UNIT-1 Introduction and significance of Customer Relationship Management: CRM

Emerging Concepts; Need for CRM; Customer Retention, Customer Loyalty, Customer
Value, CRM Applications; CRM Model.

INTRODUCTION Customer Relationship Management is an upright concept or strategy to

solidify relations with customers and at the same time reducing cost and enhancing productivity
and profitability in business. An ideal CRM system is a centralized collection all data sources
under an organization and provides an atomistic real time vision of customer information. A
CRM system is vast and significant, but it be can implemented for small business, as well as
large enterprises also as the main goal is to assist the customers efficiently.

Usually an organization consists of various departments which predominantly have access to

customers information either directly or indirectly. A CRM system piles up this information
centrally, examines it and then makes it addressable within all the departments.

CRM system provides a well defined platform for all business units to interact with their clients
and fulfill all their needs and demands very effectively and to build long-term relationship.

Origin of CRM CRM originated in early 1970s when the business units had a manifestation that
it would be advisable to become customer emphatic rather that product emphatic. Birth of
CRM was because of this heedful perceptiveness.

The famous writer and management consultant Peter Drucker wrote; The true business of every
company is to make and keep customers. Traditionally every transaction was on paper and
dependent on goodwill which created hindrance in clutching customers. People used to work
hard in entertaining customers by presenting new products with astonishing services; they were
ready to work overtime for grasping more and more customers for increasing business. This too
resulted in customer satisfaction and loyalty up to some extent, but at the end of the day there
was no such bonding or relation between the two to carry on with future business smoothly.

Previously business was quite easy as it was mere a one-to-one dealing without any specific
process. But with time, due to incoming complexities in communication, it found itself in
troubled waters. Emerging of new strategies and technologies in global marketplace and a
mammoth degree of competition in business, the approach needed to be changed to proactive
rather than reactive. Origination of CRM turned out to be a piece of cake for all suppliers and
customers due to its advantages. Customer relationship management came as a process that dealt
with relationships with customers surpassing the whole business.
Originally customer relationship management was based on three major principles; shielding the
current customers, fostering new customers and enhancing asset value of all the customers. With
the advent of CRM which was integrated with high end software and technology, business
perspectives were totally changed. A CRM system eventually emerged as consisting of company-
full of information which is depicted sophistically to increase business profit and meliorate
customer satisfaction and loyalty, on the same hand reduces business cost and investment

Need of CRM-WHY CRM?

In the commercial world the importance of retaining existing customers and expanding business
is paramount. The costs associated with finding new customers mean that every existing
customer could be important.

The more opportunities that a customer has to conduct business with your company the better,
and one way of achieving this is by opening up channels such as direct sales, online sales,
franchises, use of agents, etc. However, the more channels you have, the greater the need to
manage your interaction with your customer base.

Customer relationship management (CRM) helps businesses to gain an insight into the behaviour
of their customers and modify their business operations to ensure that customers are served in the
best possible way. In essence, CRM helps a business to recognise the value of its customers and
to capitalise on improved customer relations. The better you understand your customers, the
more responsive you can be to their needs.

CRM can be achieved by:

finding out about your customers' purchasing habits, opinions and preferences
profiling individuals and groups to market more effectively and increase sales
changing the way you operate to improve customer service and marketing

IMPORTANCE OF CRM

Looking at some broader perspectives given as below we can easily determine why a CRM
System is always important for an organization.

