How To Develop A CRM Strategy

Research
Publication Date: 27 December 2004 ID Number: G00125604
How to Develop a CRM Strategy

Ed Thompson, Scott D. Nelson
Almost every company that has benefited from a customer relationship management
initiative has done so after developing a coherent CRM strategy. This document offers
guidance on creating such a strategy.
2004 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior
written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable.
Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no
liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader
assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed
herein are subject to change without notice.
TABLE OF CONTENTS
1.0 Developing a CRM Strategy ................................................................................................. 4

2.0 Set the Destination ............................................................................................................... 5
2.1 The Definition of CRM ............................................................................................. 5
2.2 CRM Objectives and Goals ..................................................................................... 5
2.3 The CRM Vision and Inspiration.............................................................................. 6
2.4 Executive Leadership and Governance .................................................................. 7
3.0 Audit the Current Situation ................................................................................................... 8
3.1 Re-evaluate Past CRM Failures.............................................................................. 9
3.2 Broaden the Inputs Into CRM Strategy ................................................................... 9
3.3 Assess the Strength of Customer Relationships................................................... 10
3.4 Discover What Customers Value Most.................................................................. 11
3.5 CRM Capability Assessment ................................................................................. 12
4.0 Map the Journey................................................................................................................. 13
4.1 Aligning the CRM Strategy With the Business Strategy........................................ 13
4.2 The Differences Between the Marketing Strategy and CRM Strategy.................. 15
4.3 Segmentation and Customer Value ...................................................................... 16
4.4 Segment-Based Resource Allocation.................................................................... 17
4.5 Brand Models ........................................................................................................ 18
4.6 The Customer Life Cycle ....................................................................................... 19
4.7 Case Study 1 ......................................................................................................... 20
4.8 Case Study 2 ......................................................................................................... 21
4.9 CRM Objectives..................................................................................................... 22
4.10 CRM Metrics.......................................................................................................... 24
5.0 Taking the Future Into Account .......................................................................................... 26
6.0 Conclusion .......................................................................................................................... 27
Appendix A. Acronym Key ......................................................................................................... 27
LIST OF FIGURES
Figure 1. A CRM Vision Must Take the Customer Viewpoint and Answer: Why and How? ............. 6
Figure 2. Creating the CRM Vision.................................................................................................... 7
Figure 3. Knowledge Transfer Between Board and CRM Team....................................................... 8
Figure 4. Internal and External Inputs Into CRM Strategy .............................................................. 10
Figure 5. Customer Value Relationship Matrix................................................................................ 11
Figure 6. Relationship Investment Guide ........................................................................................ 12
Figure 7. CRM Internal Capability Assessment............................................................................... 13
Figure 8. Comparing the Elements of Marketing and CRM Strategies ........................................... 15
Figure 9. Segmentation and Customer Value ................................................................................. 16
Figure 10. Segment-Based Resource Allocation ............................................................................ 18
Publication Date: 27 December 2004/ID Number: G00125604 Page 2 of 28

2004 Gartner, Inc. and/or its Affiliates. All Rights Reserved.
Figure 11. Brand Models: Linking Customer Experience With Required Internal Change ............. 19
Figure 12. Customer Life Cycle: A CRM Strategy Must Encompass All Stages............................. 20
Figure 13. CRM Strategy: Case Study 1 ......................................................................................... 21
Figure 14. CRM Strategy: Case Study 2 ......................................................................................... 22
Figure 15. April 2004 Survey: Primary Objectives of CRM Initiatives ............................................. 23
Figure 16. CRM Metrics................................................................................................................... 25
Figure 17. Scenarios Affecting CRM Strategy................................................................................. 26

ANALYSIS
Management Summary
Gartner has run a CRM Excellence Award since 2001 and has examined what made the finalists
stand out from the other entries. We found that the most successful had a coherent, simple,
widely understood strategy with associated metrics that were well defined. The finalists' strategies
were backed by senior executives and most had laid out a governance structure to ensure their
strategies succeeded. In many other cases, the CRM strategies either did not exist, had ceased
to be relevant to the organization, had no leadership support or were not understood outside a
handful of executives' heads. Therefore, getting the CRM strategy right is clearly a prerequisite
for a successful initiative.
This report is designed to aid the CRM project manager, executive sponsor or operations
executive who is seeking help in building a CRM strategy. It is not intended to provide a template
for a strategy document, because all organizations are unique and no two strategies are alike.
Instead, this report provides guidance and help by providing successful models and frameworks
alongside case studies and examples. It has four main sections.
Setting the destination
Auditing the current situation
Mapping the journey
Taking the future into account

To help businesses create a CRM vision and strategy, the following Key Issues are addressed in
this report:
What is a CRM strategy?
How does a CRM strategy fit in with other business strategies?
How will companies effectively manage increased service and communication to build
real customer loyalty?
1.0 Developing a CRM Strategy

A CRM strategy should outline where the destination is, summarize the current situation and
show how the business will get from where it is to where it wants to be, gaining what benefits and
at what cost.
A CRM strategy should comprise three sections:
Set the destination: The vision of the company and the goals derived from this vision are
the intended destination of the CRM strategy. The vision will be heavily dependent on
the leadership of the company and on which definition of CRM is used.
Audit the current situation: Skills, resources, competitors, partners and, of course,
customers all need to be consulted in assessing the start point.
Map the journey: The journey may take many years, and the map will change along the
route. It is important to plan for this before starting.

