UNIT 2 OVERVIEW OF RELATIONSHIP

MARKETING
 Overview of

UNIT 2 OVERVIEW OF Relationship Marketing

RELATIONSHIP MARKETING
NOTES
Structure
2.0 Introduction
2.1 Unit Objectives
2.2 Customer is King
2.2.1 Why Do Organizations Lose Customers?
2.3 CRM and Relationship Marketing
2.3.1 Fundamental Requirements of Relationship Marketing
2.3.2 Advantages of Relationship Marketing
2.3.3 Strategies for Practising Relationship Marketing
2.4 Orientation to Knowledge Management
2.4.1 Knowledge Requirements of CRM
2.5 Relationship Building as a Process
2.6 Summary
2.7 Key Terms
2.8 Answers to ‘Check Your Progress’
2.9 Questions and Exercises
2.10 Further Reading
Case Study

2.0 INTRODUCTION
In the mid-twentieth century, marketing activity aimed at producing a sale and at
maximizing sales volumes and market share. The fundamental ‘the higher the sales
volume, the higher the profit’ was the basic assumption of the marketers. Compared to
this approach, the current marketing practices have taken a total shift and work on the
premise that today’s consumers are market literate and need to be dealt with differentially.
The initial step in implementing the modern marketing concept involves commitment to
innovation and customer-focused business decision-making. Customer orientation and
customer care are the keys to marketing success as they form the basis on which all
strategic activities revolve. Customer satisfaction has been replaced by customer delight,
jubilation and excitement. Thus, the thinking has to shift from a marketing mix focus to a
relationship focus.

2.1 UNIT OBJECTIVES

After going through this unit, you will be able to:
• Understand the differences in marketing strategies of the past and the present
• Know the conceptual difference between transaction and relationship marketing
• Learn about customer value and customer retention

2.2 CUSTOMER IS KING

In the present scenario where products, marketing campaigns and even sales channels
are becoming more dynamic, business managers have accepted that the customer is
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NOTES
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king and rules the market. The customer is the key to maximizing profits. Market
researches have proved that an increase of 5 per cent in customer retention leads to a
25–95 per cent increase in company profits. There are obvious reasons for this great
uplift as the old customers who make continuous purchases, dramatically reduce the
cost of acquisition. Experienced customers are also smarter and more efficient at dealings
with organizations than new customers.
Building a lifelong relationship with the customers is the mantra for developing
any business. The customer is the king under the CRM concept. Only customer loyalty
can ensure a lifelong relationship. CRM helps the business concern to develop an enduring
relationship with customers, thereby ensuring profitability. Delivering quality service to
customers will ensure customer satisfaction. Offering the right services at the right time,
using innovative methods, creating a large customer base, installing a simple and customer-
friendly system, setting high internal standards, and welcoming customer complaints are
some of the quality services which should be provided in order to ensure a better and
lifelong relationship with the customer.
Customers seek a long term relationship and not a one night stand. This can be
better understood with the case study of ‘Sony and Apple’. In 1979, Sony came out with
the first walkman and remained a market leader for years. Apple reinvented the same
and offered an i-pod which was mystically a cool device. More than the functionality of
this MP3 player that made people flock towards Apple Store, it was the bonding with
‘what it meant’. Apple is a brand that forges relationship with its users and ensures
brand loyalty. On the other hand let us see the case of Sony. In spite of being the leader
in the segment of portable players, it could not sustain ground in front of Apple i-pods.
Sony tried to make changes in the hardware and looks of the walkman, but still failed to
launch it successfully against the much sought after i-pods.
The Brand that forges a long term relationship with the consumers is the one that
marches ahead.
Here, we also need to understand the fact that a company’s product or service
consists of a number of individual elements which collectively influence customer
satisfaction action. For instance, a product’s quality, a salesperson’s selling attributes
and a customer service representative’s efforts are together responsible for customer
satisfaction and retention. Neither act can be viewed in isolation. The entire company
has to focus on building a lasting long term relationship with the customer.
An interesting case cited by Abhinav Chaturvedi in his book Customer
Relationship Management is as follows: A complaint was received by the Pontiac
Division of General Motors. ‘This is the second time I have written to you, and I don’t
blame you for not answering me, because I sounded crazy. But, it is a fact that we have
a tradition in our family of ice cream for dessert after dinner each night. Because the
kind of ice cream varies, so, every night, after we have eaten, the whole family votes on
which kind of ice cream we should have, and I drive down to the store to get it. It is also
a fact that I recently purchased a new Pontiac and, since then, my trips to the store have
created a problem.’
‘You see, every time I buy a vanilla ice cream, when I start back from the store,
my car won’t start. If I get any other kind of ice cream, the car starts just fine. I want
you to know I am serious about this question no matter how silly it sounds: What is there
about a Pontiac that makes it not start when I get a vanilla ice cream, and easy to start
whenever I get any other kind?’
 The Pontiac President was naturally doubtful about the letter. However, he sent Overview of
Relationship Marketing
an engineer to check it out. The engineer arranged to meet the man just after dinner
time, and the two drove down to the ice cream store. They got a vanilla ice cream that
night, and the car did not start. The engineer returned for three more nights. On the first
and the second night they got different flavours and the car started. On the third night, NOTES
they ordered vanilla, and the car failed to start. The engineer continued his visits for as
long as it took to solve the problem. He started jotting down all sorts of data—time of
day, type of fuel used, time to drive back and forth, time taken inside the store, etc.; and,
in a short time, he got the answer. Vanilla being the most popular flavour was kept in the
front in a separate case. So, it took lesser time for the customer to pick the vanilla
flavour than the other flavours. Thus, vapour lock was the problem as the engine was
getting lesser time to cool down sufficiently to start again.
This shows that good companies will take any type of trouble to solve a customer
problem.
Loyal customers are both a scarce resource and a source of value. It is essential
for business managers to nurture this crucial asset. Let us understand why companies
lose customers and what is essential to create customer loyalty and retain them.
To start with, the companies must lay down objective standards to measure
customer’s value and work for maximizing the same. Achievement on this aspect should
be an important part of a company’s business goals. The progress on this aspect must be
measured and reviewed periodically and shared with all those involved in the task. A set
of best practices is emerging as companies are moving from product or campaign-
centric marketing to customer-centric marketing. These best practices focus on measuring
and increasing the lifetime value of the customer base, one customer at a time. These
practices are called customer value management.
2.2.1 Why Do Organizations Lose Customers?
It is needless to mention the need for retention of customers by an organization for
which designing an efficient customer retention plan is very essential. Obviously, for
preparation of such a plan, knowledge on the reasons behind losing customers is required.
The possible reasons are listed below.
• Price-related reasons: Customers try to match the price they pay for acquiring
a brand and the value the brand could generate. If the customer perceives a
mismatch between the price and the value, he would opt for a competitor’s brand.
Also, if the price of a brand for any reason goes beyond his reach, he would
switch over to a low priced brand.
• 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 existing brand. This would induce the customers to make
a brand switchover.
• Services-related reasons: Customers concentrate not only on the brand, but
also on the accompanying services offered at three different stages, namely, pre-
sales, during sales and after sales. Any dissatisfaction as regards to services
would cause the customer to move away from the brand.
• Benefit-related reasons: The customers may be attracted by various augmented
benefits offered by the competitors. Such benefits may be more appealing and
will induce customers towards brand change.

