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The banking industry is a highly competitive industry. In modern days business, they are not only competing among other banks but they have to keep up with increased competition from non-banks and other financial institutions (Kaynak and Kucukemiroglu, 1992, pp.20). Differentiation of services is therefore perceived to be a difficult task in the banking sector and thus product development in banks are known to be easily imitated by other competing financial institutions which outcome in all banks providing nearly identical services (Choong et al., 2006, pp.85). Adding to this is the burden of consumer empowerment, defined by Dennis et al. (2006, pp.10) as a state of mind accompanied by a reaction that enables a consumer to make their own choices from the many choices available through identifying their needs and wants in their decision-making with other organizational bodies. Consumer empowerment has taken place due to globalization and constant evolutions of online and social platforms which keep the present age customer well informed about what they want and therefore they demand ‘smarter commerce’.
This competitive nature of the British banking sector has resulted in many banks providing identical and undiversified services. This suggests that the British banking sector, specifically the retail banking sector, has reached its maturity stage in the product lifecycle. Thus the intensity between these banks conveys a great risk of unhealthy competitive practices -the recent bank scandal of Barclays PLC being fined for rigging interest rates are only a proof of the intense ways that the retail bankers in the United Kingdom are trying to stay a step ahead from their competitors(BBC News Business, 2012, pp.65). Given these conditions, potentially the best strategy for banks to survive in this ever-changing environment is to retain existing customers whilst acquiring new prospects (Dombret and Kern, 2003, pp.99).
Customer retention and acquisition are therefore two important aspects that go along with the modern marketing concept. In the case of customer retention, it is a proved fact that it is economically more beneficial for an organization to keep their existing customers rather than attracting new ones (Loudon et al., 2007, pp.440).
Highly satisfied customers also spread positive word-of-mouth which enables free promotion to the bank. The core customers are also said to be less sensitive to price according to Blattberg et al. (2001, pp.85). These characteristics help the company to use customer retention as a cost effective tool to survive in todays business.
Businesses today are therefore increasingly becoming more customer-centric and coming up with innovative ideas and strategies to satisfy their existing customers that they believe would help to retain them in their organization (Blythe et al., 2006, pp.88). One of the key tools for customer retention as discussed by Parvatiyar et al. (2001, pp.71) and agreed by many other authors is maintaing an effective relationship with customers. Christou and Sigala (2006, pp.66) has also clearly emphasised the importance of banks building and maintaing a good relationship with their customers in order to keep up with their changing consumer patterns and providing good service quality.
There has been a complete ‘paradigm shift’ in the way management of marketing firms view their customers, look after them, nurture them and establish relationships with them over the long term. This concept is known as Customer Relationship Management (CRM) and is much talked about in modern marketing and management business approach.
According to Lancaster and Reynolds (2004, pp.10) CRM is not just about keeping your customers satisfied; it allows firms to attract customers with speed, accuracy, availability, creativity and flexibility- ultimately a firm’s ability to compete, survive and profit may depend on it. Zamil (2011, pp.33) identifies CRM as a management strategy that combines information technology with marketing.
ICICI was first set up in 1994 as an Indian financial institution, named ICICI Limited, which caters only to the corporate sector organizations in India. In the last decade it has diversified its services to cater to all three banking sectors: personal, business, and corporate and was named the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the New York Stock Exchange market (NYSE Euronext, 2012).
They proudly boast to be India’s second largest private bank with more than 25 million customers in 19 countries including England and Wales which was incorporated later in February 2003 (ICICI Bank UK, 2012). As of March 31, 2012, the bank’s consolidated asset base is USD 4.1 billion and growing. ICICI UK was also named the first and the only Indian Brand to be ranked among the top 45 most valuable global brands in the BrandZ top 100 Global Brands report, competing with well renowned British banks like Lloyds TSB and Barclays (WPP).
