Kiran Bulusu’s Blog

I was recently reading couple of articles about this CRM technology and found that many IT people and/or management people dont understand the importance of it. Most companies doesnt have correct expectations as to what are the benefits of CRM and measurement metrics to calculate ROI. So, I thought ,why not writeup something about it and publish.

Customer Relationship Management which is often abbreviated and referred commonly as CRM can be used to define the way business houses deal with their customers, strengthen their market position, customize their products to serve the customers better and increases their sales And last but not the least is tells us how to increase our return of investment.

Tangible or Hard Benefits of CRM Initiative:

Any business which improves their customer relationship will automatically see the direct advantage of it in terms of profitability. So far companies have been using CRM systems only to understand customer to improve sales.

Below are few ways through which the CRM benefits the businesses with the above goal in mind :

1. Repeat Business/Loyalty: Many surveys in the past have proved that it is easy to retain the old customers/business than to get the new business. By improving the customer relationship, many customers will tend to become loyal to the company and thus will help in increased sales. Few of the benefits are outlined here below:

a) Customers who shop frequently get to know more about the brand and various choices offered by them. As times passes by, these loyal customers have very strong knowledge and so they ask the service representatives very specific questions and so will result in lesser transaction and consume less store resources. This will result in savings to the company.

b) There is another subtle benefits associated with having a loyal customer. These customers feel like a stakeholder and part of the brand. So when they have a bad experience, they tend to complain rather than moving to a different brand/company.

2. Targetted/Focussed Marketing: Instead of scatter-gun marketing approach which is in-efficient, if the company has all the information and metrics to process the information i.e. CRM, company can now focus to specific audience. This will result in increased sales and cheaper costs.

3) Reduction in costs due to: Order Processing; Short-term acquisition costs and Customer referrals.

4) Develop better communication channels: 2 way communication channels should be established between company and client.

5) Collect vital data, like customer details and order histories

6) Create detailed profiles such as customer preferences

7) Deliver instant, company-wide access to customer histories

Identify new selling opportunities

Intangible and Soft Benefits of CRM Initiative:

Apart from the above benefits, there are lots of hidden benefits that a CRM system provides to any business. The perspective of the company towards the CRM system needs to be changed. Outlined below are those hidden benefits which many companies don’t realize and as such undermine the benefits of the customer relationship management :

1. Proactive Management: With the abundant wealth of information available about the customers, companies can use that information to track the buying patterns of the customers, foresee the problems in the potential customer relationship and accordingly can take measures so that they don’t loose any customer. Companies instead of being reactive which might be too late in many cases, companies can be proactive and generate new business.

Pro-active management has to be done at every level of the service to the customer. Especially, pre-sales and post-sales (customer service representatives) people need to be involved in this idea heavily. At the Pre-sales level, this often involves the following steps:

1. Contacting the customer either prospect or existing and trying to do some cross-selling or up-selling which are important factors for business success.

2. From previous buying history and patterns, the sales folks can approach the customer and explain them various product packages customized for them and the value they offer.

3. It is important for the sales management to constantly ping the prospects or referrals and explain them about various services and products they offer and customizable level of solutions and of course various incentives for becoming the customer. The sales people need to be pro-active in turning every referral to a customer. Instead of referral walking to the company, the company needs to approach them first.

The above described steps are generalized, but depending on the sector, it might involve even more steps.

As a post-sales or customer service representative, every care has to be taken to retain the customer. Customer satisfaction plays an important role in customer retention. Various studies have revealed that 5% of customer retention translates to nearly 25% of profits.

For example let’s consider the case of an IT company which offers various products to its client depending on the sector the client is in. The customer support personnel need to be trained in the CRM tool and they should be able to analyze when they need to contact the client. For example, the customer might have just purchased software. The support personnel needs to immediately conduct multiple trainings on the customer site and should not wait till the customer faces a problem and requested for one. This often results in lost of interest towards the product and the company. The support personnel need to ensure that the product utilization should not decrease. The number of calls related to products or bugs or new product enquiries are all logged in the CRM database and looking at the results of the CRM tool, support personnel should decide what kind of service should be provided to make the customer happy.

Another good example for pro-active management would be credit management. Many utility companies will be in huge debt due to failure of debt recovery from the customers. So the utility companies need to adopt a different model

To come out of debt. This model can be independent of any billing or credit management system. The customers previous debt history such as amount owed to the company , number of days the amount is overdue and customers demographic information, other critical information such as customers salary is fed into the a model which automatically computes and tells the company whether and when can the customer pay . Companies can also use this information to determine appropriate payment terms upfront and initiate debt recoveries.

