Customer Management: Cost Cutting Your Way Out of Revenue Growth

The Issue: The extreme focus on cost cutting with customer management initiatives is putting most companies in a bad position. Investment won’t be returned without a more balanced investment view.

Cost cutting misses revenue opportunities

Only 22% of the respondents surveyed as part of AMR Research’s Customer Management Application Spending Report, 2003-2004 listed “revenue enhancement” as a major reason for customer management investments. Examples of pouring millions of dollars into Customer Relationship Management (CRM) technology aimed at cost cutting abound. Even though some of these projects are seen as successful by the companies that implemented them, these same companies are now discovering that a slavish focus on costs can wind up hurting the business more than helping it.

For example, an emerging software vendor spent $5M on a CRM initiative in 2001 to reduce the cost of sales by pushing cost and inefficiency out of the pipeline management process. The result: The promised 10% reduction in pipeline processing time was replaced by 15% more time in meetings with sales management to justify and explain their actions. This company regrouped in early 2003 to find ways to increase selling time to increase revenue rather than process efficiency.

Cost cutting must be balanced against revenue generation for long-term growth

This and other examples illustrate what is wrong when companies listen only to the cost savings siren side of CRM. Much of the easy cost savings has been taken care of with outsourcing, sending work offshore, and general head count reduction. But companies are spending more to save less rather than spending less to generate more in revenue.

Revenue awaits if companies invest more in the following:

• Targeted upsell and cross-sell in the call center
• Centralized offer management
• Guided selling for salespeople
• Marketing campaigns concentrating on lead quality rather than volume
• Improved field service management

Companies that have not investigated such initiatives should do so before continuing with any other CRM projects.

Companies that look to cut costs and generate revenue have seen their CRM investments deliver large returns. For example, a large Canadian bank pursued a CRM strategy with the mission of “turning data into revenue-producing information.” It provided information to relationship managers, customer service representatives, and tellers to increase upsell and cross-sell. Using analytics to find target customer segments, it launched marketing programs and branch transformation initiatives to increase revenue. As a result, in the first half of 2003, revenue leapt to 4% of annual revenue ($32M) on an initial investment of $4.5M for software and implementation. Along the way, the company cut costs through application rationalization and more visibility across products.

Organizations must turn customer interactions into revenue transactions

One of the best ways to generate revenue is by turning customer interactions into revenue transactions. Ironically, only 32% of companies want to actively sell complementary products and services during actual transactions. For many companies, the information exists to drive revenue, but it is not being used or aggregated properly. Most organizations collect and somewhat track customer information, but they do little with the data.

For example, the fact that a customer called the contact center four times in the last month is important; however, it is more important to take the next step and generate a transaction: Did the customer have positive or negative experiences with the company, service, or product rendered? How did the interactions with the customer affect profitability and revenue?

Metrics must realign with revenue

Investments targeting revenue generation, however, must be complemented with incentives for employees to take advantage of them:

• In the Contact Center--Companies can’t launch a massive upsell/cross-sell campaign in call centers and then continue to measure agents based on call times. It is intuitively obvious that call times go up when cross-sell occurs; metrics and measurements must be established to accommodate upselling/cross-selling.
• In Field Service--Measuring technicians based on the number of service calls is commonplace. Not so commonplace is measuring the number of additional service calls that were avoided because the right parts were on the truck. Also consider how many proactive service calls were made based on defined problems before the customer even had a problem.
• In Marketing--Reward marketers and measure success based on the effectiveness of campaigns, not on volume of leads. Good news for the CMO or vice president of marketing is when the number of leads generated by campaigns has an uplift of 0.05% (that’s 500 leads per 1,000,000 offers). And this is good news. Marketers must shift incentive strategies to effectiveness, not volume.

Recommendations

• Customer interactions must be turned into customer transactions--convert information into actionable cross-sell and upsell opportunities.
• Metrics must be realigned to steer the correct revenue-oriented behavior.
• Investments must be made to provide salespeople (inside sales, field sales, telesales, customer service agents, and such) with tools to increase revenue rather than manage reporting.
• Analytics must be used to change behavior in dealing with customers. Data warehouses full of transactional data must be made into actionable information.

Unless a more balanced investment view is considered for customer management initiatives, ROI will be hard to obtain.

AMR Research originally published this article on 10 October 2003.