Customer relationship management (CRM) is an approach to managing a company's interaction with current and potential customers. It uses data analysis about customers' history with a company and to improve business relationships with customers, specifically focusing on customer retention and ultimately driving sales growth.
One important aspect of the CRM approach is the systems of CRM that compile data from a range of different communication channels, including a company's website, telephone, email, live chat, marketing materials, and more recently, social media. Through the CRM approach and the systems used to facilitate it, businesses learn more about their target audiences and how to best cater to their needs. However, adopting the CRM approach may also occasionally lead to favoritism within an audience of consumers, resulting in dissatisfaction among customers and defeating the purpose of CRM.
The concept of customer relationship management started in the early 1970s, when customer satisfaction was evaluated using annual surveys or by front-line asking. At that time, businesses had to rely on standalone mainframe systems to automate sales, but the extent of technology allowed them to categorize customers in spreadsheets and lists. In 1982, Kate and Robert Kestnbaum introduced the concept of Database marketing, namely applying statistical methods to analyze and gather customer data. By 1986, Pat Sullivan and Mike Muhney released a customer evaluation system called ACT! based on the principle of digital rolodex, which offered a contact management service for the first time.
The trend was followed by numerous developers trying to maximize leads' potential, including Tom Siebel, who signed the first CRM product Siebel Systems in 1993. Nevertheless, customer relationship management popularized in 1997, due to the work of Siebel, Gartner, and IBM. Between 1997 and 2000, leading CRM products were enriched with enterprise resource planning functions, and shipping and marketing capabilities. Siebel introduced the first mobile CRM app called Siebel Sales Handheld in 1999. The idea of a cloud-hosted and moveable customer bases was soon adopted by other leading providers at the time, including PeopleSoft, Oracle, and SAP.
The first open-source CRM system was developed by SugarCRM in 2004. During this period, CRM was rapidly migrating to cloud, as a result of which it became accessible to sole entrepreneurs and small teams, and underwent a huge wave of price reduction. Around 2009, developers began considering the options to profit from social media's momentum, and designed tools to help companies become accessible on all users' favorite networks. Many startups at the time benefited from this trend to provide exclusively social CRM solutions, including Base and Nutshell. The same year, Gartner organized and held the first Customer Relationship Management Summit, and summarized the features systems should offer to be classified as CRM solutions. In 2013 and 2014, most of the popular CRM products were linked to business intelligence systems and communication software to improve corporate communication and end-users' experience. The leading trend is to replace standardized CRM solutions with industry-specific ones, or to make them customizable enough to meet the needs of every business.
Focused upon the development of a customer-centric business culture.
The primary goal of customer relationship management systems is to integrate and automate sales, marketing, and customer support. Therefore, these systems typically have a dashboard that gives an overall view of the three functions on a single customer view, a single page for each customer that a company may have. The dashboard may provide client information, past sales, previous marketing efforts, and more, summarizing all of the relationships between the customer and the firm. Operational CRM is made up of 3 main components: sales force automation, marketing automation, and service automation.
The role of analytical CRM systems is to analyze customer data collected through multiple sources, and present it so that business managers can make more informed decisions. Analytical CRM systems use techniques such as data mining, correlation, and pattern recognition to analyze the customer data. These analytics help improve customer service by finding small problems which can be solved, perhaps, by marketing to different parts of a consumer audience differently. For example, through the analysis of a customer base's buying behavior, a company might see that this customer base has not been buying a lot of products recently. After scanning through this data, the company might think to market to this subset of consumers differently, in order to best communicate how this company's products might benefit this group specifically.
The third primary aim of CRM systems is to incorporate external stakeholders such as suppliers, vendors, and distributors, and share customer information across organizations. For example, feedback can be collected from technical support call, which could help provide direction for marketing products and services to that particular customer in the future.
The main components of CRM are building and managing customer relationships through marketing, observing relationships as they mature through distinct phases, managing these relationships at each stage and recognizing that the distribution of value of a relationship to the firm is not homogenous. When building and managing customer relationships through marketing, firms might benefit from using a variety of tools to help organizational design, incentive schemes, customer structures, and more to optimize the reach of its marketing campaigns. Through the acknowledgement of the distinct phases of CRM, businesses will be able to benefit from seeing the interaction of multiple relationships as connected transactions. The final factor of CRM highlights the importance of CRM through accounting for the profitability of customer relationships. Through studying the particular spending habits of customers, a firm may be able to dedicate different resources and amounts of attention to different types of consumers.
