Customer Relationship Management (CRM) gained recognition in the mid-1990s, primarily driven by its perception as information technology (IT). However, not enough attention has been given to the fundamental drivers of CRM success: strategy, metrics and its organization.

Successful CRM is about competing in the relationship dimension- not as an alternative to having a competitive product or reasonable price- but as a differentiator. CRM can succeed by being SMART: defined a customer-centric Strategy, use appropriate Metrics; ensurining the organization is Aligned with the objectives of the company itself; Redesign work process as needed; and use appropriate Technology tools as enablers.

At a conference in London in May 2004, business strategy guru Michael Porter delivered a simple but a powerful message. Effective business strategy means being distinctive. How? Business strategy experts say that you can differentiate based on:

1. The core product service offering

2. The price or total cost of ownership; or

3. The total relationship and customer experience.

Staying ahead of competition solely through product leadership is becoming more and more difficult. In an interview with Fast Company, Porter stated, “It’s arrogant for a company to believe it can deliver the same sort of product that its rivals do and actually do better for very long. That’s especially true today, when the flow of information and capital is incredibly fast”.

CRM is a business strategy to acquire, grow and retain profitability customer relationship, with the goal of creating a sustainable competitive advantage. Product/price – based differentiation is waning because of four broad trends: maturing markets, global trade, effective manufacturing and the internet.

Now CRM is emerging as a critical strategy simply because relationships are coming to the forefront of the competitive battleground. CRM should mean creating mutual wins for customers and all the company stakeholders, including employees and business partners.

Frederick Reichheld, author of This Loyalty Effect and Loyalty Rules, found that loyalty leaders grow, on an average, more than twice as fast as the industry average across a wide variety of industries. And they do it more cost- effectively. The reason for this so-called “loyalty effect” is that loyal customers tends to spend more, cost less to serve and refer others. The net result is that loyalty leaders are head and shoulders above their competitors in growth and profitability. Leading examples according to Reichheld range from Harley Davidson to Enterprise Rent-A- Car.

The key question is: How does a company create loyalty relationship? Reichheld and other loyalty experts have studied this issue for years and concluded that loyalty attitude and behavior are driven by the customer’s perception of value, which is an amalgamation of what the customers receives; how it’s sold, delivered and supported; and how much it costs- the price or total cost of ownership. Experts in customer psychology say that customers’ emotional sates influence about 50 percent of the value them percent of the value they perceive.

Loyalty guru Reichheld had found one simple metric to be highly related to growth in most industries: the willingness of a customer to recommend the company (supplier or brand) to a friend or colleague. Using a 0 to 10 scale, a ‘net promoter’ score is calculated by taking the percentage of customer giving the company a score of 9 or 10 (promoters) and subtracting the percentage giving the company a score of 6 or below (detractors).

THE CUSTOMER VIEW OF VALUE

To be successful with CRM, a company must start by understanding and listen to their customers. In most cases the customers do not complain they just abandon the brand, the product, the supplier or the company itself. When a customer is dissatisfied the on an average he tells around 8-10 people about his bad experience thereby effecting the profits of the company. In this situation the customer stops giving any further business to the company and in-turn diverts to the competitor. On the other hand if a customer feels that he is listened to, the same customer might not only go for repurchases but even provide 3-5 referrals to the company. Then there is the third type of customers the ones who are delighted these are ones who helps the company to grow. These are the customers who provides the company with around 17-20 referrals over their lifetime.