Continuous relationship marketing (CRM) is widely used in business-to-consumer marketing, where it has proved effective in a variety of industries including financial services, telecom, healthcare, and media.¹ Yet most large companies have only recently begun to apply the technique in marketing to small businesses, even though there are more than 5.5 million firms of 500 or fewer employees in the United States. Annual sales between large and small businesses reached $9 trillion (or two-thirds of the nation’s total commerce) in 1996, and small businesses are often a large company’s most profitable customers, with a lifetime value three or four times that of the average consumer.

Until recently, firms had legitimate reasons to overlook CRM as an approach to small business marketing. The data often needed to drive a CRM program was poor or unavailable, and conflicts arose between the personal relationship sales and service channels that have long dominated business-to-business marketing and the new alternative channels that are frequently used to capture the full value of a CRM strategy. Resourceful and determined marketers are only now finding ways to overcome these obstacles (Exhibit 1).

What is CRM, and who uses it?

CRM is a data-driven approach that enables companies to assess each customer’s current needs and potential profitability and tailor sales offers and service.² It often involves using multiple channels—the Internet, direct mail, telesales, and field sales—to improve effectiveness and efficiency. A company can make contact with prospective customers through relatively low-cost direct mail or telesales channels, for example, then close sales using a higher-cost field salesforce. Alternatively, customers can browse a Web site for product information before calling a telesales representative who will answer detailed questions and execute the transaction. Measures of these interactions are then fed back into a database to determine what does or does not work and what improvements need to be made.

Industries characterized by the accessibility of transaction data and by ongoing customer relationships of varying profitability—such as telecommunications, banking, insurance, utilities, computer hardware and software, pharmaceuticals, and package delivery—are well suited to CRM (Exhibit 2). Banks, telecommunications providers, and insurance companies in particular often possess detailed customer information and transaction histories. As a result, they have been among the earliest adopters of the technique.

These types of company typically augment their customer files, or a sample thereof, with publicly available information from a provider such as Dun & Bradstreet or ABI. The data, which includes contact details, estimated sales, industry code, age of business, number of employees, payment histories, recent major purchases, and credit scores, can enable companies to develop lifetime-value models of customers, profitability scores, and behavior-based segmentation models. Users can also develop segment-specific offers and selling approaches and determine which prospects are likely to be drawn to their products and services, and which of their existing customers represent untapped potential.

Banks, for example, use this information-based approach to expand their small business lending franchises. They analyze third-party data on prospects, then design offers and a sales procedure that enable all or much of the lending process to be completed remotely via mail and telephone. Drawing on their own lending experience and analyses of data about similar prospects, the banks estimate the profitability and risk for each prospect (which vary widely, mainly according to business owners’ credit histories). This approach has enabled one institution to build a business generating almost $400 million in revenues and above-average returns in less than five years.

For companies in other industries, however, the opportunities have been limited. Industrial goods companies, for example, have often been confined to reaching small business customers through third-party distributors, agents, dealers, and value-added resellers (VARs). The only centralized customer data they could draw on was basic sales and perhaps customer contact information (sometimes this is still the case). Complete purchase histories, financial data, customer service interactions, and "firmographics" (a company’s annual revenues, number of employees, industry, age, and legal form) were rarely maintained for existing customers—let alone prospects—in a form that lent itself to the analyses that underpin CRM. In some organizations with direct salesforces, the sole repository of detailed customer information was the sales team. New companies, or companies entering new markets, might have had no information at all.

Companies in this position can now build their own information platforms by conducting relatively small-scale tests against a set of prospects obtained from an organization such as ABI, or by surveying all (or a sample of) customers. They can then determine which customers or prospects have the most potential and are most responsive—and do so with increasing accuracy.

Building channel coordination capabilities

CRM can save a company time and money by releasing its salesforce from low-value tasks, or, in the case of some customer segments, replacing it. By using direct mail and telephone channels to pre-qualify leads, for example, companies can relieve sales people of the time-consuming and expensive prospecting process, and focus their efforts on high-value consultative selling. CRM enables companies to align their sales and service channels with the requirements of each stage of the selling procedure, and with customer or prospect value and potential.

New processes

The best multichannel contact strategy for any one customer depends on commission structures, other selling costs, and sales success rates, as well as the customer’s expected lifetime value and preferred channels. Salespeople may resist even the idea of a multichannel strategy, however, if they fear they will lose their jobs or their control of customer relationships. Some companies have found ways to overcome this resistance and ensure collaboration between sales channels. By undertaking to arrange appointments with warm sales leads developed through centralized, lower-cost direct mail and telemarketing, one firm persuaded its salespeople to accept substantially lower commissions. The salesforce found that although the commission for each sale fell, their overall compensation rose because they were able to close more sales. Naturally, the company’s sales and profits also rose.

Such changes to the way companies sell can benefit all parties, but they are challenging to establish. Successful CRM practitioners involve the salesforce in the implementation of multichannel strategies and discuss changes with them. Sales representatives may be skeptical about new lead programs because they have been disappointed in the past, generally because leads were not well qualified or were too few to generate material increases in sales. By working closely with sales managers to design program objectives and logistics, and to clarify the salesforce’s roles and reporting requirements, companies can greatly increase the chances of acceptance and success. Further, by defining expectations about the number, frequency, and quality of leads for each salesperson, and then overdelivering on that promise, they can build credibility with their salespeople.

In addition, piloting CRM programs with a few sales representatives before attempting a full rollout can help remove the inevitable bugs in the system and create champions of the effort within the salesforce. Communicating the successes and problems of pilot programs and plans for improvement may also help build momentum for wider adoption.

New technologies

Leading companies increasingly use technology to institutionalize channel integration and coordination. One developer of enterprise-wide application management systems in the United States has introduced an automation system to coordinate its multiproduct, multiphase telesales process.

Initially, the firm uses a low-cost telemarketing organization to pre-qualify sales leads. The system then automatically classifies and distributes these leads to the appropriate telesales specialists, who follow up and close the sales. Since customers often buy more than one product so that one customer might be approached by several telesales specialists, the system gives each salesperson access to complete customer information. It also enables each salesperson to customize and distribute brochures and technical white papers, so as to ensure that customers receive only the information they need. By using technology in this way, the company generates twice the industry’s average revenue per employee.

Companies with third-party sales channels have also found that technology can help coordinate procedures. One computer manufacturer that generates sales leads through direct mail and telesales relies on VARs for customer consultation and fulfillment. It employs a simple Internet-based approach to pass leads to the appropriate VAR, and requires the VAR in turn to report back on the status of the lead within eight hours. If the VAR does not report back within 24 hours, the telesales center chases it up by telephone. The manufacturer thus tracks individual leads as well as the campaign’s overall effectiveness, and enforces discipline in the channel.

Finally, some companies use technology to share information with sales channels and collect information from them. Autodesk, a leading developer of software for architects, engineers, and construction companies, uses software to distribute leads to its VARs and to obtain feedback on sales status. The VARs can view and download data on existing and potential customers, and update the progress of transactions. For its part, Autodesk can gather information on the VARs’ activities, enabling it more accurately to assess the effectiveness of its various channels, construct channel forecasts, and evaluate the effectiveness of marketing spending.

While this type of technology can be an important enabler of a multichannel approach, it will not make salespeople more effective without clear objectives, good data, and a thorough review of sales procedures. Companies that have taken such a comprehensive approach are enjoying improved results; those that have not are struggling with technology for technology’s sake.