Customer Relationship Management

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Contents

Foreword ix

About the authors xi

Acknowledgements xv

Chapter 1 CRM top of the management agenda 1

Long-term forces 4
Massive investment with questionable return 9
Barriers to success 10
Conclusions 15
References 15

Chapter 2 A strategic framework for CRM 17

Process 1: Strategy development 21

Process 2: Value creation 24
Process 3: Channel and media integration 26
Process 4: Information management 30
Process 5: Performance assessment 34
References 41

Chapter 3 The strategy development process 42

Development of business strategy 42

From business strategy to competitive strategy 43
Implementation and the importance of customer strategies 44
Case study 3.1: A fruitful passion for Orange 46
 vi Contents

Case study 3.2: Britannia Building Society: Turning information into

insight 69
Case study 3.3: Time to remodel at Homebase.co.uk 86

Chapter 4 The value creation process 101

Building the value proposition for target customers 102

Case study 4.1: Friends First: Building the customer centric
organization 105
Case study 4.2: Canada Life (Ireland): Committed to excellence in
customer care 118
Case study 4.3: Connecting the dots: Sun Microsystems 127
References 142

Chapter 5 Channel and media integration process 143

Case study 5.1: Wesleyan Assurance Society 146

Case study 5.2: RS Components: Proactive purchase power 153
Case study 5.3: asserta home 164

Chapter 6 Information management process 184

Case study 6.1: The Derbyshire Building Society: Putting the customer
at the heart of business 190
Case study 6.2: Canada Life (UK): Leveraging value from legacy
systems 202
Case study 6.3: Reaal Particulier: Improving customer focus through
field sales integration 214
Case study 6.4: NatWest: Bold new statements 221

Chapter 7 Performance assessment process 237

Case study 7.1: Sears, Roebuck and Company 240

Case study 7.2: Nortel Networks 246
Case study 7.3: Siemens CT Division 252
References 256

Chapter 8 CRM investments and shareholder value 257

Summary of cases 257

Valuing CRM investments 262
 Contents vii

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Does CRM create shareholder value? 268
Summary 272

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References 273

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Chapter 9 The future of CRM: What opinion leaders think 274

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Don Peppers 276

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Dave Fagan
Simon Kelly
280
284
Phill Robinson 287

Index 291
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Foreword

C RM has confounded the business world since its inception. Indeed, analysts
Gartner calculate that 65 per cent of CRM projects failed last year (2001).
Yet industry remains committed to CRM: despite an inhospitable IT investment
climate, spending projections for the sector remain in the ascendancy.
The reason for the perseverance is obvious: a coterie of businesses is getting
CRM right and achieving impressive results. Perhaps more fundamentally, busi-
nesses appreciate the inherent logic that underpins CRM practice, and the sense
in adhering to its guidelines however maddening this can prove to be at times.
As a CRM technology vendor, my business grapples every day with the reali-
ties of what best-practice CRM entails. Quite simply, it is about understanding
customers and helping them to satisfy their individual needs. Of course, behind
that it is about helping businesses to increase their own value.
With a deft touch, this book unravels the curious mix of social, technological
and business changes that have spawned the CRM industry. The scale of the
research is breathtaking; it offers insight from the industry’s leading thinkers,
and is peppered with case study examples from a range of industries.
In Customer Relationship Management: Perspectives from the Marketplace,
one is left with a real sense of the potential of CRM to deliver business value,
provided certain ingredients are in place. Getting senior management to buy into
CRM at an early stage is perhaps the most critical of these ingredients. To that
end, I could not recommend a wiser starting point than this enthralling book. I
hope you enjoy and are as provoked as much as I was from it.

Michael Kelly
Founder and CEO
FINEOS Corporation
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About the authors

SIMON KNOX BSc PhD

Professor of Brand Marketing
Simon Knox is Professor of Brand Marketing at the Cranfield School of
Management in the UK and is a consultant to a number of multinational com-
panies including McDonald’s, Levi Strauss, DiverseyLever, BT and Exel. Upon
graduating, he followed a career in the marketing of international brands with
Unilever plc in a number of senior marketing roles in both detergents and foods.
Since joining Cranfield, Simon has published over 100 papers and books on
strategic marketing and branding and is a regular speaker at international con-
ferences. He is a Director of the Cranfield Centre for Advanced Research in
Marketing in the School and is currently leading a research team looking at
the impact of Corporate Social Responsibility on Brand Management. He is
the co-author of two recent books, Competing on Value, published by FT
Pitman Publishing in the UK, Germany, the USA and China, and Creating a
Company for Customers, published by FT Prentice-Hall, in the UK, Brazil and
India.

