Customer satisfaction has always been a key element in the pursuit of corporate goals and objectives. However, the current competitive environment fostered by liberalization and globalization of the economy and the rising customer expectations for quality, service and value have promoted many companies to organize their business around the customers they serve, rather than around the product lines or geographic business units.
Customer relationship management (CRM) first gained prominence in the early 1990s. It refers to the holistic approach that organizations can take to manage their relationships with their customers, including policies related to contact with customers, collecting, storing, analysing customer information, and the technology needed to perform these tasks.
According to Philip Kotler and Gary Armstrong, ‘CRM is concerned with managing detailed information about individual customers and all customer “touch points” to maximize customer loyalty. It can also be defined as, ‘an alignment of strategy, processes and technology to manage customers, and all customer-facing departments and partners’. In short, CRM is about effectively and profitably managing customer relationships through the entire life cycle.
CRM helps in providing better service to the customers and developing effective customer relationships. CRM integrates everything that a company’s sales, services and marketing teams know about the individual customers to get a 360-degree view of the customer relationship.
The aim of CRM is to build customer equity; customer equity is the sum of lifetime values of all the customers. CRM analysts develop data warehouses and use data-mining techniques to develop and maintain long-lasting relationships with the valuable customers.
A data warehouse is a company-wide electronic database of detailed customer information. The purpose of data warehouse is not just to gather information but also to place it into a central location for easy access. Once the data warehouse locates the data at a central place, the data analysts use the data-mining techniques to examine the mounds of data to find out interesting facts about the customers.
Need and Importance of CRM
- Better service to customers
CRM provides more avenues for customers to communicate and explain their needs to the organization through numerous contact points. Customers get increased satisfaction and a feeling of being special and important because of the increased personalization of services and customization of goods offered to them.
For example, ICICI Bank maintains a list of priority customers and provides them with additional facilities and special offers such as free tickets to concerts, movies, and so on. Some banks, such as Syrian Catholic Bank provide personalized services to their important customers.
- Customization of market offerings
Companies can customize a product or service depending on the data available with the firm. The firm can facilitate customer-company interaction through the company contact centre and web site. Such interactions help develop customized products.
- Reduction in the customer defection rate
CRM emphasizes on training and development of the employees to become more customer oriented. Due to CRM training and development, employees show care and concern towards the valuable customers; therefore, the customer defection rate may be reduced to a great extent.
- Increase and improvement in long-term relationships
Some firms treat their customers as partners. Firms solicit the help of the customers to design new products or to improve their services. If the customer gets involved with the firm, they are more likely to remain with the firm.
- Increase in customer equity
CRM increases customer equity. Firms focus the marketing efforts more on the most valuable customers (MVCs). The main aim of CRM is to produce high customer equity. Customer equity is the sum of lifetime values of all customers. More focus on MVCs will enable a firm to increase the customer equity.
- Competitive advantage
The firms that adopt CRM get competitive advantage in the market. They can face the competition with much ease. Competitive advantage helps in generating higher returns on investment.
- Building and maintaining corporate image
The image of the firm also gets enhanced. Loyal customers become evangelists. The evangelists spread a good word about the company and its products. This enables a firm to get additional customers to its fold.
- Higher return on investment
Due to CRM, a company gains a position to generate higher returns on investment. This is because of the repeat purchases on the part of the loyal customers. The company also makes money through cross selling. The higher return on investment increases the shareholders’ value.
Techniques of Building CRM
Firms use a number of techniques to build, maintain and enhance CRM. The techniques include the software programmes, promotional techniques, pricing strategies, MVC programmes, and so on. Some of the techniques have been discussed in detail.
Data Warehousing and Data Mining
CRM analysts develop data warehouses and use data-mining techniques to develop and maintain long- lasting relationships with the valuable customers.
(i) A data warehouse is a company-wide electronic database of detailed customer information. The purpose of data warehouse is not just to gather information, but to place it into a central location for easy access.
(ii) Once the data warehouse locates the data at a central place, the data analysts use data mining techniques to examine the mounds of data to find out interesting facts of the customers.
The mined data can be utilized for various marketing decisions such as the following:
- Product design and modification
- Product pricing
- Promotion mix
- Selection of channels of distribution
- Maintaining dealer relationships
Some firms adopt one-to-one marketing strategy. Such firms treat their customers as partners, especially in the case of B2B markets firms solicit the help of customers to design new products or to improve their services. If the customer gets involved with the firm, then they are more likely to remain with the firm.
Firms may use variety of loyalty programmes to retain customers. For example, airlines may offer special discount for frequent fliers. Firms may also provide gifts and other benefits to the loyal customers. But it is to be noted that all loyal customers need not be profitable, and all profitable customers need not be loyal.
Therefore, the firm must be selective. In order to enhance marketing efficiency, a firm has to find out which of its customers are worth retaining and which are not, and which customers should be given extra care and attention. In other words, the firm has to determine the value of its customers, and focus on MVCs accordingly.
Priority Customer Programmes
Some firms introduce priority customer programmes. The priority customers are the MVCs. They are given priority in after-sales service, delivery and resolving complaints. The priority customer programmes are followed by several organizations, especially in the banking industry.
For example, Citibank maintains a list of priority customers and provides them with additional facilities special offers such as free ticket to concerts, movies, and so on. Some banks, such as Syrian Catholic Hank provide personalized services to the important customers.
