Does customer loyalty pay itself off? Why CRM Failed?

Since 2002, CRM project had been quickly turned from boom to bust, because number of CRM implementations did not archive expected results. As a result, it has became a scary project for many CEOs.

Although, some people claimed that CRM implementation made relationship with customers worse than not having it, there were actually benefits to customers, who got better services, new innovations, better promotions, etc. Nevertheless, the problem was these benefit cannot pay off its investment, which normally is very high due to nature of CRM complexity to involve many departments and numbers of technologies.

On the other hand, another important reason that CRM project did not achieve its expected result is because everyone realized the benefits of CRM and was scared to be left behind, which likely to happen if only one company was differentiated by CRM. Therefore, they decided to implement CRM substantially because their competitors did, and, again, they are all square.

Although, everyone was all square, CRM might be still pay itself off if the overall industry can increase size of wallet share, for example, in case of giant retail store, everyone, Tesco, Carefour, Makro, Central, The Mall, have their own CRM and customer loyalty programs to persuade customers to spend more money to these retail stores.

However, there were only a few cases that the whole industry can increase wallet share by just implementing CRM or customer loyalty programs, since there are many others factors like preference, trends, technologies, innovation, etc.

Yet, customers have the same wallet size, so, if there are winners, there must be losers. In retail chain case, the losers are local pop-and-mom shops, which could be considered as an economics failure in term of inequality and monopoly.

0% Defection – 100% Retention: Mission Impossible?

Although a customer was absolutely satisfy with every experience with a company, would that customer never defect?

The answer is highly likely NO. The reason is that a customer makes their purchasing or defection decision based on the basis of perceived value of service package being offered at that time rather than simply their current levels of satisfaction. They have relationships with more than one service provider because they perceive each relationship to offer specific value to them.

On the other hand, some customers just get bored and want to try something new, even though, they are extremely satisfy with what they currently have. So, it’s unavoidable for some highly satisfied customers to switch to another brand or provider, just only because they are getting bored and changing things around their life. Unfortunately, this is the normal human behavior that cannot be prevented from happening. Moreover, it should not be too worried about this problem, because it also happens to other competitors as well. Especially, if the company is loyalty leader, most of them tend to convert to you, which might be more than what you lose.

However, there are solutions.

First, a company should create switching and exit barriers, so that, it would mentally add additional cost to customer when they were deciding defection, and, therefore, it would less perceived value.

Second, a company should maintain their performance and relationship with customers. If the company is the real deal and do better job than the competitors, the customers will quickly find out that they had made a mistake, since they already have a reference point (experiences from the company) to compare with what they have now (experiences from competitors). Hence, they will find the way to return (aka, win-back).

In conclusion, it’s very difficult to have zero defection rate. Anyway, a company must not be discourage even their super-satisfied customers will convert to other competitors, because it’s their nature. On the other hand, a company should keep working on further improving customer relationship and create exit or switching barriers, but it must not be too much that customers feel very frustrated if they really want to exit or switch. Lastly, exited customers should still be treated as if they are still customers in order to win them back, and they will stay with you for a long long time.