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Overview of • Personal reasons: On the personal front, a customer would become a brand
Relationship Marketing
defector due to changes in life cycle, consequently leading to changes in brand
preference; anger, disgust, distress developed because of the process of product
delivery, or just sentimental reasons.
NOTES
The ladder of loyalty
The stages through which a prospect becomes a customer, a client and finally a partner
is shown by the ladder of loyalty. Jagdish Seth and G Shainesh in their book Customer
Relationship Management: A Strategic Perspective have given a very concise picture
of how a prospect climbs through the ladder (Figure 2.1) and becomes a partner in
business. Their views are as follows:
• Prospect: An individual or an organization in the market that fulfills the needs of
the marketers’ definition of target is known as a prospect. A telecom service
provider, for example, may divide the market and target the executives in blue
chip companies with a special offer.
• Customer: When a prospect is convinced and impressed by the marketers’
offerings and buys the product or service, he becomes a customer.
• Client: A customer becomes a client when he makes repeat purchase of the
product or service of the business organization. In other words, the client is said
to be one who would prefer to purchase from the organization more than once. In
some service areas like the banking and the insurance sector, telephony services,
for example, it is difficult for customers to switch often. A prospect may spend a
lot of time in searching for the right available resource and make comparisons
before the final purchase. He may prove to be one of the loyal long-term clients
if served and cared well and receives services more than his expectations; but
the same client may stop patronizing if ignored, left uncared for, and unsatisfied.
Customers can also become clients when organizations cross-sell multiple products
to an existing customer. Banks may offer insurance services, mutual funds or
stock market transactions to their existing base of clients. Wells Fargo, a leading
financial services provider firm in the U.S. sells more than four of its services to
each customer (more than twice the industry average).