STAN MAKLAN BA MBA

Visiting Fellow and PhD Candidate
Stan Maklan is an experienced marketer and management consultant with
senior, international line management experience in blue chip consumer and
business marketing companies.
Stan spent the first 10 years of his career in marketing with Unilever Canada,
UK and Sweden, where he was Marketing Director of its Toiletries business. He
 xii About the authors

spent the following 10 years largely in consulting, most recently with Sapient, a
leading builder of new economy businesses as a senior manager specializing in
CRM and marketing strategy. Previously, Stan was a managing consultant with
one of the world’s largest IT-management consulting firms, CSC Computer
Sciences. Stan established CSC UK’s Customer Relationship Management prac-
tice and then moved to a role within its European Consulting and global man-
agement research unit (Research Services). Prior to that, Stan had his own
consulting firm specializing in business to business marketing; clients included
Motorola, Dell, Santa Cruz Operation, Hong Kong Telecom, Molyncke,
Southern Water, Atomic Energy Authority Technology and British Olympic
Association.
Stan was awarded honours for academic excellence when he obtained a
Masters of Business Administration from the University of Western Ontario
(Canada) and has a Bachelor of Science (Economics) from the Université de
Montréal. He is a French and Swedish speaker, and a regular contributor to
marketing seminars, courses and publications.

ADRIAN PAYNE MEd MSc PhD FRMIT

Professor of Services and Relationship Marketing
Adrian Payne is Professor of Services and Relationship Marketing and Director
of the Centre for Customer Relationship Management at the Cranfield School of
Management, Cranfield University.
He has practical experience in marketing, market research, corporate planning
and general management. His previous appointments include positions as chief
executive for a manufacturing company and he has also held senior appoint-
ments in corporate planning and marketing.
He is an authority on Relationship Marketing and Customer Relationship
Management and is an author of six books on these topics. His research interests
are in Customer Retention Economics; the impact of IT on CRM; and
Marketing Strategy and Planning in Service Businesses. Adrian is a frequent
keynote speaker at public and in-company seminars and conferences around
the world. He also acts as a consultant and educator to many service organiza-
tions, professional service firms and manufacturing companies.

JOE PEPPARD BBS MSc PhD FICS

Senior Research Fellow in Information Systems
Joe Peppard is a Senior Research Fellow at the Information Systems Research
Centre (ISRC). A Graduate of Trinity College Dublin he previously spent five
years lecturing at his alma mater, joining Cranfield in 1992. He has held visiting
positions at Groningen University in Holland and the University of South
Australia and is currently external examiner at a number of institutions. Joe is
 About the authors xiii

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a Director of Fineos Corporation and Sophos Development, and a member of
the Editorial Board of the European Management Journal.

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Joe has been involved with the ISRC since its establishment and has worked
on many of the centre’s research projects. He is a Fellow of the Irish Computer

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Society, a charter member of the Association for Information Systems and a

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member of the UK Academy of Information Systems, British Academy of
Management, and the Academy of Management. His publications include IT
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Strategy for Business (Pitman Publishing), The Essence of Business Process Re-
engineering (Prentice-Hall International), Business Process Re-engineering:
Current Perspectives and Research Directions (Kogan Page), and Strategic
Planning for Information Systems (Wiley), as well as articles in both academic
and general business journals. He is retained by a number of companies as an
adviser on IS/IT, e-commerce and strategy related matters.

LYNETTE RYALS MA (OXON) MBA FSIP

Marketing Lecturer
Lynette Ryals began her career in the City as a fund manager and stockbroker
trading UK equities, options and futures, and still lectures occasionally on
finance issues. She then moved to a marketing company to work on corporate
development and acquisitions, subsequently transferring into the consultancy
arm of the same business group.
Lynette is a Registered Representative of the London Stock Exchange and is
the only woman in the UK to have passed the Fellowship examinations of the
Society of Investment Professionals.
She is co-author of Customer Relationship Management: The Business Case, a
management report in the FT Prentice-Hall series, with Simon Knox and Stan
Maklan.
Lynette has also been Director of the Executive MBA programme at Cranfield.
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Acknowledgements

T he authors would like to thank Margrit Bass, a freelance journalist, for her
major contribution to the book – by ensuring that six of the cases were
delivered on time and with the appropriate management emphasis. In many
ways, writing the cases proved to be only part of the challenge; gaining access
to the companies and their managers, agreeing with them what could and should
be disclosed and, finally, getting agreement to publish what had been written
about the company and its CRM practices all proved to be both time-consuming
and requiring considerable diplomatic skills! Margrit proved more than up to
the job in developing the case studies for Orange, Homebase, SunMicrosystems,
RS Components, asserta home and NatWest.
Jane Simms, a freelance writer and editor specializing in marketing and busi-
ness management, carried the burden of editing the entire book by joining
together chapters in a masterly way and contributing parts of the text. We
would like to thank Jane for her patience and professionalism.
We wish to thank Sapient Ltd for its financial contribution and help with the
Homebase and asserta home cases, both of whom were Sapient clients.
Finally, our thanks to Gill Glass for her secretarial support in maintaining,
updating and formatting the files we created as the book was written, starting
with Adrian Payne’s strategic framework for CRM, through case study writing
to the final chapter on CRM futures. Without Gill’s meticulous attention to
detail and responsiveness to last minute changes, we could not have delivered
the manuscript in such a highly finished format.
 xvi Acknowledgements

With the exception of the case study on Siemens, the cases are the Copyright
of the Cranfield School of Management and are published with their permission.

