Unit 14 Customer Relationship Management

Contents• Introduction• Relationship marketing vs. relationship management• Definitions of customer relationship management• Forms of relationship management• Managing customer loyalty and development• Reasons behind losing customers by organizations• Significance of customer relationship management• Social actions affecting buyer-seller relationships

Introduction• In marketing, it is often said that ‘retaining customer is more important than

acquiring one’.• Organizations use communication tools to make the consumer aware about their

products and brands.• It uses supply chain and human resources to sell its products.• All these have a cost to the company and in this competitive world organizations

want to reduce cost.• For this organizations develop a database which helps in creating loyalty

programs.• Many Indian companies like Infosys, Wipro and others started offering CRM

software to companies. • The benefits of CRM software are quicker, better quality, and timely services to

the customers. • This increases the word of mouth communications and reduces the cost of mass

media.

Learning ObjectivesAfter studying this unit, you will be able to• Explain the meaning, need and relevance of customer relationship

management. • Mention the forms of relationship management. • Cite the reasons for losing customers by organizations. • Bring out the significance of customer relationship management.

Relationship Marketing Vs. Relationship Management

• The relationship marketing approach considers customers as part of the business and aims at building a long term and never-ending relationship with them.

• The focus of relationship marketing approach is on developing ‘hard core loyal’ customers and retaining them forever.

• The relationship marketing approach has slowly taken the form of customer relationship management.

• Relationship marketing focuses only on the marketing function of the organization.

• Customer relationship management focuses on customers and the entire functions connected with value creation and delivery chain of the organization.

Definitions of Customer Relationship Management• Berry defines CRM as “attracting, maintaining and in multi-service

organizations enhancing customer relationships.” • Berry and Parasuraman define CRM as “attracting, developing and

retaining customer relationships.” • In industrial marketing, Jackson defines CRM as “marketing oriented

toward strong, lasting relationships with individual accounts.”

• From the above definitions, it is concluded that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the organization

and its stakeholders.

• CRM is not a new concept but a very old practice, which has grown because of the benefits it offers in the present marketing scenario.

• CRM today is a discipline and also a set of software and technology which automates and improves the business process associated with managing customer relationships in the area of sales, marketing, customer service and support.

• CRM helps companies understand, start and develop long-term relationships with clients as well as help in retaining current customers.

Forms of Relationship ManagementThe 10 different forms of relationship marketing are:1. The partnership involved in relational exchanges between manufacturers

and their external goods suppliers. 2. Relational exchanges between service providers, as between advertising

or marketing research agencies and their clients. 3. Strategic alliances between firms and their competitors, as in technology

alliances; co-marketing alliances and global strategic alliance. 4. Alliances between a firm and non-profit organizations, as in public-

purpose partnerships. 5. Partnerships for joint research and development, as between firms and

local, state, or national governments.

6. Long-term exchanges between firms and customers, particularly in the services marketing area.

7. Relational exchanges of working partnerships as in channels of distribution. 8. Exchanges involving functional departments within a firm. 9. Exchanges between a firm and its employees, as in internal marketing. 10. Within firm relational exchanges involving such business units as subsidiaries,

divisions or strategic business units.

Managing Customer Loyalty and Development

• Managing customer development is one of the important aspects of relationship marketing.

• The focus is on two things – customer catching and customer keeping.

• ‘Customer catching’ is the process of attracting new customers (inviting new blood), while customer keeping is the process of retaining the existing ones (encouraging old blood).

• Customer Development Process

1. Suspect: Suspect is everyone who might conceivably buy the product or service.2. Prospects: Prospects are those people who have a strong potential interest in the

product and the ability to pay for it. The company rejects the disqualified prospects because they have poor credit or would be unprofitable.

3. First time customers: The company wants to convert the qualified prospects into first time customers.

4. Repeat customers: The company wants to convert satisfied first time customers into repeat customers. First time and repeat customers may also buy from the competitors.

