Demonstrating the Business Benefits of CRM to Small Businesses

Cathy Allington
Member

Posted 15-Feb-2006 03:15 AM

The Scenario: You are dealing with a retail SME who has been in business for 7 years. They have a good credit history, good track record. But upfront cash to spend on CRM is hard for them to justify—they want proof that it works. They understand the logic behind CRM—ie the potential value of communicating with their customers—however they are reluctant to invest a few thousand dollars in something which to them, is unproven. They have been burnt before with salespeople offering the world.

We know that investing time (and money) on communicating with your customers works. I have Case Studies which support this. But I can understand a small business (even a large business—but they are not driven so much by cost/cash flow restraints) being reluctant to invest in something which is alien in concept to them (and CRM is),

How do you offer "Proof of Concept" to an SME that CRM "works"?

www.gyob.net.au

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vive4ever
Member

Posted 15-Feb-2006 08:17 PM

One can say it thus: let us take the example of a company having 100 customers and with a marketing budget of 1000 dollars.If the said company allocates all its 1000 dollars to sell in the same manner to all its customers, then probably the returns that it gets on the spent 1000 dollars may not be very high. But if the company finds out that out of the 100 customers it has, 20 are mostliable to increase their spending in response to the marketing campaigns and the rest are not so responding, then maybe it could allocate 500 dollars of the 1000 it already has,to selling to those 20 customers only. This can multiply the returns that it can get out of its spend, without raising the marketing budget.
CRM is all about (well not 'all' but 'majorly' about) finding those 20 customers and giving them the royal treatment because I know that these are the ones who keep the bread on my table ( and maybe a little jam too Smile).

To start with, if one doesn't have enough data on the end consumers, one can apply a similar CRM philosophy to grow relationships with one's channel partners, taking them to be one's intermediate customers.One could start with measuring the present sales/profitability performance of all the retail stores under the retail SME that you are dealing with, say, and try to find the ones which have performed the best last year, have responded the best to investments last year, have had the most improved performance last year etc etc. One can then allocate the invesetments for this year according to whatever conclusion one reaches to based on the above data.

I hope I haven't been too confusing and that this helps...

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Graham Hill
Guru
Member

Posted 17-Feb-2006 12:26 AM

Cathy

You seem to have a problem. And having read your many posts and articles, it must be a real problem for you to post it on CRMGuru.

Reading through your description, I am intrigued to understand why CRM—for which read: building profitable relationships with customers—is "alien" to the SME. One would think that competing in an SME retail market would have meant that they had to be close to customers, particularly regular customers, to remain in business.

Not knowing more about the reasons for their anitpathy to CRM or their business, it seems you best choice is a two-pronged approach: Firstly, go to the source of their antipathy towards CRM and tackle any wrong assumptions about CRM one by one. This will engage them in a dialogue about what CRM is and isn't, the benefits of CRM and hopefully create space for a small experiment.

Secondly, based upon the dialogue, identify a current business problem or hard to take advantage of opportunity that could be resolved with a suitable small CRM intervention. I am thinking of perhaps a simple spreadsheet analysis of best customers to tackle a retention problem, or another analysis of customers who haven't shopped for a while for a targeted marketing offer, something like that. Run the intervention as an experiment to show the difference that CRM makes. The experiment must be paid for out of normal-operating costs and must have a rapid, easily identified cashflow impact. A successful experiment with a positive cashflow should create a stepping stone to another, larger experiment and over time to an incremental CRM programme.

Take a look at Guy Kawasaki's 26th January blog posting about "The Art of Bootrapping" at http://blog.guykawasaki.com/ for more thoughts about this.

Who knows, maybe you will have another Kies Family Wines on your hands.

Graham Hill
Independent CRM Consultant

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Bob Thompson
Founder, CRMGuru.com
Member

Posted 17-Feb-2006 01:14 PM

Cathy, I have some recent experience consulting with an SME with about 100 active customers (at least one order the past 2 years). It's a B2B example, so I don't know how relevant it is for retail.

