InformationWeek

September 18, 2000

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CRM Under Scrutiny

Lots of companies are thinking about customer-relationship management, but progress can be very slow

By Jeff Sweat

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Eddie Bauer has taken advantage of the principles of personalization, but instead of dividing its market into thousands or millions, it's divvied customers into two groups--based on how they buy. Those are "professional shoppers," people who love fashion as personal expression, and "too-busy-to-shop people," those who want the shopping experience over as quickly as possible. The Redmond, Wash., company has experimented with pilot programs that send a different message to each group. To appeal to professional shoppers, the company used flashier photos highlighting the latest trends; it showed complete ensembles to the too-busy types. As a result of such marketing tweaks, Boyd says, sales rose about 10%. But Boyd doesn't see the value in moving beyond basic segmentation. "That first split will give us the best return, and the subsequent split will have less return," he says.

Meanwhile, the retailer is still trying to figure out how to deliver even that minimal customization to its customers on a regular basis. The Web is the obvious place to try it out, but Eddie Bauer has to come up with a system to manage its content and digital assets, then serve up information when a particular customer visits its Web site. It's using Vignette Inc.'s personalization software to do that. For print and E-mail communications, it's implementing Ceres, a retail campaign-management product recently bought by NCR Corp. that segments customer information and creates personalized marketing campaigns.

Full-blown CRM initiatives can cost millions of dollars. According to the InformationWeek Research study, 24% of companies with CRM implementations under way or planned say they'll spend between $1 million and $5 million in the next 12 months on those projects, and 13% will spend more than $5 million. Spending depends on company size: A majority of small companies will spend less than $100,000 in the next year, while 57% of midsize companies will spend between $100,000 and $1 million, and 72% of large companies will spend more than $1 million.

"CRM is pretty critical for us to gain ground and customers," says Hoss Equipment's Greenstein. Because the company sells expensive, long-lasting equipment, it can't hope for much repeat business and constantly has to search for new customers. Its CRM software will most likely take the form of sales-force automation tools. Hoss Equipment uses Microsoft's Outlook contact manager to help its small sales force manage leads, tying that into a central customer database. Outlook is limited as a CRM tool because it stores only contact information, so the company is looking at small sales-force automation packages from vendors such as FrontRange Solutions Corp. If those don't work, it will build its own. Regardless of the route it takes, Hoss has budgeted about $50,000 for the project.

The reasons for implementing CRM are similar to those for other application initiatives--greater efficiency and improved productivity. But there are more important forces driving CRM deployments. Most active CRM respondents emphasize a desire to grow closer to customers. In all, 93% of those say their companies need to increase customer loyalty or satisfaction to justify their investment in CRM, 89% say they need to show increased revenue, and 81% say they're required to get larger orders and repeat orders from existing customers.

Retaining existing customers and getting more revenue from them is a high priority because for most businesses, customer retention is much less expensive, and easier, than finding new customers. "We're locked into a fairly small market. We don't feel we can compete on price alone," says Kansas Farm Bureau's Young. "As insurance products become more like commodities, we have to differentiate ourselves on service." For Young and his company, the answer lies in CRM, which he describes as the glue that binds all of a customer's activities.

Like most insurance companies, Kansas Farm Bureau collects customer information--but it's primarily claims and underwriting information, not data about customer problems or the company's responses to them. The insurer's customer-management technology is limited; it has only a small call center and no sales tools for its sales force of independent agents. So Kansas Farm Bureau is pursuing a companywide CRM strategy as quickly as possible. Although Young says Kansas Farm Bureau is still formulating what it needs, he's sure the system will include a global customer data repository, as well as sales and marketing tools that can help the company cross-sell products, such as additional insurance policies, to its existing customers.

The tendency of companies to approach CRM in bits and pieces affects the kind of technology they put in place to handle the various processes. Although vendors tout the value of getting CRM applications from a single source, few companies have gone down that path. Forty-six percent of companies implementing CRM are using custom-developed programs, and 45% use tools from multiple vendors. Just 38% say their needs are met by a single vendor.

CRM suites meet general needs such as customer-interaction tracking, but they don't deal with more complex customer-management issues such as heavy analysis, according to some IT managers experienced in CRM. It's these businesses that are looking at cobbling together multiple packages. Although Kansas Farm Bureau is in the early stages of its CRM selection, Young says the company will most likely buy a few packages rather than just one. "Different vendors are good at different things," he says. One complication to that approach: Two packages may cost more than one--a consideration the company is taking into account.

Others feel that a CRM application won't meet their needs as well as a custom-built application. OpenText Corp., a text search-and-retrieval software company in Waterloo, Ontario, recently implemented Epicor Software Corp.'s Clientele customer-support tool across all its divisions. But not everyone is happy about the move. Customer-support manager Chris Clinton's division at OpenText built its customer-support tool based on its own data-searching technology and is still using the homegrown software to track service requests and come up with answers to technical-support issues. Although Clinton acknowledges the need to move to a standard application, he says Clientele is missing many of the features built into the custom system. So Clientele mainly will be used to keep track of customer interactions, not to solve technical problems. "Clientele's a good management tool, but it's not really a good technical-analysis tool," he says.