The Financial Impact of CRM: The Real Story (Part 2)

This article is the second of a series of articles focusing on the financial impact of CRM on an organization. The article centers on the CRM benefits associated with increased revenues. We will also highlight a few best practices related to attaining higher levels of increased revenues.

Revenue increases can be generated through:

> Greater share of customer (share of wallet)

Share of wallet is the percentage of the customer’s total expenditures allocated to a specific organization. It is the % of total purchases made with a particular company. A customer can be a regular buyer of computer paper. He may buy 10% of his supply from one supplier, another 40% from another supplier and 50% from your organization. In this example, you have obtained 50% of the customer’s share of wallet. Your objective could consist of increasing the customer’s share of wallet to a level of 70%.

> Cross-sell improvements

Cross-selling consists of providing customers with additional products or services other than the main product purchased from your organization. For example, rather than marketing only computer paper, you may have an opportunity to also sell other computer accessories and products to your customer. The type of products or services you choose to offer must be based on the specific characteristics of the customer such as the value to your organization and specific needs of the customer. You will want to maximize your marketing investments to get the greatest ‘bang for your buck’! Your efforts should be tailored to your various types of customers.

> Up-sell improvements

Up-selling involves the purchase of products or services that are of higher quality or grade. Rather than a customer buying your regular grade computer paper, you see a need for the customer to have your premium grade paper. The key is that the need be there for the customer.

In order for organizations to achieve these three revenue-generating opportunities, they must have a retention strategy for each of their customer portfolios, which is determined by differentiating customers based on their value to the organization and their needs. A retention strategy is a relationship marketing plan which identifies what basic retention objectives will be pursued and how they will be achieved in the time available. Relationship marketing programs basically contain frequency/reward programs (also called loyalty programs), community building, customer service, and customization strategies.

At minimum, every relationship marketing plan should contain a welcome strategy, a plan for continuous feedback, and a conflict resolution plan so the organization knows how to handle the inevitable conflicts that arise. A few of the basic and general retention strategies include:

> Thank you techniques to welcome new customers

> Practicing internal marketing so that employees deliver on promises

> A clear access strategy for customers to reach the company when needed

> A reward loyalty program

> A specific relationship marketing mix for each customer category using the 7Ps of CRM: products (or services), pricing, place, promotion, process, people, physical evidence.

Any retention strategy must also include CRM metrics. Two fundamental ones are attrition rate and retention rate. Attrition rate is the percentage of customers lost in a given period of time, usually on an annual basis. Attrition is the same as churn rate.

Retention rate is the opposite of attrition or churn rate. It’s the percentage of repeat customers projected to continue doing business with the company. Retention rate = (1 – attrition rate).

The best retention strategy is to prevent termination of a relationship, particularly with an important customer, i.e. one that represents significant value to your company. Customers terminate relationships for a variety of reasons: novelty seeking, dissatisfaction, a higher relative advantage for another product or service, conflict with the organization, a loss of trust, and a cessation of need where the product or service is no longer required. Before even attempting to offer strategies to increase revenues, you must gain the trust and exceed the expectations of your customers.

A retention strategy also recognizes the need to reward customers for their loyalty. Something as simple as a mint on a pillow or an automatic late-check out may increase a hotel customer’s loyalty because he or she has been rewarded with something extra. In its most basic form, a rewards program provides its best customers with preferential treatment or special incentives. Up-selling, cross selling, and partnership management programs all serve to help delight valued customers by providing them more than they expect.

Frequent buyer programs can be looked at as opportunities to learn more about the customer. There are, however, a couple of problems with these: they are expensive and mistakes can be difficult to correct as customers see the company as taking away benefits. Companies should be cautious before implementing a rewards program – be sure the criteria will reap benefits!

Increased revenues can be achieved only if a company has a continuous learning relationship with its customers. Without customer knowledge, it is impossible to offer the right marketing mix to the right customers. In our next article, we will take a look at the costs associated with CRM implementation as well as the benefits derived from cost savings through improved efficiencies and reduced operating expenses. We will also discuss some best practices related to attaining higher levels of cost savings.

Dr. Nancy Rauseo is on the faculty of Florida International University’s College of Business Administration where she teaches marketing. Nancy holds a Bachelor of Science in Industrial Engineering from Purdue University and an M.B.A and Ph.D. from Nova Southeastern University. She is also IBM-certified as an e-Business Solutions Advisor. Prior to her teaching career, she held various senior management positions for over 20 years in the areas of sales, marketing and technology implementation. Dr. Rauseo is also Instructor for FIU’s Professional Certification Program in CRM. For more information, visit: http://cba.fiu.edu/web/ope/crm.htm