Customer Relationship Management A Databased Approach

V. Kumar Werner J. Reinartz Instructors Presentation Slides

Chapter Two CRM Industry Landscape

CRM

Topics Discussed
Evolution and Growth of CRM Strategic CRM vs. Functional CRM Components of the CRM Project CRM Implementation Options CRM Software and Applications Future of CRM

Evolution and Growth of CRM

1st generation >1990 2nd generation >1996 3rd generation >2002

Call Center Management Customer Service Support

Integrated customer facing Strategic CRM Front-end ( marketing, sales, service)

Sales force Automation

Campaign Management Scope: Service function Sales function Goals: Improve service operations Increase sales efficiency

ERP Integration Customer analytics Complete Web integration

Entire organization

Marketing function Service function Sales function Reduce cost of interaction Improve customer experience Increase customer retention

Cost reduction & Revenue growth Competitive Advantage

Time-line of CRM Evolution

1st Generation (functional CRM approach)

Sales force Automation (SFA)
Pre-sales functions

Customer Service and Support (CSS)

Post-sales functions Combined SFA/CSS market niche small Market for ERP growing

CRM Evolution (contd.)

2nd Generation (customer facing front-end approach)
Similar to ERP - integration of a number of independent sub-systems into one package Customer expectations exceeded realized benefits of CRM technology

3rd Generation ( Strategic CRM)

Integration of customer-facing front-end with back-end systems as well as partners and suppliers

Third Generation CRM

CRM ERP
F I N A N C E Distribution Service & Support Order Processing Sales R&D Marketing

Manufacturing

C U S T O M E R

Growth of the CRM Industry

Approximate Worldwide CRM Investments (applications, hardware, and services)

50
40.0 47.5

60% 50%

40 Spendings in $million
34.6 29.7

40%
30% 20% 10% 0%

30
23.7 20.0

25.9

20
13.5

10

0 1999 2000 2001 2002 2003 2004 2005 2006

Mean estimates as of 2002 and 2003 across various providers CRM outsourcing services not included

Spendings Year-to-Year Growth %

Sources: IDC, Aberdeen, Gartner, Forrester

Year-to-Year Growth

Late 2000s
Worldwide CRM market revenue totaled US$9.15 billion in 2008, a 12.5 per cent increase from 2007 revenue of US$8.13 billion, according to Gartner. Analysts said that market growth was driven by enterprise investments in technologies focused on customer retention, analytics and on-demand solutions. By 2013, spending on social software to support sales, marketing and customer service processes will exceed $1 billion worldwide. Gartners forecast: more than $12 billion for overall spending on CRM software in 2012, social CRM will encompass approximately 8 percent of all CRM spending in 2012, up from approximate 4 percent in 2010.

What Drives CRM Industry Forward?

Shift from transactional to relationshipbased markets

Growing proof of value in targeted customer relationships

Improved effectiveness of marketing communication tools IT vendors and associated change management consultancies Reducing costs of data storage and capture Developments in Customer Value measurement

Components of the CRM Project

Strategic component
Designed to optimize profitability and customer satisfaction
Foster behaviors and implement processes and technologies that support coordinated customer interactions throughout all customer channels

Functional component
Integrate various databases and applications that exist in the enterprise

Components of the CRM Project (contd.)

CRM should allow companies to address two key issues:

Ability to analyze and understand customer data through sophisticated but easy-to-use reporting tools Act on the knowledge obtained to customize services and products and anticipate and fulfill customer needs

Options for Implementing CRM

In-house development

Buy licensed CRM software

Outsource a managed service

In-house Development
Advantages:
Can have a tailor-made solution adapted to

companys needs and structure

Develop internal resources and skills that permit development of the system each time change is required Avoid dependence on CRM vendors or new software developments

Disadvantages:
Most expensive option-company has to maintain, operate and improve the system on its own

Difficult to attract and retain skills to solve and develop data warehousing challenges
Longer time commitment(1-2 years) comparatively

Buy Licensed CRM Software

Advantages:
Usually have proven record of success IT concept and developments implemented with help of CRM vendor, company only needs to adapt its IT structure to integrate the new solution

Disadvantages:
Expensive-initial fees and license costs, license renewal charges usually high, maintenance costs over life of software, payments for newer versions High consulting fees charged to customize solution to companys needs Integration of new software with existing applications usually tough, expensive and time consuming(1-3 years)

Outsource A Managed Service

Advantages:
Upfront costs lower- dont need to pay for software licenses

and hardware systems

Can adopt a pay-as-you-go approach, with visible results

Disadvantages:
Needs to contact outsourcing company for every new requirement and pay for developments Risk of losing CRM solution investments if the outsourcing company goes out of business

Implementing CRM: The Decision Process

Decision To Implement CRM

Purchase and install a complete CRM solution from a vendor

YES

Stage-wise implementation

Implement an enterprise-wide CRM program Entirely outsource the CRM application process

NO

Stage-wise Implementation vs. an Enterprise-wide CRM Solution

Best-of-breed approach ( Stage-wise)
CRM software is offered in different, independent modules, adapted to a specific departments needs Company buys sales automation software and

contact management module from different providers

Enterprise wide CRM solution

Composed of different modules from the same provider Implemented as a whole by connecting different modules and existing databases Individual modules usually customized according to company needs

Future of CRM
Worldwide increased spending on CRM Next generation CRM-focus on building sustainable competitive advantage that cannot be easily imitated by competitors Integration of HR function into strategic CRM efforts Creation of a single-view of customer Continuous fine-tuning and micro-segmentation of customer database Growing ability of firms to handle deep customer analytics

By 2015
In 2009, 24 percent of the CRM software market was delivered by SaaS, and this rose to more than 26 percent in 2010, up from virtually zero in 1999. By 2015, Gartner forecasts that 32 percent of the CRM software market will be delivered by SaaS.

Summary
CRM has evolved from first generation Functional CRM to Strategic CRM Transformation by integrating customer facing front-end with back-end systems and partners and suppliers Growth of CRM facilitated by growth of IT CRM solution providers are now developing specialized solutions for individual industries Increasing pressure to reduce CRM costs is leading firms to shift to new systems that can be further developed and integrated internally Short-term projects and implementing CRM in different stages provides a low-risk approach