The CRM Value Chain Essay Example for Free

The CRM Value Chain turn upThe meaning of those three letters, CRM, is hotly contested. For some, CRM is simply a bridge between marketing and IT CRM is therefore an IT-enabled gross sales and service function. For otherwises its little more than than than precisely targeted 1to-1 communications. But both of these views deny CRM its great possible contri thoion. Because CRM, at its most advanced, answers questions resembling who should we serve well? and what should we serve to them? and how should we serve them? it could, and often should, be come ined as the inherent strategic process around which the business is organised. CRM decisions impact on marketing, certainly, but also on operations, sales, client service, HR, RD and finance, as well as IT. CRM is fundamentall(a)y cross-functional, clientfocussed business outline.The CRM appraise chain The CRM note value chain (figure 1) is a proven model which businesses goat follow when developing and implementing the ir CRM strategies. It has been five years in growth and has been piloted in a number of business-tobusiness and business-to-consumer settings, with both large companies and SMEs IT, softwargon, telecoms, financial services, retail, media, manufacturing, and construction. The model is grounded on strong theoretical principles and the practical requirements of business. The ultimate purpose of the CRM value chain process is to ensure that the company builds long-term mutually-beneficial descents with its strategically-significant nodes. Not all customers argon strategically significant. Indeed some customers be simply too expensive to acquire and service.They demoralise little and in ordinaryly they pay late or default they make extraordinary demands on customer service and sales resources they demand expensive, short-run, customised output and then they defect to competitors. What is a strategically significant customer? Weve identified four types of strategically significant customer (SSC). Selfevidently, the high life-time value customer is a expose SSC. These must be the focus of customer retention efforts. Life-time value potential is the donationday value of all approaching margins that might be earned in a relationship.Tempting as it may be to believe, not all high volume customers suck up high LTV. If they demand JIT, customised delivery, or ar in other ways lively to serve, their value may be significantly reduced. We know of one company that use activity-based costing disciplines in order to trace process be to its customer base. They found that 2 of their 3 biggest customers were in fact unprofitable. As a consequence the company re-engineered its manufacturing and logistics processes, and salespeople negotiated price increases.A warrant collection of strategically significant customers we call benchmarks. These ar customers that other customers copy. A manufacturer of vending machine equipment is brisk to do business with Coca Cola at breakeven. Why? Because they can tell other customers that they be supplying to the worlds biggest vending operation. The third group of SSCs are inspirations, customers who inspire change in the supplying company. These may be customers who look new applications, come up with new product ideas, find ways of improving quality or reducing cost. They may be the most demanding of customers, or frequent complainers, and, though their own LTV potential is low, they offer other significant sources of value.One insurance company circumscribed its claims process to satisfy one particular car fleet operator this process eventually became the companys default standard. The final group of strategically significant customers we call cost magnets. There are customers who absorb a disproportionately high volume of fixed cost, thus enabling other, smaller customers to mystify profitable. One oilseed processor, for example, has two major customers, a manufacturer of snack regimens which buy s oil in raft and a retail multiple which buys consumer packs.Although they account for 60% of oil-seed processing time, they absorb 85% of fixed costs between them. Five steps to profitable relationships The five steps in the CRM value chain are customer portfolio analysis, customer intimacy, network development, value proposition development and managing the relationship. Although we dont discuss them here, at each stage of the value chain there are concepts, tools and processes to help create and implement undefeated strategy.Very briefly, the CPA step analyses the customer base to identify customers to target with different value propositions. The second step involves the business in getting to know the selected customers as segments or individuals and building a customer data-base which is accessible to all those whose decisions or activities impact upon customer attitude and behaviour. Step three involves building a strong network of relationships with employees, suppliers, partners and investors who watch the requirements of the chosen customers. Step four involves developing, with the networks compliance, propositions which create value jointly for the customer and company. The fifth and final stage is to manage the customer relationship. The focus here is on both structure and process. From observation of failure it is clear that CRM solutions cannot be transplanted into any organisation in the direct certainty that the business leave alone flourish.For success to happen, CRM needs a supportive culture its unbelievable to yield dividends in companies which only pay lip service to customer focus. Neither will it advance in organisations wedded to product-based structures or reward systems based on sales volume. Similarly, if IT, human resources and procurement processes are not aligned with the CRM agenda, its unlikely to flourish. For example, we know one IT company which is trying to implement CRM strategy whilst still recruiting up-and-at-em salespeople who are quota driven. Another company is in the throes of a cost-reduction programme and procures least cost inputs to its manufacturing process without due regard to the impact on customer satisfaction and buying behaviour. Customer Portfolio compendium CPA, the first