Customer Relationship Management
Customer Relationship Management
Customers are the life-line of any organization, be it a large multi-national organization with several thousands of employees, with multi-location and with a multi-billion turnover, or a small-scale organization with a few employees and a small number of customers.
The expression, customer relationship management (CRM), has been in use since the early 1990s. Since then, there have been several attempts to define the domain of CRM. As a discipline, the concept is hotly contested and a clear consensus has not yet emerged. Even the meaning of the three-letter acronym CRM is contested. For example, although majority of the people understand that CRM means ‘customer relationship management’, others have used the acronym to mean ‘customer relationship marketing’.
CRM involves using technology to organize, automate, and synchronize sales, marketing, customer service, and technical support. The processes of the CRM are related to the principles, practices, and guidelines which the organization follows when interacting with its customers.
The CRM strategic paradigm has gone through a three-phase generational shift over the last decade (1998–2008) with the organizations maturing from (i) marketing to customers the best products at the best prices, to (ii) marketing customers with the best services, to (iii) marketing customers with the dynamic services and products which they want and desire as measured by customer intent. Today, with the advent and proliferation of social communities across the internet world, customers have channels for information-sharing on an organization’s services and products which is extremely powerful.
The impact of CRM in the commercial marketplace cannot be under-valued. Organizations are required to engage customers through prefabricated reactions and interactions given the customer event taking place, the nature, impact and reach of the power of enriching customer experiences has emerged in 2008.
CRM opportunities are embedded in the entire customer journey spanning several touch points across all stages including pre-purchase, purchase, and post-purchase stage. CRM evolved from a traditional marketing concept and has broadened its scope today, intersecting with the several domains such as customer buying behaviour process models, customer satisfaction and loyalty, service quality, CRM tools and strategies, customer centricity, and customer engagement activities.
The fundamental reason for the organizations wanting to build relationships with customers is economic. Organizations generate better results when they manage their customer base in order to identify, acquire, satisfy, and retain profitable customers. These are key objectives of several CRM strategies. Improving customer retention rates has the effect of increasing the size of the customer base.
CRM is growing in importance because of the challenging marketing environment faced by organizations throughout the world today. It is particularly critical in industries undergoing technological changes. CRM is a means of addressing increasing competition, changing economic conditions, and promotional dependence through the use of intimate customer knowledge which is gained through relationship development and past marketing programmes.
CRM is increasing in prominence since it is focusing on the present users who are the source of the majority of the organizational revenue and the best option for improving sales in uncertain times. There are a number of definitions of CRM. Some of these definitions are given below.
The American Marketing Association’s (AMA) definition of marketing, approved in 2017, states ‘marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large’. Prior to this revision, AMA’s 2004 definition stated that ‘marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. While the new definition subsumes ‘relationship marketing’ (RM) implicitly, given the growing prevalence and preponderance of relationships with stakeholders, it now extends to multiple stakeholders, including society at large.
CRM is an information industry term for methodologies, software, and normally internet capabilities which help an organization to manage customer relationships in an organized way.
CRM is the process of managing all aspects of interaction an organization has with its customers, including prospecting, sales, and service. CRM applications attempt to provide insight into and improve the organization / customer relationship by combining all these views of customer interaction into one picture.
CRM is an integrated approach to identifying, acquiring and retaining customers. By enabling organizations to manage and coordinate customer interactions across multiple channels, departments, lines of business and geographies, CRM helps organizations maximize the value of every customer interaction and drive superior corporate performance.
CRM is an integrated information system which is used to plan, schedule, and control the pre-sales and post-sales activities in an organization. CRM embraces all aspects of dealing with prospects and customers, including the call centre, sales force, marketing, technical support, and field service. The primary goal of CRM is to improve long-term growth and profitability through a better understanding of customer behaviour. CRM aims to provide more effective feed-back and improved integration to better gauge the return on investment (ROI) in these areas.
Palmatier defines CRM as ‘the process of identifying, developing, maintaining, and terminating relational exchanges with the purpose of enhancing performance’. He points out three key aspects which are fundamental to the definition of CRM. These are (i) stage, (ii) scope, and (iii) success. The first aspect deals with CRM activities and exchange characteristics which systematically vary across the four stages of CRM life-cycle namely (i) identifying, (ii) developing, (iii) maintaining, and (iv) terminating. The second aspect deals with the scope or target of CRM activities.
Some restrict CRM to customer relationships, while others include relationships with stakeholders, opening its range to any target ‘entity’. The broadened scope seems to align with today’s market-place, wherein organizations frequently compete through their network of interfirm relationships. Another facet of this aspect pertains to the unit of analysis or level of the relationship. Relationship can be formed and evaluated between individuals, i.e., inter-personal, between an individual and an organization, i.e., person-to-organization or organization-to-person, and between organizations, i.e., inter- organization.
