Customer Relation Management (CRM) strategy

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

CHAPTER 2

LITERATURE REVIEW

Overview

The chapter aims to review existing CRM studies particularly related eCRM, service quality, customer satisfaction and loyalty. Section 2.2 begins with introducing basic Customer Relation Management (CRM) strategy, highlighting the meaning and benefits of it. Following it, section 2.3 would be explaining the emergence of Electronic Customer Relation Management (eCRM), along with its elements and benefits. Section 2.4, highlights the critique of the literature and identify the research gaps. To continue, section 2.5 will be focusing on improving service quality, customer satisfaction and customer loyalty based on eCRM. Finally, section 2.6 summarizes the chapter.

Customer Relation Management (CRM)

Customer Relationship Management or customer relation marketing has become one of the most significant areas of marketing strategy in high competitive market environments. This is because the discipline of identifying, attracting and retaining a company's most valuable customers are of paramount importance for company revenues. On the other hand, the most important ingredients for any relationship marketing effort are to learn what customers' value about a relationship with the company (Newell, 2000). As the time has moved, companies have realized the necessity of retaining the customer with more personal and interactive medium, the use of e-commerce which has gave birth to electronic customer relationship management (eCRM).

The Meaning of CRM

Kotler (2001) has defined Relationship Marketing as the process of creating, maintaining, and enhancing strong, value-laden relationship with the customers and other stakeholders. In 2000, Brown identified that customer relationship management is simply the process of acquiring, retaining, and growing valuable customers.

Relationship marketing represents a paradigm shift in marketing. According to Yim (1999), in order to make customers satisfy, marketers must make them feel that company appreciate doing business with them. The traditional focus of marketing has been on winning customer with a focus on the value of an individual sale. This transactional approach has increasingly been replaced by a relationship, marketing approach, emphasizing the value of a long-term relationship and repeat purchases.

Establishing long-term mutually satisfying relationship with customers is critical to the success of companies. Building solid, long-term relationships with customers requires a concentrated effort on the part of all employees and management to get to know what satisfies their customers and what their customers' value. Buttle (2004) suggested that the motivation of the company to employ CRM strategy is a desire to improve profitability by reducing cost and increasing revenues through improved customer satisfaction and loyalty.

Furthermore, Souchen et al (2000) described that customer loyalty is increasingly seen as crucial to the success of business organizations, with the growing realization that attracting new customers is far more expensive than retaining existing ones. One important way of increasing customer retention is through secure relationships. Considering the fact that CRM deals with relationship of customer and company not only one time but for repeat interaction, the four type of activities as its backbone can be illustrated in the figure below.

Figure 2.1

Benefits of CRM

To begin with, it costs four to six times as much to acquire a new customer as to keep an existing customer, (Kotler et al. 2003). Therefore, it seems more profitable to keep existing customer than to try to obtain a new one. This higher cost comprises of high cost of personal selling, commission payments, direct and indirect costs of detailed information gathering, supply of equipment and advertising and other communication expenditure, (Egan, 2004)

Moreover, Reichheld (1996) suggests that a price premium may be obtained from long-term, loyal customer. Szmigin (1993) explains two reasons why this is the case. Existing customers who are receiving a satisfactory service are less likely to be price sensitive, once a person has found a service that meets their needs they are more likely to stick with the company they are familiar with and have confidence in than risk defecting to a cheaper competitor.

Moreover, many relationship marketing studies suggest that the greater the perceived risk, the greater a customer's propensity to engage in relational behaviour. (Bhattacharya and Bolton, 2000). Transactions that are associated with high risk include the purchase of high price goods and services- a purchase of vehicle , or the payments over an extended period - a financial services, for instance, (Egan, 2004). Relationship marketing strategy may be of benefit in high-risk purchases as it is likely to lower the perceived risk of the customer. This is because they are used to the terms and security of the arrangement and generally feel familiar with the supplier.

The Emergence of Electronic Customer Relationship Management (eCRM)

The presence of the internet has greatly influenced how companies do business in that it broadens and facilitates the connectivity among customers and companies, and also how customers carry out a purchase and other transactions, (World Tourism, 2001). The interaction take place on-screen instead of being face-to-face and the medium that enables the transaction consists of computers instead of physical stores or service organizations, (Rayport and Sviokla, 1994). There, so as to survive and continue to grow in this cyber age, the essence of marketing has to be transformed from the traditional marketing into e-marketing strategies instead (O'Connor and Galvin, 2001).

