CRM builds loyalty

Customer Relationship Management has become a topic of major importance over the past few years. With its origins in the principles of relationship marketing - its aim to create relationships of mutual benefit between suppliers and customers - CRM has evolved in an era of rapid technological advancement into what could be described as information-enabled relationship marketing.

However, the life-changing developments this IT revolution has spawned - such as massive data storage capability and increasingly sophisticated analytical software - have simultaneously both positively impacted organisations' ability to build more sustained relationships with their customers and also, paradoxically, shifted the focus of many companies to the technology itself and away from its customers.

CRM is currently at something of a crossroads. Although some companies have implemented successful CRM initiatives, others have invested significant financial and human capital in their pursuit of the Holy Grail of customer management, only to find their efforts negated by poor results and stakeholder apathy. Although not the only reason for this failure, the over-reliance on technology as the solution to all customer relationship challenges has derailed more than a few CRM initiatives.

It might be helpful at this point to ask exactly what CRM is really about. There are many definitions, but one featured in the Harvard Business Review (2002) captures the essence: "CRM aligns business processes with customer strategies to build customer loyalty and increase profits over time". Curiously, there is no suggestion that CRM might be about technology. That is because it is not about technology! It usually involves technology, but that technology is merely an enabler in the overall process, not the process itself.

So if CRM is a customer-centric business philosophy and not a technology initiative, how should a company pursue it and what are the ingredients of a successful CRM implementation? The starting point for managing customer relationships is creating a well-crafted customer strategy. This involves targeting selected market segments, sub-segments and even individual customers to develop sustainable relationships adding value for the customer, enhance corporate profitability and optimise shareholder value.

From this it is clear that the ultimate focus of CRM is on customer retention rather than customer acquisition for one very good reason; existing customers are on average five to seven times more profitable than new ones. The customer strategy must be fully aligned with the overall business strategy to firstly ensure that resources are optimally employed, and secondly guarantee that all functions in the organisation aim for a common goal.

The most successful CRM initiatives are those where the company considers the benefits to its customers as well as to itself. Too many CRM projects fail simply because companies define the objectives from a purely internal perspective, forgetting the obvious fact that customers must derive a benefit as well. A key way of doing this is to avoid a ‘scattergun' approach and focus only on the one or two ‘pain points' which cause customers the most discomfort in their present dealings with the company. Relieving this pain could dramatically enhance the positive aspects of the relationship.

One critical element in all successful CRM initiatives that many companies fail to recognise is the need to engage its employees in the customer-centric approach. There is a clear link between satisfied and loyal employees and satisfied and loyal customers, so if a company's members of staff are unhappy then this often transfers to its customers. In today's multi-contact business environment, customers have several different ‘touch points' within supplier organisations, and if one of these ‘moments of truth' fails to satisfy them, the company can lose goodwill in the blink of an eye.

Technology often plays a key role, but it is important to recognise that simply automating a bad existing process, instead of redesigning that process based on best practise customer management, is unlikely to deliver a successful outcome. It really is all about the customer.

Nick Pearson is managing director of Pearson Consulting.

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