I originally wrote this article, “Customer relationship management” in November 2003. A systematic process is used to prepare a comprehensive proposal to a sponsor for approval to implement a Customer Relationship Management (CRM) System in an organisation. The proposed system introduces a new information system and improves organisational productivity. The sponsor is a financial institution. The information system supports the strategic goals of the organisation where it will be implemented. A systematic approach was followed to identify the opportunity and the choice of proposed system is justified. A feasibility study for the system is proposed, including system investigation and the preparation of functional specifications for the intended system (from a managerial viewpoint) and a system implementation plan is given.
An investment is proposed for the implementation of a customer relationship management (CRM) system within the client company over a six month period. It is the optimum solution to the client’s problem of how to achieve their sales revenue growth requirement for the next five years.
The proposed system has a good fit with the six strategic goals of their business. In particular, it meets the need to secure lifelong customers who buy the most profitable products using the client’s unique service.
The problem of achieving sales revenue growth is solved using a systems approach. First, we established that the problem has the four components of; creating customer awareness, encouraging sales, maintaining repeat custom and deciding upon the marketing mix.
Six alternative solutions to the problem are appraised. Mass marketing, CRM, local distributors, local sales representatives, advertising and the internet are considered. These possible solutions are evaluated againstthe definedproblem, cost, time and the degree of fit in supporting the business goals.
The optimum solution is a CRM system to focus the marketing and sales efforts in the right direction. It is envisaged that the system will help to attract, retain and get customers to spend more with the company. Using a relational database, the system will be used to co-ordinate the direct mail and telemarketing campaigns.
A feasibility study is required during the systems analysis and conceptual design phase to ensure that it meets the requirements for data; warehousing,extraction, management, mining, analysis and query. Implementation of the project will proceed only upon a favourable outcome from the feasibility study.
Project implementation is in nine stages. The critical stage is that of training staff in system adoption, data mining, use of technology and in how to get system support.
The client company is a new business venture formed to utilize an opportunity to satisfy a UK demand for Asian products exported from Singapore by air parcel. The target market is small British retailers who already sell antiques, clocks, gifts, handicrafts and home decor. They compete by having product variety, and very few currently sell handcrafted goods from Asia. Their present offerings are either locally made expensively machined products or poor quality imports from wholesale warehouses. The client company offers good quality, high value, low weight, hand-made Asian products by 7 day delivery air parcel for payment by credit card.
STRATEGIC GOALS OF THE ORGANIZATION
The client company has six strategic goals, and they are:
Annual export sales of S$2M in 5 years and 10% net profit after tax - The client company will acquire 500 lifelong European retail outlet customers. The average order value is S$800 per consignment and the client company will receive bi-monthly or quarterly orders from each customer. Gross margin for the cost of goods sold is 50% and the cost of doing business is such that net profit after tax is 10%.
The client company’s customers have high inventory turnover - The order quantity requirements are smaller than that of the client company’s competitors and reduce the amount of cash tied up in the customer's inventory. The customer's higher inventory turnover enables them to place smaller orders which are delivered more often. Their risk of holding low demand products is reduced.
The client company’s value chain is shorter than that of their competitors - The value chain is shorter than that of the competitors because UK wholesale warehouses are eliminated. The client company’s customer is the retailer, not the wholesaler, and deliveries are door-to-door from Singapore to Britain by air parcel - not container ship.
The client company’s goods have a money-back guarantee - Credit is not offered to customers and all order payments are made through Visa and Mastercard credit card companies. However, the credit card companies give 4 to 7 weeks free credit to customers and the client company is paid monthly by the credit card companies, who dictate the money-back guarantee.
The system of competing is unique, integrated and not easily imitated - The client company only sells products to the target market that fits their particular business model. The minimum order value is S$750 and each consignment weighs less than 15Kg. Goods within each consignment are high value, have a high price to weight ratio and are only sold to the target market of small UK retailers who sell antiques, clocks, gifts, handicrafts and home decor.
Competition with the small British retailer is not promoted - The Asian product mix is not readily available in Britain and there are very few competitive outlets already in existence which specialize in similar products. Administration costs are minimized by having a minimum order value of S$750 and, by this mechanism, not selling direct to British end-users. Additionally, substantial discounts are not offered for larger order quantities because this leads to lower retail prices and a perceived lowering of product quality.
SYSTEMS APPROACH TO PROBLEM SOLVING
An approach is used, as described by O'Brien (1999:p.80), to systematically solve the problem in 5 steps:
Recognize and define the problem using systems thinking
Develop and evaluate alternative system solutions
Select the system solution that best meets the requirements
Design the selected system solution
Implement and evaluate the success of the designed system
The problem of acquiring 500 lifelong customers is identified as having the four key components of; creating customer awareness, encouraging sales, maintaining repeat custom and having the right marketing mix.
Customer awareness - How does the client company make UK retailers aware that their company and marketing mix exist? The client company has just recently created their new business venture and, until they can reach their customers, nobody knows who they are, what we sell, where they are located and why they should do business with them.
Encourage sales - If the client company manages to reach their target market then what can they do to encourage customers to place orders with their company? Customers may be aware that their company exists but inertia, tradition or apprehension may influence their buying decision process and divert custom away from their company.
Maintain repeat custom - Having secured their first order from a customer, how do they achieve 'lock-on' and create a lifelong customer? If a customer doesn't enjoy a good experience with the company during the first transaction then the relationship may end after one sale.
Marketing mix - How does the client company know that the product mix is priced correctly through the right distribution channel and that the promotion tactics work? Is there a market demand for the initial offering? Is the end-user willing to pay the retailer the recommended price? Is the marketing campaign investment giving the required return? Are small UK retailers the best distribution channel?
