What is CRM?

CRM is a comprehensive strategy and process of selecting and managing customers to create a long-term superior value for the company and the customer.

CRM is a Business philosophy and set of strategies, programs, and systems that focuses on identifying and building loyalty with a firm's profitable customers.
In broader perspective, Parvatiyar and Seth (2001) defines CRM as A comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer.

Philosophy and Primary goals

# CRM is based on the business philosophy that all customers are not same profitable and firms can increase their profitability by building strong relationships with their better customers. # Primary goals of CRM: ~ Build long term and profitable relationship with valuable customers. ~ Get closer to those customers at every point of time. ~ Maximise the companys share of the customers wallet.

The Evolution of Relationship Orientation

Merchants and traders have been practicing customer relationship for centuries. Their business was built on trust.

The industrial revolution changed these relationship-oriented practices.

Manufacturers started focusing on manufacturing and efficient operations to cut costs. The resulting gap reduced direct contacts and had a negative impact on their relationships. The post-industrial era (information era) saw the re-emergence of relationship. Following factors caused this shift in orientation:(a) Rapid advances in technology, (b) Intensive competition in most markets (c) Growing importance of the service sector, and (d) Adoption of total quality management programs

 The advances in information, communication and production technologies have helped marketers come closer to their customers. Marketers could gain knowledge about customers, which helped them respond to their needs through manufacturing, delivery and customer service.

Technology enabled marketers overcome several long felt shortcomings of mass marketing.

 In competitive markets, specially the ones that were maturing and witnessing slow or no growth, marketers found it more profitable to focus on their existing customers. This has led to a relationship orientation which creates opportunities to cross sell products and services over the lifetime of the customer.

 In India, the services sector contributes to over 50 per cent of the economy. One of the characteristics of the service industries is the direct interaction between the marketer and the buyer.

These direct contacts create opportunities for better understanding, a better appreciation of needs as well as constraints and emotional bonding all of which facilitate relationship building. Therefore, one sees the service firms pioneering many of the customer relationship initiatives. E.g.: hospitality business, telecom, and airlines.

 The adoption of total quality management programmes have helped companies offer quality products and services to customers at the lowest prices. To enable this value proposition, organisations needed to work closely with their customers, intermediaries as well as suppliers thus fostering close working relationships with members of the marketing system.

 In the 1990s, CRM started attracting attention of academicians as well as practitioners from marketing and IT. The early adopters of CRM in the business to consumer markets were financial services, retailing, telecommunication, travel and hospitality, utilities and automotive. The last decade witnessed an explosion of CRM in marketing and IT.

CRM Purpose
Customer Retention and loyalty
Behavior Prediction Cross-Selling and Up-Selling Identifying profitable customers Channel Optimization Personalization Right Customer Acquisition

Why Customer Retention is important?

Acquiring new customers can cost five times more than satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current customers.
The average company loses 10% of its customers each year. A 5% reduction in the customer defection rate can increase profits by 25% to 85% depending on the industry. The customer profit rate tends to increase over the life of the retained customer due to increased purchases, referrals, and price premiums and reduced operating costs to service.
(Source: Frederick F. Reichheld, Loyalty rules ( Boston: Harvard Business School Press, 2001); Frederick F. Reichheld, The Loyalty Effects ( Boston: Harvard Business School Press, 1996).