Relational Intelligence, or awareness of the variety of relationships a customer can have with a firm, is an important component to the main phases of CRM. Companies may be good at capturing demographic data, such as gender, age, income, and education, and connecting them with purchasing information to categorize customers into profitability tiers, but this is only a firm's mechanical view of customer relationships. This therefore is a sign that firms believe that customers are still resources that can be used for up-sell or cross-sell opportunities, rather than humans looking for interesting and personalized interactions.
CRM systems include:
Customer satisfaction has important implications for the economic performance of firms because it has the ability to increase customer loyalty and usage behavior and reduce customer complaints and the likelihood of customer defection. The implementation of a CRM approach is likely to have an effect on customer satisfaction and customer knowledge for a variety of different reasons.
Firstly, firms are able to customize their offerings for each customer. By accumulating information across customer interactions and processing this information to discover hidden patterns, CRM applications help firms customize their offerings to suit the individual tastes of their customers. This customization enhances the perceived quality of products and services from a customer's viewpoint, and because perceived quality is a determinant of customer satisfaction, it follows that CRM applications indirectly affect customer satisfaction. CRM applications also enable firms to provide timely, accurate processing of customer orders and requests and the ongoing management of customer accounts. For example, Piccoli and Applegate discuss how Wyndham uses IT tools to deliver a consistent service experience across its various properties to a customer. Both an improved ability to customize and a reduced variability of the consumption experience enhance perceived quality, which in turn positively affects customer satisfaction. Furthermore, CRM applications also help firms manage customer relationships more effectively across the stages of relationship initiation, maintenance, and termination.
With CRM systems customers are served better on day to day process and with more reliable information their demand of self service from companies will decrease. If there is less need to interact with the company for different problems, customer satisfaction level increases. These central benefits of CRM will be connected hypothetically to the three kinds of equity that are relationship, value and brand, and in the end to customer equity. Seven benefits were recognized to provide value drivers.
In 2012, after reviewing the previous studies, someone selected some of those benefits which are more significant in customer's satisfaction and summarized them into the following cases:
Research has found a 5% increase in customer retention boosts lifetime customer profits by 50% on average across multiple industries, as well as a boost of up to 90% within specific industries such as insurance. Companies that have mastered customer relationship strategies have the most successful CRM programs. For example, MBNA Europe has had a 75% annual profit growth since 1995. The firm heavily invests in screening potential cardholders. Once proper clients are identified, the firm retains 97% of its profitable customers. They implement CRM by marketing the right products to the right customers. The firm's customers' card usage is 52% above industry norm, and the average expenditure is 30% more per transaction. Also 10% of their account holders ask for more information on cross-sale products.
Amazon has also seen great success through its customer proposition. The firm implemented personal greetings, collaborative filtering, and more for the customer. They also used CRM training for the employees to see up to 80% of customers repeat.
Consultants, such as Bain & Company, argue that it is important for companies establishing strong CRM systems to improve their relational intelligence. According to this argument, a company must recognize that people have many different types of relationships with different brands. One research study analyzed relationships between consumers in China, Germany, Spain, and the United States, with over 200 brands in 11 industries including airlines, cars and media. This information is valuable as it provides demographic, behavioral, and value-based customer segmentation. These types of relationships can be both positive and negative. Some customers view themselves as friends of the brands, while others as enemies, and some are mixed with a love-hate relationship with the brand. Some relationships are distant, intimate or anything in between.
Managers must understand the different reasons for the types of relationships, and provide the customer with what they are looking for. Companies can collect this information by using surveys, interviews, and more, with current customers. For example, Frito-Lay conducted many ethnographic interviews with customers to try and understand the relationships they wanted with the companies and the brands. They found that most customers were adults who used the product to feel more playful. They may have enjoyed the company's bright orange color, messiness and shape.
Companies must also improve their relational intelligence of their CRM systems. These days, companies store and receive huge amounts of data through emails, online chat sessions, phone calls, and more. Many companies do not properly make use of this great amount of data, however. All of these are signs of what types of relationships the customer wants with the firm, and therefore companies may consider investing more time and effort in building out their relational intelligence. Companies can use data mining technologies and web searches to understand relational signals. Social media such as Facebook, Twitter, blogs, etc. is also a very important factor in picking up and analyzing information. Understanding the customer and capturing this data allows companies to convert customer's signals into information and knowledge that the firm can use to understand a potential customer's desired relations with a brand.
It is also very important to analyze all of this information to determine which relationships prove the most valuable. This helps convert data into profits for the firm. Stronger bonds contribute to building market share. By managing different portfolios for different segments of the customer base, the firm can achieve strategic goals.
