CRM FUNDAMENTALS

CUSTOMER RELATIONSHIP MANAGEMENT :-

THEORETICAL PERSPECTIVE OF RELATIONSHIP

Related to individual's personal feeling. Several types and forms of

relationships and theories to explain the concepts of relationships.

Few theories offered by social psychologists on relationships are as follows :

1. ATTRACTION THEORY (ARONSON 1980) Theory postulates that one is attracted to others on

the basis of four major factors:a) Attractiveness (physical appearance and personality), b) Proximityc) Reinforcement andd) SimilarityIt can be same building – different offices OR same office

– different departments may get enter into a good relationship because of this factor.

“Before selling the product, one needs to sell oneself”. This principle comes very handy and enables the salesperson to create attraction for oneself.

2. SOCIAL PENETRATION THEORY (ALTMAN & TAYLOR 1973)

Describes relationships in terms of breadth and depth,

breadth – number of topics one talks aboutdepth – the degree of personalness with which

the people pursue the topics.e.g. – Insurance agent does not start the sales

call immediately, first he tries to make general environment.

3. SOCIAL EXCHANGE THEORY (THIBANT AND KELLEY 1959)

Theory holds that one enters into those relationships that yield greatest profits.

Seek r’ship in which reward exceeds cost and are more likely to dissolve r’ship when cost exceeds reward.

e.g. service industry and when salespeople visit a customer

4. EQUITY THEORY (MESSICK AND COOK 1983)

Theory claims that we develop and maintain r’ship in which rewards are distributed in proportions to the costs.

When our share of reward is less than what is demanded by equity, we are likely to experience dissatisfaction and exit the r’ship. The cost-reward ratio plays a very important role in the maturing of a sale.

Customer dissonance often occurs with the companies that give differential treatment among the customers (there shud be equality).

EVOLUTION OF RELATIONSHIP MARKETING The emphasis on relationships as opposed to transaction based

exchanges is very likely to redefine the domain of marketing. The emergence of a relationship-marketing school of thought is forthcoming, given the growing interest of marketing scholars in the relational standard.

Today’s technological advancements that permit producers to interact directly with a large number of users (Levi’s making custom directly for the users), coz of variety of organizational development processes, such as empowerment and total quality management programmes, direct interface between producers and users has returned in both consumer and industrial markets, leading to a greater relational orientation among marketers.

The emergence of a r’ship focus provides a “refreshed and expanded self concept” to marketing. This all is the result of the following four observations :-

1. Caught the fancy of scholars in many parts of the world, including North America, Europe, Australia and Asia, as is evident from the participation in some of the recent conferences held on this subject.

2. The scope is wide enough to cover the entire spectrum of the sub disciplines of marketing including channels, B2B marketing, services marketing , marketing research, consumer behavior, marketing communication, marketing strategy, international marketing and direct marketing.

3. In the case of other sciences, has developed a system of extension, revision and updating of its fundamental knowledge.

4. Scholars, are now intrigued by the relational aspects of marketing (Bagozzi 1994; Kotler 1994; Morgan and Hunt 1994).

STAGES OF RELATIONSHIP R’ship take time to be developed. A typical male-female

r’ship goes through a phase of introduction, friendship, companionship, courtship, marriage, honeymoon etc.

The behavioral scientists commonly use a 6 stage model of r’ship to describe the development of r’ships (Devito 1993).

Model helps in understanding the stages at which cross-selling and up-selling should be attempted. So, developing close, cooperative r’ships with customers is more imp. in the current era of intense competition of demanding customers than it has ever been before.

Hence, r’ship management is emerging as the core marketing activity for business operating in fiercely competitive environment.

Message – Building interpersonal communication skills

Contact

Involvement

Intimacy

Deterioration

Repair

Dissolution

Walking away from

Relationship

ISSUES IN RELATIONSHIP get destroyed with a little hit, hence need to be handled

very carefully. Neither evolve overnight nor do fruits full result in that

fashion. In organizations, r’ship with customers has to be part of

long-term strategic initiative. This should not just be confined to the marketing department but has to have an enterprise-wide activity.

