OVER THE PAST TWO DECADES, managers have become enamored of relationship marketing. Lured by the opportunity to use customer data to build customized and profitable relationships, companies have invested heavily in customer relationship management systems that quantify the value of transactions. This interest shows no signs of tapering off. A recent Gartner Inc. research study showed that 75% of managers planned to make further investments in CRM in the coming year.1 However, most CRM systems have been used merely to categorize customers into segments based on their current levels of profitability. This approach may have implications for the bottom line, but it does little to advance the shift from mass marketing to one-to-one relationships. Customer relationship management has devolved into customer profitability management, a one-dimensional, company-centric practice based on economics and costs that provides little insight into why and in what ways people form relationships with companies and brands. That lack of relationship sensitivity has precipitated a new trend in which many companies use their CRM systems to identify and “fire” low-revenue, high-cost customers. In a recent survey we conducted of 900 customers, 30% said that they knew someone who had been cut loose by a company with which they had a commercial relationship. We are not so naïve as to think that companies should refrain from analyzing customer’ purchase data or the efficiency of marketing dollars spent. However, we have found that basic information about customer lifetime value can be a limited and even misleading indicator of the status and potential of a customer relationship. Loyalty programs, the most basic type of CRM program, do surprisingly little to address relationship realities or build relationship bonds. Although CRM programs may prevent customers from taking their business elsewhere, they are less effective at identifying the reasons to encourage them to stay. Ironically, CRM programs themselves may actually contribute to the creation of high-cost, low-value customers. However you look at it, companies are doing something wrong.
THE LEADING QUESTION
How can companies build better relationships with their customers?
FINDINGS
Get to know who your customers really are and what they need and value.
Be open to the different types of relationships that people form with your company and your brand.
Recognize that relationships can’t be one-sided; accept responsibility for difficulties.
A dramatic shift in perspective is required, yet for managers who are willing to think more deeply about the relating part of CRM and their own roles in creating or destroying value, significant opportunities are available. (See “Shining a New Spotlight on Relationships.”) By attending to the “R” in CRM, good relationships can be improved, and bad relationships can be turned around.
Refocusing on the Relationships in CRM
In an effort to develop a deeper understanding of consumers’ relationships with brands and companies, we studied people who were in emerging, existing and terminated relationships. (See “About the Research.”) Our research has led us to identify three important ways in which the current practice of CRM fails. First, companies seem to forget that their relationships are not just with consumers but with people: people who live rich and complicated lives. CRM programs rely on purchase information and do little to address deeper relational needs. Second, because relationships come in different shapes and sizes, companies need to be cognizant of the requirements of diverse types of relationships beyond the loyalty ideal. Different relationships require different ways of relating, and managers must adapt their CRM programs accordingly. Finally, companies don’t recognize that relationships are two-sided and that these relationships evolve with each interaction. As much as managers like to claim credit for profitable relationships, they also need to be willing to look inward to learn why relationships break down. By failing to treat relationships as dynamic works in process, companies walk away from relationships that could generate significant value.
ABOUT THE RESEARCH >>
The First Principle: Get to Know Customers as People
Contemporary CRM systems look at customers as “consumers,” monitoring their purchase histories and calculating costs to serve. Although metrics such as acquisition and retention costs, cross-selling potential and customer lifetime value provide economic insights that can advance the company agenda, they overlook the fact that the customer is first and foremost a person into whose life a meaningful brand may come. There is a big difference between a system that’s attuned to purchase and demographic data and one that takes into account what individual consumers are feeling, what they value and how they conduct their days. You can know a purchaser by collecting purchase and demographic data, but to establish a relationship you really need to understand what makes the person tick. At issue is the distinction between having information and constructing meaning. Having information involves disintegrating and reducing complex ideas into small, manageable bites. But finding meaning involves assembling information bites into larger, more abstract wholes. Ironically, information and meaning tend to work at cross-purposes: For meaning, context is everything; with information, context is noise. Unfortunately, today’s CRM systems, designed by information technology professionals, are optimized for information management. They do little to help managers decode how the brand fits in the person’s life.

Source: Susan Fournier and Jill Avery
March 23, 2011 MIT SMR