The third key aspect deals with the locus of benefits derived from CRM activities. Palmatier argues that CRM needs to generate benefits for both parties to achieve the implementer’s long-term performance.
However, CRM is frequently initiated by one party, not for altruistic motivations, even though both parties mutually benefit. For example, organizations which initiate CRM evaluate programme effectiveness from the returns on their investments. Customer value generated by CRM efforts provides a means to increasing the organizational performance, rather than an end to itself. Profit is strictly not permitted, except for motive is the principal marketing driver and so unprofitable relationships are not to be terminated and relationship-building investments are to target optimal returns.
CRM has a broad scope in the present competitive market environment. Fig 1 shows some important factors which influence organizational strategies for CRM.
Fig 1 Factors influencing customer relationship management
CRM is a business strategy which maximizes profitability, revenue, and customer satisfaction by organizing around customer segments, fostering behaviour which satisfies customers, and implementing customer-centric processes.
Information technology (IT) organizations have tended to use the term CRM to describe the software applications which automate the marketing, selling, and service functions of the organizations. This equates CRM with technology. Others with a managerial rather than technological emphasis, claim that CRM is a disciplined approach to developing and maintaining profitable customer relationships, and that technology does or does not have a role.
CRM is a hard to conceive of a large organization dealing with a very large number of customers across multiple regions, which can implement a customer strategy cost-effectively without the use of ‘information systems’ technology and carefully designed marketing processes.
The debate regarding dominant characteristic of CRM can be resolved between managerial and technological schools by conceiving of CRM as taking three main forms namely (i) strategic, (ii) operational, and (iii) analytical.
Strategic CRM is a core customer-centric marketing strategy which aims at winning and keeping profitable customers. Operational CRM focuses on the automation of customer-facing processes such as selling, marketing, and customer service. Analytical CRM is the process through which organization transforms customer-related data into actionable insight for either strategic or tactical purposes.
Strategic CRM – Strategic CRM is focused upon the development of a customer-centric organizational culture dedicated to winning and keeping customers by creating and delivering value better than competitors. The culture is reflected in leadership behaviours, the design of formal systems of the organization, and the myths and stories which are created within the organization. In a customer centric culture one expects resources to be allocated where they best improve customer value, reward systems to promote employee behaviours which enhance customer satisfaction and retention, and customer information to be collected, shared and applied across the organization.
The employees of customer-centric organization deliver outstanding value or service to the customers. Several organizations claim to be customer-centric, customer-led, customer-focused, or customer-oriented but few are actually fulfilling these criteria. Indeed, there can be very few organizations of any size which does not claim that they are on a mission to satisfy customer requirements profitably. Customer-centricity competes with other marketing logics. Kotler identifies three other major marketing orientations namely (i) product, (ii) production, and (iii) selling.
Product-oriented organizations believe that customers choose products with the best quality, performance, design, or features. These are frequently highly innovative and entrepreneurial organizations. Several new start-up organizations are product-oriented. In these organizations, it is normal for the customer’s voice to be missing when important marketing, selling, or service decisions are made. Little or no customer study is conducted. Management makes assumptions about what customers want and / or provides visionary leadership for the market.
Perhaps the most iconic example of product-orientation is Apple. Apple has created huge demand for products which customers do not know they need them, for example the iPad. Leading fashion houses tend to be product-oriented and try to establish new fashion trends rather than respond to consumer research about what is to be next year’s look. However, these are exceptional.
Product-oriented organizations frequently over-specify or over-engineer for the needs of the market, and hence are too costly for several customers. The subset of relatively price-insensitive customers marketers dub ‘innovators’, who are likely to respond positively to the organization claims about product excellence, is a relatively small segment, perhaps 2.5 % of the potential market.
Production-oriented organizations focus on operational excellence. They seek to offer the customers the best value for money, time and / or effort. Hence, they strive to keep operating costs low, and develop standardized offers and routes to market. Complexity, customization, and innovation are very costly and unappealing to production-oriented organizations.
Production-oriented organizations rarely are first to market with the best new offer. They focus their innovation on supply chain optimization and simplification. They tend to serve customers who want ‘good-enough’, low-priced products and services.
Production-oriented organizations choose not to believe that customers have unique needs or wants. It is possible to be highly profitable by being the lowest cost market player. There is a price and convenience segment in majority of the markets but the majority of customers have other needs. Moreover, an excessive focus on operational efficiency can make the organization blind to the disruptive changes just over the horizon, making cheap products which no one wants to buy. It is not a sustainable strategy.
Sales-oriented organizations make the assumption that if they invest enough in advertising, selling, public relations (PR), and sales promotion, customers get persuaded to buy. Very frequently, a sales orientation follows a production orientation. The organization produces low-cost products and then has to promote them heavily to shift inventory which is a ‘make and sell’ approach. The deal-maker and persuader are king in such organizations. In markets which are growing rapidly, such an approach can promote strong market share growth and attendant economies of scale.
