Customer Relationship Management
Customer relationship management focuses on strengthening the bond between customers and the firm by maximizing the value of the relationship for the benefit of both the customer and the firm. As a business philosophy, CRM is based upon individual customers and customized products and services supported by open lines of communication and feedback form the participating firms that mutually benefits both by buying and selling organizations. Customer Relationship Management (CRM) can be defined as the development and maintenance of mutually beneficial long-term relationships with strategically significant customers ( 2000). CRM according to and (2001) is an IT enhanced value process, which identifies, develops, integrates and focuses the various competencies of the firm to the ‘voice’ of the customer in order to deliver long-tern superior customer value, at a profit to well identified existing and potential customers. The buying and the selling firms enter into a ‘learning relationship’, with the customer being willing to collaborate with the seller and grow as a loyal customer. In return, the seller works to maximize the value of the relationship for the customer’s benefit. With the objective of most businesses today being to create and maintain loyal customers at a profit, CRM provides the platform for seeking competitive advantage by embracing customer needs and building value-driven long-term relationship ( 2003).
CRM and Marketing
The starting point of a relationship marketing strategy is a deep understanding of why customers would want a relationship with you as a provider of value. The answer, stated simply, is that a sustained relationship with you must itself provide additional value to the customer. The growing adoption of a customer relationship management system is evidence that more and more providers are trying to put the customer’s interest at the heart of their business by integrating marketing, customer support, and other functions to maximize added value in a dialogical relationship. CRM is a holistic approach to the generation, production and representation of a value-creation system (marketing, customer service and logistics). The aim is to move the supply chain nearer to the customer to link customer needs and more directly into the management of supplies, design, manufacturing, packaging, transport, and the ultimate purpose of all this – profitable exchange. The technology captures and provides information about interaction history, enabling a consistency of experience for valuable customers in all interactions – inquiry, order, delivery, maintenance, upgrade and so on. CRM systems can send customers reminders about essential servicing and tailored offerings based on past trading history and personal information profiles ( 2001).
Marketing Mix: 4Ps
The marketing mix can be defined as the blend of tools and techniques that marketers use to provide value for customers. It is most widely known as ‘4Ps’ : Place, Product, Price and Promotion. Place refers to the routes organizations take to get the benefits of the product or service organizations take to get the benefits of the product or service to the intended customers – channels of distribution. Product means both tangible product and service and all the ways in which an organization adds value. Price means not just the price charged, but also all aspects of pricing policy. Promotion is not just the more specialized ‘sales promotion’, but also every way in which a product is promoted to customers.
CRM and Marketing Mix
Customer Relationship Management calls for a long-term beneficial relationship between the customer and the organization. Because of CRM, the marketing mix shifted from Place, Product, Price and promotion to a more ‘customer-focused’ approach. The marketing mix now is more concerned with the customers’ wants and concerns than do the Ps.
Place, rather than implying organizations’ methods of placing products where they want them to be, can be thought of as ‘Convenience for the customer’, recognizing the customers’ choices for buying in ways convenient to them. Product, rather than being something that a company makes, which then has to be sold, can be thought of as a ‘Customer benefit’ – meaning satisfactions wanted by customers. Price may be what companies decide to charge for their products, but ‘Cost to the customer’ represents the real cost that customers will pay. Promotion suggests ways in which companies persuade people to buy, whereas ‘Communication’ is a two-way process also involving feedback from customers to suppliers ( and 2002).
The last several years saw the rise of Customer Relationship Management as an important business approach. Its objective is to return the world of personal marketing. The concept is relatively simple. Rather than market to a mass of people, market to each customer individually. In this one-to-one approach, information about a customer is used to frame offers that are more likely to be accepted ( and 2001).
CRM and Personalization
Implementation of better technology is not what CRM really all about; it is about creating the process that promotes longer more beneficial customer relationship. Creating beneficial customer relationships entails a better knowledge of customers. Analysis of a given customer’s profile and every interaction with that customer will provide predictive information on his or her behavior and how he or she prefers to be treated. Only after this has been completed, will a company be prepared to personalize that customer’s experience through all customer touch points. Personalization is not only a critical cornerstone of CRM but also one of the most challenging 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 over his lifetime. 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. The overall market place is raising customer expectations at the same time that brand loyalty is decreasing. With the competition as close as a mouse-click away in some cases, customers have come to expect that an organization will completely understand their needs and preferences ( and 2002).
