CONTACT: Paul Gray at paul.gray@cgu.

edu CUSTOMER RELATIONSHIP MANAGEMENT AUTHORS: Paul Gray Professor, Information Science Claremont Graduate School and Jongbok Byun Claremont Graduate School March 2001 CENTER FOR RESEARCH ON INFORMATION TECHNOLOGY AND ORGANIZATIONS University of California, Irvine 3200 Berkeley Place Irvine, CA, 92697-4650 www.crito.uci.edu 1 TABLE OF CONTENTS I. INTRODUCTION 1

II. HISTORY OF CRM MARKET 3 Major Vendors 5 Current Offerings 6 III. DEFINITIONS OF CRM 6 IV. DRIVERS FOR CRM APPLICATIONS 9 Reasons for Adopting CRM: The Business Drivers 9 Cost Goals 10 V. THE CRM INDUSTRY 11 Size of the CRM Industry 12 Vendors 13 Technology and Service 15 VI. INFORMATION TECHNOLOGIES FOR CRM 20 Key CRM Tasks 20 IT Factors of CRM Tasks 22 VII. CONSULTANTS 23 VIII. RETURN ON INVESTMENT OF IMPLEMENTATION 24 Cost and time 24 Benefits 25 ROI of CRM Projects 27 IX. PRINCIPLES OF CRM 27 X. CRM ISSUES 28 Customer Privacy 28 Technical Immaturity 30

XI. CASE STUDIES 31 Amazon.Com 31 Dell 32 Volkswagen 33 Wells Fargo 34 XII. CONCLUSIONS 36 REFERENCES 37 APPENDIX A BASIC ASSUMPTIONS OF CRM 40 APPENDIX B COMMON MYTHS OF CRM 41 APPENDIX C LIFETIME VALUE OF A CUSTOMER 44 C1. Simple Approach 45 C2. More Sophisticated Calculation 46 C3. Effect of Loyalty Programs 47 C4. Additional Factors to Consider 49 C5. The Arithmetic of Lifetime Value 49 C6. Example: Applying Lifetime Value Concepts in Banking 51 C7. Summary and Conclusions on Lifetime Value APPENDIX D VENDORS WEB SITE ADDRESSES Version 3-6 March 23, 2001 CUSTOMER RELATIONSHIP MANAGEMENT Paul Gray Jongbok Byun 53 55 2

I. INTRODUCTION Over a century ago, in small-town America, before the advent of the supermarket, the mall, and the automobile, people went to their neighborhood general store to purchase goods. The proprietor and the small staff recognized the customer by name and knew the customer's preferences and wants. The customer, in turn, remained loyal to the store and made repeated purchases. This idyllic customer relationship disappeared as the nation grew, the population moved from the farm communities to large urban areas, the consumer became mobile, and supermarkets and department stores were established to achieve economies of scale through mass marketing. Although prices were lower and goods more uniform in quality, the relationship between the customer and the merchant became nameless and faceless. The personal relationship between merchant and customer became a thing of the past. As a result, customers became fickle, moving to the supplier who provided the desired object at lowest cost or with the most features.The last several years saw the rise of Customer Relationship Management (abbreviated CRM) as an important business approach. Its objective is to return to the world of personal marketing. The concept itself is relatively simple. Rather than market to a mass of people or firms, market to each customer individually. In this one-to-one approach, information about a customer (e.g., previous purchases, needs, and wants) is used to frame offers that are more likely to be accepted. This approach is made possible by advances in information technology. Remember that CRM is an abbreviation for Customer Relationship Management,

not Customer Relationship Marketing. Management is a broader concept than marketing because it covers marketing management, manufacturing management, human resource management, service management, sales management, and research and development management. Thus, CRM requires organizational and business level approaches which are customer centric to doing business rather than a simple marketing strategy. CRM involves all of the corporate functions (marketing, manufacturing, customer services, field sales, and field service) required to contact customers directly or indirectly. The term touch points is used in CRM to refer to the many ways in which customers and firms interact. 4 II. HISTORY OF CRM MARKET Before 1993, CRM included two major markets [Financial Times, 2000, p.25]: 1. Sales Force Automation (SFA) and 2. Customer Services (CS). Sales Force Automation was initially designed to support salespersons in managing their touch points and to provide them with event calendars about their customers. SFAs meaning expanded to include opportunity management that is supporting sales methodologies and interconnection with other functions of the company such as production. The box below indicates the range to sales force 1. automation capabilities currently available. Sales Force Automation Capabilities Contact Management: Maintain customer information and contact histories for existing customers. May include point in the sales cycle and in the customers

replenishment cycle. Activity Management: Provide calendar and scheduling for individual sales people Communication Management: Communicate via E-mail and fax Forecasting: Assist with future sales goals, targets, and projections Opportunity Management: Manage leads and potential leads for new customers Order Management: Obtain online quotes and transform inquiries into orders Document Management: Develop and retrieve standard and customizable management reports and presentation documents Sales Analysis: Analyze sales data Product Configuration: Assemble alternate product specifications and pricing Marketing Encyclopedia: Provide updated information about products, prices, promotions, as well as soft information about individuals (e.g., influence on buying decisions) and information about competitors Source: http://www.benchmarkingreports.com/salesandmarketing/sm115_sfa_profiles.asp 5 Compared to SFA, Customer Service (CS) is an after sales activity to satisfy customers. The goal of Customer Service is to resolve internal and external customer problems quickly and effectively. By providing fast and accurate answers to customers, a company can save cost and increase customer loyalty and revenue. As shown in the box below, customer services include call center management, field service management, and help desk management. Customer Services Capabilities Call Center Management

o Provide automated, end-to-end call routing and tracking o Capture customer feedback information for performance measurement, quality control, and product development Field Service Management o Allocate, schedule, and dispatch the right people, with the right parts, at the right time o Log materials, expenses, and time associated with service orders o View customer history o Search for proven solutions Help Desk Management o Solve the problem by searching the existing knowledge base o Initiate, modify, and track problem reports o Provide updates, patches, and new versions Source: http://www.clarify.com/products/suite/service/ http://www.peoplesoft.com/en/us/products/applications/crm/product_content.html Today, CRM includes all customer-facing applications, including: Sales Force Automation (SFA), Customer Service (CS), Sales and Marketing Management (SMM), and Contact & Activity Management [Emerging Market Technologies, 2000]. 6 MAJOR VENDORS The major vendors changed over time. In 1993, the leaders of SFA were Brock

Control, Sales Technologies, and Aurum. Since then, Brock Control changed its name to Firstwave Technologies, Inc. In 1998, Sales Technologies merged with Walsh International and now is consolidated into SYNAVANT Inc. to provide pharmaceutical and healthcare industry relationship management service. Aurum was merged into Baan, which in turn was acquired by Invensys plc in July 2000 [Invensys, 2000]. In the CS area, Scopus, Vantive and Clarify were the major vendors. However, things also changed rather rapidly: Siebel merged with Scopus in 1995 and dominated the consolidated CRM market with 68% market share. Vantive was bought by Peoplesoft in 1999. Clarify was bought by Nortel in 1999. In 1998, the CRM market was divided by Siebel, Vantive (now PeopleSoft), Trilogy, and Clarify (now Nortel), and Oracle (in that order) plus fewer than 20 other companies with small market shares. [Financial Times, 2000, p. 1] At the beginning of 2000, Siebel Systems Inc. was the market leader with a 35% share. Vantive (PeopleSoft) and Clarify Inc. (Nortel) followed. SAP and Oracle Corporation were introducing new application to the market based on their 7 software development capabilities. Recent entrants offering Web applications and services include Silknet Software, E.piphany, and netDialog. [Hamm, 2000] CURRENT OFFERINGS The current Siebel application provides a customer information system, a product information system, a competitive information system, and a decision support

system with a large database. [Financial Times 2000, p.25] Today, the rapid development of network and communication technologies leads each CRM company to move towards new technologies such as data warehousing, knowledge management, and portals on the web. [Howlett, 1999] In addition, a reverse movement took place as many companies in such fields as data warehousing and Enterprise Resource Planning (ERP) began offering CRM software. III.DEFINITIONS OF CRM Traditional marketing strategies focused on the four Ps (price, product, promotion, and place) to increase market share. The main concern was to increase the volume of transactions between seller and buyer. [Wyner, 1999] Volume of transactions is considered a good measure of the performance of marketing strategies and tactics. CRM is a business strategy that goes beyond increasing transaction volume. Its objectives are to increase profitability, revenue, and customer satisfaction. To achieve CRM, a company wide set of tools, technologies, and procedures promote the relationship with the customer to increase sales. [Sweeney Group, 8 2000] Thus, CRM is primarily a strategic business and process issue rather than a technical issue. CRM consists of three components: customer, relationship, and management (Figure 1).

CRM tries to achieve a single integrated view of customers and a customercentric approach [Roberts-Witt, 2000]. Figure 1. Components of CRM Customer: The customer is the only source of the companys present profit and future growth. However, a good customer, who provides more profit with less resource, is always scarce because customers are knowledgeable and the competition is fierce. Sometimes it is difficult to distinguish who is the real customer because the buying decision is frequently a collaborative activity among participants of the decision-making process [Wyner, 1999]. Information technologies can provide the abilities to distinguish and manage customers. CRM can be thought of as a marketing approach that is based on customer information [Wyner, 1999]. Customer Relationship Management CRM 9 Relationship: The relationship between a company and its customers involves continuous bi-directional communication and interaction. The relationship can be short-term or long-term, continuous or discrete, and repeating or one-time. Relationship can be attitudinal or behavioral. Even though customers have a positive attitude towards the company and its products, their buying behavior is highly situational [Wyner, 1999]. For example, the buying pattern for airline tickets depends on whether a person buys the ticket for their family vacation or a business trip. CRM involves managing this relationship so it is profitable and mutually beneficial. Customer lifetime value (CLV), discussed in Appendix

C, is a tool for measuring this relationship. Management. CRM is not an activity only within a marketing department. Rather it involves continuous corporate change in culture and processes. The customer information collected is transformed into corporate knowledge that leads to activities that take advantage of the information and of market opportunities. CRM required a comprehensive change in the organization and its people. Specific software to support the management process involves: Field service, E-commerce ordering, Self service applications, Catalog management, Bill presentation, Marketing programs, and Analysis applications. 10 All of these techniques, processes and procedures are designed to promote and facilitate the sales and marketing functions. IV. DRIVERS FOR CRM APPLICATION REASONS FOR ADOPTING CRM: THE BUSINESS DRIVERS Competition for customers is intense. From a purely economic point of view, firms learned that it is less costly to retain a customer than to find a new one. The oft-quoted statistics 1

go something like this: By Paretos Principle, it is assumed that 20% of a company's customers generate 80% of its profits. In industrial sales, it takes an average of 8 to 10 physical calls in person to sell a new customer, 2 to 3 calls to sell an existing customer. It is 5 to 10 times more expensive to acquire a new customer than obtain repeat business from an existing customer. For example, according to the Boston Consulting Group [Hildebrand, 2000], the costs to market to existing Web customers is $6.80 compared to $34 to acquire a new Web customers. A typical dissatisfied customer tells 8 to 10 people about his or her experience.

