Although one-to-one relationships are not new to business, new technologies, in particular the computer and the Internet, along with the growth of e-commerce, have made one-to-one connections between vendor and consumer once again possible. Over the past decade, Customer Relationship Management (CRM) has become the bridge by which vendors get, keep, and grow customers.

In turn, these relationships translate into increasing Return on Investment (ROI). For some companies, however, the failure to integrate strategy with technology has resulted in unfocused and expensive CRM applications with negligible ROI.

In the new customer-centric economy, “get, keep, grow” is gaining a broader, more dedicated audience among top executives, and the levels of corporate investment, as shown in this report, promise a profound shift in corporate culture.

Brief History of Customer Relationships

The concept of one-to-one marketing is not new to American business. In fact, one-to-one relationships were prevalent during the early colonial period. It was commonplace to have direct contact with the person with whom one was doing business. As a result, specific bonds of trust were established between farmers, traders, merchants, shopkeepers and artisans and their customers.

This changed over the course of the late 18th and 19th centuries. Several new technologies permanently altered the old economic landscape: railroads, steam ships, cable cars, the telegraph, and the telephone. Urban centers grew at phenomenal rates, a long-distance economy grew, and in some ways, the familiar, one-to-one nature of commerce diminished.

The New Customer-Centric Economy

During the 20th century, the advent of new technologies, in particular the computer and the Internet, again changed the way people relate to one another. Along with arguably the most powerful bull market in American history, Internet access and e-commerce set the stage for seventeen-year-old entrepreneurs, twenty-eight-year-old CEOs, and thirteen-year-old investment gurus. Thus, when Michael Schrage refers to the new economy as a “relationship revolution,” he is describing the impact of technological and economic change on business relationships.

The true wonder of e-commerce is that it took the power of the commercial relationship away from the producer, and placed it in the hands of the consumer. As we enter the 21st century, the consumer has virtually unlimited access to information. That information, backed by faster modes of transportation, is power.

What is unique about the Internet and e-commerce is they give consumers the power to purchase from anywhere in the world. Instead of having to make several trips to bricks-and-mortar sites, a Web shopper can shop from home, comparing prices and verifying vendor information with just a few clicks of a mouse. No longer are contemporary consumers limited to the products and prices they have in front of them at a retail store. This power, combined with the speed and quantity of information, gave the customer new leverage in the commercial relationship.

This is why Don Peppers and Martha Rogers’1993 work, The One to One Future: Building Relationships One Customer at a Time, was so influential. The Internet allows for a level of one-to-one communication that has not been seen since the early days of capitalism in America. In-depth, trusted, one-to-one relationships, where customization can flourish, are again possible.

Given this fact, Steven M. Cristol and Peter Sealey’s, Simplicity Marketing: End Brand Complexity, Clutter, and Confusion (2000), takes on increased significance. Brand complexity, in conjunction with the explosion of mass advertising, was not the apex of a product-centric economy.

Rather, as customers’ needs were becoming paramount, brands and mass advertising grew exponentially to meet those needs. Over time, the product-centered world of mass advertising began to collapse under its own weight.

Vendors could no longer inundate consumers with a dizzying panoply of products; and no longer could they rest assured that most consumers would make an on-site purchase before comparing prices at another store. Vendors could not develop products and then search for a market within which to develop a customer base (product centric, market share).

In today’s economy, customers come first, and products must be tailored to fit their needs (customer centric, share of customer). Thus the evolution of marketing has come full circle: The marketer-driven approach of one to millions has given way to a consumer-driven one marked by the return of one-to-one relationships.

Push Marketing and Pull Marketing

This does not mean that mass advertising and other forms of push marketing are extinct. Earlier this year, Myers Reports Inc. found that by the end of 2000, 77% of marketers and ad agency executives were planning to increase their online ad spending. Nevertheless, more and more marketers now recognize the ascendancy of the “pull” side of the relationship, i.e. the consumer.

In the new economy, push marketers are challenged to listen to customers and develop relationships with them. By doing so, the information of push marketing can be highly targeted, thereby meeting or anticipating customers’ needs. Push and pull then work together to create interactive, learning relationships between vendor and customer.

