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Chapter 1

Introduction

In the mid-twentieth century, mass production techniques and mass marketing

changed the competitive landscape by increasing product availability for consumers.

However, the purchasing process that allowed the shopkeeper and customer to spend

quality time interacting with each other was also fundamentally changed. As a result,

customers lost their uniqueness becoming an “account number”. Shopkeepers lost

track of their customers’ individual needs as the market became full of product and

service options. Many companies today are striving to re-establish their connections

to new as well as existing customers to boost long-term customer loyalty (Chen and

Popovich, 2003).

The world has come full circle from selling to marketing and from seller’s market to

buyer’s market. The customer today has the option to buy what he thinks he should

and from whom, being in his best interest. Product development, technological

improvement, cost optimization and excellent service facility are very important for

any organisation but their importance is only if the customer appreciates it. For

example, both diamond and coal are carbon but they are priced differently due to

different valuations by the customer. Therefore, any business begins and ends with the

customer (Sugandhi, 2002). Thus, service organizations are shifting their focus from

“transactional exchange” to “relational exchange” for developing mutually satisfying

relationship with customers. Extended relationships are reported to have a significant

impact on transaction cost and profitability, and customer lifetime value. Serving the

customers, in true sense, is the need of the hour as the customer was, is and will

remain the central focus of all organizational activities.

1.1 Introduction of retail sector

Retail is the final stage of any economic activity. By virtue of this fact, retail occupies

an important place in the world economy.

According to Philip Kotler: “Retailing includes all activities involved in selling goods

or services to the final consumers for personal, non-business use. A retailer or retail

store is any business enterprise whose sale volume comes primarily from retailing.

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Any organization selling to the final consumers whether it is a manufacturer,

wholesaler or retailer- is doing retailing. It does not matter how the goods or services

are sold (by person, mail, telephone, vending machine or internet or where they are

sold- in a store, on the street or in the consumer’s home.”

Retailing thus may be understood as the final step in the distribution of merchandise,

for consumption by the end consumers.

The India Retail Industry is the largest among all the industries, accounting for over

10 per cent of the country’s GDP and around 8 per cent of the employment. The

Retail Industry in India has come forth as one of the most dynamic and fast paced

industries with several players entering the market. But all of them have not yet tasted

success because of the heavy initial investments that are required to break even with

other companies and compete with them. The India Retail Industry is gradually

inching its way towards becoming the next boom industry.

The total concept and idea of shopping has undergone an attention drawing change in

terms of format and consumer buying behavior, ushering in a revolution in shopping

in India. Modern retailing has entered into the Retail market in India as is observed in

the form of bustling shopping centers, multi-storied malls and the huge complexes

that offer shopping, entertainment and food all under one roof.

A large young working population with median age of 24 years, nuclear families in

urban areas, along with increasing workingwomen population and emerging

opportunities in the services sector are going to be the key factors in the growth of the

organized Retail sector in India. The growth pattern in organized retailing and in the

consumption made by the Indian population will follow a rising graph helping the

newer businessmen to enter the India Retail Industry.

In India the vast middle class and its almost untapped retail industry are the key

attractive forces for global retail giants wanting to enter into newer markets, which in

turn will help the India Retail Industry to grow faster. Indian retail is expected to grow

25 per cent annually. Modern retail in India could be worth US$ 175-200 billion by

2016. The Food Retail Industry in India dominates the shopping basket. The Mobile

phone Retail Industry in India is already a US$ 16.7 billion business, growing at over

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20 per cent per year. The future of the India Retail Industry looks promising with the

growing of the market, with the government policies becoming more favorable and

the emerging technologies facilitating operations.

1.1.1 Retail Store formats in India

The following kinds of retail formats are found in India:

• Category killers: Small specialty stores have expanded to offer a range of

categories. They have widened their vision in terms of the number of categories. They

are called category killers as they specialize in their fields, such as electronics (Best

Buy) and sporting goods (Sport Authority).

• Department stores: These are the general merchandise retailers offering

various kinds of quality products and services. These do not offer full service category

products and some carry a selective product line. K Raheja's Shoppers Stop is a good

example of department stores. Other examples are Lifestyle and Westside. These

stores have further categories, such as home and décor, clothing, groceries, toys, etc.

• Malls: These are the largest form of retail formats. They provide an ideal

shopping experience by providing a mix of all kinds of products and services, food

and entertainment under one roof. Examples are Sahara Mall, TDI Mall in Delhi.

• Specialty Stores: The retail chains, which deal in specific categories and

provide deep assortment in them are specialty stores. Examples are RPG's Music

World, Mumbai's bookstore Crossword, etc.

• Discount stores: These are the stores or factory outlets that provide discount

on the MRP items. They focus on mass selling and reaching economies of scale or

selling the stock left after the season is over.

• Hypermarkets/ Supermarkets: These are generally large self-service outlets,

offering a variety of categories with deep assortments. These stores contribute 30% of

all food and grocery organized retail sales. Example: Big Bazaar.

• Convenience stores: They are comparatively smaller stores located near

residential areas. They are open for an extended period of the day and have a limited

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variety of stock and convenience products. Prices are slightly higher due to the

convenience given to the customers.

Retail is usually classified by type of products as follows:

Food products (Fruits, Vegetables and Groceries)

Hard goods ("hardline retailers") - appliances, electronics, furniture, sporting

goods, Toys, Toileteries, Footwear and Cosmetics

Soft goods - clothing, apparel, and other fabrics.

1.1.2 Introduction of retail stores under study:

1. Big Bazaar:

Big Bazaar is a chain of hypermarket in India. Currently there are 214 stores

across 90 cities and towns in India covering around 16 million sq.ft. of retail

space. Big Bazaar is designed as an agglomeration of bazaars or Indian markets

with clusters offering a wide range of merchandise including fashion and

apparels, food products, general merchandise, furniture, electronics, books, fast

food and leisure and entertainment sections. Big Bazaar is part of Future Group,

which also owns the eZONE, HomeTown, futurebazaar.com

2. US Polo:

The U.S. Polo brand is the official brand of the United States Polo

Association (USPA), the governing body of the sport of polo in the U.S. since

1890. The Association's trademarks and logos worldwide are managed by USPA

Properties, Inc., a wholly owned subsidiary of the USPA. USPA Properties, Inc.

partners with licensees in the United States, Canada, Mexico, the Caribbean,

Central and South America, Asia, Europe, Scandinavia, Russia, and the Middle

East to provide consumers with

branded apparel, accessories, luggage, watches, shoes and home furnishings.

Products are available in more than 100 countries at independent retail stores,

department stores and U.S. Polo Assn. brand stores.

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3. Shopper’s Stop:

Shoppers Stop is an Indian department store chain promoted by the K Raheja

Corp Group (Chandru L Raheja Group), started in the year 1991 with its first

store in Andheri, Mumbai. Shoppers Stop Ltd has been awarded "the Hall of

Fame" and won "the Emerging Market Retailer of the Year Award", by World

Retail Congress at Barcelona, on April 10, 2008.Shoppers Stop is listed on

the BSE. In 2011, Shoppers Stop had 52 stores in India.

4. Blackberry:

Established in 1991 Blackberrys is one of the leading formal wear brands in India.

Identifying a potential in branded structured clothing for the changing needs of

the Indian male, over the years, Blackberrys has established itself as the

manufacturer of trousers, suites and jackets and gradually completed the wardrobe

look with shirts, and accessories. The model is based on a design conscious,

product delivery system with a strong back up of global and local sourcing.

5. Lifestyle:

Lifestyle International (P) Ltd, part of the prestigious Dubai based Landmark

Group, started its operations in India with the launch of the first Lifestyle store in

Chennai in 1999. In little over a decade’s time, Lifestyle has established itself

amongst the leading retail companies in India. Positioned as a youthful, stylish

and a vibrant brand, Lifestyle Departmental stores offers its customers not just the

ease of shopping but also an enjoyable shopping experience. Each Lifestyle store

brings together five concepts under one roof – Apparel, Footwear, Children’s

Wear & Toys, Furniture & Home Furnishings, Beauty & Fashion Accessories -

offering a convenience of a one-stop shop and a wide choice of national &

international brands.

