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e to their customers. Options include field sales, retail outlets, call centers,
resellers, the internet, and wireless platforms, to name just a few. In designing a
channel system, a company must consider which channels are best equipped to
Why CRM? The Business Case for Customer Relationship Management Page 6
support the company’s products and services, meet the needs of specific customer
segments, and support each stage of the buying cycle.
For example, one online pet store, no longer a going concern, learned quickly that
selling 50-pound bags of dog food to an older demographic via the Web was not a
sustainable strategy. The costs associated with shipping the 50-pound bags to
consumers priced the product out of the market, and the low internet usage among
the target audience further limited sales.
Balancing Customer Needs and Channel Costs
Channel investment decisions are based on understanding two things: what value a
channel offers to customers and at what cost. Channels must be evaluated in terms
of their value proposition to customers and their costs to the company.
Additionally, channel investments must be made with a strategic objective in mind,
such as growing market share for a particular product or increasing overall revenue.
Many managers have too quickly decided that a lower-cost channel must be more
profitable and, therefore, all products are driven through that channel. However,
cost alone is a limited method of assessing channel strategy. A more thorough
analysis should answer the following questions:
• Will the lower-cost channel effectively deliver value to customers?
• What type and proportion of customers will migrate to the lower-cost
channel?
• Will the order or deal size be affected?
• How much will it cost to educate customers?
• Will the more expensive channel still be needed to serve some customers?
All channels have associated costs. The task is to identify all cost drivers
(infrastructure, headcount, allocated costs, and overhead) associated with each
channel. While a channel might result in lower costs per transaction (low variable
cost), it might still be expensive to maintain (high fixed costs). Cost per transaction
and the cost per interaction (pre- and post-transaction) should also be measured.
Why CRM? The Business Case for Customer Relationship Management Page 7
Figure 1: Channels must be evaluated in terms of their value to customers and their
costs to the company.
Enhancing the Customer Experience
Traditionally, companies operated under the assumption that building the best
product was the key to gaining market leadership. However, with increasing
product commoditization and increasing demands on customers’ time, companies
are realizing that how they market to, sell to, and provide service to customers is
just as important as what they sell. Customers demand the ability to conduct
business with an organization on their own terms, and they do not want to have
their time wasted by inefficient company processes.
To meet customers’ increasing demands, companies must take a couple of key steps
toward enhanced customer satisfaction. First, they must provide customers with
self-service options. Customers should be able to visit a company’s Web site at any
time to check the status of a service request, reorder a product, or resolve a billing<