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	How do client relations drive revenues?   More revenues and less costs. An excellent Customer Relationship Management (CRM) system can drive this. But, after evaluating implemented systems, the opposite appears: costs often outgrow revenues. How to turn it around? In the beginning of last century, products were often sold through small shops where the owner knew his clients. Not only by name, but also by their product preferences. Stepping into a shop meant a social activity. People chatted, but meanwhile revealed a lot about their personal lives to the vendor. This knowledge he used to offer them the products they could use. During this process, a band grew between the shop owner and his customers, as the relationship went from being unknown, to an acquaintance, to a friend. People did not switch suppliers easily, because friends were not supposed to be abandoned. The system guaranteed the income of the owner, as long as he maintained his network with buyers. Financial market The principle goes for many types of organizations, ranging from grocery stores to financial institutions. When focusing on the latter, which consists out of banks and insurance companies, many examples can be applied. Employees of these organizations who knew which couples got a baby, also knew which extra products to offer. In many cases new parents were more willing to open a savings account for their kid. Often, they also wanted to cover the financial consequences in the case any of the parents would pass away, with life insurance. Success was pretty much guaranteed with these products. But there was more, because sometimes new parents needed a larger house with a new mortgage. Or a loan on a safer car. Any major step in a human life, from being born, to marriage, to child birth, to school, to becoming grandparents, always triggered financial consequences. Anyone who knew clients personally, knew what to sell at which moment. But, times changed and made everything more complex. Market changes Over the decades in the last century, many small financial institutions disappeared. Some of them merged in order to grow and obtain economies of scale. Others went out of business, because of increasing competition at lower cost levels. For the large banks and insurance companies it became impossible to personally know all customers. The focus became more on pushing large volumes of standardized products into the market and less on tailorized services based on customer relationships. Because of this, clients felt like being treated as a number. They lost some interest in the vendor and became less brand loyal. This gave room in the market for intermediaries. These were small offices that re-sold the products of the larger companies to clients in their local neighborhood. They got more and more successful. They kept old-fashioned full contact with local clients. As they operated for a limited number of customers, it was still physically possible for them to maintain relationships. Meanwhile, the large companies gradually lost some of the touch with the end customer. And with that, they lost some of their power in the market to the intermediaries. Changes through technology But, large organizations are not doomed. They still have the future. Only they need to utilize information technology (IT). Nowadays, a simple database can contain millions of records and show anyone of them on a computer screen in less than a second. In contrast, in the old days, finding a file in large libraries could take hours. It took a human to find it. The chance of an error is larger with humans than with computers. So why keep the people? Because other humans still like being helped by someone they can use small talk with, someone they can relate to. Therefore nowadays, humans pick up the phone in the automated call center. While in the background, all repeated processes are taken over by computers. This makes it possible for one employee to know all detailed characteristics of millions of clients. Large corporations get the opportunity to act as a small company again, as the personal touch with the end customer can be re-gained. A consequence of this, will be disintermediation of the value chain, because intermediaries may gradually lose their reason for existence. In other words: as soon as the product producer gets the address and purchase information of the end customer and is also able to communicate directly with him or her, then the middle man can become obsolete. Technology needs information Database technology has initiated what is called Customer Relationship Management (CRM). It means total management of client contacts and client related processes around sales, service and marketing analysis. Software for CRM is developed and sold by companies like Siebel, e-Piphany, Oracle, PeopleSoft, SAP, BroadVision, Blue Martini, ATG, Clarify, Onyx, AccountView and Scope. With this software, large knowledge warehouses with customer profiles can be set up. A customer profile contains more than only a name, address and telephone number. It also lists spending behavior and purchasing patterns. While comparing customer profiles, it is possible to identify similarities. When a group of customers always tends to have debts after Christmas, why not offer them a loan just before the winter holiday? But how to get people to allow vendors to collect privacy sensitive information? That problem has been solved relatively easily: by giving them a (bank) card from which each and every transaction is registered. Also, some financial institutions adapted an idea from airline companies: airmiles. It appears that when clients earn a little bonus present every time they use the card of the same vendor, they return more often and buy more. Bottom line is that CRM depends on the quality and quantity of data and information about client behavior. The customer information gathering phase is called the first wave of CRM. Information costs money Of course, building up large databases, collecting client information and offering gifts costs a lot of money. There are billions of (potential) customers around the globe. Logically, the implementation of first wave CRM costs more than it pays off. Research institution Gartner calculated that in 1997 organizations around the globe were paying almost 1 billion dollars for CRM software alone, which went up to 4 billion in 2000 and is expected to be raised to 5.5 billion in 2005. [Gartner, CRM survey 2002]. Around half of them did not earn these investments back. The reason for that can be found in the fact that often the focus is too much on technology, while business and organizational aspects that should be synchronized with it, are overlooked. The entire organization needs to support the Customer approach. Technology cannot do everything just by itself. No wonder, that CRM fails when companies only implement half of the solution. As soon as that gets acknowledged, then the second wave of CRM kicks in. Money is earned through sales The book, that combines scientific views on CRM with practical experience from a consulting firm, is written by Brown. It reads: "CRM brings the customer back to the core of business strategies. It aims to understand, anticipate and manage the needs of an organization's current and potential customers, which is a journey of strategic, process, organizational and technological change" [Brown, 2000, page xix]. Strategically, doing business while establishing full CRM will bring more revenues and less costs. More revenues, because clients stay longer and tend to buy more when an excellent relationship is maintained. Less costs, because automation with a human touch offers more efficiency at delivering large volumes of products to many individual clients. But more revenues from sales and less costs can only be generated through organizing sales processes