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Benefits and components of Customer Relationship Management

2762 words (11 pages) Essay in Marketing

02/05/17 Marketing Reference this

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Customer Relationship Management (CRM) has been recognized since the mid 1990’s, mainly due to the fact that many industries were experiencing increased demand from their customers for higher quality and less fuzzy access to service. This emphasis on renewed customer services drove corporations and the top managers to rethink the more effective way of providing services. (Smith, 2006, p.87)Generally speaking, there is no clear definition of a successful CRM. A successful CRM implementation is one that meets the business objectives. These objectives can be customer acquisition, customer retention, customer satisfaction, customer loyalty, better customer service or any other objectives that are set by the organisation.

Different CRM definitions can be found in the current global world. As consulting IT firms play a relevant role in the dissemination of CRM ideas, it is relevant to consider the way vendors define CRM as well. By analyzing the different CRM definitions, it is possible to conclude that they can be split into three main CRM approaches. These three different perspectives on CRM are classified as follows:

Definition of CRM

CRM as a philosophy of doing businesses, which has to be considered above any kind of strategy or tool. A CRM philosophy is related to a customer-oriented culture keen on building and cultivating long-term relationships with customers;

CRM as a strategy, as an organizational strategy that will drive functional plans and actions toward building relationships with customers;

CRM as a tool, focused on the role of IT being used to gather, analyze and apply data to build and manage relationships with customers.

The approach of CRM as a philosophy is used to understand and analyze the customer oriented culture of Banks in Singapore.

Now-a-days, the success of any company is highly dependent on how its consumers are served in terms of both product and service. Every company have started adopting the combination of different CRM approaches for customer retention, customer satisfaction and improvement of service quality. For example, Georgia B & T of Augusta(File 59), uses both approaches of CRM as a technology and as a philosophy. The Bank uses technology approach by implementing Synapsys, a CRM application which helps the fast growing bank staff to execute customer relationship. On the other hand, as a philosophical approach, the bank avoids thinking of expansion of its relationships with a given customer as a sale and believes that it is better to see such transactions as an improvement in its own services to serve customers.

Relationship Between RM and CRM

File 50

Berry and Parasuraman(1991) identified RM as a marketing approach that concerns attracting, developing, and retaining customer relationships. From the point of view of Coviello(1997) RM is a multi-functional and integrative approach which describes marketing as “an integrative activity involving functions across the organizations, with emphasis on facilitating, building and maintaining relationship overtime. (File 66). RM is defined as the identification, establishment, maintenance, enhancement, modification and termination of relationships with customers / consumers to create value for customers and profit for organization by a series of ongoing exchanges that have both a history and a future.(File 69)

CRM has evolved from business concepts and processes such as RM and the constant enlarged emphasis on better customer retention through the efficient management of customer relationships.

{file 50-referencing in the end is remaining)

Both RM and CRM emphasize that customer retention affects company profitability in that it is more efficient to maintain an existing relationship with a customer than create a new one (Payne et al., 1999; Reichheld, 1996; Zineldin, 2005, 2000).

The idea of linking Relationship Marketing(RM) to CRM is fairly strong and has led many researchers such as Newell(2000) and Zineldin(2005) to explore on various strategic methods for developing, maintaining and improving customer retention.

Another view of CRM is that it is technologically and data mining and database oriented (Sandoe et al., 2001). The increasing use of digital technologies by customers, particularly the internet, is changing what is possible and what is expected in terms of customer management (Peppard, 2000; Tamminga and O’Halloran, 2000). In reality CRM is a complex combination of business and technological factors, and thus strategies should be formulated accordingly. CRM is a useful tool in terms of identifying the right customer groups and for helping to decide which customers to last and keep. Clemons (2000) estimates there may be a tenfold difference between the most profitable customers and the average. While the idea that an organization cannot have a profitable relationship with all customers and the practice of targeting customers with a differentiated product or service is already widespread in many financial services (Zineldin, 1996, 1995), it is less established in many other business sectors such as manufacturing. One method for identifying customer groups is the notion of distinguishing between transaction and relationship customers. While transaction customers are highly volatile and have little loyalty, Relationship customers have far more potential for loyalty as they are often prepared to pay a premium price for a range of reliable goods or services (Newell, 2000). Once relationship customers are recruited they are less likely to defect, provided they continue to receive quality service. Both RM and CRM should be used to identify the potential loyal customer groups and seriously consider the response required.

