Introduction to Customer Relationship Management

1. Customer Relationship Management (CRM)

Customer relationship management (CRM) has become a strategic initiative in most com­panies today. This is due to several reasons such as the growth of service sector industries, affordable advances in digital technology and the shift among companies from market share to share in the wallet of the customer. CRM requires a company to develop a customer­centric business model (CCM).

CRM first came into focus in the 1980s. In the budding stage, it was in the form of a cus­tomer information system (CIS). These first generation applications were single-function solutions designed to support a specific set of employees. Typical applications were at the helpdesk, sales and marketing departments or a particular function within a call centre. Then it shaped into contact management, sales force automation (SFA), call centre and customer contact centre (CCC). These CRM applications increased the functionality of the software.

These applications offered inter-operable modules that included marketing, sales, ana­lytics, customer service and call centre support functions. Today, it has matured to CRM and also mobile CRM (m-CRM). The term CRM was first coined in the early 1990s. It is a major strategic approach to customers, and businesses are now investing millions of dollars to acquire CRM services and solutions. It is the leading business strategy of the new mil­lennium. The scope of CRM has the customer at the centre. The other four constituencies are suppliers, owners/investors, employees and other partners, all of who must be managed and coordinated to ensure that preferred value propositions are created, communicated and delivered to the selected customer.

2. CRM Defined

CRM 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.

The CRM methodology enables the organization to understand customer needs and behav­iour in a better manner. It introduces reliable processes and procedures for interacting with customers and develops stronger relationships with them. The process helps organizations in assimilating information about customers, sales, marketing effectiveness, responsiveness and market trends. Then, this information is used to give insights into the behaviour of customers and the value of retaining those customers. The whole process is designed to reduce cost and increase profitability by retaining the loyalty of customers.

A simple installation and integration of the software package doesn’t ensure success. It has to be absorbed into the system. Employees have to be convinced about its positive attri­butes, and they also have to be trained. The existing business processes have to be modified. The company has to decide what kind of information is to be collected about the customers, what is to be done with the information and prioritize this accumulated information. The company must drill into this database of its customers and ascertain their buying patterns, product preferences, the potential for add on sales, etc.

A good strategy is to integrate the various touch-points with customers such as market­ing, sales, customer service and field support. This is achieved with the integration of the people, process and technology in the business.

3. Emergence of CRM

Developing customer relationships has historical antecedents going back into the pre­industrial era. Much of it was due to direct interaction between the producers of agricultural products and their consumers. Similarly, artisans often developed customized products for each customer. Such direct interaction led to relational bonding between the producer and the consumer. It was only after the advent of mass production in the industrial era and the advent of middlemen that interaction between producers and consumers became less frequent lead­ing to transaction-oriented marketing. In other words, the production and consumption func­tions became separated leading to the marketing functions being performed by middlemen, and middlemen, in general, were oriented towards the economic aspects of buying since the largest cost was often the cost of the goods sold.

In recent years, however, several factors have contributed to the rapid development and evolution of CRM. These include the growing de-intermediation process in many industries due to the advent of sophisticated computer and telecommunication technologies that allow producers to directly interact with end-customers. For example, in many sectors such as the airlines, banking, insurance, computer software or household appliances industries, the de-intermediation process is fast changing the nature of marketing and consequently making relationship marketing more popular. Databases and direct marketing tools give these industries the means to individualize their marketing efforts. As a result, producers do not need the functions formerly performed by middlemen. Even consumers are willing to undertake some of the responsibilities of direct ordering, personal merchandising and prod­uct use related services with little help from the producers. The recent success of on-line banking, on-line investment programmes, direct selling of books, automobiles, insurance, etc. on the Internet attest to the growing consumer interest in maintaining a direct relation­ship with marketers.

The de-intermediation process and consequent prevalence of CRM is also due to the growth of the service economy. Since services are typically produced and delivered at the same institution, it minimizes the role of middlemen. An emotional bond also develops between the service provider and the service user creating the need for maintaining and enhancing the relationship. It is; therefore, not difficult to see that CRM is important for scholars and practitioners of services marketing.

Another force driving the adoption of CRM has been the total quality movement. When companies embraced the TQM philosophy to improve quality and reduce costs, it became necessary to involve suppliers and customers in implementing the programme at all levels of the value chain. This created the need for closer working relationships with customers, suppliers and other members of the marketing infrastructure. Thus, several companies such as Motorola, IBM, General Motors, Xerox, Ford and Toyota formed partnering relationships with suppliers and customers to practice TQM. Other programmes such as just-in-time (JIT) supply and materials resource planning (MRP) have also made use of interdependent relationships between suppliers and customers.

