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Unit14

CustomerRelationshipManagementAnOverview

Structure

14.1. Introduction 14.2. RelationshipMarketingvsRelationshipManagement 14.3. DefinitionsCustomerRelationshipManagement 14.4. FormsofRelationshipManagement 14.5. 14.6. 14.7. 14.8 14.9 ManagingCustomerLoyaltyandDevelopment ReasonsbehindLosingCustomersbyOrganizations SignificanceofCustomerRelationshipManagement SocialActionsAffectingBuyerSellerRelationships Summary TerminalQuestions AnswerstoSAQsandTQs

14.1 Introduction In the marketing world managers quite often says retaining customer is more important than acquiring one. We will examine the importance of this sentence. The organization uses communicationstoolstomaketheirproductandbrandawareamongtheconsumer.Itusesitssupply chains and human resources to sell their products. Each stage costs for the company. In this competitive world organizations want to reduce the cost and develop the database which helps in creatingloyaltyprograms.Thereforeitisveryessentialfortheorganizationstousesoftwaretopile upbigdatabaseofcustomer.ManyIndiancompanieslikeInfosys,Wiproandothersstartedoffering CRM software to companies. Thebenefits of CRM softwarearequicker, better,quality,and timely servicestothecustomers.Thisincreasesthewordofmouthcommunicationsandreducesthecost ofmassmedia.

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LearningObjectives Afterstudyingthisunit,youwillbeableto

1. Explainthemeaning,needandrelevanceofcustomerrelationshipmanagement. 2. Mentiontheformsofrelationshipmanagement. 3. Citereasonsforlosingcustomersbyorganizations. 4. Bringoutthesignificanceofcustomerrelationshipmanagement.

14.2. RelationshipMarketingVs.RelationshipManagement The relationship marketing approach considers customers as insiders to the business and aims at building a long term and neverending relationship with them. The focus of relationship marketing approachcentersondevelopinghardcoreloyalcustomerswiththeideaofretainingthemforever.A highdegreeofcustomerscontact,commitmentandservicesaremaintained. The relationship marketing approach has gradually taken the shape of customer relationship management.Relationshipmarketinghasanarrowfocusonthecustomersandfocusesonlyonthe marketing function of the organization concerned. On the other hand, customer relationship management focuses more widely on customers and on the entire functions connected with value creationanddeliverychainoftheorganizationconcerned.Thecustomerrelationshipmanagementis a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customerspecificstrategicmarketingapproaches.Theprocessinvitestotalcommitmentonthepart ofentireorganizationinevolvingandimplementingrelationshipstrategiesthatwouldberewardingto allconcerned. OrganizationshavepreferredtheusageofthetermCustomerRelationshipManagementratherthan CustomerRelationshipMarketing.However,inpractice,boththesetermsareusedinterchangeably.

14.3

DefinitionsofCustomerRelationshipManagement

Berry defines CRMS as attracting, maintaining and in multiservice organizations enhancingcustomerrelationships. Berry and Parasuraman define CRMS as attracting, developing and retaining customer relationships.
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In industrial marketing, Jackson defines CRMS as marketing oriented toward strong, lasting relationshipswithindividualaccounts. DoyleandRothdefineCRMSasthegoalofrelationshipsellingistoearnthepositionofpreferred supplierbydevelopingtrustinkeyaccountsoveraperiodoftime. The sequence of activities for performing relationship marketing would include developing core servicestobuildcustomerrelationship,customizationofrelationship,augmentingcoreserviceswith extrabenefits,andenhancingcustomerloyaltyandfinetuninginternalmarketingtopromoteexternal marketingsuccess. Christopher considers relationship marketing as a tool to turn current and new customers into regularlypurchasingclientsandthenprogressivelymovingthemthroughbeingstrongsupportersof thecompanyanditsproductsto finallybeingactiveandvocaladvocatesforthecompany. Relationship marketing is in essence selling by using psychological rather than economic inducementstoattractandretaincustomers.Itseekstopersonalizeandappealtothehearts,minds andpursesofthemassconsumers.JamesJ.Lynch Thus, Customer Relationship Management is about acquiring, developing and retaining satisfied loyalcustomerachievingprofitablegrowth,andcreatingeconomicvalueincompanysbrand, Fromtheabovedefinitions,itcouldbeconcludedthatCustomerRelationshipManagementrefersto all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, winwin, beneficial and successful relational exchanges between the focal firm and all its supportingkeystakeholders. CRM is not anew concept but an ageoldpractice, which is on the rise because ofthe benefitsit offers,especiallyinthepresentmarketingscenario.So,CRMtodayisadisciplineaswellasasetof discretesoftwareandtechnologywhichfocusesonautomatingandimprovingthebusinessprocess associatedwithmanagingcustomerrelationshipsintheareaofsales,marketing,customerservice and support. CRM helps companies understand, establishand nurture longterm relationships with clientsaswellashelpinretainingcurrentcustomers.Themostimportantstepthatanorganization has to take in the direction of CRM is to create an interdisciplinary team to review how the organizationinteractswitheachcustomeranddeterminehowtoimproveandextendtherelationship.
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14.4.

