45

Chapter 2

Literature Review

"A customer is the most important visitor on our premises. He is not

depending on us. We are depending on him. He is not an interruption on our

work. He is the purpose of it. He is not an outsider on our business. He is a

part of it. We are not doing him a favor by serving him. He is doing us a favor

by giving us an opportunity to do so."

- Mahatma Gandhi –

Modern marketers are rediscovering the ancient mantras for success in corporate

world and blending them with contemporary marketing practices. Long term survival

and competitive advantage can only be attained by establishing an emotional bond

with the customers. A shift is taking place from marketing to anonymous masses of

customers to developing and managing relationships with more or less well known or

at least some identified customers (Gronroos, 1994).

This chapter provides the background and the problem discussion of the area of this

study, leading down to the specific research questions. As discussed in chapter one,

Customer Relationship Management established between retail stores and customer

has been identified as the research area of this thesis. Hence, theoretical, this study is

positioned within this area. The researcher has gone through roughly 50 research

papers to be able to describe the literature given below.

2.1 Relationship Marketing

"Relationship marketing is one of today's most powerful business marketing

techniques. It is an extension of "one to one marketing," where you satisfy each

individual customer's needs and wants. You can make more money, save time, and

deliver outstanding customer service. You gain a larger share of each customer's

business, and you benefit from their referrals.

In 1985 Jakson defined relationship marketing as marketing-oriented strong, lasting

relationship with individual accounts.

46

According to Shani and Chalasani (1992) defined relationship marketing is an

integrated effort to identify, maintain and build a network with individual consumers,

and to continuously strengthen the network for the mutual benefits of both sides,

through interactive, individualized. The study of relation marketing with a focus on

customer retention has showed evidence that it has a positive effective on company’s

profitability.

Professor M.S.Vardani and Deepali Singh (1999) attempted to examine the status of

relationship marketing in India, based on the perception of cross-section of marketers

as a technique for developing lifetime customers. They suggested ways to marketers

in order to win their customers’ heart and also to develop value-laden strong

relationships with them.

One can come across number of researches being pursued by academia in various

dimensions of Relationship Marketing (RM).

Evolution of the concept of RM can be found in various studies on different

dimensions viz., Buyer-Seller Relationship (Dwyer, Schurr 1987; Johanson, Hallen

and Seyed Mohamed 1991.), Network Structures and Arrangements (Anderson,

Hankansson, and Hohson, 1994), Channel Relationships (Boyle, Dwyer, Robicheaux,

and Simpson 1992; Ganesan, 1994) as well as Sales Management (swan and Nolan,

1985), and Business Alliances (Bucklin and Sengupta 1993; Heide and John, 1990

and Sheth and Parvatiyar, 1994).’

Relationship Marketing advocates for long-term mutually beneficial relationship

between consumers and companies. It is data based marketing that emphasizes the

promotional aspects of marketing link to database effort (Bickert, 1992). Another

relevant viewpoint considers relationship marketing only as customer relation with a

variety of marketing tactics are used after for customer bonding or staying in touch

once sales, is made (Vovra, 1992.)

47

In 1985 Jakson defined relationship marketing as marketing-oriented strong, lasting

relationship with individual accounts.

According to Shani and Chalasani (1992) defined relationship marketing is an

integrated effort to identify, maintain and build a network with individual consumers,

and to continuously strengthen the network for the mutual benefits of both sides,

through interactive, individualized. The study of relation marketing with a focus on

customer retention has showed evidence that it has a positive effective on company’s

profitability.

Relationship Marketing advocates for long-term mutually beneficial relationship

between consumers and companies. It is data based marketing that emphasizes the

promotional aspects of marketing link to database effort (Bickert, 1992). Another

relevant viewpoint considers relationship marketing only as customer relation with a

variety of marketing tactics are used after for customer bonding or staying in touch

once sales, is made (Vovra, 1992.)

From strategic viewpoint of relationship marketing, (Berry 1983.), Stress that

attracting new customer should be viewed only as an intermediate step in the

marketing process. Gronroons (1990) and Gumesson (1987) take a broader

prospective and advocate the customer relation ought to be the focus and dominant

paradigm of marketing. Morgan and Hunt (1990 drew upon the distinction made

between transactional exchanges and relational exchanges. Heide (1994) identified a

set of generic process of relationship initiation, relationship maintenance, and

relationship termination. Wilson (1995) has developed a similar process model of

buyer-seller co-operative and partnering relationship by integrating conceptual and

empirical research conducted in this field.

