The Utter Truth About the Effectiveness of CRM and Customer Loyalty

By Ravel Lai, Chief Digital Officer, Dah Chong Hong Holdings Limited

Ravel Lai, Chief Digital Officer, Dah Chong Hong Holdings Limited

CRM is nothing new to most. However, the perception that with CRM in place it exerts an effective grip on customer loyalty and sales boost, is flawed. Social CRM is even more substantial and its implementation is widely encouraged, so that customer reaction on social channels can be tracked and managed. In this era filled with individualization and instant on-demand provisioning, CRM inevitably goes digital.

When deciding which CRM fits best, the conclusion often jumps to the difference in B2B, B2C and C2C sales environment, like sales cycle, deal size, number of leads. One important yet neglected aspect is that CRM effectiveness is much dependent on repeat purchase behavior, i.e. the frequency of purchase or replenishment. The shorter the cycle, the more effective it is to use CRM to drive repeated purchase and impulse purchase. Vice versa, the longer the cycle, CRM is not so much effective for short term revenue drive. Rather, it’s best for maintaining long term relationship with customers by offering better and premier services to win their hearts.

The implication is obvious. For Fast Moving Consumer Goods or Food & Beverage, CRM often significantly strikes up revenue by giving out offers that entice a faster turnaround purchase. For auto sales, you don’t expect similar method to work. Results of marketing efforts could be skewed due to unmatched expectation.

The obsession with textbook segmentation, especially on demographic data, is another surprisingly popular but unavailing attempt in CRM. Psychological age does not necessarily equal to chronological age, let’s admit it: We all want to stay young forever (physically, psychologically and socially!) and lie about our ages. What matters is how we feel, act, and behave. And this applies to our purchase behavior, motivated by one of the five need levels as explained in Maslow's hierarchy of needs. Take headphone as an example, it’s more than a device for listening to music, it’s something that enhances self-esteem and brings pleasure by wearing a trend. A range of headphone colors makes it easy to show off personal style under different use cases. To effectively make use of CRM we need AI-powered tools to dig out useful patterns from sales, emails, social media streams and other sources for behavioral tracing throughout the journey.

When it comes to customer retention, marketers speak about loyalty program. But when it comes to profitability, it’s important to see whether the type of loyalty program is right for your business. One very common and prevalent type is bonus point scheme (e.g. bonus points rewards, stamp card) but it’s not necessarily effective. The biggest issue is the fact that different products have varying price and cost structure. If a consumer buys a bottle of water for HK$10, will you as a retail store operator give out 10 bonus points? Probably. But what if a consumer buys an auto for HK $500K, will you as the auto reseller with a sheer profit margin give out 500K bonus points? Probably not. Instead, you will design a complex point conversion for different products, especially for a conglomerate having a stake in both retail and auto business in the above case.

Now back to the basics, do you think the customer would understand and remember the point conversion rate? Be honest, do you remember your own airline mileage scheme and supermarket point scheme? If we ourselves cannot understand or remember the point scheme, how can it attract our customers for repeat purchase with brand loyalty? If a company sells products with similar point cost structure, point scheme can function quite well. If not, it can turn out quite challenging.

Lastly, loyalty program is just a part of the comprehensive customer relationship strategy. Loyalty won’t be created immediately after the launch of a rewards program, neither would a long-term relationship be established once CRM software is installed.