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Customer Relationship Management (CRM)

Customer Relationship Management, or CRM, is an essential part of modern business management. Customer Relationship Management concerns the relationship between the organization and its customers. Customers are the lifeblood of any organization be it a global corporation with thousands of employees and a multi-billion turnover, or a sole trader with a handful of regular customers. Customer Relationship Management is the same in principle for these two examples - it is the scope of CRM which can vary drastically.

CRM focuses on the relationship

Successful organizations use three steps to build customer relationships:

  • determine mutually satisfying goals between organization and customers
  • establish and maintain customer rapport
  • produce positive feelings in the organization and the customers

CRM conditions

The organization and the customers both have sets of conditions to consider when building the relationship, such as wants and needs of both parties;

  • organizations need to make a profit to survive and grow
  • customers want good service, a quality product and an acceptable price

Good CRM can influence both sets of conditions

Why do organizations undertake CRM?

CRM is a new concept to many organizations. If it's new to you, here's why most forward-thinking organizations devote lot of energy and resources to the set up and management of a CRM capability.

How CRM impacts on the organization

CRM can have a major impact on an organization through:

  • shifting the focus from product to customer
  • streamlining the offer to what the customer requires, not want the organization can make
  • highlighting competencies required for an effective CRM process

Why does the organization need CRM?

The ultimate purpose of CRM, like any organizational initiative, is to increase profit. In the case of CRM this is achieved mainly by providing a better service to your customers than your competitors. CRM not only improves the service to customers though; a good CRM capability will also reduce costs, wastage, and complaints (although you may see some increase initially, simply because you hear about things that without CRM would have stayed hidden). Effective CRM also reduces staff stress, because attrition - a major cause of stress - reduces as services and relationships improve. CRM enables instant market research as well: opening the lines of communications with your customers gives you direct constant market reaction to your products, services and performance, far better than any market survey. Good CRM also helps you grow your business: customers stay with you longer; customer churn rates reduce; referrals to new customers increase from increasing numbers of satisfied customers; demand reduces on fire-fighting and trouble-shooting staff, and overall the organization's service flows and teams work more efficiently and more happily. Features of good CRM The old viewpoint in industry was: 'Here's what we can make - who wants to buy our product?' The new viewpoint in industry is:

  • 'what exactly do our customers want and need?' and
  • 'what do we need to do to be able to produce and deliver it to our customers?'

This is a significant change of paradigm and a quantum leap in terms of how we look at our business activity.

What do customers want?

Most obviously, and this is the extent of many suppliers' perceptions, customers want cost-effective products or services that deliver required benefits to them. (Benefits are what the products or services do for the customers.) Note that any single product or service can deliver different benefits to different customers. It's important to look at things from the customer's perspective even at this level. More significantly however, customers want to have their needs satisfied. Customers' needs are distinctly different to and far broader than a product or service, and the features and benefits encompassed. Customers' needs generally extend to issues far beyond the suppliers' proposition, and will often include the buying-selling process (prior to providing anything), the way that communications are handled, and the nature of the customer-supplier relationship.

Modern CRM theory refers to the idea of 'integrating the customer'. This new way of looking at the business involves integrating the customer (more precisely the customer's relevant people and processes) into all aspects of the supplier's business, and vice versa. This implies a relationship that is deeper and wider than the traditional 'arms-length' supplier-customer relationship.

The traditional approach to customer relationships was based on a simple transaction or trade, and little more. Perhaps there would be only a single point of contact between one person on each side. All communication and dealings would be between these two people, even if the customers' organization contained many staff, departments, and functional requirements (distribution, sales, quality, finance, etc). The modern approach to customer relationship management is based on satisfying all of the needs - people, systems, processes, etc - across the customer's organization, such as might be affected and benefited by the particular supply.

Generating a customer focused CRM solution

So what do we need to make this quantum leap of customer integration?

A new way of thinking:

  • change in paradigm
  • change in the messages sent and received
  • change in the overall culture

And a new way of doing things:

  • processes that are capable and effective
  • structures and systems that support a business centred on its customers
  • connectivity (end-to-end processes) both internally and externally (eg., with suppliers)

Customers' expectations

If an organization cannot at least meet its customers' expectations it will struggle. Ideally a business organization should exceed its customers' expectations, thereby maximising the satisfaction of its customers, and also the credibility of its goods and services in the eyes of its customers.

Customers normally become delighted when a supplier under-promises and over-delivers. To over-promise and under-deliver is a recipe for customers to become very dissatisfied.

Rule No 1 - You cannot assume that you know what a customer's expectations are ... You must ask.

