CHAPTER I INTRODUCTION

1.1

GENESIS OF PROBLEM

As a result of globalisation of businesses and the evolving recognition of the importance of customer retention, market economies and Customer Relationship Economics, there has been a change in mainstream marketing Gronroos (1997)1. Kevin and Yen (2003)2 explains that over the past few years, there has been a shift in relationship literature from focusing on the benefits of long-term relationship for companies to the benefits that accrue to customers. Because of this it is becoming evident that companies fundamentally have to change the way in which marketing is done i.e. a fundamental shift from managing a market, to managing a specific customer Bose (2002)3. Establishing relationship with a customer is to attract the customer and to build the relationship with the customer so that the economic goals of the relationships are maintained Gronroos (1997). Fifty years ago, Drucker (1954)4 argued the importance of marketing in terms of customers, there is only one valid definition of business purpose: to create a customer. Because of its purpose to create a customer, any business has two basic functions: marketing and innovation. Customer Relationship Management appeared as a new concept at the climax of the Internet boom Kotorov (2003)5. It changed both the CRM market and customer-related business requirements of all sizes of companies Chou et al. (2002)6. During the early 1990s providers of CRM solutions were offering products that accentuated the automating and standardizing of internal processes related to acquiring, servicing and keeping customers. Still, these solutions were very expensive and hard to maintain. The new CRM system means that the existing and potential customers are now able to interact and communicate with corporations. As business processes become increasingly knowledge intensive, transaction decline, and new relationships are defined opportunistically, the focus of attention shifts to core capabilities of the firm-the few things it can do well. In any type of e-business the challenge begins once customers are onboard, retaining them, expanding their business, and keeping them coming back for more times. Such competitive strength building loyalty comes from
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(1) integrating and turning customer and channel knowledge into action and (2) forging strong relationships with customers and channel partners. Table 1.1 Evolution of Knowledge-Enabled CRM Dimension Time frame Horizon Output Customer Customer role Channels Scope Collaboration Data Updates Reaction time Goal Target Marketing CRM Late 1970s One-shot Offer Average statistic Passive Mail/phone Marketing Marketing/sales Purchases Monthly Billing cycle Efficiency Mid to Late 1990s Sequential Information Individual statistic Passive Multiple touch points Front-office Cross-functional Contacts Daily Transaction Revenue enhancement KCRM 2000s Ongoing/lifetime Predictive knowledge Value co-creator Active part of fabric Simultaneous touch points Enterprise Cross-institutional Relationships Real time Proactive, instantaneous Sustained relationship

Source: Tiwana (2001)7 In early 20th century marketing was production oriented; understanding the customer and identifying of his or her needs were unheard of in many businesses organizations. Generally, it was presumed that whatever was produced would be sold by the producers/marketers. Little attention was paid to what the customer wanted; in an era when ready-made goods were scarce, people were willing to buy almost anything for a reasonable price, regardless of a products attributes. The production orientation approach was continued till the 1920s. When manufacturers faced increased competition and, as a result, began to emphasize selling as the foundation of their marketing initiatives. The sales orientation approach focused on finding
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customers to buy the products manufactured by a company. Still, there was little attention paid to individual customer needs or trying to understand the customer liking and disliking. Relationship marketing is not new. The principles that underlie it represent the essence of marketing, with its focus on concepts like trust and commitment. It predates the mid-20th century view of marketing as a set of tools pertaining to product, price, distribution, and promotion. If we accept that the ultimate goal of marketing activities is customer satisfaction, and that this satisfaction is achieved through the creation of value for the customer, then many small firms have been practicing relationship marketing for centuries without realizing what they were doing. Since marketing plays a key role in strategic planning and business operations, it is a fundamental determinant of business success, consequently, over the last few years; the concept of marketing effectiveness has attracted increasing attention among academic researchers and business practioners. In multiple studies, experts have found that marketing effectiveness differentiates superior organizations from their competitors. According to strategic marketer Kotler (2000)8, the marketing effectiveness of a firm is reflected in the degree to which it exhibits five major attributes of a marketing orientation: 1.2 Customer philosophy, Integrated marketing organization, Adequate marketing information, Strategic orientation, and Operational efficiency. CUSTOMER RELATIONSHIP MANAGEMENT: SOME DEFINITIONS

CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value. The goal then is to improve the customers experience of how they interact with the company, which hopefully, will turn into more satisfaction, which might lead to more loyalty, and finally, to and increase in profit. Kotorov (2003)9, while referring to the roots of CRM mentioned that in the past, many speculated whether CRM would turn out to be just another buzzword; one more term to add to the managerial dictionary that would soon fade away. Customer Relationship Management (CRM) is of vital importance to organizations and it requires customercentric business approach to support effective marketing, sales and service processes.
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The modern Customer Relationship Management concept was shaped and influenced by the theories of Total Quality Management Gummesson (1997)10 and by new technological paradigms Zineldin (2000)11. There is however, a perceived lack of clarity in the definition of customer relationship management, although all accepted definitions are sharing approximately the same basic concepts: customer relationships, customer management, marketing strategy, customer retention, personalization. Keen (1994)12 stated that I wish we could get rid of the term CRM, but its established and theres no point in trying to change it and add yet another piece of jargon to the IT vocabulary. Id prefer CREEcustomer, relationship, experience and enhancement instead of Customer Relationship Management. Conway (1999)13 proposed that every time a customer approaches your business, they arrive with an expectation. It may be a service need, or a new product interest, but in every case, they have an expectation that accompanies their interest in your business. What happens next will form an experience that shapes their behaviour. A good experience may increase their loyalty and tendency to purchase again. A poor experience may transfer their business to your competitor. The ability to recognize this process and to actively manage it forms the basis for Customer Relationship Management. Fletcher (2000)14 defined that the hype surrounding Customer Relationship Management (CRM) has been pervasive within the business, technology, media, and academic communities since early 1997. Because of this hype, and the numerous constituents that contribute to it, there are as many definitions and interpretations of CRM as there are selfpurported CRM gurus. Brent Frei (2000)15 stated that CRM is a comprehensive set of processes and technologies for managing the relationship with potential and current customers and business partners across marketing, sales, and service regardless of the communication channel. The goal of CRM is to optimise customer and partner satisfaction, revenue, and business efficiency by building the strongest possible relationships at an organizational level. Goldenberg (2000)16 believed that CRM is not merely technology applications for marketing, sales and services but rather when it is successfully implemented; it enables firms to have cross-functional, customer-driven, technology-integrated business process management strategy that maximizes relationships. Due to many technological solutions available for CRM automation, it is often misunderstood as a piece of technology. In recent times many companies have realized the strategic importance of CRM, and as a result, it is becoming a business value effort rather than technology-centric effort.
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CRM is defined as an acquisition and retention of customers and the resulting profitability Mitchell (2000)17. According to Greenberg (2001)18, CRM is a disciplined business strategy to create and sustain Long-term and profitable customer relationships. Successful CRM initiatives start with a business strategy and philosophy that aligns company activities around customer needs. CRM technology is a critical enabler of the process required to turn strategy into business results. Thompson (2000)19 declared that Customer Relationship Management is a business strategy to select and manage customers to optimise long-term value. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. CRM applications can enable effective Customer Relationship Management, provided that an enterprise has the right leadership, strategy, and culture. For customers, CRM offers customisation; simplicity and convenience for completing transactions irrespective of the kind of channel of interaction used Gulati and Garino (2000)20. Many businesses today realize the importance of CRM and its potential to help them achieve and sustain a competitive edge Peppard (2000)21. This view was further boosted by Bose (2002)22 that as a result of changing nature of the global environment and competition, firms cannot compete favourably with only minor advantages and tricks that can easily be copied by competing firms. The implementation of CRM is an enabled opportunity to rise above minor advantages with a real focus on developing actual relationships with customers. Firms that are most successful at delivering what each customer want are the most likely to be the leaders of the future. Greenberg (2001)23 defined Customer Relationship Management (CRM) as a

comprehensive set of processed and technology for managing the relationships with potential and current customers and business partners across marketing, sales, and service regardless of the communication channel. The goal of the CRM is to optimize customer and partner satisfaction, revenue and business efficiency by building the strongest possible relationships and at an organizational level. Successful CRM requires a holistic approach to every relationship with the entire organization sharing and contributing to that view. CRM is a comprehensive business and marketing strategy that integrates technology, process and all business activities around the customers Anton (1996)24.

