Are the golden days of customer relationship management (CRM) over forever? That is the question posed by market research company Datamonitor, which reports that organisations reduced their purchases of CRM software by 25% in 2002 – and the company predicts that there will be no quick upturn in sales.

In 2002, according to Datamonitor’s figures, the worldwide CRM market shrank to $2.5 billion in 2002, from $3.4 billion in 2001. Moreover, revenues “will have barely recovered to 2001 levels” by the end of 2005.

Meanwhile, many CRM suppliers are expected to fold, as the high-end CRM market in Western Europe and North America is still “too crowded”, says analyst Elsa Lion at Datamonitor.

The most vulnerable companies are suppliers of sales force automation (SFA) software, says Lion. The reason, she says is that while SFA software provides “very tangible results in a very short period of time”, it is the most mature CRM application. Now that many companies have already installed SFA applications, this category is being quickly usurped by customer care automation (CCA) and marketing automation (MA) software.

Reflecting this greater uptake, organisations worldwide will increase their expenditure on MA software (the fastest growing CRM category) by 6% per year between 2002 and 2005. Sales of SFA software, by contrast, will grow at an annual rate of just 1% over the same period.

In 2003, many suppliers will be targeting the small and medium-sized enterprise (SME) market where penetration of CRM software is low. But a change in sales approach will be necessary, warns Lion, as SMEs typically have very different IT requirements.

“The key to selling into smaller businesses is the establishment of a pre-packaged, very low-priced product with between 80% and 90% of the functionality of the high-end version. Direct sales into the low end are therefore prohibitively expensive, so suppliers should find good resellers possessing ‘solution selling’, as opposed to ‘product selling’ skills,” says Lion.