CHAPTER FOUR
IMPLEMENTING THE CRM STRATEGY
Outline of the Chapter
• Understand different types of CRM implementation projects
• Introduce the concept of ROI of CRM and discuss CRM implementation effectiveness
• Discuss why CRM implementation projects fail
• Analyze the case study: Capital One as an illustration of CRM strategy implementation
Teaching Suggestions
This chapter gives practical guidelines on implementing the CRM strategy in an
organization. Students can get a clear understanding of what types of CRM implementation there
are. Moreover, this chapter introduces the idea of CRM implementation effectiveness so students
can analyze what can be counted as an investment in CRM and how to calculate the returns from
that investment. The chapter also gives an insight into what problems can be anticipated when
introducing CRM strategy for the first time and how to overcome them. The Capital One case
study provides a great example from the real world as to how strategic CRM can be defined
(linking back to chapter 3) and implemented in an organization.
Some Guidelines
After having built up the theory regarding the value of a CRM investment by a firm in the
previous classes, instructors can initiate a discussion on various types of CRM implementation
projects (e.g. operational or analytical implementation projects) and their interplay. The instructor
can then introduce the concept of CRM implementation effectiveness and ROI in order to provide
students with actionable tools how to evaluate the success of CRM initiatives. As an optional
aspect, the instructor may want to start a discussion why CRM implementation projects fail and
what can be done to mitigate this threat (based on student ideas and input provided in chapter 4.3).
The case study on Capital One, UK can be used for class discussion for the students to
understand how CRM system is implemented in credit card industry. After building up a good
background on the credit card industry, the instructor can guide students to discuss the CRM
practices and strategies employed by the company. The implementation of CRM could not be
successful without the close cooperation of various departments within the company and all the
employees embracing the changes as part of the company culture. Instructors can involve the
students in a comprehensive discussion of Capital One’s practices and subsequently discuss the
factors involved in ROI calculations for CRM and the challenges involved in adopting CRM
strategies.
Exercise Questions
1. What factors will you consider when measuring the ROI of CRM investments?
The estimation of ROI of CRM determines many critical decisions, such as whether a CRM
strategy is needed, what CRM strategy should be developed, and how it should be implemented.
Due to the cross-functional nature of strategic CRM, costs are incurred in many areas.
1. IT costs- includes investment in IT infrastructure, database development and software
2. People costs- including recruitment, redeployment and training costs
3. Process costs as market segmentation process, selling process and campaign
management process costs
To compute the gain associated with a CRM initiative requires that all other variables
impacting the profit equation are held constant. Different small projects within a large-scale CRM
system will have different cost profiles and time scales. Often, it is very difficult to compute
concrete CRM profits because (1) the implementation takes two to five years to complete, during
which the competitive environment might have been changed, (2) some CRM costs are necessary
but do not generate revenue, and (3) the change or performance improvement cannot always be
attributed to CRM investment. However indirect benefits of CRM in terms of lower customer
acquisition costs, lower cost to serve, higher customer satisfaction and retention, and higher
average customer value should also be considered. Some other indirect returns reflect neither cost
nor revenue, but the drivers of either or both. Among these are improvements in customer
satisfaction, customer retention, customers acquired, customer attrition rates, cross-sell rates, upsell rates, products owned per customer, inventory turns, average number of transaction, share of
wallet, customer complaints rates, process costs, rework, employee satisfaction, and employee
retention. The ultimate return on CRM investments is the improved long-term customer
profitability. Measuring the overall strategic ROI on CRM should involve looking at the entire
cycle of developing, implementing, and continuously improving the CRM strategy.
For some operational or analytical projects that have immediate impacts on costs and
revenues, the time period of ROI measurement could be a matter of weeks or months after the
completion of the projects. However, for those projects where significant assets are created (e.g.,
development of a customer database), the time period of ROI measurement should be much longer,
maybe to two to three years after the projects are completed.
2. What are advantages and disadvantages when implementing CRM on an organizational
basis versus on a limited functional basis (e.g., sales force only)?
