A 12-stage CRM strategy

In the experience of many organizations, CRM is a powerful growth strategy capable of producing significant benefits and transforming both organizations and industries. However, for every company that has achieved dramatic success, there are many others that are still struggling to realize the full potential of their customer-driven growth strategies. For these latter organizations, the path of implementation has been filled with obstacles and the pace of implementation has been far slower and more frustrating than anticipated.

The lessons learned by others and the methodologies and technologies available can be used by any organization to make the change from a product or service orientation to a customer-focused orientation that provides strong returns on the CRM investment in a matter of months rather than years. The 12-stage CRM strategy outlined in this section is a proven methodology for resolving many issues in a logical, efficient manner. Although no two companies can follow precisely the same implementation path, the stages defined here need to be a part of the process, and most of them can be carried out simultaneously. Some organizations will already have moved through some of these stages; others will need to start at the beginning. The following paragraphs describe in detail the activities involved in each stage and the significance of each of the 12 stages.

12-Stage CRM Strategy

1. Develop a clear set of business objectives.
2. Formulate a detailed Plan of Action.
3. Provide strong leadership.
4. Institute changes in corporate culture.
5. Obtain support of a senior management member.
6. Build in stages, starting with the most crucial area.
7. Create an integrated business design.
8. Concentrate on activities that create economic value.
9. Develop a customer-driven product and service development process.
10. Encourage the development of organizational capabilities in team members.
11. Generate early "wins" to create a self-funding process.
12. Include customers in a two-way flow of communication.

Develop a clear set of business objectives

Defining clear business objectives is an obvious first step in any project, major or minor. However, because of the evolutionary nature of a CRM strategy and the involvement of so many areas of an organization, it is extremely important to establish business objectives that will create a competitive advantage and guide the overall implementation process. These objectives should relate to the fundamental concept behind a CRM solution.

The business case prepared to convince senior management of the benefits of CRM should be firmly and logically based on overall corporate objectives—perhaps the corporate mission statement, if one exists. It should include information about direct competitors and how the system supports corporate strategies, plus the expected qualitative and quantitative benefits. As mentioned earlier, improving customer satisfaction and creating a base of more loyal customers will have both qualitative and quantitative benefits—more sales per customer, lower cost of sales, incremental sales via referrals, and ultimately more profits. Some of these benefits may be intangible, but collectively, they are powerful reasons to support CRM.

Formulate a detailed plan of action

Four to eight weeks will be required to develop a comprehensive plan defining the type of customer-focused initiatives that will establish the new way of doing business, the organizational operational changes, and enabling technologies that will be the driving forces behind implementation.

Technology planning and implementation should be closely integrated with the business planning phases to create a self-correcting process. With an integrated process, the planned business objectives and the organizational and operational changes define the requirements for the enabling technologies. The process of selecting the enabling technologies may identify feasibility issues that require adjustment to the original business plans.

To structure the planning process, it is very useful to develop a framework that describes the role and interrelationship of each of the operational areas required. A staged approach, in which operating capabilities are developed only to the point needed to realize near-term objectives, is far more viable than one designed to meet every conceivable need for the next 20 years. Five guidelines for a staged project are

• Build for the near term
• Make it scalable
• Use it
• Determine the changes required to increase productivity
• Build on this knowledge
  
  

Provide strong leadership

For any major project, sound leadership is a prerequisite; therefore, the people selected as team or project leaders need to have leadership attributes that will keep the project and the project staff on track. A balance between business and technology backgrounds is preferable for leadership candidates—knowledge in both areas will assist at all stages of the process.

Institute changes in corporate culture

At the heart of CRM strategies is changing fundamentally the decision-making process within the company. Rigorous data analysis is replacing business instinct as a basis for both day-to-day decision making and strategic planning. Other changes in the corporate culture may also be required.

Obtain support of a senior management member

The success of every CRM project will depend on several factors and the effective integration of all stages; however, the support the project receives internally is of particular value. The support of a senior management member—for example, the vice president of marketing or sales, vice president of finance, or other member of the senior management team—is crucial to the success of the CRM strategy. The importance of this stage of the process cannot be overemphasized. The designated senior management person must be an integral part of the CRM team and committed to attending and actively participating in all project meetings and workshops.

