Introduction:

Customer Relationship Management (CRM) is a business strategy that

leverages four core assets -people, processes,

technologies, and knowledge - to improve profitability of the

enterprise and build better customer relationships. It intelligently

finds customers, markets to them and provides after sales service. It

is a comprehensive approach to creating, maintaining and expanding

customer relationships; the emphasis here being on comprehensive

and customer relationships. It is not just related to one department,

but all and deals with providing customers with the highest level of

comfort.

It’s basic aim is to return to the world of personal marketing. The

concept itself is relatively simple. Rather than market to a mass of

people or firms, market to each customer individually. In this one-to-

one approach, information about a customer (e.g., previous

purchases, needs, and wants) is used to frame offers that are more

likely to be accepted.

Thus, technology is an essential part of CRM. These systems capture,

manage, and track behavioral, demographic, and psychographic

customer data. An employee can enter customer data into the CRM

system, or a customer can enter it through an integrated self-service

system, such as an automated interactive voice response (IVR)

system, Web page, kiosk, or mobile app. Once the information is

captured, it can be tracked and managed to help companies increase

revenue, lower costs, improve productivity, and bolster customer

relationships.

When Companies use CRM with a proper demand specification, a lot

of time and costs can be saved based on right expectations versus

systems capability and it becomes an integral powerful part of the

management; rather than just being a technology, it becomes a

comprehensive approach to an organization’s philosophy in dealing

with its customers. Of course the data gathered by CRM must

consider customer privacy and security.

Here is what the basic relation of CRM is with the Customer:

History of CRM:

Initially (before 1993) CRM included two markets primarily:

1) Sales Force Automation – This was designed to support

salespersons in managing their touch points and to provide them

with event calendars, improving their accuracy and efficiency

with customers. It included:

Contact Management

Activity Management

Communication Management

Forecasting

Sales Analysis

Document Management

Opportunity Management

Order Management

Product Configuration

2) Customer Service – This was after sales activity to satisfy

customers. The goal of Customer Service is to resolve internal

and external customer problems quickly by giving them accurate

answers. It Included:

Call Center Management

Field Service Management

Help Desk Management

Today CRM includes not only these two but also:

3) Sales and Marketing Management – This works under the

assumption that the Sales and marketing forces don’t exist in

isolation but must work as a part of the whole system. Sales-

management has to work in a broader and newer environment,

in co-existence with the traditional lines. The present emphasis

is now on total development of human resources. It includes:

Planning

Co-ordination

Controlling

Motivating

4) Contact and Activity Management – The focus of Activity based

Management is in knowing the true costs of products, services,

processes, activities, distribution channels, customer segments,

contracts, and projects and providing value analysis, cost drivers

and performance measures on the same. With this insight it

seeks to improve decision making in the future.

Drivers for CRM Applications:

Economically, it is cheaper for the company to retain an existing

customer than to find new ones. By Pareto Principle, we can say that

20% of a company's customers generate 80% of its profits. Also, it

takes an average of 8 to 10 physical calls in person to sell a new

customer, 2 to 3 calls to sell an existing customer. Every Dissatisfied

customer more than 10 people about his experience with the advent

of social networking, while every 5% increase in retaining existing

customers turns into 25% or more increase in profitability. These

statistics are one driving goal.

Another driving goal is that with the advent of e-commerce the

customer can deal with the salespersons or customer care personnel

much more continently rather than having to travel to a brick and

mortar place or call a phone number and wait in a queue to talk to

somebody. Thus, it is very important that you take care of your

customers in this environment or the customer may easily shift to a

competitor, who on the internet, is just a few clicks away.

Thus the goals of CRM are:

1) To increase revenue growth – Cross sell products that many

customers buy together.

2) To increase customer satisfaction -- Make their experience so

pleasant and smooth that they are drawn to you because of the

experience.

3) To reduce sales and distribution costs -- Targeted, rather than

mass advertising. Use web applications to make sales. Manage

customer relationships rather than products.

4) To minimize customer support costs – Make all information

available to the customer service representatives. Automate the

call center so that representatives have direct access to

customer history and preferences and therefore can cross-sell.

Some Myths Regarding CRM:

Firstly there are certain myths regarding CRM that need to be got out

of the way:

1) A good CRM system guarantees successful marketing. CRM is

not a strategy but a tool to help and modify the existing or future

market strategies. Before it achieves a viable CRM system, a

company needs the right value propositions and strategies to

implement the customer centric philosophy of the CRM. CRM

requires more commitment and loyalty by the company to the

customer rather than the other way round. In absence of high

quality products and services, the company cannot hope to make

good use of this tool.

2) To use CRM, a company must be organized by customer

segments rather than products. Restructuring an organization is

time-consuming, expensive, and painful for any company.

Without appropriate coordination with other functions in a

company, restructuring is not as effective. For example, channel

strategies should be combined with CRM capabilities so a

customer does not receive different offers from the same

company by different departments.

