Customer relationship management programs promise more sales and stronger customer relationships. Here's why they don't deliver.
Much has been written over the past half decade about "customer relationship management" (CRM). Web sites, libraries, and conference agendas abound with white papers, books, and interactive discussions of CRM concepts and practices. And companies have invested massive amounts of time, energy, and money supporting CRM initiatives and developing and implementing CRM systems.
The reason for this investment is simple: CRM promises highly valuable business outcomes. Unfortunately, a great many of these promises remain unfulfilled.
Promise and over-promise
The benefits that may result from a CRM implementation are enticing. What CEO wouldn't want to "enhance the effectiveness and efficiency" of his or her marketing spending? Who would turn away from an opportunity to "maximize the value of the customer relationship?" What sort of responsible company leader would ignore a chance to "seamlessly coordinate all customer touchpoints," thereby "forging more powerful and profitable customer relationships" for the company?
These and other promises have been made by CRM marketers, and they are clearly attractive. CRM's performance against these promises, however, leaves much to be desired. In fact, reports show that more than of 60% of CRM programs have fallen considerably short of company expectations.
These failures aren't the result of inadequate investment. Companies have poured about $3.5 billion a year into creating the systems and databases to support CRM initiatives. Yet in spite of these often-hefty expenditures, the results continue to disappoint.
In 2000, the Insight Technology Group surveyed 226 companies with fully implemented CRM programs and reported that 25% of these companies detected no noticeable improvement in their operational performance. A Bain survey, also conducted in 2000, found that a mere 15% of the companies using CRM were "extremely satisfied" with these programs.
A recent crm-forum survey of 700 members concluded that, overall, CRM programs produced inadequate ROI. This survey examined users' perceptions of CRM payoff in potential benefits that ranged from enhanced customer retention to decreased service costs. The survey report concluded, with considerable disappointment, that "there is a significant gap in all cases between the importance of the objective and the success in achieving it."
Clearly, companies have committed the required dollars. And the software provided and installed in company CRM programs does not appear to be at fault. In fact, the crm-forum survey found that only 2% of the failures could be laid at the software doorstep. So what has gone wrong?
Aiming at the wrong target
CRM's reported failures and shortcomings aren't caused by inadequate software or systems, which suggests that remedies of a far different sort are needed. Companies must rethink the goals set forth for CRM and the benefits CRM programs are asked to deliver. For instance, according to the Insight Technology Group survey, companies are counting on CRM somehow to improve customer loyalty, but their No. 1 stated goal is to increase their sales effectiveness.
So companies face a choice. Whose needs come first? Will the customer benefit from this enhanced information resource, or the company, or -- somehow -- both? Should CRM help cement stronger customer bonds, or should these efforts be aimed at improving a company's direct marketing efforts? The first goal requires a focus on the customer and the factors that strengthen customer relationships. The second goal, in contrast, requires a focus on the company and how it can sell more products or services to the customer. This sales goal may not represent a perceived benefit to the customer.
If increased loyalty is a stated company objective and a key criterion for determining a CRM program's success or failure, then the company first must understand the real nature of its customer connections. It also must grasp how these relationships can be strengthened. (Hint: The key to a stronger customer relationship won't be found in intensified telemarketing.)
Customer relationships cannot be improved simply by increased spending on advertising, packaging, product research, or technology. Money alone is never the answer. What counts is not how much is spent, but what it's spent on.
In addition, technology and information systems, however sophisticated and elegant they might be, cannot by themselves ensure that a company will create stronger customer bonds.
Enduring customer relationships result from a multiplicity of company activities that combine to forge a stronger bond with the customer - one that is emotional as well as rational. Recent research by scientists at The Gallup Organization sheds important new light on customer engagement and underscores what it takes for a company to build and sustain a fully engaged customer base. With all due apologies to Marshall McLuhan, when it comes to building relationships, Gallup has found that the content is more important than the medium. And content is where CRM often falls short. More information is not the solution. Better information is. If the customer information obtained and compiled is irrelevant, no amount of system sophistication can compensate. If it is neither useful nor usable, there can be no return on this investment.
Companies can compile extensive and expensive databases detailing their customers' past purchase activities. They can add myriad data about reported or observed customer habits and activities to this purchase history catalog. But these data provide companies with a picture of the past. They do not necessarily yield insights into what it takes to establish or maintain strong personal customer connections -- and that, after all, is the purported holy grail of one-to-one marketing.
Instead, what companies must add to the customer behavior database are indications not only of what customers have been doing, but also what they are feeling. As Gallup researchers have found, these feelings provide vital clues to what is likely to happen next -- and why.
If companies seek to engage their customers, and not just to sell to them, then they must view their customer relationships not from a marketing perspective, but from the customer's viewpoint -- because that is what truly matters. Increased customer communication doesn't ensure that the company's messages will be either welcome or relevant. More entries into a customer database won't ensure that the company's employees will have any idea what to do with this information, or what to focus upon, when they access that database. Inundating customers with increased sales opportunities won't create stronger emotional connections any more than doubling an advertising budget means that the campaign will be more compelling or that it will result in a more powerful brand.
Technology can provide the company and the customer with a conduit for dialogue. But technology by itself is not the solution.
Has CRM failed? Partly. In many cases, companies' expectations have been unrealistic and have been grounded in a limited or superficial view of the nature of the customer relationship. CRM proponents must accept some of the blame for this.
Is CRM doomed? No. But it certainly must be rethought and reengineered, not as a mechanism for efficiently dumping more product on an existing customer base, but as a mechanism for potentially enhancing the customer relationship. That's a more challenging road, to be sure. But it's one that may at last lead to a real return on this considerable investment.