Build in stages, starting with the most crucial areas

The first stage of development should focus on the operations and technology needed to implement a top-priority set of CRM business objectives, as identified in Stage 1. Typically, the first stage of development can become operational in two to four months, and at a small fraction of the costs that have traditionally been incurred for new systems. Many companies use the first stage to establish a "proof of concept," to demonstrate to management that CRM really works, and then follow up with subsequent stages to scale up the operations and technology as well as to expand the scope of the overall program.

Create an integrated business design

Many companies have realized significant returns from CRM strategies simply by building systems and launching programs. Yet, to realize the full potential, CRM strategies must become a way of doing business managed through an integrated business design involving the entire organization, all elements pulling in the same direction.

Develop a customer-driven product and service development process

Product-driven companies have a tradition of building products based on instincts and engineering requirements rather than on customer requirements. Even when these companies agree that an "outside-in," customer-driven process could remove much of the risk of product development, they may not make the transition easily. A significant step forward in becoming customer driven is establishing a process for monitoring customer purchase rates and then using the value proposition to quickly identify the changes in customer behavior that signal a need for revitalization and new development. It is not necessary to dismantle or even radically change the product development component of an organization. The strengths of that component need to be preserved while integrating a stream of customer input. The objective is to establish a dynamic product and service development process that can adapt as quickly as the marketplace can change.

Concentrate on activities that create economic value

Often, the transition to CRM strategies requires new skills and organizational processes. An ideal way to learn is to learn through action, that is, by applying new practices and processes guided by experienced leaders. This "rapid deployment" methodology enables companies to immediately launch a range of sophisticated customer programs by relying on the resourcefulness of their own staff and, to the extent needed, guidance from experienced consultants. To optimize results, the work should be carried out by cross-functional teams that are unified under a shared set of objectives. In addition, the teams should be focused on using innovative methodologies and, most importantly, should be committed to producingtangible, measurable results.

A "test and learn" process is becoming a basic requirement for CRM success. This process is much more than a measurement system. It is a way of doing business. Its foundation should be a rigorous test- and control-based measurement system that is integrated with customer initiatives and other areas of investment to measure business outcomes in a systematic way. A key metric should be impact on customer value. In addition, the process should include regular review sessions that bring together senior management, analysts, and key operating staff to plan refinements and steer the business based on both internal and external (customer) feedback.

Encourage the development of organizational abilities in team members

It is no longer necessary for companies to spend millions of dollars and years of effort before producing measurable returns from CRM. Compelling returns can be generated within months of the launch, which in turn helps to build valuable momentum. Companies in many industries have consistently realized dramatic gains that provide a proof of concept in the early stages of CRM development. These gains also become the basis for developing economic projections, and in some cases, they provide a self-funding, self-sustaining mechanism for the CRM strategy. The examples in the sidebar illustrate the magnitude of gains realized from the first CRM programs launched by companies in various business sectors under their new CRM strategies.

CRM Gains for Different Business Sectors

• Automobile manufacturer: 60% increase in the repurchase rate based on improved targeting and communication
• B2B communications company: 50% gain in cross selling effectiveness among small business customers
• Pharmaceutical manufacturer: Sharply reduced product introduction and marketing costs based on channel optimization
• Software manufacturer: 50% reduction in marketing costs associated with upgrade sales
• Credit card issuer: 15% reduction in attrition of high-value customers based on proactive intervention
• Communications company: 15 to 1 return on investment in improved customer acquisition
• Property and casualty insurer: 400% increase in campaign response rate over forecasts

Generate early wins to create a self-funding process

For most companies, adopting a formal CRM strategy results in a fundamental shift in goals. Priorities are established based on their potential to drive profitable growth, and the primary means for driving the growth is to grow customer value. Successful organizations in this era of the customer are placing top priority on measuring and tracking customer value in clear economic terms.