Several large technology organizations have promoted an emphasis on selling. The risks of this orientation are two-fold namely (i) winning large contracts is not the same thing as making money from them, and (ii) focus on the immediate sale rarely allows enough slack resources to experiment and innovate to serve emerging needs and wants not yet articulated by customers.
A customer or market-oriented organization shares a set of beliefs about putting the customer first. It collects, disseminates, and uses customer and competitive information to develop better-value propositions for the customers. A customer-centric organization is a learning organization which constantly adapts to customer needs and competitive conditions. There is evidence that customer-centricity correlates strongly to the organizational performance.
Several managements argue that customer-centricity is the right approach for all the organizations. However, at different stages of market or economic development, other orientations can have stronger appeal.
Operational CRM – Operational CRM automates customer-facing organizational processes. CRM software applications enable the marketing, selling, and service functions to be automated and integrated. Some of the major applications within operational CRM are described below.
Marketing automation consists of (i) campaign management, (ii) event-based (trigger) marketing, and (iii) marketing optimization. Sales force automation includes (i) account management, (ii) lead management, (iii) opportunity management, (iv) pipe-line management, (v) contact management, (vi) quotation and proposal generation, and (vii) product configuration. Service automation consists of (i) case (incident or issue) management, (ii) customer communications management, (iii) queuing and routing, and (iv) service level management’
Marketing automation applies technology to marketing processes. Campaign management modules allow marketing personnel to use customer-related data in order to develop, execute, and evaluate targeted communications and offers. Customer segmentation for campaigning purposes is, in some cases, possible at the level of the individual customer, enabling unique communications to be designed. In multi-channel environments, campaign management is particularly challenging.
Some organizations, for example, have multiple transactional channels which includes free-standing sales office, stockists, regional level sales office, sales through e- websites (e-commerce), shopping catalogues for customers. and perhaps even a television shopping channel. Some customers can be unique to a single channel, but majority of customers have multi-channel approaches. Integration of communication and offer strategies, and evaluation of performance, needs a substantial quantity of technology-aided coordination across these channels.
Event-based, or trigger, marketing is the term used to describe messaging and offer development to customers at particular points in time. An event triggers the communication and offer. Event-based campaigns can be initiated by customer behaviours, or contextual conditions. A call to a contact centre is an example of a customer-initiated event. When a customer calls a contact centre to enquire about the price of an item, this can be taken as indication that the customer is comparing alternatives, and can switch to a supplier. This event can trigger an offer designed to retain the customer.
Example of contextual events is a public holiday. This indicates potential changes in buyer behaviour, initiating a marketing response. Event-based marketing also occurs in the business-to-business context. The event can be a change of personnel on the customer-side, the approaching expiry of a contract, or a request for information (RFI).
Real-time marketing (automation), combining predictive modelling and work-flow automation, enables organizations to make relevant offers to customers as they interact with organizational technologies at different touch-points such as website and retail outlet. As customers share more data with the organizations, and as the ability of the organization to analyze those data improves, on-line marketing increasingly occurs in real time. The choices the customers make as they navigate through the Web, the enquiries they make and their profile enable the organization to predict which products and services are most appealing to customers and the so-called ‘next best offer’ (NBO) can be given to the customer. This offer can be refreshed in real time as a result of customer behaviour online.
In case of e-commerce, the organization continually refresh their recommendations as a result of customer searches, and Google changes the advertising it pushes to the customers as a function of their location and search behaviours.
Sales force automation (SFA) was the original form of operational CRM. SFA systems are now widely adopted in business-to-business environments and are seen as ‘a competitive imperative’ which offers ‘competitive parity’. SFA applies technology to the management of an organization’s selling activities. The selling process can be decomposed into a number of stages such as lead generation, lead qualification, lead nurturing, needs identification, development of specifications, proposal generation, proposal presentation, handling objections and closing the sale. SFA software can be configured so that it is modelled on the selling process of the industry or the organization.
Automation of selling activities is frequently linked to efforts to improve and standardize the selling process. This involves the implementation of a sales methodology. Sales methodologies allow sales team members and management to adopt a standardized view of the sales cycle, and a common language for discussion of sales issues.
SFA software enables the organizations to assign leads automatically and track opportunities as they progress through the sales pipe-line towards closure. Opportunity management lets users identify and progress opportunities-to-sell from lead status through to closure and beyond, into after-sales support. Opportunity management software normally contains lead management and sales forecasting applications. Lead management applications enable users to qualify leads and assign them to the appropriate sales person. Sales forecasting applications normally use transactional histories and sales person estimates to produce estimates of future sales.