Consequently, an important question has emerged, which is how companies can effectively carry out the customer focused strategy, and relationship management, in this Internet age. The best solution is to combine a relationship marketing strategy with the internet technologies in order to generate more effectively use of customer relationship management through the online environment, (Tan and Theresia, 2001). In addition, according to Kierzkowski et al. (1996), the internet is considered as a marketing communication media that is used as a tool for relationship marketing, as its interactive nature allows marketer to reach and interact with individual customers. Simply put, CRM focuses on the relationship with all customers in general, while eCRM focuses further on the relationship with electronically customers.

In order to clearly understand the issues involved, according to Fairhurst (2001), the general process of the electronic CRM will be described. Firstly, a great amount of information will be obtained from the customers by asking their behavior online as every movement of the customers will be recorded by the company. These enriched data gathered both directly from the information provided by the customers and from the tracking their behavior will be analyzed and then specific opportunities can be identified for tailoring and personalizing products, services and communication to them.

Although, the CRM and eCRM are just slightly different, there are still many reasons why the CRM is not sufficient in this age and eCRM is needed, (Chaffey and Smith, 2003). Based on the study conducted by Constantelou (2002), the adoption of eCRM is mainly driven by the need to maintain direct and interactive communication with customers and to offer value-added products and services to them; to create an innovative way to gain customers and persuade them to purchase online directly from the company, which can reduce cost as intermediaries are usually no needed online and to reduce internal information processing costs since this cost can be passed on to customers who can create and update their own profiles.

Elements of eCRM

  1. THE INTERNET
  2. The Internet is transforming the world's economy by not just having an impact on one business sector but every sector, it is also changing the way business organize their activities and deal with the market in order to effectively response to this new economy (Rayport and Jaworski, 2001).

    It is therefore essential for every company to conduct its business online and deploy Internet technology. The Internet is a powerful tool in doing business; however, it is not the Internet itself that provide these benefits to the company. It is also the competency of the staffs that employ it, as the internet is just an enabling technology and a powerful set of tools that can be used wisely or unwisely (Porter, 2001). There are reasons stated Amor (2000) that why a company needs to go online, illustrated in the figure below.

    Source: Amor (2000)

  3. DATAWAREHOUSE
  4. As stated by Bill Gates, chairman and co-founder of Microsoft, "The most meaningful way to differentiate your company from your competition is to do an outstanding job with information. How you gather, manage and use information will determine whether you win or lose". (Gates, 1999).

    Database is the basic foundation for any CRM activity, (Winer, 2001). Information is needed for the retailers in order to deliver superior unique, memorable, customized and unmatched services to each of their customers to satisfy them in the way that they desire. In this era, competition is based on information, the times it takes to acquire and process this information, and how the company and its employees act on it.

    How can customer data collected through CRM applications be used for marketing can be illustrated by research completed by Stone et.al. (1996). the types of data that are held together with the frequency of their usages are

    Source: Stone et.al. (1996).

    These above data within CRM systems were reported to be used for marketing applications as follows:

    Source: Stone et. al., 1996

  5. INFORMTION TECHOLOGY

Nowadays, the technological change is occurring at an ever-increasing rate (Kotler et al., 2003). These days almost all industries have been driven greatly by the forces of information technology, especially the retail industry. The information technology is quickly becoming one of the most important competitive methods to gain an advantage in the intense competition.

Yet, there is still a drawback in the role of information technology with respect to the management of customer relationship. In some cases, information technology has actually decreased the amount of contact between company employees and their customers for example, in banking where instead of human staffs; automated teller machines have served many customers especially the busier and more profitable ones. These customers have been segregated from the branch and into less personalized relationship with the bank, (O'Connor and Galvin, 2001).

Benefits of eCRM

The adoption of eCRM tools provides many benefits to the firms, (Adebanjo, 2003);

Firstly, it reduces the cost of communicating with customers as the cost of the internet is virtually free and the company already has current information on such customers. Moreover, customer enquiries can be resolved in less time, thus the company staff could spend the rest of the time to do other productive work.

