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Relationship
Trends
By Michael Alan Hamlin
July 30, 2001
Richard Forsyth is a geek turned netpreneur, and despite
the despair prevalent in the dot-bomb space, his site - www.crm-forum.com
- managed to turn a profit last year, and is still growing around
15 percent a year. crm-forum.com (he hasn't dropped the dot-com
suffix) acts as a clearing house for information on new customer
relationship management (CRM) technology, case studies, and research.
The community has already grown to about 35,000 individuals, about
20 percent of them in Asia.
I met Mr. Forsyth last week in Hong Kong, where we
were both speaking at CRM Asia 2000. The organizer, my firm, invited
Mr. Forsyth and I invited myself. The conference featured about
20 speakers from the United States, Europe, and Asia from among
CRM users, implementers, solution providers, and academics.
The fact that Mr. Forsyth's site is still growing and
has managed to become profitable suggests keen interest in CRM.
Because such things as quality, efficiency, and productivity are
widely benchmarked by competitors, companies are continuously on
the lookout for new sources of competitive advantage, and profitability.
CRM is the current darling.
The principal thesis behind CRM is that companies should
identify and develop meaningful relationships with their profitable
customers, and stop worrying about marginally profitable fringe
customers and overall market share. Deeper relationships can be
leveraged to increase the amount of business a company already does
with its profitable customers, because it will understand its customers
better and as a result have a better idea of what else they'd like
to buy.
Because CRM is, for now, a source of competitive advantage
and profitability, it is also recession proof. In fact, Peppers
and Rogers Group suggests at least three reasons why CRM is implemented
in down times. First, it's cheaper to try to increase revenues and
profitability by increasing the level of business a company does
with existing customers than going out and trying to find new customers.
In down times, companies frequently want to reduce marketing expenses.
A company can do this and still grow by shifting away from market
development initiatives and concentrating on CRM.
Developing better, more meaningful relationships with
profitable customers provides the added value of insulating the
firm from price competition, a huge advantage under any circumstances,
and particularly in tough times. Relief from price pressure is a
function of the amount of business a customer does with a company
because the company knows her so well. So well that to switch for
a 10 percent savings to a competitor isn't worth the trouble of
"training" a new supplier.
Second, unlike a lot of technology implementations,
CRM can be undertaken incrementally. In fact, Mr. Forsyth recommends
that companies start small so that they can learn valuable lessons
that will make more ambitious initiatives in the future less risky.
Even better, Peppers and Rogers Group says that CRM is like direct
marketing campaigns in that it's usually possible to determine how
successful the undertaking will be before the money is spent. CRM
"is a process that is inherently easy to test and validate,"
the consultancy says.
"No self-respecting direct marketer would even
dream of committing millions of dollars to a mailing campaign without
already having validated the campaign on a test population so that
the precise results can be known in advance, and the economics of
the expenditure are justified," the argument goes. That makes
for easier campaign approval, especially in down times, but the
bottom line of course is that CRM, implemented correctly, dramatically
ameliorates risk while allowing the company to grow.
But correct implementation is very frequently a problem.
In fact, by some estimates up to 75 to 80 percent of CRM implementations
fail. The reasons vary. The most frequent reason is organizational
resistance according to Mr. Forsyth. Like most new ways of doing
things, CRM requires that some things be done differently. Organizational
resistance is also a sign of another cause of CRM implementation
failure, and that is lack of leadership from the top leading to
internal infighting and inertia. A third reason for failure is a
lack of understanding of CRM and the objectives of the initiative.
Sounds pretty dumb, but it's obviously not that unusual for a company
to try to implement something it doesn't understand.
There's a third reason why it makes sense to implement
CRM in down times, and that is to protect the company's existing
customer base. As a market slows, there is increasing competition
for scarce customers. And unless customers, under duress themselves,
have good reasons to stay, they will become increasingly susceptible
to price and other inducements. Companies that want to hold onto
their customers must therefore be intimate with them, so that a
breakup will be as traumatic as divorce.
In fact, in a recent survey run by Mr. Forsyth involving
700 respondents, retaining customers was the most important reason
companies implemented CRM. Peppers and Rogers have found that meaningful
relationships frequently become collaborative, further strengthening
the bonds between company and customer, and increasing chances for
an enduring association.
Is CRM a fad? No, but it's not a strategy either. Rather,
it is a component of a company's competitive strategy. It won't
go away. Like quality and process efficiencies, CRM will gradually
cease to be a source of competitive advantage because everyone will
be doing it. Then of course every company will have to have a strong
CRM program in place just to stay in business.
If you want to enjoy this brief period of competitive
advantage, better jump in early. Eventually you'll have no choice
anyway.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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