Customer Loyalty And Critically Evaluate The Emergence Marketing Essay
CRM is basically stands for customer relationship management. As CRM is new and multifaceted, there are numerous definitions exist. At the initial stage, the CRM grew with the booming dot.com industries in 2000; it was generally defined as a software package, system or technology. Peel (2002) provided a technologically oriented definition of CRM, “CRM is the automation of horisontally integrated business processes involving “front office” customer touch points – sales (contact management, product configuration), marketing (campaign management, marketing), and customer service (called data centre, field service) – via multiple, interconnected delivery channels (telephone, e-mail, Web, direct interaction). The CRM application architecture must combine both operational (transaction-oriented business process management) technologies as well as analytical (data mart-centered business performance management) technologies.”
With large set of customer data collected by the CRM software, company started to regard CRM as a management practice that focuses on building relationships with customer rather than transactions. Swift (2001) claimed that “A broader definition of CRM would include all activities that turn casual consumers into loyal customers by satisfying or exceeding their requirements to the extent that they will buy again.” It provides a shift from a transaction-based to a relationship-based business model. Transaction is regarded as one time exchange merely for money. In the transaction-base business model, the sale is the end of the relationship; in relationship-based one, it is the beginning, and relationship should be built to make more subsequent transactions. With the help of technologies, interactions between customers and corporation are integrated, recorded and managed, it enables relationships to be developed and maintained. CRM has evolved to a business strategy that focuses on
customers. Bondenbery (2001) made a definition that “CRM comprises the business processes and organisation performs to identify, select, acquire, develop, retain and better service customers. These processes encompass an organisation’s end-to-end engagement with its customers and prospects over the lifetime of its relationship with them.” The development into a business strategy enables a corporation to record the difference between customers systemically, to analysis and predict their needs, and to provide product/service they individually expected, and builds up a long-term relationship with them. CRM is information intensive, if the company acquires more useful information about the customers, it can have a better understanding of its customers, then develop and implement relationship strategies in an effective and timely way. As a business strategy, CRM needs to give direction and purpose, to deploy resources in the most effective manner and to coordinate the stream of decisions being made by different members of the organisation (Grant, 2002).
The famous 80/20 rule has suggested that 20 percent of your customers account for 80 percent of your profit. The implementation of CRM helps finding these 20 percent of customers and build up long-term relationship with them, this can have a better allocation of resources and increase profit in the aspect of trading-up and cross-selling. A more comprehensive definition is provided by Baran et. al. (2008), “Customer Relationship Management is the initiation, enhancement, and maintenance of the mutually beneficial customer and partner long-term relationships through business intelligence-generated strategies based on the capture, storing and analysis of information gathered from all customer and partner touch points and transaction processing systems”. This definition describes CRM as a business strategy and captures the importance of technology and building mutual-beneficial relationship through long-term communication. This definition is adopted for further discussion on the how CRM can improve service quality in property management industry. This section provides an introduction of the development and advantages of the
CRM. The following section provides insights on how CRM helps companies to transform new customers to loyal customers and generate profit to the company.
2. Relationship Framework and Benefits of CRM
As a customer-centric business strategy, building a long-term mutual beneficial relationship is the focus of the CRM. There are several stages to undergo before the company can turn a stranger to loyal customers. Using CRM, it can not only help the company to establish and maintain a relationship with customers, but also increase the strength of the relationship from acquaintanceship to friendship and to partnership. Johnson and Senies (2004) have divided the transformation of relationship into three stages: from strangers to acquaintances; from acquaintances to friends; from friends to partners.
2.1. From strangers to acquaintances
Strangers are customers and company in a pre-awareness and/or pre-transaction period. A customer and company become acquaintance once a transaction has been done as a minimum of familiarity is established.
Company needs only to provide a value proposition to customer that is on par with competitors, or parity value. Customer at this stage is looking for the company to provide the products/services in a satisfactory way at a fair price. Through replication of processes and accumulated volume, both companies and customers get familiar with each other, which reduce companies’ costs and customers’ perceived risk.
The CRM system helps the company to acquire new customers by analysing data about their existing valuable customers’ purchasing behaviour, and then generate elements that can attract similar customers, and avoid putting resources in attracting infrequent customers. This is opposite to what mass marketing evocated, which send out same message to thousands of prospects. Using CRM is a shift from broadcast to dialogue. Having dialogues with customers can maintain continuous connections with customers and provide customised
products and service (McKenna, 2001). To conclude, the advantages of using CRM at this stage is to identify potential customers, understand customers’ needs of both current and latent, and differentiate profitable from unprofitable customers.
