It takes more than customer service to build a great relationship with your clients. A great product, solid support and the perfect price all help to make a product or service a success. For many companies, it is Customer Relationship Management (CRM) software that allows them to bring it all together.

In fact the full benefits from integrating CRM software with your business are not just limited to managing your clients more effectively. CRM software can help businesses manage costs, staff resources and compete against larger or more established businesses.

The Core Components of CRM

Although CRM software can deliver a wealth of benefits, many companies fail to appreciate that technology is just one component of a successful CRM initiative. With 20 years experience it has been shown that the most successful CRM initiatives companies approach CRM as a complete business strategy, focused on improving the way a company markets to, sells to, and provides service to customers. When implemented effectively, a CRM strategy results in greater employee, partner, and customer satisfaction and an improvement in an organisation’s financial performance.

The following components are central to any CRM initiative:

• effective customer segmentation
• integrated multichannel strategy
• well-defined business processes
• the right skill sets and mindsets
• the right technology

Effective Customer Segmentation

Customer segmentation—the process of dividing a market into discrete customer groups that share similar characteristics—is a critical component of a CRM strategy. Customer segmentation allows an organisation to understand which customers are most profitable and how to most effectively market to, sell to, and provide service to these customers. With this knowledge, a company can determine which investments will drive the greatest returns.

Segmentation begins with the development of the customer profile, which includes a rich description of the key characteristics of a specific customer, including both basic data (demographics, purchasing history, and so on) and information derived from analysing the customer’s lifecycle process. The customer profile encodes, for example, observations about which offers appeal most to the customer, which channel(s) the customer prefers, which product attributes the customer values most, how much the customer has spent in the past and is likely to spend in the future, and other issues of strategic relevance.

By analysing the customer lifecycle process, organisations can pinpoint significant differences as well as significant similarities among customers. The job of segmentation is to sort out which differences and similarities are most important across all customers, and then to divide the customer base into groups based on the relevant distinctions. Effective segmentation is greatly aided by the power of CRM technology, which gives organisations the ability to capture and analyse large bodies of timely data and to discern significant correlations among customer attributes. In addition, CRM technology provides a single view of the customer across all company touch points. Having this holistic view is vital to segmentation efforts. In the past, because organisations had no easy way to capture, consolidate, and analyse customer data, their segmentation strategies were limited and often based on criteria of little strategic value (such as geography). With CRM technology, on the other hand, organisations can segment customers according to far more complex and less obvious factors, such as channel preference, profitability, buying patterns, and other meaningful customer attributes.

The benefits CRM offer in managing customer relationships are both obvious and significant. However, the impact these systems and the transparency they bring can have on internal processes as well as guiding marketing can’t be ignored. The next post in this series will explore how CRM not only works with, but practically demands a Multichannel Strategy to be truly effective.