Customer valuation has become a core capability that companies need to develop. Customer value can be measured on an individual customer level. The results typically prove the rule that a large majority of the value is coming from a small proportion of the customer base—often referred to as the 80/20 rule. They may also reveal that the company has been allocating for too many resources to the least valuable customer segment. With this vital information in hand, a wide range of strategic and operating decisions can be made based on the projected impact on customer value.

Include customers in a two-way flow of communication

Customer information has become a major strategic asset for businesses, creating requirements for information management and control that are just as important as those for managing an organization's finances. An advanced information control capability requires the significant involvement of the call/contact center and should integrate two major components of CRM:

• Managing customer contacts—an active control process for information exchange with customers
• Managing customer knowledge—a control process for the retention of information and accessibility

Radical changes in the marketplace, as emphasized throughout this book, mean that it is no longer sufficient to conduct periodic surveys to monitor changes in the marketplace. The marketplace changes daily and customer expectations can change significantly and quickly, often because of aggressive competition. The continuous and systematic capture, retention, and analysis of customer information, from virtually every point of customer contact, is an essential activity in a successful CRM strategy.

Major advances in contact management software are being made to support ongoing information exchange between a company and its customers and for seamless integration of multichannel communications with customers. There are several important sources of customer information:

• Customer contact channels, including call centers, retail outlets, and e-commerce Websites
• Transaction systems for detailed customer behavioral data
• Outbound marketing programs to measure results of promotional campaigns
• Secondary data sources such as credit data and compiled demographic and lifestyle data
• Market research for insights beyond those revealed by actual customer behavior and dialogue

When properly integrated into the CRM framework, these information sources provide a continuing stream of updates from customers that enables companies to respond quickly to their evolving needs and priorities. (see Figure 1)

 

Figure 1: Eight areas of operational and customer-oriented capabilities in CRM.

The CRM planning phase

As noted previously, CRM is not an event, but a process that is evolutionary in nature and that requires a road map to guide organizations through the many alternative routes that could be taken. Following that road map involves a concerted effort from several organizational components: people, processes, culture, and technology.

An overview of the CRM planning phase will assist call center personnel to understand the complexity of developing a corporate CRM strategy, and give them some insight into the call center role.

There are four key elements in the development of a CRM road map, and they need to be approached in the following order:

• Analyzing the current state of customer interactions
• Predicting the future course of customer interactions
• Developing the Plan of Action to meet the predicted future course
• Building and presenting the business case to secure CRM project funding
  
  

Analyzing the current state of customer interactions and associated historical customer data will determine where the enterprise is along the path to its CRM objectives. Examples of questions about current customer relations that need to be answered are: Does the organization track and manage each customer as a single entity or do individual sales offices maintain their own set of customer records? Is customer database information accurate and up-to-date? An early assessment of these elements of the business operation will highlight customer administration procedures that may need to be changed to take advantage of the new CRM strategy. (see Figure 1)

Figure 1: Accessing detailed customer information.

The CRM plan of action

One of the first requirements for the CRM Plan of Action is establishing priorities of functionality, which breaks the CRM development process down into two phases: establishing a list of essential features and developing a list of optional features. This approach to planning—adding functionality in a modular way—is consistent with the modular approach adopted by many CRM hardware and software vendors. Taking a building-block approach to incorporating functionality will also assist in developing the CRM Plan of Action and in the subsequent design and deployment of the CRM solution.

The following organizational elements must be included in the CRM Plan of Action:

• Call/contact center management
• The IT department
• Other departments and resources that will be impacted by the CRM strategy

All corporate departments must participate in the planning, including the user community, executive sponsors, and others. Participation may involve providing design inputs, taking part in pilot tests of the system, or helping to train others to use it during the system rollout.

