Mr. Redington

Finance & Investment

Leveraging Your CRM Investment for Increased Customer Loyalty, Shareholder Value

By Neale Redington, Partner, Deloitte

CRM can enhance your brand value by delivering compelling experiences each and every time there is an interaction between you and your customer. Properly executed, CRM can help hotel executives improve customer satisfaction and loyalty, and can ultimately improve the bottom line and increase shareholder value.

Targeted use of CRM expands on the theory that a company should focus its resources and investments on its most loyal customers. When identifying loyal customers, it's important to take into account customer profitability- what your customers are actually paying and how much it costs to serve them. Consider the hotel chain that realized many of its frequent guests were using external booking engines. The cost of serving the customer (namely the cost of servicing the hotel room) appeared to be the same and the customer often believed that he/she was paying the same room rate. However, the chain realized that profitability of these customers after commissions or rate breakage (the difference between the apparent rate on a website and the amount received by the hotel) was significantly lower than the frequent customers who booked via the chain website. As a result, the chain encouraged the external booking guests to book on its own website and substantially improved profitability.

The hospitality industry is particularly well-positioned to benefit from the CRM concept and practices. Through their choices of where they stay, what they eat, and what activities they participate in, hotel customers are making their preferences known. Exactly how you use that information, though, is a crucial part of your CRM strategy. Having a lot of information about your customers doesn't mean that you know them. CRM can help you identify ways to grow more revenue through up-selling and cross-selling opportunities, but only if you truly know who and what you're dealing with.

While most hotel executives acknowledge the benefits of CRM, many are hesitant to make the investment. This concern is understandable, as who hasn't heard reports of companies in the not so distant past spending millions of dollars on CRM technology based on little more than faith? Hotel executives today want to fully understand the real impact that CRM will have on their business before they take that first step. Too many large investments with too few demonstrable results have left senior executives wary of spending more money without first seeing a direct link to shareholder value.

Driving Value Through CRM

Organizations must first determine a customer relations strategy and a supporting work plan to ensure that their CRM implementations are efficient and provide the most returns. Following are some key issues to keep in mind when embarking on a CRM process:

Understand what a CRM strategy is - and what it isn't

CRM strategy is about using business processes and technology to improve customer interactions and loyalty - and generating more value from every relationship. It's a key element of a company's marketing, selling, and support activities. CRM is not a corporate strategy, a business strategy, or a technology implementation strategy. Nor is it a substitute for those strategies.

Focus on shareholder value

Creating value for customers is an important benefit of CRM. But it's only a means to an end - shareholder value creation. The key is to balance value to the customer with value from the customer. If you delight your customers with excellent service and monthly massages, they may be loyal for the rest of their lives. But if you spend too many resources on keeping them happy, they may just be loyal until you end up in bankruptcy. There is a delicate balance between offering better service and maintaining your bottom line. The goal should be to strategically create more value for you and your customers at the same time.

Do what matters most

CRM initiatives frequently try to "boil the ocean" and improve everything. Experience shows that a relatively small number of key improvements create most of the business value. Focus on low hanging fruit and customer driven issues that will deliver the most shareholder value. Also focus on what you can implement ---| now, with 20 percent of the effort that will give you 80 percent of the value of CRM.

Understand what customers will pay for

It's important to distinguish between what customers say they want and what they will actually pay for. There are many ways to make customers happier. Use solid research to be sure you invest in the ones that drive loyalty. The voice of your customers should be reflected in all stages of the business cycle. Customer information and feedback should be shared throughout your organization. Putting the voice of the customer into the development of your services will ensure that they are well received in the marketplace.

Don't ignore process or organization

CRM is as much about process and organizational change as it is about technology. Without making smart process improvements and considering small to wholesale organizational adjustments in conjunction with technology implementation, CRM investments will yield little benefit. The people and technologies that execute customer interactions have typically been trained and designed to support narrow ranges of service. Designing continuous, integrated processes and implementing them is difficult-and you employees, customers, and partners usually pay the interim price. A thorough CRM training program and aligned incentives are key. Let people know what to expect and why things are happening.

Be sure the business drives the strategy

When the business people abdicate leadership to the technology people, the result is often an expensive technology adventure. CRM strategy needs to be led by business people with active and ongoing involvement from technology specialists.

Extend the team

CRM touches a lot of people. It's critical to engage the right people early in the process, create buy-in, and maintain their involvement throughout. Be sure to get resistant stakeholders on your core team early so they know they are an important part of the process. All the CRM technology in the world won't make a difference if your employees don't use it. Your employees are ultimately the real driving force behind any CRM initiative. Make sure that your internal stakeholders are actively involved in key decisions; don't do anything at the expense of your people. Satisfied employees will lead to satisfied customers, which should ultimately lead to satisfied shareholders.

Deliver quick wins

CRM implementation plans that promise to create value three years into the future don't work. People are impatient. Be sure you plan and deliver measurable, visible, short-term wins along the way. Foster a willingness to be innovative. Include scheduled, bite-sized successes in your work plan. It's important to understand the incremental steps needed to create CRM program momentum. Momentum isn't about a "bang," it's a product of the weight and velocity driving it. Scheduled successes are necessary to provide early and frequent positive reinforcements that add velocity to your efforts, and help you better communicate the results within your organization.

Leverage your investments

CRM is expensive. The more you can leverage the same platform across multiple business units, the more cost-effective your investment will be. You certainly need to accommodate the unique needs of various businesses, but be sure those differences are real. Also strive for continuous improvement in managing your relationships. CRM is a mindset and not just an isolated, one-time implementation. Don't be satisfied that your customers are satisfied. Increasing customer satisfaction is good, but it's no real measure of value to you or them unless it leads to something more.

Button down the business case

You can't quantify everything that's important, but it's essential to pin down the investments required and the benefits that are expected. It's also important to know how you'll measure actual results versus planned results after the investment is made. Have a clear vision of the end-state of your CRM and business goals. What role can CRM play to get your there? If you don't know where you want to go, it's very difficult to get there. Without a business case to show the financial returns resulting from your CRM investment, your focus on customer centricity won't take you very far in today's world which is centered on share price and year-over-year earnings growths.

CRM programs can help build and reward customer loyalty, and capture the ultimate value from every customer relationship. Hotels who effectively leverage CRM programs can realize an improvement in their bottom lines, and an increase in shareholder value. In today's competitive environment, using a CRM system is no longer a matter of choice, but an imperative.

Neale Redington is National Partner in Charge of Hospitality for Deloitte & Touche LLP. He can be reached at 213-688-4762 or via nredington@deloitte.com

Neale Redington is National Partner in Charge of Hospitality for Deloitte & Touche LLP. He has been an advisor to major real estate firms for more than 17 years in the REIT and hospitality sectors. He brings opportunities for wealth creation to hotel owner/operators and management companies through performance of annual audits, operations reviews, due diligence procedures, and assistance with initial public offerings. Redington is co-author of the Hospitality chapter of the Real Estate Accounting Handbook. He frequently speaks on hospitality issues at trade events and with the media. Mr. Redington can be contacted at 213-688-4762 or nredington@deloitte.com Extended Bio...

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