FormsofRelationshipManagement

Anextensivereviewofliteraturerevealstendifferentbutinterrelatedformsofrelationshipmarketing asmentionedbelow: 1. Thepartneringinvolvedinrelationalexchangesbetweenmanufacturersandtheirexternalgoods suppliers. 2. Relationalexchangesinvolvingserviceproviders,asbetweenadvertisingormarketingresearch agenciesandtheirrespectiveclients. 3. Strategicalliancesbetweenfirmsandtheircompetitors,asintechnologyalliancescomarketing alliancesandglobalstrategicalliance. 4. 5. Alliancesbetweenafirmandnonprofitorganizations,asinpublicpurposepartnerships. Partnershipsfor joint research anddevelopment, as betweenfirms and local,state,or national governments. 6. Longtermexchangesbetweenfirmsandultimatecustomers,asparticularlyrecommendedinthe servicesmarketingarea. 7. 8. 9. 10. Relationalexchangesofworkingpartnershipsasinchannelsofdistribution. Exchangesinvolvingfunctionaldepartmentswithinafirm. Exchangesbetweenafirmanditsemployees,asininternalmarketing. Within firm relational exchanges involving such business units as subsidiaries, divisions or strategicbusinessunits. These different forms of relationship marketing both jointly and severally influence the emergence andgrowthofenduringlongtermdyadic,triadicnetwork,andwebofrelationshipsbetweenthefocal firmanditssupportingkeystakeholders. 14.5. ManagingCustomerLoyaltyandDevelopment

Managingcustomerdevelopmentprocessisoneofthecriticaldimensionsofrelationshipmarketing. Basically it involvesa twinfocuscustomer catching,and customer keeping. Customer catching is theprocessofattractingnewcustomers(invitingnewblood),whilethecustomerkeepingaimsatthe processofretainingtheexistingones(encouragingoldblood).

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CustomerDevelopmentProcess:

Suspect

Prospect s Firsttime customers

Repeat customer

clients

Members

Advocate

Partners

To understand customer relationship management, we must first examine the process involved in attractingandkeepingthecustomers.Thestartingpointissuspects.Suspectiseveryonewhomight conceivablybuytheproductorservice.Thecompanylookshardatthesuspectstodeterminewho themostlikelyprospectsare.Theprospectsarethosepeoplewhohaveastrongpotentialinterestin theproductandtheabilitytopayforit.Disqualifiedprospectsarethosewhomthecompanyrejects becausetheyhavepoorcreditorwouldbeunprofitable.Thecompanyhopestoconvertmanyofits qualifiedprospectsintofirsttimecustomers,andtothenconvertthosesatisfiedfirsttimecustomers intorepeatcustomers.Bothfirsttimeandrepeatcustomersmaycontinuetobuyfromcompetitors as well. The company then actsto convert repeat customers into clients. Clients are those people whobuyonlyfromthecompanyintherelevantproductcategories.Thenextchallengeistoturnthe clientsintoadvocates.Advocatesarethosepeoplewhopraisethecompanyandencourageothers whobuyfromit.Ultimatechallengeistoturnadvocatesintopartners,wherethecustomerandthe companyworkactivelytogether.Atthesametime,itmustberecognizedthatsomecustomerswill inevitably become inactive or drop out for various reasons causing relationships to dissolve. The companys challenge is to reactivate the dissatisfied customers through customer winback strategies. It is often easier to reattract excustomers than to find new ones. Unfortunately, the traditionalmarketingapproachwithitsemphasisonmakingsalesratherthanbuildingrelationships
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failstoachievethis. SelfAssessmentQuestions1 1. is the process of attracting new customers, while the .aims at the process of retainingtheexistingones. 2. ..iseveryonewhomightconceivablybuytheproductorservice. 3. .arethosepeoplewhohaveastrongpotentialinterestintheproductandtheabilityto payforit. 4. arethosepeoplewhobuyonlyfromthecompanyintherelevantproductcategories. 5. ..arethosepeoplewhopraisethecompanyandencourageotherswhobuyfromit.

