Definition of CRM

CRM is the core business strategy that integrates internal processes and functions, and external
networks, to create and deliver value to targeted customers at a profit. It is grounded on high
quality customer-related data and enabled by information technology. It is a technology-enabled
approach to management of the customer interface which results in impact on the costs-to-serve
and revenues streams from customers. Access to customer-related data (a cornerstone of
effective CRM) allows selling, marketing and service functions to be aware of each other’s
interactions with customers. Also, access to customer-related data allows members of a business’s
‘external network’ – suppliers, partners, distributors, etc to align their efforts with those of the
focal company. Underpinning this core business strategy is Information Technology: software
applications and hardware.

Types of CRM

Strategic CRM: This focused upon the development of a customer-centric business culture. This
culture is dedicated to winning and keeping customers by creating and delivering value better
than competitors. In a customer-centric culture you would expect resources to be allocated where
they would best enhance customer value, reward systems to promote employee behaviours that
enhance customer satisfaction and retention, and customer information to be collected, shared
and applied across the business. Many businesses claim to be customer-centric, customer-led,
customer-focused or customer-oriented, but few are. A customer centric company shares a set of
beliefs about putting the customer first. It collects, disseminates and uses customer and
competitive information to develop better value propositions for customers. A customer-centric
firm is a learning firm that constantly adapts to customer requirements and competitive
conditions. There is evidence that customer-centricity correlates strongly with business
performance. Many managers would argue that customer-centricity must be right for all
companies. However, at different stages of market or economic development, other orientations
may have stronger appeal.
Customer-centricity competes with other business logics e.g. product-oriented, production-
oriented and sales-oriented.

Product-oriented: Businesses believe that customers choose products with the best quality,
performance, design or features. These are often highly innovative and entrepreneurial firms.
Many new business start-ups are product-oriented. In these firms it is common for the customer’s
voice to be missing when important marketing, selling or service decisions are made. Little or no
customer research is conducted.

Production-oriented: Businesses believe that customers choose low price products. Consequently,
these businesses strive to keep operating costs low, and develop low-cost routes to market. This
may well be appropriate in developing economies or in subsistence segments of developed
economies, but the majority of customers have other requirements.

Sales-oriented: Businesses make the assumption that if they invest enough in advertising, selling,
public relations (PR) and sales promotion, customers will be persuaded to buy. Very often, a sales
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orientation follows a production orientation. The company produces low-cost products and then
has to promote them heavily to shift inventory.

Operational CRM: This type of CRM focused on the automation, integration and improvement of
customer-facing and customer-supporting business processes. CRM software applications enable
the marketing, selling and service functions to be automated and integrated. For example, sales-
force automation (SFA) software can be configured so that it is modelled on the selling process of
any industry or organization. Automation of selling activities is often linked to efforts to improve
and standardize the selling process.

Analytical CRM: This focuses on the intelligent mining of customer-related data for strategic or
tactical purposes. Organisations under CRM arrangement capture, store, extract, integrate,
process, interpret, distribute, use and report customer-related data to enhance both customer
and company value. Analytical CRM builds on the foundation of customer-related information
captured both internally and externally. From the customer’s point of view, analytical CRM can
deliver timely, customized solutions to the customer’s problems, thereby enhancing customer
satisfaction. From the company’s point of view, analytical CRM offers the prospect of more
powerful cross-selling and up-selling programmes, and more effective customer retention and
customer acquisition programmes.

Collaborative CRM: This describes the strategic and tactical alignment of efforts .i.e. (people,
process and technology) of normally separate enterprises in the supply chain for the more
profitable identification, attraction, retention and development of customers, partners and the
company. For example, manufacturers of consumer goods and retailers can align their people,
processes and technologies to serve shoppers more efficiently and effectively through co-
marketing, forecasting, etc.

Understanding relationships

The ‘R’ of CRM stands for ‘relationship’. But what do we really mean by the expression
‘relationship’, especially between a customer and supplier.
A relationship exists when the parties move from a state of independence to dependence or
interdependence. It also composed of a series of interactive episodes between dyadic
parties over time, but some authorities suggest that there needs to be some emotional
content to the interaction, therefore, they see relationship as a social construct. That is to
say, it exists if people believe that a relationship exists and they act accordingly. Therefore, it
is apparent that relationships can be unilateral or reciprocal; either one or both of the
parties may believe they are in a relationship.

Change within relationships.

