Remembering the Customer in Customer Relationship Management

Wow, how long has 'CRM' as an acronym been around for? I estimate about 20 years, but I'm not that old :-), so maybe it's longer. And yet it is still possibly one of those acronyms, perhaps along with ERP that strike the most fear into the hearts of all within shouting distance of anybody who dares to talk about it in public. It is a business acronym that has the power to raise so many (mainly unqualified) opinions about what is right and what is wrong as to almost start a war! 

Fearing a rehash of so much that has been written before, this article serves to remind me why it is the customer that is at the heart of CRM, and not technology! Besides, the conversation below fits in with many of my previous articles!

It is now widely accepted that the real purpose of business is to create and sustain mutually beneficial relationships with selected customers, even though it might have taken us 25 years to get there:

“’The purpose of business is to get and keep a customer’.

Theodore Levitt 1986

‘The purpose of business is to create and keep a customer’

Peter Drucker 1988”

One of the original big marketing ideas is that for firms to stay in existence, they should focus on fulfilling needs rather than selling products, implying a customer rather than a product focus. In creating value for the customer, value is created for the firm and it stays in existence, i.e. there is a dual creation of value!

Customers introduce significant complexity to everyday business management :-) because managing the customer life cycle is not merely a metaphor or a mathematical model, it involves human beings - sometimes groups of them organised into business entities - and that these entities exist within a multi-faceted economic context that has a significant impact on the way the customer and a business conducts its activities both today and into the future. 

As a bit of background, it is only circa 1983 that the marketing emphasis had shifted from mere exchange, to the relationship between the company and the customer. Then as we entered the 21^st century, there was an evolution from brand/product management, to customer portfolio management. This is the space we find ourselves in today.

By introducing the customer into the discussion, it becomes increasingly relevant to begin talking about Customer Relationship Management (CRM) because of its habit of appearing out of nowhere when anyone begins to talk about increasing customer equity. However, with possibly hundreds of definitions of CRM out there, we could be in danger of introducing significant ambiguity into our own communication with staff, suppliers and colleagues if we’re not careful with our definition. Indeed, how many scuffles have I not seen start when CRM as a topic dares to raise its head in a business meeting!

Before seeking a definition, perhaps we should consider what the basic philosophy of CRM actually is. Well, in essence, the CRM philosophy concerns building long term relationships with customers, with the organisation preferring to build relationships with high Customer Lifetime Value customers, although I have yet to see this in put into proper practice in the many top tier banks around the world that I have visited!

Given that there is no agreed definition for CRM, it is perhaps useful to create an understanding of what CRM is. Until 2001, little effort seems to have been made towards a generally accepted definition of CRM. 

Since then, research has suggested that the core idea behind CRM is company profitability, i.e. income minus cost. Alternatively, from the customer’s perspective, research suggests that the main idea behind CRM is also profitability, where the difference between the two perspectives is based on differences in the drivers of profitability. Indeed, from the company’s point of view, the drivers are components such as cross-sell, up-sell, retention and acquisition, while from the customer’s point of view, the drivers are components such as utility and service!  However, the company's view of CRM may not align with the customer's view of CRM, introducing significant tension between the two groups, and perhaps even customer attrition and reputational damage, be aware!

Some researchers have proposed that the cost and income interpretation will help lead to generally accepted definition of CRM. Note that except for the discount factor, this definition format is elegantly aligned with the definition  of Customer Lifetime Value as outlined in a previous blog article. In fact, many now view CRM as the process of increasing Customer Lifetime Value, with an essential part of this process being the application of decision analytics to understand and predict customer behaviour. Extending the view, some have described the aim of CRM as aiming to increase the profitability of the entire customer portfolio.

Arbitrarily choosing a definition for CRM based on opinion, either in a business context or casual conversation is not always wise for the reason already raised. Indeed, choosing any definition would be a challenge, but we need a definition to act as a reference point for the theory. At the risk of introducing distortion, it makes sense to select a definition befitting a marketing context, as it ultimately concerns customers. 

I therefore suggest that CRM is simply a strategy for optimising Customer Lifetime Value (e.g. Todman 2001:8, Furness 2001:293, Jarrar & Neely 2002:282, Levey 2002:56, Panda 2003:57 and Jackson 2005:76). A complementary description offered for CRM by Bechwati and Eshghi (2005:89) is that Customer Lifetime Value is the engine for CRM. This is because Customer Lifetime Value determines the type and degree of relationship the business should establish with its customers, playing a key role in marketing mix and resource allocation issues (ibid. 2005:89). Javalgi et al (2006:16) also speak of CRM as enhancing “customer lifetime profitability”, but add a context of service satisfaction, service loyalty and customer retention to the mix.

Ultimately, CRM must be viewed as a strategy due to its human, technological and process implications, and thus by implication, CRM design must be integral to the overall strategic planning of the entire organisation in order to ensure proper and strategically aligned execution.

Finally, a technology-free definition somehow acknowledges that CRM has become more about computers, software and processes than it did about business and profitability. Some have even suggested that one of the reasons for the unsatisfactory outcome of so many CRM initiatives occurs when CRM is viewed as a technology. Not wanting to discount technology's role in CRM, some have suggested a middle ground, that CRM is a strategic concept which incorporates strategic outcomes such as customer satisfaction, loyalty, customer retention and profitability while relying on technology to harness market-relevant data and to guide decision-making. Fair enough.

In conclusion, in a manner not foreign to a few of my previous articles, I have yet another idea for an article: To design an efficient customer management strategy, it’s essential to understand the customer life cycle, much of which was alluded to in my article on customer lifetime value. Having a knowledge of the customer lifecycle is the most powerful marketing tool you can have, and is an essential element to exploring the concept of marketing efficiency.