Growing Interest And Emerging Perspective Of Relationship Marketing Marketing Essay
A growing number of organisations have implemented or are considering implementing Customer Relationship Management (CRM) strategies for the purpose of becoming more customer focussed. Despite this trend, there remains a relative dearth of academic literature relating to examining the realities of achieving such organisational objectives. The purpose of this paper is to offer a modest contribution to this area by analysing some of the core concepts of CRM, particularly in respect of customer centricity and contrasting this with case study research of customer-facing
systems in two diverse organisations based in India. The first organisation (Logistics Limited) is a small to medium sized manufacturing company that believes that it is failing to compete because of a loss of customer focus. It is widely perceived that Retail Limited is a market leading retailer because of its ability to consistently meet customer needs. This paper reveals that despite their diverse legacies, both organisations are struggling to implement, to varying degrees, some of the principles of customer centricity within their CRM systems.
Keywords: Customer Relationship Management (CRM), Business Process Change, Information Systems Development, Interpretative Research Methods.
* Senior Lecturer, Department of Management Studies, Skyline Institute of Engineering and Technology, Greater Noida
** Senior Faculty Member, Department of Business Administration, Berhampur University, Orissa
CRM systems can be viewed as strategic and operational information systems aimed at enabling organisations to realise a customer focus (Bull 2003). A significant number of organisations operating in diverse business environments have or are considering adopting Customer Relationship Management (CRM) systems (Fjermestad and Romano Jr 2003). Despite this phenomenal growth the organisational record of the successful development and utilising of such systems is mixed. Some studies of CRM systems projects conclude that organisations are struggling to achieve improvements in customer performance (Giga 2001). However, others highlight a more positive scenario (Davenport, Harris et al. 2001). As the organisational adoption and utilisation of CRM systems evolves, a clearer appreciation and understanding of how CRM systems can affect customer performance should emerge. This should benefit from the recent increase in practitioner orientated research (Kotorov 2003); (Fjermestad and Romano Jr 2003); (Bull 2003) and (Light 2003), which supplement earlier studies (Van Bennekom and Blaisdell 2000) and (Ciborra and Failla 2000). However, CRM-IS empirical studies are still fairly rare and many issues still remain to be explored. One underdeveloped theme highlighted to some extent by (Stefanou, Sarmaniotis et al. 2003) relates to the level of customer centricity (or not) in real organisational CRM strategies. It is against this evolving topic that the authors seek to make a contribution by offering an analysis of the development of a customer focus within CRM systems development at two companies within India.
The next section of the paper provides an overview of several issues relating to CRM systems and considers how such issues are reported upon in the literature. This is followed by a discussion of the research methodology, leading to the presentation and analysis of the case studies. The empirical data is used as a basis for an analysis of the literature to date, in an attempt to identify relevant themes of interest and to highlight areas in which there appear to be weaknesses or gaps. This leads into the conclusions of the study and recommendations for further research.
2. Perspectives on Customer Relationship Management (CRM) Systems
A Generic Perspective
The development of customer centric systems is fairly well established (Synnott 1978). CRM evolved from concepts such as relationship marketing (Berry 1995) and the increased emphasis on improved customer retention through the effective management of customer relationships (Kotler 2000). Relationship Marketing emphasises that organisational strategies based on customer retention rather than on new customer recruitment are highly efficient and cost effective (Reichheld 1996); (Payne, Christopher et al. 1999) and (Day 2000). Others focus on the benefits of adopting information systems technologies to improve customer orientated business processes (Sandoe, Corbitt et al. 2001); (Sambamurthy, Bharadwaj et al. 2003) and (Cheung, Kwok et al. 2003). Furthermore, (El Sawy and Bowles 1997) suggest that technological advances in global networks, convergence and improved interactivity, are key to explaining the growth of the electronic economy and the organisational move towards CRM. In reality, CRM strategies involve the need to create organic customer centric processes that utilise appropriate technological innovation (Trepper 2000).