In his book, "Telecosm: How Infinite Bandwidth Will Revolutionize Our World," George Gilder aptly describes this process: "The greater efficiency of targeted advertising springs not only from customers' superior knowledge of products, but also from advertisers' superior knowledge of their customers.”

It’s a new, highly interactive, push and pull relationship that, when well executed, results in increasing customer loyalty, share of customer, and ROI.

The push-and-pull dynamic will not only help companies keep and grow existing customers, it will help acquire new ones. Though seemingly unorthodox, an excellent way to acquire new customers is to develop relationships with the ones you already have. In turn, loyal customers can become highly effective advertising and acquisition tools.

Defining CRM

CRM is not just a technology; it’s a philosophy for survival in the customer-centric economy.

Some define CRM as a call center solution. Some companies view it as sales force automation, others as direct mail, marketing automation, or simply a Web page. Many companies see it as a front-end application only, interacting at the point-of-contact, point-of-purchase, or customer support.

Others believe the secret to CRM success is in “back-end” activities, such as data mining, data warehousing, and the proper distribution of actionable data to those across the enterprise who interact with customers. Still others see it as anticipating customers’ needs via auto replenishment.

CRM encompasses all of these -- and much more.

It is better to view CRM as a bridge, not an end-point. It is the means by which companies are meeting the needs of customers who now expect high levels of personalization and care at every touchpoint.

Obtaining a software package, hiring IT support, launching a Website, and rolling out a customer interaction center is just the front-end beginning. The real back end of CRM implementation is making sure that the culture of a company is on board. This often involves a training and education perspective.

CRM is an enterprise-wide change that involves the development of intellectual capital as much as structural change. It not only involves collecting data, but also determining which data is actionable. It involves educating senior and middle managers as well as sales reps and call center reps in how to listen to customers.

The recent dot.com failures testify to this fact. Many dot.coms had impressive front-end CRM capabilities and brand recognition, but the inability to bring back-end processes to the same level proved costly.

Implementing a CRM Strategy

The key to CRM success is matching philosophy with technology. Companies will implement different applications to build relationships with customers. This is practical, even preferable, as long as the crucial, back-end elements of culture change and training remain integral to your CRM strategy.

Matched with the proper philosophy, technology then becomes an enabler of one-to-one communication with customers: Web sites, contact centers, wireless devices, electronic kiosks, etc., become opportunities to develop loyal and profitable relationships with customers.

Not recognizing CRM as philosophy and technology has contributed to the failure of many CRM programs. The result has been negligible ROI and harsh criticism of CRM and one-to-one marketing as hype.

A recent report by Insight Technology Group drives home this theme. The firm reviewed 202 CRM projects last year, and found that 31.7 percent of companies reported no ROI, and 37.6 percent reported only minor returns.

“When CRM projects stall,” explains Martin Goldberg, president of ISM, a Bethesda, Md-based company that publishes the annual Guide to CRM Implementation, “they usually do so because of the people involved. Change management is by far the biggest component, and you can’t get started soon enough.”

During the bull market, it was relatively easy for executives to spend money on a CRM industry too new to accurately define itself. As a result, CRM became a hot, catchall term for anything that involved customer interaction and/or data.

CRM’s Bottom Line: Show Me the ROI

CRM requires developing long-term, loyal relationships with customers in order to maintain profitability. Carving out a profitable niche while grasping CRM as philosophy and technology is the difficult part.

However, research shows that companies capable of doing so stand to gain considerable ROI. In a widely recognized study from 2000 entitled “Divide and Conquer,” Accenture (formerly Andersen Consulting) found a “strong link” between CRM and financial performance.

According to the research, a typical $1 billion business could add $40 million in profit by enhancing CRM capabilities by just 10 percent. By ramping up CRM performance even higher, Andersen projected a pretax profit of as much as $120 million.

In a similar study, “How Much Are CRM Capabilities Really Worth? What Every CEO Should Know,” Andersen found that CRM performance accounts for anywhere from 28 to more than 60 percent of the variance in companies’ return on sales.

