A Failing Grade
Why the Mathematics of CRM Don't Work
By Arthur Middleton Hughes
In many companies, Customer Relationship Management (CRM) has proven a failure. The National Retail Federation's annual CRM conference survey of North American retail companies found 69 percent of its respondents gained little or no benefit from their CRM investments. Why is that? What was CRM supposed to do?
There were two basic operating objectives:
>Build and maintain a large data warehouse with lots of information about customers and prospects accessed by million-dollar CRM software.
>Use that information to make the right offer to the right customer at the right time, thereby increasing sales and pleasing the customers.
These objectives are grounded on three assumptions, all of which proved to be invalid in practice:
Assumption No. 1: One-to-one marketing is an achievable goal given the right information and software. Customer and prospect purchasing behavior can be predicted accurately based on information you can collect about them.
Assumption No. 2: Customer and prospect behavior is heavily influenced by timely and relevant offers.
Assumption No. 3: The introduction of CRM has a positive return on investment by increasing sales and profits by more than its cost.
There has been a corruption in terminology. Many companies practice database marketing, and call it CRM because it sounds more modern and up-to-date. They don't have a data warehouse. They don't have million-dollar software. They just have a modest data mart and are creating marketing segments and then marketing to them. They call it CRM, but it is just plain old database marketing, which works wonderfully in the right situation.
The reason for using CRM is to make incremental increases in the current level of sales beyond what is being made now with mass marketing, retail stores, catalogs and database marketing. Somehow, the marketer assumes, that just knowing more about the decision-making process in the customer's mind could increase the sales level (of customers and prospects) by as much as 5 percent or 10 percent.