One of the first elements in understanding the concept of CRM is the need to perceive the strategy in holistic terms e.g. processes influenced by the customer that involve and affect a diverse range of organisational resources (Wells, Fuerst et al. 1999). For many observers the acid test of a holistic CRM approach is the degree to which customer requirements have influenced or have been actually incorporated in the design and functioning of business resources e.g. processes and information systems technologies. Many organisations have highlighted how they have improved the customer centricity of their operations but evaluating such attempts is often problematic. An interesting example of the problems of interpreting customer centric processes are highlighted by the case of Nucleus Software (El Sawy and Bowles 1997). The company implemented an IT-enabled customer support process, one of the main elements was the streamlining of the paths and levels involved for solving customer problems to three levels. It is difficult for an outside observer to evaluate this case. The organisation clearly believed that such changes did constitute the essence of customer centric thinking for it appeared to improve customer service. However, how much influence and involvement did customers of Nuclear Software in the shaping of the redesigned system and could the organisation have been more radical by creating a single tier of customer contact for problem management? Another prerequisite for facilitating a holistic concept is that of effective leadership (Massey, Montoya-Weiss et al. 2001). Organisational leaders are charged with interpreting and monitoring external business environments, thus, they are appropriate people to create the vision and set the overall strategic direction for the CRM project (Galbreath and Rogers 1999). In addition, leaders are influential in the authorisation and control of CRM projects including expenditure, the setting and monitoring of performance and the empowerment and motivation of key personnel (Pinto and Slevin 1987; Cadle and Yeates 2001). Another aspect of holistic thinking is raised by the study of CRM at IBM, which highlights that CRM should be managed in ways that go far beyond those methods that would be deployed to manage a front-office contact management system (Ciborra and Failla 2000). A good example of this holistic approach is the UPS self-tracking system (Hamm 2000). UPS record and track all stages of their customer order process from inception to completion and this information is readily available to all customers via an electronic link. The company perceive that this approach has improved customer relations and service levels, in addition to reducing operating costs. Holistic approaches can often involve enormous levels of systems integration and business process reengineering for instance co-ordinating or streamlining disparate customer contact points or channels of communication, (Wells, Fuerst et al. 1999; Chattopadhyay 2001) and (Pan and Lee 2003).
The second major issue discussed in relation to developing CRM systems is that of organisational strategies for customer targeting. It is perhaps worth noting that the idea of a customer is not as simple as it first appears, for instance many organisations distinguish between consumers and their intermediaries (Thompson 2000). Empirical research has highlighted that in many organisations there are often dramatic differences in the profitability levels or contributions of specific customers (Newell 2000). For those organisations with significant levels of customer diversity it is argued that an awareness and a willingness to respond appropriately, is highly advantageous because of the costs involved in sustaining unprofitable relationships. CRM can be used to classify such groups from the analysis of a range of customer activities in order to decide which customers to service and at what level. Paying customers are often categorised as transactional (those who offer less potential to the company to add value) or relationship (those who offer a great potential to generate business value) (Peck, Payne et al. 1999; Newell 2000). Thus, observers argue that organisations should devote their best resources towards improving the service given to relational customers and offer alternative resources to transactional customers. It is worth noting that such approaches are often undesirable in organisations that have low levels of customer diversity in terms of customer revenue or profitability, service activity and loyalty etc. Finally, the logic of targeting can be introduced to other areas of customer management strategies, such as filtering data from customer channels to avoid information overload and from the mining of specific product ratings and other personalised customer data (Cheung, Kwok et al. 2003).
The last core issue we shall examine in relation to CRM is strategies relating to customer retention. It is well recognised that there is more value in retaining existing customers than in attracting new ones through loss leaders and special promotions. The ideal strategy is to attract new customers whilst maintaining relationships with existing customers. However, many companies continue to focus on attracting new customers whilst neglecting to develop existing relationships resulting in continuously poor retention rates. Managing customer retention at each stage of the customer experience can create a virtuous circle benefiting both customer and company and leading to a deepened relationship. It is worth noting that customer retention is frequently associated with customer satisfaction. However this assumption is questionable (Blattberg, Getz et al. 2001). Research has suggested that customer satisfaction may not be the primary cause of customer retention (Rust, Zeithaml et al. 2000).