Professor Simon Knox

Stan Maklan
Professor Adrian Payne
Dr Joe Peppard
Lynette Ryals
Note
Please note that the term ‘billion’ is used throughout this book meaning a
thousand million (1000,000,000).
Chapter
1
CRM top of the management
agenda

I n an era of increasingly transient management themes, few board agenda

items are attracting the sustained attention of Customer Relationship
Management, or CRM. To provide some measure of the explosion of manage-
ment interest in CRM, UK market research company Forrester Research
searched the Dow Jones’ content base of more than 6000 management publica-
tions for references about CRM and found 6048 articles in 2000, up from 442
articles in 1998 (Chatham et al. 2001).
This sudden proliferation of references can be partly explained by the lack of a
widely accepted definition for CRM: consequently managers and writers use the
term broadly to describe all forms of transactions between customers and their
suppliers. In this book, we look at CRM as an organization-wide process, which
focuses its activities on treating different customers differently to increase value
for both customer and organization. In an article on its web site, the European
Centre for Customer Strategies quotes Hewson Consulting’s definition of CRM
as ‘a business strategy focusing on winning, growing and keeping the right
customers’ (European Centre for Customer Strategies 2001). A recent CRM
report published by the Financial Times (Ryals et al. 2000) suggests that
CRM consists of three main elements:

1. identifying, satisfying, retaining and maximizing the value of the firm’s best
customers;
 2 Customer Relationship Management

2. wrapping the firm around the customer to ensure that each contact with the
customer is appropriate and based upon extensive knowledge both of the
customer’s needs and profitability;
3. creating a complete picture of the customer.
The Financial Times report identifies the major components for the successful
implementation of CRM as:
& a front office that integrates sales, marketing and service functions across
media (call centres, people, stores, internet);
& a data warehouse to store customer information and the appropriate analytic
tools with which to analyse the data and learn about customer behaviour;
& business rules developed from the data analysis to ensure the front office
benefits from the firm’s learning about its customers;
& measures of performance that enable customer relationships to continually
improve;
& integration into the firm’s operational and support (or ‘back office’) systems,
ensuring that the front office’s promises are delivered.
Developing a consistent approach to managing customer relationships has been
a core objective for the Royal Bank of Canada in implementing its CRM
strategy:

EXAMPLE

The Royal Bank of Canada began collecting customer data in 1978 and
by the early 1990s had implemented client segmentation in its data
warehouse, dividing its customers into three distinct profitability
segments. While this provided front-line staff with segmentation codes,
these were often interpreted subjectively, resulting in an inconsistent
approach at corporate level.
Following research, the bank set about implementing a CRM strategy
which allowed it to offer customers an integrated service across its entire
product range. To achieve this it needed to measure client offerings, cost
management, pricing initiatives and marketing spend. The bank uses five
criteria to analyse customer information: income, expense and risk (net
interest revenue); other revenue (fees, commission); direct expense
(variable cost); indirect expense (overheads); and risk provision. The
bank also recognized that profitability was affected by the type and
frequency of customer events, their balances and the channels they use.
 CRM top of the management agenda 3

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The Royal Bank of Canada’s nine million customers are segmented,
however, it has developed strategies not only for these segments but also

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for hundreds of micro-segments, as it moves towards its objective of one-
to-one marketing. It plans to develop individual treatment strategies on

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small cells of customers to establish what works and what doesn’t, and to

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test refinements on an ongoing basis.
The customer data are also allowing it to move from assessing current
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customer value to potential value, by taking into account factors such as
lifestyle changes. The bank has also recognized that ‘there is no such
thing as an unprofitable customer’ and is tailoring its product offerings to
suit what are normally considered to be unprofitable customers. One of
the immediate gains was discovering from recalculating customer
profitability that its previous measurement metrics had been inaccurate
for as many as 75 per cent of its customers.

CRM is not only being written about; big businesses are actively investing in
CRM initiatives and technologies. A Forrester report (Callinan et al. 2001)
quotes from its first quarter 2001 North America Benchmark study that 82
per cent of firms in the study have CRM implementations planned or in pro-
gress. This result is consistent with other published surveys and suggests that
most big businesses are actively implementing some facets of one-to-one or
relationship marketing.
Popular three-letter acronyms come and go, but we believe that the core of
CRM will continue as an enduring foundation of most businesses. Creating
satisfied customers at a profit has been espoused as the prime role of business
since Peter Drucker first wrote about it almost 50 years ago (Drucker 1954: ‘it is
the customer who determines what a business is . . . the purpose of a firm is to
create and keep customers’). However, operationally, the traditional focus of
business is improving efficiencies. This focus on efficiency has its roots deep in
economic thought. Adam Smith did not write about customer satisfaction, reten-
tion and relationships; he developed theories of specialization, division of labour
and production efficiencies. Economic theory that originates from his model of
perfect markets assumes that competition for undifferentiated products drives
prices down to a level necessary merely to sustain investment in continued
production. In this model, there are no brands, product differentiation, loyal
customers or excess profits. In Adam Smith’s world, merely being an efficient
producer of commodities, accepting the price and volume dictated by the market
satisfies the firm.
Our professional and personal experience suggests that firms in a competitive
market are anything but passive price and volume takers. Firms innovate in
 4 Customer Relationship Management