6. Satya Paul:

India's premium designer label is synonymous with signature prints, exclusive

bridal wear, evocatively feminine designs and timeless style.

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7. Wills Lifestyle:

India's most admired fashion brand, Wills Lifestyle offers the customer a

complete wardrobe of fashion apparel and accessories.

8. Lilliput:

Lilliput has more than 30 stores in 10 countries apart from India. Lilliput holds

the distinction of being the first Indian company.

9. Koutons:

Koutons Retail India Ltd. is the leading retailer of readymade and fashion wear

brand in the country today. With more than 1400 outlets across India, it has a

wide range of apparel designs suited for all segments including corporate, formal

and casual dressings. Koutons aptly creates the conducive environment for a

family outing, making family shopping the best experience at an affordable price -

all at one place.

10. Sanodyay:

A local departmental store in Greater Noida.

11. Hari Om:

A local provison store in Greater Noida

12. Littles:

Littles’s is India’s oldest and favourite baby care products brand. Since 1980, it

has range of innovative baby care products has been preferred by mothers across

India from Kashmir to Kanyakumari and Silchar to Porbandar.

The Littles’s range of baby care products is also available in the Americas, parts

of Europe, Middle East & Africa.

13. Kurlon:

Kurlon is into the business of pure comfort. A head start in the business in 1962

by Late. Shri. Tonse Ramesh Upendra Pai, it is now looking into an extensive

brand extension and a complete makeover from sleep comfort, to home comfort.

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To give its expanding activities a definite direction and wider dimension, Kurlon

Limited is reposting itself as a major player in the comfort industry rather than a

leader in just the mattress business. Thus operating on a larger canvas, the

company will have more room to grow, and will manufacture a whole wide range

of trusted quality products for its customers.

14. Reebok:

Reebok International Limited, a subsidiary of the German sportswear

company Adidas since 2005, is a producer of athletic shoes, apparel, and

accessories.

15. Reliance:

Reliance is gearing to be a major player in the Indian Retail Revolution. They are

aggressively working on a pan-India network of retail outlets in various formats.

State-of-the-art technology, a seamless supply chain infrastructure and unmatched

customer experience, is what the initiative is all about.

The first of their format is Reliance Fresh, a convenience store. These stores,

range from 2,000 to 5,000 sq feet, provide customers with a variety of fresh fruits,

vegetables, staple foods and other products in a world-class ambience. They

aggressively partnered farmers by following a farm-to-folk strategy to ensure

fresh fruits and vegetables at affordable prices.

Reliance Super stores are large supermarkets with an area of 4,000-10,000 sq ft

and will stock grocery, stationary, pharmaceutical products and apparel only.

Reliance Mart (1,50,000-3,00,000 sq. ft.) is the company's hypermarket format.

Around 23 percent of the hypermarket floor space will be allocated to garment

brands, while the rest will stock footwear, home goods and other products.

Luxury products will cover a floor space of 11 percent.

16. Archies:

Archies Limited earlier called (Archies Greetings and Gifts Ltd.) is an Indian

company based in New Delhi

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It was started in 1979 by Anil Moolchandani. Initially it sold song books, posters

and leather patches. The company's main product, greeting cards, was introduced

in 1980. Cards were introduced for major Indian festivals such

as Holi, Diwali and Rakhi, apart from the usual new year, birthday and

anniversary occasions. The company went public in 1995.

17. Croma:

Croma is an Indian Consumer electronics retailer.

18. Spencers:

Spencer's Retail is one of India’s fastest growing retail stores. Spencer's is based

on the 'Food First' Format (it mainly offers fresh and packaged food). Many

outlets though sport multiple formats for retailing food, apparel, fashion,

electronics, lifestyle products, music and books. It is owned by the RPG Group, a

major business house. Established in 1996, Spencer’s is one of the popular

destination for shoppers in India with supermarkets, hypermarkets and dailies

spread all over India.

19. Madhusudan Footwear:

It is a speciality local footwear store.

20. Macro Sporting House:

It is a sports goods local speciality shop.

21. Toshiba:

Toshiba Corporation earlier named Tokyo Shibaura Electric K.K. (after

the Shibaura district in Tokyo), is a Japanese multinational electronics, electrical

equipment and information technology corporation headquartered

in Tokyo, Japan. It is a diversified manufacturer and marketer of electrical

products, spanning information & communications equipment and systems,

Internet-based solutions and services, electronic components and materials, power

systems, industrial and social infrastructure systems, and household appliances.

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22. Monte Carlo:

Monte Carlo provides the all new Fashionable and trendy clothes for Men and

Women. Revamp your winter wardrobe with some amazing stylish woolen

collections from monte carlo. The extensive winter collection presents a wide

variety of designs that include young and sporty jumpers and wool cardigans,

multi-pocketed jackets with sharper tailoring and pullovers for classic men and

women.

23. Lotus Inc Cosmetics:

It is a local cosmetic stores. Cosmetics from various brands are available in thisstore.

24. Hari Om:

Is a local kirana store.

25. Shahid Juice Corner:

It is a local kirana store/ vegetable and fruit store.

26. Globus:

Globus Stores Pvt. Ltd. was formed to contribute to the revolution sweeping the

Indian retail industry. Globus promises to bring about a perceptible change in the

way apparel and lifestyle retailing is carried out.

27. The MobileStore:

The MobileStore Limited, India's first countrywide chain of telecom retail

outlets and largest mobile phone retailer. The MobileStore currently has over

1000 outlets across 150 cities, thus covering virtually every major town in every

state across India.

28. Sunshine Furniture and Interiors:

It is a local furniture store.

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29. United Colors of Benetton:

The Benetton Group is present in 120 countries around the world. Its core

business is fashion apparel: a group with a strong Italian character whose style,

quality and passion are clearly seen in its clothing and accessories.

30. Panasonic India:

It is an consumer durable electronic store.

31. Sparx Footwear:

Sparx footwear by relaxo is available in wide range of colours.

1.1.3 The Indian Retail Scene

India is the country having the most unorganized retail market. Traditionally it is a

families livelihood, with their shop in the front and house at the back, while they run

the retail business. More than 99% retailers function in less than 500 square feet of

shopping space. The Indian retail sector is estimated at around Rs 900,000 crore, of

which the organized sector accounts for a mere 2 per cent indicating a huge potential

market opportunity that is lying in the waiting for the consumer-savvy organized

retailer.

Purchasing power of Indian urban consumer is growing and branded merchandise in

categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even

Jewellery, are slowly becoming lifestyle products that are widely accepted by the

urban Indian consumer. Indian retailers need to advantage of this growth and aiming

to grow, diversify and introduce new formats have to pay more attention to the brand

building process. The emphasis here is on retail as a brand rather than retailers selling

brands. The focus should be on branding the retail business itself. In their preparation

to face fierce competitive pressure, Indian retailers must come to recognize the value

of building their own stores as brands to reinforce their marketing positioning, to

communicate quality as well as value for money. Sustainable competitive advantage

will be dependent on translating core values combining products, image and

reputation into a coherent retail brand strategy.

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There is no doubt that the Indian retail scene is booming. A number of large corporate

houses Tatas, Rahejas, Piramals, Goenkas have already made their foray into this

arena, with beauty and health stores, supermarkets, self-service music stores, newage

book stores, every-day-low-price stores, computers and peripherals stores, office

equipment stores and home/building construction stores. Today the organized players

have attacked every retail category. The Indian retail scene has witnessed too many

players in too short a time, crowding several categories without looking at their core

competencies, or having a well thought out branding strategy.

1.1.4 Strategies

Retailing in India is gradually inching its way toward becoming the next boom

industry. The whole concept of shopping has altered in terms of format and

consumer buying behavior, ushering in a revolution in shopping in India. Modern

retail has entered India as seen in sprawling shopping centres, multi-storied malls

and huge complexes offer shopping, entertainment and food all under one roof. The

Indian retailing sector is at an inflexion point where the growth of organized retailing

and growth in the consumption by the Indian population is going to take a higher

growth trajectory.