However, CRM strategies are only effective if they deliver positive outcomes and profit for organizations and competitive value and quality for customer. It is no longer good enough just to argue that an organization is customer focused, but it matters what and how it does. If the CRM strategy is improving the profitability and increasing the quality of the prodserv (Product and service, according to Zineldin (2000)) with more reasonable price than the competitors, then the organization is clearly on the right path and able to have better and stronger market position.

As CRM reaches into many parts of the business, organizations should adopt a holistic approach (Girishankar, 2000; Zineldin, 2000). (File 50)

Thus, it can be concluded that both RM and CRM are similar in terms of customer oriented approach from the organization’s point of view as both the concepts focus on customer satisfaction, customer retention and customer loyalty. The model used for this research is taken from the model made by……….. on RM…… to understand the impact of CRM on customer satisfaction and customer loyalty in the Singapore banking industry.

Benefits of CRM

CRM permits businesses to leverage information from their databases to achieve customer retention and to cross-sell new products and services to existing customers. Companies that implement CRM make better relationships with their customers, achieve loyal customers and a substantial payback, increased revenue and reduced cost. Implementation of CRM helps the organization in reduction of its advertising costs. It also makes it easier to target specific customers by focusing on their needs. CRM allows organizations to compete for customers based on service, not prices and also prevents overspending on low-value clients or under spending on high-value ones. CRM improves the use of customer channel, thus making the most of each contact with a customer.

The success of a Customer Relationship Management (CRM) strategy is often measured in terms of customer retention (i.e., the longevity of the customer’s relationship with the marketer), customer share development (i.e., the proportion of customer purchases in a particular product or service category a marketer can capture), and customer advocacy (i.e., generation of word of mouth referrals.) (Menon & Connor, 2007,p.157)

CRM in the Banking Industry

Understanding customer satisfaction and customer loyalty in service industries is more difficult than manufacturing goods industries because the basis of consumer choice and continued patronage are less obvious. Services are intangible in nature and they cannot be completely standardised and they vary according to the mood of the service provider and service customer at the moment of service delivery.

[File 33………..

Today’s customer is not going to settle on anything less than his/her expectations. To compete, successfully, with each other, banks are using different marketing strategies to live up to the customers’ expectations and stay ahead in the league. Banks have focused to develop strategies to differentiate themselves from their competitors and providing their customers with high quality banking services and highly technology innovative products. It is within this rapidly changing environment that service quality and customer satisfaction is compelling the attention of all banking institutions.]

[customers assess service quality by comparing their expectations prior to their service encounter with a bank (employee); they develop perceptions during the service delivery process and then they compare their perceptions to their expectations with the actual service received from the bank employee.(File 64)]

[File 33

Because of the importance of the service quality and customer satisfaction as a route to

competitive advantage and corporate profitability in banking, it has become difficult to identify a single bank which has not initiated some kind of service quality improvement drive (Newmann, 2001; Soteriou and Stavrinides, 2000)]

[Identifying, attracting and retaining the most valuable customers remain the primary goal of crm. Banks and other financial services companies organize and analyze customer data in order to drive marketing targeted to customer’s needs and preferences. the key to effective crm is to cultivate meaningful insights about customers; insights that reveal not only what makes the customer satisfied, but also what brings profitability to the organization.(File 62)]

In response to this global trend, many banks rely on Customer care programmes and loyalty programmes as a tool of customer relationship management (CRM) to enhance customer value (CV).

[Pareto’s 80/20 Law also claims that the top 20% of customers contribute 80% of profit for business. Focusing on CV triggers the birth of CRM, which defines and identifies the most important customers, satisfies their needs and expectations, elevates the long-term relationship between customers and enterprises, and shapes customer loyalty.(file 58)]

[Customers tend to change their bank if their expectations are not met by their existing service provider (Szymigin and Carrigan, 2001).The problem is that customers rarely tell the bank manager in advance what they have decided to do, especially when they decide to leave their existing bank for a competitor (Kish, 2000).As a step towards achieving this, customers who hold accounts with competing banks could be studied intermittently, so as to identify what aspects of customer services are being enjoyed in competing banks that are not present in own bank. This design will enable banks that are sensitive to market research compete favourably with other banks as they will do better in comparative advantages.(File 43 for full para.)]