In most of the modern automobile industry, customer changes from stranger to acquaintance if he/she buys or hire purchase a car. At this stage, customers are satisfied if the companies are able to provide services which are comparable with other companies with similar sales prices and years.
It is hard for the companies to select customer as once they become car owner, both of them enter the relationship of acquaintance. However, the company can use the existing customer base to analysis their needs, and then suggest the manufacturing department to take some changes into consideration during the manufacturing process, which can become a selling point for a new car. For example, Warranties, offer test driving, trading in, dealer delivery, stamp duty, insurance, registration, offer customers a twenty four hour breakdown service while the car is in warranty.
2.2. From acquaintances to friends
The relationship transforms from acquaintance to friendship if the company move from supplying parity value to differential value. This transition requires the development of trust in the relationship. The company provides more unique products/services at a superior value, and the customers trust the company can provide diversified products/services that meet the needs of a particular market segment better than competitors; which in turn generate competitive advantage to the company. In a friendship, the customer are willing to provide more information to the company to enable them to identify customer needs changes, communicate and use the information to improve products and services.
Using CRM helps the company to segment the existing customer base and provide products and services that are suitable for them. This can be further assisted by the “learning
relationship” idea developed by Peppers and Rogers (1995). A learning relationship is an ongoing connection between a company and its customer that becomes smarter as the two interact with each other. In learning relationships, individual customer teaches the company about his/her preferences and needs. The more customers teach the company, the better it becomes at providing exactly what they want and the more difficult for a competitor to entice them away. With more understanding about customers’ need, the company is able to launch campaign for specific segment of customers to encourage increase consumption of current products and services, and then move up using more prestige items produced by a company. It can also help increasing customer services and satisfaction while decreasing attrition rate. This reveals that CRM can increase sales volume in turns of not only purchasing existing products/ services, but also through cross-selling and up-selling.
There are various ways that the company can get a better picture of the customers’ needs. If the company has already implemented TQM, there are several means to collect customers’ opinions, e.g. meeting with customers, survey, suggestion form, mysterious customer visits, home visits, benchmarking and emails. Through these communications, the company can understand more about the needs of existing customers, and refine services to cope with their needs.
2.3. From friends to partners
The “trust” in friendship provides the platform from which more long-term commitments are built (Spekman, 1988). In the partnership, companies are required to provide more personalised customised value and offering to create the highest level of congruence between the heterogeneity of demand and supply (Edvardsson et al. 2000). Due to the specialty, customers are willing to pay a price premium or to commit themselves to the company for an extended period of time. The development of commitment reduces the customer’s need to
solve problems in the traditional sense of “finding a better alternative”, and in turn loyal to the company.
Using CRM at this stage can assist company to deliver highly personalised and customised offerings to create the highest level of congruence between the heterogeneity of demand and supply. To earn the competitive edge, the companies need to increase the quality and use the information efficiently than competitors. If the customers are loyal to the company, they are willing to pay a premium to the product/service received, and refer their friends and family to use the product/service. This sustains a long-term profit to the company.
Using CRM, the staffs are able to provide more personalised services. For example, even a new staff can greet the customers by surname when they meet them. This type of partnership is what companies looking for as long as the customers are loyal to the companies, there is less chances for the customers’ corporation to propose to shift to other companies, and increase the room to raise the manager remuneration, and refer the company to other people. Baran et. al. (2008) provides a conclusive idea of the benefits to different stages of CRM relationship development. CRM systems can lower the substantial costs of doing business, making the recruitment of customers more cost effective, reducing the costs of sales, and by increasing customer retention and loyalty, reducing the need for frequent and expensive efforts to attract new customers. CRM systems also reduce costs involved in marketing to low-profit customers since they can be identified. On the revenue side, CRM systems allow companies to identify and focus on their high-profit customers while enabling companies to transform low-value customer into higher-value one.
The model identifies three pillars of integral CRM: personnel, technology and organisation. Gerhard et al (2008) pointed out “Only when CRM is internalised by the top management, is understood by the employees, and is anchored into the structure of the company can this venture be of use. The best technology would be useless without the people who work with it”. This fits in the previous definition of CRM, which is a business strategy in building long-term mutual beneficial relationship with customers in order to reach business success.
3.2. Customer Orientation
The entirety of a company’s thought and action should be focused on the customer’s current and potential needs, wishes, and problems. To that end, it is important to have exact knowledge of markets, products, competition, and the customer. In order to achieve maximum customer orientation, organisation structure which puts customer at the centre of attention, adoption of modern technological solutions, and customer-focus management and employees are needed.
