role of customer relationship management in uk banking industry

8/2/2019 Role of Customer Relationship Management in UK Banking Industry

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1. INTRODUCTIONThe era in which we are living has different dimensions with regards to customer care

and satisfaction. Globalization and diversification in businesses has created a battle ground

and competition amongst different organizations in upholding customer loyalty. To achieve

these ends, there has been a great shift in the marketing techniques applied by different

organizations over the years (Gronroos, 1997). Companies are now having more of a

customer-centric approach rather than product-centric approach which has captured

marketing phenomenon over decades. This shift which is result of the denial of the long term

relationship benefits for the companies to the acceptance of giving advantage to the

customers has changed the way companies used to market their products and earn profits.

This change or shift, the customer-centric approach, is primarily what we may call customer

relationship management as illustrated in the following figure:

Source: (BigPlate, 2000)

In achieving customer satisfaction, businesses need to be well aware of the emerging

trends associated with customer care. Gone are the days when banks, insurance companies,


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hotels etc had cordial and personal relationships with their customers. In those times,

customer interaction and satisfaction level had different heights as compare to what they are

today. Companies used to satisfy the needs of their customers by offering special attention to

their requirements. Moreover, businesses and their clientage had one-to-one relations. Sellers

and their staff knew their customers and their needs. On the other hand, customers had

pinpointed the shops or businesses from where they had to do their dealings. So much so that

staff used to be aware of the fact that which customer would pay in time and which would

linger on their payments. Commerce and trade was much easier a task to be done. However,

over the period of time, this proved to be ineffective and costly to sellers. With growth in

organizations and advancement of technology, keeping track of each and every customer was

virtually impossible for the organizations which poorly affected their customer relationship

thus resulting in loss of valuable customers.

Financial institutions were no more different from other organizations. Banking in

every part of the world is serving as backbone of the countrys economy. Goldsmith states

that financial development in different countries of the world starts with Banking Financial

Institutions (1969). This is primarily due to the fact that amongst all financial institutions,

banks have the major share in granting loans to individuals for their needs. For businesses

requiring short term working capital, banks are the main source (Rose & Hudgins, 2005).

However, with increased competition over the years, banks started losing customers. Findings

by Basel Committee in 1999 revealed that banks have a large deficiency in know-your-

customer policies which resulted in loss of valuable customers (Basel Committee on

Banking Supervision, 1999). This was a shocking manifestation since banking cannot survive

without customers and un-satisfaction amongst the clients could lead to shut down of the

complete organization. There appears to be growing recognition by retail banks that to

compete in the new world of work they need to focus not only on processes and efficiencies


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but more importantly on customer experience and service, . UK banks are bucking the

retrenchment trend and actually hiring large numbers on new staff. It is believed could hire

up to 6000 new staff over the next two years, 600 of which will be hired in the coming

months and will be focused around improving customer experience and service (Dean van

Leeuwen, 2010).

1.1 Background

Trace back in the history of customer care by organizations reveals that in order to

prevent losing a customer by not giving him/her appropriate attention, organizations

developed segmented or group marketing technique where customers having same needs

were put together in one group or segment. But this too again became inappropriate since by

using this marketing technique, groups of customers were to some extent satisfied by the

organizations but that lacked individual care and attention thus negatively affecting the

organization (Bose, 2002).

In 1980s, a concept referred to as Relationship Marketing surfaced to overcome the

above stated problem. Relationship Marketing encompassed several methodologies which

were to be worked out by organizations in gaining customer loyalty and satisfaction. These

included quality of goods to be sold, excellent service to customers and developing long term

relationships (Levitt, 1983). Gronroos (1997) defined Relationship Marketing as 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 done by a mutual exchange and

fulfillment of promises.


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Marketing strategy of organizations in those days was more focused on attracting new

customers and clients instead of retaining and keeping hold of the old ones. This strategy, the

transactional or traditional marketing approach, was replaced by Relationship Marketing. In

transaction marketing, emphasis was laid on the 4Ps of marketing namely product, price,

place and promotion. These 4Ps of marketing, or the marketing mix, essentially focused on

attracting new customers for organizations without paying any head to retaining the old ones

(Gummesson, 1999). According to this concept, the marketer was considered as an

ingredients mixer, with ingredients to be the 4Ps. Mixing of all the 4Ps of marketing used to

offer solutions in such a way as to offer competitive prices thus enabling new customers to

buy their products. However, this approach soon failed due to obvious reasons and thus

Relationship Marketing came as an answer to the transaction marketing approach.