Figure 2.1 The Ladder of Loyalty

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 • Supporter: When a client is satisfied with the offering and recommends it to his Overview of
Relationship Marketing
friend, relatives and acquaintances, the client becomes a supporter. If a customer
reaches this stage, he becomes a valued customer and he needs special treatment.
This positive word-of-mouth publicity has a profitable impact as it helps the
company get new customers. NOTES
• Advocate: A supporter, who in addition to referring customers proactively works
with the company for improving its products and services, is an advocate. In case
of new product development, companies depend on regular feedback from the
lead users, which help in improvements. The companies regularly interact with
the clients and share vital information and there is high confidence level between
both the parties. Such a client becomes a great asset to the business organization.
• Partner: When an advocate becomes actively involved in the decisions of the
company, he becomes a partner. Any relationship that tries developing customer
value through partnering activities can create greater bonding between customers
and marketers. The kind of relationship existing between Procter & Gamble and
Wal-Mart, the world’s largest retailer, is an example in this case. A genuine
partnership characterizes this relationship. Wal-Mart provides the scanned data
from the check-out counters in all their stores through satellite. This information
helps P&G to understand the movement of their products, the stock status of its
products in the outlets, and helps the teams consisting of P&G and Wal-Mart
executives to plan replenishments. It helps P&G in planning its production better
and keeping its inventories low because it is no longer dependent on sales forecasts
but actual sales data. Overall, it brings down the selling costs of P&G. Wal-Mart
also gains as it does not have to keep inventories. It incurs low cost and is able to
pass on the savings to the customers, thus, reinforcing its image of ‘Everyday
Low Prices’ among its consumers.
Another example that can be cited here is the relationship shared between Federal
Express and IBM. IBM’s spare parts are stocked by Federal Express in its own
warehouses and they are delivered across the world on receiving instructions
from IBM’s service personnel. The reliability of FedEx’s service and the efficiency
of its operations make it cheaper and better for IBM when compared to the
alternative of doing it in-house.
In the first two steps in the ladder, namely, prospects and customers, the marketer’s
emphasis is on customer attraction; while in the subsequent steps, the emphasis is on
developing and enhancing the relationships. The greater the bonding, the more committed
the customer is to the relationship and he is less likely to patronize the competitors. Such
relationships do not stay for long unless sustained efforts are made to keep them active
and alive.
Loyalty as a basis of segmentation
Philip Kotler, in his presentation to the Academy of Marketing Science in May 2002, Check Your Progress
emphasized on treating customers differently and appropriately. The most appropriate 1. Mention some important
basis of segmentation remains the loyalty of customers, as it is a great source of useful steps for ensuring better
information about the customers of the company for segmenting them, understanding customer relationship.
their consumer behaviour and rewarding the right ones suitably. 2. What is the services-related
reason for organizations
Scientists say that when a person recognizes a face or a song, or makes a decision losing customers?
signifying loyalty to a brand, there is an increased flow of blood in specific regions of the 3. Who is an advocate?
brain and as a result, those cells light up. This recognition of brand or pretty faces or
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NOTES
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particular car types emerges from the loyalty towards that product. In another case of
Coke and Pepsi, a study was conducted over 67 people where brain scans of people
were taken as they drank competing soft-drinks brands. These contestants were asked
to do a blind taste of Coca Cola and Pepsi. The result - three out of four participants
said they prefer Coke (due to their brand loyalty).
Business strategist and author Frederic F. Reichheld says that ‘on an average US
corporations lose half their customers within five years, change their employees in four
years, and half their investors in less than one year” His experience, as stated in his
work The Loyalty Effect, reveals that the disloyalty at current rates would stunt the
corporate performance by 25 per cent to 50 per cent and for some others, it may be
even more. For success of any business enterprise, profit is no longer the sole reason of
business sustenance; delivering values and thereby retaining customers is what is being
sought after. It is seen that creating value for customer builds loyalty, and loyalty in turn
builds growth, profit and more value.
Building loyalty through customer satisfaction
Loyalty towards any product or company develops over time with repeated usage of the
product or service. When a company delivers superior customer value, it enhances
customer satisfaction; and only when the customers are fully satisfied with the company’s
performance do they initiate efforts to tighten their connections with the company. A
customer is said to be satisfied whenever his or her needs are met or exceeded. A
customer not only expects quality products but also looks forwards to quality services.
He tends to develop expectations during the presales process and when his experience
varies with the given promises, he is aggrieved and unsatisfied.
Satisfied customers do more business and more often. They also refer their family
and friends if they feel that their expectations from that product or service have been
met or surpassed. Once the satisfaction quotient for an individual customer is met, and
there is confidence that their individual needs shall be taken care of, the loyalty of the
customer cannot be missed. In a survey of around 100 UK companies it was found that
most of the respondents did not know what is required to build customer loyalty. The
survey report indicated that satisfied customers feel good only as long as they perceive
that a supplier is giving value. This gives rise to the fact that a supplier needs to continuously
ascertain what customers want and then reengineer goods to build a loyalty process. A
loyalty scheme can reward either all customers or just a few ‘right customers’. Now,
who are these right customers? Choosing the right segment of customers for rewarding
and retaining long term commitment is at the helm of any loyalty programme. The right
customers will form only a proportion of the total customer base at any one time. As
such, if concentrated efforts were made to retain and reward only those customers who
by satisfaction index measure are highly likely to be loyal customers even without the
magnet of a special offer, the success rate of retaining right and loyal customers will be
much higher.
A selective programme for selective customers can help in building and nurturing
a relationship as their loyalty shall be towards the supplier and not the free offer. Providing
superior value, relationship opportunities and fulfillment of customer needs will ensure
the growth and development of ‘right customers’.
When the Frequent Flyers scheme was introduced by American Airlines, it gained
popularity among millions of Americans within no time. But when British Airways launched
their Executive Club frequent flyer programme in early 1990s, it saw an immediate call
from some two million members across the globe. It was different from the American
scheme by reaching out to regular travelers. These are the long standing customers who Overview of
Relationship Marketing
deserve a personal thank you for their proven length of association with the organization.
The term ‘loyalty’ has been defined by different companies depending on the
product categories they deal in, for example, for Kraft, a loyal customer is one who has
bought over 70 per cent of the same brand over the last three years. NOTES
In a broader sense, loyalty includes future purchase intentions, complaining and
referral behaviour, price sensitivity, etc. For measurement of loyalty, it is pertinent to see
the customer behaviour in terms of the following:
• Intentions regarding the next purchase
• The frequency and intensity of complaints
• Degree of desire to share positive experiences
• Tendency to talk about the supplier to other clients

