E-CRM: Making the Customer King?

In the friction-free Internet marketplace, vendors are under constant pressure to match the lowest price that a buyer can find—with at least one supplier, on any given day, having some short-term reason to offer goods below cost. Customers, meanwhile, find themselves getting no more than they pay for, as thinning profit margins leave no room for once-common courtesies.

The resulting race to the bottom has no winner: Buyers give back their purchasing economies to the cost of constantly comparing suppliers, while vendors find that every sale bears the burden of costly promotion. For buyer and seller both, CRM (customer relationship management) enables a return to win-win thinking, transforming information into services that can lower the buyers costs without erasing the vendors profits.

Delivering e-CRM means more than being nonresponsive by e-mail instead of over the phone. A mere acknowledgment message, such as “Your e-mail was received,” has little value.

How much better to use words in a customers e-mail inquiry as the basis for a document search, returning an e-mailed list of potentially useful hyperlinks or, better still, to contact a customer proactively before a known potential problem makes itself apparent? “Your device is 5 years old and may soon signal its need for a new backup battery … .” The proposition of e-CRM should be a better relationship, not a less expensive one: No one should think that the “e” in e-CRM stands for “easy.”

How much is it worth to retain an established customer, as opposed to taking a philosophical attitude of “win some, lose some”?

Pick a number: Researchers at the University of Victoria, in British Columbia, estimate that a business can retain five current customers for the cost of attracting one new one. The National Association of Business Ethics puts the ratio at 6-to-1, while Gartner Inc. asserts a factor of 10.

Researcher Frederick Reichheld, of Boston-based Bain & Company Inc., estimates that U.S. corporations lose half their customers every five years, and that cutting these defections by 5 percent can in some cases double profits. Its vital to communicate these potential returns on a CRM effort. Without this perspective, the top-line cost of CRM may blind the budget-minded to bottom-line benefits.

For example, Gartner estimates the cost of CRM implementation at $15,000 to $35,000 per customer over a three-year period.

A survey by Insight Technology Group found an average CRM cost of just under $10,000 per customer per year—but that was for a population of 200 projects. Of these, the worst third yielded essentially no return, while the next-best third showed only minor benefits. For the remaining projects with significant returns, annual costs of software, hardware, customization, training and support topped $16,000 per customer per year.

IT staff developing CRM systems may find themselves supporting sales and marketing personnel who believe in the role of personal relationships and subjective advertising appeals rather than hard numbers. Its not the same environment as, say, finance or manufacturing.

Its helpful to develop logic based on increasing the percentage of leads converted to sales, or shortening the time to turn a prospect into a buyer, or increasing repeat business by some percentage. A sample analysis by Critical Path Inc. (www.critpath.com/ crmroi.html) may suggest an approach.

Other useful guidance comes from Cap Gemini Ernst & Young. The company recommends identifying high-value customers, in whom its logical to invest the high costs of eCRM efforts, and conducting a well-focused pilot program that can generate support by yielding measurable returns. More CGEY recommendations are at right.

Recognize, though, that staff may fear newly enabled management scrutiny of statistics, such as time to respond to a customer. Managers must strive to communicate goals of improvement and reward rather than measurement and punishment.

Prospective users of the system must be involved from the outset if they are to feel any ownership of the system, rather than burying the project in change requests or disavowing any disappointments.

A phased plan, such as the one shown at www.eweek.com/links, puts accountability where it belongs while avoiding premature commitment to an ill-conceived and costly CRM design.