Action Item: Setting the destination, auditing the current situation and mapping the journey is an
iterative process that may require several revisions before a final CRM strategy is developed. The
challenge is to avoid rushing the strategy development, as the company may be committed to
many years of change.
2.0 Set the Destination

2.1 The Definition of CRM
Gartner defines CRM as a business strategy in which the outcomes optimize profitability, revenue
and customer satisfaction by organizing around customer segments, fostering customer-
satisfying behavior and implementing customer-centered processes. Every vendor, consultancy,
university and business-management guru has a different definition of CRM, and all have their
merits and limitations when applied to an individual organization. Yet the definition of CRM and a
vision for CRM are tightly linked, so getting the right definition of CRM cannot be underestimated.
The definition will bind what CRM relates to and what it does not relate to. More importantly, it will
define who a customer is and is not. Thus, developing a company-specific CRM definition is the
first step to creating a CRM vision. There are several benefits in creating a unique definition,
although the process may be laborious and tortuous.
A collective understanding between multiple departments for the first time
The creation of boundaries for CRM, so that it does not encompass everything and
anything to do with customers
Buy-in from those involved in its creation and, ultimately, its execution
An acceleration in the process of defining a CRM vision, because the definition and the
vision are inextricably linked
Gartner recommends collecting several definitions of CRM, particularly from organizations within
the same industry, from those with similar goals; or from those that are seen as successful at
CRM, to draw inspiration and identify common characteristics. However, it is important not to take
an "off the shelf" definition and then proceed to create a unique one for your company. Once the
definition has been fixed, the CRM vision can set out who the customers are and why CRM
needs to take place. The strategy can then determine how it will happen. Moreover, once a
definition of CRM is reached, the expression of a CRM vision is far easier to establish.
Action Item: Companies should examine as many definitions of CRM as possible but should
create their own definition to gain buy-in and cohesiveness from those involved in the initiative.
2.2 CRM Objectives and Goals

Strategic Planning Assumption: Through YE06, more than 80 percent of CRM strategies will fail
to articulate the future customer experience in the CRM vision. Therefore, the benefits will be at
least half those expected for these organizations (0.8 probability).
Most goals for CRM initiatives are built around improving profitability. Most visions are short term.
Sometimes, the focus is on cutting costs (such as reducing customer churn or improving retention
rates). Other times, the focus is on increasing revenue, by improved targeting to acquire the
correct mix of new customers, or increased cross-selling and up-selling into the installed base
(see Figure 1).

Figure 1. A CRM Vision Must Take the Customer Viewpoint and Answer: Why and How?
Why? Improve the profitability per customer
Reduce costs: Increase revenue:

Reduce the costs of acquisition Acquire new customers
Reduce customer churn Cross-sell to current customers
Increase customer loyalty Increase customer commitment
How? How?
Make customers assets safe Increase propensity to buy
Weed out unprofitable customers Increase frequency of purchase
Create emotional contract with brand Deliver value in a personalized way
How?
For example, change customer experience, organizational structures, metrics,
processes, behaviors, technologies, data and information
Source: Gartner Research (December 2004)
The focus can be subtler with customer-centered goals like increased customer commitment and
loyalty, which will feed back to greater profitability over a longer period of time. These goals are
more difficult to measure. Usually, there is a mix of cost-reduction and revenue-enhancing goals
in the vision.
However, a true CRM vision should consider the future state from the customer's perspective:
What will the customer gain from the CRM strategy? How will the customer's value proposition
differ from the current situation?
Action Item: A CRM vision should be able to articulate the future environment for the organization
in terms of profitability and also the future customer experience.
2.3 The CRM Vision and Inspiration

Although a CRM vision needs to define CRM and set out goals, it also has a more important
purpose inspiration. The CRM vision needs to reflect the "enterprise personality." Without it,
customers will not have a clear image of what the organization offers vs. the competition, leaving
expectations unmanaged and at the mercy of market forces. Employees need a vision of what to
deliver to customers. The vision should motivate them and enable them to work together,
generate customer loyalty, gain greater "wallet share" and turn target customers into advocates.
A vision starts with understanding market demand, as well as the company's market position, and
then creating a core proposition to target customers; one they will value and which stands out
from the competition (see Figure 2). This core proposition should be a declaration of intent
around which a customer value proposition (CVP) or culture can be built. Next comes a set of
competitively differentiated brand values that the customer rates (for example, innovation,
independence, quality, expertise and involvement).

Figure 2. Creating the CRM Vision
Customer experience
Differentiating
brand values
The customer relationship The vision is the
management vision is a what and why;
Core value
picture of what the the strategy is
proposition
company wants the how.
to be to target
customers.
These values should be determined from the customer's viewpoint. Too many organizations think
they know what customers want, but instead discover, through costly mistakes, that they do not.
They overinvest in services that customers do not want or value, and they do not invest enough in
the elements of service delivery that would generate real value and loyalty. Finally, there is an
outline of what the customer experience should be for different situations and segments.
Action Item: Examine the current core value proposition for customers: Is there one? Is it different
from that of competitors? Is it understood by, and motivating for, employees? And do customers
associate the organization with it?
2.4 Executive Leadership and Governance

Strategic Planning Assumption: Through 2008, for a CRM program to be successful, 45 percent
will typically depend on the right executive leadership, 40 percent on implementation
management and 15 percent on the technology choice (0.8 probability).
Executive understanding, sponsorship and leadership are essential when commencing a CRM
initiative. Although full board-level support is crucial, in reality, an executive council, which may
have non-board members, will need to drive the process forward (see Figure 3). Day-to-day
implementation will require a program management team, including input from the IT
organization, to refine the CRM vision laid down by the board, prioritize work, manage benefits
and seek synergies between projects.
An important part of program function is the change management team. Although other programs
can succeed with far lower levels of business management involvement, a CRM program is
fundamentally about behaviors, relationships and employee actions; so change management
becomes the most critical success factor.

