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Customer Relationship
Management: An Introduction
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Introduction
The objective of many marketing strategies in thelast 10 years has been building the customer¶scommitment to a brand or a dealer.
This has taken following three forms: Creating customer satisfaction -delivering superior
quality products and services
Building brand equity- the sum - the sum of the
intangible assets of a brand. Creating and maintaining relationships
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Contd.
There has been an evolution of marketing thoughtand activity over this last decade.
Initially, the quality movement placed customer
satisfaction the ultimate goal of marketing programs.
But as satisfied customers were shown to defectto other brands or providers at relatively highrates, strategists looked to creating a greater commitment with the customer.
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Contd.
Two ways to achieve this were to build
brand equity (primarily for consumer products) and
to build relationships (primarily for industrial products.)
Brand equity used mass media advertising, corporatecitizenship and public events sponsorship to build a brand
image.
Relationship marketing sought to build interdependence
between partners and relied on one-to-onecommunications, historically delivered through the sales
force
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Contd.
With the growth of marketing databases and the
Internet, the ability to reach customers
individually became a viable strategy for a wide
range of firms
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Contd.
Frederick Reichheld developed the importance of
building customer commitment in his 1996 book
The Loyalty Effect .
He focused on the cost of customer defection and
set the stage for the problem by claiming ³many
major corporations now lose and have to replace
half their customers in five years [...]´
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Contd.
Reichheld claimed that even small improvements
in customer retention can as much as double
company profits.
This is because:
It costs less to serve long-term customers.
Loyal customers will pay a price premium.
Loyal customers will generate word-of -mouth referralsto other prospective customers.
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Factors Contributing to Building Brand
Equity:
Name awareness,
Perceived quality,
Brand loyalty,
The associations consumers have towards the brand,
Trademarks,
Packaging, and Marketing channel presence
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Understanding Loyalty
Knowing the buying motivations of customers has
been an important part of understanding customer
loyalty and brand switching behavior
Brand loyalty has three components:
Commitment,
Preference and
Repeat purchase
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Levels of Loyalty
There are four levels of loyalty based on the components
of brand loyalty:
Cognitive ± one brand is preferable based on superior brand
attributes. Affective ± liking towards brand has developed over the course
of multiple purchase situations that were satisfying.
Conative ± Affective stage with the express intention to re- buy.
Action ± Conative stage plus the active desire to overcome
situational influences and marketing efforts that may have the
potential to cause switching behavior.
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Paradigm shift in Marketing
Transactional (Traditional)Focus Orientation to single sales
Discontinuous customer contact
Focus on product features Short time scale
Little emphasis on customer service
Limited commitment tomeeting customer expectations
Quality is the concern of production staff
Relationship Focus Orientation to customer
retention
Continuous customer contact
Focus on customer value
Long time scale
High customer serviceemphasis
High commitment to meetingcustomer expectations
Quality is the concern of allthe staff
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Contd.
It is a refocusing of traditional marketing with a
greater emphasis on creation of µcustomer value¶
The basic principle on which this concept is
founded is
Greater the level of customer satisfaction with the
relationship, the greater the likelihood of their stay with
us
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Contd.
At the core of relationship approach to marketing
is
Integration, company-wide of so far separate customer
service and total quality initiatives with the mainstream
of marketing strategy
Quality and customer service are intertwined and
managed as one because on quality and service,
relationships are built
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Relationship Marketing
Relationship marketing is not about having a
"buddy- buddy" relationship with your customers.
Customers do not want that.
Relationship Marketing uses the event-driven
tactics of customer retention marketing, but treats
marketing as a process over time rather than
single unconnected events
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Usually defined as a series of stages, and there aremany different names given to these stages,depending on the marketing perspective and the
type of business Interaction > Communication > Valuation >
Termination
Awareness > Comparison > Transaction >
Reinforcement > Advocacy Suspect > Prospect > Customer > Partner > Advocate >
Former Customer
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Relationship Building
Is a long-term process
There are a number of identifiable stages in longterm customer relationship
This can be explained through the Relationship
Ladder constituting of six different phases of
relationship
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At the foot is the µprospect¶ or target market
The traditional or classical marketing emphasizes
on means of converting prospects into customers
In relationship marketing customer is
Someone who has done business with us only once or
occasionally
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Contd.
The next is µclient¶ who is someone who will do business with us on a repeat basis but may beneutral or negative about company
The client when converted into a µsupporter¶,strength of relationship becomes apparent
These people like being associated us and mayalso be persuaded to become advocates
The final step is when customers become partnersin which mutual advantage can be gained fromrelationship
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Contd.
Emphasis in relationship marketing is on
Finding appropriate means to move customers up the
ladder and to keep them there
Conventional marketing focuses on
Winning of customers and building market share
without emphasizing more on customer retention
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Scope of Market in Relationship Marketing
There is wider view of marketing rather than
simply focusing on end user
For building and sustaining real customer value
Relationships need to be built with numerous
constituents
This is known as µSix Markets¶ model
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Six Markets Model
Internal markets
Individuals and groups within organization who
determine the style and ethos of business
Referral markets
From sources of professional advice (doctors, lawyers,
bank managers etc)
Building relationships with these sources of word-of -
mouth should be integral part
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Contd.