ICICI is recognized amongst the top most modern banks that focus on maintaining good relationships with their customers. The long term goal of the bank is to be in a position to practice 1to1 marketing with their customers and this is only proof of how much they emphasize on building relationships with their customers (Parvatiyar et al., 2001). To attain this goal, the bank has come up with a sequence of strategies during the last few decades. ICICI’s transformation into a more technology intensive banking group was one of the key initiatives they took in order to keep pace with their long term customer goal(ICICI Bank). This transformation has enabled the bank to launch world-class CRM practices that provide a 360 degrees view of their customers to all concerned parties in the organization. CRM therefore is established as an overall business strategy at ICICI group of companies.
The CRM roadmap at ICICI Bank is mostly viewed in the technological aspect that integrates the bank’s sales, marketing, customer service and support functions in order to automate and improve the business process of managing relationships with customers (Parvatiyar et al., 2001). This is called e-CRM and through this the organization aims to attain their objective of one-to-one marketing with their customers. ICICI bank and City Bank are considered the leaders for adopting these competitive strategies (Rao, 2011, pp.22). However, ICICI Bank UK (2012) has a relatively smaller customer base when compared to its parent company in India and worldwide. Also, the cost involved in implementing these world-class technologies through the renowned CRM vendor – Siebel CRM is very high compared to other CRM technologies and initiatives (ORACLE, 2012).
Significance of the Problem
While Customer Relationship Management is considered an important tool in the modern marketing context, between 30% and 75% CRM implementations have failed to produce expected results as clarified by Hershey (2012, pp.22). Considering the bank’s huge investments made in this area of the management issue in order to remain competitive in the British banking sector, the researcher tries to explore if these CRM initiatives have produced good returns of investment for the bank. There have been several studies emphasised either on CRM or customer retention in the banking sector, however there has been less experimental research on the impacts or the importance of customer relatonship management for customer retention in British retail banking industry.The researcher therefore attempts to find how the CRM initiatives impact the bank to retain its customers and if there is a good return on investment on implementing these CRM initiatives. The research also examines this case from the consumer’s perspective, understanding if the CRM initiatives taken by the bank to retain their profitable customers actually have an impact on the customers’ satisfaction and loyalty in order for them to stay with the bank.
The problem or the outcome of the research to be analyzed by the researcher is of great emphasis to the retail banking sector in the UK and globally. Looking from ICICI Bank’s perspective it’s important for them to strike a balance between acquiring new customers whilst retaining existing ones due to current economic conditions. Aggressive marketing and promotions on the part of the competitor banks have resulted in most customers happily switching loyalties to enjoy better privileges, thereby making the task of retaining them more difficult for ICICI Bank UK.
Thus, this research would demonstrate the pros and cons of Customer Relationship Management initiatives implemented by the bank and how it helps in retaining their customers.
Statement of Purpose
The main purpose of this research is to analyze if Customer Relationship Management initiatives or programs implemented by ICICI bank has an impact on customer retention. The researcher will explore documented research already conducted regarding CRM, customer retention programs and consumer behavioural aspects in relation to CRM in the private banking sector.
Primary research regarding the CRM at ICICI bank, their customer retention programs, and how the bank’s profitable customers perceive these programs in order for them to stay loyal to the bank will be carried out in form of an interview with ICICI Bank London’s CRM Manager and a customer questionnaire in order to explore the relationship between Customer Relationship Management and Customer Retention. Finally, recommendations will be suggested, based upon research findings, so as to help the organization improve its modern marketing functions in order to retain their profitable customers.
Statement of the Problem
This research aims at exploring how customer relationship management impact customer retention programs at ICICI bank UK. This research is carried out in order to analyze if the bank’s huge investment on their CRM strategies are actually giving them good returns through the form of increased customer loyalty, satisfaction, and retention. Based on the above thought, the overall purpose of this research is to explore the more focused and deeper understanding of the objectives and strategies of CRM programs to the selected bank and the type of benefits that these initiatives anticipate to develop from the implementation of these CRM strategies.
Critical review of relevant literature for Customer Relationship Management related to customer retention.