Figure 3. Knowledge Transfer Between Board and CRM Team
Customer relationship management officer

sponsorship and executive council
Program management team
Change management team cross-functional
Custom Customer Skills and Technology Operational

interaction insight behavior projects initiatives
projects projects projects
Architecture team: systems/process/data integration
A key factor in the early stages of an initiative is the mutual education of the main board or
executive council, and the program management team. The board/executive council must be
educated on the changes required as part of CRM. However, the program management team
must know what the board is thinking and how the business strategy may evolve.
Action Item: During the initial stages of the CRM initiative while the CRM vision and strategy
are being developed the program management, executive council and board-level sponsors
must commit time to mutual education workshops.
3.0 Audit the Current Situation

Several types of audit are possible before pressing ahead with developing the CRM strategy.
Examine past CRM failures.
Seek input on the current causes of pain from multiple external customers and partners,
and internal sources like frontline employees from different business functions.
Measure the state of current relationships and the experiences of customers.
Find out what matters most to customers in dealing with the organization.
Assess the organization's own capabilities to deliver on a CRM initiative. This will
include assessing the state of customer data, mapping customer-facing processes,
collating and assessing the metrics used to measure customer-facing departments and
the level of focus that the organization is placing on its customers. Use the assessment
to evaluate the organization against equivalents in the same or similar industries.

Ultimately, companies should use as many of these assessment types as possible in preparation
for setting out the strategy.
3.1 Re-evaluate Past CRM Failures

Strategic Planning Assumption: Through 2005, companies that neglect to examine the causes of
their own and others' past CRM failures are twice as likely to face problems with the next
strategy, compared with those that investigate and take note (0.8 probability).
Before starting to plan, companies should examine their past internal failures, and those of
others, to avoid repeating the same mistakes. In order of frequency and impact, the top 10
causes of CRM failure are:
Lack of understanding at board-level: "We want it done by Christmas." The board has
little customer or CRM understanding or involvement.
Lack of adjustment to compensation structures: "I'm not paid to do that." Rewards and
incentives tied to old, non-customer objectives.
Employee culture does not change: "So what do I do differently? It's all a load of hype!"
Staff culture does not have a relentless focus on the customer.
Customer input is nonexistent or limited in developing the strategy: "We know what they
want." Limited or no input from the customers' perspective.
Thinking that buying a software package will create CRM, and forgetting that
architecture and integration issues are bigger and more expensive: "Send someone to
that exhibition for brochures."
Independent or inappropriate processes: "I have to have your date of birth again." Lack
of specifically designed, mutually reinforcing processes (that is, strategy).
Poor-quality data on customers, leading to poor analysis and decision making: "We
need to collect all our data on all our customers and 'data mine' it."
Weak coordination and communication between departments, divisions or projects: "My

job is to sell life insurance. I don't care what claims handling is doing."
The CRM team focuses too much on IT or back-office functions and with short-term
project time scales, while ongoing business operations do not get involved: "Whom can
we send on the CRM project that we can live without for six months?"
No measuring or monitoring: "I think CRM is a waste of time. Prove me wrong." No

measures or monitoring of benefits and lack of testing.
Often, past CRM projects and initiatives failed to meet expectations, but still delivered a
positive return on investment. Outright failures are rare; occurring less than 15 percent
of the time. Before rejuvenating a CRM initiative, companies should spend time
measuring what has gone before, wherever possible. It is also important to spend time
interviewing past participants on what they thought went wrong. In many cases, the
assumptions, business case and goals of past projects remain valid, even if the
execution was not as successful as hoped.
3.2 Broaden the Inputs Into CRM Strategy

In developing the CRM strategy, many organizations do not use sufficient external sources of
information when defining the current situation. Often, customers and consumers are not

consulted. But the net, for sources of relevant information, should be cast even wider to include
competitors, partners, suppliers and market research to determine the latest market trends.
Once external sources have been tapped, internal sources of information can also be used. In
particular, employees are a good source of anecdotal and statistical information (see Figure 4).
Figure 4. Internal and External Inputs Into CRM Strategy
External External
Partners Organization Market

Suppliers trends
Resources
Technology Vision
Capability
External External
Customers Employees Competitors

Consumers
Without internal and external information sources, there may be serious miscalculations in the
CRM strategy, not only about customer and consumer needs, but also about the internal
capabilities to deliver to those needs. Customer and consumer information must be weighted
highest. However, to set new standards of service, it is sometimes critical to override customer
perceptions, as they are bound by past experiences. Therefore, customer feedback cannot be
used as the only input.
Beware generic discussions about the relationship between customer and supplier, and focus on
the highest pain points. The more specific the problems, and the better the examples given by
customers and frontline staff, the more immediate the understanding of those approving
businesses cases.
Action Item: Beware of short cuts in information gathering when assessing the current customer
relationship situation. Seek information from external sources first, and weight customer and
consumer feedback highest.
3.3 Assess the Strength of Customer Relationships

The next thing to establish is the strength of the relationship with customers (see Figure 5).

Figure 5. Customer Value Relationship Matrix
Protect Invest to Invest to Damage

Key position protect win over limitation
Customer Large share Counter Invest to Win the Careful

potential of wallet competition build opportunity management
(value to
company) Some Manage for Build Manage for Manage for
potential profitability selectively revenue revenue
Manage for Manage for Manage for Consider

Transactional profitability profitability revenue divesting
Highly secure Secure Vulnerable Fragile

Strength of relationship (value to customer)
The result is a customer value relationship matrix that combines the supplier's view of customer
value segments which can be derived by examining current profitability or expectations of
future potential (such as lifetime value) with a measure of the current strength of the
relationship from the customer's perspective (that is, derived by looking at satisfaction and
loyalty). The intersection will then determine the objectives and strategies by segment.
Measurements of current and future profitability should be one of the first things companies
consult when estimating relationship value, even though the allocation of fixed costs across
customers may be difficult. However, understanding the strength of the relationship from the
customer's perspective is equally important, and this is where primary research is usually
required.
3.4 Discover What Customers Value Most

