You’ve probably heard phrases such as “the customer is always right” or “the customer comes first.” Today these words ring truer than ever. Because competitive advantage based on an innovative new product or service is often very short lived, companies are realizing that their most enduring competitive strength may be their relationships with their customers. Some say that the basis of competition has switched from who sells the most products and services to who “owns” the customer and that customer relationships represent a firm’s most valuable asset.
1. What Is Customer Relationship Management?
What kinds of information would you need to build and nurture strong, long- lasting relationships with customers? You’d want to know exactly who your customers are, how to contact them, whether they are costly to service and sell to, what kinds of products and services they are interested in, and how much money they spend on your company. If you could, you’d want to make sure you knew each of your customers well, as if you were running a small-town store. And you’d want to make your good customers feel special.
In a small business operating in a neighborhood, it is possible for business owners and managers to know their customers well on a personal, face-to-face basis, but in a large business operating on a metropolitan, regional, national, or even global basis, it is impossible to know your customer in this intimate way. In these kinds of businesses, there are too many customers and too many ways that customers interact with the firm (over the web, the phone, email, blogs, and in person). It becomes especially difficult to integrate information from all these sources and deal with the large number of customers.
A large business’s processes for sales, service, and marketing tend to be highly compartmentalized, and these departments do not share much essential customer information. Some information on a specific customer might be stored and organized in terms of that person’s account with the company. Other pieces of information about the same customer might be organized by products that were purchased. In this traditional business environment, there is no convenient way to consolidate all this information to provide a unified view of a customer across the company.
This is where customer relationship management systems help. Customer relationship management (CRM) systems, which we introduced in Chapter 2, capture and integrate customer data from all over the organization, consolidate the data, analyze the data, and then distribute the results to various systems and customer touch points across the enterprise. A touch point (also known as a contact point) is a method of interaction with the customer, such as telephone, email, customer service desk, conventional mail, Facebook, Twitter, website, wireless device, or retail store. Well-designed CRM systems provide a single enterprise view of customers that is useful for improving both sales and customer service (see Figure 9.6.)
Good CRM systems provide data and analytical tools for answering questions such as these: What is the value of a particular customer to the firm over his or her lifetime? Who are our most loyal customers? Who are our most profitable customers? What do these profitable customers want to buy? Firms use the answers to these questions to acquire new customers, provide better service and support to existing customers, customize their offerings more precisely to customer preferences, and provide ongoing value to retain profitable customers.
2. Customer Relationship Management Software
Commercial CRM software packages range from niche tools that perform limited functions, such as personalizing websites for specific customers, to large-scale enterprise applications that capture myriad interactions with customers, analyze them with sophisticated reporting tools, and link to other major enterprise applications, such as supply chain management and enterprise systems. The more comprehensive CRM packages contain modules for partner relationship management (PRM) and employee relationship management (ERM).
PRM uses many of the same data, tools, and systems as customer relationship management to enhance collaboration between a company and its selling partners. If a company does not sell directly to customers but rather works through distributors or retailers, PRM helps these channels sell to customers directly. It provides a company and its selling partners with the ability to trade information and distribute leads and data about customers, integrating lead generation, pricing, promotions, order configurations, and availability. It also provides a firm with tools to assess its partners’ performances so it can make sure its best partners receive the support they need to close more business.
ERM software deals with employee issues that are closely related to CRM, such as setting objectives, employee performance management, performance- based compensation, and employee training. Major CRM application software vendors include Oracle, SAP, Salesforce.com, and Microsoft Dynamics CRM.
Customer relationship management systems typically provide software and online tools for sales, customer service, and marketing. We briefly describe some of these capabilities.
2.1. Sales Force Automation
Sales force automation (SFA) modules in CRM systems help sales staff increase productivity by focusing sales efforts on the most profitable customers, those who are good candidates for sales and services. SFA modules provide sales prospect and contact information, product information, product configuration capabilities, and sales quote generation capabilities. Such software can assemble information about a particular customer’s past purchases to help the salesperson make personalized recommendations. SFA modules enable sales, marketing, and shipping departments to share customer and prospect information easily. SFA increases each salesperson’s efficiency by reducing the cost per sale as well as the cost of acquiring new customers and retaining old ones. SFA modules also provide capabilities for sales forecasting, territory management, and team selling.
