March 2009

Successful CRM in a down economy
The new marketplace will arise from getting closer to customers, delivering value now and proactively adapting to their future needs. Here’s how. By Phil Olivieri

Consumer spending, once supported by personal debt, is contracting. Trust, survival, and the “thrill of the deal” when finding that $2.99 special in Aisle #3, have been replaced by fear.

According to Alan Siegel, founder and chairman of US-based global brand consultancy Siegel+Gale, “People are desperate for clarity and simplicity in order to make informed decisions. There is a huge opportunity for business to overcome cynicism and regain lost trust through the way they communicate with their customers.”

Keep it simple
“Transparency and authenticity are the new marketing imperatives,” says Lee Rafkin, Siegel+Gale’s global director of Simplification. “People are fed up and desperate for institutions and brands that offer simple and honest communications they can understand. That’s the clear message from our most recent research survey.”

This economic environment challenges us to be different by changing the status quo — if we are to survive the transition. Those unable are caught in what I call the “Barriers of Convention” syndrome, whereby the status quo remains anchored to old world thinking, ideals, strategies and the perceived need to protect long-tenured functional power bases.

Fear, uncertainty and doubt, or what I like to refer to as “The F.U.D. Factor,” is running rampant in many of today’s organizations. Any CRM practitioner will tell you those three words increase the cost of doing business because of the perceived need to engage in deeper discounts, more frequent discounts, or by reducing customer marketing budgets. Therefore, it should come as no surprise that trying to compete using old world strategies and tactics in this current environment is not the wisest path because they do not effectively address this fear, uncertainty and doubt.

Besides, if you were to ask, most executives will tell you that success in the new marketplace will come as a result of getting closer to customers, delivering value to them now and proactively adapting to their future needs … in a word: demand-pull interactions vs. supply-push communications. So, if everyone understands this, why is there still a problem?

A journey – not a destination
The answer lies in being able to recognize that successful CRM is a journey toward creating a meaningful and sustainable point of difference among one’s customers— not a destination or an organizational philosophy, not a software package or technology implementation. Perhaps most importantly, it’s the recognition that CRM is not about what the company wants; it’s about what the customer wants.

Customers want companies to relate with them through meaningful and relevant interactions. To do so, companies need to adapt the organization to support current and future customer needs and then apply the right customer-centric people, processes and technologies that support those efforts. What is even more challenging today is that customers are operating at a lower level of income, debt tolerance and trust.

Prior to the economic downturn, the primary pursuit of CRM by companies was to enable and sustain high levels of growth by adding new customers, growing existing customers, capturing more market share and improving service. With the cooling economy, companies have traded growth for cost-savings —including substantial employee layoffs — and are focused on increasing the efficiency of existing business processes and resources. In effect, these firms are attempting to realize more from their existing investments. Customers are, in fact, a company’s greatest asset—one in which the firm has made a considerable investment. It stands to reason then that a company would want to realize more ROI from its existing customers.

There are three, key CRM principles to remember so as to stay true on one’s CRM journey, maximize ROI from existing customers, and help mitigate risk against the negative economic forces in the current economy:

1. Unlearn and relearn
Unlearn the principles of “mass” everything. If a company is to truly realize the benefits of CRM, it needs to move from inefficient offer-push communications to efficient demand-pull interactions and put the word “custom” back into “customer.”

Identify the best, next best and the worst customers. As the economy declines, identifying the most profitable, as well as unprofitable, customers is a growing concern. A business relationship requires that we identify best and next best customers and collaborate with them to create new value that will benefit both parties over the long term. Deciding which customers to focus on and which to neglect is the first and most important strategic decision. Recognize that value creation is a joint experience between the brand and the consumer and consequently, value will vary with each customer.

Match customer segments and channels. Indeed, the law of diminishing returns — the point at which sales, service and marketing resources expended in the pursuit of a given customer exceeds the relative profit generated by said customer — dictates that companies use the lowest-cost approach that produces the desired return. Doing this requires effective contact management by analyzing actual customer behaviour to match channels and segments.

2. Redefine the focus
The company that successfully uses CRM should see “focus” in terms of customers, not products or services, and welcome the very significant changes this definition will force.

Win through customer-centric innovation. Creating new and mutual customer value means that companies need to have a process for customer inclusion and collaborative innovation. Old-style innovation that comes to fruition using off-line attitudinal research and product definition is not sufficient. The customer must be involved throughout the process. Online customer advisory panels and Web 2.0 social networking communities are present-day examples.

Compete on scope. In a world of individual customers, unique value must be created for each customer. One way of discriminating among them is to become more meaningful and relevant to each one. For many companies, this has traditionally meant broadening the range of products, services or solutions, whether or not the company makes them. Instead, a modern-day, more effective CRM tactic would be to collaborate with third parties to ensure that each customer receives his or her desired value.

Measure customer performance. Focus on customer profitability with the goal of improving it, rather than the tradition of only measuring product, product line and divisional profitability customer costs, and customer value perceptions. It is quite acceptable to sell products at a loss if the relationship is profitable and/or strategic.

Align budgets with the customer centric journey by working with Finance to implement processes and technologies to view departmental accounts through a customer-centric lens, thereby mitigating the risk of the customer being impacted, ignored or alienated when tough business decisions are made during bad economic times.

3. The new competition
In the era of demand-pull CRM, customers target companies more than companies target customers. The traditional “Four P’s of Marketing” (Product, Price, Place & Promotion), although still relevant for mass marketing, do not address the new reality of CRM.

Companies are aligning with the “Four C’s of the Customer-oriented Marketing Model” (Customer, Communication, Convenience, and Cost) whereby:

• Place becomes convenience for the customer;
• Price becomes cost to the customer; Promotion becomes communication to the customer; and
• Product becomes the customer’s needs and wants.

As well, competition has taken on new meaning.
Increasingly, companies will be competing for six things:

1. Obtaining preferential access to the best customers.
2. Becoming the “shortest time” producer, or taking up as little as possible of the customer’s most precious resource.
3. Winning the right new employees, especially those who understand CRM, whatever their functional job titles.
4. Aligning and collaborating with a selected group of companies, both competitors and non-competitors.
5. Developing more actionable customer data, knowledge and insight than competitors, and moving faster than them, down the “customer’s knowledge curve”, to position the company and its products/services when and where the customer is most likely to buy.
6. Creating the best new strategic possibilities.

In today’s economy, surviving the downturn will require smart operational decision making and most of all, an understanding of the links between marketing, sales and service activities, to ensure that customer-facing teams spend their time targeting high value customers.

More than ever, companies need CRM to provide deep insight into customer behaviour and attitudes, improve customer experience and convenience practices, increase sales and marketing effectiveness, successfully resolve call centre and service interactions, and manage third-party partner programs.

Through the application of a CRM based philosophy and culture, companies which diligently apply customer centric best practices and guiding principles to their strategy and tactics, will move beyond the status quo of yesterday and gain the intelligence and wisdom they need to not just survive the downturn, but sustain and flourish in the future.

Phil Olivieri is managing director and senior consultant at PDO Associates, an independent full-service Customer Relationship and Loyalty Management consulting firm located in Markham, Ontario. PDO Associates helps companies plan, design and implement optimized customer relationship and loyalty management strategies to ensure consistent customer experiences across the enterprise. For more information, contact him at (647) 899-7107 or phil-o@rogers.com.