Relationships change over time. Parties become closer or more distant; interactions become
more or less frequent because they evolve and therefore, it can vary considerably. The five
general phases through which customer–supplier relationships can evolve are: Awareness-
when each party comes to the attention of the other as a possible exchange partner.
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Exploration is the period of investigation and testing during which the parties explore each
others’ capabilities and performance. Some trial purchasing takes place. If the trial is
unsuccessful the relationship can be terminated with few costs. The exploration phase is
thought to comprise five sub-processes: attraction, communication and bargaining,
development and exercise of power, development of norms, and development of
expectations. Expansion is the phase in which there is increasing interdependence. More
transactions take place and trust begins to develop. The commitment phase is characterized
by increased adaptation and mutually understood roles and goals. Processes that have
become automated are a sure sign of commitment. Not all relationships reach the
commitment phase. Many are terminated before that stage. There may be a breach of trust
that forces a partner to reconsider the relationship and also the termination can be bilateral
or unilateral. And this is, the dissolution phase.

Trust: It is a core attribute of highly developed relationships. Trust is focused on any of the
party’s belief for the benevolence, honesty and competence of the other party. The
development of trust is an investment in relationship building which has a long-term payoff.
Trust emerges as parties share experiences, and interpret and assess each other’s motives.
As they learn more about each other, risk and doubt are reduced. For these reasons, trust
has been described as the glue that holds a relationship together across time and
experience. When mutual trust exists between partners, both are motivated to make
investments in the relationship. These investments, which serve as exit barriers, may be
either tangible (e.g. property) or intangible (e.g. knowledge). If trust is absent, conflict and
uncertainty rise, while cooperation falls. Lack of trust clearly provides a shaky foundation for
a successful customer-supplier relationship. In the same vein, It has been suggested that as
relationships evolve over time so does the character of trust as explained below:

(a) calculus-based trust: this is present in the early stages of a relationship and is quite
calculative. It is as if one party says: ‘I trust you because of what I am gaining or expect to
gain from the relationship’.

(b) knowledge-based trust: this relies on the individual parties’ interactive history and
knowledge of each other, allowing each to make accurate predictions about how the other
will act.

(c) identification-based trust: this happens when mutual understanding is so deep that each
can act as substitute for the other in interpersonal interaction. This is found in the later
stages of relationship development.

Why companies want relationships with customers

The fundamental reason for companies wanting to build relationships with customers is
economic. Companies generate better results when they manage their customer base in
order to identify, acquire, satisfy and retain profitable customers. These are key objectives
of many CRM strategies. Managing customer retention and tenure intelligently generates
benefits for companies;
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Reduced marketing costs: Improving customer retention reduces a company’s marketing
costs. Fewer dollars need to be spent replacing churned customers. For example, it has been
estimated that it costs an advertising agency at least 20 times as much to recruit a new
client than it does to retain an existing client. In addition to reducing the costs of customer
acquisition, cost-to-serve existing customers also tends to fall over time.

Better customer insight: As customer tenure lengthens, suppliers are able to develop a
better understanding of customer requirements and expectations. Customers also come to
understand what a supplier can do for them. Consequently, suppliers become better placed
to identify and satisfy customer requirements profitably, selling more product and service to
the retained customer. Under these circumstances, revenue and profit streams from
customers become more secured throughout the customer journey, as shown below:

The customer journey

Enhanced referrals business: These are made possible by existing, satisfied customers
through their unpaid advocacy. Lexus UK, for example, believes that every delighted
customer generates £600 000 of referral business. Word-of mouth is recognized as
powerfully persuasive because it is regarded as being independent and unpaid.

Support higher prices: it has been established that higher prices are paid by existing
customers than those paid by new customers. This is partly because they are not offered the
discounts that are often employed to win new customers, and partly because they are less
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sensitive to price offers from other potential suppliers because they are satisfied with their
experience.

Why companies do NOT want relationships with customers

Despite the financial benefits that can accrue from a relationship, companies sometimes
resist entering into relationships with customers for the following reasons:

Loss of control: a mature relationship involves give and take on both sides of the dyad. In
bilateral relationships, suppliers may have to give up unilateral control over their own
business’s resources. For example, a supplier of engineering services might not want to
provide free pre-sales consultancy for a new project with an established client because of
the high costs involved.

Exit costs: not all relationships survive. It is not necessarily easy or cost-effective to exit a
relationship. Sometimes, investments that are made in a relationship are not returned when
a relationship breaks down.

Resource commitment: relationships require the commitment of resources such as people,

time and money. Companies have to decide whether it is better to allocate resources to
customer management or some other area of the business, such as operations or research
and development. Once resources are committed, they can become sunk costs. Sunk costs
are unrecoverable past expenditures.

Opportunity costs: if resources are committed to one customer, they cannot be allocated to
another. Relationships carry with them high opportunity costs.

