tim89908 ch08.qxd 4/1/04 10:07 AM Page 1238Apply the Powerof CRM to BuildCustomer LoyaltyA shift in customer retention of as little as 5 percentage points seems to account formore than a 20 percent improvement in productivity, which in certain industries canincrease profit by 50 to 100 percent.—Frederick Reichheld, Bain & Company1WHAT YOU’LL LEARN IN THIS CHAPTER Customer relationship management (CRM) uses automation to align businessprocesses with customer strategies in order to increase profits. CRM is a key initiative in building customer loyalty.Typical components of a CRM solution include databases and system integrationtechnology.Successful CRM deployment requires a five-step process.CRM is no substitute for the human touch. 123

tim89908 ch08.qxd 4/1/04 10:07 AM Page 124124CHAPTER 8THE WAY IT IS: MITSUBISHI SEES EFFICIENCY GAINS2The Mitsubishi case study that follows was abridged from a longer narrativedeveloped by Siebel Systems, Inc. The story sets the stage for our explorationof CRM in the enterprise.“Mitsubishi Motors North America, Inc. (MMNA) is the exclusive U.S.distributor for Tokyo-based Mitsubishi Motors Corporation, offering American motorists a full line of passenger cars and sport-utility vehicles. It employs more than 1,100 people at its Cypress, California, headquarters.”Until recently, MMNA’s success as one of the fastest-growing Japanese automotive brands in America had been impeded by a technology infrastructure that tracked individual transactions rather than customers. RebeccaCaldera, the company’s project development manager, explains: “We associated customers with individual purchases and individual finance accounts.If someone had purchased three cars from us, we couldn’t see that. The information was siloed [stored in separate places], so we couldn’t see how acustomer relationship might evolve over time. Since we wanted to retaincustomers over a lifetime, we needed to consolidate sales and finance information to gain a 360-degree view of each vehicle buyer.”To accomplish this consolidation, MMNA sought a customer relationship management (CRM) solution that was functionally rich andcustomer focused and that could be efficiently rolled out in stages as thecompany’s plans evolved. After determining that the quickest opportunityfor improved customer knowledge lay in its call center operations, MMNAbegan deploying Siebel Call Center, a software application designed to coordinate all customer touch points.Installation went smoothly, yielding significant efficiency gains. According to Rich Donnelson, director of customer relations, “Mitsubishi’s servicelevel has improved by 32 percent, our cost per call has dropped 25 percent, andour abandoned call rate has dropped to less than 2 percent. That generates anextraordinary level of satisfaction for our customers and our organization.”MMNA call center agents themselves are also satisfied. Before the rollout, agents had been forced to navigate among an average of 11 screens percall to resolve a customer’s problem. With the current system, relying on theSiebel summary screen as their dashboard, agents simply drill down into applets for additional information, making the agents more productive—andmore confident in their roles.MAKING SENSE OF CRMAt a recent roundtable conference with executives from 15 leading CRM solution providers, Gerhard Gschwandtner, publisher of Selling Power CRMmagazine, asked what seemed to him an innocent question: “What is your