1 Although often repeated, sources for many of these numbers could not be found. 11 A 5% increase in retaining existing customers translates into 25% or more increase in profitability. In the past, the prime approach to attracting new customers was through media and mail advertising about what the firm has to offer. This advertising approach is scattershot, reaching many people including current customers and people who would never become customers. For example, the typical response rate from a general mailing is about 2%. Thus, mailing a million copies of an advertisement, on average yields only 20,000 responses.

Another driver is the change introduced by electronic commerce. Rather than the customer dealing with a salesperson either in a brick and mortar location or on the phone, in electronic commerce the customer remains in front of their computer at home or in the office. Thus, firms do not have the luxury of someone with sales skills to convince the customer. Whereas normally it takes effort for the customer to move to a competitors physical location or dial another 1-800 number, in electronic commerce firms face an environment in which competitors are only a few clicks away. COST GOALS Major cost goals of CRM include: Increase revenue growth through customer satisfaction. Reduce costs of sales and distribution 12 Minimize customer support costs The following examples illustrate tactics to achieve these goals; 1. To increase revenue growth Increase share of wallet by cross-selling 2. To increase customer satisfaction Make the customers experience so pleasant that the customer returns to you for the next purchase. 3. To reduce cost of sales and distribution Target advertising to customers to increase the probability that an offer is accepted. Use web applications to decrease the number of direct sales

people and distribution channels needed Manage customer relationships rather than manage products (a change in marketing) 4. To minimize customer support costs Make information available to customer service representatives so they can answer any query Automate the call center so that representatives have direct access to customer history and preferences and therefore can cross-sell (see goal 1) V. THE CRM INDUSTRY 13 SIZE OF THE CRM INDUSTRY Estimates of the size of the CRM industry are shown in Table1 and plotted in Figure 2. These illustrations show forecasts made in the 1997 to 2000 period by a number of industry research groups. It is important to realize that the forecasters generally did not specify what they included in their estimates. Therefore, it is not possible to tell which expenditures (e.g., hardware, software, mailing, personnel, call centers, ) and which revenues are included in the numbers shown. Not all values shown in Table 1 are forecasts; some of the values shown were obtained by taking the forecasters growth rate and then interpolating. Interpolated values are shaded.

Table 1. Estimated CRM Market Size

1997 1998 1999 2000 2001 2002 2003 2004 2005 Growth Rate Aberdeen Group 1.12 1.59 2.24 3.15 4.45 6.27 8.85 12.47 17.59 41% AMR Research 1.20 1.98 3.27 5.40 7.90 11.50 16.80 26.54 41.94 58% Forrester Research 0.87 1.07 1.31 1.61 1.98 2.44 3.00 3.69 4.54 23% IDC 1 23.00 IDC 2 4 11 Yankee Group 0.04 0.07 0.12 0.21 0.38 0.68 1.20 2.14 3.80 78% Shaded values: Interpolated values based on forecasts 14 Clearly the forecasts shown vary significantly as they reach the out years because they are based on different assumptions of the size of the current market at the time of the forecast and the growth rate inferred from the numbers presented. The important point, is that the market is growing and is multibillion. VENDORS A few years ago, technology vendors had their own specialties. For example, Siebel was in sales force automation, Remedy was in helpdesk systems, Davox was in call center systems, eGain was in e-mail management, and BroadVision was in the front-end application area. Today, however, there is no specific boundary of vendors. All vendors are trying to expand their products over the entire CRM area. For example, Siebel says it can do everything, Davox moved into customer contact management, and BroadVision is trying to integrate

backward with ERP. [Mckenna, 2000] Most of CRM vendors came from two different origins: Figure 2. CRM Market Size Estimates 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Billion $ Aberdeen Group AMR Research Forrester Research IDC Yankee Group15 Back-End Application Traditional ERP vendors (SAP AG, Oracle Corporation, Baan (now

Invensys plc), and PeopleSoft) acquire, build, and partner their CRM application for ERP functionality. Front-End Application Some companies started with front-end solutions such as personal information management system (PIMS). Siebel, BroadVision, and Remedy are in this category. Starting in late 1998, with the fast development of e-business, many of the larger players acquired or merged with mid-sized companies to allow them to offer full service across the entire CRM sandbox. Table 2 lists some of the major categories and players. Table 2. The Major CRM Vendors Category Vendor Company Enterprise-wide back-end office SAP AG Oracle Corporation Baan Company (now Invensys plc) PeopleSoft, Inc. Front-end office Siebel Systems Saratoga Systems Vantive Corporation (a division of PeopleSoft, Inc.) Clarify (a division of Nortel Networks) Onyx Software Corporation Web-based front-end solution Firstwave UpShot.com

Rubric Adhere to Microsoft Standards Remedy Corporation Onyx Software Corporation Midsize Player Interact Commerce Corporation (previously SalesLogix) Sales Automation Group Contact Management Symantec Corporation Multiactive Software Inc. (Canadian) 16 TECHNOLOGY AND SERVICE Table 3 shows the various vendors and the services they provide. Customer service and support, marketing automation, and web and field sales areas are most important parts of their packages. 17 Table 3. Functions of the CRM Packages [Girishankar, 2000] Vendor Product Functions Product Management Web & Field Sales Field Services Partner Collaboration Marketing Automation

Customer Service & Support ERP Analysis Brand Management Applix Applix iEnterprise Aspect Communcations Aspect Customer Relationship Portal

Baan Baan Front Office Direct

Business Resource Software Insight for Sales Strategy

Broadbase Software Broadbase EBusiness Application Suite

Customer Support

Cable & Wireless WebReady Web Sales Service

Customer

Cisco Systems Cisco eMail Manager Web Sales Clarify Clarify eFront Office

CustomerCast SatCast AccountCast SupportCast Field Sales eHNC Select Response Epiphany Epiphany E4 System Customer Service

Epicor Software Epicor eFront

Office Powered by Clientele 18 Vendor Product Functions Product Management Web & Field Sales Field Services Partner Collaboration Marketing Automation Customer Service & Support ERP Analysis Brand Management Firstwave Technologies Firstwave eRM Great Plains

Software Great Plains Siebel Front Office

HNC Software Capstone CRM Decision Platform Web Sales Service Customer

IBM IBM CRM Solutions Hyperion CRM analysis Suit Hyperion Solutions Hyperion Essbase OLAP Server

I2Technologies Rhythm Customer Manager

Kana Communication Kana 5 Web Sales Lawson Software Relationship

Management Solutions

Lucent Technologies CRM Central 2000 Multiactive Software Entice Octane Software Octane 2000 Onyx Software Onyx Front Office 2000 19 Vendor Product Functions Product Management Web & Field Sales Field Services Partner Collaboration Marketing

Automation Customer Service & Support ERP Analysis Brand Management Oracle Oracle E-Business Suite/CRM

PeopleSoft Vantive Enterprise Pivotal Pivotal eRelationship 2000

Quintus eContact Service

Customer

Remedy Sales Continuum

Remedy Quality Management

Remedy Leads

Management

Remedy Remedy Customer Support Customer Service

Interact SalesLogix 2000 SalesLogix Act 2000 SAP CRM with mySAP.com Marketing Mgmt

Saratoga Systems Avenue Siebel Systems Siebel ebusiness solutions

Silknet Software Silknet eBusiness Experience

Tenuteq International eRelationship 20

Vendor Product Functions Product Management Web & Field Sales Field Services Partner Collaboration Marketing Automation Customer Service & Support ERP Analysis Brand Management Trilogy Software MultiChannel Commerce 2.1

Upshot.com Upshot.com YouCentric YouCentric 3.0 Field Sales 21

VI. INFORMATION TECHNOLOGIES FOR CRM KEY CRM TASKS "I know who you are, I remember you. I get you to talk to me. And then, because I know something about you, my competitors don't know, I can do something for you my competitors can't do - not for any price" [Newell, 2000] CRM differs from the previous method of database marketing in that the database marketing technique tried to sell more products to the customer for less cost. [Seiler and Gray 1999]. The database marketing approach is highly company centric. However, customers were not kept loyal by the discount programs and the one-time promotions that were used in the database-marketing programs. Customer loyalty is, indeed, very difficult to obtain or buy. The CRM approach is customer-centric. This approach focuses on the long-term relationship with the customers by providing the customer benefits and values from the customers point of view rather than based on what the company wants to sell. The basic questions that CRM tries to answer are: 1. What is the benefit of the customer? 2. How can we add the customers value? 22 Four basic tasks are required to achieve the basic goals of CRM. [Peppers, et al., 1999]

1. Customer Identification To serve or provide value to the customer, the company must know or identify the customer through marketing channels, transactions, and interactions over time. 2. Customer Differentiation Each customer has their own lifetime value from the company's point of view (Appendix B) and each customer imposes unique demands and requirements for the company. 3. Customer Interaction Customer demands change over time. From a CRM perspective, the customers long-term profitability and relationship to the company is important. Therefore, the company needs to learn about the customer continually. Keeping track of customer behavior and needs is an important task of a CRM program. 4. Customization / Personalization Treat each customer uniquely is the motto of the entire CRM process. Through the personalization process, the company can increase customer 23 loyalty. Jeff Bezos, the CEO of Amazon.com, said, our vision is that if we have 20 million customers, then we should have 20 million stores. [Wheatley, 2000] The automation of personalization is being made feasible by information technologies. IT FACTORS OF CRM Traditional (mass) marketing doesnt need to use information technologies

extensively because there is no need to distinguish, differentiate, interact with, and customize for individual customer needs. Although some argue that IT has a small role in CRM, [Computing, 2000] each of the four key CRM tasks depends heavily on information technologies and systems. Table 4 shows this relationship for the marketing processes, for the goals, for traditional mass marketing, for CRM, and for the information technologies used in CRM. TABLE 4. IT Factors in CRM Process Identification Differentiation Interaction Customization Goal Identify individual customer Evaluate customer value and needs Build a continuing relationship Fulfill customer needs Generate profit Traditional Mass Marketing

