CRM - A Creative Tool in the Success of Strategy


Dr. Narinder Tanwar
Asst. Professor
Department of Management Studies
B.S. Anangpuria Institute of Technology and Management


"Only those who become attached to their customers, figuratively and literally will survive".
                                                                                                                  Tom Peters
                                                                                                                  (Thriving on Chaos)

Customer Relationship Management is the need of hour for the business world in today's competitive scenario. For every business house either it is manufacturing or service to attract a customer and then to sell the product/service may by the first important step but if any organization wants to survive in the market over a longer period of time then it becomes very important to maintain mutual relationships with its customers. Customer relationships management strategies allow an organization to put the customer right at the center of the organization and then framing each and every strategy around the customer portfolio. The article covers different aspects of customer relationship management (CRM) which include understanding the concept of CRM, its strategic approach, its process approach and various benefits which an organization derives by using customer relationship management strategies.

Today, no organization is secure unless its every action is processed through the customer's eyes. The so-called typical customer no longer exists, and companies have been learning this lesson the hard way. Until very recently, business was more concerned about the "what's" than about the "who's." In other words, companies were focused on selling as many products and services as possible, without regard to who was buying them. But the baby boomers came of age and competition burgeoned. Consumers are having more choices than ever before about where to do their banking, their grocery shopping, and their vacationing. Today's businesses are facing fierce and too aggressive competition while operating in both domestic and global markets. Traditional marketing methods have failed to deliver results in recent times and companies are forced to invent new methods of interacting with customers to reduce costs and gain market share and more importantly to retain the customers and make them loyal to company. According to Court (2004) in an article in the McKinsey Quarterly: "Twenty years ago, big companies used one advertising spot on three television networks to reach 80% of the US population; now they need up to 20 messaging and media programmes to the same reach". 

Customer Relationship Management (CRM)

CRM is a business approach that integrates people, processes, and technology to maximize the relations of an organization with all types of customers. CRM helps in understanding the customer better, which enable organizations to effectively customize their products and service offerings according to the customer needs in order to retain customers and increase customer's loyalty and satisfaction. Many organizations are embracing customer relationship management strategies to reap benefits such as enhanced revenues and high profits.

The diverse and uncertain environment has forced organizations to restructure themselves in order to enhance their chances to survival and growth. The restructuring efforts have included, among others, the emergence of the "new paradigm" which is commonly referred as Customer Relationship Management (CRM). Customer Relationship Management business strategy places the customer at the center of the organizations' universe. Relationships in today's world are more important than anything else which an organization wishes to maintain with their associations and it has become even more and more important to sustain them to be rewarding forever. The situation was summed up well by Pine, Peppers, and Rogers (1995) in the Harvard Business Review article titled "Do You Want to Keep Your Customers Forever?" wherein they argued that: "Customers, whether consumers or businesses, do not want more choices. They want exactly what they want when, where, and how they want it and technology now makes it possible for companies to give it to them."  

Customer relationship management (CRM) is a term which is not only used by business organizations today to maintain such good relationships with their present and old clients and associates but the terminology is now being used by almost any type of organization to create a beneficial environment for them and all in today's era of competition. CRM has played an ever increasing and important role in the growth of all such organizations those have developed a sense of understanding towards customer service and satisfaction and implementing CRM. According to Sheth and Sisodia (1995), the purpose of relationship marketing is to enhance marketing productivity by achieving efficiency and effectiveness.

Strategic Approach of CRM

Greenleaf and Winer (2002) have explained CRM as, "Customer Relationship Management is a business strategy to select and manage customers to optimize long-term value". CRM strategy helps organizations to serve the customer on an individual basis, to enjoy a long-term relationship and to get rid of barriers and distortions created by non-value adding intermediaries. It also helps to reduce marketing costs, target specific customers by focusing on their needs, track the effectiveness of given marketing action, maximizing life-time value of customers, and increasing their loyalty towards the organization. CRM has the power to help organizations quickly and directly improve customer satisfaction. CRM is an added dimension to ensure that what the customer expects is consistent with what the organization is prepared to deliver.

(Figure 1: Basic CRM Strategy)

The basic proposition of a CRM strategy is based on the age-old idea that knowledge, understanding, and serving the customer is the best method developing a sustainable competitive advantage. But building a sustainable and successful relationship with a large customer base is not the easiest thing to do and carries a direct impact on many core operational processes. CRM focuses on understanding the needs and desires of the customers and is achieved by placing these needs at the heart of the business by integrating them with the organization's strategy, people, technology, and business processes (Fox, Stead, 2001). At the heart of a perfect CRM strategy is the creation of mutual value for all the parties involved in the business process. It is about creating a sustainable competitive advantage by being the best at understanding, communicating, and delivering values to the existing customers in addition to creating and keeping new customers. It addresses to the changing needs of the customers by developing products and services that continuously seek to satisfy the lifestyle and need patterns of individual customers. Organizations tend to acquire a structure around customer segments and not on the basis of product lines to deliver customer satisfaction.