1.1.6 Growth of Retail Industry

Retail and real estate are the two booming sectors of India in the present times. And

if industry experts are to be believed, the prospects of both the sectors are mutually

dependent on each other. Retail, one of India’s largest industries, has presently

emerged as one of the most dynamic and fast paced industries of our times with

several players entering the market. Accounting for over 10 per cent of the country’s

GDP and around eight per cent of the employment retailing in India is gradually

inching its way toward becoming the next boom industry.

As the contemporary retail sector in India is reflected in sprawling shopping

centers, multiplex- malls and huge complexes offer shopping, entertainment and

food all under one roof, the concept of shopping has altered in terms of format and

consumer buying behavior, ushering in a revolution in shopping in India. This has

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also contributed to large-scale investments in the real estate sector with major

national and global players investing in developing the infrastructure and

construction of the retailing business. The trends that are driving the growth of the

retail sector in India are

Low share of organized retailing

Falling real estate prices

Increase in disposable income and customer aspiration

Increase in expenditure for luxury items (CHART)

Another credible factor in the prospects of the retail sector in India is the increase in

the young working population. In India, hefty pay packets, nuclear families in urban

areas, along with increasing working-women population and emerging

opportunities in the services sector. These key factors have been the growth drivers

of the organized retail sector in India which now boast of retailing almost all the

preferences of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and

Toiletries, Home & Office Products, Travel and Leisure and many more. With this

the retail sector in India is witnessing rejuvenation as traditional markets make way

for new formats such as departmental stores, hypermarkets, supermarkets and

specialty stores.

The retailing configuration in India is fast developing as shopping malls are

increasingly becoming familiar in large cities. When it comes to development of

retail space specially the malls, the Tier II cities are no longer behind in the race. If

development plans till 2007 is studied it shows the projection of 220 shopping

malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The

government of states like Delhi and National Capital Region (NCR) are very upbeat

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about permitting the use of land for commercial development thus increasing the

availability of land for retail space; thus making NCR render to 50% of the malls in

India.

India is being seen as a potential goldmine for retail investors from over the world

and latest research has rated India as the top destination for retailers for an attractive

emerging retail market. India’s vast middle class and its almost untapped retail

industry are key attractions for global retail giants wanting to enter newer markets.

Even though India has well over 5 million retail outlets, the country sorely lacks

anything that can resemble a retailing industry in the modern sense of the term. This

presents international retailing specialists with a great opportunity. The organized

retail sector is expected to grow stronger than GDP growth in the next five years

driven by changing lifestyles, burgeoning income and favorable demographic

outline.

1.1.7 Industry Evolution

Traditionally retailing in India can be traced to

The emergence of the neighbourhood Kirana stores catering to the

convenience of the consumers

Era of government support for rural retail: Indigenous franchise model of store

chains run by Khadi & Village Industries Commission

1980s experienced slow change as India began to open up economy.

Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's

and Grasim first saw the emergence of retail chains

Later Titan successfully created an organized retailing concept and established

a series of showrooms for its premium watches

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The latter half of the 1990s saw a fresh wave of entrants with a shift from

Manufactures to Pure Retailers.

For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and

Music World in music; Crossword and Fountainhead in books.

Post 1995 onwards saw an emergence of shopping centers

Mainly in urban areas, with facilities like car parking

Targeted to provide a complete destination experience for all segments of

society

Emergence of hyper and super markets trying to provide customer with 3 V’s -

Value, Variety and Volume

Expanding target consumer segment: The Sachet revolution - example of

reaching to the bottom of the pyramid.

At year end of 2000 the size of the Indian organized retail industry is

estimated at Rs. 13,000 Crore.

1.1.8 Challenges & Opportunities

Retailing has seen such a transformation over the past decade that its very definition

has undergone a sea change. No longer can a manufacturer rely on sales to take place

by ensuring mere availability of his product. Today, retailing is about so much more

than mere merchandising. It’s about casting customers in a story, reflecting their

desires and aspirations, and forging long-lasting relationships. As the Indian

consumer evolves they expects more and more at each and every time when they

steps into a store. Retail today has changed from selling a product or a service to

selling a hope, an aspiration and above all an experience that a consumer would like

to repeat.

However, manufacturers and service providers will also increasingly face a host of

specialist retailers, who are characterized by use of modern management techniques,

backed with seemingly unlimited financial resources. Organized retail appears

inevitable.

Retailing in India is currently estimated to be a US$ 200 billion industry, of which

organized retailing makes up a paltry 3 percent or US$ 6.4 billion. By 2010,

organized retail is projected to reach US$ 23 billion. For retail industry in India,

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things have never looked better and brighter. Challenges to the manufacturers and

service providers would abound when market power shifts to organized retail.

The retail sector has played a phenomenal role throughout the world in increasing

productivity of consumer goods and services. It is also the second largest industry in

US in terms of numbers of employees and establishments. There is no denying the

fact that most of the developed economies are very much relying on their retail

sector as a locomotive of growth. The India Retail Industry is the largest among all

the industries, accounting for over 10 per cent of the country’s GDP and around 8

per cent of the employment. The Retail Industry in India has come forth as one of the

most dynamic and fast paced industries with several players entering the market. But

all of them have not yet tasted success because of the heavy initial investments that

are required to break even with other companies and compete with them. The India

Retail Industry is gradually inching its way towards becoming the next boom

industry.

1.1.9 Recent Trends in retailing

Retailing in India is witnessing a huge revamping exercise.

India is rated the fifth most attractive emerging retail market: a potentialgoldmine.

Estimated to be US$ 200 billion, of which organized retailing (i.e. moderntrade) makes up 3 percent or US$ 6.4 billion

As per a report by KPMG the annual growth of department stores is estimatedat 24%

Ranked second in a Global Retail Development Index of 30 developingcountries drawn up by AT Kearney.

Multiple drivers leading to a consumption boom:

Favourable demographics

Growth in income

Increasing population of women

Raising aspirations : Value added goods sales

Food and apparel retailing key drivers of growth

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Organized retailing in India has been largely an urban phenomenon withaffluent classes and growing number of double-income households.

More successful in cities in the south and west of India. Reasons range fromdifferences in consumer buying behavior to cost of real estate and taxationlaws.

Rural markets emerging as a huge opportunity for retailers reflected in theshare of the rural market across most categories of consumption

ITC is experimenting with retailing through its e-Choupal and ChoupalSagar – rural hypermarkets.

HLL is using its Project Shakti initiative – leveraging women self-helpgroups – to explore the rural market.

Mahamaza is leveraging technology and network marketing conceptsto act as an aggregator and serve the rural markets.

IT is a tool that has been used by retailers ranging from Amazon.com to eBayto radically change buying behavior across the globe.

‘e-tailing’ slowly making its presence felt.

1.2 CRM in retailing

Levy and Weitz, authors of "Retailing Management", define CRM as, "A

business philosophy and set of strategies, programs, and systems that focuses

on identifying and building loyalty with a retailer's profitable customers." It is

based on the business philosophy that all customers are not profitable in the

same way and retailers' can increase their profitability by building

relationships with their better customers. The goal is to develop a base of loyal

customers who patronize the retailer frequently.

CRM is an iterative process that turns customer data into customer loyalty

through four sequential activities shown in the CRM Model (Exhibit 1).

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Exhibit 1: CRM Model

CRM is quite a new phenomenon in retailing industry. It is only big retailers

who have installed CRM systems to identify and track customer purchases and

take appropriate management decisions, especially on managing customer

relationships. Now, organized retailers like Big Bazaar, Westside, Shoppers'

Stop, etc., have started concentrating on providing more value to their valuable

customers using targeted promotions and services to increase their share of

wallet, i.e., the percentage of the customers' purchases made from these

retailers with these customers. Almost all of them have started Loyalty

Programs, i.e., frequent shoppers program in order to reward the existing

customers. These programs help the retailers in increasing the number of

footfalls as well as enhancing their sales revenues and profits. For example,

Shoppers' Stop, one of the leading apparel retailer in India, had net sales of Rs.

