Tuesday, October 04, 2005

The Real Meaning of CRM

CRM is a great business term. Its use evokes thoughts of intricate systems that contain mountains of information about customers; information ready for anyone to use in order to sell more widgets. Three simple letters whose meaning changes greatly depending upon the speaker.

An entire software genre has been spawned around the variety of ideas about what constitutes CRM. Seems that each interpretation results in a new software product competing in an already crowded market.

To really understand CRM involves looking at each letter in the acronym and defining the word behind the letter.

The letter “C” represents Customer; the most vital of all assets a company can possess. Customers are a unique kind of asset; they have free will. The customer decides when to part with their money and to whom shall the money be given. Customers decide the worth of everything they purchase. When the value of the goods or services received are of equal or greater value than the cost, exchange happens. Lower that value and free will appears; the customer finds another source or a substitute product. Too often businesses forget that the customer always has a choice – always. Not to belabor the simple rules of business but if you want your customers to bring you more customers, always provide more value than you charge. Make sure customers are telling their friends about their “great find” not their latest “horror story”. Yes, “C” is what everyone thinks it is but how many businesses really focus attention on the true value of the Customer?

The letter “R” is the word Relationship. How many businesses really have a relationship with their customers? A relationship is stronger than a friendship. Friends send cards on birthdays and holidays. Relationships involve frequent communication. Friendships are the occasional shared meal or phone call. Relationships are built on a deep concern for the other person. Unfortunately, many businesses today operate in a strictly reactive mode. When the customer appears, the business jumps to attention and tries to build a relationship. Friendships may work that way. Relationships do not.

When relationships involve customers, the rules of relationships still apply. Communication must be bi-directional. Concern about the outcome of business transactions must be sincere. Relationships reflect the depth of knowledge each party has for the other. A strong customer relationship is reflected in the nature of the pro-active communication provided to the customers. The information delivered in known to be that which is desired. The method of delivery is that which the customer has chosen. It’s not enough to be responsive when problems arise. In a customer relationship, the responsiveness occurs before the customer is aware of the problem. That’s the sign of a true relationship.

So we have covered the Customer and the associated Relationship all businesses desire to have with their customers. All that’s left is the “M”.

Finally we get to the letter “M”. Most have heard that “M” stands for Management. Do customers want to be managed? Been in a department store lately? How enjoyable is it to have a sales clerk hovering around constantly asking if any help is needed? Repeated responses of “No thanks” does nothing to send the clerk off to help other shoppers. What that clerk was trying to do was manage the shopping experience.

Have a spouse of significant other? Do they want to have their relationship managed? Sure, a relationship is a continual work in progress affair, but who wants to feel managed in a relationship.

Clearly, when looking at customer relationships, management is not something that should be applied to the relationship.

The real meaning of “M” in CRM is the word Model. The term Model implies a logical process or design for something. A model relative to a customer relationship defines how the customer will be treated, the level of service they will receive and how the customer’s value will be acknowledged. The model outlines the steps that will be taken to build, reinforce and grow the relationship a vendor has with each and every customer.

Models are not about a specific interaction media, not about a specific customer segment nor are they about a specific geography. A true Customer Relationship Model encompasses all this and much more.

Such a model does not happen in a vacuum nor does it happen automatically. As such, every model needs to include methodologies for managing the implementation of the model. Thus it is not the relationship that is managed but the model itself that is managed. Managers charged with seeing the model implemented utilize management practices to insure that the full and complete relationship model is a reality.

As with all management efforts, measuring results is vital to understanding the progress being made towards achieving a goal. In CRM, this is also true. Through measurement, the effectiveness of management towards implementing the desired model comes about. What is measured and how it is measured is a function of the model and the management overseeing the model.

Thus the “M” is not representative of a single term but actually a series of 3 terms: Model, Management and Measure.

Relationships with customers are growing in importance as market geographies shrink, competitive differentiators disappear and distribution channels consolidate.

Software that promises to deliver CRM is mislabeled as it is part of the overall model but clearly not the model itself. CRM is much larger than any single piece of software.

The next time you hear someone talk about a “CRM Solution”, ask them to define the meaning of CRM. Their answer will highlight how much they have thought about 3 very important words: Customer, Relationship and Model.

If you would like help designing an optimal Customer Relationship Model, please call me regarding available consulting services: 602-492-1088