UNDERSTANDING

CUSTOMER
REQUIREMENTS
BUILDING CUSTOMER RELATIONSHIPS
BY
DR S SENA
SENIOR LECTURER
BUSINESS STUDIES DEPARTMENT
 Customer Relationship
Management (CRM)
Learning Objectives

Define CRM;
Understand the importance of CRM;
Explain the determinants of CRM and the key stages in its development;
Discuss the main functions and various models of CRM;
Explain the role of salespeople as relationship developers
Discuss the management of customer relationships.
 What is Customer Relationship Management (CRM)?

CRM is “the development and maintenance of mutually beneficial

long-term relationships with strategically significant customers”
(Buttle, 2000)

CRM is “an IT enhanced value process, which identifies, develops,

integrates and focuses the various competencies of the firm to the
‘voice’ of the customer in order to deliver long-term superior
customer value, at a profit to well identified existing and potential
customers”.
(Plakoyiannaki and Tzokas, 2001)
CRM is a business philosophy based upon individual
customers and customised products and services supported by
open lines of communication and feedback from the
participating firms that mutually benefit both buying and
selling organisations.
The buying and selling firms enter into a “learning
relationship” with the customer being willing to collaborate
with the seller and grow as a loyal customer. In return,, the
seller works to maximize the value of the relationship for
the customer’s benefit.

In short, CRM provides selling organisations with the platform

to obtain a competitive advantage by embracing customer
needs and building value-driven long-term relationships.
 CRM – “Strategy used to learn more about
customers’ needs and behaviors in order to
develop stronger relationships with them”
 CRM – “Any application or initiative designed
to help an organization optimize interactions
with customers, suppliers, or prospects via one
or more touch points – such as a call center,
salesperson, distributor, store, branch office,
Web, or e-mail – for the purpose of acquiring,
retaining, or cross-selling customers.”
 CRM introduced in 1993

5
• “is a business strategy with outcomes
– that optimise profitability, revenue and
customer satisfaction
– by organizing around customer segments,
– fostering customer-satisfying behaviors and
– implementing customer-centric processes.”
• “is a strategy
– used to learn more about customers' needs
and behaviors
– in order to develop stronger relationships
with them.”
Underpinning Theory
• Customers have many points of contact with
an organisation
• Retaining customers is far most cost effective
than recruiting new ones
• Some customers are more profitable than
others
– The “80/20” rule
– For most firms, 80 percent of profit comes from 20
percent of customers
• Use of Technology
Potential Benefits Of CRM

• Customer retention
• Share of customer or share of
wallet
• Cross-selling
• Up-selling
Potential Costs Of CRM

• IT infrastructure
• Process change
Benefits Of CRM For Customers

• Continuity
• A contact point
• Personalisation
Three phases of CRM
• Acquiring New Relationships
– You acquire new customers by promoting your
company’s product and service leadership.
• Enhancing Existing Relationships
– You enhance the relationship by encouraging
excellence in cross-selling and up-selling, thereby
deepening and broadening the relationship.
• Retaining Customer Relationships
– Retention focuses on service adaptability – delivering
not what the market wants but what customers want.
Steps to improve CRM

1. Build a database
2. Analyse, define types, profitability
3. Customer selection
4. Activities to delight selected
customers
- discourage others
5. Analyse again to see how we’re
doing
What should be in the database

• Demographics
– How do you get people to provide this?
• History of contacts
• Transaction history or summary
• Response to marketing
communications
– How did you hear about us (this offer?)
Behavioral Patterns

• Behavioral patterns
• Consumption channel
• Benefit segments
• Degree of loyalty
• Permission
 Importance of CRM to mgt

 CRM can….
 Increase customer service levels
 Improve efficiency of call centers
 Cross-sell products more effectively
 Help sales staff close deals quickly
 Simplify marketing processes
 Increase ROI

15
 Importance of CRM to GM’s

“Research has shown that companies

that create satisfied, loyal customers
have more repeat business, lower
customer-acquisition costs, and stronger
brand value—all of which translates into
better financial performance”
16
 CRM Targets / Components

 Applications
 Infrastructure
 Transformation

All three are necessary, to some degree, for

successful implementation of CRM
initiatives

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 Retention vs. Acquisition
Retention of customers gives greater benefit over
acquisition of new customers
•Builds trust and loyalty
•Up-sell and cross sell opportunities