CRM is the values and strategies of relationship marketing - with particular emphasis on customer relationships - turned into practical application Gummesson (2002)25. CRM is a process designed to collect data related to customers, to grasp features of customers, and to apply those qualities in specific marketing activities. Using information technology as an enabler, CRM strategy leverages key functional areas to maximize profitability of customer interactions Chen and Popovich (2003)26. It has been recognized that technological advancements and innovations, keen competitive marketing environment, coupled with the Internet are the main drivers that promote one-to-one initiative. Through CRM, firms are able to understand the drivers of present and future customer profitability which make it possible to appropriately and proportionately allocate firms resources to all functional areas that affect customer relationship. Accordingly to Payne and Frow (2000)27, added that CRM stresses two-way communication from the supplier to customer and from the customer to the supplier to build the customer over time. The two-way communication has been enhanced greatly by advances in technology particularly the Internet. According to Greenberg (2004)28, CRM generally is an enterprise-focused endeavour encompassing all departments in a business. He further explains that, in addition to customer service, CRM would also include, manufacturing, product testing, assembling as well as purchasing, billing, human resource, marketing, sales and engineering. Chen and Popovich (2003)29 argued that CRM is a complicated application which mines customer data, which has been retrieved from all the touch points of the customer, which then creates and enable the organization to have complete view of customers. The result is that firms are able to uncover and determine the right type of customers and predicting the trend of their future purchases. CRM is also defined as an all-embracing approach that seamlessly integrates sales, customer service, marketing, field support and other functions that touch customers. They further stated that CRM is a notion regarding how an organization can keep their most profitable customers and at the same time reduce cost, increase in values of interaction which then leads to high profits. According to Bellenger et al. (2004)30, the growing body of literature on CRM is somewhat inconsistent and highly fragmented. This is a result of the fact that a common conceptualisation of the phenomenon is lacking. Further it is noted that the ambiguity surrounding the nature of CRM has permeated the academic literature and due to that, has generated research streams that address CRM from seemingly incongruent perspective.
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A survey done by META group suggests that there are different answers about the view of CRM (Greenberg, 200431). Shaw (quoted by Gooding, 2003) has defined CRM, as an interactive process for achieving the optimum balance between corporate investments and the satisfaction of customer needs to generate the maximum profit. CRM involves: Measuring both inputs across all functions including marketing, sale, and service costs and outputs in terms of customer revenue, profit and value. Acquiring and continuously updating knowledge about customer needs, motivation and behaviour over the lifetime of the relationship. Applying customer knowledge to continuously improve performance through a process of learning from successes and failures. Integrating the activities of marketing, sales and service to achieve a common goal. The implementation of appropriate systems to support customer knowledge acquisition, sharing and the measurement of CRM effectiveness. Constantly flexing the balance between marketing, sales and service inputs against changing customer needs to maximize profits. 1.3 BENEFITS OF CRM

Peppard (2000)32 noted that effective management of information has a very important role in CRM because it can be used to for product tailoring, service innovation; consolidate views of customers, and for calculating customer lifetime value. CRM systems assists companies evaluate customer loyalty and profitability based on repeat purchases, the amount spent, and longevity. Leek et al. (2003)33 added CRM makes it practicable for companies to find unprofitable customers that other companies have abandoned or jettisoned. This position is supported by Galbreath and Rogers (1999)34 that CRM helps a business organization to fully understand which customers are worthwhile to acquire, which to keep, which have untapped potential, which are strategic, which are important, profitable and which should be jettisoned. According to Chen and Popovich (2003)35, CRM applications have the ability to deliver repositories of customer data at a much smaller cost than old network technologies. Throughout an organization, CRM systems can accumulate, store, maintain, and distribute customer knowledge.

Greenberg (2004)36 emphasized that CRM can increase the true economic worth of a business by improving the total lifetime value of customer, adding that successful CRM strategies encourage customers to buy more products, stay loyal for longer periods and communicate effectively with a company. CRM can also ensure customer satisfaction through the allocation, scheduling and dispatching the right people, with the right parts, at the right time. According to Swift (2001)37, companies can gain many benefits from CRM implementation. He states that the benefits are commonly found in one of these areas: 1. Lower cost of recruiting Customers: The cost of recruiting or obtaining customers will decrease since there are savings to be made on marketing, mailing, contact, followup, fulfilment services and so on. 2. Higher Customer Profitability: The customer profitability will get higher since the customer wallet-share increases, there are increases in up-selling, cross-selling and follow-up sales, and more referrals come with higher customer satisfaction among existing customers. 3. Evaluation of customers Profitability: A firm will get to know which customers are profitable, the one who never might become profitable, and which ones that might be profitable in the future. This is very important since the key to success in any business is to focus on acquiring customers who generate profit and once a firm has found them, never let them go. 4. Reduced cost of sales: The costs regarding selling are reduced owing to existing customers are usually more responsive. In addition, with better knowledge of channels and distributions the relationship become more effective, as well as that cost for marketing campaign is reduced. 5. Increased Customer retention and loyalty: The customer retention increases since customers stay longer, buy more and buy more frequently. The customer does also often take initiatives which increase the bounding relationship, and as a result the customer loyalty increases as well. No need to acquire so many customers to preserve a steady volume of business: The number of long-term customers will increase and consequently the need for recruiting many new customers will decrease.

Curry and Kkolou (2004)38 refer to the major benefits and reasons for adoption of CRM which include: customers from the competition will come to prefer your organization; a simplified, customer-focused internal organization will simplify the infrastructure, shrinking the workflow and eliminating non-productive information flow; and profits will increase from more/more satisfied customers and a more compact, focused company. There are companies that adopt CRM systems just because it is the most advanced technology and they think they have to have it since their competitors have it. Some statistics that motivate this behaviour are resumed as follows: By Paretos principle, it is assumed that 20% of a companys customers generate 80% of its profits In industrial sales, it takes an average of 8 to 10 physical calls in person to sell to a new customer, 2 to 3 calls to sell to an existing customer It is 5 to 10 times more expensive to acquire a new customer than obtain repeat business from existing customer. For example, according to Boston Consulting Group (Hildebrand, 2000), the cost to market to existing web customer is $6.80 compared to $34 to acquire a new web customer 1.4 A typical dissatisfied customer tells 8 to 10 people about his or her experience. CRM LIFE CYCLE

Peppers and Rogers (1995)39 defines that CRM comprises three phases: acquiring, enhancing, and retaining. Each phase supports increased intimacy and understanding between a company and its customers. Theses three phases are: 1. Acquiring new customers: the company acquires customers by promoting product and service leadership. 2. Enhancing the profitability of existing customers: the company enhances the relationship by encouraging excellence in cross selling and up selling, thereby deepening and broadening the relationship. 3. Retaining profitable customers for life: Retention focuses on service adaptability-delivering not what the market wants but what customers want.

