Definition Of Customer Relationship Management Crm Marketing Essay

The Literature review will present various authors views on Customer Relationship Management its objectives, benefits and strategies. The research questions are also presented in this chapter.

Definition of Customer Relationship Management (CRM)

Customer Relationship Management (CRM) has been defined in many ways. It is defined as a business strategy that is designed to reduce cost and increase profit, respond to company’s needs for both current and potential customers in order to build relationship value. This strategy is mainly focus on customers need and behaviour to help create a close relationship between the customers and the business.

Customer relationship Management has three important elements to its success story. They are people, process and technology. People within the organisation like staff and managers need to support customer relationship management (CRM). Customer relationship Management process must be properly investigated and planned to support the CRM initiative and locating the right technology to enhance the processes, provide staff with the best data as well as being user friendly. (Wikipedia)

According to Buttle, F (2008) Customer Relationship Management (CRM) is the ‘core business strategy’ that combines internal processes and functions, and external networks, to create and deliver value to targeted customers at a profit. It is grounded on high quality customer related data and support by information technology. Customer relationship management can further be defined as a complete set of activities covering all functions of the organisation, relating with and supporting a consumer. Such activities build customer satisfaction by way of providing to their needs, and want over a long period of time (Wimshurst & Mackay, 2002).

According to Starky, Woodcock (2000) Customer Relationship Management is defined as a business attitude. ‘Customer Relationship Management (CRM) is an IT-enhanced value process, which identifies, mature, combine and focuses the various capabilities of the organisation to the customers opinion in order to deliver long term exceptional customer value, at a profit, to well-known existing and future customer segments.’

Other Authors such as Rigby, Reichheld, and Schefter (2002) in their definition described that ‘Customer Relationship Management (CRM) affiliates business processes with customers strategies to build customer loyalty and to increase profit long term. ‘In their definition the words technology and software were not cited. In order words the authors believes that customer relationship management (CRM) is seen as a set of customer strategies and processes, supported by the pertinent software, for the purpose of improving customer loyalty and ultimately, corporate profitability.

History of CRM

The term Customer Relationship Management (CRM) came into use in the early 1990s.Since that time it is not known who introduced the term and many attempts have been made to define its name. The reason was to allow businesses to better interact with their customers on a more personal level. One of the reasons for this is because it was difficult to effectively trace customers’ information. It was also important for larger companies to handle with the processed of large data collection which needed to be updated on a regular basis.

Before CRM was introduced on the market there were many other terms and systems including Personal Information Manager (PIM) which was used to store information such as names, date of birth, addresses and other information. Slowly, Contact Management System (CMS) followed and soon after was Sales Force Automation System (SFA). Sales force automation (SFA) system acts as a basis for what is known today as Customer Relationship Management (CRM).The term provides various tools and methods to manage customer relationship in an organized process.

During the 1980s the customer relationship management (CRM) foundation was formed and was referred to as the ‘database marketing’. This was done through customer focus groups allowing communication with customers. In the 1990’s organisations slightly changed their customer relationship management approach by making it a two-way contact. Not only did they collect information for the company’s use, information was also sent out to individual customers. This improved customer service showed appreciation by giving gifts, incentives, and other beneficial rewards for customer loyalty. This was one of the many ways for customer relationship management (CRM) to increase sales and maintain an effective improvement of customer services. Finally, customer relationship management (CRM) was introduced as a way to maintain excellent relationships with customers.

CRM in the Hotel Industry

The hotel industry, as illustrated by Mullins, (1992), forms a major part of an even larger grouping of organisations under the generic heading of “Hospitality”. According to Mullins, in recent years the industry has become one of the largest sectors of the UK economy employing over 1 in 10 people in the UK. In total the industry employs over 1.8 million people in the UK working in around 300,000 establishments.

As a collective term, the “Hospitality Industry” comprises all business that provides food and beverage, and or accommodation. (Powers and Barrows, 1999).The hotel industry is also made up of commercial, industrial and public services. Although these sectors are commonly grouped together as the hospitality industry, this is made up of different and distinctive sectors. One of which is the hotel and catering sector, this sector is classified under both production and service industry.

Customer relationship management (CRM) plays an important part in the business world and has become a popular topic in many organisations. In the hotel industry, customer relationship management (CRM) is crucial, it is important to know your guest and customers like and dislike. The amount customers spend within a hotel outlet and on what can help to devise marketing strategies and increase profits. Moreover, without proper customer service management, organisations will encounter problems in retaining and attracting customers’ and boost profitable returns. According to Kotler (1999) to compete successfully, the hotel industry needs to adopt the use of technology to drive value to the organisation and their customers.

Importance of Customer Relationship Management (CRM)

From the definitions Customer Relationship Management (CRM) comprises of many qualities of interaction businesses have with its customers. It helps long term business relationships and value with customers as well as increase profitability of a company. In todays’ competitive environment the survival of businesses depends on building long-lasting relationships with customers whilst increasing their profits. Businesses are faced with uncompromising competition and therefore have to take confident steps necessary to stay ahead of their competitors in the market place.

