Wednesday, June 3, 2009

Customer Relationship Management

Customer Relationship Management – The Basis for Effective Marketing Strategies


Most Marketing Strategies are formulated first and CRM is just an added tool to make the strategy successful. The author is proposing that CRM should form the basis of the Marketing Strategy, rather than the other way round.

This has some inherent benefits like knowing the customer and being able to build a Marketing Strategy around the customer rather than around the product or service. The author has tried to look at this viewpoint from various perspectives to highlight the benefits of such a paradigm shift in the thinking of the marketing manager.

Full Paper
Who are my best customers ? What can I do to retain them ? How can I attract others like them ? How can I improve the profitability of all my customers ? The truth is that most companies have difficulty understanding and managing customer life cycles and profitability. This transforms into marketing strategies that are not tuned to the needs of the customer, leading in turn to problems of designing and executing effective marketing strategies, as well as problems in measuring their effectiveness.

Business operates today at breakneck speed, and large marketing organizations must deliver and track sophisticated, event-driven marketing communications within increasingly tight timeframes.

Companies also struggle to coordinate outbound campaigns with inbound customer interactions, meaning that customer behaviour often fails to trigger more timely communications.

Can CRM really drive the conceptualization and implementation of marketing strategies ? Yes, by creating customer and prospect profiles, by identifying the most profitable customers, by optimizing multi–channel communications and anticipating customer needs, thus helping to :
Create customer intelligence from the mountains of disconnected customer data the company collects on a daily basis. Apply that intelligence to create the ideal marketing mix or channel distribution and execute more targeted, effective inbound and outbound campaigns.

Managing the relationship with customers and making them happy or should we say “delighted” has come in to the fore in the wake of globalization, where Customer Delight is the key to the very existence of business. The focus on customers and giving them exactly what they want has been there in almost all organizations, then why the sudden talk about CRM ?

Many organizations feel that they should add fizz to their marketing strategies by adding CRM as a tool (or sometimes just as a technique). This is akin to putting the cart before the horse. The experience of the author in various organizations across the world has been that CRM should be the driver of the marketing strategy rather than the other way around.

Since CRM focuses on the relationship, successful organizations use three steps to build customer relationships into their marketing strategies, namely, determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers.

By putting CRM as the driver of the marketing strategy, the organization gains by
focussing on the customer and not the product streamlining offerings to what customer requires rather than harping on what the organization can earn.

Not many know it, but the ultimate purpose of CRM, is to increase profit. CRM helps to achieve this by providing better service to customers as compared to competitors. CRM does not just stop at improving service to customers – it also helps to reduce costs, wastage, and complaints. Sometimes the complaints may show an initial increase. This is mainly due to hearing about things that had stayed hidden without the CRM. This makes the marketing strategy more effective.

CRM also reduces staff stress, because attrition - a major cause of stress - reduces as services and relationships improve. CRM can also provide instant market research – opening the lines of communications with customers gives direct and constant market reaction to products, services and performance, which is far more superior to any market survey. Again, it increases the effectiveness of implementing the marketing strategy.

CRM also helps to grow business - customers stay with you longer ; customer churn rates reduce ; referrals to new customers increase from increasing number of satisfied customers ; demand reduces on fire–fighting and trouble–shooting staff, and overall the organization's service flows and teams work more efficiently and more happily. This is exactly the kind of effect that a good marketing strategy strives to achieve over the long run.

Building marketing strategies around a CRM focus, makes us move from the old viewpoint - 'This is what we can make – who wants to buy our product ?' to the new viewpoint - 'what exactly do our customers want and need ?' and 'what do we need to do to be able to produce and deliver it to our customers ?'

This is the change of paradigm and a quantum leap that CRM brings into the marketing strategy.

Most marketing strategies revolve around the myth that the customer wants cost–effective products or services that deliver required benefits. Even though a single product or service can deliver different benefits to different customers, it is important to look at things from the customer's perspective, even at this level. This is where CRM plays a crucial role.

CRM significantly highlights how customers want to have their needs satisfied. Customer’s needs are distinctly different to and far broader than a product or service, and the features and benefits encompassed. Customer’s needs generally extend to issues far beyond the supplier’s proposition, and often include § the buying-selling process (prior to providing anything)
§ the way that communications are handled § the nature of the customer-supplier relationship.

Modern CRM theory allows for 'integrating the customer'. This unique way of looking at business involves integrating the customer (or more precisely the relevant people and processes, on the buyer side) into all aspects of the supplier's business, and vice versa. This requires the building of a relationship that is deeper and wider than the traditional 'arms–length' supplier–customer relationship.

Traditional marketing strategies are built around the trade or transaction and little more. It thinks in terms of a single point of contact between one person on each side. All communication and dealings would be between these two people, even if the customer’s organization has many staff, departments, and functional requirements (distribution, sales, quality, finance, etc).
The CRM approach is based on satisfying all of the needs – people, systems, processes, etc. – across the customer's organization, such as might be affected and benefited by the particular supply.

In order to make the CRM as the focal point of a marketing strategy, the organization needs to relook at its changing business paradigm the change in communications sent and received
the change in the overall culture (both of the organization and the consumer).

This should lead to a new way of doing things, that emphasise :
processes that are capable and effective
structures and systems that support a business centred on its customers
connectivity (end-to-end processes) both internally and externally (eg., with suppliers)

CRM gives the organization the capability to manage customers. But why is there a need to manage customers ? Customers are the usual source of income for an organization. Even if they are not, then they will certainly leverage the earning of the organization. As such there are two types of customers – the real buyers and the advertisers. Marketing Strategies based on this kind of thinking are bound to succeed.

