3 CRM Models and How They Improve Customer Profitability

Best Practices

by   Val Riley November 01, 2022

CRM Models: How They Can Boost Customer Profitability

You’ve heard of CRM software, but are you familiar with CRM models? These strategies underpin the process of managing customer data, helping to ensure you make the most of the information you gather. With carefully segmented customers and a method for appealing to each group, you can attract and retain more lifelong customers and increase profits.

What Is CRM?

The term customer relationship management (CRM) refers to a combination of methodology and technology that establishes how companies handle customer data. At its simplest, CRM involves keeping track of end-to-end customer interactions across their lifetime journey. By tracking and analyzing data across every consumer touchpoint, you can improve customer experience, personalize interactions and ultimately increase revenue.

Boosting customer satisfaction has a direct impact on profitability, but customer satisfaction can be elusive if you’re not drilling down into the details. Knowledge is power, and the more you know about your customers, the easier it is to slash customer churn. 

What Is a CRM Model?

A CRM model is a type of data model. Data models outline a set of processes that can help teams get the most out of the information they hold. CRM data models propose steps you can take to maximize customer lifetime value and build a competitive advantage using real-world customer data. Your team can use a CRM model to establish trust and other positive emotions, increase sales and bolster cross-departmental collaboration. 

Companies that master learning about their customers and integrating that knowledge into future campaigns have a major competitive advantage. That’s because adding value and consistently delighting customers increases customer retention and therefore profit. CRM models can also help you establish your strategically significant customers (SSCs). SSCs are your most valuable clients. They account for around 20% of your client base but generate around 80% of the revenue. By honing in on the most valuable segments, you can bolster long-term competitiveness and profitability. 

So, a CRM model can help you increase profits directly by improving customer experience. However, they also streamline processes and enhance operational efficiency, saving money across your business model. 

What Are the Benefits of Utilizing a CRM Model?

Choosing a CRM model should be the first step before or just after choosing CRM software. With clearly defined processes in place to help you manage the sales funnel and customer journey at each stage, you’ll reduce churn, increase sales and inspire loyalty.

In more specific terms, these are some of the advantages of using a CRM model to help you and your team manage customer information.   

• Increase employee knowledge and confidence: When employees and leaders have structure and a process to follow, their knowledge and confidence improve. Naturally, smart and savvy employees are better at selling, designing campaigns and hitting targets.
• Master customer segmentation: One of the best things about CRM is that it gives you the power to segment your customers. When you know who your clientele are and separate them into groups, you can drill down to create customer experiences that specifically appeal to each.   
• Preempt customer’s needs: When customers have customized experiences that seem to exist just for them, they feel validated and affirmed. Being able to preempt and exceed customer expectations is the key to short- and long-term business success.  
• Streamline processes: You can use the data insights you gather to definitively choose which processes work and which ones don’t. Streamlining processes ensures that no team member wastes time on tasks that don’t add value. 
• Increase customer lifetime value (CLV): CRM models can help you increase CLV across every client relationship. This leads to having more strategically significant customers (SSCs), and your company makes more money.
• Boost profitability: Ultimately, all of the above means you can make more meaningful connections with more prospects, and increase profitability.

Three Common CRM Models

There are a number of CRM models experts have developed as frameworks for how companies manage, read and use customer data. The IDIC model, value chain model and five-step process model are three of the most effective, and therefore popular. The fundamental principle for each is the same: learn as much as possible about every prospect in the earliest stages of the sales funnel, and use what you learn to deliver an irresistible CX.

Below is a detailed overview of each. 

1. IDIC CRM Model

The Peppers & Rogers Group established the IDIC CRM model in 2004. The name is an acronym for the steps in the process: Identify, Differentiate, Interact and Customize. Its aim is to help operators recognize and utilize customers’ needs and pain points as the key drivers for how you engage them.  

Let’s take a look at what each stage entails. 

Identify

The first stage of the IDIC model is to identify your company’s leads and customers’ wants, needs and preferences. Using CRM software automates the process of gathering information, such as names, addresses, purchase history, social media profiles and other core data, at every channel. 

Identification provides your team with swathes of information they can use to understand clients and preempt their needs. You can use this data to segment your customer base into groups, in view of creating journey maps for each segment.  

Differentiate

With the customers segmented, you should arrange the groups according to how much value you expect each one to bring. It’s also important to categorize clients based on the needs and problems they’re looking to solve. When grouping for value, it’s important to focus on long-term, short-term and immediate value to get the clearest picture. Remember — retaining customers is significantly cheaper than onboarding new ones.

Now that your groups are segmented and sorted, you have a clear picture of how much time and money to invest in each. 

Interact

Having a ton of information at your fingertips is one thing, but what happens in practice is more important than the theoretical. The whole point of the first two steps is to provide the information you need to design and define how each customer segment interacts with your company across all channels.

This is your opportunity to demonstrate to customers that you care about their needs and understand how to meet them. Examples of interactions include sending out promotions to high-value customers or enticing shopping cart abandoners with a small discount. You might also send a different newsletter or regular email to each segment, depending on their background and preferences. 

When customers know you understand them on a personal level via communications and content, they’re more likely to feel an emotional connection, make purchases and remain loyal to your brand. 

Customize

Once you’ve got a handle on the first three stages, you’ll have more data and a deeper understanding of your clientele than ever. Using customer surveys is an excellent way to supplement the customization phase. You can use the data about which efforts provide the most profitable results to refine future campaigns through high-level customization.

