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Return of CRM in marketing

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Return of CRM in marketing


Customer Relationship Management is back. Though CRM had not disappeared per se, until recently it had diminished in priority and profile since the turn of the millennium. The initial hype did not live up to expectations and the disappointing results that were achieved by some early adopters deterred others for a time from investing heavily, or at all.

That was then. A key finding of the 2006 AFR Boss annual Marketing Directions survey, now in its sixth year, is that there is a revolution taking place in CRM. Approximately 40 percent of respondents to the Boss survey indicated CRM is impacting marketing spend, with some rating the impact as significant. Across the board, CRM is driving a more targeted use of marketing and, consequently, is leading to a reduction in media spending.

The Boss findings are supported by Gartner’s 2006 and 2007 global predictions, which include: that the scope of CRM will widen, that there will be a boom in projects to create a single view of the customer and that companies that don’t invest in CRM will be left behind, and then forced to catch up.

For many, CRM is synonymous with technology. Though the applications and systems are a part – indeed, a critical component – of it, CRM is much more than systems alone. By definition, CRM is the holistic interaction a company has with a customer or client. It has strategic, operational and analytical components. Technology simply enables a vastly more efficient and effective means of managing customer relationships, be it one-to-one or en masse. The applications allow marketers to capture, interpret and act upon data about customers – their purchase history, price points, buying behaviour, interests, future requirements and so on.

Bear in mind, the ultimate objectives of CRM are to retain customers by fostering loyalty and increasing satisfaction, and to grow revenue by improving each customer’s value.

Continual improvement

Beaton Consulting’s Colin Jasper reflects on how the approach to CRM has evolved over time: “Early on, a lot of money was invested in CRM technology, and a large amount of resources were spent populating those systems. Before long, many companies realised they were only using a very small proportion of the systems, and of the data that was being input and maintained. Effectively, the cost of keeping the systems up-to-date significantly outweighed the benefits.”

Certainly, less than perfect implementations of the late 90s prompted vendors and technology consultants to review the implementation process. Today, they are more demanding about the way an implementation is commenced, and use governance models to stipulate and control the critical success factors, including the required people, executive sponsorship and level of organisational commitment.

“Organisations have to make sure that they are as committed to putting in a CRM system as they are to buying a CRM system,” warns SAP’s John Goldrick. “Without the right level of executive sponsorship, no matter how much money you spend on it you won’t get the return that you would if management were committed to it.”

Since CRM systems were first introduced, substantial improvements have been made, especially around the depth of marketing and analytics functionality. For example, the most recent CRM products have built-in analytics, which enables, for the first time, real-time reporting.

Real-time reporting gives marketers the ability to start and stop campaigns based on whether or not they are working effectively. Additionally, improvements to segmentation tools allow the results to determine the direction – say, the product lines or channels – that should be adopted for different customer groups.

“It means you can report on all of the marketing campaigns you have out there, the hits being scored, leads and opportunities generated, how much revenue is being made… You can see that in real-time now, rather than having to rely on end-of-month reports,” says Goldrick.

Tech head

The CRM software market is estimated to be worth $11 billion worldwide. The Asia Pacific region accounts for just over five percent of that total, though the market is poised to experience double-digit growth in response to factors such as the region’s improved investment mood, market expansion, IT maturity and even in response to the Australian Government’s impending Do Not Call Register.

The projected growth in CRM spending is a case of marketing playing catch-up, according to Gartner, and is being fuelled by organisations refocusing on organic growth.

Within the Asia Pacific region, the dominant CRM vendors are SAP, Siebel and Oracle (including PeopleSoft). Their combined software revenue accounts for over 55 percent of the total market. Beyond these players, the market is fragmented with smaller vendors carving up the remainder on the basis of the specific functionality of their applications, their industry expertise or by offering hosted or ‘on-demand’ solutions. Microsoft is a much talked about new entrant to the CRM market, having already secured a client base including the Department of Industry Resources (Western Australia), Ford and A-Gas.

Most of the available CRM technology can stand alone; however, the majority of companies that opt for on-premise applications – that is, that implement the software – integrate it with their back office. “If it’s totally stand-alone it’s really just a customer management process,” says SAP’s John Goldrick. “It’s only when you fully integrate it that you realise the full power of CRM.