1. A CRM system consists of a historical view and analysis of all the acquired or to be
acquired customers. This helps in reduced searching and correlating customers and to
foresee customer needs effectively and increase business.
2. CRM contains each and every bit of details of a customer, hence it is very easy for track a
customer accordingly and can be used to determine which customer can be profitable and
which not.
3. In CRM system, customers are grouped according to different aspects according to the
type of business they do or according to physical location and are allocated to different
 customer managers often called as account managers. This helps in focusing and
concentrating on each and every customer separately.
4. A CRM system is not only used to deal with the existing customers but is also useful in
acquiring new customers. The process first starts with identifying a customer and
maintaining all the corresponding details into the CRM system which is also called an
Opportunity of Business. The Sales and Field representatives then try getting business
out of these customers by sophistically following up with them and converting them into
a winning deal. All this is very easily and efficiently done by an integrated CRM system.
5. The strongest aspect of Customer Relationship Management is that it is very cost-
effective. The advantage of decently implemented CRM system is that there is very less
need of paper and manual work which requires lesser staff to manage and lesser resources
to deal with. The technologies used in implementing a CRM system are also very cheap
and smooth as compared to the traditional way of business.
6. All the details in CRM system is kept centralized which is available anytime on
fingertips. This reduces the process time and increases productivity.
7. Efficiently dealing with all the customers and providing them what they actually need
increases the customer satisfaction. This increases the chance of getting more business
which ultimately enhances turnover and profit.
8. If the customer is satisfied they will always be loyal to you and will remain in business
forever resulting in increasing customer base and ultimately enhancing net growth of
business.

Example

CRM implementation in the hotel industry are

1. marketing and process integration in hotel business,

2. planning and organizing of target campaigns,
3. attracting new and retaining current loyal guests,
4. transparent reporting,
5. improving efficiency based on sales and relations marketing,
6. reducing costs of marketing and sales,
7. improving business processes and productivity,
8. recording of all contacts with guests in any segment,
9. ability to define the type and segment contacts,
10. historical records of interactions with each guest,
11. open access and consistent exchange of information within the organization,
12. competition analysis and entering new markets.

CRM MODELS
 IDIC Model
QCI Model
CRM Value Chain Model

IDIC Model

The IDIC model was developed by Peppers and Rogers. This model suggests that companies
should take four actions in order to the building, keeping and retaining the long-term one-to-one
relationships with customers.

Identify
Differentiate (value, need)
Interaction
Customize

Identify

First, a company must identify who is an actual customer and should know about deep
knowledge of their customers.

It is not only necessary to know about your customers but you have to know about more and
more your customers so that you can easily understand them and serve them profitably.

Differentiate
Differentiate your customer on two bases: value and need

Value: Differentiate your customer to identify which customer is generating most value now and
which offer most for the future. Give more value to those customers who are generating more
value for you.

Need: Differentiate your customers according to their needs. Different customers have different
need and serving the in profitable ways need more knowledge about their needs.

Interaction

The company must emphasis on interaction with the customer to ensure that you understand
customers expectations and their relationship with a brand.

The company must consider Interaction with customers according to their needs and value that
they are providing you. Interaction directly with customers makes believe that company has a
concern with them and company wants to serve them individually.

These efforts make customers loyal and help the company to build long-term relationships.

Recommended Read: Types of CRM (Customer Relationship Management)

Customize

When you differentiate your customers according to their values and needs, after that, you have
to customize your product according to their needs and values.

Customize the offer and communications to ensure that the expectations of customers are met.
Interact to customize is information to customers about your ability to cope with their need.

Failure in the third step means something wrong with second or third steps.

So return or go back to previous steps study them again and search out more and more and
rearrange these steps.

QCI MODEL
The QCI model is also a product of a consultancy firm. The models authors prefer to describe
their model as a customer management model, omitting the word relationship.

At the heart of the model, they depict a series of activities that companies need to perform in
order to acquire and retain customers.

The model features people performing processes and using technology to assist in those
activities.
This model includes the series of activities related to employees, people, and organization, and
technology as well.

According to this model, relationships process with the external environment. Because when a
customer wants to start selling process or wants to interact with the organization, external
environment directly affects the customer experience. External environment also affects the
planning process of the organizations.

Now as you can see in the figure that customer experience affects three activities future:
customer proposition, customer management activity, and measurement.

Customer proposition means something that a company offers to the customer against the price.
Customer management activity is a process of capturing customers, start with targeting,
conversation, selling and end with retaining or winning back the customers.