14.6 ReasonsbehindLosingCustomersbyOrganizations It is said that costof attracting a new customer is estimatedto befivetimesthe cost of keepinga currentcustomerhappy.Itrequiresagreatdealofefforttoinducesatisfiedcustomerstoswitchaway from their current suppliers. Unfortunately, mostmarketing theory and practice centeron theartof attractingnewcustomersratherthanretainingexistingones.Theemphasistraditionallyhasbeenon makingsalesratherthanbuildingrelationships.Thefocushasbeenonpresellingandsellingrather than on caringfor the customer afterwards. Today, however, more companies are recognizing the importanceofsatisfyingandretainingthecurrentcustomers. Todayscompaniesmustpaycloserattentiontotheirdefectionrateandtakestepstoreduce it.Thepossiblereasonsforcustomerdefectionwouldinclude: 14.6.1 Pricerelatedreasons:Acustomertriestomatchthepricetopayforacquiringabrandand thevaluethebrandcouldgenerate.Ifthecustomerperceivesamismatchbetweenthepriceandthe value,hewouldoptforacompetitorsbrand.Also,ifthepriceofbrandforanyreasongoesbeyond hisreach,hewouldswitchovertoalowpricedbrand.Thus,theroleofpriceincustomerretentionis verysignificant. 14.6.2 Product related reasons: In view of technological advancement, the new brand which makes market entry would be capable of offering better performance as compared to the already existingbrand.Thiswouldinducethecustomerstomakeabrandswitchover.

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14.6.3 Servicesrelatedreasons:Thecustomersconcentrationisnotonlyonthebrand,butalso on the accompanying services offered at three different stagespresales, during sales and after sales.Anydissatisfactionasregardstoserviceswouldcausethecustomertomoveawayfromthe brand. 14.6.4 Benefit related reasons: The customers may beattracted by variousaugmented benefits offered by the competitors. Such benefits may be more appealing and induce customers towards brandchanges. 14.6.5 Competitor related reasons: Technological advancement, attractive offers, value added services,etc.,offered by competitors would alsodraw the attention and induce customers towards brandswitching. 14.6.6 Personalreasons:Onthepersonalfront,acustomerwouldbecomeabranddefectordueto thefollowingreasons: Movedawayfromthemarketareawherethebrandissold. Rolechangesinlifecycleandconsequentlyleadingchangesinbrandpreference. Anger,disgust,distressdevelopedwithintheprocessofproductdelivery. Sentimentalreasons. Influenceofothermembersofthefamily.

The organization must periodically analyze the reasons behind losing customers and accordingly developacustomerretentionplanthatwouldserveasthebasictooltowardsbuildingastrongand longlastingrelationshipwithcustomers. 14.7 SignificanceofCustomerRelationshipManagement Reductionincustomerrecruitmentcost. Generationofmoreandmoreloyalcustomers. Expansionofcustomerbase. Reductioninadvertisementandothersalespromotionexpenses. Increaseinthenumberofprofitablecustomers. Easyintroductionofnewproducts. Easybusinessexpansionpossibilities. Increaseincustomerpartnering. 270

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The customers are also benefited by relationship marketing in terms of improved service quality, personalized care, reduction of customer stress, increased value for money, customer empowerment,etc. In todays highly competitive business world, CRM is becoming the ultimate solution for both, customersaswellasorganizations.Anyorganizationmusthaveaclearideaastowhyitlosesits customers. This would help informing proactive and reactive measures to minimize or avoid the same. This chapter mainly focuses on the causes responsible for losing customers and deals at length,thevariousstrategiesthatcanbeemployedtobuildandmaintainlongtermrelationshipwith customers,enablingareadertoconsolidaterelevantstrategiessuitabletohisbusinesscontext. TraditionalOrganizationalChartVsModernCustomerOrientedCompanyOrganizationChart