tim89908 ch08.qxd 4/1/04 10:07 AM Page 125APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYdefinition of CRM?” To his surprise, each roundtableparticipant gave a different answer.3 We are not surCRM is more than a synonymfor technology.prised. The acronym CRM has been applied to something as simple as contact management as well as tosomething as sophisticated as enterprise interactionmanagement. Which is it—packaged software to handle sales prospectsand leads or an entire system that monitors customer communication atevery possible contact point? Neither.According to the experts at, customer relationshipmanagement is “a business strategy to select and manage the most valuable customer relationships. CRM requires a customer-centric businessphilosophy and culture to support effective marketing, sales, and serviceprocesses. CRM applications can enable effective customer relationshipmanagement, provided that an enterprise has the right leadership, strategy, and culture.”4 The definition may be a little long, but all the elementsare there—strategy, relationship, processes, and customer centricity.Of course, if you’re like us, the shorter the definition,the better. Here’s a one-liner from the Harvard Business ReCRM employs technology toview: “CRM aligns business processes with customerfacilitate the alignment ofstrategies to build customer loyalty and increase profitsbusiness processes with your5over time.”customer strategy.Notice something interesting in these two definitions?The term “software” is completely missing. The term “technology” isn’t even mentioned. That’s because CRM is not about software—it’sabout “creating relationships” (CR) that you want to “cost manage” (CM).What Is a Customer Strategy?Ever since management guru Peter Drucker proclaimedYour customer strategy definesthat “the true business of every company is to make andthe types of customers youkeep customers,”6 corporate management has begun towant to find and keep.shift its focus from pushing product to satisfying buyers—but not necessarily satisfying them all equally. Customer centricity does not mean all customers are to betreated the same or that they have the same value to the organization. A successful customer strategy involves market segmentation—customers arecategorized according to their profit potential. Product and service levels areadjusted accordingly, with the higher-profit customers getting the most attention. For CRM to work, you need to know what business you’re in, whichcustomers you would like to find, which you want to keep, and which youwant to lose. (Yes, sometimes we do want to lose a customer—if he or she isnot a viable source of profit for the organization.) Then, and only then, areyou ready to develop the processes and the infrastructure to support yourbusiness and customer strategy.125

tim89908 ch08.qxd 4/1/04 3:56 PM Page 126126CHAPTER 8For some, a comprehensive customer view goes a little too far.(RUDY PARK reprinted by permissionof United Feature Syndicate, Inc.).Taking a Comprehensive ViewWhile companies may know exactly who their customers are and how theywant to manage a relationship with them, the information needed to fosterthat relationship may be “siloed”—stored in different places and not readilyaccessible. In the Mitsubishi case cited at the beginning of the chapter, theproject development manager bemoaned the fact that data for car purchasesand car financing were kept separately. In effect, Mitsubishi’s disparate systems created information silos—repositories of unlinked customer data.Without a single, unified view of customer activity, the company had noway of effectively nurturing its customer relationships. Since Mitsubishi isinterested in selling both cars and financing, it needed to have both typesof data readily available. A comprehensive 360-degree customer view wasneeded in order to realize the customer strategy that had already been defined. In this instance, a CRM technology solution made sense. Data consolidation yielded improved service levels and fewer dropped calls, all at alower cost. Such improvements only strengthen customer loyalty.CRM VERSUS E-CRME-CRM leverages the power ofthe Web to enhance thecustomer experience.What distinguishes customer relationship managementfrom electronic customer relationship management (e-CRM)? The “e” in e-CRM stands for Internetenabled or Web-aware. Traditional CRM products runin-house on corporate mainframes, mini computers, or

tim89908 ch08.qxd 4/1/04 10:07 AM Page 127APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYdesktops. These products are not designed to share data over public networks, nor are they designed to run in the popular Web browsers. They arestand-alone products tied to a specific machine operating system and graphical user environment. E-CRM, on the other hand, leverages the power of theWeb to deliver the best possible customer experience. As long as customersor customer service representatives have a browser and an Internet connection, they can use e-CRM products on any computer. E-CRM provides theconvenience of the Net, giving customers the “anytime, anywhere” servicethey have come to expect from e-businesses.WHAT MAKES UP A CRM SOLUTION?According to Forrester Research, large corporations can expect to spend anywhere from 15 million to 30 million per year on CRM software and services. A typical CRM installation can cost from 60 million to 130 million.Phrased another way, the annual cost per customer runs from a low of 5for individual consumers to a high of 6,244 for wholesale customers(business-to-business, or B2B, customers).7 What does such a huge investment in a CRM solution buy? Before we get into the specifics, it might helpto get an overview of how CRM works.How CRM WorksEffective CRM solutions create synergy among the business processes involved in customer relationships. For Old Economy firms that haven’t migrated to the Internet, the key business processes include sales, marketing,and customer-service activities. For New Economy companies conductingbusiness on the Web, we would add a fourth process—e-commerce. Thesefour processes enable customer conversations that allow firms to createand sustain long-term, profitable customer relationships.Today’s customers “converse” with an organizationthrough a variety of channels (see Figure 8.1).8 TypicalCustomers converse withchannels include telephone, fax, e-mail, Web site, kiosk,companies through a variety ofand face-to-face exchanges. Each channel provides a difchannels. CRM manages thatferent contact point for customer communication. Coninteraction.versations through these contact points can be discrete,one-time interactions or continuous, ongoing dialogues.Often the same conversations span several different information systems.With multiple contact points, time frames, and systems, conversation continuity can be disrupted and content lost. Customers get frustrated at having to repeat information, and companies may not have readily available theinformation that customers need. CRM can help such disruptions by managing every point of contact with the customer.127