In a widely quoted article published in the Harvard Business Review, Frederick Reichheld and Earl Sasser argued that increasing customer retention rates by just 5 percent increases profits by 25 to 95 percent. Sources of the profit boost include price premiums, referrals, reduced operating costs, and additional sales.

These numbers aren’t new for some companies. As far back as 1999, Amazon.com, one of the first Web sites to personalize content and use collaborative filtering to cross-sell and up-sell, reported a repurchase rate of 72 percent.

Dell also earned record operating results in 1999, reporting a 41 percent increase in revenues based on its strategy of customizing products for its customers.

During the second half of 2000, Lowe’s, the N.C.-based retail chain, saw ROI in the double digits after just four months of its CRM initiative. The company used credit card and point-of-transaction data to create a massive database that helped identify and differentiate its Most Valuable Customers.

Lowe’s CRM strategy also included culture change, restructuring management roles to integrate the new customer-centric approach into its business practices. The result was new customer-centric programs that brought increasing ROI.

The Future of CRM

The long-term multiplier effect on profits garnered by CRM initiatives has yet to be seen. As long as the Internet and e-commerce continue to grow, the customer-centric economy will persist.

Forrester Research projects that worldwide net commerce—B2C and B2B—will reach a staggering $6.8 trillion by 2004. A plethora of research forecasts the expected growth of all of the CRM-related categories: privacy, broadband, e-commerce, IT, data warehousing and mining, and many others.

Given such predictions, it is hardly surprising that increasing numbers of decision makers are appropriating funds toward developing relationships with their companies’ customers. Gartner Dataquest found on average, enterprises budget more than $1 million for their CRM initiatives, and predicts this spending will double by the end of 2001 (2000). The metrics below represent a sample of what the new, customer-centric economy has yet to bring:

1. Overall e-commerce Growth
   
    
   • Forrester Research estimates that worldwide net commerce – both B2C and B2B – will hit $6.8 trillion in 2004 (2000).
      
   • Merrill Lynch predicts that worldwide e-commerce revenues are likely to approach $1.4 trillion by the end of 2003 (2000).
      
2. Overall CRM Industry Growth
   
    
   • Gartner predicts that worldwide CRM spending will reach $76.3 billion in 2005, up from $23 billion in 2001 (2001).
      
   • IDC estimates that the CRM services market will skyrocket to $125 billion in 2004 (2000). The driving force behind this growth is customers’ elevated expectations. IDC predicts that, “With customers expecting a higher degree of service, those companies that can provide it have the advantage (2000).”
      
   • AMR Research predicts the CRM market will undergo a compound annual growth rate of 49 percent over the next five years (2000).
      
   • Meta Group predicts a 50 percent annual growth rate for the global CRM market and projects it will grow to $67 billion in 2004 (2000).
      
3. CRM Growth by the Decision Makers
   
    
   • Gartner Dataquest found on average, enterprises budget more than $1 million for their CRM initiatives, and predicts this spending will double by the end of 2001 (2000).
      
   • Meta Group (based on the preliminary results of a 300-company survey) predicts leading firms plan a 75 percent boost in CRM spending in 2001; initial findings showed nearly 80 percent of organizations surveyed reported success with their CRM projects (2000).
      
   • According to eMarketer’s “eCommerce: B2B Report,” nearly 80 percent of global businesses are using or planning to use the Internet to improve customer service (2001).
      
   • In February of this year, a Gartner survey reported that 65 percent of respondent CIOs plan to increase IT spending in 2001 despite the economic slowdown (2001).
      
4. Related Industries Connected to CRM Growth
    
   • Gartner predicts the worldwide B2B e-commerce market will climb from $403 billion in 2000 to $7.29 trillion in 2004. According to Gartner, “good Customer Relationship Management” will be a “key driver” of this growth (2000).
      
   • AMR Research predicts B2B e-commerce will reach $5.7 trillion by 2004, and industry leaders will move 60 to 100 percent of their transactions to the Internet over the next two years (2000).
      