 Not done Clustering Call Center Sales Services CRM Customer profiling Individual level analysis Call center management Auto response system Sales automation Marketing process automation Information technologies Cookies Web site personalization Data mining Organizational learning

 Web application Wireless communication ERP E-Commerce 24 VII. CONSULTANTS Like any other major software development/deployment project, consulting plays an important role in the CRM project. A Cap Gemini and IDC survey in 1999 found, on the average, 23% of the total CRM investment was spent on consulting. [Sterne, 2000] Three different types of consulting companies work in the CRM industry. General Consulting Company Traditional business-consulting companies such as Anderson Consulting, McKinsey & Company, KPMG Consulting, Inc., and PricewaterhouseCoopers provide consulting services for CRM integration. This work focuses more on organizational and marketing management integration than technical implementation of CRM software. CRM-Specific Software Vendor The consulting arms of Siebel Systems, Onyx Software Corporation, Saratoga Systems, and Remedy Corporation are dedicated to CRM. These companies focus more on technical integration than conceptual or managerial consulting services.

 Back-End Software Vendor SAP AG, Oracle Corporation, PeopleSoft Inc., IBM Global Services Consulting, SAS Institute Inc., and Microsoft Corporation also have CRM consulting service. However, these companies primarily sell 25 their own back-end application such as ERP systems, database management systems, and statistical analysis systems. VIII. RETURN ON INVESTMENT OF IMPLEMENTATION COST AND TIME The 1999 Cap Gemini and IDC survey also found that, the average total investment in CRM of 300 U.S. and Europe companies was $3.1 million. More than 69% of the companies surveyed spent less than $5 million, and more than 13% of the companies spent over $10 million. [Sterne, 2000] The cost of implementing a CRM system is easily double the Enterprise Resource Planning (ERP) implementation cost. [Morrison, 1999] Average implementation time for an ERP system is 23 months and the cost of ownership over the first 2 years is from 0.4% to 1.1% of company revenue. [Higgins, 1999] As shown in Tables 5 and 6, based on GartnerGroup data, the implementation cost of CRM depends on the industry, project size, and application requirements. According to GartnerGroup, the average implementation cost of CRM can be between $15,000 and $35,000 per user in a three-year project. [Golterman, 2000] 26 Table 5. Annual CRM Expenses (in $million) Health Care Products 3.4

Manufacturer 5 ~ 8 Publisher 6 ~ 8 Consumer Goods Manufacturer 6.3 Office Supplies Manufacturer 8 ~ 10 Source: Golterman (2000) Table 6. Cost Allocations Services 38% Software 28% Hardware 23% Telecommunication 11% Source: Golterman (2000) BENEFITS The principal benefits of CRM are to Improve the organizations ability to retain and acquire customers Maximize the lifetime value of each customer (share of wallet) Improve service without increasing cost of service. [CMG, 2000] Some of these benefits can be measured and others cannot. CRM is composed of four continuous processes, which were described in Section IV of this paper. Each process provides distinctive benefits to the 27 organization. To obtain all of these benefits, sales, marketing, and service functions need to work together. The benefits are shown in Table 7. Table 7. Benefits of CRM project Identification Differentiation Interaction Customization

Source of benefits Clean data about customer Single Customer View Understand customer Customer satisfaction and loyalty Customer satisfaction and loyalty Benefits Help sales force Cross selling Cost effective marketing campaign Reduce direct mailing cost Cost effective customer service

Lower cost of acquisition and retention of customer Maximize share of wallet Anderson Consulting, based on a survey of more than 500 executives in six industries (communications, chemicals, pharmaceuticals, electronics/high-tech, forest products and retail), believes that a 10% improvement of overall CRM capabilities can add up to $35 million benefits to a $1 billion business unit. [Renner, 2000] More than 57% of CEOs in another survey with 191 respondents believe that the major objective of CRM is customer satisfaction and retention. Another 17% said it is designed to increase cross selling and up selling. [Seminerio, 2000] 28 ROI OF CRM PROJECT We still have to wait-and-see to determine the Return On Investment (ROI) of CRM [Trepper, 2000] since CRM does not bring any direct monetary benefits after implementation. Rather, CRM requires a large amount of initial investment in hardware and software without any immediate cost saving or revenue improvement. The benefits of CRM need to be measured on a long-term basis. CRM is designed to build long-term relationships with customers and to generate long-term benefits through increased customer satisfaction and retention. [Cyber Marketing Services, 2000]

A survey of 300 companies conducted at a CRM conference concluded that CRM is not a cheap, easy, or fast solution. More than two-thirds of CRM projects end in failure. However, the successful third can obtain up to a 75 % return on investment. [Mooney, 2000] IX. PRINCIPLES OF CRM The overall processes and applications of CRM are based on the following basic principles. Treat Customer Individually Remember customers and treat them individually. CRM is based on philosophy of personalization. Personalization means the content and services to customer should be designed based on customer preferences and behavior. [Hagen, 1999] Personalization creates 29 convenience to the customer and increases the cost of changing vendors. Acquire and Retain Customer Loyalty through Personal Relationship Once personalization takes place, a company needs to sustain relationships with the customer. Continuous contacts with the customer especially when designed to meet customer preferences can create customer loyalty. Select Good Customer instead of Bad Customer based on Lifetime Value Find and keep the right customers who generate the most profits. Through differentiation, a company can allocate its limited resources

to obtain better returns. The best customers deserve the most customer care; the worst customers should be dropped. In summary, personalization, loyalty, and lifetime value are the main principles of CRM implementation. X. CRM ISSUES CUSTOMER PRIVACY Customer privacy is an important issue in CRM. CRM deals with large amounts of customer data through various touch points and communication channels. The personalization process in CRM requires identification of each individual customer and collections of demographic and behavioral data. Yet, it is the very information that most customers consider personal and private. 30 The individual firm is thus caught in an ethical dilemma. It wants to collect as much information as possible about each customer to further its sales, yet in doing so it treads at and beyond the bounds of personal privacy. Privacy issues are not simple. There are overwhelming customer concerns, legal regulations, and public policies around the world. [Steinbock, 2000] Still it is unclear and undetermined what extent of customer privacy should be protected and shouldnt be used, but four basic rules might be considered. [Sterne, 2000] The customer should be notified their personal information is collected and will be used for specific purposes. The customer should be able to decline to be tracked. The customer should be allowed to access their information and

correct it. Customer data should be protected from unauthorized usage. Some companies provide customer consent form to ask the customer to agree to information collection and usage. Providing personalized service to customer is a way to satisfy customers who provided their personal information. All of these efforts are designed to build trust between the company and its customers. 31 TECHNICAL IMMATURITY The concept, technologies, and understanding of CRM are still in its early adapter stage. Most of the CRM technologies are immature and the typical implementation costs and time are long enough to frustrate potential users. Many software and hardware vendors sell themselves as complete CRM solution providers but there is little standardized technologies and protocols for CRM implementation in the market. Even the scope and extent of what CRM includes differ from vendor to vendor; each has different implementation requirements to achieve the customers expectations. CRM is one of the busiest industry which occurs frequent merger and acquisition. Many small companies merge together to compete with large vendor. Large companies such as PeopleSoft acquired small vendor to enter this hot CRM market. Due to these frequent merger and acquisiton, the stable technical support from the market becomes rare. Vendors publish new version maybe more integrated software of CRM software as frequently as they can and customers should pay for that.

Often these technical immaturities or unstable conditions are combined with the customer requirements which are frequently unclear and lead the project failure. These technical immaturities may be overcome over time, but the process may be long and painful. 32 XI. CASE STUDIES AMAZON.COM When you try to buy something from Amazon.com, you can see the following statement; Customers who bought this item also bought these items. If you have any previous purchasing experience with Amazon.com, the company will support a Welcome to Recommendations Web page. The personalized Web pages, vast selection of products, and low price lead customer loyalty and long-term relationship of Amazon.com. More than 20 million people have purchased at Amazon.com. The percentage of returning customers is about 15 to 25 percent , compared with 3 to 5 percent for other ebusiness retailers. Amazon.com assembles large amounts of information on individual customer buying habits and personal information. Based on a customers previous purchases and Web surfing information, Amazon.com recommends books, CDs, and other products. Sometimes a customer buys additional products because of this information. 33 Through its 1-Click system, which stores personal information such as credit card number and shipping address, Amazon.com simplifies the customer buying process. Like the corner merchant of old, Jeff Bezos, the founder of Amazon.com,

believes the Internet store of the future should be able to guess what the customer wants to buy before the customer knows. He wants to make Amazon.com Web site that smart and that personal. [Newell, 2000] DELL Since 1983, Dell Computers has operated on two simple business ideas: sell computers direct to individual customers and manufacture computers based on the customers order. The individual customer can make his/her system unique and obtain it directly from the company. If the system has a problem, the user can contact the Dell Web site directly and get personalized services by using the customer system service tag number, which is on the side of the computer. These personalized services also provide related information and make software downloads available. In addition, a call center provides technical assistance at multiple levels. If the first level technician cannot resolve the problem, the customer is routed to a more skilled contact. 34