A more popular approach with recent application of information technology is to

focus on individual or one-to-one relationship with customer that integrates data base

knowledge with long run customer retention and growth strategy (Papers & Rogers,

1993.)

48

In current era of hyper competition, marketers are forced to be concerned with

customer retention and loyalty (Dick & Basu, 1994. and Rechheld, 1996). Several

authors claim that relationship marketing offers a paradigm shift, a new springboard

replacing the conventional marketing management paradigm. (Gronroos, and

Gummession, 1994.) Lawrence.A.Crosby and Nancy Stephens (1987) reported on

effects of relationship marketing on satisfaction, retention, and rises in the Life

Insurance Industry. The credentials of relationship marketing are hard o dispute.

Academics in the idle of service marketing. (Berry 1983, Gronoors 1990); Business o

Business marketing (Bonoma an Johnson 1978, Ford 1981) and high tech Marketing

(Mc Kenna 1991) have concluded that long-term relationship benefits buyers and

suppliers. There are two forces working for the relationship marketing approach. On

one hand by having long- term trusting relationship between both buyer and seller can

and should reap mutual benefit (Gronroos 1996) and second from the supplier side.

There is a body of evidence shows customer retention has a positive effect on

company’s profitability. (Buchanan and Gillies 1990, Reicheld and Kenny 1990.)

2.2 Customer Relationship Management

The dictionary meaning of the term relationship describes it as ‘A logical affiliation,

association, or connection between two entities that benefit both of them. Customer

Relationship Management (CRM) advocates for long-term mutually beneficial

relationships between consumers’, companies’ and other stakeholders.’ (Oxford

dictionary 2000).“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

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

49

"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

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

"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, foster and extend the life cycle

of your most valuable asset – your customers. "Unknown

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

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.

50

Sales force automation (SFA), customer service and support, and enterprise marketing

management are among the main CRM areas. TEC.

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

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

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

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

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

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

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

51

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.

The goal of CRM is to ensure customer satisfaction & delight at every level of

interface with the company (Pahuja & Verma,2008).

"CRM builds especially on the principles of relationship marketing; the formal study

of which goes back 20 years. CRM builds on the philosophy of relationship

marketing. This emphasis on relationships, as opposed to transactions, is redefining

how companies are interacting with their customers. Customer relationships have

received considerable attention from both academicians and practitioners. The

increasing emphasis of relationship marketing is based on the assumptions that

building committed customer relationships results in greater satisfaction, loyalty,

positive word of mouth, business referrals, references, and publicity. Intense

competition for market share in today's market requires managers to attend to

customer retention and the how' s or whys of a patron returning and continuing to

repurchase." (Tariq Mohiuddin Ahmed - p.1) "CRM is a highly fragmented

environment and has come to mean different things to different people. As the thought

and approach to CRM is in the initial stages and not fully matured, one can find

different perspectives and definitions of CRM. According to Gummesson, CRM is the

values and strategies of relationship marketing - with particular emphasis on customer

relationships - turned into practical application. Swift's states that CRM is an

enterprise approach to understanding and influencing customer behavior through

meaningful communications in order to improve customer acquisition, customer

retention, customer loyalty, and customer profitability." (Ibid)

Ramanakumar, KPV(2008) writes about the Customer Relationship Management or

Relationship Marketing. He refers to all marketing activities directed towards

establishing, developing and Maintaining relational exchanges successfully.

52

According to V. Ramanathan (2008), CustomerRelationship Management is an

emerging tool that enables retail marketers to maintain their presence in the dynamic

market environment.

"To survive in the global market, focusing on the customer is becoming a key factor

for companies big and small. It is known that it takes up to five times more money to

acquire a new customer than to get an existing customer to make a new purchase. A

Second aspect of CRM is that knowing the customer and his /her problem allows to

acquire new customers more easily and facilitates targeted cross-selling." (Tariq

Mohiuddin Ahmed - p. 9)

CRM has been a part of marketing literature since more than a decade. Interestingly,

there is still much debate over what exactly constitutes CRM (Nevin, 1995; Parvatiyar

and Sheth, 2001; Sin et al., 2005).

