CRM in the age of the customer

We've entered a new era that Forrester calls the age of the customer. While companies have always, to a greater or lesser extent, called themselves "customer-centric," this is different. It is not about customer-centric thinking or taking the attitude that the customer is always right. Instead, the new power of customers means that a focus on the customer now matters more than any other strategic imperative. Competitive differentiation achieved through brand, manufacturing, distribution and IT are all now only table stakes. The only source of competitive advantage is the one that can survive technology-fueled disruption—an obsession with understanding, delighting, connecting with and serving customers. Effectively managing your company's relationships with those who buy and use your company's products and services has never been more important.

Ultimately, executives don't get to decide how customer-centric their companies are—customers are the ultimate arbiters. Better customer experiences drive improvement for three types of customer loyalty:

• willingness to consider another purchase,
• likelihood to switch business to a competitor, and
• likelihood to recommend to a friend or colleague.

But how does that affect a company's bottom line? Our models estimate that the revenue impact from a 10-percentage point improvement in a company's performance, as measured by Forrester's Customer Experience Index (CXi) score, could exceed $1 billion.

As a result, managing customer relationships has become a top priority for continued business success. Tough economic conditions, the increasing cost of doing business, stiff competition, and the need to support and personalize every customer interaction are forcing business and technology leaders to think about the customer relationship management (CRM) life cycle beyond legacy CRM tools.

Defining CRM

Forrester defines customer relationship management as: the business processes and supporting technologies that support the key activities of targeting, acquiring, retaining, understanding and collaborating with customers.

Although we do not advocate that organizations primarily define CRM solely as a set of technologies, interest in investing in technology solutions to improve customer-facing business processes continues to be strong (download chart 1 or see the chart at the top of page 17, KMWorld April 2013, Vol 22, Issue 4). Nearly half (47 percent) of the North American and European enterprises responding to the Forrsights Software Survey, Q4 2012, have already implemented a CRM solution in the form of a marketing, sales or customer service application. One-quarter (26 percent) are spending more to upgrade their tool set. Thirteen percent plan to adopt a CRM solution within the next 12 months, with a further 12 percent indicating longer CRM implementation road maps.

The strong demand for CRM technology solutions has prompted leading vendors to continue to invest in improving their solutions and make acquisitions to fill out their solution portfolios. However, business and technology pros tell us that they struggle to determine how to define the right CRM strategies, re-engineer customer-facing business processes, effectively acquire and deploy the appropriate supporting technology solutions, and lead and sustain the organizational changes required to transition to new ways of working. (download chart 2 or see the chart at the bottom of page 17, KMWorld April 2013, Vol 22, Issue 4)

Thanks to digital platforms, your customers live in a world of heightened expectations and abundant options; they can get more of what they want, in more places and at more times, than ever before. A new breed of competitors is on the scene—companies that use digital tools and platforms to get closer to customers and engage with them in deeper and novel ways. Digital disruptors, which Forrester's James McQuivey writes about in the book Digital Disruption, threaten to make your organization irrelevant by delivering a more compelling product and service experience than you can and at a lower cost. Digital disruption is now set to turn its destructive force on even non-digital products and services, adding new competitors to the mix, revamping old economics and establishing new customer relationships along the way. We have entered the age of the customer; the only source of competitive advantage now is to focus on knowing and engaging with customers. Here's why:

Why focus on customers?

The barriers to entry are lower. Empowered customers can easily find the cheapest prices from suppliers, large or small, anywhere in the world. That severely weakens traditional barriers to entry: Global outsourcing erodes economies of scale, online channels render distribution strength impotent, and customer word of mouth reverses huge brand investments.

Substitute products and channels gut profits. Digital substitution is collapsing value chains and erasing profits across multiple industries. The customer is at the center of this disruption, because innovators targeting any business know that if they give the customer what she perceives as value, she'll gladly substitute their product for what she's buying now.