Dell is organized by customer segment, such as education, government, small business, large business, and home, instead of by product lines. Dell developed Premier Dell.com that covers entire processes of computer ownership: purchasing, asset management, and product support. Premier pages support online purchasing, standard management, price quotes, and order management. VOLKSWAGEN Volkswagen AG is the largest automobile maker in Europe. More than 36 million

vehicles carry on their logo. Like other automobile manufacturers, the company is well informed about its customers and heavily depends on this information. However, they lose contact with the car owner after the first change of ownership (after an average 3.7 years). As a result, the company does not have current information about many of its customers. [Chojnacki, 2000] In 1988, the company started its Customer Come First marketing strategy. Under this strategy, all of the decision-making processes are based on the Voice of Customer. The company carefully monitored their response to 35 advertisements, customer expectations, and customer satisfaction. Customer forums and focus group are used to hear the customer voice. Volkswagen developed services such as service guarantee, the emergency plan, the mobility guarantee, the customer club, and toll-free service phone. All advertising media are designed toward two-way communication. This allows the company to obtain useful information such as lifestyle, demographic, and behavioral data. The company maintains a central database to provide club card, bonus point programs, club shops, and Volkswagen magazine. Every contact points with a customer gives the company more information about the customer, so the company can constantly improve the quality and value of the customer database. WELLS FARGO Banking differs from other industries because the average relationship

between customer and bank lasts much longer on the. For example, in the auto industry, the relationship between the customer and the company is becoming weaker over time. You dont need to contact the car dealer or manufacturer once a week or a month. You can change your oil or maintain your car with different service station. However, once you open your account in a specific bank, your relationship or dependence to the bank increases. You may write36 checks more frequently, have direct deposit, transfer money, pay bills, and withdraw money. The bank contacts you regularly by sending you your monthly statement. You can obtain credit card or investment opportunities from the bank. Wells Fargo is one of the leading banks which transforms these relationships into opportunities. It was the first bank which started 24-hour phone banking service and opened branches in the local supermarket and Starbucks coffee house. Wells Fargo always tried to provide more touch points to its customers and a one-stop shopping environment. Since 1993, Wells Fargo tried to integrate all of its back-end customer information into its Customer Relationship System. Previously, customer information was managed by several different backend system. Software was organized by account number, with each backend system using its own numbering system. Customer service agents found it difficult to integrate customer information when they received a request to transfer from one account to another. They had to log on to several different system to obtain the information and do the transactions requested. In the new system, the

service agent can access all required information by using the customers social security number instead of the account numbers. These changes increase convenience for both customers and service agents. 37 Wells Fargo provides Internet banking. It built a Web site as a new contact point in 1995 and provided advanced technologies to its customer. By using online banking, customers can manage their account anytime and anywhere. Online banking also saves operating cost of the bank branches. In the future, Wells Fargo will try to build online customer communities (similar to America Online or the World Wide Web) in its banking service by responding to customers needs with new technologies.[Seybold, 2000] By providing more power to manage their account and money, Wells Fargo expects to increase ustomer loyalty and obtain long term mutual benefits with its customers. XII. CONCLUSIONS The present is an era of company loyalty to the customer in order to obtain customer loyalty to the company. Consumers are more knowledgeable than ever before and, because the customer is more knowledgeable, companies must be faster, more agile, and more creative than a few years ago. The Internet allows information to be obtained almost instantaneously. The Internet permits firms to establish a personalized customer experience through online help, purchase referrals, quicker turn-around on customer problems, and quicker feedback about customer suggestions, concerns, and questions. 38

CRM is very hard to implement throughout a company. The IT department needs extensive infrastructure and resources to implement CRM databases successfully. Executives must be willing to support the CRM implementation process forever because CRM never ends. REFERENCES Adolf, R., S. Grant-Thompson, W. Harrington, and M. Singer (1997) What Leading Banks are Learning about Big Databases and Marketing, The McKinsey Quarterly, No. 3, pp.187-192. Best Practices, LLC, Sales Force Automation: Case Studies and Vendor Profiles, http://www.benchmarkingreports.com/salesandmarketing/sm115_sfa_profiles. asp, 8/7/00 accessed. Chojnacki, K. (2000) Relationship Marketing at Volkswagen, pp.49-58. HennigThurau, T. and U. Hansen (Ed.) Relationship Marketing, Springer, Berlin, Heidelberg. CMG (2000), http://www.cmgplc.com/UK/Products+and+Services/ Business+Solutions/CRM/The+Business+Benefits.htm, 10/2/00 accessed. Computing (2000) IT 'playing only a minor role in CRM' http://www.vnunet.com/News/1105945, 10/4/00 accessed. Cyber Marketing Services (2000) The great debate justifying your investment in customer relationship management solutions, http://www.crmxchange.com/sessions/debates/july99-transcript.html, 10/5/00 accessed. Emerging Market Technologies (2000) CRM defined http://www.emtpitcrew.com/free/definition.html, 7/24/00 accessed.

Financial Times (2000) Financial Times Surveys Edition, June 7, 2000. Girishankar, Saroja (2000) Customer Service for Business Partners, Informationweek.com, April 17, pp.65-82. Golterman, Jeff (2000) How will companies measure and justify spending for a CRM solution? Gartner Interactive, http://gartner11.gartnerweb.com/public/static/crm/crm_qa.html, 10/3/00 accessed. 39 Hagen, P., H. Manning, and R. Souza, Smart Personalization, The Forrester Report, July 1999. Hamm, S. (2000) Software, Businessweek Online: January 10, 2000, http://www.businessweek.com/common_frames/bws.htm?http://www.busines sweek.com/2000/00_02/b3663090.htm, 9/27/00 accessed. Higgins, Kevin T. (1999) Tomorrow, the Front Office, Marketing Management, 8(2), Summer 1999, pp.4-7. Hildebrand, Carol (1999) One to a Customer; Customer Relationship Management, CIO Enterprise Magazine, October 15, www2.cio.com/archieve/printer.cfm?URL=enterprise/101599_customer_print.c fm, 7/20/00 accessed. Howlett, Dennis (1999) CRM isnt sitting still, www.microsoft.com/enterprise/1199-radar.html, 07/11/00 accessed. http://www.informationweek.com/786/crm.htm, 9/25/00 accessed. Invensys plc (2000) Press Information, July 2000. Iq.com (2000)

http://www.iq.com/Solutions/Lifetime_Value/lifetime_value.html, 8/9/00 accessed. Kandell, Jackie (2000) CRM, ERM one-to-one: Decoding relationship management theory and technology, Trusts & Estates, 139 (4), April, pp.49-53. Keen, Peter G.W. (2000) eCRM: The new ERP, Computerworld, July 14, 2000. Mckenna, B. (2000) CRM: Know the Dangers, http://www.vnunet.com/Analysis/1109017, 10/2/00 accessed. Mooney, E. (2000) CRM is costly; not managing it even more costly, Radio Communication Report, April 17, 2000. Morrison, Larry (1999) Watch out for Wacky CRM Pricing, Datamation (online), s1999. Newell, Frederick (2000) loyalty.com; Customer Relationship Management in the New Era of Internet Marketing, New York: McGraw-Hill. Peppers, D., M. Rogers, and B. Dorf, Is Your Company Ready for One-to-One Marketing? Harvard Business Review, Jan.-Feb. 1999. Renner, Dale (2000) Focusing on Customer Equity - The Unrealized Asset, http://www.crmproject.com/crm/toc/keynote.html, 8/9/00 accessed. Roberts-Witt, Sarah L. (2000) Its the Customer, Stupid! PC Magazine, June 27, pp. IBIZ 6-22.40 Robinson, Robin (2000a) Customer Relationship Management, Computerworld, February 28, p.67. Ruedige Adolf (1997) What Leading Banks are learning about big databases and marketing, The McKinsey Quarterly, Number 3, pp.187-192.

Seiler, M. and Gray, P. (1999) Database Marketing, Center for Research in Information, technologies, and Organizations, University of California at Irvine. Seminerio, Maria (2000) e-CRM: The right way http://www.zdnet.com/enterprise/stories/main/0,10228,2605385,00.html, 9/21/00 accessed. Seybold, P. and Marshak, R. (2000) Customer.com, New York, NY, Times Books. Sterne, Jim (2000) Customer Service on the Internet, New York, NY. John Wiley & Sons, Inc. Sweeney Group (2000) What is CRM? http://www.sweeneygroup.com/crm.htm, 7/24/00 accessed. Trepper, C. (2000) Customer Care Goes End-To-End, InformationWeek (May 15, 2000). Turban, E., Lee, J., King, D., & Chung, H. (2000) Electronic Commerce: A Managerial Perspective, Upper Saddle River, NJ: Prentice Hall. Wheatley, Malcolm (2000) Jeff Bezos takes Everything Personally, CIO Magazine, August, 2000, http://www.cio.com/archieve/080100_bezos.html, 9/25/00 accessed. Wilson (2000) http://www.wilsonweb.com/wmt5/customers-value.htm, 8/9/00 accessed. Wyner, Gorden A. (1999) Customer Relationship Measurement, Marketing Research, Vol.11, No.2, Summer, pp.39-41. 41 APPENDIX A BASIC ASSUMPTIONS OF CRM

This appendix lists the basic assumptions of the CRM approach. For each assumption, counterarguments and/or limitations are also presented. 1. Habitual action A basic idea of CRM is that the future behavior of customer is determined by or similar to their previous behavior. In other words, the people will behave as they did yesterday and a month ago. This assumption is partially right and partially wrong. As time goes by, behavior patterns change. Therefore, the important thing is the prediction model of future behavior. By predicting future behavior, a company can better serve its customers changing demands and preferences. 2. Current customer information is always correct. It is important to maintain the quality of customer demographic and behavioral information. The right decision requires correct data and information. Can we believe or trust the customer data in the database or in the data warehouse? The customer database comes from a variety of sources and is obtained by different input methods. Considerable attention (and expense) is required for cleansing the data periodically to make it useful for CRM. The firm must update as customer information changes. For example, people move; income levels change; marriages, births, and deaths occur. Admittedly, the correct decision is sometimes made accidentally from incorrect data; however, that is a rare event. 42 3. Consumers Want Individual, Differentiated Treatment, Services, And Products The basic assumption of CRM is that the customer always wants

individualized products and services. However, this assumption cannot always be satisfied because a company cannot always deliver all of the required products and services. Furthermore, instead of individualization, customer-buying decisions for products and services often follow fashion or trends. Technology developments are also important in the decision process. Therefore, some argue the importance of providing the right products and services at the right time or moment rather than just providing individualized products and services. APPENDIX B COMMON MYTHS OF CRM This appendix is based on Adolf et al. (1997) who describe the myths of CRM. Myth 1: Excellent CRM system guarantee marketing success. CRM is not a strategy but a tool to help and modify the marketing strategies of a company. Before it achieves a viable CRM system, a company needs the right value propositions and strategies to implement the customer centric philosophy of the CRM. CRM requires 43 more commitment and loyalty by the company to the customer rather than by the customer to the company. Without competitive products and services, a company cannot obtain the benefits of CRM. Myth 2: To use CRM, a company must be organized by customer segments rather than products. Organizational restructuring is expensive, time-consuming, and painful process for a company and the people in the company. Without