"CRM is based on the basic marketing belief that an organization that knows its

customers like individuals. Its components may include data warehouse that store all

a company's information, customer service system, call centers, e-commerce, web

marketing, operations system (that handle order entry, invoicing, payments, point of

sale, inventory system, etc.) and sales systems (mobile sales communication,

appointment making, routine, etc.). In practices, CRM system range from automated

customer-contact system to the company- wide pooling of customer information."

(Kotler - pp. 409 - 410)

Customer Relationship Management (CRM) “is the core business strategy that

integrates internal processes and functions, and external networks, to create and

deliver value to targeted customers at a profit. It is grounded on high-quality customer

data and enabled by IT” (Buttle, 2004). CRM is a business strategy to identify,

cultivate, and maintain long-term profitable customer relationships. It requires

developing a method to select your most profitable customer relationships (or those

with the most potential) and working to provide those customers with service quality

that exceeds their expectations. (McDonald, 2002)

53

An organization’s survival depends largely on harmonious relationships with its

stakeholders in the market. Customers provide the ‘life-blood’ to the organization in

terms of competitive advantage, revenue and profits. Managing relationships with

customers is imperative for all types and size of service organizations. A sound base

of satisfied customers allows the organization to move on the path of growth, enhance

profitability, fight out competition and carve a niche in the market place. Bennett

(1996) described that CRM seeks to establish long term, committed, trusting and

cooperative relationship with customers, characterized by openness, genuine concern

for the delivery of high quality services, responsiveness to customer suggestions, fair

dealings and willingness to sacrifice short term advantage for long term gains.

Schneider and Bowen (1999) advocated that service business can retain customers

and achieve profitability by building reciprocal relationships founded on safeguarding

and affirming customer security, fairness and self esteem. It requires that companies

view customers as people first and consumers second. Trust, commitment, ethical

practices, fulfillment of promises, mutual exchange, emotional bonding,

personalization and customer orientation have been reported to be the key elements in

the relationship building process (Levitt,1986; Gronroos, 1994; Morgan,1994;

Gummesson,1994; Bejou et al,1998 ).

CRM refers to all business activities directed towards initiating, establishing,

maintaining, and developing successful long-term relational exchanges (Heide, 1994;

Reinartz & Kumar, 2003).

CRM system is capital investments that integrate strategy, marketing and IT. As

such, they cut across traditional organizational structures and force the integration of

activities. Implementing CRM system is no small task. And one that risks doing harm

of done badly. There is no doubt that CRM can be major factor in achieving

competitive advantages, according to Malcolm McDonald, but get CRM wrong and

customers leave, never to return." (Ibid)

Accountants, real estate agents and brokers, financial companies, and other

businesses where building strong customer relationships really make a difference are

54

increasingly using CRM techniques. CRM uses today's powerful, low-cost

technology to help you, work smarter." (Charles W. Jaeger - p. 1)

CRM has evolved from establishing a separate customer service department.

Organizations have become aware of the lifetime value of customers, as well as the

different needs of a variety of customer segments that they serve. Customer loyalty

has a significant influence on business growth and an impact on the bottom line

(Chaudhary, 2000) 51

A more customer centric perspective results in a lower cost of acquisition of

customers and some increase in switching costs for customers (Schmarzo and Haper,

2000). The relationship centric approach requires that the organization should

accumul

ate knowledge about customer activities, and preferences in order to engage in a value

added relationship. It is far cheaper to keep an existing customer than to find a new

ones (Turban lee, King and Chung, 2000.)

In the early 1980’s CRM was used most notable in sales force automation and in the

area of telemarketing. Data capture and control was the primary focus and there was

little integration across organizations or with organizations strategy, (Gold finger,

2000)

Marketing and customer treatment as well as related media and communication plans

need to be determined for target customers. The specific value proposition of the

plans should be that loyalty and customer value will enhance profits. (Chaudhry,

2000; Schmarzo & Haper 2000).

