Customer Relationship Management

A Databased Approach

V. Kumar

Werner J. Reinartz

Instructor’s Presentation Slides

Chapter Two

CRM Industry Landscape

CRM

Topics Discussed

• Evolution and Growth of CRM

• Strategic CRM vs. Functional CRM

• Components of the CRM Project

• CRM Implementation Options

• CRM Software and Applications

• Future of CRM

Evolution and Growth of CRM

>1990 >1996 >2002

Customer Service Support

Integrated customer facing Strategic CRM

ERP Integration Customer analyticsComplete Web integration

Scope:

Service function

Goals:

Improve service operations Increase sales efficiency

Marketing functionService function Sales function

Reduce cost of interaction

Increase customer retentionImprove customer experience

Competitive Advantage

Sales force Automation

1st generation 2nd generation 3rd generation

Call Center Management

Front-end ( marketing, sales, service)

Campaign Management

Sales function

Entire organization

Cost reduction & Revenue growth

Time-line of CRM Evolution

1st Generation (functional CRM approach)

• Sales force Automation (SFA)

– Pre-sales functions

• Customer Service and Support (CSS)

– Post-sales functions

• Combined SFA/CSS market niche small

• Market for ERP growing

CRM Evolution (contd.)

2nd Generation (customer facing front-end approach)

• Similar to ERP - integration of a number of independent sub-systems into

one package

• Customer expectations exceeded realized benefits of CRM technology

3rd Generation ( Strategic CRM)

• Integration of customer-facing front-end with back-end systems as well

as partners and suppliers

Third Generation CRM

CUSTOMER

Service &Support

OrderProcessing

Sales

Marketing

FINANCE

Distribution

Manufacturing

R&D

ERP

CRM

CUSTOMER

Service &Support

OrderProcessing

Sales

Marketing

FINANCE

Distribution

Manufacturing

R&D

ERP

CRM

Growth of the CRM Industry

Approximate Worldwide CRM Investments(applications, hardware, and services)

13.5

20.0

23.725.9

29.7

34.6

40.0

47.5

0

10

20

30

40

50

1999 2000 2001 2002 2003 2004 2005 2006

Sp

end

ing

s in

$m

illi

on

0%

10%

20%

30%

40%

50%

60%

Yea

r-to

-Yea

r G

row

th

Spendings

Year-to-Year Growth %

Mean estimates as of 2002 and 2003 across various providers

CRM outsourcing services not included

Sources: IDC, Aberdeen, Gartner, Forrester

Late 2000s…

• Worldwide CRM market revenue totaled US$9.15 billion in 2008, • a 12.5 per cent increase from 2007 revenue of US$8.13 billion,

according to Gartner. • Analysts said that market growth was driven by enterprise

investments in technologies focused on customer retention, analytics and on-demand solutions.

• By 2013, spending on social software to support sales, marketing and customer service processes will exceed $1 billion worldwide.

• Gartner’s forecast: more than $12 billion for overall spending on CRM software in 2012,

• social CRM will encompass approximately 8 percent of all CRM spending in 2012, up from approximate 4 percent in 2010.

What Drives CRM Industry Forward?

• Shift from transactional to relationship–based markets

• Growing proof of value in targeted customer relationships

• Improved effectiveness of marketing communication tools

• IT vendors and associated change management consultancies

• Reducing costs of data storage and capture

• Developments in Customer Value measurement

Components of the CRM Project

• Strategic component

– Designed to optimize profitability and customer satisfaction

– Foster behaviors and implement processes and technologies that support coordinated customer interactions throughout all customer channels

• Functional component

– Integrate various databases and applications that exist in the enterprise

Components of the CRM Project (contd.)

CRM should allow companies to address two key issues:

– Ability to analyze and understand customer data through sophisticated

but easy-to-use reporting tools

– Act on the knowledge obtained to customize services and products and

anticipate and fulfill customer needs

Options for Implementing CRM

In-house development

Buy licensed CRM software

Outsource a managed service

In-house Development

• Advantages:

– Can have a tailor-made solution adapted to

company’s needs and structure

– Develop internal resources and skills

that permit development of the system each time change is required

– Avoid dependence on CRM vendors or new software developments

• Disadvantages:

– Most expensive option-company has to maintain, operate and improve

the system on its own

– Difficult to attract and retain skills to solve and develop data warehousing

challenges

– Longer time commitment(1-2 years) comparatively

Buy Licensed CRM Software

• Advantages:

– Usually have proven record of success

– IT concept and developments implemented with help of CRM vendor, company only needs to adapt its IT structure to integrate the new solution

• Disadvantages:

– Expensive-initial fees and license costs, license renewal charges usually

high, maintenance costs over life of software, payments for newer versions

– High consulting fees charged to customize solution to company’s needs

– Integration of new software with existing applications usually tough,

expensive and time consuming(1-3 years)

Outsource A Managed Service

• Advantages:– Upfront costs lower- don’t need to pay for software licenses

and hardware systems

– Can adopt a ‘pay-as-you-go’ approach, with visible results

• Disadvantages:– Needs to contact outsourcing company for every new requirement and

pay for developments

– Risk of losing CRM solution investments if the outsourcing company goes out of business

Implementing CRM: The Decision Process

Purchase and install a complete CRM solution from a vendor

NO

YES

Entirely outsource the CRM application

process

Implement an enterprise-wide CRM

program

Stage-wise implementation

Decision ToImplement CRM

Stage-wise Implementation vs. an Enterprise-wide CRM Solution

• Best-of-breed approach ( Stage-wise)

– CRM software is offered in different,

independent modules, adapted to a specific

department’s needs

– Company buys sales automation software and

contact management module from different providers

• Enterprise wide CRM solution

– Composed of different modules from the same provider

– Implemented as a whole by connecting different modules and existing

databases

– Individual modules usually customized according to company needs

Future of CRM

• Worldwide increased spending on CRM

• Next generation CRM-focus on building sustainable competitive advantage that cannot be easily imitated by competitors

• Integration of HR function into strategic CRM efforts

• Creation of a single-view of customer

• Continuous fine-tuning and micro-segmentation of customer database

• Growing ability of firms to handle deep customer analytics

By 2015…

• In 2009, 24 percent of the CRM software market was delivered by SaaS, and this rose to more than 26 percent in 2010, up from virtually zero in 1999.

• By 2015, Gartner forecasts that 32 percent of the CRM software market will be delivered by SaaS.

Summary

• CRM has evolved from first generation Functional CRM to Strategic CRM

• Transformation by integrating customer facing front-end with back-end

systems and partners and suppliers

• Growth of CRM facilitated by growth of IT

• CRM solution providers are now developing specialized solutions for

individual industries

• Increasing pressure to reduce CRM costs is leading firms to shift to new

systems that can be further developed and integrated internally

• Short-term projects and implementing CRM in different stages provides a

low-risk approach