appropriate coordination with other functions in a company, restructuring is not as effective as expected. For example, channel strategies should be combined with CRM capabilities so a customer does not receive different offers from a company through different channels. Myth 3: Successful CRM requires a large centralized database with complete customer data. Many successful financial companies maintain databases at the product level. By having a smaller database, a company can simplify the system design and maintenance and the customer ownership. Common standards of hardware and software are more important than large databases. 44 Myth 4: CRM requires the most advanced and sophisticated analytical techniques. Clean data is more important and effective than sophisticated analytical tools. Frequently incomplete, inaccurate, and outdated customer information is used. If there is garbage in, the output is also garbage. Future-oriented and hypothesis-based analysis and anticipation are more effective than complex analysis. Myth 5: CRM is a turnkey project. Database, infrastructure, and supporting business processes are required to start CRM programs. However, it is not necessary to set up everything together. Rather CRM is a test, run, test process. An

iterative and incremental approach is cheaper and more effective than turnkey based approach. Lessons from mistakes are important to educate employees about how to use CRM. The above discussion of common myths of CRM means CRM is not a perfect single solution to the business problems. CRM is a part of complex set of business strategies and processes to serve the customer. Figure B-1 shows the relations between CRM and the customer. 45 Figure B-1. Relation Between CRM and the Customer APPENDIX C LIFETIME VALUE OF A CUSTOMER A fundamental concept of Customer Relationship Management is the lifetime value of a new customer 2 . The basic idea is that customers should be judged on their profitability to the firm over the total time (dubbed "lifetime") they make purchases. Profitability is usually based on net value, that is, the markups over cost less the cost of acquiring and keeping the customer. Fixed costs are not considered because it is assumed that these costs will be incurred with or without the particular customer. This appendix presents two methods of doing the calculations. The first is quite crude. It is based on the average customer and does not consider time value of money or the effects of marketing actions such as loyalty programs and referral programs. The second includes these factors. In both cases, the method is

illustrated with an example that provides a template for performing the calculation. CRM Customer Related Business Processes Marketing Formula Supporting Technology Behavioral Data Profitability Customer Profile 46 The revenues and the costs are expected value calculations. They are based on a number of assumptions about the future such as total number of customers, the percentage of customers retained from year to year, and the average annual purchase per customer C.1 SIMPLE APPROACH The simplest approach to lifetime value is to compute the average net revenue by multiplying four quantities together: Avg. sale * No. of Purchases/year*Stay of customer * Average Profit %

Example: Consider a computer store working with a small, growing business: Average sale $2000 2 3

No. of purchases/year Expected length of customer stay (years)

Average profit margin Lifetime net revenue: $2880

.24

Having the net revenue, the lifetime value can be determined by subtracting acquisition and retention costs: Lifetime value = Lifetime revenue cost to acquire -cost to retain*no. of purchases If, for example, allocated cost to an acquired customer from an advertisement is $500 and the cost to retain for each purchase after the first is $20 then: Net Lifetime value of customer = $2880 $500- 5*$20 = $2280 Three strategies can be followed to increase the value of the customer: 1. Increase size of average sales (tie ins, package multiple items) 2. Increase the number of sales (find other customer needs you can provide and satisfy them)

2 The same methods apply to an existing customer, when considering their future value from now on. However, for existing customers, there is no acquisition cost. 47 3. Increase profit margin (reduce overhead costs, reduce cost of goods, and raise price if market will stand it) C.2 MORE SOPHISTICATED CALCULATION A more sophisticated calculation would include retention rate (percent of customers who buy again) and discount rate to take temporal effects into account.

Consider the following example: Assume that 100,000 customers are obtained in Year 1 and that an increasing percentage of those who continue from one year to the next stay loyal. Furthermore, assume that these loyal customers will spend more each year. The assumed cost of retaining a customer is $6/year and that the initial cost is 5 times that, $30. The discount rate is taken to be 20%. The result might look as follows. Assumed values are shown shaded. Revenues Year 1 Year 2 Year 3 Year 4 Customers 100,000 50,000 30,000 21,000 Retention Rate 50% 60% 70% 70% Purchases/customer $160 $200 $240 $240 Total Revenue $16,000,000 $10,000,000 $7,200,000 $5,040,000 Next, consider the fraction of the revenue that is expense, and the cost to retain both on an individual bases (Acquire/Retain Cost) and the Total Acquisition Cost for all customers. Note that the Total Acquisition Cost is obtained by multiplying the Acquire/Retain Cost by the number of customers in that year. Variable Costs Direct cost per purchase 60% 50% 45% 45% Variable Direct Cost $9,600,000 $5,000,000 3,240,000 2,268,000 Acquire/Retain Cost $30 $6 $6 $6 Total Acquisition Cost $3,000,000 $300,000 $180,000 $126,000 Total Variable Cost $12,600,000 $5,300,000 $3,420,000 $2,394,000 The gross profit is obtained by taking the difference between revenues and

variable cost. The net present value of profit is found by discounting the gross profit (20% per year in the example) The average customer lifetime value is obtained by dividing the cumulative NPV by the number of original customers (i.e., 100,000). 48 Profits Gross Profit $3,400,000 $4,700,000 $3,780,000 2,646,000 Discount rate 1.00 1.20 1.44 1.728 NPV Profit $3,400,000 $3,750,000 $2,625,000 1,385,417 Cumulative NPV $3,400,000 $7,150,000 $9,775,000 $11,160,417

Customer Lifetime Value $34.00 $71.50 $97.75 $111.60 The table can serve as a template. That is, by substituting values that apply to a particular firm, it can be used to estimate lifetime value for a particular situation. C.3 EFFFECT OF LOYALTY PROGRAMS Loyalty programs are designed to increase the lifetime value of customers. Such programs offer incentives (sometimes discounts) to encourage: 1. Higher retention rates 2. Larger purchases 3. Referrals Consider our previous example. Suppose a loyalty program offers special privileges with the following assumptions

Retention rates increase to 75%, 80%, 85%, 85% Percentages of customers who refer others are 8%, 10%, 12%, 12% That is, the total number of customers, retention rates, and percent referrals are: Year 1 Year 2 Year 3 Year 4 Total Customers 100,000 83,000 74,700 72,459 Retention rate 75% 80% 85% 85% Pct. Referrals 8% 10% 12% 12% If purchases increase to $210, $250, $280, $280, then Total Revenue becomes Purchase/customer $210 $250 $280 $280 49 Total Purchases $21,000,000 $20,750,000 $20,916,00 $20,288,520 These gains, of course, do not come for free. If we assume that the cost to acquire a loyalty program customer is $40 rather than $30 and the advertising cost to retain is still $6/year and if we assume the following costs of running the loyalty program: Record keeping costs/customer per year Service costs/loyal customer Referral Incentives/customer referred 20 20 $ 5

The cost picture becomes: Direct Percent 60% 50% 45% 45% Variable Direct Cost $12,600,000 $10,375,000 $9,412,200 $9,129,834 Per customer costs $75 $31 $31 $31 Total customer cost $7,500,000 $2,573,000 $2,315,300 $2,246,129

Referral Incentives 0 $160,000 $166,000 $179,280 Total Cost $20,100,000 $13,108,000 $11,893,500 $11,555,24 The profits and customer lifetime values become: Gross Profit $900,000 $7,642,000 $9,022,500 $8,733,277 Discount rate 1.20 1.44 1.728 NPV Profit $900,000 $6,368,333 $6,265,625 $5,053,980 Cumulative NPV $900,000 $7,268,333 $13,533,958 $18,587,938 Customer lifetime value $9.00 $72.68 $135.33 $185.88 Comparing the customer lifetime value before the loyalty program and after the loyalty program leads to the following table of cumulative lifetime values and the difference between them. Customer Lifetime Value Year 1 Year 2 Year 3 Year 4 Before Program $34.00 $71.50 $97.75 $111.16 With Program $9.00 $72.68 $135.33 $185.88 Difference $(25.00) $1.18 $37.58 $74.76 Note that the value is reduced in the first year, but increases considerably for the 3 rd and 4 th year in our example. 50

C.4 ADDITIONAL FACTORS TO CONSIDER Appendices C2 and C3 include assumptions about: Expected number of customers Retention rate Average annual purchase per customer (including increasing number of sales and increasing amount per sale to retained customers) Markup of goods Cost to obtain a new customers Cost to maintain a customer/year Cost to obtain customers through referrals Discount rate For a more complete model, the following considerations can be added: Risk factor (that the customer will not pay). Delay between order and payment (i.e., the account receivable days) Repurchase cycles other than annual (e.g., several years between buying cars) All of these factors are discussed in mathematical terms in Appendix C.5 C.5 THE ARITHMETIC OF LIFETIME VALUE Quantities assigned assumed values: Number of customers in year 1 N(1) Retention rate in year i, RR(i) Number of purchase/year NS(i) Size of purchases (i.e., sales) in year i S(i) 51

Direct Percent in year i = (1-markup percent) D(i) Cost to acquire a new customer RC(1) Cost to retain a customer in year i > 1 RC(i) Discount rate in year 2 DR(2) Risk Factor in year i RF(i) Computed quantities: No. of customers in year i: N(i) = N(i-1) * RR for i>1 Total revenue in year i TR(i) = N(i) * NS(i)*S(i) Cost of goods sold in year i COGS(i) = TR(i) * D(i) Total cost in year i TC(i) = COGS + N(i)*RC(i) Gross Profit in year i GP(i) = TR(i) - TC(i) NPV of Profit in year i NP(i) = GP(i) /DR(i) Cumulative NPV of Profit in year i CumNP(i) = CumNP(i) + CumNP(i-1) i>1 Customer Lifetime Value after i years CumNP(i)/N(1) For simplicity, the foregoing relations assume no risk, instant payment, and one purchase per year. Standard accounting/finance relations can be used to take these additional factors into account. Definition of Symbols in Alphabetic Order COGS Cost of goods sold CumNP Cumulative Net Present Value of Profit D Direct percent (=1 - markup) DR Discount rate GP Gross Profit

LV Lifetime value of a customer N No. of customers NP Number of Purchase in year NP Net Present Value of Profit RC Retention cost; = Acquisition cost in year 1 RF Risk factor RR Retention rate (%) S Size of purchases (i.e., sales) TC Total cost TR Total revenue 52 C.6 EXAMPLE: APPLYING LIFETIME VALUE CONCEPTS IN BANKING 3

The banking industry is an example of a sector of the economy starting to apply lifetime value concepts to running its business. The process involves the following steps: 1. Development of a scoring system indicating the profitability of various services as a function of the size of the account, debts, and types of services used. 2. Scoring the profitability of individual customers based on the general results. 3. Encouraging profitable customers through additional services (i.e., rewards), trying to cross-sell additional products to less profitable and

unprofitable customers, and by discouraging unprofitable customers by higher fees. For example, Wells Fargo Bank divides its customers into four categories based on profitability: Rank Avg. Annual Profitability Percentage Outstanding >$1000 4% Excellent $200 to $1000 20% Moderate $0 to $200 38% Potential Unprofitable 38% Profitability is determined from revenues and costs. Note that Wells Fargo includes allocated overhead in its costs.