Influence markets
Entities, individuals and organizations having the
ability positively or negatively to influence the
marketing environment in which the companycompetes
Employee markets
There is need to recruit and retain employees who will
further the aims of the company in the marketplace
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Contd.
Supplier markets
Refers to network of organizations that provide material,
products and services to the organization
Results in improved quality, faster time-to-market, moreinnovative products and lower levels of inventory
Customer markets
All people and organizations that buy goods or services from us
Can be either end users or intermediaries
Customer service is the most important tool
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R elationship management chain
Marketing should be viewed as a business-wide process with the goal of creating superior customer -value
Delivering superior customer -value results in enduring
customer relationship
Involves the following four logical sequence of activities:
Defining the value proposition
Identifying appropriate customer value segments
Designing value delivery system
Managing and maintaining delivered satisfaction
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R elationship Marketing Plan
The purpose is to integrate and focus across six
critical markets that forms the platform for successful
customer relationships Begins with a clearly expressed definition of the
customer -retention goals of the organization
The objective is of holding on to and developing
today¶s and tomorrow¶s µgold card¶ customers
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Strategies for Practicing R elationship
Marketing Berry (1983) has recommended the following five
strategies:
Developing a core service around which to buildcustomer relationship
Customizing the relationship to the individual customer
Augmenting the core service with extra benefits
Pricing services to encourage customer loyalty
Marketing to employees so that they would performwell for customers
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CustomerR elationship Management:
An overview
It is a process or methodology used to learn more aboutcustomers' needs and behaviors in order to developstronger relationships with them.
The more useful way to think about CRM is as a processthat will help bring together lots of pieces of informationabout
customers, sales, marketing effectiveness,responsiveness and market trends.
CRM helps businesses use technology and humanresources to gain insight into the behavior of customersand the value of those customers.
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Contd.
The Chartered Institute of Marketing definition of CRMis
³The coherent management of contacts and
interactions with customers´.
They identify that
³The essence of a CRM system is that customer data is
collected from all touch points and deposited into one
central data pool for more effective marketing, better
order processing, production and accounting.´
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CRM is ³the development and maintenance of mutually beneficial long-term relationships with strategicallysignificant customers´
(Buttle, 2000)
CRM is ³an it enhanced value process, which identifies,develops, integrates and focuses the various competenciesof the firm to the µvoice¶ of the customer in order todeliver long-term superior customer value, at a profit to
well identified existing and potential customers´.(P lakoyiannaki and tzokas, 2001)
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Contd.
In simple terms, CRM is defined as Finding, getting, and retaining customers.
Is also defined as tracking customer behavior in order to
develop marketing and relationship- building programs that
bond consumers to a brand often by development of software systems to provide one-on-one contact between the
marketing business and their customer.
CRM is the core of any customer -focused business strategy
and includes The people, processes, and technology associated with
sales, marketing, and service.
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A Brief History of CR M
Unkept promises:
1980s: Database Marketing
Speaking individually to countless customers It's too costly, too difficult, and doesn't pay out on
the bottom line
A little database marketing goes a long way, maybe
plus an iota of demographics
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Contd.
1990s: Relationship Marketing Major phenomenon: Loyalty programs.
Major promise: Loyalty!
Major result: Companies such as airlines now have an enormous
incremental layer of expenses, without much to show for it
Early 2000's: Customer RelationshipManagement (CRM).
Major phenomenon: Great promise Major reality: Promise unattained.
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EVOLUTION OF CR M
1980¶S
Focus on Data Mining and Direct
Marketing was the outcome
1990¶S
Focus on loyalty programs
2000¶s+
DATABASEMARKETING
RELATIONSHIP
MARKETING
CUSTOMER
RELATIONSHIP
MARKETING
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Historical Perspective on the Shift to a
Customer-Centric Focus
Category Killer
Phase(70 ± 90¶s)
Customer Centric
Phase(Presently)
Brand Management
Phase
(¶50 70¶s)
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Need for CR M: Some facts
It costs six times more to sell to a new customer than toan existing one
A typical dissatisfied customer will tell eight to ten people about their experience
A company can boost its profits by 85% by increasing itsannual customer retention by only 5%
The odds of selling a product to a new customer are 15%;an existing customer 50%
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Contd.
Businesses are turning to customer relationship
management as a major customer -centric business
strategy
CRM uses IT to create a cross functional enterprisesystem that integrates and automates many of the
customer serving processes in sales, marketing and
product services that interact with a company¶s customers
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Contd.