Rule No 2 - Customer expectations will constantly change so they must be determined on an on-going basis. The expectations of different customers for the same product or service will vary according to:

  • social and demographic factors
  • economic situation
  • educational standards
  • competitor products
  • experience

Therefore, given all these variable factors, it is no surprise that one size certainly does not fit all.

Ask your customers what is important to them. Find out why your customers do business with you. There are a wide variety of relationship drivers. For example:

  • quality
  • price
  • product
  • location
  • customer service

When you ask you might discover some factors that you'd perhaps never even considered, for example:

  • health and safety support
  • systems compatibility
  • contract structure
  • distribution flexibility
  • technical support
  • troubleshooting and problem-solving, to name just a few

What service features will keep your customers loyal to you? Find out.

CRM as a process

CRM can be regarded as a process, which has:

  • identifiable inputs
  • identifiable components
  • identifiable characteristics, which define CRM for your organization and customer base
  • capacity for improvement and evolution over time

Managing customers

Why manage customers? Customers are the usual source of income for an organization. (If not then they will certainly leverage your income, as in the case of readers of a free publication which is funded by advertising. As such there are two types of customers: the readers and the advertisers). Customers are also an exceptional source of information - information which is vital to enable a business to succeed; i.e., giving customers what they want.

Managing customers entails:

  • knowing what customers want and need - which enables you to focus your production and service efforts
  • knowing which products or customers have most growth potential - which enables you to focus on developing highest potential
  • knowing which products or customers are most or least profitable - which enables you to focus on maximising profit
  • knowing which customers will be advocates and supporters - which enables you to provide references, case studies, and to safely test new products and services

Achieving good CRM

Achieving effective Customer Relationship Management requires many organizations to adopt a new perspective. Consider the following:

  • traditional customer service is something you 'do to' the customer
  • modern Customer Relationship Management is 'done with' the customer

The second statement is emphasises the big differences between conventional traditional customer service, and the modern progressive CRM approach. Your relationships with customers should be ongoing, cooperative, and built for the long term. Organizations that have many transitory relationships with customers consequently have to spend a lot of money on finding new customers. The cost of keeping existing customers is a tiny fraction of the cost of acquiring new customers. Pareto's Law ('The Pareto Principle')

Pareto's Law is commonly known as the 80:20 rule. Typically in any organization:

  • 20% of customers account for 80% of your turnover
  • 20% of customers account for 80% of your profits
  • 20% of customers account for 80% of your service and supply problems

It is important to know is which customers fit into which category and then to manage them accordingly. Highly satisfied customers who perceive a high value in your products and services commonly make excellent advocates for your organization - nurture these customers and give the special treatment. Dissatisfied customers who perceive a low value in your products and services are potential saboteurs. These customers could have little or no loyalty and may actively 'engage' against your organization. Therefore you should seek to rebuild relationships and trust, and a new basis for a future relationship, or manage the separation with dignity, professionalism and integrity.

Focus on building relationships

The essential CRM focus of any organization should be on developing core competencies, and an overall strategy of building customer relationships. In this way, all efforts in the organization can be aligned to:

  • customers and the culture of exceeding of customer expectation
  • understanding and managing the people impact on the culture of the organization
  • customers being recognised and treated as partners
  • the value of relationship-building being valued
  • service being seen as a value-adding activity
  • reward and recognition being based on customer focus i.e., 'going the extra mile'
  • evidence of corporate support for service activity

People and CRM

As with any other business process your people have a huge impact on the success of the CRM process. Successful and effective Customer Relationship Management people tend to display the following key characteristics:

  • positive attitude
  • people orientation
  • organizational skills
  • analytical skills
  • customer focus (natural empathy)
  • understanding of the link between CRM and profitability

On the subject of empathy: Empathy is about understanding, not necessarily agreeing. Effective customer focus enables the organization and its staff to see both sides, and to work with the customer to arrive at a mutually satisfactory and sustainable solution. Agreement alone amounts to capitulation, which is neither practicable nor sustainable.

Benefits of effective CRM

There are significant business benefits which accrue from an effective, integrated Customer Relationship Management approach.

These include:

  • reduced costs, because the right things are being done (i.e., effective and efficient operation)
  • increased customer satisfaction, because they are getting exactly what they want (i.e., exceeding expectations)
  • ensuring that the focus of the organization is external
  • growth in numbers of customers
  • maximisation of opportunities (e.g., increased services, referrals, etc.)
  • increased access to a source of market and competitor information
  • highlighting poor operational processes
  • long term profitability and sustainability

Forward thinking organizations understand the vital need to maintain a strategic focus on CRM and to resource and manage it appropriately.