Also included in the Plan of Action will be target time frames and expected project milestones in the form of reporting dates to meet management expectations. The plan should mesh with the business case so that requests for resources—people, time, and money—are linked to anticipated business benefits. The business case should describe a rationale for investing in CRM. It should include information about what competitors are doing, how such a system supports the company's strategy, and the expected qualitative and quantitative benefits, including return on investment (ROI). Although ROI is a significant benefit of CRM over the long term, financial or quantitative benefits do not represent the complete picture. Among the other, more or less tangible, but not easily tracked benefits of a well-executed CRM strategy are the following:

• More sales per customer
• Lower cost of sales
• More referral sales
• Higher profitability

Selecting the technology solutions

As noted previously, many enterprises believe that a large-scale CRM technology deployment is the only solution to their problems. However, the right technological enablers for an organization are those that solve the organization's business problems as they are identified during the CRM planning stage. Some of the solutions may be

• Improving call center telephony infrastructure
• Enabling customer/contact center calls over the Web
• Deploying or enhancing data warehouse or data mart information to collect and analyze customer and market data
• Improving customer relationships through customer-facing e-business

During the evolution of CRM over the past several years, a number of CRM projects failed to deliver projected results because companies seized on technology as an immediate solution to enhanced customer relations rather than modify their corporate culture. In those organizations that took the "technology is the key" route to CRM and were unable to devise a successful CRM strategy, the people, the support systems, and the processes—including the corporate culture—were not ready to manage the new technology and to apply proven principles of CRM to their day-to-day operations.

Technology is a significant element in the CRM mix; however, selecting the best enabling technologies for CRM solutions must be based on solid business practices and readiness to implement. Selection of both tools and vendors, is a critical process, but goals and metrics must be established to measure the effect of the tools.

Changing the focus

In the past, large and small organizations have not needed to formalize their customer relationships by means of a definable customer strategy to achieve successful relations with their customers. In the new era, in which the customer reigns supreme, businesses must change their focus to ensure that customer relationship practices maximize customer benefit.

When a business knows its customers and targets its communications to their specific interests and shopping behaviors, the result is increased revenues and loyal, long-term customers. This is the power of one-to-one CRM. If the CRM strategy does not focus on individual customer's transactions, both in the process of segmentation and in the contact strategy, it will not be successful. Tracking the transactional details of a customer's purchase allows the most effective communication possible. With CRM, the benefit of the commercial relationship with each individual customer can be maximized. Today, based on practices that evolved in the retail industry, every business can, for example, effectively define a customer's needs without incremental cost or complexity. Following these practices accomplishes the following objectives:

• Achieve more effective merchandise buying and planning and faster inventory turnover
• Maximize return on marketing dollars by targeting customers with selected promotions
• Minimize the number of transactions at sale prices by creating customized triggers that stimulate buying at full price
• Easily attract new customers whose tastes and preferences relate to those of selected current customers
• Design more efficient stores, with designs based on customer cross-shopping behavior
• Ensure each customer buys more and remains a customer for life

Shifting from a product focus to a customer-centric focus

In the e-commerce business world, a customer can switch to a competitor's product with a click or two on a Web page. A customer-centric focus—the best means of building lasting customer relationships in both the traditional and new ways of doing business—has become absolutely imperative in the new business economy, but shifting to a customer-centric approach is not a straightforward process, nor is it a natural one. The reason for this is that, in general, businesses are launched on the basis of a unique product or service. Initially, the focus is on building that product or developing that service and informing the marketplace of its availability and desirability. When another company eventually begins producing and marketing a similar product, the original company loses its competitive edge.

At this point, companies adopt other strategies to regain the competitive edge they had when they had a unique product or service. They begin streamlining operations to produce the product better, faster, and cheaper. But improved performance is a short-lived advantage because the competition inevitably applies the same strategy, resulting in a leap-frogging process common to many business sectors. Customer relationships then become more important than simply building a good product or delivering good service. Building good products is often easier than building good customer relationships, and although product quality is still important, it is no longer the key to sustainable competitive advantage when the competition's products are just as good. In the long term, the organization with the best customer relationship strategy will win out. And the call/contact center has to be a primary conduit for this strategy. (see Figure 1)

 

Figure 1: Maximizing the value of each customer interaction.

