A company’s customers hold the key to its success. So it must stand to reason that a business should do everything it can to hold on to them
At an OPI conference four years ago, one critic famously dismissed Customer Relationship Management (CRM) as a waste of time. "If you impose CRM onto a salesforce, the salespeople feel threatened," he stated. "And what’s the use of CRM data anyway? Most of it is ’emotional’ information like whether the customer likes golf. That’s not going to help you sell more."
Clearly, however, despite its many well-publicised apparent failings and the heated debates that can ensue, CRM remains a vital tool for many in the OP industry. According to last month’s Proficiency Index (see OPI February 2005, page 76), CRM is a key focus for many resellers in 2005, with increased customer retention cited as the main goal.
As Martin Smith, managing director of Australian dealer group Office Choice, says: "CRM is an invaluable sales and marketing tool for any business today. It can capture the complete profile and potential of a customer. It is a rich information resource when used correctly."
The words "used correctly" are crucial, however. That CRM has not always enjoyed the best of reputations in the past few years is as much a matter of execution and application as anything else. The users blame the vendors, and the vendors blame the users.
The simple fact is that, when discussing CRM, it can be easy to lose sight of its principals beneath the mountain of IT terminology and unruly software technology. Too many CRM projects have floundered on the mechanics rather than the ultimate goal – increasing return from closer customer relationships. It has often been a case of a little too much M, and not enough C and R. And according to some figures, there is a 50-75 per cent failure rate when software technology considerations are given priority over business processes.
Euroffice CEO George Karibian comments: "The business must drive the technology, not the other way around. This is why we have opted to develop our own system. Up to ten software changes have been made to our CRM system each week for the past five years. These were all driven by employees trying to improve their ability to perform a better service."
For at the end of the day, CRM is, or certainly should be, a simple notion. It is not about building elegant capabilities based on the very latest new fangled software packages, it should be about understanding and serving your customers better to keep them happy and so maximise sales.
While CRM programmes can be desperately complicated, effective CRM is a no-brainer. It doesn’t take a highly-paid consultant or analyst, for instance, to point out the obvious – that happy customers spend more money than unhappy ones.
But keeping the punters happy is not always an easy task. While resellers strive for increased customer retention rates – the Proficiency Index currently rates the average in the OP industry at 81 per cent – the Holy Grail is often seen to be customer loyalty.
Customer loyalty is an inexact science, but Karibian believes that there is such a thing in the OP industry, though he admits it is "fragile". He comments: "We cannot forget that office products is a commodity business. We are still selling the same products within a relatively narrow price band. Those with a low operating cost base or buying power are at a clear advantage.
"And like all commodity businesses, price and impulse can cause anyone to lose an order to a competitor. Losing a customer requires a lot more than an impulse – it involves changing buying behaviour."
According to research, companies that manage to engender loyalty tend to grow more than twice as fast as the industry average, and more cost effectively – the reasoning being that loyal customers tend to spend more, cost less to serve and refer to others.
Bob Thompson, founder of CRMGuru.com, says: "Loyalty experts have studied the issue for years and concluded that loyal attitudes and behaviour are driven by the customer’s perception of value, which is an amalgamation of what the customer receives; how it’s sold, delivered and supported; and how much it costs – the price or total cost of ownership.
"Experts in customer psychology say that customers’ emotional states influence about 50 per cent of the value they perceive. Value is created every time a customer is made to feel welcome, important and valued."
Smith says that the key to a good customer retention rate is being pro-active and anticipating the customer’s needs, and CRM certainly plays its part. "A simple diarised note or automatic response to acknowledge and thank customers for their business is a great relationship builder," he reckons.
"The old saying that ‘knowledge is power’ certainly holds true for the benefits that CRM can assist in providing. Building a closer ‘personalness’, understanding of and empathy with the customer and its services, are essential in building strong relationships."
Karibian says that winning new accounts or keeping existing ones are as difficult as each other, but require very different competencies.
Smith, however, believes it can be an easier task trying to keep hold of existing accounts. He says: "The figures unequivocally indicate that it is far easier and more cost effective to increase business with existing customers than to search for new ones. I believe that it is three or four times harder to win new customers than to increase sales to existing customers.
"The first question to ask is ‘how much of my customer’s business have I got?’ In most instances it is much lower than we think – the potential from an existing customer base is enormous."
