CRM - Customer Relationship Marketing


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CRM - Customer Relationship Marketing

  1. 1. [7BSP1016 (B 010/11)] - Customer Relationship and Sales Management The pursuit of the Relationship Marketing concept“Relationship Marketing may still be regarded as an ‘umbrella philosophy’ with numerous relational variations rather than as a wholly unified concept with strongly developed objectives and strategies” (Egan, 2004) Deniz Kurugollu 10283502 MSc Marketing 4th April 2011 Word count: 1662
  2. 2. Relationship marketing is cited as a new theoretical concept emerging in 1990s; in fact, it isregarded as the future of marketing (Kandampully and Duddy, 1999). On the other hand,some scholars argue that relationship marketing is actually ‘back to the future’ (Grönroos,1996). Sheth and Parvatiyar (1995) state that it is a return to the ‘roots of trade andcommerce’ before the scientific management approach was employed, and before theappearance of middleman, which broke up the close relationship between suppliers andconsumers. In this regard, Vavra (1994) explains that before 1960s marketing was appliedthrough sales people who had intimate and long-lasting relationships with consumers thattranscended economic exchange. During the following three decades, consumers startedexpecting greater variety in products and services. This leaded marketers to expand theirofferings. Thus, the focus of businesses shifted from relationships to achieving greaterdistribution. By 1990s when the computer technology has recorded significantimprovements, the focus has returned to the relationship again since the technology enablesmarketers to contact with consumers on an individual basis, instead of ‘mass crowds’ (Vavra,1994; Sheth and Parvatiyar, 2000; Egan, 2004). As a result, relationship marketing hasevolved as a hot issue in business world today.The purpose of this paper is to shed light on the nature of relationship marketing. Is it aholistic concept, a tool, or as Brown (1998: 173) indicates ‘changing the doorplate’ by adding‘relationship’ up to the word ‘marketing’?It seems that there is no consensus on the definition of the relationship marketing concept.Some resources estimate more than 20 definitions, some goes further and pronounce 50definitions on the subject (Morgan and Hunt, 1994; Harker, 1999). Buttle (1999) states thatall those terms are used to describe similar concepts such as direct marketing, one-to-onemarketing, database marketing, customer relationship management, and the list goes on. Inthis respect, Egan (2004: 19) argues that “Relationship Marketing may still be regarded as an‘umbrella philosophy’ with numerous relational variations rather than as a wholly unifiedconcept with strongly developed objectives and strategies”.Some views suggest that RM can be depicted in four levels. First level is the improved formof database marketing. It views RM as a technology-based tool. Secondly, RM focuses onmainly current relationships (i.e. customer retention) and then potential relationships. In thethird level, RM refers to the true customer interaction by get them to involve in the productdesign processes. Finally, it is regarded as an incorporative form of everything, namely fromdatabase management to personalized service, loyalty programs, social relationship, internalmarketing, strategic alliances, and so on (Brodie et al, 1997; Coviello et al, 1997).Kandampully and Duddy (1999) divides relationships into two as primary (i.e. company andcustomers) and secondary (i.e. suppliers, retailers, and shareholders). Some sources limitsRM to customer relationships, hence see it as the use of information technology and database systems (Peppers and Rogers; 1995). Sheth and Parvatiyar (1994: 2) describes that RMis the ‘understanding, explanation and management of the ongoing cooperative businessrelationship between suppliers and customers’. Storbacka et al. (1994) state RM is the
  3. 3. process of ‘initiation, enhancement, and termination’ of relationships. Gummesson (1994)defines RM as ‘relationships, networks, and interaction’. In this context, he encompassesrelationships between many parties such as competitors, government agencies, institutes;and hereupon he suggests 30 types of relationships.In this paper, the term relationship marketing is used to reflect a holistic approach asGrönroos (1997: 407) defines: “Relationship marketing is to identify and establish, maintain and enhance, and when necessary terminates relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met; and this is done by mutual exchange and fulfilment of promises” In its spirit, RM can be regarded as a shift from product-oriented perspective (i.e.transaction marketing approach) to resource-based perspective (i.e. relationship marketingapproach) (Grönroos, 1996). In the transaction marketing, the product is the core elementaround which the rest of marketing rotates. In other words, unless the product is developedand packaged, other marketing mix elements cannot step in the process (McKenna, 1991).However, today consumers expect the core product quality being offered by manycompanies; so, it can be inferred that the product itself no longer provides a competitiveadvantage, except innovative products which are totally new for the market. However,consumers expect more services such as delivery, maintain, recovery, and so on. Therefore,total offering, instead of the product alone, is the key in RM approach. As a matter of fact,Webster (1994) notes that every business is a service business.RM seeks to collaboration between functions in the company as opposed to scientificmanagement philosophy which is based on intense specialization, functional division,standardization and control (Aijo, 1996). In this respect, Gummesson (1987) classifies allemployees into two groups; ‘full-time marketers’ – who work in the marketing department –and ‘part-time marketers’ – all the people outside marketing departments whose behaviourshave significant impact on consumer satisfaction, word-of-mouth, loyalty, and so on.Therefore, each person in the company, no matter what position they have, should naildown the importance of relationships in every single activity they deal with; from fieldsalespeople, front-line personnel, or call centre employees to engineers, finance andaccounting people. In a nutshell, marketing responsibility has to be spread throughout theorganization wide (Grönroos, 1995). In this context, the role of marketing department (i.e.‘full time marketers’) is to educate employees (i.e. ‘part-time marketers’) so as to creategood marketing impression (Piercy, 1985).RM draws attention to partnerships and networks on a win-win ground. Grönroos (1996)states that the company cannot provide with the total offering on its own withoutcooperating with several parties; otherwise, it would be too expensive. Hereby, Hunt andMorgan (1994: 25) indicate that ‘being an effective competitor also means being an effectiveco-operator’. In addition, Peppers and Rogers (1997) suggest that if customers demandproducts or services that are not within the company’s core competency, then the companyshould find ways to provide with those new demands by establishing relationships withother firms.
