When To Use Crm?

In little more than a decade, CRM technology has undergone a rapid transformation. When first generation applications were introduced in the early 1990’s, they were better known as sales force automation (SFA) applications because they were geared exclusively toward automating the activities associated with field sales, including contact management, opportunity management, and revenue forecasting. SFA technology was functionally trivial, and the hardware it ran on was not user-friendly.

“Automated” salespeople had to rely on bulky, portable computers, barely legible visual displays, and capricious modem connections to use the software. In addition, software vendors of the time rarely consulted end users when developing applications. As a result, end user acceptance of the solutions was often poor. Many salespeople viewed SFA software as an “electronic leash” or, even worse, as a surveillance tool.

In this early period, IT solutions were sold as discrete, departmental packages, each one serving no more than 100 users. In a fragmented market, companies bought separate solutions for the field force and the call center, and the applications did not communicate with one another. SFA applications both exacerbated and were victimized by the notorious “silo effect”-different departments operating in isolation and maintaining separate information stores.

By the mid-1990s, leading CRM software vendors began to offer their customers integrated information systems. Applications for sales and service converged, the software became far more scalable, and applications for marketing were introduced. And as CRM software vendors sought more input from end users, the applications became far more user-friendly, leading to much higher rates of user acceptance.

Around 1998, CRM technologies took another quantum leap in response to the rise of global ecosystems-networks of customers, partners, suppliers, and employees all connected by the internet. To allow all of these players to participate in an organization’s information flow, CRM developers added massive new levels of functionality to existing products while developing suites of new products to serve the emerging model of the internet-enabled organization.

CRM software vendors then developed software that would allow companies to provide their customers access to the organization across multiple channels. This development addressed an old technological challenge: How does one coordinate the information gathered in sequential customer interactions when some of it may come in over the Web, some into a call center, and yet more in a face-to-face conversation? The capability of CRM technology to solve this cross-channel synchronization problem propelled it into the next stage of market evolution.

Today’s best CRM solutions have come to address specific vertical industry requirements while integrating unwritten business processes that historically have varied from division to division. The result is a higher degree of consistency, leading to improvements in efficiency as well as the integrity of customer-related information. Most recently, CRM vendors have extended the flexibility of their systems to allow organizations to deliver solutions via hosted or on-premise versions, or in any combination. In addition, they have integrated business intelligence to empower every member of an organization with relevant and up-to-the-moment customer and business data. Ultimately, these CRM solutions are critical enablers of the seamless, high-quality experience that customers now demand.

The Business Benefits of CRM

When executed appropriately, a CRM strategy can deliver significant quantitative and qualitative business benefits. The quantitative benefits are driven by two main factors: reduced costs and increased revenues. Looking at these two factors more closely, CRM solutions let organizations reduce the cost of acquiring, selling to, and serving customers, and they help organizations enhance revenue by increasing sales per representative, sales per customer, average order size, and other revenue-driving metrics.

Cost Reduction Benefits

By streamlining and integrating customer-facing processes and providing richer customer data to sales, marketing, and service personnel, CRM can produce significant cost reduction benefits in a few key areas: cost to acquire customers, cost of sales, and cost to retain and serve customers.

Decreased Customer Acquisition Costs

Effective CRM strategies help organizations better understand a customer’s preferences, buying behavior, revenue, profitability, and purchasing frequency. Having this knowledge can reduce customer acquisition costs significantly. For example, within one high-tech company, the implementation of a Siebel CRM system helped the telemarketing group to dramatically lower the number of calls required to generate leads. The company’s vice president of sales and marketing explains:

Under our old sales information system, our telemarketing people were deluged with irrelevant information-free-form, unstructured information that had been recorded by agents during previous calls. This random information often impeded their call productivity. With our account-focused CRM system, they see just the information they need to converse intelligently-service records, for example, or the fact that an account falls into a certain vertical market.

As a result, our telemarketing personnel can now make approximately 80 calls per day versus 60 before the CRM implementation, and the value of those calls has gone up. Our people’s hit ratio-that is, the proportion of calls that translate into qualified leads-has gone from 1 lead for every 52 calls to 1 in 33. Most impressive of all, telemarketings success as a profit center-what we calculate as its “contribution margin” toward closing deals-has roughly doubled since we rolled out the CRM system.

