Concept and Context Of CRM

By Manoj Aiyer

Definition by Gartner
Gartner

has defined CRM as a business strategy designed to optimize profitability, revenue and customer satisfaction.

Definition by PwC Consulting

CRM

is a business strategy that aims to understand / appreciate, manage and personalize the needs of an organizations current and potential customers.

Definition by Parvatiyar and Sheth

CRM is a competitive strategy and process of acquiring, reacting and partnering with selective customers to create superior value for the company and the customer.

Definition by Bob Thompson CRM Guru.com

CRM is a business strategy that applies to every organization. It means working with customers such that they receive great service and are motivated to return again and again to do more business with the company.

Metagroup Definition

CRM is ultimately about driving bottom-line revenue through proactive management of the customer lifecycle. It is about applying the right CRM treatment to the right customer segment at the right time to produce business results. CRM is a business strategy providing a systemic approach to customer life cycle management (CLCM). CLCM is a three domain business system, aligning business processes, technology and the customer life cycle. This business system must integrate sales, service and marketing process and the CRM technology environment with the customer
.

Defining CRM by CRM (UK) Ltd., 2000

Customer Relationship Management is the establishment, development, maintenance and optimization of a long-term mutually valuable relationship between customer and organization.

CRM is about strategy

It is a strategy of not only delivering a singular customer experience and value but also creating of ongoing continuous improvements in customer experience and value enhancement in the relationship.

CRM from Strategy Perspective Kumar & Werner

CRM is a strategic process of selecting the customers a firm can most profitably serve & of shaping the interactions between a company & these customers . The goal is to optimize the current & future value of the customers for the company

Why CRM is a big issue today?

Customers: A key development in todays market is the diversity of the customers. The market place changes the needs and wants when the demographic make-up of the market place changes. Three of the important trends:

Aging of the Population: The birth rate in most developed countries has been falling for more than two decades and this phenomenon is described as deyouthing

CRM a big issue: customers

Increasing diversity in ethnicity: Markets are becoming more segmented. Vendors will have to cater to ethnically diverse needs in housing, clothing and food. Marketing communications will have to reflect this diversity in the way companies serve their customers. Increasing Individualisation : We will increasingly have to look at the individual behaviour as the family members spend more time apart. This will increase the need for the personalised attention to each household members. Another consequence is a higher degree of perceived loneliness in society

CRM a big issue: customers

Time Scarcity:

Many households are technologically rich but relatively time poor. Time is becoming one of the most precious commodities. As activities compete for time, customers will redesign the tasks that consume much time and embrace time saving activities and time shifting technologies Eg: Internet and eating habits . This has resulted in Multi tasking and customer time scarcity provides a window of opportunity for the savvy marketer who can effectively bring relevant, value added messages, products, and services to time starved customers.

CRM a big issue: Customer

Value consciousness & Intolerance for low Service Levels:

Customers are becoming more demanding. The expectations are extreme for reliable products . They are intolerant to failures and demand continuously more. customers compare their experience with best in class expectations. As the customers bcome more educated, they try new products n services & their expectation level is increased. The customers will raise their bar each time their expectations are met.

CRM a big issue: Customer

Information Aptitude:

Availability

&

Technological

Customers are having access to tremendous amount of data. This has both positive and negative impacts. The positive side is that all the manufacturers and service are in almost equal position when making their information available to customers. The negative side is that this , in turn, makes it much harder for the providers to differentiate their products and services from those of their competitors. This makes it harder to grab customer attention & affect their product decision.

CRM a big issue: Customer

Decrease in Loyalty

Customers are becoming increasingly selective and diversifying their business in unprecedented rates. This happens as institutions implement more intensive cross selling campaigns.

The changes in the markets are giving rise to newer trends in customer behavior. The overarching result is that consumers are putting greater demands on firms in terms of high value products & services to be provided at right time at right place.

CRM-Big Issue: Market place

Business was essentially manufacturing based. Hence, it was easier for people to switch to other brands as mass marketing was the strategy. However, due to globalization, services economy & technology market places started changing:

Competition for customers becoming intense: With trade barriers being removed n geographies getting redefined, location advantages have vanished. Logistics and distribution partnerships have become more important

CRM-Big Issue: Market place

Markets have become fragmented: Customer have differentiated needs in developed markets where supplies exceed demand. Individual marketing is taking precedence with markets broken down into multiple segments Differentiation is becoming more difficult: the quality of objective product attributes are decreasing substantially and it is no longer a competitive advantage. Brand loyalty founded on product differentials is just relative & not absolute.

