Bottom Line: In the era of social media and big data, maintaining consumer relationships is a lot trickier than it used to be.
In the old days, if you wanted to ask someone out on a date, you summoned up the nerve, tried to gauge their interest, and actually said the words, “Wanna go out?” Now you log in, swipe right, and send a couple of emojis, leaving the hard work to a dating app.
The situation is not so dissimilar for firms trying to develop and hone customer relationships, observes ESCP Europe’s Michael Haenlein. He’s the author of a new study about the challenges of managing those dynamics in the modern world.
The guiding precepts of customer relationship management (CRM) were set down in the 1980s and 1990s, when those interactions were generally viewed through a few lenses: stand-alone investments that paid off in the long run; marriages that were mutually beneficial if maintained; or the products of linear mathematical formulas that balanced customer retention and acquisition over time.
Decades later, Haenlein finds, organizations have taken steps to modernize how these relationships are formed and viewed, employing new CRM software packages, algorithms, and big data. But to a large extent, the traditional theories remain embedded in companies’ CRM practices, hindering the potential gains from technology and leaving large gaps in firms’ understanding of their customer base.
“This leads to outcomes wherein firms manage customers like they did 30 years ago without even realizing it,” Haenlein writes. “Try to date today using strategies employed by your grandparents and you get an idea of what implications this might have.”
Drawing on his analysis of research and best practices over the past decade, Haenlein underlines some of the failings of conventional wisdom. Investing in customers is all well and good, he notes, but people don’t behave as simply as stocks, and the marriage analogy doesn’t account for the painful truth that relationships can backfire, leading to unprofitable consequences — sometimes even divorce. Mathematical formulas, meanwhile, fail to grapple with the increasing difficulty of calculating the important metric of customer lifetime value in an environment that now prizes the social impact of doing business as well as the bottom line. Finally, some have suggested that as the life cycles of products and services become shorter and shorter, customer turnover becomes inevitable and can even be a profitable business model — as is the case in the mobile gaming and app categories, which revolve around short-term relationships.
With this in mind, Haenlein outlines four major areas firms must consider when reevaluating their CRM approach.
Think broadly about the social network. The prevalence of mobile apps and the increasingly large role played by digital marketing in introducing consumers to new products makes it tempting for companies to simply assume they can handle most CRM through their social media accounts.