Earning a Positive ROI on Your CRM Initiative

Les Stern

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What is CRM?

The term “CRM” is trendy. Everybody says they are in the CRM business.  Therefore, an important starting point is to explain what CRM is.  Not surprisingly, there are several definitions.  Peppers and Rogers accurately defines it at its most basic level:

“CRM is a way of thinking about your business that puts the customer at the center – it’s about focusing resources and retaining valuable customers and acquiring more like them.”

Gartner Group provides a detailed, more process-oriented definition of CRM:

“CRM involves capturing customer data from across the enterprise, consolidating all internally and externally acquired customer-related data into a central database, analyzing the data, distributing results to various customer touchpoints and using the information when dealing with customers through any touchpoint.”

The key elements of both these definitions are worth discussing.

The Peppers and Rogers definition drives home a critical point – CRM will fail in an organization that is not customer-centric.  You need both customer-centric people and processes (having nothing to do with technology) before you can even begin thinking about CRM.

Once those are in place, it is possible to investigate the Gartner definition.

First, it is essential to capture customer data from across the enterprise, and the more the better in terms of points of contact and information.  In fact, great data is the fuel that powers a successful CRM program.  How can you manage customer relationships if you don’t have the information to know your customers?

For a hospital, for example, that means capturing information from clinical points of contact (inpatient, outpatient, physician office), as well as from the call center and even the gift shop and cafeteria.  It also means capturing information when people attend health fairs, wellness classes and screenings.  This enables the hospital to provide even more personalized service, resulting in a customer that is more satisfied, likely to come back, and likely to refer others.

The depth of information also is important.  For clinical encounters, this means not only the type of encounter, but also the financial information associated with it.  Because of vastly different reimbursement rates, a particular procedure may be highly profitable for customers covered by Preferred Provider Organizations, but unprofitable for customers covered by Medicaid.  While the hospital would not and should not turn away Medicaid customers, they don’t have to spend precious marketing dollars on programs directed to attracting them.

Second, it is important to supplement internal data with “externally acquired customer related data.”  This includes information such as demographics (age, income, marital status, etc.), behavioral information (often taken from warranty cards) and even psychographic information.  Automobile dealers, for example, want to understand this knowledge about their current customers so they can find other people who look like those customers.

Third, it is important to compile all this information into a single database.  A distributor of industrial products, for example, will have revenues from several sources.  They have a sales force that goes out and sells.  They may sell some products through direct mail, and may also sell products over their Website.  If these systems sit separately, there is no way to understand the most efficient way to sell to each customer.  It is also impossible to determine overall customer profitability

Fourth, it involves analyzing the data.  Analyzing the data will answer a variety of questions.  Who is a profitable customer?  Who isn’t?  What are the most effective strategies to deepen customer relationships?  What new products and services can we offer?  Many supermarkets are sophisticated users of this type of analysis.  Those cards that you swipe at the store are used for a lot more than discounts.  They help determine what coupons you receive in the mail, what products to order and not to order, and where to place them on the shelf.

Fifth, it means making sure everybody in the organization has access to the information.  How frustrated are you when you call the customer service area of a company you do business with, and they don’t have the most updated information on your account?  Compare that to the experience you have when you check into your favorite hotel, and they not only know the type of room you want, but also what newspaper you read and your wine preference?  That’s the difference between good and bad customer relationship management.

Finally, it means using the information.  The information from a good CRM system can drive virtually every business decision an organization needs to make.  Product strategies, sales strategies, marketing strategies and operations strategies all can be driven off the information to be culled from a CRM program.

Notice some words which were not included: words like technology, software, data warehouse.  Remember the example above.  Before the days of computers, relationship managers were able to take advantage of the technology of their day: index cards, binders, etc., to collect information about their customers, track results and establish long-term relationships.  They understood the essence of CRM.  It’s not about the technology.

Of course, technology can add power to the CRM program.  If information is the fuel, technology certainly is the accelerant.  Imagine your favorite airline frequent flier program trying to figure out what offers to send you and its millions of other members without computers and powerful models to analyze segmentation and profitability.  But, again, this accelerant is nothing without the wise use of relevant information and a true caring for the customer.

Why Do CRM Programs Fail?

According to Gartner Group, 55% of CRM initiatives are doomed to fail in the next five years.  This is consistent with other findings. 

There are many reasons for this.

There is no plan.  First, too many organizations do not clearly think through why they are undertaking a CRM initiative.  The CRM initiative must be based on solving one or several business challenges…increasing customer retention, increasing market share, etc.  It should not be technology-driven.  Yet too many organizations say: “We have to have a CRM initiative because everybody else is doing it.”  Then they go out and buy the latest and greatest technology, with no idea of what they want to do with it.  Then, after they figure out what they want to do, they realize the technology they have invested in won’t support that application.

The wrong people own it.  This is a related problem.  If the process is a technology-driven process, then frequently the Information Systems department owns it.  While these are undoubtedly people with a keen understanding of technology, they do not have the business perspective required to lead a CRM initiative.  The Marketing Department is the logical place for the CRM initiative to reside..

There is no corporate buy-in.  While the marketing department should own the CRM initiative, this ownership is useless without strong executive-level endorsement. Successfully implementing it is an enterprise-wide undertaking that requires a strong endorsement at the highest level of the organization.  After all, the initiative will touch every corner of the organization on several levels.  First, and most critically, a successful CRM initiative “puts the customer at the center,” in the words of Peppers and Rogers.  So the executive team must endorse the customer-centric philosophy, and the processes and cultural shifts needed to create it. 

On a more technical level, the successful CRM program will link databases from around the organization – operations, sales, marketing, customer service, finance.  So representatives from all these units must be included in the process.  And since legacy systems will be involved, the IT area also needs to be included.  The CRM system will only be as strong as its weakest link, and one weak link can render the system useless.

In order to make sure there is enterprise-wide support, executive backing for the initiative is imperative.  To make sure that happens, the Marketing Department should work with other departments to put together pro forma Return on Investment models that can be used to sell the investment.  This is no trivial task, and will require an understanding of costs and revenues throughout the organization.

Before You Start

Before you even start implementing a CRM solution, as mentioned, you need to be sure you have a customer-centric organization, with customer-centric people and processes.  There are several companies that will guide an organization through their CRM customer-focused strategy and business goals, redesigning the core business processes to be customer focused.