Managing Key Customers
Traditional marketing strategies focused on the 4Ps (place, product, price and promotion) to increase market share. The main concern was to increase the volume of transactions between seller and buyer (1999 cited in and 2001). CRM is a business tactic the goes further than maximizing transaction volume. The purposes of CRM are to boost profitability, revenue, and customer satisfaction. A company wide set of tools, technologies, and procedures support the association with the customers to raise sales. CRM is primarily a strategic business and process issue rather than a technical issue.
CRM consists of three components:
- Customer – The customer is the only source of the company’s present profit and future growth. However, a good customer, who supplies more profit with less resource, is always limited since customers are well informed and the competition is fierce. Information technologies can provide the abilities to distinguish and manage customers. CRM can be thought as a marketing approach that is based on customer information ( 1999 cited in and 2001).
- Relationship – The relationship between a company and its customers involves continuous bi-directional communication and interaction. The relationship can be short-term or long-term, continuous or discrete, and repeating or one-time. Relationship can be attitudinal or behavioral. Even though customers have a positive attitude towards the company and its products, their buying behavior is highly situational ( 1999 cited in and 2001).
- Management – CRM is not an activity only within a marketing department. Rather it involves continuous corporate change in culture and process. The customer information collected is transformed into corporate knowledge that leads to activities that take advantage of the information and the market opportunities. CRM required a comprehensive change in the organization and its people ( and 2001).
Maintaining Beneficial and Delightful Relationship: Relationship Marketing
Rather than pursue a market relationship to bring a product and a consumer/.buyer together, relationship marketing and CRM attempt to establish and cultivate a marketing relationship that enables cooperative problem solving. Communication is participated in for the purpose of informing, answering, listening, aligning and matching. Maintaining beneficial and delightful relationship with the customers is possible through the following: Retention of selected customers, rather that recruiting new ones to replace valued defectors.
- A focus on long-term associations, with an orientation to identifying and meeting future customer needs.
- A focus on service benefits rather than features – a system orientation which customizes offerings, including communication, through interaction.
- Emphasis on high levels of customer service through repetitive interaction.
- High levels of commitment based on promises to and from selected customers.
- High level of customer contact.
- Interactive-marketing function connected with all other business functions, not separated like the traditional marketing function.
- Interactive marketing supported by marketing mix activities – customers involved in design of solutions, rather than unilateral attempts to change attitudes.
- People in the supplier organization become critical marketing resources as ‘part-time marketers’.
- Direct management of customer portfolio.
- Continuous real-time dialogue with customers.
- The seller considers relationship marketing as a communication process that enhances the relevance of the seller’s offering.
- The buyer considers relationship marketing as a communication process that should enhance the relevance of the seller’s offering ( 2001).
Relationship marketing focuses on the individual customer, but also other stakeholders, and seeks to manage the relationships to add value for each person ( 2001).
Good CRM: Customer Retention and Loyalty
The CRM approach is customer-centric. This approach focuses on the long-term relationship with the customers by providing the customers benefits and values from the customers’ point of view rather than based on what the company wants to sell. The basic questions that CRM tries to answer are:
- What is the benefit of the customer?
- How can we add the customer’s value?
Four basic tasks are required to achieve the basic goals of CRM (, 1999 cited in and 2001).
- Customer Identification – To serve or provide value to the customer, the company must know or identify the customer through marketing channels, transactions, and interactions over time.
- Customer Differentiation – Each customer has their own lifetime value from the company’s point of view and each customer imposes unique demands and requirements for the company.
- Customer Interaction – Customer demands change over time. From a CRM perspective, the customer’s long-term profitability and relationship to the company is important. Therefore, the company needs to learn about the customer continually. Keeping track of customer behavior and needs is an important task of a CRM program.
