Concept and Context Of CRM

By Manoj Aiyer

Definition by Gartner

Gartner has defined ‘CRM’ as a business strategy designed to optimize profitability, revenue and customer satisfaction.

Definition by PwC Consulting CRM is a business strategy that aims

to understand / appreciate, manage and personalize the needs of an organization’s current and potential customers.

Definition by Parvatiyar and Sheth

CRM is a competitive strategy and process of acquiring, reacting and partnering with selective customers to create superior value for the company and the customer.

Definition by Bob Thompson – CRM Guru.com

CRM is a business strategy that applies to every organization. It means working with customers such that they receive great service and are motivated to return again and again to do more business with the company.

Metagroup Definition CRM is ultimately about driving bottom-line revenue

through proactive management of the customer lifecycle. It is about applying the right CRM treatment to the right customer segment at the right time to produce business results.

CRM is a business strategy providing a systemic approach to customer life cycle management (CLCM). CLCM is a three domain business system, aligning business processes, technology and the customer life cycle. This business system must integrate sales, service and marketing process and the CRM technology environment with the customer.

Defining CRM by

CRM (UK) Ltd., 2000 Customer Relationship Management is the

establishment, development, maintenance and optimization of a long-term mutually valuable relationship between customer and organization.

CRM is about ‘strategy’

It is a strategy of not only delivering a singular customer experience and value but also creating of ongoing continuous improvements in customer experience and value enhancement in the relationship.

CRM from Strategy Perspective Kumar & Werner

CRM is a strategic process of selecting the customers a firm can most profitably serve & of shaping the interactions between a company & these customers . The goal is to optimize the current & future value of the customers for the company

Why CRM is a big issue today? Customers:A key development in today’s market is the

diversity of the customers. The market place changes the needs and wants when the demographic make-up of the market place changes. Three of the important trends: Aging of the Population: The birth rate in most

developed countries has been falling for more than two decades and this phenomenon is described as deyouthing

CRM –a big issue: customers Increasing diversity in ethnicity: Markets are

becoming more segmented. Vendors will have to cater to ethnically diverse needs in housing, clothing and food. Marketing communications will have to reflect this diversity in the way companies serve their customers.

Increasing Individualisation : We will increasingly have to look at the individual behaviour as the family members spend more time apart. This will increase the need for the personalised attention to each household members. Another consequence is a higher degree of perceived loneliness in society

CRM –a big issue: customers

Time Scarcity: Many households are technologically rich but relatively

time poor. Time is becoming one of the most precious commodities. As activities compete for time, customers will redesign the tasks that consume much time and embrace time saving activities and time shifting technologies Eg: Internet and eating habits . This has resulted in Multi tasking and customer time scarcity provides a window of opportunity for the savvy marketer who can effectively bring relevant, value added messages, products, and services to time starved customers.

CRM –a big issue: Customer Value consciousness & Intolerance for low

Service Levels: Customers are becoming more demanding. The

expectations are extreme for reliable products . They are intolerant to failures and demand continuously more. customers compare their experience with best in class expectations. As the customers b’come more educated, they try new products n services & their expectation level is increased. The customers will raise their bar each time their expectations are met.

CRM –a big issue: Customer Information Availability & Technological

Aptitude: Customers are having access to tremendous

amount of data. This has both positive and negative impacts. The positive side is that all the manufacturers and service are in almost equal position when making their information available to customers. The negative side is that this , in turn, makes it much harder for the providers to differentiate their products and services from those of their competitors. This makes it harder to grab customer attention & affect their product decision.

CRM –a big issue: Customer Decrease in Loyalty

Customers are becoming increasingly selective and diversifying their business in unprecedented rates. This happens as institutions implement more intensive cross selling campaigns.

The changes in the markets are giving rise to newer trends in customer behavior. The overarching result is that consumers are putting greater demands on firms in terms of high value products & services to be provided at right time at right place.

CRM-Big Issue: Market place Business was essentially manufacturing

based. Hence, it was easier for people to switch to other brands as mass marketing was the strategy. However, due to globalization, services economy & technology market places started changing: Competition for customers becoming intense:

With trade barriers being removed n geographies getting redefined, location advantages have vanished. Logistics and distribution partnerships have become more important

CRM-Big Issue: Market place Markets have become fragmented: Customer have

differentiated needs in developed markets where supplies exceed demand. Individual marketing is taking precedence with markets broken down into multiple segments

Differentiation is becoming more difficult: the quality of objective product attributes are decreasing substantially and it is no longer a competitive advantage. Brand loyalty founded on product differentials is just relative & not absolute.