Move customers through the lifecycle

Acquisition, Growth and Retention
Movement will maximize their value and increase
profits

Studies indicate that increasing the number of

customers a company retains each year by just 5%
can increase contribution to shareholder value by
Ref 21, 22
40% to 95% 18
Retention vs. Acquisition

 Average U.S. companies

lose 20% of customers
every year – not knowing
why
 Costs 6 to 7 times more to
attain a new customer than
to retain current customers

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 Determinants of CRM

Trust
The willingness to rely on the ability, integrity, and
motivation of one company to serve the needs of the
other company as agreed upon implicitly and
explicitly.

Value
The ability of a selling organisation to satisfy the
needs of the customer at a comparatively lower cost or
higher benefit than that offered by competitors and
measured in monetary, temporal, functional and
psychological terms.
Determinants of CRM

In addition to trust and value, salespeople must:

Understand customer needs and problems;

Meet their commitments;

Provide superior after sales support;

Make sure that the customer is always told the truth

(must be honest); and

Have a passionate interest in establishing and retaining

a long-term relationship (e.g., have long-term
perspective).
Stages in the development of a Customer Relationship
The Pre-relationship Stage
The event that triggers a buyer to seek a new business partner.
The Early Stage
Experience is accumulated between the buyer and seller although
a great degree of uncertainty and distance exists.
The Development Stage
Increased levels of transactions lead to a higher degree of
commitment and the distance is reduced to a social exchange.
The Long-term Stage
Characterised by the companies’ mutual importance to each
other.
The Final Stage
The interaction between the companies becomes institutionalized.
A Relationship Life Cycle Model

High cooperation
Low competition Pre- Development Maturity Decline
relationship stage stage stage
stage

Low cooperation
High competition

Time
(Wilkinson and Young, 1997)
Functions of Customer Relationship Management

Direct functions (are the basic requirements of a company that are

necessary to survive in the competitive marketplace)
Profit;
Volume; and
Safeguard

Indirect functions (are the actions necessary to convince the

customer to participate in various marketing activities).
Innovation:
Market;
Scout: and
Access.
Functions of Customer Relationship Management
Value Creation Process
Technology delivery process
•R&D
•Technology integration
Management •Efficiency, effectiveness
Decision learning
Process
Value-based
Customer sensitivity Product delivery process Strategies
•Concept to launch •Pricing
•Diversity •Manufacturing process •Communication
•Information
•Differentiated
offering Customer delivery process
•Supply chain
•Distribution
•Infomediation (distribution
of information)
(Sharma et. al., 2001)
The role of salespeople as relationship builders and promoters

Salespeople play a critical role as relationship builders and promoters by:

identifying potential customers and their needs;

approaching key decision makers in the buying firm;
negotiating and advancing dialogue and mutual trust;
coordinating the cooperation between the customers and their
company;
encouraging the inter-organisational learning process;
contributing to constructive resolution of existing conflicts; and
leading the customer relationship development team

Salespeople are the individuals in any organisation who act both as

relationship builders and as relationship promoters.
 Models of Customer Relationship Management
The Evans and Luskin (1994) model for effective
Relationship Marketing

Relationship marketing inputs

•Understanding customer expectations
•Building service partnerships
•Empowering employees
•Total quality management
Relationship marketing outcomes
•Customer Satisfaction
•Customer loyalty
•Quality products
•Increased profitability

Assessment state
•Customer feedback
•Integration
(Evans and Luskin, 1994)
Models of Customer Relationship Management
The Brock and Barcklay (1999) model of selling
partner relationship effectiveness

Independence

Mutual trust Selling partner

relationship
Cooperation
effectiveness

Relative influence
 Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.

Initiating the relationship

Engage in strategic prospecting and qualifying;
Gather and study pre-call information;
Identify buying influences;
Plan the initial sales call;
Demonstrate an understanding of the customer’s needs;
Identify opportunities to build a relationship; and
Illustrate the value of a relationship with the customer
 Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.