tim89908 ch08.qxd 4/1/04 10:07 AM Page 128128CHAPTER 8HOW IT WORKSCRMCRM products and services should manage every point of contact with the customer to ensurethat each customer gets the appropriate level ofservice and that no sales opportunities are lost.The customerIdeally, a CRMsolutionintegrates allpossible points ofcontact with thecustomer.FEEDBACK FROMTHE CUSTOMERThe system captures thecustomer’s preferences,needs, personal or corporate data, and orderinformation.FEEDBACK TO THECUSTOMERThe customer receivestimely order fulfillment,products and services,solutions, support, andsuggestions.Web siteEach department of the company uses theintegrated solution and the data it gathers tomeet that department’s particular needs.The usersThe sales department uses theCRM solution for sales-forceautomation, accommodation ofrequests, and distribution ofcontacts and leads.E-mailCollaborationThe marketing department usesthe CRM solution for crosspromotion, advertising, anddirect marketing.DatabaseFax or phoneThe customer servicedepartment uses the CRMsolution for building familiaritywith customers, storingcustomer data, and providingquality support.FIGURE 8.1 How CRM works. (Reprinted from PC Magazine, July 2000, with permission. Copyright 2000 Ziff Davis Media Inc. All Rights Reserved.)Using databases and system integration technology, CRM software captures and consolidates such customer information as: Personal dataPreferencesInquiry historyOrder informationThe result is a comprehensive and seamless view of the customer. Seamlessmeans that the data work smoothly together without being “patched on.”This integration is no small feat. Complete customer information fosters completed conversations. And completed conversations—interactions that yieldclosure—produce loyal customers. Customers love “once-and-done” service,wherein one call or visit takes care of their needs or problem. CRM ensuresimportant data is readily at hand so that once-and-done service can happen.Customers avoid the runaround of being transferred from department to department. With CRM solutions, customers receive timely, targeted information regarding their orders; personalized answers to their questions; andindividualized suggestions for additional products and services.CRM, however, isn’t just about the customer side of the customercompany conversation. CRM plays an important role on the company sideas well. Key company participants include sales, marketing, customer-

tim89908 ch08.qxd 4/1/04 10:07 AM Page 129APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYservice, and e-commerce functions. Sales, for instance, looks to CRM to provide automated services for the sales force, including ways to manage contacts and leads. Salespeople can keep track of commitments made to currentand potential customers, never letting anyone drop between the cracks.Marketing uses CRM for cross-selling (showing existing customers otherproducts that may meet their needs), targeted advertising, and direct, targeted marketing. Customer service relies on CRM to provide superior support and assistance—with all the data needed to fix problems. Finally,e-commerce departments often use CRM as the infrastructure for conducting business on the Web or for expanding their Web presence.CRM Components and Organizational InterfaceCRM is not a single product. CRM solutions are not even a set of softwareapplications. If anything, CRM is a platform—a technology foundation formany related services.CRM solutions from major vendors such as Siebel, Webtone, or PeopleSofthave their own set of application programming interfaces (APIs). Further, these solutions will generally rely on predetermined data models andprocess work flows. This means that the CRM process being offered by a particular vendor is unique. When a company buys a CRM solution, it is making a commitment to that vendor’s development and solution approach.Except for the rare turnkey installation (in which everything works right outof the box), chances are the company will need to customize any CRM solution it buys. Such customization requires access to trained programmers. Oncecommitted to a specific CRM platform, switching to another platform is costly.Typical Components of a CRM Solution’s ArchitectureAs Figure 8.2 depicts, the central components of a typical CRM architecture,or structure, are sales support, marketing management, customersupport, and e-business infrastructure modules.9 These comprise thecore functions directly supporting sales, marketing, customer service, and ecommerce staff. Underpinning these core components are the customerdatabase (facts and information about customers) and the analytical modules (programs that tell the system how to process information). The datarepository houses the centralized customer and account information generated through the core CRM applications. The analytics component uncovers the customer interaction patterns that help the company personalizethe customer experience.Here is an example of a simple CRM system. A bank interacts with itscustomers when the customer calls to ask about getting a loan. The customer’s account information is typed into the computer and, based on suchthings as the customer’s income level, debt load, and employment record,129