step in the CRM value chain acknowledges that not all customers have equal value to the company. CPA asks the question who are our SSCs?The answer can be pitched at sector (e.g. food retailing), segment (e.g. food retail multiples) or individual (e.g. Tesco) levels. Companies which have no customer history on which to base their analysis can use segmentation approaches to identify potential SSCs. When CPA has sorted the true or potential customer base into different groups, they can be taegeted with different value propositions. An all-important(a) consideration is to analyse and sort by profit potential, not by volume, whether that is by sector, segment or individual.One CPA tool sorts customers into 4 strategic groups sack, re-engineer, nurture and invest. Sackable customers are those who have no present or future profit potential or life-time value. The invest group contains customers who are both worthy currently and have significant future potential. The reengineer group contains customers who are not presently profitable but who could become so if the relationship were re-engineered. Options may include reducing the level of customer service, disintermediation, or telesales, kind of than face-to-face sales representation. The final segment nurture contains those customers who are currently profitable but have little future potential. The task here is to address, possibly in consultation with those customers the reasons for pessimism. It may be that they can jointly find solutions which suggest a more profitable future relationship. Customer intimacy Choosing customers to serve is one thing. Getting to know them well is altogether different.Most companies collect customer d ata. Some industries are overwhelmed with information scanner data, loyalty card data, complaints files, market research, geodemographic data. The challenge is to use the data to better understand the who, what, why, where, when and how of customer behaviour. Mining data intelligently is, of course, a source of huge competitive utility, and it enables a more refined CPA to be undertaken. Develop the Network Company does not compete against company. Network competes against network. For example, Sainsbury does not compete against Tesco. Their respective networks compete.Tescos network, which includes partners such as Royal Bank of Scotland (for its retail banking offer) and Privilege indemnification (for its insurance offer) currently seems to be performing better than Sainsburys. A companys network position i.e. its connectedness to other parties who co-operate in delivering value to the chosen customer, is a source of great competitive advantage. An progressive software house p artnering with IBM, for example, enhances its network position. IBM also benefits, as well as their joint customers. Networks consist of partners like these, employees, suppliers and owners/investors. CRM is not a quick fix it requires owners and investors who will commit to the long-term investment in the people, processes and engineering science to implement CRM strategies. Employees will probably need reorienting and reskilling, if not redeployment.There is clear evidence that employee surgical process in moments of truth with customers influences customer satisfaction and purchasing intention. It only takes a short leap of faith to bind employee satisfaction to customer satisfaction to business performance. Suppliers also need to understand who the customer is trying to serve. consort to the consultants A T Kearney, companies are going to continue vendor reduction programmes over the next some(prenominal) years, as they try to build closer relationships with fewer partner v endors.CRM is becoming twinned with SRM, supplier relationship management. Kearney reckons 20% of current in-suppliers will be de-listed by 2003. For CRM to succeed, the network of suppliers, employees, owners/investors and partners must be aligned and managed to forgather the needs of the chosen customers. Value proposition development By the fourth step of the CRM value chain, you will know who you want to serve and will have built, or be in the process of building, the network. immediately the network has to work together to create and deliver the chosen value(s) to the selected customers. Great value is found more effective and more efficient solutions of customer problems. Although it is traditional to focus on the product as the primary(prenominal) source of value, many companies are finding that people, process and service offer more competitive advantage as products become more commoditised. How things are done with and for customers process is particularly important. The re may be small processes, such as how complaints are handled or big processes, such as how new products are jointly developed with customers. The value star (figure 2) illustrates sources of customer value in a retailing context. bellManaging the relationship For relationships to succeed with strategically significant customers, companies are having to re-invent structures and process. On the way out are hierarchical structures and product managers. Replacing them are flatter organisations with empowered front-lines and customer or market managers. We encourage companies to commute their single marketing strategy with a trio made up of a Customer eruditeness Plan, Customer Retention Plan and Customer Development Plan. Each of these has different metrics from those found in run-of-the-mill marketing strategies. New measures include customer acquisition costs, customer retention rates, share-of-customer and customer development targets alongside more conventional measures such as c ustomer satisfaction and sales volume, and additional measures relating to the performance of network members..Final thoughts CRM is widely misunderstood by marketing management and seriously misrepresented by software houses. Companies are being sold front-office and back-office solutions, but are missing out on the fundamental, strategic benefits that CRM can provide. CRM at its most sophisticated has the potential to integrate all business processes around the requirements of strategically significant customers, a fact that most IT solutions fail to acknowledge.