A New Era of CRM... Where Business Loyalty Rules!

1 Jul, 2002

By: Mary E. Bartels

Those of us in the call center business have been talking about, planning, strategizing, budgeting and attempting to implement CRM (customer relationship management) for the better part of the last decade and where are we now? For most -- still as confused as ever. For all of our efforts, we even continue to battle over the definition. Is it a loyalty scheme? Is it database marketing? Is it key account management? For something that has become so pervasive in our industry, it is shocking that there is still no widely accepted definition of what CRM is. Yet, while CRM is many things to many people, maybe it's not what we call it, but what we do with it that really matters.

Two Simple, Fundamental Truths of CRM
CRM is a strategic initiative. While it can have many different interpretations, the first fundamental truth is that CRM almost always includes data intensive activities that support customer-centric business decisions. This understanding of CRM as a strategic initiative is why so many CFO''s have continued to support CRM despite reductions in other areas and escalating costs in others.

CRM is about the customer. The second fundamental truth is that the more a company can understand and unite with their customers in meaningful ways, the more likely the profits will follow. Armed with the, who, what, when, where, and why of customer behaviors and preferences, companies can identify distinct segments and determine how best to interact with each group. Technology designed to collect, aggregate and analyze customer data has supported this truth.

If It's Simple, Why Doesn't It Simply Work?
According to the Gartner Group, as many as 70% of CRM implementations are unsuccessful. In addition, industry reports also indicate that the customer satisfaction ratings among CRM solution providers is a dismal 63%. So if there are only two fundamental truths about CRM, why do confusion, complexity and marginal successes prevail? Typically, three primary factors top the list.

Implementation. A comprehensive CRM solution often requires a fundamental change in the policies and procedures of how a company sells to, and supports its customers. Changing to a customer-centric business model, where the customer always comes first, can be very difficult to adopt. Employees tend to remain in their own behavioral patterns and lose site of creating a better customer experience. Supervisors face competing initiatives and lose site of their role as coach to reinforce employee behavior. Senior managers fail to filter the message and commitment throughout the company beyond the launch. Absent full-scale, organization-wide communications and commitment, even the simplest of CRM solutions risk failure.

Technology. The technology solutions available today are simply too complex. The growth of CRM has created vendor madness. Multitudes of companies have entered the space, all offering their version of a comprehensive, feature-rich solution. In order to beat the competition, solution providers have their engineering teams working day and night creating excessively complex features that, too often, prove to provide little, if any, value to the end customer.

With shareholder demands for short-term profits and management in search of a solution that would enable them to cut costs and increase profits, companies invested heavily in the technology as the solution. Unfortunately, the delusions of rapid-fire customer contacts, fully integrated sales, service and marketing endeavors, intelligent management reports at the click of a button, and seamless multi-channel customer service have flourished, and have left companies in a state of confusion about making their systems work.

Business Loyalty. Too often companies address only customer loyalty as related to CRM initiatives. In reality, they need to be analyzing, addressing, testing and implementing an internal business loyalty model that aligns loyalty principles, processes, and measurements equally for customers, employees and investors to support a CRM effort. This clearly separates the stalled, from successful CRM interventions.

Business Loyalty Rules!
A loyalty approach provides the framework for executives to alter and incorporate corporate strategy and operating practices in ways that will better serve the long-term interests of customers, employees, and investors. Even more significant, perhaps, the loyalty structure creates a set of sensible and useful measures that senior management can use to manage the company's value creation process, and up flow the source of all profits and growth.

Business loyalty has three dimensions of relationship development ¡V customer loyalty, employee loyalty, and investor loyalty. A relationship is defined as the condition or fact of being related, i.e. having a close harmonic connection. So in order to create customer relationships, does it not make sense that you should strive for employee devotion and loyalty? Does it not make sense to establish measures, incentives, recruiting, selection, training, career paths, customer acquisitions, pricing, marketing strategies, etc. to create the right environment for value and loyalty? Does it not make sense that the investors in your company, have similar, innate desires to build relationships?

The exercise of carefully choosing and retaining customers and employees, as well as working intensely with investors to support the vision, may well be the governing business system that has long been missing.

Customer Loyalty Is King
CRM is a way to identify, acquire, and retain valued customers. The customer relationship is essentially based on the exchange of value for money between two parties. The relationship can be anticipated to exist only so long as both parties benefit. The partner most willing to end the relationship is the one with the most control. This is why, in the new era of CRM, the power is shifting decisively to the customer. As products and services become commodities, the value that will differentiate one company from another will be based on the customer''s perception of their experience with the company. So, CRM should manage customer contacts, so that every interaction is positive and reinforces the value of a loyal relationship.