Customer management activity affects customers experience that how a company acquires,
retains a customer and also penetrates. Finally, measurement process also affects the customer
experience.

People and organization have relation with the planning process, customer proposition, customer
management activity and measurement. Because CRM starts with people and ends with people.
Infrastructure deals with the organization in a sense of technology, customer information, and
process management.

One big thing is that each activity, people, organization, process, and technology have a dual
effect and intercorrelated with each other.

CRM VALUE CHAIN MODEL

CRM, the meaning of those three letters, is emotionally contested. For some, CRM is simply a
bridge between marketing and IT: CRM is, therefore, an IT-enabled sales and service function.

For others, its little more than precisely targeted 1- to-1 communications. Simply we can say,
CRM Is a tool to manage customer relationships with the help of people, information technology,
customers data, companys process and customers themselves.

The CRM value chain is an established model which businesses can easily follow when they
developing and implementing their CRM strategies.

It has been five years in development and has been piloted in a number of business-to-business
and business-to-consumer settings, with both large companies and SMEs: IT, software, telecoms,
financial services, retail, media, manufacturing, and construction.
CUSTOMER RETENTION

Customer retention in a marketing sense means holding on to customers. If a company becomes

aware in time of those customers who demonstrate an increased likelihood of ending the
relationship, then it can take action to prevent this.

According to the Harvard Business School, an increase in customer retention by just 5 percent,
can lead to an increase in profits by 25 percent to 95 percent.

Customer retention is important to growing any successful business. But if youre like the
majority of businesses out there today, you know its hard! Because lets face it, no business is
perfect, and no one likes losing customers.

Customer retention is a system of activities for improving the transaction process, based on the
positive positioning of the customer, and the consequential readiness for successive purchasing.

Retention strategies work best when company retention level is high because only a small 5
percent increase in retention can increase company profitability to over 85 percent. Retention
strategies are profitable not only because of increased revenue from loyal customers but also,
because of reduced costs of serving long-time customers.

Advantages of customer retention

Herrmann A (2000, 51-52) stated that in the tough, tooth and nail competition, the companies
that have managed in the past to closely bind their customers to themselves, thereby protecting
customers against competitor attempts to attraction them away, have the advantage.

The mutual acceptance grows as the duration of the business relationship grows. The customers
will continue to trust their regular supplier if that supplier has an unsatisfactory service. This
kind of relationship bond remains if the large number of interactions with long time relationships
between business partners entails.

The intensive situation of working together leads, among other things, to a strong mutual interest
to share information and make complaints. The customers can reveal their observations
concerning product quality and share their opinion and annoyances, as to improve, all of which
serves as a basis for an innovative form of services.

Customer retention can strengthen the security of the manufacturer; reduce various risks like the
fear of failure. When the company knows the needs of their customer well, production risks are
also determined and can be reduced.

Closely connected with this is a lower investment risk, once management has more dynamically
concentrated its policies of innovation on the requirements of the sales market. Companies
customer relationships, as a rule, also bring with them improved benefits in the area of
expenditures.
With increasing customer trust, there is also a growing willingness to refer to the company and
the tendency to recommend it. A phenomenon generally known as word of mouth advertising
experienced as more believable when it is not seen as being influenced by the company.

The relationship between the customer retention and commercial success of a company has a
positive impact. Profit per consumer increases with the increasing customer relationship
duration, as the duration of a customer relationship increases the firm experiences less costs
associated with finding replacement customers.

The higher the percentage of the customer relationship of firm the higher the bottom-line profit
potential

Recent Proven Examples for Customer Retention

1. Use blogs to educate customers and engage them

2. Use email to send special promotions to customers

3. Use the phone to call and check in with customers (Dell Computers does this very well.
Roughly two to three weeks after expected delivery of a Dell product, a customer service
representative gives the customer a call (this has happened to me twice). The purpose of the call
isnt to try sell anything, its simply a courtesy call to make sure the product has arrived and the
customer is happy with it.)