Major companies usually put customers at one of their core values. Various trainings are also provided to staff on customer services; however, the teachings are focus on reaching certain service standard rather than educating them with the customer-focus mindsets. Moreover, computer usages are usually restricted to the office staff. To successfully implement the CRM strategy, even the frontline staff can make use of the computers to instantly acquire useful information and provide prompt replies to the customers queries, and input communication records to the system. Therefore, more investment is needed in the field of technology and staff trainings on computer usage and customer-focus principles.
3.3. Quality of Product and Service Performance
An important factor in the success of a company comes from the quality of its products and services in relation to the competition. It is advantageous to incorporate the wants of the customers into the products in the design stage. Instead of finding customers for the products, the idea is to find products for the customer. As it is one of the fields that will be study in this paper, it will be further discussed in Section 4.
3.4. Customer Satisfaction
After consuming or use of a product, the customers will ask themselves if they were happy with the product. If the answer is yes they will tend to choose the product when they shop again, to recommend it to others, and perhaps to become a regular customer.
Tse (1988) describe satisfaction as “the consumer’s response to and evaluation of the perceived discrepancy between prior expectations (or some other norm of performance) and the actual performance of the product as perceived after its consumption”. This implies that if service provided is better than what is expected, the customers is satisfied; if the service provided is worse than customer expectation, the customers is unsatisfied.
However, as mentioned in Section 2, customers who are merely satisfied are only at the acquaintances stage. The company needs to launch various campaigns to have more communication with their customers, and provide products/ services that reach their expectations, which can upgrade the relationship to friends.
The major companies usually carry out the survey on the service satisfactory levels annually and meetings with customers to collect their opinions. These can help the company to find out which area need improvement.
3.5. Customer Retention
The key to build up a regular clientele is obtaining satisfied customers. Companies that are successfully in precisely adapting their spectrum of performance to the ideas and expectations of their customers, or who even manage to surpass them, generate satisfaction and thus create a basis for future business.
Plinke and Söllner (2000) stated that customer retention is the result of the more pronounced dependence of customers with regard to the provider. Backhaus and Baumeister (2000) has further added that the dependence only exist when the benefit of the customer commitment exceeds the benefit of a subsequent, non-binding single purchase. The existence of commitment is correspondence to the stage of partnership in Section 2. The customers are loyal to the company at this stage. Zikmund et. al. (2003) has pointed out that “Loyal customers, high in repeat purchase behaviour and strong in attitude, are, theoretically, the most desirable customers…loyalty indicate a commitment to the support of a relationship”. In order to retain this type of customers, the company needs to carry out retention strategy. As Baran et. al (2008) have divided retaining strategy into two: programmatic and humanistic.
Programmatic bonds consist of rewards programs and procedures that make it difficult for customers to switch providers. Humanistic bonds refer to the treatment given to customers by highly trained personnel who can provide solutions to customers based on their values to the company right on the spot.
3.6. Customer Value and Company Success
There is a close relationship between customer commitment and profit level. The profit per customer increases with the growing duration of a customer’s relationship to a company.
At these stages, this is to determinate whether CRM is effectively implemented into two levels: Customer value and Company Success. At the “Customer Value” stage, it is to evaluate whether using CRM system, it can really know the customer, influence their behaviour and invest in its profitable customer with precision (Rapp, 2000). This is usually calculated by using the “Customer Lifetime Value”, that is the expected profit gain from whole customer life cycle. At the “Company Success” stage, the “Balanced Scorecard’ is adopted for evaluation. The balanced scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organisation, improve internal and external communications, and monitor organisational performance against strategic goals (The Balanced Scorecard Institute, 2009). The result of the balanced scorecard can evaluate the effectiveness of CRM, and carry out rectification campaign to refine the current CRM system.
4. Service Quality
At different process of CRM mentioned in Section 3, there are several measurements that can evaluate the effectiveness of the CRM. The service quality is opted for further study in this paper as product/service quality is closely related to provision of the product/service that the customers want and achieve higher customer satisfaction level, and successfulness in subsequent stage.
4.1. Definition of Quality
Quality means different thing to different people, and it is difficult to find a single and universal definition for it. “Quality is an ambiguous term. On the one hand, everyone knows (or think they know) what quality is. On the other hand, formulating a comprehensive and uniform definition is a big – if not insurmountable – problem” (Kasper et. al., 1999). Other scholars tried to define quality in three ways: the philosophical approach, the technical approach and the user-based approach (Schneider and White, 2004). The philosophical approach holds that quality is synonymous with innate excellence, e.g. attainment of superiority, achieving desirability or become useful (Kasper et al., 1999; Oliver, 1997) and it cannot be denied or analysed further than that. Under this definition quality is immeasurable; it is useless for further study to improve service quality.