Evolution panned out in the last few decades:
CRM can be achieved by:
- Finding out about your customers’ purchasing habits, opinions and preferences
- Profiling individuals and groups to market more effectively and increase sales
- Changing the way you operate to improve customer service and marketing
Benefiting from CRM is not just a question of buying the right software. You must also adapt your business to the needs of your customers.
Business benefits of CRM
Implementing a customer relationship management (CRM) solution might involve considerable time and expense. However, there are many potential benefits.
A major benefit can be the development of better relations with your existing customers, which can lead to:
- Increased sales through better timing due to anticipating needs based on historic trends
- Identifying needs more effectively by understanding specific customer requirements
- Cross-selling of other products by highlighting and suggesting alternatives or enhancements
- Identifying which of your customers are profitable and which are not
This can lead to better marketing of your products or services by focusing on:
- Effective targeted marketing communications aimed specifically at customer needs
- A more personal approach and the development of new or improved products and services in order to win more business in the future
Ultimately this could lead to:
- Enhanced customer satisfaction and retention, ensuring that your good reputation in the marketplace continues to grow
- Increased value from your existing customers and reduced cost associated with supporting and servicing them, increasing your overall efficiency and reducing total cost of sales
- Improved profitability by focusing on the most profitable customers and dealing with the unprofitable in more cost effective ways
Once your business starts to look after its existing customers effectively, efforts can be concentrated on finding new customers and expanding your market. The more you know about your customers, the easier it is to identify new prospects and increase your customer base.
Even with years of accumulated knowledge, there’s always room for improvement. Customer needs change over time, and technology can make it easier to find out more about customers and ensure that everyone in an organization can exploit this information.
Types of CRM solution
Customer relationship management (CRM) is important in running a successful business. The better the relationship, the easier it is to conduct business and generate revenue. Therefore using technology to improve CRM makes good business sense.
CRM solutions fall into the following four broad categories.
- Outsourced solutions
Application service providers can provide web-based CRM solutions for your business. This approach is ideal if you need to implement a solution quickly and your company does not have the in-house skills necessary to tackle the job from scratch. It is also a good solution if you are already geared towards online e-commerce.
- Off-the-shelf solutions
Several software companies offer CRM applications that integrate with existing packages. Cut-down versions of such software may be suitable for smaller businesses. This approach is generally the cheapest option as you are investing in standard software components. The downside is that the software may not always do precisely what you want and you may have to trade off functionality for convenience and price. The key to success is to be flexible without compromising too much.
- Custom software
For the ultimate in tailored CRM solutions, consultants and software engineers will customise or create a CRM system and integrate it with your existing software.
However, this can be expensive and time consuming. If you choose this option, make sure you carefully specify exactly what you want. This will usually be the most expensive option and costs will vary depending on what your software designer quotes.
- Managed solutions
A half-way house between custom and outsourced solutions, this involves renting a customised suite of CRM applications as a tailored package. This can be cost effective but it may mean that you have to compromise in terms of functionality.
How to implement CRM?
The implementation of a customer relationship management (CRM) solution is best treated as a six-stage process, moving from collecting information about your customers and processing it to using that information to improve your marketing and the customer experience.
Stage 1: Collecting information
The priority should be to capture the information you need to identify your customers and categorise their behaviour. Those businesses with a website and online customer service have an advantage as customers can enter and maintain their own details when they buy.
Stage 2: Storing information
The most effective way to store and manage your customer information is in a relational database – a centralised customer database that will allow you to run all your systems from the same source, ensuring that everyone uses up-to-date information.
Stage 3: Accessing information
With information collected and stored centrally, the next stage is to make this information available to staff in the most useful format.
Stage 4: Analysing customer behaviour
Using data mining tools in spreadsheet programs, which analyse data to identify patterns or relationships, you can begin to profile customers and develop sales strategies.
Stage 5: Marketing more effectively
Many businesses find that a small percentage of their customers generate a high percentage of their profits. Using CRM to gain a better understanding of your customers’ needs, desires and self-perception, you can reward and target your most valuable customers.
Stage 6: Enhancing the customer experience
Just as a small group of customers are the most profitable, a small number of complaining customers often take up a disproportionate amount of staff time. If their problems can be identified and resolved quickly, your staff will have more time for other customers.
Potential drawbacks of CRM
There are several reasons why implementing a customer relationship management (CRM) solution might not have the desired results.
There could be a lack of commitment from people within the company to the implementation of a CRM solution. Adapting to a customer-focused approach may require a cultural change. There is a danger that relationships with customers will break down somewhere along the line, unless everyone in the business is committed to viewing their operations from the customers’ perspective. The result is customer dissatisfaction and eventual loss of revenue.
Poor communication can prevent buy-in. In order to make CRM work, all the relevant people in your business must know what information you need and how to use it.
Weak leadership could cause problems for any CRM implementation plan. The onus is on management to lead by example and push for a customer focus on every project. If a proposed plan isn’t right for your customers, don’t do it. Send your teams back to the drawing board to come up with a solution that will work.
Trying to implement CRM as a complete solution in one go is a tempting but risky strategy. It is better to break your CRM project down into manageable pieces by setting up pilot programs and short-term milestones. Consider starting with a pilot project that incorporates all the necessary departments and groups but is small and flexible enough to allow adjustments along the way.