Many studies have shown that the banks which follow a customer-centric strategy usually generate higher profits. Good CRM creates customer delight. In turn, delighted customer remain loyal and talk favorably to others about the company and its products. Even a slight drop from complete satisfaction can create an enormous drop in loyalty.

Starting from the early service of ATMs, the banking industry then began to offer telephone banking, network banking, customer care centers, etc., which have gradually increased the investment in front-office systems, which itself is directly related to customers. Best practices can be the ground work when constructing a correlated CRM.

The relationships between a service firm and its clients are created and maintained by

the firm’s employees, who interact with the clients. All employees are involved with

CRM, either through their direct interactions with clients or their involvement in and

application of processes, tools and methods used to enhance client value.

Components of CRM

The 3 important components of CRM from the customer’s perspective are as follows:

1)) Competence,

2) Communication

3) Conflict handling

Competence

Competence, in terms of banking industry, can be explained as the knowledge and the capability of the bank’s employees to attract and retain customers in comparison with their competitors.

Competence as a key relationship marketing variable is supported by the rationale that people tend to value and nurture relationships with competent individuals. Such competence may

be the result of intellectual, technical, commercial, and social skills. In this context, competence is defined as the buyer’s perception of the (banking services) supplier’s technological and commercial competence. From this definition, there are four items

that are linked to competence: the supplier’s knowledge about the market for the buyer, the

ability to give good advice on the operating business, the ability to help the buyer plan

purchases, and the ability to provide effective sales promotion materials.(RM file)

Communication

Communication is the exchange of information between supplier and customer. It is the ability to provide trustworthy and timely information. There is a new view of communication as an interactive dialogue between the company and its customers that takes place during the pre-selling, selling, consuming, and post consuming stages. Besides providing timely and trustworthy information, effective communication oils the wheel of trust and keeps it rolling. When there is effective communication between the bank and customers, a better relationship, customer satisfaction, and fidelity are likely to result.

File 5

QFD has been an important tool for translating the voice of customer into product specification (Akao, 1990; Clausing, 1994; and Cohen, 1995). It has been widely used for product development and quality improvement around the world. It is a customer-oriented approach, supporting design teams in developing new products based on an assessment of customer needs. Basically, in the QFD, customer needs are translated into design attributes. The design attributes are then deployed in the process and quality requirements.

The voice of the customer contains the customers’ needs expressed in their own words. It can be captured through questionnaires, observations, and so many other ways for an existing product or service. However, for a new product, questionnaire is the only option available. From the responses collected, the team has to identify the level of satisfaction of customers. If the satisfaction level is very poor, then the customers’ grievances should be redressed immediately. It is to be understood that customers will not spend a single penny to purchase

dissatisfaction. Even if the customers are satisfied, their voice should be considered to make them more satisfied. Countries that have held national and international QFD symposium to this day include the US, Japan, Sweden, Germany, Australia, Brazil, and Turkey.

Conflict handling

Conflict handling refers to the supplier’s ability to minimize the negative consequences of

manifest and potential conflicts. Conflict handling reflects the supplier’s ability to avoid potential conflicts and solve manifest conflicts before they create problems, and the ability to openly discuss solutions when problems arise. The ability of the bank to handle conflict well will determine customer satisfaction and customer loyalty. (Ndubisi at el, 2009, p.7.)

(File 50

Complaint management and crm

It is essential for companies to welcome complaints, and view them as a second chance to satisfy a customer. Unfortunately, there are many companies that still do not understand the value of intelligent complaint management, and many bad business practices exist. A complaint is a really chance to keep a customer from leaving dissatisfied. If a customer is unhappy but doesn’t complain, then the company risks losing that customer, along

with the customer’s future profit stream. Recovery of a dissatisfied customer is possible, and the benefits of turning around a complaining customer are dramatic. In some circumstances, 95 percent of complainers will return if the complaint is handled satisfactorily. Companies must also consider the impact of word-of-mouth. A happy customer is likely to tell others that she/he is happy and a dissatisfied customer is likely to tell others that the company is not good. Research indicates that a dissatisfied customer tells an average of 9-10 people about the bad experience, and 13 percent will tell approximately 20 people.

Finally, unresolved important problems allows customers to spread bad word-of-mouth and this may hurt the image of a company. Switches due to unresolved complaints, or poor relationship management and marketing by a company, can and should be avoided. Relationship management and marketing that encourages complaints and ensures that complaints are dealt with well is the best defense against this cause of switching.)

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