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May 18, 2009

CRM Essay

The advent of modern information and telecommunication technologies has made a lot of the traditional mammoth task easier to apprehend, for example, the management of a huge database within a company. Certainly within the past decade, technologies have in a way enabled new management disciplines to materialise. These include customer relationship marketing (CRM); knowledge management (KM); information management (IM) and supply chain management (SCM). In the global environment that companies today operate, it is essential to develop a competitive advantage in all spheres of business processes whether is dealing with product sourcing or service marketing.

Today’s customers are fortunate lots where they are faced with multiple choices to choose from whether it is the purchase of cars, financial services and consumable items. It is therefore important to understand the needs of the customers in formulating any marketing plans. For example, the Egg financial services group undertook a study to gauge what the customers want before embarking on its financial services operation. The number of customers attracted doubled of its expectation within the first month of business. There is a distinct difference between the marketing espoused by Egg and the more traditional marketing that emphasize on Pricing, Product, Place and Promotion (4P). So what is the nature of marketing pursued by Egg and other likeminded companies?

It is called Customer Relationship Marketing or CRM in short. It is defined as a process of creating, maintaining, and enhancing strong, value-laden relationships with customers and other stakeholders. (1) It involves developing a loyalty from the customer that evolves frequency, regularity and intensity. The distinct difference with traditional marketing is that conventional marketing has no ambition to climb the loyalty ladder. It is also well anchored on the strategy of Pricing, Product, Place and Promotion or commonly known as the 4P, less emphasise on retaining custom.

Transaction Marketing versus Customer Relationship Marketing
As briefly touched on earlier, transactional or traditional marketing as I like to term it is an established discipline that hugely weighted on the importance of Pricing, Product, Place and Promotion (4P). It is about bringing a product or service to a market and exchanging it for something wanted by the marketer who brings the product or service.

Although many companies have adopted relationship approach, most companies still keep to the traditional view. This tends to lead to the following bad practices:
– Reactive approach to customer complaints.
– Failure to recognise the needs of long-term customers.
– Greater expenditure on promotion than is necessary, owing to the emphasis on acquiring new customers.
– Inner conflict within departments as production people expect marketers to sell the goods, and marketers expect production people to handle quality issues.

As customer expectations rise, and more particularly as customers become longer lived, there is likely to be an increasing emphasis on establishing relationships. This is because the value to the company of the customer’s continued custom is greater, and the customer knows this and expects better treatment in return. (2)

Many management gurus opined that CRM is essentially a customer focused marketing strategy designed to analyse customers needs, developed and tailored their demand and in the process established a continuing long term relationship with the customer. I think an important point is missing here, i.e. the exploitation of the relationship to the best advantage of the company. It is now a normal practice for any companies to actively build a strong and resourceful database of potential clientele so that each product the company is selling will be tailored to the needs of individual client or customer. After all. CRM has a lot to do with extending personal value, making the customer aware that he is being treated as an individual whose needs might be different from others. I believe that it is this personalisation that earns the loyalty and establish the vital relationship with customers.

Building Customer Value, Satisfaction, Loyalty and Retention
A long-held belief among marketers is that the “best” consumers have a set of permanent characteristics that distinguish them from the rest of the population. The elements of customer behaviour have changed over the years бк from demographics (age, education, and income), to psychographics (attitudes) and even to geo-psychographics (location, attitudes, age, education, and income) бк but the principle remains the same: Who you are defines what you buy or do. Indeed, a fundamental understanding of who your customers are can unlock all the potential value they have for your business.

Attracting and retaining customers can be a difficult task. Today’s customers face a vast array of product and brand choices, prices, and suppliers. The company must answer a key question: How do customers make their choices? The answer is that customers choose the marketing offer that they believe will them the most value. They are satisfied with and continue to buy offers that consistently meet or exceed their value expectations. (3) The key to relationship marketing understands Customer Value and Satisfaction.