Companies can develop a credit rating system to rate the customers based on their payment performance and amount overdue. Based on the credit score, companies can also determine the payment terms upfront. Thus the utility companies can be pro-active and save huge money from being in debt.

2. Customer focused database: An organization making the CRM information visible to entire organization wide can see improved: performance, financial control, forecasting;

3. Reputation: Improving the customer relationship, will lead to many referrals through word of mouth etc and thus larger growth.

4. Time Sensitivity: Having all the information and efficient system in place to process and generate the reports helps the company in being informed and organized about the individual or a group and also it helps the company to act at the right time. This will increase the ROI.

5. Business Intelligence: Business Intelligence is just one aspect of it. Business Intelligence Process should be viewed as a part of CRM strategy and it should be seen as process that drives a behavioral change. This process involves on how we evaluate the customers, what we do and when we do, describe the environment, trends predictability and the companies can use this process to constantly define their decision process and strategies.

6. Process Management: When viewed from an evolutionary point, all the processes that are used to re-align the business processes or increase the business functionality result in decreased personal interactivity with the clients/customers. Companies should use the results of CRM tools to analyze and improve the business performance. As many companies are now realizing that to recreate the business, it needs deep experience and analytical skills. As Paul Ciandrini says that to improve Business knowledge and experience, it’s not an application software innovation, but the personal customer relationship now drives the process improvements.”

A Process Management Professional has to interact with all individuals who participate in the Process Modification and/or (re)development activity. Previous studies have shown that one needs to develop a satisfying relationship with whomsoever we interact with.A common scenario often seen and a concern to IT companies are described below:

The developers start coding sometimes with the partial or incomplete specification which often results in an erroneous product. This happens due to the minimum interaction or none in most cases with the user community. The user base on the other hand will be in the assumption mode that the product will contain all the requested features and whereas the delivered product will not. This will result in dis-appointment to the customer and decrease in the profits/image to the company. So, the company needs to ensure that process management professional is involved in this process where he will define the complete specification and review the product features and quality assurance of the product. The critical piece here for the IT manager Is to identify the lack of process in place. Also the IT company management with the help of CRM tools should (re)define the process and Improve their business performance and hence ROI.

7. Quality Assurance: This is one of the important intangible benefits of the CRM initiative. As the companies process the information obtained from customer about a particular product, they can utilize it to improve the quality of the product. This is more of a qualitative rather than a quantitative benefit.

8. Personalized Relationship building: As the companies get to know more about their customers using various CRM initiatives implemented, they can engage their sales and customer service representatives in developing an personalized service with all their customer. As companies get to know the purchasing patterns and other statistics like their demographic information, income range etc, they can predict what services/products are required for that particular customer and accordingly provide the service to the customer. As all customers are not same, one needs to implement the Nordstrom way.

Another example that can be mentioned is many energy companies are now moving away from being service oriented

Company to Product Oriented Company. Energy companies are now developing personalized relationship with their customers by offering them a customized products based on various parameters like

1. Bill Frequency
2. Bill Media
3. Read Frequency
4. Payment Method
5. Payment Frequency

By selecting the above settings, customer enables to tailor the products according to their economical class they fall in. At the same time, it is advantageous for the company also as it will be a cost-effective solution for them. Companies aligning the above parameters will help in reducing the credit risk, maximize profitability and customer retention.

9. Supply Chain Management : OEM and its supply chain partners can also experience the benefits if implementing a CRM system. Based on the user satisfaction surveys, the manufacturing requirements of an OEM changes frequently and the OEM has to accommodate this across the manufacturing plant wide. Due to these frequent changes, OEM are forced to maintain an huge stock of components which results in increasing costs due to stock pile and holding overhead and other capital requirements. To avoid all of the above, the business process that is in place has to be re-aligned .At times, business re-engineering efforts are required.

In most cases when the specification changes, it takes couple of months to reflect the same changes in the entire supply chain. Because of this “time-lapse”, every one in the supply chain will have a different view of what they were at any given time.

Once a CRM system is in place which is focused on delivering customized solutions with minimum cycle time, the OEM can re-align the business process and supporting systems. Each participant in the supply chain will have access to the information and is forced to prioritize the different function areas based on the costs and operation feasibility.

