Succesful CRM in a Down Economy

Updated: July 27, 2009

By Phil Olivieri

Companies in North America are facing an economic downturn that has not seen its
match since the ‘Great D.' The consulting firm McKinsey calls it a "structural break,"
meaning the old rules are broken and need to be replaced.

Consumer spending, once supported by personal debt, is contracting. Trust, survival
and the "thrill of the deal" when finding that $2.99 special in Aisle #3 have been
replaced by fear.

According to Alan Siegel, Founder and Chairman of U.S.-based global brand consultancy
Siegel+Gale, "People are desperate for clarity and simplicity in order to make informed
decisions. There is a huge opportunity for business to overcome cynicism and regain
lost trust through the way they communicate with their customers."

"Transparency and authenticity are the new marketing imperatives," says Lee Rafkin,
Siegel+Gale's Global Director of Simplification. "People are fed up and desperate for
institutions and brands that offer simple and honest communications they can
understand. That's the clear message from our most recent research survey."

This economic environment challenges us to be different, by changing the status quo if
we are to survive the transition. Those unable are caught in what I call the "Barriers of
Convention" syndrome, where the status quo remains anchored to old world thinking,
ideals, strategies and the perceived need to protect long-tenured functional power
bases.

Fear, uncertainty and doubt, or what I like to refer to as "The F.U.D. Factor," is running
rampant in many of today's organizations. Any CRM practitioner will tell you those
three words increase the cost of doing business because of the perceived need to
engage in deeper discounts, more frequent discounts or by reducing customer
marketing budgets. Therefore, it should come as no surprise that trying to compete
using old world strategies and tactics in this current environment is not the wisest path
because it does not effectively address this fear, uncertainty and doubt.

Besides, if you were to ask, most executives will tell you that success in the new
marketplace will come as a result of getting closer to customers, delivering value to
them now and proactively adapting to their future needs … in a word - demand-pull
interactions vs. supply-push communications. So, if everyone understands this, why is
there still a problem?

The answer lies in being able to recognize that successful CRM is a journey toward
creating a meaningful and sustainable point of difference among one's customers, not a
destination; an organizational philosophy, not a software package or technology
implementation. But perhaps most importantly, it's the recognition that CRM is not
about what the company wants; it's about what the customer wants.

Customers want companies to relate with them through meaningful and relevant
interactions. To do so, companies need to adapt the organization to support current
and future customer needs and then apply the right customer-centric people, processes
and technologies that support those efforts. What is even more challenging today is
that customers are operating at a lower level of income, debt tolerance and trust.

Prior to the economic downturn, the primary pursuit of CRM by companies was to
enable and sustain high levels of growth by adding new customers, growing existing
customers, capturing more market share and improving service. With the cooling
economy, companies have traded growth for cost-savings including substantial employee
layoffs, and are focused on increasing the efficiency of existing business processes and
resources. In effect, these firms are attempting to realize more from their existing
investments. Since customers are, in fact, a company's greatest asset—one in which the
firm has made a considerable investment, it stands to reason that a company would
want to realize more ROI from their existing customers.

There are three, key CRM principles to remember so as to stay true on one's CRM
journey, maximize ROI from existing customers, and help mitigate risk against the
negative economic forces in the current economy:

1. Unlearn and relearn

A. Unlearn the principles of "mass" everything. If a company is to truly realize
the benefits of CRM, it needs to move from inefficient offer-push
communications to efficient demand-pull interactions and put the word
"custom" back into "customer."
B. Identify the best, next best and the worst customers. As the economy
declines, identifying the most profitable, as well as unprofitable, customers is
a growing concern. A business relationship requires that we identify best and
next best customers and collaborate with them to create new value that will
benefit both parties over the long term. Deciding which customers to focus
on and which to neglect is the first and most important strategic decision.
Recognize that value creation is a joint experience between the brand and
the consumer and consequently, value will vary with each customer.
C. Match customer segments and channels. Indeed, the law of diminishing
returns — the point at which sales, service and marketing resources
expended in the pursuit of a given customer exceeds the relative profit
generated by said customer — dictates that companies use the lowest- cost
approach that produces the desired return. Doing this requires effective
contact management by analyzing actual customer behaviour to match
channels and segments.

