CRM - Customer Relationship Marketing

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CRM - Customer Relationship Marketing

  1. 1. Customer Relationship Marketing and Sales Management 7BSP1016 (B/ 2010-11)❶Question 1: ‘The ultimate accountability of marketing [and sales] activities lies in theircontribution to the life-time value that the customer base represents’ (Peelen, 2006).Discuss and evaluate this comment in relation to the principles of customer relationshipmarketing. Identify the limitations that a sales manager may encounter when developinga sales strategy which moves from a transactional to a relationship basis.❷Question 6: In order to develop a value proposition for customers, organisations mustcollect sufficient data on their customer base. Discuss the extent to which sufficient datacan be collected to inform future marketing decisions and product alignment.❸References Deniz Kurugollu 10283502 MSc Marketing 5th May 2011
  2. 2. ❶Customer retention has been shown to attract more attention within marketing activities.Customer Relationship Marketing (CRM) can be regarded as a manifestation of acknowledging longterm value of customers. In this regard, Peelen (2006) indicates that “the ultimate accountability ofmarketing activities lies in their contribution to the life-time value that the customer baserepresents.” Lifetime customer value refers the monetary amount of purchases made by thecustomer from a particular company in a given period of time. It can therefore be inferred that thelonger a customer stays with a company, the greater the customer’s value (Vavra, 1994). Havingaccepted the importance of customers today, companies are trying the streamline their operations.For example, companies like Campbell Soup, Coca-Cola, Hershey, Intel and Hewlett-Packard all haveChief Customer Officers (CCO) now so as to response better the needs and wants of their customerbase (Brandchannel, 2011). Building close relationship with customers on the basis of trust andcommitment seems to be vital to cut above the competition (Gobe, 2001). However, there areseveral limitations that can arise when building a strategy based on establishing relationship. Theaim of this essay is to acknowledge both the advantages and limitations of relationship marketing.Drucker (2007) considers that marketing has two main tasks; attracting new customers andretaining already existing ones. As is the case in almost every dichotomy, the optimum results aretied to the balance between two ends. Hence, it is expected that the limited marketing resourcesshould be spent between two tasks in an optimal way. Yet, research (Payne, 1994) shows thatmarketing efforts (i.e. time and money) still disproportionately focus on acquiring new customersrather than customer retention even though the positive correlation between customer retentionand profitability has been acknowledged as the fact of business life for a long time (Rosenberg andCzepeil, 1983). Retaining customers are more profitable for several reasons (Payne, 1994). First ofall, existing customers cost less to service. Figures reveal that it costs five times less to keep anexisting customer than it does to attract a new one (Duddy and Kandampully, 1999). Second,customer expenditure is expected to increase over time. Xu and Walton (2005) points out that 20 %of existing customers contribute 80 % of the profit or revenue. Moreover, customer retention is costeffective. Marketing costs can be amortized during a longer time period. Furthermore, it is evidentthat satisfied customers provide positive word of mouth and they are most likely to pay pricepremiums (Aggarwal, 2004).In the light of foregoing, building a long-term relationship with customers on the basis of trust andcommitment is the key to long-term success. In line with this target, the marketing focus shifts fromtransaction marketing to relationship marketing. The Figure 1 shows the paradigm change inquestion. Therefore, the relationship marketing is long-term approach focusing on customerretention with high emphasis on customer service and contact.
