The Big Business of Customer Relations

By MoneyShow.com  OCT 24, 2012 12:20 PM

The concept of customer relations being an integrated process built around flow charts and spanning industries is turning into a fast-growing multi-billion-dollar software business.

 


In Mike Judge's wicked 1999 satire of corporate culture, Office Space, there's a delightful character named Milton.

Poor Milton. He's all but invisible. No one likes him, no one talks to him, and coworkers are forever stealing his stapler. Management doesn't notice him enough to fire him.

Instead, Milton is shunted from desk to desk, each time losing more of that precious commodity denoted by the film's title, until he finally winds up alone in the basement, where he plots the delicious revenge he'll take on the company.

In times past, customer relations staffs were where the Miltons of the world most likely landed. If you couldn't do anything else, you could probably listen to phone complaints all day. No one wanted to, but somebody had to do it. And so they did, until they went mad from boredom or frustration.

That was then. Today, there's a new shine on customer relations departments, and the field has earned itself a fresh, glossy title and a widely recognized abbreviation: customer relations management, or CRM. And it's become an integral part of the SaaS (software as a service) industry.

The Rearview Mirror
But first turn back the clock to the 1970s, before the real blossoming of the computer revolution.

In that era, most companies—especially those in the Fortune 500—paid little attention to customers, who were largely forgotten after they'd ordered something. Big company execs, knowing they had enormous resources at their disposal along with a major market presence, had the attitude that they could always replace customers if necessary.

Then came the dawn of the Information Age, with ever more powerful business computers and personal machines that began to proliferate in buyers' homes. Now people could make more informed decisions about whom they wanted to buy from. Globalization eased the task of switching suppliers if they were unsatisfied with someone's customer service.

At the same time, businesses had rapidly increasing computing power at their fingertips. The confluence of these two factors led directly to the beginnings of CRM in the 1980s.

At first, with the rise of sophisticated database creation and maintenance technology, it was referred to as "database marketing." Databases were employed to create focus groups to communicate with customers, particularly the most valued. Problem was, data was gathered primarily through repetitive and inefficient surveys, and in the end, surveys don't yield a great deal of useful information.

There were processing and analysis hurdles, as well. No task-specific software yet existed that could take all the data being amassed and spit something actionable out the other end. Eventually, companies came to realize that what they needed was to compile simple information they could make plans around: what the customer was purchasing, in what quantity, how often, how much was being spent, and what was done with the products purchased. Sounds pretty basic today, but it wasn't until the '90s that the phrase "customer relationship management" was coined, and more comprehensive versions of the software were written. Everything that could be automated was.

CRM, however, is not just about technology. As it has evolved, it has also become more complex, more of a two-way street. While gathering information for the purpose of decision-making remained primary in order to drive increasing profits, companies also put some effort into building strong, enduring relationships with their clients in order to build loyalty. Many began giving back to favored customers, in the form of gifts, discounts, perks, and sometimes even cash.

Customer support, integrated into a CRM system, became more solid, even as machines were taking over much of the heavy lifting. Management began to treat the old saw, "the customer is always right," with greater respect. That was more difficult before the computer revolution.

Now it's a cinch. When customers complain, their grievances can be handled quickly and efficiently, on an individual basis. And the mistakes that caused the problem can immediately be rooted out so that they don't happen again.

Sales, once made, can be logged into the database and tracked. They can be cross-referenced to any number of other areas, and analysis can proceed from different angles. Customers' interests and buying patterns can be identified.

Sales managers can have direct access to information that allows personalization of the buyer's experience. Electronic sifting of sales data can help drive product development in the best possible direction. And customer follow-ups can be generated automatically, according to any criteria desired.

The Rise of Salesforce
Salesforce (NYSE:CRM) established its position by targeting smaller to mid-sized companies, an area largely neglected by its bigger rivals—primarily because the high cost of the CRM solutions of the day was affordable only by big-budget outfits.

It also pioneered the delivery of subscription-based CRM software online. Put the two together, and you have one of the biggest corporate success stories of the new century.

And no wonder. According to its web site "With Salesforce, every step of a sale—from phone calls and e-mails to collaboration with colleagues—is tracked in one place, so reps stay on top of deals and build stronger relationships with their customers. The average Salesforce.com customer experiences: +29% increase in sales; +34% increase in sales productivity; +42% increase in forecast accuracy."

Salesforce currently has more than 82,000 customers and over 2 million subscribers. It's international—with regional headquarters in Switzerland, Singapore, and Tokyo—and its software supports 16 different languages. It is annually recognized as one of Fortune's 100 best companies to work for, with a ranking that vaulted from 52nd in 2011 to 27th in 2012. The company is working hard to utilize social-networking Web sites and to lock up a dominant role in mobile CRM. It's a leader of the migration to the cloud, as can be seen in the way its CRM suite is broken down:

For its efforts, Salesforce has been amply rewarded. It's jumped from nothing to over $2 billion in revenues in 13 years. Its CAGR for the past five years has been 22.2%. It led the field in market share addition in 2010-2011, with a 2.8% increase.

Since it IPOed at $11 in June 2004, its share price has rocketed to around $145 today, a rise of better than 1,200%. And along the way, it steadily buttressed itself (and dampened competition) through strategic acquisitions, gobbling up 24 other companies between 2006 and 2012.

Though nothing in this fast-evolving space is certain, of course, the consensus is that Salesforce will continue to eat market share. With Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP) losing market share, Salesforce and Microsoft (NASDAQ:MSFT) seem poised to benefit the most.

But what about other potential competitors, those that make up the 40% not controlled by the Big Four? Might some serious challengers arise?

The Future
Whither from here for CRM? There are probably as many answers to that question as there are those giving them. But a few themes emerge.

One of these is the integration of social media with corporate CRM. It's even got its own buzz term, "SocCRM." And one logical extension of SocCRM is what is generally referred to as "value co-creation." Through the use of social media, companies have the ability to interact with the customer base as never before. There is a ton of information floating around out there, and it can be tapped into. Now, even major decision making can be based on real-time feedback from users.

Design, marketing of product, pre- and post-purchase service—all can become true collaborative efforts, the goal being to create a win-win scenario for both the vendor and the customer. Some startups are even creating social networks before they bring their product to market, in order to find out what it is that the market really wants.

Value co-creation—both in the beginning and as an ongoing part of the toolkit—can be extremely advantageous for the company because it is, in essence, outsourcing much of the heavy lifting of product development, and getting it done for free.

With regard to its Dynamics CRM software, Microsoft put out a white paper in which it suggested uses that its product might be applied to. Among others noted by Microsoft:

But in the end, how do you get sales staff, who may be very set in their ways, to actually use this stuff?

That's the question posed by Dr. Michael Wu, principal analytics scientist and blogger for Lithium.com. Wu writes that "one of the many challenges facing Social CRM will be adoption. In fact, traditional enterprise software (e.g., sales force automation) often experiences a very steep learning curve and is not well adopted within the enterprise. Even if it is adopted, people often hate to use it. Employees only use it because their job requires it."

His simple solution: "gamify" CRM software. That is, people are more apt to learn new skills, and to warm to new technologies, if they're presented as a game.

"Social gaming dynamics," he says, "can foster team work, collaboration, and even a healthy level of competition within your organization. The result is ultimately a huge boost in productivity...

"So if you ever get involved in [CRM] software design, make sure it's entertaining! Never underestimate the power of fun."

Sounds like an idea whose time has come.


Editor's Note: This article was written by Doug Hornig of Casey Research.

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