New Views on Digital CRM

As the Internet becomes ubiquitous in business life, early fears that it would disrupt the business models of many companies (for example, by enabling customers to switch suppliers easily) have subsided. According to a February 2002 study, many now see the Internet as a significant opportunity — specifically, a chance to reduce customer-service costs, tighten customer relationships, personalize marketing messages and enable “mass customization.” The paper is “Customer Relationships Go Digital,” by George S. Day, the Geoffrey T. Boisi Professor and a professor of marketing at the University of Pennsylvania's Wharton School, and Katrina J. Hubbard, a doctoral candidate in the marketing department at Pennsylvania State University.

The study is a survey of 352 senior marketing and sales (and several management-information system) managers on the Internet's impact on their ability to manage customer relationships. Respondents came from a wide range of industries, including manufacturing, transportation, public utilities, wholesale and retail trade, finance, insurance and real estate. Businesses were located in all 50 states, and all had more than 500 employees. Just over half were business-to-business, roughly a quarter were business-to-consumer and a quarter sold to both markets.

Using multiple regression analyses, the researchers examined the correlations between 15 specific opportunities and threats of the Internet (for instance, “reduces customer service costs,” “encourages customer feedback and dialogue,” “expands set of competitors” and “facilitates customer switching”) and the managers' overall judgment about the Internet's impact on customer relationships. Perhaps not surprisingly, the perceived opportunities of the Internet exerted far more influence on respondents' judgment than the perceived threats did. In particular, the perceived opportunity to reduce customer-service costs revealed a noticeable shift in the goals of customer relationship management (CRM) initiatives from revenue enhancement to cost containment. Apparently, in the survey respondents' minds, the Internet's benefits far outweighed its threats.

However, the responses revealed varying levels of enthusiasm for the Internet. Additional analysis suggested that companies experiencing the Internet as a major opportunity differed from other businesses in several respects, including their market environment and numerous internal attributes. For example, Internet-as-opportunity companies tended to operate in fast-growing markets with highly loyal customers. Moreover, many of them focused their strategy on delivering superior value through close customer relationships — then devoted enough resources to that strategy to develop and sustain relationships. These same companies also used CRM software to coordinate customer communications, interactions and service-support activities. Finally, such companies tended to integrate the Internet into numerous other distribution and service channels.

The survey responses documented managers' opinions rather than the actual results of their CRM initiatives. Nevertheless, on the basis of those remarks, the authors propose three principles for managers to consider:

Companies that already excel at managing customer relationships seem the best equipped to take advantage of the Internet's opportunities. Early on, “relationship leaders” anticipated using the new technology to connect more strongly with customers, exploited the technology faster than competitors did and implemented their CRM initiatives better. Thus the Internet appears to offer the best opportunities for companies that have the necessary conditions in place for leveraging the technology.

New Internet market models are less disruptive than early observers believed. Models such as “infomediaries” and “name-your-own pricing” have had little impact on customer-supplier relationships. Indeed, many infomediaries “have been disabled by unexpected barriers that incumbents had long learned to live with,” notes the paper. Therefore, it appears that certain companies can continue using established business models confidently and successfully.

Savvy companies use the Internet to complement existing channels rather than “bolting it on.” While most companies use a variety of distribution and service channels, those that most creatively employ the Internet for CRM ensure that the technology enhances all their other channels. For example, they equip call-center employees with net-based CRM systems, augment their bricks-and-mortar stores with location-based services that enable more customers to find them and arm salespeople with mobile devices that provide additional information and tools during sales calls. These companies also skillfully manage potential channel conflict in ways that allow channels to complement one another.

The authors suggest that companies seeking to benefit more from the Internet ask customers how the company's Internet capability stacks up against rivals'; determine whether customers are truly committed to the company or are buying only out of habit or inertia; and use collective incentives and cross-functional structures to align marketing, sales and customer-service functions behind CRM initiatives.