product design, product function, manufacturing processes, distribution, service

and communications to differentiate their offers from those of competitors.
Much of this innovation focuses upon creating new and improved products
(and services) and reducing costs. Efficiency, coupled with product innovation,
drives competitive strategy for most firms.
Long-term social, business and economic trends are having an impact on this
efficiency drive and organizations no longer focus exclusively upon making
better products at lower cost. We observe that many firms strive to help custo-
mers in both consumer and business markets become more effective through the
goods and services they sell them. For example, improving effectiveness for
consumers of financial services may not just be about creating an innovative
investment product, it is more likely to centre around helping consumers achieve
important life goals such as financial security and increased leisure time. Many
financial services providers have segmented their customer base by life stage in
order to talk to consumers about these life goals in addition to the products they
offer.
A business-to-business equivalent example is found in information technol-
ogy. Effective use of IT is not delivered through faster computers and new soft-
ware applications alone; it is more likely to be delivered by helping firms
improve their businesses by measures such as moving fixed costs to variable
costs, quickly growing the business to scale and developing global reach.
Efficiency-driven firms focus on the products and services they sell, whereas
effective firms focus on their ability to understand and fulfil individual custo-
mers’ most important needs. Efficiency-driven firms seek competitive advantage
in scale, experience and creating barriers to entry. Effective firms seek competi-
tive advantage in customer involvement, service and superior knowledge of
customer motivations and behaviour. Their customers, rather than their tech-
nology and production, drive effective businesses. Moving from efficiency to
effectiveness represents a big shift in business emphasis, and is one of the drivers
behind the surge of attention and investment in CRM.

Long-term forces

Much has been written about the emerging social and economic environment
that is enabling this shift in business focus. For the purposes of introducing CRM
and current best practice in the area, we wish to concentrate on the three factors
we believe are most responsible for creating customer-driven businesses. These
are:
 CRM top of the management agenda 5

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1. the evolution of the relationship marketing concept;
2. the impact of information technology;

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3. changing customer behaviour and motivation.

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Evolution of relationship marketing
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Since the early 1990s, academics and consultants have promoted the idea that
marketing practice should focus upon identifying and serving the organization’s
best customers and prospective customers. This may sound highly intuitive, but
ten years ago it represented a radical departure from the tradition of marketers
identifying and dominating the most attractive product markets. Traditional
marketing focuses on resegmenting markets to create and dominate defensible
product positions. Product portfolio tools, such as the Boston Consulting Group
Matrix, helped firms balance investments across product ranges to maximize
profit and long-term growth. Firms allocated scarce resources against competing
product investments to ensure that there was a balance of cash generated and
attractive investments. In most industries, each product investment was consid-
ered on its own merits in accordance with financial analysis tools that tie invest-
ment decisions to shareholder value. Firms were free to pick and choose in which
market segments they wished to compete on the basis of market and financial
attractiveness.
Proponents of relationship marketing challenged the customer and economic
logic behind product portfolio management. They argue that:

1. Differences in customer profitability are at least as important as differences

in product/market profitability to shareholder value.
2. Customer value is created by customers effectively using goods and services
as individuals, as much as by the intrinsic qualities of the goods and services
themselves.

In other words, they support the effectiveness versus efficiency argument.

Reicheld’s work at Bain Consulting led him to publish findings from research
and practice suggesting that differences in the performance of insurance brokers
were better explained by examining customer loyalty and retention than by
market share, unit cost and scale (Reichheld 1996). He argued that customers
become increasingly profitable over time because:

1. customer acquisition costs spread over a larger turnover;

2. customer spending tends to accelerate over time;
3. operating costs fall as customers know the firm’s products, services and
policies better;
4. satisfied customers make referrals; and
 6 Customer Relationship Management

5. loyal customers are less price sensitive, allowing the firm to maintain if not
improve its margin.