Customer Value
Customer delivered value, which customers buy from the company that they believe offers the highest, is the difference between total customer value and total customer cost of a marketing offer “profit” to the customer. For example, suppose that a company wants to buy commodity from either supplier A or supplier B. The company will evaluates the competing commodity offers assess which one delivers the greatest value. And the company also will examine the total customer cost of buying supplier’s commodity versus supplier’s. Total customer cost means the total of all the monetary, time, energy, and psychic costs associated with a marketing offer.

How might the supplier use this concept of buyer decision making to help it succeed in selling its commodity to this buyer? It can improve its offer in either of two ways. First, it can increase total customer value by strengthening or augmenting the product, services, personnel, and image benefits of its offer. Second, it can reduce total customer cost by lowering its price or by lessening the buyer’s time, energy, and psychic costs. (4) Total customer value (Product, services, personnel, and image benefits) minus Total customer cost (Monetary, time, energy, and psychic costs) equals Customer delivered value (“Profit” to the customer)

Customer Satisfaction
Thus, customers from expectations about the value of marketing offers and make buying decisions based on these expectations. Customer satisfaction with a purchase depends on the product’s actual performance relative to a buyer’s expectations. A customer might experience various degrees of satisfaction. If the product’s performance falls short of experience various, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted.

Today’s most successful companies are raising expectations иD and delivering performance to match. These companies embrace total customer satisfaction. Such companies track their customers’ expectations, perceived company performance, and customer satisfaction. However, although the customer иC centered company seeks to deliver high customer satisfaction relative to competitors, it does not attempt to maximise by lowering its price or increasing its services, but this may result in lower profits. Thus, the purpose of marketing is to generate customer value profitably. (5)

Customer Loyalty and Retention
Highly satisfied customers produce several benefits for the company. Satisfied customers are less price sensitive, talk favourably to others about company and its products, and remain loyal for a longer period. However, the relationship between customer satisfaction and loyalty varies greatly across industries and competitive situations. In all cases, as satisfaction increases, so does loyalty. Customer delight creates an emotional affinity for a product or service, not just a rational preference, and this creates high customer loyalty.

Thus, customer satisfaction remains an extremely important component in customer loyalty иD a company will find it difficult to earn customer loyalty without first earning high levels of customer satisfaction. However, companies should also carefully examine customer loyalty itself, which often is a better indicator of customer attitudes and behaviour. (6)

Different levels of relationship
We can distinguish five different levels or relationships that can be formed with customers who have purchased a company’s product:
1. Basic level
The company salesperson sells the product but does not follow up in any way.
2. Reactive level
The salesperson sells the product and encourages the customer to call whenever he or she has any questions or problems.
3. Accountable level
The salesperson phones the customer a short time after the sale to check whether the product is meeting the customer’s expectations. The salesperson also solicits from the customer any product improvement suggestions and any specific disappointments. This information helps the company to continuously improve its offering.
4. Proactive level
The salesperson or others in the company phone the customer from time to time with suggestions about improved product use or helpful new products.
5. Partnership level
The company works continuously with the customer and with other customers to discover ways to deliver better value.
A company’s relationship marketing strategy will depend on how many customers it has and their profitability. For example, companies with many low-margin customers will practice basic marketing; at the other extreme, in markets with few customers and high margins, most sellers will move towards partnership marketing.

A company can adopt any of three customer value-building approaches as a specific marketing tool to use for developing stronger customer bonding and satisfaction. The first relies primarily on adding financial benefits to the customer relationship. The second approach is to add social benefits as well as financial benefits. The third approach to building strong customer relationships is to add structural ties as well as financial and social benefits.

The main steps in establishing a relationship marketing programme in a company are:
– Identify the key customers meriting relationship management.
– Assign a skilled relationship manager to each key customer.
– Develop a clear job description for relationship managers.
– Have each relationship manager develop annual and long-range customer relationship plans.
– Appoint an overall manager to supervise the relationship managers.

In the end, companies must judge which segments and which specific customers will be profitable. Marketing Highlight 4.1 discusses the importance of relationships in business marketing and the types of situations in which relationship marketing proves most effective. (7)

Cases Studying
Now we look at 2 different relationship level companies to describe the way in which companies can track customer satisfaction and identify Customer Relationship Marketing (CRM).