Doing a revenue analysis revealed that 80% of the revenue was coming from 17% of the customers. Unfortunately, the other 20% of revenue (coming from 83% of the customers) was consuming more than 75% of sales and support time. This back-of-the-napkin analysis showed that a few larger customers, even with discounting, were far more profitable.

This analysis was done with reports from a low-end accounting system. No packaged "CRM" system has been purchased yet, but perhaps will be in the future.

Now the company's strategy is being shifted to focusing on the "right" customers and solutions, and not just looking for any customer that can "fog a mirror" or selling every possible solution that might have a few buyers. Support improvements will be introduced for "strategic" accounts, and metrics/rewards implemented to motivate the staff to support the new game plan.

All this, by the way, is what practicing "CRM" is about. While a traditional CRM solution investment may be made some day, much of the expected improvement in profitability will cost nothing except management time.

I can't help but get the impression from the way you described your situation, that the focus is on justifying the CRM technology investment. But isn't this getting the cart before the horse?

Maybe in this retail situation some tactical improvements can be made with a technology investment. But perhaps a more strategic analysis of the company's business issues, customer spending, etc. would reveal where CRM—in the full sense of the term—could help the company be more profitable and successful.

And then, I'll wager, getting the business owner to invest the time/money would be much easier.

Cheers,
Bob

Bob Thompson
Founder, CRMGuru.com

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Cathy Allington
Member

Posted 20-Feb-2006 05:38 PM

Wow! Have I been taught a major lesson—thank you. When I read Bob's respone where he said I was focussing on the technology, my first thought was "This guy just doesn't know me! I have been around CRM for years—I don't do that!" My second response was, "Ouch, that hurt!" I was focussing on the "sale", (not like me) and which is probably why I posted this. I knew I was missing something.

Graham Hill was also surprised when I posted this. The point of my post, was that I just couldn't understand why any retailer in the right industry—relatively high margins, with the potential for good repeat business—wouln't "see the light". To me it just made so much sense. But it was my fault for not explaining it properly to them.

You have given me some excellent ideas to go back to retailers with, and a different approach to selling our product and services.

Thank you for humbling me!
Best Regards
Cathy

www.gyob.net.au

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Graham Hill
Guru
Member

Posted 21-Feb-2006 12:21 AM

Cathy

I don't think you need to feel humbled, after all, I am sure that Bob & I didn't tell you anything you hadn't thought of already.

I think the answer lies in recognising that it is warm, fuzzy emotions (feelings to be more precise) that drive most human decisions rather than cold, hard logic. The French philosopher Rene Descartes effectively lead us down the garden path when he supposed "Cogito ergo sum" (I think therefore I am). As current neuroscience research shows, probably only 2-5% of human decisions are primarily influenced through conscious analysis of the situation and the potential solutions. The majority of decisions are primarily influenced by the non-conscious feelings we associate with the situation and its solutions, particularly where this might incur a loss. No matter how we like to pretend that we have "thought through" the situation in arriving at the solution! This goes just as much for business decisions as for private ones.

In recognising that your SME's difficulties in accepting CRM probably lie with the negative feelings that they hold about it, provides you with a potential solution to your problem.

Graham Hill
Independent CRM Consultant

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Dick Lee, CRMGuru Panelist
Advisory Board
Member

Posted 23-Feb-2006 07:17 AM

Reading between the lines, client concern about the costs of CRM are almost always concerns about the cost of software. But software is where CRM ends, not where it starts. For a retail SME, initiating CRM can be as simple as empowering employees to always do the right thing by customers—and making respect and care for customer core values in the business. And a next step may be reviewing workflow to find ways to deliver more value to customers, which can lead to better quality, shorter cycle times and more predictability.

The conundrum, of course, is that CRM consultants and software vendors typically don't earn much from helping SME clients take these steps. But we have to see CRM through customer eyes—and be careful not define it according to what makes money for the "CRM industry."

