight is essential for answering these questions, and customer insight is the bread and butter of customer intelligence. A customer intelligence infrastructure allows companies to perform deep-dive analyses, and create reports and predictive models that enable them to understand past, current and future customer behavior. Understanding behavior helps companies identify how they can treat their customers differently - arguably the cornerstone of CRM.
In general, customer intelligence supports the following CRM activities:
- Customer Segmentation. Customer segmentation helps us create strategies and programs to match customer needs. Leveraging needs and behavior-based segmentation, we can determine what customers want, how they use our products and services, how they react to certain stimuli such as marketing and sales offers, and their purchase patterns (what they actually do compared to what they say they would do). Adding an after-hours return slot at the video store is an example of understanding customer needs.
- Customer Value. We can determine the revenue generated per customer by analyzing the products they purchase, their price points and the services they use. Taking into account costs associated with servicing, selling, marketing and delivering to the customer, we can better understand profitability metrics and the true value of the customer to our firm. Customer value guides us to implement specific tactics only when it will provide a return. The pizza place that gives you a free pizza after five orders is an example of a company using customer value to drive differential treatment.
- Forecasting. If we can accurately predict customer demand in a timely fashion, we can make informed operational decisions regarding inventory management, supplier management, resource management, sales and marketing. Customer demand gives us a good idea of how much revenue we think will come through the door, which allows us to make responsible investment decisions to optimize profitability.
Lesson 3: An enterprise-wide approach to managing customers is essential. CRM has seen a slightly strange paradox over the last few years. There is a widespread belief that it takes years to implement large CRM engagements and that these solutions should be completed in several phases. However, we have seen the downsides to this:
- Implementing by channel. By phasing CRM by channel (call center, sales, Web site and other touchpoints), customers are often subject to inconsistent experiences. Some touchpoints may be coordinated, and some may not. Customers' expectations and satisfaction increased for channels in which CRM had been "implemented"; however, customers were doubly disappointed by channels that were still in the queue for improvements.
- Implementing by segment. By phasing CRM by customer segment, you produce some customers who are happy with an enhanced customer experience and others that cannot understand why they are not privy to the same customer experience enhancements.
- Implementing by system. From a customer intelligence perspective, an implementation that is phased by integrating information by transactional system usually gives your analysts only part of the story. Consequently, specific recommendations or decisions may be erroneous. These situations can be disastrous.
In order for CRM to be successful, companies should not focus their CRM efforts on improving systems or channels in a piecemeal fashion. They need to optimize specific business processes across all segments, cutting across systems and touchpoints if necessary.
Customer intelligence is pivotal to understanding the enterprise-wide impacts and causal relationships between touchpoints, business processes, systems, customer segments and the organizational structure itself. It helps companies identify those cross-functional, cross-system and cross-channel opportunities that will add the most value to the firm.
Following the three key guidelines provided in this column will enable companies to ensure they are getting the most from their CRM investments. Customer intelligence plays a critical role in enabling the success of CRM, as it provides the infrastructure and tools to monitor performance, align the organization and derive customer insight across the entire organization.
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