Back in the last century, the story was told of the corporate chairmen who read about database marketing and "wanted some" even though they were not sure what it was. The same is happening all over again with customer relationship management (CRM). As many people as you speak to will give you just as many definitions of what they think CRM is all about. 

CRM is not software, but a customer-focused business strategy designed to optimise profitability, revenue, and customer satisfaction. The object is to consolidate all service interactions, loyalty initiatives, customer communications and transactions through all possible contact media, in order to build an understanding of the customer. 

This would enable companies to evaluate their customers, understand the profiles of communities with regard to behaviour like frequency and value of transaction; apply tactical campaigns; and address issues of retention and prospect conversion. From this newfound understanding and by using all of the avaialable customer touch-points, they can then tune services to meet customer needs and develop propositions, with the result being customers that feel valued, that are likely spend more and be increasingly loyal.

If we accept CRM as a business strategy, then it is bound to have implications on the processes employed by staff, on the view of the business taken by management and on the ethos of the company. Everyone in the enterprise has a role to play in the relationship with the customer and the infrastructure has to be in place to both facilitate and measure that relationship.

CRM has its origins in two aspects of systems-led marketing, namely sales force automation and call centre management. This means that many CRM solutions began life supporting one or other of these and having been polarised along those lines are now working their way towards the middle ground to address the two elements that make up a CRM strategy.

Firstly, operational CRM concerns itself with the collection and management of information and the creation of campaigns and one-to-one communications. For example:

• Acquisition of transaction information (who, how much, which proposition, when) 
  Details of inbound communication to call centre or website, mail responses

• Selection of segments for mailing, e-mail or SMS or to receive specific propositions, similar to campaign management

To support the operational element, the enterprise needs analytical CRM - the analysis of the operational information to appraise performance, discover customer behaviours and identify new business opportunities and propositions, considering such factors as:

• Recency, frequency and value (RFV)

• Preferred propositions

• Preferred channels of communication

• As well as considering the customer, CRM analytics will also provide insight into the enterprise performance and return on business investment:

  • Are customer recruitment targets being met?

  • Is the number of responses increasing?

  • Dynamics of results ratios
    Are purchases being made more frequently?

  • Are marketing campaigns generating the required response?

  • Are marketing pounds being put where they generate the most business?

The added benefit of tracking all activity through a CRM initiative means that the company can have early warning when things go out of kilter and have the opportunity to manage the situation. The company will still need to focus attention on services and propositions. Identifying which propositions were subscribed to by what type of customer and by which channel of communication will help determine successful relationship profiles.

This demands integration of both business processes and business systems and access to reliable data.

If the path to CRM is so clearly defined why then do so many CRM initiatives fail? Several surveys have been undertaken over the last 12 months, looking at CRM from a variety of angles and each suggesting different reasons for the overall lack of success. What they do concur on is the level of failure and that is around 60%. 

Failure can indeed be attributed to a number of factors. For example, not having a CRM strategy in place that reflects the business objectives is a fundamental challenge to success as is a lack of enterprise-high commitment, for without the support from the boardroom any strategic initiative is less likely to succeed. Support from those who will be benefiting from the project must also be assured; as with data-driven sales systems, implementation can be seen as an imposition or an affront to the salespersons' professionalism. 

However one global survey on data carried out by Pricewaterhouse Coopers* concluded that the failure rate of around 60% was due to the lack of management's confidence in a company's data. This, it transpires, is a reason why many CRM implementations are "mothballed" and the staff revert to departmental or even individual desktop processes, using Excel or Lotus.

Technological infrastructure must be met with physical infrastructure. The main barrier to an enterprise-wide culture remains the "turf wars" instilled within organisations. These "turf wars" are fuelled from two directions. Firstly from the traditional establishment structures that support the natural tendency to contain information within departmental boundaries and a reluctance to share information within the business. Secondly they are fuelled by the technical complexity and high level of investment in IT systems meaning that control and access remain vested in the upper echelons.

Research undertaken back in Autumn 2000 by business-to-business marketing consultancy The Strategy Works had already identified a need for the technological tools associated with data acquisition and management to be scalable. The technical complexity and high level of investment has also meant that such strategies have had their place in the larger organisation, essentially the global operators, for whom scalability means expanding to many hundreds of users, whilst the concept remains appropriate for SMEs and even divisional business units.

The challenge that faces businesses of all sizes is how to access and use reliable, high quality information to create knowledge for commercial advantage and maximise the opportunity for acquiring data and communicating through all available media - mail, phone, fax, e-mail, website, SMS, WAP, etc.              

Consider:

• Are the business rules and validation processes currently employed adequate to maintain data quality and integrity?

• How can the data be enhanced, perhaps with using external data sources, like demographics, lifestyles, social value groupings etc?
  What could be achieved if additional data were available? 

• Where is data to be sourced, how will it be managed?
  What are the implications on the business processes and the corporate ethos?

There exist a number of processes that one should apply when planning a CRM strategy. Apart from defining objectives, management will need to evaluate the current and planned business processes and compare these with acknowledged best practice to ensure development of the most appropriate CRM strategy and operational processes, thereby reducing risk.

 Culture change, aimed at helping the enterprise to assume a customer-centric ethos should also be planned at this stage whilst consideration is given to how the 

business will measure performance following implementation, with the definition of Key Performance Indicators and objectives for calculating the return on investment.

Once such a customer-centric approach has been implemented, segmentation can become more sophisticated, combining the RFV analysis with other personal profile or behavioural attributes to create communities within the database. This will mean that whilst campaigns may be planned for regular execution, cells within those campaigns may be defined to carry different propositions, promote different products, present different offers - essentially, the right message to the right person at the right time. 

However, segments or communities change their content and their direction; individuals join and leave as new information is learned about them and as the importance of the business rules inherent in the data relationships is recognised. This means that the segments are volatile and dynamic. Their dynamism must be tracked and the changes identified in order to keep the marketing strategy and communications schedule on track. 

A campaign management system can be set up as part of the operational CRM element, to react automatically as information is updated on the database, meaning that the personal relationship between company (or brand) and customer is maintained in the most effective and efficient manner. Campaign management systems can be configured to react to time or event elements and automatically generate an action in response to a pre-determined strategy. The proviso is that any segmentation process must provide communities that are commercially viable in terms of return against cost of management.

With the greater flexibility offered by using such a system, campaigns can be more frequent and smaller, as appropriate segments of the database are addressed. The automation means a move away from batch processes to dynamic updates and therefore greater ability to support the time or event driven triggers. Selectability also facilitates selection of the right delivery with the campaign management process providing the means to use and record all channels. While the business must be able to implement quicker planning cycles in order to maintain the strategic momentum, there will be the benefit of being able to map response, forecast and measure costs.

Segmentation principles can also be used for assessing applications and managing the customer recruitment process. Once robust behavioural and profile models are constructed new applicants can be matched against them to determine what kind of customer they are likely to be. In this way, recruitment and CRM expenditure can be channelled to where it will do the most good for the company, instead of each customer costing the same to convert. This is particularly appropriate to the calculation of ROI within a strategic CRM environment where the costs of acquisition, delivery and maintenance must be considered when formulating a formula for return on investment. 

*Global Data Management Survey 2001 – Price Waterhouse Coopers

© Michael Collins, 2003-2004

Published 2003. 

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