Customer relationship management (CRM) systems

The more opportunities that customers have to conduct business with your company the better.

Customer relationship management (CRM) can help you gain an insight into the behaviour of your customers and modify your business operations to ensure that customers are served in the best possible way. CRM can help you recognise the value of your customers and to capitalise on improved customer relations. The better you understand your customers, the more responsive you can be to their needs.

CRM can be achieved by:

• finding out about your customers' purchasing habits, opinions and preferences
• profiling individuals and groups to market more effectively and increase sales
• changing the way you operate to improve customer service and marketing

Benefiting from CRM is not just a question of buying the right software. You must also adapt your business to the needs of your customers.

Implementing a customer relationship management (CRM) solution might involve considerable time and expense. However, there are many potential benefits.

A major benefit can be the development of better relations with your existing customers, which can lead to:

• increased sales through better timing by anticipating needs based on historic trends
• identifying needs more effectively by understanding specific customer requirements
• cross-selling of other products by highlighting and suggesting alternatives or enhancements
• identifying which of your customers are profitable and which are not

Improving relations with existing customers can help:

• enhance customer satisfaction and retention
• increase value from your existing customers and reduce costs
• improve profitability by focusing on the most profitable customers and dealing with the unprofitable in more cost effective ways

Once your business starts to look after its existing customers effectively, efforts can be concentrated on finding new customers and expanding your market. The more you know about your customers, the easier it is to identify new prospects and increase your customer base.

Even with years of accumulated knowledge, there's always room for improvement. Customer needs change over time, and technology can make it easier to find out more about customers and ensure that everyone in an organisation can exploit this information.

CRM solutions fall into the following four broad categories.

Outsourced solutions

Application service providers can provide web-based CRM solutions for your business. This is ideal if you need a quick solution and your company does not have the in-house skills to tackle the job from scratch. It's also a good solution if you're already geared towards online e-commerce.

Off-the-shelf solutions

Several software companies offer CRM applications that integrate with existing packages. Cut-down versions of such software may be suitable for smaller businesses. This is generally the cheapest option as you are investing in standard software. The downside is that the software may not always do precisely what you want and you may have to trade off functionality for convenience and price. The key to success is to be flexible without compromising too much.

Bespoke software

Consultants and software engineers will customise or create a CRM system and integrate it with your existing software. You need to carefully specify exactly what you want. Costs will vary, but this will usually be the most expensive and time-consuming option.

Managed solutions

A half-way house between bespoke and outsourced solutions, this involves renting a customised suite of CRM applications as a bespoke package. This can be cost effective but you might have to compromise on functionality.

The implementation of a customer relationship management (CRM) strategy is best treated as a six-stage process.

Stage 1 - Collecting information

Capture the information you need to identify your customers and categorise their behaviour. Having a website and online customer service can be an advantage as customers can enter and maintain their own details when they buy.

Stage 2 - Storing information

The most effective way to store and manage your customer information is in a relational database - a centralised customer database that will allow you to run all your systems from the same source, ensuring that everyone uses up-to-date information.

Stage 3 - Accessing information

With information collected and stored centrally, the next stage is to make this information available to staff in the most useful format.

Stage 4 - Analysing customer behaviour

You can start to profile customers and develop sales strategies by using data mining tools in spreadsheet programs, which analyse data to identify patterns or relationships.

Stage 5 - Marketing more effectively

Many businesses find that a small percentage of their customers generate a high percentage of their profits. You can use CRM to reward and target your most valuable customers.

Stage 6 - Enhancing the customer experience

Just as a small group of customers are the most profitable, a small number of complaining customers often take up a disproportionate amount of time. If their problems can be identified and resolved quickly, you will have more time for other customers.

There are several reasons why implementing a customer relationship management (CRM) solution might not have the desired results.

There could be a lack of commitment from people within the company to the implementation of a CRM solution. Adapting to a customer-focused approach may require a cultural change. There is a danger that relationships with customers will break down unless everyone in the business is committed to viewing their operations from the customers' perspective. The result is customer dissatisfaction and eventual loss of revenue.

Poor communication can prevent buy-in. In order to make CRM work, all the relevant people in your business must know what information you need and how to use it.

Weak leadership could cause problems for any CRM implementation plan. Management should lead by example and push for a customer focus on every project. If a proposed plan isn't right for your customers, don't do it. Send your teams back to the drawing board to come up with a solution that will work.

It's risky to implement CRM as a complete solution in one go. It's better to break your CRM project down into manageable pieces by setting up pilot programs and short-term milestones.

Don't underestimate how much data you will require, and make sure that you can expand your systems if necessary. You need to carefully consider what data is collected and stored to ensure that only useful data is kept.

You must also ensure you comply with the eight principles of the Data Protection Act that govern the processing of information on living, identifiable individuals. For more information, see our guide on how to comply with data protection legislation.

Avoid adopting rigid rules which cannot be changed. Rules should be flexible to allow the needs of individual customers to be met.

For many businesses customer relationship management (CRM) can be a large investment. It's vital to choose your supplier carefully. Making the wrong choice could be expensive and even jeopardise your business. Before implementing a solution based on CRM technology, ask any potential suppliers the following questions:

• How long has the supplier been established?
• What are the specific costs associated with the product, ie a one-off purchase price, an annual renewable license, a charge per user etc?
• Does the supplier offer any form of evaluation software so that you can try before you buy?
• How much is charged for technical support?
• Does the supplier provide consultancy and, if so, at what rates?
• Is the system scalable? If your customer base grows will the system expand to cope?
• Can the supplier recommend any third-party developers that make use of their core CRM products?
• Is there an active independent user group where experience and ideas can be freely exchanged?
• Can the supplier provide references for businesses in your industry sector that use their software?
• Does the supplier offer training in the CRM solution and, if so, at what typical cost?

Read our guide Retain and grow your customer base.