Dick Lee

Author Dick Lee is founder and principal of High-Yield Methods, a Twin Cities-based consulting firm specializing in helping clients achieve customer-centricity through CRM and proper alignment of process and technology. Dick is the developer of the Visual Workflow approach to business process improvement.

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Malcolm Wicks
Member

Posted 23-Feb-2006 07:43 AM

I agree with the above and have just one point to add. The Retail segment in my experience is always the most reluctant to spend money. On anything. Be it CRM software or floor tiles. Their ideal model is that someone else pays. This is how they work with the brands. So a more radical approach could be to see who would be willing to pay for the Retailer to get the benefit of the CRM system. The whole proposition could start to get much more interesting....

Malcolm Wicks

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Ruth Ann
Member

Posted 23-Feb-2006 07:53 AM

As a high tech direct marketer with considerable experience marketing CRM for clients (e.g. Clarify, Pivotal, etc.) I learned a couple of things relevant to this discussion.

First, CRM is a category name, encompassing a range of applications driven by databases. It makes sense for people working in the category to use the term, CRM, but beyond that...one VP of Marketing at a fairly large bank told me "CRM is what the CIO deals with, not me." As the business gets smaller and there is no IT around, then drop it all together. That seemed to be the conclusion reached in other guru comments.

However, there are probably consultant behaviors and attitudes associated with the term, CRM, that also need to be adjusted, and may require a makeover of a CRM consultant selling to the SMB. How extreme?

Secondly, I found myself telling a client who is also targeting the SMB market that there was no such thing. There is small and there is medium, but there is no SMB.

The reason I said this was because the small business market (b2b) is comprised of millions of businesses, while the medium-size market (b2b with more than $30M in revenue, more than 100 employees) is in the thousands. And it isn't a surface kind of distinction either.

For the most part, the mid-size businesses are also of the complex systems model, not volume operations and, here again, CRM has a different flavor for each (see Geoffrey Moore book, Dealing with Darwin).

If you have a limited marketing budget, you need to target the thousands first. Then, when it comes to small businesses, I draw on the comments of the Pres of Pitney Bowes Direct. Neil Metviner points out that you are really marketing to a "prosumer" part consumer, part business person. A blend of B2B and B2C. So, this leads me to the question: What CRM product/service is in whole or part at the price point affordable to a small business, especially a retailer doing volume transactions (not complex systems) at low margins and an emphasis on promotions, not relationships?

Every once in a while I am asked to help a small business owner/retailer and as someone who specializes in mid to large size companies with a complex systems model, I find the best thing I can do is find them someone who specializes in the small business market. I can't do both very well, but then I might be the exception rather than the rule.

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Ugur Ozmen
Member

Posted 23-Feb-2006 09:29 PM

Any CRM journey should start by investing on "thinking". (This is the phase which usually not much appreciated by vendors). Before spending money for tools, you should spent money for "time", to understand your priorities, your needs, your bottleneck, etc.
I do beleive in that CRM starts by understanding your relationship with the customer. Why are they choosing you. Why you are still prefered... Then, understand the top 5% or 20% customers. What do you offer them...
Shortly, Cathy has a "vendor approach". She is looking for selling, not for investing on CRM.

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Graham Hill
Guru
Member

Posted 24-Feb-2006 12:23 AM

IN DEFENCE OF CATHY

Reading through many of Cathy's comments on other posts and other portals, it is pretty clear to me that Cathy is about as customer-driven as it gets. I don't thnik she is vendor or CRM-systems driven at all. That's why I responded to her query with a couple of SME customer-driven questions.

Why am I responding to the discussion in this way? Firstly, because I reject Ruth's all too often true definition of CRM as "a category name, encompassing a range of applications driven by databases". CRM should not be an IT project. Not if it is to have a hope of succeeding that is. CRM is still struggling to escape from the shackles of IT so that it can deliver it's full potential. I believe from Cathy's writing that she lives and breathes CRM as much, much more than IT.

Finally, because I agree with Malcolm's suggestion that retail SMEs are "the most reluctant to spend money. On anything." That's why I believe a bootstrapping approach to CRM driven by creating incremental cashflow through a series of simple operating expenses funded CRM interventions may work well for the SME. I am pretty sure that Cathy believes this too.