TESCO Supermarket
TESCO is a giant retail group in United Kingdom that sells more than 26,000 merchandise. As a supermarket, TESCO is a low-cost, low-margin, high-volume, self-service store. It targets a mass market from young to old and it is in a competitive environment where pricing might not be a determining factor to attract and retain client. Today, however, TESCO is facing slow sales growth because of slower population growth and an increase in competition from convenience stores, discount food stores, and superstores. TESCO practice only basic marketing because its market contains many customers and its profit margin is small. For example, TESCO is not going to phone each customer to express appreciation. So at best, TESCO sets up a customer hot line which the customer can use when he/she has question or problem. How TESCO perceived the mass market and what strategy they adopt to keep up with their market share and how they view the threats from the likes of ASDA, Sainsbury and Safeway.

The Strategies that TESCO adopts understanding customers’ needs and earned their loyalty. Listening to customers allow the company to fine tune their product ranges, opening hours and the type of store that should be built, i.e. regular store, metro or out of town superstore. Catering to local needs and employing local employees also provide jobs and hence their attachments to the company.

TESCO Club Cards are in use to reward customers who use the store regularly and encourage the people to shop at the same supermarket every time, and establish a shopping pattern. The nest stage of the procedure is to use the SPOS (Electronic Point-Of-Sale) equipment to track the customer’s spending patterns and thus be in a position to advice shoppers about their individual needs. By TESCO Club Card, The company will have access to millions of customers details including their demographic profile, types of products usually purchased, their future requirements and the likely requirement for other type of products/ services such as mortgage, insurance for motor or home and other services TESCO is selling.

TESCO practice the management of customer retention to cultivate loyalty, selling them other products, understanding their future needs, profiling their expectations and established customer goodwill that will entrenched their patronage. TESCO retains customer loyalty by the follow ways:

– Offer incentives to customers with vouchers for them to buy products in TESCO stores. Strengthened customer relationship by having good relationship between employees and customer rapport. Notifying existing customers first when there is a sale or promotion.

– Location – better location of stores near to catchments area, for customer convenience. TESCO has town centre stores, regional stores and out of town stores for those who have private transports. Other competitors like ASDA, Sainsbury do not have this range of flexibilities.

– Petrol Station – for convenient of customers and customer could still earn Club points when buying petrol. Not all petrol retailers provide these incentives.

– Internet purchase – for customers who are busy and don’t have time, they can shop through their TESCO website and goods will be delivered to customers. This also applies to old customers such as pensioners who may not be convenient to move about.

– Choice иD TESCO provide a wide choice of products both from external suppliers and those of their own brand. There is a choice of pricing as well. E.g.: a loaf of bread can be purchased from 15p to as high as 85p.

– Supplier/ Retailer cooperation to promote certain products as lower prices at TESCO store. That means, sometimes, Coca cola can conduct their promotion through TESCO than ASDA, hence bringing price advantage to customers.

The figures for the past 5 years certainly indicate the ability of the company to increase turnover via cultivating customer royalty and looking to their needs. In fact, so successful is their Club Card scheme that companies like Sainsbury has now started to emulate. In June 2002, Sainsbury together with BP and two other companies launched the Nectar card which has a similar concept as TESCO Club Card.

In the future, I think TESCO could make further improvement as follow:
– Customer profiling- by analysing and categorising customers to group and look at the needs, lifestyle and future expectation of the groups of customers especially those between the ages of 18 to 45 where they have higher purchasing power.
– Develop existing technologies and improve logistics to increase sales via the net. This will not only cut cost but will also free up valuable times of purchasers.
– More competitive pricing as it is generally perceive that ASDA provide better value for money than other retailers.
– As society becomes more multi ethnic and the desire of British to sample all types of foods, it is not bad an idea to introduce more foreign foods.

