SyllabusUNIT I

Customer Relationship Management Fundamentals- Theoretical

perspectives of relationship, Evolution of relationship marketing,

Stages of relationship, Issues of relationship, Purpose of

relationship marketing, Approach towards marketing: A

paradigm shift, Historical Perspectives, CRM Definitions,

Emergence of CRM practice:, CRM cycle, Stakeholders in

CRM, Significance of CRM, Types of CRM, Success Factors in

CRM, CRM Comprehension, CRM Implementation

Theoretical Perspective of RelationshipI Social Penetration Theory:

This theory was formulated by professors Irwin Altman and

Dalmas Taylor.

The social penetration theory states that this

process occurs primarily through self-disclosure

and closeness develops if the participants proceed

in a gradual and orderly fashion from superficial to

intimate levels of exchange as a function of both

immediate and forecast outcomes

Developing Relationship through Social Penetration goes through following stages:

ExampleAn insurance agent does not start the sales

call with immediately starting the benefits of

the policy or need of insurance. Instead, he

first tries to develop some informality by

talking something very general and gradually

moves towards becoming personal in the

number of issue he discusses. It is only after

this that he starts introducing his offer and the

rationale of it.

II. Social Exchange Theory: This theory explains social change and stability as a process of negotiated

exchanges between parties. Social exchange theory states that all human relationships are formed on the basis of a subjective cost-benefit analysis and the comparison of alternatives.

ExampleLot many salespeople visit a customer, but the customer subscribes

only where he thinks he is at the maximum benefit. Similar is the trend observed in many of the services industries as insurance, telecom and tour and travel.

Outcome is defined to be the difference between the benefits and the costs:Outcome = Benefits – Costs

Satisfaction is defined as the difference between the outcome and the comparison level:

Satisfaction = Outcome - Comparison Level Dependence is formalized as the difference between the outcome and the

"comparison level of alternatives":Dependence = Outcome - Comparison Level of Options

III. Equity Theory:

Equity theory was developed in 1963 by John Stacey Adams, who

emphasized that employees seek to maintain equity between the

inputs they bring to a job and the outcome that they receive from it

against the perceived inputs and outcomes of others (Adams, 1965).

Inputs are defined as each participant’s contributions to the

relational exchange and are viewed as entitling him/her to rewards

or costs.

Outputs are defined as the positive and negative consequences that

an individual perceives a participant has incurred as a consequence

of his/her relationship with another.

IV. Attraction Theory:

This theory postulates that one is attracted to others on

the basis of four major factors:

(i) Attractiveness (physical appearance and

personality),

(ii) Proximity

(iii) Reinforcement and

(iv) Similarity

Evolution of relationship marketing

Transaction-based marketingBuyer and Seller exchanges characterized by

limited communications and little or no ongoing relationship between the parties

Relationship marketingDevelopment and maintenance of long-term,

cost-effective relationships with individual customers, suppliers, employees, and other partners for mutual benefit

The Shift from Transaction-Based Marketing to Relationship MarketingShift away from production-oriented

marketingEmphasis on individual sales and

transactionsLimited communicationNo ongoing relationshipLimited in some markets, such as

residential real estate

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The Shift from Transaction-Based Marketing to Relationship Marketing

Shift toward relationship marketingViews customers as equal partners in

transactionsEncourages long-term relationships,

repeat purchases, and multiple brand purchases from the firm

Leads to increased sales and low marketing costs

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Relationship MarketingFocuses on long term rather than short term

Emphasizes retaining customers over making

a sale

Ranks customer service as a high priority

Encourages frequent customer contact

Fosters customer commitment with the

firm

Bases customer interactions on cooperation

and trust

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Elements of Relationship Marketing

• Firms build long-term relationships in four ways– Gather information about their

customers– Analyze the data and use it to

modify the marketing mix– Monitor interactions with

customers– Use customers’ preferences and

knowledge13

Internal Marketing

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Three Levels of Relationship Marketing

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First Level: Focus on Price

• Most superficial level, least likely to

lead to long-term relationships

• Marketers rely on pricing to

motivate customers

• Competitors can easily duplicate

pricing benefits

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Second Level: Social Interactions

• Customer service and

communication are key

factors

• Example: A wine shop

holding a wine-tasting

reception17

Third Level: Interdependent Partnership

• Relationship transformed into structural

changes that ensure partnership and

interdependence between buyer and seller

• Example: Canadian software marketer

Corel chose a cloud-based approach

– Its tech-help agents can now answer customer

queries via chat, telephone, the Web, or social

media

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THE RELATIONSHIP MARKETING CONTINUUM

• Firms try to move buyer-seller relationship from the lowest to the highest level of the continuum of relationship marketing to strengthen the mutual commitment between them.

