Customer Relationship Management

Customer Relationship Management

Customer Relationship Management, or CRM, is an integration of philosophy and software that caters to customers’ needs. CRM creates a relationship with a customer and ensures that your business is on the top of their mind when the time comes for a purchase. CRM also allows businesses to track their customers. The system calculates their value, their contribution to the bottom line, and ranks them as a desirable, mediocre or undesirable customer.

Some personal examples; my florist has a record of my earlier purchases and the occasion of the purchase. They have my e-mail, and so I receive reminders to send flowers for t holidays and birthdays.  They offer me a choice of selections, and continue to send me reminders up until the last minute, when   I can simply select an item and know that they will take care of delivery. They already have my credit card; so the whole process is seamless. I have never met my florist, but we have a relationship and I don’t even look elsewhere for another florist.

Much of my shopping for home furnishings is done at Bed Bath and Beyond. Each month they send me a voucher for 20% off any one purchase. They also have a no hassle return policy. Why would I go elsewhere?

In the following example, a bicycle retailer in a small American town grew his sales from $50,000 to five million during the time that  Wal Mart, the world’s largest bicycle retailer, arrived in town. Studies have shown that when Wal Mart comes to town, sales for other retailers drop significantly. However, from his CRM system our bicycle retailer learnt that 30% of his customers buy because of price, 30% buy   because of the service and 40% are a bit of both. Knowing that Wal Mart is not known for their great service, this retailer decided to offer exceptional service to those willing to pay for it. In fact, he did not even want to attract customers only willing to pay a low price. He offered a free lifetime service policy, which showed his loyalty and commitment to his customers and of course made them his for life.. His free lifetime service led to the development of a sophisticated customer database, which for example, allowed him to offer children’s bikes when a child reached a specific riding age. Such direct mail marketing had a return of 50%, which is highly unusual.

The issue of loyalty is important and relevant, as corporations on average lose half their customers in five years. Loyalty is actually the absence of a better value alternative (Jim Harris in Blindsided p. 180). We remain loyal to those that provide value. Over time customers become more profitable because they place fewer burdens on the support team. Thus their net worth increases.



  1. Who are your loyal customers? What is keeping them loyal?
  2. Do you treat your most important customers differently from your average customers?>
  3. Do you know the value of your customers, and which ones should be considered   the best and the worst?
  4. Can you offer a cheaper alternative to your worst customers?
  5. What keeps your customers from leaving? What are the costs involved in their leaving?
  6. How can you improve your treatment of your customers   so that they won’t consider leaving i.e. develop their loyalty to your business?



Attaining Competitive Advantage

A business owner who wants more than just a job for life must design the business to attain some form of competitive advantage.

Your competitive advantage is what drives your customers to call you first instead of going elsewhere.

Competitive advantage leads to above average performance in one’s industry. Lack of competitive advantage implies at best an average performance, or being the same as the rest of the industry. I often hear from business owners that “business is slow, but it’s the same for all of us”.  As a result, they all tend towards the average profitability for the industry.   Actually, this means that business is slow for all who do not have a competitive advantage. Those with a competitive advantage do better in good times and in bad.

All businesses have their unique strengths and weaknesses, but there are two types of competitive advantage available to every business; low cost and differentiation.

Low cost means the ability to generate a service or product at lower cost than others because of some cost advantage. Selling at lower prices without a cost advantage will fail in the long term. Others will lower their prices as well and everyone will go broke.

Cost advantage may be achieved through economies of scale, proprietary technology, etc. Cost advantage is of benefit in commoditized industries such as chiropractors, accountants, lawyers, window installers, car dealerships and basically anyone selling a product or service that has many competitors selling the same thing. Instead of claiming you are the best, offer the same value at a lower price.

In a differentiation advantage, the vendor provides some value or attribute valued by the consumer that is unique and not elsewhere available. For that unique value a buyer will pay more. As opposed to low cost advantage, there may be several differentiation strategies available to all industry participants. For instance, lawyers may specialize in specific crimes; accountants may specialize in wineries, etc.

Achieving a differentiation competitive advantage means deliberately focusing on serving well defined, specific markets and rejecting those that will not see value in the differentiation.  We all can choose our competitive advantage, assuming we have one.  Not having one compels us to be an average performer financially, and   our business will remain stuck like its many competitors, with everyone waiting for better times.