Enhancement

Retention

Acquisition

Figure 1.1: Phases of CRM Life Cycle Each phase impact customer relationships in different ways so that focus and strategies vary from phase to phase. They are described in below table. Table 1.2 Focuses and Strategies of CRM Phases Phase Acquire Focuses Differentiation Enhance Bundling Retain Adaptability Source: Kalakota et.al. (1999)40 1.5 CRM APPLICATIONS Strategies Innovation Convenience Reduce cost Customer service Listening New products

As a customer-oriented business application system, CRM has particularly focused on front-office processes involved in CRM life cycle, consisting of sales, customer services and marketing automation. Below table illustrates a number of recognized CRM applications throughout front-office processes. CRM Applications in CRM Life Cycle are given below: Sales Force Automation: Call center telephone sales, E-commerce, Field sales, Retail
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Customer Service: Call centers managing aspects of customer contact, Web-based self service, Field services and dispatch

Marketing Automation: Campaign management, Content management, Data analysis and business intelligence tools

1.6

FUNCTIONAL CATEGORIES OF CRM TECHNOLOGY

CRM technology has been categorized into three distinct areas. The categorization is meant to help better understand how a CRM strategy and technology can provide such allinclusive architecture that is focused on serving the customer. Collaborative CRM

Reynolds (2002)41 describes collaborative CRM as the interfaces such as e-mail, conferencing, chat, real-time applications, which facilitate the interaction between a company and its customers, as well as within the business itself when dealing with customer information. Collaborative CRM stresses two-way communication instead of oneway communication. Operational CRM

This, also known as front-office CRM, involves the areas where direct customer contact occurs , Kahlifa (2004)42. The automation of integrated business process that involves front-office customer touch points such as sales, marketing and customer service through many interconnected channels of delivery, including the integration between front and back office, as well as order management, customer service, marketing automation, salesforce automation and field service. A typical example is when sales is automatically pulls data out of inventory systems or customer services automatically calls up a customers billing records. Analytical CRM

It is also known as back-office or strategic CRM and involves understanding the customer activities that take place in the front office. It usually involves analysis, modelling and evaluating data in a data warehouse or various data storehouse to create a mutually beneficial relationship between a company and its customers. Greenberg (2004)43 stated that analytical CRM is to the capture, storage, extraction, processing, interpretation and reporting of data. Analytical CRM enables businesses to target high-value customers and put together marketing campaign that are totally relevant to these people in terms of cross selling, product development or addition of services. Data is often stored in a data
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warehouse, which can be described as a large repository of corporate data which then give the company information that allow them to provide value to their customer. Hence, it is crucial to capture the right data, a process that must be done with great customer care and understanding. The figure below shows an example of this.

Figure 1.2: Analytical CRM Khalifa, M., (2004), Doctoral CRM course material, Lulea University of Technology) Collaborative CRM

Collaborative CRM involves any CRM function that provides a point of interaction between the customer and suppliers. It focuses on facilitating interactions between customers and the companies. Collaborative CRM is considered as the interfaces such as e-mail, conferencing, chat, real-time applications, which facilitate the interaction between a company and its customers, as well as within the business itself when dealing with customer information. Collaborative CRM stresses two-way communications instead of one-way communication. For example, technologies like the electronic communication are used to facilitate relevant, timely and personalized interaction with the customer.

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1.7

CRM AND RELATIONSHIP MARKETING

The ideological appeal of Relationship marketing has rarely been questioned and has regularly been appropriated in various calls to arms to instigate paradigm shifts in the theory and practice of marketing (e.g., McKenna (1991)44; Blattberg and Deighton (1991)45; Shani and Chalasani (1992)46; Gronroos (1994)47; Morgan and Hunt (1994)48. Traditional marketing, it has been argued, has failed in that (despite the extensive rhetoric) customers have been put last, not first Brownlie and Saren (1992)49; Desmond (1997)50; OMalley and Patterson, (199851). This inherent lack of customer focus on behalf of organisations led many consumers to conclude that organisations generally over-promise and under-deliver Sisodia and Wolfe (2000)52; OMalley and Prothero (2004)53. This has earned marketing and associated public relations activities a much-maligned image as instruments of corporate manipulation Fitchett and McDonagh (2000)54. Relationship Marketing was positioned in such a way as to address this poor image directly by instigating a fundamental transformation in the practice of marketing. It heralded a distinct move away from customer manipulation and toward genuine customer involvement becoming, in the process, a champion of corporate credibility McKenna, (1991)55. Moreover, such a transformation would also increase both the efficiency and effectiveness of marketing by bringing the customer into a cooperative partnership with the organisation Sheth and Parvatiyar (1995)56; Gordon (200057). Rather than competing on economies of scale, as had been the norm, organisations could leverage these relationships and compete on economies of scope. Moreover, the practice of Relationship Marketing would lead to greater value creation through cooperative and collaborative relationships, with this value benefiting all parties engaged in the relationship Tzokas and Saren (1997)58; Parvatiyar and Sheth (2000)59. At its most basic then, the ideological grounding of Relationship Marketing is simply that cooperation is better than conflict and that mutual benefit is more valuable than greed. In the marketing literature, the terms CRM and relationship marketing are used almost interchangeably. For example, Berry (1983)60 defines relationship marketing as attracting, maintaining and enhancing customer relationships. Harker (1999)61 proposes the following definition: An organization engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers (partners) over time is engaged in relationship marketing. Recently, by broadening the scope of relationship marketing and viewing it in a comprehensive management and social context, Gummesson (2002)62 defines it as marketing based on relationships, networks
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and interaction, recognizing that marketing is embedded in the total management of the networks of the selling organization, the market and society. It is directed to long term winwin relationships with individual customers, and value is jointly created between the parties involved. On the other hand, Jackson (1985)63 suggests CRM to mean, Marketing oriented toward strong, lasting relationships with individual accounts. Payne (2000)64 asserts that CRM is concerned with the creation, development and enhancement of individualized customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value. Recently, Kotler and Armstrong (2004)65 define CRM as the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Although the above definitions differ somewhat, they all indicate that the core theme of CRM and relationship marketing perspectives revolves around its focus on individual buyer-seller relationships, that these relationships are longitudinal in nature, and that both parties benefit in the relationship established. In short, from a firms perspective, both the CRM and relationship marketing concept can be viewed as a distinct organizational culture/value that puts the buyer-seller relationship at the centre of the firms strategic or operational thinking. In spite of the commonalities described above, some important differences between CRM and relationship marketing do exist: first, relationship marketing is relatively more strategic in nature, whilst CRM is used in a more tactical sense Ryals and Payne (2001)66; Zablah et al. (200467). Second, relationship marketing is relatively more emotional and behavioural, centring on such variables as bonding, empathy, reciprocity, and trust Yau et al. (2000)68. On the other hand, CRM is more managerial per se, focusing on how management can make concerted efforts in attracting, maintaining, and enhancing customer relationships. Third, relationship marketing embraces not just the suppliercustomer dyad but encompasses the building of relationships with stakeholders, such as suppliers, internal employees, customers, and even government as well Morgan and Hunt (1994)69, but CRM is more dedicated to building relationships with key customers. During the 1990s, many organizations and consumers experienced great movements and actions. Some key environmental factors provided the setting whereby companies changed their attention and orientation toward marketing and the consumer. Companies have recognized the fact that they must change and restructure their way of establishing and maintaining business relationships. For example, many manufacturers discovered, or
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more accurately, re-discovered that Relationship Marketing and CRM are invaluable with constantly changing technology and increasing global competition Galbreath and Rogers (1999)70. Most managers and marketers would of course agree that establishing long-term business relationships is about development and survival. To clarify the concept CRM, we need to understand the relationship marketing and customer relationship marketing closely. Relationship marketing is a concept reflecting a number of differing themes or perspectives. Some definitions of relationship marketing are: Relationship marketing is attracting, maintaining and in multi-service organizations Berry et al. (1983)71. Or, Christopher et al. (1991)72: The relationship marketing concept is emerging as a new focal point, integrating customer service and quality with a market orientation. Relationship management, however, emphasizes the organization of marketing activities around cross-functional processes as opposed to organizational functions or departments. This results in a stronger link between the internal processes and the needs of customers, and results in higher levels of customer satisfaction. CRM evolved from business concepts and processes such as relationship marketing and the increased emphasis on improved customer retention through the effective management of customer relationships. Both RM and CRM emphasize that customer retention affects company profitability in that case it is more efficient to maintain an existing relationship with a customer than create a new one Reichheld (1996)73. 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)74 estimated that there might be tenfold difference between the most profitable customers and the royalty of loyalty. 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, 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
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enhancing

