Customer Relationship Management (CRM)

Prepared by
Ahmed Sabbir

Study Note prepared as per Curriculum of

EMBA Program, Patuakhali Science & Technology University, Dumki, Bangladesh
 Unit-I

Concept and Nature of CRM

Concept of Customer Relationship Management (CRM)

Relationship Management
 Means maintaining relationship over long run.
 Relationship between customer & firm does not end after the 1st transaction (sale).

Relationship management is a term that refers to practices, strategies and technologies that
companies use to manage and analyze customer interactions and data throughout the customer
lifecycle, with the goal of improving business relationships with business partners.

Customer Relationship Management (CRM)

Customer Relationship Management is a comprehensive approach for creating, maintaining and
expanding customer relationships.

First, consider the word “comprehensive” CRM does not belong to just sales or marketing. It is
not the sole responsibility of customer service group or an IT team; i.e. CRM must be a way of
doing business that touches all the areas. When CRM is delegated to one area of an organization,
such as IT, customer relationship will suffer. Likewise, when an area left out of CRM planning,
the organization puts at risk the very customer relationships it seek to maintain.

The second key word in our definition is “approach”. An approach, according to Webster, is “a
way of treating or dealing with something.” CRM is a way of thinking about and dealing with the
customer relationship. When you implement your CRM strategy, you will capture and analyze
data about your targeted customer and their buying habits.

CRM (Customer Relationship Management) is a comprehensive strategy and process of

acquiring, retaining and partnering with selective customers to create superior value for the
company and the customer. The basic objective of CRM is to increase marketing efficiency and
effectiveness. Notes It is co-operative and collaborative processes that help in reducing
transaction costs and overall development costs of the company.

CRM system consists of two dimensions, Analysis and Action.

The purpose of CRM system is to enhance customer service, improve customer satisfaction and
ensure customer retention by aligning business processes with technology integration.
CRM Constituents

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 2

 1. Company-Companies that implementing CRM
2. Customer and partners of those companies
3. Vendors of CRM software-Vendors of CRM software includes names such as Oracle, SAP,
SAS, KANA, Microsoft and StayinFront etc.
4. Vendors of CRM hardware and infrastructure
5. Management consultants-can help companies implementing CRM. The major
consultancies such as Accenture, Mckinsey, Bearing Point, Braxton and CGEY etc.
6. Data warehouse

Potential benefit of CRM system to the Organization

1. Customer Focus-It means that the organization is ready to view the purchasing process
from the customer’s point of view.
2. Customer retention-simply means that the firm satisfies customer and offers variety such
that the customer comes back and repeats transactions with the same organization.
3. Share of wallet-Capturing the large share of wallet
4. Cross selling-selling of complementary products to the existing customers. For example,
while purchasing a digital camera it was offered memory card or blade for Rezor etc.
5. Up-selling is the marketing of higher value product to the customers. Examples of an
upsell could be introducing a 3-camera in a smart phone or adding a warranty to the
product being sold.
As organization experience the benefits of a customer focus, retention of loyal customers and
greater share of customer, the long term profit picture should also improve.

Potential Costs of CRM systems to the organization

 Information technology (IT) infrastructure (Server based system, software licenses and
updates, firewalls for security, training for system users in different discipline, etc.) is the
processing capacity to fulfill customer needs.
 Process change implies an alteration in habitual pattern for accomplishing a task.

Life time Value of relationship:

The Life time Value of relationship defines as the benefits to each party in an exchange over the
length of time that interactions occur.

Customer Life time Value (CLV)

Customer life time value (CLV) is the amount of value a customer contributes to your business
over their lifetime-which starts with a new customer’s first purchase or contract and ends with
the “moment of churn”

CLV=(Past Purchase +Future Purchase)-Amount of reaching that customer.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 3

Higher CLV customer is important customer.

Understanding CLV can help your business answer these critical question:
1. How much can we comfortably spend on marketing and sales for customer acquisition?
2. How much should we spend on customer service to retain an existing customer?
3. Who are our most valuable customers and how can we better target this demographic for
future sales?

CLV can be measured in the following way:

 Identify the touch points where the customer creates the value
 Integrate records to create the customer journey
 Measure revenue at each touch point
 Add together over the lifetime of that customer

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 4

 Unit-II
Strategic Options for approaching Customers

RFM Score
RFM is acronyms of
R-Recency of Purchase
F-Frequency of Purchase
M-Monetary Value of Purchase

Organizations with sophisticated CRM systems often have databases that record a customer’s
RFM score. RFM is a strategy for analyzing and estimating the value of a customer.