“For example, you might have a customer who you think is the best customer in the world because they keep placing orders with you. But that’s only one view. If your CRM system is integrated with your back office you might see the customer is really bad at payment, that their days outstanding are huge, or that the complaints they make and their returns of products are very high. So in fact they’re not such a great customer after all,” explains Goldrick.

B2C and B2B

CRM is as common within business-to-consumer (B2C) environments as it is in business-to-business (B2B) ones. There are, however, distinct differences between the two, one of which is that the level of detail within a B2C system is much greater.

In a B2C environment you often only get one chance to interest a customer. It is therefore imperative that you do the right analysis and identify the touch points needed to win each customer. After that, CRM becomes a tool to determine the propensity of customers to do various things, depending upon their stage in the life cycle. It is more complex than B2B CRM, which tends to be multi-touch and rely on a much deeper relationship model.

St George Bank is driving customer profiling as part of its CRM strategy. By taking the time to understand a customer’s needs, and then capturing those needs in its CRM system, bank staff are able to have smoother and easier conversations with customers. As staff carry out a transaction, they can see the customer’s details, their history, what they have declined in the past and what they have previously expressed an interest in. Already, this is impacting positively on the sale of financial products.

“A key part of it is the people – how they interact with customers. We now have the system and processes right, and have the good people in place. Thats going to be very hard for our competitors to replicate,” states St George’s general manager of retail banking, Brad Thorsby.

In B2B environments, a large part of a company’s revenue is often tied up with a relatively small number of clients. The management of those key accounts naturally becomes very important. Early on, many B2B businesses made the mistake of tackling CRM in a piecemeal fashion. Some focused on implementing a CRM system. Others concentrated on allocating account management responsibilities. And some simply addressed the relationship side of CRM by taking corporate boxes at the MCG or taking clients to the opera.

“Each of those plays a role, but CRM success really comes if you have the whole picture well integrated, rather than just doing elements of it well,” notes Beaton’s Colin Jasper. According to Jasper, one of the major elements of an effective B2B CRM strategy is choosing the right clients to manage.

“Some organisations have taken the approach that every client needs to be client managed. A more effective approach is to allocate scarce resources to where they are going to have the greatest impact. Who are the clients that you are best placed to serve, that from a competitive perspective you are likely to win and grow, that from a fit perspective you are best placed to manage?” challenges Jasper.

Other factors that need to be considered when selecting clients for a CRM program are their purchasing behaviour and barriers to growth. “It is about forecasting profit potential,” reminds Jasper. “If a client always purchases via a tender process and tends to always choose the lowest price, then they may not be the right client to include in a CRM program because you can’t get a price premium let alone a sole sourcing arrangement.”

The selection of clients to be included in a CRM program is something organisations still struggle with. Says Jasper, “The firms we work with are at times surprised to realise that some of their biggest revenue clients are not their most profitable accounts. That’s because often the biggest revenue clients are the ones that you’re also giving the greatest discounts to, and are the ones that require the most add-on services.”

CRM at your service

Historically, a CRM system has been a big ticket capital expenditure item. Yet, it does not have to be expensive. In fact, it no longer even needs to involve capital expenditure.

‘CRM on-demand’ is an alternative solution that is building momentum, particularly with small- to medium-size companies that have limited cash flow or resources. As CRM on-demand is owned, delivered and managed remotely; it is sold as a service rather than a software installation. It is best suited to businesses that have moderately simple requirements as the offerings allow little modification.

Because CRM on-demand is purchased on a subscription basis (per user, per month), it represents a highly cost-effective approach. In fact, in a scenario contained within a research paper published by Gartner (‘CRM on Demand: The Myth and Promise of No Software’, March 2006), it was estimated that the total cost of ownership of an on-demand CRM system would be $70 per user in the first year, compared with $1250 per user for an on-premise solution.

SAP and Siebel (owned by Oracle) are among the vendors to offer software as a service. These providers deliver CRM on-demand solutions that, though not perfect, should satisfy 80 percent of most customers’ needs.

