Letting Go Can Really Pay Off
The National Retail Federation's 2004 CRM Retail Annual Survey has revealed that retailers feel that their CRM initiatives are NOT measuring up to their expectations. These retailers--70 percent of over 100 surveyed--cited a relatively consistent set of obstacles such as inadequate expertise, limited resources, and high costs among many reasons preventing them from attaining their CRM objectives. In spite of these challenges, retailers remain steadfast in pursuing their CRM goals. In fact, more than 80 percent of the retailers surveyed reported that they are maintaining or increasing their future CRM budgets.
The question now is how retailers plan to use outsourced marketing services to overcome these obstacles and catch up with their growing expectations, and those of their customers. Forrester Research just released a report on this subject entitled 2004 Database Marketing Outsourcing Outlook. The report finds that many firms are looking for more help from the outside for greater CRM expertise and additional human resources to address these top challenges. Of the 49 marketers interviewed by Forrester, 50 percent or more reported that they currently use at least some outside support in every one of the 13 marketing service categories studied. And they expect outsourcing budgets to grow. For 2004, some 65 percent are spending more outside than in 2003. And 63 percent report increased budgets in 2005 for outsourced services.
A primary driver for raising CRM expectations and complicating existing business and marketing processes has been the growth of e-commerce. Online sales have increased from 2 percent to 7 percent of all retail in just 5 years. In the catalog segment, Web-based orders will surpass inbound 800-number orders in 2004 to become the primary revenue channel. It's the traditional offline merchants, not pure-play e-tailers like Amazon.com, who are booking the vast majority of the e-commerce transactions. But e-commerce is not their core competency and many are struggling to have the level of Web site functionality and service, like buy anywhere, pick up anywhere, which customers expect. Because these needs are immediate, merchants are looking for strategic and comprehensive partnerships with outside e-commerce providers.
A similar trend was reported in the Forrester study. Respondents were asked about their future interest in purchasing across 13 separate outsource service categories. While operational service and data hygiene continued to be at the top of the list, these marketers also reported a very strong interest in expanding outside relationships with the emphasis on getting more help in strategic service categories like customer segmentation, advanced analytics, and even CRM strategy. This makes sense. With the new addressable e-channels, database marketing is rapidly becoming more complex. Companies need to significantly and quickly upgrade data models in their data marts and modify existing segmentation, lifetime value, targeting, media selections, and testing procedures.
Forrester agrees and directly attributes these changes to "the challenges of integrating marketing efforts across new media, multiple channels, and multiple lines of business." The number one reason companies are letting go of CRM is to gain access to people and expertise. Companies, under pressure from customers, are seeing the relative merits of letting someone else do what they are really good at so that they can focus on what they want to get even better at: their business.
Another benefit of not doing it yourself is lower costs. Because outsource suppliers have built up years of experience, standardized/preintegrated systems, and economies of scale, they have operating efficiencies that a single company can't hope to match. Midmarket companies have even more savings to gain than large, Fortune 500 enterprises. It is not surprising that the outsourcing industry overall has enjoyed a 16 percent average annual growth since 1998. Companies have found outsourcing to be an effective way to lower costs and gain competitive advantage. Management guru Peter Drucker has called outsourcing "the fastest growing industry in the United States."
Outsourcing, particularly in the form of hosted CRM, had a direct and major impact on the entire CRM market in 2004. Upstart Salesforce.com was able to live up to the growth and profitability promises of founder Marc Benioff and successfully launched a public offering. Siebel Systems, the CRM software industry leader that sells software modules for millions, was forced to recognize the threat of the $65/seat hosted model and bought Upshot to launch their own hosted service, which is called Siebel On-Demand.
These events have given hosted CRM greatly enhanced credibility, in addition to the promise of large cost savings. The result is increased demand. According to the Aberdeen Group, more companies than ever are taking a serious look at the hosted model. In an Aberdeen survey, nearly 85 percent of companies not already using hosted CRM said they would evaluate CRM hosting as they enter the market for CRM solutions.
Outsourced solutions are also closing the customization gap. Some hosted providers have tools to help customers create their own data models and unique application modules. Others allow the client to interface other third party software. Almost all allow the client to run database access tools for query and reporting, segmentation, campaign management, and analytics from their location.
Letting go can really pay off.
About the Author
Charlie Carey is senior vice president, Business Alliances, BeNOW. Charlie brings more than 25 years of diversified customer information-management experience to his role of building BeNOW's partner network. Prior to joining BeNOW in 2001 Charlie had operated his own consulting business for five years, helping larger organizations develop and manage their operational CRM and Internet marketing strategies. Charlie spent the bulk of his career at Epsilon where he served as senior vice president and general manager of Epsilon's Commercial Accounts Division providing database marketing systems to leading marketers including Apple Computer, Bank of America, General Electric, IBM, John Deere, Pepsi, Quaker Oats, and Xerox. Charlie earned a BS in chemical engineering at the University of Maryland.