Contact management lets users manage their communications programme with customers. Digital customer records contain customer contact histories. Contact management applications frequently have features such as automated customer dialling, the personal calendar of the sales person and email functionality. Quotation and proposal generation allow the sales person to automate the production of prices and proposals for customers. The sales person enters details such as product codes, volumes, customer name, and delivery requirements, and the software automatically generates a priced quotation.
Product configuration applications enable sales people, or customers themselves, automatically to design and price customized products, services, or solutions. Configurators (a tool for choice navigation) are useful when the product is particularly complex, such as IT solutions. Configurators are typically based on an ‘if . . . then’ rules structure. The normal case of this rule is ‘If X is chosen, then Y is needed or prohibited or legitimated or unaffected’. For example, if the customer chooses a particular feature (say, a particular hard drive for a computer), then this rules out certain other choices or related features which are technologically incompatible or too costly or complex to manufacture.
Service automation – Service automation involves the application of technology to customer service operations. Service automation helps organizations to manage their service operations, whether delivered through a call centre, contact centre, field service, the Web or face-to-face, with high levels of efficiency, reliability and effectiveness.
Service automation software enables organizations to handle inbound and outbound communications across all channels. Software supplierss claim that this enables users to become more efficient and effective, by reducing service costs, improving service quality, lifting productivity, improving customer experience, and increasing customer satisfaction.
Service automation differs considerably depending upon the product being serviced. The first point of contact for service of consumer products is normally the stock yard outlet, or a branch office. People working at these touch-points frequently use online diagnostic tools frequently help identify and resolve the problem. A number of technologies are common in-service automation. Call routing software can be used to direct inbound calls to the most appropriate person. Technologies such as ‘interactive voice response’ (IVR) enable customers to interact with organization’s computers. Customers can input to an IVR system after listening to menu instructions either by telephone keypad (key 1 for option A, key 2 for option B), or by voice. If first contact problem resolution is not possible, the service process can then involve authorizing a return of goods, or a repair cycle involving a third-party service provider.
Organizations are beginning to learn to respond to customer complaints in social media such as Facebook and Twitter in close to real time. Social media have highly increased the risks of consumer complaints remaining unanswered. Real-time engagement in the social conversation enables organizations to intervene immediately and resolve an issue before a social media storm erupts. A case can be made that organizations consider employing people and / technologies to monitor and respond to tweets and other social media content. However, other participants in the conversation, for example other users of Twitter, can also be able to contribute to the resolution of a customer’s problem, through what is known as crowd-sourced customer service.
Service automation for large capital equipment is quite different. This normally involves diagnostic and corrective action taken in the field, at the location of the equipment. Examples of this type of service include industrial equipments. In these cases, service automation can involve providing the service technician with diagnostics, repair manuals, inventory management, and job information on a laptop or mobile device. This information is then synchronized at regular intervals to update the central CRM system.
An alternative strategy for providing service for capital equipment is for diagnostics to be built into the equipment, and back-to-base issue reporting to be automated. Rolls-Royce aeroengines, for example, are offered with a service contract which involves Rolls-Royce engineers monitoring engines in flight to help airlines maximize efficiencies, reduce service cost, and, most importantly, reduce downtime of the airplane through preventive service interventions. Rolls-Royce calls this ‘Power-by-Hour’. GE, its chief competitor in aircraft engines, offers a similar service.
Turning products into services, or developing combined ‘product-service systems’, is known as ‘servitization’. This is not a new strategy. Indeed, IBM famously made a transition from selling computers to providing solutions and systems. In all such cases, the nature of the customer relationship changes. Modern operational CRM systems permit the delivery of such solutions in a cost-effective manner.
Several organizations use a combination of direct and indirect channels especially for sales and service functions. When indirect channels are used, operational CRM supports this function through partner relationship management (PRM). This technology allows partners to communicate with the supplier through a portal, to manage leads, sales orders, product information and incentives.
Analytical CRM – Analytical CRM is also called analytic CRM. It is concerned with capturing, storing, extracting, integrating, processing, interpreting, distributing, using, and reporting customer-related data to improve both customer and company value.
Analytical CRM builds on the foundation of customer-related information. Customer related data can be found in organization-wide repositories such as sales data (purchase history), financial data (payment history, credit score), marketing data (campaign response, loyalty scheme data), and service data. To these internal data can be added data from external sources such as geo-demographic and life-style data from business intelligence organizations, for example. These are typically structured data sets held in relational data bases. A relational data base is like an Excel spread-sheet where all the data in any row is about a particular customer, and the columns report a particular variable such as name, postcode, and so on.
With the application of data mining tools, an organization can then interrogate these data. Intelligent interrogation provides answers to questions such as (i) who are the most valuable customers of the organization, (ii) which customers have the highest propensity to switch to competitors, and (iii) which customers are most likely to respond to a particular offer, and so on.