Evaluation of alternative systems
Six alternative solutions have been developed to solve the problem:
Customer Relations Management system
Local UK distributors
Local UK sales representatives
Internet site only
|Problem||Mass marketing||CRM system||Local UK distributors||Local UK sales representatives||Advertising||Internet site only|
|Customer awareness||Very low response rate||Low response rate||Low incentive to promote client’s products||High cost and time to establish contacts||Very high cost and very low response rate||Low cost but no response|
|Encourage sales||Very low probability of obtaining orders||Moderate probability of obtaining orders||Moderate probability of obtaining orders||High probability of obtaining orders||Low probability of obtaining orders||Very low probability of obtaining orders|
|Maintain repeat custom||No relationship building||High relationship building||Moderate relationship building||Very high relationship building||No relationship building||Very low relationship building|
|Marketing mix||Very low customer feedback||High customer feedback||Moderate customer feedback||High customer feedback||No customer feedback||Low customer feedback|
|Cost||Moderate||Moderate||High||Very high||High||Very low|
|Degree of fit in supporting business goals||Low - not target market and could promote competition to small retailer||High - meets all business goals||Low - extra stage in value chain and not unique selling system||Moderate - reduced profit||Low - not target market and could promote competition to small retailer||Low - not target market and sales goal not possible|
The six alternatives solutions have been evaluated as to how they fit in supporting the business goals and solving the problem:
Our development and evaluation of the six alternatives gives the optimum solution to our problem of acquiring 500 lifelong customers profitably as being to implement a customer relationship management system.
The proposed customer relationship management system has the benefit of facilitating the business goals at a reasonable cost. This represents a saving on the appointment of UK sales representatives to achieve comparative results.
The CRM system will focus the client company’s marketing and sales efforts in the right direction, allow statistical analyses of the marketing campaigns and fit the business goals.
The client company’s revenues will not be enhanced by selling more core items but by increasing the amount of spending customers do with the client company. The system will enable the client company to monitor and enhance the longevity, depth, breadth and diversity of spendingby their customers. It will identify customers with opportunities, as well as customers at risk. The system will allow the client company to understand the differences among customers, particularly the nature and intensity of the relationship they currently have with the client company, so the depth, breadth and the length of their relationship can be improved. By developing a multi dimensional customer typology (segmentation scheme), the client company will select segmentation variables which show customer's preferences for products and the intensity (magnitude and frequency) of their relationship with the client company. It can be determined what the most profitable customers look like, who the high-risk customers are and describe customers who have a high propensity to buy certain products.
A proprietaryrelational database will be populated by client company staff with 10,000 to 30,000 small UK retailers who already sell antiques, clocks, gifts, handicrafts and home decor. Basic information for the target market is available from UK regional Chambers of Commerce, trade directories, Yellow Pages, etc. Commercially available data bases are avoided because they are notoriously unreliable and very expensive. Weekly regional direct mail campaigns will target London, followed by Birmingham, Leeds, Sheffield, Bradford, Liverpool and Manchester. Each batch of direct mail is to be followed by telemarketing calls from the single point-of-contact staff at the client company’s call centre.
The business goals of the client company will be supported by the CRM system. Their sales and profit goal will be made possible by getting direct mail I telemarketing response rates better than the 2 to 3% achievable by direct mail alone. This will assist the client company to get a critical mass of customers locked on and will create a platform from which to stretch their product range into the many areas of their end-users' lives. The customer benefits of a high inventory turnover, money-back guarantee and 'small retailer only' target market will be explained by the client company’s telemarketers to potential customers and their responses will be recorded into their database for analysis. High value to weight products, for low shipping costs, will be selected to match the particular requirements of individual groups of customers, from their database response records, to further focus on market niches.
A feasibility study is required within the systems analysis and conceptual design phase of the client company’s implementation plan. The implementation of CRM within their company is a major undertaking and they need to make sure that they have sufficient resources and are able to integrate this system with their other management information systems. This will involve the development of many processes within their business model. Hardware, software and resource costs and the time taken to implement the CRM system need evaluating to verify that the project is feasible. The implementation plan will proceed only if the results of the feasibility study are positive, thus enabling the project to be completed.
It needs to be determined if, within the business constraints, it is viable to implement:
Data warehouse information - customers calling the client company, their purchases, transaction history, complaint history, data archaeology, contact, customer business, group, history, promotion, product purchases, survey and customer response data, customer interaction data.
Data extraction and cleansing
Data management and storage - logical stores of information
OLAP or data mining applications
Data analysis and query tools - sliced and diced system reports
These are the main features required of the CRM if implementation is to proceed and the project is practical.
Implementation of the CRM system is in the eight stages of strategic planning, research, system analysis and conceptual design, design, construction, implementation, maintenance and documentation, adaptation.
Strategic planning - complete business process analysis, identification of customer interaction points and decision support requirements.
Research - assessment of market conditions, business resources and possible technological means of meeting business needs.
System analysis and conceptual design - user interaction, software and hardware vendor assessment, data design, scalability and feasibility study.
Design - detailed specification, selection of specific software packages and core technologies.
Construction - execution of design plan
Implementation - training program for staff in; system adoption, support seeking, technology, data mining techniques.
Maintenance and documentation - system performance evaluation, data quality, data quantity, confirmation of meeting DSS needs.
Adaptation - modifications to the system to match changes in the market and business.
A phased roll-out is planned, commencing with a pilot program.
The client company’s first strategic business goal of annual export sales of S$2M in 5 years is achievable with the proper management tools. The proposed CRM system is one of those tools. It’s not pretended that use of this technology will solve all of the problems. It is the people within the company, using this technology, that will determine the success of the venture.
List of references
Q'Brien, J.A. 1999, Management information systems: managing information technology in the inter-worked enterprise, 4th ed., Boston, Irwin McGraw Hill.