Garth Hallberg reminds us in the title of his book that All Consumers are Not
Created Equal (Hallberg 1995). He presents research, which shows that, in most
industries, a minority of customers (10–15 per cent) generate the majority of
profits. So not only does customers’ profitability increase over time, but some
customers are potentially far more profitable than others. Peppers and Rogers
popularized the expression ‘one to one’, by suggesting that when considering the
differences between customers’ profitability and needs, companies must ‘differ-
entiate customers, not just products’ (Peppers and Rogers 1994). Attracting and
retaining the right customer will have a dramatic impact on the business.
Aside from the commercial logic of becoming customer centric, organizations
that move beyond short-term, transactional customer relationships can address
customers’ deeper and broader needs. If customers teach a firm about their
motivations and behaviours and the firm responds to this knowledge, the firm
can make the customer more effective at the task at hand whilst differentiating
and extending its own offer. Over time, this positive cycle of learning and doing
‘locks in’ loyalty and allows the firm to capture more of the economic value in its
value chain. Good products are no longer sufficient to compete. Today, firms
must create customized solutions to customers’ more profound problems.
Reprising the effectiveness argument, companies today must create effective
solutions to individual customers’ problems, not simply improve their efficiency.

Impact of information technology

The theory of relationship marketing is intuitively appealing, but its widespread
implementation has been facilitated by new information technology that permits
organizations to identify and manage large numbers of individual customers.
New technologies have enabled firms to implement CRM by:
& providing greater individual customer insight;
& allowing firms to effectively respond to individual requirements; and
& integrating the business processes of the firm around individual customers.

It gets cheaper and cheaper for firms to store large quantities of customer infor-
mation in a format that they can access for customer service and analysis. The
cost of data storing and processing continues to fall, while advances in data
warehousing and mining software improve a firm’s ability to learn from custo-
mer data. Firms are creating integrated ‘virtual front offices’ where all customer-
facing staff can access these data so that individual customers are treated in a
manner consistent with their individual needs and the firm’s customer objectives.
 CRM top of the management agenda 7

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Thomas Cook, the travel agent, was quick to recognize the importance of this
facility for customers who had their traveller’s cheques stolen abroad.

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EXAMPLE

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When dealing with a frantic customer calling collect from Azerbaijan to
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report his passport and travellers cheques stolen, the last thing any travel
company worth its salt would want to do would be to put him on hold
while the service agent fumbles around trying to extract his details from
various databases. The ability to react swiftly in any such situation was
at the forefront of Thomas Cook’s thinking when it prepared to launch
its Global Services Division in 1998. Designed to be a virtual worldwide
call centre for the traveller, Global Services’ core business is the provision
of a complete travel assistance service covering everything from
emergency, legal and medical services to hotel bookings and ticket
replacement. Given the scope of its vision, Thomas Cook realized that it
would need a system which would enable it to handle a high volume of
customer contact, not only 24 hours a day, 365 days a year, but in 28
different languages.
From a user perspective, the key advantage of the Global Services
which Thomas Cook implemented is that the system controls the call. As
soon as the call is picked up, a service agent can identify the customer,
and pinpoint where he is and what language he speaks. A map appears
on the screen showing where the caller is so they can be directed to the
nearest service point. The level of data held on the system includes all
previous data on and any correspondence with each customer, enabling
Thomas Cook to build an increasingly complex profile of each individual
and to offer a more personalized service. For example, if a customer had
previously booked a certain hotel in a city and was revisiting it, the
service agent could offer to book that same hotel using the customer’s
preferred credit card.

This enhanced customer insight is only valuable where firms can effectively
respond to what they have learnt. A history of mass production and marketing
has created structures, cultures and business systems that are not designed to
configure products and services according to individual customers’ needs.
However, modern planning, logistics and manufacturing software and processes
enable companies to customize goods and services cost effectively across large
numbers of customers. This is often called ‘mass-customization’. Because of their
 8 Customer Relationship Management

cost and complexity, these systems were once the exclusive domain of large
companies. But solution providers are now developing lower cost versions for
small- and medium-sized businesses, and on a variable, rather than fixed, cost
basis. These solutions integrate firms with their suppliers, further increasing the
firm’s ability to deliver against its promise to individual customers. This integra-
tion extends from the individual firm through to its core suppliers, offering
whole industries a greater ability to meet individual customer needs. These
integrated value chains allow customers to collaborate with advisers, specify
products, services or solutions and permit rapid, cost-effective fulfilment through
complex alliances of suppliers and logistics firms. Information-rich value chains
will be sensitive to individual customer changes and provide real-time informa-
tion on the progress of individual orders, aggregate demand, forward demand,
costs and billing information. The impact of these technologies is to permit
businesses, and their suppliers, to ‘build to order’ cost effectively once the cus-
tomer and the firm have agreed what is needed.