In recent years, organization have seen the emergence of ‘big data’. Although the expression ‘big data’ has been around since 2000, it is only since 2010 that organizations have become seriously interested in these huge data sets. According to IBM, ‘big data’ comes from everywhere i.e., from sensors used to gather climate information, posts to social media sites, digital pictures and videos posted online, transaction records of online purchases, and from cell phone GPS signals to name a few. ‘Big data’ extends beyond structured data, including unstructured data of all varieties i.e., text, audio, video, click streams, log files and more. The tools for searching, making sense of, and acting on unstructured data differ from those available for data-mining structured data sets.
Analytical CRM has become an essential part of several CRM implementations. Operational CRM struggles to reach full effectiveness without analytical information about customers. For example, an understanding of customer value or propensities to buy underpins several operational CRM decisions, such as (i) which customers are to be we targeted with this offer, (ii) what is the relative priority of customers waiting on the line, and what level of service is to be offered, and (iii) where the organization is to focus its sales effort.
Analytical CRM can lead organizations to decide that selling approaches are needed to differ between customer groups. Higher potential value customers can be offered face-to-face selling while lower value customers can have telesales. From the customer’s point of view, analytical CRM can deliver timely, customized solutions to the problems of the customers, hence improving customer satisfaction. From the point of view of the organization, analytical CRM offers the prospect of more powerful cross-selling and up-selling programmes, and more effective customer retention and customer acquisition programmes.
Social CRM – Besides three different types of CRM, i.e., strategic, operational and analytical, there is another expression which has recently found wide spread use is ‘social CRM’. This expression is widely used by technology organization with solutions to sell, but some people do not regard it as a fundamental type of CRM, equivalent to strategic, operational and analytical. People suspect that this term is going to be subordinated in time by a larger discussion of big data.
Social CRM technologies, basically enable users to exploit social network data for customer management purposes. Interactions between individuals within social networks have produced a colossal quantity of data, frequently unstructured, which some organizations are now trying to collect, interpret and use to create and maintain long-term beneficial relationships with their customers.
CRM as a management practice has been popularized by the advances in database technology which allowed a single view of the customer for the majority of the organizations and the analytical tools and operational systems which enabled the organizations to exploit those data. The data which fuel CRM are largely being generated and held within operational systems of the organization i.e., sales, call centres, and service requests, etc. Now, data about customers are as likely to be found in their Facebook or Twitter activities and user-generated content posted to YouTube. There is, hence, a desire to integrate organization ‘owned’ data with the data generated socially to create a more comprehensive view of the customer.
When social media generate customer-related data which are used by the organizations to manage customer relationships, social media support and improve analytical CRM. Where customers use social media (e.g., Facebook) to make purchases, social media become part of operational CRM. Social media also feature heavily in crowd-sourced customer service. At a strategic level, it is frequently believed that only a limited number of organizations are presently poised to replace an overall relationship strategy with one purely activated through social media, but interesting new operational models can develop undoubtedly.
Mis-understanding about CRM – As with all major management initiatives, there are a number of common mis-understandings about the nature of CRM. Sometimes, to scope a phenomenon, it is useful to say what it is not. These mis-understandings are described below.
The first mis-understanding is that CRM is merely data base marketing. Data base marketing is concerned with building and exploiting high-quality customer data-bases for marketing purposes. Organizations collect data from a number of sources. These data are verified, cleaned, integrated and stored on computers, frequently in data warehouses or data-marts. They are then used for marketing purposes such as market segmentation, targeting, offer development, and customer communication. Whereas majority of large and medium-sized organizations do indeed build and exploit customer data bases, CRM is much wider in scope than data base marketing. A lot of what is described above as analytical CRM has the appearance of data base marketing. However, data base marketing is less evident in strategic and operational CRM.
The second mis-understanding is that CRM is a marketing process. CRM software applications are used for several marketing activities such as market segmentation, customer acquisition, customer retention, and customer development (cross-selling and upselling), for example. However, operational CRM extends into selling and service functions. The deployment of CRM software to support an organizational mission to become more customer-centric frequently means that customer-related data are shared more widely throughout the organization than the marketing function alone. Operational management can use customer related data to produce customized products and services. People management (HR) can use customer preference data to help recruit and train employees for the front-line jobs which interface with customers. Quality control personnel can use customer-related data to control the product quality as needed by the customer. Research and development management can use customer-related data to focus new product development. Customer data can not only be used to integrate different internal departments but can also be shared across the extended organization with outside suppliers and partners.
The third mis-understanding is that the CRM is an IT (information technology) issue. As per the experience of some of the organizations, this is the most serious of the mis-understandings. There is no doubt that IT is a necessary enabler of CRM in most organizations, given the need to store, analyze, and distribute huge quantities of data quickly throughout the organization and its business partners. CRM technology keeps advancing and can be costly. It is hence too easy for the organizational management to look to the IT function for CRM leadership. A large number of CRM implementations are framed at the outset as IT initiatives, rather than broader strategic initiatives.