Next, it reduces administrative and operational costs as the internet is mainly empowered the customer to do self-service transaction in self-configured products, track orders and make changes by themselves.

Moreover, it provides a more efficient workflow due to the integration between eCRM application with back of the house such as production, finance and supply chains, therefore, it delivers cost saving to the company.

Furthermore, it improves sales by means of better market segmentation which should lead to effective automated campaign management, email-marketing etc. Therefore, increases the profitability of the firms.

Last but not least, the eCRM improves the overall customers' interaction which in turn should lead to better services, improved customer satisfaction and loyalty, and finally to higher customer lifetime value.

Critique of the Literature and Identification of Research Gaps

Improving Service Quality, Customer Satisfaction and Customer Loyalty based on eCRM

'Quality is defined as meeting, or exceeding, customer requirements now and in the future.' (Schroeder, 2007)

Service quality is important in relation to relationship marketing because it is one of the core elements of relationship marketing. Competitive strength comes from the increasing overall service elements of the marketing offers. Service quality can be defined as "the extent of discrepancy between customers' expectation or desires and their perceptions (Parasuraman et al, 1985)". Four key factors that shape the customers' expectation are

Source: Zeithaml et al. (1990)

According to Gaurau (2003), the degree of online service quality is an essential ingredient in creating a long-term relationship with customers which requires the effective implementation of eCRM. The quality of online service begins with the characteristics of the internet itself. As it provides quick access and transfer of information; eliminates space and time barriers; offers ease of comparison between various products and companies; provides interactivity and flexibility, (Chaston, 2001).

Furthermore, as the CRM system is based on customer's profile and transaction history, the company needs to collect the information about its customers, (Gurau, 2003). In addition, there is a study investigates a relationship between the number of eCRM attributes present and customer satisfaction, which mainly come from a positive perceived service quality they had been delivered, (Bloemer and De Ruyter, 1998).

In Addition, Parasuraman et al (1985) identified five basic dimensions that reflect service used by consumers in evaluating the quality of service provided by service business as follow:

Source: Parasuraman et al, 1988

  • Reliability means accurate, consistent, dependable performance such as problem identification, simplified procedure and policy development, employee training, and motivation.
  • Responsiveness requires willing and capable employees. Request must be handled promptly with a respectful, cheerful attitude.
  • Assurance requires knowledge and courtesy of employees and their ability to inspire trust and confidence.
  • Tangible refers to the physical evidence of the service such as physical facilities. Equipment or tools used to provide the service, and appearance of personnel.
  • Empathy involves caring, individualized attention the company provides to customers.

Customer satisfaction is defined as "the perceived performance of a product/service matched or exceeded the buyer's expectation (Jobber, 2001)". According to Buttle (2004), "Customer satisfaction is a pleasurable fulfillment response. Dissatisfaction is an unpleasurable fulfillment response".

Service quality and satisfaction are distinct, and there is a casual relationship between the two, and perceptions of service quality have an effect on satisfaction which, in turn, influences future purchasing behaviour (Patterson and Spreng, 1997). Zeithmal et al (1996) viewed strengthened customer relationship as a result of satisfaction with a company's service quality.

It is commonly assumed that customer loyalty and satisfaction are linked inextricably and that this relationship is asymmetric (Oliver, 1999). As stated by Kangis and Zhang (2000), loyalty has its origin in customer satisfaction resulting from the quality of service received. Zeithmal (2000) asserted that good quality was always positively related to customer satisfaction and it led the customers to repurchase a specific product or service and loyalty would be generated in the long run. Besides, Storbacka et al (1994) proposed a which model illustrates that customer satisfaction is an accelerator that once the customer is satisfied with the product/service quality, loyalty can be build with ease.

Source: Storbacka et al, 1994

Customer loyalty is the tendency for a customer to maintain their relationship with the seller after the first transaction (Hollowell, 1996). Lovelock et al (1999) described customer loyalty as "a customer's willingness to continue patronizing a firm over the long-term".

The objective of relationship marketing is developed by Christopher et al (1991) through a ladder where by relationships develops from a customer's point of view. The emphasis of a company must be upon finding appropriate means to move customers up the ladder in order to attain their loyalty.

