Everything you need to know about customer relationship management.
Customer Relationship Management (CRM) uses technology-enhanced customer interaction to shape appropriate marketing offers designed to nurture ongoing relationships with individual customers within an organization’s target market.
Customer relationship management is neither a product nor a service, but a business strategy to learn more about customers’ behaviour and requirements in order to create long-term relationships with them.
In other words, CRM is a comprehensive approach that provides seamless integration of every aspect of a firm’s business that comes in contact with the customer at various stages such as marketing, service delivery, and after-sales-service.
Customer relationship management helps in profiling prospective customers, understanding their needs, and in building relationships with them by providing the most suitable products and enhanced customer service.
Therefore, Customer Relationship Management is a comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer.
1. Definition of Customer Relationship Management 2. Role of Customer Relationship Management 3. Aspects 4. Levels 5. Customer Relationship Management and the Organization
6. Implementing Customer Relationship Management 7. Effects 8. Personalizing 9. Problems 10. Benefits and Limitations.
Customer Relationship Management: Meaning, Role, Aspects, Levels, Effects, Benefits and Limitations
- Introduction to Customer Relationship Management
- Definition of Customer Relationship Management
- Role of Customer Relationship Management
- Aspects of Customer Relationship Management
- Levels of Customer Relationship Management
- Customer Relationship Management and the Organization
- Implementing Customer Relationship Management
- Effects of Customer Relationship Management on Business
- Personalizing Customer Relationship Management
- Problems with Customer Relationship Management
- Benefits and Limitations of Customer Relationship Management
Customer Relationship Management – Introduction
Customer Relationship Management (CRM) uses technology-enhanced customer interaction to shape appropriate marketing offers designed to nurture ongoing relationships with individual customers within an organization’s target market.
Relationship marketing develops ongoing relationships with customers by focusing on maintaining links between marketing, quality and customer service amongst the “six markets” of relationship marketing—customer markets, influences, referral, employee recruitment, suppliers and internal markets within the business. The concept of CRM has grown out of relationship marketing.
According to Cram, relationship marketing is the consistent application of up-to-date knowledge about individual customers to product and service design, which is communicated interactively in order to develop a continuous and long term relationship between customers and suppliers that is mutually beneficial. The focus is on extracting more sales from existing customers through marketing activity, rather than marketing programmes designed to attract new customers.
The development of customer database, the decreasing costs of collecting, storing and using information, better information systems technology, plus the desire to build on-going relationships with existing customers, have led to the growth of interest in CRM. Database advances have enabled marketers to identify which customers they particularly want to keep and with whom to nurture on-going loyalty.
Customer refers to partners, agents, third parties, employees, and other stakeholders who fulfil their needs through an organization. Put simply, a customer is any individual who has a relationship with the company from time to time.
In earlier times individuals chose to associate themselves with a particular brand or organization because of the personal relationship they formed with its managers (e.g., opening an account in the local bank, because the manager is a distant relative) or because only certain companies produced certain branded products deemed as trustworthy.
However, the markets today have changed radically due to changing business trends, technological convergence, commoditization, deregulation, globalization, and growth of the Internet. Competition has increased, and today the existence of multiple brands has made it almost impossible to show competitive differentiation, and even harder to earn profit.
In today’s globalized world, a typical organization has thousands of local, regional, national, and global competitors. Consumers now play an active role in creating value not only because of their rising awareness about products and lifestyles, but also because of their increasing levels of disposable income. Organizations have to adopt the motto ‘customer is king’ to stay ahead in the competition.
Today’s consumer, unlike before, is willing to take risks and experiment with new products and brands. In today’s business scenario a competitive enterprise has to profile its customers, understand their needs, build cordial relationships, and communicate intelligently with them to stay ahead of the competition. Customer relationship management (CRM) plays an important role in the success of any enterprise.
Customer relationship management is neither a product nor a service, but a business strategy to learn more about customers’ behaviour and requirements in order to create long-term relationships with them. In other words, CRM is a comprehensive approach that provides seamless integration of every aspect of a firm’s business that comes in contact with the customer at various stages such as marketing, service delivery, and after-sales-service.
Customer Relationship Management – Definitions Provided by Eminent Authors: Scott Hornstein and Paul Greenberg
Customer Relationship management is the strongest and the most efficient approach in maintaining and creating relationships with customers. If the customer is satisfied, they will always be loyal to organisation and will remain in business forever. This results in increasing customer base and ultimately enhances net growth of business.
A management philosophy according to which a company’s goals can be best achieved through identification and satisfaction of the customers’ stated and unstated needs and wants.