Changing customer behaviour and motivation

We have reviewed, albeit briefly, how firms increasingly understand the econom-
ics of relationship marketing and how technology permits its implementation.
The final long-term factor promoting the development of customer-centric busi-
nesses is changing customer behaviour and motivation.
Today’s customers have growing expectations of suppliers, in terms of depth
of advice, product and service quality, price transparency, warranty and post-
sales service. We believe that consumers and business customers alike expect a
‘joined-up-service’ where firms’ marketing, sales and service delivers against
their expectations and the firm’s promise. ‘It is not my department’ is a less
and less acceptable means of handling customer inquiries. As businesses inte-
grate around individual customers, these expectations will grow stronger.
There are many instances of customers wishing to influence a firm’s internal
management processes. Customers are being conditioned to expect that they are
‘in charge’ of the customer–supplier relationship through advertising, media and
management reports. This leads to the firm’s internal processes being held up to
public scrutiny. Conditions of workers in factories making shoes and jeans for
famous brands have been publicly discussed, as have many individual firm’s
environmental policies. We believe that this expectation of customer sovereignty
is creating a new set of customer behaviours and motivations around dealing
with companies which, they feel, share the same values across issues that matter
to them.
More demanding customers are also becoming more competent purchasers.
Customers demand a say in what they are being offered and expect to be dealing
 CRM top of the management agenda 9

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with firms that listen and respond. In business marketing, this trend has been
evident for many years. Important customers make an early input to suppliers’

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product development processes because the costs of misjudging customer needs
are too high for both customers and suppliers. Even consumers are beginning to

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insist on knowing more about the products they consume and are contributing

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to the product development process. Online marketing and communication may
help facilitate this development and ‘train’ consumers to interact directly with
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the manufacturers of goods and services they consume. We predict that consu-
mers will be increasingly unwilling to accept being the ‘object’ of companies’
marketing processes, and that companies will need to get better at listening,
learning and responding to individuals – the basic tenets of CRM as we have
defined it.

Massive investment with questionable return

We have identified the long-term trends among companies, their customers and
in technology that are acting as a catalyst for the customer-centric view of
business. Business leaders have been sensitive to these trends and are making
substantial investments in changing their organizations to allow them to flourish
in the new environment.
Forrester Research (Chatham et al. 2001) has produced detailed estimates,
based upon companies’ experiences and a definition of CRM consistent with the
one used in this book, of the investments large firms will need to make when
implementing CRM programmes. Using American accounting conventions,
Forrester suggests that large firms (i.e. Global 3500 firms) should expect to
spend between $60 million (retailers) and $130 million (banks) over three
years on the requisite CRM applications, data maintenance and operations.
Manufacturing companies will come in at around $75 million.
It is the size of investment companies need to make to move from a product to
a customer focus that is fuelling the growth of the CRM IT services market. The
European Centre for Customer Strategies (2001) quotes an estimate from
Accenture that the global CRM market (software, hardware, training and ser-
vices) will top $700 billion by 2006. The ECCS also estimates that the European
CRM market will top $34 billion by 2004.
At the time of writing this book, it would appear that the downturn in
technology spending early in 2001 has not significantly affected CRM. The
more customers access services through proliferating media and devices, the
more firms seem willing to invest in technologies that will help them integrate
this stream of contacts around individual customers, analyse the data and
 10 Customer Relationship Management

communicate back to customers through an increasingly complex web of inter-

related media and channels.
However, despite the level of investment in technology, processes and people
to improve customer relationships, there is growing concern that many, if not
most, firms fail to realize or measure a sufficient return on these investments.
Given the level of investment and sensitivity of the programmes, it is hard to find
a definitive and authoritative view on the actual return which CRM programmes
are delivering. Clearly, if financial returns were proving hard to measure and
achieve, that would make unwelcome news for a massive industry. Nevertheless,
from our regular reviews of consulting reports and web sites, the authors find a
pattern emerging whereby less than one third of CRM programmes deliver the
intended return. Below are some examples of the data from which we draw this
conclusion:
& Internetweek online reports research results from the renowned CRM con-
sulting firm AMR that only 12 per cent of companies that have implemented
CRM software say it has exceeded their expectations (Kemp 2001).
& Insight Technology Group (ITG) reported on the web from a survey of 1000
sales force reengineering projects that only 21 per cent met or exceeded
expectations. Of the 38 per cent that met none or only some expectations,
two thirds plan major rewrites to the systems and one third will shelve their
current systems.
& The OTR group surveyed 1500 companies in six European Union countries
and found that only 27 per cent of those which had implemented a data
warehouse were able to identify a quantifiable financial benefit.
& KPMG research from 1997 entitled ‘The Hidden Advantage’ revealed that
only 16 per cent of UK companies measure the ROI of data warehouse
investment, 30 per cent do not use it regularly once it is built and 87 per
cent fail to attribute value to the information generated.

Barriers to success

We should not be surprised that firms embracing new management thinking

through large-scale change programmes find that immediate returns fall below
expectations. Many of the benefits of change programmes take longer to realize
than was initially predicted and entail more fundamental organizational and
cultural change than was planned. In this sense, CRM is similar to other change
programmes that have preceded it. This section looks at barriers to success
across each of the three letters in the CRM acronym – customer, relationship
and management:
 CRM top of the management agenda 11

S
S
& lack of a sufficiently robust customer strategy;
& relationships that are managed in the interests of the firm and not the cus-

& S
tomer;
management that lacks sufficient ambition and information for the pro-

S
gramme to succeed.