CRM is a corporate level strategy, focusing on creating and maintaining relationships with customers. An effective CRM system is able to identify factors important to clients, promote a customer oriented philosophy, adopt customer based measures, develop end-to-end processes to serve customers, provide successful customer support, handle customer complaints, track all aspects of sales, create a "holistic" view of customers' sales and service information. The long-term success of an organization depends mainly on how well it attracts and retains a large customer base. Managing relationships with customers is very important for organizations since improved relationships increase business value. CRM helps in leveraging information regarding customer behavior to achieve high levels of customer satisfaction, retention, and loyalty all resulting in improved profitability.

CRM focus on how to make the business approach more customers focused. CRM aims to increase the profitability of the customer portfolio which comprises many elements, for example: customer acquisition, price, cost to serve, cross sales (further sales to the same customer), up sales (the customer makes greater use of the same product or service), number and size of transactions, expected value of loss and longevity. Cao and Gruca (2005) have pointed out that attempts at cross-selling and up-selling will encounter adverse conditions when the firm has not chosen the right customers. So, companies must focus on profitable customers to ensure success through CRM initiatives. CRM is just about value added services. Alignment of present business according to customer needs is the success of CRM.

Process Approach of CRM

Peppers and Rogers (1993) in their book "One to One Marketing" predicted the demise of mass marketing and emphasized the fact that business organizations must stress more on customer relationships and less on products. They argued "you will not be trying to sell a single product to as many customers as possible. Instead you will be trying to sell a single customer as many products as possible over a long period of time, and across different product lines". They recommended the following methodology for practicing relationship marketing. In the first step, organizations must identify the customers individually and understand their behaviors. This includes their needs, habits, and desires. In second step, details of customers are used to segment them. The third step advocates initiating the interaction with the customers and developing a relationship. Customers and organization may interact with each other using a number of channels and this knowledge is fed into the business strategy. In order to maintain customer life cycle, the relevant client dialog must be captured and customized for best possible future action. Ultimately the vision is to build a 'one to one' enterprise such that most valuable customers are treated differently by providing customized products and services. 

(Figure 2: Peppers & Rogers Methodology)

(Source: Don Peppers and Martha Rogers (1993), 'One to One Marketing'.)

CRM life cycle begins with the integration of front office systems and the centralization of the customer-related data. The benefits of this phase include improved front office efficiency and productivity. In this phase, the customer data has to be collected in detail and maintained properly. Customer profile regarding demographics, socio-economic and lifestyle characteristics of customers has to be colleted. Based on collected data, analysis of customer begins to understand behavior, identify the pattern of buying and trends, and discover causal relationship. The out of this is strategic business decision. Business processes and organizational structures are refined based on the improved customer understanding gained through analysis.

Benefits of CRM

It is important to understand the key benefits of CRM for every organization. These benefits fall into three categories: cost saving, revenue enhancement, and strategic impact. Identifying the right customer is a basic pre-requisite of CRM. Reichheld and Schefter (2000) found that an online retailer had 75% of their customers to be bargain hunters who shifted loyalties based on the price factor. Leszinski et al. (1995) have quoted a multi-industry study by McKinsey that showed that bad customers could account for as much as 30-40% of the revenues of a company.

The benefits of customer relationship management are abounding. It allows organizations not only to retain customers, but enables more effective marketing, creates intelligent opportunities for cross selling and opens up the possibility of rapid introduction of new brands and products. To be able to deliver these benefits, organizations must be able to customize their product offering, optimize price, integrate products and services and deliver the service as promised and demanded by the customer base. Keeping the customer happy is obviously one way of ensuring that they stay with organization. However, by maintaining an overall relationship with customer, companies are able to unlock potential of their customer base and maximize contribution to their business.

Ang and Taylor (2005) have mentioned the use of customer portfolio analysis that comprises of various dimensions and result in creation of different matrices comprising various customer segments. For example, Shapiro et al. (1987) used the dimensions 'cost to serve' and 'price received' to create a model that contained customers whose cost to serve were low but price received  were high, therefore, these were considered profitable. Zeithamal et al. (2001) explained that the strategies to be employed for profitable customer could be decided as part of the CRM initiative and help to strength the relationships with these customers to ensure long term benefits from them. Based on successful CRM implementations, the following benefits seem reasonable:

* Increased Sales: CRM helps in achieving cross-selling and up-selling which result into increased sales. The success of cross-selling and up-selling depends upon the ability of the marketer to predict the reaction of the customer to the proposals.
* Customer Lifetime Value (CLV) and Profitability: CRM technology allows in assessing the customer lifetime value based on the past transactional data. The marketing campaigns can be designed accordingly to attract customers with similar needs and characteristics.
* Increased Margin: Increased margin resulting from knowing customers better, and providing a value product on discounting prices.

(Figure 3: Benefits of CRM)

Increased Response Rate: The products and service offerings are now made based on the basis of select criteria. Furthermore the communications are tailored to the individual's preferences and therefore the response rate is much higher than the conventional campaigns.
* Improved Customer Satisfaction Ratings: Customer will be more satisfied if he finds the company to be more responsive and better in touch with their specific needs.
* One-to-One Marketing: An organization which understands the requirements of its present and future customers can engage in a carefully tailored one to one dialog with them and then customize the communication by analyzing and make offers according to the customer preferences. 
* Decreased Marketing Administrative Costs: Since the company has specified its target segment customers, it knows their needs better so it is not wasting unnecessary time and money which result into decreased marketing costs.

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Source: E-mail June 20, 2011


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