With the advent of digital technology and complex products, the systems selling approach has become common. This approach has emphasized the integration of parts, supplies and the sale of services along with individual capital equipment. Customers have liked the idea of systems integration and sellers have been able to sell augmented products and services to customers. Then, the popularity of system integration began to extend to consumer pack­aged goods as well as to services. At the same time, some companies started to insist upon new purchasing approaches such as national contracts and master purchasing agreements, forcing major vendors to develop key account management programmes. These measures created intimacy and co-operation in the buyer—seller relationship. Instead of purchas­ing a product or service, customers were more interested in buying a relationship with a vendor. The key (or national) account management programme designates account manag­ers and account teams that assess the customer’s needs and then husband the selling com­pany’s resources for the customer’s benefit. Such programmes have led to the establishment of strategic partnering within the overall domain of customer relationship management.

Similarly, in the current era of hyper-competition, marketers are forced to be more con­cerned with customer retention and loyalty. As several studies have indicated, retaining customers offers a more sustainable competitive advantage than acquiring new ones. What marketers are realising is that it costs less to retain customers than to compete for new ones. On the supply side, it pays more to develop closer relationships with a few suppliers than to work with more vendors. In addition, several marketers are concerned with keep­ing customers for life rather than with only making a one-time sale.

Finally, many large internationally-oriented companies are trying to become global by integrating their worldwide operations. To achieve this, they are seeking co-operative and collaborative solutions for global operations from their vendors instead of merely engaging in transactional activities with them. Such customer needs make it imperative for marketers interested in the business of companies that are global to adopt CRM programmes, par­ticularly global account management programmes. Global account management (GAM) is conceptually similar to national account management programmes except that they have to be global in scope and thus more complex. Based on these trends, CRM solutions have emerged in three stages:

Stage 1: Specific solutions like simple automation of sales, marketing and service functions using IT.

Stage 2: Enterprise-wide CRM that is focused on capturing, sharing and leveraging cus­tomer information across marketing, sales and service and support functions from various input sources.

Stage 3: Integration of ERP and CRM solutions into end-to-end enterprise solutions with blended contact centres using web technologies and computer telephone interface.

4. Schools of Thought on CRM

The growth of the practice of relationship marketing is supported by the growing research interest in different facets of this concept. The initial approaches of CRM can be very broadly classified as:

  1. The Anglo-Australian Approach
  2. The Nordic Approach
  3. The North American Approach
  4. The Asian (Guanxi) Approach

The Anglo-Australian approach integrated the contemporary theories of quality manage­ment, services marketing and customer relationship economics to explain the emergence of relationship marketing.

The Nordic approach views relationship marketing as the confluence of interactive net­work theory, services marketing and customer relationship economics. The interactive net­work theory of industrial marketing views marketing as an interactive process in a context where relationship building is an area of primary concern for marketers.

In contrast, the initial focus of the North American scholars was on the relationship between the buyer and seller operating within the context of the organizational environ­ment, which facilitated the buyer-seller relationship.

Guanxi has become a necessary aspect of Chinese and Asian business due to the lack of codified enforceable contracts such as those found in Western markets. Guanxi deter­mines who can conduct business with whom and under what circumstances. Business is conducted within networks, and rules based on status are invoked. Network members can only extend invitations to others to become part of their network if the invitee is a peer or a subordinate.

The broadened views of relationship marketing address a total of six key market domains and are as follows:

  1. Customer markets: Existing and prospective customers as well as intermediaries.
  2. Referral markets: Existing customers who recommend to other prospects and referral sources or “multipliers” such as doctors who refer patients to a hospital or a consultant who recommends a specific IT solution.
  3. Influence markets: Government, consumer groups, business press and financial analysts.
  4. Recruitment markets: For attracting the right employees to the organization.
  5. Supplier markets: Suppliers of raw materials, components, services, etc.
  6. Internal markets: The organization including internal departments and staff.

5. Purpose/Objectives of CRM

CRM enables an organization to analyse the behaviour of customers and their value. The main areas of focus are customer, relationship and the management of relationships. The main objectives of implementing CRM in business strategy are:

  • To simplify marketing and sales processes
  • To make call centres more efficient
  • To provide better customer service
  • To discover new customers and increase customer revenue
  • To cross-sell products more effectively

The CRM processes should fully support the basic steps of customer lifecycle. The basic steps of customer lifecycle are:

  • Attracting present and new customers
  • Acquiring new customers
  • Serving the customers
  • Finally, retaining the customers

Source: Poornima M. Charantimath (2017), Total Quality Management, Pearson; 3rd edition.

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