Why customers want relationships with suppliers

There are a number of circumstances when a B2B customer might want a long-term
relationship with a supplier:

Product complexity: if the product or its applications are complex, for example, networking
infrastructure, electricity transformer, etc.

Product strategic significance: if the product is strategically important or mission-critical, for

example, supply of essential raw materials for a continuous process manufacturer.

Service requirements: if there are down-stream service requirements, for example, machine
tools.

Financial risk: if financial risk is high, for example, in buying large items of capital
equipment.

Reciprocity: a financial audit practice may want a close relationship with a management
consultancy, so that each party benefits from referrals by the other.

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In a business-to-consumer (B2C) context, relationships may be valued when the customer
experiences benefits over and above those directly derived from acquiring, consuming or
using the product or service. For example:

Recognition: customers may feel more valued when recognized and addressed by name, for
example at a retail bank branch, or as a frequent flyer.

Personalization: products or services can be customized. For example, over time, a

hairdresser may come to understand a customer’s particular preferences or expectations.

Power: relationships with suppliers can be empowering. For example, some of the usual
power asymmetry in relationships between banks and their customers may be reversed
when customers feel that they have personal relationships with particular bank officers or
branches.

Risk reduction: risk takes many forms – performance, physical, financial, social and
psychological. High levels of perceived risk are uncomfortable for many customers. A
relationship can reduce or even, perhaps, eliminate perceived risk. For example, a customer
may develop a relationship with a service station to reduce the perceived performance and
physical risk attached to having a car serviced. The relationship provides the assurance that
the job has been skilfully performed and that the car is safe to drive.

Status: customers may feel that their status is enhanced by a relationship with a supplier,
such as an elite health club or a company offering a platinum credit-card.

Why customers do NOT want relationships with suppliers

While companies generally want long-term relationships with customers for the economic
reasons described above, it is far less clear that customers universally want relationships
with their suppliers. B2B customers cite a number of concerns.

Fear of dependency: this is driven by a number of worries. Customers may be concerned

that the supplier might act opportunistically, once they are in a preferred position, perhaps
introducing price rises. They may also fear the reduction in their flexibility to choose
alternative suppliers. There may also be concerns over a loss of personal authority and
control.

Lack of perceived value in the relationship: customers may not believe that they will enjoy
substantial savings in transaction costs, or that the relationship will help them create a
superior competitive position, generate additional revenue or that there will be any social
benefits. In other words, there is no perceived value above and beyond that obtained from
the product or service.

Lack of confidence in the supplier: customers may choose not to enter a relationship
because they feel the potential partner is unreliable, too small, strategically insignificant, has
a poor reputation or is insufficiently innovative.

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Customer lacks relational orientation: not all company cultures are equally inclined towards
relationship building. Some are much more transactional. For example, some retailers make
it a policy to buy a high proportion of their merchandise through special offers. The
preference for transactional rather than relational business operations may be reflected in a
company’s buying processes and reward systems.

Rapid technological changes: in an industry with rapidly changing technology, commitment

to one supplier might mean that the customer misses out on new developments available
through other suppliers.

In the B2C context, consumers buy hundreds of different convenience, shopping and
speciality products and services. Whereas consumers might want a relationship with their
financial service advisor or their physician, they can often find no good reason for
developing closer relationships with the manufacturer of their household detergent, snack
foods or toothpaste. However, for consumer products and services that are personally
important, customers can become more involved and become more emotionally engaged.

CRM AND CUSTOMER EXPERIENCE

Customer experience is the cognitive and affective outcome of the customer’s exposure to,
or interaction with, a company’s people, processes, technologies, products, services and
other outputs. When customers do business with a company, they not only have products or
service, but they are also exposed to, or interact with, other types of company output, e.g.
TV commercials, customer service agent, portal, etc. Customer experience is important
because it influences future buying behaviour and word-of-mouth. The two perspectives of
customer experience are Positive and Normative.
● Positive customer experience describes customer experience as it is. It is a value free and
objective statement of what it is like to be a customer.
●Normative customer experience describes customer experience as management or
customers believe it should be. It is a value-based judgement of what the experience ought
to be for a customer.
Customer Experience Management Core Concepts
Touchpoints - these are found wherever your customer comes into virtual or actual contact
with the company’s products, services, etc. Touchpoints include websites, service centres,
warehouses, etc. An important challenge for managers is to ensure the customer’s
experience is consistent across all touchpoints.
Moment of Truth - (MOT) is any occasion the customer interacts with, or is exposed to, any
organizational output which leads to the formation of an impression of the organization.
Moments of truth occur during customer interactions at touchpoints. These are the
moments when customers form evaluative judgements, positive or negative, about their
experience.
Engagement - is the customer’s emotional and rational response to a customer experience.
Companies that consciously design customer experience want to evoke strong, positive
engagement. Companies do this by carefully designing what happens during moments of
truth at customer touchpoints. Customer experience can become stale over time, and stale

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experiences are not engaging. It is therefore necessary to constantly refresh the customer
experience, provoking customer surprise by doing the unexpected.