  3. 3. Transaction marketing Relationship marketing Focus on Acquiring new customer Customer retention Timescale Short Long Customer service Little emphasis High emphasis Customer commitment Limited High Customer contact Limited High Figure 1: Transaction vs. Relationship marketing Adapted from: Payne, 1994However, there are some limitations managers may encounter when moving from a transactional toa relationship basis (Palmer, 1996). First of all, building close relationships requires thoroughinformation about the other party (i.e. customers). Vavra (1994) offers using customer informationfiles (CIF) in order to manage customer relationships. CIF is suggested to involve all informationbased on the interaction between customers and the organization from basic personal informationto frequency, monetary value of purchase, and so on which, in turn, may lead to strategiccompetitive advantage for the organization. Therefore, acquisition, storage, updating, and reportingof the information means huge cost for the company, ranging ‘from $200.000 to $10 million’ (Vavra,1994). On the other hand, some relationship marketing activities such as loyalty programs (e.g.financial incentives, frequent flyer programs, etc) over time can become an expected standard forcustomers. Consequently, it leads to losses in revenue (Mowlana and Smith, 1993).Secondly, the nature of the exchange may not be suitable to form long-term relationship. Tourismrelated businesses may suffer from this situation. For example, religious based destinations orluxury cruise travels might be once in people’s life, so this prevents to build long term relationship(Palmer, 1996). Likewise, in business-to-business markets strategic alliances based on short termcontracts in order to acquire specific skills may not need ongoing relationships (Main, 1990).Next, customers may not have a positive look for building relationship with companies if they feelthat the relationship will not provide them with more benefits, but cost. For example, if one believesthat all relevant information given to an organization will be used by the organization to push,advertise, try to cross-sell more items, and eventually make him become a victim of marketing, thenone may not want to form an ongoing relationship.Finally, considering the mantra today ‘customer is king’, coupled with the current market placewhere thousands of new brands are launched each year, fighting to satisfy the same consumer’sneeds and desires better than the competition; therefore in this context, Palmer (1994) argues that
  4. 4. consumers’ increasing level of confidence may lead them not to form ongoing, close relationshipwith suppliers in order to minimize risk of dependency (Gobe, 2001; Kotler, 2005). Moreover, itappears that the power of customers will increase much more with the help of government recentinitiative which encourage companies to release personal data back to individuals (Mitchell, 2011).The new paradigm is called as ‘Vendor Relationship Management’ (VRM) where individuals areequipped with the tools to control their relationship with suppliers. In this sense, VRM is putforward as the corresponding item for CRM (Haymarket, 2011).❷Customer Relationship Management (CRM) mostly refers to Information Technology (IT) systemswhich are used to obtain, analyse and use of knowledge about customers in order to improveorganisational profitability through generating greater customer life time value (Bose, 2002; Bull,2003). As inferred from this definition, gathering data by using IT tools is the starting point of thewhole CRM process. This essay will firstly be addressing to how and what sort of data can becollected to improve future marketing decisions. Then, it will be producing some real life examplesto illustrate how the given data is used to direct relevant marketing activities.Customer data can be collected through various contact points such as call centre, mail, fax, websites, salespeople or more specific software packages such as SAP, PeopleSoft, and so on (Xu andWalton, 2005). Then, data mining, digital library, or more specific systems like Decision SupportSystem (DSS), Executive Support Stsyem (ESS), Expert System (ES), and so forth can be employed toanalyse the given data so that it leads to a strategic direction (Bose, 2002; Xu and Walton, 2005). Atthis point, Raghunathan (1999) notes that the decision quality is tied to information quality that adecision maker has got. In this respect, this essay will address what sort of data can be collected andhow they can influence the future marketing decisions.Traditional customer information can be gathered under three components; time (i.e, when was thelast purchase), frequency (how often does the customer buy, and monetary value (i.e. how muchmoney has the customer spent in a given period) (Vavra, 1994). However, as Raghunathan (1999)points out that the more the information about customer, the better is to come up with optimumresults. Hereupon, Vavra (1994) suggests that CIF should include such data as customer financialreport, customer comments and complaints, promotion participation, service request, and theresults of questionnaire and surveys that the customer was involved. In addition, more personal softdata such as consumers’ attitudes, likes and dislikes, lifestyles, and so on can be suggested tocapture in the CIF since attitude is believed to lead consumer behaviours eventually (Elliot and