1.6 Billion, increasing net profits by 96% with the company's loyalty program,

First Citizen Club (a CRM program) accounting for 63% of the sales. (Source:

Economic Times, August 12, 2006).

1.2.1 Customer Retention

"In the past, many companies took their customers for granted. Customers often did

not have any alternative suppliers, or the other supplies were just as poor in a quality

and services, or the market was growing so fast that the company did not worry about

fully satisfying its customers. A company could loses 100 customers a week, but gain

another 1000 customers and consider its sales to be satisfactory. Such a company,

operating on a ' leaky bucket' theory of business, believes that there will always be

enough customers to replace the defecting ones. " (Kotler - p. 405)

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"Customer retention programs can be a powerful tool in the arsenal of CRM.

Customer retention is important to most companies because the cost of acquiring a

new customer is far greater than the cost of maintaining a relationship with a current

customer." (Ro King - 2005)

"For many firms, customer profitability is skewed in such a way that losing the most

profitable customers has a very serious effect. In many banks, for example, the top 30

percent of customers (when ranked by profitability) can make up 100-150 percent of

total customer profitability. That's right the bottom eighty percent of customers may

provide no profitability or, worse yet, destroy 50 percent of profitability." (Ibid)

"In addition to saving profitable customers, retention programs allow companies to

collect data about their customers. This data can be used to better understand, target,

market to, and communicate with customers or to customize future interactions with

customers. Retention programs can be a relatively inexpensive means of making

customers feel special, increase their purchases and recommend prospects."(Ibid)

"Obviously CRM is a crucial part of customer retention. What can a CRM system do

and what can't it do in regards to customer retention? First, let's define CRM system.

Many firms think that when they purchase a sales force automation system or a

customer service automation system they have purchased a CRM system."(Ibid)

"However, a true CRM system also requires the ability to gather data about

customers, store that data in a format that is easy to access, analyze the customer data,

use this customer information to market or to communicate with customers. Usually,

this means that a firm will use more than one piece of software to meet their analytic

and operational CRM needs." (Ibid)

"In terms of customer retention, the appropriate data capture, access and analysis

system enables a firm to determine which customers it is most interested in retaining.

Campaign management software enables the firm to target these customers and

manage a variety of offers to encourage the customers to remain with the firm." (Ibid)

"A sales force or customer service system can identify high-value customers to sales

and service forces so these customers will benefit from individualized retention

activities." (Ibid)

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1.2.2 Impact of CRM on Customer Retention

"Any company that depends on repeat business absolutely must have a good

customer retention system in place in order to thrive in today's competitive

environment. Time and again I have seen this as the primary area of businesses where

companies don't succeed at the level they are capable of - especially in small

businesses. The thinking with many people is, "If they want my services, they know

where to find me." While a potential customer is looking for you, your competition's

marketing systems may find them first!" (Kathleen Gage - 2004)

"As an example, a pet store offering grooming services could increase revenues by

having a reminder system in place to notify the customer when their dog is due for

grooming or to let them know when a new product arrives. They may also consider

using a punch card that gives the customer a free grooming service after a

predetermined amount of visits have been made. Many pet owners view their animals

as family members and will be more likely to do business with you when they believe

you care about their pets just as much as they do."

"What would your profit margin be if you were able to turn the occasional customer

into a frequent customer? Customers who regularly visit your business would also be

more likely to refer you to their friends and associates. Remember that frequency is

determined by your particular industry or service. A grocery store may consider

twice- weekly visits a good frequency, whereas a dry cleaner may only be monthly."

"Changing customers from being a one or two item purchaser to purchasing several

products can increase your bottom line tremendously. With a bit of vision and

creativity, one basic service can open several opportunities. Most businesses can take

their basic product or service and expand into other offerings. What are your current

offerings? Are there other products and services you could develop that are consistent

with your market and your company vision? "

"This is where you can create an incredible backend list of possibilities. Once you

think about other offerings, what are some new avenues you could open? Is it

possible to partner with other companies where you could offer each other's products

and services?" (Ibid)

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"Here are some possibilities:

• Car dealerships offering a year's worth of car washes or oil changes at a

discount,

• Hair salons who sell facials or nail services,

• Pet shops selling grooming services,

• Restaurants who provide recipe books,

• Chiropractors and Massage Therapists who promote their services.

As you plan for the coming year, include methods for keeping in touch, developing a

list of companies you can partner with and increasing strategies for gaining and

maintaining top-of-the-mind awareness for your customers."

"Marketing is about timing. Just because you contact a client today does not mean

they are in the market to buy today. However, if you keep in regular contact with

them, when they are ready to purchase, there is a good chance you will be the one

they call."

"Today's customers are busy. New choices are thrown at them every day. Keep your

name on the top of their list by consistently reminding them of their great experiences

with your company. Great marketing systems will help you gain and retain

customers."

1.2.3 Types of Customer Retention Programs:

o Discount Programs

In this type of program the customer receives a discount when he makes a repeated

purchase. This is profitable as it encourages customers to keep buying as they want to

avail of the lower price.

o Card Programs

In this type of program the customer is provided with a swipe card which he can use

while purchasing and avail of any discount or benefit.

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o Loyalty Programs

Here customers are given the option of gaining points when they make a purchase.

These points can be redeemed and exchanged for gifts or further discount coupons.

This also serves as a stimulator for customer retention.

1.2.4 Benefits of Customer Retention Programs

They permits the collation of important customer data

They allow the usage of this data in the understanding and dealing ofcustomers

The data collected from customer retention programs is often used whilemaking valuable customer decisions.

They assist in making the customer feel special

They boost customer service and thereby increases customer loyalty

1.2.5 Pitfalls of Customer Retention Programs

The main inhibition in this area is the cost factor. Customer Retention programs can

often involve huge costs to the organization and therefore most firms are reluctant to

embark on this. In this respect it is important to focus on the possible returns rather

than the cost involved as customer retention is a direct stimulator for profitability and

growth.

1.2.6 How to Get the Best out of Customer Retention Programs:

Every organization needs to ask several questions like:

o How does it measure success?

o Does the business processes support the CRM customer retention

programs?

o Can employee support be secured for customer retention?

o Can the organization meet the required costs involved?

CRM customer retention support should be obtained throughout the

organization right from the CEO.

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Employee support should be obtained. It is almost next to impossible to try

and adopt customer retention programs when there are employees who are

working against this. The importance of this ideology to the entire

organization and how it will ultimately serve to benefit every employee needs

to be taught. It is imperative to secure this employee support right before

embarking on any CRM program.

It is important not to contact customers more times than required or this may

have the opposite effect. Untoward annoyance of the customer should be

avoided.

It is important to treat different customers differently. In this respect the

customer data that has been collated needs to be used. Employees need to

exercise the right caution and make customer decisions based on this data.

Since in CRM customer relationship is focused on, organizations should strive to

implement it and avail of its benefits. CRM reviews evidence the profound impact

CRM has on customer loyalty. Customer retention

1.3 Customer Relationship Management

"The term CRM gained widespread recognition in the late 1990s. Researchers and

partitions both in the academic area and the business field enthusiastically have

shared their viewpoint and experience in applying CRM. In less than a decade, CRM

has escalated into a topic of major importance. Although the term only came use to a

significant extent in the late part of 1990s, the principles on which it has been based

have exist for much longer." (Tariq Mohiuddin Ahmed)

"In any business, customers are the most important aspect of a successful company

and the customers must be looked after and managed properly. Many large companies

are investing in relationship management. also known as CRM.

CRM helps the company by showing them the correct procedures and processes for

looking after a customer properly. There is customer relationship management or

CRM software available which at the most basic level will give the sales staff

valuable information about the customer contact that will make the customer feel very

special, such as remembering children's names or birthdays. Business call centers are

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the biggest user of customer relationship management software as they will log many

customer details that they can refer back to if they need to speak to the customer

again. The whole customer relationship management or CRM strategy does not rely

solely on the installation of CRM software but the theory must start from the ground

up with the employees first. The employees must be trained on the customer

relationship theory or CRM theory so that they can get the best from the customer

relationship management." (CRM web site).