Offering personalized experiences is one of the most effective ways you can let customers know you care about them. By continually responding to feedback, minimizing pain points and refining the customer journey for each segment, you can keep up with the ever-changing demands of the modern marketplace. 

2. CRM Value Chain Model

The CRM value chain model was first described by Professor Michael Porter from Harvard Business School in 1985. The model aims to establish which actions deliver your company the most value so you can refine your processes to bolster customer experience — a value chain. The more value you offer customers, the more likely they are to be loyal and recommend your brand to other people.   

The value chain model draws data from each necessary stage for building and maintaining a customer relationship. They’re broadly categorized into two groups: Primary and support, which are outlined below.   

Primary Stage

The primary stage of the value chain CRM model is divided into five processes. It’s about studying consumer habits and establishing a relationship, so you can satisfy customers. Crucially, each team member should be trained to prioritize building and maintaining emotional connections with customers. 

Let’s look at each process in the primary stage of the value chain CRM model:  

1. Customer portfolio analysis: As with the IDIC model, the first thing to do is use data analysis to identify the goals and desires of your customers and prospects. By determining which customer segments have the potential to deliver the most lifetime value, you can effectively design subsequent strategies. 
2. Customer intimacy: Armed with the data you’ve gathered, you can refine how you communicate with customers. The more detail you have about their needs, purchase behavior and how they interact with your brand, the better your retention rates will be. It’s critical that you mine data across every channel and every interaction to get the most intimate picture of your highest-value clients.   
3. Network development: While knowing and appealing to your customers is integral, it’s meaningless unless your entire network is aligned. Partners, staff, investors and anyone associated with your company should have access to key customer data and understand the CRM model. 
4. Value proposition development: Now you’ve gathered as much data as possible about your customers and aligned all stakeholders, you can establish and create value propositions for each segment. That might mean customized offers, content or experiences that meet or exceed each customer’s preferences, needs and expectations.  
5. Relationship management: The customer lifecycle begins when they become aware of your brand, but it doesn’t end once they’ve made a purchase. Relationship management is an ongoing process that needs constant refinement, so you can remain competitive in a fast-changing economy. 

Support Stage

The second stage provides the foundation of and support for the primary stage and should be regularly assessed and refined. It’s important to pay attention to the details of each element, so you can get the most value from this CRM model. The support stage entails:

• Leadership and culture: It’s important that you have strong leadership in place, with a well-defined and people-centric company culture that’s easy to reinforce.  
• Procurement processes: Customer onboarding and marketing should be standardized and refined to ensure you have enough prospects to gather data from.
• HR management processes: An HR team is best placed to manage internal issues that might arise as the CRM value chain model is implemented.
• IT management processes: Technology and thorough data management are critical to CRM design success in the modern economy. 
• Organizational design: No employee should be unsure of what their role is or who they report to. Establishing a clear-cut, documented chain of command and accountability is necessary for CRM success. 

3. Payne and Frow’s Five Step Process CRM Model

Adrian Payne and Pennie Frow are Australian professors who developed the five step process model in 2005. It sets out five processes, along with a standardized implementation process, to help companies establish and maintain long-term relationships with customers.

Strategy Development

Strategy development is divided into two components, including customer strategy and business strategy. For the latter, you should develop a strategy around your product or service, with clear short-, mid- and long-term goals. How do you stand out from your competitors? Keep in mind that the landscape is changing faster than ever, and refinements to your product may be required more regularly to maintain pace.

When it comes to customer strategy, you should conduct extensive market research and create buyer personas and customer journey maps to deliver an exceptional, profitable customer experience. 

Value Creation

With your goals and strategy set in stone, you’re ready to connect customer and business strategy to establish how you and your customers will deliver value to each other. Start by determining which processes add value for the customer, then identify which customers have the potential to bring maximum value — your SSCs. Finally, design campaigns and strategies to help you meet the needs of those SSCs while hitting your business goals.  

Multichannel Integration

Now your strategy and value creation processes are designed, you should communicate the changes unilaterally. Involve every stakeholder, from marketing through to sales, support and operations.

In today’s economy, multichannel integration can also relate to offering customers value across different channels. Different consumers have distinct preferences of how and where they interact with your brand, and it’s critical that you can meet them where they are to maximize profitability. 

Performance Assessment

Performance assessment helps you understand how well your customer strategy is impacting your business strategy. You can use revenue changes, online reviews, shareholder value, customer surveys and online engagement to measure your strategy’s success. It’s crucial that decision-makers define KPIs and continually analyze them to ensure the CRM model is having the desired impact. 

Information Management (Data Repository)

Information management is the process that involves gathering, analyzing and implementing data-based insights. Just like the other CRM models in this article suggest, you can never have too much information about your customer base. This allows you to continually refine your marketing strategies and value propositions to customers. 

CRM Implementation

To successfully implement the Payne and Frow process, you must successfully integrate the following elements:

• CRM readiness: It’s important to define your goals, strategies and processes in advance of implementing the model.
• CRM change management: CRM workflows should be flexible and subject to change as you learn more about your customers and your company grows. 
• CRM project management: Use project management best practices for implementing each process.   
• Employee management: Ensure your organizational structure is clearly defined, and ensure you track which customers are assigned to which employees. 

Select the Right CRM Model and Reap Long-Term Rewards 

The CRM model that suits your business best will depend on a range of factors, including your company’s size, vertical and organizational goals. Each example can help you maximize profitability across the customer lifecycle by boosting customer satisfaction and continually aligning business goals with value to the customer. 

With the help of Insightly — the best CRM platform in the world — you can implement your chosen CRM model and increase customer profitability. Try it for free today or request your personalized demo.