E-Business Strategy Topic Eight: E-CRM

History

Back in the 1980s, enterprises were finding it more and more difficult to create a competitive advantage through marketing initiatives. The reason for their struggles was that marketing had become a generic competency. Marketing in general had changed from an activity for competitive advantage to an activity merely for competitive survival.

In an attempt to create a new leadership position, some organisations moved their focus from trying to influence immediate (transaction) behaviour through generic mass marketing activities, to building stronger relationships with customers individually and focusing on the longer-term. Thus, customer relationship management (CRM) was established.

In 1987, Jan Carlzon, former president of Scandinavian Airlines, published his book Moments of Truth. Moment of truth: Any time a customer comes into contact with any aspect of a business, however remote, is an opportunity to form an impression. (Carlzon, 1987: 4)

Historical phases of online CRM

1. Inform 1990–1995 'Welcome' and 'About us'
2. Interact 1995–2000 'Contact us'
3. Transact 1990–1995 Basic 'communities'
4. Integrate 2005–2010 Extensive individualisation & personalisation

The traditional approach to interacting with customers was to deliver messages, sell the current product and repeat the process; all 'push' strategies focused on short-term transaction results. The new interactive approach, however, changes those paradigms. Now the approach is for an enterprise to open a dialogue, listen to the customer to determine what can be provided both in the short and long term, and interact with and guide the customer rather than demanding straight repeat business—which now can be through new goods and services or a reconfiguration of existing products.

What Is E-CRM, Really?

CRM involves the individualised, personalised care of a customer. CRM does not include mass generic actions such as media advertising, bulk sales to your immediate downstream channel partners, or providing generic support such as product use and maintenance information. While these things may assist general enterprise operations, they are not directly themselves CRM.

Electronic Direct Customer Marketing
Focus: Aggregate short-term transactions
• Aggregate forecasts
• Aggregate or individual order fulfillment
• Entire downstream chain
• This or next transaction
• Mass influence

e-CRM
Focus: Individual lifetime transactions
• Individual customer needs and behaviour
• Individual order fulfillment
• Nearest downstream chain neighbour
• All future lifetime transactions
• Individualised influence

e-CRM
The computer-mediated, cross-functional management of ongoing relationships with individual customers in an integrated and knowledgeable way to maximise the profitability of each customer.

Online Analytical Processing (OLAP) dynamically analyses customer activities to spot trends or problems involving customers. OLAP is a form of data mining. It looks for patterns of activity and behaviour, such as the kinds of customers who accepted the last promotional offer sent by the company. This helps refine future offers and their likelihood of acceptance by customers. While this might seem at first glance to be aggregate analysis and therefore more a general marketing activity, it is fundamentally different in one aspect. It uses data about specific, known customers. While OLAP might uncover an insight that describes customers of a certain common demographic and appear to be generic, applying a new marketing or service activity to those 'common' customers only occurs because they each individually qualify.

If your marketing and support activities are aimed generally at a target group of customers and prospects (about whom you know little or nothing individually), then you are marketing. Where your activities are tailored to specific, individual, known customers, you are practicing e-CRM. It is, after all, customer relationship management; not market management.

e-CRM's Value

The most common benefit attributed to e-CRM is that customised business activities aimed carefully at each individual customer will improve customer satisfaction. Improving customer satisfaction increases profitability—the goal of all enterprises, except not-for-profits. Profitability is increased for two main reasons. Firstly, the customer is likely to buy more from the company, and secondly, the customer is less likely to defect to the competition. Acquiring new customers to replace those lost (or simply to increase sales) is far more expensive than retaining existing customers. Various estimates identify the cost of customer acquisition to be between five to ten times the cost of selling to existing customers.

Customer loyalty and profitability are often directly linked or equated by industry and observers. Three 'causative' methods are described that link customer satisfaction and loyalty with profitability:
1. Customer acquisition: loyalty increases the number of customers by referral.
2. Customer retention: loyalty helps retain customers longer, reducing acquisition costs.
3. Customer extension: loyalty increases the profitability of existing customers (less price-sensitive, greater share of wallet).

There are five highly significant empirical dimensions of customer satisfaction leading to loyalty (Ndubisi & Wah 2005). In decreasing order of importance (i.e. most important first) the 'five Cs of customer satisfaction' are:
1. Conflict handling: reducing potential problems and handling those that arise, well.
2. Credence (trust): reliability, security, respect, quality, confidence.
3. Communication: timeliness, relevance, accuracy, proactiveness.
4. Commitment value: personalisation and flexibility.
5. Competence: knowledge, advice, assistance, flexibility.

From e-CRM Failure to Success

According to many researchers, some 70% of e-CRM projects fail to deliver significant performance improvements for their firms (Hkalifa & Shen 2005).

Many organisations use surrogate dimensions to measure program success—they measure customer satisfaction and loyalty, and not much else. While customer satisfaction is certainly one valid measure of e-CRM success, it is by no means the only or the most important measure. Research by Cao and Gruca (2005) showed that poor selection of target customers was a key factor in limited or even negative changes in profitability.

A further risk, especially in the financial industry where use of Online Analytical Processing (OLAP) is widespread, is to assess customers only by the likelihood that they will accept a new product offer from the company. It is equally important to assess the customers' approval for the product being offered. While this seems an obvious afterthought, many organisations have made offers to customers, only to reject a customer's application when submitted. This causes an understandably negative reaction for rejected customers!

