Customer Relationship Management (CRM)

Although the basis of CRM has been around since 1956 (e.g., the segmentation of discrete customer groups), it is only within the last 8 to 12 years that CRM has created a significant impact in the business world (Nairn, 2002). The management focuses on relationship marketing (specifically one-to-one marketing techniques) Gary Loveman 21 and market orientation (focused on collecting, analyzing and disseminating large quantities of customer data) helped create the opportunity for CRM technology. The rapid growth of CRM can be attributed to:

a) fierce business competition for valuable customers,

b) the economics of customer retention (i.e., life-time value) and

c) Technology advances (Government of India).

CRM has been described from a number of different perspectives including functional, technical and managerial aspects James G. Maxham III and Richard G.Netemeyer FrOm a management perspective, due to the inherent focus on the customer, CRM is viewed as an important business strategy and philosophy Patrica B. Seybold. Marketing academics view “CRM [as] a concept that adds [practical] value to the meaning of customer orientation” Philip Kotler, helps operationalize MO and provides marketing value while IT researchers appear primarily interested in the technological and implementation aspects of CRM G.C.Beri.

CRM Definition:

Rigby et al. (2002) state that most executives cannot readily define CRM, and Greenberg (2002) quotes ten different definitions provided by leading CRM software development business CEOs. Early definitions of CRM focused on the acquisition and long-term retention of customers Patrica B. Seybold. CRM as a business strategy is another common definition:

“CRM is an approach or business strategy which provides seamless integration of every area of business that touches the customer”.

Process Framework for CRM:

Based on the work of several scholars, Jagdish N Sheth and Atul Paivatiyar (2001) have developed a four-stage CRM process framework. This broad framework for CRM process was subdivided into four sub-processes.

  1. Customer Relationship formation Process
  2. Relationship Management
  3. Relationship Performance Evaluation Process
  4. CRM enhancement process (evolutionary)

The relationship formation process relates to three important deciding factors, setting the objectives of implementing CRM; selecting parties (or customer groups) for the CRM program; and finally developing programs for relationship engagement with the customer. Defining the purpose helps in providing a clear idea of CRM programs and activities that need to be performed. It would also help in identifying suitable relationship partners, their expectations and capabilities to fulfill mutual goals. The governance process addresses several issues like role specification, process alignment, communication, and common bonds. It also involves employee motivation and training regarding the effective implementation of CRM tools. The performance evaluation process comprises the measurement of the CRM process and comparison with the original objectives, which are defined at the initial stages of CRM implementation. The performance can be evaluated with respect to different focus areas of business like strategic issues, financial aspects, and the marketing areas of interest like customer retention, loyalty, and customer satisfaction. The evolutionary process involves the enhancement and improvement of the CRM process. The evolution can occur naturally on the basis of developments occurring in the external environment, where the quest for superior/alternate solutions is continuous with CRM vendors and professionals working in tandem or the evolution based on the experiences of the implementation of current CRM programs, leading to enhancement and improvement of existing programs.

CRM Process Frame Work
Fig: 1.2 – CRM Process Frame Work

Requisites for Effective Implementation of CRM:

An effective CRM implementation requires a frontline information system, which shares relevant customer information across all interface units. The interface units could be a sales team, service personnel, call centers, web sites, etc. Sometimes they may include cross-functional areas team-members also.

Information Platform for CRM

A CRM platform should be based on interactive technology and processes. The system should identify appropriate data inputs at each customer interaction level and should generate appropriate data inputs for the teams interacting with customers. CRM implementation could comprise a significant IT component, but it does not mean that CRM implementation ends with the installation of CRM software solutions, without a CRM strategy in place. CRM tools are meant to supplement the company’s broad strategy of an enduring and value-generating relationship with the customer. The CRM process framework should be viewed in totality. The tools should also be able to support interactive solutions for customer segmentation, profitability analysis, etc. An effective CRM program must include all areas where there is human contact including the staff/internal customers and the external paying customers who keep the business running.

Customer Care and Retention:

Customer care refers to the service delivered to the customer after completion of the sale of any product or service. Especially in the case of services, customer care assumes greater significance, since there are more customer touchpoints and the service is delivered over a period of time across different areas of service delivery.

A banking service can be treated as a good example in the areas of services, where customer care is important because the service is extended over a period of time (at least a couple of months), and the areas of service include savings, loans, with drawls, etc., where the customer touchpoints are different and it difficult to offer a uniform quality of service.

Customer care becomes an important aspect of relationship marketing since it is only through the company’s commitment to customer care that any organization can build mutually rewarding, long-lasting relationships. Highly satisfied customers produce several benefits for the company. They are less price-sensitive, spread good word of mouth and remain loyal for a longer period of time.

