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Published by: abhyas on Sep 09, 2010
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 Listening to customers must become everyone’s business. With most competitors moving ever faster, the race will go to those who listen and respond more intently”.
Tom Peters, Thriving on Chaos
Chapter 1: Conceptual Framework for CRM
What is Customer Relationship management?
Before we begin to examine the conceptual foundations of CRM, it will be useful todefine what is CRM. A narrow perspective of customer relationship management isdatabase marketing emphasizing the promotional aspects of marketing linked to databaseefforts.Another narrow, yet relevant, viewpoint is to consider CRM only as customer retention inwhich a variety of aftermarketing tactics is used for customer bonding or staying in touchafter the sale is made.Shani and Chalasani define relationship marketing as “an integrated effort to identify,maintain, and build up a network with individuals consumers and to continuouslystrengthen the network for mutual benefit of both sides, through interactive,individualized and value-added contacts over a period of time”.The core theme of all CRM and relationship marketing perspectives is its focus on co-operative and collaborative relationships between the firm and its customers, and/or other marketing actors.CRM is based on the premise that, by having a better understanding of the customers’needs and desires we can keep them longer and sell more to them.Growth Strategies International (GSI) performed a statistical analysis of Customer satisfaction data encompassing the findings of over 20,000 customer surveys conductedin 40 countries by Infoquest.The conclusions of the study were:
A Totally Satisfied Customer contributes 2.6 times as much revenue to a company asa Somewhat Satisfied Customer.
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A Totally Satisfied Customer contributes 17 times as much revenue as a SomewhatDissatisfied Customer.
A Totally Dissatisfied customer decreases revenue at a rate equal to 1.8 times what aTotally Satisfied Customer contributes to a business.
By reducing customer defection (by as little as 5%) will result in increase in profits by 25% to 85% depending from industry to industry.An important facet of CRM is “customer selectivity”. As several research studies haveshown not all customers are equally profitable (Infact in some cases 80% of the salescome through 20% of the customers). The company must therefore be selective andtailor its program and marketing efforts by segmenting and selecting appropriatecustomers for individual marketing programs. In some cases, it could even lead to “outsourcing of some customers” so that a company better utilize its resources on thosecustomers it can serve better and create mutual value. However, the objective of acompany is not to really prune its customer base but to identify appropriate customer  programs and methods that would be profitable and create value for the firm and thecustomer. Hence, CRM is defined as:
Customer Relationship management is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer .
As is implicit in the above definition, the purpose of CRM is to improve marketing productivity. Marketing productivity is achieved by increasing marketing efficiencyand by enhancing marketing effectiveness. In CRM, marketing efficiency is achieved because cooperative and collaborative processes help in reducing transaction costs andoverall development costs for the company. Two important processes for CRM include proactive customer business development and building partnering relationship withmost important customers. These lead to superior value creation.The basic concept is that the customer is not someone outside the organisation, he is a part of the organisation.
- 3 -HighLowLowHigh
Customer Value
Key CRM principles
Differentiate Customers: All customers are not equal; recognize and reward bestcustomers disproportionately. Understanding each customer becomes particularlyimportant. And the same customers’ reaction to a cellular company operator may be quitedifferent as compared to a car dealer. Besides for the same product or the service not allcustomers can be treated alike and CRM needs to differentiate between a high valuecustomer and a low value customer.What CRM needs to understand while differentiating customers is:
Sensitivities, Tastes, Preferences and Personalities
Lifestyle and age
Culture Background and education
Physical and psychological characteristics
Differentiating Offerings
Low value customer requiring high value customer offerings
Low value customer with potential to become high value in near future
High value customer requiring high value service
High value customer requiring low value serviceKeeping Existing Customers
Low value customers whorequire high levels of servicemust either purchase the higher level of service or become our competitors low value/highcost customers
High value customers whorequire a high level of service are maintainedwithout expanding thecostly offering to the entirecustomer population
Fig. 1 Customer value – Service Matrix

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