To identify key issues of Customer Relationship Management related to customer retention.
To investigate what consumer behavioural factors influence customer retention.
To find out the overall relationship between CRM, customer satisfaction, and customer retention.
To generate recommendations for improving a Customer Relationship Management culture at ICICI Bank UK.
What are ICICI Bank’s general objectives of CRM implementation concerning customer’s retention?
What types of Customer Relationship Management strategies are implemented by ICICI Bank at present to retain the customers?
What has been the impact of CRM on customer retention at ICICI Bank UK?
How does the bank measure the performance of CRM initiatives?
What challenges does ICICI Bank UK face in implementing its Customer Relationship activities?
What impact has the Bank’s CRM programs made in the minds of its consumers to remain with the bank?
CHAPTER 2: LITERATURE REVIEW
“Our greatest asset is the customer; treat each customer as if they are the only one.” – Laurice Leitao (Blokdijk, 2008, pp.21).
The previous chapter presented the introduction to the research and focused on the background of the problem. This chapter therefore is focused on reviewing and exploring the theoretical knowledge available and relevant to the problem – the impacts of customer relationship management on customer retention at ICICI bank. The researcher will also look into the different models available in relation to customer relationship management, consumer buying behaviour and customer retention in this chapter.
Defining Customer Relationship Management (CRM)
Customer relationship management (CRM), also known as relationship marketing, has recently emerged as an integral marketing concept in the business world. In an attempt to reach and connect with customers in an environment highly saturated with products, advertisements, and promotions, businesses are implementing a customer relationship management component in their marketing schemes. CRM practices enable marketers to build long lasting relationships with consumers at the individual level through the use and management of a number of different programs and key components.
As a relatively new practice, the definition of customer relationship management has been debated by field experts and is ever evolving. In its inception, customer relationship management was narrowly defined as promotional marketing based on a customer database. Peppers and Rogers (2011) define CRM to be a complex process that builds one-to-one relationships with customers in order to achieve long term growth.
Relationship marketing extends past persuading customers to buy products; it is about fulfilling their expectations in the hope of transforming them into long term, loyal customers. Most experts can agree, however, that the central theme of CRM is carefully selecting the most valuable customers and maintaining and strengthening relationships with those customers for long term profit maximization. Parvatiyar et al. (2001) define CRM as a “comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer”. It is a mutually beneficial relationship built upon a foundation of trust and loyalty through marketing, customer service, and relationship programs.
The paradigm shift from focusing on attracting new customers to retaining current ones is at the backbone of CRM. Reichheld’s studies revealed that small increases in customer retention rates greatly increased profits, proving that long term customers can be more valuable (1996). More revenue on average is generated from repeat-purchase customers when compared to one time buyers. With potential profit maximization in mind, businesses are turning to customer relationship management in order to better understand customers.
Given the different definitions, there has been many misconceptions formed in peoples mind about CRM and thus, in this section, the researcher will present the various misconceptions and different views and definitions formed from several authors’ and management gurus’ about their perspectives of CRM and how it differs accordingly.
CRM has been defined in many ways by many authors. The two common factors most of these definitions cover are – the relationships and Information Technology factor. CRM according to Brown (2000, pp.36) is a set of technical and organisational mechanisms that is intended to defend the everchanging instable market conditions with gaining knowledge about environmental variables, in order to anticipate customer needs and act accordingly.
A less complicated definition was expressed by Rajola (2003, p.63) who defined CRM as an overall business strategy that aims to understand the needs of existing customers and gain new protential leads to the organisation and all the above misconceptions play a role in the process of doing so. Another complete definition is that CRM is a complete approach that provides flawless integration to every area of the business which faces the customer – through marketing, sales, customer services and support services of the organisation – whilst integrating the people, process and technology factors of the organisation, taking advantage of the revolutionary impact of the internet to support.