Decreased Cost of Sales

CRM can reduce the cost of sales by increasing sales force productivity, enhancing partner-channel productivity, decreasing quotation-proposal generation time, and improving order-configuration accuracy. A communications company provides a detailed example of the way in which Siebel CRM technology can reduce the cost of sales.

Excess capacity in the telecommunications industry had driven prices down over the past few years, making it extremely difficult for communications providers to maintain profitability. The company sought to differentiate itself through a concerted effort to beat industry-standard intervals for service delivery. To accomplish this, the company had to significantly shorten its order intervals and focus on meeting the customer’s requested due date. However, its existing legacy system had limited growth capabilities, poor integration with other systems, and inadequate data integrity. This led to increasing business costs due to the substantial effort and human resources required to meet its customers’ dates.

To address these problems, the company replaced its legacy system with a Siebel CRM solution that significantly streamlined the order entry and validation process, allowing the company to meet customer-requested due dates faster and with fewer people. As a result of decreased order entry time, it reduced headcount in its dedicated order entry staff from 22 to 10 people, saving nearly US$500,000. Additionally, because the order entry process was much simpler, project managers could enter orders while talking to customers-increasing order accuracy and leading to higher customer satisfaction.

The company also cites the following improvements from its CRM solution:

• A reduction in average order entry time for direct access lines from 8 hours to 45 minutes .


• A 50 to 80 percent reduction in overall order entry time .


• Cost savings of US$10,000 each month through a reduction in time spent on account maintenance, security, and queries, and by eliminating paper files.

Decreased Cost to Retain and Serve Customers

CRM can lower the cost to retain and serve customers by deflecting simple customer service issues to the Web and streamlining the process of serving customers through other channels.

Revenue Enhancement Benefits

Because CRM strategies allow organizations to monitor, measure, and track every customer interaction, organizations can determine the precise results of those interactions and therefore calculate the return on every marketing, sales, and service effort. Indeed, with CRM capabilities, organizations can determine the profitability of each customer or account and thereby adjust their allocation of resources to each customer based on that customer’s profitability. By extending this capability across all communication and distribution channels, an organization can optimize its business model. That is, it can reach the right customers and prospects through the right channels at the right time with the right product or service. These capabilities lead to improvements in key areas, including increased close rates, increased revenue per sale, and improved customer retention.

Increased Close Rates

By deploying robust CRM systems and processes, customer-facing personnel have easy access to all relevant account, contact, lead, activity, and product information they need to serve customers. Moreover, CRM technology ensures that information is provided wherever and whenever it is needed, leading to meaningful improvements in close rates.

Financial consultants at a company, for example, use the company’s Siebel CRM system to view information about investors, such as income and investment preferences, and then target their investment pitches accordingly. Explains the company’s Assistant Vice President of Sales Force Automation:

We are able to be so much more personal in our interactions now, With essential customer information right in front of them, our representatives are able to develop customized investment strategies and deliver them-along with every appropriate piece of marketing collateral-directly to the customer, right from their desks. This system has enabled us to improve our lead conversion ratio-that is, the percentage of leads that become new accounts-from 40 percent to 60 percent.

Increased Revenue per Sale

CRM can help organizations increase average revenue per sale by facilitating cross-selling and up-selling. For example, a company has developed a program called Personal Planning Service, powered by Siebel CRM technology, which allows the company to create personalized vacation itineraries for guests at select resorts well in advance of arrival. When a customer makes a reservation for one of the company’s select resorts, the company starts building an itinerary based on the customer’s requests and stored preferences. When the customer arrives at the hotel three weeks later, tee times have already been scheduled, dinner reservations arranged, and recreation itineraries created. The company has found that guests who participate in the program show noticeably higher guest satisfaction scores and spend an average of US$100 more per day on services beyond the room rate. They are also more likely to generate repeat business because they had a satisfying experience.

CRM technology can also increase average revenue per sale by helping sales representatives focus on the right deals-those that represent the highest revenue potential.

The CRM technology gives sales representatives a comprehensive view of all activities, opportunities, and service issues associated with any given account, enabling deeper selling of infrastructure management solutions into the account. For example, by allowing a sales representative to see that a company is currently managing a customer’s computer network, the CRM software lets the representative engage in targeted cross-selling efforts, such as offering the customer a broader solution that encompasses the procurement of additional networking equipment.

