CRM Misconceptions Can Be Costly

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I wrote a column last year on CRM (“A Little CRM, Please“) that generated a lot of reaction. It seems that lots of us think about CRM a lot — though usually from the perspective of customers. That column was the beginning of some thinking I’ve done about CRM and what I’ll call the price/value/service ratio and its relationship to customer relationship management (CRM) process and technology investments.

But before we get to that, let’s agree that CRM is not technology, software or “architecture”: CRM is a state of mind, a philosophy, a business strategy. I cannot believe the number of companies I see — still — that are convinced a CRM (in-house or hosted) application is the answer to their customer relationship problems. Successful CRM software applications that we buy (from Siebel) or rent (from Salesforce.com) assume a variety of things to be true before implementation (though the vendors tend to hide many of them in fine print). Newsflash: If your company isn’t customer friendly, technology will not change a thing (except the technology budget).

CRM, the philosophy (versus CRM, the technology), regards customers as lifelong clients whose personal and professional lives can be monetized through the proactive management of the client’s needs, values and ability and desire to pay. CRM the technology is about applications that leverage customer data, supplier data, company data and even vertical industry data into actionable information. The disconnect that sometimes occurs is between the corporate and technology views of customers, not different perspectives on how software applications should be acquired and deployed. There also are disconnects among what companies sell, what they charge and what customers are willing to pay.

Customer-centered companies have wide and deep protocols around customer care. They also have specific protocols around the acquisition of new customers. Nordstrom department stores get it; Ritz-Carlton hotels get it; Lexus car dealers get it. While far from “perfect” these and other vendors understand that the extra profit they embed in their products and services better be offset by the quality of the service they provide.

Many customers are quite willing to pay more than they should in return for over-the-top service. High-end vendors have always understood this and manage their customers accordingly. Many middle-end vendors also treat their customers elegantly; while some others offer alternative value propositions to their customers — like low prices — as a trade-off to mediocre or downright poor service.

The CRM danger zone is reached when companies misjudge the product/value/customer service relationship ratio of customer care and investment. Some companies, for example, are in the middle of the price/value hierarchy but provide horrible service. Other companies are at the very top and provide marginal service. (Any company at the top of the price/value hierarchy that provides horrible service is unlikely to stay there.) The CRM success zone is reached when a company synchronizes its price/value/service ratios with investments in CRM processes and technology.

Where is your company in the price/value/service space? If all your customers care about is low prices, then why invest in elaborate CRM processes or technologies? All it will do is increase your costs, lower your margins — and eventually require you to raise prices — which will alienate your price-obsessed clientele. If you are on the higher end of the price vector — or aspire to climb the price/value hierarchy — then you need to make sure that your prices, value and service are synchronized.

The decision to invest in CRM technology comes much later. Companies need to understand who they are, where they are, and what they want to be when they grow up before talking to a CRM software sales rep. Figure 1 suggests where CRM technology investments make the most sense (the green zone) and where it might make sense to keep CRM process and technology investments to a minimum (the red zone).

The yellow zone is where the real CRM action is, where CRM management gurus and technology vendors can make real money. Green zone companies will spend on process and technology because they understand the price/value/service ratios well (and because they can pass the costs on to their loyal, accepting customers anyway). Red zone companies should under-invest in CRM processes and technology since their customers already have low service expectations.

The yellow zone companies are really not sure what to do. Clever CRM vendors can excite them about climbing into the green zone — where they will spend big bucks on CRM. Or they might be convinced that they have no hope of ever behaving (or charging) like Nordstrom, so they might as well fall into the red zone and kill all CRM investments. Or, with just a little investment in CRM, they can maintain their yellow zone positions and even make some more money along the way. You decide.

Figure 1: Price/Value/Service Ratios & Likely CRM Investment Payback