  5. 5. Percy, 2007). However, the cost of acquiring and processing data should be kept in consideration (asmentioned in question 1). At this point, new media such as Facebook, Twitter, or even personalblogs may help marketers to gain in depth personalized knowledge about their target audiences atrelatively lower cost.Having acquired the relevant data by ‘360 view of the customer’ (Kotorov, 2002), the next and vitalstage is to make use of the information in question. CRM in its nature is an investment, notexpenditure. However, if the given data collected by CRM systems do not direct to add value to bothcustomers and the firm itself, then all efforts mean nothing, but a significant cost for the company.Therefore, implementing CRM is expected to provide the company with long-term competitiveadvantages such as cost savings, improving customer lifetime value, product alignment, bettercustomer service, optimal marketing strategy, and so on (Xu and Walton, 2005; Vavra, 1994). Somepractical examples from real organizations will be produced to show how relevant data caninfluence marketing activities illustrated in Figure 2. Cost saving Customer Branding service CONSUMER DATA Marketing Segmenting Tailoring strategy Targeting Figure 2: The usage of consumer dataCost saving: e-CRM is defined as a web-based system to coordinate customer relationships across alltouch-points including channels, company departments, and customers. It consists of such featuresas online ordering, automatic response to e-mail, virtual help, and so on (Rowley, 2002). In thissense, e-CRM can help to reduce cost. For example, UPS customer self-tracking system helped thecompany to save $164 million by outsourcing business operations directly to customers (Hamm andHof, 2000).
  6. 6. Segmenting, Tailoring, and Targeting: CRM data enable marketers to segment their customer basedaccording to, for instance, purchase frequency, preference, usage volume and so on (Vavra, 1994).Hereupon, they can tailor their offerings to specific target audiences. For example, frequent flyerprogrammes can be seen in this context. Many airlines today have their own club cardsrepresenting certain levels such as classic, silver, gold, and so forth (TA, 2011) to provide stratifiedincentives to respective customer groups. This supports the idea of key account management(McDonald et al, 1997).Branding: Customer data can be utilized more deeply to capture better insight for branding. Miller(2009) argues about the ‘big five’ personality traits and what sort of information might address toidentify each traits. Hereby, he points out that, for example, ‘openness’ – one of the five personalitytraits – can be captured by looking at the Amazon.com database, in particular the record of bookspurchased by that person. If one buys books from diverse topics in a given period, this may indicatethat one is open to experience (i.e. openness). In this respect, it might be suggested that marketerscan segment consumers based on personality traits, and then brand their products with a congruentbrand personality that supports customer personality.Customer service: High emphasis on customer service – one of the main principles of CRM– hasalready been acknowledged (see Figure 1). As a matter of course, the CRM data is primarilyexpected to enhance service by providing better insight about customers. For example, Blockbusterrealized that customers’ priority was to rent their first-choice movie when they came to the store.By implementing a proper software system, Blockbuster improves stock availability of first-choiceitems, so delivers greater customer service compare to its competitors (Newell, 2000).Marketing strategy: Considering the CIF suggested by Vavra (1994), such consummate data can besuggested to utilize in providing greater information for not only short term tactics such as cross-selling and promotion but also, overall marketing strategy. For example, Hewlett-Packard review 80marketing programs (e.g. direct marketing, e-mail marketing, customer loyalty and so on) by usingthe knowledge obtained from CRM systems, and achieved to decide more effective three majorprograms to follow for the future marketing strategy (Brandweek, 2008).