It is important to establish exactly what customers value most from the current relationship. What
satisfies customers and, more importantly, what generates the "feel-good factor" and trust that
engenders loyalty? An organization can generate satisfaction without any loyalty, and many do,
but understanding what motivates loyalty is still very important. To do this, a company has to
measure rational factors against need, as well as the more emotive and subjective factors of
brand image, values and service quality (for example, the style of communication and the amount
of customer care shown). Once everything else is satisfactory, delivering on the emotive factors is
what makes customers more committed and loyal. This can be related to Maslow's hierarchy of
needs: once the organization satisfies the basic needs for the customer, it is able to move on to
higher-order needs.
Establishing satisfaction and loyalty can be done through market research that produces a
relationship investment guide (see Figure 6). This guide will show the presumed importance of a
range of rational and emotional service delivery factors (for example, brand values and
satisfaction and quality contact time with account managers). And it will show how relevant these
factors are in influencing customers' behavior. The result reveals the factors that:

Engender satisfaction, so they only need to be done to a certain "hygiene" level
Really do not matter, and show where costs can be cut
Were hidden and which the company had not realized were important
All of these factors can be compared with those of competitors and detailed by customer
segment.
Figure 6. Relationship Investment Guide
High Hygiene Motivators

Invest
factors
Maintain
efficiently Well above
average
Above average
Claimed
Importance Average
Below average
Poor
Hidden
Low Overspending opportunities
Low Real Relevance High Study/invest

Trim
3.5 CRM Capability Assessment

Strategic Planning Assumption: Through 2008, less than 10 percent of large companies will have
tested their CRM capabilities against the competition (0.8 probability).
Many organizations will perform a rudimentary analysis of their internal capability to achieve the
goals of the CRM vision. Few will effectively analyze all the areas of change that may be
required. Even fewer will measure themselves against the competition.
An internal assessment of CRM capability allows a company to understand where most problems
will arise, before they arise. By comparing internal capabilities with those required to support the
CRM strategy, an organization can prioritize which areas to focus on first. If peers, competitors
and comparable organizations in other markets are also evaluated, then a more substantial gap
analysis can take place (see Figure 7).

Figure 7. CRM Internal Capability Assessment
Analysis and planning

The customer experience 50
40
The proposition
30 Benchmark average
20
Peer group average
10
Measuring the effect Company
0 People and
organization
Information and technology

Customer management
Process management
Such models should include an examination of people and organizations, process management,
analysis and planning capabilities, measurement, the value proposition, customer experience,
applications and the supporting technology infrastructure. Gartner's version of this holistic view of
internal capabilities is called the Gartner CRM Maturity Model. It focuses on capabilities for
organizational collaboration and a valued customer experience.
Action Item: Perform a gap analysis on internal capabilities before starting the initiative, and
perform benchmark tests against other companies where possible.
4.0 Map the Journey

What is a CRM strategy? A CRM strategy is the blueprint for how the organization will achieve
the ideal customer base. To do this, it must revisit the marketing strategy. What products or
services is it going to sell, to whom, at what price and through which channels? In a CRM
strategy, this is extended to how the company will build customer loyalty once it has its target
customer. How will it connect with a customer to get that feel-good factor, and gain a belief in its
proposition and brand? That feel-good factor means the customer stays longer, buys more,
recommends the company to others more often and is willing to pay a premium price.
4.1 Aligning the CRM Strategy With the Business Strategy

Strategic Planning Assumption: Through 2007, more than 60 percent of CRM strategies will be
developed in isolation from a company's business strategy, and more than two-thirds of these
independent strategies will fail because of a lack of support (0.6 probability).
Often, companies are confused about the differences between business strategy, CRM strategy
and marketing strategy. In all cases, the overall business strategy must drive the CRM strategy.
Too often, the CRM strategy is defined and developed in isolation from the leadership of the
company and away from the active business strategy. Without this connection, the CRM strategy
is viewed as an academic exercise and is quickly abandoned.

Ultimately, a CRM strategy and program will not succeed if it is developed in isolation from the
company strategy. Organizations may not have a documented strategy, but they all have
strategic goals and plans for reaching them. Some plans are sketchy and others more formal.
The many styles of strategic planning can be categorized into four main ones:
Rational: A structured, formal approach to planning that sets out to find and implement
the optimal strategy in a given market. The result is a style in which organizational and
political constraints are to be overcome, not accommodated.
Pragmatic: Another formal approach to strategic planning, but one that accommodates
the various constraints, rules and procedures governing the organizational units involved
in execution.
Political: A consensus-based approach to planning, which uses a loose collaborative

structure to gain support from various stakeholders, each of which has its own goals and
resources.
Opportunistic: An approach that views the world as too complex and uncertain to be
captured by a formal, strategic planning process, which would be unreliable and slow.
Opportunistic strategy is a mixture of instinct and exploitation of events, without reliable
rules. Strategy can be imposed by decree, or built through ad hoc collaborations.
Many organizations use the political and opportunistic models for planning. And they offer no
clear, up-to-date and explicit plan for the CRM strategy to attach to. Failing to anchor a CRM
strategy to company one may mean that the people that develop it lose their jobs, because it is
perceived to be out of touch with business reality.
The main challenges in developing a CRM strategy without a company strategy are:
Executive whim. Less formal styles of strategic planning are more dynamic and prone to
the whims of senior executives. Managers developing a CRM strategy must stay close
to influential individuals or be left behind. CRM senior executives must be quick to
change course if required.
Lack of executive consensus. One executive may sanction actions without the
agreement of others. If that executive is replaced, there may be a backlash against CRM
because it is seen as his or her personal foible. The head of a CRM strategy must verify
individual executive thinking with other executives.
Business units or regions filling the planning void. Business units may implement their
own strategies without interference from headquarters because they can act to achieve
their own local or personal goals (for example, specific profit, revenue or volume
targets).
Need for faster paybacks. Managers must understand the economic payoff from the
CRM strategy. This is critical because enterprise-level strategy is more likely to change
in the short term. Thus, the CRM strategy must justify its investment more rigorously to
senior executives and business unit heads. The CRM team should recruit from the
finance team.
Ad hoc inputs. CRM strategies have many different inputs, including marketing, sales,
operations, business units, market research, customers, external agencies and
consultancies. Senior executives provide key inputs, yet there may be no formal process
for channeling and auditing this input.