  4. 4. RM recognizes the approach of ‘what firms can do for customers’, instead of ‘what firms cando to customers’ (Grönroos, 1996: 6). It is not a single-way communication where one partypushes the other, but an interaction. Such that, Rapp and Collins (1990) maintain that mereone-way communication costs too much and produces too little.RM perspective regards consumers as one of the company’s resources. Regarding thecustomer loyalty ladder (Payne, 1994: 30) for example, having an ‘advocate’ means havingsomeone who actively gives positive referrals to your brand and company; moreover, havingan ‘evangelist’ (Banks and Daus, 2002) means someone trying to convert friends who usecompetitor’s products; furthermore, having your ‘brand community’ (Schmitt 1999: 188)means people who enrich, attract attention and promote your brand. In a nutshell, all ofthem imply that consumers are one of the key strategic resources of companies today andthey require great knowledge to manage. In this context, Customer relationshipmanagement (CRM) seeks to acquire this crucial knowledge about customers.CRM mostly refers to IT systems, which enable organization to realise customer focus,involve acquisition, analysis and use of knowledge about customers in order to improveorganisational profitability through generating greater customer life time value (Bose, 2002;Bull, 2003). CRM can be evaluated in three categories (Xu and Walton, 2005). OperationalCRM refers to data collection through any interaction points with customers such as mail,fax, sales force, call centres, etc. Analytical CRM refers to analysing previously collected datain order to, for instance, create customer information files, identify behaviour patterns,satisfaction level, profitable segments and so on (Vavra, 1994; Kotorov, 2002). CollaborativeCRM refers to expanding those analysed data (i.e. information) throughout the supply chain,namely employees, suppliers, partners (Kracklauer and Mills, 2004). However, the realchallenge does not lie in acquiring and delivering the information, but the key is to make ituse of strategically by proper knowledge (Xu and Walton, 2005). For example, PrasannaDhore, Hewlett-Packards vice president of customer intelligence, states (Brandweek, 2008): “There are three stages: Data (tells you what); information (so what?); knowledge (now what?). Most people do No. 1, they create reports at stage 2, but then at No. 3 they fall apart. We are now taking that information and using the knowledge to drive sales and increase efficiencies... In one of our business groups, we looked at 80 marketing programs (such as direct marketing, email marketing, customer loyalty, etc.), and based on the knowledge from our CRM systems, we were able to work out which ones were more effective for our customers. Weve distilled them down to two or three major programs now.”This implies that CRM, in addition to enable organization to appreciate customer focus,also plays a significant role in the company’s marketing strategy.
  5. 5. To return to the initial question, – is RM a holistic concept, only another instrument in themarketing toolbox, or a current trend which will fade eventually? – it appears to be the casethat relationship marketing is a holistic concept with defined strategies such as defining thebusiness as a service business, managing the whole business process, and establishingpartnerships and networks; also defined tactical issues such as seeking direct contacts withcustomers, developing database, and building a customer-oriented service system(Grönroos, 1999). However, in line with these objectives, RM requires various instrumentssuch as database marketing, direct marketing, IT systems, and so on. Its ultimate goal is todevelop long-term relationship based on trust and commitment with the all parties that thecompany has contacts with (Shani and Sujana, 1992). It can be concluded that RM is morelike a management philosophy, rather than marketing concept alone. Sheth et al. (1988)reveals that the ideas behind RM have already been incorporated into marketing theory.After all, as Egan (2004: 265) put it: “RM’s biggest achievement is that it has brought back‘relationships’ into the mainstream of marketing”.
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