Customer Relationship Management
Customer Relationship Management (CRM) employs people, technology, tools, processes and activities to increase customer retention and a firm's profitability. Early CRM use was fraught with problems, as many firms applied CRM inappropriately. In recent years, however, firms have become selective and prudent with their CRM investments, and many of them are now reporting success with CRM.
Keywords CRM System; Customer Defection; Customer Relationship Management (CRM); Customer Retention; Customer Segmentation; Lifetime Value; Relationship Marketing; Win Back
Management: Customer Relationship Management
In recent years, management thinking has shifted from a focus on acquiring new customers to an understanding of the importance of retaining customers and the need to build up loyalty among these customers (Fitzgibbon & White, 2005). It has been recognized that a company's relationship with its customers is one of its most important assets, and this is all the more important in today's climate of high customer turnover, decreasing brand loyalty, and lower profitability. As a result, many organizations are moving away from product-centric and brand-centric marketing, toward a customer-centric approach.
Customers are increasingly viewed in terms of their lifetime value to a firm, rather than being measured simply on the value of an individual transaction. Since customers usually engage in many different types of transactions, and since they vary a great deal as to their wants and needs, firms find the management of their relationships with customers very challenging. Customer Relationship Management has emerged as a way of dealing with the challenges thus posed.
Customer Relationship Management (CRM) evolved out of the field of relationship marketing, which is based on the premise that lifetime connections with customers are more rewarding and advantageous than a short-term transaction-based relationship. Relationship marketing, which became popular in the 1990s, views the customer as an asset that can be controlled, and one that needs an adequate amount of investment, similar to the requirements of tangible assets (Ryals & Payne, 2001). As such, customer retention therefore produces a major foundation of relationship marketing.
Also referred to as customer relationship marketing and customer loyalty marketing, CRM employs information technology to enforce and execute relationship marketing approaches. Through CRM, marketing appears to have come full-circle in its evolution: from straight sales to mass marketing, to target marketing, to relationship marketing, and now to CRM, which is on the way to completely allowing true one-on-one marketing (Landry, Arnold & Arndt, 2005).
“CRM is based on the belief that developing a relationship with customers is the best way to make them loyal, and that loyal customers are more profitable than non-loyal customers” (Dowling, 2002, p. 87). It is also believed that tiny improvements in customer retention rates can yield significant increases in profits. The goal is to bring about increased customer retention. According to Hamid & Akhir (2013), technology based CRM is often implemented but not integrated in customer experience or exploited to enhance customer loyalty. Where data on customer behavior is not only collected but also used to maintain communication and entice return business in the form of special offers, it can be very effective in capturing customer loyalty.
True CRM is driven by organizational strategy and technology. It is relationship-centered, and allows firms to align their business processes with their strategies to build customer loyalty and the firm’s profits. It “requires a holistic approach so that the information that is held about customers across the organization is drawn together in one central source or at least cross-accessed so that it can be compiled and collated” (“CRM demystified,” 2001, p. 4). CRM relies on automated processes and technologies; using information systems, software and call centers.
There is no universally accepted definition of CRM, probably because it is still in the formative stages of development (Tiemo, 2013). It is not surprising, therefore, that there is much variety in the way CRM has been, and is being, defined. Some see it as a marketing strategy: to them, CRM is seen as the creation of customer strategies and processes supported by technology in order to build customer loyalty (Rigby, Reichheld & Schefter, 2002). Others see CRM as a technology for managing customer information. Stone and Woodcock (2001) have defined CRM as "methodologies, technologies and e-commerce capabilities used to manage customer relationships." Hobby (1999) defines CRM as "a management approach that enables organizations to identify, attract and increase retention of profitable customers by managing relationships with them." Rigby et al (2002) also define CRM as a mechanism for aligning a firm's business processes with its strategies to build customer loyalty and the firm's profits.
A philosophy or approach encompassing people, technology, tools, processes and activities, CRM appears to be a combination of all the above definitions. Its primary purpose is to help firms understand their customers better, to build relationships with them, and to ensure customer retention and therefore, profitability. CRM's secondary purposes include:
- The identification of a firm's customers
- The creation of customer value
- The management of complex customer relationships
- The adaptation of a firm's customer offerings and communications strategy to different customers
- The cultivation of customer-firm dialogue
A CRM strategy provides an effective way for a firm to advance its revenues by providing the specific services and products that precisely meet the requirements of customers through the design and implementation of programs that effectively allocate the appropriate resources to each customer. A good CRM strategy will also allow a firm to offer superior customer service; cross-sell products more effectively; and allow sales staff acquire deals at a quicker pace. Current customers will be retained, and future customers will be discovered. Customers will also be segmented based on their needs and their profitability.
Rigby, Reicheld and Schefter (2002) have discovered that by tracking communication between firms and their customers, CRM can help firms in many ways, including the following:
- Analyzing customer revenue and cost data in order to identify current and future high-value customers
- Targeting direct marketing efforts
- Capturing relevant product and service behavior data
- Creating new distribution channels
- Developing new pricing models
- Processing transactions faster
- Providing better information to the front line
- Managing logistics and the supply chain more efficiently
- Deploying knowledge management systems
- Tracking customer defection and retention levels
- Tracking customer satisfaction levels
- Tracking customer win-back levels
To successfully achieve the above objectives, CRM implementations require a holistic approach that integrates internal leadership (in particular, strong executive and business-unit leadership), cautious strategic preparation, precise performance measures, organizational culture and arrangement, business procedures, and information technologies, with outside customer touch points (Eichorn, 2004).
In the design of CRM systems, the first variable to consider is knowledge: by collecting and analyzing information, a firm must first discover the wants, needs and values of its customers. Next, the firm must consider the need for interactivity and personal contact, and the way in which the customer wants to be contacted (Ling and Yen, 2001).
By integrating customer management activities across a firm, CRM systems should store detailed information about anticipated and existent customers, in admiration of their buying patterns, shopping behavior and usage tendencies of the firm’s products and services. The intelligence collected on a CRM database should include:
- Products and services purchased
- Time and date of purchase (frequency of purchase)
- Price paid
- Method of purchase
- Distribution and shipping
- Delivery date
- Requests for service
- Sales calls
- Customer complaints
- All other customer- or company-initiated contact
- Demographic information
- Customer lifestyles and goals
- Detailed information for segmentation and other data evaluation aims
- Response to marketing provocation (that is, whether or not the customer responds to a direct marketing approach, a sales contact, or any other direct association)
- Website use
The collection and processing of data for CRM purposes can be facilitated by self-service technologies, natural language processing and speech recognition technologies, with little or no interaction from company staff. Through e-learning technologies, users can quickly learn how to use new systems and enhancements to existing systems.
All the data collected on a CRM system should be represented over time, and must be constantly updated, to ensure its accuracy. As information pours in, firms must shift emphasis to the development of analytical tools to help them manage the customer information.
After CRM's initial popularity during the 1990s and into 2000, sales of CRM systems fell drastically, when early adopters began to see the technology as another overhyped IT investment whose promises would never be fulfilled (Rigby & Ledingham, 2004). However, by 2004, many of the same senior corporate executives who thought that CRM Systems were not producing the desired benefits amid high costs began to indicate satisfaction with their CRM investments, and system sales began to increase. The reason for this change in attitude towards CRM was a change in usage by firms.
Rather than depend on CRM to transform entire businesses, firms began to direct their investments toward resolving particular issues within their customer relationship cycle, which comprises product development, sales, service, retention and win...
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