CRM - Beyond the Hooplah (1,414 words)
The Differences Between CRM and Database Marketing
by Bob McKim
Even with all of the hoopla surrounding customer relationship management (CRM) these days, it's only now that management is beginning to wonder: Is there a difference between CRM and database marketing? They're also asking the bottom-line question: What can we really expect in return for all the money we're pouring into CRM?
Both disciplines have similar and overlapping characteristics, such as providing a 360-degree view of the customer and integrating all the data into a common system. While implementation costs can be similar, CRM appears to be the more expensive exercise.
CRM relies more on new technology that's built for its own purposes, but also has templates that fit most marketing purposes. Database marketing uses existing technologies from established vendors but requires extensive customization.
CRM technology promises to provide personalization to every customer and prospect. Database marketing identifies unique segments in the database that react to specific stimuli, such as promotions.
Both programs are hindered if the data has inconsistencies and isn't fully populated. Database marketing can be more successful and doesn't need every customer record populated with data.
CRM aims to strike up a relationship with the customer through affinities and personalized communication, thus making the customer more transactive. Database marketing anticipates customer behavior in time and reacts to changes in that behavior. Database marketing relies heavily on rules-based delivery of communications. CRM waits for the customer to interact with the system.
CRM also assumes the customer wants a relationship with the company whereas database marketing is proactive and delivers information or communications when the customer is in the buying window.
The metrics for each tend to be different, as well. CRM talks and reports on a return-on-investment (ROI) basis. Database marketing reports activities on an ROI basis, but reports on customer lifetime value.
CRM systems take up to a year to be installed and function properly. Database marketing systems can be up and producing information and results in four to six months.
In the past few years, the biggest problems I've seen with CRM and database marketing lie within the organizations that purchase them and the systems. These problems fall into three distinct areas:
- Difficulty identifying the business problems accurately enough before buying the software.
- Lack of a common definition for CRM.
- Lack of measurement from either the software itself or the technology's purchaser. I've yet to see an accounting of improved customer value, the trackable cost savings or the marginal lift between existing methods and the new CRM methods.
To provide an in-depth view, we asked experts to share their thoughts on the direction and value of CRM.
Kay Mandati, relationship manager for BMW North America
BMW has implemented a good beginning CRM system. The car company has the right concept of how long and how much it takes to get the system functioning.
Q: Can you offer a CRM definition of consumer (prospect and owner) relationship marketing?
Mandati: Systematic, automatic, customized, targeted and relevant communications, initiated directly from data points, product relationships and other valuable consumer information. It is for the purpose of not only increasing loyalty and acquisition rates, but ultimately improving and managing consumer relationships in a more efficient and mutually beneficial manner.
When executed correctly, first-class CRM keeps communications relevant and engaging, while listening to our customers; facilitating a relationship on their terms, and delivering on our implicit commitments through the media they choose.
Q: Where is CRM going?
Mandati: Unfortunately, too many companies think of CRM as a "quick pill"—easy to take and offering fast results. This perception leads many down the wrong path, and ultimately to frustration. CRM is the complete opposite. It's a long-term commitment that works best when it's initiated in a well-defined scope, with clear objectives, and then slowly grown and expanded as successes and failures are realized.
Companies that buy high dollar/investment CRM systems and hope to "cure cancer" with them, often find themselves questioning and possibly abandoning their approach after seeing outright failure or no immediate ROI. This only perpetuates the general feeling that these systems are over-priced expenditures of much-needed resources that do little to affect day-to-day objectives.
Q: Where should CRM be going?
Mandati: Systems and technology purchases need to focus on the quick wins that CRM can achieve for an organization. CRM must be able to prove its worth by quickly focusing on a problem and then delivering results through implementation. A CRM system must be able to do this quickly, cheaply and efficiently.
Once a few quick wins are realized, aligning your organization behind additional investments becomes easier to sell. Slowly, with CRM, you're able to address managing the consumer relationship, handling different issues step by step rather than all at once.
Joe Rapolla, CRM czar for Venvidi Universal Music Group
This group of eight business units focuses exclusively on uniting its multiple databases under one roof. It's taken more than a year to build consensus and define the business opportunities for its music group.
Q: What is consumer relationship management?
Rapolla: CRM isn't a tool or a technology; it's a business practice that uses technology and requires organizational evolution. It's refining marketing strategies, offerings and interactions based on the consistent consideration and application of intelligence about the consumer and marketplace. CRM means offering consumers products and services with an enlightened degree of confidence, because we know they have an interest in them. It's delivering messages in formats and channels that the customers prefer and are the most efficient ways to reach them. It's getting smarter each time we communicate.
Arthur Hughes, consultant and author of books on CRM
Q: Why do more than 50 percent of CRM installations fail?
Hughes: Those who use it assume that a warehouse plus CRM software will produce profits. What produces profits is a communications system that selects the right prospects and builds customer loyalty. CRM assumes you can predict customer behavior using a warehouse. You cannot.
Instead of building a multimillion- dollar CRM warehouse, marketers would be advised to concentrate on building a database, and marketing to sectors of prospects and customers. That works, and costs only 10 percent as much as a CRM warehouse.
Doug Tanoury, CRM historian
Q: What should marketers think about when it comes to CRM?
Tanoury: In 2000 and after, the visionary solution has been to regard each customer contact as a failure of process or product and to address the root cause of those failures in order to design or engineer them away through process or product improvements. This "solution of un-service" is the future of at least 80 percent of the CRM customer contact industry. The remaining 20 percent are applications that generate revenue for companies and will function with highly skilled sales and knowledge workers empowered by analytical and knowledge-management technology to increase revenue and customer loyalty.
Companies that are now investing in traditional current CRM technology and initiatives already are behind the times and investing in an area that in the coming years will be engineered away. So, too, are companies that are addressing customer needs by typical service and contact models of the last 20 years.
Don Hinman, vice president and group leader for the Abilitec Product Group, Acxiom Corp.
Q: How is Acxiom facing its many challenges with mega-corporations as it tries to install CRM systems and integrate all the various silos of data into a common, unified data store, and then implement CRM systems?
Hinman: Unfortunately, CRM has become too closely associated with the technology supporting it. Rather, we should look at the overall process of managing relationships with customers. That requires a technology platform, but more importantly, effective data and human intelligence.
Inevitably, measurement is where the CRM system falls down. In most cases, the systems aren't held accountable for the costs of implementation, the loss of productivity and the measurable difference between the newly implemented system and the old way.
In database marketing, the old-school metric focused on recency, frequency and monetary value to identify profitable segments based upon either derived revenue or gross margin dollars. Lifetime value emerged in the late 1990s. It considers the customer individually and his or her historic or prospective value to the corporation based upon net present value cost accounting, minus the investment needed to make the customer a longer-term one.