CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Customer relationship management (CRM) refers to the type of enterprise software that is designed to improve a company's interaction with its customers and thereby increase revenue from sales. In addition to offering the potential to increase revenue, CRM can also reduce the cost of supporting customers. CRM has the ability to move any transaction to the lowest cost channel possible and still satisfy customer needs.

CRM can provide a complete view of all customer relationships, taking into account all points of customer contact and the different media through which customers interface with the enterprise. CRM systems give companies the ability to track customer interaction across a range of channels, from e-mail to call centers. CRM can also provide the customer data required to conduct personalized marketing campaigns. Elements of such personalized marketing campaigns might include offers tailored to an individual visiting a company's Web site, dynamically served-up Web pages for different users, and personalized e-mail offers and announcements.

CRM helps companies learn as much as they can about their customers. Armed with this knowledge, companies can anticipate their customers' needs and keep them satisfied, resulting in higher revenues and lower costs. Data generated by CRM systems can be shared throughout an enterprise, allowing all departments or business units to coordinate their marketing efforts, including product development, advertising and promotion, and customer service.

CRM covers a range of products and vendors. It is often fragmented, with no single package delivering complete functionality, according to Bank Systems & Technology magazine. Among the technologies included in a CRM environment are sales force automation (SFA), customer analytics, real-time marketing solutions, customer behavior modeling, and real-time decision-making. CRM technology is designed to allow the customer to view, access, and interact with the complete set of services offered by the enterprise.

Different components of CRM relate to the different goals of customer acquisition, customer retention, and improved customer value. SFA and marketing applications are designed to help a company acquire more customers and convert prospects into customers. Data warehousing and analytical tools, along with customer service applications for call center and contact center management, help companies retain customers through improved communications and customer relations. CRM applications that can help improve customer value include marketing automation and campaign management software for cross-selling and up-selling. Data warehousing and analytical tools are also available to improve customer value.

CRM COMPONENTS AND VENDORS

Antecedents to today's Web-based CRM solutions include packaged contact management software, which was introduced in 1990. Around that time companies began to adopt formal telemarketing programs and develop multilevel customer service solutions. By 1997 the CRM marketplace was beginning to flourish, and from 1997 to 2000 and beyond the market for front-office solutions focused on customers grew explosively. In 1999 the first packaged sales force automation (SFA) solutions became available, and custom CRM solutions appeared. PeopleSoft, a prominent developer of human resources applications and other integrated application suites for large enterprises, entered the CRM marketplace in 1999 with the acquisition of Vantive and became a leading CRM provider. Oracle, SAP, and Siebel emerged with other major product offerings. Since 1999 customer interaction with companies over the Web has grown, fueling the growth of Web-based CRM solutions.

CRM packages have several components and can be quite complex. Some CRM vendors, such as Oracle, have offered entry-level components, such as sales force automation (SFA) and customer service, for free as Web-delivered services. These free services are designed to get potential customers started on what would eventually become a more complex CRM package.

E-mail is one CRM tool that can be used to improve customer service and conduct personalized marketing campaigns. A 2001 study by AMR Research found that e-mail response management applications ranked second among leading CRM deployments in the United States, behind contact centers and ahead of Web-based self-service and sales force automation. Opportunities for CRM e-mail include newsletters, new product announcements, promotional discount offers, and traditional direct marketing campaigns, among others. E-mail can also be used to handle transactions, provide order confirmations, send personalized "thank you" messages, notify customers of shipping status, and more.

According to eMarketer, most consumers expect to receive a response to their e-mail inquiries within six hours. Most companies were not responding that fast, however, with only 38 percent providing a response within six hours. About one-third took three days or longer to respond, and 24 percent did not respond to e-mail inquiries at all.

An April 2001 research report published in InfoWorld identified 19 leading CRM vendors. The magazine surveyed 500 readers associated with acquiring CRM software and services and who worked for companies with 100 or more employees. The survey found that preferred vendors were those that offered both CRM and non-CRM applications, with the leading CRM vendors identified as Oracle, PeopleSoft, and Siebel Systems. Other well-known CRM vendors included E.piphany, Broadvision, SAS Institute, and Wheelhouse. The study categorized the principal CRM applications as sales force automation, marketing automation, and call or service centers.

In addition to providing CRM solutions, vendors may also offer outsourced applications and hosting services. In some cases, solutions are industry-based, especially in highly competitive industries such as financial services, travel, and retail.