How Marketers Keep Customers

Retaining customers is more profitable

than losing them

Customer churn - Customer turnover

Is expensive for a company

Firms generate more profits with each

additional year of a relationship

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How Marketers Keep Customers

Frequency marketing - Frequent-

buyer or -user marketing programs

that reward customers

Affinity marketing - Solicits

responses from individuals who

share common interests and

activities21

Database MarketingUse of software to analyze data about

customers

Helps firms to:

Identify their most profitable customers

Calculate the lifetime value of each customer’s

business

Build relationships and encourage genuine

brand loyalty

Improve customer retention and referral rates

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Database Marketing

Reduce marketing and promotion

costs

Boost sales volume per customer or

targeted customer group

Expand loyalty programs

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Database MarketingPossible sources of data

Credit card applications

Software registration

Product warranties

Point-of-sale register scanners

Customer opinion surveys

Websites

Telecom companies database

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Database Marketing

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Grassroots marketing - Connecting

directly with existing and potential

customers through nonmainstream channels

Viral marketing - Satisfied customers

spread the word about products to other

consumers

Buzz marketing - Gathers volunteers to try

products and then relies on them to talk

about their experiences

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Approach towards Marketing: a Paradigm Shift

Marketing Phase One: Practices in

the agricultural Economy

Marketing Phase Two: Practices in

the Industrial Economy

Marketing Phase Three: Practices in

the Post-industrial Economy

CRM: A Historical Perspective• CRM is often considered as database marketing primarily linking

marketing of the organisation with the database of the customers.

• Some theorists have been considering it as an exercise for customer retention as many theories and studies have been emphasising on the rationale for keeping the customers. This requires a variety of techniques, especially post-sale initiatives, to keep the customers for life. This was believed to be a mechanism to keep the existing customers happy so that they remain with the organisation and may, if possible, generate positive referral for the company's products and services.

• Shani and Chalasani (1992) define relationship marketing as "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, through interactive, individualised and value-added contacts over a long period of time".

• Similarly, Jackson (1985) applies the individual account concept in industrial markets and sees CRM as, "marketing-oriented towards strong, lasting relationships with individual accounts".

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Definition

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• "Enterprise approach to understanding and influencing customer behaviour through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty, and customer profitability".

(Swift 2001)

• 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 and Parvatiyar 2001)

• CRM is considered as “strategic, process oriented, cross-functional and value creating for buyer and seller and a means of achieving superior financial performance”

(Lambert, 2004)

• The practice of CRM is described as the process for achieving a continuing dialogue with customers across all available touch points to offer them customized treatment, based on their expected response to available marketing initiatives, such that the contribution from each customer to overall profitability is maximized.

(Bohling et al., 2006)

•  

Based on the understanding available of Customer Relationship Management, it can be defined as ;

“Customer Relationship Management is a

continuously updated process of

identifying relative value of customers

and designing customized company

interaction to delight them so that they

do not just remain with the company

profitably but also be the company’s

ambassador. Full involvement and

empowerment of employees and

appropriate technology are two

essentials for successful CRM.”

The above definition tries to lay the foundation of CRM along with the objective for which it should be designed. The definition implies:

• CRM is a process

• It needs continuous revision and updation.

• Customer value identification is a must

• Company interaction requires customization

suiting to the exclusive profile of the customer.

• It strives for customer delight.

• CRM process aims at Profitable relation with the

customers.

• It also aims to convert them to act as a company’s

brand ambassador.

• Employees involvement and Empowerment is a

must for its successful implementation.

• Adequate technological support is also an essential

for successful CRM.

CRM

Emergence of CRM Practice• Sheth and Parvatiyar (1995) had observed that developing

customer relationship had been there since pre-industrial days.

• The earlier businesses were between the agriculture producers and their customers. They used to have direct interaction.

• Similar was the case with the people of other industies which were primarily cottage-based and have been making other essential items such as cloth and handicrafts. They have offered customised products to the customers.

• Since, in most of these cases, there was direct interaction between the seller and the buyer, some of relationships 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

The Customer Relationship Management cycle

consists of those stages that conform to the

objectives laid down in its definition. That is,

from acquisition of customers by creating value

to them to learning from the customers, going by

the route of earning profits from them for the

organization on a sustained basis.

