Customers on Parade

CRM software may be a hot topic with vendors and consultants. But are these applications worth the expense?
Joseph RadiganAugust 24, 2001

Picture the average retailer’s customer call center. Inside the endless maze of cubicles, 300 service reps, headsets at the ready, spew out an endless stream of store locations, technical fixes, return policies, and apologies.

Look a little closer, though and you’ll see Post-It Notes and paper memos stuck with push pins into the cubicle walls — pointed reminders that the reps must retrieve data from each of the computer systems where a customer’s data is stored.

It’s the push pins that make Lawrence Byrd see red.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Byrd is the head of CRM for Avaya Inc., the software company spun off from Lucent Technologies last year. Believe it or not, Byrd’s actual job title is CRM evangelist. ”The title lets you know I’m from California,” he jokes.

But Lawrence Byrd is dead serious about the importance of sound CRM management. A big part of that management involves reigning in the chaos found at many customer call centers. ”If you get a CFO to walk into a call center, the first question they’ll ask is ‘How much is this costing us?’ ” he says. ”The next thing they’ll do is turn white and say, ‘We can’t spend this amount of money.’ ”

Ironically, bringing CRM costs under control often involves spending a fair amount of money — at least early on in the process. Indeed, many corporate managers, eager to unify their customer data systems, are now investing large sums of money on customer relationship management (CRM) systems. The push for better (read, more efficient) customer relationship management is so intense, that worldwide spending on CRM systems will likely grow $30.6 billion by 2005, according to the Scottsdale, Arizona-based market research firm Cahners In-Stat. Right now, annual corporate spending on CRM programs is about $9.4 billion.

The tens of billions of dollars that will be spent over the next few years on CRM software is intended partly to end the technology nightmare brought on by changes in computing strategy. At a single company, for example, a service rep may be forced to retrieve a customer file from an old mainframe database, another file from an AS/400 database, and yet a third record from a proprietary client/server system written a decade ago. Byrd says such scenarios are hardly unusual

Harsha Nagaraj knows all about it. Nagaraj, a systems architect for Richmond, Virginia-based AMF Bowling, says it used to take the company’s service staff a full work day to respond to one of the 6,000 U.S. bowling alleys that make up AMF’s customer base. But two years ago, AMF installed a CRM package from Applix Inc.’s. Now, Nagaraj says, it takes AMF only two hours to get back to customers.

What’s more, AMF’s sales reps now have access to the same database as the service staff. Thus, they not only know which of their accounts have called in to complain about broken equipment, they also know which ones are ripe for a sales pitch on a replacement product. ”When a sales guy walks into a customer site, now he knows what’s going on,” Nagaraj says. ”In the past he wouldn’t, and he would have to incur the wrath of the customer. These are small things, but they are a big deal with customers.”

Data, Data Everywhere

While the demand for CRM systems is soaring, suppliers of the applications are busily revamping their wares. Mostly, they’ve been adding analytical functions which allow users to study customer behavior and buying preferences.

Until the mid-1990s, operational efficiencies alone were more than enough to justify the huge investments many companies made in CRM platforms. Up to a point, they still are. But cutting operating costs can only get a company so far. Indeed, the recent boom in spending on CRM software is being driving in large part by the desire to increase sales and profits — not just reduce spending.

”Step one in CRM is getting things organized around the customer,” says Kelly Spang, a research analyst with Current Analysis, located in McLean, Virginia. ”Companies want to get something that’s usable so there’s one instance of a customer record, whether they come in via the Web, direct mail, or a store.” Step two, Spang says, is about selling to those customers. ”[Companies are saying] ‘Hey, let’s take advantage of the data we have’. Neither one is mutually exclusive. It’s just a natural evolutionary process.”

Further, CRM applications can help corporate managers gauge how successful their branding efforts have been. ”A lot of companies have spent millions of dollars on marketing campaigns in the offline world,” says Kirsten Cloninger, an industry analyst for Cahners In-Stat. Now, says Cloninger, the big users of CRM software — namely, retailers, financial services firms, and telecommunications carriers — are looking for means to determine how successful those campaigns have been. At the same time, Cloninger says many traditional retailers are cobbling together bricks-and-clicks sales strategies that marry offline and online sales, and they’re in need of analytical tools to get a grip on the marketing gimmicks that move products.

