The Importance of Customer Relationship Management (CRM)
Customer relationship management (CRM) is a hot topic among businesses, so much so that the software used to manage customer relationships has become synonymous with the CRM initialism.
Its popularity is underscored by the fact that CRM software is the largest and fastest growing software category among businesses, according to a report by Gartner.
This makes sense. In today’s competitive environment, outstanding customer experience can differentiate competitors.
But what does customer relationship management mean exactly? Let’s dissect this key concept.
Overview: What is relationship management?
Customer relationship management, also known as client relationship management, is the set of principles and practices used by a business to strengthen an organization’s relationship with its customers.
The goal is to create positive experiences for customers so they keep returning.
The customer relationship life cycle typically begins with marketing since they get the word out about a company’s goods and services. From there, a sales team closes the sale, then hands off to an operations team to manage the relationship.
Given the many touchpoints a customer can have with an organization, it’s necessary that all employees possess relationship management skills.
CRM can manifest in many ways. Take IKEA, for example. It offers low-cost furniture that requires the customer to assemble the piece. On the surface, this appears to be a CRM detractor, but IKEA makes the assembly simple, and it brings a sense of accomplishment to the customer when they’ve built the furniture.
This experience and the low price relative to competitors allows IKEA to deliver an experience based around a superior value proposition.
Why is customer relationship management important?
Naturally, a business should maintain good relationships with customers. But there are additional implications that make CRM so central to business health.
It costs less to retain a customer than to obtain a new one
Managing relationships is important because it’s far less expensive to retain an existing customer than to attract a new one. In fact, it’s five times more costly to acquire new customers, according to the Harvard Business Review.
That’s true because a business has to convince potential customers to give it a try. Educating potential customers on the value of a company’s offerings means spending more on marketing and sales efforts.
In contrast, existing customers are already familiar with the offerings, so nurturing that relationship costs less, and they have a higher likelihood to make a purchase, increasing the profitability of each sale.
Customer expectations are higher
In today’s technology-driven world, companies are able to provide a more tailored experience to customers than ever before thanks to CRM software. As a result, customers are expecting more.
For example, Westin Hotels uses CRM software to track if a guest previously stayed at one of its lodgings.
The last time I checked into a Westin, I was greeted with a "thank you for coming again" acknowledgment that made me feel like Westin cared about me. If other hotels fail to do this, I feel like the business doesn’t value my patronage as much as Westin because Westin has raised my expectations.
As more companies continue to raise the bar for customer experiences, it means a business must bring its CRM capabilities up to par with market expectations or risk losing customers.
Most businesses compete on customer experience
According to another Gartner study, more than two-thirds of companies are competing mostly on the basis of customer experience.
It’s become such a competitive advantage that some firms have hired a chief customer officer to oversee CRM. To stay competitive, a business must implement and grow relationship management strategies in its organization.
CRM impacts customer loyalty
Implementing a CRM strategy is just the start. Continuous improvement is also necessary. That’s because half of all clientele leave after a bad customer experience, according to Fundera.
Since a business has little margin for error, continually improving CRM is key to minimizing customer loss.
CRM is particularly important in B2B settings
For companies with business-to-business (B2B) offerings, the CRM concept, referred to as business relationship management in the B2B context, is even more essential.
The limited pool of B2B clients means competition is fierce and the loss of one client can hurt revenue substantially. Many companies practice CRM as part of its B2B sales, such as taking clients out for a meal.
Even when developing marketing strategies to attract clients, it’s necessary to think through how to deliver a positive customer experience.
How to develop your customer relationship management skills
Given how much CRM can affect a business, it makes sense to incorporate it as part of a company’s business development plan.
What does it take for a business to grow its CRM acumen? Here are some tips that can help.
Step 1: Adopt a CRM mindset
To achieve success, an organization must adopt a CRM philosophy and commit to a customer-centric business model. This means setting measurable goals, such as increasing customer retention by 5%, which, according to Bain & Company research, can translate into a 25% to 95% increase in profits.
It also involves revising work procedures, reviewing the customer life cycle for opportunities to increase the quality of the customer experience, collecting client feedback, and overcoming resistance to change within the organization.
Step 2: Create a CRM strategy
As part of IKEA's CRM strategy, it includes babysitting services and a restaurant in its stores. This allows for frustration-free shopping and reduces the likelihood that customers would need to leave the store.
Determine what kinds of customer experience you want to deliver and how it fits into your business model. This could be incentives to your most important clients or emailing offers based on what appeals to various segments of your customer base.
For example, Las Vegas casinos know which customers will come for a free buffet and which require a free room to draw them in.
Also, incorporate different ways of proactively capturing customer feedback and sentiment about the company.
This can be done through mechanisms like surveys, use of a Net Promoter Score (a measure of customer loyalty towards a brand or a company’s offerings), and hosting customer roundtables to hear directly from clients.
Step 3: Train the team
Because adopting a CRM culture means changing work processes, employees need to be trained on new procedures.
Some staff will be skeptical of the changes, believing CRM is merely a sales tool. Therefore, the training should address how this transformation benefits all areas of the company.
Step 4: Use a CRM software
There’s a reason why CRM and CRM software are synonymous.
As companies battle to deliver the best customer experience, it’s become necessary to collect troves of data on every customer. Managing that much data requires the help of CRM software.
Implementation of CRM software should be part of every company’s CRM strategy, because the software delivers a number of advantages, which include:
- A central view of the customer: CRM software houses all information about a customer. This includes purchase history, all contact with the business, and level of engagement to various marketing tactics like direct marketing. This centralized source allows employees to interact with customers knowing the full customer history so that the customer has a seamless experience when engaging with the company.
- Automation tools: CRM will automate many processes related to building customer relationships, such as sending out regular emails to clients. It also allows you to personalize those emails. So, for instance, you could automatically send a special email on the customer’s birthday. This kind of personalization deepens customer relationships, and CRM software makes it possible.
- Data insights: CRM software enables data analysis on a company’s customer base to gain helpful insights, such as which customers have not bought in a while. This allows the company to target those customers with special offers to encourage a purchase.
- Customer life cycle and segmentation: CRM software segments your customers to track them through the customer life cycle. You can monitor them from when they are first introduced to your company, to becoming a lead, closing the lead, and then deepening the relationship post-sale through email follow ups and incentives for repeat purchases.
- Measurable outcomes: Since CRM strategies require measurable goals, client management software can track the progress towards these goals to determine if your strategies are doing well or need adjustment.
A last word about customer relationship management
While it’s tempting to focus CRM strategy around your products and customers alone, remember that can manifest in many ways.
IKEA embodies different CRM approaches, from offering a good value for your money to its in-store services that have nothing to do with furniture, like its restaurants, and everything to do with creating a positive customer experience.
So don’t limit yourself when formulating your CRM strategy, and you can build a top-notch customer relationship experience that will help your business grow.
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