Majority Fallacy

Majority fallacy is the name given to blind pursuit to the largest, most easily identified or most
accessible market segments.
This segment attracts intense competition and prove to be least profitable.

Majority fallacy is the strategy error which leads to mistaken belief that largest segment of the
market is the most profitable one.

Right level of aggregation

Categorize customers in groups that are neither too big not too small.
The promise of CRM technology is to define that are large enough to approach with unique
marketing mix.

Customer types by expected value in B2B Market

Expected Future Value

High Low
Historical High Premium Customer Uneconomical
Value of customer
Purchase
Low Prospect Customers Undesirable
customer

 Firms shouldn’t target or spend money on undesirable customers because these segments
have a poor purchase history and low expectations of any purchases in future.
 Uneconomical customers express a low likelihood of purchasing from the firm in the
future making them a judgment call as to the level of funds to be spent in their pursuit.
 Premium Customers exhibit a good purchase history and a high probability of continued
loyalty to the firm.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 5

  Prospect customers have little or no past purchase history with the firm but exhibit a high
potential for value in the future and should be cultivated even if the firm loses money in
the short run.

Approaching B2C market through Mass Customization

Mass customization implies that an organization can communicate with target audiences at a
mass or segment level, but is also able to offer customized value propositions for individual
customers.
Mass customization is widespread in service industries serving end consumers. This is largely
because of the insuperability of service production and consumption. The interaction between
consumers and service producers during the service encounter lets customer influence both the
service delivery process and the outcome.
Key issues for CRM strategies are:
 Do customers want customization?
 What degree of customization is required?
 Are customers willing to pay a “premium”?

Contact Point/Touch Point

The “Touch points” where the customer interacts with the firm in multiple channels.

Example, help desk, terminal of payment, /payment counter, company website, advertisement
etc.
Touch-points allow customers to have experiences every time they “touch’ any part of the
product, service, brand or organization, across multiple channels and various points in time.

It is a point where customers and business engage to exchange information, provide service, or
handle transactions.

Point of Sales System

A computerized network operated by a main computer and linked to several checkout terminals.

Necessity of POS system

With a POS system:

 You can analyze your sales data, figure out how well all the items on your selves sell and
adjust purchasing levels accordingly.
 You can analyze your sales history, -to help adjust your buying decision for seasonal
purchasing trends.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 6

  You can improve pricing accuracy, by integrating bar-code scanners and credit card
authorization ability with POS system.
 POS systems help you gain better control of your business through advanced reporting
system.

There are plenty of popular POS software systems that enable you to use add-on devices at your
checkout stations, includes electronic cash drawers, bar-code scanners, credit card readers and
receipt or invoice printers. POS packages frequently come with integrated accounting modules,
including general ledger, accounts receivable, accounts payable, purchasing and inventory
control systems.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 7

 Unit-III
Collection of Customer Data

 Data warehouse: is a large reservoir of detailed and summery data regarding business
activities and dimensions.
 It describes organization’s activities
 It facilitates easy retrieval of information.

 Data Mart is a subset of data warehouse that has been developed to meet the needs of
particular group of users.
 Data mining describes how the user extracts previously unknown information from the
large reservoir of the data warehouse.

Collecting Customer Data: Internal Data Source

Customer 1. Order
entry system

2. Inventory
system

4. Accounts 3. Billing
Receivable
system
System

Accounts
Customer Inventory
Receivable
Master File Master File
Master File

Gather data from order processing system

 The set of similarly integrated system is used to process sales orders

 Another set of similarly integrated system used to order replenishment inventory from
suppliers and there are additional systems such as those that the project materials
requirement for the production process and compensate the employees.
 The diagram shows the order processing systems starting in the upper-left corner, the
customer sales order are input to the order entry system, which logs in all orders.
 Approved orders is passed to the inventory system, which checks the inventory master
file to determine whether sufficient quantities exist to fill the order.
 The billing system uses the customer master file to prepare invoices that are mailed or
transmitted electronically to the customer.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 8

  The diagram also includes two entities that typically provide dimensions for multi-
dimensional analysis. These entities are customer and product.

This system provide answers to such questions as these:

 Which customers are ordering and which are not?
 What products do our customer order?
 What percent of our customer are bad credit risks?
 What percent sales orders are filled?
 What are the paying habits of our customers?

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 9

 Unit-IV
Concept of Customer Loyalty

Concept of Customer Loyalty

Customer’s loyalty is the attachment or commitment toward a brand, company, service provider
or other entity that is reflected by favorable attitude and behavior.
Example: Repeat purchase.

One of the purpose of the CRM is to make loyal customer.

