CRM: Operationalising the Strategic Tool

CRM: Operationalising the Strategic Tool

By

Somesh Kumar Singh
Sr. Development Officer
ICFAI National College
Patna-1

Intensifying competition, declining market share, deregulations, smarter and more demanding customers armed with more information and more buying choices than ever before are the realities of today's competitive world in this backdrop, Customer Relationship Management has been recognized as a new marketing paradigm and is emerging as the core marketing activity for business operating in fiercely competitive environment. On an average, business spends six times more to acquire customers than they do to keep them. The practice of relationship marketing has the potential to improve marketing has the potential to improve marketing productivity through improved marketing efficiency and effectiveness. No wonder that it has emerged as a strategic tool in the hands of marketing people. However, as is the case with most strategies, the CRM strategy is likely to fail not operationalised properly. This paper lists the ways in which CRM strategic tool can be operationalised by the companies.

Introduction

For the first time in nearly 20 years, the American Marketing Association has updated its definition of marketing to put stronger emphasis on the power of building strong customer relationship. The new definition of marketing, unveiled at the AMA's Summer Educator's Conference in August 2004 is "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."

Presently managing relationship with the customers is the focal point of all marketing activities in an organization. Customer relationship management is more focused and conceptualized now. The principles that underlie it, represent the essence of marketing with its focus on concepts like trust and commitment. It predates the mid century view of marketing as a set of tools pertaining to product, price, distribution, and promotion. If we accept that the ultimate goal of marketing activities is customer satisfaction, and that this satisfaction is achieved through the creation of value for the customer, then many small firms have been practicing "relationship marketing" for centuries without realizing what they were doing.

Concept of Customer Relationship Management

In the marketing literature the terms customer relationship management and relationship marketing are used to reflect a variety of themes and perspectives. Some of these themes offer a narrow (1995) points out, these terms have been used to reflect a variety of themes and perspectives. Some of these themes offer a narrow functional marketing perspective of customer relationship management is database marketing emphasizing the promotional aspects of marketing linked to database efforts (Bickert, 1992).

Another narrow, yet relevant, viewpoint is to consider CRM only as customer retention in which a variety of after marketing tactics are used for customer bonding or staying in touch after the sale is made (Vavra, 1992). A more popular approach with recent application of information technology is to focus on individual or one-to-one relationship with customers that integrate database knowledge with a long-term customer retention and growth strategy (Peppers and Roggers, 1993). Thus, Shani and Chalasani (1992) define relationship marketing as "an integrated effort to identifS', maintain, and build up a network with individual consumers and to continuously strengthen the network for the mutual benefit of both sides, through interactive, individualized and value-added contacts over a long period of time". Jackson (1985) applies the individual account concept in industrial markets to suggest CRM to mean, marketing oriented toward strong lasting relationships with individual accounts'. In other business contexts, Doyle and Roth (1992), O'neal (1989), and Paul (1988) hold similar views about customer relationship management.

McKenna (1991) professes a more strategic view by putting the customer first and shifting the role of marketing from manipulating the customer (telling and selling) to genuine customer involvement (communicating and sharing the knowledge). Berry (1995), in some what broader terms, also has a strategic viewpoint about CRM. He stresses that attracting new customers should be viewed only as an intermediate step in the marketing process. Developing closer relationship with these customers and turning them into loyal ones ate equally important aspects of marketing. Thus, he proposed relationship marketing as "attracting, maintaining and –in multi-service organizations-enhancing customer relationship".

Berry's nation of customer relationship management resembles that of other scholars studying services marketing, such as Gronroos (1990), Gummesson (1987), and Levitt (1981). Although each one of them is espousing the value of interactions in marketing and its consequent impact on customer relationships. Gronroos and Gummesson take a broader perspective and advocate that customer relationship ought to be the focus and dominant paradigm of marketing. For example, Gronroos (1990) states, "Marketing is to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfillment of promises". Similarly, Morgan and Hunt (1994), draw upon the distinction made between transactional exchanges by Dwyer, Schurr, and Oh (1987), to suggest that relationship marketing "refers to all marketing activities directed toward establishing, developing, and maintaining successful relationships".

The core theme of all CRM and relationship marketing perspectives is its focus on coop erative and collaborative relationship between the firm and its customers, and/or other marketing actors. Dwuer, Schurr and Oh (1987) have characterized such cooperative relationship as being interdependent and long-term orientation is often emphasized because it is believed that marketing actors will not engage in opportunistic behavior if they have a long-term orientation and that such relationships will be anchored on mutual gains and cooperation (Ganesan, 1994).