"In order to more efficiently manage customer relationships, CRM focuses on

effectively turning information into intelligent business knowledge. This information

can come from anywhere inside or outside the firm and this requires successful

integration of multiple databases and technologies such as the Internet, call centres,

sales force automation, and data warehouses."(Ibid)

55

"CRM is a new customer-centric business model that reorients firm operations around

customer needs (as opposed to products, resources, or processes) in order to improve

customer satisfaction, loyalty, and retention. CRM is the integration of customer

focus in marketing, sales, production, logistics and accounting, i.e. in all parts of the

company's operations and structure." (Ibid)

"The activities a business performs to identify, qualify, acquire, develop and retain

increasingly loyal and profitable customers by delivering the right product or service,

to the right customer, through the right channel, at the right time and the right cost.

CRM integrates sales, marketing, service, enterprise resource planning and supply-

chain management functions through business process automation, technology

solutions, and information resources to maximize each customer contact. CRM

facilitates relationships among enterprises, their customers, business partners,

suppliers, and employees." (John Johansson & Fredrik Strom - p . 3) "As can be seen

above, the three definitions have the following in common:

a) They all include activities in all parts of the company.

b) The reason for CRM is to create a customer relationship focused

company. In essence, CRM provides management with the opportunity to

implement relationship marketing on a company-wide basis."(Ibid)

"However, for CRM to be successful, all activities in a company need to be managed

in combination to reach success. Stone, Woodcock & Wilson (1996) note that in

some companies there is the belief that good market planning is equal to good CRM.

It must be clear that CRM is not equal to market planning, since they are founded on

two different marketing approaches. However, the authors add that although the

information in market research is CRM, it is only a small part of the CRM that is

needed in order to create profitable customer relationships." (Ibid.)

"Market planning is based upon the transactional-based point of view with market

segmentation as the emphasis. Moreover, markets planning still generalize and

segment customers according to specific characteristics, but fail to identify individual

56

wants and need as CRM does, i.e. the knowledge about the individual

customers."(Ibid)

"CRM is a strategy that helps companies to refine interactions and ultimately improve

a company's relationship with customers that will enable a mutually profitable

relationship between buyer and seller.

If customers know and trust a company, they tend to come back. If a company can

create a system that recognizes and serves customers consistently through multiple

channels—the Web, call centers and in person—it can drive revenue by creating a

loyal customer base. Ultimately, a CRM implementation should be more about a

culture of customer service than it is about technology. The technology is there to

automate existing processes. CRM only works if the customer benefits from it. If the

customer does not benefit, your efforts will be ignored. Customer Relationship

Management, therefore, is about building collaborative mutually satisfying

relationships with customers." (Fasma web site)

Some reseachers have undertaken empirical research studies to test utility of the

concept of CRM in Efficient Management of Relationships and to find out how to

improve its practices (Heide and John 1992; Morgan and Hunt, 1994; Christopher,

Pyane and Ballantyne, 1992; Copulsky and Wolf, 1990; Illingworth, 1991). Leonard

Berry (1983) has studied the concept of RM in Service Marketing.

Other important study conducted in CRM consists of viz., RM of Intangibles (Berry,

1983; Gronrous, 1990); Business-to-Business Marketing (Bonoma and Johnson 1978;

Dwyer et al., 1987; Ford, 1981), and High-Tech Marketing (Mc Kenna 1991;

Gronours 1996; Guillet de Monthoux, 1975). These studies have concluded on long-

term beneficial relationships between buyers and sellers. These have provided

evidence that CRM practices carries positive effect on companies’ profitability

(Buchanan and Gillies, 1990; Reicheld and Kenny, 1990; Reicheld and Sasser 1990).

Ryans and Wittink (1977) has suggested inadequate attention being paid to the

concept of RM in Selling of Intangibles.

57

Few studies have found that the concept of CRM can be useful in improving the

performance of service personnel as a key to retaining customers (George, 1977;

Gronrous, 1981; and L. Berry, 1980 and 1981). Professor Mohan L. Agrawal (1997) 48

who has explored the nexus between naturalness of relationship marketing and the

characteristics of three types of selected service industries viz., equipment dominant

services, people- dominant services, and the services has found that both customer

and marketer play an equal role in producing the services in India.