The first step in operating a loyalty-based business system is finding and acquiring the right customers: those who offer stable cash flows and a profitable return on the firm''s investment in the future; those whose loyalty can be earned and kept. Consider these guiding customer loyalty principles:

  1. Some customers will find your products and services more valuable than those of your competitors. Know what your customer wants from you and why.
  2. Some consumers are innately predictable, loyal, and prefer established, long-term relationships. Know these customers and their patterns.
  3. Some customers are more profitable than others. Know those who spend more money, pay their statements more promptly, and require a less service.

The more customers you can attract who fit in to one, two or even all three of these groups, the better your chances of reaping the financial rewards of excellent customer loyalty.

To appreciate and understand the economics of customer retention in your enterprise, be sure to quantify and outline the lifecycle of customer profitability. Identify all the noteworthy differences between new and established customers that affect the cash flows of your business. Every company is unique, but obtaining data on each of the factors in Figure 3.0 will help jump start, or enhance a customer loyalty focus.

  • Acquisition Cost: Know cost of getting a new customer factor in marketing
  • Base Profits: Know basic profit on basic service
  • Per-Customer Revenue Growth: Analyze behavior of defectors vs. loyal customers; estimate growth separately for each customer segment
  • Cost Savings: Determine where productivity and expense efficiencies are achieved
  • Referrals: Use loyal customers to refer new customers
  • Price Premiums: Understand that longer-term customers pay higher prices than new ones thus require more value from the experience

Employee Loyalty Is A Must
In much the same way that we acquire and retain the best customers, so too, we should focus on employing and retaining the best team members.

As a company begins to realize profits from loyalty strategy, it must reinvest a portion of its profits in the hiring, motivation, and retention of superior associates. Why? First, it takes time to build loyal relationships with customers, and seasoned employees are usually better at doing it. Second, loyal teams have greater opportunities to learn and increase their own efficiency and effectiveness. Moreover, near and dear to every call center manager, is turnover dollars -- the money that loyal associates save their companies in reduction of recruitment and development costs can be substantial.

Because managing the employee relationship can be as comprehensive as managing the customer relationship, consider the seven economic effects that are associated with employee loyalty.

  • Recruiting Investment. Recruiting fees, interviewing costs, relocation expenses, etc.
  • Training. Training wages, etc.
  • Efficiency. Employees are more efficient after time on the job.
  • Customer Selection. Experienced CSRs are much better at finding and recruiting the best customers
  • Customer Retention. Loyal employees can produce better products and value for the customer.
  • Customer Referral. Loyal employees can be a major source of customer referrals
  • Employee Referral. Loyal employees often generate the best flow of high caliber job applicants. Thus the trend in the call center industry to spend more dollars on employee referral programs than job classified ads.

Investor Loyalty Matters
Just as there are customers and employees who are right for your company, there are investors who are best suited as well. These investors could be internal or external shareholders, stakeholders, venture capitalists or board members, with varying levels of financial commitments. While, it¡¦s true you may not always be able to select every investor, you can further engage the more loyal, predictable and valuable ones. To do this determine those investors who: want to be involved in the business as partners not just shareholders; are driven by true long-term successes; have an investment timeline that parallels your value-management model; and value loyalty models for acquiring and retaining top-quality customers and employees. Then educate, educate, educate your investors. Require identified levels of involvement, and leverage them to influence, support, communicate and drive your customer and employee loyalty initiatives. Getting them involved helps anchor their commitment to the company.

Many leading companies have built a foundation on stable ownership and the loyalty of their corporate investors, allowing management to concentrate on a long-term value and CRM proposition. They have done this in three ways:

  1. Attracting the right investor
  2. Educating them
  3. Maintaining low investor churn

Making It Happen
Whether embarking on the first, second or nth generation of CRM strategy development, remember the importance of people; customers, employees and investors as did one of my favorite entrepreneurs.

Milton Hershey, founder of the Hershey Chocolate Company, practiced servant leadership; the more people served, the better the leader can lead. He believed wealth should be used for the benefit of others and practiced what he preached. He knew the importance of esprit de corps, and felt that an individual was morally obligated to share the fruits of success with others. In so doing, he made significant contributions to his employees and to society. Milton may not have realized that his ideas were the foundation for a Business Loyalty Model or a new CRM strategy, but he had great courage, failed many times, and held never relinquished his dreams or principles of leadership and loyalty.

If all else fails, eat some chocolate. It dulls the pain.