CRM technology provides tools which can be used to generate better value for the customers and the organization alike. However, two other important parts of the CRM projects are people and process. People develop and implement the processes which are enabled by the IT. IT cannot compensate for bad processes and incompetent people. Successful CRM implementations involve people designing and implementing processes which deliver the customer and the organization value. Frequently, these processes are IT-enabled. IT is hence a part of majority of the CRM strategies.
Hence, not all CRM initiatives involve IT investments. An over-arching objective of several CRM strategies is the development of relationships with, and retention of, highly valued customers. This can involve behavioural changes in employees, education of employees, and a focus on empathy and reliability from sales personnel. IT can play no role at all in all these.
The fourth mis-understanding is that CRM is about loyalty schemes. Loyalty schemes are common-place in several industries. Customers accumulate credits which are then redeemed at some future point. Majority of the loyalty schemes need new customers to complete an application form when they join the programme. This demographic information is typically used together with purchasing data to help the organizations become more effective at customer communication and offer development. Whereas some CRM implementations are linked to loyalty schemes, but not all CRM implementation are linked to the loyalty scheme.
Loyalty schemes can play two roles in CRM implementations. First, they generate data which can be used to guide customer acquisition, retention and development. Second, loyalty schemes can serve as an exit barrier. Customers who have accumulated credits in a scheme can be reluctant to exit the relationship. The credits accumulated reflect the value of the investment which the customer has made in the scheme, and hence in the relationship.
The fifth mis-understanding is that CRM can be implemented by any organization. Strategic CRM can, indeed, be implemented in any organization. Every organization can be driven by a desire to be more customer-centric. Organizational managements can establish a vision, mission, and set of values which bring the customer into the heart of the organizational functioning. CRM technology can play a role in this transformation. Some organizations are certainly more successful than others. Several organizations have implemented CRM very widely, yet there are considerable differences between the customer satisfaction ratings and customer retention rates of different organizations.
Any organization can also try to implement operational CRM. An organization with a sales force can automate its selling, lead management, and contact management processes. The same is true for marketing and service processes. CRM technology can be used to support marketing campaigns, service requests, and complaints management.
Analytical CRM is a different matter, being based on customer-related data. At the very least, data are needed to identify which customers are likely to generate most value in the future, and to identify within the customer base the segments or customers which have different needs. Only then different offers can be communicated to each customer group to optimize organizational and customer value over the long term. If these data are missing then analytical CRM cannot be implemented.
Defining of CRM – Against this background of three types of CRM, and the mis-understandings about CRM, it is not easy matter to settle on a single definition of CRM. However, a number of core CRM attributes can be identified, and integrated into a definition. This definition is ‘CRM is the core marketing strategy which integrates internal processes and functions, and external networks, to create and deliver value to targeted customers at a profit. It is grounded on high-quality customer-related data and enabled by information technology’.
CRM is a ‘core marketing strategy’ which aims to ‘create and deliver value to targeted customers at a profit’. This clearly denotes that CRM is not just about ‘information technology’. CRM integrates internal processes and functions, i.e., it allows departments within the organizations to dissolve the silo-walls which separate them. Access to ‘customer-related data’ allows selling, marketing, and service functions to be aware of each other’s interactions with customers. Also, back-office functions such as operations and finance can learn from and contribute customer related data. Customer-related data allow suppliers and members of their ‘external network’, e.g., distributors, value-added resellers and agents, to align their efforts with those of the focal organization. Underpinning this core organizational strategy in the majority of cases is IT software applications and hardware.
Historically, majority of the organizations are located close to the markets which they are serving, and know their customers intimately. Very frequently there are face-to-face, even day-to-day, interaction with customers, through which knowledge of customer needs and preferences grow. However, as the organizations have grown larger, they have become more remote from the customers they serve. The remoteness is not only geographic, but it can be cultural also.
Geographic and cultural remoteness, together with the organizational management separation from customer contact, means that several organizations, even small organizations, do not have the intuitive knowledge and understanding of their customers so frequently found in micro-marketing. This has given rise to demand for better customer-related data, a corner-stone of effective CRM.
In summary, a view can be taken, that CRM is a technology-enabled approach to management of the customer interface. Majority of the CRM initiatives expect to have impact on the costs-to-serve and revenues streams from customers. The use of technology also changes the customer’s experience of transacting and communicating with a supplier. For this reason, the customer’s perspective on CRM is an important consideration. CRM influences customer experience, and this is of fundamental strategic significance.
CRM constituent organizations – There are several important constituent organizations having an interest in CRM. These includes as given below.
First are the organizations implementing CRM. Several organizations have implemented CRM. Early adopters have been big organizations in financial services, telecommunications, and manufacturing organizations. Medium-sized organizations have followed. There is big potential exist for the CRM message to reach smaller organizations, not-for-profit organizations and new start-up organizations.
