|Keeping Customers is Smart and Profitable|
|What is Customer Relationship Management?||Many marketing consultants credit the Internet for the shift of power from suppliers to customers. Alternate vendors are just a click away. Now customers have the power to dictate exactly what they want, when they want it. With competitive pressures mounting, companies must listen and respond in ìInternet timeî to maintain precious customer relationships.
Keeping the right customers is just plain smart business. Acquisition costs are a major factor. Consider the oft-quoted statistic that it costs five to ten times as much to find new customers than to keep the ones you already have. For example, the Boston Consulting Group found that it costs about $7 to market to existing customers via the Web versus $34 to acquire a new Web customer. Furthermore, according to The Industry Standard, in their March 27, 2000 issue:
Given these sobering figures, itís really not a question of whether your firm can afford to implement CRM, but rather how long can you afford not to? Itís tough work, sure, but if you nail it and your competitors donít, youíll help yourself to their customers and boost your bottom line.
Oddly enough, more old-line businesses than technology firms seem to ìget itî. ìHigh-tech companies spend no money on customer data,î says Steve Diorio, principal of Stamford, Connecticut-based IMT Strategies. ìMost high-tech firms are strictly acquisition-minded; they want sales forces to get out there and run as fast as possible.î Where Diorio sees the heaviest CRM investment is in banking and financial services. This might be due to the commodity nature of the industry, as well as the fantastic cross-selling opportunities that await the lifelong customer. (ìWell, that wraps up the refinancing. Say, Walter, I see Judy turns 17 next year. Want to talk about college loans?î)
An Andersen Consulting study released in March, 2000 revealed the impact of high techís CRM failings. The study ìHow Much Are Customer Relationship Management Capabilities Worth?î concluded that a typical $1 billion high-tech company could gain up to $130 million in profits by improving its ability to manage customer relationships. Andersen Consulting also found that CRM performance explained as much as 64 percent of the difference in return on sales between average and high-performing companies.
Some companies invest in CRM knowing what they want, but arenít sure if theyíre getting it. Ideally CRM should motivate customers to do more business with your company because they like how you take care of them. Proper CRM should cut costs, improve service, and encourage customers to communicate more of their desires for you to meet. In other words, CRM helps create win-win relationships.
Sounds good, but itís tough to measure returns on such intangible goals. Banks and telcos, companies that plan to be in business over the next five years, are especially keen to eliminate customer churn and see CRM as the way to do so. Jim Blaschke, CEO and managing partner of Framingham, Massachusetts-based Archer Consulting, Inc. says companies need to consider a balanced ROI scorecard for CRM, incorporating both lead and lag indicators. ìMost companies measure lag indicators such as revenue, market share, new product revenue and other classic financials. ìBlaschke calls this ìforensic evidence,î because it looks to the past. ìLead indicatorsósuch as share of customer, revenue mix, customer satisfaction, and the time spent with customersóshow whatís coming.î
Put another way, ìyou canít steer the boat by looking at the wake.î Are you looking ahead or behind in your business? For effective CRM, itís best to have your eyes front.