Lack ofS
S
customer strategy
At the heart of any CRM programme must lie a profound understanding of how
customers differ and the creation of a unique and relevant value proposition to
address and exploit these differences. However, unfortunately, many organiza-
tions fail to get these two basic building blocks right.
Firms seem to spend more time trying to understand customers’ different prof-
itability (or potential profitability) than their needs and purchasing styles. We
believe that many CRM customer propositions, such as creating a one-stop shop,
providing a total solution, offering end-to-end service, and disintermediation,
reflect a firm’s desire to sell more rather than a customer’s desire to buy more.
The business case for CRM often begins with the assumptions about cross-selling
and up-selling, that the business needs to justify an investment, rather than from a
profound understanding of customers. In some industries, this homogenizes the
CRM strategies of major competitors. Customer strategies move in the same
direction, with firms making similar claims to the others and using similar tech-
nologies to implement their strategic choices. This is unlikely to lead to the kind of
differentiated proposition necessary to generate a strong return on investment.
Naive market research may point to customers’ desire to buy the ‘total end-to-end
solution from a one-stop shop’, but a more sophisticated analysis of actual beha-
viour and purchasing styles may suggest otherwise.
CRM-based value propositions require firms to have exceptional insight into
how their customers use their goods and services, derived from customer beha-
viour models as well as data. But firms seem to have more data about their
customers than insight. The KPMG report into the UK experience of data ware-
housing, mentioned above, suggests that IT and Marketing do not fully leverage
each other’s skills to extract value from the investment, and that Marketing lacks
some of the technical and modelling skills needed to generate valuable customer
insight from data warehouses.

Relationships, but in whose interest?

At the heart of the problem with CRM implementation lies the view that cus-
tomer relationships can be managed, and managed by one partner in the rela-
tionship.
 12 Customer Relationship Management

Purveyors of new technology encourage managers to think that they can

predict and manipulate customer behaviour for their own benefit. For example,
data mining allows firms to analyse a limited set of customer behaviours and
create procedures and rules among customer-facing staff in their new integrated
front offices that encourage ‘desirable’ behaviour. Where these procedures and
rules are blatantly in the interests of the firm rather than the consumer, they risk
alienating both customers and the front line staff that serve them.
Anecdotal evidence from industry suggests that consumers are increasingly
reluctant to provide firms with the extensive information that they desire for
their CRM systems. Consumers are ultimately rational and will understand
both the value of their data and the likely benefit they will get from sharing
it.
Advances in data management, data mining, consumer profiling, content
management systems and online personalization require highly sophisticated,
rule-based systems that risk marginalizing both the customer and the firm’s
customer-facing employees. For example, call centre employees are driven to
reduce the average time spent with customers in an effort to increase productiv-
ity. It is obvious that this can frustrate both customers and the people employed
to service them. Another example of ‘rules before customers’ can be found in a
newspaper article about Marks & Spencer’s direct mail campaign to husbands
of ‘husband and wife’ cardholders, suggesting lingerie as a gift and ‘helpfully’
providing the wives’ sizes. The article suggested that many cardholders felt this
to be too intrusive and, in a number of instances, the sizes were wrong: women
often buy underwear for other women.
Intuitively, using customer data in this fashion does not sound like the basis of
a trusting customer–retailer relationship. UK journalist Alan Mitchell likens the
modern CRM marketer to a stalker who ‘gathers ever more information about
his target and tries to get close entirely for his own purposes, regardless of the
feelings and wishes of the person he is targeting’ (Mitchell 2001).
For customers to enter into a relationship with firms, and provide them with
invaluable, non-public, data about their needs and motivations, there must be
some perceived value for the customer. Firms need a differentiated customer
strategy, grounded in the different needs, behaviours and motivations of differ-
ent customers, to persuade customers to part with this information. Firms need
to understand the potential value they can create for customers, as well as for
themselves, in order to create powerful relationships with customers.

Management lacks the required vision and ambition

The success of large change programmes, such as moving from a product- to
customer-focus, depends on management. Early published research on CRM
 CRM top of the management agenda 13

S
S
effectiveness suggested that firms are not embracing a wide, customer-centric
vision and pushing changes throughout the organization (Ryals and Payne

S
2001). Despite the tremendous financial investment in CRM programmes illu-
strated earlier in this chapter, Hewson Consulting found that only 18 per cent of