5. Clients: The company then tries to convert repeat customers into clients. Clients are those people who buy only from the company.

6. Advocates: The next step is to convert the clients into advocates. Advocates are those people who speak good about the company and encourage others to buy from it.

7. Partners: The ultimate goal of the company is to convert advocates into partners. After reaching this stage, the customer and the company work actively together.

Some customers may become inactive or may drop out due to many reasons leading to end of the relationship. The challenge is to re-activate dissatisfied customers through customer win back strategies

Reasons Behind Losing Customers by Organizations

• The cost of attracting a new customer is five times the cost of keeping a current customer happy.

• But most marketing theories and practices focus on attracting new customers rather than retaining existing ones.

• Today, however, more companies are recognizing the importance of satisfying and retaining the current customers.

• Today’s companies must focus on their defection rate and take steps to reduce it. The possible reasons for customer defection include:

1. Price related reasons: A customer tries to match the price of a brand with the value of the brand. If there is a mismatch between the price and the value, he would switch over to a competitor’s brand. Also, if the price of brand goes beyond his affordability, he would switch over to a low priced brand. Thus, the role of price in customer retention is very significant.

2. Product related reasons: Due to technological advancement, the new brand which enters the market would offer better performance as compared to the already existing brand. This would encourage the customers to switch over to the new brand.

3. Services related reasons: The customer’s focus is not only on the brand, but also on the services offered at three different stages–pre-sales, during sales and after sales. Any dissatisfaction with services would cause the customer to switch over from the brand.

4. Benefit related reasons: The customers may be attracted by greater benefits offered by the competitors. Such benefits may be more attracting and cause customers to change brand.

5. Competitor related reasons: Technological advancement, attractive offers, value added services, etc., offered by competitors may also encourage customers towards brand switching.

6. Personal reasons: The personal reasons for brand switch over may be– The customer has moved away from the market area where the

brand is sold. – Role changes in life cycle may lead to changes in brand preference. – Anger, disgust, distress developed during the process of product

delivery. – Sentimental reasons. – Influence of other members of the family.

Significance of Customer Relationship Management

• Reduction in customer recruitment cost. • Generation of more and more loyal customers. • Expansion of customer base. • Reduction in advertisement and other sales promotion expenses. • Increase in the number of profitable customers. • Easy introduction of new products. • Easy business expansion possibilities. • Increase in customer partnering.

Traditional Organizational Chart Vs Modern Customer – Oriented Company Organization Chart

Traditional Chart Modern Chart

• Companies should understand that besides customers, their stakeholders are equally important for organization’s success.

• The stakeholders of an organization would include: investors, the financial community, vendors and suppliers, employees, competitors, the media, neighbors and community leaders, special interest groups, and government agencies. These stakeholders can affect and be affected by a company’s marketing programme.

• Kotter and Heskett (1992) found that firms that emphasized the interests of three communities – customers, employees and stakeholders – performed better than those that emphasized only one or two.

Soft and Hard Versions of Relationship Marketing• Soft version of relationship marketing suggests ‘humanistic

relationship development’, whereas the hard version reflects a ‘utilitarian instrumentalism’.

• The soft version focuses on the term ‘relationship’, thus laying importance on relationship management. It strongly advocates that all management is basically relationship management and all managers are relationship managers. It focuses on ‘developmental humanism’ as a foundation to build and develop long lasting relationships in marketing exchanges.

• On the other hand, the hard version stresses on the idea of ‘marketing’, that is something to be used unemotionally and in a formally sensible manner.

Social Actions Affecting Buyer-Seller Relationships

Good things• Initiate positive phone calls• Make recommendations• Candor (frankness) in

language• Use “we” problem solving

language• Get to problems• Use jargon or shorthand• Accept responsibility• Plan the future

Bad things• Make only callbacks• Make justifications• Accommodative language• Use legal language• Only respond to problems• Use long-winded

communications• Shift blame• Rehash (repeat) the past