Stuart Lauchlan's editorial last week brought the taboo word 'depression' out into the open, with a focus on the impact on the CRM software industry. I'm going to build on that editorial but focusing instead on how you should tune your CRM programme to fit with the economic climate that we're now all facing.
The past few weeks have seen stock markets around the world fall between 17% (Dow) and 25% (FTSE 100), with further falls widely expected. This comes on top of the dot.com crash of over a year ago, and the less widely reported, but much larger (10 times larger according to this week's Economist) crash of telco stock prices. Altogether, since September 11th we've seen a decline of roughly 35% in stock market valuations around the world, with, based on historic P/Es, plenty of room for further falls. The wider share-ownership brought about by the Thatcher / Reagan revolution also means that more people are directly affected by these changes.
The key question is what impact will that decline in value have on consumer confidence and the wider economy? So far consumer confidence has held up well. Here in the UK, the decline in the value of their investments has probably been more than offset by the rapid growth in the value of their property, though property prices are also beginning to look over-inflated.
Perhaps the most likely scenario is that corporate responses to the current situation will bring about the deep recession (or depression) that we all fear. Companies are going to find it far harder to raise capital from the markets in the current environment to fund expansion plans. The whiff of recession is in the air. Companies respond to such environments by: stopping investment; cutting costs; and waiting for the upturn. Those responses are, of course, the very things that deepen and worsen the recession.
So it looks like we're going to be living in a pretty tough environment for perhaps the next couple of years, and maybe further on out than that. How can we best adjust our CRM programmes to meet that environment? What impact is the change in economic environment likely to have on that programme?
Of course, the immediate response is that we're likely to see a severe cutback on our CRM programmes. If companies are cutting investment and cutting costs, then surely our CRM programme is going to suffer. Well, of course, that's likely to be the first reaction, but I incline more to the view expressed by Pedro Souca-Otto in a comment on Stuart's editorial that a recession is a source of opportunities, and particularly in the CRM space. Let's explore that a bit further.
Starting with the downside, I think it's pretty likely that companies are going to be unwilling to make new, speculative investments in CRM technology, so we'll probably have to live with what we've got, and make that work well for the organisation. Quite frankly, for many organisations, that would be no bad thing. Huge amounts of money have been spent building data warehouses, purchasing analytical tools, and implementing customer contact systems, and not so much effort seems to have been put into making effective use of that infra-structure. Maybe now is the time for that focus.
Where are the opportunities likely to lie?
In a time of recession, it seems likely that the differences of cost between acquiring new customers, and selling more to existing customers will lead to further focus on customer retention and up-sell / cross-sell rather than new customer acquisition. This plays to CRM's strengths.
The marketing budget, always an early area of focus during recession, is likely to come under attack. However, there are real opportunities here for CRM to shift marketing spend out of high-cost, unmeasurable, 'above-the-line' advertising, into low-cost, measurable, effective direct (CRM), marketing campaigns. In most organisations that I have worked a 10% swing of budget from advertising to CRM programmes would result in a significant increase of CRM activity. Provided you have the capability to run CRM marketing campaigns and, (don't tell the campaign management software vendors) you don't have to have the most sophisticated software in the world to be able to run simple campaigns, there is a real opportunity for growth in CRM activity in this area, particularly if you use analytical tools to develop propensity and segmentation models to improve targeting and effectiveness of those campaigns.
Another big area of cost that comes under focus in recession is the cost of the sales force. Here again there are opportunities for the CRM programme to support the corporate drive for cost savings. If you have invested in call centre technology, or in a web-site that supports transactional activity, the increased focus on cost is likely to encourage a shift of sales activity away from the sales force to the call centre, and further activity out of the call centre and into the web-site. Although the dot.com boom is over, the Internet is still here, with the reduced costs of doing business compared with human-based inter-actions, provided always, of course, that your market is willing to use the internet. Again the focus will probably need to be on improving the use of existing facilities rather than new investments, but for most organisations there is plenty of room for such improvements.
Of course, this use of the Internet applies also to the service environment as well as the sales channel. If you have an existing Internet channel with transactional capabilities, then there are almost certainly real opportunities for moving simple service transactions out of the call centre and into that environment with significant cost savings.
I'd like to end with perhaps the biggest white elephant in many organisations, the data warehouse. Many large organisations have spent huge sums of money bringing together and consolidating data about customers from various operational systems. Technical difficulties of access have often meant that that resource is under-utilised. Provided you have access to tools to allow you to manipulate that data (typically an OLAP tool for undertaking trend analyses, and a statistical package for segmenting and measuring customer propensity), there are real opportunities to deliver significant value from that white elephant.
Perhaps the opportunity most frequently ignored, and yet with the most significant benefit, is the use of that resource to support strategic decision-making. I once had a big battle with a Turkish bank client on this issue. At the time, I was recommending the use of campaign management tools as the best opportunity for delivering short-term financial benefits from CRM, a position I'm still happy to recommend, but perhaps not most appropriate in Turkey without some of the infra-structure required to support such activity. The Turkish bank were firmly of the view that I had missed the opportunity to use the data to support strategic decision making affecting channel, product, and customer strategy, and I think there's a lot to be said for that view.
In the current environment, issues on how cost-cutting in channels and products will affect the corporation need support from trend analyses from the data warehouse. Closest to CRM, the deepening recession is likely to change customer behaviour, as they draw in their horns. Identifying those changes in customer trends, and responding positively to them, is likely to have significant benefits for organisations. Many organisations have the data and have the tools to undertake such activities, what they need to do is embed these activities into the operational environment.
So it looks as if we're heading for a fairly serious, and potentially long drawn-out recession. It is unlikely in such an environment that companies are going to indulge in huge spends on software products or other CRM infrastructure. However, for many CRM programmes, there is plenty to be done to use the existing CRM infrastructure to support likely corporate goals of cost-cutting and maximising the return from existing investments.
As always we'd like to hear your comments. Make them below or email me at mailto:[email protected]