Aberdeen sees growth of ASP model, need for careful customer care

What are customers demanding most these days?
There are a couple concerns that are really out front at present. No CRM initiative is proceeding unless its got a certain level of guaranteed ROI. Historically when organizations look for ROI they look to cut costs. This tends to favor customer service and support applications because they can reduce head count, which is usually an organization's biggest expense.

Other organizations that need more than customer service and support are finding that purchasing CRM as a service, usually from an applications service provider (ASP), can indeed work out. It's like they're renting CRM as opposed to buying servers, networks and licenses or paying integration fees. It's a cost effective way to go. As a result companies like salesforce.com and Salesnet are seeing some growth. Based on a survey we did of the mid-market, we discovered that upwards of 30% of the companies we interviewed would at least entertain the idea of using a hosted CRM solution. That's a big change from the doom and gloom we heard about ASPs over the last few years. And the cost of the investment is the motivating factor.

(Editor's Note: Salesforce.com and Salesnet are both clients of Aberdeen Group, though neither sponsored this research.) Are traditional CRM implementations still providing as many headaches?
We're still hearing a great deal about mechanical failure, or the failure of many CRM software installations. Some people are beating this to death, but at the same time if you go downstream a little bit from the implementation, you can easily interpret that an application is technically a success. It's like the old joke where the operation was a success but the patient died. A great deal of what happens has to do with methodology. You need to look at how the client organization is using the system to really address customers. We've uncovered some evidence that many of the tools and techniques we've been using around CRM may try to offer too much of a good thing. So in effect, the downturn in worldwide economies is helping the ASP model regain some of its credibility?
Something had to move people out of their comfort zone. In this case [it's] the process of buying software, installing it behind a firewall and keeping all of your data in house. People are looking to save money and the cost of implementing CRM as opposed to buying it service has made the ASP model a lot more attractive. What does this mean for CRM software makers and consultants?
This forces a re-evaluation of business fundamentals for everyone. You can't just mechanically install CRM and then reflexively use it. You have to apply the right kind of methodology specific to every different situation. The consultants really need to emphasize the need to grow customer base while recognizing existing customers' feelings. You're never going to have a perfect situation here, but there has to be an understanding of how not to dilute the core customer base. How so?
There was a paper published by the University of Michigan Business School that speaks to this. What this paper talks about is how overuse of targeted promotions, the kind often generated by companies using CRM, can sometimes alienate existing customers. Businesses make overly aggressive offers to try and gain new market share, and this can cause core customers to feel that they're subsidizing a better deal for someone new. The report indicates that revenues and profits can suffer greatly based on this, by as much as 10%. Can you give us an example that businesses could look at to gain the right perspective on this issue?
Well, while it's fair and good to go after competitor's customers, you might not want to simply load a list of potential customers into a call center and start making blanket phone calls without making sure that loyal customers aren't going to be contacted. It's the same for e-mail marketing. You want to make sure that you're targeting the right customer segment. Too often organizations see CRM as a megaphone and they push people away. There also should be a process in place to encourage existing customers to stay on board.

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