- Customization/Personalization – “Treat each customer uniquely” is the motto of the entire CRM process. Through the personalization process, the company can increase customer loyalty.
Principles of CRM
The overall processes and applications of CRM are based on the following basic principles.
- Treat Customer Individually – Remember customers and treat them individually. CRM is based on philosophy of personalization. Personalization means ‘content and services’ to customer should be designed based on customer preferences and behavior ( 1999 cited in and 2001). Personalization creates convenience to the customer.
- Acquire and Retain Customer Loyalty through Personal Relationship – Once personalization takes place, a company needs to sustain relationships with the customer. Continuous contacts with the customer – especially when designed to meet customer preferences – can create customer loyalty ( and 2001).
- Select Good Customer based on Lifetime Value – Find and keep right customers who generate the most profits. Through differentiation, a company can allocate its limited resources to obtain better returns ( and 2001).
Customer Life Cycle
Customer relationship management is its broadest sense simply means managing all customer interactions. In practice, this requires using information about the customers and prospects to more effectively interact with the customers in all stages of the organization’s relationship with them (customer life cycle). The stages of customer life cycle are:
- Acquiring customers – The first step in CRM is to identify prospects and convert them to customers. CRM helps organizations to better understand their customer’s needs.
- Increasing the value of the customer – Personalization is the key to increasing the value of the product or service of the customer.
- Retaining good customers – The cost of acquiring a new customer exceeds the cost of keeping good customers.
Product Life Cycle Stages
- Introductory Stage – Losses or at best profits are experienced often during the introductory stage. This is because sales are low and promotion and distribution costs are relatively high ( 2000).
- Growth Stage – New competitors enter the market attracted by the prospect of large-scale production potential and the large profits to be made as the market grows in size and economies of scale come into operation. There is little change in prices and promotional expenditure fro the introductory stage, though both may be slightly reduced. Sales are expanding during this stage ( 2000).
- Maturity Stage – The maturity stage follows on from the onset of the decline in the rate of sales growth. The latter produces over-capacity in the industry in which in turn leads to increased competition. It is a stage in which profits decline. During the maturity stage, firms implement frequent price reductions and increase advertising and consumer promotions ( 2000).
- Decline Stage – sales of most products eventually start to decline for one or more of several reasons. These include technological progress, shifts in consumer tastes and increased domestic and foreign competition ( 2000).
Dealing with Customers as Partners
Amazon has adapted well to the new customer. The company recommends books based on the buyers’ previous purchases and on other customers who have bought similar books. As preference change, Amazon makes suggestions to reflect these changes. Co-creating personalized experiences is a strategy as firms aim toward micro segmentation – namely the market of one. Customers have become co-creators of products and services by selecting from a menu of features. Organizational flexibility becomes the thrust as firms endeavor to satisfy changing customer desires. Market segmentation research is designed to identify market segments within a larger market and to recognize the needs and wants of one or more groups so that the marketing mix can be directed toward the satisfaction of their needs. The study of buyer behavior is helpful in learning about the characteristics that consumers’ exhibit in searching for, purchasing, and evaluating the goods and services they seek ( 2003).
CRM and Product Awareness
In the past, the prime approach to attracting new customers was through media and mail advertising about what the firm has to offer. This advertising approach is undiscriminating, reaching many people including current and people who would never become customers.
IMPLEMENTING CRM: AMAZON.COM
The US-based company Amazon is well known as the world’s biggest e-Retailer of books, head to head with and for the title of the world’s largest bookstore, even though Amazon sells online only. From a start-up in 1995, annual sales have grown to more than $1 billion and the company has 2.5 million customers – but reported its first profit only in2002. Other products include CDs and videos. The UK site () was formed in 1998 by the takeover of Bookpages, and the UK is now Amazon’s biggest market outside the USA.