There are two approaches to define and measure loyalty, one based on attitude and other on
behavior.
Building customer loyalty is the basic platform of relationship formation. In a highly competitive
and challenging business environment, organization are really blessed if they are fortunate to
have loyal customers in their customer inventory.
A customer loyalty program is based on a simple premise: as a company develops stronger
relationship with their best customers, these customers will stay with the company longer and
become more profitable.

 Behavioral brand loyalty approach explore the consistency of repurchasing the

brand. Loyalty is expressed through continued purchasing and patronage.
Variations in behavioral brand loyalty includes-
(i) Undivided loyalty-the customer purchase the same brand repeatedly.
(ii) Occasional Switcher-the customer usually purchase the same brand, but may
want a change due to different situation, e.g., out of stock situation
(iii) Switched loyalty-describes a customer who has changed the brand.
(iv) Divided loyalty-the customer is loyal more than one brand.
(v) Indifference Loyalty-customer who sees no distinction between brands.

 Defining loyalty as “attitudinal” implies that loyalty is a state of mind. In other words,
customers are “loyal” to a brand or company if they have a positive, preferential
attitude toward it.
(i) Inertia loyalty has also been called spurious loyalty to indicate that behavior
appears to be bogus, because there is no strong attitudinal influence. Spurious
loyal have high levels of repeat purchase but weak relative attitude. The behavior of
these customer can be driven by habit.
(ii) Latent loyalty-customer have strong attitudes, but repeat purchase is low.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 10

Factors that affect Customer Loyalty

Customer Satisfaction
 Customer satisfaction is a post-purchase or post-choice evaluation
 The extent to which product’s perceived performance match with buyer’s expectation.
 So, Customer satisfaction is a post-purchase or post-choice evaluation that results from a
comparison between those pre-purchase expectations and actual performance.
 Confirmation-If performance match with the expectation. Fulfilment of an expectation
is confirmation
 Dis-confirmation-Performance does not match with expectation.

Effective marketers try to understand if the discrepancy between expectations and performance
is large or small.
 Delightful experience-When performance exceed expectation.
Describe situations in which customer receive fulfilment that exceeds the satisfaction
of unexpected needs or wants.
 If the product’s performance falls short of the customer’s expectations, the buyer is
dissatisfied.
If customer dissatisfied, the following problems may be occurred.
o Customer may make complain
o Customer may stop buying from your firm.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 11

“Satisfied customers may not be loyal customers.”

Your satisfied customer moving toward the competitors. Satisfaction does not guaranteed loyal
customer. Satisfaction is pre-condition of customer loyalty. One explanation is, there are various
level of satisfaction. According to experts, most of the customers have a zone of tolerance
regarding satisfaction. Satisfaction is ranked on a 5-point scale ranging from 1 for completely
dissatisfied to 5 for completely satisfied.
5—Strongly Satisfied
4—Satisfied
3-Neutral
2—Dissatisfied
1—strongly dissatisfied

At levels two to four, customers are fairly satisfied but still find it easy to switch when a better
offer comes along, at level five, the customer is very likely to repurchase and even spread good
work of mouth about the company. Up to Level four there is a chance of customer to leave the
brand but from level five customer satisfactions is proportional to the customer loyalty.
It found that customers who rated their satisfaction as 4 were six times more likely to switch to a
competitive offering than those who marked 5 were.

Why do satisfied customer switch brand?

There are several explanations.

 Customers get equally satisfying experience with a competitor’s offering.

 Customers need for variety. They may simply opt for an experience because they get
less and less satisfaction from the old one
 New information can change customer’s perception regarding untried offering.

Emotional Bonding
Emotional bonding means attachment or affinity of the customers with the brand /company.

Over time customer loyalty requires emotional bonding. Customers have a positive brand affect,
which is an affinity with the brand, or they have a company attachment, which means they like
the company.
In many circumstances, consumers may identify with and become emotionally attached to mental
images that a company or a brand develops or acquires.
 For example, many customers identify with Polo Ralph Lauren. They identify with the
brand because the brand identifies them and their friends. From a consumer’s perspective

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 12

 the brand equity associated with Polo leads to customer loyalty. Brand equity is the value
of the brand name associated with a product or service that goes beyond the functional
aspect alone.
 Many customers feel a closeness with other people who also use the good or service.
 Some companies know how to connect emotionally with their customers while others
have more difficulty in accomplishing this level of commitment. CRM must reach beyond
the idea of the rational consumer and strive to establish feeling of closeness, affection, and
trust as true emotional bonding is often based on trust and respect.

