Strategy for small Indian companies who find CRM is good, but it’s expensive too…

There is an inherent imbalance in the scheme of things in the world. And this imbalance is captured very well by 80/20 principle. Ever wondered why you wear only 20% of the clothes 80% of the time or why people spend 80% of their time with just 20% of their friends? Or the more popular example of unequal distribution of income across the world- 20% of the world population holds 80% of the wealth. This is where 80/20 principle comes to play.

But this rule has extreme relevance in business. Most business would agree that 20% of their products bring in 80% of the revenues, 80% of the organizations salary budget goes to20% of the executives, 80% of the quality problems can be assigned to 20% of the causes and 20% of the customers bring in 80% of the revenues.

The 80 and 20 are not a hard and fast set of numbers but the basic idea is to understand the imbalance between the things and that to your advantage.

One ready application to this rule is customer relationship management.

Everybody knows how difficult it is to get a new customer than to retain a existing one. Wireless companies in US are spending more in finding new customers but 40% of their customers defect every year this has made business extremely difficult for them. Not only do they have to replace the defected 40% but also add more to show some growth.

Another example of expensive customer service is in the banking industry. Most customers cost more than the returns on their deposits. Banks are figuring out how to serve their more valuable customers and retain them and cut the cost of serving the less valuable ones. CRM deployment is exorbitant and prohibitive for a small company.

The 80/20 principle is a solid start for any company. One look at the customer file would separate your customers into the most valuable 20% and the other 80%. Most companies do not understand this imbalance and pay equal attention to every customer.

This way they do disservice to those who deserve most attention and waste excessive time on less value-adding customer. This is not discrimination against certain set of customers. It is just proportional distribution of organizational effort. Companies are better able to retain their customers.

Small companies don’t have resources to invest in CRM solutions and then to maintain them. What they need is a simple but yet effective way just to differentiate between their value adding so that they know where to concentrate their limited resources and energy. Identifying the most revenue generating 20% customers would immediately reduce the task to a more manageable level.

Companies can further know more about what they buy, where they buy, how much they pay, etc. Based on these answers, companies can then decide on their distribution, product development and pricing strategies.

Companies consider in advertising and distributing equally to all the market. This has also created incentive issues with sales people who get assigned to the less valuable 80% customers. This has helped them to retain their profitable clients. There are standard services available to the other 80% customers

There is no technology investment required for some basic analysis on customer file which can unravel tons of knowledge about customers. Simple mean and standard deviation of a normally distributed set of customer data would give important on pricing strategies.

It would seem that big companies already analyses their customer files and use data for customer service. But that surprisingly is not the case. Multi-million dollar companies often fail to do this simple analysis. But they have money to spend on CRM products.

For small Indian companies who need a simple but effective substitute to CRM intelligence, the 80/20 principle is the way to go.