Amazon.co.uk followed the US parent’s example of using heavy advertising to promote brand awareness. Traffic to the site is encouraged using the affiliate system. For example, popular search engines such as AltaVista offer links to books related to the key words. The site is user-friendly, enabling e-Shoppers to find books quickly by title, author or subject. Users can find their title in seconds from a few keywords. Synopses and contents lists are provided, along with a list of other relevant books. Amazon keeps a record of customers’ preferences and advises when new books likely to be of interest are published. One of the main selling propositions is a discount of up to 40 per cent – but such deep discounting made it hard for the company to reach profitability. Amazon is renowned for customer service, security and fast delivery ( and 2002).
When customers buy something from Amazon.com, they can see the following statement; “Customers who bought this item also bought these items”. If a customer has a previous purchasing experience with Amazon.com, the company will support a ‘Welcome to Recommendations’ Web page. The personalized Web pages, vast selection of products, and low price lead customer loyalty and long-term relationship of Amazon.com. More than 20 million people have purchased at Amazon. Com. The percentage of returning customers is about 15 to 25 percent, compared with 3 to 5 percent for other e-business retailers.
Amazon.com assembles large amounts of information on individual customer buying habits and personal information. Based on a customer’s previous purchases and Web surfing information, Amazon.com recommends books, CDs and other products. Sometimes a customer buys additional products because of this information. Through it ‘1-Click’ system, which stores personal information such as credit card number and shipping address, Amazon.com simplifies the customer buying process ( 2000 cited in and 2001).
Data Mining can be used to build a picture of products most likely to be wanted by individual customers. Products tailored specifically can be offered pro-actively. Amazon uses such a system to match new books to existing customers who are likely to be interested in them ( 2004).
Differentiation and Customization
Information technology enables forms to pay more attention to what makes consumers different from one another. Focusing on such variation serves as the basis for positioning a brand as being highly intimate with consumers. Amazon uses customers’ purchase histories to make suggestions about additional books that they might enjoy. The system is based on detecting patterns in the purchase histories of other customers who have bought some of the same books as the target customer. Such automatic response systems are simply usage-based segmentation systems that capitalize on the firm’s database to create more customized communications than traditional mass media ( 2001).
Even though one can search online and find the identical book at a lower price than at Amazon.com, Amazon is the clear leader in selling books online. This is a combination of greater awareness of Amazon and unique value. Amazon built a customer-focused principle. It targets customers on a one-to-one basis through Internet-based services.
Unique Customer Value and Experience
Amazon created a unique value in their customer interaction through customer relationship management. Amazon through its deep understanding of the way customers shop and the customers’ need for support in their purchasers have successfully integrated CRM. By providing recommendations based on past purchasing behavior and the opportunity to know that ‘customers who bought this book also bought’, or what other readers/listeners/viewer have thought of the product offer opportunity to the customers to make informed decisions and potentially extend their purchases. A leading example of CRM is shown by the Amazon website, where the customers have an enjoyable experience in buying a book, but can also view their own information such as: previous purchases, review recommendations, track delivery and be informed of new releases, updates and news. The customer has a positive experience being informed of the transaction status and returns vital profile information for future targeted support products.
Amazon.com has developed a one-to-one marketing strategy. The customers are identified individually and classified in terms of their purchase and consumption habits and preferences. This is done through data mining and purchase histories. The customers are differentiated in terms of why they buy a particular product to gain a greater share of their total purchasing power.
Customer Relationship Management is all about the creation and maintenance of equally beneficial and long-term relationship between the organization and its customer. It focuses on strengthening the bond between customers and the organization by increasing the value of the relationship for the benefit of both the customer and the organization.
CRM starts with information and knowledge. It is of utmost importance that the organization understands its customers’ needs, wants and preferences. Adapting CRM means a change in marketing focus. The organization must build a more customer-focused approach to marketing. CRM is a marketing approach that is based on customer information. The relationship between an organization and its customers involves mutual communication and interaction. In order to effectively utilize the CRM strategy the organization must:
- Identify the customers
- Differentiate each customer
- Interact with the customers
- Personalized or customized products
CRM is based on the philosophy of personalization. Each customer should be treated individually and uniquely. Content and services to customers should be designed based on customer preferences and behavior. Personalization leads to customer loyalty if the organization maintains effective communication with the customers.