It is a business strategy which aims at optimizing profitability and customer satisfaction by focusing on the customer segments.
Customer relationship management helps in profiling prospective customers, understanding their needs, and in building relationships with them by providing the most suitable products and enhanced customer service. Therefore, Customer Relationship Management is a comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer.
It involves the integration of marketing, sales, customer service, and the supply-chain functions of the organization to achieve greater efficiencies and effectiveness in delivering customer value.
Customer Relationship Management (CRM) is the process of managing the detailed information about individual customers and carefully managing all the customer “touch points” with the aim of maximizing “customer loyalty”. CRM is a broad term that covers concepts used by organizations to manage their relationships with customers, including “collecting, storing and analyzing customer information”.
CRM, a well-defined business strategy, is a fusion of a series of functions, skills, processes and technologies which together allows companies to more profitably manage (acquire and retain) customers as tangible assets.
CRM is a comprehensive approach for creating, maintaining and expanding customer relationship. It is the process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer.
Thus, CRM provides information on methodologies and software, and usually the Internet capabilities, which help an enterprise, manages customer relationship in an organized way.
CRM is a business strategy that maximizes profitability, revenue and customer satisfaction by organizing around customer segments, fostering behaviour that satisfies customers and implementing customer-centric processes.
CRM is the process of managing all aspects of interaction a company has with its customers, including prospecting, sales and service. CRM applications attempt to provide insight into and improve the company/customer relationship by combining all these views of customer interaction into one picture.
“CRM is the delivery of customer care as a strategic product, with measurement and reward, focused on generating happier customers that stay longer and buy more” – Scott Hornstein
“CRM is philosophy and a business strategy, supported by a system and a technology, designed to improve human interactions in a business environment. It is also a continuing business initiative that demands a dynamic, ongoing strategy of customer engagement”. – Paul Greenberg
Customer Relationship Management – Role of CRM in Marketing
1. A CRM system consists of a historical view and analysis of all the acquired or to be acquired customers. This helps in reduced searching and correlating customers and to foresee customer needs effectively and increase business.
2. CRM contains each and every bit of details of a customer, hence it is very easy for track a customer accordingly and can be used to determine which customer can be profitable and which customer is not.
3. In CRM system, customers are grouped according to different aspects according to the type of business they do or according to physical location and are allocated to different customer managers often called as account managers. This helps in focusing and concentrating on each and every customer separately.
4. A CRM system is not only used to deal with the existing customers but is also useful in acquiring new customers. The process first starts with identifying a customer and maintaining all the corresponding details into the CRM system which is also called an ‘Opportunity of Business’.
The Sales and Field representatives then try getting business out of these customers by sophistically following up with them and converting them into a winning deal. All this is very easily and efficiently done by an integrated CRM system.
5. The strongest aspect of Customer Relationship Management is that it is very cost-effective. The advantage of an effectively implemented CRM system is that there is very less need of paper and manual work which requires lesser staff to manage and lesser resources to deal with. The technologies used in implementing a CRM system are also very cheap and smooth as compared to the traditional way of business.
6. All the details in CRM system is kept centralized which is available anytime on fingertips. This reduces the process time and increases productivity.
7. Efficiently dealing with all the customers and providing them what they actually need increases the customer satisfaction. This increases the chance of getting more business which ultimately enhances turnover and profit.
8. If the customer is satisfied, they will always be loyal to you and will remain in business forever resulting in increasing customer base and ultimately enhancing net growth of business.
Customer Relationship Management – 3 Major Aspects: Operational CRM, Collaborative CRM and Analytical CRM
There are three aspects of CRM, each of which can be implemented in isolation:
The automation or support of customer processes involving sales or service representatives. It provides support to “front office” business processes, including sales, marketing and service. Each interaction with a customer is generally added to a customer’s contact history, and staff can retrieve information on customers from the database as necessary.
Focus on customers’ value is key to a successful CRM strategy. Different customers have to be treated differently. Variables like customers’ ranking, actual value and potential value are strategy drivers.
Direct communication with customers not involving sales or service representatives (“self-service”). It covers the direct interaction with customers. This can include a variety of channels, such as internet, email, or automated phone answering system. It can generally be equated with “self-service”. The objectives of Collaborative CRM can be broad, including cost reduction and service improvements.
The analysis of customer data for a broad range of purposes. It analyzes customer data for a variety of purposes, including- design and execution of targeted marketing campaigns to optimize marketing effectiveness design and execution of specific customer campaigns, including customer acquisition, cross-selling, up-selling, retention analysis of customer behavior to aid product and service decision making (e.g., pricing, new product development, etc.) management decisions, e.g., financial forecasting and customer profitability analysis risk assessment and fraud detular for credit card transactions Analytical CRM generally makes heavy use of predictive analytics.