While Wood's recommendations for measuring quantitative financial figures for e-CRM efforts, and Cho et al.'s observations about customer defections are valuable, they don't say what to do in order to achieve better outcomes. Wisskirchen et al. (2006) identify six strategic practices for converting customers from defectors into fans. They are:
1. Appeal to hearts and capture minds: focus on providing products that delight customers, and communicate in a tempting way.
2. Target prospects with precision: carefully mine, analyse, segment and approach individual customers with targeted offers.
3. Win over new customers early: the likeliest time to lose customers is soon after acquisition. Follow up and make compelling offers to new customers.
4. Manage the experience, not just the account: deliver on your pledges and measure customer perceptions of your service, especially for critical 'moments of truth'.
5. Dare to be different: Innovate, but ensure simplicity and value.
6. Let customers do the talking, too: the majority of customers who defect classify themselves as 'satisfied'. Survey customers about their latest experience, and ask for permission to follow up a problem reported to the help desk. This brings additional qualitative insights into the organisation.

e-CRM Implementation

Regardless of the specific kind of e-CRM solutions being sought, some managers deliberately add an extra 'P' to their marketing mix to help keep sound e-CRM principles firmly in their sights. The extra P is for Profiling—of the customer

1. Capturing the right customer information:
2. Managing the quality of customer data:
3. Integrating channels to build relationships:
4. Understanding customer value:
5. Designing a revenue and customer-focused CRM strategy:
6. Integrating channels to build relationships:
7. Deploying cross-departmental business processes
8. Measuring incremental CRM results

While holding and analysing detailed information about individual customers, the enterprise must comply with customer privacy laws at all times. Laws may be country-wide (e.g. Australian Federal privacy law at www.privacy.gov.au/act/).

Whichever approach you choose, the most important step is to establish your own e-CRM strategy and objectives before you begin assessing software solutions.

Off-the-shelf solutions: Software applications that integrate with existing corporate systems. For example, e-CRM may actually be a module of an ERP system.

Outsourced solutions: Application service providers (ASPs) provide (usually web-based) e-CRM solutions.

Bespoke solutions: Consultants and software engineers customise and tailor a system to meet your precise needs.

Managed solutions: Partway between outsourced and bespoke, the organisation rents a customised suite of e-CRM applications in-house.

Some 35% of those surveyed about their e-CRM activities identified cultural issues as being a major inhibitor to the successful implementation of e-CRM (Reed 1999). In operation, people—culture in particular—have a strong influence on the success or failure of e-CRM systems. van Bentum and Stone (2005) found that without an appropriate cultural foundation (e.g. customer orientation, learning), e-CRM will fail.

While most e-CRM systems allow the manager to determine overall response rates, purchasing results, call centre call volumes and so on, there is a critical aspect of e-CRM that many don't handle well. It is the service failure event. As we saw earlier in this topic, handling of conflict is the most important aspect of customer satisfaction. Service failures cause conflict, at least in the mind of the customer, and poor handling can seriously erode the customer's trust in the organisation.

Gonzalez et al. (2005) propose that salespeople and customer service staff should be trained in five skill areas of failure analysis and recovery efforts:
1. Failure identification
2. Failure attribution
3. Recovery strategy selection
4. Recovery implementation
5. Tracking, monitoring, and evaluating effectiveness.

Risk Management

The enterprise may experience risk in e-CRM in two major areas. The first is in the planning, development and implementation of e-CRM 'solutions'. The second is in the operations of the e-CRM systems in practice. Managers should be aware of the most common pitfalls and plan to address them proactively.
1. Major planning, development and deployment risks
2. Major operational risks

Implications for Managers

To create and use an effective e-CRM strategy, managers should keep the following points in mind:
* The overarching objective of modern e-CRM is profitability, so include profitability measures in your assessment of e-CRM performance.
* e-CRM is about interaction with individual customers, not the old traditional method of telling customers en masse how wonderful your product is and expecting a purchase of it, now.
* Remember to individualise and personalise interactions with customers; this is not just plain 'mass marketing'—it's about managing customers one by one.
* Integrate information about customers into a central store that can be analysed and used by any of the enterprise's touch-points with the customer. This will mean sharing and integrating customer information between at least sales, marketing and service.
* Where necessary, implement real-time systems to improve response to customer 'moments of truth'.
* Coordinate the e-CRM system across the entire enterprise. Operational silos are the death of effective e-CRM efforts.
* Use the operational systems that make the most sense for your own enterprise and strategic objectives, rather than those spelled out by vendors.

Many e-CRM efforts fail. The most common causes are:
* Lack of integration across functions.
* Handling the implementation as strictly an IT function (with little reference to the enterprise's people).
* Implementing promotional and support programs that are intended to improve profitability but which are not costed to actually determine profitability beforehand.
* Measuring only surrogates of effectiveness (customer satisfaction and loyalty) rather than actual profitability.
* Conduct valuable research on customer data, such as determining the real key drivers of customer dis/satisfaction and behaviour (or lack thereof).
* Share summary information about e-CRM performance across the enterprise in a timely manner.
* Always remember that people are the cornerstone of an effective, integrated e-CRM system. Engage them, win support and commitment, and where appropriate, develop incentives for them to use the system properly.

Collaboration at work: technology, people and process

With the customer at the center of the enterprise, people, processes and technology combine to drive business results. By integrating technology with processes, businesses gain actionable insight. Combining technology with people achieves process efficiencies. Providing employees and customers with customer-centric business processes improves performance and overall effectiveness.

1. Build a centralized customer data repository
2. Use analytics to draw insight
3. Enable real-time decisioning