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Making Customer-Relationship Management Work

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Go to a neighborhood restaurant every single Saturday night and spend big and you? ll get the deluxe treatment. You? ll be greeted by name, led to a good table right away and served a drink or two on the house. But if you take to demanding items not on the menu, sending plates back to the kitchen and arguing about the check, you? ll soon be lucky to get a glass of water -- at your table by the restrooms.

Smart business owners quickly learn that the biggest profits can come from a small group of free-spending, easy-to-satisfy patrons, and that cheapskates who tie up the staff should not be encouraged to return. But how can this knowledge be adapted to a big corporation that offers thousands of products to millions of customers who can come into contact with the company in many different ways ? in person, by phone or on the Internet?

To hear some proponents talk about it, all a company needs is to buy and install a Customer Relationship Management system, a sophisticated approach to tailoring service to individual customers ? and to gathering valuable data at the same time. CRM has boomed over the past five years, thanks to computers and the Internet, and many experts expect sales of multi-million dollar CRM systems to soar at rates of 30% or more each year.

"Everybody is scrambling to integrate all their customer contact points," says Wharton marketing professor George S. Day. At this early stage, much of the effort has gone into computers and related equipment, though many companies adopting the technology aren? t yet clear about what their systems will really have to do to build enduring and profitable relationshiphips with customers, he says.

"At their base, these are big, integrated infrastructure systems," says Noah F. Gans, a professor of operations and information management at Wharton. "They will collect data on every single customer action, anywhere that a customer might come into contact with the company. In each of these channels they will have some sort of hardware and software that is going to, at some level, manage the process of employees of the company interacting with the customers."

A recent report by Jupiter Media Metrix, the New York Internet tracking company, says 74% of the businesses polled expected to spend more on CRM equipment and software this year than they did in 2000, with most boosting spending 25% to 50%. Jupiter says this reflects a growing realization that, especially in a less-robust economy, it is cheaper to keep existing customers happy than to attract new ones.

While CRM can undoubtedly be valuable, says Peter S. Fader, a marketing professor at Wharton, it is also something of a fad. "Everyone is sort of flocking to it but not necessarily getting anything out of it," he notes. Many companies, he predicts, will fail to make the cultural and organizational changes needed to make CRM work, or will use the resulting data unwisely. Distinguishing profitable customers from unprofitable ones seems appealing, for instance, but it can be counterproductive if the company uses the knowledge to drive away small customers who might have become big ones in the future.

"Focusing too closely at the individual level is a mistake," Fader says. The trick, which not many companies have yet mastered, "is to find the right level of aggregation" ? to categorize customers in groups that are neither too big nor too small.

A large corporation may spend tens of millions of dollars on a CRM system. Among the big CRM suppliers are Oracle, Siebel Systems and IBM, and dozens of other companies specialize in components such as telephone call center technology, database software and Internet systems. Because the whole idea is to customize each system to a specific company? s needs, there is no universal definition of CRM, which has both business-to-business and business-to-consumer applications.

Call your local bank about your checking account and you may discover the person on the phone is looking at a screen that summarizes your previous calls and displays information about your mortgage and credit card as well. That? s CRM. Log on to Amazon.com and you may find a personalized list of suggested books that have appealed to readers with buying habits like yours. CRM again.

Currently, the financial services industry has the best CRM efforts, with companies like Capital One, Fidelity and Vanguard Group among the best examples, Day says. Lands? End and many other catalogue companies also are among the best CRM implementers, since data mining has long been at the heart of their business, adds Fader. Traditional bricks-and-mortar retailers are less successful, since they have little tradition of gathering information during customer transactions, he says.

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Last updated: Jul 12, 2001




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