Improved Customer Retention

Improvements in customer retention lead to increased revenue growth. Customer retention is a critical factor in determining a company’s long-term financial performance. Consider the value of existing customers: they require no additional marketing or set-up costs, generally provide higher revenue per purchase, are less sensitive to price, and refer new customers. Consider everything together, and the financial return from retaining customers and extending their lifetime value can be enormous.

CRM lets an organization increase customer retention rates in a number of ways. First, CRM software provides powerful analytics that helps organizations understand the key drivers, timing, and predictors of turnover. Second, CRM marketing and campaign tools allow a company to develop models to target desirable customers at risk of defecting to another company with mailings, phone calls, and promotions. For example, one leading networking equipment manufacturer has used Siebel CRM technology in effectively tracking service contracts that are about to expire. “Since the system automatically alerts managers to approaching expiration dates,” says the company’s director of customer service, “we’re able to immediately go after those contracts and make sure they are renewed before the expiration date. This has increased our revenue from service contracts by 20 percent.”

Third, CRM technology can help a company improve customer retention by referring customers to alternative product and service offerings when a customer’s primary choice is unavailable.

Additional Benefits of CRM

In addition to providing measurable benefits in the form of reduced costs and increased revenue, CRM technology provides many other benefits that are more difficult to measure. Some of these benefits include superior market intelligence, more customer-centric product development, improved forecasting and financial management, and greater brand equity.

Superior Market Intelligence

Because CRM databases are updated dynamically in real time, they provide an organization’s sales, marketing, and customer service people with fine-grained and relevant information that can help inform strategic and tactical decisions. For example, at one leading energy company, CRM technology provides useful insights not only into broad market trends, but also into how individual customers make energy choice decisions. “Knowing why we win a deal, or why we lose one,” says a company executive; “provides a tremendous competitive advantage in a deregulated market.”

Product Development Tied to Customer Needs

By providing a comprehensive view of customer buying behavior, CRM technology can help companies tie product development efforts more closely to customer needs. At a leading software company, for example, Siebel CRM technology allows the rapid exchange of information between field sales personnel and product development groups. Because the system provides a field for Product Detail in the sales opportunities screen, product development personnel get highly specific information about potential deals and customer requirements. Says the company’s directory of customer information services and that information leads to action.

For example, when a significant opportunity moves forward in the sales pipeline, the Siebel CRM system can send an automatic e-mail to the relevant product manager, and that manager can then ask the sales representative, “Is there anything we can do to help move this deal forward? Are there enhancements to consider? Should we send a technical support person on a call with you?” The exchange between the two functions is extremely rich. The CRM system is now really driving our product development.

Improved Forecasting and Financial Management

CRM technology can provide an organization with a more accurate picture of its sales pipeline, which leads to numerous benefits, including better inventory management, increased customer satisfaction, and stronger relations with the financial community.

Greater Brand Equity

While improving customer satisfaction and retention is clearly a revenue enhancement benefit, such improvements over time also lead to greater brand equity-a critical determinant of success in many industries.

Strong brand equity provides a competitive advantage not just by improving customer loyalty, but also by giving the brand owner greater license to introduce new products and services. When customers trust a brand, they are more willing to try new products and services offered under the brand’s name. Organizations with strong brands thus enjoy an advantage when expanding into new markets.

Conclusion

In today’s increasingly competitive marketplace, more and more organizations are turning to CRM as a means of driving corporate performance. Many of these organizations, however, wrongly assume that CRM is about technology. In reality, technology is merely an enabler of CRM. A complete CRM strategy must address each of the following areas:

• Effective customer segmentation. Companies must have a total customer view and divide their customer populations into discrete groups that share similar characteristics.


• Integrated multichannel strategy. Organizations need to synchronize their channels and balance the cost of each channel against other factors, including value to the customer, the customer’s preferences, and each channel’s profit potential.


• Well-defined business processes. Organizations must ensure that business processes are clearly defined and are based on customers’ perspectives and needs.


• The right skill sets and mindset. Organizations must carefully manage change and provide the right training and incentives to bring about the desired behaviors.


• The right technology. Organizations require technology that provides a single view of customer information across all customer touch points, addresses specific industry requirements, works seamlessly with other technologies, supports multiple devices, scales easily, and provides support for global operations.

The key to creating business value with CRM is remembering that business strategy and technology strategy are inextricably linked. Companies that fall into the trap of thinking they can implement CRM capabilities based only on technology will fail. Those that take a more holistic approach will be able to achieve the greatest success in driving greater customer satisfaction, and ultimately, shareholder value.