Studies indicate that a slight decline from complete satisfaction can create an enormous drop in loyalty. This means that organizations must aim high if they want to hold on to their customers. If the company exceeds the levels of customer expectations in terms of service quality and product performance, then the customer is not merely satisfied, but he/she gets delighted. This delight creates an emotional affinity for the product or service, and this creates high customer loyalty, leading to low defection rates among customers and increasing revenues and profits for the organization.

Customer care has become an important aspect of marketing strategy, as companies realize the importance of not just finding customers but of keeping and growing with them as well. Companies not only want to create customers, but they also want to ‘own them for a lifetime. Unless and otherwise, companies demonstrate that they care for customers (either through quality product/ services offerings or by delivering superior post-sales services and meeting customer expectations), it is very difficult to build long-lasting relationships.

Retaining customers is important considering the following reasons:

  • Firms can retain business, by decreasing defections
  • Sales, marketing and set up costs amortized over a longer period of customer lifetime.
  • Increased purchases by customers over a period of time, resulting in an increase of revenues.
  • Loyal Customers’ willingness to pay a premium for better offerings, which enables firms to improve their profitability.

Marketing activity directed at retaining customers can be expensive and needs to be closely evaluated against results. The most successful retention programs segment the customers into different levels of profitability and this helps to identify the type and frequency of marketing activities, which should be directed at them. The most profitable customers are the most valuable, and these are the ones on whom resources should be spent efficiently.

An additional benefit of a good customer retention program is employee satisfaction. The positive results of retaining customers can act as great motivating factors to the staff and increase their willingness to perform and deliver excellent customer satisfaction. Proper customer care not only develops lifelong customer- but it also spreads a positive Word-of-mouth which results in an increase in the volume of business. In fact, if the customer is properly taken care of he/she ends up as an advocate of the product/service received.

Especially in case of services it is very important to take care of customer satisfaction and retention as the services are delivered over a period of time, and payments are paid in accordance with the service delivery. Proper communication channels should be set up so that the customers are properly communicated regarding various aspects of service delivery and it should be ensured that there are no gaps in the service delivery across different service delivery points. Every area of service delivery should have an integrated and clear picture of customer requirements and needs. There is also the problem of different perceptions by different customers regarding a similar service, and care should be taken that good word-of-mouth is spread, which would give a positive image to the organization.

Another important aspect of customer retention in area of services is to ensure that customers are satisfied, so that there is no decline in the revenues projections, estimated on the basis of existing customers, because in the case of services, the moment a customer decides to defect to a competitor or decides to stop using the services, he/she will also stop payments, unlike the case of products where the payment is paid before the delivery of the product.

In order to see that companies do not lose customers, it is important to find out why customers are moving away from the organization. A good customer satisfaction survey can reveal the levels of satisfaction of the customers. It will also indicate the areas that are weak and need improvement. It is essential to have a good survey design that can capture the strengths and weaknesses of the current offerings. Once the gaps are identified and analyzed, effective corrective steps should be taken.

Customer care should result in the feeling among the customers that their needs are being taken care of by the organization. For this to happen the company should demonstrate that serving the needs of the customers is of utmost importance to it, and it values the customers. Mere launch of a communication campaign is not sufficient for the company to demonstrate its commitment to customer needs. It should prove its dedication to the customers’ needs in action. Then only the feeling of warmth is generated among the customers and they feel the sense of being cared for.

This generates affinity towards the products and services they use, and it becomes very difficult for the customers to defect to competitors’ products or services as they become psychologically attached to the current company. This is the stage at which an effective marketing strategy could be deployed which introduces the new products and services and would encourage the existing customers to try them. This program if successfully implemented would result in new business to the organization.

Principles of Customer Relationship Management (CRM):

Most of the customer relationship programs are developed on the basis of certain principles, which enunciate that it is necessary for organizations to maintain mutually beneficial relationships with their customers for the long-term benefits of both the parties.

The basic underlying principles are as follows:

  1. Principle of ‘Customer Lifetime Value’ (CLV)
  2. Principle of ‘Customer Satisfaction’
  3. Principle of ‘Customer Loyalty’
  4. Principle of ‘Share of Customer’
  5. Principle of ‘Cross-, Selling and Up-Selling’
  6. Principle of ‘Customer Profitability’

1. Principle of ‘Customer Lifetime Value’: This principle states that the value. of the entire stream of purchases that the customer would make over a lifetime of patronage is far higher than the value of a single sale. In view of this fact, organizations should seek to establish good relationships with the customers for conducting repeated business with them. Value of the customer for the company can be understood as the amount by which revenues from a given customer, over time, will exceed the company’s costs of attracting, selling and servicing that customer. A dissatisfied customer who is moving out of any organization should not be viewed as a .sale lost for one time, rather the organization should realize that it is losing the entire stream of revenues which could have been generated by the customer, if he/she were happy with the products/ services and continued to be a customer.

