Keeping the best customers
Under pressure to win new markets and keep consumers happy, companies are relying heavily on specialised IT systems, by Paul Taylor
In the days before mass marketing, the local bank manager knew the names and ages of his customers' children, the corner shop knew which brands of breakfast cereal to stock for local families and businessmen bought their suits from bespoke tailors. All that has changed. Today, under the onslaught of cost-cutting, rationalisation and automation, many people never see their bank manager, the cosy corner shop has been replaced by an impersonal supermarket checkout, and most people make do with moderately priced off-the-peg clothing.
Further radical change is under way. As Paul Ratcliff, managing director of Hatton Blue, a UK-based customer relationship management (CRM) software developer says: "More and more companies are realising that the conventional mass production model on which consumer marketing has been based no longer works."
Instead of focusing narrowly on cost-cutting measures and improving efficiency, market leaders are re-examining their business strategies and deciding that customer service and CRM are the keys to future growth. Specifically, leading proponents such as Mr Ratcliff argue that CRM systems and related technologies can help companies improve the rate of new customer acquisition by tailoring products to an individual customer's requirements. They can also help to identify existing customers who generate the most profit, and keep them for longer, and assist in the cross-selling of other products in the portfolio to both new and existing customers.
To achieve these benefits, CRM vendors argue that companies must adopt an integrated approach to customer management. This should draw on a number of technologies, including database mining techniques, business intelligence software and "intelligent" call centre systems, helping capture relevant customer data, as well as handling customer contact via multiple channels, including the internet. Using these tools, they suggest, will help manufacturers and other suppliers understand their customers better and move towards what has been described as "mass customisation" or the ability to cater to a "market of one".
"Companies across the world recognise that to survive in an increasingly global and competitive marketplace, strategic focus on the customer is critical," says an Andersen Consulting report, prepared by the Economist Intelligence Unit.
"Increasingly, companies are taking a holistic view of their customer relationships and focusing on the lifetime value of those relationships," says Dale Renner, global managing partner of Andersen Consulting's customer relationship management practice.
"In the past decade, particularly in the US, we've seen lots of restructuring, downsizing and so forth and in the whole process we have lost sight of the customer," he says. "The question now, is how are you going to increase revenues while still keeping costs in line?"
The answer, he and other experts such as Steve Swanson, head of Cap Gemini's Global CRM practice, argue, lies in switching attention from back office systems such as enterprise resource planning (ERP) to front office systems and enterprise customer management (ECM) or CRM systems.
"Two years ago, this market did not exist," he says. "Now, people want to know how they can improve their customer relationships." Cap Gemini's CRM practice is focused on the maxim: "Know, Target, Sell and Service". "You need to know who your customers are first," says Mr Swanson.
That is not quite as simple as it sounds because organisations have multiple customer databases - sometimes with different departments controlling access. Nevertheless, most consultants argue that building a common customer database lies at the core of an effective ECM strategy which will also encompass sales support, marketing support, customer support and quality assurance.
Such concerns have helped make CRM one of the hottest subjects in IT consultancy. Several powerful forces are driving this market growth. Firstly, in markets such as financial services and tele-communications, barriers to entry have vanished, resulting in a flood of new entrants offering goods and services at a price and quality that has turned many sectors into commodity markets.
Crucially, notes Scott Webber, chief executive of Corepoint, IBM's CRM unit, "most companies are now competing with more commoditised products, so the only differentiation is the customer relationship". Meanwhile, shortening product life-cycles have highlighted another business reality.
As David Allen of Acxiom International, a leading UK-based marketing database developer, notes, "the risk and the
profit lie in the customer, not the product".
When there was little or no supplier choice, second-rate service was imposed on customers. But market liberalisation, the shift to global competition and the commoditisation of products and services has changed the balance of power.
The second important factor driving the CRM market is the weakening of attachment to brands. The war waged by manufacturers towards the goal of "total quality man-agement" in the 1970s and 1980s has been won. Increasingly we take excellence and low cost for granted. There is simply no need to favour a more expensive brand over a cheaper, competitor. Market "churn" has become endemic, forcing suppliers to reassess strat-egies and focus on retaining profitable customers and differentiating product offerings.
But not all customers are valuable. Traditionally, most organisations have discovered that 80 per cent of their profits are derived from 20 per cent of their customers, and some customers may actually cost money to keep.
"Firing a customer" is sometimes a necessary step if other attempts fail to turn the relationship into a profitable one, admits Andersen's Mr Renner.
The need to distinguish between profitable and unprofitable customers, and to win over new ones, explains the close interest in CRM.