Is customer relationship management (CRM) just hype – a passing management fad? Or is it something more significant that will impact business thinking and operations? Even more critically: is it an essential element of staying in business?
To answer it helps to understand what customer relationship management is. Very simply, CRM is about enabling an enterprise to manage its customer relationships in an organised manner. This involves providing employees with the information necessary to know their customers, understand their needs and build effective relationships between the company, its customer base, and distribution partners.
CRM usually depends on IT to support information sharing and improved processes. But it is not just about technology but about focusing on the customer in order to improve an organisation and the services it provides. CRM will only work if it fits within an overall long-term strategic business plan where there is a commitment to encouraging customer loyalty.
It is well understood in many markets that an existing, satisfied, customer is more likely to remain a loyal customer. Loyal customers are more cost-effective to care for and will tend to recommend you to other customers. Moreover, existing customers are more receptive to cross-selling and up-selling, again increasing profit and deepening the relationship.
CRM enables companies to maximise the revenue earning potential from its existing customer portfolio through careful management of the customer relationship. It offers the customer improved product availability, price and service. It also enables suppliers to tailor their offerings in order to meet specific needs through improved knowledge of individual customer preferences and careful management and integration of the delivery channels.
Yet a recent survey by CMG raised concerns over the current depth of understanding and prioritisation of customer relationship management within the insurance industry. Some 55% of respondents admitted that their CRM capabilities needed attention, but only nine per cent felt this was an urgent requirement.
Surprisingly, although many companies appear prepared for the challenges of CRM, over half of those surveyed felt that the development of multiple channels to market – a key element of CRM – still needed attention. Only one in five felt that it was an issue that they should address as a matter of urgency.
Companies also seem unprepared for even more basic elements of CRM, with only 18% claiming that the data consolidation and systems integration requirements within their claims handling departments are in hand.
Advanced customer care
Although CRM is often presented as a new concept it is essentially a logical development of customer care. Customer care programmes sought to improve the way in which an organisation interacted with the customer. However, they were often let down by existing corporate culture, organisation and supporting systems. This is also proving to be one of the greatest barriers to the adoption of CRM in the insurance industry.
Organisationally, insurance companies have tended to be structured vertically, within line of business and product stovepipes.
Within a stovepipe, there is limited wider understanding of, or concern with, the development of existing or potential customer relationships with other parts of the company. This kind of vertical disunion extends to supporting operations, systems and information and is a strong definer of the corporate culture, which results in duplication of effort and wasted opportunities.
Obtaining a coherent view of the customer is essential to CRM and to the company, both to leverage its relationship with the customer and to provide the customer with an improved, cost-efficient, service.
For example the existence of Mr J. Smith, J Smith, J A Smith and John Smith in disparate business systems may not allow the company to collate information to maximise its knowledge of the customer. Techniques such as data mining may be employed to create corporate databases holding large quantities of collated information. However, information does not equal knowledge, and less so – wisdom.
For this reason, a company must create a clear model of the information it is seeking to collect. It must understand how to use it, what the information implies, how to draw appropriate inferences from what is known and how to maintain and develop the model as further information is collected.
Doing this enables the company to develop relevant new products and target particular market segments. The need for new products and services can be identified through analysis of the customer knowledge base to detect current unfulfilled requirements.
The role of technology
So what, then, is the place of technology? Technology is not the answer to CRM, but its implications need to take an appropriate place in developing the strategy.
The potential significance for, and impact of, e-commerce on the industry is probably as profound as that of the telephone. Initially customers were restricted by physical company location. Small local companies grew. The telephone enabled widening of markets and a new doorway for customer contact.
E-commerce offers a further doorway for the customer and facilitates diversification, co-operation, integration, and globalisation. Of course, local market, culture and legislative conditions may be constraining factors – for the time being.
E-commerce and the potential provided by virtual communities is having a profound effect on even the most radical schools of management thought towards CRM. The power and sophistication of the internet allows companies to understand ever more about customers' behaviour and preferences.
Products can be brought to market almost immediately and highly cost-effectively. Information can be gathered on the individual's use of and navigation through the site, and could be used to refine the offerings made – approaching the elusive "batch of one".
Knowing the client
Knowledge of the customer's previous and next internet destinations improves the picture of the overall pattern of interest. Intellectual games can be used to encourage greater site use and tie-in applications can help persuade the customer to make frequent visits. Companies can identify customer interest groups (CIGs), for example through event sponsorship and the associated visits made to the site by devotees.
That same power enables companies to begin to take a proactive and multi-faceted approach to CRM, providing an ability to adopt socio-economic, demographic, market, product and even interest-group approaches to interaction with customers. Companies can implement this power to allow their customers to communicate with each other within the protected environment of an intranet or extranet.
The insurance industry has become increasingly commoditised and has attracted many new entrants – many of whom have come from the retail sector. Those companies benefit from a strong customer – rather than product – focus. They also benefit from strong brand identity and a service culture. The insurance sector must be able to emulate these strengths in order to compete against the new boys on the block.
Analysis of current trends in the e-commerce arena clearly demonstrates that new entrants can quickly develop the ability to hit existing companies hard across all sectors and across international boundaries.
Organisations such as Yahoo (merely an internet search engine when launched) are now offering low cost financial services products, as well as an increasing number of incentives to tie in internet surfers to become core customers of the future.
Regardless of these threats, the CMG survey shows that not one respondent felt that it is realising the full potential of using internet and intranets. And, despite widespread predictions that e-commerce will be the major commercial driver of the next decade, only a quarter of insurance companies thought e-commerce an issue that demanded urgent attention.
The figures show that the insurance sector hasn't grasped the urgency of the internet and intranets as means of communication. Without an effective CRM strategy which fully integrates e-commerce, traditional insurance companies face a reality where a combination of digital TV-based volume, and internet-based value products, are attracting customers from both extremes of the existing customer base. Once lost to one of these electronic channels, insurance companies will find it increasingly expensive and time-consuming to replace those customers.
Recognising the potential
Companies which recognise the potential of CRM in their future should not believe that the piecemeal implementation of technical solutions will deliver the gold. Instead, they need strategic vision in which they assess their approach to CRM. They must understand current strengths and weaknesses, skills and deficiencies and how to resolve them. Furthermore, they must know the products and services that they want to offer and the channels through which they will be available. The endgame must be visualised and a structured approach on reaching it developed.
CRM is not a quick win. It is a strategic approach to business. It is not a tool or technique but a mindset, focusing on how to approach the customer – and how to make them want to approach you.