A sustained r’ship is a result of an optimum mix of all the factors that affect it. Good or bad r’ship depends on the expectation one has on such a r’ship and the consistency also.

If there is high volatility in the r’ship, it will not be in the interest of that r’ship.

PURPOSE OF R’SHIP MARKETING Dramatic changes in marketing contexts such as

physical distance, time, economy, deregulation, globalization, customer expectations and new information technology.

Organizations are increasingly focusing on attracting, developing and retaining businesses, this is relationship marketing which is in contrast to the 4Ps of marketing (also called as transactional marketing – TM) : product, price, place, promotion that concentrate on attracting businesses but less to retaining businesses.

R’ship marketing attempts to involve and integrate customers, suppliers and other infrastructural partners into a firm’s developmental and marketing activities .

Interactive relationships b/w marketing partners are inherent compared to the arm’s length r’ships implied under the transactional orientation.

The development of r’ship marketing points to a significant shift in marketing from competition and conflict to mutual cooperation, and choice independence to mutual interdependence.

In modern competition, the customers have been deserting their company even without any serious dissatisfaction with their company.

No complaints with Colgate, Hero Honda, Maruti but the sales growth instead of sale went down over the years. Therefore, it has b’cme imp. for the marketers to resort to a strategy that may create a win-win situation for both the stakeholders as well as customers.

Promising and delivering high quality, good service and fair prices achieve satisfaction over time but r’ship is cemented through economic, technical and social ties.

R’ship marketing reduces transaction costs, efforts and time while moving towards a routinised transaction in place of negotiated transaction.

The operating principle is – Build good r’ships, and profitable transactions will follow

TRANSACTIONAL MARKETING

Product

Place

PromotionPrice 4Ps of Marketing

RELATIONSHIP MARKETING

Relationship Marketing

Relationships Interactions

Networks

Transaction Marketing

Relationship Marketing

One off exchanges FOCUS Ongoing exchanges

Brand Management Customer Management

Short-term focus TIME DIMENSION

Long-tern focus

Mass communication PRIMARY COMMUNICATION

Personal communication

Isolated market research

CUSTOMER FEEDBACKMECHANISM

Ongoing dialogue

Mass market or Market segment

MARKET SIZE Markets of one

Market share CRITERION FOR SUCCESS

Mind share

Profitability of transaction

CRITICAL METRICS Lifetime value of customer

Brand equity Customer equity

APPROACH TOWARDS MARKETING : A PARADIGM SHIFT Discipline of marketing grew out of economics, and

growth was motivated by lack of interest among the economists in the details of market behavior.

Early thinkers were centered on the efficiency of marketing channels and the services performed by them in transporting and transforming the goods from producers to consumer.

Then, marketing as a discipline got organized around the institutional school thought, and its main concerns centred on the functions performed by wholesalers and retailers as marketing institutions.

In modern economy, the distribution network makes possible specialized mass production on one hand and the satisfaction of the differentiated tastes of consumers on the other. As in India, where there is very huge diversification, companies are surviving.

Although the institutional thought of marketing was later modified by the organizational dynamics viewpoint, and marketing thought was influenced by other social sciences such as psychology, sociology and anthropology, exchange remained and still remains the central tenet of marketing.

Formal marketing theory developed around the idea of exchange and exchange relationships, placing considerable emphasis on outcomes, experiences and actions related to transactions.

This change in focus from value exchanges to value-creation r’ship which state that other firms are not always competitors and rivals but are considered partners in providing value to the customers. Eg :- ATM, Multi-branded showroom

Close, cooperative and interdependent relationships are seen to be of greater value than purely transaction-based relationships. The current popularity of relationship marketing is a reincarnation of the marketing practices of the pre-industrial era i.e. producer and consumer having direct interactions thus developing healthy r’ships.

