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The world is turning: What is the future for CRM globally?

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27th Nov 2008
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As the world economy goes south, will good customer relationship management prevail? And will it prove to be the asset that we have come to believe it is? Or will companies abandon the principles of customer relationship management and go back to the old ways they know best? MyCustomer.com asks experts worldwide for their view.

By Jennifer Kirkby, consulting editor

As the world economy swings into a downturn, will good customer relationship management (we will call it CRM but mean the strategy not just technology) prove to be the asset we have always believed it to be? Or will companies abandon the principal and return to the 'old ways' they know best in the scramble to keep heads above water?

The quick answer is that across the globe customer relationships are the axis on which 2009 ‘battle plans’ will spin. A view backed by an Economist Intelligence Unit survey of 300 executives worldwide. This emphasised their belief that customers' impact on growth will double over the next five years. However, our world is unlikely to emerge from recession the same as it went in. The nature of CRM will have mutated, and the tectonic plates of competitive advantage will have pushed further towards Asia and away from Europe.

The prime strategy for 2009 will be the quest to find customer segments with immediate potential, and engage them with ‘new and improved’ value propositions (see Seducing your ideal customers). Current customers will be priority, but fluctuating export markets will kick off a worldwide hunt for new opportunity.

Costs, as usual, will be pared back, but it will be on 'extras' and unproductive activity (e.g. avoidable contact) - rather than the ‘slash and burn’ of previous recessions. Fewer product twiddles and more 'good value' basics (products, services and experiences) will align price with consumer spending. Opinion is that Europe stands in the greatest danger of 'unfocussed' price reductions, oweing to a heavier regulation and compliance burden.

To support this strategy, three key activities stand out in plans:

  • Customer portfolio (value) segmentation on which to base actions. Organisations want a deeper understanding of changing customer requirements - both in the recession and longer term. They are also beginning to realise the influence of ‘tribes’ on value (see Bridging the trust gap)and so social marketing, cocreation, semiotics, and generational research are all coming to the fore.
  • The building of a ‘corporate brain’ to gather information, turn it into updated knowledge using analytics, and distil insight via creative thinking. Allan Engelhardt, solutions director at the PCA Group, points out that: “The economic climate has fundamentally changed so you can no longer use historic data to predict churn”.
  • Innovation; from customer solutions (not just service), to business models. A market in chaos is ideal hunting ground for 'real insight'; so leading organizations are gearing up their ideas pipelines, improving innovation processes and measuring inputs eg R&D spend to sales ratios, rather than just outputs eg new product sales.
“Even in the current economic turmoil, innovation remains a high strategic priority for most companies, and many see it as a strong contributor to growth. But it has dropped slightly in priority from this time last year.”

McKinsey Quarterly survey on innovation, October 2008

Technology will be deployed carefully, with more required of the current CRM infrastructure and a cut back in capital spend. But, there will be investment in software that supports propositions and innovation - mobile, analytics, decision support, Web 2.0, enterprise 2.0 and new architecture. That investment is likely to be stronger in Asia and North America than Europe (see New technologies every marketing manager should know about).

Employee skills and organisation will also be in the limelight. Job losses may well be on the cards, but customer and strategic skills are at a premium especially in Asia and Australia, and there is likely to be a brain drain from Europe. Better customer experiences and greater staff productivity will undoubtedly be demanded. However, leading organisations understand the corporate and personal stresses staff are under, and plan to support these goals by experimenting with:

  • Self-organised groups.
  • ‘Customer engagement’ teams who take new ideas from innovation to results.
  • Allocating ‘thinking time’ to make ‘action time’ smarter (see Forget leaders, we need inspiration).

The mutation of CRM

The 2009 strategy for customer relationships will see the nature of CRM mutate from ‘what customers give us’ to ‘what we give customers; and get back’. The idea of providing value for money to customer 'tribes' is quite distinct from the previous notion of CRM as cross-selling and retention for shareholder profits.