tim89908 ch08.qxd 4/1/04 10:07 AM Page 130130CHAPTER 8FIGURE 8.2 Components of CRM architecture (adapted from CRM system instructs the bank loan officer on how to sell the customera loan. The system also compiles information about the customer for possible future marketing plans, provides customer support by offering to handle the loan application process over the phone, and directs the customerto the bank’s Web site to set up payment options. In this simple example,all the components of the CRM architecture come into play.In order to build a comprehensive view of the customer, a CRM system often needs to interface with existing organizational systems. The so-called legacyintegration component provides tools for extracting relevant customer data from a customer data repositoryCRM architecture is componentand other sources that may be scattered across disparatebased. Key components includesystems and stored in completely different formats. Interthe core applications supportingsystem communication can be cumbersome, requiring datamarketing, sales, and customertranslation. In fact, some experts claim that developingservice.legacy integration can account for between 30 and 50 percent of the total cost of a CRM installation.10 The ability toconnect to a variety of legacy systems differentiates quality CRM vendorsfrom the rest.The final component in a typical CRM solution is interaction management. Interaction management enables a customer-service rep to view a customer’s entire contact history regardless of the source, be it Web, telephone,

tim89908 ch08.qxd 4/1/04 10:07 AM Page 131APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYfax, e-mail, or in person. This kind of data can be especially valuable to acompany as it plans for future marketing and customer-service functions. Abusiness needs to know how people are contacting it and with what kindsof concerns.The Nature of CRM ConfigurationsMETA Group, a leading information technology research and consulting firm,estimates the market for CRM software will approach 46 billion by 2003.11With such a large market at stake, it’s no wonder vendors are scrambling todevelop CRM offerings or that they are relabeling existing products as CRMsolutions. Players include CRM software specialists such as Siebel, database giants such as Oracle, enterprise resource planning (ERP) vendors such as SAP,sales force automation firms such as Maximizer, and conventional contactmanager vendors such as Interact. Each of these market participants brings adifferent perspective, depending on its product’s strengths. Technology giantOracle, for instance, has created a database-centric suite of products for itsCRM solution. Its products offer tight integration to other Oracle technologyapplications but often do not work well with systems of other companies. Interact, on the other hand, has developed ACT!, the popular stand-alone PCbased contact manager, into a partial CRM solution for “SOHO” (small-office,home-office) users. While lacking in sophistication, ACT! is a useful CRM tool.So CRM product offerings vary by the size of marketing, sales, and service workforces and by the type of industry. Organizations with more than100 people involved in serving the customer are considered large. Those with11 to 99 people are medium-size. And those enterprises with 10 or fewer staffin marketing, sales, and service are considered small.12A multifunction enterprise solution is the norm formedium to large enterprises. Such a solution would inCRM solutions for a globalclude, at a minimum, the sales support, marketing manenterprise are frequentlyagement, and customer-service core components linkeddifferent from those for a smallto a customer/account database. For major industriesbusiness. Such differencessuch as health care and financial services, some vendorsaren’t just a matter of scale.offer pre-configured turnkey product suites that runright out of the box. Yet most solutions require some customization and component integration.CRM at the small to medium-size level isn’t always as holistic as CRM forlarge-scale businesses. Due to cost and complexity considerations, only selected components may be installed. Sales support in the form of contactmanagement may be the only form of CRM in a small business. Such contact management would include maintaining a sales contact database, appointment scheduling, and activity tracking. These applications are usuallysimple to operate and do not require an information technology departmentfor support. However, the limitations of such packages prevent a business131