2.3 CRM AND RELATIONSHIP MARKETING

The main purpose of traditional marketing was to sell products. The aim was to find
customers, thereby creating an environment for an exchange that satisfies both the
customer and the organization. In this process of exchange, two or more parties are
involved; an agreement is reached and a transaction takes place. This transaction was
may be a one-time exchange with a short-term focus to make one-time profit. This is
broadly referred to as ‘transactional marketing’.
With increased competition, the transactional marketing concept shifted attention
from the factory to the customers and to their varying needs. Now a company’s focus
was to develop appropriate segment-based offerings and marketing mixes. The concept
of marketing mix became the mantra for business success. The marketing mix was
otherwise known as the 4 Ps of marketing and emphasized on the four principle aspects
of marketing—Product, Price, Placement and Promotion. The decade of 1980 saw
sales and marketing respond to the buyer’s demand for more cooperative relationships.
Michael Porter’s concept of ‘competitive forces’ had become the theme of market
strategists. As companies headed towards the twenti-first century, ‘solutions’ became
the buzzword in the marketing lexicon as the concept of value started replacing products
and services.
Where once the job of marketing was just to develop contextual offering of products,
services and experience to match individual customer requirements, today it involves a
total organizational commitment throughout the firm’s operating system to continuously
explore, create and deliver individual customer value in a very dynamic and competitive
environment. This relationship orientation was built around the idea of treating customers
in an individualized way with marketer’s focus on image building and development of
long-term, mutually beneficial relationships with the customers. The successful value
creation requires an understanding (a) of the basic components of customer value and
(b) of the ways by which the resources in a business could be aligned to deliver the value
to its chosen value segment. This requires a market-focused and customer-driven
commitment, which addresses whether the business firm’s customer value commitment
is the best value for the customer relative to any other factor in the marketplace. Their
strategies emphasized on the addition of customer value through the following:
(a) Service enhancements.
(b) Incentive. Self-Instructional Material 21
Overview of (c) Interactions that reflect the differences in the prospective lifetime value of each
Relationship Marketing
customer. This type of analysis requires a great deal of technological support.
Lester Wunderman has put it the following words:
NOTES ‘The call of the industrial revolution was, “This is what I make, won’t you please
buy it?”, which has now given way to that of the customer revolution which declares,
“This is what I need, can’t you please make it”.’ From a company being the hunter, the
consumer has now become the hunter informing the company of his specific requirements,
proposing the price he will pay, and establishing how he wants to receive the company
information and advertising.
Table 2.1 Differences between Transaction Marketing and Relationship Marketing
Transaction Marketing Relationship Marketing

1. Functional marketing 1. Cross-functional marketing

2. Focuses on single sale
3. Focuses on brand management
4. Orientated to product features
5. Short time scale
6. Little emphasis on customer service
7. Moderate customer contact
8. Works on profitability of transaction
9. Quality is a concern of production
2. Focuses on multiple exchanges
3. Focuses on customer management
4. Orientated to customer values
5. Long time scale
6. High emphasis on customer service
7. High customer contact
8. Works on the lifetime value of the
customer
9. Quality is everyone’s concern

