Blinded by science

According to research by the Royal Mail, UK businesses have invested £19bn in customer relationship management (CRM) strategies in the past three years. Yet many of the companies that have invested these huge sums in new technology to launch CRM campaigns have, as yet, failed to see the returns they anticipated.

Database, Internet, and marketing automation technologies have made it easy and affordable to get – or stay – in touch with customers, while the cost of reaching customers through mass media has risen. Indeed, some of the blame for the latest downturn in advertising may be apportionable to companies slashing ad budgets in order to invest in CRM.

The trend towards CRM is not set to slow down yet. According to CRM research by the Hewson Group last November, £5.7bn will be spent on CRM in Europe this year. Yet the same research shows that a worrying 70 per cent of CRM projects will fail to live up to expectations.

One reason for this failure is that initial expectations are unrealistic. According to Alastair Martin, Blue Martini Software marketing director for Europe: “The main reason why some CRM projects are unsuccessful is because people set a raft of objectives they want to reach in two or three years. But these goals are often too aggressive.”

He adds: “After two or three years of CRM, managers judge how successful it has been. The problem is, they often just look for repeat sales and, if they have not hit their repeat sales targets, they immediately judge their CRM to be a failure.”

Missing the point

Another reason for the disappointing returns on CRM strategies is that many companies fail to understand the true meaning of CRM.

Martin says: “Many companies believe CRM is something they can buy – it’s not. It’s something that has to be done.”

Martin’s theory is backed by Jason Goodwin, head of CRM at the SAS Institute, which supplies data analysis software. He says: “A lot of people think that CRM is about talking to the customer more. It’s actually about talking to the customer less, but with more efficiency.”

Goodwin, whose clients include Barclays Bank and Marks & Spencer, says that companies rarely understand what consumers want: “Customers don’t like the word ‘relationship’. They don’t want a relationship with their supermarket. They just want a service.

“One of the most important things a company must ask itself when embarking on a CRM programme is ‘What do we want to measure, and what do we want to achieve?’ Companies often don’t consider the key performance indicators before they go in, so they have problems assessing the results properly.”

The term “CRM” is a favourite buzzword among chief executives keen to convince the City they are doing something to manage customer relationships, yet few can give a straight answer as to what it means – or how it should be implemented.

This may be because software suppliers and consultancies have hijacked the term and applied it to basic sales automation systems and data warehousing. According to a recent survey on behalf of Interact Commerce, of 1,500 companies questioned almost 30 per cent believed CRM to be little more than a database, while only five per cent correctly identified CRM as a means of maintaining and developing customer loyalty.

Interact Commerce executive vice-president Mike Muhney says: “I’m not surprised at the results. The term CRM has come to mean too many things to too many people.”

Neil Woodcock, chairman of customer management consultancy QCi, says: “CRM is becoming an unhelpful term. To most people it just means a multi-million pound software system.” But Woodcock adds that some of the failure statistics are misleading: “You may find that a managing director considers a CRM project a failure because of a poorly written business case study.”

Interact Commerce’s survey is just one of as many as 20 large-scale surveys on CRM that have been carried out in the UK in the past six months. This in itself is perhaps an indication of how concerned many businesses are with the lack of return on investment.

One such piece of research by QCi – which surveyed 300 blue-chip companies, including Ford, Ericsson, NatWest Bank, John Lewis and SmithKline Beecham – claims that too many companies rely on off-the-shelf IT packages, when they should be looking at customer management across the whole business.

Poor education

A major reason for this failure is the lack of education at all levels. Companies know they want – or should have – a CRM system in place, but a lack of understanding and too little liaison between departments can often cause problems.

Woodcock says: “Lack of education is a problem. Database marketing is becoming more prevalent, but some senior managers struggle to understand this. The two sectors that have really grasped database marketing are mutual building societies and catalogue companies.”

There is also a problem with senior management. Iris managing partner Ian Milner says: “First, someone has to do it properly and prove it works. But second, a CRM programme has to be a strategic business decision driven by the managing director, not the marketing director. A CRM programme has to be capable of affecting everything that a company does.”

Milner’s words are mirrored by QCi’s research, which found that only one in three major businesses had a senior executive with CRM responsibility.

Woodcock says: “The good news for most companies is that the basic infrastructure for a good CRM programme is in place. The benefits are just around the corner and companies need a senior employee with the knowledge of what their customers want.”

QCi’s research pinpointed a number of other things customers particularly want – these include better quality information, being listened to, better or quicker service, recognition and confirmation that they have made the right decision in buying from a company.

But much of the focus on the requirements of customers does not bear fruit because companies allow “leakage” into their CRM initiatives. This can take the form of many unanswered enquiries lying on desks or rude service in store. Goodwin says: “You can have a beautifully put-together CRM strategy, but if your customer rings a badly trained and rude customer service operator, it would all be for nothing.”

The much-talked-of economic downturn will have brought the failure – and the expensive price tags – of many CRM projects to the attention of business leaders keen to cut costs. According to almost every piece of research available on CRM, companies waste time and money by failing to identify which customers will remain loyal to a brand, and how to exploit them.

Upping the ante

Goodwin says: “In times of hardship, companies look at how they can improve profitability. CRM can help to build a profile of customers and enable a company to offload non-profitable customers and retain customers who may be likely to leave. This will minimise the cost of CRM and keep loyal customers.”

As CRM investment is expected to increase by 300 per cent over the next three years, business leaders will look more to the bottom line and pressure will increase for signs of CRM success. At the same time, these companies must take a realistic approach to CRM and ensure the targets they set are realistic.

Woodcock says: “Companies must remember that CRM is about customers, and not about spending millions of pounds on technology.” He also says that CRM should be about building positive contacts, which result in positive experiences between a company and its customers.

Both experts and research studies warn that, if CRM does not run to the most senior levels of an organisation and senior management is not educated, programmes will be labelled as failures. The solution will not be about businesses spending their way out of trouble using expensive technology, but about identifying which areas of a business CRM systems should be applied to, and which customers are the most worthy of attention.