Many managers who believe that the customer is the key to profitability considered the traditional organizationchartasinfig.(a)apyramidwiththepresidentatthetop,managementinthemiddle, andfrontlinepeople(salesandservicepeople,telephoneoperators,receptionists)andcustomersat the bottom to be obsolete. Master marketing companies know better they invert the chart, as showninfig.(b)above.Atthetopoftheorganizationarethecustomers.Nextinimportancearethe frontlinepeoplewhomeet,serve,andsatisfythecustomers.Underthemarethemiddlemanagers, whose job is to support the frontline people so they can serve the customers well. Finally, at the baseistopmanagementwhosejobistosupportthemiddlemanagers.Wehaveaddedcustomers along the sides of Fig. (b) to indicate that all the companys managers are personally involved in knowing,meeting,andservingcustomers.
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BroadeningtheconceptofRelationshipMarketing Companiesshouldrealizethattherearemultipleconstituenciesimportanttoorganizationalsuccess other than customers. The stakeholders of an organization would include: investors, the financial community, vendors and suppliers, employees, competitors, the media, neighbors and community leaders, special interest groups, and government agencies. These stakeholders can affect and be affected by a companys marketing programme. Adopting an integrated view of multiple constituencies has bottomline implications. Kotter and Heskett (1992) found that firms that emphasized the interests of three constituenciescustomers, employees and stakeholders outperformedthosethatemphasizedonlyoneortwo. Figure14.1.ShowingIntegratedViewofMultipleCorporateConstituencies
External goods suppliers

Employees

Investorsand Financial

Ultimate Customers

Serviceprovider (ad and marketing research agencies

Subsidiaries, divisions, Strategic business units (SBUs)

Functional departments (interfunctional coordination among production, finance, marketing, R & D, HRM)

Channel of distribution (distribution and dealers)

FOCALFIRM

Completions (strategic aliances: technology, comarketing and global)

Neighboursand Communityleaders Governmentlocal State,andcentral Specialinterest Groupsinthesociety

Government agencies

IntegrationofSoftandHardVersionsofRelationshipMarketing At this juncture, it is necessarytoclarifyandelaboratethe softand hard versionsof relationship marketing. Soft version of relationship marketing is more reminiscent of humanistic relationship development,whereasthehardversionreflectsautilitarianinstrumentalism.Thesoftversionlays stressonthetermrelationship,thusconjuringupechoesoftherelationshipmanagement.Because
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itstronglyadvocatesthatallmanagementisbasicallyrelationshipmanagementandallmanagersare relationship managers. It invariablyfocuses on developmental humanism as afoundation tobuild andnurtureenduringrelationshipsinmarketingexchanges.Ontheotherhand,thehardversionputs thestressontheideaofmarketing,thatissomethingtobeuseddispassionatelyandinaformally rationalmanner. 14.8 SocialActionsAffectingBuyerSellerRelationships GoodThings Initiatepositivephonecalls. Makerecommendations. Candorinlanguage. Gettoproblems. Usejargonorshorthand. Acceptresponsibility. Planthefuture. BadThings Makeonlycallbacks. Makejustifications. Accommodativelanguage. Onlyrespondtoproblems. Uselongwindedcommunications. Shiftblame. Rehashthepast.

Useweproblemsolvinglanguage.Useoweuslegallanguage.

Source:ThedoneLevitt,TheMarketingImagination(NewYork:FreePress,1983)p.119.Reprinted by permissionof the Harvard Business Review.Anexhibitfrom Theodore Levitt, After theSale is Over, Harvard Business Review (SeptemberOctober 1983, p. 119). Copyright @ 1983 by the PresidentandFellowsofHarvardCollege. SelfAssessmentQuestions2 1. Soft version of relationship marketing is more reminiscent of , whereas the hard versionreflectsa. 2. KotterandHeskettfoundthatfirmsthatemphasisedtheinterestsofthreeconstituencies,namely ..,employees,and..outperformedthosethatemphasizedonlyoneortwo.

14.9Summary Thefocusofrelationshipmarketingapproachcentersondevelopinghardcoreloyalcustomers withtheideaofretainingthemforever. The customer relationship management is a process of acquiring customers by understanding 273

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their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches. Customer Relationship Management isaboutacquiring,developing and retainingsatisfied loyal customerachievingprofitablegrowth,andcreatingeconomicvalueincompanysbrand, CRMisbecomingtheultimatesolutionforboth,customersaswellasorganizations.

TerminalQuestions: 1. Definecustomerrelationshipmarketing. 2. Statethevariousformsofcustomerrelationshipmarketing. 3. Whatarethevariousreasonsforlosingcustomersbyorganizations? 4. Statethesignificanceofcustomerrelationshipmanagement. AnswertoSelfAssessmentQuestions SelfAssessmentQuestions1 1. Customercatchingcustomerkeeping 2. Suspect 3. Theprospects 4. Clients 5. Advocates SelfAssessmentQuestions 2 1. Humanisticrelationshipdevelopmentutilitarianinstrumentalism 2. Customersstakeholders AnswerstoTerminalQuestions: 1. Referto7.3 2. Referto7.4 3. Referto7.6 4. Referto7.7

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