2.2. Customer Service
Customer service modules in CRM systems provide information and tools to increase the efficiency of call centers, help desks, and customer support staff. They have capabilities for assigning and managing customer service requests.
One such capability is an appointment or advice telephone line. When a customer calls a standard phone number, the system routes the call to the correct service person, who inputs information about that customer into the system only once. When the customer’s data are in the system, any service representative can handle the customer relationship. Improved access to consistent and accurate customer information helps call centers handle more calls per day and decrease the duration of each call. Thus, call centers and customer service groups achieve greater productivity, reduced transaction time, and higher quality of service at lower cost. The customer is happier because he or she spends less time on the phone restating his or her problem to customer service representatives.
CRM systems may also include web-based self-service capabilities: The company website can be set up to provide inquiring customers personalized support information as well as the option to contact customer service staff by phone for additional assistance.
CRM systems support direct-marketing campaigns by providing capabilities for capturing prospect and customer data, for providing product and service information, for qualifying leads for targeted marketing, and for scheduling and tracking direct-marketing mailings or email (see Figure 9.7). Marketing modules also include tools for analyzing marketing and customer data, identifying profitable and unprofitable customers, designing products and services to satisfy specific customer needs and interests, and identifying opportunities for cross-selling.
Cross-selling is the marketing of complementary products to customers. (For example, in financial services, a customer with a checking account might be sold a money market account or a home improvement loan.) CRM tools also help firms manage and execute marketing campaigns at all stages, from planning to determining the rate of success for each campaign.
Figure 9.8 illustrates the most important capabilities for sales, service, and marketing processes found in major CRM software products. Like enterprise software, this software is business-process driven, incorporating hundreds of business processes thought to represent best practices in each of these areas. To achieve maximum benefit, companies need to revise and model their business processes to conform to the best-practice business processes in the CRM software.
Figure 9.9 illustrates how a best practice for increasing customer loyalty through customer service might be modeled by CRM software. Directly servicing customers provides firms with opportunities to increase customer retention by singling out profitable long-term customers for preferential treatment. CRM software can assign each customer a score based on that person’s value and loyalty to the company and provide that information to help call centers route each customer’s service request to agents who can best handle that customer’s needs. The system would automatically provide the service agent with a detailed profile of that customer that includes his or her score for value and loyalty. The service agent would use this information to present special offers or additional services to the customer to encourage the customer to keep transacting business with the company. You will find more information on other best-practice business processes in CRM systems in our Learning Tracks.
3. Operational and Analytical CRM
All of the applications we have just described support either the operational or analytical aspects of customer relationship management. Operational CRM includes customer-facing applications, such as tools for sales force automation, call center and customer service support, and marketing automation. Analytical CRM includes applications that analyze customer data generated by operational CRM applications to provide information for improving business performance.
Analytical CRM applications are based on data from operational CRM systems, customer touch points, and other sources that have been organized in data warehouses or analytic platforms for use in online analytical processing (OLAP), data mining, and other data analysis techniques (see Chapter 6). Customer data collected by the organization might be combined with data from other sources, such as customer lists for direct-marketing campaigns purchased from other companies or demographic data. Such data are analyzed to identify buying patterns, to create segments for targeted marketing, and to pinpoint profitable and unprofitable customers (see Figure 9.10).
Another important output of analytical CRM is the customer’s lifetime value to the firm. Customer lifetime value (CLTV) is based on the relationship between the revenue produced by a specific customer, the expenses incurred in acquiring and servicing that customer, and the expected life of the relationship between the customer and the company.
4. Business Value of Customer Relationship Management Systems
Companies with effective customer relationship management systems realize many benefits, including increased customer satisfaction, reduced direct- marketing costs, more effective marketing, and lower costs for customer acquisition and retention. Information from CRM systems increases sales revenue by identifying the most profitable customers and segments for focused marketing and cross-selling (see the Interactive Session on Organizations).
Customer churn is reduced as sales, service, and marketing respond better to customer needs. The churn rate measures the number of customers who stop using or purchasing products or services from a company. It is an important indicator of the growth or decline of a firm’s customer base.
Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16th edition.