Metrics of Customer Relationship Management

Metrics

The increased attention paid to CRM means that the traditional metrics used by managers to measure the success of their products and services in the marketplace have to be updated. Financial and market-based indicators such as profitability, market share, and profit margins have been and will continue to be important. However, in a CRM world, increased emphasis is being placed on developing measures that are customer-centric and give managers a belter idea of how their CRM policies and programs are working.

Some of these CRM-based measures, both Web- and non-Web-based, are: customer acquisition costs, conversion rates (from lookers to buyers), retention/churn rates, same customer sales rates, loyalty measures, and customer share or share of requirements (the share of a customer’s purchases in a category devoted to a brand).

All of these measures imply doing a better job acquiring and processing internal data to focus on how the company is performing at the customer level.

The Future of CRM

With the increased penetration of CRM philosophies in organizations and the concomitant rise in spending on people and products to implement them, it is clear we will see improvements in how companies work to establish long-term relationships with their customers. However, there is a big difference between spending money on these people and products and making it all work: implementation of CRM practices is still far short of ideal. Everyone has his or her own stories about poor customer service and e-mails sent to companies without hearing a response. Despite several years of experience. Web-based companies still did not fulfill many Christmas orders in 2000 and customers continue to have difficulties returning unwanted or defective products.

We can expea that the technologies and methodologies employed to implement the steps shown in Exhibit 1 will improve as they usually do. More companies are recognizing the importance of creating databases and getting creative at capturing customer information. Real-time analyses of customer behavior on the Web for better customer selection and targeting is already here (e.g.. Net Perceptions), which permits companies to anticipate what customers are likely to buy. Companies will learn how to develop better communities around their brands, giving customers more incentives to identify themselves with those brands and exhibit higher levels of loyalty.

One way ihat some companies are developing an improved focus on CRM is through the establishment or consideration of splitting the marketing manager job into two parts: one for acquisition and one for retention. The kinds of skills that are need for the two tasks are quite different. People skilled in acquisition have experience in the usual tactical aspects of marketing such as advertising and sales. However, the skills for retention can be quite different, as the job requires a better understanding of the underpinnings of satisfaction and loyalty for the particular product category. In addition, time being a critically scarce resource makes it difficult to do an excellent job on both acquisition and retention. As a result, some companies have appointed a chief customer officer (CCO) whose job focuses only on customer interactions.

A possible marketing organizational structure is shown in Exhibit 6. In this organization, the person overseeing the company’s marketing activities, the VP-Marketing, has both product management and the CCO as direct reports. The CCO’s job is to provide intelligence to the VP, from marketing research and from the customer database, for use by product managers in formulating marketing plans and making decisions. In addition, the CCO manages the customer service operation. Although it would perhaps seem more logical for the CCO to report to product management, the reporting arrangement to the VP-Marketing is a signal to the company of the prominence of the position. The CCO also interacts with other company managers whose operations may have a direct impact on customer satisfaaion.

The ceo at EqualFooting.com—a company offering streamlined purchasing, financing, and shipping services for small manufacturing and construction businesses—has the job of integrating marketing and operations to make sure that customers are satisfied.^’ An alternate conceptualization is to create two jobs, customer managers and capability managers.^* The former oversee the relationship with customers while the latter make sure that their requirements are fulfilled.

The notion of customer satisfaction is being expanded to change CRM to CEM, Customer Experience Management.” The idea behind this is that with the number of customer contact points increasing all the time, it is more critical than ever to measure the customer’s reactions to these contaas and develop immediate responses to negative experiences. These responses could include timely apologies and special offers to compensate for unsatisfactory service. The idea is to expand the notion of a relationship from one that is transaction-based to one that is experiential and continuous.

As with any decision with substantial resource implications, a cost-benefit analysis of CRM investments must be performed. Marketing managers for frequently purchased products such as toothpaste are not as likely to find CRM investments paying out to the extent they will for computer servers, given the differences in difficulties of reaching customers and the profit margins of the respective products. However, even toothpaste companies are using the Web to attempt to differentiate their brands from the myriad others appearing in supermarkets and discount stores. This is evidence that there are perhaps few companies that cannot benefit from the CRM structure.

