CRM equals solid financial returns

In today`s intensely competitive environment, customer management - defined as the way an organisation designs the customer experience in order to attract, develop and retain profitable customers efficiently for the mutual benefit of employees, customers and stakeholders - has been pushed to the forefront of the priority list across organisations and industries.

Around the globe companies are continuously striving to develop and extend this critical relationship - ensuring that existing customers are satisfied, transforming existing customers into loyal customers, and motivating loyal customers to act as enthusiastic advocates for their brands, so as to influence organisational efficiency and profitability.

This evolution is dependent on a clear understanding of customer needs and a dedication across the organisation to customer management. A customer-centric organisation in which relationships are managed for customer satisfaction, loyalty, retention and ultimate commitment, can result in solid financial returns. Compared to satisfaction, commitment is psychological, and is a measure of the extent to which a customer has formed a strong psychological attachment to a product or service.

Commitment is of the utmost importance, because it accounts for a customer`s personal involvement in the purchasing decision. Customer commitment is a measure of brand equity, representing the additional value a company has built into its products or services through careful stewardship of the brand experience.

Companies are transforming and growing their corporate cultures to be more customer-centric and linking that focus back to profitability. Winning companies have entered a new era in which they are taking a closer look at their customer management programmes to understand key drivers and strengthen the link between loyalty and profitability.

The return on investment from customer management programmes is often termed probable but not provable. Research by UK-based QCi Assessment confirms the bottom line value of effective leadership and the right culture, making the connection between the employee involvement, resultant customer loyalty and commitment, and the financial returns this generates.

It is not always obvious how customer management improves business performance.

Doug Leather, MD, REAP Consulting

It is not always obvious how customer management improves business performance. Tactical benefits alone may justify customer management investment; strategic benefits can result in the greatest step change, but they are also more risky and more demanding of the organisation and its leadership.

Profits are the balance of revenue and costs. The determinants of revenue are:

* Customer acquisition (winning the right number of target customers);
* Customer retention (holding onto value-creating customers longer);
* Customer penetration (selling more to customers); and
* Cost incurred in achieving the revenue (efficiency of cost of customer management).

QCi research has identified seven commonly used financial ratios that measure business performance that are directly impacted by customer management:

1. Return on asset
2. Return on capital employed
3. Operating profit margin
4. Net margin
5. Reinvestment rate - per share
6. Reinvestment rate - total
7. Return on equity per share

The findings of the research represent the largest empirical study ever undertaken into the impact of customer management on business performance, and show a clear correlation between these seven metrics and effective customer management programmes, proving that the more competent a company is at customer management, the more profit it is likely to make.

The ability to link customer commitment, value and loyalty to financial performance indicators should be part of any organisation`s performance measurement and management process. Understandably, demand continues to grow for evidence of the bottom line impact of customer management initiatives. Financial directors and CEOs want proof that the investments they are making in managing relationships with customers, as well as those made in relevant process and quality improvements, are contributing to growth in revenues and profitability. Only by demonstrating such linkage can a strong business case for investing in customer satisfaction, commitment and loyalty be established.