Developing the relationship

Select an appropriate offering;
Customise the relationship;
Link the solutions with the customer’s needs;
Discuss customer concerns;
Summarize the solution to confirm benefits; and
Secure commitment.
 Managing Customer Relationships
The global salesperson must be involved in the following activities in order to initiate,
develop and enhance the process that is aimed at building trust and commitment with the
customer.

Enhancing the relationship

Assess customer satisfaction;

Take action to ensure satisfaction;
Maintain open, two-way communication; and
Work to add value and enhance mutual opportunities.
 Managing Customer Relationships
Qualifying prospects for relationship building

High
Use a non Build a strong
customized and lasting
approach relationship
Opportunities
for adding value

Seek better Focus on

opportunities loyalty-building
elsewhere program
Low
Low Potential profitability of customer High
Relationship networks

The ultimate outcome of a successful CRM strategy is the creation

of a unique company asset known as a relationship network.

A relationship network consists of the company and its major

customers with whom the company has established long and
enduring business relationships.

The additional aspects of a global salesperson’s job are to:

Manage customer value;

Act as customer advocate; and
Enhance customer loyalty and build a “health” and
profitable network of relationships.
Summary

CRM is a new business philosophy based on trust and value;

The core function of CRM is the value creation process;

Customer relationships develop over time;

The role of global salespeople in the process is that of both

relationship builders and relationship promoters; and

The basic premise of CRM is to offer superior value to

customers in an effort to turn prospects into
customers, customers into loyal customers, and
loyal customers into partners.
 CRM Strategy

 Balance the business in favor of the customer

 Maintain customer loyalty
 DATA, DATA, DATA
 Qualitative research to understand customers
 Develop specialty programs that meet customers’
interests
 Know which markets and marketing strategies are
the most profitable

Ref. 26 35
CRM Best
Practices

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 Best Practices

 Vision / Strategy
 Know your Customer
 Differentiate
 Technology – data requirements
 Metrics
 Monitor

Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
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 Vision / Strategy

 Alignment of vision/strategy with:

 Business objectives
 Customer requirements

 Organizational readiness, including

capabilities, policies, incentives and
practices
Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
38
 Customer Analysis

 Identify -- know who your customer is

 Segment -- high-value, high-potential, low-
potential
 Profile -- know your customer’s habits,
behaviors and profitability

Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
39
 Technology – data requirements

 Define and map data requirements

 What customer data is necessary?
 What system will the data come from?

Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
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 Metrics

 Metrics & goals must be established

up front

Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
41
 Monitor

 Get feedback from customers

 Audit customer experiences by periodically

sampling customer touch points

 Use this information to measure effectiveness and

identify areas for improvement

Nelson, Scott, “Eight Building Blocks of CRM” Gartner Group, June 19, 2003;
http://www2.cio.com/analyst/report1483.html; last accessed October 25, 2004.
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 Lessons Learned

 Need to pay close attention to triangle: people,

process, and technology
 Get executive involvement – top down
 Establish measurable business goals
 Implement incrementally
 Ensure CRM architecture will scale to future needs
as you grow

Spitz, Keith. “Lessons Learned by a CRM Veteran.” Computerworld. Sep 20, 2004. Vol. 38, p. 26
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 The Future of CRM

 Top 5 CRM Trends

 Optimizing past CRM investments
 Customer retention
 Data analysis
 Channel integration
 Partnerships

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Customer Types
• Platinum Heavy, reliable users, not price-
sensitive, try new products, loyal
• Gold Large users who push for price breaks,
shop around and not so loyal
• Iron Low volume or intermittent users; cost
to serve them is quite high
• Lead Demanding, want special attention but
don’t buy much and show no loyalty
Advantages of CRM
• While company is quickly growing, customers are more
satisfied as well
• Service provided in a better way, and a quicker way
• Sales force automated
• Integrated customer information
• Certain processes eliminated
• Operation cost cut, and time efficient
• Brand names more quickly established
• A central database so that everyone in your company can
keep track of customer contacts
• Sales and marketing teams can benefit from having all this
inside knowledge about customers
• Lets you set up rules for distributing work throughout your
company
• Lets you pick and choose the functionality that you want
• Disadvantages:
-Organizational wise change of priority to
customers.
- Significant investment of time and money

- Threatens management’s control/power

struggle
- Heightens people’s resistance to change
- Inappropriate integration leads to disaster