“2009 is a big year for CRM and a big deal. Transformational might actually be more than a political term.”

Paul Greenberg

Customers well understand their 'premium' status, and those who give their time and money to companies will want more back to solve personal requirements. Companies who helpfully seek to alleviate the emotional and practical issues of recession will build trust. If companies continue to take the profit from customer knowledge, customers will just opt out of relationships.

Reciprocity for mutual benefit – not only between company and customer, but between customer and customer - is a fundamental part of this new thinking. Here, North America, with its strategic use of social software and experiential marketing, definitely leads the way.

Organisations that see themselves as ‘service platforms’ and build facilitative skills will have retuned to the right wave length. Which is why there is a growing emphasis on new business models utilising both technology and partnerships. Stephanie Seakins, principal consultant at OgilvyOne Hong Kong stresses that Asian companies "are now prepared to consider new thinking in order to recover lost reliability and credibility."

Other signs of the CRM mutation are a change from 'customer management' to the more cocreative 'customer engagement', and the popularity of sales through service - where service is an entree, rather than an afterthought, that leads to the provision of a personalised solution (see Sales through service: The start of social business). If you don’t listen more carefully to your customers your competitors and other consumers will.

According to Paul Greenberg, US author of CRM at the Speed of Light, CRM in 2009 is about understanding, involving and benefiting customers, and I would agree that that is a good summing up – as long as profitability is also added on the end. The secret of corporate sustainability is the constant balancing of benefit between company and customer.

Lessons from past recessions

The efficacy of the CRM strategic approach is borne out by research from McKinsey on the last major recession in 2000/01. It looked at the differences between Fortune 500 companies who tumbled out of the top quartile of their sectors during the downturn, and companies who came from behind, leaving the recession in the leading group. What they found was that the winners:

“Successful companies proactively managed their customer and product portfolios before the recession; preparing for the next recession.”

Richard Dobbs, McKinsey & company

    1. Focused operating costs on areas with the highest returns – for example they spent more on marketing communication to key customers, whereas the poorer performing companies cut both R&D and advertising. When times are bad keeping in touch become more vital.

    2. Had kept their pre-recession debt to equity ratio low, and so had more money during the recession to buy skills and opportunity through mergers and acquisitions – thus achieving competitive inorganic growth.

    3. Based their strategies on value based product innovation to key segments rather than price discounting.

Stakeholders feature more strongly in this recession

Of course, this recession will not be the same as the last; markets have changed in some quite fundamental ways. Stakeholders have a bigger role and consumer distrust of companies is greater. Future Foundation’s nvision research says that at the start of 2008, 44% of UK consumers thought that companies treated them unfairly, compared to 26% in 2000.

Corporate social responsibility and the role of capitalism in society are now hotly debated - business has a social role. In CSR each global area has different causes for concern and these will alter. US and European experts think that the ‘pressure’ of climate change will lessen in the recession (despite the EU), whilst the quest for alternative energy sources will intensify. Asia, on the other hand, is seeing climate change and pollution moving up its agenda.

This all indicates that brand and reputation will be crucial to the winners and losers. It is highly likely that citizen brands, e.g. Patagonia,strong, fearless, brands who show they genuinely have the values of chosen segments at heart, will emerge onto the sunny uplands of business once the gloom of recession receeds.

“Companies need to be really thoughtful about focusing on the right investors. It’s not helpful to put out a bunch of metrics to placate investors focused on the short-term.”

Christopher Lafond, CFO Gartner

Then, or course, there are the shareholders. Will they run to the companies who promise short-term returns through aggressive cost cutting and sales drives, or will they too see the benefits of building up customer assets; particularly the large pension fund investors? Engelhardt suggests that shareholders in telecommunication companies, for example, will have to get used to flexibility as mobile contracts are reduced from 18/24 months to 12 months and pre-paid. “This” he says “is really going to hurt the share prices of any subscription based company unless the analysts wake up.”