MARKETING PHASE ONE: PRACTICES IN THE AGRICULTURAL ECONOMY

Based on agricultural economy and trade of art & craft. Product were sold directly in the bazaars. Consumer & producers gathered together for trading products. Producer's role was that of both ‘manufacturer’ and ‘retailer’. Healthy r’ships of producers and consumers led to the production

of customized products. Even on the Silk trade route, r’ships b/w customers and suppliers

were vital coz Indian weavers depends on the supply of Chinese silk.

Retaining customers, influencing repeat purchases, fostering trust and facilitating future marketing also were concerns of marketers in the pre-industrial days.

The producers established permanent retail shops at the marketplace where they could make and sell those goods on a daily basis.

MARKETING PHASE TWO: PRACTICES IN THE INDUSTRIAL ECONOMY

Marketing practices were aimed at promoting mass consumption. The emphasis was directly at increasing the sale of products,

supported by other activities such as advertising and promotion. Some marketers resorted to extreme practices of persuasive

selling, including deceptive advertising and false claims. Marketer’s realization that repeat purchase by customer was

critical, it was in order to achieve a brand image, brand differentiation and effective advertising that certain marketing techniques emerged.

The development of market segmentation and targeting became imp. tools for marketing planning.

The development of administered vertical marketing system, whereby marketers not only gained control over channels of distribution, but also developed effective means of blocking competitors from entering into these channels – franchising and exclusive distribution rights.

MARKETING PHASE THREE: PRACTICES IN THE POST-INDUSTRIAL ECONOMY

Substantial development toward r’ship marketing System selling approach emphasised on the integration of

parts, supplies and the sale of services with the individual capital equipment.

Saw the rebirth of direct marketing b/w producers and consumers, for this rebirth five macro-environmental forces can be identified.

1. Rapid technological advancements2. Adoption of TQM3. Growth of service economy4. Organizational development processes leading to

empowerment of individuals and teams5. Increase in competitive intensity leading to concern for

customer retention.

CRM: A HISTORICAL PERSPECTIVE Considered as database marketing primarily linking marketing of the

organization with the database of the customers. An exercise for customer retention as many theories and studies

have been emphasizing on the rationale for keeping the customers. It was believed that application of IT can be an effective tool to

develop one-to-one relationship that integrates database with company’s marketing strategy that may focus on leveraging the existing customer base.

An integrated effort to identify, maintain and build up a network with individual consumers and to continuously strengthen the network for the mutual benefit of both sides over a long period of time.

Strategic Orientation in Marketing – Mckenna argued that organizations need to put the customer first

and shift the role of marketing from manipulating the customer to genuine customer.

Berry focused on developing closer relationship with the newly attracted customers – to turn them in to loyal.

Attracting – Maintaining - in multi service organizations - enhancing customer r’ships.

e.g. - A multiplex may inform about the new releases with the show timings to its loyal customers.

CRM DEFINITIONS CRM is a comprehensive strategy and process of acquiring, retaining

and partnering with selective customers to create superior value for the company and for the customers.

- SHETH 1. CRM is an enterprise-wide activity, i.e. it is not just confined to the

marketing department of the organization.2. The objective of CRM is acquisition, retention and partnering with the

customers.3. There has to be segmentation of the customers for whom CRM is

designed.4. CRM, in effect, implies building long term relationship with the

customers, understanding their needs, and responding via multiple products and services via multiple channels. CRM should finally enable “a targeted mutually beneficial profitable relationship with individuals and groups.”

5. CRM is the core business strategy that 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.

EMERGENCE OF CRM PRACTICE Sheth observed that developing customer r’ship had been

there since pre industrial days. Since, in most of the cases, there was direct interaction b/w the

seller and the buyer, some of r’ships tend to be built. The indirect form of marketing came only when the concept of mass production started and a mass production society was created.

This process separated the production and consumption functions, leading to the emergence of middlemen in the marketing function.

CRM CYCLE CRM cycle consists of those stages that conform to the

objective laid down in its definition, from acquisition to learning from the customers.