Trust:
Trust the third component of the model, is interrelated with emotional bonding. Trust exist when
one party has confidence that he or she can rely on the other exchange partner.

Trust can be defined as the willingness of the customer to rely on the organization or brand to
perform its stated function.
Trust reduces uncertainty/risk and is viewed as a carefully thought out process, whereas brand
affect may be an instantaneous response.

In many situations, trust means a customer believes that the marketer is reliable and has integrity.

In many personal selling situations, trust means that a customer has confidence that the sale
representative is honest, fair and responsible and that his or her word can be relied on. If a
delivery date is given the buyer has confidence that the product will be shipped on time.

Behavioural Loyalty Factors

Choice Reduction Habit
Contrary to the traditional economic theory, consumer research shows that people have a natural
tendency to reduce choices. In fact, consumers like to reduce their choices to a manageable set,
usually not more than three.
People feel comfortable with familiar brands and well known situations that have been
rewarding.
Part of customer loyalty, such as the absence of brand switching behaviour is based on an
accumulation of experience over time. With a simple repetition we become familiar with a brand,
store, company, web site or search engine. We develop habits that results in continuity. For
example, it has been estimated that consumers go to the same supermarket up to 90% of the time.

There can be a switching cost associated with change to the unfamiliar, the untried or new. There
may be a cost in time, money and personal risk.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 13

There may be perceived risk in change. Perceived risk means the customer may be uncertain
about the consequences of making a purchase.
Perceived risk may be include perceived performance risk or social risk.
 The perceived performance risk, i.e., the consumer may think the new product will not
perform well as the current brand.
 Social risk-the consumer may believe, his/her friends will not like the new brands as well.

History with the Company

Historical image has positive influence on repeat purchasing,
A positive corporate image may have a favourable impact on customer loyalty, creating habitual
responses to the company name.
For example, Wal-Mart, for example, is known for everyday low price (EDLP) while another
departmental store, such as Nordstrom, may be known for excellent customer service.

Factors that lessen customer loyalty

There are several factors that tend to lessen loyalty as well
 Competitive parity: When offerings of different organization are not differentiated.
 Variety seeking behaviour: People become bored with a particular brand and have a need
for variety, i.e., people may simple want a new experience.
 Low involvement: A low level of personal relevance or perceived importance of a product
or service to the individual is referred to simple as low involvement.
 Price Sensitive: Price sensitive customers do not become loyal customer. Customers who
are low in involvement to be price sensitive.
 Low share of voice: When company’s promotional expenditures are low.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 14

 Unit-V
Customer Retention Strategy

The Evaluation of Relationship Marketing Program

There are mainly three aspects of relationship program:
1. Financial Incentives
2. Social Bonding
3. Structural Interaction

Aspects of Relationship Program

Financial Social Bonding Structural

Incentives Interaction

 Friendly  Systematic
Companionship Mass
 Trust personalization
 Discounts
 Product Upgrades  Personal  Management
 Awards Insights Mass
 Prizes  Recognition Personalization
 Mutual  Cultivation
affection  Simulation

Financial Incentives
Financial Incentives are discounts, product upgrades, or prizes that serve as rewards for
customers who are loyal or make repeat purchase (Frequently purchase).
For example, season ticket holders for professional hockey games or the opera receive discounts
for establishing a relationship with organization.
Example in Bangladesh: GP star customer get 15% discount on Bill amount of all food items
(except beverage & water)
Drawbacks
 Competitor can easily copy this programs
 Customer may become loyal toward the incentive, not to company or brand.
Social Bonding
The formation of social bond between the organization and its customers may create a stronger
relationship.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 15

Social bond refers to friendly relationship/companionship or affective tie between organization
and customer.
Example: Interpersonal interactions, party, club membership program, customer meeting etc.
Corporate Example-Apple –People who use Apple technologies have joined together in user
groups all around the world. Hundreds of groups offer members the chance of become friends
with other Apple product users.
IBBL arranges iftar party in Holy Ramadan for its valued customers.

Structural Interactive Relationship

Structural Interactive Relationship use system design to solve problems, reinforce purchases and
recognize the importance of each customer. Here system design means using artificial
intelligence, information system, software, apps etc.
Example of Starbuck, they introduce “Starbuck app.” To manage loyalty programs.

Relationship based on structural interaction do not depend on relationship building skills of a

particular service provider, as in the traditional customer-stock broker relationship, but on the
service delivery system itself. For example, an internet retailer may use its database to send e-
mail messages about discounted items to its regular customer.

Customer Relationship Management Note for EMBA Program, PSTU, Bangladesh 16