PRM provides a firm and its distributors trade information and distributes leads about customers

CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS

Businesses have always valued their customers, but today there is much greater appreciation of the importance of customers for the profitability of the enterprise. Because competitive advantage based on an innovative new product or service can be very short lived, companies are realizing that their only enduring competitive strength may be their relationships with their customers. Some say that the basis of competition has switched from who sells the most products and services to who �owns� the customer, and that customer relationships represent the firm�s most valuable asset.

Customer Relationship Management and Partner Relationship Management

Many firms are turning to customer relationship management (CRM) to maximize the benefits of their customer assets. Customer relationship management is both a business and technology discipline for managing customer relationships to optimize revenue, profitability, customer satisfaction, and customer retention. It uses information technology to track all of the ways in which a company interacts with its customers and to analyze these interactions to maximize the lifetime value of customers for the company while simultaneously maximizing satisfaction for the customers.

           Different customers represent different levels of profit for the firm. Some customers cost a great deal to attract and to service, whereas others cost very little to service and to attract for large purchases. Customer relationship management helps organizations identify customers who cost little to attract and to keep and who provide the greatest revenues for every marketing or customer service dollar spent. These �good� customers represent about 80 to 90 percent of a company�s profits, but they represent only 10 to 20 percent of the company�s customer base.

           CRM also focuses on ways of retaining profitable customers and maximizing lifetime revenue from them. It can cost up to six times as much to acquire a new customer as to keep an old customer. These figures vary by industry, but higher customer retention rates generally increase revenues and reduce costs for the firm.

           Customer relationship management extends to a firm�s business partners who are responsible for selling to customers. Partner relationship management (PRM) uses many of the same data, tools, and systems as customer relationship management to enhance collaboration between a company and its selling partners. If a company does not sell directly to customers but rather works through distributors or retailers, PRM helps these channels sell to customers directly. It provides a company and its selling partners with the ability to trade information and distribute leads and data about customers, integrating lead generation, pricing, promotions, order configurations, and availability. It also provides a firm with tools to assess its partners� performance so it can make sure its best partners receive the support they need to close more business.

Although companies have always talked about putting customers first, until recently, their information systems could not help them do this. Pieces of customer data were often fragmented in isolated systems serving finance, distribution, sales, service, and marketing or organized around product line, line of business, or communication channel. E-commerce generated massive amounts of data about customers and prospects that could not be integrated with the data in compartmentalized information systems.

           Customer relationship management (CRM) systems were designed to address these problems by providing information and tools to deliver superior customer experience and to maximize customer lifetime value for the firm. CRM systems capture and integrate customer data from all over the organization, consolidating the data, analyzing the data, and then distributing the results to various systems and customer touch points across the enterprise. A touch point (also known as a contact point) is a method of interaction with the customer, such as telephone, e-mail, customer service desk, conventional mail,Web site, or retail store.

           Well-designed CRM systems can provide a single enterprise view of customers that can be used for improving both sales and customer service. Such systems can likewise provide customers with a single view of the company regardless of what touch point the customer uses.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) SOFTWARE

Commercial customer relationship management (CRM) software packages range from niche tools that perform limited functions, such as personalizing Web sites for specific customers, to large-scale enterprise applications that capture myriad interactions with customers, analyze them with sophisticated reporting tools, and link to other major enterprise applications, such as supply chain management and enterprise systems. The more comprehensive CRM packages contain modules for partner relationship management (PRM) and employee relationship management (ERM).

           Employee relationship management software deals with employee issues that are closely related to CRM, such as setting objectives, employee performance management, performance-based compensation, and employee training. Major CRM application software vendors include Siebel Systems, Clarify, and Salesforce.com. Enterprise software vendors such as SAP, Oracle, and PeopleSoft are also active in customer relationship management and feature tools for integrating their enterprise system modules with their customer relationship management modules.

           Customer relationship management systems typically provide software and online tools for sales, customer service, and marketing. Their capabilities include the following:

Sales force automation (SFA). Sales force automation modules in CRM systems help sales staff increase their productivity by focusing sales efforts on the most profitable customers, those who are good candidates for sales and services. CRM systems provide sales prospect and contact information, product information, product configuration capabilities, and sales quote generation capabilities. Such software can assemble information about a particular customer�s past purchases to help the salesperson make personalized recommendations. CRM software enables customer and prospect information to be shared easily among sales, marketing, and delivery departments. It increases each salesperson�s efficiency in reducing the cost per sale as well as the cost of acquiring new customers and retaining old ones. CRM software also has capabilities for sales forecasting, territory management, and team selling.

Customer service. Customer service modules in CRM systems provide information and tools to make call centers, help desks, and customer support staff more efficient. They have capabilities for assigning and managing customer service requests.

           One such capability is an appointment or advice telephone line:When a customer calls a standard phone number, the system routes the call to the correct service person, who inputs information about that customer into the system only once. Once the customer�s data are in the system, any service representative can handle the customer relationship. Improved access to consistent and accurate customer information helps call centers handle more calls per day and decreases the duration of each call. Thus, call centers and customer service groups can achieve greater productivity, reduced transaction time, and higher quality of service at lower cost. The customer is happier because he or she spends less time on the phone restating his or her problem to customer service.

           CRM systems may also include Web-based self-service capabilities: the company Web site can be set up to provide inquiring customers personalized support information as well as the option to contact customer service staff by phone for additional assistance.

