Customer relationship management (CRM) converts information about customers into a rich asset for performance improvement. The more complete an understanding a company has of its customer base, the more opportunity there is to use analytics to implement customer-facing initiatives in targeted ways that achieve measurable impact.

CRM is fundamentally a strategic approach to managing customer value and experiences. It is not a technology solution. However, technology is often an enabler of the benefits that accrue from a well-crafted customer strategy, superior analytics, and innovative programs.

Analytical Rigor; Strategic Delivery
All CRM efforts should be grounded in a deep understanding of customer behavior and attitudes. By definition, not all customers are identical; for example, one bank we worked with discovered that the top 30 percent of customers generated 115 percent of profits, meaning that the other 70 percent either made no money or were served at a loss.

Such strategic insights must be translated into a focus for sales, marketing, and service efforts. For some companies, managing customer attrition will be a strategically important economic lever; while for others, customer acquisition may be supreme. Companies can then understand the customer behaviors and needs that drive economic improvement in those priority areas and formulate effective programs that create real value. High-impact program design begins with a body of experience, and is most effective when companies employ a test-and-learn approach, using analytics and real results to improve program performance over time.

Effective CRM initiatives require management and marketing discipline. As a result, companies must invest in people and organizational processes along a broad range of distinct capabilities. They must also wisely employ technology solutions that enable, rather than encumber, effective customer relationship management.

Delivering on the Promise
Over the course of 300 CRM engagements in the past 5 years, we have discovered that disciplined work along four dimensions can significantly improve results from CRM initiatives:

• Understand the customer. Successful CRM starts with intensive data analysis. McKinsey conducts value-based segmentation to highlight the value of different customer segments and the underlying drivers of that value. We then gauge the relative importance of customer-oriented drivers of company profitability-acquisition, cross-sell, or retention. We use this economic and segmentation analysis – along with economic opportunity assessments, multi-channel strategy assessments, and customer behavior analysis – to formulate a fundamental strategy for managing customers and customer relationships.

• Design programs. With the strategic insights from the customer analysis in hand, the next step is developing sales and marketing programs or customer experiences at the point of sales or service that generate economic impact with key target segments. This is done by priority economic improvements, with the goal of improving the experience and/or value equation of targeted customer groups. We help clients craft innovative programs focusing on customer acquisition, cross-sell, retention, loyalty, and customer service, based on deep customer insights, a rich body of experience, and industry best practices. We often implement “tactical CRM” programs that help drive short-term earnings performance. Tested in pilots and rolled out only once impact is verified, our programs build momentum on the basis of demonstrated results.

• Deliver on the details. Since CRM programs can be complicated to implement institutionally, we help our clients shape their marketing organizations and design processes to support and sustain successful programs. We also advise clients in selecting, implementing, and managing the technology platforms that support CRM. CRM technologies are the enabler of customer-focused initiatives, rather than a big-bet panacea. These technologies are best pursued as a sequenced, targeted set of IT investments designed to begin paying off in the near term.

• Make good decisions. The information from a CRM program can often guide better operational business decisions at many levels of the organization. The key is to gather customer information at a broader set of touchpoints, perform in-depth analysis, and make critical information available to relevant stakeholders. CRM-based information can help shed light on marketing spending effectiveness, for example, or improve category management.