Good product is not sufficient. Companies have moved away from transaction to relationships

CRM-Big Issue: Data Storage The demand and supply of the storage technology

has changed dramatically. On supply side cost per bit basis, there is a average

drop of 40% every year . And the technology has also brought the size to much compact size.

On demand side the requirement of the economies have changed. Earlier, the western economy was 1 petabyte. Now, half of it is required for 1 oil field. Companies double storage space every 6 months

Firms are in better situation now, if they analyse correctly, it will have unprecedented data of consumer, else it will be overwhelmed with data.

CRM-Big Issue: Marketing function Media Dilution & Multiplication of channels The nature of marketing communication is undergoing

significant changes. Mass communication is a model of past , the short term & deal focused consumer response is appropriate now for Consumers and manufactures. Television has taken precedence over dailies.

Decreasing Marketing efficiency & effectiveness Marketers have to demonstrate investments to return.

The problem stems from the marketing practices which is more focused on; acquisition & not retention; prices & not value ; transaction & not relationship.

What motivates companies to adopt CRM strategies ?

Competition - With globalization and e-commerce continuing to spread, corporate offerings are increasing and becoming commoditized. Differentiating products and services is becoming more and more difficult . In such a scenario, CRM shows a company the way to increase customer loyalty, earn higher margins and stronger branding.

What motivates companies to adopt CRM strategies ?

customer Expectation- E-commerce has competition just a mouse click away and customers have become more demanding when voting with their pocket books. Companies that use CRM to truly understand their customers and respond to their needs, will come out on top. Amazon.com is a text book example in this context.

What motivates companies to adopt CRM strategies ?

Technology-The cost of CRM Technology has dropped, so it is easier to justify systems that consolidate your customers ‘touch points’. The separate and isolated systems traditionally used by Customer Service, Sales and Marketing can now be phased out and the old communication gaps filled in.

What motivates companies to adopt CRM strategies ? Diminishing impact of advertising-

Whether it is primetime TV, print journalism, direct mail or email marketing, all forms of advertising are becoming ineffective. With CRM you can target your message more precisely, hold people’s attention better and retain customers longer and at a lesser cost.

CRM, Marketing and Relationship Marketing

Under ‘selling concept’ a company’s task was to sell and promote products coming out of its factories in an effort to win as much volume as possible and thus maximize profits. The job was to hunt down customer prospects wherever they could be found and use the persuasion power of personalized selling to make a sale. Management gave little thought to segmenting the market and developing different product and service versions that met varying needs in the marketplace. Product standardization was the key-coupled with mass production, distribution and marketing.

The central purpose of traditional marketing was to sell products . The aim was to find customers for company’s products. With increased competition ‘Marketing’ concept shifted attention from the factory to customers and to their varying needs. Now a company’s aim was to develop appropriate segment based offerings and marketing mixes. Skills of market segmentation, targeting and positioning became the key. Delivering higher customer satisfaction in each chosen segment to produce loyal customers – whose repeat purchase would lead to increased profitability became the focus.

The job of marketing was therefore to develop contextual offering of products, services and experience to match individual customer requirements. To continuously explore, create and deliver individual customer value in a very dynamic and a competitive environment needs investment in ‘relationship’ with various stakeholders – customers, collaborators, employees, communities. CRM is in the domain of relationship management with customers.

CRM & Direct marketing Lester Wunderman of direct marketing fame has put

it well : The call of the industrial revolution was “This is what

I make, won’t you please buy it ?” Which has now given way to that of the customer revolution which declares, ”This is what I need, can’t you please make it”. From a company being the hunter, customer has now become the hunter – informing the company of his specific requirements proposing the price he will pay, establishing how he wants to receive the company information and advertising.

Companies therefore have to turn from a ‘make and sell’ philosophy to ‘sense and respond’ philosophy.

THEN NOW

Maximizing market share and revenue was the objective Quality standards were determined internally. Product and service were separate entities. Only marketing people were concerned with the

customer. Marketing management was an independent

function.

Maximizing customers value is the primary objective. Quality standards are determined by the

customer. Products are developed in service for

customization. Everyone in the company is concerned with the

customer. Marketing is managed by cross-functional

teams.

THE OLD Products were developed to enter new markets. Brands were built to have differentiated

associations. Communications were used to convey brand

association. Delivery systems were used to make purchases

easier. Relationships were less important than sales.

THE NEW Products are developed to meet customer

needs. Brands are positioned to offer distinctive value. Communications are used to create

expectations of value. Delivery is used to reinforce the value

proposition. Relationships are built to offer lifetime customer

value.