Becoming customer-centric—that is, shifting from marketing products to building lasting customer relationships—is, as we have said, an evolutionary process. It cannot be done overnight and usually requires a major change in corporate culture. A fully customer-centric organization has the ability to successfully manage customer knowledge. Product-focused organizations use sales data primarily to report on progress in reaching financial targets. A customer-centric organization, on the other hand, stores, analyzes, and uses sales, billing, service, support, and other data in an ongoing relationship with customers to accomplish the following objectives:

• Forge personal relationships
• Increase staff awareness of customer importance
• Improve the product development process
• Deliver value-added service better than competitors

Customer value

Transforming customer knowledge into customer value can create a significant competitive advantage. For example, when high-value customers are identified and their needs anticipated, new value is created for them where it did not exist before. Ultimately, customer-centric organizations build customer loyalty, a customer response characteristic that leads to higher profitability. There are several ways organizations can categorize customers by their "value." Tracking revenues, cost, and profitability is not the only way to assess customer value. Another, more advanced method of evaluating customer value is by assessing their value potential, which has been defined as the willingness of customers to participate in the creation of products and services, sharing with them information and other resources and sharing control over the design and production of products and services.

Customer knowledge through CRM

A successful CRM strategy can provide answers to many questions that every organization typically has about its customers: (see Figure 1)

 

Figure 1: Integrating customer information.

• Who are my best customers?
• How do I attract them?
• How do I ensure that I'm selling them the products and services that meet their specific needs and still make a profit?
• How do I keep them coming back?
• How do I manage relationships with unhappy customers?

CRM places the customer at the center of the organization and involves every function and department in serving the customer. Sales, service, and support functions as well as relationships with business partners form a continuum, because this is how these corporate functions are viewed by customers. When customers make purchases from a supplier, they believe they have a relationship with the whole organization, from sales to shipping and even to the CEO.

Companies that believed technology alone would solve customer relationship problems learned the hard way that technology is only an enabler. CRM implementations based on this premise failed because they did not change the corporate culture to permit the technology to perform its primary function: developing and retaining loyal and profitable customers. Technology's role as an enabler is to support the strategies, tactics, and processes that result from a defined, enterprisewide CRM solution. The creation and execution of a successful CRM strategy depend on close examination and rationalization of the relationship between an organization's vision and business strategy. If the customer is not at the center of this vision, the vision must be reexamined and altered to be customer-centric.

Customer data

One of the common problems many organizations share is integrating customer information. When information is disparate and fragmented, it is difficult to know who the customers are and the nature of their associations or relationships. This also makes it difficult to capitalize on opportunities to increase customer service, loyalty, and profitability. For example, knowing that other family members are also customers provides an opportunity to upsell or cross sell products or services, or knowing that a customer uses several sources of interaction with a supplier may also provide opportunities to enhance the relationship.

In building toward a CRM solution, the organization must analyze how well it is aligned to deliver the following core capabilities:

• Customer value management
• Prospecting
• Selling
• Collection and use of customer intelligence
• Customer development (upselling and cross selling)
• Customer service and retention

Ultimately, the success or failure of CRM depends on the capability of the organization and its employees to integrate human resources, business processes, and technology to create differentiation and excellence in service to customers, and to perform all of these functions better than its competitors. The customer is in control! (see Figure 2)

 

Figure 2: Customer in control.

Technology and business tools to support CRM

It is important to choose the right technology tools to support CRM. Direct and indirect supporting technologies include:

• Data warehousing
• Data mining
• Database systems
• Wireless communication
• Voice-over IP
• E-mail-based Internet communications

These tools have evolved to the point that they have made available many more channels for customer interaction and sources of data, all of which impact the call/contact center. Business tools that support CRM include:

• Customer contact software
• Marketing campaign programs
• Channel integration
• Product literature

Where legacy systems exist, the acquisition of "middleware" may be required in order to interface the legacy systems with the CRM solutions. The key challenge for the CRM project team is to select a series of tools that fit the needs of the business, to evaluate these tools, and to select the best ones. The IT department plays a very prominent role in this selection process and in the development, implementation, and support of a CRM solution and its integration with the call/contact center. The various technology tools involved should be seamlessly integrated into the IT environment. This aspect of a CRM strategy requires a formal plan to manage the selection of the tools—from data warehouse and database software to the business applications and processes.