customer

relationships,

potential for loyalty as they are often prepared to pay a premium price for a range of reliable goods or services Newell (2000)75. Once relationship customers are recruited they are less likely to defect, provided they continue to receive quality service. Both Relationship Marketing 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 Product and service (prodserv) 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. 1.8 CUSTOMER LOYALTY

The definition of loyalty is when your customer is faithful to your business and product brand. They will return again and again to do business with you, even when you may not have the best product, price or delivery service. Loyalty is the result of developing past positive experiences with an individual and having that person return back to you various times due to these experiences. If you can recognize the unique situation of your customer at any point in time, like their current business condition, purchase history or immediacy of purchases, these little pieces of information can be used to benefit your business. Measuring the effectiveness of your clients history against loyalty is a responsibility for tools like CRM systems. These tools help- measuring these actions move your clients to purchase more, introduce them to other products you may carry and have those clients use word of mouth to help promote your business. It has been proven that great service is still what motivates clients to become loyal to the organizations they deal with. If they are receiving poor service and neglect from you towards their needs, your company will have a short-term relationship with them. This negative action also will spread by word of mouth and could be hurting your business more that you ever imagine. Commitment and accountability to the customer by providing a standard service of value to them, along with a full range of relationships must be nurtured. Customers expect you to be reliable, empathetic, and responsive. Also, tangible attributes like facilities, equipment and the outward appearance of customer facing professionals play a large role in their perception of your business.
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Coyne (2002)76 discussed the six main elements the build the customer loyalty and the models that can be used to measure the customer loyalty. There are: Customer satisfaction with a current suppliers products, its service to customers and the way it deals with its customers. The relative attraction of products and services offered by competitors and the way these are packaged/offered to customers. The sensitivity of customers to pricing differences between competing suppliers and the trade-offs they are willing to make between product/service features and quality/performance levels and the price they have to pay for them. The image that customers have of their current supplier compared with competing suppliers and how well this fits with what they are looking for and expect from a supplier. The level an effectiveness of promotional activity directed at customers. The effectiveness of a suppliers channels of distribution in ensuring that products are available to the customer when required and those customers are encouraged to buy. Blattberg et al. (2001)77 emphasized on customer equity. They suggest that the companies, which can measure the value of a customer precisely, have an edge over others in the customer-based, technology and information-intensive economy of today. The equity created by customer relationships is any organizations most important financial asset. Hence like any other asset, customer equity should be measured and managed effectively so as to maximize its growth. Zins (2001)78 defined loyalty can be described as customer commitment to do business with a particular corporation and purchasing their goods and services repeatedly. Customer loyalty moreover embraces many different concepts, for instance customer relationship management, customer retention marketing and one-to-one marketing. These concepts are concerned with customer loyalty because of the benefits of retaining customers as well as the activities it involves, which aim at developing long-term relationships. Managers need to realize that all relationships are based on trust, which is hard to win but easy to destroy. It is earned and does not occur within a single moment; instead it requires many interactions over a long period of time. Furthermore, most importantly for businesses, trust is a necessary condition for loyalty.
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Sir Deshmukh (2002)79 developed a framework for understanding the behaviours and practices of service providers that build or deplete consumer trust and the mechanisms that convert consumer trust into value and loyalty in relational exchanges. The framework suggested that: (1) (2) Multidimensional conceptualisation for the trustworthiness construct; Two distinct facets of consumer trust, namely, frontline employees and management policies and practices; and (3) Value as a key mediator of the trust-loyalty relationship.

Customer loyalty brings several advantages to the organisations. Loyal customer usually lead to increased revenues for the corporation, result in predictable sales and profit streams, and are more likely to purchase additional goods and services. Furthermore, customers who are familiar with a brand are more likely to mention it to their friends and tend to be concerned in the feedback and evaluation of the product, which is critical in todays business environment. Loyal customers also tend to buy through alternative channels, for instance through the Internet, which might increase the total consumption and reduce the costs of doing business with them. 1.9 FROM DIRECT MARKETING TO RELATIONSHIP MANAGEMENT

An organization depends fundamentally on its customers as Levitt (1983)80 stated that the purpose of business is to make and keep a customer. Power in business resides with the owner of the customer interface, yet most companies have no experience of controlling their customers or managing their customer interface. Every company now needs to consider the potential of direct relationships with individual customers, and a process in required to manage relationships. Kotler (2000)81 maintained that it has been the practice by firms to devote greater attention and marketing effort to attracting new customers rather than retaining existing ones. This is the base for relationship marketing which came as an answer to the transactional or traditional marketing approach. Transaction marketing used to emphasize the concepts of the 4Ps of marketing: product, price, place and promotion that focused only on attracting businesses, but not so much in retention.

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1.10

DEATH OF THE 4 PS

The holy grail of marketing that once consisted of the 4 Ps-product, price, place, and promotion - is not built around relationships and customer knowledge. In e-business these four Ps have been replaced by their digital successors.