It basically an organisation’s relationship with the customer that is mutually beneficial to both the customer and the organisation (Lancaster and Reynolds, 2004). In summary of these definitions, CRM, as the name suggests, consists of three main components: 1.customer, 2.relationships, and 3.management as illustrated in figure 1 (Byun and Paul, 2001, pp.20).
Figure 2.1: Components of CRM (Byun and Paul, 2001)
Objectives and Benefits of CRM
This section reviews the different views of theoretical knowledge available about the objectives – the aims and goals of CRM. According to Walton and Xu (2005) the main aim of CRM is to make the business process more easier and this was later agreed by Charantimath (2011, pp.44) who stated it in a marketing and sales context: stating that a principle goal of CRM initiative is to simplify the marketing and sales process of an organisation. The other goals of CRM as recognised by Walton and Xu (2005, pp.99) are the efficiency in terms of collecting data/information and analysing them in order to track consumer behaviour patterns, and it’s mainly aimed at automating the most of the sales and marketing process. According to Mukerjee (2007, pp.87), the CRM objectives of companies differ from one another because of the differences in their strategic stance and vison and these factors also controls the CRM strategy formulation process. However he listed a few general CRM objectives as follows:
Increasing the effectivetyof cross-selling and up-selling activities of extisting customers in the organisation and better segmenting of customers which enables the organisation to focus on individuialistic lifecycles of customers (Mukerjee, 2007).
Many authors and CRM guru’s agree to these given objectives. However the collaboration of Newby et al. (2007) has come up with further specific aims stating that one of the main goals of CRM is to understand the trends of the customers and to try to forecast future demand conditions. The trio has also stated that CRM therefore aims at providing superior services to the organisation’s customers, better than their competitors hence aiming at competitive advantage through CRM.
The above definitions and a survey conducted by (Byun and Paul, 2001) suggest that the main objective of managing customer relationship is to satisfy existing customers and to enable an organization to retain them which will be discussed later in this chapter. The financial impacts of customer retention as discussed by Reichheld and Sasser (1990) are that retaining a customer is less expensive than aquiring one as it involves additional costs for advertising, promotion and starting up expenses. Also according to them new customers are less profitable in the early stages whereas companies can gain more profitability from existing customers through cross-selling other products and word-of-mouth.
Byun and Paul (2001, pp.22)has illustrated and summarised the benefits of CRM ina diagram. The summarized diagram of CRM benefits is illustrated in figure 2 and according to that there are benefits related to all four CRM strategicinitiatives: 1. customer identification, 2. customer differenciation, 3. Customer interaction, and 4. Customization. According to them identifying the customer needs and wants via the respective marketing channels is a crucial factor in CRM initiatives, this benefits the organisation’s slaes force to cater to the right customer at the right time and place and enables to view the customers as individuals.
Then comes customer differenciation, where the organisation views and understand customers’ individuality thus giving them a lifetime value. This strategy reduces the cost involved in the advertising process which can be counted as beneficial to the organisation. Customer interaction can be considered the main objective of CRM and this enables the organisation to keep track of consumers’ behaviour and needs over time.
This is therefore a systematic and continuos process that helps the organisation to provide cost effective customer service to their customers. Another major objective of CRM is to provide personalisation ofservices to their customers by treating their customers uniquely catering to their individual needs and if done correctly, the organisation can gain customer loyalty through this initiative(Amofah and Ijaz, 2005)
Source of benefits
Clean data about customer
Single customer view
Customer satisfaction and loyalty
Customer satisfaction and loyalty.
Help sales force
Cost effective marketing campaign
Reduce direct mailing cost
Cost effective customer service
Lower cost of acquistion and retention of customer.
Table 1.1: Benefits of CRM initatives (Byun and Paul, 2001).