The technical approach defining quality considers quality as a product conforms to technical standard (Kasper et al., 1999; Oliver, 1997). It is usually called manufacturing-based quality, objective quality or conformance quality.
Quality is measure objectively in terms of numbers of deviations from the standards of number of defects. As this definition is measurable, it is more suitable for checking the quality of mass production tangible products. For automobile industry, though it may be feasible by setting specific objectives like pick up calls within three rings, this may cause other people calling on hold.
Therefore, this will narrow the vision of employees who will achieve goals by lowering quality in areas which have no goal. The user-based approach means that quality of a product is determined by its user. Quality is subjective and hinges on the individual perceptions of customers. The definition of user-based approach is more appropriate for the automobile industry. As service is intangibility, people can only perceive it in their mind. Thus, measuring customers’ perception is useful for evaluation service quality. Unlike technical approach, user-based approach provides flexibility, which is important for evaluating service which has the characteristic of heterogeneity. Some other scholars also made some other definitions of quality which are similar to the meanings above. Quality is a consumer-generate comparative judgment, since individuals have no implicit sense of quality unless a standard of comparison is provided (Oliver, 1997). Quality is the extent in which the service, the service process and the organisation can satisfy the expectation of the user (Kasper et. al., 1999).
4.2. Themes of Service Quality
Parasuraman et. al. (1985) provided three underlying themes that can summarise the idea of service quality mentioned above:
Service quality is more difficult for the consumer to evaluate than goods quality.
Service quality perceptions result form a comparison of consumer expectations with actual service performance
Quality evaluations are not made solely on the outcome of a service; they also involve evaluations of process of service delivery.
4.3. Service Quality Measurement
After discussing the concepts of service quality, this section is to review the methods of evaluation.
4.3.1. Gap Model
Referring to the user-based approach for defining service quality - quality is the extent in which the service, the service process and the organisation can satisfy the expectation of the user. Therefore measuring the discrepancies or gaps between the customers’ expectation of service and the actual service delivery to users can be useful for measuring service quality. Parasuraman et. al (1985) have developed the gap model for measurement as follows:
Discrepancies between perceptions and consumer expectations. Managers of the company may not always understand what features denote high quality to customers in advance, what features a service must have in order to meet customers’ needs, and what levels of performance on those features are needed to deliver high quality service.
Automobile company should develop several communication channels to invite customers to express their opinions, not only what customers have experienced, but also what they expected. If the automobile company has more understanding of its customers’ expectation on service quality, this can help to minimise the gap.
GAP 2: Management perception – service quality specification
Constraints (resources, or market conditions) which prevent management from delivering what the customers expect, or the absence of total management commitment to service quality.
Automobile company’s top management should develop a service quality emphasis objective and implement strategy that are widely support and understand by different level of staff of its importance.
GAP 3: Service quality specifications – service delivery gap
Difficulty in standardising employee performance even when guidelines exist for performing services well and trading customers correctly As to minimise this gap, the automobile company should have a careful selection of staff who have the personality that are customer oriented. Then suitable people development programs and trainings should be provided.
Moreover, staff should be familiar with the specific operational procedures and guidelines, and routine checking system should be performed.
GAP 4: Service delivery – external communications gap
Media advertising and other communications by a company can affect customers' expectations. Promising more than can be delivered will raise initial expectations but lower perceptions of quality when the promises are not fulfilled. Also company can neglect to inform customers of special efforts to ensure quality that are not visible to customers thereby effecting customers’ perceptions of the delivered service.
Participation of staff who is involved in service delivery to contribute for developing media advertising and other communication can minimise the gap. Customers’ opinions on the service quality should also be taken into consideration when designing communication channels and messages.
GAP 5: Expected service – perceived service gap
How customers perceive the actual service performance in the context of what they expected. The quality that a customer perceives in a service is a function of the magnitude and direction of the gap between expected service and perceived service.
Parasuraman et al (1985) have also suggested that the expected services are mainly based on word of mouth of others, personal needs, and their own past experience. If the customers experience good services, they will share their experience with other customers. Therefore, the company should try to minimise the gap of 1-4 in order to provide services that are closed to expectation of the customers.