According to Bennett (1996) Customer Relationship Management seeks to establish not only long term relationship but they also seeks trusting committed relationship with customers, build with fairness and genuine concern for the delivery of high quality services. Because customers are the most important persons, businesses need to give positive responses to customer ideas and the willingness to sacrifice short term advantage for long term gains.

Customer Satisfaction

The term customer satisfaction has been defined in various ways. Customer Satisfaction can be defined as a customer’s achievement of an experience. Customer satisfaction has become the one the most important elements in business strategy. One of the many reasons a company need to satisfy its customers is to increase market share, repeat and referral businesses which may increase profit margin. According to Kotler (2000) satisfaction defined as a person’s feelings of enjoyment or disappointment resulting from measuring a product or service based their experience.

Batterson and Hoffman(2000) agrees that when customers’ expectations are met and exceeded this can increase more benefits to an organisation, word of mouth from satisfied customers can bring in new customers. In fact he goes on to say satisfied customer buy more products or service and the chances of leaving are less than that of dissatisfied customers.

According to Kotler (2000) he believes it is important for organisation to measure customer satisfaction such as survey to ascertain customer satisfaction level. Often time organisations believe customers just do not complaint but instead they leave. Dissatisfied customers simply wants his complaint heard and be addressed and may continue to do business.

According to Barsky, (1992) customers want businesses to meet and or exceed their expectations. Buttle (2005) argues often times customers’ expectations are met, but yet the customer is not satisfied. This is due to low expectation.

According to Zeng, Weng & Yen (2003) CRM increases customer satisfaction can be through the usage of Information Technology (IT) fast response to customer needs. Technology plays a vital part of customer relationship management (CRM).Technology involves the use of database as well as data mining. These technologies are used for storing customers’ data like names, addresses, and product or service history. Businesses can benefit from this information to contact and target their customers in a more personalised manner in meeting specific customer needs. The personalised approach can help to increase customer value, customer loyalty and profitability for the organisation

Customer Loyalty and Retention

Loyalty has been defined in various ways. Customer loyalty can be viewed as attitude or behavioural. Customer attitude refers to a persons’ overall attachment to product, service or other and continue to repurchase a particular style or brand. Customer behavioural loyalty refers to purchasing of the same product or service from the same provider.

According to Lovelock et al. (1999) loyalty is a customer’s willingness to continue utilising an organisations goods or services repeated over an extended period of time. He goes on to say customers will continue their loyalty were organisations offers are better than that of their competitors.

According to Kotler (2000) he believes for organisations to achieve high customer loyalty they need is to delivery high customer value. He goes on to say organisations place too much emphasis on trying to attract new customers rather than retaining the existing ones. Kotler argues that organisations are more concerned with making sales than building relationship and care for customers. Kotler (2000) believes customer satisfaction is the key factor in obtaining customer loyalty. He identifies the following features of a satisfied customer:

Remain loyal longer

Make more purchases

Positive word of mouth regarding the organisation

Less attention to competitors brands and prices

Customer retention according to Harris, (2007) is the continuous attempt to satisfy and keep existing customers actively involved in carrying out business. Businesses need to recognize the importance of existing customers and create a strong customer relationship in an atmosphere to continue doing business. The importance of keeping existing customers is not a new concept, today; businesses are more focused on attracting new customers rather than maintaining the existing ones. Gummerson (1994) believes an organisation can increase and maintain its market share through good relationship. The author identifies retention as a benefit of CRM, he goes on to explain information such as customers’ names, like and dislikes, habits expectations can be useful information in winning customers back.

Objectives of Customer Relationship Management

In this section will have various authors view on CRM objectives and benefits

According to Peppers (1999) he identifies the following objectives.

Customer differentiation: different customers have different needs and expectations, it is important that organisation take time and interest to understand individual customers’ needs.

Customer interaction: An organisations need to know its customers, communication is an important tool when it comes to interacting with customers organisation should keep track of customers behaviour and respond to their every need.

Personalization: This can be view in many form for example customize product or service, use customers’ names this is very important in the hotel industry make them feel important and unique.

According to Gronroos (2004) he believes having a continuous relationship with customer can help in building security, trust and a feeling of control.

Gummerson (1994) agrees relationship building is fundamental to an organisation in maintaining a positive market share. Gummerson identifies these objectives:

Retention: collecting relevant information on customers such as habits, preferences or even knowing customers’ names can create a lasting relationship in winning them.

Intimacy of profits: Information Technology is very useful in creating a feeling of intimacy with customers that means getting to “know” who the customers are. The benefit derives from building a mutual relationship which will result in increased profits for both the customer and the organisation.

Customer Relationship Management Benefits

According to Swift (2001) an organisation and get benefit in following:-

Reduce cost of sales: The cost of sales can be reduced because current customers are usually more responsive. Therefore, with better knowledge of channels and distributions and the relationship becomes more successful, and cost for marketing campaigns are reduced.

Increase retention and loyalty: The customer loyalty can increase while customers stay longer, more purchases regularly. Customers take more initiatives in order to build a bounding relationship, and as a result customer loyalty increases.