Putting the customer right at the centre of the organization is the be-all and end-all of successful Customer Relationship Management (CRM). To do that you have to know what your customers really want and really think about your business and then use that to deliver better products and services, improve customer service and increase sales opportunities yes, CRM has a purpose, it is not just a concept.
Companies that invest in CRM systems can learn even more about their customers and offer more personalized products and services because they receive relevant information daily in a way that allows them to spot trends. Implementing new business strategies always includes an element of risk but proper change management practices can reduce this dramatically. The reason many projects fail lies with poor project execution. Many companies have made the mistake of rushing headlong into CRM without a well thought out plan.
So when investing in better CRM:
1. Have a CRM strategy because CRM initiatives launched without a strategy invariably cause pain. Do not think of CRM as a project separate from your overall business plan. That way madness lies. CRM only works when there is clear understanding of why the organization is doing it and how it will improve service and loyalty, cut costs or increase revenue.
2. Choose the right CRM partner. The best CRM solutions are flexible and have a full integration capability with any other systems in your business.
3. Understand the technology. Far too often CRM is considered an IT project not a business initiative and it should not be thought of like this; but this means that the business has to understand the technology and what and how it can do for them and what it cannot do for them. The greatest success will come from the coordinated efforts business users, IT and supplier.
4. Focus more on business processes than technology. CRM is about an organizations internal and external business processes becoming more customer-centric. Understand your “customer flow”. The systems are merely the enablers, not an end in themselves.
5. Do not try and design the perfect CRM system that will meet 100% of each and every person’s wish list and do not expect the new CRM solution to just mirror current business processes. Instead, accept that not everyone can have everything they say they want and use the new systems as an opportunity to invent and use new processes that improve customer service, reduce costs and provide better customer service.
6. Do not try to change the whole organization overnight. Go for the highest priority and highest return areas first. Take small, manageable steps, not giant leaps, and bring the whole organization along with you.
7. Think about the user interface and plan it carefully. For people to use the system, it must be useful to them and easy to use. Every extra field you ask the people to complete, especially mandatory ones, the greater the chance that they will enter garbage or only use the system under duress.
8. Especially if you have not implemented a CRM system before get help and expect to pay for it even if it is just a day of a suppliers time to go through the issues. They all see the pitfalls that you cannot and you will not waste time and money on trying to do things that cannot be done, expecting them to happen in a certain way and then be disappointed or miss out on crucial issues that are essential to successful implementation.
9. Make it somebody’s responsibility to own the data, and to make sure that it is correct and complete. Sounds obvious but so many projects just ignore this central detail and CRM systems stand or fall by their data integrity and data quality.
10. User acceptance is the single most important success factor for a CRM system so invest in training. Training is essential to ensuring user acceptance. Never let an untrained employee have customer contact.
Reaching the most remote rural customers with high-speed Internet access can be prohibitively expensive. Consider the case of Hill Country Telephone Cooperative in Ingram, Tex. The small provider is undertaking a $57 million effort to install fiber and bring broadband service to a substantial part of its market, which covers 2,900 square miles, roughly twice the size of Rhode Island.
Yet even with this effort, the provider will not be able to serve 543 remote households, about 5 percent of its market area, because it’s simply too expensive. To do so would involve laying 522 miles of fiber optic cable at a cost of $20 million – an average cost of $37,000 per subscriber, according to Delbert Wilson, general manager of the provider, who testified in July before the House Agriculture Committee.
Government agencies are now considering the costs of providing high-speed Internet access to rural areas and which technologies might be the most cost-effective. The economic stimulus legislation has set aside $7.2 billion in grants and loans to encourage the installation of broadband networks, especially in rural regions that currently lack access. The applications for the first round of funding are due on Aug. 14, 2008. The Agriculture Dept.’s Rural Utilities Service and the Commerce Dept.’s National Telecommunications Information Administration will be vetting those submissions.
Service providers are expected to propose a range of schemes to deliver high-speed Internet through both existing infrastructure such as telephone lines, cable-TV networks, or electric power lines – and through the installation of new fiber-optic cables going directly to residences, new wireless networks, or by using satellites.
While the Federal Communications Commission has remained neutral on which technology is best for rural markets, it did say in a report on rural broadband that it needed to be cost-effective to install, provide consistent performance at an affordable price, and be able to upgrade to higher speeds over time.