The general concept of strategy has been defined by Johnson and Scholes (1993, pp.852) as the direction or scope of an organization in the long term (Gillies and Robin, 2002). In this context, the word ‘strategy’ means, actions and task that are undertaken to achieve the above discussed objectives of CRM. As the researcher reviewed in the above section, the benefits of CRM in an organisation are massive, given that they are implemented effectively, followed by a proper and systematic strategy that suits the organisational objectives. According to Mukerjee (2007) the success of CRM strategies depends on the organisation’s ability to integrate their technology, people, process and knowledge right according to their vision and objectives. The same has been illustrated below in figure 2 by Ajami et al. (2008).
Figure 2.2: The design of integrated CRM (Ajami et al., 2008)
According to Gartner (2001, pp.33), a well known CRM pioneer, there are eight building blocks for CRM strategy as demonstrated in figure 3. According to this figure the CRM strategy of a business consist of the objectives, segmentation of CRM factors and effective interaction. The segmentation of CRM factors and effective interaction are two key important strategies of CRM.Hence the objectives have been discussed in the above section, the researcher now will discuss the contrsting theories related to CRM segmentation and effective interaction.
Figure 3: Eight Building Blocks of CRM – A framework for success(Gartner, 2001)
As discussed above in table 1, the CRM initiatives – customer identification, differentiation, interaction and customization are enabled due to the segmentation process (Byun and Paul, 2001). Collica (2007) has further stated that there are types of segmentation involved:
1. Customer profiling is done in order to understand and predetermine the who, what, when ,where, and why factors of the customer base.
2. Customer likeliness clustering is another type of segmentation that is aimed at identifying the similarities of the different business clusters available in an organisation.
3. Purchase affinity clustering is aimed at identifying the product purchase categories and patterns of customers within a certain time period.
Effective customer interaction is another CRM strategy in marketing oriented organisations in today’s ‘context. According to Peelen (2005), the main types of interactions points are: media – radio or tv, website, e-mail, telephone and personal sales. These mentioned interactions are called customer ‘touchpoints’ because they are the points where the customers come in contact with the organisation and these touchpoints varies according to different organisations (Chen and Popovich, 2003). Hence, the CRM strategy aims to link all organisation’s departments together in order for the customer tocuhpoints to be more effective.
According to the generic strategy sourced by Peelen (2005) illustrated in figure 4, the strategy that implies to CRM is the defensive strategy is focused on retaining the current customers through increased customer satisfaction and building switching barriers.
Figure 4: Generic strategy (Peelen, 2005)
The three levels of retention strategies as illustrated in table 5 was developed by Berry & Parasuraman (1991, 20) to understand and differenciate the categories of customer retention. According to this table there are three types customer bonds that arises due to the customization and differenciation of the three levels of customer retention strategies.
At level 1: The economic incentives provided to the customers by the firm are the key determinants for the customer to retain to the company. These financial incentives are mainly price discounts offeref for volume purchase. However Iacobucci & Swartz (2000) states that these price based strategies are easily imitable by competitors and thus is not considered a long term strategy.
Level 2: At this stage the focus turns into a social bond whilst maintaining the financial aspect. Here the customer becomes a client and therefore are identified and treated as individuals. Examples of creating social bonds are by staying in regular touch with the customers, remembering their special ocassions, sharing personal information (Lacobucci & Swartz, 2000, p.10).
Level 3: These strategies are hard to imitiation. The focus of this level is about developing structural, social and financial bonds with the customers (Lacobucci & Swartz, 2000, p.33).
Table 5: The three levels of retention strategies (Berry & Parasuraman, 1991).
Other relevant customer retention strategies listed by Mascareigne (2009) are frequently monitoring customer relationships, use of loyalty programmes, customer clubs, and recovery strategies.
Measuring CRM Performance
As discussed in above sections, the performance of CRM is a part of the organisation that can only be measured in relation to overall business performance in an organisation and thus plays a vital role in the effectiveness of an organisation’s process (Payne, 2005). It is therefore important to measure the performance of the CRM process in order to check effectiveness and look for opportunities to improve in the future (Curry and Kkolou, 2004) Also, according to Payne (2005) the Critical Success Factors (CSFs) for CRM are dependent on the people, implementation of customer centric practices and proper measurements elements. He also stated that the below criteria when measuring the ROI (Return on investment) of CRM performance:
Positive changes in overall organisational performance help to measure the implemented CRM performances. However the author has also stated that this is a very difficult task to separate the ROI of CRM initiatives from the company’s’ other strategy implementations.