S
firms surveyed met its criteria for implementing CRM (European Centre for

S
Customer Strategies 2001). Recently, Bain Consulting reported that as many
as one-fifth of CRM investments have actually destroyed customer relationships.
S
You can, of course, challenge the definition of CRM, but the conclusions of
much research generally do suggest that CRM change programmes often lack
the scope and depth needed to succeed.
A major study by Computer Sciences Corporation Index (1994) found a
correlation between the level of ambition and the success of reengineering
change programmes. CSC’s research found that reengineering programmes
with ‘breakthrough’ ambitions were more likely to succeed than those with
more modest objectives. It would appear that modest ambitions provide insuffi-
cient incentive to management to make the necessary changes in organization,
processes, technology, training and reward systems that change requires. If
CRM is managed as a separate campaign initiative, the firm is unlikely to
become truly customer-centric – which explains Gartner’s conclusion that few
companies have implemented ‘real’ CRM.
The fact that so few companies set themselves high aims for CRM may be
explained by the challenges of creating a business case: companies need to justify
what is a major investment in CRM by identifying ‘hard’ business benefits in a
short time frame. The intuitively obvious response is to promise specific achieve-
ments in cross-selling, up-selling and reduced service costs. However, ‘real’
CRM involves ongoing learning, where the customer receives incentives to
teach firms what they want to know by the firm’s continual response to the
information provided. Cross-selling and up-selling may be good outcomes of
effective customer relationships, but they are perhaps not the right objectives:
at the point of creating a business case, companies risk ‘objectifying’ the custo-
mer, so hindering the chances of a mutually beneficial relationship.
The problem of insufficient ambition is compounded by the lack of any gen-
erally accepted measures of customer value. Value risks becoming an overused
word in management circles: firms should create more customer value, but
measuring it is problematic. Most of the published management literature
focuses on measuring customer behaviour and the value of that behaviour to
the firm. For example, the lifetime value of the customer, segment profitability,
campaign profitability, consumer response rates and repurchase rates illustrate
this. But the value of CRM programmes to the customer is merely assumed:
people think that customers want a one-stop shop, a total solution and targeted
offers, but there is scant evidence to either support or measure these assump-
 14 Customer Relationship Management

tions. Certainly, high-profile dot.com failures should cause marketers to re-

examine their assumptions about the components of customer value. A CRM
programme geared towards learning, as much as selling, should help firms mea-
sure better what customers value.
However, as well as being ambitious and having the right measurement sys-
tems in place, to be successful CRM implementations need to work across all
points of customer contact. Creating a consistent experience for each customer
has long been a mantra for marketers. In the 1990s, consumer services marketers
began focusing on customers’ ‘moments of truth’, managing what they commu-
nicate to the customer through each experience or touchpoint the customer has
with the organization. The challenge of empowering every employee to be able
to create a moment of truth for a customer at any given point of contact, has
compounded with the explosion of new media.
The moments of truth must now extend to the experiences created through
call centres, internet sites (accessed via PCs and mobile phones), iTV and PDAs.
Internet-based media also allow customers to direct their experiences, their
‘moments of truth’, and organizations must strike an appropriate balance
between controlling the experience for the customer and the customer managing
their experiences for themselves. The opportunity to integrate the business across
media and across channels represents a major management challenge for most
firms in terms of cost, complexity and change to their business practices. Many
of the dot.com start-ups launched their businesses with such integration already
in place. But few traditional businesses with substantial investment in existing
media have developed a truly integrated approach to managing customers’
moments of truth. As we write, this level of integration is leading-edge manage-
ment and technology practice.
Ryals and Payne (2001) identified further management issues which inhibit
successful implementation of CRM in financial services companies. They found
that many financial services firms had skill shortages, particularly in technol-
ogy, and inadequate funding which, inevitably, curtailed their ambitions.
Financial services companies were not convinced of the value of investing to
create an integrated view of the customer through data warehousing.
Additionally, as they came to appreciate the scope of the change effort,
firms realized that their initial budget provisions were inadequate. Business
unit managers were not always willing to cooperate, a failing which compro-
mises one of the fundamental tenets of CRM – the entire firm must integrate
its efforts around customers’ needs. Finally, the authors found that many
organizations lacked the measurement and reward systems needed to support
the change from product- to customer-focus.
 CRM top of the management agenda 15

S
S
Conclusions

S
We have defined CRM as a far-reaching management process and demonstrated
that most large businesses are making very significant investments to implement
S
these relationship marketing practices. There are sustainable long-term custo-

S
mer, business and technical trends spurring these investments forward, and we

S
predict that truly customer-centric organizations will continue to develop into
the foreseeable future. However, early returns on investment are elusive for
many firms, and more programmes are likely to fail to achieve their targeted
returns than those which succeed.
There is perhaps no one company that has ‘done it all’, whose model we can
slavishly follow. The authors believe that there probably is no ‘one right way’ in
CRM, as relationships are so different and heavily dependent on individual
contexts. Each firm will need to find its own right way, depending on the
customers it wishes to serve, its competencies and the environment in which it
operates.
In the next chapter, we identify five processes that we suggest managers focus
on to maximize the potential of their CRM initiatives. These processes – strategy
development, value creation, channel and media integration, information man-
agement and performance assessment – are explored individually in subsequent
chapters through best practice case histories.

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