Chapter outline

Define CRM;
Identify the reasons for building relationship with customers;
Identify the levels and tools for building relationship;
Explain the tools for measuring customer satisfaction;
Elaborate the CRM model.

A satisfied customer tells other regarding the product. Today, customer relationship is the key to
success of a company. In this chapter, we will discuss the customer relationship management,
levels and tools for building relationship.CRM (Customer Relationship Management) is all
about the theory used by companies to administer and manage their customers, partners, vendors
and other stakeholders efficiently and effectively.

Customer Relationship Management (CRM)

Today, customer relationship management is the key to success at this moment. Building good
relationship with the companys profitable customers is at the heart of modern marketing. Since,
in the cluttered commercial environment, brand switching costs is low, so companies have to
measure the customer satisfaction rate over the years. Losing a single customer does not mean a
single loss; it is a great loss for a company. Today, companies should not try to make profit on
each and every transaction; companies should focus on customer lifetime values. Now CRM is
very much important for an organization. Since it costs five times more to attract new customers
than to keep and grow the current customers. Customer Relationship Management is the process
of managing detailed information about individual customers and carefully managing all the
customer touch-points with the aim of maximizing customer loyalty. When, many companies are
intent on developing stronger bonds with their customers that is called Customer Relationship
Management. The task of creating strong customer loyalty is called Customer Relationship
Management (CRM). In short, we can say that the overall process of building and maintaining
profitable customer relationships by delivering superior customer value and satisfaction is called
Customer Relationship Management. Marketing Managements crucial task is to create
profitable relationships with customers. Recently, Customer Relationship Management has been
defined narrowly as a customer database management activity.

12 Principles that Drive Profitable Customer Relationships

1. Continuously Learn About Your Customers.
2. Handle Different Customers Differently.
3. Anticipate Customer Needs.
4. Interact With Customers.
5. Focus on Revenue and Retention.
6. Increase Value for Your Customers and the Organization.
7. Present a Single Face Across Channels.
8. Enable Information.
9. Create Business Rules to Drive Decisions
10. Empower Employees with Information and Training.
11. Retain the Right Customers.
Reasons
Customer
Relationship
12. Rememberfor
Thatbuilding
Cultivating Customer
Relationships
is a Way of Doing Business.

Reasons For Building Relationship With Customers

It costs five times more to attract new customers than to keep and grow the
current customers.
80% of the total revenues come from the 20% of the existing customers.
Study shows that a dissatisfied customer shares his or her bad experiences with
11 other persons.
A satisfied customer shares only with three other persons.
At this moment, switching cost is low; a dissatisfied customer can easily switch
the brands.
As a result of technological advances, it is very easy for the company to
maintain the database of each customer. Companies can customize the message
for each and every customer and can communicate with individual customers.
Companies can easily satisfy the current customer on the basis of past dealings.
Today, customers have been fragmented, changing their tastes and preferences.
Making good relationship with the profitable customer is the key to success.
Customer lifetime value is more important for a company than making profit
from each and every transaction.

Reasons for lost customers

There are number of reasons why customers terminate relationships. Some of the most common
reasons are shown below:

Novelty seeking
Dissatisfaction
Relative Advantage
Conflict
Loss of trust
Cease to need

A need, due to satiation, or drive, due to thrill-seeking, or an

intellectual curiosity that causes people to choose variety over time
The actual performances fell short of expectations.
The customer perceives a higher benefit value associated with an
alternative choice and believes it to be more gratifying
A disagreement in which the customers and the companys views
seem to be incomplete.
The customer has no confidence that the organization can reliably
fulfill its promises.
The product or solution is no longer required.

Customer Relationship Levels and Tools:

In building relationships, company has to take into account the costs of building relationship so
that costs do not exceed the gains from relationship. Companies can build customer relationships
at many levels, depending on the nature of the target market. There are different levels of
customer relationship, such as;
Basic Relationship. The salesperson simply sells the products to the customer. A company
with many low-margin customers may seek to develop basic relationships with them. For
example, Procter and Gamble does not phone all of its Tide customer to get to know them
personally. Instead, P&G creates relationships through brand-building advertising, sales
promotion. Many companies practice only basic marketing when their markets contain many
customers and their unit margins are small.
Reactive Marketing. The salesperson sells the product and encourages the customer to call if
he or she has any questions, comments or complaints etc. Many companies practice reactive
marketing when the market contains many customer and their unit margins are medium.
Accountable marketing. The salesperson phones the customer to check whether the product is
meeting expectations. The sales person also asks the customer for any product or service
improvement suggestions and any specific disappointment.
Proactive marketing.
The salesperson contacts the customer from time to time with
suggestions about improved product uses or new products.
Partnership marketing.
The company works continuously with its large customers to help
improve their performance. For example, General electric has stationed engineers at large
utilities to help them produce more power.