CRM and the new marketing paradigm

CRM has several definitions within the industry, but one short definition best describes the process and the objectives: "the capability of an organization to evolve from a mass marketing model of millions to a market of one," that is, dealing with customers as if they were the only customer. This is a new way of thinking for many companies in virtually every business sector where customers often number in the thousands or millions. Managing customer relationships successfully in these large customer environments means learning about their habits and needs, anticipating future buying patterns, and finding new marketing opportunities that add value to the relationship. It also means using technologies that enable the data gathered to be useful in making better business decisions that will attract, retain, or motivate customers.

Successful companies make their customer relationships something the customer values more than anything else they could receive from the competition. How do companies do this? By examining their experiences with customers, including transactions and demographics, and every form of interaction—including a Website visit, a phone call to a call center, and a response from a direct mail campaign. Building the data and information technology architecture around customers—a customer-centric approach—ensures that they enjoy a seamless and rewarding experience when doing business with a company. This new marketing paradigm places the customer at the focal point of an organization's marketing programs.

Key elements

The two following key elements will ensure the success of a CRM strategy and meet the objectives of the organization to develop long-term customer relationships:

• Build a system that allows tracking, capturing, and analyzing the millions of customer activities, both interactions and transactions, over a long period of time.
• Create promotions, develop new products and services, and design communication programs that attract, reward, and retain customers. (see Figure 1)
  
  Figure 1: Enhancing customer service.

CRM strategies are designed to manage all of an organization's interactions with its customers and to use information to maintain a single, long-term view of each customer across multiple channels—face-to-face or via phone, kiosk, or Website. These points of interaction, often referred to as customer touch points, may involve many types of transactions. And, of course, CRM includes customer billing, marketing, and other support functions that directly or indirectly interact with the customer. In fact, every department, division, and employee in an organization has a role to play in CRM. (see Figure 2)

 

Figure 2: Getting customer feedback.

Managing customer relations using proven processes and technologies can maximize the revenue opportunity from each customer and create a foundation for satisfaction that will ultimately drive loyalty independent of the channel used. CRM can enable companies to maximize profitability by using "measurements" that quantify and qualify customers, differentiating between high- and low-value customers, with the objective of managing the lifetime value of a customer.

Strategies for managing customer information

Large organizations routinely collect vast amounts of personal information about their customers through the transactions they conduct. Organizations such as financial institutions, health care providers, travel agencies, retailers, automotive manufacturers, and communication companies, among others, use this data in a variety of ways and for several reasons:

• For targeted marketing based on individual preferences
• To analyze customers for profitability
• To evaluate their own service levels

Simply gathering information and storing it will not produce measurable business results; many CRM strategies have failed to achieve objectives because of difficulties in developing a strong understanding of who customers are and what they really want and applying this knowledge to customer relationship strategies and processes. (see Figure 1) Some companies build large multiterabyte (1000 gigabytes equals 1 terabyte) data warehouses to crunch information about their customers in an effort to determine their buying habits or product preferences. Oftentimes, correlating customer purchasing habits is not properly done—just because data can be correlated doesn't mean the relationship between one set of data and another is significant from a business viewpoint. Obviously, technology and business processes must be applied in a logical context to ensure that customer data are applied in a way to meet CRM objectives. (see Figure 2)

Figure 1: Corporate functions and customer interactions. 

 

Figure 2: Enhancing customer service with technology. 

 

CRM brings technology to bear on business processes to enable organizations to use historical customer transaction data to manage customer relationships better. CRM is based on a set of technology tools that allows organizations to capture, analyze, and apply large volumes of detailed customer data to achieve a fuller understanding of their customers and to make more informed business decisions. Informed business decisions are the ultimate beneficial result of successful corporate CRM strategies. Those companies that adopted formalized CRM strategies early in their corporate histories have been achieving measurable business results through CRM initiatives, but, as noted previously, others may have to totally revise their corporate cultures, even completely do away with their traditional ways of dealing with customers in their sales and marketing programs. Organizations that do not have a formal process for managing customers by monitoring and gathering historical transaction data and then analyzing this data to determine how to respond to each customer's needs will have to put major efforts and budgets into developing CRM strategies. (see Figure 3)

Figure 3: Integrating customer knowledge with corporate functions.