tim89908 ch08.qxd 4/1/04 10:07 AM Page 132132CHAPTER 8from harnessing the full power of CRM to maximize the customer experience. A better alternative for the small to medium business is “renting.”Renting a CRM SystemRather than purchase costly CRM solutions that require sophisticated inhouse support staff, some savvy small-business owners have opted to rentsoftware from application service providers (ASPs). Companies such and Salesnet provide “hosted solutions” for a monthly peruser fee. The CRM software and customer/account repository reside on thehost company’s computer. Users access the software through a passwordprotected Web site. The ASP controls the hardware, administers the network,and manages the software from deploying updates to installing upgrades. Nofuss, no muss.Rented CRM applications level the playing field, giving the smallbusiness owner the same customer relationship tools as the global enterprise—and the same opportunity to create A-plus customer loyalty.STEPS TO SUCCESSFUL CRM DEPLOYMENTSuppose your boss walks into your office and asks you how to spell “bigbonus.” Before you can finish naming off the letters—b, i, g, b, o, n, u, s—she holds up her hand and says, “Wrong!” “Success,” she assures you, “isspelled CRM.” It’s obvious your boss has just learned the power of CRM.From the look on her face, you can tell she expects you to head up the CRMeffort. “As our technical expert,” she says, “I’m counting on you to make CRMhappen around here.” How would you respond?If you want to keep your job (and earn that bigbonus), you’ll avoid the common mistakes frequentlyCRM projects fail to meetmade when deploying CRM. According to Gartner, aexpectations for a variety ofleading technology research and advisory firm, 55 perreasons.cent of all CRM projects fail to meet expectations. Reasons for failure include: Unrealistic expectationsA deficient or nonexistent customer strategyPoor organizational readinessLack of top management supportNeglect of performance metricsA focus on communication efficiency at the expense of thecustomer13So what steps can you take to ensure CRM rollout is a success?

tim89908 ch08.qxd 4/1/04 10:07 AM Page 133APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYStep 1: Develop a Customer Strategy FirstImplementing CRM before you’ve identified your customer strategy is a caseof “ready, fire, aim.” You may get some interesting results, but chances of hitting the target are slim. The absolute first step in launching a successfulCRM initiative is defining who your customers are. As we discussed earlier inthe chapter, then, and only then, are you ready to develop the processes andthe infrastructure to support your strategy. We can’t emphasize this enough:CRM is a supportive technology. Use only as directed, and only after youknow what you want to support.As we have said repeatedly throughout this book, A-plus is a foundationfor the most successful strategies for building customer loyalty. If your CRMsystem allows you to surprise your customer with service that goes beyondwhat is anticipated, you will be well on your way to building and maintaining loyal customers.Step 2: Align the Organization and Its ProcessesWhether you have a terrific customer strategy or have invested liberally intechnology, CRM will not transform a product-centric organization into acustomer-focused one. Before a CRM initiative will succeed in your organization, the culture and the practices need to be brought into line with thenew strategy. As CRM consultants Rigby, Reichheld and Schefter of Bain &Company explain: “A CRM rollout will succeed only after the organizationand its processes—job descriptions, performance measures, compensationsystems, training programs, and so on—have been restructured in order tobetter meet the customers’ needs.”14 This is a tall order. Yet research showsthat the probability of a successful CRM deployment is highest for organizations that have revamped their internal structure and systems. Organizational readiness precedes the technology miracle.Step 3: Adopt Appropriate TechnologyTwo days after a new buyer closes on the purchase of a home, the real estateagent sends the buyer a small housewarming gift and a handwritten thankyou note. True or false: The gift and note are an integral part of an effectiveCRM solution?If you answered false, you probably equate customer relationship management with high technology. You may mistakenly think that physical giftsand handwritten notes are too low-tech to qualify as components of a CRMstrategy; you may believe that CRM means technology and lots of it.If you answered true, you probably take a broader, and we believe a moreuseful, view. You see low-tech, middle-tech, and high-tech all as appropriate133