Many firms have also implemented training programs to teach employees how to recognize and effectively create strong customer-brand relationships. For example, Harley Davidson sent its employees on the road with customers, who were motorcycle enthusiasts, to help solidify relationships. Other employees have also been trained in social psychology and the social sciences to help bolster strong customer relationships. Customer service representatives must be educated to value customer relationships, and trained to understand existing customer profiles. Even the finance and legal departments should understand how to manage and build relationships with customers.
Applying new technologies while using CRM systems requires changes in infrastructure of the organization as well as deployment of new technologies such as business rules, databases and information technology.
Contact center CRM providers are popular for small and mid-market businesses. These systems codify the interactions between company and customers by using analytics and key performance indicators to give the users information on where to focus their marketing and customer service. This allows agents to have access to a caller's history to provide personalized customer communication. The intention is to maximize average revenue per user, decrease churn rate and decrease idle and unproductive contact with the customers.
Growing in popularity is the idea of gamifying, or using game design elements and game principles in a non-game environment such as customer service environments. The gamification of customer service environments includes providing elements found in games like rewards and bonus points to customer service representatives as a method of feedback for a job well done.Gamification tools can motivate agents by tapping into their desire for rewards, recognition, achievements, and competition.
Contact center automation, the practice of having an integrated system that coordinates contacts between an organization and the public, is designed to reduce the repetitive and tedious parts of a contact center agent's job. Automation prevents this by having pre-recorded audio messages that help customers solve their problems. For example, an automated contact center may be able to re-route a customer through a series of commands asking him or her to select a certain number in order to speak with a particular contact center agent who specializes in the field in which the customer has a question. Software tools can also integrate with the agent's desktop tools to handle customer questions and requests. This also saves time on behalf of the employees.
Social CRM involves the use of social media and technology to engage and learn from consumers. Because the public, especially among young people, has increasingly using social networking sites, companies use these sites to draw attention to their products, services and brands, with the aim of building up customer relationships to increase demand.
Some CRM systems integrate social media sites like Twitter, LinkedIn and Facebook to track and communicate with customers. These customers also share their own opinions and experiences with a company's products and services, giving these firms more insight. Therefore, these firms can both share their own opinions and also track the opinions of their customers.
Enterprise feedback management software platforms, such as Confirmit, Medallia, and Satmetrix, combine internal survey data with trends identified through social media to allow businesses to make more accurate decisions on which products to supply.
CRM systems can also include technologies that create geographic marketing campaigns. The systems take in information based on a customer's physical location and sometimes integrates it with popular location-based GPS applications. It can be used for networking or contact management as well to help increase sales based on location.
Despite the general notion that CRM systems were created for the customer-centric businesses, they can also be applied to B2B environments to streamline and improve customer management conditions. For the best level of CRM operation in a B2B environment, the software must be personalized and delivered at individual levels.
The main differences between business-to-consumer (B2C) and business-to-business CRM systems concern aspects like sizing of contact databases and length of relationships. Business-to-business companies tend to have smaller contact databases than business-to-consumer, the volume of sales in business-to-business is relatively small. There are fewer figure propositions in business-to-business, but in some cases, they cost a lot more than business-to-consumer items and relationships in business-to-business environment are built over a longer period of time. Furthermore, business-to-business CRM must be easily integrated with products from other companies. Such integration enables the creation of forecasts about customer behavior based on their buying history, bills, business success, etc. An application for a business-to-business company must have a function to connect all the contacts, processes and deals among the customers segment and then prepare a paper. Automation of sales process is an important requirement for business-to-business products. It should effectively manage the deal and progress it through all the phases towards signing. Finally, a crucial point is personalization. It helps the business-to-business company to create and maintain strong and long-lasting relationship with the customer.
The overall CRM market grew by 12.3 percent in 2015. The following table lists the top vendors in 2006-2008 and 2012-2014 (figures in millions of US dollars) published in Gartner studies.
|Vendor||2015 Revenue ($M)||2015 Share(%)||2014 Revenue ($M)||2014 Share(%)||2013 Revenue ($M)||2013 Share (%)||2012 Revenue ($M)||2012 Share (%)|
|Microsoft Dynamics CRM||1,142||4.3||1,432||6.2||1,392||6.8||1,135||6.3|
The four largest vendors with CRM system offerings are Salesforce, SAP, Oracle, and Microsoft, which represented 42 percent of the market in 2015. Other providers also are popular for small and mid market businesses. Splitting CRM providers into nine different categories (Enterprise CRM Suite, Midmarket CRM Suite, Small-Business CRM Suite, sales force automation, incentive management, marketing solutions, business intelligence, data quality, consultancies), each category has a different market leader. Additionally, applications often focus on professional fields such as healthcare, manufacturing, and other areas with branche-specific requirements.