As a part of implementing the CRM solution, every participant defined only parts of the specification and so the entire process became relatively painless and all the participants belonging to the same group will have the business problems to begin with.

The CRM solution will cause/make a fundamental shift in the way each channel partner interacts with its supply chain. The process re-alignment that has been implemented lays the foundation for this supply-chain community. The solution will optimize processes, and increases ROI.

10. Predictive Modeling: The benefit of Predictive CRM is help companies to have profitability and yet deliver the incentives to the customers as promised .Using the abundant wealth of information available with the companies and the other relevant data like purchased data, companies can customize its services and also predict what new products and services can be designed to serve the customer better.

Another important benefit of this technique is that, other strategies adopted by the companies gets better with time. Another key benefit is the margin of error can be minimized as the results of the earlier strategies are fed back as an input into this predictive modeling technique and thus it works as a calibration factor.

Customer lifetime value metric is defined on the basis of the following factors: Initial Services bought by client, future products/services that can be sold, relationship marketing expenses, customer service expenses, Future profitability, customer retention, incentives used to keep the client.The CLTV metric helps the company to minimize the margin of error and keep the deviation of results to.The minimum. Statistical Modeling Algorithms like clustering and affinity modeling are used to define what to sell to whom and when to sell them. Once the above is determined, we have to determine the probability Of the customer buying that. This is done using the process called regression.

As one can see, that by the using predictive modeling, we train the relationship between customer and the sales force and thereby increasing the efficiency. Also the sales force can prioritize customers and schedule them according the value they carry. Also predictive intelligence aids the developed in focusing their efforts on new products and time-tested themes.

Measuring ROI of a CRM initiative:

Measuring ROI of a CRM Initiative is very challenging as it involves measuring the soft benefits offered by CRM. As many case studies say measuring an ROI should be done from the scratch and should include measuring both the soft and hard benefits. Measurement metrics should include all process changing metrics too. Customer satisfaction is a soft benefit; it should be measured in terms of service objective

Key Performance Indicators to measure Customer Satisfaction:

1. Improved response time to customers.

2. Delivering a product as per the expectations set by user community.

3. Reducing cost of buying and using the product.

4. Access to the product information and checking order status.

5. Creating customized solutions to cater varying needs of different customers.

6. Enhancing the technical support by being more Pro-active.

The difficulty in measuring the ROI generally comes from the three factors outlined below:

1. Develop a baseline measure for the existing system,

2. Measuring hard benefits in correlation with finance and also measuring soft benefits such as customer satisfaction

using key performance indicators

3. Measuring CRM strategy too early in the process.

A 7-step process of measuring CRM ROI is outlined below:

Step 1. Identifying all finance metrics such as revenue projections, cost savings, net present value (NPV) and internal rate of return (IRR), payback period we expect to achieve from CRM initiative.

Step 2. Estimating the costs incurred on for new software and equipment, services and change management.

Step 3. Have a realistic estimate of time when the ROI should be analyzed. A design and deployment plan should be created at the very beginning of the project. Having such a plan will help the CRM project manager to assess when he can expect the returns. Once the project is in the implementation phase, review should happen at each module implementation in specific time frame and the assessment should be done.

Step 4. Check if a no change scenario exists over the identified time period. That is to say, the company should analyze its current marketing, sales and support structure and costs associated with each of these. The costs should include services, equipment procurement, costs, finance and accounting staff function costs. Then the current ROI has to be determined and should be used as a baseline for comparing with the anticipated ROI. As the CRM system is implemented, evaluate the ROI with the ROI of the project over the expected time frame.

Step 5. Analyze all CRM benefits and calculate ROI.

Step 6. Determine incremental returns. Once the ROI before implementation is calculated and also anticipated ROI is calculated, company should analyze whether any incremental returns are possible. If possible, then the CRM initiative should be implemented.

Step 7. Systematic approach towards the CRM project for high yield/returns. The higher management should have a clear understanding of the CRM system and should have a clear vision about how they plan to implement like the strategy and what they are expecting in return from the initiative and the allowed time period to achieve the returns. Also the company should have the right team in terms of project managers and leader and they all should have clear understanding of the expected returns.

Critical Factors which help in maximizing the ROI are

1. Planning: The plan should include expected benefits, criteria to select a vendor, time frame allowed for having incremental returns, resource planning, change management and its associated costs, and of course CRM strategy . Should also have a document explaining how the marketing/sales/support services should be and also information on how they are planning to improve/introduce process development and training activities.