Through effectively managing the initial acquisition of a new customer a company can begin to develop a lifelong relationship with that customer. Customer evaluation in relation to initial expectations is a crucial factor in customer retention. Customer expectations should be set and monitored against satisfaction levels at an early stage in the relationship. Loyalty programmes such as voucher and discount schemes rewarding usage and longevity, are frequently used as a mechanism to retain customers. Linking this to an affiliation scheme with another company is an effective strategy in customer retention. Companies need to explore ways to “lock” customers into a long term relationship (Stewart 2003). Strategies such as community building, personalisation of service or providing “add on” services aimed at making defection or switching costly in terms of time, money and emotion are effective ways of improving customer retention rates. Finally, offering exceptional, personalised customer services which foster a sense of a supporting beneficial relationship will dramatically improve customer retention.
A good example of the creation and adoption of a customer retention strategy can be seen in Amazon.com (Blattberg, Getz et al. 2001). Through early inception the online bookstore begins to develop a long term, loyal relationship with each new customer. The customer’s details such as address and credit card information are stored for ease of purchase at the next transaction. Similarly, information is stored about the products purchased to enable future recommendations based on the customer’s preferences. Amazon’s loyalty mechanism begins immediately through the process of drawing the customer into the Amazon community offering reviews of books by other customers. Amazon’s customer retention strategy touches every stage of the business process and is considered highly successful despite its lack of price or product differentiation.
3. Research Method
This research was concerned with developing an understanding of organisational issues relating to the development of CRM systems. In order to investigate such issues, case study approaches were used. Case study approaches were deemed to be an appropriate method for exploring some of the real world issues and environments associated with developing CRM systems; what happens in organisations, why it happens and how it happens (Yin 1994). The case studies Logistics Ltd and Retail Ltd, illustrate diversities in the way organisations experience CRM system development.
The data for the Logistics Ltd study was collected for over a year from project planning to completion. In this study, data was collected via a number of channels including interviews with members of project team and a diverse range of other personnel within the company. In addition numerous project meetings and briefings were attended in line with (Silverman 1998; Gummesson 2000) who state that researchers should focus upon observations of organisational activity. Review meetings were also held with key contacts at the organisation to review the case data as it was transcribed from note form. This combined approach helped to generate data that was rich in detail and high in rigour (Miles and Huberman 1994).
The data for Retail Ltd was collected from both companies and customers over a period of a year. The case study data was collected through a variety of methods including questionnaires, secondary data and interviews. The combination of data from the company and from customers generated a rich picture of the holistic CRM experience. This interpretive study aims to understand the adoption and use of CRM systems and to uncover emerging and transferable theories. (Lincoln and Guba 2000), (Easterby-Smith et al. 2002). For this reason, a company with an established CRM system was selected and approached to participate in the research. Due to time constraints on Retail Ltd access was problematic, and for this reason it was agreed that postal questionnaires would be used to gather data from the respondents within the company. A criticism traditionally levelled at postal questionnaires is the generally poor response rate and the reduced depth of information likely to be gathered (Moser and Kalton 1971). The response to this has been the increasing adoption of closed questions or Likert scale questionnaires which are quick to complete but may bring only superficial data (Foddy 1994; Hussey and Hussey 1997). In this study Likert scales were triangulated (Todd 1979) with more open ended questions. Data was gathered from employees closely connected with the CRM function of the company. The triangulation of data enabled an in-depth interpretative study of Retail Ltd’s approach to CRM.
Similarly, the data gathered from the company was triangulated with data gathered from customers. For this research it was important to engage customers with “high experience levels of the phenomena under study” (Pettigrew 1990). For this reason questionnaires were adopted as a preliminary data collection method, and as a means of identifying suitable interview participants with high levels of relevant experience. Respondents were asked for how many years they have been using the Internet in commercially related activity, and how frequently they shopped with Retail Ltd. A positivist approach would dictate that a sample used should be a random probability sample taken objectively and without bias, enabling generalisation from sample to population. In contrast, interpretive researchers employ theoretical or purposive sampling to ensure participants have a high level of experience of the phenomena to be researched. Snowball sampling (Robson 1993) (asking respondents to suggest other possible participants) was then adopted to build up the sample resulting in an 86% response rate. This initial contact allowed for the identification of relevant cases. Ten semi-structured interviews which allowed the researcher to build a richer picture of the phenomena under study were carried out. Through the social interaction of an interview, meaning can be constructed and negotiated between the participant and the researcher. It is argued that the interview is the most powerful means for attaining in-depth understanding of another person’s experience (Woodruffe 1997). As it was precisely the consumer’s experience of interacting with Retail Ltd that was under study, this method was considered most appropriate.