Professor M.S.Vardani and Deepali Singh (1999) attempted to examine the status of

relationship marketing in India, based on the perception of cross-section of marketers

as a technique for developing lifetime customers. They suggested ways to marketers

in order to win their customers’ heart and also to develop value-laden strong

relationships with them.

In Indian perspective Dipali Singh and M.S.Vardani (1999) studied how about Indian

marketers view customer relationship marketing as a technique for developing

lifetime customers and suggested ways marketers should follow to win their

customer’s heart and also develop value laden strong relationship with them.

CRM has evolved from establishing a separate customer service department.

Organizations have become aware of the lifetime value of customers, as well as the

different needs of a variety of customer segments that they serve. Customer loyalty

has a significant influence on business growth and an impact on the bottom line

(Chaudhary, 2000) 51

A more customer centric perspective results in a lower cost of acquisition of

customers and some increase in switching costs for customers (Schmarzo and Haper,

2000). The relationship centric approach requires that the organization should

accumulate knowledge about customer activities, and preferences in order to engage

in a value added relationship. It is far cheaper to keep an existing customer than to

find a new ones (Turban lee, King and Chung, 2000.)52

Peter Drucker and Theodore Levitt (1990) 53 suggested that obtaining, keeping and

maximizing customers is the only way to increase business profitability.

58

In the early 1980’s CRM was used most notable in sales force automation and in the

area of telemarketing. Data capture and control was the primary focus and there was

little integration across organizations or with organizations strategy, (Gold finger,

2000)

Marketing and customer treatment as well as related media and communication plans

need to be determined for target customers. The specific value proposition of the

plans should be that loyalty and customer value will enhance profits. (Chaudhry,

2000; Schmarzo & Haper 2000).

Dr. Rogers focused on how organization can use websites and technology to retain

customers, enhance relationship, and boost market share (NZ InfoTech, 2000).

Shri. Arun Maheshwari, CEO, Trivium India Software stated, “Today eCRM is

emerging as one of most important components of corporate strategy. Shri.

S.P.Grover Head eCRM, Oracle software India, stressed on the global aspect, He

believed “earlier the customers were only in local geographic but now are around

the world.(Arun Maheshwari, Economic Times 2005).

According to Parvatiyar and Sheth (2001), some of the themes represent a narrow

functional marketing perspective while others offer a perspective that is broad and

paradigmatic in approach and orientation.

One example of a narrow perspective is to view CRM as database marketing (Peppers

and Rogers,1995) emphasizing promotional aspects of marketing by leveraging

customer databases. Otherexamples of a narrow approach include electronic

marketing (Blattberg and Deighton, 1991) and aftermarketing (Vavra, 1992).

Electronic marketing encompasses all marketing efforts supported byinformation

technology while aftermarketing efforts focus on customer bonding after the sale is

made.European Journal of Social Sciences – Volume 11, Number 1 (2009) .Some l

have undertaken empirical research studies to test utility of the concept of CRM in

Efficient Management of Relationships and to find out how to improve its practices

(Heide and John 1992; Morgan and Hunt, 1994; Christopher, Pyane and Ballantyne,

1992; Copulsky and Wolf, 1990; Illingworth, 1991)

59

On a broader level, CRM may mean customer retention or partnering (Peppers and

Rogers, 1993,Vavra, 1992).

In order to develop a comprehensive list of CRM practices, it is essential to identify

the key constructs of CRM. In this direction, Sin et al. (2005) have proposed that

CRM comprises the following four constructs: Key customer focus, CRM

organization, Knowledge management and Technology-based CRM. Each of these is

discussed as follows.

Key customer focus

This is all about developing a strong customer focus (Das, 2004; Sheth et al., 2000;

Vandermerwe,2004) and continuously delivering superior value to selected key

customers (Parvatiyar and Sheth,2001) through personalized/ customized offerings

(Dyche´, 2002).

CRM organization

It implies organizing the whole organization around CRM, which will lead to

considerations like organizational structure, commitment of resources and human

resources management (Sin et al., 2005).

Knowledge management

Key facets of this construct include learning about customer needs and wants,

dissemination and sharing of this knowledge and action (Sin et al., 2005).

Technology-based CRM

Technology plays the role of enabler in CRM deployment (Das, 2004) and allows

firms to achieve greater customization and better service at lower cost (Sin et al.,

2005).

