Buying customer relationship management software is your latest opportunity to get hosed.
All of the ERP vendor promotion about their various customer relationship management (CRM) software reminds me of the old joke about a teenage boy who killed his parents. When he was found guilty and brought before the judge for sentencing, he asked for mercy because he was an orphan.
Enterprise resource planning vendors--trying to sell salesforce automation, call center automation, field service and support tools, and other components of CRM--bring to mind the cynical teenager. Several years ago when ERP vendors first approached your chief executive officer, chief financial officer, or other mucky-muck about their ERP suite, they sold it on benefits--how it would integrate disparate functions, reduce inventory costs, improve operations, and a host of other positive impacts to the top and bottom lines.
Enterprise resource planning vendors--trying to sell salesforce automation, call center automation, field service and support tools, and other components of CRM--bring to mind the cynical teenager. Several years ago when ERP vendors first approached your chief executive officer, chief financial officer, or other mucky-muck about their ERP suite, they sold it on benefits--how it would integrate disparate functions, reduce inventory costs, improve operations, and a host of other positive impacts to the top and bottom lines. We all know how those promises panned out. They may have reduced inventories or improved productivity, but the costs were far higher than ever imagined. And the returns took a lot longer to be realized, due to a general underestimating of the complexity of the installation process.
| CRM software sales surge|
License revenues for customer relationship management software are climbing, but the growth rate is expected to slow after 2000.
Source: AMR Research Inc., "Customer relationship management software report, 1998-2003."
Now the ERP vendors, and the other members of the CRM game such as Clarify Inc., Siebel Systems Inc., and Vantive Corp., claim that their new products will deliver top- and bottom-line growth. Market researchers say the promotions will have a big effect: The software license market is expected to quintuple, to $8.3 billion by 2003, according to Peggy Menconi, research director, Customer Relationship Management, at consulting firm AMR Research Inc., of Boston. Heard this before, have you?
Vendors say their products will identify new sales opportunities, help keep existing customers, improve the efficiency of your sales, service, and support teams, and otherwise save Western civilization from pollution, global warming, and all other afflictions. It's the patent medicine show of the new millennium, complete with the lack of discussion about price.
How much will it cost? That's the one question that is guaranteed to stop the torrent of claims. Vendors hate talking about the price. Even consultants have to sign nondisclosure agreements to find out. The simple reason--there is no real price. It's all about negotiation, and more so now than ever.
In part, the pricing flexibility (don't you just love understatements like that one?) is due to push-back from you. After spending $2,000, $3,000, or $4,000 per user for ERP, you naturally object when a CRM vendor asks for another $2,000, $3,000, or more on top of the ERP expenditure. Depending on which and how many modules you buy, how many users, and other factors, the product configuration engine module and other fancy stuff can push the CRM bill to $5,000 per user. An official from Denver-based J.D. Edwards & Co. told me that a major customer added a big CRM package on top of its OneWorld ERP suite, and the CRM cost was double the ERP cost.
Tough times, tough tactics
While the cost of integrating disparate software packages is what really pushes up the final bill for implementing CRM on top of ERP, paying another software license should gall you as well as your CFO. Based on interviews and other research I've done recently, it's time you played hardball on CRM pricing. While a host of integration and features and functions issues should dictate your choice of CRM software, once you've made the choice, keep the following negotiating scenarios in mind:
First, realize that some of the point solution vendors have been playing games with you. An ERP vendor that recently did a deal with a CRM vendor told me when he asked his new partner how he charges for its CRM products, the answer was, "First we determine how much money they have in their budget, and then we ask for a little less."
|What is CRM?|
| The following product categories and functions are considered part of customer relationship management software. A complete suite is almost as big as an ERP suite. |
Salesforce automation: Contact management, pipeline analysis, quote to order
Product configuration: On the fly product design modifications, instant quotation
Call center management: Inbound, outbound, and blended telephone activity support
Field service management: Repairs and return management, repair depot inventory status, scheduling
Marketing: Campaign analysis, profitability analysis
Telemarketing support: Tracking calls, activities, returns
Second, understand that bundling an ERP upgrade with a CRM purchase makes sense for the vendor and for you. Negotiate the two together and you'll get a better deal. The major ERP vendors are desperate to keep their customers and will get quite aggressive in their pricing.