4.3.2. Perceptions-Only Assessment
Cronin and Taylor (1992) claimed that the gap model is in favour of measuring perceptions of the service delivery experience. People measure the quality based on the impressions and experiences towards the services. They have developed the SERVPERF model which is perception-only measurement. That is simply get respondents’ answers on each dimension regarding whether or not the service is better or worse than expected. This theory has gained supports from other scholars as it does not have the statistical problems as gap model. Gap scores tend to suffer from poor statistical properties, including poor reliability, questionable validity, and restricted variance (Schneider, 2004). Parasuramans and his partners has compared the gap model and perceptions-only assessment in 1994, and insisted that the gap model is more useful for assessing the shortfalls of the service quality. They concluded that if maximising predictive power is the principle objective, the perceptions-only scale is the best as it outperforms all other measures on this criterion. However, if identifying critical service shortfalls are the principal object, the gap format seems most useful; and this format also provides separate perceptions rating for those concerned with maximising predictive power.
4.3.3. Ten Determinants of Service Quality
Parasuraman et al (1985) have defined that the customers’ perceived service quality is the difference of expected service and perceived service (Gap 5). In their study, regardless of the type of service, customers used basically similar criteria in evaluation service quality, which are grouped into 10 key categories. The following figure shows the relationships:
Determinants of Service Quality
understanding / Knowing the Customer
Perceived Service Quality
Word of Mouth
Figure 3: Determinants of Perceived Service Quality
ACCESS involves approachability and ease of contact.
COMMUNICAITON means keeping customers informed in language they can understand and listening to them. It may mean that the company has to adjust its language for different customers – increasing the level of sophistication with a well-educated customer and speaking simply and plainly with a novice.
COMPETENCE means possession of the required skills and knowledge to perform the service
COURTESY involves politeness, respect, consideration and friendliness of contact personnel (including receptionists, telephone operators, etc).
CREDIBILITY involves trustworthiness, believability, honesty. It involves having the customer’s best interests at heart.
RELIABILITY involves consistency of performance and dependability.
RESPONSIVENESS concerns the willingness or readiness of employees to provide service. It involves timeliness of service.
SECURITY is the freedom from danger, risk, or doubt.
TANGIBLES include the physical evidence of the service.
UNDERSTANDING/ KNOWING THE CUSTOMER involves making the effort to understand the customer’s needs.
They have made a conclusion of evaluating service quality. When expected service is higher than perceived service, perceived service quality is less than satisfactory and will tend toward totally unacceptable quality, with increased discrepancy between expected service and perceived service. When expected service is equal to perceived service, the perceived service quality is satisfactory. When expected service is lower than perceived service, perceived quality is more than satisfactory and will tend toward ideal quality, with increased discrepancy between expected service and perceived service.
Parasuraman and his partner based on the ten determinate of the service quality, and carried out quantitative data analysis on it. After the series of revision and refinement, they have developed a multiple-item instrument called SERQVUAL for assessing customer perceptions of service quality in service and retailing organisation. The five dimensions are Reliability, Tangibles, Responsiveness, Assurance and Empathy. The last two dimensions (assurance and empathy) contain items representing seven original dimensions – communication, credibility, security, competence, courtesy, understanding/ knowing customers, and access, which are not distinctive after review. The following are the elaborations of five dimensions:
TANGIBLES are physical facilities, equipment, and appearance of personnel
RELIABILITY is ability to perform the promised service dependably and accurately
RESPONSIVENESS is willingness to help customers and provide prompt service
ASSURANCE is knowledge and courtesy of employees and their ability to inspire trust and confidence
EMPATHY is caring, individualised attention the company provides its customers
4.3.5. Other Service Dimensions
Some scholars have applied other measurement dimensions of service quality in the subsequent years as they claimed that the SERVQUAL is not universally applicable to all situations and has shortfalls.
Grönroos (1990) has built six-dimension for assessing the experienced service quality, which emphasised on service delivery rather than product involved. The six dimensions are Professionalism and Skills, Attitudes and Behavior, Accessibility and Flexibility, Reliability and Trustworthiness, Recovery, and Reputation and Credibility.
Gummesson (1992) has developed dimensions which focused on the tangibles dimension more than in the SERVQUAL and Grönroos’s. Gummesson agreed with the SERVQUAL research and retained the same dimensions of Reliability, Responsiveness, Assurance and Empathy. For the Tangibles dimensions, he has divided into four aspects; including the manufacturing/ goods perspective, a psychological perspective that affect customers’ ability to interact with products in everyday life, an environmental perspective that addresses the impact of larger physical environment of the service experience on the evaluation of it, and a software element that response to development of computerisation in the 90’s.
4.3.6. Service Quality Measurement method to be adopted
Throughout the years, different scholars have developed different measurement methods and dimensions of service quality, and some of them are mentioned above. Nevertheless, there is no one perfect model which can universally applied without limitation. As Gap Model and SEVQUAL dimensions are widely adopted in various studies for assessing service quality and contribute reliable results, these two concepts are to be used for evaluation of the effectiveness of CRM.
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