4. Use LinkedIn to build trust and strengthen relationships

5. Use customer loyalty programs to keep them coming back (A study by Mintel that surveyed
customers from coffee shops in the US found that 40% of the 2000 respondents said they had
purchased a drink at Starbucks, compared to the combined 21 percent who did so either at a
smaller chain or independent store.

In a report in mobile payments today, Starbucks CEO Howard Schulz told analysts the company
was approaching four million payment transactions per week from their mobile app. Schultz said
the company expected to have a whopping nine million members on its loyalty program by years
end.)
CUSTOMER LOYALTY

"Most retailers are at a very basic level in how they use loyalty programs, and many
customers see loyalty programs as punitive," says Harvard Business School senior lecturer
Jos Alvarez. "Loyalty schemes are not being used to their best advantage."

Loyalty also means that customer is sticking to the supplier on certain grounds though he may
be having other options also.

Every supplier wants to create and retain a loyal customer who engages in continued profitable
business with him. Customer Loyalty is the measure of success of the supplier in retaining a
long term relationship with the customer. Thus customer loyalty is when a supplier receives the
ultimate reward of his efforts in interacting with its customer. Customer loyalty tends the
customer to voluntarily choose a particular product against another for his need. The loyalty may
be product specific or it may be company specific.

When a loyal customer has repetitive requirement of the same product, such customers may be
described as being brand loyal. On the other hand he may also require different products of the
same manufacturer. That is to say he makes significant purchases direct from the same supplier
and that counts as the company specific loyalty.

Drivers of Customer Loyalty

It is very important for an organization to identify the factors and facets which drive customer
loyalty. These factors help the organization to manage customer loyalty in a better and efficient
way. Following are the drivers of customer loyalty:

1. Attitude: A customer to bear on his loyalty can have following types of attitude:

a. Emotional and sentimental- Some customers stick to a particular supplier due to the
emotional and sentimental attachments with that supplier. This attachment may be due to the
physical location of the supplier, product pattern provided by the supplier that exactly suits
customer or may be due to the esteemed assistance and services provided by him. This type of
bonding enhances customer loyalty and it is very difficult to break this bonding under any
circumstances.

b. Rational Type- Such type of customer makes purchase decision rationally. Before
making any purchase they evaluate the suppliers and assess the profitability criteria.
c. Entrepreneur Type- These types of customers have a habit to try new options. Their
decision to choose supplier is normally irrational and can change their loyalty to other suppliers
even if they are satisfied with existing customers. Its difficult for the supplier to retain or
manage these types of customers as no situation could bind them.

2. Product and services: Following are the important aspects of product and services that
could substantially help in retaining loyalty of customers.

a. Differentiated Products and Services- Differentiation in products and services help the
organization to reduce competition in market and have substantial influence on customers
mindset.

b. Multiple Products for the same customer- By manufacturing multiple products for the
same customer enhances the relationship with customer which increases loyalty. If the customer
is loyal towards any one brand then there are good chances to retain his loyalty for whole range
of brands.

c. High Service Component- The products having a high service component captures more
customer loyalty. This is because the customer does not want to experiment with other products
provided by different supplier. Hence they become loyal to the existing customer due to the
provision of high service components.

Technology: The technological aspects of product manufactured by the supplier plays a vital role
in customer loyalty. The more products are technologically sound, more is the loyalty.

4. Human Resources: Organizational human resource plays a vital role in marketing

segments where customer comes in direct contact. In some consumer sectors like household and
automobiles, the customer gets a chance to evaluate capability of organizational human assets. If
the customer evaluates these human assets as useful and is influenced by the aspects then he
develops a positive feeling against the supplier who posses these enhanced human assets.