Graham Hill
Independent CRM Consultant

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Cathy Allington
Member

Posted 24-Feb-2006 02:04 AM

Thanks Graham—you do know me and my absolute passion and belief for CRM well. It was never about selling the software (that is such a very small part of what we do in any event)—it was about how you get across the belief and the proof that CRM works.
Malcolm's comments that retailers are reluctant to spend is at the core of this discussion, and how you convince them to spend just A$2,600 on nurturing and valuing their customers, and that this will be worth it to them. (And the bulk of this fee is for onsite training, to get them up and running with their first 2 campaigns—it is not about the software—we use the information they already have, and we use Microsoft Outlook—albeit in a different way—to show them how to use this information about their customers, to build relationships and to increase their sales. In the 8 years we have been doing this—WE HAVE NEVER HAD A CLIENT WHO HAS NOT RECEIVED AT LEAST RETURN ON INVESTMENT WITHIN 2 MONTHS—MAX!)

From some of the comments here, it is very clear that there are differences between the ERP approach and the Small Business approach.
In selling CRM to small businesses, you simply do not have the luxury of spending too much time with them on helping them with the "thinking". In ERP CRM dealings, you can charge profitable "consulting" fees for this phase and every other phase, and ensure your profits. However, you simply don't have that luxury or that margin in dealing with small businesses, and they certainly don't have the money to spend. You have about 1—1.5 hours to get your message and belief across—spend any more time and you will go broke. Quite simply, if we took a "vendor" approach, we would have gone broke long ago—we simply don't have the fat to waste on "concepts". We are totally accountable for what we provide to our clients.

When selling CRM to small businesses it is vitally important that you work with them to help them along the CRM path. And they love it once they start it and start getting results. Our feedback is always "We love being able to interact with our customers, to talk with them, to have them ring us and write to us, to have them treating us as though we matter," And that is the client talking!!

And I have now made the business decision that it is not worth our while to deal with businesses who don't embrace the concept of CRM—and by the way, small businesses simply do not understand the term—"CRM". If they don't believe that by communicating better with their customers, getting the warm and fuzzies happening by recognising their customers based on what they have bought, how often, and when, they will never make this work. My company does not want clients who talk less than favourably about us—and our clients cannot afford to throw huge sums of money against a project and wait years to get a return if at all. However, when you see a retailer struggling with this concept and spending money on letterbox drops and "sales", you just know that they could achieve much better results by focussing on their existing customers. And you get frustrated when you are not able to communicate the value proposition clearly enough.

We work very closely with Australia Post nationally now in Australia. As with their counterparts internationally, Post deal with some very major clients. But they recognise that small businesses need "CRM" as much if not more than their corporate counterparts. Their challenge—as with ours—is how best to get the value message across.

What Graham, Dick, Bob and Malcolm's comments did for me, was to show me a better way of getting this value across to our small business market, and for that I am truly grateful. I will let you know the results! :-)
Cheers from Cathy—the Absolute "Non Vendor"!!

www.gyob.net.au

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Nenad Paunovic
Member

Posted 26-Feb-2006 01:07 AM

I believe that one of the major problems (not mentioned here) in geting small businesses to implement any kind of CRM program is not that much about the money as it is about time needed to be invested in it. In small businesses, people are usually overloaded with work, and it is hard for them to set aside some time for CRM.
The other major problem, connected with the first one, is making people to keep CRM system (whatever it is) updated and use it on a regular basis. Without this, it will soon become obsolete...

So, the question is how to make them invest TIME, and not money, in CRM program of any kind?

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Michael Lock
Member

Posted 08-Mar-2006 03:20 AM

I'm not sure if we qualify under your definition of SME (we've a market cap of about £100m) but I think the comment stands either way with regards to selling CRM to small companies, especially as we've grown very quickly, and in many ways we're still managed as a small organisation.

