CRM Market Seen Dropping in 2002

Forrester sees slow rebound through 2007, but says majority of companies at least considering customer relationship management solution

Cambridge, MA  August 8, 2002  The market for customer relationship management (CRM) solutions will drop by 5.4 percent this year but will rebound to a modest compound annual growth rate of 11.5 percent from 2002 to 2007, according to a recent report from technology consultancy Forrester Research.

In the report, titled "CRM's Future: Humble Growth Through 2007," Forrester analyst Bob Chatham cites cross-channel integration, supplier verticalization, Web services and a shift in application pricing models as the key forces that will be reshaping the CRM market in the years ahead.

Forrester also is predicting that firms will shift their focus from the technical elements of channel integration to process redesign efforts focused on improving customer experience.

Chatham reports that professional service firms and outsourcers comprise more than half of the total CRM market. Growth at consulting firms will drive the CRM services segment to $41.9 billion in 2007, the analyst predicts.

The market for CRM software will recover slowly over the next several years, according to the report. "The CRM apps category will regain its footing from 2002's loss as annual growth jumps from 6.8 percent in 2003 to 14.0 percent in 2004," Chatham writes. "This expansion will taper to 12.5 percent by 2007."

Dragged down by a slowdown in Internet commerce software, customer-facing channel applications will experience the slowest annual growth rate in the CRM market: 7.3 percent over the next five years.

On the other hand, marketing automation applications will represent the fastest-growing CRM segment. While growth between 2002 and 2004 will hover around 14.5 percent, the segment will expand at a 17 percent rate thereafter, reaching $928 million in 2007.

Aberdeen Group, another technology consultancy, recently predicted that CRM spending in 2002 will rise by a meager 2 percent, with double-digit growth resuming in 2003. ARC Advisory Group has similarly forecast a slow rebound from the current slump.

Despite the apparent slow growth ahead for the CRM sector, related research by Forrester analyst Bruce Temkin indicates that the vast majority of companies are at least considering a CRM implementation.

In a brief entitled "CRM Profile: Deployment Across Industries," Temkin notes that current CRM software penetration varies substantially by industry, with service firms leading the way and chemical and petroleum firms lagging.

But even among the CRM holdouts in the chemical and petroleum sector, just 27 percent of companies have no plans for CRM at the moment, while more than one-quarter have already implemented CRM or are in the midst of an implementation, and another 45 percent are considering or piloting a CRM solution.

The over-achieving financial and business services firms are reporting adoption rates approaching 50 percent, with another almost 40 percent of firms in these sectors considering a CRM implementation or already piloting an application.

Just one-third of finished goods manufacturers have implemented CRM, compared to 37 percent of high-tech firms, but about another 50 percent of firms in both sectors are considering or piloting CRM.

Elsewhere, 38 percent of retail companies had deployed CRM, with an additional 49 percent considering or piloting a solution. The figures for wholesale trade firms were 32 percent already adopted, 54 percent considering or piloting a solution; for consumer services, 31 percent and 46 percent; and intermediate manufacturing, 30 percent and 50 percent.

Chatham suggests that "Global 3,500" companies, firms with revenues of $1 billion or more, will eventually derive value from their CRM investments by evolving through three phases of maturity. In the current phase one, firms are struggling with cleaning and synchronizing data and leading customers to the best channel for a transaction. In this ongoing phase, firms will build common data models, define initial process flows, and cleanse and synchronize customer data across offline and online channels.

Phase two will involve process redesign. Companies will face the tough task of changing employee and customer behavior to match revised business rules and process flows. They will accomplish this by adjusting incentives across organizations for delivering coherent customer experience, tracking customer behavior and cost across channels, and establishing channel migration incentives.

And in phase three, firms will view their business as a constantly updated portfolio of products and customers. "Smart companies will continuously tune their channel and customer mix by adjusting products and services, driving microsegmentation with analytics and adjusting customer interactions based on lifetime value," Chatham writes.