The Old Ps Products

Their Digital Successors Customer experience, customized products, and

individualized services Price Dynamic markets and intelligent agent-based dynamic, even individualized pricing Place Digital market space that is not associated with any specific physical location Promotion Two-way interaction, mass customisation, and customer relationships

Death of the Old Ps of Marketing Whether a physical product (such as a toothbrush or a car) or an intangible product (such as a digital product, information, or service), customer satisfaction and loyalty now depend on the quality of customer experience associated with your offerings. The quality of relationship between company and customer is a competitive advantage. The more closely the customer associates with the brand, the more likely the customer is to buy. In traditional marketing theory, the analysis of relationships was based on a hierarchy of effects: awareness, knowledge, preference, purchase and repurchase. A customer becomes aware of a product, understands its features and benefits, develops a preference for it and purchases it. If use creates satisfaction, the customer repurchases it. But apart from purchase and use, the relationship is indirect and passive. The relationship approach to marketing is based on the activation of customers. In an active relationship, the customer responds and becomes involved with the brand at times other than the sale. The effect of an active relationship on customer behaviour is strongest when the relationship is initiated by the customer. The customer wants control: to choose how, where and from whom to seek information about products and services. This desire
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to control the delivery of information and advertising underlies the growth in the use of the telephone and on-line media for shopping and banking. The companies that succeed will offer customers more value and more control through active relationships. Classify customers as prospects, single and repeat buyers (of one product or service), multiple customers (of more than one product or service) and loyal. The relationships with prospects, buyers and customers can be passive, but it is a characteristic of loyalty to differentiate it from habit or absence of choice that loyal customers have active relationships. Most relationships with customers are passive, even among frequent buyers. Customer interest in active relationships depends on the importance of a product category and the strength of their associations with brands in the category. Not all buyers of a brand will become active, the proportion will vary by category, but the challenge for every brand is to activate more customer relationships. 1.11 THE SPIRAL OF PROSPERITY

Pearson (1996)82 proposed the Spiral of Prosperity, and first sketched the concept in 1983 to summarize how marketing creates financial value. Investment in new customers generates a new asset, and ongoing revenue stream. By cross-selling a wider range of products to customers, their profitability is increased. By building sustained relationships, customer lifetime value is maximized. The Spiral of Prosperity highlights the crucial economics of marketing: LTV: Customer lifetime value CRC: Customer relationship cost AIM: Allowable investment maximum in a new customer. The lifetime value (LTV) is achieved from developing customer relationships, and the cost of managing the relationship is the customer relationship cost (CRC). These two figures determine the allowable investment in new customers (AIM). Long-term profit results when lifetime value exceeds the investment cost in a new customer.
Return on investment = LTV - CRC AIM

The profit generated from customer relationships can be reinvested in marketing, to acquire more new customers and develop more value from existing customers. By looking
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at a company and its finances in terms of customers, the value of marketing can be planned and its effectiveness measured. Most marketing plans analyse the market, the competition and the brand in isolation from financial performance. 1.12 THE DIMENSIONS OF CUSTOMER RELATIONSHIP

The concept of relationship required the elaboration and understanding of following Dimensions. Contact

The more frequent the customer contact, the more opportunities to sell to customers and the more secure the customer relationship. The effect of contact with customers is a function of frequency and impact, and can be tested and modelled. The impact of contact on customer behaviour varies by type of contact -options include mail, telephone, electronic media, events and representative visits. Different contacts have different costs, and different customers prefer different approaches. Customers polarise by their liking for mail and telephone contact: most distinctly prefer one or the other. Research can be used to probe customer responses to different approaches, and to measure the effectiveness of different forms of contact. Affinity

Affinity means the tailoring of products and services to the specific needs of selected customer segments, or even the customisation of them for individuals. Stewart Pearson (1996)83 identified five high value customer segments and creates affinity-marketing programmes for each. In developing affinity-marketing programmes, a mass marketing company effectively transforms itself into many specialist companies. For mass marketers, affinity marketing by customer segment is a strategic response to specialist or niche competition. The benefits of the company brand values and customer relationships are retained, but by customizing features and benefits for specific audience, new value can be added. Rewards

Rewards are a form of promotion, but two relationship strategy features make them distinctive from traditional sales promotion:

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(i)

Rewards are offered selectively to individual customers based on their behaviour and interests

(ii)

Rewards are dependent on continued custom.

Extra Value

Extra value can be provided through special arrangements with business partners, at no cost to the company. Service

The investment in internal customer service reflects the parallel investment in external customer relationships. 1.13 STAGES OF RELATIONSHIP

Foss & Marylin (2002)84 identified the opportunities for improving customer management using a simple analysis of stages of the relationship, as follows: 1. Targeting - when the customer is targeted as being an appropriate customer for the company, and induced to join. 2. 3. Enquiry management - when the customer is in the process of joining. Welcoming - after the customer has joined, depending on the complexity of the product or service, it is important to ensure that the customer is securely on board (e.g. he or she knows whom to contact if there are problems, knows how to use the product or service). 4. Getting to know - a crucial period, when both sides exchange information with each other. Additional customer needs may become apparent, and the customers profile of use of the product or service becomes known. More is also learnt about the customers honesty, ability to pay, etc. 5. Customer development/retention (e.g. renewal, persistence, loyalty) - the relationship is now being managed securely, with additional needs being identified in time and met where feasible. 6. Customer development (e.g. up-sell, cross-sell) - the ideal state, though quite a few customers never reach it, and often dip into the next stage or remain in the previous stage for a long time.

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7.

Intensive care through service failure - the customer has such severe problems with the service delivered by the company that special attention is needed to ensure that the customer returns safely to account management.

8.

Intensive care through customer changes the customer has changed and the company does not know it, so continues to manage the customer as if he or she is still the customer he or she once was.

9.

Pre-divorce if the required attention is not given, the customer is so dissatisfied that divorce is imminent.

10.

Divorce the customer leaves. However, the leaving may only be partial (e.g. from certain categories of purchase, or resulting in reduced frequency of purchase).

11.

Win-back the customer will usually, after a cooling-off period, be ready for winback.

1.14

CRM AND CUSTOMER SATISFACTION

Real value for managers comes from determining how customers satisfaction with their dealings with the firm is linked to subsequent behaviour. When, and under what circumstances, will the performance by the company be deemed to be within a certain range relative to the customers expectations and experiences the zone of tolerance Laonard et al. (1990)85 such that neither a particularly positive nor negative response is initiated by the customer? Will this tolerance threshold change in different situations, in the context of various services, or over time? Will a customers tolerance for performance during a service encounter depend on whether his or her feelings arise as a result of expected versus unexpected aspects of the service encounter? If the customer is provoked into action, what form is that action likely to take? Will the reaction be somewhat informal and immediate, as is the case when a customer delivers complaints or praise directly to the staff? Or will the voice of the customer be external and more far-reaching through word-of-mouth communication? If the customer actually decides to take his or her business elsewhere, will the exit be temporary or will there be a vow never to return? The concept of a customers zone of tolerance has been discussed by many authors in the services management and customer behaviour literature in recent years. Essentially, it proposes that customers bring to a service encounter a set of expectations that are related to desired service the level of service that the customer hopes to receive and adequate service the level of service that the customer is prepared to accept. In between these two levels of service lies the zone of tolerance. If the experienced or perceived service lies
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within this zone, the customer will presumably be satisfied or the service will be deemed to be acceptable. If the service falls below the adequate service level, it will be deemed to be unacceptable and dissatisfaction will result. If the experienced service level exceeds the desired service level, the customer is likely to be quite satisfied even delighted.