through channels and actions. Sales need channels In order to fully align all successful principles from the old days, re-establishment of the dialog with the client is crucial. A dialog within a relationship means communication in all directions. Interaction should take place, to build up a relationship with each individual client on a one-to-one basis. The complicating factor is, that clients usually reside in physically distant locations and have different preferences. There are people who do not use a computer or (cell) phone, because they don't like them. When a company wants to reach any (potential) customer, then many different channels need to be utilized in order to cover them all. Some channels can be fully individualized, which means that one-to-one communication can take place, like: paper-based mail, e-mail, chat, web, retail store, (mobile) telephone services and a sales force to visit clients. There are also mass media based channels, like a newspaper, magazine, radio and television. Some organizations reduce costs by predicting which important customers could be reached through which channel and then to redistribute the marketing budget over all channels. For example switches are made from relatively expensive radio and TV commercials to the internet, which contains cheaper and more personal self-service elements. But cutting costs should never be the sole reason for channels switches, because it is key not to miss out on important customer contact opportunities. Not only should the organization optimize client contact through multiple channels, but also information over these channels needs to be consistent and combined. Consistent, because conflicting or wrong information on websites and in stores may leave clients feeling mislead. Combined, as organizations may use click stream analysis to identify, which web pages someone has visited and then refer to these perceived interests in a telephone call. Information & Communication Technology (ICT) vendors deliver useful CRM software for automating communication channels, but are still not able to offer the complete solution. Channels need actions Usually, all communication processes through channels with customers, are organized in front office departments, such as sales operation and advertisement. Front office processes are directly linked to its customers, in contrary to back-office departments, where behind-the-scenes activities take place, like calculations, systems support and human resources [Slack, Chambers, Harland, Harrison, Johnson, 1995, pages 28-32]. Therefore, when CRM is introduced, the tasks of employees involved in front office processes are fundamentally affected. New ways of managing client related data and dealing with customers are among the challenges faced by them. This human behavior is formed through actions, both reactive and proactive. Reactive actions are for example to talk to a client and turn a complaint into a new purchase of a complementary product, or to store all product improvements mentioned by customers and have the development department look at it. Proactive actions are to first identify which customers are (expected to become) (not) profitable, then take initiatives to call or visit prospects or clients, start the dialogue to understand them, offer tailorized products that fit real needs and close deals. An interesting side effect of this approach, is a decreasing retention rate, because personal attention will keep the customer in touch with the vendor over time. Problems can be solved together using dialog, instead of abandoned. All actions need to be aimed at a goal, which could be cross-selling and/or up-selling. Cross-selling means increasing the number of products purchased by the same client. For example, when CRM software comes up with suggestions about products that other customers with similar profiles have bought, why not sell that to the current client? Websites can show individual suggestions automatically, Amazon.com was the first to implement this on a large scale. Customers who buy two or more books online cause the artificial intelligence system to correlate both books to (a) this customer and (b) each other. At the next visit the look and feel of the website is automatically changed for this individual showing titles of not-yet bought books that are somehow related to previously purchased titles. Of course it is also possible to search in the entire bookstore for other books. After each purchase the system improves itself correlating more books. This system works fine unless people buy one-time gifts for others with a totally different taste. Therefore, recently a button for gifts is added which switches the correlation system off temporarily. The customer is rewarded for hitting that button by getting a wrapped present and the system is kept cleaner and more effective than before. Also, actions can be aimed at up-selling, which means charging higher prices to clients who need to generate more profits, or for products that are about to be taken off the market. When CRM offers individual products to individual clients, price differences can be established relatively easily. Airlines use price differentiation all the time, it's quite rare to sit next to someone who has paid the same price for the same type of chair. Financial institutions use interest differences based on risk classes, why not tailorize products, prices and actions per client? Actions must be combined The final wave of CRM combines all of the above into a closed loop. This means tying a conclusion to an action, the action to a tracking mechanism and the tracking mechanism to a conclusion. Then, the entire CRM process can be gradually evaluated and fine-tuned. It's not mainly sales actions that are organized through aligned channels, but sales is linked to after-sales service, which is linked to marketing analysis, which is aimed at more sales. Part of this means evaluating all processes, in order to improve on cashing the maximum lifetime value of each individual client. There is no use in pushing one product onto a client, that makes him or her feel so repulsive that the relationship is lost forever. There is also no use in assuming that customers will automatically come to you when they need something, they may end up at a competitor. There is a balance in keeping the relationship healthy, while maximizing turnover and profits. Knowing at what time which product should be offered to which client, via which channel, with which (amount of) actions, is the final touch. When all channels are in place, some clients should be contacted through e-mail, others through a subtle changing website. When all activities are aligned, then callcenter employees see on screen which products someone has declined or accepted over the years. Software should allow employees enough flexibility to come up with extra sales opportunities without leaving the client with the impression that a standard script has been read to them. Every individual customer should feel valued, every personal need should be addressed. That is what Customer Relationship Management is about. Combined results CRM is relatively complicated and involves many aspects that have to be synchronized. Therefore, it usually takes years of fine-tuning before the strategic goals are met and profitability has increased through less costs and more revenues. A 2003 study from the platform Top management and IT among over one hundred IT managers of which twenty five work within financial institutions, shows that three quarters of CRM implementations fail to quickly earn back initial investments [Platform, 2003, page 20]. But, for organizations that work with CRM for longer than four years, 64% claims being on or beyond the break-even point. It takes time to be successful.   Author: Jelle Bouma 31 years old
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