   • Merrill Lynch estimates that U.S. wireless e-commerce revenue will reach $66.9 billion by 2006 (2000).
      
   • IDC forecasts the revenues generated from CRM data warehousing software and services will reach $20 billion by 2004 (2000).
      
   • Gartner Dataquest predicts the worldwide security software market (privacy) will top $6.7 billion in 2004 (2000).
      
   • PriceWaterhouseCoopers reported that close to 60 percent of U.S. Internet users would shop even more online if they knew retail sites would not do anything improper with their personal information. Furthermore, 40 percent would purchase more online if they knew how the Web sites were using the necessary check-out information they supplied (2000).
      
   • Gartner Dataquest estimates the worldwide IT services market will reach $1.3 trillion by 2004 (2001); Gartner also predicts that the IT professional services will grow 19 percent annually through 2004 (2001).
      
   • eMarketer reports the amount of broadband subscribers will increase from $5.43 million in 1999 to $32.03 million in 2003 (2000); this is significant in light of the fact that Gartner predicts that online consumers with broadband will spend 20 times more than those without because broadband allows quicker, easier, and more customized shopping (2000).
      
   • Gartner Dataquest forecasts the worldwide ASP market will surpass $25 billion in 2004 (2000).

     Final Thoughts

     As the twenty-first century dawns, new technologies have enabled the renaissance of one-to-one commercial relationships. In order to adapt to the new, customer-centric economy, companies have launched CRM initiatives to meet customer needs and maintain profitability.
      
   • By developing relationships with existing customers, companies can not only reduce operating costs and increase ROI, they can acquire new customers as well. And the best is yet to come.

To help businesses cope with the ever-increasing customer demands, many companies have chosen to implement a Customer Relationship Management (CRM) strategy to manage the customer-facing processes of their business.

Customer Relationship Management is nothing new. In fact, it’s been the foundation of business since the first barter ages ago. What is new are the strategies, technologies and applications that enable better management of customers, customer information and the business as a whole.

Even with these latest advances, the basic fundamentals of CRM are constant. Ask any business and you’ll hear the same demands:
 

"We need a 360 degree view of our customer"
"We need to track our marketing leads"
"We need to obtain more customers"
"We need to measure our marketing return on investment"
"We need sales force automation"
"We need to increase our customer satisfaction"

It incorporates applications in marketing, sales, and service to give the individuals who interact with the customer the ability to access valuable customer information. CRM can also consolidate that customer view across multiple channels including the Web, call centers, field service, sales reps, and partners so that they can better market, sell, and service their customers.

The primary CRM focus areas support the requirements of the customer-facing processes of a business:

• Marketing Automation applications give marketers the ability to create, plan and execute their campaigns to a targeted audience.

  By using CRM, marketers can also access the necessary business intelligence to better understand which campaigns are working and which customers to target with a specific offer. This type of information reduces wasted time and money on sending out the wrong promotion to the wrong customer.

• Sales Force Automation or SFA helps sales people track leads and opportunities for forecasting and to optimize their sales across all sales channels. SFA also helps reps target whom to call on, what to sell, and to understand how their customers prefer to buy their goods or services.

• Customer Service applications enables reps to resolve service issues throughout multiple channels, whether it be through the Web, a call center, fax or field service rep.

  Customer Service applications and Interaction Center applications enable customers to solve their own problems on a self-service model for efficient problem resolution.

CRM provides employees with the business intelligence and processes necessary to better understand customers needs and effectively build relationships between its customer base and its partners.

CRM also links its customers, employees and suppliers over the Web, the phone, fax, in person and through partners. Companies can then improve relationships with customers, add value, reduce costs and improve efficiencies in their business processes.

An integrated CRM strategy gives the marketer access to intelligent information on customer profiles as well as campaign metrics and analytics.

Marketing intelligence on campaign metrics can help the marketer understand which channels are most effective, which campaigns are generating the most leads, and which lists resulted in better response rates. This enables marketers to measure campaign effectiveness and allocate resources to the most successful tactics.