CRM when implemented on an organizational basis serves the objective of maximizing
profitability, reducing support costs, and increasing sales and customer loyalty. On the surface,
most of operational projects do not create revenues directly, but - if successfully developed and
completed - they provide the company with the necessary resources to perform value-added CRM
projects. However, delivering desirable value propositions to customers requires understanding
customers’ needs and expectations. Also, defining and executing operational CRM projects
requires dealing with what is going on inside of people (the ones who use the system and
information), their perceptions, feelings, and ability to adapt and accept external changes that
occur. No value can be realized from CRM without understanding and managing its impact on the
people who live with it and make it work on a daily basis. It must be willing to prioritize human
issues in order to ensure that the CRM strategy succeeds. Resistance from employees must be
anticipated and dealt with in a positive way. If the management ignores the uncomfortable aspects
of change, the entire CRM strategy will fail.
CRM implementation on a limited functional basis would be less expensive, easier to adopt
(e.g. sales force automation) and easier to get employee buy-in from a particular department than
the organization as a whole. However, it fails to achieve strategic CRM objective of integration
and alignment of all organizational processes in order to maximize customer equity and thereby
profitability.
3. What are the various components of the CRM architecture from an operational
perspective?
The implementation of the CRM strategy is a process of planning and executing a series of
(small) different CRM projects. These projects can be categorized as operational projects,
analytical projects and application projects. Operational projects build an infrastructure that
enables companies to measure up to the technical and functional requirements of CRM. These kind
of projects do not create value directly but they provide a basis for further value-adding CRM
projects. The components of the operational CRM infrastructure are:
 Information delivery/Online catalogs: Capability to display and list the company’s
products and services online
 Customer database: Capability to capture, organize, present and analyze customer-specific
data, in order to identify sales opportunities and address product development and delivery
requirements
 Personalization and content management: Utilizing results of data analysis to create an
individualized experience for the customers and modify service delivery vehicles to match
the specific needs of customers
 Sales force automation: The deployment and use of tools and services desgined to automate
the sales and marketing lifecycle
 Partner channel automation: The deployment and use of tools and services designed to
intefrate a company’s service vehicles with those of its provider and third-party partners
 Customer services: The deployment and use of technology and business processes designed
to successfully support a company’s product and services
In addition to these components, many companies may want to develop a comprehensive
data warehouse to store real-time data to facilitate marketing data intelligence analysis.
4. What analysis is involved in assessing the value of a customer?
A number of popular metrics are used for assessing the value of a customer. These include
strategic customer value based metrics such as Past Customer Value, RFM value, Customer
Lifetime Value (CLV) and Customer Equity. Based on the metrics selected, analysis will differ.
However, assessing customer value, in principle, involves arriving at a measure of customer’s
contribution to the firm in the future based on customer’s purchase history. This takes into account
customer’s transaction data across all the channels and company-customer interactions using
different touch points.
Assessing customer value is a key example for an analytical CRM project. It usually
involves three major types of activities: Capturing customer information (building a customer
database, integration of all data across all channels and all customer-company touch points),
customer data transformation (building a data warehouse and enhancing the data) and customer
knowledge discovery.
The last type, customer knowledge discovery, provides marketers with the tools and
processes to discover customer data, convert information into usable customer knowledge and
deploy it to enhance marketing decision making. This contains usually a three-step process:
(1) Analyzing the data: The first step starts with analyzing the customer base in order to get a
clear understanding of the existing customer and their characteristics, including
demographic aspects, psychographic information and information on actual behavior. Then
the company should define customer segments and use them as the basis for decision
making.
(2) Predicting the future: Based on the information from the first step the company should
model a behavior pattern for specific customers and predict whether they will buy again,
what they will probably buy, when they will buy, how much they will spend, and what
additional services they may need.
(3) Assessing Customer Value: After completing the first two steps, it is essential to assess the
value of the different customer (segments) to the company. With this information, the
company is able to allocate its limited resources in the most efficient manner and focus on
the best and most valuable customer relationships.
5. What customer backlashes can be expected when a company introduces CRM? What are
the cautionary steps that you would advise companies to take to avoid these?
One reason why CRM implementation Projects can fail is poor data quality. Poor data
quality and as a result poor service quality can lead to dissatisfaction among customer. There are
several types of poor data quality like poor data entry, missing data, lack of company-wide coding
standards etc. Even though it is not easy to remove poor data quality, there are some
recommendations:
 It is very important to consider data quality at the very beginning when devising the CRM
strategy. Having a realistic idea of the data quality includes an analysis of the status quo of
data quality.
 Furthermore, a one-time effort for data cleansing should follow. This includes often the
data warehouse.
 Lastly, data quality depends on continuous data care. That means specitfic processes to
detect and correct erroneous data entries are required as well as an on-going routine for
data quality maintenance.