Gummesson (2004) defined the concept of Relationship Marketing to include the

following:

Reduction in costs More security Risk management Trust building Control

1990s again brought a new thinking paradigm for organizations in the development of

customer relationships. It was realized that a customer does not only interacts with the

marketing department of a company or organizational but with the whole organization itself


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including all the departments. So customer care was given a holistic view to please the

customer from every aspect.

This approach also failed since achieving short term results was a difficult option

keeping in view the costs of maintaining database of customers which proved to be too

expensive and tedious a task (Xu, Yen, et al, 2002).

1.2 Customer Relationship Management (CRM)

Coming back to the present day world, with advanced technology and growing

awareness along with latest marketing strategies, it has become easy for companies to have

better relations with their customers with a surety that they wont be traded off to their

competitors. This has been possible with the availability of new techniques which have

revolutionized todays mans psyche. Organizations can now trust on the loyalty of their

customers by offering reasonable and competitive prices, variety in their product lines and

personal care, a basic ingredient in building customer relationship. All these factors, which

were missing in the past, are now available to organizations due to advancement in

information and communications technology making them more customers friendly and

trustworthy. One such advancement which may be referred to as modification in

Relationship Marketing is Customer Relationship Management (CRM).

1.3 Definition of CRM

Scholars and professionals belonging to different school of thoughts have defined this

term in no of ways. We will be quoting few definitions of Customer Relationship

Management to elaborate the concept clearly.


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Gartner Group (2008, pg 2) defines CRM as follows:

CRM is an IT enabled business strategy, the outcomes of which optimize

profitability, revenue and customer satisfaction by organizing around customer

segments, fostering customer-satisfying behavior and implementing a customer-

centric process.

Similarly, Jobber defined CRM as a term for the methodologies, technologies and e-

commerce capabilities used by firms to manage customer relationships (2004) as illustrated

in the following figure:

According to Bose (2002), at the core, CRM involves the integration of technology

and business processes used to satisfy the needs of a customer. He further explained CRM in

banking terms as an enterprise wide integration of technologies and functions such as data

warehouse, web sites, intranet/extranet, telephone support system, accounting, sales,

marketing and production.

Following figure illustrates the concept of CRM more clearly:

Source: Joint Information Systems Committee


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Classification of CRM

Popular classifications of CRM which are widely accepted worldwide are as follows:

Operational CRM systems: CRM business processes have a direct impact bythis category since it improves the overall efficiency of the system.

Operational CRM systems are handy in providing solutions and support to

problem areas such as marketing automation, sales automation and

management of customer interaction centre.

Analytical CRM systems: This is the warehouse of information aboutcustomers as to their likings and disliking. It helps in better understanding of

customer behavior and aptitude. Analytical CRM systems provide solutions

such as data mining and data warehousing. Graphical representation of typical

analytical CRM system is as under:

Source: (David Roe, 2010)

Collaborative CRM systems: Streamlines channel of communicationbetween customers and the organizations. In other words, providing help and

support to customers in the shape of emails, telephone, websites etc.


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E-CRM: Automatic response to customers emails, automatic help andseveral other personalized services comes under this category.

1.4Why CRM?According to Xu (2002), goal of CRM is to understand the needs and demands of

customers giving them more value. Interaction with customers helps an organization to better

understand its clients thus improving their performance. Customers are more at ease with

companies with whom they have a better level of cooperation. By understanding the needs of

their customers, companies develop a long term relationship with their customers. Thus CRM

earns customer loyalty which in turn increases its revenue.

Need for CRM arose due to the fact that different customers have different choices

and preferences of buying. No single scale could be set out for all the customers since need of

every customer is different. If this hadnt been the case, mass marketing and mass

communication marketing techniques which were once used by companies would have

continued without any failure. Need for customized marketing led the companies to switch to

CRM. Operations related to CRM with their support to customers can be seen in the

following figure:


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Source: (Richard, Chijoriga, Kaijage, Peterson and Bohman, 2008)

CRM-related services have also been a major cause in the popularity of this approach.