Difference between Transaction Marketing and Relationship Marketing

TRANSACTION V/S RELATIONSHIP MARKETING

TRANSACTION MARKETING

Functional marketing Focus on a single sale Orientation on product features Short time scale Little emphasis on customer

service Moderate customer contact Quality is a concern of

production

RELATIONSHIP MARKETING

Cross-functional marketing Focus on customer retention Orientation to customer values Long time scale High emphasis on customer

service High customer contact Quality is everyone’s concern

Difference between

Marketing and CRMThe differences are best explained by three cornerstones

Unlike marketing CRM views products as processes.

- Customer receives value not only from purchase but from each exchange between the customer and the provider- Thus managing relationship based processes is a core competence

Difference between Mktg n CRM Second concept in CRM is customer value creation

or co creation.-According to this approach competitive advantage is not based exclusively on price but also on the ability of the provider to help customers create value for themselves.

Third relates to provider’s responsibilities.- A company can build stronger relationships

with its customers only if it takes the responsibility for developing these

relationships and offers its customers possibilities to create value for themselves.

Difference between CRM and Relationship Marketing

Relationship Marketing is a broader overriding concept. According to Gummesson (2002),

‘Relationship marketing is a marketing based on interactions within networks of relationships’.

A network is a set of relationships which can grow into enormously complex patterns. In the relationship, as the simple dyad grows into a complex networks, the parties enter into active contact with each other. This is called interaction. The relationship between the one who sells something and the one who buys something forms the classic dyad of marketing, a two party relationship. This is the party relationship of marketing.

Levels of Relationship marketingHigh Margin Medium

MarginLow Margin

Many customers/ distributors Accountable Reactive Basic or reactive

Medium number of customers/distributors

Proactive Accountable Reactive

Few customers/ distributors Partnership Proactive Accountable

CRM is the values and strategies of relationship marketing – with particular emphasis on customer relationship turned into practical application. CRM does not deal with networks but focuses on the customer-supplier interaction.Gummesson(2002) has converted the philosophy of Relationship Marketing into tangible relationships that become part of the company’s marketing and business planning. This has been done by defining 30 relationships, the 30 R’s.

These 30 Rs are divided into four broad categories :

Classic market relationships (consisting of the relationship between the supplier and the customer, between the customer-supplier-competitor and the classic network distribution channels).

Special market relationships (Relationships via full time marketers and part time marketers, interaction between customers and service providers, relationship in industrial and business marketing, e-relationship, green relationship (environment and health based, law based).

30Rs

Mega relationships (Personal and social network, mass media).

Nano relationships (Introduction of profit centres in an organizations, relationship between internal customers and internal suppliers, the relationship between operations management and marketing, relationship with the employee market, etc.).

The first two types are market relationships be it classic market relationships or special market relationships. The next two types are non-market relationships which directly influence efficiency of market relationship.

What is not CRM ?In summary CRM is not :

1. Piece of software solution2. Sales tactics3. Call Center services4. Relationship building by softer attributes of a

contact person.5. Empowerment to pass goodwill waivers.6. Another ‘buzzword”/passing management fad

like Enterprise Resource Planning (ERP) / Business Process Management (BPM).

Types of CRM

1. Proactive versus Reactive CRM or2. Operational, Collaborative and Analytical

CRM.

Operational CRM

The customer touch points are classified into : Face to face touch points

Sales/Service/Channel/Events/stores/Promotions Database driven touch points

Telephones / Email/Mail/SMS/Fax/Loyalty Cards/ATM’S

Mass MediaAdvertising / PR/WebsiteAt any of these touch points, any number of the following transactions can take place.

Financial transaction Sale Payment Return of sale Information transaction Request for information Complaint Suggestion

Collaborative CRM

Jill Dyche defines collaborative CRM as a specific functionality that enables a two way dialog between a company and its customers through a variety of channels to facilitate and improve the quality of customer interactions. (Dyche 2002).The mandate of Collaborative CRM is to manage various partners of the company be it business partners, agents, brokers, OEM’s, intermediaries like distributors, dealers, resellers and retailers. By managing all these partners, it tries to in turn facilitate the integration of various activities like Marketing, Sales, service / support and quality.

Analytical CRM

Also known as back –office or strategic CRM, it involves understanding the customer activities that occurred in the front office. (Dyche 2002). It involves analyzing large amounts of cross-functional data using date mining and other methods and feeding the result (knowledge gained) back to operational CRM. It also studies customer behavior patterns that helps to know what products to position for cross-selling / up-selling and the level and kind of service to deliver to meet customer demand.