I'm working on several areas and opportunities that you could headline as 'CRM', but I take every opportunity to avoid the term as it would have everybody running for the hills. Leaders and decision makers in small organisations tend to be practical, hands on and very focussed on short term ROI. Positioning anything as strategic doesn't get you much kudos with small organisations, especially anything with some of the connotations that CRM has, unfortunately, gathered over its lifetime.

A very practical point, but I agree with the sentiment of, look for the specific opportunity to get a return, and then look for the pragmatic way to achieve it with minimal investment, but with maximum future potential. Easier said than done, and this does require significant investment in thinking time to understand the key drivers and issues within any organisation, big or small.

Parental is a good term to think of a leader and his decision making process in a small company. It is their baby after all. If you want your parent to get you a bike, don't ask for something on the basis that one day you could win the Tour de France with it, get a cheap one, start peddling, prove that you can get somewhere, and try to make sure that you don't fall off on the way. If you can then prove that buying some better gears, or changing your wheels can make you go faster, then go for it.

Mike

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Cathy Allington
Member

Posted 08-Mar-2006 09:45 AM

Hi Mike:

I have gained much from all of the posts here, but coming from a potential user's viewpoint within that market—your comments gave a particularly valuable insight—thank you.

It really does highlight a problem with ther term "CRM", and the associated work and investment that implies.

I love the bike analogy too, thank you. (And we all know that kids are the best salespeople in the world!! :-)

The approach is obviously essential. And I am not sure that our company is doing the right thing positioning ourselves as "CRM" specialists. This comment has been raised many times before—but I have not been able to think of another term which adequately describes what we are about. Perhaps though, this is my perception only. What I will do now, is to ask assistance from our clients! After all, listening to our clients was the way in which our product came about!

Thank you for your input—much appreciated.
Cathy

www.gyob.net.au

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Bob Thompson
Founder, CRMGuru.com
Member

Posted 08-Mar-2006 10:17 AM

The term "CRM" has been up and down over the past 10 years. First up, as it was hyped as a technology cure-all. Then down when expectations were not realized. And now coming back with more realistic expectations and a deeper understanding of what makes CRM work, or not.

The primary areas of confusion are:

1. CRM = technology
2. CRM doesn't work

Our research shows that most business people are not confused about what CRM means. And I would be surprised if any small business owner truly believed that installing software would fix everything. Yet, the technology connotation of CRM lingers...

As for the reports of high failure rates, that also lingers. However, our independent research finds that about two-thirds of CRM projects are "successful" based on ROI and user perceptions.

Even 5+ years ago, when reports of 50%+ failure rates abounded, we found that these statistics were exaggerated by the media based on research done by analysts (Gartner et al) studying large enterprises only. See "The Reports of CRM Failure Are Highly Exaggerated: An Interview With Gartner's Ed Thompson" at
http://crmguru.custhelp.com/cgi-bin/crmguru.cfg/php/end...adp.php?p_faqid=1393

My suggestion with SMBs is to use the term "customer management." In part because it's plain English. And second, because if there is a misconception about what CRM means, then you don't have to deal with that. We use Customer Management and CRM interchangeably on CRMGuru.com.

Bob Thompson
Founder, CRMGuru.com

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Cathy Allington
Member

Posted 08-Mar-2006 10:26 AM

Thanks Bob for the research findings.

"Customer Management" is good!! It's simple, and says what it does.

Cathy

www.gyob.net.au

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Michael Lock
Member

Posted 09-Mar-2006 12:41 AM

Thanks for the comment Cathy—with two young kids, I am learning that they are very good salespeople, and fantastic negotiators.

Bob, to support your point, I have managed to use the term 'customer management' successfully over recent months without people poking me in the eye. The reason for this is simple really:

The team do understand the economics of cross-selling and retention, and its not difficult for them to realise that, by definition, this must mean 'managing customers' to some degree or another. I would assume that other small organisations would be similar in this 'two stepped' understanding?

What's missing is an understanding of which elements to focus on first, the business processes that are required to manage customers, and where to invest to the right levels. This is the next step that I am now driving in terms of our understanding and approach.