Customer Relationship Management – Top 6 Levels: Utility Need, Convenience Need, Comfort Need, Personal Recognition Need, Self-Expression Need and a Few Others
For a firm to manage its interactions with its customers on a continuous basis such that it can maintain and improve customer relations and simultaneously maximise profitability, it is important for the firm to ensure that its Customer Relationship Management (CRM) program is woven around the concept of Customer Lifetime Value. Such an approach is known as the Customer Value Framework (CVF).
Relationship between buyer and seller can be identified in 6 distinct levels. Level-1 being the lowest level of relationship and level-6 being the deepest level of relationship as mentioned below-
Level 1 – Utility Need
Level 2 – Convenience Need
Level 3 – Comfort Need
Level 4 – Personal Recognition Need
Level 5 – Self-expression Need
Level 6 – Co-creation Need
From a strategic marketing perspective, the importance of any customer over the lifetime of the relationship lowest at level-1 and is highest at level-6. And this is independent of the revenue or sales generated from a customer. Customer with whom a company enjoys the highest level of relationship, level-6, will also be the most strategic customer because in this level of relationship, the customer will be co-investing in creating new products for the future. It is therefore in the vendor’s best interest to have very deep relationship with such customers.
The concept of strategic customer leads to the idea of Strategic Account Management. Though, the term “Strategic Account Management” was coined by Miller Hieman, the meaning of ‘Strategic Account Management’, referring to is entirely different. Strategic account management implies managing the relationships with the strategic customers, i.e., customers who can help the vendor gain competitive advantage in the future and in other words, managing customer relationship at level-6.
Level-6 customer relationships are personal and rational. At this level of relationship, the customer loyalty and trust is very high. Customers are willing to invest for joint development of products/service. Customer feel closely bonded to the vendor – to the point that the customer seeks a joint destiny with the vendor, i.e., some aspects of customer’s interests merge with that of the vendor’s interests.
Strategic account management requires two major changes in the typical corporate mindset:
Earlier account planning used to be all about ‘us’ and ‘ours’. In other words, account management policies were driven by internal compulsions such as improving products and services, maximizing revenue, profits, needs, improving operations etc. But at level-6 of customer relationships, the account management means to focus on customer’s future strategy, customer’s products and services and how the vendor can capitalize on the upcoming opportunities.
Theodore Levitt, a famous Harvard Business School marketing professor and the former editor of the Harvard Business Review, is widely quoted as telling his students that customers do not want a quarter-inch drill; instead, they want a quarter-inch hole. In other words: They are not shopping for products; they are shopping for solutions. Think about the problems that must be solved.
Understand the problems and issues at least as well as your customers do, if not better. That requires more than just knowing what your customers need. In strategic account management, successful firms help their clients run their businesses and not just purchase supplies or utilize services. The overall goal of any good strategic account management process is to ensure better business returns for the targeted key customers.
CRM is all about managing the relationships with the customers those are valuable. It starts with developing an understanding that not all customers are equal and a few customers are of strategic importance to your success in the future. Once a strategic customer is identified, and the customer feels comfortable to invest in co-development, the account management policies has to be crafted such that the vendor now becomes an integral part of the solution to a problem that the customer is trying to solve.
Care must be taken to ensure that both the vendor and customer maintain their independence and have equal rights over the new products which are being developed. This will not only enable the customer gain significant competitive advantage and that advantage is also shared with the vendor – albeit in different market segments.
Customer Relationship Management – CRM and the Organization
Studying the profiles of customers, keeping their preferences in mind, and taking care of their needs has its advantages. Sometimes companies can experiment with their own products to improve them, while offering the customer a new product for a lesser price or for free.
For example, Microsoft tests beta versions of its Windows software through thousands of its customers, thus, avoiding some of the usual mistakes that software companies make. Prahalad and Ramaswamy (2002) suggest co-creating personalized experiences for the customer.
He talks about the increasing realization that the product is subordinate to the consumer experience and advocates that the new frontier for managers is to create the future by harnessing competence in an enhanced network that includes customers. It is prudent to thus adopt a comprehensive view of the customer as part of a continuum, not just a sale, and to manage the life cycle of the relationship, not just a series of transactions.
Customer relationship management is a strategic concept, which focuses on competencies, processes, and technologies required to effectively service customers. It not only helps in retaining existing customers but also in attracting new customers. Many companies have become adept at the art of CRM.
They have collected data on preferences, attributes, and behaviour of their customers for further segmenting them and for directing their marketing effort at them to evoke the necessary responses. However, seldom do these companies as per Seybold (2001), bother to look at customer scenario, that is, the broad context in which customers select, buy, and use products and services.