MARKET FOR CRM

A mid-2001 report from eMarketer noted that businesses spent $3.9 billion on CRM software in 2000 and projected that they would spend $10.4 billion in 2001. eMarketer also estimated that for every dollar spent on CRM software, an additional $3 was spent implementing it. An earlier study from AMR Research and reported by eMarketer put worldwide CRM software revenue at $5.4 billion for 2000 and projected $7.9 billion in revenue for 2001, $11.5 billion for 2002, and $16.8 billion for 2003. The same study pegged revenue from worldwide CRM services at $67.4 billion in 2001, $74.4 billion in 2002, $97.8 billion in 2003, and $125.2 billion in 2004. According to a study by Ovum, in 2000 companies in North America spent $1.18 billion on e-commerce CRM, compared to just $100 million in Europe and only $30 million in Asia.

According to a mid-2001 study by Jupiter Media Metrix, three-fourths of all U.S. businesses were planning to increase CRM infrastructure spending by 25 to 50 percent in 2001. The number of online customers needing service was projected to increase from 33 million in 2001 to 67 million by 2005, thus making the investments a necessity. Jupiter, which hosts a national CRM forum called "Connecting with Customers," warned companies against implementing a Web-only CRM system, or they would fail to build a consistent customer experience across all channels.

A March 2001 study of chief information officers (CIOs) from investment brokerage Morgan Stanley Dean Witter suggested that CRM was the most popular enterprise software application for 2001. The study found that customer service applications were the least likely of 33 possible IT spending categories to be cut during an economic downturn. For the same period in early 2001, leading CRM solutions providers such as Siebel Systems reported significant revenue increases over the previous year, with a great share of sales, sometimes the majority, coming from new customers.

A mid-2001 study by Forrester Research reported in InfoWorld found that 45 percent of the Global 3500 firms surveyed were considering CRM projects, and that 37 percent had CRM installations completed or in progress. The study also found that a typical firm would spend $15 million to $30 million per year on software and services to improve communications with customers.

CRM COSTS AND DEPLOYMENT

At the end of 2000 many companies were still in the early stages of deploying CRM systems. A late 2000 survey of more than 1,500 global companies by the Data Warehousing Institute found that only 7 percent of the respondents had achieved full deployment of their CRM systems. Some 38 percent were in the planning phase of their CRM programs, while 9 percent said they had no plans to implement a CRM solution. The early adopters of CRM were typically large companies with sales of more than $10 billion and were in highly competitive industries such as financial services or telecommunications. According to eMarketer, the Data Warehousing Institute study put the average budget for CRM projects at $4.1 million, a figure that was somewhat high because of the large size of the companies involved. Two-thirds of the respondents said they were spending less than $1 million on CRM deployment, while half were spending less than $500,000. The results suggested that many companies were taking an incremental approach to deploying their CRM solutions.

An online survey of chief technology officers (CTOs) conducted in mid-2001 by InfoWorld asked them how they would implement CRM. Some 60 percent said they would integrate a packaged software solution with their existing Web infrastructure, while 27 percent said they would integrate an outsourced CRM application from an external provider with their existing Web infrastructure. Only 7 percent said they would create a custom, in-house application, while another 3 percent planned to outsource CRM functions along with all of their Web operations. InfoWorld reported that worldwide revenue from CRM outsourcing would increase from $32 billion in 2000 to more than $66 billion in 2004, according to IDC estimates from May 2001.

According to a late 2000 study by the Gartner Group, CRM software made up less than one-third the cost of a CRM system. The highest costs were associated with related services, including consulting, integration, and maintenance. RealMarket Research estimated that for every $1 spent on CRM software, $2 to $5 was spent on consulting and implementation costs.

CRM MUST MEET HIGHER CONSUMER EXPECTATIONS

Consumer expectations for customer service have been heightened as a result of e-commerce. When companies opened themselves on the Internet to 24/7 access, customers gained much more visibility into companies and their products, services, policies, pricing, and business processes. Customers began to desire a much smoother, more seamless, transparent experience in dealing with companies, according to customer service expert Patricia Seybold, as quoted in eMarketer. Customers also wanted, and took, more control over the information that companies had about them. Customer concerns led to their taking more control of their profile information and their transaction histories. Customers were suspicious that companies were using that information to segment them in order to offer them different levels of service based on which segment they were in. Some companies began following the lead of the airlines and car rental companies by telling customers what segment they were in and letting them know what level of service they could expect.

