The stakes in the customer relationship management market are on the rise. In mid-1997, when Baan, a leader in corporate back-office infrastructure software, bought Aurum, a front-office customer relationship management firm, it was a blockbuster deal at $250 million.
Since then, back-office and human-resource software specialist PeopleSoft paid $433 million for CRM vendor Vantive in October, and Nortel Networks finished dealing Clarify $2.1 billion in stock last month to obtain its software suite. In mid-March, Internet-focused customer management software vendor E.piphany announced a deal to gobble up on-line competitor Octane in a $3 billion stock deal.
And it all started with a humble little salesman’s address book called ACT!
Any sales professional who graduates from index cards and file folders has heard of ACT!, the first mass-market contact manager and sales force automation tool. ACT!, originally published by Contact Software International in the late ’80s, has attracted 3 million users.
From ACT!’s success came new generations of business software developers, who saw much greater potential for technology in the sales process than just sorting prospects and managing appointments. Thanks to their efforts, companies from Fortune 500 giants to dot-com darlings are embracing a new breed of front-office software: customer relationship management, commonly referred to as CRM.
CRM is really an amalgam of departmental software technologies that functioned well on their own, but had little integration. When developers and consultants began to merge sales force automation with customer service (call center) operation software, CRM began to take shape. Marketing automation, a new branch of software that focuses on streamlining marketing campaigns, both electronic and conventional, rounds out the CRM mix.
Loosely defined, CRM software is anything that helps a company interact with its customers. That ranges from the new customer entry in a master database from a new customer on a Web store, to a marketing database list and a program to send out weekly mailings to loyal customers. Even humble contact management programs such as Microsoft Outlook can be considered a part of a larger CRM system.
The goal of CRM is to accurately track as much information about the customer as possible, and to make that information available and useful at every level of company/customer interaction. A customer’s purchase history, preferences and habits, and service and complaints history are tracked in a central database, rather than in separate systems that create “islands” of customer information.
By collecting and sharing customer information across multiple departments, CRM aims to help companies avoid embarrassing problems, such as a sales rep making a pitch to a client who has several complaints lodged with the service department. And by providing the service department with a client’s complete sales history, call center agents can spend more time addressing the actual service problem, rather than collecting information on which products a client owns, and when and how they purchased them. Marketing, through analysis of past purchase history as well as the success rates of previous campaigns, can target messages to a client’s individual priorities, rather than continually bombarding prospects with barely educated guesses and generic offers.
Cross-discipline CRM may have been inevitable. “Companies churn from 25 to 40 percent of their customers every year, and retention is key,” said Joseph Davis, vice president and general manager of the CRM division of Remedy Corp. “You don’t improve that much by improving one department–you can make one department more efficient and it may help, but if your other departments are still working inefficiently, you’re not likely to keep that customer.”
Of course, putting CRM information to good use is more challenging than simply gathering it, and enthusiasm or capital outlay is no guarantee of success. For example, while the banking industry is considered one of the leaders in implementing cutting-edge CRM technologies, the results are not as impressive as their appetites for customer data.
ATM and teller fees, made infamous by large institutions such as Citibank and Chicago-based Bank One, are directly born of high-precision CRM analysis. By examining detailed customer interaction histories, a number of banks determined that certain customers would be more profitable if they could be discouraged from doing business through certain channels–such as real, live tellers. The problem, according to an August 1999 Forrester Research report, is that they have missed the point of their customer relationships. When it comes to the carrot versus stick approach, said report author Kenneth Clemmer, a Forrester analyst, “banks are addicted to sticks.”
Why should banks be worried about this mishandling of their CRM? The same Forrester report also found that customers who accede to their bank’s wishes and turn exclusively to ATM and telephone transactions are also among the least satisfied–and the youngest–of all depositors. The new fees may look good on paper at board meetings, but according to Clemmer, they are “upsetting their most loyal human-assisted customers and doing nothing to raise the satisfaction of their least loyal electronic customers.”
The new CRM
Sales and support are a favorite target of management consultants, so it is not surprising that the software components that enhance those organizations are popular and robust. But marketing departments have traditionally escaped the harsh glare of reorganization, and that may be hampering the adoption of emerging marketing automation CRM systems.
According to a survey conducted by CRM industry journal Sales and Marketing Automation, the top three marketing automation vendors boasted just 63 clients combined as of last autumn. Is this branch of CRM for real? Do companies like Mountain View, Calif.-based Annuncio or Indianapolis-based Aprimo stand a chance of succeeding?
“They will, although they may not be successful in selling all that they have to offer,” said Robert Mirani, CRM research director at Boston-based research firm Yankee Group. Rather than completely overhauling the 100-year-old marketing paradigm, “they may be more successful, as Annuncio is, selling e-mail and Web [marketing] campaign management.”
Although marketing automation allows marketing departments to launch more campaigns to more prospects than ever before, there’s a slight problem: The sales department may not be able to handle the extra load if the promotions are successful.
“Sales is capacity-limited. It’s not clear that handing them more stuff is going to make them happier,” said Laurie Orlov, senior analyst with Forrester Research. And that fact has led some companies, such as computer storage specialist Quantum, to seek out a marketing automation solution that focused on generating a low volume of extremely high-quality leads, in order to provide their sales staff and channel partners with a high probability of success.
These difficulties are keeping marketing automation from becoming as pervasive as the major components of CRM, sales and call center automation. Indicative of the problem is the response Mirani often gets when discussing marketing automation projects with early adopters: “This will be an integral part of our business … two years from now.”
CRM for lease
The emerging application service provider marketplace is proving to be very attractive to CRM vendors. ASPs play host to business applications on offsite servers, which are then accessed through the Internet from corporate desktops, either through a specialized client program or a Web browser. Companies typically pay a regular leasing fee, plus nominal setup and support costs, in exchange for being spared large capital outlays and network integration hassles.
CRM applications are exactly the sort of software that ASPs were allegedly founded to support: They typically have high up-front costs and are fairly complex to install within a corporate network. ASP-based CRM systems are springing up across the landscape, ranging from systems that traditionally cost thousands of dollars per seat to new Web-based initiatives that claim to support a business user for just a dollar a day.
“It’s not necessarily cheaper, but if you don’t have IT resources, it’s a good alternative,” said Yankee Group’s Mirani. But ASP-hosted CRM isn’t quite prime time yet. “The established vendors are struggling, because they’re not used to selling their software in this way. The more successful companies are those that are self-hosting, rather than working with third party [ASP] partners, because they know all the ins and outs of the applications.”
CRM has become a huge business. Despite its slow start, marketing automation alone is expected to turn into a $2 billion industry. Some high-end CRM systems boast literally thousands of user screens. Even ACT! has been reinvented for the 21st Century after being bought by CRM vendor SalesLogix and turned into Interact.com, a new business portal. But still the search goes on for the perfect tool to turn leads into happy, profitable customers.
“I don’t see the killer product yet,” said Larry Goldman, vice president of customer solutions for Chicago-based CRM integrators Braun Consulting.