"Customer Relationship Management (CRM) has today become a topical area of

interest especially with the onset of e-commerce. As CRM is a term used in a broad

manner, there is probably a need for the marketing practitioner to understand what it

is, its impact on the organization (not just on the marketing aspects), its applicability

to an organization and its benefits to customers. There is a need to understand that

CRM is an overall strategy for the organization and not just a sales tool with a short-

term orientation. CRM requires a long-term plan, and anything long-term requires a

strong organizational commitment and appropriate investment." (Ibid) "CRM as a

concept is as old as marketing itself. Firms in both consumer and business-to-

business marketing have always (either by accident or design) made attempts to

encourage repeat buying from regular and frequent consumers. A common consumer

would have realized and experienced this aspect of CRM (though in a very indirect

form) from grocery shops to large outlets. What has been added to this kind of CRM

is the collaborative and cooperative aspects from business-to-business marketing

(with different buying influences) or it could just involve the consumer using a credit

card sharing his personal (demographic and psycho-graphic) information with the

marketer. The CRM structure for business-to-business marketing may be different

from the one which is required for consumer marketing."(Ibid)

"CRM is a relationship process which a company can cultivate with its customer

groups/segments in such a way that it would benefit both the customer and the

company.

The pre-requisites of any CRM programmed are:

o A willingness from both the company and the customer to stay committed to

the relationship which is based on mutual benefits. This is required because

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organizational process changes may have to be initiated in both organizations

and hence top management has to be convinced about CRM in both the

companies (in case of business-to-business marketing context)." (Ibid)

o "'Non-transactional' orientation on the part of the marketer. A transaction is a

'one-off' interaction and hence CRM involves a combination of strategies

which build up the relationship between the marketer and customer over a

period of time (though transaction-based loyalty programs could be

formulated).

o A willingness on the part of the marketer to invest in an infrastructure that can

implement and operate CRM. The infrastructure could include web-based

hardware/software which could effectively harness the advantages of CRM."

(Ibid)

"A company like TISCO which has invested heavily on its cold rolled mill

infrastructure would like to select a segment like the automobile segment and specific

companies in the segment which are conscious of the advantages of having a

relationship with TISCO — fine tolerances of the special material required for

making the end product and the pre-sale service which would emerge from the core

competence of the company with regard to raw material usage. These companies are

also likely to pay a premium for the relationship as the relationship is likely to

produce the differentiation which consumers of the end product are likely to

appreciate (consumers buying cars). While there is substantial growth of SOHO

(Small Office Home Office) and SME (Small and Medium Enterprise), a company

like Dell Computers may decide to concentrate on large companies for its CRM

programs from the viewpoint of loyalty and profitability. It may also be essential for a

company to make an assessment of the lifetime value of a customer before

formulating a CRM program. While loyalty and satisfaction are strongly linked to

CRM programs, the specific objective of a CRM program for a customer may have to

be decided by a company before planning the appropriate program. For example,

reducing the cost of distribution may be the objective of a CRM program at a given

point of time. This may involve working out and restructuring ordering patterns,

taking into consideration the consumption patterns and inventory levels at the

customer's end and the production systems at the manufacturing end. The co-

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operative and collaborative aspects mentioned earlier can be noted here. Similarly in

consumer marketing, the objective of a CRM program for a fast food company may

be to increase the frequency of purchase of a food item. A promotional program for

the brand could be roped in as a part of the CRM program. This would result in re-

buy at least from a cross- section of consumers and they may also be satisfied with

the manner in which the company has gone about it (for example, providing a variety

of recipes with the food item for a segment which the company believes could exhibit

loyalty). Loyalty in categories like fast foods, soaps and confectionery could be

driven through innovative CRM programs. Apart from loyalty and satisfaction

linkages, communication is a vital aspect of any CRM program. Communication with

regard to state-of-the-art offerings concerning the product category, the efforts of the

company/brand to keep itself updated in terms of the benefits offered, satisfied

customers of a CRM program and specific benefits of a CRM program may help a

marketer to keep in touch with a prospective target segment of consumers". (Ibid)

CRM, or Customer relationship management, is a number of strategies and

technologies that are used to build stronger relationships between companies and their

customers. A company will store information that is related to their customers, and

they will spend time analyzing it so that it can be used for this purpose.

Some of the methods connected with CRM are automated, and the purpose of this is

to create marketing strategies which are targeted towards specific customers. The

strategies used will be dependent on the information that is contained within the

system. Customer relationship management is commonly used by corporations, and

they will focus on maintaining a strong relationship with their clients.

There are a number of reasons why CRM has become so important in the last 10

years. The competition in the global market has become highly competitive, and it has

become easier for customers to switch companies if they are not happy with the

service they receive. One of the primary goals of CRM is to maintain clients. When it

is used effectively, a company will be able to build a relationship with their customers

that can last a lifetime. Customer relationship management tools will generally come

in the form of software. Each software program may vary in the way it approaches

26

CRM. It is important to realize that CRM is more than just a technology.

Customer relationship management could be better defined as being a methodology,

an approach that a company will use to achieve their goals. It should be directly

connected to the philosophy of the company. It must guide all of its policies, and it

must be an important part of customer service and marketing. If this is not done, the

CRM system will become a failure. There are a number of things the ideal CRM

system should have. It should allow the company to find the factors that interest their

customers the most. A company must realize that it is impossible for them to succeed

if they do not cater to the desires and needs of their customers. Customer relationship

management is a powerful system that will allow them to do this.

It is also important for the CRM system to foster a philosophy that is oriented towards

the customers. While this may sound like common sense, there are a sizeable number

of companies that have failed to do it, and their businesses suffered as a result. With

CRM, the customer is always right, and they are the most important factor in the

success of the company. It is also important for the company to use measures that are

dependent on their customers. This will greatly tip the odds of success in their favor.

While CRM should not be viewed as a technology, it is important to realize that there

are end to end processes that must be created so that customers can be properly

served. In many cases, these processes will use computers and software.

Customer support is directly connected to CRM. If a company fails to provide quality

customer support, they have also failed with their CRM system. When a customer

makes complaints, they must be handled quickly and efficiently. The company should

also seek to make sure those mistakes are not repeated. When sales are made, they

should be tracked so that the company can analyze them from various aspects. It is

also important to understand the architecture of Customer relationship management.

The architecture of CRM can be broken down into three categories, and these are

collaborative, operational, and analytical. The collaborative aspect of CRM deals with

communication between companies and their clients.

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1.3.1 Definitions of CRM

1. “CRM …an enterprise wide business strategy designed to optimize profitability,

revenue and customer satisfaction by organizing the enterprise around customer

segments, fostering customer-satisfying behaviors and linking processes from

customers through suppliers." Gartner Group

2. Customer Relationship Management, or CRM, is broadly defined as the business

process of understanding, collecting and managing all of the information in a

business environment relating to a customer. The goal of CRM is to more

effectively communicate with customers and improve customer relationships over

time. James Wong, President, Avidian Technologies. Developers of Prophet

2004

3. "CRM is the business strategy that aims to understand, anticipate, manage and

personalize the needs of an organization's current and potential customers" PWC

Consulting

4. Customer Relationship Management (CRM) is a way to identify, acquire, and

retain customers, a business' greatest asset. Research has shown that companies

that create satisfied, loyal customers have more repeat business, lower customer-

acquisition costs, and stronger brand value—all of which translates into better

financial performance. Siebel

5. "CRM is a business strategy that permeates your entire company – beginning with

the acknowledgement that your customer is the center of your organization.

Allyour management decisions, systems, processes, marketing, advertising, sales

approaches, customer retention programs, product or service enhancements ,on-

going support, billing, pricing – everything revolves around your customer . Your

overall organization’s business processes are designed to enhance your

relationships with customers and their customer experience. Furthermore, your

organizational systems are built to continually gain insight into your customers so

that you that you can constantly improve your business strategies with more

informed decision making. Everything about your company is arranged to retain,

28

foster and extend the life cycle of your most valuable asset – your customers.