Source: Christopher et al, 1991

Online Service quality dimensions are occasionally considered to directly cause e-loyalty, (Srinivasan et al., 2002). However, the empirical study of Boulding et al (1993; Sheth et al, 1999; Mcllroy and Barnett, 2000; Reichheld and Sasser, 1990) shows that service quality is positively and directly related with loyalty measured by intentions to repurchase. Boulding et al (1993; Reichheld, 1994; and Bitner, 1990; Hollowell, 1996; Zeithaml et al, 1990) describes that satisfied customers tend to recommend the company to friends and people who buy because of a personal referral tend to be more loyal than those who buy because of an advertisement . Moreover, Reichheld and Schefter (2000) have asserted that retention of e-customers can only be accomplished by providing superior service quality.

Although the internet can be a powerful tool for enhancing long-term loyalty with the customers, a fundamental principle in building loyalty is still the same, (Reichheld and Schefter, 2000). What is changing is the peace of today's marketplace, if the company wants to keep customer loyal, it has to improve its products and services in order to tailor to customers' needs and prevent the loss of customers to a "click away" competitor. As stated by Reichheld and Schefter (2000) 'Loyalty is not won with technology; it can be obtained through the delivery of a consistency superior online customer experience'.

Moreover, it is apparent that an online service is largely being implemented through the use of eCRM which is considered as a fundamental structure that enables the company to increase customer value, and provides a means to motivate valuable customers to remain loyal, (Dyche, 2001). Furthermore, Gilbert (1996) had created a flowchart of 5 steps in developing long-term customer retention as a guideline to provide a possible pattern of the eCRM application that builds customer loyalty.

Source: Gilbert, 1996

According to a study conducted by Chen and Chen (2003), managers stated that eCRM is the main ingredient in the success of their business. The result of their study also shows that eCRM is a means to take care of customers better in large companies, an efficient more communication channel for medium size companies, and a place for small companies to meet more customers. Apparently, there are different levels of eCRM implementations appropriate to the company.

According to Chen and Chen (2003), there are four ranges of eCRM system implementation;

Source: Chen and Chen (2003)

There are a great deal of the internet tools applied towards the eCRM which facilitate the company to provide a first class customer service in order to create, maintain and enhance customer relationship. First 25 features identified by Anton and Postmus (1999) as defining e-CRM with an additional 17 features defined by Feinberg et al. (2002, in press) in their analysis and study of e-CRM in retailing. Table 1 in appendix enlists it.