If you guys are interested vs managing clients, the element that seems to gain the most understanding and buy-in relates to targeted email marketing. This may be a reflection of our dot.com background, but also I think a reflection of the simple economics of this medium, and how well it lends itself to relatively risk free, and low cost trial.

Mike

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Evan Wood
Member

Posted 24-Mar-2006 08:37 AM

Although late to the game, I have very much enjoyed your respective comments. As the head of marketing services organization whose primary focus is relationship marketing, I can certainly sympathize with positioning and 'buy-in' challenges with clients. Here are a few thoughts on what has worked for us.

1. Stay away from 'CRM':
As Mike mentioned earlier, the term CRM comes with all sorts of negative baggage, irrespective of the size of company you talk to. For smaller businesses, it immediately conjures up visions of operational headaches and budget nightmares, or the 'knee-jerk' response, "We're not big enough for that."

Instead, use terminology that clients are already familiar and comfortable with (they don't like trying to understand new categories or definitions). Since CRM is really just about marketing more intelligently to maximize customer profitability, keep your explanation simple and relevant to the activities they already know.

2. Focus on specific benefits:
Complementing the first point above, focus on the benefits. Small businesses don't necessarily care about the why, who, or how of marketing services (including CRM-related efforts). What they care about is the cost of the service (what else could I be doing with the money?), operational impact on their business (is this going to exhaust all my resources?), and return on their investment (is this going to pay off and to what degree?).

If you can position your product/service to easily and effectively address these primary concerns, you've immediately got a foot in the door and an opportunity to continue the conversation.

In Cathy's case, she has never had a client who hasn't seen the return on their investment within 2 months. That is a fantastic claim (almost a 'no risk' guarantee) that can be heavily emphasized with prospective clients.

3. Make it easy:
Small business owners (generally the decision-makers for most purchases) wear many hats, are short on time, and are usually 'generalists'. They don't need any more challenges in their life.

If you have made it past the initial obstacles mentioned above, the next critical step is to show how easy it is to work with you, or your product/service. From implementation to ongoing management to customer support, small businesses are looking for reassurance and peace-of-mind.

Make the process easy in every respect and they'll come to rely on you for more and more.

Hope this helps in some way.

Evan Wood
President, JumpWood Marketing Consulting

President, JumpWood Marketing
www.jumpwood.com

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Cathy Allington
Member

Posted 12-Apr-2006 07:44 AM

Thanks Evan:

I said some posts ago that I would share the results of my changed approach.

Yes, we have software that ideally meets the CRM needs of our targeted customers. But our customers don't see us, or want to see us, as having "software". They simply want to see us as having a solution to their needs of being able to communicate with their customers. Yep, I know—basic selling—find the problem and present the solution.

However, one other key issue which has surfaced through all of this—the discussions here, and through dealings with our clients and potential clients, is that even if you give them that solution, many companies simply don't know how to communicate with their clients. You can make it as easy as you like for them to find clients and communicate with them based on any combination of sales and contact data, but some companies simply can't come up with the ideas as to how to use this tool! It is such a radical mindset change for them to be proactive, rather than just sitting back and waiting for customers to contact them.

And the bigger the company is, the more this seems to be an issue.

The message for us has increasingly been—it is not enough to give them the tools—we have to give them ongoing advice on how to use these tools for their marketing. They don't want us to "sell em and leave em"—they want an ongoing service. "OK, you should be doing this type of campaign this month."

The issue comes down to what they are prepared to pay for this.

All of your comments Evan, and indeed those of everyone who has contributed tho this—than kyou—were so releavnt, and touched on so many issues. CRM is not about the software—that is only the tool. But you can't "do" CRM once you have reached a "certain size", without the tools. But having the tools won't do the business any good, unless they have a strategy to use the tools!

Should CRM software be sold without ongoing marketing advice? Can CRM consulting be sold without knowing you have the tools for the organisation to carry out what you recommend?

www.gyob.net.au