Marketing. Customer relationship management systems support direct-marketing campaigns by providing capabilities for capturing prospect and customer data, for providing product and service information, for qualifying leads for targeted marketing, and for scheduling and tracking direct-marketing mailings or e-mail. Marketing modules would also include tools for analyzing marketing and customer data�identifying profitable and unprofitable customers, designing products and services to satisfy specific customer needs and interests, and identifying opportunities for cross-selling, up-selling, and bundling.

           Cross-selling is the marketing of complementary products to customers. (For example, in financial services a customer with a checking account might be sold a money market account or a home improvement loan.) Up-selling is the marketing of higher-value products or services to new or existing customers. (An example might be a credit card company persuading a good customer to upgrade from a conventional credit card to a �platinum� card with a larger credit line, additional services�and a higher annual fee.)

           Bundling is one kind of cross-selling in which a combination of products is sold as a bundle at a price lower than the total cost of the individual products. For example, Verizon sells bundled telephone services that include local and long-distance service, voice mail service, caller identification, and digital subscriber line (DSL) access to the Internet. CRM tools also help firms manage and execute marketing campaigns at all stages, from planning to determining the rate of success for each campaign.

           Figure 11-9 illustrates the most important capabilities for sales, service, and marketing processes that would be found in major CRM software products. Like enterprise software, this software is business-process driven, incorporating hundreds of business processes thought to represent best practices in each of these areas.

FIGURE 11-9 CRM software capabilities
The major CRM software products support business processes in sales, service, and marketing, integrating customer information from many different sources. Included are support for both the operational and analytic aspects of CRM.

           Figure 11-10 illustrates how a best practice for increasing customer loyalty through customer service might be modeled by CRM software. Directly servicing customers provides firms with opportunities to increase customer retention by singling out profitable long-term customers for preferential treatment. CRM software can assign each customer a score based on that person�s value and loyalty to the company and provide that information to help call centers route each customer�s service request to agents who can best handle that customer�s needs. The system would automatically provide the service agent with a detailed profile of that customer that included his or her score for value and loyalty. The service agent could use this information to present special offers or additional service to the customer to encourage the customer to keep transacting business with the company. Table 11-3 describes other best practice business processes in the Siebel CRM system.

FIGURE 11-10 Customer loyalty management process map
This process map shows how a best practice for promoting customer loyalty through customer service would be modeled by customer relationship management software. The CRM software helps firms identify high-value customers for preferential treatment.

TABLE 11-3 Examples of Best Practice Business Processes in the Siebel CRM System

All of the applications we have just described support either the operational or analytical aspects of customer relationship management. Operational CRM includes customerfacing applications such as tools for sales force automation, call center and customer service support, and marketing automation. Analytical CRM includes applications that analyze customer data generated by operational CRM applications to provide information for improving business performance management. Table 11-4 provides more specific examples of operational and analytical CRM functions.

TABLE 11-4 Examples of Operational Versus Analytical CRM

FIGURE 11-11 Analytical CRM data warehouse
Analytical CRM uses a customer data warehouse and tools to analyze customer data collected from the firm�s customer touch points and from other sources.

Companies with effective customer relationship management systems can realize many benefits, including increased customer satisfaction, reduced direct marketing costs, more effective marketing, and lower costs for customer acquisition and retention. Information from CRM systems can increase sales revenue by identifying the most profitable customers and segments for focused marketing, cross-selling, and up-selling.

           Customer churn is reduced as sales, service, and marketing better respond to customer needs. The churn rate measures the number of customers who stop using or purchasing products or services from a company. It is an important indicator of the growth or decline of a firm�s customer base.

           The Window on Organizations illustrates how customer relationship systems have provided value for automotive dealers. Both Mercedes-Benz Canada and Saab Cars U.S.A. invested in customer relationship management systems to help them compete for customers in the crowded premium automotive market. Both had been hampered by fragmented customer data and uncoordinated processes for dealing with customers.

Siebel Sales Analytics presents key sales metrics in interactive charts, graphs, and dashboards. These powerful analytical tools help firms identify their most important customers, predict future buying patterns, and position the correct resources to close more deals.

A company�s decision about which customer-related activities to measure, how costs are assigned to the activities, and the manner in which the activities are assigned back to customers can have a huge impact on profitability calculations. Some companies that invest in CRM have little or no idea of their return on investment (ROI). They fail to create measurements of current performance or set targets for improved performance with the new CRM system. Successful CRM implementations require that financial and operational goals and the metrics to evaluate them be clearly defined at the beginning of the project. Metrics for customer relationship management might include the cost per lead, cost per sale, number of repeat customers, reduction of churn, or sales closing rate.

           Another important metric is the customer lifetime value (CLTV). CLTV is based on the relationship between the revenue produced by a specific customer, the expenses incurred in acquiring and servicing that customer, and the expected life of the relationship between the customer and the company (Sabri, 2003). CLTV represents the difference between revenues and expenses minus the cost of promotional marketing used to retain an account; the value of this amount is expressed in today�s dollars. (See the discussion of net present value in Chapter 15.)

Do all CRM packages contain modules for PRM and ERM?

Which of the following traditional solutions enables manufacturers to deal with uncertainties in the supply chain?

Which effect is caused by a distortion of information about the demand for a product as it passes from one entity to the next across the supply chain?

Which of the following is the undisputed global market leader in cloud based CRM systems?