Long lead times in CRM planning. The long lead times for developing a CRM strategy
often compel the CRM team to plan further ahead than the rest of the organization.
Shortcomings in the company strategy may be identified first by those developing the
CRM strategy, yet the CRM initiative must not appear to drive senior executive thinking.
To ensure the survival of the CRM strategy in this environment, the head of the team developing
it must engage leaders personally to validate the connections between company and CRM
strategies, and create a process that connects company objectives to the CRM goals.
4.2 The Differences Between the Marketing Strategy and CRM Strategy
The first part of a CRM strategy audits where the organization is and what its objectives are.
Many companies have a marketing strategy or should have that needs to be revisited to
develop the CRM strategy (see Figure 8).
Since its rise as a business discipline, the aim of marketing has always been to put the customer
at the front of the "production function." So instead of "produce-sell-customer," the business
process is "understand customer needs-produce-sell-customer." However, as companies grew,
they could only do this at an aggregate, mass-market level at best. What has changed now is that
technology is enabling businesses to do this at a far more granular or even personal level (if
required). In addition, customers are demanding more value, and service is increasingly the key
to sales. The technology is there, but business practices and strategy are not making the most of
it.
Figure 8. Comparing the Elements of Marketing and CRM Strategies
Marketing Strategy Customer Strategy

How do we take advantage of How do we get closer to the
market opportunities and customers to deliver value to
mitigate competitive threats? them and create value for us?
Vision: market position Vision: customer experience
Market definition and audit Customer definition and audit
SWOT analysis Capability analysis
Target market segments Target customer segments by value
Objective for each market Objective for each customer
segment: penetration, segment: acquisition, development,
development, maintenance retention and efficiency
and productivity Measures: satisfaction,
Measures: market share, brand loyalty, cost to serve and
equity and market penetration employee satisfaction
Based on product life cycle Based on the customer life cycle
SWOT: strengths, weaknesses, opportunities and threats
The development of the CRM strategy from the marketing strategy is outlined in Figure 8. The
biggest difference between the two is that the marketing strategy is concerned with placing the
organization in its chosen field in relation to competitors, while the CRM strategy is concerned

with placing the organization in a good standing with its customers. In a few organizations, the
CRM strategy has superceded the marketing strategy. In other cases, the marketing organization
is moving to focus more on segmenting customers according to their value. As such, the
marketing strategy is evolving to become more like a CRM one.
4.3 Segmentation and Customer Value

Segmentation of customers by current and potential value is a necessary, but not sufficient
prerequisite to an effective CRM strategy. A customer value proposition (CVP) is the unique mix
of a supplier's capabilities that will attract the customer to buy. The required CVP needed to get a
customer to buy differs from customer to customer. In theory, the objective is to meet each
customer's requirements with a personalized, compelling CVP. In practice, one-to-one marketing
is still in its infancy, and CVPs tend to be developed for broader customer segments.
Consequently, segmentation of customers is critical to the development of a CRM strategy (see
Figure 9).
Figure 9. Segmentation and Customer Value
Example: customer segmentation by household profit

Top 20 percent of households = 160 percent of profits
$1,500
$1,000 Customer value propositions:

Customer value proposition
$500 customized for each segment
CRM strategy by segment
0 Management by segment
Resource allocation by segment
($500) Life cycle contact by segment
(that is, target, sell, service or extend)
($1,000)
1 2 3 4 5 6 7 8 9 10
Household deciles ranked by profit
Source: KPMG
The most common segmentation types are by:
Product line
Region
Frequency of purchases
Current profitability
All these measures are valid; but, increasingly, future profitability is also being used as a better
measure of attractiveness to the supplier. Since 1997, banks in particular have started to
segment by current and future profitability, and then mapped CVPs, resources, management and
a customer life cycle contact strategy onto each segment. However, agreeing definitions of
profitability are difficult. If there are large fixed costs to be allocated, they can swamp any profit

calculation, and allocation can be seen as arbitrary. Even if some, or all, fixed costs are excluded,
variable costs have to be allocated to each customer, which requires some form of activity-based
costing approach.
Future profitability usually involves an attempt to measure lifetime value and is based on a net
present value calculation of future revenue streams. But are these revenue streams just for the
customer's established products or for future potential purchases, and should the influence of the
customer be accounted for? Moreover, household profitability may be more valuable but, in
general, it is still an elusive metric. And profitability is not the only measure of value. The
customer's influence may be more important. Consequently, it is critical to refine the definition of
value before embarking on customer segmentation by value.
Action Item: Learn from the banks: Segment by current and future profitability, develop CVPs and
strategies and allocate resources for each segment accordingly. Learn from those making use of
customer segmentation by value. Agree on a definition of profit or lifetime value, start using it
rather than debating the pros and cons of 15 potential metrics, and refine the metric in three to
five years' time.
4.4 Segment-Based Resource Allocation

Strategies for customer segmentation require goals, resources and a management structure for
each segment. But the key to success in the long term will be the ability to reallocate resources
dynamically and cost-effectively among segments.
Those businesses that have fully embraced segment-based CRM strategies have found that
these strategies require changes to organizational structure, management structures and budget
allocation (see Figure 10). One insurance company described the organizational structure
changes to be the most slow-moving. It anticipated that, with two layers of management adjusting
to the new customer-centered structures per year, it would take five years to adjust.