According to her, thinking in terms of customer scenarios has always been useful, but the arrival of Internet makes the technique more powerful than ever.
Tesco, a UK-based supermarket chain, rejected one of the basic tenets that online grocers adhered to as an appropriate strategy that is, consolidating inventory and conducting operations from a central warehouse. Instead, the company launched Tesco-direct, its on-line sales channel based on its insight about a typical grocery shopper’s customer scenario, which was supported through a combination of stores and direct Internet sales.
The venture became the world’s most profitable Internet grocery store because it was based on customer feedback. The consumer insight was that they liked to examine and touch the fresh produce and enjoyed exploring store shelves for new products, etc.
Tesco thus set out to tightly integrate its offline and online offerings so that customers could have the best of both worlds. There is no substitute to companies putting themselves in their customers’ shoes.
Customer Relationship Management – Implementing CRM
Customer relationship management is a comprehensive strategy that integrates people, process, and technology, and works on the process of acquiring, retaining, and partnering with select customers to create superior value for the company and its customers.
Organizations usually spend billions of dollars on CRM, which ultimately pays off by:
i. Restoring the personalized services atmosphere;
ii. Fostering greater long-term loyalty through relationship building;
iii. Maximizing lifetime value of each customer through cross-selling;
iv. Enabling immediate action to retain the most valuable customers;
v. Identifying high-risk customers and adjusting the service accordingly;
vi. Fulfilling customer needs at the right time with the right offer; and
vii. Increasing the rate of return on marketing initiatives.
A company’s success in the field of CRM fully depends on its ability to achieve customer intimacy, which can be built through relevant, uninterrupted, and personalized communication.
Its objective is not only to attract new clients/customers or retain valuable ones, but also to boost the profitability of every individual client/ customer and, hence, the company as a whole. In other words, the major goal of CRM is to build a single, integrated, organizational image of the customer, enabling the company to maximize the customer’s experience.
Customer relationships are not built overnight. They pass through different stages namely contact, involvement, intimacy, deterioration, repair, and dissolution. A relationship can terminate at any of these stages. It is, therefore, essential to understand the stage at which it could sell services efficiently. Cross-selling or up-selling can be attempted at certain stages to get better results.
Recent research indicates that some of the behavioural traits, such as adaptation, trust, commitment, communication, cooperation, conflict resolution, interdependence, past satisfaction, and power equation pave the way to build relations and to sustain them over a long period.
Some essential factors that aid the building of a strong bonds between the customer and the organization are—(1) adaptation, the companies need to tailor their resources to meet the specific needs of the individual customer; (2) alignment of a firm’s resources with the customer’s needs is directly proportional to the quantum of trust injected into the relationship, both by the firm as well as its customer; (3) commitment, a firm has to be committed towards the customer for nurturing a fruitful relationship; and (4) continuity of a relationship, which is the process of communication and interaction extending into cooperation.
The three other dimensions of a customer-organization relationship are continuance, normative components, and effective components. During this phase, disagreements that creep into the business transaction are resolved. In the final analysis, it is the power equation—the ability of one party to evoke a change in other partner that greatly influences the continuity of any relationship.
Berry (2001) did extensive research on dozens of retailers and found that it is not the techniques of emailing customers, hidden cameras to observe customer behaviour, or analysis of scanner data to tailor special offers and manage inventory that can offer lasting solutions in this era of fickle customers and price-cutting customers.
He has suggested creating value for customers in five interlocking ways (Fig. 33.2). According to him, today’s shoppers want the total customer experience— superior solutions to their needs, respect, an emotional connection, fair prices, and convenience. The seller has to offer all these components together for the venture to be successful.
Today, behavioural science offers new insights into better service management, thus enhancing customer experience in a service encounter. According to Chase and Dasu (2001), in any service encounter, from a simple pizza pickup to a complex, long-term consultancy engagement, perception is reality.
The following five operating principles derived from a behavioural sciences’ study should be kept in mind:
i. Finish strong, the ending is far more important than the beginning;
ii. Get the bad experience out of the way early;
iii. Segment pleasure and combine pain (all boring and unpleasant steps should be combined into one);
iv. Build commitment through choice (give people control over the uncomfortable processes); and
v. Give people rituals and stick to them.
Customer Relationship Management – Impact of CRM on an Enterprise
Customer relationship management has a number of positive effects on an enterprise. It provides management with a clear picture of the business, thus facilitating decision-making. Using a common architecture and data model, customer information can be shared faultlessly between the front-end staff facing the customers to deliver services and the back-office staff who structure the deals.