The dangers of a focus on current customers

If companies hunker down and just prioritise their best customers, they may be tempted to turn away from 'the market’. The danger in practices such as customer analytics and co-creating are that they can be too inward looking. Competitor intelligence and market positioning can get sidelined, when in fact recession makes them more crucial than ever. So organizations must ensure that they:-

  • Measure innovation capabilities against peers.
  • Monitor brand positioning and image in new markets defined by customer need not products.
  • Look to where your upcoming customer will come from, they may not be the most profitable now, but you will need them in the future, and in the new strategic quest they may already have been found by a competitor.

Bottom line

“The realisation is starting to hit home in the hallowed halls of the boardroom that the customer has significant power to make or break an organisation.”

Stephanie Seakins, OgilvyOne, Hong Kong

It may well be that in the past senior executives have paid lip service to the notion of customer relationships: nice to have but not as important as shareholders. Across the globe this attitude is likely to change amongst those whose aim is to guide their organisations towards a more sustainable future. As thought leader Bob Angel, president of The Gilford Group says, in 2009 the c-level focus will be on both the CFO and the CMO to guide the ship to a safe harbour.

But the last word should go to Professor Francis Buttle, who when asked for his advice to bank CEOs for the coming year said: “Find a new job that focuses on delivering value to customers, rather than destroying customer value as have many banks. Implement CRM so as to nurture long-term relationships with customers, rather than strip-mining value from them.” It is an ill wind that blows no good at all.

My thanks to: Bob Angel, President, The Gilford Group - Canada; professor Francis Buttle, Buttle Associates - Australia; Allan Engelhardt, solutions director, The PCA - Europe; Paul Greenberg, The 56 Group, LLC - US; Stephanie Seakins, principal consultant, OgilvyOne – Hong Kong.

Further reading

  • A Customer Relationship Management Roadmap - Ruth N Bolton
  • Preparing for the next downturn McKinsey Quarterly
  • Building Web 2.o Enterprises McKinsey Quarterly
  • Assessing innovation metrics McKinsey Quarterly
  • Seducing your ideal customers
  • New technologies every marketing manager should know about
  • Sales through service: The start of social business
  • Bridging the trust gap

  • Replies (2)

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    Dr. Graham Hill
    By Dr. Graham Hill
    27th Jan 2009 14:42

    Hi Jennifer

    Readers can download Ruth Bolton's paper on 'A Customer Relationship Roadmap...' at http://tinyurl.com/dzyxae

    The paper was written in 2005 though and the world has changed since then so take it with a pinch of salt.

    You cover a lot of ground in your thoughtpiece. My experience is that companies are stil panicking and will lose a lot more heads and budget before the panic is over.

    When it is over, winning companies will take a long hard look at their changed customer base, then they will:

    look to protect their best customers,
    focus resources where the most vaue is to be gained,
    sweat their customer management assets,
    look to cut out non-value-adding costs,
    empower staff to drive out value and
    take a long-term view as well as a short-term one.

    These six 'Rules for Recessionaries' are described in more detail, along with 17 other CRM gurus' thoughts in the Customer Futures paper on 'The Importance of the Customer
    Experience in a Down Economy' available for FREE at http://tinyurl.com/66vwdf

    One thing I see as optional at this time is corporate social responsibility. Unless indulging in CSR creates tangible value in the short-term, companies have more important things to do in the interim. Like staying afloat.

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

    Thanks (0)
    avatar
    By JEAN DE PARIS
    01st Dec 2008 16:08

    Very interesting article.
    We, at B.L.O (the Below the Line Observatory, could conclude from ou discussions with our clients in France that after a short slow down over Q1, the CRM activity will boost over 2009.
    Two reasons for that : i) the immediate impact of CRM tools ii) the excellent price per contact ratio of emailings.
    Do other readers share our point of view ?

    Jean Préau
    Managing Director

    Thanks (0)