  • Complaining ability: Customers gets specific area to log in their complaints and get action.
  • Posted privacy policy: more the company website secures the information and assures customer that the information they are providing is secure will not only save them from lawsuit but also enhance customers trust.
  • Product information online: The detail information about the products on the website gives customer confidence to buy value for money.
  • Product highlight: The benefits of particular products/services are highlighted. This feature allows the company to highlight products or services that may be relevant in a particular context. The context could be a particular festival or a season, among others. This feature also prompts repeat traffic.
  • Preview product: The demonstration of products either in images or motion picture before purchasing gives confidence.
  • Site map: This is a hierarchical diagram of the pages on the Web site, also called a site overview, site index, or site map. This feature is helpful in understanding the general structure of the Web site.
  • Site customization: The Internet brings enormous amounts of information to the desktop. While this is an advantage, it can also be an enormous disadvantage, since the user may not be able to readily access the information he needs. Therefore, sites offer customization features allowing the user to filter the content they see. Thus, if the user, on the first visit, customizes the site to suit his tastes and preferences, he will see the customized content on subsequent visits. (Example: www.yahoo.com; www.my.yahoo.com)
  • Alternative channels: These are the different ways to contact the company. For instance: e-mail, fax, toll-free numbers, postal address, call-back button, voice over IP and bulletin board. Traditionally, only toll-free numbers and postal addresses could be used by customers to reach the company. However, over the past few years, e-mail has emerged as an important tool for company-customer communication. According to Hamid (2005), companies are not only able to provide highly personalized interaction with the customers, but also are able to get instant feedback and complaints made on the product or services have been delivered to the customers by using e-mail
  • Local search engine: This allows the visitor to search particular information by typing in keywords on the Web site.
  • Membership: The visitor can request a password. With this password he can continue surfing on password-protected Web pages within the Web site. This feature allows the company to collect personal information from users, when the user registers for the membership. It also allows them to track the customer's behavior at the site over time.
  • Mailing list: To receive more information, the visitor can add his/her e-mail address to a list to receive automated e-mails. This allows the company to build a database of e-mail addresses of potential users of the company's product or service.
  • Site tour: The visitor gets familiar with the website contents through a site tour
  • Introduction for first-time users: Visitors, who enter the site for the first time, can surf to an introduction page containing information about "How to use the site most efficiently". This feature could help attract prospects and facilitate a first-time purchase.
  • Web Chat: This feature allows a visitor to chat real-time with others. Specifically, this could mean chatting other visitors on the site or with the customer service personnel.
  • Electronic bulletin board: A customer can post a message or can respond to a posted message on a special Web page. This interaction, over time, creates a community of users around the company's service or product
  • Online purchasing: Visitors are able to purchase services or products online. This feature is probably the most critical part of the Web site.
  • Customization possibilities: Visitors can customize their service or product online before ordering, which gives customer sense of personalized attention.
  • Purchase conditions: This holds shipping policies, return policies, warranty, guarantee and other company commitments.
  • External links: The visitor can easily and seamlessly link to complementary products from other companies.
  • FAQs. Frequent asked questions and their answers are available for reading. This feature acts as self-help for customers looking for answers to their queries. This helps in reducing call centre traffic.
  • Problem solving: Customers can solve problems with products or services themselves with online self-help routines.
  • Spare parts: It is possible to order spare parts and complementary products online. In addition to repeat customer service, this feature ensures repeat traffic to the site.
  • Affinity program: Affiliations with charitable agencies or organizations.
  • Request for catalog: Allows the user to request a catalog.
  • Quick order ability: This feature basically allows the user to check out the product within three-clicks. Amazon.com pioneered this feature. Because of intellectual property issues, other sites use variants of Amazon's 3-click process.
  • Ease of check out: This is a subjective rating of the ability to check out on an "ease" scale of 1=easy to 4=difficult. This parameter is important, since significant numbers of purchases are abandoned at the time of checkout.
  • Ability to track order status: This feature allows the user to find out which stage of the shipping process his/her order is in. Customers are more likely to feel satisfied if they know of the status of their order than if they do not.
  • Gift certificate purchase.
  • Store locator: This feature helps customer to find out stores using their postcode and area.
  • On-sale area: Highlighted products and services on the homepage, boosts the sale.
  • Member benefits: Description of benefits of shopping or of being a site member.
  • Order: This feature allows the user to place an order within three clicks.
  • Speed of download page: The Web site was considered fast if the Web pages downloaded in less than 15 seconds.
  • Account information: This feature allows customer to see and review all his information when he or she register. This could include his credit card information, postal address for repeat purchases.
  • Customer service page: These pages give details on contacting customer service.
  • Company history/profile: These Web pages give the company background. In the case of retail shopping sites, there will be a link to the corporate Web site.

Chapter Summary

To summarize this chapter we can say that many companies move from short-term transactional oriented goals to a long-term relationship building goal in order to survive in an intensely competitive market environment. The development of customer relationship marketing is becoming an important marketing approach. The concept of CRM has been introduced to the supermarket industry in the form of loyalty cards and with the technology enhancements and communication vastness the eCRM introduced same and enhanced functions more effectively and efficiently.

Relationship marketing could provide customer benefits as it is not only concerned with getting customers, but is also more concerned with retaining those customers and converting them into loyal ones.

However, previous study suggested that improving the quality of product/service, the satisfaction of customer is improved. Accordingly, a satisfied customer creates a strong relationship with the company and become a loyal customer. Loyal customers intend to repurchase and are willing to pay higher price and cross-buy product and service in other categories. Moreover, they are likely to recommend the company through word-of-mouth which helps to reduce advertising costs and to create a good image for the company.

Furthermore, the eCRM features enhance the probability of retention by providing them excellent customer service. Ranging from web chat, email, automated response, call back button and many other not only allowed companies to contact customers but also customers to contact company efficiently and effectively.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.