Desired Service Zone of Tolerance Adequate Service

Figure 1.2: The Zone of Tolerance According to Johnston (1991)86, there are three interlinked zones of tolerance, which defines an intermediary zone of performance lying between the expectations and outcome zones. Higher emotional involvement and perceived risk on the part of the customer leads to greater satisfaction and dissatisfaction. The implications of the zone of tolerance are important to those companies who are trying to improve their service quality. When a customers perception of service quality falls within the zone of tolerance, even if it is close to the desired level of service, mere satisfaction is the result. Customers may not be able to verbalize what they expect at service levels that lie above the desired level of service. It is observed that the customers do not expect to be pleasantly surprised in service encounters. When such events do occur, all manner of positive emotions are elicited. Such softer feelings and emotions are difficult to express and to measure. Kotler (2000)87 defined satisfaction as a persons feelings of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to his or her expectations. When customers become satisfied about the value that is offered and sometimes his or her expectation is met and exceeded, can generate many benefits for a firm. It is important to measure customer satisfaction regularly through survey to determine customers level of satisfaction. Firms are getting a sense of customer satisfaction through customer complaints. However, in reality, 95 per cent of dissatisfied customers do not make any complain and they just leave. As a result it is important for firms to make it easy for the customer to complain. Dissatisfied customers who usually complain, about 54 to 70 percent will continue to do business again with the organization if their complaints are
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taken care off and resolved and may even be 95 percent if the complain receive quick response and action. In todays extremely aggressive and competitive marketplace, commercial organizations need new and radically different strategies to attract and then retain quality customers who have good lifetime profitability potential. When economic slowdown is also looming, it becomes absolutely vital to make sure that those customers who provide the most cash or the best profits must kept loyal to win the competition. Even though it is self-evident that all customers are not equal, companies have traditionally treated them as though they were. This across-the-board standardization has often meant that service to the best customers has been compromised, which in turn has led to their dissatisfaction and eventual defection. To succeed in the new customer economy - where loyalty, particularly among high value customers, can be extremely fickle - companies need to target investment strategically in the most profitable customer groups, and to match levels of customer service to customer value in order to earn their loyalty. What a company knows about a customer, his product preferences, his current and his projected value - can all be used to optimise the exchange of value between company and customer. For example, a high value customer can be given priority service when he or she calls the call centre, or be given access to additional features on the companys website. Meeting customers value expectations is the key to customer profitability, since customer value creates customer satisfaction which results customer loyalty. 1.15 DRIVERS OF CUSTOMER SATISFACTION

Hoffman and Bateson (2002)88 noted that firms must put in place effective tactics for retaining customers and subsequently making them loyal. They mentioned tactics such as maintenance of proper perspective, remembering customers between calls, building trusting relationships, monitoring the service delivery process, responding swiftly to customers in need and provision of discretionary effort. According to them despite that every customer is important, firms must not retain certain customers if they are no longer profitable, abusive to the extent of lowering the morale of employees, reputation is so bad that it tarnishes the image and reputation of the company should the firm associates itself with that customer. Customer satisfaction often has little or nothing to do with product or price. The quality movement that emerged first in manufacturing and more recently in service industries has tended to address the quality issue. Today, customers are far more likely than in the past
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to experience acceptable or even superior quality in core products and services. Consequently, gaining competitive advantage through improvements in core products is a far less likely strategy for success than it may have been 20 years ago. There are five levels of drivers for customer satisfaction, which are as follows: Level 1: Core Product or Service This is the essence of the offer. It represents the basic product or service that is being provided by the company such as the flight in the case of the airline, the book sold by the bookstore or publisher, the meal served by the restaurant, the bank account, the haircut, the telephone, fax, or internet-access signal. This is the most basic of the things being offered to the customer and the one that affords the service provider the least opportunity to differentiate or add value. In a competitive marketplace, the firm must get the core right; if not, the customer relationship will never get started. Level 2: Support Services and Systems This includes the peripheral and support services that enhance the provision of the core product or service: delivery and billing systems, availability and access, hours of service, levels of staffing, communication of information, inventory systems, repair and technical support, help lines, and other programs that support the core. The main message here is that a customer may be dissatisfied with a service provider even though he or she receives an excellent core product. A customer may forgo purchasing precisely the car he or she wants if delivery will take eight weeks, or a customer may change internet service providers because of inadequate help with access problems.

Processes and Support

Delivery

systems,

billing,

pricing

policies,

warranties, scheduling, complaint handling and other features that enhance and support the

Core

core.

Figure 1.3: Drivers of Customer Satisfaction Level 2 Level 3: Technical Performance There is little point in putting in place systems, policies, and procedures unless they are implemented as intended. This third level deals essentially with whether the service
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provider gets the core product and the support services right. The emphasis is on performing in the manner that was promised to the customer. Do we deliver the new dishwasher when we said we would? Does the flight arrive at 16:10 P.M. Hours, as the schedule indicates it should? Do we make errors on the customers bill? Is the hotel room cleaned and ready when the guest arrives?

Level 4: Elements of Customer Interaction This is where the company meets the customer in person. At this level, CRM managers address the way the service provider interacts with customers, through either a face-toface service encounter or technology-based contact. Do we make it easy for customers to do business with us? Do our customers feel that they are being forced to use technology-based service options with which they are not comfortable? Are we so eager to trim operating costs that we overlook how the customer views our technological improvements? Do we treat customers with courtesy? Do we act as if they are important to us?

Understanding this level of customer satisfaction indicates that a firm has thought beyond the provision of core product and service and is focused on the delivery of service at the point where the company meets the customer. Traditionally, we would have focused at this level on the interpersonal interaction between customers and employees of the firm, either face to face or over the telephone. But companies are increasingly interacting with their customers and others via technology: through ATMs, interactive voice response (IVR) systems, e-mail and the Internet. While it is easy to appreciate the importance of meeting and greeting customers positively in a face-to-face environment, it appears to be less easy for some firms to appreciate how badly they treat their customers when they deal with them through technology.

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Interaction with the Organization

Technical Performance

Level of personal service, attention, speed of service, general quality of the contract; how people are served and treated.

Processes and Support

Core

Figure 1.4: Drivers of Customer Satisfaction Level 4

Level 5: Emotional Elements-the Affective Dimensions of Service Finally, managers in service companies must think beyond the basic elements of the interaction with customers to consider the sometimes-subtle messages that firms send to customers, messages that may leave them with either positive or negative feelings toward the company. Essentially, this means how we make the customer feel. Much evidence exists from research with customers that a considerable amount of customer dissatisfaction has nothing to do with the quality of the core product or service or with how that core is delivered or provided to the customer. Indeed, the customer may even be satisfied with most aspects of his or her interaction with the service provider and its employees. But the customers business may be lost because of some comment from a staff member or because of some other little thing that goes wrong that may not even be noticed by staff members. Customers regularly make reference, during the course of focus group interviews and service quality surveys, to how they are made to feel by service providers. For the purpose, very few companies pay particular attention to how they and their employees make their customers feel. Many service encounters leave the customer with negative feelings toward the firm. Some encounters, probably a smaller number, make the
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customer feel very good. Many of the things that elicit these positive and negative feelings are understandably remote from the provision of the core product or service and may therefore; escape the notice of senior marketing and customer service managers. Many, it would seem, have paid little attention to the potential for damage or for improved customer relationships.