CRM cycle is as follows:1. Obtaining information from customers – customer acquisition

starts either through the traditional advertisements and referrals.

2. Creating superior customer value – through personalization of communication and customization of products and services.

3. Building loyal customers4. Acquisition of new customers – through positive referrals. 5. Working towards increased profitability

e.g. – Hawkins cooker limited

CUSTOMER LIFE CYCLE MANAGEMENT -

Information from Customers

Creating Superior Customer Value

Building Loyal Customers

Increased Profitability New

Customer Acquisition

STAKEHOLDERS IN CRM -

1. Customers : Customers, of course, are the most imp. persons in the CRM design for whose delight the whole exercise is conducted.

2. Employees : They are the set of people who execute the CRM design. They include those right from the frontline staff who actually executes to the top management who designs the CRM.

3. Suppliers : They are the part of system who provide input to a company’s value chain.

4. Partners : They are the creators of additional value for the customers.

SIGNIFICANCE OF CRM -

The American Society of Quality and Arthur Anderson Consulting Inc., in their report published in 1977 :-

1. Customer tell 8 friends about a satisfying experience and 20 friends for a negative experience.

2. It is easier to influence existing customers to buy 10% more than increase the customer base by 10%.

3. 8% of successful new product and service ideas come from existing customers.

4. Repeat customers cost one-fifth less than new customers and can substantially increase profits.

ADVANTAGES OF CRM

1. Perpetual stream of revenue2. Positive referral creation3. Provides premium4. Helps customer retention5. Lowers cost of sale6. Helps understanding consumer behavior7. Provides opportunity to cross-sell and up-sell8. Reduces marketing time9. Channel cost rationalization10. Enables business process re-engineering.

CRM IN KEY MARKETING FUNCTIONS:

Identifying prospects Acquiring customers Developing customers Cross-selling Up-selling Managing migration Servicing Retaining Increasing loyalty Winning back defectors

TYPES OF CRM Strategic CRM – Strategic CRM is a core customer-centric

business strategy that aims at winning and keeping profitable customers.

Strategic CRM is focused upon the development of a customer-centric business culture. This culture is dedicated to winning and keeping customers by creating and delivering value better than competitors.

In a customer-centric culture you would expect resources to be allocated where they would best enhance customer value, reward systems to promote employee behaviors that enhance customer satisfaction and retention, and customer information to be collected, shared and applied across the business.

Customer-centricity competes with other business logics. Philip Kotler identifies three other major business orientations: product, production and selling.

CASE 1.1

Strategic CRM at Boise Offi ce Solutions In 1998 the CEO of Itasca, Illinois-based Boise Offi ce

Solutions, decided that the only way to escape the bruising price competition and razor-thin margins of offi ce supply superstores such as Staples and Offi ce Depot was to provide greater value through superior customer service, with the support of a CRM system. Three years and $20 million later, the $3.5 billion subsidiary of Boise Cascade switched on a CRM system that differentiated them from other competitors in the offi ce supplies industry. The company can now share customer data across fi ve business units, 47 distribution centres and three customer service centres. This has allowed Boise to cross-sell, retain and service accounts much more effectively. One of the CRM system’s many features is web collaboration which allows representatives to co-browse and chat with customers online while making recommendations.

Operational CRM - Operational CRM focuses on the automation of customer-facing processes such as selling, marketing and customer service.

Operational CRM automates and improves customer-facing and customer supporting business processes. CRM software applications enable the marketing, selling and service functions to be automated and integrated.

Some of the major applications within operational CRM appear in TableMarketing automationMarket segmentationCampaign managementEvent-based (trigger) marketingService automationCase (incident or issue) managementInbound communications managementQueuing and routingService level management

Sales force automationAccount managementLead managementOpportunity managementPipeline managementContact managementQuotation and proposal generationProduct configuration

Analytical CRM - Analytical CRM focuses on the intelligent mining of customer-related data for strategic or tactical purposes

Analytical CRM is concerned with capturing, storing, extracting, integrating, processing, interpreting, distributing, using and reporting customer-related data to enhance both customer and company value.

