Monday, September 13, 2010

What is Customer Relationship Management?

Customer Relationship Management or CRM for short, is undoubtedly one of the business "buzz words" of the 21st century. The fundamentally simple idea of implementing processes to help you hold on to your customers and get them to buy more has spawned hundreds of businesses whose sole purpose is to provide companies with applications designed to help them achieve their CRM goals. While I welcome any technology that can help businesses grow their bottom line, I feel that the notion of what CRM actually is has gotten lost in the hype surrounding the proliferation of software applications currently available. Many smaller companies have fallen in to the trap of spending their precious dollars on CRM technology without the slightest clue of what CRM actually is and how it can help them. Therefore, before we discuss whether or not your small business needs to adopt CRM technology, we need to at least discuss what CRM actually is. It's possible that you may decide after reviewing the definition, that your small business has everything it needs to effectively manage your customer base. On the other hand, you may come to the realization that your business is woefully under-prepared to effectively manage and leverage your customer base to help you grow your business. Either way, lets start determining what Customer Relationship Management actually is.

What is CRM?

Let's start our discussion on what CRM is by outlining what it isn't. Despite what you may have read or been led to believe, CRM is not a technology. I say this even though you may have gone online and found that there are hundreds, probably thousands of applications available for purchase that describe themselves as Customer Relationship Management solutions. However, to limit a discussion on CRM to a discussion solely about technology, misses the point of what CRM really is. CRM is a term that actually describes the processes that a business has in place to manage interactions with its customers and prospects. Humans determine what these processes are, while CRM technology merely supports them and makes it easier to implement them.

To clarify this definition, let's use a practical example:

Let's assume that your company makes 4 different kinds of widgets that are purchased and used by customers spread across the country. 80% of your customers use just one of your widgets, while the other 20% use 2 or more. After reviewing your monthly sales data, you discover that revenue per customer is higher for the 20% that use more than one of your widgets than it is for the 80% that use just one. Not only that, you also find that your cost of sales per widget is lower for customers that use more than one. This means that these customers are significantly more profitable - you can drive more revenue at a lower cost. You therefore decide to create a monthly newsletter that you plan to email to all of your customers. The newsletter will discuss the benefits of using more than one widget and will contain coupons that your customers can redeem for the purchase of an additional widget in your online store.

In this example, the decision to create a monthly newsletter is a decision to implement a Customer Relationship Management process - one which is designed to boost the number of customers using more than one widget which in turn will increase your company's revenues and reduce your bottom line cost. You will likely use technology to help you execute this process but the technology in itself is not customer relationship management - it's merely a tool that supports and enables the process.

Saying that the technology is not CRM is not intended to diminish the value of the CRM technology - far from it. The choice of the CRM technology you adopt to execute the newsletter campaign can have a significant impact on the success of the initiative. Let's illustrate that point by elaborating on our original example.

Let's say that we've prepared our first newsletter, downloaded a list of all of our customer emails and sent the newsletter to everyone on the list using a standalone email program. After a few hours, our sales team start getting phone calls from customers who use more than one widget complaining  about the special offers being extended to customers who only use one widget. They're upset that discounts are being offered to other customers that were never offered to them and so they want you to refund to them an amount equal to the discount being offered to other customers. 

In this instance, your CRM initiative has a negative impact on your business - not because it's a bad idea, but because the technology you used to execute it wasn't suited to the task. Even the most basic CRM system would have allowed you to download a list containing only the customers who've purchased one widget. More advanced systems would also have allowed you to send the newsletter through the CRM system without using a standalone email program at all AND would have allowed you to see who responded to the offers, how much revenue was generated by the newsletter and calculate the return on the newsletter initiative.

In discussing the power of CRM technology and how it can support your Customer Relationship Management processes, these examples just scratch the surface. How CRM technology can be used to grow your business is the subject of another article, but I hope the point is made. Don't confuse customer relationship management with technology. In the examples above, the capabilities of the technology didn't dictate that you implement a newsletter program - it just made it easier to do so. If you don't have any CRM processes in place in your company, purchasing a CRM system will be of little or no value. But if you do, investing in CRM technology could be one of the best decisions you make for your business.

In my next blog I'm going to address another question relating to CRM - Specifically, "Should Your Business Care About Customer Relationship Management?" In the interim, I welcome your comments and feedback on this posting.

If you'd like to learn more about how implementing a CRM solution can help your small business, visit and sign up for a free 30 day trial.
Shaun O'Reilly is Director of Marketing for StarterSuccess - a suite of web-based applications designed to help smaller companies more effectively manage and grow their business. Within this suite, StarterCRM provides small businesses with a cost-effective and easy to use customer relationship management system.

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