Cost Reduction and CRM


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David Rance

Posted 21-Mar-2003 09:27 AM
It doesn’t take a genius to work out that the current market conditions are forcing companies to reduce their costs. But how do you protect the customer experience (as well as retain all your CRM capabilities) while the financial people are driving down costs to ensure the business survives?

It’s about knowing which costs to reduce and understanding how they impact the customer. But most companies are functionally organized and therefore don’t know the correlation between their cost centers and the customer experience.

Cost optimization is fast becoming the latest industry buzzword. But what do you optimize costs around? If it’s efficiency it will almost certainly impact the customer experience.

If this issue is concerning you, why not share your experiences and ideas?

Specialist in customer centricity—putting customers at the heart of your business.

Carol Smalley
Managing Editor, CRMGuru

Posted 28-Mar-2003 06:41 AM
Posted by Carol Smalley (Editor) on behalf of Douglas MacGregor [[email protected]]

Cost reduction and efficiency is very important, however the trick is to look at cost reduction and efficiency from the customer’s and not the company’s perspective.

From the company’s perspective, this means reducing the cost:turnover ratio which means support services and call centres etc. are reduced. From the customer’s perspective it means waiting longer in the queue and waiting longer for after sales service, thus their experience is less efficient and the switching barriers are reduced.

What one needs to do is go to the customer and determine from them what they would like from their ideal supplier (you) and reassess your processes to become more efficient in their eyes. By doing this you will cut a lot of costs that were developed around being product focused and old reporting structures in a silo corporation, so you can still become more efficient but from the customer’s perspective thus retaining their loyalty and even enhancing your CRM initiatives.

Douglas MacGregor
Customer Relationship Auditing

Carol Parenzan Smalley
Managing Editor
[email protected]

Graham Hill

Posted 31-Mar-2003 04:21 AM
The reality of business today (and everyday) is that they are under continuous pressure to deliver more service at less cost. Period.

So business’ are forced to make difficult judgements about where to spend their budgets (” Now should we invest in our developing our campaign management capabilities, or should we improve the response time in the call centre, or should we use the money to hedge our credit risk exposure?”). Many of these decisions have an impact on customers.

The problem lies in understanding the trade-offs involved, both internally and externally with customers, and indeed, with competitors and the market as a whole.

Most companies do not have a sophisticated understanding of the internal dynamics of their business’—which factors drive business success, and which ones influence each other and how—let alone of the interplay between internal dynamics and the outside world of customers, competitors and markets. This is hardly their fault; the ability to model and simulate these factors realistically are only just becoming available through, for example, advances in the mathematics of swarm intelligence that underpins agent-based simulation.

So most companies will continue to make relatively simple decisions about where they invest their money, with some consideration of internal and external factors. Then they will see what happens and adjust what they can to get to where they wanted to be. Unfortunately, sometimes that means some customers get what seems to be a poor deal. Of course, the smarter companies will invest their money in a way that protects their future revenue streams, by not reducing valuable services for high value customers for example. Or by ‘right-channeling’ loss making services for low value customers.

That’s the nature of business today. So get used to it. At the end of the day, when push comes to shove, business is about long-term shareholder value growth, rather than customer value added, or employee value added. Or is it?

Graham Hill
Independent Management Consultant


Posted 03-Apr-2003 02:02 AM
I am reminded of the Quality movement and the words of Phil Crosby the Quality Guru. “Quality is Free”. He went on to prove that Quality Management is not a “Cost Load”. In the same way it would indeed be appropriate to state that ‘ Customer Centricity ” is not a cost load. ” Lower Customer Experience to improve Efficiency ” is not true. The challenge lies in correct “Impact Analysis”.

CRM Guru Panelist specializing in Customer Touch Point Empowerment

Graham Hill

Posted 03-Apr-2003 03:42 AM

I think your case remains unproven. As practiced in many organisations today, blind customer-centricity IS a cost load.

Whilst we would all prefer that customer-centricity leads to improved profitability, the academic evidence (which has a much higher threshold for statistical validity than even the best corporate accounting) is mixed at best.

