The Three Phases of CRM

Customer relationship management plays an integral part in a typical company's marketing system. CRM is a process of gathering and analyzing customer data, building precise marketing campaigns and managing relationships for optimized retention. These activities are performed over the three phases of customer acquisition, retention and extension or expansion.

Acquiring customers has always been the first important step in establishing business relationships. With CRM, advanced software databases are used to capture key customer data at the point of first contact. Profile data includes a prospect's name, address, phone number, email address and sometimes social media accounts. Entering this data into a computer enables future and ongoing communication access.

The other major benefit of starting a formal relationship with new prospects and clients is the ability to track their behaviors through data analysis. As of 2015, many databases enable analytics, the automated analysis of data through programmed tools. Salespeople can identify at any point in time, for instance, what percentage of customers are at each stage of the opportunity pipeline, or sales process. This knowledge allows for optimized targeting to avoid bottlenecks and to facilitate relationship-building activities.

The real purpose of gathering data on acquired customers is to improve retention rates. The typical customer attrition rate for companies is around 15 to 20 percent per year, but a 2013 Forbes article indicates that some industries experience significantly higher average rates. Effective data analysis, regular and systematic follow-up communication with contacts, and well-serviced accounts help you reduce your company's churn rate. Data analysis allows you to identify the traits of prospects and customers that offer the best lifetime earning potential as well, which enables greater focus on retaining core customers.

The customer extension phase of CRM includes activities intended to draw out the length of typical customer relationships, enabling greater revenue. A simple perspective is that satisfying a customer during one buying experience increases the likelihood of a follow-up visit. Over time, delivering quality solutions, following through on commitments and addressing problems convert a buyer into a loyal customer. You also can enhance revenue through add-on product selling and cross-selling, which involves recommending unrelated solutions. Because of the high costs of customer acquisition, extending relationships with customers already captured is hugely valuable for a business.

Tip

Some depictions of the CRM phases include a fourth step -- selection -- which involves identifying the right types of prospects before beginning customer acquisition.