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hs after
implementation, we realized at least US$8 million in competitive wins that were
directly attributable to the new solution.”
Improved Customer Retention
Improvements in customer retention lead to increased revenue growth. Customer
retention is a critical factor in determining a company’s long-term financial
performance. Consider the value of existing customers: they require no additional
1 “Suite Returns,” by Elana Varon, CIO Magazine, August 15, 2000, pg. 2.
Why CRM? The Business Case for Customer Relationship Management Page 16
marketing or set-up costs, generally provide higher revenue per purchase, are less
sensitive to price, and refer new customers.2 Consider everything together, and the
financial return from retaining customers and extending their lifetime value can be
enormous. For example, by studying a wide array of industries, management
consultants at Bain & Co. found that a 5 percent improvement in customer
retention increased profitability by 25 to 100 percent.
CRM lets an organization increase customer retention rates in a number of ways.
First, CRM software provides powerful analytics that helps organizations
understand the key drivers, timing, and predictors of turnover. Second, CRM
marketing and campaign tools allow a company to develop models to target
desirable customers at risk of defecting to another company with mailings, phone
calls, and promotions. For example, one leading networking equipment
manufacturer has used Siebel CRM technology in effectively tracking service
contracts that are about to expire. “Since the system automatically alerts managers
to approaching expiration dates,” says the company’s director of customer service,
“we’re able to immediately go after those contracts and make sure they are renewed
before the expiration date. This has increased our revenue from service contracts
by 20 percent.”
Third, CRM technology can help a company improve customer retention by
referring customers to alternative product and service offerings when a customer’s
primary choice is unavailable. For example, Siebel CRM technology lets Marriott
maintain a unified guest information repository across its various lodging brands,
including Residence Inn by Marriott, Courtyard by Marriott, and Ritz-Carlton. If a
customer wants to book a room or a meeting at a hotel that is full, Marriott’s CRM
system can easily refer the customer to another Marriott property in the area that
has capacity. By keeping customers within the Marriott portfolio, the company not
only prevents sending business to the competition in the short term, but also
gathers increasingly rich information about customers’ preferences. This
information can then be used to support a positive cycle whereby customers receive
a highly personalized experience regardless of the particular Marriott brand or
property they are visiting.
Additional Benefits of CRM
In addition to providing measurable benefits in the form of reduced costs and
increased revenue, CRM technology provides many other benefits that are more
difficult to measure. Some of these benefits include superior market intelligence,
more customer-centric product development, improved forecasting and financial
management, and greater brand equity.
2 “Quality Comes to Services,” Frederick F. Reichheld and Earl Sasser, Harvard Business
Review, March–April 19