Lower cost of recruiting customers: Once the cost of recruiting customers decline savings will be made on things like marketing, mailing, contact etc. The need for obtaining high volume of new customers may not be necessary to sustain a business because the chances of long term customers will increase and the need to recruit new customers will decrease.

Increase customer profitability: The customer profitability will grow or increase once the customer wallet-share maximizes. Growth of up selling, cross selling and follow up sales as well as more referrals come with higher customer satisfaction among existing customers.

Evaluation of Customer profitability: An organisation will get to distinguish between its customer meaning a profitable customer, a customer who may never become profitable and potential future profitable customer. It is important because the foundation to a successful business is to obtain and focus on those customers who generate profit, because as an organisation once you have the, you want to keep them.

According to Chou et al., (2002) mentioned Customer Relationship Management can make certain customer satisfaction via allocation, scheduling, dispatching the right personnel with the right tools at the right time.

Customer Relationship Management Strategies

This section will provide theories of Customer Relationship Management strategies in relation to questions two.

Strategy can be defined as a plan for deploying resources to build a favourable position. Customer relationships Strategy within an organisation must be clear and define how the organisation is view as well as define all customer touch points and the plans to achieve results. According to Chen & Popovich (2003) CRM “touch points are the interaction points of a customer within an organisation.

Customer Relationship Management technologies are of three categories, this categorisation will explain how technologies and CRM strategies link closely to better serve customers’ needs (Trepper, 2000)

Analytical Customer Relationship Management focuses mainly on analysing a customer’s data by using various tools. Analytical Customer Relationship Management also referred to as front- office CRM deals with all direct contact with customers (Chen and Popovich. 2003). These business processes of customer touch point involve sales, customer service through different channels including the back office.

Operational customer relationship management focuses on automating, enhancement and improvement of business process based on customer service or customer support. Lawrence (2001) .Operational Customer Relationship Management also referred to as back -office CRM this is where all functions or activities that are not directly visible to the customer takes place which usually involves the analysing and evaluating of data in a data warehouse. (Chen and Popovich. 2003) The data warehouse according to (Dyche, 2002) is described as huge repository of corporate data; such information is stored for future use of the company enabling them to give value to customers when needed.

Collaborative Customer Relationship Management involves customer supplier interaction; it also focuses on customer to company interaction (Trepper, 2000). Collaborative CRM main focus is on communication one way communication should be replace with two way two-way communication between. One example is electronic communication (Greenberg, 2001).

Data Warehouse (Information Technology)

Data warehouse is a repository of an organisation electronically stored data. Its focus is to store, retrieve and analyse data as well as load extract data. (references.com) Data warehouse plays an important role in Customer relationship management. According to Chen and Popovic, (2003) data warehouse is referred as an information management tool in which an organisation can extract customer information that is readily available such as inventory, purchases and much more. Most importantly all data needs to be fully integrated in order to avoid any misunderstand or wrong decision making. Figure 2 shows a fully integrated data warehouse. (Dyche, 2002) he also agrees both current and past data should be stored in a centralised cross- functional data. Analysing the data warehouse is also referred to as Business Intelligence one that should not be mistaken for CRM. The difference between customer relationship management and business intelligence is that CRM integrates data. Some benefits of data warehouse includes:-

Data warehouse has a common data model which makes it easy to analyse information.

Data warehouse identifies errors and resolve them quickly and easily

Stores data for long period of time

Surrey Responses

Purchase Data

Demographics

Campaign Responses

Call Centre Contacts

Data Warehouse

Billing & Payments

Returns

Web Activity

Figure 1: Integrated customer data on a data warehouse (Dyche, 2002)

Conceptual Framework

In the previous section was the literature and theories relevant to the research question and its purpose. This section will develop a conceptual frame work to be used as a guide through the dissertation.

According to Miles and Huberman (1994) a conceptual frame work clarifies either graphically or narrative forms the main things that are to be studied. The key factors, the concept or variables.

Q1: How can CRM objectives and benefits be described?

Question one will be broken down into three groups (one) customer objective and (two) business objectives and (three) CRM benefits.

(a) Customer Objectives will focus mainly on: customer satisfaction, customer loyalty and retention. These objectives were chosen because they are closely linked to each other. Customers who are happy and satisfied remain loyal with a business.

(b)Business Objectives will focus mainly on the business and includes customer interaction, customer differentiation and personalisation.

(c) CRM benefits: In this section the focus will be on profitability, cost and sales and the organisational impact since they are more business related.

Q2: How can strategies for CRM be described?

Question two aims to focus on the various strategies of customer relationship management, and will be focused on customer touch points- analytical, operational, collaborative CRM and technology and warehouse. According to Chen & Popovich (2003) these are point of customer interaction within an organisation.

Frame of Reference

Question 1:

Objectives & Benefits

Question 2:

Strategies

Customer Objectives

Business Objectives

CRM Benefits

Touch Points

Analytical

Operational

Collaborative

Technology/Warehouse

CRM Systems/Warehouse