Virgin Group
Virgin Group, the third most recognised brand in Britain, known originally for its music stores and now primarily for its airline, the Virgin group spans three continents and includes planes, trains, finance, soft drinks, cinemas, music, mobile phones, holidays, cars, wines, publishing, and bridal wear. It is a conglomerate that was borne from the vision of a man, Richard Branson who have a different way of approaching business. His business target is those from the young to the middle age group. He is selling basically a lifestyle built upon a brand called Virgin. Virgin is. Its products involved in. In fact, Virgin signifies modern living, in touch with market and the will to succeed. Virgin practice accountable marketing because its market contains medium number of customers and its profit margin is medium. For example, Virgin Atlantic Airline collects suggestions from its customers, the airline was first to offer seat-back videos, and it provides onboard manicures, massages, and magicians иD and not just for the first class passengers. Of course it can not keep in touch with each passenger, but it still can found a good relationship with customers. Once a Virgin company is up and running, several factors contribute to making it a success in customer retention:

Customer relationship strategy of Virgin is concentrating on Brand, lifestyle and the younger population. An important element of cross selling those flying Virgin airline or buying Virgin records are likely to be heavily involved in the purchase of other of their produces.

Virgin is trying to create a wed of loyal customers. As usual, it sells Virgin products to their existing clients. The companies look into customers’ needs and constantly focus on their future wants, a step ahead of others.

Virgin can also custom the requirements of their customers. Suppose you want to fly to a small city in US but Virgin only flies to New York, then the airlines network with other American carriers will enable you to fly to your destination.

Virgin encourages their customers by cross buying discounts for Virgin customers, For example, Virgin airline offer the regular users of the airlines the opportunity to have free flights or major discount on travel.

Virgin stresses its product on quality and up to date especially their entertainment division. The Virgin Megastore represents retailing at its largest; it also represents some other aspects of retailing. Virgin creates value for their customers. (9)

The success of Virgin on CRM is also due to leading edge system that able to coordinate and cross reference within the database and Richard Branson who is the founder himself. He is closely associated with getting things done and not afraid to try out new things.

CRM within Virgin is successful. Looking at within a short period of a decade or so, the company grew from a single company to a major corporation having interests in Airline, Railway, Entertainment, Radio, Wine, Record Studios, and Travel and Books. Virgin have created over 200 companies worldwide, employing over 25,000 people. Our total revenues around the world in 1999 exceeded £3 billion (us$5 billion). (10) Virgin has won many awards for its products and services. Virgin Blue’s dynamic Call Centre team has taken out the award for best customer service in the Australian Travel and Transport industry. Scott Munro from Teleperformance said “We were delighted to present the Transport and Travel industry sector award for excellence in customer service via multimedia to Virgin Blue Airlines, considering they have only been in the country for around a year, it’s a remarkable achievement.” “This type of performance is an obvious reflection of a commitment to delivering above average customer service via both the telephone and Internet and embracing CRM”. (11)

I think in the future Virgin might think about the following areas for improvement: Virgin should be marketed as a corporate company selling products and services that are meeting the needs of customers and at the same time provide value for money to customer. Richard Branson the founder should not be closely equated to the company.

A customer’s satisfaction is a function of the performance of company. High satisfaction leads to high customer loyalty, many companies today are aiming for total customer satisfaction. For such companies, customer satisfaction is both a goal and a marketing tool. Losing profitable customers can dramatically affect a company’s profit. The key to retaining customer is customer relationship marketing. To keep customers happy, marketers can add financial or social benefits to products or create structural ties between company and its customers.

From the cases we studied above, we can see the company is not seeking an immediate sale but rather to build a long-term supplier-customer relationship. As we enter the new millennium, companies are facing some new marketing realities. Changing demographics, more sophisticated competitors, and overcapacity in many industries иD all of these facts mean that there are fewer customers to go around. CRM focuses on developing long-term, mutually beneficial relationships between companies and customers. Therefore, undertaking CRM is proposed as a strategy rather than a solution. This strategy should be considered as a “roadmap” which plots key activities through to a defined and measurable destination. Activities such as CRM business justification, customer understanding and developing sales propositions through the integration of many business functions, are organised in a series of logical steps. While many successful businesses have been undertaking CRM transformation activities implicitly for some years, many have yet to achieve the business benefits on which their CRM investment was based.

CRM is necessary for company development and plays an important part in keeping customers. Companies can’t live without CRM today. So CRM will become more and more important for us.


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