The idea of customer relationship management (CRM) holds out an ambitious promise that customer interactions can be managed by technology – or, at least, that such systems can enable companies to manage these relationships. But there has been much dissatisfaction with CRM over its short life, suggesting that the process is much more difficult to manage than its proponents will admit.
Corporate structures and culture may carry more of the blame than technology, but there are also serious doubts about whether customers want a relationship at all, managed or not. Most companies would claim that they do manage the relationship after a fashion, and their expenditure on CRM is evidence of the importance management attaches to it.
According to Forrester Research, total corporate expenditure worldwide on CRM systems is growing at about 8 per cent a year and is forecast to reach $11bn by 2010. Yet when Forrester questioned 94 business and IT executives about their satisfaction with CRM applications in 2005, less than half felt that the benefits met expectations. Questioned further, a mere 10 per cent were confident they were getting the right results.
If Forrester had surveyed these executives’ customers, even these results would probably have glowed in comparison. Everyone has a stock of horror stories of transactions that have gone awry, details and goods lost, payments demanded with blood-curdling threats for services never rendered, departments in conflict so that simple administrative mistakes take years to untangle… the list is never-ending.
The survey also failed to reveal how much business is lost due to poor customer service, with or without the aid of CRM systems. Accenture, the consultancy, regularly polls UK consumers on customer satisfaction, and its latest survey (conducted in May 2006 of more than 1,000 consumers) showed that six out of ten consumers switched at least one service provider in the past year on account of poor customer service.
Significantly, Accenture concludes that “the newer technologies don’t seem to be improving consumers’ satisfaction with customer service”. Automated phone services were the main bugbear, but even where human contact was provided, being kept on hold, the need to repeat details to successive members of staff, their inability to answer questions, let alone solve the caller’s problem, were enough to prompt a switch to a rival.
For many companies, customer service is seen as an expense to be reduced to a minimum – hence, call centres use only poorly-trained low-grade staff with strict volume targets, or else their role is outsourced. As long as the rate of acquiring new customers exceeds the rate of defection, the chief executive officer prefers to tackle other, less intractable problems.
Eventually, the market catches up. Dell, once the darling of business schools on account of its “direct” business model that bypassed computer retailers, has recently lost market share and damaged its stock market reputation, in part because its much-lauded processes have a flaw. When a delivery goes wrong or a product is found to be faulty, customers will be left struggling if the management has cut the human element in the customer-facing function to a minimum. The typical problems can only be solved by humans with the necessary knowledge and authority. In Dell’s case, customer frustration with the attention they received eventually found expression through a blog for the whole world to read – including the financial community.
Customer difficulties become worse when the solution to problems requires close co-operation between several units in the organisation, each of which will fear for its bonuses if required to spend too long helping other units find solutions. A major reason why CRM systems so often disappoint is that they do not overcome this silo effect, and may have to interface with legacy systems elsewhere.
Management information does not reveal the extent of the problem, which at heart is an organisational issue. No one individual other than the CEO is in a position to solve it, and the customers are the inevitable victims.
One way forward, according to David Reibstein, professor of marketing at Wharton Business School, is to attach a financial value to the customer base in terms which the CEO and chief financial officer will understand. As an example, he has estimated that the difference in value between a satisfied customer and a dissatisfied customer of the Starbucks chain of coffee bars is $2,800 on an eight-year view, and the lifetime value of a BMW customer is $143,500.
Various methods of calculating such values have been devised: Sunil Gupta and Donald Lehman, two academic consultants at Columbia Business School, and co-authors of Managing Customers as Investments: the Strategic Value of Customers in the Long Run, base theirs, for example, on the acquisition costs of a customer, the present value of the margin on the revenue generated, and the retention rate.
Based on a small sample of firms that included Amazon, Capital One and eBay, their calculations showed that the retention rate was the key driver of the value of the customer base – retaining 1 per cent more customers lifted the customer value by five times more than a 1 per cent increase in margin, and 50 times more than a 1 per cent reduction in acquisition cost.
Satisfied customers, in other words, have a direct impact on the bottom line, as does churning and poor service. Further, companies have a firm financial base on which to plan their investment strategy for CRM systems, call handling and the organisational changes needed to ensure that customers receive the help they need. “Managing” the customer relationship can then be seen as a profit-maximising process rather than cost-minimising, and CRM investment can be judged accordingly.
Customers still won’t welcome being “managed”, however, even in services like banking, insurance, telecoms, travel, which require much closer relationships between the two parties than traditional business is accustomed to. Managers will deceive themselves if they assume that the bond is any stronger for being closer.
True, bank customers are reluctant to change banks, unlike their insurance or mobile phone suppliers. But even for banks, it’s a fragile relationship. Forrester’s research showed that rather than relying on their primary bank, over half its 23,000 international sample said that when looking for new financial services, they shopped around. Worse, three-quarters believed that their bank did not act in their best interest.
A consultancy that has developed a standard assessment process for managing customer relations is QCi, part of the WPP Group, and this year, it found, unusually, that a bank came out top of all those assessed, with a score of 60 per cent. Managing partner Peter Lavers explains that out of the 700 companies that have so far been assessed (at their own request), less than 10 scored over 60 per cent – the average is 36 per cent, suggesting some very low scores, “but it’s getting slightly better.”
Everything depends, of course, on the rigour of the assessment process, and Mr Lavers is well aware that managers are inclined to overestimate their firms’ skill in customer relations. But what is clear is that technology on its own cannot meet customers’ rising expectations. Only empowered staff, backed by the right strategy and information technology can do that.