Some subscribers use the on-demand service as a short-term solution and with the intention of eventually moving to an on-premise system. In anticipation of the transition from service to software, both on-demand and on-premise systems are typically built using the same infrastructure.

Despite the early interest, CRM on-demand is not expected to negatively impact the growth of on-site software implementations. One of Gartner’s 2007 predictions is that more companies will approve capital expenditure in marketing to drive revenue growth and reduce operational costs. In fact, B2B companies are predicted to spend up big in the coming years.

Mind the gap

Companies today are more pragmatic about CRM than they were 10 years ago. Whereas in the past there was a push for a high level of customisation or even purpose-built systems, there is now a greater acceptance of off-the-shelf applications, particularly as many of these are already tailored to the broad needs of industries such as manufacturing, utilities and financial services.

Gartner describes the current market as offering an acceptable level of “good enough software”, that is, software that is not fully customised, but not standardised either. These ‘good enough’ solutions, perhaps with minor customisation, are often better than a purpose-built application.

“If you are moving into a CRM environment, the best thing is often to try to stay as basic as possible. You have to remember the products have been fine-tuned by our customer base over the years in terms of what functionality is most used and the way it’s done,” explains SAP’s John Goldrick.

Similarly, the days of implementing software to the full extent of its capability from the outset are also over. The approach the majority of companies now take is staggered: get the core in and working. Then, as a second step, build the functions that will differentiate you in the marketplace.

That approach worked for St George Bank. In 2005, following a comprehensive scan of the market, St George implemented a PeopleSoft CRM system. The system took only a year to install and cost a modest $15 million.

Brad Thorsby is responsible for, among other things, a $30 to $40 million annual expenditure, including the prioritisation of major investments and the execution of projects such as the CRM strategy and system. In selecting PeopleSoft, Thorsby made the decision to minimise customisation of the software.

“We opted for a pretty vanilla implementation,” explains Thorsby. “We learned the more you customise a product, the more difficult it can be to implement, and the more difficult it can be for staff to understand. Having said that, we would not have gone down that path if the PeopleSoft solution was not able to meet our needs.”

St George Bank’s CRM system has been up and running for just over 12 months and has been rolled out to upwards of 4000 people throughout the bank’s retail network.

The latest Gartner research highlights how many B2C companies are finding gaps in business processes that affect marketing’s capability to qualify leads and then convert them to sales. It predicts industries such as financial services, technology and manufacturing will be among the first to tighten the link between marketing and sales.

St George Bank is a case in point. The PeopleSoft implementation represents the Bank’s first formal foray into CRM, though it did already have lead generation referral systems in place. It had also laid a solid foundation in around 2001 when it started to integrate its sales and service program.

“St George has historically given great service to customers and that’s been done with great customer satisfaction,” explains Thorsby. “What we hadn’t done was ask about their needs. Now, we have integrated sales and service. We have a better understanding of our customers’ needs and their propensity to buy other products.”


Despite the CRM revolution and the positive growth forecasts, there remains an underlying concern about what and how to measure. Two-thirds of respondents to the Boss survey indicated they use some form of CRM system. Around one-quarter, however, responded that their system was too new to be able to report results. Certainly, the metrics used to measure the return on investment will vary across products and services, as well as across business or consumer markets. All connected with the industry do agree, however, that simple measures are the best. And, as stated earlier, the name of the game is revenue growth.

Goldrick suggests marketers focus firstly on whether they are generating leads and opportunities for the sales force, and then secondly on the conversion ratio. “What you want to be able to prove to the salespeople is that you’ll be able to deliver more highly qualified leads. The conversion rate from lead to opportunity to sale is what you have to measure,” he says.

Beaton’s Colin Jasper agrees that you need to be able to demonstrate in very clear terms the benefits that are flowing from CRM in order to justify the investment. “That can be as simple as measuring the year-on-year revenue of your 20 key clients.”

Jasper doesn’t predict those firms that have an advanced CRM strategy in place will make any significant improvements over the next three to five years. Rather, he foresees that they will use the next phase to refine what they are already doing, and improve the way they measure their returns. “What I would expect to see though is more firms investing in CRM because the rewards are clearly there,” he concludes.


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