Managing customers requires that the organization :
knows what customers want and need, thereby enabling them to focus production and service efforts knows which products or customers have most growth potential, thus allowing to focus on developing highest potential knows which products or customers are most or least profitable, enabling the organization to defocus, leading to a maximisation of profit knows which customers will be advocates and supporters, to leverage references, case studies, and to safely test new products and services

A clear focus on CRM will help the marketing strategy to create more 'moments of truth'. 'Moments of truth' are encounters with customers which cause them to form a view of the organization based on how they are engaged, particularly compared to their expectations. Expectations can be met, exceeded or disappointed. Moments of truth can therefore be positive, in the case of meeting and exceeding expectations, or negative, in the case of disappointment. Monitoring the 'moments of truth' allows the company to focus on improving areas responsible for negative customer experiences.

CRM helps to put things right and the customers will see that they are important to the organization. Put things right and you will be seen as a supplier who knows how to manage quality. Organizations that fail to put right things that go wrong, might as well say to the customer, "You are not important to us". Failing to put things right and to prevent reoccurrence says of the organization "We are not capable of managing quality service."

Any Marketing Strategy that uses CRM as its base is bound to succeed.

MBAs or Entrepreneurs

Are B Schools encouraging Entrepreneurs

There is only one way to make a great deal of money.
And that is in a business of your own.

Entrepreneurship has never been everybody’s cup of tea. We have icons like JRD Tata, LN Mittal, Ambani brothers, Bill Gates, Michael Dell and host of others who made it big in the world of business. Every entrepreneur needs a certain minimum amount of internal drive and a forward–thinking perspective. Without this a budding entrepreneur is most likely to remain at the thinking stage and never reach the action stage. But, are there any tools that the B–Schools can teach, to make the new venture as efficient and viable as possible ?

There is a distinction between "being taught" and "learning" ? There are two components to entrepreneurship - creative (imagining an unmet need and being inspired about how to fill that need) and process-driven (methodical techniques of analysis, channel development, marketing plans). Creativity, like inspiration, cannot be taught. All the same, I remember a subject called ‘Management of Creativity & Innovation’ being taught to us, at IIMA, way back in 1983. Many entrepreneurs recognize (probably as a hind-sight) that it would have been helpful to have had education in entrepreneurship, which could have provided a framework to work with, to start a venture.

Entrepreneurship involves both a huge risk and a huge responsibility. B-Schools could help students by giving a platform to take a couple of practice shots with a safety net, before plunging in head–first. Can students do small live projects from which they can draw lessons ? Serious students must be encouraged to develop business plans, networking with practicing entrepreneurs and like–minded peers, so that they learn from their mistakes and be inspired by their success. They must be made to realize that 'O' stands for opportunity as much as opportunity cost.

Top B-Schools have entrepreneurship cells, business plan contests, elective courses and entrepreneurship centres. Question is – how effective are they and how many entrepreneurs do they create ? Wharton tries to "prepare students for careers as autonomous entrepreneurs, family-business entrepreneurs, or entrepreneurs in corporate setting". Indian B Schools have barely started looking at offering entrepreneurship education. It has become a norm for reputed B–Schools, to offer an elective in the second year. Some invest in state-of-the-art incubators "to help entrepreneurs launch their business plans into commercially viable products and services".

The problem is – students do not take such courses seriously, because they come in the fifth or sixth term by which time they are already placed. Harward Business School requires all its semester 1 students to take a course called 'The Entrepreneurial Manager'. The question that needs asking – are the courses / opportunities offered delivering the required skills and insights to be a successful entrepreneur ?
'Laboratory in Entrepreneurial Motivation' (LEM), an elective at IIMA, is a favourite with such students. The course is taught by an alumnus, who is also a successful entrepreneur. The course has no textbook, no readings, no quizzes, no test, no exams, no fundas. Especially the last factor – fundas like making a project report, financial forecasts, applying for loans, etc. A budding entrepreneur will have enough time to figure all these out before actually getting into the venture. LEM targets the 'fear factor' involved in giving up a cushy, well-paying job with good perquisites. The foremost fear is “Can I afford to fail - financially and psychologically ?”. Second fear is “Am I willing to fail ?”. The hard cold fact is most innovators fail (a lot) before succeeding.

Entrepreneurs require not just the 4Ps of marketing, but also the 4Rs of entrepreneurship, namely, Risk taking, Ridicule handling, Revolutionary thinking, Relationship building. These four 'R's not only need to be taught, but also to be developed, encouraged, inculcated, cultivated and internalised. Management Fests seem like a great place to apply the fundas of management. Two things that really help in preparing students for starting a venture are business plan games / competition and business simulation, both of which are conducted in the most amateurish ways.

Almost all students in the fests, talk of a minimum investment of Rs. 50 lakhs. Is it not foolish to even assume that a budding entrepreneur, who has not earned a rupee yet, can start thinking of investing at such a level ? I even saw a prize winning plan which took Rs. 40 lakhs from a ‘friend’ which required no paybacks or interest / dividend !! Banks seem to be desperate to give loans without any collaterals !!!

Another quality, which is needed, is the ability to be able to ‘walk alone’. To realize a dream, one cannot wait for someone else to join. Can this ability be developed ? How ? Most often this is the key to a successful venture. Entrepreneurship cannot be one of the dreams along with several others at the back of our minds. If owning a Mercedes is as important becoming an entrepreneur, look for a corporate job. For an entrepreneur, the only dream would be business, business and business ……”

Are the courses and cells developed by B-Schools doing these ?