For example: If a customer during a year is conducting a business worth one thousand units with a firm, and the average period of his conducting business is estimated to be. ten years, then it can be concluded that the value of the business the .customer is going to deliver to the firm can be treated as ten thousand units. If die customer is lost at the initial stages then the value of transactions lost is ten thousand units.

2. Principle of ‘Customer Satisfaction’: Customer satisfaction is defined as the extent to which a product’s actual performance matches a buyer’s expectations. A customer might experience’ various degrees of satisfaction. If the product’s performance falls short of expectations, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted. Therefore it is very important to ensure that the marketing and communications programs along with the offerings match the expectations of the customers

3. Principle of ‘Customer Loyalty’: This principle states that highly satisfied customers produce several benefits to the company. They are less price, sensitive, spread good word-of-mouth and remain loyal to the company’s products and services for a longer period. It takes a lot of effort and time to make a customer loyal to the firm’s products and services. A consistent effort in delivering products and services to the expectations of the customers is the key to make the customers loyal. Once a customer becomes loyal to the company’s products and services, he feels an affinity to the company and it becomes difficult to defect to competitors’ products.

4. Principle of ‘Share of Customer’: This principle means that if any company goes beyond the idea of attracting and retaining good customers, it can capture a greater share of the customer’s purchasing in their product/service categories, either by becoming the sole supplier! products, the customer is currently buying or by motivating the customer to purchase additional company products.

5. Principle of ‘Cross-Selling and Up-Selling’: Cross-selling means getting more business from the current customers of one product or service by selling them the additional offerings. For example, a banking company would like to offer additional services like insurance and vehicle/ education loans apart from regular banking services like savings and deposit schemes. Thus it can cross-sell other products to the customers: Encouraging a customer to purchase products that are higher in value and more profitable is treated as upselling. Fuel retail outlets. offering products like lubricants apart from the regular fuel could be considered as an example of Up-selling.

6. Principle of ‘Customer Profitability’: This principle states that while implementing a relationship program it is not wise to maintain similar relationships of high value with all the customers. The principle advocates attracting, keeping and maintaining profitable customers. In fact, the relationship is based on the value offered by the customer to the company and the value created by the company to the customer.

7. CRM Performance Evaluation Process: Without proper performance metrics to evaluate CRM efforts, it would be hard to make objective decisions regarding continuation, modification, enhancement, or termination of CRM programs.

If the co-operative and collaborative relationship with the customers is treated as an intangible asset of the firm, its economic value add can be assessed using discounted future cash flows estimates. Here the term relationship equity comes in where you measure the intangible assets of the firm.

Another global measure used by firms to monitor CRM performance is the measurement of relationship satisfaction. By measuring relationship satisfaction, one could estimate the propensity of either party’s inclination to continue or terminate the relationship. Such propensity could also be indirectly measured by measuring customer loyalty.

Architecture of CRM:

The architecture of CRM can be explained as under:

  • “Operational CRM systems improve the efficiency of CRM business processes and comprise solutions for sales force automation, marketing automation, and call center/customer interaction center management.
  • “Analytical CRM systems manage and evaluate knowledge on customers for a better understanding of each customer and his or her behavior. Data warehousing and data mining solutions are typical analytical CRM systems.
  • “Collaborative CRM systems manage and synchronize customer interactions points and communication channels
  • E-CRM as the fourth category in the classification which is a web-centric approach to synchronize customer relationships across communication channels, business functions, and audiences. E-CRM enables online ordering, e-mail, a knowledge base that can be used to generate customer profiles, personalized services, the generation of automatic response to an e-mail, and automatic help, etc….

Implementation of CRM:

The implementation of a customer relationship management (CRM) solution is best treated as a six-stage process, moving from collecting information about customers and processing it to using that information to improve marketing and the customer experience.

Stage one – Collecting information: The priority should be to capture the information which is needed to identify your customers and categorize their behaviour. Those businesses with a website and online customer service have an advantage as customers can enter and maintain their own details when they buy.

Stage two – Storing information: The most effective way to store and manage customer information is in a relational database – a centralized customer database that will allow you to run all systems from the same source, ensuring that everyone uses up-to-date information.

Stage three – Accessing information: With the information collected and stored centrally, the next stage is to make this information available to staff in the most useful format.

Stage four – Analysing customer behavior: Using data mining tools in spreadsheet programs, which analyze data to identify patterns or relationships, one can begin to profile customers and develop sales strategies.

Stage five – Marketing more effectively: Many businesses find that a small percentage of their customers generate a high percentage of their profits. Using CRM to gain a better understanding of customers’ needs, desires, and self-perception, one can reward and target the most valuable customers.

Stage six – Enhancing the customer experience: Just as a small group of customers is the most profitable, a • small number of complaining customers often take up a disproportionate amount of staff time. If their problems can be identified and resolved quickly, staff will have more time for other customers.

