Seven Customer Truths that are Driving CRM 

      Starting in the 1990’s customers have had many options on almost any product. With geographical boundaries dissolved by the internet and competition a mouse click away, this change has affected every business of every size.

      The issue is not whether CRM is important for every business, but how best to apply it. CRM can be a personal undertaking of small business owners and merchants who do a majority of their business face to face or a large corporate undertaking.

      Most business coverage about CRM always seems to involve the challenges of scaling a software solution to a large customer base or creating a perfect customer experience.

      The real challenge of CRM is getting to know today’s customer as opposed to yesterday’s (10 years ago). They are completely different and driven by different needs and motivations.

      For example, customer behavior in the pre-internet era may be  nothing like customer behavior in the post-internet era even if they are the same customer! A business may wake up to find they have a great Customer Relationship Management System perfectly suited to satisfy the customer of 10 years ago.        

      There exist certain basic truths about customers (and people in general) today, that were not strong motivators or deterrents, 10 years ago but now represent a huge opportunities or threats.  

      The real significance of the customer truths lie in the fact that they are at work in some manner, in nearly every buying experience. However, some truths are so strong in some customer segments that if recognized and acted upon, will create a competitive edge for a business.

      Businesses must make an effort to know this “new customer” and determine what is important to him/her and what is not.  Assumptions based on pre-internet, pre-cell phone, pre-600 channel cable TV, frame of reference may no longer be accurate.                

Truth # 1.

           Customers are paying less and less attention to traditional print advertising.

           Today there are hundreds of TV stations. The number of magazines and newspapers seem to be too numerous to count.

           As a result, a marketer cannot reach a significant percentage of the population with any one communication. There are enough consumer and trade magazines to keep a reader busy 24 hours a day 7 days a week.

 Because of this truth, many big corporations have cut back or abandoned their mass advertising in favor of more targeted marketing. 

 While many businesses know their marketing mix has changed over the last 10 years, they do not know where their best customers are coming from now as compared to ten years, five years, or one year ago.   

 Before a CRM plan is initiated, perhaps a study should be undertaken to first see what marketing method is producing high value customers and improve on that.    

Truth # 2

           Customers value time today more than ever

           The clutter in our lives (caused mostly by mass advertising) is just getting worse. It is physically impossible for a consumer to pay attention to everything that marketers put in front of them.

 There are only 24 hours in the day!

 The one critical resource today that is in short supply is time. No one can buy more time.

 Every business should: 

Ø    Keep all interactions with customers relevant and valuable.

Ø    Do not waste the buyer’s time with products that are not relevant.

 While no one has enough time today, some customers have this as their number one priority. More than price and quality!

 Know if any customer segments are extremely time sensitive.    

People are willing to pay to save time.

Truth  # 3

 Customers realize that product quality has improved in almost all industries.

           Customers are not rushing to the highest quality product in areas where the highest quality is just not necessary. A product must have enough quality to get the job done, but superior quality is not the guarantee of market share as it was in the past. 

If a customer is getting the right quality of product, at an acceptable price, with the right level of service, they will not seek alternatives. However, all three must be there.

 Businesses are now making a strong effort to get closer to customers to gauge what is important to them.

 Customer needs change and some product features may not be as important to customers as they were five years ago. Some businesses are finding out that ease of use and good customer support will outweigh quality in the buying decision of many products. 

Truth #4

Pareto’s Law

          Pareto’s Law (or the 80/20 rule) is a long established business rule that has been proven repeatedly across many industries.

 The rule says that a business will derive 80 percent of its profits from 20 percent of its customers.

  It is very straight forward and can be proven if a particular organization wishes to test it over time.

         While Pareto’s law has been around forever, it has extra significance today. What are your best customers buying today as opposed to last year? Are your best customers from 5 years ago still with you? Do these customers want to do more business with you? What is contributing to customer loyalty?

Truth #5

 Even a very small decrease in customer defection can have a huge effect on profits.

           The American Management Association reports that over a 10-year period an organization can improve revenues up to 49% with just a 10% increase in customer retention.

           Furthermore, studies show that organizations report a loss of approximately 50% of their customer base every 5 years.

          Businesses are picking up quickly on this concept because it represents the “low hanging fruit” of profits.

If a company can identify why even a small number of customers defect to the competition they can make changes quickly and improve profits almost immediately.

Truth #6

        Customers have a Lifetime Value (LTV)

           Often an average customer will spend X number of dollars from the time of their first purchase until they become ex-customers.

           LTV becomes a very important concept when a business must decide how much to invest in acquiring and servicing different types of customers.

           Even though it sounds straight forward, businesses are having a difficult time coming up with an accurate formula for calculating LTV.  By knowing the lifetime value of a customer segment, a company can take a loss in the early stages of the relationship because it knows the value will increase over time.

Truth #7 

It is roughly six times cheaper to sell a product to an existing customer than it is to acquire a new one.  

          This rule is at the heart of all Customer Relationship Management discussions, and has been tested and retested in the last few years.

          Big business is spending millions on tools to create strong customer relationships because of the high expense of acquisition.

 The customer retention rate is becoming the real value barometer of a company’s effectiveness.   

Many businesses spend a lion’s share of their marketing budget trying to acquire new customers while ignoring their existing ones.

           These seven customer truths are at work in most buying situations at some level. The multimillion-dollar Customer Relationship Management (CRM) software solutions look to leverage these truths across different industries and markets.

 However, a closer look at the concepts show they have very little to do with big business customers in particular, but rather all customers in general.

 A business must review its customer data and uncover which customer truths are at work in their industry today not yesterday.