Second are the customers and partners of those organizations which have implemented CRM. These customers and partners are particularly important constituents. Since CRM influences customer experience, it can impact on customer satisfaction ratings, and influence loyalty to the supplier.
Third are the suppliers of the CRM systems. Suppliers of CRM include Oracle, IBM, SAP and SAS. Several suppliers have built a comprehensive analytical CRM capability. Suppliers sell licences to the organizations, and install CRM software on the customer’s servers. The client’s people are trained to use the software.
Fourth are CRM cloud solutions providers. Organizations implementing CRM can also choose to access CRM functionality on a subscription basis through hosted CRM suppliers such as salesforce.com, RightNow (part of Oracle), Microsoft Dynamics and NetSuite etc. Clients upload their customer data to the host’s servers and interact with the data using their web browsers. These service providers deliver and manage applications and other services from remote sites to multiple users through the Internet. These organizations are also known as Software as a Service (SaaS) organizations or Application Service Providers (ASPs).
Fifth are social media players. Facebook, Twitter and some other platforms are building enormous communities which generate valuable data about people’s preferences, activities, friends, and wants. A major battle between the major social media players and the organizations is predicted with large numbers of customers for the analysis and use of that data.
The sixth is the vendors of CRM hardware and infrastructure. Hardware and infrastructure suppliers provide the technological foundations for CRM implementations. They supply technologies such as servers, computers, hand-held and mobile devices, hardware, and telephony systems.
The seventh are the management consultants. Consultants offer clients a diverse range of CRM-related capabilities such as strategy, marketing, application and technical consulting. Consultants can help organizations in implementing CRM in several ways such as systems integration, choosing between different suppliers, developing implementation plans and project management as the implementation is rolled out. Majority of the CRM implementations are composed of a large number of smaller projects, e.g., systems integration, data quality improvement, market segmentation, process engineering, and culture change.
Models of CRM – A number of comprehensive CRM models have been developed. Some of them are described below.
The IDIC model -The IDIC model was developed by Don Peppers and Martha Rogers, of the Peppers & Rogers Group. The IDIC model suggests that organizations are to take four actions in order to build closer one-to-one relationships with customers. These are (i) to identify who the organizational customers are and build a deep understanding of them, (ii) to differentiate the customers to identify which customers have maximum value now and which offer maximum for the future, (iii) to interact with customers to ensure that the organization understand customer expectations and their relationships with other suppliers or brands, and (iv) to customize the offer and communications to ensure that the expectations of customers are met.
The CRM value chain model – It is also known as Francis Buttle’s model. It consists of five primary stages and four supporting conditions leading towards the end goal of improved customer profitability. The primary stages of customer portfolio analysis, customer intimacy, network development, value proposition development, and managing the customer life cycle are sequenced to ensure that an organization, with the support of its network of suppliers, partners, and employees, creates and delivers value propositions which acquire and retain profitable customers. The supporting conditions of leadership and culture, data and information technology, people and processes enable the CRM strategy to function effectively and efficiently. Fig 2 shows the CRM value chain model.
Fig 2 The CRM value chain model
The QCI model – The QCI model is also a product of a consultancy organization. The authors of the model prefer to describe their model as a customer management model, omitting the word ‘relationship”. At the heart of the model, they depict a series of activities which the organizations need to perform in order to acquire and retain customers. The model features people performing processes and using technology to assist in those activities. Fig 3 shows QCI customer management model.
Fig 3 The QCI customer management model
Payne and Frow’s 5-process model – Adrian Payne and Pennie Frow developed the 5-process model of CRM. This model clearly identifies five core processes in CRM namely (i) the strategy development process, (ii) the value creation process, (iii) the multi-channel integration process, (iv) the performance assessment process, and (v) the information management process. The first two represent strategic CRM, the multi-channel integration process represents operational CRM, and the information management process is analytical CRM. Fig 4 shows Payne’s model for CRM.
Fig 4 Payne’s model for CRM
The Gartner competency model – The final comprehensive CRM model comes from Gartner Inc. Gartner Inc. is a leading IT research and advisory organization having a large number of research analysts and consultants. The organization has a presence in several countries, and has a significant place in CRM research. The model suggests that organizations need competencies in eight areas for CRM to be successful. These include building a CRM vision, developing CRM strategies, designing valued customer experiences, intra-organizational and extra-organizational collaboration, managing customer life-cycle processes, information management, technology implementation, and developing measures indicative of CRM success or failure. Fig 5 shows Gartner’s CRM competency model.
Fig 5 Gartner’s CRM competency model
Relationship – The ‘R’ of CRM stands for ‘relationship’. Majority of the people understand that relationship means to be a personal relationship, but then what does the relationship between a customer and supplier means. At the very least a relationship involves interaction over time. If there is only a one-time transaction, then this is not a relationship. Thinking in terms of a dyadic relationship, which is a relationship between two parties, and the interaction taking over time being a critical feature, the term ‘relationship’ can be then defined as ‘a relationship is composed of a series of interactive incidents between dyadic parties over time’.
