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Catalog CRM: On the Road to ROI
Catalog Age
February 2004
Customer relationship management (CRM) solutions promise
integrated systems, loyal customers, and unforeseen profits.
Unfortunately, something is missing in most applications. It's not
service, although CRM has spawned a billion-dollar industry without
significantly improving the service index. Nor is it the lack of truly
integrated marketing, sales, and operations. The main thing missing is
return on investment.
One can argue that there hasn't been enough time yet to see the return
or that other factors have interfered with success. The fact remains that
CRM strategies are routinely implemented without a realistic plan for
generating and measuring the return. Practitioners justify this failure to
plan using words such as intangible, branding, customer-centricity,
and cutting-edge technology.
The concept of CRM is not new. In 1954, Peter Drucker wrote, The true
business of every company is to make and keep customers. The new twist is
the technology that allows individual management of millions of customers.
This technology has become synonymous with CRM. It is the first step
for many initiatives when it should be the last. Every successful
initiative begins with a plan to maximize use of existing internal
resources before seeking external solutions.
The goal must be to improve processes and systems so that marketers can
profitably interact with customers. Achieving this goal requires a plan
that details improvement expectations with quantifiable results. An
effective CRM strategy increases profitability by reducing expenses and
increasing revenue. Yes, there will be intangible benefits, but there must
be a tangible accountability to justify the expense. In other words, we
must be able to measure the magic to ensure that we are creating and
sustaining long-term profitable relationships.
To realize a return on investment in CRM, you need to follow six steps:
- Find the starting point
It is impossible to plan a journey if you don't know where to begin.
To find the starting point of your CRM strategy, analyze the key
performance indicators that drive your business. These include lifetime
value, acquisition and retention rates, response rates, marketing costs,
service levels, customer complaints, fulfillment costs, and employee
turnover. This information will establish the internal baseline
benchmarks for monitoring progress and measuring ROI. Establishing the
baseline will also identify issues that affect service, efficiency, and
profitability. Note these improvement opportunities for future
reference.
Next, create a reporting system for regular analysis, and start
publishing timely reports for all employees. Establish appropriate
timetables for every benchmark. For example, review sales and
productivity data daily, weekly, monthly, quarterly, and annually;
review lifetime value quarterly and annually. It is important to monitor
the information on a regular basis.
At the same time, document all processes and procedures. Many
companies have training manuals that detail the specific steps for each
function. Review every step to be sure that the application matches the
documentation.
This first step is the most difficult, the
most time-consuming, and the least enjoyable. It is also the most
important, since the information will be used to refine every aspect of
the business. Once you've completed this step, release the results to
employees with a request that they look for opportunities to improve
performance and ROI.
- Define objectives
Now that you know where you are you can realistically plan your next
destination. There are two levels to objective planning: general and
specific. The general objectives will include improving customer
loyalty, brand awareness, employee morale, and competitive advantage.
The specific objectives are the driving force for a positive ROI and the
accomplishment of the general objectives. Examples include increasing
acquisition rates 5%, reducing fulfillment costs 10%, and improving
order turnaround 20%.
The key business indicators identified in
the first step will enable you to refine your objectives. For instance,
if you have identified the average fulfillment cost per order as $15.40,
you will know that reducing that cost 10% means achieving an average
cost per order of $13.86. It is a specific goal, though still without a
defined, exact path to accomplishment.
- Target opportunities
Assemble the project team for a brainstorming session to identify the
best opportunities to accomplish the objectives. The first part of the
session requires that every idea even the farfetched ones be given
equal consideration. Sometimes Really Odd Ideas are a direct route to
ROI!
Opportunities to improve service and profitability exist in every
department. Use the key performance indicators and process documentation
to find hidden treasures. Is there an extremely profitable customer
segment? How can you acquire or shift customers to that segment? Are
there job functions that can be combined or eliminated? Are contracts
routinely renegotiated?
Once you've identified the opportunities, rank them by risk and
return. The 80/20 rule applies here: 80% of the return is generated by
20% of the opportunities. Identify the 20% and start there.
A phenomenon will occur during this stage. Your company will realize
internal improvements even though the initiative has not yet been
implemented. This is a result of publishing the key business indicators.
Everyone becomes aware that the initiative is a true commitment and
subsequently increases his or her focus on efficiency and service.
After you've objectively rated and ranked
the opportunities, create a plan with specific steps, deadlines, and
expectations. Break it down to departmental levels. This is the
foundation of the CRM initiative. It should not include any substantial
expenditure again, the first objective is to maximize the use of
existing resources before seeking external solutions.
- Work the plan
Ladies and gentlemen, start your engines! The implementation begins
with the highest-ranked opportunity. The operational CRM team focuses on
reducing costs by increasing efficiency throughout the organization. The
analytical CRM team focuses on increasing customer value by improving
retention and response. Every area has to be integrated to maximize the
return. Interdepartmental teams broaden perspective and improve internal
relations.
Hold brief weekly meetings to monitor the
progress and refine the plan. Address any issues and limitations that
appear. Alter the plan when necessary to accommodate the issues.
Flexibility is mandatory, but don't change the objectives even if some
are found to be unrealistic. CRM is a multiphase project. Simply note
the issues and revise for the next phase.
- Measure, measure, measure
It is impossible to gauge the progress
without measuring the results. The reporting system is showing
improvement, but is it meeting expectations? It is time for a
comparative review. So to your benchmark analysis chart, which already
has columns for baseline measurements and goals, add two more columns:
current information and improvement. You can then use the improvement
information to determine ROI. For instance, if the company processes
150,000 orders annually, a $0.88 improvement in the fulfillment cost per
order is an overall cost reduction of $132,000. Repeat this process for
every benchmark, then combine the results with the expenses to determine
the ROI. Repeat this step monthly and quarterly as appropriate.
- Expand the initiative
CRM is a perpetual journey. Once you've made the most of your
existing resources, you can target opportunities that warrant external
solutions. Again, establish clear objectives, expected returns, and
detailed plans. This will make it easier to choose an application that
meets your needs.
A successful initiative requires the participation of the entire
organization. Ownership and excitement begin with the CEO and cross
departmental lines. Add some strong analysis and targeted opportunities
for a magical journey.
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