Need for creating an IT framework that integrates all of
these processes with the rest of a company¶s business
processes
Consist of a family of software modules that perform the business activities
Provides tools that enable a business and its employees to
provide fast, convenient, dependable, and consistent
service to its customers
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CR M Systems
CRM systems typically include
Sales
Track customer contacts and other business and life cycle
events of customers
Direct Marketing and Fulfillment
Automate tasks such as qualifying leads, managing
responses, scheduling sales contacts, and providing
information to prospects and customers
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Contd.
Customer Service and Support
Helps customer service managers quickly create, assign,
and manage service requests
Help desk software assists customer service reps in helping
customers who are having problems by providing relevant
service data and suggestions for resolving problems
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Business Benefits of CR M Systems
Ability to identify and target best customers
Allows real-time customization and personalization of products and services based on customer wants, needs,
buying habits, and life cycles Keeps track of when a customer contacts the company
regardless of contact point
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Components of CR M
SalesCross-Sell
Up-Sell
TeleSales
Store Front
and Field
Service
Marketing and
Fulfillment
Customer
Service and
Support
R etention
and Loyalty
Programs
Customer
Contact Management
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Phases of Evolution of CR M
CRM has evolved since its earliest incarnation,
originally driven by an inside-out focus, through three
phases of evolution:
Technology,
Integration and
Process.
Recently there has been a major leap forward to a
fourth phase: customer -driven
CRM ² an outside
-inapproach that has intriguing financial promise.
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Technology
In its earliest incarnation, CRM meant
Applying automation to existing sales, marketing, support andchannel processes as organizations attempted to improvecommunications, planning, opportunity and campaign management,forecasting, problem solving, and to share best practices.
But, automating poorly performing activities or processesrarely improves the quality of the outcome.
So, for the most part, the quality of the return on investment(ROI) was meager
The promise of the technology was there, but few
organizations were realizing the best of performance. The metric of success was increased efficiency in sales,
marketing, support and channel processes.
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Integration
By developing cross-functional integration, supported bydata warehousing and shared roles and responsibilities,organizations began to create a customized view of thecustomer.
Support issues, web hits, sales calls and marketinginquiries started building a deeper understanding of eachcustomer and allowed aggressive organizations to adapttheir tactics to fit individual needs.
Integration focused around two primary components:
Make it easier to do business with the seller Predictive modeling
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Process
By rethinking the quality and effectiveness of customer -related processes, many organizations began to
Eliminate unnecessary activities,
Improve outdated processes, and
Redesign activities that had failed to deliver the desired outcomes.
Then, by re-creating the process through an understandingof the capabilities of the technology, the outcomes weremore predictable and the promises for a meaningful ROImore substantial and realistic.
The metrics for success became the improved effectivenessin serving the customer.
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The fourth phase: Customer driven CR M
Today, revenue performance has become the central theme for CRM as organizations seek to achieve and maintain expectedfinancial results
The main concerns are:
Which of my customers have the potential for a high- profit,
sustainable relationship? What defines profitable and unprofitable customer segments?
What must change to realize that optimal potential?
Where's my opportunity for growth?
Where's my risk for loss?
Am I making the right decisions related to balancingacquisition, cross-selling and up-selling ² and for the rightcustomer groups?
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Determinants of CR M
Understanding customer needs and problems
Meeting their commitments
Providing superior after sales support
Making sure that the customer is always told the truth(must be honest)
Have a passionate interest in establishing and retaining along-term relationship
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Goals of CR M
Provide better customer service
Make call centers more efficient
Cross sell products more effectively
Help sales staff close deals faster
Simplify marketing and sales processes
Discover new customers
Increase customer revenues
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Stages in the development of customer
relationship
The pre-relationship stage:
The event that triggers a buyer to seek a new business partner.
The early stage:
Experience is accumulated between the buyer andseller although a great degree of uncertainty anddistance exists.
The development stage:
Increased levels of transactions lead to a higher degree of commitment and the distance is reduced to asocial exchange.
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The long-term stage:
Characterised by the companies¶ mutualimportance to each other.
The final stage:
The interaction between the companies becomesinstitutionalized.
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ARELATIONSHIPLIFE CYCLE MODEL
HIGH
COOPER ATION
LOW
COMPETITION
LOW
COOPER ATION
HIGH
COMPETITION
TIME
PRE-
RELATIONSHIP
STAGE
DEVELOPMENT
STAGE
MATURITY
STAGE
DECLINE
STAGE
(WILKINSON AND YOUNG, 1997)
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Functions of CR M
Direct functions:
These are the basic requirements of a company that are
necessary to survive in the competitive marketplace. This includes:
Profit
Volume and
Safeguard
Indirect functions:
These are the actions necessary to convince the customer to participate invarious marketing activities. This includes:
Innovation
Market
Scout and
Access.
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Functions of CustomerR elationship Management
Management
Decision
Process
Customer sensitivity
Diversity
Information
Differentiatedoffering
Value Creation Process
Technology delivery process
R&D
Technology integration
Efficiency, effectiveness
learning
Product delivery process
Concept to launch
Manufacturing process
Customer delivery process
Supply chain
Distribution
Infomediation (distribution
of information)
Value-based
Strategies
Pricing
Communication
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