Meeting Economic Challenges with Customer Relationship Management Strategies

零售業經濟衰退下的生存策略：客戶關係管理

Content:
1. Introduction
2. Business Strategies for a Slowing Economy
3. CRM Strategies for a Slowing Economy
4. Shoring up the top line by increasing market penetration
5. Addressing the expense lines by emphasizing high-ROI investments
6. Reality Check: Managing CRM Investment Under Tight Budget Conditions
7. CRM System Case Studies

Introduction

New initiatives are often the first victims during times of economic stress, whether those difficulties are at the company level or come from the broader economy. Those cuts can be short-sighted, since new initiatives may be exactly the game-changers a company needs to pull it through hard times.

A prime example would be customer relationship management (CRM) initiatives. CRM strategies-whether new to a company or already installed-can make some critical differences that help a company survive economic setbacks.

Of course, the temptation to put off projects like installing CRM software is understandable when economic conditions are tight. New capital investments may be unpopular, and training initiatives to advance CRM adoption may be seen as stretching already strained resources. Even so, if a company were to analyze strategies for not only surviving a downturn, but possibly even benefiting from one, it may conclude that investment in a CRM system is an important component of a plan to return to economic health. This white paper will examine some basic business strategies for economic downturns, and discuss where a CRM emphasis fits into those strategies.

Business Strategies for a Slowing Economy

An economic slowdown may squeeze a company’s bottom line, but the cause generally can be traced to the top line of the financial statement, i.e., revenues. Despite this, the knee-jerk reaction when times are tight is to attack the expense lines of the corporate budget. While cutting expenses can provide temporary relief to the bottom line, it can also precipitate a downward spiral. A problem starts with shrinking revenues due to a contracting economy or market. The company cuts expenditures to preserve the bottom line, and as a result, diminishes its resources. These diminished resources lead to further revenue declines, so the pressure on the bottom line only becomes greater. A new round of expense cuts repeats the process, until the company is sliding toward bankruptcy.

While expenses should be scrutinized during a downturn, they should be cut with a surgical approach that targets fat rather than muscle. Moreover, since revenue shrinkage is generally the root cause of declining earnings during an economic slowdown, that aspect of the company’s finances should not be ignored.

Therefore, the following are some basic concepts for addressing both top-line and expense issues during a downturn:
‧ If top-line growth reflects a shrinking market, a potential solution is to increase penetration of that market. In other words, there are times when the only way to grow or even preserve revenues is to capture a bigger slice of a shrinking pie. Two ways of doing this are to pick up market share at the expense of weaker competitors, and increase penetration of existing customers.
‧ As for the expense line, it should be scrutinized based on return-on-investment (ROI). The vulnerability of earnings to a downturn is in inverse proportion to profit margin. For this reason, low-ROI expenditures should be targeted for cutting, but high-ROI expenditures should be preserved-or ramped up.

CRM Strategies for a Slowing Economy

Where do CRM systems fit into these business strategies for a slowing economy? The next economic downturn will give business leaders a chance to pioneer answers to that question.

According to the National Bureau of Economic Research, as of 2008 there had been only two official recessions in the preceding 25 years. One was from July 1990 to March 1991, when CRM software as we know it today did not really exist. The next was from March 2001 to November 2001, when CRM software was still going through its adolescent growing pains. According to a 2001 Gartner study, at that time some 55 percent of CRM projects had not yet met corporate expectations, and of course, CRM penetration was much lower then than it is today. Since then, CRM software capabilities have become more robust, delivery options have become broader, and recognition of the potential of CRM systems has become greater at both the executive and rank-and-file levels.

In short, the next economic downturn will define how CRM strategies can help in a slowing economy. Therefore, companies which are quick to realize the potential will have a jump on the competition. If, as described in the previous section, two fundamental business strategies in a slow economy are to increase market penetration and emphasize high-ROI investments, CRM systems may be able to help significantly:

1. Shoring up the top line by increasing market penetration. CRM systems can be used to increase market penetration in a couple of ways. One is to pick up market share at the expense of weaker competitors. When market data is gathered for entry into the CRM database, a key field should be the existing vendor or service provider for each potential customer. Economic downturns will bring news of service cutbacks and even bankruptcies. Using the CRM system to target customers of those troubled companies will put information in front of those customers right when they might be needing to make a change. Also, CRM systems can be used to increase customer penetration. Every service call can be turned into a cross-selling, up-selling, or at least a re-selling opportunity. Having access to as much information as possible about the customer during service calls will help representatives spot opportunities for additional sales to increase penetration.

2. Addressing the expense lines by emphasizing high-ROI investments. There are several examples of how CRM software can enhance ROI, but here are just three of them. First of all, CRM reporting capabilities can save significant labor hours in compiling reports. Standard reports can be available at the click of a mouse, and custom reports can be configured with little trouble. Second, CRM software can be used to automatically launch e-mail campaigns, saving not only labor but the cost of materials and postage that traditional mailings would incur. Finally, CRM systems can be used to enhance sales force productivity. Activity levels can be monitored on a timely basis, so any sub-standard efforts can be addressed appropriately. For representatives with sufficient activity but poor closing ratios, sales force automation techniques can be used to try to improve performance. According to a Harvard Business Review study, companies taking a more systematic approach to sales can see average productivity rise by 30 percent, with the most dramatic increases coming from the bottom-quartile producers.

Reality Check: Managing CRM Investment Under Tight Budget Conditions

The potential of CRM systems to help during a downturn may seem enticing, but tight budget conditions may demand a reality check. There are times when companies just don’t have the cash flow for new capital expenditures, even when they know those expenditures will enhance their business in the long run. However, the emergence of Software as a Service (SaaS) delivery has lowered the barrier to many new technology initiatives, including CRM.

Hosted CRM systems, in which the vendor houses and maintains the software and the data storage, have been a leading example of SaaS delivery. Hosted CRM systems drive down initial cost by eliminating the need for software installation and data storage capacity. They also minimize ongoing system administration costs. Finally, by providing instant scalability, hosted CRM systems help a firm adapt to the ups and downs of economic cycles.

While some companies may find it preferable in the long run to bring the CRM system on-site, hosted CRM systems are an option which can make CRM software more accessible under weak economic conditions.

CRM System Case Studies

The following are a few examples to illustrate some of the principles described so far in this paper:

‧ By training its sales force on Maximizer’s CRM system, Staffco, a manufacturing sales company, was able to automate reports that previously had to be compiled manually. The result was a savings of 30 hours per week in labor.

‧ By using NetSuite’s web-based tools, Virgin Money Australia avoided a large capital expenditure during a financially sensitive period when it was trying to penetrate the market.

‧ Commercial real estate firm Richards Barry Joyce & Partners realized dual efficiencies from its ACT! by Sage CRM. The firm has cited the cost effectiveness of ACT! as one of the product’s merits, and because it could transition seamlessly to upgraded versions, its CRM capabilities were readily scalable.

Conclusion

Given the potential for customer relationship management systems to increase top-line productivity while enhancing return on investment, perhaps the question should not be whether a company can afford to pursue these systems during a downturn, but whether it can afford not to invest.

Sources

ACT! by Sage

BusinessWeek, Spring, 2006 Making Sense of Sales

CRM2Day.com

Forbes, May 21, 2008, Powerful Enterprise Software Small Biz Can Afford

Harvard Business Review, September 2006 The New Science of Sales Force Productivity

Maximizer

National Bureau of Economic Research

NetSuite

New York Times, November 13, 2007, Software for Rent

About the Author

Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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