Front-end staff can profile a customer, create, and maintain a customer account with contacts, manage activities, and explore business development possibilities. For example, a call centre can maintain client data/information, produce call notes, reply to customer inquiries, and address and track customer service requests, while the back-office aims to nurture a long-term relationship with the customer.
In a nutshell, the implementation of the CRM concept can result in the following advantages:
i. Speed and accuracy in information analysis;
ii. Foundation for organization-wide data and information;
iii. Understanding customer behaviour;
iv. Facilitating business process re-engineering;
v. Promoting multiple products;
vi. Creating multiple distribution channels—branch, Internet, call centre, field sales, etc.; and
vii. Creating multiple customer groups—customers, small business, corporation, etc.
To start with, companies must realize that all customer profiles can differ. Customer profitability varies from person to person and context to context. Not all customers are evenly desirable for the company. Firms must differentiate their customers based on the value criteria or the profit the customer adds to the firm’s account. Put simply, a more profitable customer is a ‘high value’ customer and a less profitable customer is a ‘low value’ customer.
An organization’s CRM system must also capture customers’ taste, preference, behaviour, living style, age, education, cultural background, physical and psychological characteristics, sensitivity etc., while differentiating them according to their value criteria.
By combining the profitability potential of a given customer and his personality profile, including their expectations, customers can be grouped into four categories:
1. Low value/less profitable customer desiring high-grade service
2. Low value/less profitable customer with potential to become high value in coming days
3. High value/more profitable customer desiring high-grade service
4. High value/more profitable customer requiring low-grade service
Once the firms differentiate their customers vis-a-vis profitability and other traits, it becomes easy for them to customize their services and offerings to maximize the overall value of their customer portfolio.
Boosting loyalty can retain a customer. Customer loyalty can be defined as ‘making a customer come again and again to the same organization’. Firms must keep their customers serviced and happy so that they keep transacting with them.
Customer loyalty can be differentiated into two categories—active loyalty and passive loyalty. Active loyalty refers to repeat purchases and contracts made over a long period of time, while passive loyalty is a term used to describe the retention of customers who have not transacted with the firm for a long time, or those who stick with the firm in the absence of a better alternative.
Unfortunately, most of the firms fail to distinguish between active loyalty and passive loyalty. They make the mistake of assuming customer satisfaction is present even in the case of passive loyalty, thus failing to retain their customers.
To boost customer loyalty, firms must have a clear understanding of their customers’ unfulfilled needs and must come out with products/services that will satisfy those needs. They have to innovate to meet every need of their loyal customers so that they become their active advertisers. Turning a suspect into an active advertiser will definitely boost referral sales that are known as ‘low cost and high margin sales’.
A firm’s competitive advantage lies in understanding and meeting the expectations of its customers.
An organization’s effort to expand its customer base and retain the existing ones begins by building the data warehouse. An organization’s data warehouse is an architectural component that is subject oriented, integrated, non-volatile, and time variant. The data warehouse exists to enhance the firm’s ability to make informed decisions.
Data can be of two types—function-oriented and subject-oriented. Subject-oriented data is organized along the lines of the subjects of the firm. Function-oriented data is data that is organized around the functions of the firm. In order to understand the difference between a subject orientation and a functional orientation, one needs to understand the differences between subjects and functions.
Each function will have some data that relates to each subject. Mapping the data from each function to each subject area shows that there is a fundamental restructuring and realignment of data that must be done in order to build data warehouse. Data must be read in a functional format and written in a subject-oriented format.
Two important steps in data warehousing are:
1. Designing the database and
2. Data mining.
1. Designing the Database:
The first step in this process is to design a comprehensive database. The database acts as a ‘memory box’ where summary data about the businesses is retained. This includes information about the customers, services/ products bought by them, etc.
2. Data Mining:
It follows database designing where the firm’s strategists analyse the past trends/patterns to forecast the future behaviour/demand from customers for varied services and products and take action accordingly. They analyse the collected data to determine the customer’s behaviour according to the product, price, and distribution channel.
Firms need not always go for expensive and highly sophisticated data mining systems. The customer information gathered by them in their day-to-day business is often sufficient for effective data mining. Answers to simple questions are enough to form a precise picture of the business.
i. What happened to the service offered by the company during a particular period?
ii. Was the customer’s reaction towards that service positive or negative?
iii. If it is negative, why is it so?
iv. Are the present economic activities of the customer and the needs thereof fully met with? If not, how to bridge the gap?
v. How much of the customers’ financial businesses does the firm actually handle?
vi. How many products does it sell to these customers?
vii. What is the history of institutional clients’ transaction?
