I've been noticing lately that everybody wants to have a close long-term relationship with me. That's right. They want to have a similar relationship with you too! At least that's the impression I get from companies selling the newest B-to-B software craze called "Customer Relationship Management" (CRM).
Companies like E.piphany (EPNY), Oracle (ORCL), Siebel Systems (SEBL), and Broadvision (BVSN) sell products that help "build, develop, and hook" customers into a relationship. They want deep knowledge about my buying behavior. In return, I get coordinated access to these companies via email, web, phone and whatever - a true "one-to-one" experience.
Now, I like having various ways to access and interact with Schwab (SCH), MediaOne (UMG), and other companies that use CRM. But is this a relationship? No, it's good service and that's what customers expect when doing business with these firms. Maybe the software should be called CSM for customer service management, but it's not. So be it.
But if a long-term relationship is what these companies promise, well that's another thing indeed.
RELATIONSHIPS AND ONE-NIGHT STANDS
Long ago marketing academics noticed that a company with a close customer relationship has it great because the customer will buy from the company forever and they are usually willing to pay higher prices. These have been called "Lost for Good" relationships.
CRM vendors' appear to promise their software solution will help companies develop this type of relationship with their customers. As an example, Epiphany promises "unbreakable, lifetime customer relationships."
Other customer relationships, however, are quite different because they look more like a one-night stand (or a series of one-night stands). A one-night stand is also a "one-to-one" experience, but it's not a long-term relationship. And like a one-night stand, customers in these relationships will buy, but you can bet they won't devote themselves to one company forever.
FOREVER RELATIONSHIPS SHOW MUTUAL DEPENDENCE
So how do you get a lost-for-good relationship? Well, academic research shows that a lost-for-good relationship is one that is "mutually dependent." That is, both parties perceive the other is dependent on them. The relationship is symbiotic. Think of a good marriage as an example.
Here's another example. For several years Dell (DELL) and Intel (INTC) have, to a large part, been mutually dependent since both have well-known brand names and, as a result, each needs the other to sell their products.
But in fact Intel can sell to a large number of box manufacturers, while Dell has traditionally bought only from Intel. So Dell is actually more dependent on Intel than vice versa. Research predicts that Dell might balance its dependency on Intel by looking around for other chips to use in its computers – which Dell has done. So much for a lost-for-good relationship.
By the way, Microsoft (MSFT) and many of its relationships tend not be mutually dependent (many companies are more dependent on Microsoft than vice versa). These kinds of relationships are either neurotic or, if there is competition around, tend to result in the dependent company hoping a new potential partner like Linux shows up.
IS CRM REALLY ABOUT RELATIONSHIPS?
So am I going to be dependent on these companies that use CRM? According to the Meta Group, that's the purpose of CRM. CRM is supposed to "raise customer switching costs, and to increase customer intimacy and retention."
But whose intimacy are they talking about? Obviously they're talking about having an intimate knowledge of me. But do I have an intimate knowledge of them? No!. No wonder some people are concerned about heightened privacy issues with CRM.
The companies say that knowledge will enable them understand customer needs. As I said before, that's great. But this won't create "lost for good" customers unless customers sense some mutual dependence. In fact, privacy issues might be less important if customers perceive some mutual dependence is apparent.
CREDIBLE COMMITMENTS
Companies who are really interested in creating long-term customer relationships might heed the words of Thomas Schelling who said strengthening a relationship between two parties is created by "tying their hands." What he means is that both sides are vulnerable.
It's obvious that customers are vulnerable, but what about the companies who use CRM?
It's not clear to me that companies are willing to tie their hands to their customers. One thing I've learned from working with companies is that they tend to like their customers being dependent on them, but not the other way around.
If Schelling and academic research are right, statements or promises "we're really interested in making you satisfied" won't work - that sounds like a one-night stand.
Instead you must use "credible commitments" that sounds more like, "Hey, we know you're dependent on us, so we'll be dependent on you – and we'll put our money and resources where our mouth is to demonstrate our commitment." Striking a service level agreement with very favorable terms to customers would be an example where commitments would be both present and credible.
Software can sure help to improve customer service. However, if companies don't want to also become dependent on their customers, that's fine. But they should realize they probably won't get unbreakable lifetime relationships promised with CRM.
