Using Customer Relationship Management to Increase Profits

By Kennedy, Michael E. | Strategic Finance, March 2004 | Go to article overview

Using Customer Relationship Management to Increase Profits


Kennedy, Michael E., Strategic Finance


In today's challenging economic environment, both customers and company profitability are more elusive than ever. Many companies are having difficulty stabilizing their business model and have been forced to downsize, more than once. Companies such as Wells Fargo, Harrah's Entertainment, IBM, Boise Cascade, and Lowe's Home Improvement, however, have stabilized or grown their companies by putting a priority on investing in customer relationship management (CRM). CRM helps companies unlock the full value of their relationship assets, accelerating revenue and profit growth. Industry experts indicate that nearly 90% of all companies have yet to adopt the new tools and methods of CRM and continue to fall behind by adhering to the old method for managing their relationship assets. Let's look at the benefits realized by adopting the tools and methods of this new paradigm, the key value drivers of customer relationship assets, how a company can independently determine whether or not they need to adopt this new paradigm, and how financial executives can act as catalysts for change.

RELATIONSHIP ASSETS

Not a part of traditional balance sheets, relationship assets are defined as customer relationships, channel relationships, and partner relationships. Also included are the investments that companies utilize to build these assets, specifically, the investments in sales and marketing.

Industry experts indicate that most organizations don't effectively manage their customer relationship assets, but those that do enjoy a competitive advantage. According to Wendy Close, research director at Gartner, Inc., "Less than 10% of enterprises have a single, integrated view of their customers, and those that do are just beginning to leverage their investments to improve customer loyalty and profitability." The same holds true among mid-sized companies as "less than 10% of mid-sized companies have developed comprehensive systems and processes to actively manage and maximize the value of their market-based assets," says Kevin Myers, vice president of Regional Sales for SalesLogix, a leading CRM software provider.

Managing relationship assets has evolved from old traditional methods to a new paradigm that provides new methods and tools to protect and manage the growth of these assets. The benefits of using these tools are substantial. There's greater visibility into the sales pipeline, lower inventory exposure risk, shorter sales cycle, lower costs to manage these assets, improved customer profitability, and better intelligence on financial returns for specific marketing initiatives (ROI).With these techniques, Lowe's improved store performance and sales, Wells Fargo Home Mortgage decreased loan defaults and risk, and Harrah's raised customer sales and cross-property visits.

MIGRATING FROM THE OLD METHOD TO THE NEW PARADIGM

The core processes of a customer relationship management system merge the so-called islands of relationship information into one comprehensive database. In the old method, islands of information prevailed as customer leads and existing relationship information were retained by the salesperson in their own paper-based system or elementary computer-based tracking system. As a result, all vital relationship information was owned by the salesperson rather than existing as an enterprise asset that could be viewed, leveraged, and retained by the organization. As a result, many of these relationship assets had a short lifespan, and they weren't always passed on to management when the salesperson moved on. Corporations were forced to duplicate their investments as the new salesperson rebuilt the relationship intelligence. See Table 1.

VALUE DRIVERS FOR RELATIONSHIP ASSETS

The value generated by these relationship assets can be quantified from a cash flow perspective, which measures the cash inflows generated by a group of customers, the duration and frequency of those cash inflows, and the cash outflows required to establish and retain customers. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Using Customer Relationship Management to Increase Profits
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.