"Unknown

6. CRM stands for Customer Relationship Management. It is a strategy used to learn

more about customers' needs and behaviours in order to develop stronger

relationships with them. There are many technological components to CRM, but

thinking about CRM in primarily technological terms is a mistake. The more

useful way to think about CRM is as a process that will help bring together lots of

pieces of information about customers, sales, marketing effectiveness,

responsiveness and market trends. CRMworks

7. Customer relationship management (CRM) is a set of strategies, processes, and

associated technology enablers designed to improve the interactions and

engagement of customers. It involves not only the use of these systems, but also

corporate cultural transformation and ongoing programs with the appropriate

organizational framework. Sales force automation (SFA), customer service and

support, and enterprise marketing management are among the main CRM areas.

TEC.

8. CRM, or Customer Relationship Management, is a company-wide business

strategy designed to reduce costs and increase profitability by solidifying

customer loyalty. True CRM brings together information from all data sources

within an organization (and where appropriate, from outside the organization) to

give one, holistic view of each customer in real time. Unknown

9. Customer Relationship Management (CRM) is a way to identify, acquire, and

retain customers, a business' greatest asset. Research has shown that companies

that create satisfied, loyal customers have more repeat business, lower customer-

acquisition costs, and stronger brand value—all of which translates into better

financial performance. Siebel

29

10. The idea of CRM is that it helps businesses use technology and human resources

to gain insight into the behaviour of customers and the value of those customers.

Unknown

11. Customer relationship management (CRM) is a business strategy to select and

manage the most valuable customer relationships. 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. CRM Guru

12. Key features of CRM tools: CRM includes all business processes in sales,

marketing, and service that touch the customer. With CRM software tools, an

enterprise might build a database about its customers that describes relationships

in sufficient detail so that management, salespeople, people providing service, and

even the customer can access information, match customer needs with product

plans and offerings, remind customers of service requirements, check payment

histories, and so on. Unknown

13. Essentially, CRM is about increasing the customer base, retaining those customers

longer and cultivating them into customers who buy more products and services.

14. Customer relationship management (CRM) is a business strategy that aims to

understand, anticipate and manage the needs of an organization's current and

potential customers. It is a journey of strategic, process, rganizational and

technical change whereby a company seeks to better manage its own enterprise

around customer behaviors. It entails acquiring and deploying knowledge about

one's customers and using this information across the various touch points to

balance revenue and profits with maximum customer satisfaction. SalesProCRM

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1.3.2 CRM in Marketing

"Concerning marketing, Kotler mentioned that the core concept of marketing is wants

and demand, products and service, value, satisfaction, quality, exchange, transactions,

relationship, markets." (Kotler - p. 5)

"Marketers believe that these above items are core-marketing concept building on the

one before it. Human needs are states of felt deprivation. They include basic

"physical" need for food and etc. Wants, are the from human needs take as they

shaped by culture and individual personality." (Ibid - p. 8)

"Marketing is an organizational function and a set of processes for creating,

communicating and delivering value to customers and for managing customer

relationships in ways that benefit the organization and its stakeholders." (American

Marketing Association - 2004)

"People in industrial societies may try to find or develop objective that will satisfy

their desire. The marketing concept holds that achieving organization goals depends

on determining the needs and wants of target markets with penetration on it and

delivering the desire satisfactions more effectively and efficiently than competitors

do." (Kotler - p. 405)

"In contrast, the marketing concept takes an outside-in perspective. It starts with a

well- defined market, focuses on customer needs, coordinates all the marketing

activities affecting customers and makes profit by creating long-term customer

relationships based on customer value and satisfaction. Under the concept customer

focus and value are the paths to sales and profits. (Ibid)

"Peter Drucker mentioned marketing and innovation are the two chief functions of

business. You get paid for creating a customer, which is marketing. And you get paid

for creating a new dimension of performance, which is innovation. Everything else is

a cost center. Marketing is changing to meet the changing world. Marketing remain

the business activity that identifies an organization's customer needs and wants.

Marketing determines which target markets a company can serve best, and marketing

helps the design of appropriate products, services and program to serve these

markets." (Definition of Marketing - P.1)

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"Noel Capon and James M. Hulbert mentioned that Marketing activity is at the core

of managing a business; it provides the focus for interfacing with customers and is

the source of intelligence about customers, competitors and the business environment

in general." (Noel capon - P.1)

"To Succeed or simply to survive, companies need a new philosophy. To win in

today's marketplace, companies must be customer-centered. They must deliver

superior value to their target customers. They must be skilful in market engineering,

not just product engineering. A company that focuses on customer development in

designing its marketing strategies and on delivering superior value to its target

customers." (kotler - p. 391)

Marketing is one of the core disciplines of successful management today. It impacts

on society every day in a myriad of ways - creating new products and services;

helping organizations understand what people want and need; helping people find

products and services that meet their needs; communicating information that makes

people's lives more efficient; creating exchanges that generate employment and

wealth. But marketing also raises ethical issues about excess consumption, unhealthy

obsessions and addictions, the impact we have on the environment and the

communities in which we live.

Obviously marketing is important in all areas of the organization, and customers are

the reason why business exist . In fact, marketing efforts (including services as

promotion and distribution) often account for more than half of the price of product.

Based on the nature of marketing, it involves voluntary "exchange" relationship

where both sides must be willing parties. The parties must be able to communicate

which could be through different instrument. Therefore, in today’s highly competitive

environment, business needs to better understand their customers, which who are the

most profitable, and how to best retain those customers. This understanding meets

through different channels which one is CRM.

"CRM is short for Customer Relationship Management, the industry term for the set

of methodologies and tools that help an enterprise manage customer relationships in

an organized way." (Strategic Management website- 2005)

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CRM helps companies make sense of customer needs and helps companies manage

these relationships more intelligently and help predict the future. Such knowledge

provides a crucial competitive differentiation for companies to gain market share and

reduce operational costs with retaining their customers.

On the other hand the generally accepted purpose of CRM is to enable organization to

better serve its customer through the introduction of reliable processes and for

interaction with those customers.

It is a process or methodology used to learn more about customers' needs and

behaviors in order to develop stronger relationships with them. There are many

technological components to CRM, but thinking about CRM in primarily

technological terms is a mistake. The more useful way to think about CRM is as a

process that will help bring together lots of pieces of information about customers,

sales, marketing effectiveness, responsiveness and market trends.

CRM Strategy implementation is based on the concept that an organization's most

valuable asset is the customer and the organization must manage its customer

relationships wisely. Having the various departments of the organization (such as:

marketing, sales and service) gather qualified information will create a database

which is of real value to the company. Establishing defined processes for data

retrieval will allow effective use of the data and a uniform platform for customer

relations management as well as optimal customer service. Thus, an in depth

organizational change that supports CRM is required throughout the marketing, sales

and service departments.

In another word, CRM is an effective tool for allowing customers to perform their

own services via a verity of communication channels, and also make sawing and

encourage new customers.

1.3.3 History of Emergence of CRM

Customer Relationship Management (CRM) is one of those magnificent concepts that

swept the business world in the 1990’s with the promise of forever changing the way

businesses small and large interacted with their customer bases. In the short term,

however, it proved to be an unwieldy process that was better in theory than in practice

33

for a variety of reasons. First among these was that it was simply so difficult and

expensive to track and keep the high volume of records needed accurately and

constantly update them.

In the last several years, however, newer software systems and advanced tracking

features have vastly improved CRM capabilities and the real promise of CRM is

becoming a reality. As the price of newer, more customizable Internet solutions have

hit the marketplace; competition has driven the prices down so that even relatively

small businesses are reaping the benefits of some custom CRM programs.

In the beginning…

The 1980’s saw the emergence of database marketing, which was simply a catch

phrase to define the practice of setting up customer service groups to speak

individually to all of a company’s customers.

In the case of larger, key clients it was a valuable tool for keeping the lines of

communication open and tailoring service to the clients needs. In the case of smaller

clients, however, it tended to provide repetitive, survey-like information that cluttered

databases and didn’t provide much insight. As companies began tracking database

information, they realized that the bare bones were all that was needed in most cases:

what they buy regularly, what they spend, what they do.