A CRM set consists of front-end operations that interact with the customers such as counter staff, call centres, and target marketing initiatives, and gather data about them. This is generally merged from various touch points and directed into the database. A touch point is wherever the customer interacts with the company.
The database consolidates not only business transaction data but also data collected from outside sources/agencies. The availability of huge data (both internal and external) helps in creating an environment for better analysis.
The output is interpreted and new information is transferred to a central customer database that would be assessed by all the employees working with different terminals. This enables them to customize responses. Needless to say, data mining provides the intelligence behind the CRM initiative.
Customer Relationship Management – Personalizing CRM
Personalization is not only a critical cornerstone of CRM but also one of the most challenging features to accomplish. A company must be able to effectively learn from each customer interaction, record the results of that learning to gain a better understanding of each customer’s preferences, and determine how the company can best serve that customer.
This understanding will allow the company to communicate the right information to the customer at the right time using the right channel, and will ensure that all of those interactions are complete and consistent.
As one would imagine, this repeated analysis and tuning of business processes requires time and money. There is considerable effort involved with capturing each and every customer interaction and then attempting to build customer loyalty through a personalized experience.
Companies that want to enhance customer relationships with personalization are dependent on taking certain actions before moving into the implementation stage. As obvious as some of these actions may seem, many companies still experience problems that keep them from realizing the full benefits of a personalization strategy.
The personalization process seeks to answer various questions regarding the data quality, objectives and measures, teams, and personalization model, strategy, scope of the project, and infrastructure design.
1. Assess data quality – Is a personalization strategy possible? Without reliable and accessible data, moving forward with personalization will be futile.
2. Set objectives and measures – What is the business need or/and the available opportunities? The objectives and measures of success form the foundation for the strategy.
3. Build a comprehensive team – Who needs to be involved? The team must include representatives from business, technology, and all groups managing the customers.
4. Choose the personalization model – How will offers and content be matched to customer needs? Dynamic personalization based on self-learning analytics is emerging as a favourite over rules-based profiling.
5. Define the strategy – How will personalization analysis translate into changed customer behaviour and increased profits? The strategy must be designed to profitably meet customer needs for long-term satisfaction and loyalty.
6. Outline the project scope – Where is personalization first implemented and to what level? The goal of a corporate-wide personalization effort may begin on a limited scale for learning, testing, and budget purposes.
7. Design the infrastructure – What technology will meet the needs for short-term and long-term personalization strategies? Data flowing into and throughout the organization is essential to establish a single dialogue between the customer and company.
Finally, how do companies succeed in motivating the front-line workers who are often paid low wages, have low hope of being promoted up the hierarchy, and generally care little about the company’s performance.
The answer as per Katzenbach and Santamaria (1999) is a unique approach to motivation—mission, values, and pride. The authors maintain that minor changes in a company’s standard operating procedures can have a powerful effect on front-line motivation and can result in substantial payoffs in a company’s performance.
Has relationship marketing delivered on its potential and promise? According to Susan Fournier et al. (1998), a close look suggests that relationships between companies and customers are troubled ones, at best.
Companies are caught up in their enthusiasm for information gathering capabilities and the potential opportunities that long-term engagements with customers hold; forgetting the fundamentals of relationship building—trust and intimacy.
Loss of control, vulnerability, and stress are the recurrent themes that emerge from consumers’ feedback when they talk about products, companies, etc. Customer relationship management can work if it delivers on the principles on which it was founded—technology is not a substitute for gaining consumer’s trust and insight, rather it is a great enabler.
Customer Relationship Management – 8 Major Problems: Exorbitant Costs, Inadequate Focus on Objectives, Insufficient Resources and a Few Other Problems
Problem # 1. Exorbitant Costs:
One of the problems with CRM is the huge investment that is needed to maintain a customer database. The additional expense comes because of the money needed for computer hardware, software, personnel, etc. The costs involved are enormous and most often than not, the resultant return on investment (ROI) from the CRM implementation fail to cover the costs involved. This leads to a negative feeling within the company about CRM and its so called successes, and ultimately results in CRM collapse.
Problem # 2. Inadequate Focus on Objectives:
When starting off on a CRM strategy the objectives are clearly established and followed. Management and employees know fully well what is needed, to work towards organizational goals. The goals themselves are clearly laid out after meticulous planning.
However, midway during the CRM implementation, when hard times hit, the organization loses sight of its goals and ultimately steers away from it. At times goals get interchanged and lose their importance. Companies find themselves work towards goals that are less important, forgetting the most important ones. This is one of the fundamental and most felt problems in CRM.