Figure 10. Segment-Based Resource Allocation
Sales resource-to-account ratio is managed based on opportunity.

Upward movement is a trigger that additional resource may be needed.
Greater customer spending rewarded with greater levels of account management.
Less One:One
than to Dedicated
10% One:Few Few:One account
To teams
Share of
10% One:One
Buying
to
Power
50% One:Many
More One:Few
than Dedicated
50% Hunters
Call
center Less than $6 to More than
model $6 million $12 million $12 million
Buying Power
It is easy to visualize the benefits of changing sales resources-to-account ratios, so that the
largest customer accounts have the most support; and greater customer "spend" is rewarded with
greater attentiveness if this is what the customer wants. The hidden danger is that customer
movements across segments are more dynamic than product changes in many vertical sectors.
Therefore, the real challenge of segment-based strategies and resource allocation is to
dynamically alter budgets, behaviors and management attention as individual customers move
between segments.
Action Item: Focus on building processes and systems that can be altered rapidly and
dynamically as individual customers move between segments.
4.5 Brand Models

Creating a brand model is a critical success factor in developing a successful CRM strategy.
Figure 11 gives an example of a brand model in development for a European business-to-
business (B2B) organization.
The organization decided that its end goal, or mission, was to be the "definitive source" for its
services. If customers were looking for this type of service, they would try this specific company
first. It set out to learn from current and potential customers what values it had to ensure it built up
customer loyalty and became the definitive supplier. It found it had, for example, an aptitude for
innovation, accessibility, a perception of expertise and a sense of social mission.

Figure 11. Brand Models: Linking Customer Experience With Required Internal Change
Culture
Understand
Delivery others
Confident Proactive
Proactive
Detailed
Service
contact
Values
Educate Quality Accessible Collaborative Solidarity
Social National
Mission
Committed Specialist Expert
Definitive mission
I
source Impartial
Supportive Leadership Heritage Pride
Staff feel
valued Innovation Custodian
Knowledgeable
Technically Up-to-date
Sense advanced
of purpose Inspired
Optimistic drive
At the delivery level, it set out to find more detailed information on how those values would need
to be delivered to customers. Service delivery had to be knowledgeable, up-to-date, impartial,
collaborative, proactive and technically advanced. Finally, it examined the type of culture it would
require to ensure the values were met and the brand position achieved. It then set about
influencing and changing its existing culture to match, and supporting the delivery mechanisms
that, in turn, support the customer values that were in demand.
Action Item: Brand-value model development should be used to help develop a CRM strategy.
4.6 The Customer Life Cycle

A CRM strategy must encompass the entire customer life cycle, through selection, acquisition,
retention and extension (see Figure 12).

Figure 12. Customer Life Cycle: A CRM Strategy Must Encompass All Stages
How will the company determine

its most profitable customers?
Selection
How can the
company How will the
increase the company
loyalty and Extension Customer Acquisition acquire this
profitability of customer in an
this customer? effective way?
Retention
How can the company keep

this customer for as long as
possible?
When using a life cycle approach, marketing organizations must first make tough decisions about
which customers will truly be the most profitable and will receive more focused attention. After
customers are identified, a sales channel and field marketing or trade promotion strategy must be
developed. The strategy will determine which products will be most suitable for each customer.
Once customers are acquired, salespeople need to work in tandem with customer service to
improve or maintain retention and renewal rates. The result is that the days of the marketing,
sales and customer service organizations working in isolation are gone. A CRM strategy will
affect these organizations and many others within the company, including billing and finance. As
such, companies will be required to:
Define a CRM strategy that takes a customer life cycle perspective from the start
Implement changes to organizational structures, training programs and compensation

plans that reinforce the life cycle view
Action Item: Businesses developing a CRM strategy must encompass a customer life cycle view,
especially when articulating the CRM vision for the future customer experience.
4.7 Case Study 1

A question often asked is: "How detailed should a CRM strategy be?" Starting with an outline is
sufficient, as long as it is easily understood and gives clear statements about what is to be
achieved, and how. A strategy evolves and develops as more is learned about customer
requirements and the marketplace, and as capabilities are built up. A strategy should be the "life
force" of the company. Information and feedback should be taken in from the front line and used

in an organized way to nurture a sense of well being, and at the same time getting rid of anything
that is not needed and no longer works.
The graphic in Figure 13 is an outline strategy for a B2B telecommunications company. It states
the strategic objectives by segment, with some indication of how this is to be achieved, leaving
the detail to be worked through. This is a good start to developing an asset base of value, but it
still appears quite inwardly focused. There is too little vision regarding what value is to be
delivered to the customer.
Figure 13. CRM Strategy: Case Study 1
$15,000
10,000
5,000
0
(500)
(1,000)
1 2 3 4 5 6 7 8 9 10
Household deciles ranked by profit
Segment the customer base in deciles of value.

Develop customer profitability the most valuable segment by
3 percent, the next three segments by 20 percent, and decrease the
losses on the rest. Develop services used, lower distribution cost,
increase prices and discount according to potential value.
Acquire new customers of the most valuable type with targeted selling.
Implement retention programs for the most profitable customers.
With a more complete vision, the job of filling in the strategy's details and the tactics to be used
to develop the customer will be easier and more coordinated. When the detail is done, the
capabilities that the company needs to deliver the strategy will become clear. Understanding this
will mean that building a capability can be prioritized in the infrastructure road map. The strategy
and tactics also aid in building relevant customer processes.
4.8 Case Study 2

A second strategy for an airline company although still at the outline level, starts to
recognize that the company needs to deliver customer value, see Figure 14. Like the previous
example, this company needs more vision about the brand values and customer proposition. This
should happen via an understanding of the customer base as long as it goes hand-in-hand
with an understanding of the market.