60

2.3 Customer Retention

One of the results of CRM is the promotion of customer loyalty (Evans & Laskin,

1994), which is considered to be a relational phenomenon, (Chow & Holden, 1997;

Jacoby & Kyner, 1973; Sheth & Parvatiyar, 1995; cited by Macintosh & Lockshin,

1997). The benefits of customer loyalty to a provider of either services or products are

numerous, and thus organizations are eager to secure as significant a loyal customer

base as possible (Gefen, 2002; Reinartz & Kumar, 2003; Rowley & Dawes, 2000).

Recent developments in Internet technology have given the Internet a new role to

facilitate the link between CRM and customer loyalty (Body and

Limayem, 2004). It is common knowledge that a dissatisfied and unhappy customer

will share his unfortunate experience more than a satisfied customer. It is also

observed that a fraction of unhappy customers choose to complain while others

simply switch their loyalty to others service providers. Loss of customer is loss of

business along with the opportunity for business growth and profitability. Feedback

collection from the customer is essential for the supplier to ascertain customer

satisfaction and scope for improvisation (Sugandhi, 2002).

The fundamental reason for companies aspiring to build relationships with customers

is economic. For survival in the global market, focusing on the customer is becoming

a key factor for companies big and small. Establishing and managing a good customer

relationship is a strategic endeavor. Having a CRM software installed does not ensure

a successful customer relationship. For this to happen business processes and

company culture have to be redesigned to focus on the customer. CRM software can

be only a tool to implement a customer strategy. It is known that it takes up to five

times more money to acquire a new customer than to get an existing customer to

make a new purchase. Improving customer retention rates increases the size of the

customer base. Thus, customer retention is essential.

(Baumeister, unknown).

"Customer retention is increasingly being seen as an important managerial issue,

especially in the context of saturated market or lower growth of the number of new

customers. It has also been acknowledged as a key objective of relationship

marketing, primarily because of its potential in delivering superior relationship

61

economics, i.e. it costs less to retain than to acquire new customers. The assumption is

that generalized theories, which imply universal applicability, tend to overlook the

distinctive impact of conceptualized business conditions on effective customer

retention strategies. The fact is that both theoreticians and managers should consider

"business context" in developing and implementing customer retention strategies."

(Rizal Ahmad & Francis Buttle - pp. 149-161).

"With the cost of losing customers rising every day, companies continually seek new

ways to acquire, retain and increase business. Service has long been an important

factor in customer retention, and new research suggests its role is more critical than

ever and will continue to grow throughout the 1990s." (Jennifer Potter - P. 53-56)

Going over to customer loyalty, Oliver (1999) defined it as a deeply held commitment

to re-buy or re-patronize a preferred product or service in the future despite situation

influence and marketing efforts having the potential to cause switching behaviour.

Thus, loyalty has both an attitudinal and behavioural dimension (Day, 1969; Dick and

Basu, 1994). Behavioural loyalty will include examples like repeat purchase, word of

mouth, etc while attitudinal loyalty will comprise examples like trust or emotional

attachment (Baumann et al., 2005).

Customer loyalty can be defines as “customer behavior characterized by a positive

buying pattern during an extended period (measured by means of repeat purchase,

frequency of purchase, wallet share or other indicators) and driven by a positive

attitude towards the company and its products or services” (Looy, Gemmel &

Dierdonck, 2003).

Further, behavioural loyalty does not necessarily reflect attitudinal loyalty, because

there might exist other factors that prevent customers from defecting (Aldlaigan and

Buttle, 2005; Liljander andRoos, 2002 Reinartz and Kumar, 2002). Customer loyalty

has been additionally related to profit levels (Reichheld and Teal, 1996). Besides,

customer loyalty is one of the key objectives of CRM (Das, 2004;Lindgreen, 2004;

Parvatiyar and Sheth, 2001; Payne, 2002; Sin et al., 2005).

62

The rationale for CRM is that it improves business performance by enhancing

customer satisfaction and driving up customer loyalty (see figure below). There is a

compelling logic to the model, which has been dubbed the ‘satisfaction-profit chain’

(Anderson and Mittal, 2000). Satisfaction increases because customer insight allows

companies to understand their customers better, and create improved customer value

propositions. As customer satisfaction rises, so does customer repurchase intention

(Anderson, 1994). This in turn influences actual purchasing behaviour, which has a

significant impact on business performance.