Of course, there are those customers that tend to spend a lot of time, but not a lot of money, and CRM is an effective weapon in this area, calculating the profitability of each customer.
According to some findings, the average company generates 80 per cent of its profits from 20 per cent of its customer base, and then half of these profits are wasted trying to satisfy the time wasters. With online ventures, these figures can be even more extreme, with one CRM guru claiming that 10 per cent of online customers generate 110 per cent (sic) of the profits – implying that the remaining 90 per cent as a group lose money.
Another CRM expert even advocates that you should treat your good customers like kings, but the bad ones so poorly that they flee to a competitor!
Things are not always so black and white, however, and Karibian says that an online business in particular needs to balance this with the need to achieve "critical mass". He explains: "We recognised that ‘consumers’ made up 12 per cent of our business but took up 50 per cent of our human intervention within our services team. Logic would dictate that we get rid of these customers. Upon closer examination, however, it came to light that our high maintenance consumers were also our best source – by far – of new business customers via recommendations."
OP industry consultant Thomas Schinkel says that such an argument displays only a superficial understanding of what CRM can do for a company. "A well-executed CRM programme goes beyond separating good from bad customers," he says. "Such a programme reveals why certain customers are bad customers. Before discarding these customers as useless, there are numerous opportunities to turn these ‘bad’ customers into ‘good’ customers as well.
"What’s more, allowing for a deeper analysis of what is wrong with these customers, their answers may reveal flaws in your business model. For example, are you making the right offer to these customers? Are you making promises you cannot deliver at a profit? Are there flaws in your special order delivery methods? Are your commission schedules in alignment with other parts of your business model?
"Once you are through with these questions, you may have identified a whole host of action steps you can take to keep these customers and start making money on them, and you may also have found ways to strengthen your company as it is perceived by all of your customers."
Smith points out that a broad and varied mix of customers is essential, strategically speaking, for many businesses. He says what CRM does is allow the business to objectively analyse itself customer by customer, or customer segment by customer segment, or by geographical location, etc.
He remarks: "It also enables the business to better allocate resources and time, dependent upon its go-to-market model. We know from our experience that many dealers seek far and wide for business when there is plenty of potential in the existing customer base or within the immediate vicinity of the dealership.
"Better analysis of all customers allows the business to allocate time and resources to all customers, based on the real or potential sales and profit contribution to the business."
While he doesn’t go quite as far as to advocate driving your bad customers away to the opposition, he does concede: "In all businesses, there are simply some customers that are too time- and resource-consuming. CRM helps determine who they are and to make the appropriate decision."
So, is the customer always right? Well, maybe not the bad ones!
According to a survey of 150 top executives from Fortune 1000 companies, a flawed execution plan is the main reason why CRM programmes can fail.
The study, conducted by Accenture and Wirthlin Worldwide, listed the three main reasons for CRM failure as flawed execution plans (74 per cent), lack of long-term CRM vision (60 per cent), and inadequate support from senior management (55 per cent).
But the majority did see the advantages, with 56 per cent saying that their business would grow by as much as 20 per cent if they could gain access to comprehensive data about their customers.
Of particular interest from the Accenture findings, however, is the role that technology plays, with only 33 per cent of executives declaring that it helped their companies gain better insight into customers "to a great extent", and 54 per cent saying "to some extent".
There is conflicting opinion, however, as to how successful CRM programmes are, with many column inches in the business press devoted to high-cost failures.
Back in 2001, Gartner projected that CRM failure rates would rise from 65 per cent in 2002 to 85 per cent in 2004, then drop back to 50 per cent in 2007.
Now, depending on what publication you are reading, CRM failure rates are typically put down to be anywhere between 50-80 per cent. A recent article in the Wall Street Journal said: "Some studies show that half of CRM projects never work out, despite the hundreds of millions of dollars companies sometime spend on them."
CRMGuru.com founder Bob Thompson tends to take the findings with a pinch of salt, saying that actual success and failure definitions are hard to pin down. He says: "The only conclusion that I can reach is that the parties involved are spinning the numbers to serve their own vested interests. Nothing sells research reports, or catches the reader’s attention like reports of catastrophe. And no vendor has an incentive to admit that all installations didn’t go well.
"CRMGuru’s position is that, if you measure success in terms of ROI, or by customer perception of success, the success rate is nearly 70 per cent."