The emergence of CRM practices

As observed by Sheth and Parvatiyar (1995b) developing customer relationships has his torical antecedents going back into the pre-industrial era. Much of it was due to direct interaction between producers of agricultural products and their consumers. Similarly artisans often developed customized products for each customer. Such direct interaction led to relational bonding between the producer and the consumer. It was only after industrial era's mass production society and the advent of middlemen that there were less frequent interactions between producers and consumers leading to transaction oriented marketing. The production and consumption functions got aspects of buying since the largest cost is often the cost of goods sold.

In recent years however, several factors have contributed to the rapid development and evolution of CRM. These include the growing de-intermediation process in many indus -tries due to the advent of sophisticated computer and telecommunication technologies that allow producers to directly interact with end-customers. For example, in many industries such as airlines, banks, insurance, computer program software, or household appliances and even consumables, the de-intermediation process is fast changing the nature of marketing and consequently making relationship marketing more popular. Databases and direct marketing tools give them the means to individualize their marketing efforts. As a result, producers do not need those function formerly performed by the middlemen. Even consumers are willing to undertake some of the responsibilities of direct ordering, personal merchandising, and product use related services with little help from the producers. The recent success of on-line banking, Merryll Lynch's on-line investment programs, direct selling of books, automobiles, insurance, etc., on the internet attest to the growing consumer interest in maintaining direct relationship with marketers. The de-intermediation process and consequent prevalence of CRM is also due to the growth of the service economy. Since services are typically produced and delivered at the same institution, it minimizes the role of the middlemen. A greater emotional bond between the service provider and the service user also develops the need for maintaining and enhancing the relationship, it is therefore not difficult to see that CRM is important for scholars and practitioners of services marketing (Berry and Parsuraman, 1991; Bitner, 1995; Crosby and Stephens, 1987; Crosby, et. a!., 1990; Gronroos, 1995).

Another force driving the adoption of CRM has been the total quality movement. When companies embraced Total Quality Management (TQM) philosophy to improve quality and reduce costs, it became necessary to involve suppliers and customers in implementing the program at all levels of the value chain. This needed close working relationships with customers, suppliers and other members of the marketing infrastructure. Thus, several companies, such as Motorola, IBM, General Motors, Xerox, Ford, Toyota, etc., formed partnering relationship with suppliers and customers to practice TQM. Other programs such as Just-in-time (JIT) supply and Material Resource Planning (MRP) also made the use of interdependent relationships between suppliers and customers (Frazier, Spekman, and O'Neal, 1988).

Similarly, in the current era of hyper-competition, marketers are forced to be more concerned with customer retention and loyalty (Dick and Basu, 1994; Reicheld, 1996). As several studies have indicated retaining customers is less expensive and perhaps a more sustainable competitive advantage than acquiring new ones. Marketers are realizing that it casts less to retain customers than to compete for new ones (Rosenberg and Czepiel, 1984) on the supply side it pays more to develop closer relationship with a few suppliers than to develop more vendors (Hayes et. a!. 1988; Spekman 1988). There is grater opportunity for cross-selling and up-selling to a customer who is loyal and committed to the fir, and its offerings.

Also, customer expectations have rapidly changed over the last two decades. Fueled by new technology and growing availability of advanced product features and services, cus tomer expectations are changing almost on a daily basis. Consumers are less willing to make compromises or trade-off in product and service quality. In the world of ever changing customer expectations, cooperative and collaborative relationship with customers seem to be the most prudent way to keep track of their changing expectations and appropriately influencing it (Sheth and Sisodia, 1995).

Why CRM?

Statistics show that the average U.S. Company loses approximately 20 percent of its customers every year, often times not even knowing why. And it costs a lot mote to get a new customer than it does to keep the ones you have. According to a Harward Business Review study:

A satisfied customer in 10 years will bring 100 more customers to the company.

It costs 7 times more to attract a new customer than to serve an old one.

20% of the company's loyal customers account for 80% of its revenue (Pareto's principal).

Approximately 70% of customers switch brands because they don't like the service or the provider.

On an average a customer tells 9-10 people about a problem.

The chances of selling to an existing customer are 1 in 2; the chances of selling to a new customer are 1 in 16.

CRM holds a lot of promise for improving customer loyalty resulting in top and bottom line benefits. According to Bain & Co. research, when companies retain just five percent more of their customers, corporate profits can be boosted a minimum of 25 percent. Whether it's improving forecasting capabilities, establishing support policies or simply keeping your customers, CRM might just be the answer for your organization.

Somesh Kumar Singh
Sr. Development Officer
ICFAI National College
Patna-1

Source: E-mail June 13, 2007