Many customers/
distributors
Medium number of
customers/
distributors
Few customers/
distributors

High margin
Accountable

Medium margin
Reactive

low margin
Basic or reactive

Proactive

Accountable

Reactive

Partnership

Proactive

Accountable

Tools for Building Customer Relationship

Marketers can use specific marketing tools to develop stronger bonds with customers.
i) Adding financial benefits
ii) Adding social benefits
iii) Adding structural ties.
i)
Adding financial benefits. Two financial benefits that companies can offer are
frequency programs and club marketing programs.
Frequency programs are designed to provide rewards to customer who buy frequently and in
substantial amounts. For example, airlines offer frequent-flier programs, hotels give room
upgrades to their frequent guests and supermarkets give patronage discounts. Grameenphone
offers bonus on the basis of more usages.
Many companies have created club marketing programs to bond customers closer to the
company. Club membership can be opened to everyone who purchases a product or service, or it
can be limited to an affinity group or to those willing to pay small fee.
ii)
Adding social benefits.
Company personnel work on increasing social bonds with
customers by individualizing and personalizing customer relationships. Thoughtful companies
turn their customers into clients. According to Donnelly, Berry and Thompson draw this
attention.
Customers may be nameless to the institution; clients cannot be nameless. Customers are served
as part of the mass or as part of larger segments; clients are served on an individual basis.
Customers are served by anyone who happens to be available; clients are served by the
professionals assigned to them.
iii)
Adding structural ties. The Company may supply customers with special equipment or
computer linkages that help customers manage orders, payroll, and inventory. For example,
McKesson Corporation, a leading pharmaceutical wholesaler, has invested millions of dollars to
set up direct computer links with drug manufacturers and an online system to help small
pharmacies manage their inventories, their order entries and their shelf space. FedEx offers
website links to its customers to keep them from defection to competitors such as UPS.
Customers can use the web site to arrange shipments and track the status of their FedEx packages
anywhere in the world. Popular Ice Cream Company has distributed refrigerator to the retailers
to sell its Ice cream across Bangladesh.

Relationship blocks: Customer Value and Satisfaction

Customer perceived value:
Our premise is that customers will buy from the firm that they see as offering the highest
perceived value. Customer perceived value is the difference between the prospective customers
evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total
customer value is the perceived monetary value of bundle of economic, functional and
psychological benefits customers expect from a given market offering. Total customer cost is the
bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the
given market offering.
Customer perceived value

Total customer value

Total customer cost

Product value

Monetary value

Service value

Time cost

Personnel value

Energy cost

Image value

Psychic cost

A particular company can improve its offer in three ways;

i)
It can increase total customer value by improving product, services, personnel and
image benefits.
ii)
It can reduce the buyers non-monetary costs by reducing the time, energy and
psychic costs.
iii)
It can reduce its products monetary cost to the buyers.

Customer satisfaction:
Customer satisfaction occurs when the products perceived performances matches the
expectations of the customers. In general, satisfaction is a persons feelings of pleasure or
disappointment resulting from comparing a products perceived performance in relation to his or
her expectations.
If the performance falls short of expectations, the customer is dissatisfied, the performance
matches the expectations, the customer is satisfied, if the performance exceeds the expectations,
and the customer is highly satisfied or delighted.

Customer expectation:
How do buyers form their expectations? From past buying experiences, friends and associates
advice and marketers and competitors information and promises. If the marketers raise the
expectation too high, the buyer is likely to be disappointed, however, if the company sets
expectations too low, it will not attract enough buyers. Some of todays most successful
companies are raising expectations and delivering performances to match.

Value propositions:
The key to generating high customer loyalty is to deliver high customer value. According to
Michael lanning, in his delivering profitable value, a company must design a competitively
superior value proposition aimed at a specific market segment backed by a superior value
delivery system.
The value proposition consists of the whole cluster of benefits the company promises to deliver;
it is more than the core positioning of the offering. For example, Volvos core positioning is
safety, but the buyer is promised more than just a safe car other benefits include a long-lasting
car, good service and a long warranty period.

Tools for measuring the satisfaction:

No companies measure the customer satisfaction rate or retention rate, but today, successful
companies measure the customer satisfaction rate or retention periodically. There are four
methods that are used to measure the customer satisfaction.
1) Complaint and suggestions systems: A customer-centered organization makes it easy for
customers to register suggestions and complaints. Some customer-centered companies such as
P&G, general electric, whirlpool-establish hot lines with toll free numbers. Companies are also
using web sites and e-mail for quick, two-way communication.
2) Customer satisfaction survey: Studies show that although customers are dissatisfied with
one out of every four purchases, less than 5 percent will complain. Most customers will buy less
or switch suppliers. Responsive companies measure customer satisfaction directly by conducting
periodic surveys.
3) Ghost shopping: Companies can hire people to pose as potential buyers to report on strong
and weak points experienced in buying the companys and competitors products. These mystery
shoppers can even test how the companys sales personnel handle various situations. Managers
themselves should leave their offices from time to time, enter company and competitor sales
situations where they are unknown, and experience firsthand the treatment they receive. A
variant of this is for managers to phone their own company with questions and complaints to see
how the calls are handled.
4) Lost customer analysis: Companies should contact customers who have stopped buying or
who have switched to another supplier to learn why this happened. Not only is it important to
conduct exit interviews when customers first stop buying; it is also necessary to monitor the
customer loss rate.

The Customer Development Process:

A loyal customer is developing day by day from suspect to partners of the organization.
Suspects

Prospects

Disqualified
prospects

First time customers

Repeat customers

Clients

Inactive or excustomers

Members

Advocates

Partners

Figure: The customer development process

This figure shows the main steps in the process of attracting and keeping the customers. The
starting point is the suspect; here every one in this point might conceivably buy the products or
services.
From these, the company determines the most likely prospect, which may be customers for the
first time. Then the first times customers may buy again then become repeat customers. When
customers buy again and again one time he/she will become a client to whom the company treats
very specially and knowledgeably.
The next challenge is turn the clients into members. Members to whom the company offers the
special benefits. Then the members become advocates, customers who enthusiastically
recommend the company and its products and services to others. The ultimate challenge is to
turn advocates into partners. Some customers inevitably become inactive or drop out. The
challenge is to reactive dissatisfied customers through win-back strategies. It is often easier to reattract ex-customers than to find new ones.