3 This section is based on an article by E. Sanders in the Los Angeles Times, July 21, 2000 53 BANK REVENUES AND COSTS Revenues:

Monthly checking fees Late fees and bounced checks Interest paid on mortgages. Credit Brokerage commissions Earning's on customer deposits

Costs: Interest on savings and CDs Customer direct services (eg teller visits) Allocated fixed costs The bank's intent is to use the profitability scores in each contact with the customer. The client's profitability category is to appear on employee's screens as a way to determine the level of service to give. The system shifts relationships. People, who previously received superior treatment because they had high balances, may lose because they consume expensive services such as weekly visits to the bank. Conversely, people who bank online or who have high outstanding debts (such as first time home buyers whose mortgages generate large revenue) or maintain low balances while paying high monthly checking fees and bounced check fees may gain services because they are more profitable. Whether banks can enforce these differential service levels without a backlash remains to be seen. C.7 SUMMARY AND CONCLUSIONS ON LIFETIME VALUE Lifetime customer value refers to the profit a customer is expected to generate while he/she maintains a relationship with the company. The net margins on transactions, taken over all channels, of company determine customer value. This analysis is possible because a company can distinguish among customers and collect information about individual purchase histories. A good way to 54

think about lifetime value is to consider the return on investment on the customer asset. The investment includes the cost to acquire and retain the customer. Once obtained, a repeat purchaser whose cost to maintain is relatively small becomes an asset that adds to the firms profitability. The methods of analyzing both the lifetime costs and the benefits are approximations that contain many assumptions. Many numbers in calculating returns (such as retention rates, average purchase amount, referral rates, and average relationship periods) are assumptions about future behavior. Similarly, the cost to develop and maintain the individual customer relationship involves assumptions about the direct and indirect marketing and management costs. Each customer is unique, has a different lifetime value, and has personal preferences that need to be taken into account. Despite of these limitations, computing and understanding lifetime customer value is central to a CRM program. 55 APPENDIX D VENDORS WEB SITE ADDRESSES Applix http://www.applix.com/index.asp

Aspect Communications http://www.aspect.com/index.htm Baan http://www.baan.com/index.html

Broadbase Software, Inc. http://www.broadbase.com/ Business Resource Software http://www.brs-inc.com/index.html Cable and Wireless plc. http://www.cw-usa.net/ Cisco Systems, Inc. http://www.cisco.com/

Clarify.com

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CustomerCast EHNC

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Epicor Software Epiphany

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Kana Communication Lawson Software

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Lucent Technologies Multiactive Software Octane Software Onyx Software Oracle PeopleSoft Pivotal Quintus Remedy

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Sales Technologies

SalesLogix SAP

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Saratoga Systems Siebel Systems SYNAVANT Inc.

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Tenuteq International http://www.tenuteq.com/ Trilogy Software Upshot.com YouCentric http://www.trilogy.com/

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Customer relationship management

Customer relationship management (CRM) is a widely-implemented strategy for managing a companys interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processesprincipally sales activities, but also those for marketing, customer service, and technical support.[1] The overall goals are to find, attract, and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service.[2] Customer relationship management describes a company-wide business strategy including customer-interface departments as well as other departments.[3] Measuring and valuing customer relationships is critical to implementing this strategy.[4]
Contents
[hide]

1 Benefits of CRM 2 Challenges

o o o o o

2.1 Complexity 2.2 Poor usability 2.3 Fragmentation 2.4 Business reputation 2.5 Security concerns

3 Types/variations

o o o o o o o o o o

3.1 Sales force automation 3.2 Marketing 3.3 Customer service and support 3.4 Appointment 3.5 Analytics 3.6 Integrated/Collaborative 3.7 Small business 3.8 Social media 3.9 Non-profit and membership-based 3.10 Custom CRM

4 Strategy

5 Implementation

o o o o o

5.1 Implementation issues 5.2 Adoption issues 5.3 Statistics 5.4 Increasing usage and adoption rates 5.5 Help menus

6 Development

o o

6.1 Clarity 6.2 Test users

7 Privacy and data security system 8 Market structures 9 Related trends 10 See also 11 Notes

[edit]Benefits

of CRM

A CRM system may be chosen because it is thought to provide the following advantages:[citation needed]

Quality and efficiency Decrease in overall costs Decision support Enterprise agility Customer Attention

[edit]Challenges
Successful development, implementation, use and support of customer relationship management systems can provide a significant advantage to the user, but often, there are obstacles that obstruct the user from using the system to its full potential. Instances of a CRM attempting to contain a large, complex group of data can become cumbersome and difficult to understand for an ill-trained user. Additionally, an interface that is difficult to navigate or understand can hinder the CRMs effectiveness, causing users to pick and choose which areas of the system to be used, while others may be pushed aside. This fragmented implementation can cause inherent challenges, as only certain parts are used and the system is not fully functional. The increased use of customer relationship management software has also led to an industry-wide shift in evaluating the role of the developer in designing and maintaining its software. Companies

are urged to consider the overall impact of a viable CRM software suite and the potential for good or harm in its use.

[edit]Complexity
Tools and workflows can be complex, especially for large businesses. Previously these tools were generally limited to simple CRM solutions which focused on monitoring and recording interactions and communications. Software solutions then expanded to embrace deal tracking, territories, opportunities, and the sales pipeline itself. Next came the advent of tools for other client-interface business functions, as described below. These tools have been, and still are, offered as on-premises software that companies purchase and run on their own IT infrastructure.

[edit]Poor

usability

One of the largest challenges that customer relationship management systems face is poor usability. With a difficult interface for a user to navigate, implementation can be fragmented or not entirely complete. The importance of usability in a system has developed over time.[5] Customers are likely not as patient to work through malfunctions or gaps in user safety,[5] and there is an expectation that the usability of systems should be somewhat intuitive: it helps make the machine an extension of the way I think not how it wants me to think. An intuitive design can prove most effective in developing the content and layout of a customer relationship management system.[6] Two 2008 case studies show that the layout of a system provides a strong correlation to the ease of use for a system and that it proved more beneficial for the design to focus on presenting information in a way that reflected the most important goals and tasks of the user, rather than the structure of the organization.[6] This ease of service is paramount for developing a system that is usable.[7] In many cases, the growth of capabilities and complexities of systems has hampered the usability of a customer relationship management system. An overly complex computer system can result in an equally complex and non-friendly user interface, thus not allowing the system to work as fully intended. [7] This bloated software can appear sluggish and/or overwhelming to the user, keeping the system from full use and potential. A series of 1998 research indicates that each item added to an information display can significantly affect the overall experience of the user.[8]

[edit]Fragmentation
Often, poor usability can lead to implementations that are fragmented isolated initiatives by individual departments to address their own needs. Systems that start disunited usually stay that way: siloed thinking and decision processes frequently lead to separate and incompatible systems, and dysfunctional processes.

A fragmented implementation can negate any financial benefit associated with a customer relationship management system, as companies choose not to use all the associated features factored when justifying the investment.[9] Instead, it is important that support for the CRM system is companywide.[9] The challenge of fragmented implementations may be mitigated with improvements in late-generation CRM systems.[10]

[edit]Business

reputation

Building and maintaining a strong business reputation has become increasingly challenging. The outcome of internal fragmentation that is observed and commented upon by customers is now visible to the rest of the world in the era of the social customer; in the past, only employees or partners were aware of it. Addressing the fragmentation requires a shift in philosophy and mindset in an organization so that everyone considers the impact to the customer of policy, decisions and actions. Human response at all levels of the organization can affect the customer experience for good or ill. Even one unhappy customer can deliver a body blow to a business.[11] Some developments and shifts have made companies more conscious of the life-cycle of a customer relationship management system.[7] Companies now consider the possibility of brand loyalty and persistence of its users to purchase updates, upgrades and future editions of software.[7] Additionally, CRM systems face the challenge of producing viable financial profits, with a 2002 study suggesting that less than half of CRM projects are expected to provide a significant return on investment.[12] Poor usability and low usage rates lead many companies to indicate that it was difficult to justify investment in the software without the potential for more tangible gains.[12]

[edit]Security

concerns

A large challenge faced by developers and users is found in striking a balance between ease of use in the CRM interface and suitable and acceptable security measures and features. Corporations investing in CRM software do so expecting a relative ease of use while also requiring that customer and other sensitive data remain secure. This balance can be difficult, as many believe that improvements in security come at the expense of system usability.[13] Research and study show the importance of designing and developing technology that balances a positive user interface with security features that meet industry and corporate standards.[14] A 2002 study shows, however, that security and usability can coexist harmoniously.[13] In many ways, a secure CRM system can become more usable. Researchers have argued that, in most cases, security breaches are the result of user-error (such as unintentionally downloading and executing a computer virus). In these events, the computer system acted as it should in identifying a file and then, following the users orders to execute the file, exposed the computer and

network to a harmful virus. Researchers argue that a more usable system creates less confusion and lessens the amount of potentially harmful errors, in turn creating a more secure and stable CRM system.[13] Technical writers can play a large role in developing customer relationship management systems that are secure and easy to use. A series of 2008 research shows that CRM systems, among others, need to be more open to flexibility of technical writers, allowing these professionals to become content builders.[15] These professionals can then gather information and use it at their preference, developing a system that allows users to easily access desired information and is secure and trusted by its users.

