Strained relationship.

• Author: Bernstel, Janet Bigham
• Position: Cover Story

Strained Realtionshi

Some banks recently have been bad-mouthing customer relationship mangement (CRM). But maybe the real difficulty is that they didn't clarify their goals before trying to implement it. A loyalty program can be a simple straightforward way for banks to build a foundation for CRM.

Products--"out." Customer relationships--"in." That, in Precent years, has been the evolving focus of bank marketing. But some banks recently have expressed frustration with customer relationship management (CRM) systems. They're not accomplishing with CRM what they expected to achieve, they complain.

Experts caution that banks need to have realistic goals before they jump into CRM. One way for a bank to orient itself and to ease into more sophisticated customer relationship strategies is to start with a simple loyalty program.

To CRM or not to CRM

Few management tools have been so rapidly adopted, yet so tough to measure as CRM. Financial institutions will spend an estimated $6.8 billion on CRM by the end of 2001, according to Meridien Research. Some banks are beginning to question exactly what these investments are accomplishing.

In fact, of the top 10 most popular management tools identified in an annual survey of company executives, CRM bad one of the lowest satisfaction rankings and highest defection rates. In uncertain economic times, executives are turning to the familiar old-school tools like strategic planning and benchmarking. Even though three-quarters of the respondents say they want to stay on top of new techniques, they said also that trendy new economy" tools promised more than they deliver.

In some cases, CRM is being marketed falsely, says Frederick Reichheld, director of Bain & Co., the Boston-based strategy consulting firm that conducted the 8th Annual Management Tools Survey. "It's being sold on the basis that you can invest in CRM tools to build loyalty, and often my earlier book, the "The Loyalty Effect" is invoked as proof that this will make money. But people don't measure it correctly; they talk about it, but it has no meaning."

Measuring the effect of CRM is difficult because so many companies don't understand what it's really all about. In fact, you can find as many different definitions of CRM as there are companies that try to implement it.

The many faces of CRM

In the April 2001 report, "Measuring ROI on CRM," Meridien outlines CRM as an investment in targeting the right type of customer, getting those customers to adopt a specific set of beliefs and consequent behaviors, and retaining those customers throughout the lifetime of their profitability. To measure the return requires a set of tools that can:

* Identify targeted behaviors.

* Categorize and segment customer behaviors for analysis and treatment.

* Measure the impact of those shifting behaviors.

Chet Dalzell, spokesperson for Harte-Hanks, a marketing database and CRM service provider, agrees that measurement is the key to obtaining CRM objectives. In general, he claims, CRM is about using technology to create dialog with customers, having evolved from an increase in database marketing technology and decrease in the cost of data processing. But CRM often gets overblown as a "we have to reorganize our company around the customer" mentality. In reality, it's a phased approach, where each step of a solution has its own metrics and return-on-investment expectations.

"Companies have got to determine what those metrics are, or they're not going to possibly justify continued investments," explains Chet Dalzell, spokeperson for Harte-Hanks in New York City. "Whether it's increasing deposits, lowering attrition or targeting trigger events, there needs to be a set of business rules in place and a unified view of the customer for prompt action. To get there you...