  7. 7. ❸ReferencesAggarwal, P. (2004) ‘The Effects of Brand Relationship Norms on Consumer Attitudes and Behavior’.The Journal of Consumer Research. 31 (1) pp. 87-101.Brandchannel (2011) ‘The new CCO: delivering customer care’. (Online). Available at:http://www.brandchannel.com/features_effect.asp?pf_id=99 [Accessed 5th May 2011]Brandweek (2008) ‘HPs Dhore Discusses CRM for 60 Million Customers’. (Online). Available at:http://www.brandweek.com/bw/content_display/esearch/e3i2fa1158e675263b39fbddeaa1760777b [Accessed 5th May 2011]Bose, R. (2002) ‘Customer relationship management: key components for IT success’. IndustrialManagement & Data Systems. 102 (2) pp. 89-97.Bull, C. (2003) ‘Strategic issues in customer relationship management (CRM) implementation’.Business Process Management Journal. 9 (5) pp. 592-602.Drucker, F. P. (2007) The Practice of Management. London: HeinemannDuddy, R. and Kandampully, J. (1999) ‘Relationship marketing: a concept beyond primaryrelationship’. Marketing Intelligence & Planning. 17 (7) pp. 315-323.Elliott, R. and Percy, L. (2007) Strategic brand management. 1st ed. New York: Oxford UniversityPress.Gobe, M. (2001) Emotional branding: the new paradigm for connecting brands to people. New York:Allworth PressHamm, S. and Hof, R. (2000) ‘An eagle eye on customers’. (Online). Available at:http://www.businessweek.com/2000/00_08/b3669024.htm [Accessed 5th May 2011]Haymarket (2011) ‘Reinventing marketing: data plan heralds a new era in CRM’. (Online). Availableat: http://www.marketingmagazine.co.uk/news/1066100/Alan-Mitchell-Reinventing-marketing---Data-plan-heralds-new-era-CRM/ [Accessed 5th May 2011]Kotler, P. (2005) Principles of Marketing. 4th ed. Essex: Pearson Education Limited.Kotorov, R. (2002) ‘Ubiquitous organisation: organisational design for e-CRM’. Business ProcessManagement Journal. 8 (3) pp. 218-32.Main, J. (1990) ‘Making global alliances work’. Fortune. 17 December, pp.123-6.McDonald, M., Millman, T., Rogers, B. (1997) ‘Key account management: Theory, practice andchallenges’. Journal of Marketing Management. 13 (8) pp. 737-757.Miller, G. (2009) ‘Sex, mutation and marketing’. (Video). Available at:http://www.ipa.co.uk/Content/44-Club-Channel [Accessed 5th May 2011]Mitchell, A. (2011) ‘Reinventing marketing: data plan heralds a new era in CRM’. (Online). Availableat: http://www.marketingmagazine.co.uk/news/1066100/Alan-Mitchell-Reinventing-marketing---Data-plan-heralds-new-era-CRM/ [Accessed 5th May 2011]
  8. 8. Mowlana, H. and Smith, G. (1993) ‘Tourism in a global context: the case of the frequent travellerprogrammes’. Journal of Travel Research. Winter.Newell, F. (2000) Loyalty.com: Customer Relationship Management in the New Era of InternetMarketing. New York: McGraw-HillPalmer, J. A. (1996) Relationship marketing: a universal paradigm or management fad’. The LearningOrganization. 3 (3) pp. 18-25.Payne, A. (1994) ‘Relationship marketing – Making the customer count’. Managing Service Quality. 4(6) pp. 29-31.Peelen, E. (2006) Customer Relationship Management. Essex: PearsonRaghunathan, S. (1999) ‘Impact of information quality and decision-maker quality on decisionquality: a theoretical model and simulation analysis’. Decision Support Systems. Vol. 26, p. 275.Rosenberg, L. J. and Czepiel, J. A. (1983) ‘A marketing approach to customer retention’. Journal ofConsumer Marketing. Vol. 1, pp. 44-51.Rowley, J. (2002) ‘Eight questions for customer knowledge management in e-business’. Journal ofKnowledge Management. 6 (5) pp. 501-11.TA (2011) ‘Turkish Airlines frequent flyer programme’. (Online). Available at:http://www.turkishairlines.com/en-INT/index.aspx [Accessed 5th May 2011]Xu, M. and Walton, J. (2005) ‘Gaining customer knowledge through analytical CRM’. IndustrialManagement & Data Systems. 105 (7) pp. 955-71.Vavra, T.G. (1994) ‘The database marketing imperative’. Marketing Management. 2(1) pp. 47-57.

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