Customer-related data may be found in enterprise-wide repositories: sales data (purchase history), financial data (payment history, credit score), marketing data (campaign response, loyalty scheme data) and service data.

For example, an understanding of customer value or propensities to buy underpins many operational CRM decisions, such as:

● Which customers shall we target with this offer? ● What is the relative priority of customers waiting on the line,

and what level of service should be offered? ● Where should I focus my sales effort?

CONTD….. From the customer’s point of view, analytical CRM

can deliver timely, customized, solutions to the customer’s problems, thereby enhancing customer satisfaction. From the company’s point of view, analytical CRM offers the prospect of more powerful cross-selling and up-selling programmes, and more effective customer retention and customer acquisition programmes.

Collaborative CRM - Collaborative CRM applies technology across organizational boundaries with a view to optimizing company, partner and customer value.

Collaborative CRM is the term used to describe the strategic and tactical alignment of normally separate enterprises in the supply chain for the more profitable identification, attraction, retention and development of customers.

Collaborative CRM uses CRM technologies to communicate and transact across organizational boundaries, the term is usually applied to more recent technologies such as electronic data interchange (EDI), portals, e-business, voice over internet protocol (VoIP), conferencing, chat rooms, web forums and e-mail.

Collaborative CRM enables separate organizations to align their efforts to service customers more effectively. It allows valuable information to be shared along the supply chain.

MISUNDERSTANDING ABOUT CRM

1. CRM is database marketing2. CRM is a marketing process3. CRM is an IT issue4. CRM is about loyalty schemes5. CRM can be implemented by any company

SUCCESS FACTORS IN CRM1. Strong internal partnerships around the CRM strategy.2. Employees at all levels and all areas accurately collect

information for the CRM system3. CRM tools are customer- and employee-friendly.4. Report out only the data you use, and use the data you report.5. Don’t go high-tech when low-tech will do.

CRM COMPREHENSION

CONTD….

A services company’s marketing programme consists of the offers, tangibles, service delivery, employee behavior and grievance handling. This customer evaluation process is done based on customer’s expectation from the service and its perceived performance.

Components of CRM Programme :-1. Company’s marketing programme2. Customer expectation3. Perceived performance4. Competitors’ offers5. Customer’s resultant behaviour

CRM VALUE CHAIN Data received from customer could be converted into

meaningful information. It helps companies to know about customer and design their relationship programmes to create customer delight.

Customer data Customer information Customer knowledge

Wisdom to satisfy .

A set of knowledge is required to be created and CRM programme is designed accordingly.

CRM IMPLEMENTATIONPreparing for CRM Implementation1. Building the Organizational culture2. Preparing for the multichannel approach – sales people,

service personnel, call centres, internet websites, marketing departments, agents etc.

3. Managing the change – which include customer orientation, new work procedures, use of data for accurate analysis and decisions, attitude towards key customers, focus on objectives.

CRM processesCompetitors strategyEmployees Customers

IT systemsSuppliers

DIMENSIONS OF CRM IMPLEMENTATION1. Focusing on key customers2. Organizing around CRM3. Managing knowledge4. Incorporating CRM-based technology

STEPS IN CRM IMPLEMENTATION1. Planning the approach2. Managing the change3. Roles for implementation4. Regular progress reports5. Sticking to time schedules6. Checking the inputs7. Checking the outputs8. Performance measures

EXPECTED BENEFITS OF CRM IMPLEMENTATION

1. Customer return rate/retention of customers2. Spending per customer3. Winning new customers4. Financial results5. Change of attitude towards customers6. Degrees of satisfaction

CRM IMPLEMENTATION – BEST PRACTICES Establish measurable business objectives. Align the organization to the CRM strategy. Define best practices and map them to application

functionality. Use a phased implementation plan. Staff trained, experienced consultants to implement the CRM

solution. Train, reinforce, and reward for 100% user adoption. Monitor progress and measure results.