In addition, business users are turning to CRM apps to help them manage the mountains of data now residing in far-flung computer networks. ”There’s no shortage of data in these organizations,” notes Dan Lackner, vice president and general manager of marketing automation and analytics products for Siebel Systems. ”It’s coming from a variety of places: CRM applications, the sales force, and the Web.” Dealing with this colossal amount of data has led companies to purchase CRM analytics packages designed to answer to basic questions about customers’ buying habits, Lackner explains.

Vendor Bender

Of course, a CRM installation can easily run $10 million. Cloninger of Cahners In-Stat notes that a corporate end-user might pay $2 million for the software license alone — and then might have to spend three or four times that amount to hire a systems integrator to get the system working properly with its other applications.

Such a price tag goes a long way toward explaining why so many software vendors are adding new functions to their systems. Companies that shell out $10 million on a CRM deployment want the deluxe model. Cloninger points out that cleaning up customer databases — while a worthwhile goal — may not be enough for a CFO to justify an eight-figure investment in a software system. The addition of analytical tools, however, often sways prospective buyers. ”The biggest trend you’re seeing is that the operational vendors are branching out into the other realms,” says In-Stat’s Cloninger. ”The analytics guys are not looking to get into the operational side, but they are looking to leverage their partnerships.”

In June, for instance, CRM software developer Kana Communications completed its acquisition of business intelligence software publisher Broadbase Software. In March, SAS Institute, whose products include a CRM analysis system, acquired Intrinsic, a U.K.-based developer of marketing automation programs.

Some vendors are also selling CRM initiatives as ”value exchange programs.” Translation? ”If I invest in you as a customer,” explains Siebel’s Lackner, “I want to see that it’s reciprocated in your buying behavior.”

Harrah’s Entertainment Inc. is taking the value exchange approach. In the mid-1990s, the Las Vegas-based operator of 25 casinos launched its Total Rewards program. David Norton, Harrah’s vice president of loyalty marketing, can’t provide an exact figure for the system’s total cost, aside from saying Harrah’s spends several million dollars each year to operate and maintain the program. But he does estimate the CRM program generates an extra $1.60 in revenue for each $1 of investment. Says Norton: ”I’d say that within a year, it broke even.”

Norton explains that in Las Vegas, it’s common for gamblers to stay at one hotel, but hop from casino to casino on The Strip. While Harrah’s hasn’t updated its customer research to determine how much of each dollar its customers are now gambling in its casinos, he’s convinced that the advent of Total Rewards has upped the company’s take. ”What we know anecdotally is that a few years ago, we were only getting 36 cents out of our customers’ gaming dollar,” says Norton.

Crossing the Channels

The current trend toward merging business intelligence with operational systems won’t complete the CRM evolution process, however. Avaya’s Bird says the next challenge is making sure that all the different channels of customer interaction are in sync. The goal: providing a 360-degree view of the customer on one screen pop.” Customers are calling companies and saying I’m phoning you today about the e-mail I sent you yesterday regarding the Web transaction I made last week,” he explains.

Indeed, it doesn’t do much for customer loyalty when a service rep has no knowledge of either yesterday’s E-mail or last week’s Web purchase. By his lights, Bird believes ”there around 10 companies on the planet that are doing CRM right today.” That’s an awfully low percentage — particularly considering the ever-increasing number of channels customers use to contact companies. Already, there’s E-mail, the Web, voice, fax, and direct mail. Wireless devices are headed this way as well. Observes Byrd: ”If I’m traveling, I expect to push a button and talk to someone who knows exactly what I want. There’s quite an intensive level of technology that’s going to be applied to the voice user interface.”

Until companies can incorporate all these channels into one over-arching system, expect to see more push pins at corporate call centers.

4 Powerful Communication Strategies for Your Next Board Meeting