The cases are not intended to make definitive recommendations about the customer centricity of CRM strategic systems, although some of the issues highlighted are of interest in terms of further discussion and possible contributions to further case study research. What can be drawn are specific implications that can be viewed as general tendencies rather than predictions (Walsham 1995).
4. CRM Systems Case Studies
Logistics Ltd is a medium sized manufacturing company based in the India. The company are facing increasingly tough competition, resulting in a relative decline in customer revenues. After a series of management meetings and the results of a customer survey, it was decided by the directors of the company that they would reengineer their customer facing business processes and implement a CRM packaged software system. A small project team was assembled for the implementation of the CRM project that included the Sales Director, certain members from Sales and Marketing and most of the IT team. Most of the project members acquired their knowledge of CRM systems and business concepts from their existing experience, software vendor demonstrations and a range of professional and residential courses. The project team evaluated a range of generic CRM systems offered by several vendors and decided to implement a software package designed for small to medium sized enterprises. It is not the intention of this paper to discuss project management issues but to evaluate the level of customer centricity incorporated in the subsequent organisational changes.
In terms of evaluating the organisational development of customer centric processes, the discussion begins with observations relating to the levels of learning derived from reviewing relevant legacy systems. In many ways the strategies deployed resulted in a limited level of organisational learning. The customer survey highlighted some disturbing trends, for instance customer dissatisfaction relating to the poor response to enquiries, quotations and completing orders. It was decided to use the survey to focus efforts on urgently responding to long standing customers and those with the highest level of complaint. However, many of the customers who had defected or who had failed to reply received little attention or no response. Thus, the response to the survey was limited in terms of meeting the requirements involved in customer retention or in improving the level of customer centricity. It was useful as a trigger for some important changes, but because they would take time, it proved fairly ineffective as a response to the immediate concerns of many customers.
The next issue in relation to legacy learning regards the process of creating customer centric systems and cultures. An example of how the company failed to elevate customer interests was evident in the continuation of senior management’s passive role in terms of customer interaction and contact, delegating such contacts to Sales and Marketing staff. Another example relates to the reluctance to implement more customer-orientated practices throughout the entire organisation, restricting such changes to the front-office areas of the business e.g. Sales and Marketing and Estimating and Planning. Limited business process change was compounded by the selection of the software package. There was little interaction or influence by key customers in the design and functions of the information systems used. Thus, in terms of customer centricity, the company used the system to a limited affect. The software package was essentially used for integrating and improving existing practices from previous systems, conducting management surveillance and customer contact management. It was used in a limited number of ways for the function of targeting customers and developing appropriate strategies, for instance a procedure was set for responding to customers who had failed to place an order after they had received three quotations. It was not developed for identifying transactional and relational customer groups. Thus, in many ways, customers received similar levels of service regardless of their value to the organisation.
Logistics Ltd have made some progress towards the concept of developing customer centric processes and this has responded to falling customer revenues and defections. However, they are still hindered by many organisational legacies and a reluctance to involve the appropriate intelligence in order to implement relevant or more radical customer centric processes.
Retail Ltd is a major India based company operating successfully across the country in a mature and competitive market. The company’s CRM program began in 1995 with a customer loyalty card which enabled the collection of data about customer purchasing habits. To date the loyalty scheme has 10 million registered card holders capturing 85 per cent of sales. The marketing team acknowledges that the implementation of the loyalty programme involved a degree of reengineering of customer facing business process leading to the implementation of a packaged software system (Net Perceptions). The aim of this was to build on the success of the loyalty scheme by providing a more personalised service through the analysis of customer buying habits. The reengineering of customer facing business processes led Retail Ltd to rethink the concept of the “average customer”. Rather than focusing on the typical customer or the product based approach to sales, the company now adopts a customer focus that regards customers as individuals and recognises the benefits of segmentation and targeting.