Payne (2005) also states that improvement on customer service in an organisation, enhancing customer satisfaction, and retention is a good measurement of the performance of CRM strategies.
And ROI of CRM can be measured when the CRM applications are directly linked to the customer metrics. (Payne, 2005).
The success of the CRM initiative can mainly be measured by the consistency and changes of behaviour of organisations customers, but according to Greenberg (2004) it is a difficult task to measure these changes according to theintangible aspect like feelings and opinions but still identifible and powerful factors nonetheless. Greenberg (2004) has narrowed downCRM performacemetrics into three different categories: customer, performance and diagnostic metrics (Greenberg, 2004).
The CRM Balance Score Card is defined by Berndt and Brink (2008) as the management tool that consist intergrated performance measures, linking the existing customers, employees, current processes and systems to include the financial measures gained from the CRM actions implemented. Greenberg (2004) has also discussed the many number of CRM scrorecards available at present and according to him, all these scorecards have one common factor – the final outcome needs to be presented in numbers to the stakeholders of the organisation.
Al-Mudimigh (2009), has come up with a sample illustation of a CRM Balance Scorecard for Saudi banks. It is presented in figure 5 in appendix 3.
Greenberg (2004) suggested possible failures of CRM. According to him, CRM initiatives are more likely to fail or be uneffective due to more common factors:
No clear strategy in the organisation.
No measurable objectives to set standards.
No proper knowledge about the CRM technologies
Implementing software without organisational alignment.
The process is not systematical.
Failures to adapt changes according to cultural factors.
Failure to undertstand the real benefits of CRM initiatives.
Assumption of customer needs without consulting them.
Kincaid (2003) has emphasised on three main factors for failure of CRM implementaion. Thus the author places great emphasisis on the interal failures, cultural barriers and internet created infrastructure barriers as below:
Unrealistic Expectations: Kincaid (2003) considers this one of the most harmful barriers to building relationships with customers. Many companies pay large amounts of money for CRM software and expect it alone to create customer loyalty. According to the author creating customer loyalty demands focus, effort and patience, and simply investing on the software and yielding it to produce results are unrealistic.
Cultural Barriers: Companies operate in various culture, some companies are product-cantered whereas some are customer-cantered. These different cultures require different operating styles for their CRM initiatives to be successful.
Systems Infrastructure failures: These systems evolve rapidly and sometimes it is difficult to keep in pace with the ever changing technology. Outdated and unsystematic infrastructure is another obstacle for CRM initiatives.
Consumer behaviour as defined by Hoyer and Macinnis (2008) is the study about consumers’ buying patterns that lead to acquisition, consumption and disposition of goods and services offered by an organisation over time. The key elements higlighted by the authors in relation to consumer behaviour are goods, services, activities, experiences, people, and ideas. Hoyer and Macinnis (2008) also stresses on the fact that understanding consumers’ emotions also plays a key role in this proocess. As discussed in the above sections and according to Blythe (2008) understanding how consumers’ behave is critical in implementing effective CRM strategies that enables an organisation to maintain a long-term relationship with their customers rather than focusing on a single transaction. The differences between single transaction approach and relationship approach are presented in table 4 below:
Table 4: Transactional Marketing Vs Relationship Marketing (Payne, 1994).
Customer life cycle
Another important consumer behavioural factor an organisation needs to be aware for establishing an effective CRM concept is the customer life cycle. This according to Kincaid (2003) is the customers’ perception of their relationship with the company over time. Kincaid (2003) strongly emphasises that it is not the customer life cycle in the eyes of the company, but how the customer experiences with the company from their point of view. It is beneficial for a companys point of view to be aware of an
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