Chapter 2: The Mirage of CRM

Overview

Before implementing a CRM package it is necessary to understand why nearly half of U. S. implementations and more than 80% of European implementations are considered failures. It’s difficult to fathom failures of such monstrous proportions, especially when complete CRM installations can cost millions of dollars and then hundreds of thousands of dollars more per annum.

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Customer relationship marketing (CRM) burst on the marketing world in the early 1990s. It was soon adopted by some of America’s largest corporations. After working with it for several years, most analysts admit that it does not seem to deliver the benefits that it promised and that it may, after all, be a mirage. Let’s see what it was supposed to do and why it failed.

The basic idea was to collect a great deal of information about customers, prospects, products, promotions, and other such things and put it into a giant in-house data warehouse. Many of these warehouses were very expensive, costing as much as $20 million. Part of the cost was that of appending external data about customers and prospects, such as age, income, presence of children, lifestyle, home value, creditworthiness, and so on. To access and manipulate the data in the warehouses, very sophisticated software, costing at least a million dollars the first year, was installed. In many companies there was a tendency to focus on information technology (IT) rather than on the business outcome. CRM was introduced by the IT unit, often without sufficiently close coordination with marketing, sales, or customer service. The result was expensive systems that did not deliver either successful campaigns or improved profits.

The National Retail Federation’s annual CRM Conference survey of North American retail companies found that 69 percent of the respondents said that they had gained little or no benefit from their CRM investment. Why was this so?

What was CRM designed to do? There were really two basic goals:

• Build and maintain relationships with prospects and customers based on having lots of relevant information about them, and using that information to guide communications and contacts with the customer.

• Use that information to make the right offer to the right customer at the right time, thereby increasing sales and pleasing the customers.

The idea that these goals could be achieved was based on four assumptions, all of which proved to be invalid in practice:

1. One-to-one marketing is an achievable goal given the right information and software. Stated another way, customers’ and prospects’ purchasing behavior can be predicted accurately from the information that you can collect about them.

2. Customers’ and prospects’ behavior is heavily influenced by timely and relevant offers.

3. Companies can shift rapidly from being product-focused (with an employee’s bonus being based on the number of particular products sold) to being customer-focused (with an employee’s bonus being based on the amount sold to particular customer segments, regardless of what products they buy).

4. Introduction of CRM has a positive return on investment because it increases sales and profits by more than its cost.