2. People: Ensure that the initiatives and benefits reaped are explained organized wide. This can be achieved by training the team. This is very important for the company as it can impact the CRM initiative.

3. Phase: The strategy should be implemented in phases so that it will be easier for the upper management to analyze the results and cash flow.

4. Performance: Care should be taken such that the new software can be smoothly integrated into the existing technology. This is necessary to have significant cost savings.

5. Price: Evaluate the price of the new software/services/equipment. Also one should remember not to evaluate this in isolation as the price is part of the total life cycle cost and so is a small fraction of it.

6. Progress Tracking: Project mile stones should be reviewed on regular basis and care should be taken to tune the project collected throughout the lifecycle of the system.

7. Partners: Right partners should be selected based on the criteria decided during the planning phase and partner ship should continue to exist even after the integration and implementation of the software/systems.

Some measurement metrics to measure the Hard Benefits such as Cost Savings & reductions.

1. Number of calls required to close the deal successfully.

2. Automation of purchase orders and quotations.

3. Customer contact management

4. Improvement in management of product information and demos.

5. Reduce travel time and expense.

6. Reduce response time and number of call back requirements.

7. Lower storage and hardware costs due to consolidation of data and systems.

8. Improvement in co-ordination between customer support, filed applications and sales folks.’

9. Market segmentation and product pricing.

10. Decrease problem resolution time by using the data sharing concept.

11. Lower administrative and systems management costs due to streamlining the operational costs.

12. Cross-sales and up-selling

13. Customer retention

Suggestions for a company planning to implement CRM:

Any company planning to implement CRM in their process, should first ask these questions outlined here

1. What are the various products and services offered currently and what are being planned in future

2. To what customer groups these products/services are targeted to.

3. Which of the above said products/services are most valuable to the company? It should describe them in terms

Of cost, profitability, reliability and growth potential

4. Does the customer have any special needs that the company can meet in terms of additional products and services etc?

5. Different ways to serve the customer better.

There are four key aspects that should not be ignored when designing a CRM strategy. They are

1. Defining the existing customer relationship management process

2. Determining the way the relationships are handled between customer and company.

3. Designing the ideal customer relationship that suits the company’s objectives and goals.

4. Implementing the strategy based on the recommendations by the CRM managers.

By following the above 4 aspects, it helps the company to develop specific strategy which suits Its business goals and keep all its customer relationship management intact.

The next important question, a company has to answer is what value does the CRM initiative deliver?

To answer the above posed question, one needs to answer the following questions mentioned below

1. What products were bought a particular customer
2. When was the last communication from them and in what mode?

The solution to the above questions is having a knowledge focused business where the companies collect
Information about their customers and use analytical methods to understand purchasing patterns and analyze various

Demographic factors and other factors that influenced the decision.

Companies need to consolidate all the different databases they have which contain different aspects of the information about the same customer. For example, sales department will have database about the purchasing history; marketing department will have purchasing pattern of the same customer and administration/call center will carry about the call history of the same customer. With so much wealth of data lying internally, companies first need to focus on how to consolidate and integrate the data and make it available to all the different functional bodies in the company.

Companies with this internal information coupled with the external feedback such as customer surveys should use for more comprehensive analysis.

Executive sponsorship is very critical in getting the CRM initiative successful. Someone from the upper management has to send a clear signal about its vision and has to take in charge of the CRM strategy .The executive staff has to realize that the following are integral part of the CRM strategy.

1. Product Development
2. Change Management
3. Market Planning
4. Customer Retention
5. Bills of Materials
6. Customer Service
7. Inventory Management
8. Payment management
9. Credit Management

Conclusion: Organizations need to constantly monitor their strategies and change them according to the expectations of the customers and should become more customers centric in their approach.

Implementing CRM initiative doesn’t mark the end of journey, but it’s only the beginning and companies who want to remain in this competitive world should evaluate their strategies and objectives continuously. The benefits of implementing a CRM system will start from day one be it in terms of the reduced cost, increase in profits, increase in staff morale or attaining higher brand equity. CRM benefits come in the form tangible which can be measured and there are couple of intangible benefits which are difficult to measure. But care should be taken to measure these intangible benefits with some key performance indicators. Having correct set of metrics to evaluate the ROI will help the company in implementing future CRM strategies.