Good product is not sufficient. Companies have moved away from transaction to relationships

CRM-Big Issue: Data Storage

The demand and supply of the technology has changed dramatically.

storage

On supply side cost per bit basis, there is a average drop of 40% every year . And the technology has also brought the size to much compact size. On demand side the requirement of the economies have changed. Earlier, the western economy was 1 petabyte. Now, half of it is required for 1 oil field. Companies double storage space every 6 months

Firms are in better situation now, if they analyse correctly, it will have unprecedented data of consumer, else it will be overwhelmed with data.

CRM-Big Issue: Marketing function

Media Dilution & Multiplication of channels

The nature of marketing communication is undergoing significant changes. Mass communication is a model of past , the short term & deal focused consumer response is appropriate now for Consumers and manufactures. Television has taken precedence over dailies. Marketers have to demonstrate investments to return. The problem stems from the marketing practices which is more focused on; acquisition & not retention; prices & not value ; transaction & not relationship.

Decreasing Marketing efficiency & effectiveness

What motivates companies to adopt CRM strategies ?

Competition -

With globalization and ecommerce continuing to spread, corporate offerings are increasing and becoming commoditized. Differentiating products and services is becoming more and more difficult . In such a scenario, CRM shows a company the way to increase customer loyalty, earn higher margins and stronger branding.

What motivates companies to adopt CRM strategies ?

customer Expectation- E-commerce has

competition just a mouse click away and customers have become more demanding when voting with their pocket books. Companies that use CRM to truly understand their customers and respond to their needs, will come out on top. Amazon.com is a text book example in this context.

What motivates companies to adopt CRM strategies ?

Technology-The cost of CRM Technology has dropped, so it is easier to justify systems that consolidate your customers touch points. The separate and isolated systems traditionally used by Customer Service, Sales and Marketing can now be phased out and the old communication gaps filled in.

What motivates companies to adopt CRM strategies ?

Diminishing impact of advertisingWhether it is primetime TV, print journalism, direct mail or email marketing, all forms of advertising are becoming ineffective. With CRM you can target your message more precisely, hold peoples attention better and retain customers longer and at a lesser cost.

CRM, Marketing and Relationship Marketing

Under selling concept a companys task was to sell and promote products coming out of its factories in an effort to win as much volume as possible and thus maximize profits. The job was to hunt down customer prospects wherever they could be found and use the persuasion power of personalized selling to make a sale. Management gave little thought to segmenting the market and developing different product and service versions that met varying needs in the marketplace. Product standardization was the key-coupled with mass production, distribution and marketing.

The central purpose of traditional marketing was to sell products . The aim was to find customers for companys products. With increased competition Marketing concept shifted attention from the factory to customers and to their varying needs. Now a companys aim was to develop appropriate segment based offerings and marketing mixes. Skills of market segmentation, targeting and positioning became the key. Delivering higher customer satisfaction in each chosen segment to produce loyal customers whose repeat purchase would lead to increased profitability became the focus.

The job of marketing was therefore to develop contextual offering of products, services and experience to match individual customer requirements. To continuously explore, create and deliver individual customer value in a very dynamic and a competitive environment needs investment in relationship with various stakeholders customers, collaborators, employees, communities. CRM is in the domain of relationship management with customers.

CRM & Direct marketing

Lester Wunderman of direct marketing fame has put it well : The call of the industrial revolution was This is what I make, wont you please buy it ? Which has now given way to that of the customer revolution which declares, This is what I need, cant you please make it. From a company being the hunter, customer has now become the hunter informing the company of his specific requirements proposing the price he will pay, establishing how he wants to receive the company information and advertising. Companies therefore have to turn from a make and sell philosophy to sense and respond philosophy.

THEN
Maximizing market share and revenue was the objective

NOW
Maximizing customers value is the primary objective.

Quality standards were determined internally. Product and service were separate entities. Only marketing people were concerned with the customer. Marketing management was an independent function.

Quality standards are determined by the customer. Products are developed in service for customization. Everyone in the company is concerned with the customer. Marketing is managed by cross-functional teams.

THE OLD

THE NEW

Products were developed to enter new markets. Brands were built to have differentiated associations. Communications were used to convey brand association. Delivery systems were used to make purchases easier. Relationships were less important than sales.

Products are developed to meet customer needs. Brands are positioned to offer distinctive value. Communications are used to create expectations of value. Delivery is used to reinforce the value proposition. Relationships are built to offer lifetime customer value.