Relationships change over time. Parties become closer or more distant, and interactions become more or less frequent, since they evolve, they can vary considerably, both in the number and variety of incidents, and the interactions which take place within those incidents. Dwyer has identified five normal phases through which customer–supplier relationships can evolve. These are (i) awareness, (ii) exploration, (iii) expansion, (iv) commitment and (v) dissolution.
Awareness is when each party comes to the attention of the other as a possible exchange partner. Exploration is the period of investigation and testing during which the parties explore the capabilities and performance of each other. Some trial purchasing takes place. If the trial is unsuccessful, the relationship can be terminated with few costs.
The exploration phase is thought to comprise of five sub-processes namely (i) attraction, (ii) communication and bargaining, (iii) development and exercise of power, (iv) development of norms, and (v) development of expectations.
Expansion is the phase in which there is increasing inter-dependence. More transactions take place and trust begins to develop.
The commitment phase is characterized by increased adaptation and mutually understood roles and goals. Purchasing processes which have become automated are a sure sign of commitment. Not all relationships reach the commitment phase. Several are terminated before that stage. There can be a breach of trust which forces a partner to reconsider the relationship. Perhaps the needs of the customer change and the supplier is no longer needed.
Relationship termination can be bilateral or unilateral. Bilateral termination is when both parties agree to end the relationship. They probably want to retrieve whatever assets they have invested in the relationship. Unilateral termination is when one of the parties moves to end the relationship. Customers can exit relationships for several reasons, such as repeated service failures or change in the product requirements. Suppliers can choose to exit relationships because of the failure of the customers to contribute to sales volume or profit goals. One option to resolve the problem and continue the relationship can be to reduce the cost-to-serve. This model of relationship development highlights two attributes of highly developed relationships namely (i) trust, and (ii) commitment.
Trust– Trust is focused, i.e., although there can be a generalized sense of confidence and security, these feelings are directed. One party can trust the other party’s (i) benevolence which is a belief that one party acts in the interests of the other, (ii) honesty which is a belief that the word of the other party is reliable or credible, and (iii) competence which is a belief that the other party has the necessary expertise to perform as needed.
The development of trust is an investment in relationship building which has a long-term payoff. Trust emerges as parties share experiences, and interpret and assess each other’s motives. As they learn more about each other, risk and doubt are reduced. For these reasons, trust has been described as the glue which holds a relationship together across time and experience.
When mutual trust exists between partners, both are motivated to make investments in the relationship. These investments, which serve as exit barriers, can be either tangible (e.g., property) or intangible (e.g., knowledge). Such investments can be or cannot be retrievable when the relationship dissolves.
If trust is absent, conflict and uncertainty rise, while cooperation falls. Lack of trust clearly provides a shaky foundation for a successful customer-supplier relationship. It has been suggested that as relationships evolve over time so does the character of trust as described below.
Calculus-based trust is present in the early stages of a relationship and is quite calculative. It is as if one party says, ‘I trust you because of what I am gaining or expect to gain from the relationship’. The outcomes of creating and maintaining the new relationship are weighed against those of dissolving it.
Knowledge-based trust relies on the interactive history of the individual parties and knowledge of each other, allowing each to make accurate predictions about how the other is going to act.
Identification-based trust happens when mutual understanding is so deep that each can act as substitute for the other in inter-personal interaction. This is found in the later stages of relationship development.
Commitment – Commitment is an essential ingredient for successful, long-term, relationships. Morgan and Hunt define relationship commitment as ‘commitment is shown by an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum effort to maintain it; that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely’.
Commitment arises from trust, shared values, and the belief that partners are difficult to replace. Commitment motivates partners to cooperate in order to preserve relationship investments. Commitment means partners avoid short-term alternatives in favour of more stable, long-term benefits associated with present partners. Where customers have choice, they make commitments only to trustworthy partners, since commitment entails vulnerability, leaving them open to opportunism. For example, a corporate customer committed to future purchasing of raw materials from a particular supplier can experience the downside of opportunistic behaviour if the supplier raises prices.
Evidence of commitment is found in the investments which one party makes in the other. One party makes investments in the promising relationship and if the other party responds, the relationship evolves and the partners become increasingly committed to doing business with each other. Investments can include time, money, and the side-lining of present or alternative relationships.
The commitment of a partner to a relationship is directly represented in the size of the investment in the relationship, since this represents termination costs. Highly committed relationships have very high termination costs, since some of these relationship investments can be irretrievable. In addition, there can be considerable costs incurred in switching to an alternative supplier, such as search costs, learning costs, and psychic costs.
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