Customer service can be expensive. eMarketer 's CRM report found that online self-service costs businesses only three cents per customer, while live help costs $5 per customer. The goal for companies is to make their online self-help capabilities so good that customers come to prefer them to interacting with a live customer service representative. Cisco Systems, for example, designed an online customer service wizard that prompts customers, helps them get their complaint logged, but along the way also offers suggestions for fixing the problem. In this way, customers are able to troubleshoot their own problem and find a solution.

EVALUATING CRM PERFORMANCE

CRM is more than a matter of having the right technology. It requires the support of a well-developed business plan. Perhaps the biggest cause of CRM project failures is not the technology, but the lack of a clear-cut business plan that includes a method for measuring the success of a CRM solution. A mid-2001 study by Jupiter Media Metrix looked at how companies measure the success of their CRM programs. Jupiter found that 63 percent use customer satisfaction metrics as a measure of their return on investment (ROI), while 33 percent used cost savings as a yardstick.

Jupiter Media Metrix also noted in mid-2001 that many Global 2000 companies were guilty of redundant spending, due to conflicting corporate goals and separate business units. The research firm estimated that such redundancy would cost Global 2000 companies between $3 billion and $4 billion over the next two years. To solve this problem, Jupiter recommended that companies adopt a company-wide customer culture.

An April 2001 InfoWorld survey asked respondents to identify what they wanted from CRM. Some 80 percent said they needed CRM to keep pace with customer demands, while more than 78 percent said they wanted to provide service across all communication channels. Three-fourths said they wanted CRM to improve customer retention. Thus, customer satisfaction was the principal goal for CRM as reported by respondents, followed by handling customer interactions more effectively and integrating systems and information. Financial goals, such as increasing sales revenue, appeared to be less significant and were cited as an objective by only 53 percent of the respondents. Survey respondents also expected CRM solutions to enable them to build a customer database or data warehouse, meet growing capacity demands, integrate activities of customers across channels, link front-office and back-office systems, improve customer profiling, allow for cross-selling and up-selling of products and services, and better coordinate various marketing and sales campaigns.

With companies eager to purchase CRM solutions, more software vendors began jumping on the CRM bandwagon. The marketplace became cluttered with software vendors, including some who defined CRM in a way that suited their interests rather than those of their clients. As a result, nearly 60 percent of CRM projects were not meeting user expectations, according to a mid-2001 study by the Gartner Group. B to B magazine reported that 55 percent of CRM projects were not expected to deliver any measurable ROI. The magazine noted that a typical CRM installation for a mid-size company, including software, consulting fees, and company labor costs, would cost between $250,000 and $500,000.

CRM HORIZONS

CRM has evolved from its customer service roots to include marketing and other applications. It has come to be used to manage relationships with suppliers, partners, and other non-employees. Other emerging features of CRM include real-time queuing and routing of customers based on their profiles. More valuable customers can be routed to a customer representative more quickly under such a system.

In the future, CRM will incorporate features such a voice-over Internet protocol, live chat, and other Web enabled tools to enhance the customer's experience. As of early 2001, B to B magazine reported that IBM was experimenting with creating virtual people—complete with photorealistic, digital human faces—that could interact with customers in real time. New technologies will result in expanding the boundaries of CRM to enable companies to engage in oneto-one marketing and provide customers with deeper, more meaningful, and lasting relationships.

FURTHER READING:

Apicella, Mario. "Are You Being Served?" InfoWorld, July 16, 2001.

Berkowitz, David. "Putting Customers First with Patricia Sey-bold." eMarketer, May 18, 2001. Available from www.emarketer.com.

Butler, Steve. "Budgeting for Customer Relationship Management." eMarketer, April 30, 2001. Available from www.emarketer.com.

Chiem, Phat X. "Special Report: Revolution Gives Way to Evolution." B to B, February 19, 2001.

Clark, Philip B. "The ROI of CRM." B to B, June 11, 2001.

Conlin, Robert, and Clare Saliba. "Report: Customer Service Spending to Buck Economic Downturn." E-Commerce Times, June 26, 2001. Available from www.ecommercetimes.com.

"The CRM Report." eMarketer, April, 2001. Available from www.emarketer.com.

"Customer Relationship Management." InfoWorld, April 16, 2001.

Jackson, Jonathan. "Giving Good eMail Service." eMarketer, May 14, 2001. Available from www.emarketer.com.

Leon, Mark. "CRM." InfoWorld, July 16, 2001.

Schmerken, Ivy, et al. "Technology Makes Convergence a Reality." Bank Systems & Technology, May 2001.

Seybold, Patricia. The Customer Revolution, New York: Crown Publishing Group, 2001.

SEE ALSO: Business-to-Consumer (B2C) E-Commerce; Mass Customization

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