Alan Mitchell: CRM strategies that spell conflict of loyalty

Efforts to increase customer value remain driven by corporate aspirations, but successful CRM should benefit the customer first

What’s gone wrong? One problem is the sheer scale of the task. Successful relationship marketing programmes are data-driven, and collecting the right data, keeping it in the right formats, making it easily accessible to the right people, being able to analyse it to actually deliver genuine insights and so on, is a major managerial task. Foul up on the IT and you can’t get past Go – and fouling is a very easy thing to do.

Not only that, a number of pitfalls lurk inside apparently straightforward concepts. Take “lifetime customer value”. The theory is wonderful: if you know the lifetime value of your customers, you can focus on the ones that really matter to you. But how many companies have actually managed to crack this calculation?

Knowing how much money your customer is spending with you is only half the equation. Just as important, perhaps, is knowing how much your customer is spending with your rivals and could be spending with you. That sort of data is much harder to come by. Fine judgements may also need to be made. How does current customer profitability relate to potential future profitability, for example? And how valuable are non-financial attributes such as a customer’s propensity to recommend you to friends?

In his new book Accelerating Customer Relationships, NCR customer relationship marketing expert Ron Swift tells the story of a bank which upped its charges to an old lady because the balances left in her account weren’t profitable any more. What they hadn’t noticed was that her son was an extremely wealthy man who also banked with the same organisation and paid most of her bills for her. The real customer – whose lifetime value was immense – was not the old lady but the wealthy man, who was now very cross with the bank. Swift calls this sort of analysis “householding”.

A third set of pitfalls stems from the fact that many customers don’t want a “relationship” with the organisation in the first place. No matter how “close” my bank may want to get to me, it may be that all I want from it is an efficient utility service.

The bank’s marketers may have convinced themselves that because I have a current account with them, we have “a relationship” which opens the way to the cross-selling of loans and pensions. But that may not be the way I see it, at all. For real relationships to work, in other words, both sides need to be on the same general wavelength. There has to be an element of mutuality. Take a look at Swift’s definition of CRM: “Customer relationship management is an enterprise approach to understanding and influencing customer behaviour through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty and customer profitability”.

Definitions like this illustrate how, despite all the rhetoric about customer focus, most CRM programmes are seller-centric to the core – they are constructed by sellers, for the benefit of the seller. Somehow, amidst all the attempts to cross-sell and increase lifetime customer value, how it’s supposed to benefit the customer gets forgotten. Just note that definition again: it’s all about influencing customer behaviour in a way which benefits the company, not influencing the company’s behaviour in a way which benefits the customer.

In fact, most companies claiming to do CRM are merely investing large sums of money in supercharged new technologies to do very old things like campaign management and cross-selling. And CRM is just a way of dressing it up in new phraseology to make it sound cutting-edge.

Does that mean it’s all a complete fiasco? No. There are some real success stories. But most of these success stories (including those cited by Swift in his book) boil down to two things, both of which are operational.

First, they enable companies to eliminate waste. One oft-cited benefit of a well-run CRM programme, for example, is its role in getting the right promotion sent to the right prospect at the right time through the right channels. But this is more about cutting costs by stopping sending the wrong messages to the wrong people, than actually achieving cross-selling or increased lifetime value. It’s less ambitious. But the benefits are palpable.

Second, successful operators see CRM as a business tool, not just a marketing tool. They use the information they gather to change the things the business does in order to be more responsive to its customers: for example, rejigging product portfolios, making it easier for customers to do business with you and customising offers for different groups of customers.

Instead of investing ever more marketing effort to boost corporate profitability by moulding customer behaviour, they’re changing corporate behaviour to boost customer profitability – the “profits” or benefits the customer reaps by doing business with them.

In this way they earn their customers’ approval. Real CRM, in other words, should be a service to the customer. Grant Harrison from DunnHumby (which helps Tesco run its successful Clubcard scheme) sums this mentality up by saying: “Remember, it’s you who should be loyal to customers, not the other way round”. When CRM is driven by this mentality, it can work a treat.


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