5. Suppliers Culture: Suppliers culture is most important driver of customer loyalty. In

consumer sector this culture means quality and in core sector it can be related to technology. For
example, in US Friedrich has ranked with good quality, enhanced design and user friendly
features which have created brand loyalty. In Indian the supplier of almost all the dairy product
called Amul has pursued customer loyalty because of their overall culture. In core sector the
image of the supplier is the biggest driver of loyalty. This image could add a status symbol for
most of the customers. Mercedes automobiles and RayBan sun-glasses are example of this.
The customers uses these products only for maintaining or enhancing their lifestyle and always
be loyal to them.

Proven Examples

Starbucks

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*** eMart Solutions is a leading loyalty and consumer engagement company. They have a
globally patented technology platform called FirstHiveTM, which captures customer data in real
time across platforms (online and offline) and enables brands to hyper personalise their
engagement with their consumers. They work with several Fortune 500 companies.

SNAP SHOT OF CUSTOMER LOYALTY IN INDIA

.Consumers love privileges:

1. 41% customers revisit the brand only because of their love for loyalty program

2. 54% customers will switch brands if given more benefits by another brand

3. 62% customers said monetary benefits (cash back, discounts, rewards) are the most important
aspect of a loyalty program

4. 32% respondents do not receive any communication in spite being part of a loyalty program

5. 52% customers actively participate in loyalty program

Customers love to hear from the brand:

1. 59% wanted the brand to communicate via SMS

2. 35% wanted email communication

3. 21% were ok with brands calling them on the phone

4. 32% expected a mobile app to build engagement with the brand

Preferred channel of communication:

1. Tier I customers: SMS, email, Mobile app, onsite (in that order)

2. Tier II customers: Phone, SMS, Mobile app

Data security is paramount:

1. 61% respondents not comfortable with online browsing behaviour being tracked

2. 64% respondents not willing to share house hold information

3. 51% respond to personalized targeted marketing

Sector wise influence on customers:

1. 84% influence in airlines sector

2. 67% influence in hotel industry

3. 27% influence in retail sector

CUSTOMER VALUE There are various interpretations of what is meant by customer value.
The term may mean low price, receiving what is desired, receiving quality for what is paid, or
receiving something in return for what is given by .Woodruff defines customer value as: a
customer perceived preference for and evaluation of those products attributes, attribute
performances, and consequences arising from use that facilitate (or block) achieving the
customers goals and purposes in use situations.

The definition above suggests that there are two aspects to customer value: desired value and
perceived value.

Desired value refers to what customers desire in a product or service. Perceived value is the
benefit that a customer believes he or she received from a product after it was purchased.

Customer value can be examined at different levels. At a low level, customer value can be
viewed as the attributes of a product that a customer perceives to receive value from. At a higher
level, customer value can be viewed as the emotional payoff and achievement of a goal or desire.
When customers derive value from a product, they derive value from the attributes of the product
as well as from the attribute performance and the consequence of achieving desired goals from
the use of the product (Woodruff, 1997).

How does a supplier deliver customer value?

An entrepreneurial firm must deliver value along the dimensions that matter most to its
customers. For example, from a customer's perspective, the value of a cup of coffee enjoyed with
a friend at a coffee shop might be greater than the value of a take-out cup of coffee. While the
monetary cost of the cup of coffee in both cases might be the same, the value the customer
extracts is different.

To develop compelling customer value propositions, a supplier needs to keep in mind the
following:

1. There are two stages at which customers assess value: before and after they purchase a
product or service.
2. Value is perceived at various levels; therefore, value needs be delivered at various levels.
3. Understanding what customers value is the first step in delivering customer value.

For a complete view on the customer value creation strategies that managers, entrepreneurs, and
leaders can implement to help distinguish themselves from competitors, Smith and Colgate
(2007) provide a comprehensive framework. However, the challenge for suppliers is not just
recognizing what value to create or what the benefits are, but to operationalize customer-facing
processes to deliver value to customers. Table 1 synthesizes views from the extant literature pool
on customer value creation and delivery; it shows how entrepreneurs can use their understanding
of customer value to their advantage.
CUSTOMER DELIVER VALUE