Typing Relationship Management Models

Last week we wrote about the confusion that seems to rage over what exactly CRM is and is not.  So, we've decided to start a little series of posts here.

First, the bad news: there is no ordained definition of what "CRM" is, but there is a fairly strong consensus among marketing strategists what the phrase "customer relationship management" intends.  So let's start by stating, as can be found in many resources:

CRM is a business strategy.  It is not a software application, platform, or system.  This business strategy is directed to understanding, anticipating, and responding to the wants and needs of an enterprise's current customers in order to grow the life-time relationship value.

A couple of points right away:

  1. Current vs. Prospective Customers. Some will argue that CRM equally applies to potential or prospective customers as it does existing customers.  We disagree.  The business strategy called CRM is really about retention marketing, not acquisition marketing.  The former is unique in that the tools of CRM focus more on the middle to late stages of the customer life cycle (i.e., selection, satisfaction, loyalty and advocacy), not the early stages (i.e., awareness, knowledge, consideration and selection.)  We'll save the nuanced counter argument about addressing the same customer in future cross-sell or up-sell opportunities as an iteration through the entire life cycle.  One could argue that a new product is a return to raising awareness and increasing knowledge, etc.  Its different. Full stop.  Please ask us to explain or watch for the book :-)

  2. The Definition of a Customer.  This is the immediate threshold element in understanding why some CRM solution providers confuse matters.  A "customer" is one who purchases your product or service.  A customer can be an individual consumer; a client; a constituent; a retailer; a distributor; a purchasing cooperative; etc.  The key is to ask: "Is the individual, group, or entity a purchaser of my goods and services?"  Next it is imperative to know whether the "customer" as you have identified it is a consumer or a "proxy" or representative of a consumer.  The former amounts to a so-called "B2C" relationship whereas the latter amounts to a "B2B" relationship.  And this distinction will be essential to determining your CRM strategy, approach, requirements, and tools.  For example, where the customer is a consumer, client, or constituent, the individual is who you are establishing the relationship and therefore addressing their individual needs (which often tend toward to emotional values of your brand promise).  On the other hand, where the customer is a business, the proxy is generally a purchasing agent (in larger enterprises) or the owner (in small business) and in any event is some decision maker with whom you are estbalishing a relationship and therefore addressing their business needs (which often tend toward the rational values of your brand promise -- remember our position that CRM is brand management?).

The challenge for us today is that the Internet has driven many Manufacturer/Wholesalers to seize the tantalizing opportunity to connect directly to consumers of their brands, often unwittingly trampling on their established distribution and retail channels.  Of course, there are some interesting solutions to address how integrated retail eCommerce can work to the benefit of both the brand and its channels. 

Nevertheless, where the enterprise is the maker of the goods and services , which they subsequently sell through channels, CRM becomes a bit confusing because they are typically looking for a solution to address both B2B (their distributors and retailers) and B2C (their ultimate consumers.)  To add some more alphabet soup to this, this latter approach to moving their products is often called "direct to consumer" (or DTC).

The Major Relationship Model Distinction

So, once you understand which kind of CRM your business requires (i.e., B2B or B2C, or actually both) and what the strategy right-sized to your enterprise will require, then comes the task of figuring out what type of CRM solution provider you may want to turn to for tools.  Some CRM experts attempt to delineate several models for academic purposes.  We're kewl with that, but think its useful at the outset to focus on just two:

  • Horizontal CRM Solutions
  • Vertical CRM Solutions

...and have an appreciation for their major differences and cost implications.

Horizontal CRM Solutions.  Horizontal CRM makers provide a non-specialized base platform intended for application across all industries.  They tend to be less expensive (up front), least common denominator solutions.  For example, an autombile manufacturer would adopt the same platform as a publisher.  Generally, although horizontal CRM solutions have a lower initial up-front cost, they tend to be more expensive in the long run because they typically require customization or tailoring to the particular industry and business model.  This tends to be similar to the great promise and paradox of earlier ERP; that is, the so-called 80-20 solution where 80% of the functionality was promised to be "out of the box" with the remaining 20% being the required customization.  In reality it was often the other way around, and certainly the cost model was more like 20-80.  Major CRM vendors offer horizontal CRM solutions.  A perfect example is Salesforce.Com.  In order to tailor a horizontal CRM solution, these companies may use industry templates to overlay some generic best practices by industry on top of the horizontal CRM solution.  And often they rely on a network of authorized resellers and systems integrators who have industry and application specific domain expertise to carry their platform into vertical markets.

Vertical CRM Solutions.  As you might expect then, vertical CRM manufacturers offer specialized, industry application-specific CRM solutions.  Vertical CRM solutions are typically more expensive up front but lower cost over the lnger term because they already incorporate best practices, specialized capabilties, and templates and tools that are specific to an industry and business model.  A good example of this would be a CRM solution where the "C" stands for "client" and the application is in the legal profession.

Here is an important rule of thumb from our experience: it is 10-12X more expensive to build a vertical solution from a horizontal CRM platform  than it is to choose a vertical solution already tailored to your business model at least (e.g., B2C vs. B2B) and at best, tailored to your industry if it is vertical or specalized in what you make and how you sell and support the good or service.

This latter point is a hurdle for providing sound CRM strategy and advice.  The reason is the horizontal makers want you to adopt and purchase their CRM solution, but one type does not serve all.  For instance, we have a pair of clients right now who both are historically a product maker in a B2B business model who now desire to expand into a B2C busines model.  And they're both being vigorously told that SalesForce.Com will serve all of their needs -- they simply define customer records and set a flag for the customer type.  Nonsense. 

Clearly, Salesforce.Com is a powerful platform primarily intended to serve the B2B and customer-service models.  However, the data, information, outreach and marketing tools for serving a customer who is another business is considerably different from what is required to implement a CRM strategy for serving an individual consumer (in a B2C/DTC business model).  The former's audience amounts to Procurement Managers on behalf of their businesses.  The latter's audience are individual consumers who are buying directly from the enterprise.

Next up, we'll share some more about some of the academic model distinctions, and the challenges of implementing the best customer intelligence strategies.