2.3.1 Fundamental Requirements of Relationship Marketing

The fundamental requirements of relationship marketing are:
• Focus on customer
• Focus on profitability
• Focus on marketing practices
• Focus on customer
The focus of relationship marketing approach is on customers. It emphasizes on
understanding and satisfying the needs, wants and resources of select consumers
rather than those of mass markets or market segments. It focuses on all the
functions connected with the value creation and delivery chain of the organization
concerned. There is total integration between the different processes and stages
of product’s sale and servicing. Customer centricity emphasizes placing the
customer at the core of the operations and then designing all the processes and
activities around him. Skills of market segmentation, targeting and positioning
have become the key to maximizing both the efficiency (doing things right) and
the effectiveness (doing the right things) simultaneously, at the customer level.
Let us look at an example from our banking structure wherein earlier banks used
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to operate through their branches. The working hours were fixed and the customer
 had to go to his individual bank branch to operate. The processes of the bank Overview of
Relationship Marketing
were largely driven by the convenience of the bank and its internal processes of
carrying out transactions rather than by the convenience of the customers. There
was no sensitivity for the customer. Customer service also suffered greatly. When
banks decided to adopt a more customer-centric approach and set up various NOTES
ATMs, they opened their offices on Sundays and holidays, extended their working
hours and opened call centres, and customer retention and acceptability grew
manifold. The concept of home banking and Internet banking is a further
development in customer centricity and it has made the process more convenient
for the consumers.
• Focus on profitability
The next step involves the shifting of focus from sales volume to profitability.
Delivering higher customer satisfaction in each chosen segment to produce loyal
customers, whose repeat purchase would lead to increased profitability, has become
the focus of organizations.
When managing for profitability (and not for sales volume) the firm focuses on
the value its products could create for its customers in the competitive marketplace.
Managers have always believed in the saying that increasing the market share
can increase the profitability. In all these cases, market share has always been a
measure of organizational performance. A market share orientation can be
represented on the dimensions of ‘needs satisfied’ and ‘customers reached’.
Companies with this kind of orientation will satisfy limited needs through their
products but try to reach a large segment of potential customers.
• Focus on marketing practices
Initial approaches to marketing focused more on products and less on markets.
Under the selling concept, a company’s task was to sell and promote products in
an effort to win as much volume as possible and thus maximize profits. The job
was to hunt 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 the varying needs in the marketplace. Product standardization
was the key coupled with mass production, distribution and marketing. The result
was a product-centric firm that looked at decreasing the cost of production. The
main activities of such a firm involved promoting, pricing, and distributing the
products for the mass markets. Subsequently, many more new firms started
entering the market and the resultant increase in product choices caused firms to
look at market segmentation. The main aim of traditional marketing was to sell
products. The aim was to find customers for company’s products. With increased
competition, the marketing concept shifted attention from the factory to customers
and to their varying needs. Companies’ aim shifted from the factory to customers
and their varying needs. The focus was now to develop appropriate segment-
based offerings and marketing mixes. Skills of market segmentation, targeting
and positioning became imperative. Check Your Progress
The marketing segmentation recognizes that the customers have distinctive needs, 4. What are the four Ps of
marketing?
preferences and buying patterns. It is the process of analysing the market in
order to define, in a creative manner, the distinct groupings of the customers for 5. What are the fundamental
requirements of relationship
whom the firm has the potential to offer superior value. This means identifying marketing?
the ‘target market’ and developing specific products for the target group of
customers. The market targets should be those groups of customers that offer Self-Instructional Material 23
the best returns on marketing investments and greater profit opportunities.
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NOTES
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2.3.2 Advantages of Relationship Marketing
According to Leonard I. Berry, relationship marketing attracts, maintains and enhances
customer relationship. From an organizational point of view, relationship marketing leads
to the following:
• The business process automation and downsizing have reduced the manpower
costs.
• The production and operation costs have been reduced through Just-in-Time (JIT),
Total Quality Management (TQM), flexible manufacturing systems, and efficient
supply chain management.
• Lower costs of customer retention and increased profits due to lower defection
rates.
• Generation of more and more loyal customers.
• Increase in the number of profitable customers.
• With availability of a wide database, there is greater efficiency in decision- making.
• Reduction in perceived risks with future decisions.
The customers are also benefited by relationship marketing in terms of improved
service quality, personalized care, increased value for money and reduced stress.
Relationship marketing goes far beyond repeat purchase. Greater value is added through
the involvement of customers, sharing of information and bonding between customers
and marketers.
2.3.3 Strategies for Practising Relationship Marketing
Strategies towards practising and maintaining sustainable relationship differ from one
organization to another, depending on certain factors. These include nature of business,
its size, its market share, nature of product, volume of sales, geographic concentration,
socio-economic status, lifestyle of the customers concerned, competitors strength, and
so on. A wide spectrum of strategies is practised by customer-driven organizations with
national and global perspectives wherein people, processes, organization, competitors,
product and pricing play major roles.
People
People within the organization form the primary basis for building relationships. Everyone
in the organization must realize the fact that their work is towards satisfying customers.
Everyone from the lowest to the highest level, irrespective of their functional specialization
and responsibilities, must integrate their activities towards the objectives of the organization,
which is providing customer satisfaction and delight.
Product
The product offered must constantly provide value addition. The expectations of customers
may always be on the increase due to various reasons. A customer satisfied with a given
product may soon become a dissatisfied customer in view of the changes that take place
in his expectations.
Processes
A process involves a logical sequence of activities right from the need identification of
potential customers to need fulfillment. Need fulfillment requires manufacture of products
with desired attributes. The process has to be derived from the customer’s viewpoint, Overview of
Relationship Marketing
which paves way for total customer satisfaction. The performance of each link must be
objectively analysed and corrected in tune with the internal and external customers’
expectations; just as a customer once put up his thoughts on delighting him–—‘Do not
offer me shoes, offer me the comfort and the pleasure of walking feet. Do not offer me NOTES
book, offer me the benefit of knowledge’.
Defining service standards
A customer not only expects quality products but also quality services. An organization
is expected to render services in three phases—pre-sales, during sales and after sales.
During pre-sales when the customer develops expectations, the organization must ensure
quality and availability of the product in time. During sales, when the customer experiences
the sales process, the organization must provide the customer an opportunity to inspect,
and treat him with courteous attentiveness, prompt reply, etc. On completion of the sale,
the organization must provide supporting services, such as speedy replacements, simplified
complaint procedure, efficient maintenance and repair services, and so on. Such services,
which are provided immediately and instantly, will bring total customer satisfaction.
The service elements are the ‘invisible impacts’ but remain important attributes to
the product and its sale. To measure the service quality, a customer may say that he
dislikes waiting for a telephone to be answered or to be put on hold for a long time. For
a company it is very easy to assess and measure the service attributes of this telecall –
how many rings were made before the call was answered? For how long was the call
put on hold? How many transfers were made before the client could be satisfied? What
was the total time spent by the client in redressing his complaint? These are all tangible
and visible aspects of service quality and can be measured for perfection of service.
Competitors
An organization must focus constant attention on the competitors’ performance, their
strategy and style of operations, and compare the same with its own performance.
Customers always make this comparison and decide their future purchase pattern. An
organization’s performance must always be a step ahead of its competitor and it must
know that the customer feels the difference.
Customer analysis
Customers referred here include the present customers and also the prospective customers
who are presently consuming the products of competitors. These customers must be
periodically analysed from several perspectives, such as the factors that make them buy,
their level of satisfaction, their placement in the loyalty ladder, and so on. This analysis is
to be performed not only on the existing customers but also on the former customers, so
that corrective actions may be initiated to retain current customers. Organizations should
also have a thorough knowledge of the purchase behaviour pattern of their customers.
The requirements of the customers are bound to change in tune with the changes in their
lives, demographic and psychographic profiles, and their related aspects. As an example,
we may observe that the size and shape of the average US consumer today is dramatically
changing from what it was 60 years ago when size 8 was the average size. Today it is
size 14. Changes in lifestyle and way of living keep changing and to meet up to customer
requirements, it is essential that these changes are carried out from time to time. Customers
up to a given point of time would concentrate on lifemaintenance needs and then to
lifechanging needs, which will be followed by lifeenhancing needs. During these stages,
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Overview of the customers’ requirements also undergo changes. The organization must see that there
Relationship Marketing
is a sense of matching between the customer requirements and that of the organization’s
requirements. Periodical customer satisfaction would provide a meaningful insight into
the customers’ attitude and their behaviour and also form the basis for developing
NOTES appropriate strategies to retain relationship with the customers.
Irrespective of the standard of a product or services offered by an organization, it
is more than likely that few customers reach a level of dissonance and dissatisfaction.
An organization must be proactive towards customer dissatisfaction. As such, customers
will not come forward to show their displeasure, but will simply make a brand switchover.
To avoid this, the causes for dissatisfaction are to be identified and have to be attended
well. If a complaint is well attended, the customer becomes more loyal to the organization.