Notes
1. If all the components of the CRM system are Web-based, including the company, eCRM (elearonic CRM) is sometimes the term that is used.
2. /CONOCy457′, January 4, 2001.
3. ICONOCAST, Oaober 12, 2000.
4. Frederick F. Reichheld, The Loyalty Effect (Cambridge, MA: Harvard Business School Press, 1996).
5. See, for example, Rashi Glazer, “Winning in Smart Markets,” Sloan Management Review. 40/4 (Summer 1999): 59-69.
6. Of course, this does not mean that they are using it in the way that will be described later in this article.
7. This figure is due to Professor Florian Zettelmeyer, University of California at Berkeley.
8. See, for example, Michel Wedel and Wagner A. Kamakura, Market Segmentation: Conceptual and Methodological Foundations. 2nd edition {New York, NY: Kluwer Academic Publishers, 1999).
9. Don Peppers and Martha Rogers, The One to One Future (New York, NY: Doubleday, 1993), Ch. 4.
10. Wendy W. Moe and Peter S. Fader describe clickstream analysis more completely in their article, “Uncovering Patterns in Cybershopping,” published in this issue [California Management Review, 43/4 (Summer 2001)].
11. Valarie A. Zeithaml, Roland T. Rust, and Katherine N. Lemon elaborate on this section in their article, “The Customer Pyramid: Creating and Serving Profitable Customers,” published in this issue [California Management Review. 43/4 (Summer 200t)].
12. Peppers and Rogers, op. dt.
13. There is some disagreement about how successful l-to-1 on the Internet has been. For a perspective on the negative side, see Susan Kuchinskas, “One-to-INjone?” Business2.0. September 12, 2000, pp.141-8.
14. Seth Godin, Permission Marketing (New York, NY: Simon & Schuster, 1999).
15. Jim Nail, ‘The Email Marketing Dialogue,” Forrester Research Inc., January 2000.
16. Good examples are provided by Richard L. Oliver, Satisfaction: A Behavioral Perspective onihe Consumer (Boston. MA: Irwin McGraw-Hill, 1997); Valarie A. Zeithaml and Mary Jo Bitner, Services Marketing (Boston, MA: Irwin McGraw-Hill, 2000).
17. Eugene W. Anderson, Ciaes Fomell, and Donald R. Lehmann, “Customer Satis- faction, Market Share, and Profitahility,” Journal of Marketing, 58/3 (July 1994): 53-66.
18. James Cigliano, Margaret Georgiadis, Darren Pleasance, and Susan Whailey, ‘The Price of Loyalty,” The McKinsey Quarterly. 4 (2000): 68-77.
19. See also Grahame R. Dowling and Mark Uncles, “Do Customer Loyalty Programs Really Work?” Sloan Management Review, 38/4 (Summer 1997): 71-82; WemerJ. Reinanz and V. Kumar, “On the Profitability of Long-Life Customers in a Noncontractual Setting: An Empirical Investigation and Implications for Marketing,” Journal of Marketing, 64/4 (Oaober 2000): 17-35.
20. It is not clear that this is loyalty in the true sense, as better price deals quickly draw price-elastic shoppers away.
21. Adrian J. Slywotsky, “The Age of the Choiceboard,” Harvard Business Review. 78/1 (January/February 2000): 40-41.
22. Carl Shapiro and Hal R. Varian, Information Rules (Cambridge, MA: Harvard Business School Press, 1999).
23. For an interesting analysis of how much information can be obtained merely from your computer connection to the Internet, visit <www.privacy.net>.
24. Jay Stanley, “The Internet’s Privacy Migraine,” Forrester Research, Inc., May 2000.
25. For further discussion of the privacy issue, see H. Jeff Smith, “Information Privacy and Marketing: What the U.S. Should (and Shouldn’t) Leam from Europe,” California Managemem Review, 43/2 (Winter 2001): 8-33.
26. Donald R. Lehmann and Russell S. Winer, Produa Management, 3rd edition (Burr Ridge, IL: McGraw-Hill, 2001).
27. Audrey Manring, “Profiling the Chief Customer Officer,’ Customer Relationship Management (January 2001), pp. 84-95.
28. B. Joseph Pine II, Don Peppers, and Martha Rogers, “Do You Want to Keep Your Customers Forever?” in J. Gilmore and B.J. Pine I!, eds.. Markets of One (Cam-bridge, MA: Harvard Business School Press, 2000).
29. CustomerSat.com newsletter, December 29, 2000.

by  Russell S. Winer