tim89908 ch08.qxd 4/1/04 10:07 AM Page 134134CHAPTER 8components in an effective strategy to acquire customers and build loyalty.The right technology can be anywhere along the technology spectrum.Most CRM vendors would have you believe that CRM is synonymouswith technology. It isn’t. One of the biggest mistakes you can make in deploying CRM is to adopt technology that outstrips the capability of your organization or your customer. It is better to examine low-tech alternatives likehandwritten notes and follow-up phone calls first. Look for suitable technologies that promote effectiveness over efficiency.Step 4: Measure BenefitsLike many information technology initiatives, CRM is often sold to topmanagement as a “good investment”—not only will the costs be recoupedin the near term, but CRM will eventually contribute to company profits.Yet according to Giga Information Group, a leading information technologyresearch firm, only 30 percent of companies involved in CRM deploymentmeasure benefits.15 Without some way to track the return on your CRM investment, a project that is supposed to produce a cash surplus often mutatesinto a cash drain.Successful CRM deployment requires monitoring.Successful monitoring requires measuring the rightthings. Watching the speedometer won’t tell you howCRM systems provide “metrics,”which are automatic measuresmuch gas you have left in your tank. Tracking the numof key indicators. Be certain tober of inbound service center calls won’t tell you the levelmeasure the right things.of customer satisfaction with your call handling. No matter how precise, automated measurements—so-calledmetrics—are no substitute for the right indicators.Your customer strategy drives your choice of metric, be it financial, performance, or diagnostic. If your strategy is profit-segmented customer retention, an appropriate financial measure might be a trend analysis of theprofit-per-segment adjusted for customer turnover (average profit multiplied by the customer retention rate). Over time, theturnover adjusted profit rate should increase for thoseLet the company’s strategysegments you want to nurture. If your strategy is cusdetermine the appropriatetomer retention at all costs, an appropriate performancemetrics.measure might be customer turnover (i.e., percent of customers lost for the period). Properly managed, this indicator should decrease or stabilize to some acceptable turnover rate. If yourstrategy is cost management of low-profit customers, an appropriate diagnostic measure might be percent of low-profit customer contacts using selfservice technologies. (The less time the company needs to spend on suchcustomers, the better.) Given time and the right CRM solution, the percentage of customers helping themselves—using low-cost self-service—should increase.

tim89908 ch08.qxd 4/1/04 10:07 AM Page 135APPLY THE POWER OF CRM TO BUILD CUSTOMER LOYALTYWith monitoring, the right metrics, and a baseline measurement ofwhere you started, you stand a better chance of converting a sizable CRMexpense into an investment that maximizes your profits and yields an Aplus customer experience.Step 5: Build the Right Relationships the Right WayA well-crafted CRM solution hooks into your strategy for acquiring, nurturing, and managing your customer relationships. A poorly crafted solution ignores the nature and quality of your customer relationships, offeringautomated interaction where none may be required or desired. MechanisticCRM products blindly target profitable customers, alienating them with unwanted sales pitches or a blizzard of junk surface mail, junk e-mail, or annoying telephone solicitation.To build the right relationships in the right way requires more than thecomprehensive customer view available from a CRM package. First, youneed to know what relationships are “right” for your company. As discussedearlier, this involves examining your customer strategy. “Right relationships”depend on such things as: organizational personalitycompany and industry characteristicsgeographic locationproducts or services offeredWhat is right for a leading consumer electronics manufacturer may beentirely wrong for a firm managing nursing care facilities. What worksfor an entertainment retailer may be inappropriate for a professional services firm.Once you know what kinds of relationships you want to create andkeep, you then need to know something about your customers’ loyalty profile. This profile depends on such things as: What product or service value propositions satisfy themHow willing they are to commit to an ongoing relationshipHow likely they are to recommend you to othersTo build relation

CRM is a key initiative in building customer loyalty. Typical components of a CRM solution include databases and system integration technology. Successful CRM deployment requires a five-step process. CRM is no substitute for the human touch. 123 8 tim89908_ch08.qxd 4/1/04 10:07 AM Page 123