CRM market growth forecast to 2007

The days of unfettered CRM growth are over, according to a new report from Forrester Research, predicting that - after a drop of 5.4% in 2002 - the market will experience a compound annual growth rate of only 11.5% from 2002 to 2007.

During the forecast period, factors that are set to re-shape the market include cross-channel integration, vendor verticalisation, web services, and a shift in application pricing models. Forrester also predicts that firms will move their focus away from the technical elements of channel integration, toward process redesign efforts aimed at improving customer experience.

Key findings
Some of the key findings from the report, CRM's Future: Humble Growth Through 2007, include:

• Professional service firms and outsourcers comprise more than half of the total CRM market. Growth of consulting firms will drive the CRM services segment to US$41.9 billion in 2007.
• The CRM applications category will regain its footing from 2002's loss as annual growth jumps from 6.8% in 2003 to 14.0% in 2004 - an expansion which will taper to 12.5% 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, at only 7.3% over the next five years.
• Marketing automation applications will represent the fastest growing CRM segment. While growth between 2002 and 2004 will hover around 14.5%, the segment will expand at a rate of 17% thereafter, reaching US$928 million in 2007.

The next wave of CRM
According to Forrester, firms with revenues of US$1 billion or more (Global 3,500 companies) will eventually extract value from their CRM investments by evolving through three phases of maturity:

1. Channel integration. Firms currently struggle with cleaning and synchronising 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 synchronise customer data across offline and online channels.
2. Process redesign. These companies will face the task of changing employee and customer behaviour to match revised business rules and process flows. They will accomplish this by adjusting incentives for delivering a coherent customer experience, tracking customer behaviour and costs across channels, and establishing channel migration incentives.
3. Continuous optimisation. Firms that reach the third phase 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 micro-segmentation with analytics, and adjusting customer interactions based on lifetime value.