In the Gartner CRM Summit 2010 challenges like "system tries to capture data from social networking traffic like Twitter, handles Facebook page addresses or other online social networking sites" were discussed and solutions were provided that would help in bringing more clientele. Many CRM vendors offer subscription-based web tools (cloud computing) and SaaS. Some CRM systems are equipped with mobile capabilities, making information accessible to remote sales staff.Salesforce.com was the first company to provide enterprise applications through a web browser, and has maintained its leadership position.
Traditional providers have recently moved into the cloud-based market via acquisitions of smaller providers: Oracle purchased RightNow in October 2011 and SAP acquired SuccessFactors in December 2011.
The era of the "social customer" refers to the use of social media (Twitter, Facebook, LinkedIn, Google Plus, Pinterest, Instagram, Yelp, customer reviews in Amazon, etc.) by customers. CRM philosophy and strategy has shifted to encompass social networks and user communities.
Sales forces also play an important role in CRM, as maximizing sales effectiveness and increasing sales productivity is a driving force behind the adoption of CRM. Empowering sales managers was listed as one of the top 5 CRM trends in 2013.
Another related development is vendor relationship management (VRM), which provide tools and services that allow customers to manage their individual relationship with vendors. 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 CRM Magazine.
Pharmaceutical companies were some of the first investors in sales force automation (SFA) and some are on their third- or fourth-generation implementations. However, until recently, the deployments did not extend beyond SFA--limiting their scope and interest to Gartner analysts.
Another trend worth noting is the rise of Customer Success as a discipline within companies. More and more companies establish Customer Success teams as separate from the traditional Sales team and task them with managing existing customer relations. This trend fuels demand for additional capabilities for more holistic understanding of the customer health, which is a limitation for many existing vendors in the space. As a result, a growing number of new entrants enter the market, while existing vendors add capabilities in this area to their suites. In 2017, artificial intelligence and predictive analytics were identified as the newest trends in CRM.
Companies face large challenges when trying to implement CRM systems. Consumer companies frequently manage their customer relationships haphazardly and unprofitably. They may not effectively or adequately use their connections with their customers, due to misunderstandings or misinterpretations of a CRM system's analysis. Clients who want to be treated more like a friend may be treated like just a party for exchange, rather than a unique individual, due to, occasionally, a lack of a bridge between the CRM data and the CRM analysis output. Many studies show that customers are frequently frustrated by a company's inability to meet their relationship expectations, and on the other side, companies do not always know how to translate the data they have gained from CRM software into a feasible action plan. In 2003, a Gartner report estimated that more than $2 billion had been spent on software that was not being used. According to CSO Insights, less than 40 percent of 1,275 participating companies had end-user adoption rates above 90 percent. Many corporations only use CRM systems on a partial or fragmented basis. In a 2007 survey from the UK, four-fifths of senior executives reported that their biggest challenge is getting their staff to use the systems they had installed. 43 percent of respondents said they use less than half the functionality of their existing systems. However, market research regarding consumers' preferences may increase the adoption of CRM among the developing countries' consumers.
Part of the paradox with CRM stems from the challenge of determining exactly what CRM is and what it can do for a company. The CRM paradox, also referred to as the "Dark side of CRM", may entail favoritism and differential treatment of some customers. This may cause perceptions of unfairness among other customers' buyers. They may opt out of relationships, spread negative information, or engage in misbehavior that may damage the firm and its reputation. Such perceived inequality may cause dissatisfaction, mistrust and result in unfair practices. A customer shows trust when he or she engages in a relationship with a firm under the idea that the firm is acting fairly and adding value to his or her life somehow. However, customers may not trust that firms will be fair in splitting the value of their products or services. For example, Amazon's test use of dynamic pricing (different prices for different customers) ended with very poor public relations for the company. As seen in the Amazon example, although firms use both human and technological factors to assess a proper CRM process, experts suggest that focusing on the human factors, like management, increases the potential of successful CRM, since managers can make a coordinated effort on organizational changes within a company, which often affects customer satisfaction.
CRM technologies can easily become ineffective if there is no proper management, and they are not implemented correctly. The data sets must also be connected, distributed, and organized properly, so that the users can access the information that they need quickly and easily. Research studies also show that customers are increasingly becoming dissatisfied with contact center experiences due to lags and wait times. They also request and demand multiple channels of communications with a company, and these channels must transfer information seamlessly. Therefore, it is increasingly important for companies to deliver a cross-channel customer experience that can be both consistent as well as reliable.