Emotional Elements

Interaction with the Organization

Technical Performance

Processes and Support

Core

Figure 1.5: Drivers of Customer Satisfaction-Level 5 Fournier et al. (1998)89 recently drew five particularly salient conclusions about customer satisfaction such as: (i) (ii) (iii) (iv) Customer satisfaction is an active, dynamic process; The satisfaction process often has a strong social dimension; Meaning and emotion are integral components of satisfaction; The satisfaction process is context-dependent and contingent,

encompassing multiple paradigms, models, and modes; and (v) Product satisfaction is invariably intertwined with life satisfaction and the quality of life itself. The implications of these conclusions are significant for managers wishing to achieve higher levels of customer satisfaction and thereby some of the payback that, as we have demonstrated in this chapter, is possible from higher average levels of customer satisfaction.
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1.16

CRM AND GROWTH OF SERVICE SECTOR

With the growing emphasis on the rapidly expanding service sector and on services in business in general, marketers began to pay a great deal more attention to the softer side of their interaction with customers. Many came to realize that having a great product and a great price may not be enough; that may be a large part of a customers decision to continue to deal with a firm is related to how he or she is treated or even to how he or she is made to feel in dealing with that business. The service industry is growing and dominating world economy. According to UK office for national statistics, the service industry can be categorized into financial, transport, retail and personal service Jick, (1999)90. According to Wallstrom (2002)91, the service sector comprises a wide range of companies including banks, insurance companies. She explains that the service sector employs more and more people, for example nine out of ten new jobs opportunities are created within the service sector in Sweden. Swedish Institute (2004) maintained that service sector accounted for 75 percent of all employees in 2003. Gronroos (1997)92 said there has been compelling interest in services in many parts of the world and in different functional areas. Advances in information technology especially the rapid growth of the Internet usage, improved production capabilities, demanding customers and accelerated flow of capital across political boundaries create business opportunities and fuel competition as well. The service sector is considered as one of the most challenging and competitive landscape, and like all businesses services firms face some degree of competition. The ability to view all customer interactions and information is essential to providing the high quality of services that todays customers demand and service firms that want to be successful in the knowledge economy must implement a comprehensive CRM integrated solution that involves all departments, working as a team and sharing information to provide a single view of the customer Yusuf (2003)93. CRM in Banking Banks are highly focusing on CRM for the last five years that is expected to continue. According to Foss (2002)94 most of the financial services industries are trying to use CRM techniques to achieve varieties of outcomes. These areas are: Creating consumer-centric culture and organization; Securing customer relationships; Maximizing customer profitability; and
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Aligning effort and resource behind most valuable customer groups. To implement strategies following aspects must be considered: Communications and supplier customer interactions through channels; Identifying sales prospects and opportunities; Supporting cross- and up-selling initiatives; Managing customer value by developing propositions aimed at different customer segments; and Supporting channel management, pricing and migration. Foss (2002)94, has identified the following four stages process for CRM: Stage 1 Building the infrastructure and systems to deliver customer knowledge and understand customer profitability; Stage 2 Aligning corporate resource behind customer value -developing segment management strategies to maximize customer profitability and satisfaction; Stage 3 Incorporating a market perspective into understanding of customer value, to avoid any possibly adverse effects and maintain customer relationships; and Stage 4 Integrating strategic planning and customer value management.

CRM in Hotel Industry Luck (2003)95 studied e-CRM in hotel industry. They explored the degree to which UK based hotel groups had exploited the medium of electronic customer relationship marketing (e-CRM). Research is incorporated that investigated their use of the Internet to verify whether customer relationship marketing was being implemented within online operations or whether their Internet presences merely revolve around the basic functions of providing information and hotel reservations. The findings and subsequent discussion showed that on the Internet, hotel groups used their relationship with customers to provide rather than gather information. The majority of the hotel groups had only embraced a few elements of E-CRM and even indicated that they had no intention of being led online by the concept. 1.18 TRENDS IN SALES MANAGEMENT AFTER CRM

These days, many sales organizations face fierce global competition in both home and internationals markets. According to Ingram, LaForge and Schqepker (1997)96, purchasing function is increasingly viewed as an important way for organization to lower costs and
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increase profits. Hence buyers are more demanding, better prepared, and highly skilled. The costs of maintaining salespeople in the field are escalating at the same time that sales organizations are being pressured to increase sales but decrease the costs of doing business. Thus, competitors, customers, and even their own firms are challenging sales organizations. Due to these challenges many organizations are making changes in sales management. The traditional transaction-selling model is increasingly being replaced by more relationship-oriented selling approaches. Instead of an emphasis on selling products in short run, salespeople are being required to develop long-term relationships by solving customer problems, providing opportunities, and adding value to customer business over an extended period of time.

Supporting Sales Management with CRM Software

From Transactions Individuals Sales volume Management oca

To Relationship Teams Sales productivity Leadership

Figure 1.6: Sales management trends (INGRAM, LAFORGE AND SCHWEPKER, 1997). However, further state that, disregarding new trends, the sales management framework itself is still relevant. Shapiro, Slywotzky and Doyle (1998)97, support the idea of new trends in sales management and introduce the concept of strategic sales management, saying that, in an environment where customer demands predominate and where competition is both relentless and increasingly international, the world of selling must accommodate a dramatically changed world of buying.

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Table 1.3 Old and Sales Force Approach for Supporting Sales Management with CRM Software

Old Approach Get new accounts Get the order

New Approach Retain existing accounts Become the preferred supplier

Pressure your company to cut the Price for profit price Give service to get sales Understand cost implications

and manage for profitability Manage all the accounts the same Manage way Sell to anyone each account for

maximum long-term profitability Concentrate on the high profit potential accounts

Source: Shapiro, Slywotzky and Doyle (1998)98 In order to support company profitability the new sales force has to manage: Account retention Account dominance Pricing Selling and service cost Account selection At this point, it is clear that sales force and sales management must be redesigned to meet the new needs. Customer Relationship Management (CRM) applications automate an organizations customer facing business processes: sales, marketing, and customer service. Sales software or sales force automation (SFA) software, as a part of CRM, is designed to manage sales functions. The difference between CRM and Sales Force Automation (SFA) is that SFA is focused on automating and supporting internal processes, where the
33

customer is left out. High-end SFA solutions provide for lead tracking, account/contact management, list management, opportunity management, telemarketing and telesales scripting, team selling, territory management, sales history, and various sales analysis tools. 1.19 CRM IMPLEMENTATION ISSUES

