Crm Value Chain Analysis

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The CRM Value Chain

Francis Buttle, PhD, FCIM
Professor of Management MGSM Macquarie University Sydney NSW 2109 Australia Tel: 02 9850 8987 Fax: 02 9850 9019 Email: francis.buttle@mq.edu.au

© Francis Buttle Not to be reproduced in whole or in part without permission

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The meaning of those three letters, CRM, is hotly contested. For some, CRM is simply a bridge between marketing and IT: CRM is therefore an IT-enabled sales and service function. For others it’s little more than precisely targeted 1to-1 communications. But both of these views deny CRM its great potential contribution. Because CRM, at its most advanced, answers questions like ‘who should we serve?’ and ‘what should we serve to them?’ and ‘how should we serve them?’ it could, and often should, be positioned as the fundamental strategic process around which the business is organised. CRM decisions impact on marketing, certainly, but also on operations, sales, customer service, HR, R&D and finance, as well as IT. CRM is fundamentally cross-functional, customerfocussed business strategy. The CRM value chain The CRM value chain (figure 1) is a proven model which businesses can follow when developing and implementing their CRM strategies. It has been five years in development and has been piloted in a number of business-tobusiness and business-to-consumer settings, with both large companies and SMEs: IT, software, telecoms, financial services, retail, media, manufacturing, and construction. The model is grounded on strong theoretical principles and the practical requirements of business. The ultimate purpose of the CRM value chain process is to ensure that the company builds long-term mutually-beneficial relationships with its strategically-significant customers. Not all customers are strategically significant. Indeed some customers are simply too expensive to acquire and service. They buy little and infrequently; they pay late or default; they make extraordinary demands on customer service and sales resources; they demand expensive, short-run, customised output; and then they defect to competitors. What is a strategically significant customer? We’ve identified four types of strategically significant customer (SSC). Selfevidently, the high life-time value customer is a key SSC. These must be the focus of customer retention efforts. Life-time value potential is the presentday value of all future margins that might be earned in a relationship. Tempting as it may be to believe, not all high volume customers have high LTV. If they demand JIT, customised delivery, or are in other ways costly to serve, their value may be significantly reduced. We know of one company that applied activity-based costing disciplines in order to trace process costs to its customer base. They found that 2 of their 3 biggest customers were in fact unprofitable. As a consequence the company re-engineered its manufacturing and logistics processes, and salespeople negotiated price increases.

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Figure 1: CRM value chain

Primary stages

Customer Customer Network Value Manage Portfolio Intimacy Development Proposition the Analysis (SCOPE) Development Relationship

Cu sto m er

Culture and leadership Supporting conditions

IT/data management processes Organisation design

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A second group of strategically significant customers we call ‘benchmarks’. These are customers that other customers copy. A manufacturer of vending machine equipment is prepared to do business with Coca Cola at breakeven. Why? Because they can tell other customers that they are supplying to the world’s biggest vending operation. The third group of SSCs are ‘inspirations’, customers who inspire change in the supplying company. These may be customers who find new applications, come up with new product ideas, find ways of improving quality or reducing cost. They may be the most demanding of customers, or frequent complainers, and,...
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