Customer satisfaction, customer loyalty and business performance (Buttle, 2004)

Customer satisfaction has been the subject of considerable research and has been

defined and measured in various ways (Oliver, 1997). Customer satisfaction may be

defined as the customer’s fulfillment response to a consumption experience, or some

part of it. Customer satisfaction I a pleasurable fulfillment response while

dissatisfaction is an unpleasurable one (Buttle, 2004). Satisfaction and dissatisfaction

are two ends of a continuum, where the location is defined by a comparison between

expectations and outcome. Customers would be satisfied if the outcome of the service

meets expectations. When the service quality exceeds the expectations, the service

CustomerSatisfaction

CustomerLoyalty

BusinessPerformance

Understandingcustomer requirements

Meet customerexpectations

Deliver customervalue

Behavioural loyalty

Attitudinal loyalty

Revenue growth

Share ofcustomer

Customer tenure

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provider has won a delighted customer. Dissatisfaction will occur when the perceived

overall service quality does not meet expectations (Looy, Gemmel & Dierdonck,

2003). Sometimes customer’s expectations are met, yet the customer is not satisfied.

This occurs when the expectations are low (Buttle, 2005). For example, the customer

expects the flight to be late and it gets late.

Customer satisfaction is considered to be one of the most important outcomes of all

marketing activities in a market-oriented firm. The obvious need for satisfying the

firm’s customer is to expand the business, to gain a higher market share, and to

acquire repeat and referral business, all of which lead to improved profitability

(Barsky, 1992). Studies conducted by Cronin and Taylor (1992) in service sectors

such as: banking, pest control, dry cleaning, and fast food; found that customer

satisfaction has a significant effect on purchase intentions in all four sectors.

Similarly, in the health-care sector, McAlexander et al. (1994) found that patient

satisfaction and service quality have a significant effect on future purchase intentions.

(Kandampully and Suhartanto, 2000)

Practitioners and researchers have not clearly identified a theoretical framework,

identifying factors that could lead to the development of customer loyalty (Gremler

and Brown, 1997). However, there is a consensus amongst practitioners and

academics that customer satisfaction and service quality are prerequisites of loyalty

(Gremler and Brown, 1997; Cronin and Taylor, 1992). Those technical, economical

and psychological factors that influence customers to switch suppliers are considered

to be additional prerequisites of loyalty (Selnes, 1993; Gremler and Brown, 1997).

Recent studies also indicate that the firm’s image may influence customer enthusiasm:

value, delight, and loyalty (Bhote, 1996).

(Kandampully and Suhartanto, 2000)

Loyalty behaviors, including relationship continuance, increased scale or scope of

relationship, and recommendation (word of mouth advertising) result from customers’

beliefs that the quantity of value received from one supplier is greater than that

available from other suppliers. Loyalty, in one or more of the forms noted above,

creates increased profit through enhanced revenues, reduced costs to acquire

customers, lower customer-price sensitivity, and decreased costs to serve customers

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familiar with a firm’s service delivery system (Reicheld and Sasser, 1990). Yi’s

“Critical review of customer satisfaction” (1990) concludes, “Many studies found that

customer satisfaction influences purchase intentions as well as post-purchase attitude”

(p. 104).

Customer loyalty can be viewed in two distinct ways (Jacoby and Kyner, 1973). The

first views loyalty as an attitude. Different feelings create an individual’s overall

attachment to a product, service, or organization (see Fornier, 1994). These feelings

define the individual’s (purely cognitive) degree of loyalty. The second view of

loyalty is behavioural. Examples of loyalty behaviour include continuing to purchase

services from the same supplier, increasing the scale and or scope of a relationship, or

the act of recommendation (Yi, 1990). The behavioural view of loyalty is similar to

loyalty as defined in the service management literature. In brief, there are two

dimensions to customer loyalty: behavioural and attitudinal (Julander et al., 1997).