Third, ERP vendors anxious to sell to the middle market are sensitive to the economic environment. A $200 million company can't really afford a $5 million ERP project, let alone a $1 million CRM effort on top of that. Again, push back on pricing. Pared-down versions of CRM suites can be had for $1,000 to $2,000 per user.
Fourth, ask about freebies. Carter Lusher, the well-known CRM analyst at consulting firm Gartner Group Inc., of Stamford, Conn., recently noted that several ERP vendors are giving away certain CRM modules such as field service to customers that buy other components.
Fifth, assume that some significant group of your CRM users will be field sales, service, and support individuals who connect to the system using a PalmPilot or similar handheld device. Even the most rapacious vendor doesn't expect you to pay $500 or $1,000 for software to run on a $500 device. I've heard of deals where the incremental cost of adding casual PalmPilot users was less than $100 per user. Keep that figure in mind.
Some ERP vendors, notably SAP AG, of Walldorf, Germany, acknowledge the pricing anomalies. George D'Auteuil, vice president of CRM at SAP, says, "The way we're pricing this out, there will be a marginal, if any, difference from [ERP] pricing." He says SAP won't price its CRM functionality on top of R/3 ERP functionality. Instead, it puts together a set of functionalities, called scenarios, to fit the users. D'Auteuil claims SAP pricing of the scenarios that include CRM and ERP functionality will be in the same ballpark as what you're already paying for ERP alone.
My analysis: SAP is highly motivated to establish itself as a CRM supplier. Yet the complexity of the integration and function tasks are such that SAP is behind in its own schedule for releasing some components, and it is way behind the mindshare achieved by Siebel, Vantive, and other CRM vendors. So CRM is priced to move at SAP, though at this point many of its CRM functionalities are not yet in general distribution.
Indeed, if you're careful, you can make the CRM negotiation with your ERP vendor a win-win situation instead of a highway robbery. // Larry Marion is an editor and consultant with more than 20 years of experience in the use of computer technology in manufacturing and finance. He is the former editor of Datamation,
Electronic Business, and
LOTUS magazines. He can be reached at firstname.lastname@example.org.
Comments from vendors and users about customer relationship management software:
"We decided in Jan.  that we wouldn't try to build our own. If we had built our own, we would not have had it ready until 2003." --Ray Rebello, vice president of marketing at J.D. Edwards & Co., Denver, commenting about the May 1999 deal to resell the Siebel suite of CRM functions
"CRM and procurement are now part of ERP." --Josh Greenbaum, principal with Enterprise Applications Consulting, of Berkeley, Calif.
"J.D. Edwards and Siebel are a tough mix of cultures." --Greenbaum
"Users will not pay for CRM on top of ERP." --John Guest, CIO of Paradyne Corp., of Largo, Fla., a data communications equipment maker and J.D. Edwards ERP user
"How many of the best-of-breed players in any market are around in 10 years?" --Robert Rosati, program manager, business systems development, for ladder maker Werner Co., in Greenville, Pa., who is in favor of supply chain and other extended ERP functionality being offered by the ERP vendor
"We'll see verticalization of CRM modules." --Larry Ellison, chairman, Oracle Corp., of Redwood Shores, Calif.
"We're going to kill Siebel." --Oracle's Ellison On pricing... CRM vendors can't do per-seat pricing. They need creative pricing."
--Peggy Menconi, research director, Customer Relationship Management, AMR Research Inc., of Boston
"The middle market will pay a comparable price for front office [CRM] and back office [ERP]--not more." --Menconi. She adds that the new middle market version of Siebel's CRM suite is a "reasonable job of paring down functionality." Siebel took out the "overhead functionality that a large company needs--some of the sales forecast functionality and report generators," she says.