Problem # 3. Insufficient Resources:
Sometimes, in phased implementation of CRM, if conditions worsen within the company, organizations start lowering their budgets for the current phase. When funds are less, budgets are strained, and CRM starts failing midway. The most important aspect—that of maintaining consistency—is lost. Organizations fail to utilize the necessary resources for success and thus result in failure.
Problem # 4. Inappropriate Metrics:
Organizations have basically failed to use the right metrics. Failure to choose the right method of measurement and implementation is one of the chief reasons for CRM failure. Different metrics have to be employed for the calculation of different goals. Companies seldom pause to analyse which metric is needed for which element and ultimately use the wrong one. This results in faulty measurement and CRM disappointments.
Problem # 5. Complex Systems:
CRM packages can be highly complex, with vast amounts of intricacies. Sufficient training has to be given in order that the employees are able to comprehend and deal with the difficulties easily.
Problem # 6. Business Needs Most Important:
One of the chief mistakes companies make is to let the technology drive their CRM functionality. Companies that are endeavouring to go to the industry leaders gain the technology needed and then apply it to the business problems only to find that it isn’t solving any of them. Instead they need to analyse their business problems first and then find the appropriate CRM solution for it. This backwards step is responsible for CRM failure.
Problem # 7. No Customer Focus:
An organization needs to motivate employees to be absolutely customer-centric. This involves tremendous effort on the part of the company. CRM problems arise because of employee reluctance to be more customer- focused. The result is a highly expensive customer strategy being adopted by the company in an effort to retain customers, with reluctant, unfocused employees implementing it.
Problem # 8. Slow Returns:
Another failure of CRM is its inability to provide quick returns on investment. Organizations have to wait for years before they see actual returns on their investment. Most experts view the low ROI as a major problem with CRM but fail to see that the long wait is just as difficult. Waiting for years to see their investments show results, tests patience and leads to both employees and management, slackening their efforts in the implementation.
Most CRM problems can be mitigated, resolved and ultimately obliterated. What is most required is the ability to focus on the business needs, choose a CRM package that works towards it, employ the right resources and assume the right metrics. Adopting these measures would go a long way in alleviating CRM problems.
To ensure that CRM is effective, practices in a company must be assessed.
Exponent, Merlin Stone, argues that robust CRM involves:
1. Analysis of the behaviour and value of different customers or customer groups and the development of an appreciation of what really are the customers’ experiences of dealing with the company.
2. Planning activity and interactions with the customer in order to maximize the value of the customer base, focusing on retention, efficiency, acquisition and penetration of the customer.
3. Proposition development to ensure the customer’s needs are met and new customers are attracted.
4. The use of information and technology to store customer information, facilitate customer engagement and enable CRM practices to flourish.
5. The recruitment, development, motivation and development of bespoke customer management personnel, not just in the company but also amongst suppliers and channel members.
6. Process management to ensure customer management personnel are operating effectively and are harnessed by the rest of the business.
7. Customer management activity, including targeting, enquiry management, welcoming of new or upgrading customers, understanding customer characteristics and issues, development of customers so that customers who require it receive a higher or different level of service, the managing of problems customers may have with the business and win-back activity to redress problems with lost customers.
8. Measurement of the value of the CRM function and personnel. All of the CRM activity should be benchmarked against customer expectations, competitors’ standards and industry best practice.
Customer Relationship Management – Benefits and Limitations of CRM
i. It reduces cost because the right things are being done to retain the existing customers (i.e. effective and efficient operation)
ii. Increased customer satisfaction, because they are getting exactly what they want (i.e. meeting and exceeding expectations)
iii. Growth in numbers of customers
iv. Increased access their own and competitor information
v. Long term profitability and sustainability
Limitations of Customer Relationship Management:
i. CRM may result in duplication of tasks, if all the related enterprise applications are not integrated together.
ii. If the CRM software is too complex and difficult to understand, all its functionalities may not be utilized.
iii. ROI (Return on Investment) can be difficult to establish (and difficult to measure) with a CRM application, especially on the short run.
iv. Educating the users about the proper CRM usage and getting them to actually use it, might be a challenge.
v. Easy to use interfaces and appropriate help functions/ customer trainings are crucial for successful CRM implementations.
vi. Scalability is either limited or too costly thereby making companies to provide CRM for a fewer users.
vii. Cost of the software and customization is generally considered high.
viii. If the CRM solution is not customized to the business objectives of a particular company, the implementation might fail.