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CRM Challenges the Switching Economy
Ginormous switching costs mean that you should adopt a process orientation—immediately
For the rest of the January 2016 issue of CRM magazine please click here

I am involved in tracking the ongoing migration from conventional transaction-oriented business to subscription models, and the transformation this simple delivery model adjustment is causing. It's a fascinating changing of the guard, and it deserves close study because it could cause a lot of pain—as well as benefits—when customers begin to understand the differences.

This change comes to us thanks to the new subscription culture, which long ago overtook the simpler idea of a subscription economy. This culture is pervasive. You might have been able to ignore subscriptions as nothing more than a funky delivery model 10 years ago, but today you can't, precisely because of the many things to which you subscribe.

Subscriptions have taught us how to behave differently in the marketplace, and the differences aren't trivial, if you pause to appreciate some of the impacts Accenture shared late last year. According to Accenture's Global Consumer Pulse Research, switching costs totaled $6.2 trillion in 17 key markets in 2014, and these costs are increasing. Just for perspective, the national debt is about $18 trillion, and it took 240 years to accumulate.

As I analyze it, the switching economy would rank as the fourth-largest GDP on the planet, behind that of just the United States, Europe, and China. Now, there are two ways to think about this. Either that's $6.2 trillion in spite of all the CRM tools and techniques we've deployed over the past two decades—or it's $6.2 trillion and it could have been a lot worse if CRM had never happened.

The tough thing about looking at one data point is that you have no sense of direction in the data; you just have that one snapshot. But why quibble? The switching economy is such a big problem that none of us could be happy with it as it is, and the only important discussion should be about how to cut it in half, and then in half again and again and again.

With all that switching implies for the more than 7.3 billion people on the planet all going about their business, we'll never get to zero. But if you do the math, switching costs amounted to $850 per person just in 2014. So think about this: What could each of us do with an extra $850? It might not be enough to change your life, but suppose you invested it or gave it to a worthy cause. It could make something good happen. But instead that $850 is just going down an unproductive rat hole. This $850 is actually a best case, since we're assigning it equally to every man, woman, and child on the planet, both in developed and developing economies. This means that your share is likely bigger than $850.

CRM systems are supposed to be the formula that reduces friction in business. They make processes easier to complete, make customers glad to do business with a vendor, provide forms of psychic satisfaction in which people avoid the hassles of trudging through tedious manual processes mediated by decrepit 20-year-old software.

But here's the thing—there's a huge gulf between old transaction-enabling CRM systems and modern process-oriented CRM systems, replete with social, mobile, analytic, journey mapping, and other capabilities. In my research, it is evident that a process orientation retains customers and reduces losses from those unforced errors that happen in business.

The knock against CRM in the early days and even into the present has been that it's hard to prove the return on investment. Like putting a computer on everyone's desk and networking the whole organization, putting a quantitative benefit on the effort and expense is like sticking a wet finger in the breeze. But you know it's real.

Nonetheless, we know how the story ends, or better, how it continues. A process-centric CRM system is as essential today as networking your organization was 25 years ago, or buying desktops was before that. There are, quite literally, trillions of reasons to step up.

Denis Pombriant is the founder and managing principal of Beagle Research Group and the Bullpen Group. He is a widely published CRM analyst in the United States and Europe, and his latest research spans all areas of social CRM, cloud, and mobile computing. His latest book, Solve for the Customer, is available at Amazon.com.

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