Figure 14. CRM Strategy: Case Study 2
Understand and segment

the customer base.
Communication
Retain the most valuable
customers after finding out Value added
why they defect. Value tailoring
Win back valuable ex-customers. Brand
Value
Develop the loyalty of current
customer segments; use
differentiated service according
to need.
Improve the profitability
of unprofitable customers.
4.9 CRM Objectives

Key Issue: How will companies balance the financial demands of their organizations with the
increasing demands of customers, consumers and constituents?
Not surprisingly, during an economic downturn, the objectives underpinning CRM often change.
Acquiring new customers was far less important between 2001 and 2003 than retaining current
customers. The result is that investments are made less in field sales applications and more in
areas such as complaint management, call management, e-service and field service. However,
Gartner's most recent survey shows that, as economic confidence improves, growth objectives
like increased sales revenue and acquiring new customers are becoming more important (see
Figure 15).

Figure 15. April 2004 Survey: Primary Objectives of CRM Initiatives
Increase customer satisfaction

Increase sales revenue
Increase customer retention
Increase customer loyalty

Enhance cross/up-sell opportunities
Reduce service costs
Acquire new customers

Increase profit margins
Increase profit per customer

Other
0 50 100 150
Number of Respondents:179 Number of responses
Source: Gartner Pre-Conference Survey, CRM Summit, 2004
Most organizations that Gartner speaks with have multiple objectives behind their CRM initiatives.
Typically, one objective dominates, but there are several others. The average number of
objectives in the survey in Figure 15 was six.
Not all objectives are mutually exclusive; many are subsets of each other. For example,
enhanced cross-sell can be seen as contributing to enhanced profitability per customer, although
the connection between these objectives is not guaranteed.
Action Item: Beware of having too many top-line objectives for CRM initiatives three to five is
sufficient.
Real examples of CRM objectives include:
Return retention to the industry average, and then improve it by 3 percent
Measure the propensity to churn, expected lifetime value, and propensity to accept
discounts and special marketing offers
Empower customer service representatives to decide whom to keep, according to

specified criteria
Build a customer information culture to increase customer advocacy
Improve communication with customers and partners
Reduce staff turnover in the call center
Introduce an effective global sales process

Find the CRM initiative with the highest payback, and use it to fund others
Retain the most valuable customers to gain revenue in the short term
Establish the customers' optimum potential for selective development
Acquire strategically important customers in the new market

These examples cover large global organizations, government departments and even a football
club. And they come from companies that have B2B and business-to-consumer (B2C) operations.
These objectives are not static they are iterative (for example, some will remain, some will go
away and new ones will emerge over time). It is important to emphasize that objectives will
change over time, particularly with economic circumstances. Therefore, ongoing monitoring of the
objectives is needed to ensure that they are still synchronized with the senior executives' goals.
The scope of the objectives is broad ranging, from specific performance-related goals (such as
reducing turnover of call center staff) to building a customer information culture in an effort to
increase customer advocacy. Ultimately, most companies require multitiered and interlinked
objectives so that each employee and management layer can see how they link back to larger
company objectives. Without this linkage, employee involvement will be minimal, and success in
meeting objectives less likely.
Critically, most of the objectives listed above have no defined means of quantification. Therefore,
measuring progress and achievement will be difficult. Fewer than 5 percent of those
organizations that are currently engaged in a CRM initiative, and with whom Gartner has spoken,
have metrics directly associated with CRM.
4.10 CRM Metrics

Strategic Planning Assumption: Through 2008, organizations with an established balanced
scorecard initiative for business metrics will have a 12- to 18-month lead in developing a
successful CRM strategy over those that have not (0.7 probability).
Organizations must set measurable, specific CRM objectives and should monitor indicators if they
are to become customer centered. CRM metrics not only allow the level of success to be gauged,
but also provide the feedback mechanism for iterative development of strategy and tactics (see
Figure 16). In addition, they can act as a great tool for change management and are vital for
changing the ways employees' incentives are structured. CRM metrics must follow and measure
the company's own CRM strategy which means they will be unique.

Figure 16. CRM Metrics
Enterprise Overall and key segment Customer loyalty or commitment

acquisition, development, retention (ADR) Market segment share and
Key efficiency and effectiveness penetration
Brand salience and awareness
Key measures to support corporate financial and market goals
Customer Lifetime value Number of products held or
strategy Customer profitability purchased
Customer satisfaction by segment or Persistency
key account Win back
Staff satisfaction Acquisition costs
Share of wallet Recommendations
Cost to serve Measure of staff knowledge
Brand image against competition
Key measures for monitoring the customer strategy
Operational Complaint levels Supplier responsiveness

Response levels Lead times or sales cycle
Propensity accuracy Revenue per sale
Interaction costs Returns levels
Event and area satisfaction measures Research response rates
Product usage or enhancement rates Conversions
New product development times Staff turnover
Measure of staff training Individual measures of ADR
Key measures for monitoring the customer processes
Performance Call answering times Staff qualifications

Response times Process and procedure audits
Staff sickness Level of do not mail markers
Customer data accuracy and coverage
Key measures for monitoring efficiency and inputs
CRM metrics should not be viewed as an amorphous whole. There is a hierarchy of metrics
required, depending on their purpose and who is using them. Gartner proposes four levels of
metrics:
Corporate
Customer-strategic
Operational
Performance
Examples are outlined above. There are two primary challenges to developing CRM metrics:
Understanding the linkage points between the levels
Avoiding too much complexity or too much simplification