[edit]Types/variations [edit]Sales

force automation

Sales force automation (SFA) involves using software to streamline all phases of the sales process, minimizing the time that sales representatives need to spend on each phase. This allows a business to use fewer sales representatives to manage their clients. At the heart of SFA is a contact management system for tracking and recording every stage in the sales process for each prospective client, from initial contact to final disposition. Many SFA applications also include insights into opportunities, territories, sales forecasts and workflow automation, quote generation, and product knowledge. Modules for Web 2.0 e-commerce and pricing are new, emerging interests in SFA.[2]

[edit]Marketing
CRM systems for marketing help the enterprise identify and target potential clients and generate leads for the sales team. A key marketing capability is tracking and measuring multichannel campaigns, including email, search, social media, telephone and direct mail. Metrics monitored include clicks, responses, leads, deals, and revenue. Alternatively, Prospect Relationship Management (PRM) solutions offer to track customer behaviour and nurture them from first contact to sale, often cutting out the active sales process altogether. In a web-focused marketing CRM solution, organizations create and track specific web activities that help develop the client relationship. These activities may include such activities as free downloads, online video content, and online web presentations.[citation needed]

[edit]Customer

service and support

Recognizing that service is an important factor in attracting and retaining customers, organizations are increasingly turning to technology to help them improve their clients experience while aiming to increase efficiency and minimize costs.[16] Even so, a 2009 study revealed that only 39% of corporate executives believe their employees have the right tools and authority to solve client problems.[17]

[edit]Appointment
Creating and scheduling appointments with customers is a central activity of most customer oriented businesses. Sales, customer support, and service personnel regularly spend a portion of their time getting in touch with customers and prospects through a variety of means to agree on a time and place for meeting for a sales conversation or to deliver customer service. Appointment CRM is a relatively new CRM platform category in which an automated system is used to offer a suite of suitable appointment times to a customer via e-mail or through a web site. An automated process is used to schedule and confirm the appointment, and place it on the appropriate person's calendar. Appointment CRM systems can be an origination point for a sales lead and are generally integrated with sales and marketing CRM systems to capture and store the interaction.

[edit]Analytics
Relevant analytics capabilities are often interwoven into applications for sales, marketing, and service. These features can be complemented and augmented with links to separate, purpose-built applications for analytics and business intelligence. Sales analytics let companies monitor and understand client actions and preferences, through sales forecasting and data quality. Marketing applications generally come with predictive analytics to improve segmentation and targeting, and features for measuring the effectiveness of online, offline, and search marketing campaigns. Web analytics have evolved significantly from their starting point of merely tracking mouse clicks on Web sites. By evaluating buy signals, marketers can see which prospects are most likely to transact and also identify those who are bogged down in a sales process and need assistance. Marketing and finance personnel also use analytics to assess the value of multi-faceted programs as a whole. These types of analytics are increasing in popularity as companies demand greater visibility into the performance of call centers and other service and support channels,[16] in order to correct problems before they affect satisfaction levels. Support-focused applications typically include dashboards similar to those for sales, plus capabilities to measure and analyze response times, service quality, agent performance, and the frequency of various issues.

[edit]Integrated/Collaborative
Departments within enterprises especially large enterprises tend to function with little collaboration.[18] More recently, the development and adoption of these tools and services have fostered greater fluidity and cooperation among sales, service, and marketing. This finds expression in the concept of collaborative systems that use technology to build bridges between departments. For example, feedback from a technical support center can enlighten marketers about specific services and product features clients are asking for. Reps, in their turn, want to be able to pursue these opportunities without the burden of re-entering records and contact data into a separate SFA system.

[edit]Small

business

For small business, basic client service can be accomplished by a contact manager system: an integrated solution that lets organizations and individuals efficiently track and record interactions, including emails, documents, jobs, faxes, scheduling, and more. These tools usually focus on accounts rather than on individual contacts. They also generally include opportunity insight for tracking sales pipelines plus added functionality for marketing and service. As with larger enterprises, small businesses are finding value in online solutions, especially for mobile and telecommuting workers.

[edit]Social

media

Social media sites like Twitter, LinkedIn and Facebook are amplifying the voice of people in the marketplace and are having profound and far-reaching effects on the ways in which people buy. Customers can now research companies online and then ask for recommendations through social media channels, making their buying decision without contacting the company. People also use social media to share opinions and experiences on companies, products and services. As social media is not as widely moderated or censored as mainstream media, individuals can say anything they want about a company or brand, positive or negative. Increasingly, companies are looking to gain access to these conversations and take part in the dialogue. More than a few systems are now integrating to social networking sites. Social media promoters cite a number of business advantages, such as using online communities as a source of high-quality leads and a vehicle for crowd sourcing solutions to client-support problems. Companies can also leverage client stated habits and preferences to "hyper-target" their sales and marketing communications.[19] Some analysts take the view that business-to-business marketers should proceed cautiously when weaving social media into their business processes. These observers recommend careful market research to determine if and where the phenomenon can provide measurable benefits for client interactions, sales and support. [20] It is stated[by whom?] that people feel their interactions are peer-to-peer between them and their contacts, and resent company involvement, sometimes responding with negatives about that company.

[edit]Non-profit

and membership-based

Systems for non-profit and membership-based organizations help track constituents and their involvement in the organization. Capabilities typically include tracking the following: fund-raising, demographics, membership levels, membership directories, volunteering and communications with individuals. Many include tools for identifying potential donors based on previous donations and participation. In light of the growth of social networking tools, there may be some overlap between social/community driven tools and nonprofit/membership tools.

[edit]Custom

CRM

Custom CRM software is developed specifically for one client. The advantage of Custom CRM software is that it will have all required functionality, exactly as a client needs it to be. With Custom CRM software, modifications will not be needed. Pre-written software sometimes has missing functionality, causing companies to use multiple software systems.

[edit]Strategy
For larger-scale enterprises, a complete and detailed plan is required to obtain the funding, resources, and company-wide support that can make the initiative of choosing and implementing a system successfully. Benefits must be defined, risks assessed, and cost quantified in three general areas:

Processes: Though these systems have many technological components, business processes lie at its core. It can be seen as a more client-centric way of doing business, enabled by technology that consolidates and intelligently distributes pertinent information about clients, sales, marketing effectiveness, responsiveness, and market trends. Therefore, a company must analyze its business workflows and processes before choosing a technology platform; some will likely need re-engineering to better serve the overall goal of winning and satisfying clients. Moreover, planners need to determine the types of client information that are most relevant, and how best to employ them.[3]

People: For an initiative to be effective, an organization must convince its staff that the new technology and workflows will benefit employees as well as clients. Senior executives need to be strong and visible advocates who can clearly state and support the case for change. Collaboration, teamwork, and two-way communication should be encouraged across hierarchical boundaries, especially with respect to process improvement.[21]

Technology: In evaluating technology, key factors include alignment with the companys business process strategy and goals, including the ability to deliver the right data to the right employees and sufficient ease of adoption and use. Platform selection is best undertaken by a carefully chosen group of executives who understand the business processes to be automated as well as the software issues. Depending upon the size of the company and the breadth of data, choosing an application can take anywhere from a few weeks to a year or more.[3]

[edit]Implementation [edit]Implementation

issues

Increases in revenue, higher rates of client satisfaction, and significant savings in operating costs are some of the benefits to an enterprise. Proponents emphasize that technology should be implemented only in the context

of careful strategic and operational planning.[22] Implementations almost invariably fall short when one or more facets of this prescription are ignored:

Poor planning: Initiatives can easily fail when efforts are limited to choosing and deploying software, without an accompanying rationale, context, and support for the workforce.[23] In other instances, enterprises simply automate flawed client-facing processes rather than redesign them according to best practices.

Poor integration: For many companies, integrations are piecemeal initiatives that address a glaring need: improving a particular client-facing process or two or automating a favored sales or client support channel.[24] Such point solutions offer little or no integration or alignment with a companys overall strategy. They offer a less than complete client view and often lead to unsatisfactory user experiences.

Toward a solution: overcoming siloed thinking. Experts advise organizations to recognize the immense value of integrating their client-facing operations. In this view, internally-focused, department-centric views should be discarded in favor of reorienting processes toward information-sharing across marketing, sales, and service. For example, sales representatives need to know about current issues and relevant marketing promotions before attempting to cross-sell to a specific client. Marketing staff should be able to leverage client information from sales and service to better target campaigns and offers. And support agents require quick and complete access to a clients sales and service history.[24]

[edit]Adoption

issues

Historically, the landscape is littered with instances of low adoption rates. Many of the challenges listed above offer a glimpse into some of the obstacles that corporations implementing a CRM suite face; in many cases time, resources and staffing do not allow for the troubleshooting necessary to tackle an issue and the system is shelved or sidestepped instead. Why is it so difficult sometimes to get employees up to date on rapidly developing new technology? Essentially, your employees need to understand how the system works, as well as understand the clients and their needs. No doubt this process is time consuming, but it is well worth the time and effort, as you will be better able to understand and meet the needs of your clients. CRM training needs to cover two types of information: relational knowledge and technological knowledge.

[edit]Statistics
In 2003, a Gartner report estimated that more than $1 billion had been spent on software that was not being used. More recent research indicates that the problem, while perhaps less severe, is a long way from being solved. According to CSO Insights, less than 40 percent of 1,275 participating companies had end-user adoption rates above 90 percent.[25] Additionally, many corporations only use CRM systems on a partial or fragmented basis, thus missing opportunities for effective marketing and efficiency. [26]

In a 2007 survey from the U.K., four-fifths of senior executives reported that their biggest challenge is getting their staff to use the systems they had installed. Further, 43 percent of respondents said they use less than half the functionality of their existing system; 72 percent indicated they would trade functionality for ease of use; 51 percent cited data synchronization as a major issue; and 67 percent said that finding time to evaluate systems was a major problem.[27] With expenditures expected to exceed $11 billion in 2010,[27]enterprises need to address and overcome persistent adoption challenges. The amount of time needed for the development and implementation of a customer relationship management system can prove costly to the implementation as well. Research indicates that implementation timelines that are greater than 90 days in length run an increased risk in the CRM system failing to yield successful results. [12]

[edit]Increasing

usage and adoption rates

Specialists offer these recommendations[25] for boosting adoptions rates and coaxing users to blend these tools into their daily workflow: Additionally, researchers found the following themes were common in systems that users evaluated favorably. These positive evaluations led to the increased use and more thorough implementation of the CRM system. Further recommendations include[28]

Breadcrumb Trail: This offers the user a path, usually at the top of a web or CRM page, to return to the starting point of navigation. This can prove useful for users who might find themselves lost or unsure how they got to the current screen in the CRM.