Customer life cycle management:

Stakeholders in CRM

There are four principal stakeholders who play a major role in the entire process of Customer Relationship Management:

1. Customers: Customers, of course, are the most important 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• Perpetual stream of revenue: A better served and

delighted customer gradually becomes loyal. Once

customer loyalty is built, the customer remains with

the company and proves to be a perpetual source of

revenue and profit often increasing over a period of

time.

• Positive referral creation: A satisfied customer

often spreads positive things about the company to

the would be customers. Such positive opinion proves

to be more reliable and authentic than companies'

propaganda, including advertisements and

consequently, brings in more customers.

• Provides premium: A customer satisfied with

the service of a particular company is found to be

ready to pay a little premium on the

products/services and does not want to take risk

with a new company.

• Helps customer retention: One of the biggest

advantages of CRM is that through personal and

effective customer care and service, it helps the

company keep customers for life. Retaining

customers with the company helps in many ways

and contributes straight away to the

company's bottom line.

• Lowers cost of sale: A satisfied customer does

not require to be lured every time by the company

and, hence, his subsequent acquisition cost to the

company decreases. This helps the company lower

cost of sales.

• Helps understanding consumer behaviour: By

providing personal service to its customers, the

company understands the consumers and can

adapt itself to their changing requirement. This

also helps companies offer a complete set of

personalised solutions to customers.

• Provides opportunity to cross-sell and up-sell: A

satisfied customer is expected to come back to the same

company for repeat purchases. In case of any cross-sell

and up-sell, he again comes back to the same company

and with no extra expense, the company is able to get

him for more products.

• Reduces marketing time: Through positive referrals

and opportu nities to cross-sell and up-sell, the customer

acquisition becomes easier and consequently leads to

reduced marketing time.

CRM Success Factors:

Wilson et al. (2002) described five groups of success factors within

which he identified specific factors for success

1.determine the intent,

2.access the context,

3.describe content,

4.construct intervention process and

5.manage intervention process)

Siebel (2004) found the CRM success factors as:

1.Integration of back office processes

2.software customization,

3.clear communication of the CRM strategy.

CRM Comprehension

Company’s Marketing Program

CustomerCognitive

Ability

Customer Satisfaction

Customer Dissatisfaction

PerceivedPerformance(PP)

Customer Expectation(CE)

Customer Evaluation Process

Negative PublicityLoss in SaleCustomer Dissonance

When PP>CE

When PP<CE

Offers

Physical Facilities

Service Delivery

Employee Behavior

Grievance Handling

In

Input

feedback

feedback

Customer

Company's marketing programme: This consists of five

important determinants of the company's offering, viz. the offer,

tangibles, services delivery, employees and their approach

towards customers and its requirements, and the company's

grievance handling mechanism.

Customer expectation: The expectation created by the company

about the service also plays an important role in satisfaction

determination. If hype is created about the product, customers tend

to expect more and if the expectation is not fulfilled, it leads to

greater dissatisfaction. The same level of service may at one point

in time result into satisfaction but at another point in time may lead

to dissatisfaction. This depends upon what service expectation

level it generates in the minds of the customers.

Perceived performance: This is largely guided by the

customer's cognitive ability. So, it is important for the companies to

realise that the service has got not just to be the best but it has to

be perceived as the best as well. It is this perception of the service

that determines if it would lead to satisfaction or dissatisfaction

Competitors' offers: These play an important role in determining

customer satisfaction. They normally act as a benchmark for measuring

the strength of the offer, i.e. the cost, the service guarantee, the fringe

benefits etc. The growing service level of the competitor also increases

the service expectation of the customer. If it remained at the same

service level it might experience loss of sale not because of its lowering

of services but by the increase in service level of competitors.

Customer's resultant behaviour: Based on the analysis of the

components discussed above, the customer would decide upon his

further behavior regarding the company and its offers. One option

could be that he may become the brand ambassador in addition to

the regular benefit he delivers to the customers, the other extreme

may be that he starts propagating negative publicity about the

company and its offers.

Designing a CRM Implementation Model

The following is the process proposed for effective and

successful implementation of CRM in an organization. The

process goes in the sequence shown in figure below:

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Designing a CRM. . . Contd. Customer segmentation based on CLV

Customer profiling

Offer customization

Matching service cost and revenue

Employee participation in CRM design

Motivating employees for effective implementation

Making CRM an enterprise wide activity

Adequate technology support for CRM

implementation

Consistency testing of CRM programs

CRM practice evaluation

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CRM Value ChainCustomer data

Customer information

Customer knowledge

Wisdom to satisfy

CRM Value Chain