2. Redefine the focus

A. The company that successfully uses CRM should see "focus" in terms of
customers, not products or services, and welcome the very significant
changes that this definition will force.
B. Win through customer-centric innovation. Creating new and mutual
customer value means that companies need to have a process for customer
inclusion and collaborative innovation. Old-style innovation that comes to
fruition using off-line attitudinal research and product definition is not
sufficient. The customer must be involved throughout the process. Online
customer advisory panels and Web 2.0 social networking communities are
present-day examples.
C. Compete on scope. In a world of individual customers, unique value must be
created for each customer. One way of discriminating among them is to
become more meaningful and relevant to each one. For many companies,
this has traditionally meant broadening the range of products, services or
solutions, whether or not the company makes them. Instead, a modern-day,
more effective CRM tactic would be to collaborate with third parties to
ensure that each customer receives their desired value.
D. Measure customer performance. Focus on customer profitability with the
goal of improving it, rather than the tradition of only measuring product,
product line and divisional profitability customer costs and customer value
perceptions. It is quite acceptable to sell products at a loss if the relationship
is profitable and/or strategic.
E. Align budgets with the customer centric journey working with Finance to
implement processes and technologies to view departmental accounts
through a customer-centric lens, thereby mitigating the risk of the customer
being impacted, ignored or alienated when tough business decisions are made
during bad economic times.

3. The new competition

A. In the era of demand-pull CRM, customers target companies more than
companies target customers. The traditional "Four P's of Marketing"
(Product, Price, Place & Promotion), although still relevant for mass
marketing, do not address the new reality of CRM.
B. Companies are aligning with the "Four C's of the Customer-oriented
Marketing Model" (Customer, Communication, Convenience, and Cost).

1. Place becomes Convenience for the Customer
2. Price becomes Cost to the Customer
3. Promotion becomes Communication to the Customer
4. Product becomes the Customer's needs and wants

C. Competing has taken on a new meaning, and increasingly, companies will be
competing for six things:

1. Obtaining preferential access to the best customers.
2. Becoming the "shortest time" producer, or taking up as little as
possible of the customer's most precious resource.
3. Winning the right new employees, especially those who understand
CRM, whatever their functional job titles.
4. Aligning and collaborating with a selected group of companies, both
competitors and non-competitors.
5. Developing more actionable customer data, knowledge and insight
than competitors, and moving faster than them, down the
"customer's knowledge curve", to position the company and its
products/services when and where the customer is most likely to
buy.
6. Creating the best new strategic possibilities.

In today's economy, surviving the downturn will require smart operational decision
making and most of all, an understanding of the links between marketing, sales and
service activities, to ensure that customer-facing teams spend their time targeting the

most high-value customers.
More than ever, companies need CRM to provide deep insight into customer behaviour
and attitudes, improve customer experience and convenience practices, increase sales
and marketing effectiveness, successfully resolve call center and service interactions and
manage third-party partner programs.

Through the application of a CRM-based philosophy and culture, companies which
diligently apply customer-centric best practices and guiding principles to their strategy
and tactics, will move beyond the status quo of yesterday and gain the intelligence and
wisdom they need to not just survive the downturn, but sustain and flourish in the

future.

Phil Olivieri is principal and senior consultant at PDO Associates, an independent full-service Customer Relationship and Loyalty Management consulting firm based in Markham, Ontario that helps companies plan, design and implement optimized customer relationship and loyalty management strategies to ensure consistent customer experiences across the enterprise. He can be reached at (647) 899-7107 or phil-o@rogers.com.