Readily available search engine boxes: Research shows that users are quick to seek immediate results through the use of a search engine box. A CRM that uses a search box will keep assistance and immediate results quickly within the reach of a user.

Help Option Menu: An outlet for quick assistance or frequently asked questions can provide users with a lifeline that makes the customer relationship management software easier to use. Researchers suggest making this resource a large component of the CRM during the development stage.

A larger theme is found in that the responsiveness, intuitive design and overall usability of a system can influence the users opinions and preferences of systems.[29] Researchers noted a strong correlation between the design and layout of a user interface and the perceived level of trust from the user.[30] The researchers found that users felt more comfortable on a system evaluated as usable and applied that comfort and trust into increased use and adoption.

[edit]Help

menus

One of the largest issues surrounding the implementation and adoption of a CRM comes in the perceived lack of technical and user support in using the system. Individual users and large corporations find themselves

equally stymied by a system that is not easily understood. Technical support in the form of a qualified and comprehensive help menu can provide significant improvement in implementation when providing focused, context-specific information.[31] Data show that CRM users are oftentimes unwilling to consult a help menu if it is not easily accessible and immediate in providing assistance.[31] A 1998 case study found that users would consult the help menu for an average of two or three screens, abandoning the assistance if desired results werent found by that time.[31] Researchers believe that help menus can provide assistance to users through introducing additional screenshots and other visual and interactive aids.[32] A 2004 case study concluded that the proper use of screenshots can significantly support a users developing a mental model of the program and help in identifying and locating window elements and objects.[32]This research concluded that screen shots allowed users to learn more, make fewer mistakes, and learn in a shorter time frame, which can certainly assist in increasing the time frame for full implementation of a CRM system with limited technical or human support. [32] Experts have identified five characteristics to make a help menu effective: [33]

context-specific the help menu contains only the information relevant to the topic that is being discussed or sought

useful in conjunction with being context-specific, the help menu must be comprehensive in including all of the information that the user seeks

obvious to invoke the user must have no trouble in locating the help menu or how to gain access to its contents

non-intrusive the help menu must not interfere with the users primary path of work and must maintain a distance that allows for its use only when requested

easily available the information of the help menu must be accessible with little or few steps required

[edit]Development
Thoughtful and thorough development can avoid many of the challenges and obstacles faced in using and implementing a customer relationship management system. With shifts in competition and the increasing reliance by corporations to use a CRM system, development of software has become more important than ever.[34] Technical communicators can play a significant role in developing software that is usable and easy to navigate.[35]

[edit]Clarity
One of the largest issues in developing a usable customer relationship management system comes in the form of clear and concise presentation. Developers are urged to consider the importance of creating software that is

easy to understand and without unnecessary confusion, thus allowing a user to navigate the system with ease and confidence. Strong writing skills can prove extremely beneficial for software development and creation. A 1998 case study showed that software engineering majors who successfully completed a technical writing course created capstone experience projects that were more mindful of end user design than the projects completed by their peers.[36] The case study yielded significant results:

Students who completed the technical writing course submitted capstone projects that contained more vivid and explicit detail in writing than their peers who did not complete the course. Researchers note that the students appeared to weigh multiple implications on the potential user, and explained their decisions more thoroughly than their peers.

Those participating in the writing course sought out test users more frequently to add a perspective outside their own as developer. Students appeared sensitive of the users ability to understand the developed software.

The faculty member overseeing the capstone submissions felt that students who did not enroll in the technical writing class were at a significant disadvantage when compared to their peers who did register for the course.

In the case study, researchers argue for the inclusion of technical writers in the development process of software systems. These professionals can offer insight into usability in communication for software projects.[36] Technical writing can help build a unified resource for successful documentation, training and execution of customer relationship management systems.[37]

[edit]Test

users

In many circumstances, test users play a significant role in developing software. These users offer software developers an outside perspective of the project, oftentimes helping developers gain insight into potential areas of trouble that might have been overlooked or passed over because of familiarity with the system. Test users can also provide feedback from a targeted audience: a software development team creating a customer relationship management software system for higher education can have a user with a similar profile explore the technology, offering opportunities to cater the further development of the system. Test users help developers discover which areas of the software perform well, and which areas require further attention.[38] Research notes that test users can prove to be most effective in providing developers a structured overview of the software creation.[38] These users can provide a fresh perspective that can reflect on the state of the CRM development without the typically narrow or invested focus of a software developer.

A 2007 study suggests some important steps are needed in creating a quality and effective test environment for software development.[39] In this case study, researchers observed a Danish software company in the midst of new creating new software with usability in mind. The study found these four observations most appropriate:

The developers must make a conscious effort and commitment to the test user. Researchers note that the company had dedicated specific research space and staff focused exclusively on usability.

Usability efforts must carry equal concern in the eyes of developers as other technology-related concerns in the creation stage. The study found that test users became discouraged when items flagged as needing attention were marked as lower priority by the software developers.

Realistic expectations from both test users and software developers help maintain a productive environment. Researchers note that developers began to limit seeking input from test users after the test users suggested remedies the developers felt were improbable, leading the developers to believe consulting the test users would only prove to be more work.

Developers must make themselves available to test users and colleagues alike throughout the creation process of a software system.

The researchers note that some of the best instances of usability adjustments can be made through casual conversation, and that oftentimes usability is bypassed by developers because these individuals never think to consult test users. Allowing users to test developing products can have its limits in effectiveness, as the culture of the industry and desired outcomes can affect the effect on CRM creation,[40] as a 2008 case study suggests that the responsiveness of test users can vary dramatically depending on the industry and field of the user. Research suggests that test users can rate the importance or severity of potential software issues in a significantly different fashion than software developers.[38] Similarly so, researchers note the potential for costly delay if developers spend too much time attempting to coerce hesitant test users from participating.[39] Additionally, involving too many test users can prove cumbersome and delay the development of a CRM system.[39] Additional research notes that test users may be able to identify an area that proves challenging in a software system, but might have difficulty explaining the outcome. A related 2007 case study noted that test users were able to describe roughly a third of the usability problems.[38] Further, the language used by test users in many circumstances proves to be quite general and lacking the specific nature needed by developers to enact real change.

[edit]Privacy

and data security system

One of the primary functions of these tools is to collect information about clients, thus a company must consider the desire for privacy and data security, as well as the legislative and cultural norms. Some clients prefer assurances that their data will not be shared with third parties without their prior consent and that safeguards are in place to prevent illegal access by third parties.

[edit]Market

structures

This market grew by 12.5 percent in 2008, from revenue of $8.13 billion in 2007 to $9.15 billion in 2008. [41] The following table lists the top vendors in 2006-2008 (figures in millions of US dollars) published in Gartner studies.[42][43]

Vendor SAP Oracle

2008 Revenue 2,055 1,475

2008 Share (%) 22.5 (-2.8) 16.1 10.6 6.4 4.9 39.6 100

2007 Revenue 2,050.8 1,319.8 676.5 332.1 421.0 3,289.1 8,089.3

2007 Share (%) 25.3 16.3 8.3 4.1 5.2 40.6 100

2006 Revenue 1,681.7 1,016.8 451.7 176.1 365.9 2,881.6 6,573.8

2006 Share (%) 26.6 15.5 6.9 2.7 5.65 43.7 100

Salesforce.com 965 Microsoft Amdocs Others Total 581 451 3,620 9,147

[edit]Related

trends

Many CRM vendors offer Web-based tools (cloud computing) and software as a service (SaaS), which are accessed via a secure Internet connection and displayed in a Web browser. These applications are sold as subscriptions, with customers not needing to invest in purchasing and maintaining IT hardware, and subscription fees are a fraction of the cost of purchasing software outright. The era of the "social customer"[44] refers to the use of social media (Twitter, Facebook, LinkedIn, Yelp, customer reviews in Amazon etc.) by customers in ways that allow other potential customers to glimpse real world experience of current customers with the seller's products and services. This shift increases the power of customers to make purchase decisions that are informed by other parties sometimes outside of the control of the seller or seller's network. In response, CRM philosophy and strategy has shifted to encompass social networks and user communities, podcasting, and personalization in addition to internally generated marketing, advertising and webpage design. With the spread of self-initiated customer reviews, the user experience of a product or service requires increased attention to design and simplicity, as customer expectations have risen. CRM as a philosophy and strategy is growing to encompass these broader components of the customer relationship, so that businesses may anticipate and innovate to better serve customers, referred to as "Social CRM". Another related development is Vendor Relationship Management, or VRM, which is the customer-side counterpart of CRM: tools and services that equip customers to be both independent of vendors and better able to engage with them. VRM development has grown out of efforts by ProjectVRM at Harvard's Berkman Center for Internet & Society and Identity Commons' Internet Identity Workshops, as well as by a growing number of

startups and established companies. VRM was the subject of a cover story in the May 2010 issue of CRMMagazine.[45] In a 2001 research note, META Group (now Gartner) analyst Doug Laney first proposed, defined and coined the term Extended Relationship Management (XRM).[46]. He defined XRM as the principle and practice of applying CRM disciplines and technologies to other core enterprise constituents, primarily partners, employees and suppliers... as well as other secondary allies including government, press, and industry consortia.[citation
needed]

Microsoft markets its Dynamics CRM as "xRM" for its extensibility for potential XRM-ish uses beyond

customer data.

[edit]See

also
Data mining Database marketing E-crm Employee experience management (EEM) Enterprise Feedback Management (EFM) Help desk Mystery shopping Partner Relationship Management (PRM) Predictive analytics Professional services automation software (PSA)

Automated online assistant Business intelligence Business Relationship Management Comparison of CRM systems Consumer Relationship System Customer Experience Customer experience transformation Customer Intelligence Customer service - contains ISO standards Data management Real-time marketing