2.4 ORIENTATION TO KNOWLEDGE

MANAGEMENT
Increasing competition and decreasing customer loyalty have led to the emergence of
concepts that focus on the need to build and nurture a relationship with customers. The
foundation of effective CRM is built on an iterative process of learning and customization.
Companies interact with their customers to learn more about them—who they are, what
do they want, how much they buy, etc.
Knowledge Management (KM) perceives the knowledge available to a company
to be a major success factor. Through superior knowledge, companies can achieve their
results faster, at a lesser cost and offer higher quality than their competitors.
Knowledge about customers, markets and other relevant factors of influence
allows identification of opportunities and challenges. By analysing customer data,
organizations are able to identify the profitable customers and loyal customers. It has
been seen that loyal customers are more profitable customers. To retain these customers,
companies have to learn to tailor their offerings to suit the requirements and wants of
these profitable customers through customization of some aspects of the product or
service mix. Each customer has specific needs and expectations from a company. The
company should treat each customer in a way that reinforces the trust that the customer
has shown in the company. Based on the learnings and knowledge of the customer
behaviour, companies start offering products that match the customers’ needs better.
This is also referred to as an ‘iterative learning process’ which helps in building a
relationship between a company and its customers.
2.4.1 Knowledge Requirements of CRM
Knowledge is captured, disseminated, modified and used constantly within all CRM
business process. Knowledge flows in CRM processes can be classified into the following
three categories:
• Knowledge for customers: Knowledge about products, markets and suppliers
must be made available for customer awareness. Customer needs must be
matched with the services and products available.
• Knowledge about customers: There is a need to understand the requirements
of customers in order to address them. Knowledge about customer histories,
requirements, expectations, connections and purchasing activity is required.
• Knowledge from customer: Interaction with customers to gather knowledge
26 Self-Instructional Material about products, suppliers and markets to facilitate continuous improvement is
 important. Customers gain many experiences and insights when utilizing a product Overview of
Relationship Marketing
or service. This knowledge is valuable as it can be used for service and product
enhancements. This ‘knowledge from customers’ must be channelled back into
an enterprise.
Managing these different knowledge flows is one of the biggest challenges of NOTES
CRM.