Difference between Transaction Marketing and Relationship Marketing

TRANSACTION V/S RELATIONSHIP MARKETING

TRANSACTION MARKETING

RELATIONSHIP MARKETING

Functional marketing Focus on a single sale Orientation on product features Short time scale Little emphasis on customer service Moderate customer contact Quality is a concern of production

Cross-functional marketing Focus on customer retention Orientation to customer values Long time scale High emphasis on customer service High customer contact Quality is everyones concern

Difference between Marketing and CRM

The differences are best explained by three cornerstones

Unlike marketing CRM views products as processes. Customer receives value not only from purchase but from each exchange between the customer and the provider Thus managing relationship based processes is a core competence

Difference between Mktg n CRM

Second concept in CRM is customer value creation or co creation. -According to this approach competitive advantage is not based exclusively on price but also on the ability of the provider to help customers create value for themselves. Third relates to providers responsibilities. - A company can build stronger relationships with its customers only if it takes the responsibility for developing these relationships and offers its customers possibilities to create value for themselves.

Difference between CRM and Relationship Marketing

Relationship Marketing is a broader overriding concept. According to Gummesson (2002), Relationship marketing is a marketing based on interactions within networks of relationships. A network is a set of relationships which can grow into enormously complex patterns. In the relationship, as the simple dyad grows into a complex networks, the parties enter into active contact with each other. This is called interaction. The relationship between the one who sells something and the one who buys something forms the classic dyad of marketing, a two party relationship. This is the party relationship of marketing.

Levels of Relationship marketing

High Margin Many customers/ distributors Accountable Medium Margin Reactive Low Margin Basic or reactive Reactive

Medium number of customers/distributors

Proactive

Accountable

Few customers/ distributors

Partnership

Proactive

Accountable

CRM is the values and strategies of relationship marketing with particular emphasis on customer relationship turned into practical application. CRM does not deal with networks but focuses on the customersupplier interaction. Gummesson(2002) has converted the philosophy of Relationship Marketing into tangible relationships that become part of the companys marketing and business planning. This has been done by defining 30 relationships, the 30 Rs.

These 30 Rs are divided into four broad categories :

Classic market relationships (consisting of

the relationship between the supplier and the customer, between the customer-suppliercompetitor and the classic network distribution channels). Special market relationships (Relationships via full time marketers and part time marketers, interaction between customers and service providers, relationship in industrial and business marketing, e-relationship, green relationship (environment and health based, law based).

30Rs

Mega relationships (Personal and social

network, mass media).

Nano relationships (Introduction of profit

centres in an organizations, relationship between internal customers and internal suppliers, the relationship between operations management and marketing, relationship with the employee market, etc.).

The first two types are market relationships be it classic market relationships or special market relationships. The next two types are non-market relationships which directly influence efficiency of market relationship.

What is not CRM ?

In summary CRM is not :
1. 2. 3. 4. 5. 6.

Piece of software solution Sales tactics Call Center services Relationship building by softer attributes of a contact person. Empowerment to pass goodwill waivers. Another buzzword/passing management fad like Enterprise Resource Planning (ERP) / Business Process Management (BPM).

Types of CRM
1.
2.

Proactive versus Reactive CRM or Operational, Collaborative and Analytical CRM.

Operational CRM
The customer touch points are classified into : Face to face touch points Sales/Service/Channel/Events/stores/Promotions Database driven touch points Telephones / Email/Mail/SMS/Fax/Loyalty Cards/ATMS

Mass Media
Advertising / PR/Website At any of these touch points, any number of the following transactions can take place. Financial transaction Sale Payment Return of sale Information transaction Request for information Complaint Suggestion

Collaborative CRM
Jill Dyche defines collaborative CRM as a specific functionality that enables a two way dialog between a company and its customers through a variety of channels to facilitate and improve the quality of customer interactions. (Dyche 2002). The mandate of Collaborative CRM is to manage various partners of the company be it business partners, agents, brokers, OEMs, intermediaries like distributors, dealers, resellers and retailers. By managing all these partners, it tries to in turn facilitate the integration of various activities like Marketing, Sales, service / support and quality.

Analytical CRM

Also known as back office or strategic CRM, it involves understanding the customer activities that occurred in the front office. (Dyche 2002). It involves analyzing large amounts of crossfunctional data using date mining and other methods and feeding the result (knowledge gained) back to operational CRM. It also studies customer behavior patterns that helps to know what products to position for cross-selling / upselling and the level and kind of service to deliver to meet customer demand.