Advances in the 1990’s

In the 1990’s companies began to improve on Customer Relationship Management by

making it more of a two-way street. Instead of simply gathering data for their own

use, they began giving back to their customers not only in terms of the obvious goal

of improved customer service, but in incentives, gifts and other perks for customer

loyalty.

This was the beginning of the now familiar frequent flyer programs, bonus points on

credit cards and a host of other resources that are based on CRM tracking of customer

activity and spending patterns. CRM was now being used as a way to increase sales

passively as well as through active improvement of customer service.

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True CRM comes of age

Real Customer Relationship Management as it’s thought of today really began in

earnest in the early years of this century. As software companies began releasing

newer, more advanced solutions that were customizable across industries, it became

feasible to really use the information in a dynamic way.

Instead of feeding information into a static database for future reference, CRM

became a way to continuously update understanding of customer needs and behavior.

Branching of information, sub-folders, and custom tailored features enabled

companies to break down information into smaller subsets so that they could evaluate

not only concrete statistics, but information on the motivation and reactions of

customers.

The Internet provided a huge boon to the development of these huge databases by

enabling offsite information storage. Where before companies had difficulty

supporting the enormous amounts of information, the Internet provided new

possibilities and CRM took off as providers began moving toward Internet solutions.

With the increased fluidity of these programs came a less rigid relationship between

sales, customer service and marketing. CRM enabled the development of new

strategies for more cooperative work between these different divisions through shared

information and understanding, leading to increased customer satisfaction from order

to end product.

Today, CRM is still utilized most frequently by companies that rely heavily on two

distinct features: customer service or technology. The three sectors of business that

rely most heavily on CRM -- and use it to great advantage -- are financial services, a

variety of high tech corporations and the telecommunications industry.

The financial services industry in particular tracks the level of client satisfaction and

what customers are looking for in terms of changes and personalized features. They

also track changes in investment habits and spending patterns as the economy shifts.

Software specific to the industry can give financial service providers truly impressive

feedback in these areas.

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1.3.3.1 The Growth of CRM:

CRM is soaring

Across the world industries like insurance, pharmaceuticals, real estate and even

offbeat ones like the advertising field are fast learning the fact that CRM can be

lucrative. CRM spending is estimated to increase to an astounding $17.7 billion in

2006. The annual rate of growth in the CRM industry is 6.7 percent. Revenue from

hosted CRM solutions alone is expected to reach an all time high of $2.8 billion.

However the perpetual license model has evidenced a sharp decline hitting almost $ 2

billion resulting in a decline of 18%.

The U.S. is definite to be the leader of the pack accounting for more than 50% of the

CRM market. The total revenue for the CRM industry from the U.S is scheduled to be

almost $ 10 billion.

CRM Around the Globe

CRM the customer strategy of the decade despite its amazing kick off, has still to

grow in most countries. Areas that need improvement in the world wide market for

example include the government sector. The government sector like the private sector

needs to realize that CRM has a lot to offer and start availing of it. Since the public

sector often works with vast amounts of data, CRM will prove to be very beneficial.

Small and medium industries throughout the world take a different view. As

surprising as it may sound in most countries across the world, SME's have almost no

or if they do very little knowledge about CRM benefits and they are unclear about the

reasons behind its implementation. Most of them seldom measure customer

satisfaction and are uneducated about what CRM offers them. However most of them

have evidenced a clear need to know more about CRM technology.

India Realizes CRM Importance

Indians have realized the importance of better customer service and this has resulted

in better business processes inculcated with customer strategies. CRM is still in the

infant stages here although there is evidence that it will soon be a full fledged thriving

industry. The main concern in this region is the cost structure. Here it is a question of

getting organizations to understand that despite the heavy costs involved RM can and

will prove profitable. However overall India has warmed to the idea that CRM is

36

crucial to business success and that it needs to be implemented in order to harness

customer retention and loyalty.

1.3.4 CRM Basics

Customer relationship management is a business strategy that companies will use to

enhance both their customer service and profits. By increasing the satisfaction of their

customers by building a stronger relationship with them, the company can gain new

customers, and it can also become highly competitive in the market. While many

people use the term CRM to refer to software programs, it is more correctly applied to

a broad business strategy.

The software is merely a tool that is used to achieve the goals of the company. To

understand the basics of CRM, you must first learn a bit about how this system works.

The process of Customer relationship management begins when a company

collections information that is related to their customers.

This information could come in the form of surveys, or it could be data gained from

tracking the purchasing habits of the customers. Once this information is collected, it

will be analyzed. The company will look for patterns and areas where they can

improve. Depending on the size of the company, this could be a tremendous amount

of information. It is tedious for most Fortune 500 companies to process data in a

manual way, so they must use software tools that can help them collect, store, and

analyze the data. When a customer makes a purchase with a company card, the items

that the customer purchased are stored in a database. Once the company has spent

enough time analyzing this information, they can use it to make strategic marketing

decisions that are tailored to customers on an individual level.

The CRM software is tools that will allow the company to do this effectively. A lot of

companies fail to realize that simply purchasing CRM tools will not be enough for

them to reach succcess. Before the purchase the software, they must take the time to

create goals and strategies that the software can help them achieve. As you can see,

CRM is a system that is used to build powerful relationships with customers. In most

37

cases, large companies have a "gap" that exists between them and their customers.

Many customers view large corporations as being entities that are view them as

simply being numbers. The goal of CRM is to destroy this perception. Customers that

don't feel valued are very likely to take their business to another company.

Customer relationship management is directly connected to customer service. A

company can use a CRM system to automate some of their processes, and this can be

connected to things such as customer complaints or compliments. A number of call

centers are comprised of automated CRM systems. The goal of using these systems is

to make the company much more efficient. It is expected that this efficiency will lead

to a higher level of customer satisfaction. There are a number of rewards to be gained

from using a CRM system. The most obvious goal is to improve customer service.

More than ever before, customers are quick to switch companies if they are not

getting the service they deserve.

Many companies are now competing on a global scale. This means that is has become

more important to place a high emphasis on the serving the needs of the customer.

While the ultimate goal of the company is to make money, this should not be placed

in front of customer service. The vast majority of companies that have failed to follow

this rule have eventually suffered tremendous financial losses, and some have even

been forced out of business.

1.3.5 CRM Architecture

The Customer relationship management architecture can be broken down into three

categories, and these are operational, collaborative, and analytical. Each plays an

important role in Customer relationship management, and a company that wants to

success must understand the importance of using these three components successfully.

Operational CRM deals with the automation of certain business processes. An

example of business processes that are connected to operational CRM are marketing

and sales. When a connection is made to a customer, the information related to this

interaction will be automatically stored in a database, and the company can pull up

specific information on that customer when it is needed.

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Operational CRM can further be broken down into three components. These

components are Enterprise marketing automation, Customer service automation, and

Sale force automation. The Enterprise marketing automation will give the company

information about the business climate, and it will also provide them with crucial data

on their competitors, as well as trends within the industry and other important

variables. As the name implies, Enterprise marketing automation deals with strategies

a company can use to strengthen their marketing tactics. Customer service and

support will automate specific processes that are connected to service. An example of

this could be item returns or customer complaints.

Sales force automation will be responsible for automating some of the company's

sales tasks. An example of tasks that SFA would automate are demographics,

customer needs, and accounting management. A number of corporations will use call

centres to store data on their customers. Once the customer makes a call, the customer

service representative can provide them with relevant information. Many companies

will also automate processes such as allowing customers to access their accounts. The

next important part of CRM architecture is Analytical CRM. As the name suggests,

Analytical CRM deals with analyzing data that is collected by the company. This data

will be analyzed so that the company can enhance its customer service capabilities.

By enhancing its customer service capability, a company will build a stronger

relationship with its customers. There are a number of common ways that Analytical

CRM is used to achieve this. A number of companies will use the data they've

collected and analyzed to cross-sell products to their customers, as well as retaining

customers that may normally switch to another company. Analytical CRM can also be

used to provide important information to customers within a short period of time. In

addition to building stronger relationships with customers, Analytical CRM can be an

important tool for fraud prevention and detection. It can analyze the patterns of sales,

inventory, and profits in order to find any patterns that are not consistent.

