MKTG3008- Customer Relationship Management
1.1 Definition
CRM- The core business strategy that integrates internal processes and functions, and external networks to create and deliver value to targeted customers at a profit. It is grounded in high quality customer related data by information technology.
• Customer- the focus of the organisation is the customer
• Relationship- seek profitable long term relationships with customers
• Management- plan, implement and integrate relevant functions and processes to facilitate above
The customer as ‘the boss’
• There is only one boss, the customer
• ‘And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else’ – Sam Walton
• ‘A customer is the most important visitor on our premises, he is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favour by serving him. He is doing us a favour by giving us an opportunity to do so.’ – Gondhi
Facts about customers
• 86% of consumers will pay more for better customer service
• 7 in 10 US consumers have used the telephone for customer support in the past 10 months
• 50% of consumers will wait one week for a response before they go to the competition
• Poor customer service = $83 billion cost to the US economy
• 60 million hours/yr wasted on hold with call centers
• ‘Your most unhappy customers are your greatest source of learning’ – Bill Gates
• 89% of consumers did business with a competitor after receiving poor customer service
Why a relationship focus?
• Markets in the developed world are relatively stagnant
• Decrease in barriers to entry and other causes (technology, globalisation etc) have led to increases in competition
• Rising costs of marketing/ changes in channels od distribution
• Customers have changed- polygamous (multiple) loyalty and greater readiness to switch if not satisfied
• Increased market fragmentation
• Technology- data, information, relationship enabler
Benefits of CRM
• Research shows companies that create satisfied, loyal customers have more repeat business, lower customer acquisition costs and stronger brand value
• Profits derived from sales:
o Reducing defections by 5% can boost profits by 25- 85%
o Odds of selling to a new customer = 15%; to an existing customer = 50%
• Profits from reduced operating costs
o 3-5 times cheaper to keep a customer than recruit a new one
• Profits from referrals – positive effects of WOM 1.3 CRM Models
Components of CRM Dominant characteristic
Strategic Strategic CRM is a core customer centric business strategy that aims at winning and
keeping profitable customers
Operational Operational CRM focuses on the automation of customer facing processes such as selling,
marketing and customer service Analytical Analytical CRM focuses on the intelligent
mining of customer related data for strategic or tactical purposes
Collaborative Collaborative CRM applies technology across organisational boundaries with a view to
optimising boundaries with a view to optimising company, partner and customer
value
Week 1 Reading- An overview to CRM
• CRM is a combination of people, processes and technology that seeks to understand a company’s customers
• It is an integrated approach to managing relationships by focusing on customer retention and relationship development
• Companies that successfully implement CRM will reap the rewards in customer loyalty and long run profitability
• Managing a successful CRM implementation requires an integrated and balanced approach to technology, process and people
• CRM has come to represent this more balanced emphasis on continuing relationships than simply individual transactions
Benefits of CRM
1. Improved ability to target profitable customers
2. Integrated offerings across channels
3. Improved sales force efficiency and effectiveness 4. Individualised marketing messages
5. Customised products and services
6. Improved customer service efficiency and effectiveness 7. Improved pricing
• CRM allows firms to develop a robust targeting and enquiry management processes and this helps boost new businesses significantly
• One of the benefits of CRM is its ability to identify individual customers profitability and the identification of customer needs so as to tailor products to individual customer requirements to help retain customers longer
• CRM success is defined as a firm’s ability to efficiently build and sustain a profit maximising portfolio of customer relationships
Week 2- Relationships Defining ‘Relationship’
• A relationship is composed of a series of interactive episodes between parties over time
• Episodes are time bound (they have a beginning and an end) and are nameable
• Episodes composed of a series of interactions which consist of action and response to that action
• Is a relationship more than interaction over time?
o What about emotional content? Do relationships have some type of affective connection, attachment or bond?
Different types of relationships
• As social animals, humans form a number of different types of relationships such as those indicated below
o Family o Friendship
o Romantic/Intimate o Peer Group
o Community o Organisational o Professional Theories of Relationships
• Adaptation – Form relationships to promote survival of the individual and successful reproduction/evolution (romantic, family relationships)
o More suited to family/ intimate relationships
• Validation – Form relationships because of the reinforcements we receive (friendships, peer groups)
o mainly peer group and community relationships but may be relevant for products/services providing consumers with validation benefits (status, group membership etc.)
• Social Exchange – maximise relationship rewards try to minimise the costs (non- family, non-intimate)
o both intimate and non-intimate relationships such as customer/organisation relationships
• Equity - Emphasis on fairness. Receive rewards proportional to what you put in (organisational, professional)
o similar to Social Exchange and may be a basis for explaining customer satisfaction judgments if customers perceive an unfair exchange of value.
• Investment Theory – Satisfaction, Quality of Alternatives, Investment made – Suggests past costs may influence relationship decisions as well as alternatives available (all)
o both intimate and non-intimate relationships and assumes sunk costs, relationship history are relevant
Social Exchange Theory (SET)
• Process of negotiated exchanges between parties
• Roots in Rational Choice theory
• Subjective cost-benefit analysis and comparison of alternatives.
• Rewards (to be maximized) and costs (to be minimized)
• REWARDS = anything that a person gains from a relation o Main rewards: love, money, status, info, goods, services
• COSTS = negative consequences of a relationship (time, money, energy Critiquing social exchange theory
Strengths Weaknesses
• Most people understand general assumptions
• Very parsimonious
• The ability of exchange theory to explain many family issues
• Explains non-intimate relationships
• Assumes humans act rationally when deciding on an exchange
• Some issues are difficult to explain effectively utilizing exchange theory such as altruism
• Assumes self-interest valued above all else – may not be valid in some cultures (collectivists)
• Limited to dyadic relationships Equity Theory
• Walster et al (1978) suggested the main assumptions of the equity approach are as follows:
1. Individuals maximise rewards minimise costs 2. Negotiation occurs to produce fairness.
3. The relationship produces distress if there is inequity.
4. The disadvantaged person is always trying harder to make the relationship more equitable.