The behaviour dimension refers to a customer’s behaviour on repeat purchases,

indicating a preference for a brand or a service over time (Bowen and Shoemaker,

1998). Attitudinal dimensions, on the other hand, refer to a customer’s intention to

repurchase and recommend, which are good indicators of a loyal customer (Getty and

Thompson, 1994). Moreover, a customer who has the intention to repurchase and

recommend is very likely to remain with the company.

(Kandampully & Suhartanto, 2000 and Hallowell, 1996)

Customer attitude being difficult to measure, for financial and practical purposes,

customer retention is widely used as an indicator of customer loyalty. Researchers

have combined both views into comprehensive models of customer loyalty. Dick and

Basu (1994) came up with a two-dimensional model of customer loyalty identifying

four forms of loyalty according to relative attitudinal strength and repeat purchase

behavior. The true loyal are those who have high levels of repeat purchase behavior

and a strong relative attitude. Spuriously loyal customers tend to be more motivated

by impulse, convenience and habit i.e. if the conditions are right. Latent loyalty

applies to those customers who are loyal simply because they have no other choice.

Lastly, there will always be some customers who shall not be loyal to any particular

brand.

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Many researchers identified that customer retention and customer share is very

important apart from attracting customers [Hoekstra, Leeflang, and Wittink,1999;

Reichheld 1996]. Customer share is defined as the ratio of a customer’s purchase of a

particular category of products or services from supplier X to the customer’s total

purchase of that category of products or services from all suppliers [Peppers and

Rogers 1999]. To maximize these metrics, firms use relationship –marketing

instruments on customers retention and share developments. In 2003, Verhoef took

the issue seriously. He made a study on both- the aspect of customer retention and

share development. The various factors that determine customer relationship

perception are customer satisfaction, payment equity and affective commitment. The

various factors that determine customer relationship instruments are loyalty

programme and direct mailing.

As far as customer’s satisfaction in retail sector is concerned, it depends upon various

factors like quality of product/service, price of product/service. Both these factors are

outcome of CRM process. If the entire process of CRM is properly carried out, it

leads to customer’s satisfaction, if a customer is more satisfied he gets delighted and

this satisfaction and delight leads to loyalty. CRM is carried out in all departments of

retail organization and the success of CRM becomes possible only when all the

activities of these departments are integrated. Researchers have focused on the

development of the concept(Zablah el at.,2004), on the outcome of CRM (Jauhari

2001), on the implementation of CRM [Hansotia 2002] and also on the measurement

of CRM [Jain et al.,2003]

In early days CRM was the tool preferred by the manufacturers in Order to motivate

and retain retailers. Now retailers are applying this very same tool in order to retain

customers. Both KPV Ramanakumar and V. Ramanathan bring certain CRM

strategies into lime light being followed in the retail sector. They mention certain

CRM strategies like personalization strategies,communication strategies like "Stay in

Touch", "Inform Customers About the New Arrival", "Reward Strategies like offer

tangible reward, discounts offers etc. Pahuja, Anurag opines that customer

relationship management encompasses certain characteristics aspects. He says that

business necessity regardless of whether one sells to end - consumer or to enterprise

customers. According to Pradeep K Deb (2009), customer loyalty programs are the in

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- thing in today's retail world and Foodlands in Mumbai is one of the pioneers in this

field in western India. He further gives the reaction of the a typical consumer that

"privilege cards20 Pacific Business Review - A Quarterly Refereed Journal Dr. Meera

Mathur, Sumbul Samma or special offers are nothing but retail trade gimmicks and

the consumer ends up spending more by availing themselves of the offer". According

to Sreekumar P (2009), for implementing any CRM initiative or special loyalty offers,

Lifetime Customer Value is the most important criteria.

Summary of the Literature

CRM and relationship marketing essentially excite marketing scholars, especially

those who can add conceptual and methodological rigor of the domain. The CRM

areas are extended into many fields, from marketing to strategic decisions. In recent

years CRM is facilitated by the convergence of several other paradigms of marketing

and by corporate initiatives that have developed around the theme of cooperation and

the collaboration of organizational units and their stakeholders, including customers.

From academic point of view, an important question is whether CRM become well

respected, distinct and discipline in marketing. Here, we define the marketing in core

concept and then, we explain the CRM. One of the main items in CRM is customer

retention.

The purpose of all descriptions, in this chapter, is to respond research objectives; and

to find the role of CRM.