Organizations that have embarked on a corporate performance management (CPM) initiative will
recognize that there is room to use the work that they have already done. For additional
information, see other Gartner research on CPM including "Customer Profitability Is Key to Value
in a CRM Strategy," COM-20-0116.
Action Item: Seek out any other business metrics initiatives in the company (such as CPM work),
and incorporate key individuals in the CRM initiative to cut short the learning process.
5.0 Taking the Future Into Account

The path of CRM is not a forgone conclusion. There are events on the horizon that may severely
affect companies' CRM strategies. These events are outside the control of companies, but they
can be planned for.
To stretch the perspectives on how customer relationships may change beyond the two- to three-
year planning period, Gartner has studied possible scenarios and described the potential impacts
on the key stakeholders in the CRM market companies, consumers and vendors. Many factors
influencing customer relationships were considered. The two factors around which Gartner built
possible scenarios for CRM planners to consider were: "the economy" with a continuum
spanning weak to strong and "customer disclosure" from complete to restricted disclosure
by customers of their values, buying habits and value proposition (see Figure 17).
Figure 17. Scenarios Affecting CRM Strategy
Complete
"Niche Marketing Wins" "Relationships Are King"
High value for few High service levels

Niche marketing High margin
Segmentation Personalized
Weak Strong
Chaotic Continual customer acquisition

"Dog eat dog" Transaction-oriented
Highly efficient "As the world churns"
"CRM in Deep Freeze" "Mass Marketing Rules"
Restricted
In a strong economy and with restricted access to customer information, "Mass Marketing Rules"
best describes the scenario. Where access to customer information is restricted and the economy
is weak, a chaotic "dog-eat-dog" world prevails, and the scenario is "CRM in Deep Freeze." The
next "Niche Marketing Wins" scenario is a weak economy, and companies have complete access
to customer information. Customer segmentation is an imperative because highly profitable
customers are few. Gartner's final scenario, "Relationships Are King," is the networked world

where no one is in control. Here, service levels have to be high, personalized solutions are the
norm, and loyalty is scarce. Businesses will find themselves competing in regions or markets that
can be described by several of the above scenarios.
Action Item: Develop separate CRM strategies for the above four scenarios and assign their
probabilities.
6.0 Conclusion
To assist organizations in their efforts to create CRM vision and strategy, Gartner offers these
recommendations:
Answer the following questions when developing a CRM strategy:
Where is the company heading? Articulate the desired result of the initiative.
Why is the company going there? Describe the benefits to the organization and its
customers.
Who will lead the company? Appoint a leader.
What is the company's start point? Audit internally the current capabilities of the
organization and the current customer experience.
Which customers does the company want? Segment the customer base by current
and future value, and set objectives for each segment.
How is the company going to get there? Show the steps that must be taken to
achieve the vision.
Establish the company's market position against requirements and competitors. Define a
"valued" and different customer proposition.
Make the brand part of the company culture to deliver the proposition.
Segment the market for share of wallet and lifetime value.
Value the company on the potential of its customer base not just on current profit.
Establish the motivating factors for customer loyalty. Where does the company need to
excel, and where can it cut costs? Are there any "gems"?
Develop skills in the new areas of customer relationship building (such as service,
contact strategies and relationship models). Understand what technology enables the
company to do.
Ultimately, a CRM strategy should:
Set the destination and describe its benefits
Audit the current situation
Map the journey to the destination and measure the costs
Appendix A. Acronym Key

B2B business-to-business
B2C business-to-consumer

CPM corporate performance management
CRM customer relationship management
CVP customer value proposition
REGIONAL HEADQUARTERS
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Research

Publication Date: 27 December 2004 ID Number: G00125604

How to Develop a CRM Strategy

1.0 Developing a CRM Strategy ................................................................................................. 4

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Publication Date: 27 December 2004/ID Number: G00125604 Page 3 of 28

Setting the destination

Auditing the current situation

Mapping the journey

Taking the future into account

What is a CRM strategy?

How does a CRM strategy fit in with other business strategies?

1.0 Developing a CRM Strategy

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2.0 Set the Destination

A collective understanding between multiple departments for the first time

2.2 CRM Objectives and Goals

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Why? Improve the profitability per customer

Reduce costs: Increase revenue:

Source: Gartner Research (December 2004)

2.3 The CRM Vision and Inspiration

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Source: Gartner Research (December 2004)

2.4 Executive Leadership and Governance

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Customer relationship management officer

Program management team

Change management team cross-functional

Custom Customer Skills and Technology Operational

Architecture team: systems/process/data integration

Source: Gartner Research (December 2004)

3.0 Audit the Current Situation

Examine past CRM failures.

Measure the state of current relationships and the experiences of customers.

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3.1 Re-evaluate Past CRM Failures

Weak coordination and communication between departments, divisions or projects: "My

No measuring or monitoring: "I think CRM is a waste of time. Prove me wrong." No

3.2 Broaden the Inputs Into CRM Strategy

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Figure 4. Internal and External Inputs Into CRM Strategy

Partners Organization Market

Customers Employees Competitors

Source: Gartner Research (December 2004)

3.3 Assess the Strength of Customer Relationships

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Protect Invest to Invest to Damage

Customer Large share Counter Invest to Win the Careful

Manage for Manage for Manage for Consider

Highly secure Secure Vulnerable Fragile

Source: Gartner Research (December 2004)

3.4 Discover What Customers Value Most

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Really do not matter, and show where costs can be cut

Figure 6. Relationship Investment Guide

High Hygiene Motivators

Low Real Relevance High Study/invest

Source: Gartner Research (December 2004)