2.5 RELATIONSHIP BUILDING AS A PROCESS

The concept of learning applies to the relationship marketing concept as market intelligence
should be committed to (a) understand the customer needs, (b) define areas that require
improvements, and (c) identify the best practices. Certain steps that facilitate learning
more about the existing customer and help in converting them into loyal customers are
listed below. This Identify, Differentiate, Interact, Customize (IDIC) framework
helps understand the process to be adopted for building relationships with the
existing customers.
• Identify: This primarily requires the company to locate and contact all its customers
directly and know as much detail about them as possible. This includes their
names and addresses, phone numbers, account details, habits, preferences, choices,
etc. Gathering information on every possible interaction with the customer is
important. To identify passive and active customers, demanding customers,
profitable customers, loyal customers, and prepare their customer base will be
the first step in the learning process.
• Differentiate: Customers can be differentiated on the basis of the value they
represent and also on their needs. The value so represented by the customer is an
indication of the customer’s worth to the company. The ideal measure of customer
value is the profit contribution, which in many cases is difficult to measure due to
sharing of overhead costs. Some customers may be differentiated on the basis of
their distinct needs and requirements and service standards. Customers with
specialized needs create opportunities for customization. Differentiation should
help company tailor its offerings to each customer to reflect their values and
needs.
• Interact: The purpose of interaction is to learn more about the customers. Though
it seems the repetition and overlapping of the first step, it is in fact a deeper
analysis of the customer base and their requirements. This interaction can happen
at the point of purchase or at the time of rendering any service or through
telecalling or formal survey. Such interactions should add on to the existing
knowledge of the customer keeping in mind the cost-effectiveness of the method.
The learning relationship gets smarter with each interaction. Once a customer
interaction takes place and the customer responds, the responses should be
captured and used in the ongoing learning, analysis, and refinement process. Each
time a process loop is completed, more is learned about the needs and wants of Check Your Progress
the customers, thereby helping to anticipate their needs better. 6. What are the categories of
knowledge flows in CRM
• Customize: The last step is the most crucial and critical where it builds upon all processes?
the learning about customers to offer a real value to them by tailoring some 7. What are the aspects to
aspects of the service related to a product so as to deliver their needs. With which marketing intelligence
customization of products, we can directly hit upon the customer’s nerve to enjoy should be committed?
and derive utmost satisfaction and delight.
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Overview of In spite of overlaps across the steps, the IDIC framework is useful in understanding
Relationship Marketing
the process to be adopted for building relationships with existing customers. It is equally
important to know the stages through which a prospect becomes a customer and then a
loyal customer.
NOTES
2.6 SUMMARY
This unit has given an overview of the emerging trends, issues and approaches in
relationship building and marketing. Relationship marketing has immense potential of
radically transforming the company that adopts the principles and practices which help
develop long-term, mutually beneficial relationships with customers. It involves the
ongoing process of identifying and creating new value and then sharing the benefits
with the customers over a lifetime of association. It keeps in mind the interest of suppliers,
distribution channels and selected customers by understanding their needs and problems
and finding mutually acceptable and profitable solutions by a cooperative and collaborative
approach.
Building a lifelong relationship with the customers is the mantra for developing
any business. The customer is king under the CRM concept. Only customer loyalty can
ensure a lifelong relationship. CRM helps the business concern develop an enduring
relationship with customers, thereby ensuring profitability.
Strategies towards practising and maintaining sustainable relationship differ from
one organization to another, depending on certain factors. These factors include nature
of business, its size, its market share, nature of product, volume of sales, geographic
concentration, socio-economic status and lifestyle of the customers concerned, competitors
strength and so on. A wide spectrum of strategies is practised by customer-driven
organizations with national and global perspectives wherein people, processes, organization,
competitors, product and pricing play major roles.
Customer requirements are not constant. They change from time to time. To get
closer to the customer, it is imperative for the organizations to understand their requirements
and implement the ‘voice of customer’ in all their endeavours.
Knowledge about customers, markets and other relevant factors of influence
allows identification of opportunities and challenges. By analysing customer data,
organizations are able to identify the profitable customers and loyal customers. Knowledge
is captured, disseminated, modified and used constantly within all CRM business process.
Relationship building process uses business intelligence for understanding the
customer needs, defining areas that require improvements, and identifying the best
practices.