The growing demands of customers and limited available resources of organizations to satisfy

the needs of the customers has forced corporate to switch to CRM due to wide range of

services it offer.

1.5Research ProblemCustomer relationship management has become the first priority of majority of the

organizations due to increased saturation level in the markets. Relationship of companies

with their customers has switched from the traditional sales model to customer-centric

approach. According to Bose (2002), companies most likely to benefit from CRM services

relates to financial organizations such as banks and telecommunications. Prime reason of this

is that both these sectors have to deal with lot of customers and they have to gather and

accumulate lot of data on each customer for properly satisfying his needs. Future is for those

organizations that can successfully understand and deliver what each of their customer wants


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and demands. Comparison of a traditional model to customer-centric business model in

financial institutions such as banks is illustrated in the following figure:

Source: (Andrew Carton, 2004)

As stated above, financial institutions amongst others are the most likely

organizations which can benefit from CRM system to the max. Reason behind this statement

is the fact that financial institutions have to gather lot of data about each and every customer

not only to satisfy his/her need but also to secure their own transactions. Financial matters are

quite sensitive and need to be handled with utmost care. Customers, on the other hand, have

more aspirations while dealing with financial companies since it relates to money matters and

no individual would expect or can afford to take risk of any sort in this regard. So its more of

a compulsory affair for both financial organizations and customers to have better

understanding and coordination in order to avoid any mishaps.

Moreover, for financial institutions, CRM is important since it helps them identify the

profitable customers which financial institutions such as banks have to look about apart from


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creating opportunities for new customers. Research has proved that the most profitable

segment of customers for banks is relatively very small (Leverin and Liljander, 2006).

According to Rowley (2002), 20% of a banks customers often account for 150% of its

profits. Therefore, banks pay more attention to this small segment which would earn them

more profits. However, with the introduction of Internet Banking, keeping customer loyalty

has greatly been endangered since due to this facility, other banks or competitors have the

leverage of targeting that 20% segmented group of a particular bank. Thus it becomes a do or

die situation for banks to maintain customer loyalty and provide services to them according to

their needs.

Source: (Amigolog, 2003)

This phenomenon of banking sector is not related to a particular region of the world

but is generally witnessed everywhere. Studying the implementation of CRM in banks of

some developed country such as UK seems more fruitful as it would answers questions


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critical to the survival of both the system and the bank. Thus, our research problem for the

thesis can be formulated as:

Role of CRM in UK Banking Sector.


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BIBLIOGRAPHY

Bose, R. (2002), Customer Relationship Management: Key Components for IT success.

Industrial Management and Data Systems, Vol. 102 No.2, pp 89-97

Gronroos, C., 1997, From Marketing Mix to Relationship Marketing: Towards a paradigm

shift in marketing,Journal of Management Decision, Vol. 35 No.4 pp 322-339

Gummesson, E., 1999, Total Relationship Marketing: Rethinking Marketing Management

from 4Ps to 30Rs, Butterworth-Heinemann, Oxford

Levitt, T. 1983. Forklaring till relationsmarknadsforing. [Online] 12Manage. Available at:

http://www.12manage.com/methods_levitt_relationship_marketing_sv.html[Accessed:

2009/9/8]

Gummesson, E., 2004, Return on relationships (ROR): the value of relationship marketing

and CRM in business-to-business contexts,Journal of Business and Industrial Marketing,

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Xu Y., Yen D.C., Lin B., Chou D.C. (2002), Adopting customer relationship management

technology,Industrial Management & Data Systems, Vol. 102 No. 8, pp. 442-452

Gartner Group. 2008. Magic Quadrant for CRM Services Providers North America.

Gartner RAS Core Research Note G00156898

Jobber, D. 2004. Principles and practices of marketing. 4th

Ed. Berkshire, England: McGraw

Hill International. (p.514, 797)

Leverin A. and Liljander V. 2006, Does relationship marketing improve customer

relationship, satisfaction and loyalty?,Internal Journal of Bank Marketing, Vol. 24 No.4,

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Rowley J. E., 2002, Reflections on customer knowledge management in e -business,

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Evelyn Richard, Marcellina Chijoriga, Erasmus Kaijage, Christer Peterson, Hakan Bohman,

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role of customer relationship management in uk banking industry

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