Analytical CRM is also important when it comes to both product development and

risk management. It is important to realize that Analytical CRM is an ongoing

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process. The company may need to alter its strategies or methods based on the

information that is analyzed through this process. The third important aspect of CRM

architecture is Collaborative CRM. Collaborative CRM is important because it places

an emphasis on the interactions that a company will make with its customers. These

interactions could be personal, or they could come through mediums such as the

telephone or the Internet. Collaborative CRM will give companies a powerful form of

communication that will utilize multiple technologies.

It will also be responsible for providing services over the Internet so that the costs of

the service can be reduced. When interactions are made with customers, Collaborative

CRM will allow the company to provide them with useful information. At the highest

level, CRM should be an important part of all interactions that a company makes with

its customers.

1.3.6 Technical Aspects of CRM

While it must be emphasized that CRM is not a technology, there are a number of

technical issues that need to be considered when a company decides to implement a

CRM system. The first technical issue that needs to be analyzed is scalability. In a

nutshell, the CRM system must be very scalable, and the volue of information within

the system should never reach an end. It must be able to grow over time as the

company collects more information.

The CRM systems which are the most scalable are also the most valuable. Another

thing that the company must look at is communication. The goal of Customer

relationship management is to build a powerful bond with your customers.

A company cannot be successful with this if they cannot effectively communicate

with those they serve. It is not enough to use one method of communication. Instead,

multiple forms of communication must be used. This includes the telephone, Internet,

television, radio, magazine, and any other form of communication available. When a

company is able to effectively communicate with their customers, this will give them

the necessary resources to succeed. It is also important for companies to look at

"workflow." In this context the term workflow is used to describe the business

processes the company will use to track and maintain information.

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It is not enough for a company to get information. If they want to become successful

and maintain a presence in the market, the company must be able to properly process

and analyze the information they receive. In addition to workflow, it is also important

for organizations to consider the "assignment." The term "assignment" can be used to

provide specific requests to an individual or group. By giving the correct assignments

to the proper entities, a company will be capable of reaching their goals once these

assignments have been carried out. One thing that all CRM systems have in common

is a database. The database is the place where customer information will be stored.

The database may also be referred to as being a data warehouse. Because the

company will be storing information that is related to their customers, it is important

for them to look at privacy issues. Data encryption should be used at all times, and the

company must make sure they are functioning within the boundaries of the law.

Customer relationship management is a powerful tool because it will allow a company

to track the buying habits of their clients. This information can be analyzed on an

individual level, and this can allow a company to market specific products to specific

customers. In addition to tracking the purchases, the company can also track the

product itself, and they can store a great deal of information on it.

In order for a purchase to be repeated, the customer must be satisfied. In order for this

to occur, the customer must understand the needs of the customers they serve. It could

be said that CRM is just the opposite of "one size fits all." It will deal with customers

on an individual level. Privacy is an important issue that companies must consider

when implementing a CRM system. If a company violates the privacy of their

customers, this can damage the relationship that they've worked hard to build up. In

order to avoid this problem, companies must be careful when implementing and

utilizing a CRM system. They must know how to get the information they need

without violating the privacy of their customers.

To deal with the privacy issue, it is important for companies to understand the

concerns of the customers. In most cases, customers are wary of having their

information stored in a database that can fall into the hands of third party companies.

To handle these concerns, the company must create a policy of making sure this

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information is never shared under any circumstances. The customers must be

informed of this policy, and the company must make sure it is followed. The only

time the information should be shared is if the customer allows it. Many customers

will not mind providing companies with information as long as they have asked for it.

When a company uses clandestine methods to get data on their customers, this will

destroy their reputation of the customers should discover it.

1.3.7 The Use of a Database in CRM

CRM database, the most utilized feature in CRM programs.

One of the most utilized features of customer relationship management

programs is the CRM database. Companies use the CRM database to gather

information and details about their customers, including their needs and

purchasing history. The CRM database can also be used to track employee

sales and success rates, as well as task lists and completion. Many companies

incorporate their CRM database into their marketing and advertising plans. As

the information entered into a CRM database is customizable to your own

business, the uses of the data collected are only as limited as your imagination.

CRM Database, A CRM database is a program of stored information that is

relevant and useful to the success of your business. CRM database programs

can be used as standalone software, incorporated with existing databases, such

as Outlook or Excel, or a combination of the two. What a CRM database may

hold can vary greatly due to the type of business, the focus of marketing, and

the direction in which the business is going. A CRM database can be used for

customer information, employee tasks, marketing plans, and a variety of other

daily business functions.

CRM Database: Customer Information. The most often used information in a

CRM database is the customer information. This can include personal

information, such as contact addresses and phone numbers, as well as family

size, location, and other demographic information. Many companies also use

their CRM database to record purchase information, service calls, customer

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support needs, and even warranty information. Anything relative to customer

interaction can be placed in a CRM database.

CRM Database: Employee Information. The CRM database can also be a hub

for managing your employees. Vital information can be stored within the

CRM database, such as employee ID files and commission information. Also,

some employers and managers find it useful to assign tasks, check progress,

and monitor the sales records of their employees through the CRM database.

The CRM database can be a manager’s second set of eyes, as to the

productivity and motivation level of their employees.

CRM Database: Other Uses. Another popular use of a CRM database is within

a business’ marketing plan. Because of the detailed records kept on the

customers and their buying habits, many businesses find their CRM database

to be their best marketing tool. It is easy to create reports on buying trends and

habits and focus marketing strategies to best fit these needs using the

information in the CRM database. Other companies use the CRM database

information to track sales and create goals for their sales team. Depending on

the specific needs of an organization, there are plenty of different uses for the

CRM database to discover or design.

Customizing and Utilizing CRM Database. One of the most useful things

about a CRM database is the ability to customize it to the specific needs of a

business. Adding and removing data fields to record the information about

your company and customers that you want is a great feature of a CRM

database. It is up to you as a business owner to decide what types of

information are the most pertinent to the growth and profitability of your

business. Also creating specific reports on the items and information you need

is easy with a CRM database. Analyzing your business has never been more

efficient. Crate the perfect marketing plan and save money by focusing the

advertising to the more receptive audience with the information you have

stored. You will quickly discover that your business has grown tremendously

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in a short time once you begin using the CRM database to manage your

business.

Advantages of Prophet CRM Database. The Prophet CRM database allows

you to accomplish all of the necessary tasks of your business, while

streamlining these projects into one simple program. Information can be

imported from Outlook and Excel to make moving to the new CRM database

fast and easy. You can customize the CRM database to suit your needs and

create the perfect customer files and reports to stay ahead of the trends and

needs of your consumers. The CRM database from Prophet will work with

you to increase your sales and effectively grow your business beyond your

wildest dreams.

1.3.8 Benefits / Importance:

Benefits of Customer Relationship Management are:

Excellent customer service is about being aware of customer needs and

reacting to them effectively. CRM helps you to understand, anticipate and

respond to your customers' needs in a consistent way, right across your

organization.

Practicing CRM requires an efficient and integrated internal business system.

Many businesses benefit from the organizational discipline CRM imposes, as

well as from the technology itself.

CRM helps the business if viewed as set of tools that lets it do more for, and

get more from, your customer.

CRM can:

Develop better communication channels

Collect vital data, like customer details and order histories

Create detailed profiles such as customer preferences

Deliver instant, company-wide access to customer histories

Identify new selling opportunities

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CRM benefits can be measured and quantified. Using CRM applications can lead to

increases in revenue from:

Reductions in operating.

A higher percentage of cross-selling due to offering a single point of contact

with your company

More success in attracting new customers and closing deals faster, through

quicker and more efficient responses to customer leads and customer

information

Simplification of marketing and sales processes by understanding customer

needs

Better customer service - through improved responsiveness and understanding

that builds customer loyalty and decreases customer "churn".