How to Understand and Improve Customer Experience

Companies can understand and improve their insight into customer experience in these
ways:
Mystery shopping: Mystery shopping involves the recruitment of paid shoppers to report on
their customer experience with the company sponsoring the research. They might also
perform a comparative shop during which they compare the sponsor’s performance with
competitors.
Experience mapping: Experience mapping is a process that strives to understand, chart and
improve what happens at customer touchpoints. Focus groups, face-to- face interviews or
telephone interviews are conducted with a sample of customers and the focus is on two
important questions. What is the experience like? And, how can it be improved?
Process mapping: is a form of blueprinting. Blueprints are graphical representations of
business processes. They are useful not only for developing ways to improve customer
experience, but also for improving back-office internal customer–supplier relationships,
setting service standards, identifying fail-points, training new people, and eliminating
process redundancy and duplication.
Participant observation: Companies can develop a better understanding of customer
experience by requiring their senior management to learn about customer experience by
providing front line customer service thereby participating in the customer experience at
various touchpoints.
Non-participant observation: In preference to participant observation, other companies
require their senior managers to observe customer interactions at customer touchpoints.
This is particularly suitable when the primary customer touchpoint is a call centre or contact
centre.

SALES-FORCE AUTOMATION

SALES-FORCE AUTOMATION (SFA) is a CRM technology used by salespeople and their

managers. It has offered technological support to sales people and managers since the
beginning of the 1990s. SFA is now so widely adopted in business-to-business environments
that it is seen as a ‘competitive imperative’ that offers ‘competitive parity’. In other words,
SFA is just a regular feature of the selling landscape. Salespeople are found in a wide variety
of contexts e.g. in the field calling on business and institutional customers, in offices,
contact centres and call centres receiving incoming orders and making outbound sales calls,
in retail business-to-customer settings, in the street selling door-to-door, and even in the
home where party planners sell a variety of merchandise, etc. All these sales contexts

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deploy SFA in some form or other. The SFA ecosystem is made up of three components: SFA
solutions providers, hardware and infrastructure vendors, and associated service providers.
The SFA technology enables companies to collect, store, analyse, distribute and use
customer-related data for sales purposes.

SALES-FORCE AUTOMATION (SFA) can be defined as the application of computerized

technologies to support salespeople and sales management in the achievement of their
work-related objectives. Hardware and software are the key technological elements of SFA.
Hardware includes desktop, laptop and handheld devices etc. while software comprises both
‘point’ solutions that are designed to assist in a single area of selling or sales management,
and integrated solutions that offer a range of functionality. The integrated packages can be
dedicated to sales-force applications only, or can be incorporated into comprehensive CRM
suites that operate over the three front-office areas of marketing, service and sales. The
following are the functionality offered by SFA software:

SALES-FORCE AUTOMATION ADOPTION

Generally, a company’s determination to adopt SFA follows a two-step process. First senior
management decides to invest in SFA and, secondly, sales representatives and their
managers decide to use SFA. Both groups, senior managers and users, will anticipate
benefits from SFA and unless those benefits are delivered SFA may be abandoned. Vendors

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and consultants claim a number of benefits from SFA implementation to differing SFA
stakeholders, for example:
● sales people: shorter sales cycles, more closing opportunities, higher win rates
● sales managers: improved salesperson productivity, improved customer relations,
accurate reporting, reduced cost of sales
● senior management: accelerated cashflow, increased sales revenue, market share growth,
improved profitability.
In addition to these measurable outcomes, there may be additional benefits such as less
rework, more timely information and better quality management reports. However, none of
these benefits are likely to be delivered if salespeople fail to adopt the technology. Adoption
is more likely if salespeople find the technology is useful, easy to use and they receive
appropriate training.

HOW SFA CHANGES SALES PERFORMANCE

It seems likely that SFA will have more impact on sales performance when a number of
conditions are met. These include:
1. salespeople find that SFA is easy to use
2. salespeople find the technology useful because it fits their roles well
3. availability of appropriate-to-task SFA training
4. users have accurate expectations about what SFA will deliver
5. users have a positive attitude towards innovation
6. users have a positive attitude towards technology
7. availability of user support after roll-out, for example, a helpdesk
8. involvement of user groups, including sales rep. and managers, during project planning
and technology selection
9. deployment of a multidisciplinary team in the project planning phases
10. senior management support for SFA.

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