Our case would be helped greatly if we stop referring to customer-centricity as though it applies equally to all customers. It doesn’t. Whilst we shouldn’t treat customers badly, we should not try and attract customers that we can’t service profitably over the longer-term. But most companies do just that. And we shouldn’t offer low-value customers all the same expensive bells and whistles that we offer our highest value customers. But most companies do just that too. And we shouldn’t try and retain low-value customers with expensive offers that aren’t covered by their profitability plus the cost of capital. But many compenies do just that too.

Peppers & Rodgers summed it up nicely, in their description of CRM: “Treating different customers differently”.

Graham Hill
Independent CRM Consultant

[This message was edited by Graham Hill on 03-Apr-2003 at 03:52 AM.]

Wendy Hewson
Member Council

Posted 04-Apr-2003 12:48 AM

Graham Hill is spot on with his suggestion that the most sensible approach to square the circle of delivering more service at less cost is to retain valuable services for high whilst “right-channeling” loss making services for low value customers.

This approach does, however, assume that you can’t take costs out of service through improving operations and I’d like to challenge this. There is an extraordinary level of waste in service provision that is almost completely hidden.

Facts: based on practical experience across a variety of sectors, we’ve found there is the opportunity to eliminate between 5% to 60% of calls made to the service centre (in one Building Society it was 95% of calls, a white goods service centre 87%)whilst improving customer satisfaction. Likewise with emails, typically 50% to 70% can be eliminated.

Let me explain. The tendency in service centres (and front offices too) is to treat every incoming contact as a unit of work they have to staff to answer. This is a major blind spot across the industry—and also odd, if you stop to think about it for a moment. A moment’s reflection shows that lots of incoming calls are likely to be unwanted. For example, billing errors, ticketing errors, late delivery and a plethora of other service failures all result in incoming calls that really ought to be classified as failure demand.

In addition, there are many other types of calls, beyond just failure demand, that any organisation ought to classify as unwanted and potentially avoidable, if only it stopped to think about them for a moment. For instance, any call that has to be transferred internally, or which is merely chasing progress, is an extra unit of work that is both unwanted and potentially avoidable.

If you’d like to know how to do this, take a look at ‘Profit or Pain from Your User Experience’ at

I’ve focused on the cost perspective. If we had time and space I could cite the impact of eliminating failure demand and reducing the need to progress chase, for example, on customer’s perception of service.

I’d also love to hear from other members in this group who’ve has similar successes through the application of lean thinking and systems thinking to service operations.

Wendy Hewson

Co-Author ‘Profit or Pain from Your User Experince’


Edwin Setzpfand
Member Council

Posted 07-Apr-2003 08:15 AM
David asks how to reduce costs, while retaining efficiency. I want to point to two observations from the literature. Although it is obvious that costs are in things like buildings, salaries and software, and profits are to come from customers, it is often overlooked that a large portion of the costs also can be “hidden” in just having customers. It is not unusual for a large corporation to actually loose money on a considerable part of the client base. (If 100 % of your profit is from -say- 63 % of the customers, the other 37 % only cost you money; these figures vary per industry sector and even per company.)

Therefore, it may pay off when attention is focused on the most profitable customers and a strategy is being developed on how to deal with the least profitable ones. Of course, it is much easier to write this down than to actually design and implement such a strategy. (An exit strategy for loss-generating customers may either aim at ending the relationship or at seeking ways to make them profitable too.)

But how can we turn customers into buyers? It seems obvious that targeting them better with information shall result in increased sales. That may be true in general, but when looking at the efficiency there is a little surprise. As research shows (John McKean, “Customers are People”, only 30 % of the customer decision making is based on the product itself while 70 % is based on how they feel themselves treated by the company. This human-touch only receives some 10 % of the company resources; over 80 % is focused on attempts to sell better through matching products to customers.

It seems remarkable to have 80 % spending to what only contributes 30 % (and 10 % on something that influences 70 %); David may first find out how these figures are in his situation?



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