Critical Success Factors for Implementation of CRM Systems:

Critical success factors have been defined as the elements that make a project a success, and as the ‘events and conditions in a few key areas which absolutely must go right for the business to succeed’. These include trust, effective communication, and top management support. For this to occur, proper measurement tools and metrics must be utilized to effectively control the project. The key CSF for CRM projects are:

  • Key Stakeholder Support: Support from all stakeholders in the organization, including top management and all management levels, employees, government, suppliers, strategic partners, and investors. Includes the timely reporting of the project status with accurate information.
  • Sufficient Resources: Resources of money, equipment, and expertise available with appropriate support structures in place. Includes time and budget allocations for training.
  • Clearly Defined Objective: A clearly defined mission with a set of defined goals and objectives communicated to all stakeholders through clearly defined communication channels, with the alignment of project and corporate goals. This is managed through a detailed project plan.
  • Managing Change: Project changes are implemented through a formally defined process with appropriate approvals sought. Any scope changes are mutually agreed and documented, with appropriate analysis of resource requirements.

Challenges of CRM Implementation:

Organizations face a number of key challenges in implementing CRM systems. These include:

a. Methodology driven by end-users: IT personnel do not have knowledge or authority to influence corporate decision-makers.

b. Lack of executive sponsorship: CRM projects are mostly driven by a functional head, such as a VP or sales/marketing, and rarely produce an enterprise view of customers

c. Lack of customer-centric culture: An acceptable return on investment will no be achieved if the organization does not have a. strong customer-centric culture

d. Inappropriate design approach: CRM is designed to model a single functional view, not an enterprise-wide customer view, resulting in failure

e. Over automation: Focus on functionality and process design leads to highly automated business functions Lack of network infrastructure Inadequate IT infrastructure and networking facilities prevent the CRM from being implemented enterprise-wide

As can be seen from the challenges faced, it is important for organizations to realize that a CRM system implementation will only succeed when it is supported by a customer-focused organizational culture. The CRM system will be the main driver for a paradigm shift, becoming an enabler for communication between the organization and its customers, and within the organization itself.

Criticism of CRM:

One of the most significant criticisms on CRM is that it lays more emphasis on technology i.e., the tool being viewed as important rather than the people and the processes involved. The tools require significant human involvement for the success of any program. In fact, CRM as a business process has been in use for a long time with no technology backbone.

Another criticism of CRM is that CRM solutions seem to be more reactive than being proactive. This is especially true when companies try to rectify their mistakes, after the occurrence of a service failure. Although .effective-service recovery helps in bringing back the confidence the customer has about the company’s products and services, it would be more beneficial to the company if it develops the capability of anticipating the problems that customers could face and rectify them before the customer has a bad experience.

Another pitfall is the area of relationship marketing is the assumption that the project needs to be in the hand of software professionals since the project is implemented with the help of a software package. What is required in the successful implementation of a customer relationship project is the involvement of team members who are committed to customer care, whose primary objective is to take care of the customer needs. It is better to train and deploy a relationship marketing team consisting of members of cross-functional expertise so that the project implementation occurs smoothly. This requires a commitment to customer service from the top management and their backing to the team members of the relationship marketing team.

Critics are of the opinion that CRM fails to capture the true change in the nature of network-enabled marketing exchanges’ Customer Relationship Management makes the implicit assumption that firms create and manage relationships with customers play a passive role in the relationships. But in reality, customers are beginning to play an active role in managing relationships. Value in marketing exchanges is no longer created by firms and delivered to customers. Rather, customers are becoming co-creators of value by participating directly in the marketing process. Relationship marketing requires firms to think about relating to customers. In contrast, collaborative marketing requires firms to think about collaborating with customers and making customers an integral part of the firm’s marketing activities.

Most of the marketers think that CRM is just an advanced stage of database marketing. The criticism is that marketers use customer databases for finding the customers best suited for a specific product offering. Most of the marketers who implement CRM programs fail to understand that relationship building starts with an understanding of customer’s needs.

Many CRM projects failed to meet their expectations. The reasons for the failure included lack of strategic vision for CRM programs, inability to align existing systems with the new systems. Many companies that have undertaken CRM protects have faced significant challenges in making their CRM initiatives deliver an acceptable return on investment. CRM programs consume a lot of resources for their implementation, training for employees, and integration with other systems. A highly complex CRM installation can cost more than $100 million and take three years to complete. Cost overruns and delay in project implementation are the other problems with CRM initiatives. The tools we use in the process are helpful in improving the quality of information about the customers, whereas it is the quality of interactions with the customers that results in a positive effect on the bottom lines of an organization.

Article Collected From:

  • Krishna, R. B. (2013). A study of customer relationship management in select public and private sector companies.

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