2.7 KEY TERMS

• Relationship marketing: A marketing strategy whose objective is to establish
and maintain a profitable, long-term relationship with a customer.
• Prospect: An individual or an organization in the market that fulfills the needs of
the marketers’ definition of target.
• Marketing mix: The combination of product, price, place and promotion.

28 Self-Instructional Material
 • Marketing segmentation: The process of analysing the market in order to Overview of
Relationship Marketing
define, in a creative manner, the distinct groupings of the customers for whom the
firm has the potential to offer superior value.

NOTES
2.8 ANSWERS TO ‘CHECK YOUR PROGRESS’
1. Offering the right services at the right time, using innovative methods, creating a
large customer base, installing a simple and customer-friendly system, setting
high internal standards, and welcoming customer complaints are some of the
important steps for ensuring better customer relationship.
2. Customers concentrate not only on the brand, but also on the accompanying
services offered at three different stages, namely, pre-sales, during sales and
after sales. Any dissatisfaction as regards services causes the customer to move
away from the brand.
3. A supporter, who in addition to referring customers proactively works with the
company for improving its products and services, is an advocate.
4. The four Ps of marketing are as follows:
• Product
• Price
• Placement
• Promotion
5. The fundamental requirements of relationship marketing are as follows:
a. Focus on customer
b. Focus on profitability
c. Focus on marketing practices
6. The knowledge flows in CRM processes can be classified into the following
three categories:
a. Knowledge for customers
b. Knowledge about customers
c. Knowledge from customer
7. The aspects to which marketing intelligence should be committed are as follows:
a. Understanding customer needs
b. Defining areas that require improvements
c. Identifying the best practices

2.9 QUESTIONS AND EXERCISES

Short-Answer Questions
1. What is relationship marketing?
2. What are the reasons behind organizations losing customers?
3. What do you understand by the ladder of loyalty?
4. Who is a partner?
5. In terms of what factors should customer behaviour be analysed for measuring
loyalty?
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Overview of 6. Differentiate between transaction marketing and relationship marketing.
Relationship Marketing
7. What are the advantages of relationship marketing?
Long-Answer Questions
NOTES
1. In today’s business, customer is king. Justify your answer.
2. Explain the fundamental requirements of relationship marketing.
3. Discuss the various strategies for practising relationship marketing.
4. Describe the IDIC framework.

2.10 FURTHER READING

Shahjahan, S. 2004. Relationship Marketing: Text and Cases. New Delhi: Tata
McGraw-Hill.
Mukerjee, K. 2007. Customer Relationship Management: A Strategic Approach to
Marketing. New Delhi: Prentice Hall of India.
Sheth, J. N. 2001. Customer Relationship Management. New Delhi: Tata McGraw-
Hill.

30 Self-Instructional Material
 Overview of
Shoppers Stop: A Case Study Relationship Marketing

After the successful launch of Spencers in Chennai, Crossroads in Mumbai and

Ansal Plaza in Delhi, the country witnessed a revolution in opening of large
spacious malls. Shoppers Stop also decided to take the plunge in the arena of a NOTES
one-stop shop for all gentlemen. Way back in 1991, when Shoppers Stop first
decided to enter the retailing unit, the first question that came up was ‘what to
sell’. Since it was an all male team that was deciding on the objects of retail, they
unanimously zeroed in on the launch of all men’s clothing in the first store that
came up in Andheri in Mumbai.
Over time, with experience, they realized that more than 60 per cent of the walk-in
customers were women, buying for their men. This gave the company necessary
impetus to add the women’s and children’s sections followed by household
accessories. The product range has ever since been increasing to meet the demands
of the customers.
Once the company was comfortably placed in updating the logistics, it started its
internal evaluation with the help of rating and tracking firms ORG-MARG and
iMRB and prepared a database on customer preferences. Briefly this included the
following:
1. Categorization of mall visitors on the basis of gender
2. Classification on the base of age groups
3. Their choice as to wanting a salesperson to help in purchases.
4. Categorization on the basis of those who wanted special services like carrying
their bags etc.
Based on the survey and customer data, the organization spelt out its focus areas
for strengthening relationship management. The service managers then devised
their in house programme to find out more about the customer and his requirements
so as to make his visit to Shoppers Stop a pleasurable one. The end result of all
these exercises is that today Shoppers Stop has emerged as a premier Indian retail
company specializing in apparel and accessories. With the slogan ‘We don’t sell,
we help you buy’, they are looked upon as an organization instilling customer
confidence and trust. The organization still continues its efforts in the following:
1. To know more about in store customers
2. To measure the asset value of the visiting customers
3. To manage acquisition of potential customers
4. To help retention of customers
5. To review the product line in conformity to customer requirement
6. To tailor the marketing mix based on customer preferences
7. To underline servicing standards with special help desks.
Questions
1. Do you think Shoppers Stop has been able to build a relationship with their
customers? Support your answer with suitable arguments.
2. What, in your opinion, should be Shoppers Stop’s strategy in retaining loyal
customers?
3. How should they find out their ‘right customers’ and reward them suitably?

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