Through analysis of the data gathered via the customer loyalty card scheme, Retail Ltd discovered that 5 per cent of their customers were worth 20 per cent of their total sales and that the bottom 25 per cent of customers represented only 2 per cent of sales. Coupled with the analysis of data concerning buying preferences, this had an enormous impact on the way in which the company approached its targeting strategy. Primarily, the customer base was divided into 5000 customer needs segments. Customers are segmented into cost conscious, middle market, and up-market segments and then further divided into lifestyle categories such as healthy, family, or student. Segment specific loyalty card schemes such as the “student card” and the “parents’ card” were developed, and relevant, personalised discount vouchers are issued on a regular basis. The success of this scheme is measured by the redemption rate of the vouchers which currently stands at 90 per cent. Analysis of the value of individual customers enabled Retail Ltd to tailor service levels accordingly, rewarding their most valuable customers. The loyalty scheme forms a highly successful part of the company’s customer retention strategy. Add on services through partnerships and alliances with other companies with the aim of tying customers into a lifelong relationship are another successful strategy adopted by the company. The development of the Internet for commercial purposes presented another avenue for the organisations customer retention programme. The company’s website is designed to create “learning relationships” with customers. Through personalisation, and the repeat ordering facility it becomes easier for customers to place an order the more often they use the facility. However, the online service was the most frequently criticised by the customers surveyed.
With the advent of the Internet, Retail Ltd used the data collected through its loyalty card scheme to inform the design of its online product and service delivery service. Retail Ltd developed the online shopping facility in response to customer needs. Customers expressed an interest in home delivery, and the Internet made this an economic possibility. To date Retail Ltd has more than 1 million registered on-line customers. For Retail Ltd eCommerce opened up a direct connection to the entire supply chain enabling the company to manage the whole process and this was a prime motivator in their eCommerce development. Retail Ltd regards its eCommerce facility as an integral part of the company’s services. Performance is measured through sales figures, profit margins and customer satisfaction. The company regards the facility as very successful in meeting its objectives. However, the customer survey highlighted a degree of dissatisfaction with the very facility that Retail Ltd saw as the prime motivator in developing an online facility – the delivery stage. Customers were often disappointed by the lack of choice of delivery time slots, or by the delivery of goods on the very last minute of the time slot. Frequently the wrong goods were delivered and fresh goods often passed their sell by date on the day of delivery. The fact that goods were delivered to the doorstep and not into the kitchen left some customers feeling that the service fell short of their expectations. Complaints did not appear to be adequately dealt with as similar problems reoccurred. Some customers commented that they found the website difficult to negotiate leaving them unable to find the goods they wanted. Although the company has gone some way to developing a customer centric focus, for some customers it continues to fall short of providing a seamlessly satisfactory service.
Retail Ltd is highly successful in its sector. Its market share, customer loyalty and retention record are regarded as enviable by competitors. However, its CRM system remains rooted in the marketing function failing to facilitate true communication with customers. Although the company aims to become the corner shop of this century the adoption of CRM as a corporate marketing strategy falls short of providing the individual interactions and personalized services that a true customer-centric approach would enable.
The aim of this research was to explore the evolving concept of CRM and to investigate the relatively neglected issue of how organisations realistically achieve a customer focus. This modest contribution has identified and analysed some of the core elements within CRM, such as the need for a holistic approach to CRM systems thinking, customer targeting and strategies for customer retention and growth. The case studies highlight a number of factors that help to explain the relatively slow progress towards achieving the goals of customer centric systems and business processes. The CRM strategy at Logistics Ltd had minimal customer focus because of a lack of effective leadership, fairly ineffective procedures to learn from customer feedback, an introspective work culture and inward looking business processes, the inability to develop the strategic principles of CRM e.g. customer targeting and the limitations within the sourced CRM software package selection. Whilst Retail Ltd has a fairly effective CRM strategy it continues to lack true customer focus through inadequate responses to customer feedback (particularly about home delivery), insufficient interaction with customers, poor channel integration, and the departmentalised view of the company which limits CRM to the marketing function. Such barriers to achieving a true customer focus show that there is a great need for additional empirical research within CRM to identify the extent of such issues, the state of organisational effectiveness and for further or new insights. This particular research is ongoing and will aim to develop and expand upon the issues raised by conducting more empirical studies.
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