These conclusions can also be used as a basis for future campaign activities. For example, a marketer planning a campaign to existing customers should have knowledge about past customer sales, service requests, and even customer satisfaction. This helps the marketer tailor promotions to customers who provide the most profits for the organization.

In many companies, customer data exists in separate silos maintained by each department. By not sharing information between silos, companies lose efficiency. Also, information updates (such as contact information or addresses) will not necessarily be transferred to the other departments.

For example:

• Marketing has data on markets, prospects, and lists. This is also supported through a third party vendor. But marketing needs to drive generated leads to Sales for follow up. The marketing department also could use feedback from service and sales about what campaigns are working.

• Sales has customer information on transactions and buying preferences. These are the type of trends in consumer buying behavior that marketing could use to plan upcoming promotions and marketing campaigns.

• Customer Service has excellent customer feedback, but it’s not looping back into marketing department. This is the type of data that can act as the foundation for upcoming marketing campaigns. Customer Service can also provide sales reps important product information or specific account issues that would be invaluable for sales to have before they call on an account. Finally, Customer Service can be used for cross sell and up sell opportunities.

The key is to have all your customer information integrated. This provides each department with a 360-degree view of the customer, and ensures that the data is current and complete.

CRM applications must also enable companies to interact with customers throughout multiple channels including the Web, phone, fax, direct mail, e-mail, in person or through partners.

It doesn’t end with the integration of marketing, sales and customer service, however. Companies also need to account for other department databases and systems such as manufacturing, accounting and purchasing.

Visibility into ROI and which channels are working successfully is critical. Integration delivers a genuine flow of information with meaningful information to marketers.

Also, an integrated CRM system enables companies to drive efficiencies by leveraging the Web, not as a standalone e-business initiative, but integrated into the heart of the business.

There are two strategies used to achieve the kind of data integration needed for a successful CRM implementation, the Component and Package approach.

Component Approach: The component approach connects a series of individual department "data silos" into a single system. The underlying data is shared between platforms through software and applications that must access the data from various sources.

Package Approach: A package approach deploys a single technology platform and a single database to handle all of a company’s data. Each department would then tie into the same database and the systems would speak the same "language."

A business flow also addresses how you need to interact with other departments and how information is shared and collaborated among teams to achieve overall objectives. Companies can start by focusing on the key business flow that has the highest priority or causing the greatest pain within the business. Some areas to consider might include:

• Are your marketing expenditures too high or not targeted enough?
• Do you need to lower the cost of sales?
• Do you need to save money on customer transactions over the web?

That way, a company can implement an integrated CRM strategy in stages based on the priorities of the business.

A CRM system is only as good as the commitment garnered from the entire organization. Successful CRM requires transformations on four basic levels:

• Structure
• Process
• Culture
• Technology

The Meta Group reported that 55%-75% of CRM projects don’t meet their objectives (March 2001). Why is there such a high failure rate? The reason is that companies have not affected change in these four fundamental areas:

Structure: Departments will be restructured for maximum business efficiencies that require departments to begin sharing customer information. They will no longer exist as separate entities.

Process: As departments begin to work together, they will discover ways to interact more efficiently.

Culture: Employees need to change their thinking and the way they conduct their work. They must begin to work efficiently with other departments and other divisions around the world. Additionally, many of the daily functions of a company can be shifted to the Web – which requires a change in both procedure and attitude.

Technology: The final, obvious change will be in applying a new technology. Companies will add the latest tools to help everyone get their jobs done, but also to help customers manage their business.

When implemented properly, a CRM strategy integrates all customer-facing and back office applications with the same data. Companies reap large gains from these efficiencies by offering better service and developing deeper relationships with customers.

In order to achieve those gains, the implementation of the CRM strategy has to create a 360-degree view of the customer. This means merging the information silos maintained by each department into a single data repository accessible by all departments.

Selection of technology is vital to a successful CRM implementation. Selecting a package approach, rather than tying together existing individual components, enables each department to tie into the same database with systems that speak the same "language."

Implementation of a CRM strategy is by no means a project for the IT department alone. Marketers must be directly involved in the process because they will ultimately win or lose based on the quality of the outcome.