CRM normally involves business process change and the introduction of new information technology, consequently effective leadership is important Galbreath and Rogers, (1999)98. Because leaders monitor the external environments of an organisation they are often the best placed to set the vision or strategic direction for CRM projects. In addition, leaders are influential in the authorisation and control of expenditure, the setting and monitoring of performance and the empowerment and motivation of key personnel Pinto and Slevin, (1987)99. As CRM reaches into many parts of the business it has been suggested that organisations should adopt a holistic approach Girishankar (2000)100. The holistic approach places CRM at the heart of the organisation with customer orientated business processes and the integration of CRM systems. Ciborra and Failla (2000)101 conceptualise CRM beyond a front office contact management system. For others, CRM goes further, to constitute operational, analytical and collaborative elements Trepper, (2000)102. Holistic approaches to CRM help organizations co-ordinate and effectively maintain the growth of disparate customer contact points or channels of communication. However, problems of channel conflict have been identified whereby customer experiences differ depending on the sales channel Peppard, (2000)103. Another implementation issue is that of sourcing. Many organisations have few alternatives but to outsource a significant proportion of their CRM solution as they lack the resources to develop CRM software. According to MacSweeney (2000)104 60 per cent of in-house CRM systems fail. Timing is also important, as developing CRM software inhouse can be a lengthy process and there are rewards to those that can respond rapidly and appropriately Howle (2000)105. Clemons (2000)106 estimates there may be a tenfold difference between the most profitable customers and the average. The idea that you 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, e.g. banking, insurance, credit cards etc. It is less established in many other business sectors such as
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manufacturing. One method for identifying customer groups is the notion of distinguishing between transaction and relationship customers. Transaction customers are highly volatile and have little loyalty, other than that related to obtaining the best price. 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)107. Once relationship customers are recruited they are less likely to defect, provided they continue to receive quality service. Relationship customers are also more cost effective than new customers because they are already familiar with, and require far less persuasion to buy the companys products or services. Peck et al. (1999)108 are among those who argue that for many organizations it would be beneficial to distinguish between the two types of customer and focus on relationship customers. There are often three distinct types of relationship customers: the top, middle and lower groups. The top group (top 10 per cent) consists of customers with excellent loyalty and of high profitability for the organization. CRM is needed to retain and offer them the best possible services in order to avoid them defecting to hungry competitors. Middle group customers (next 40-50 per cent) are ones delivering good profits and who show good potential for future growth and loyalty. These are the customers who are probably giving some of their business to competitors. The idea is to use CRM to target middle group customers effectively as they are the greatest source of potential growth. Lower group relational (bottom 40-50 per cent) customers are those who are only marginally profitable. Some may have potential for growth but the expense and effort involved in targeting such numbers, hinders the effectiveness of servicing existing relational customers in the top and middle groups. CRM should be used to identify this group and seriously consider the response required. Transactional customers contribute either nothing or have an adverse effect on profitability. The consensus therefore, is that CRM needs to identify transactional customers to help organizations respond appropriately. Another dimension is the ability to deliver the strategy successfully. CRM strategies are only effective if they deliver positive outcomes. It is no longer good enough just to say that you are customer focused, but it matters what you do. Newell (2000)109 discusses a range of CRM case studies that used customer knowledge to deliver relevant products and services. Blockbuster recognized that their customers top priority was the ability to rent their first-choice movie, when they visited a store. The industry norm for achieving this customer service was around 80 per cent. The company implemented an information system called Centre stage to improve stock availability of first-choice titles. The centre stage system stores customer data to help predict the likely demand for specific movies.
35

The company then stocks the relevant number of products and now delivers significantly improved availability, while other competitors dont. Blockbuster strongly believes that CRM has enabled them to remain a market leader. The consensus appears to be that the fundamental goal of CRM is to improve organizational profitability through efficient and effective customer relations. If the CRM strategy is struggling to influence profitability, after a reasonable period of time, then the organization is clearly failing. Organizations in this position should immediately consider changing direction and adopt alternative strategies. The position for those organizations that have failed may result in a series of circumstances that are hard to recover from. Such companies may find they have a disproportionate number of unprofitable customers that others have jettisoned. The path back to growth may require far more radical approaches. If a CRM strategy can be shown to improve profitability, then the organization is obviously on the right path and succeeding. Companies in this healthy position should avoid complacency. They would be wise to devote sufficient resources and time to CRM and remember that effective CRM strategies are iterative and continually evolving. Somewhere along the turn of the twentieth century, buyers and sellers lost their intimate relationships. Prior to the Industrial Revolution, sellers knew their customers, many times by name, and generally understood their needs. Mass production built a wall between buyers and sellers where the main concept was to find customers for standardized products. Customers are more empowered today than ever before and the Internet is accelerating the trend toward greater customer empowerment. CRM applications attempt to focus on the customer first, specifically one customer at a time, to build a long-lasting mutually beneficial relationship. Customer relationship management is a comprehensive approach that promises to maximize relationships with all customers, including Internet or e-customers, distribution channel members, and suppliers. Getting to know each customer through data mining techniques and a customer-centric business strategy helps the organization to proactively and consistently offer (and sell) more products and services for improved customer retention and loyalty over longer periods of time. Peppers and Rogers (1999)110 refer to this as maximizing lifetime customer share, resulting in customer retention and customer profitability. On the other hand, advanced customer data analysis also allows a company to identify the customers; it does not want to serve. Beside the technological advances, CRM initiatives represent a fundamental shift in emphasis from managing product portfolios to managing portfolios of customers, necessitating changes to business process
36

and people. As companies start to re-engineer themselves around customers, individual employees must also come to terms with changing business process, organizational culture and, thus, the ways they view their customers and how they treat them. 1.20 JUSTIFICATION OF STUDY Todays Indian companies are facing their toughest competition ever. Companies had shifted from product and sales philosophy to marketing philosophy. Now they are making customer the centre of their culture. Companies need to move rapidly into new economy and employ Internet, wireless and other technology to achieve a competitive advantage. Offering product and services alone is no longer enough, organizations must provide their customers with satisfactory experiences with the strong bond of relationship. In the recent years managers have become increasingly aware of the need to create value for their customers by managing relationships. To carryout such relationship company must gain an understanding of customer journey from expectation they have before, experience occurred to the assessments they are likely to make when it is over. Many companies have already awakened to new paradigm and are moving to create the consumer-centric organizations that will be necessary to serve the new customer. The consumer-centric organization is that which Conducts business through the consumers eyes and shares unfiltered insight within the enterprise, is able to do business anytime, anyhow from anywhere, is always easy to do business with creates a compelling consumer experience and innovates services as well as products, adds value in the eyes of the consumer, Integrates the product and information The Indian firms faced the heat of competition in all business areas. MNC with better products in term of quality and technology has given tough challenge to most of Indian players. Many of foreign players already have the experience with customer relationship management in their previous markets, also extended the same to the Indian market. The entry of foreign players is considered with the beginning of customer relationship management in India. It made Indian firms to start thinking in the same manner. In the changed scenario, now firms are facing customers who are more aware about choices available to them with regard to quality and price and they want value for their money. All the firms are struggling for their bread in the market and facing tough competition in changed market oriented environment. This time customer relationship management is a competitive weapon, when they cant compete on the price alone. In the era of liberalization worldwide business has come close to each other in many ways. Information technology has been playing a significant role in the processes. Intranet, Internet and E37

commerce further are feeling the engine of growth. So much has been said and written about CRM marketing in last few years, it was natural that it caught attention of the academicians and researchers. The academicians and marketers all over the world are talking about paradigm shift in marketing due to CRM. Hence, it was an obvious topic for investigation in the field of marketing research. Apart from growth, other reason of choosing service sector is that the concept of relationship marketing has emerged under the aegis of service marketing. And, many academicians consider all business as service business, differing in the level of tangibility. Now question arise whether Indian firms are providing CRM or not. To implement CRM the requirement is in two broader areas are is management philosophy and another is technological investment. In this research the investigator is focussed only on the philosophical part not CRM as technology. The study is focussed to find out the implementation of CRM at organizational level, CRM at Business level and future perspective of CRM. The CRM at organizational level implies that how these organizations are dealing with their organizational structure to implement CRM philosophy. CRM at business level implies that what organisations are doing with CRM to help their business. Future perspective of CRM is to explorer the possibility in the perceptions of business organizations in future. Today the maximum researchers are providing attention towards the services only and they are using model to test customer services. Not much attention is given towards the all dimensions of relationship like data management, customer orientation, customer, strategy management and readiness for CRM at corporate level, sale process level change management level and training level. Not very much empirical work has been done in these areas. This research is an attempt to explorer the various dimensions of CRM.

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REFERENCES (CHAPTER I)
1

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