3) Successful CRM requires a large centralized database with

complete customer data. Many successful financial companies

maintain databases at the product level. By having many smaller

databases, a company can simplify the system design and

maintenance and ownership of customers. Hardware and

software need to be of very high standards for large databases.

4) CRM requires the most advanced and sophisticated analytical

techniques. Clean, well arranged data is more important in CRM

than fancy data analysis. Incomplete, inaccurate, or outdated

customer information should not be used as it renders

everything subsequent to it completely useless. Future-oriented

and hypothesis-based analysis and anticipation are the most

effective analytical tools used in CRM.

5) CRM is a turnkey project. Database, infrastructure, and

supporting business processes are required to start CRM

programs. However, it is not necessary to set up everything

together. Rather CRM is a ‘test, run, test’ process. An iterative

and incremental approach is cheaper and more effective than

turnkey based approach. Lessons from mistakes are important to

educate employees about how to use CRM.

Basic Assumptions of CRM Technology:

We need to know the basic assumptions made by the technology

before we delve into it. This is because these form the basis of its

limitations and give insight into when it might fail to give results, thus

prescribing caution. The major assumptions are as follows:

1) Habitual action. A basic idea of CRM is that the future behavior

of customer is similar to their previous behavior. This

assumption is both right and wrong because with time, behavior

patterns are bound to change. The most important thing in CRM

though is to predict the future behavior of the customer.

Because only through this can the company serve them

according to their needs in the future. That their needs may

have changed needs to be kept in mind while approaching

customers with data and analysis from a CRM system.

2) The current data on the customer is always correct. The quality

of the data on the behavioral patterns of customers and their

demographic needs to be maintained because if the information

is incorrect, the decisions are bound to fail. Many a times the

customer data comes in through various sources and input

methods. We need to ensure that the data we get is not outdates,

the customer is giving a valid feedback, etc. according to the

channel from which the data comes in. Thus, the data needs to

be perdiodically cleaned and maintained so that it may become

useful for CRM. This requires considerable expense. The firm

must update and track changes in customer information. For

example, people move; income levels change; marriages, births,

and deaths occur.

3) Consumers Want Individual, Differentiated Treatment, Services,

and Products. This basic assumption of CRM is that the

customer always wants individualized products. However, this

cannot always be satisfied because we cannot deliver all of the

required personalized products and services. Another problem is

that many a time customers make decisions based on fashion

and current trends. Furthermore, rapidly evolving technology

keeps changing customer demands. Therefore, the important

part of CRM is providing the right products and services at the

right time rather than just providing individualized products and

services.

Principles and Architecture of CRM:

All the processes of CRM are based on the following principles:

1) Treat every customer individually. CRM is based on the

philosophy of personalization. Every customer should be

remembered and given personal treatment. Services and

products for that customer must be designed to according to

their individual preferences. This will create a better experience

for the customer, but will increase the costs to the vendors. In

the words of Jeff Bezos, the founder of Amazon: “our vision is

that if we have 20 million customers, then we should have 20

million stores.”

2) Through this personal relationship, acquire and retain

customers. Maintain a continuous, healthy contact with the

customer in order to develop a strong relationship with them by

personalized product offerings. Ensure that this is not a hassle

for them or it will drive them away. Regularly reward customer

loyalty and provide a high standard of products and services,

thus leading to retaining of customers.

3) Select “Good” Customer instead of “Bad” Customer based on

their Lifetime Value. All companies have limited resources and

there may be situations when all customers cannot be given the

best treatment. In such a situation, we must find and keep the

best customers, that is, the ones who generate the most profits.

They deserve the best customer care, while the worst ones, who

are primarily a liability for the company, should be dropped.

To implement these principles, the CRM technology is architectured

to have the following steps of consumer intelligence built in:

1) Data gathering

Gathering all the sources from which the data about the

customer can be obtained.

Considering all important parameters and touch points.

Collection of the data from all the sources.

Accumulating Data in a well organized repository.

2) Data Analyses

Design patterns for the analysis and conduct detailed

analysis of the data based on the various parameters

decided.

Take various samples into consideration.

Do the final formulation of the results of the analysis.

3) Formulation of Strategy

Derive conclusions from the results.

Carry out data segmentation for more effective utilization

of the conclusions by various departments.

Prepare models of customer behavior and how to approach

them.

4) Implementation

Take the actions based on the results and the model.

Ensure that all the acting departments know about it.

Store the final repository with plants.

From an IT plus CRM point of view, the following tools can be used to

do these tasks:

1) Identification

Cookies

Website personalization

Customer profiling

2) Differentiation

Data Mining

Organizational Learning

Individual Level Analysis

3) Interaction

Web Application

Wireless Communication

Call Centre Management

Auto Response System

4) Customization

Enterprise Resource Planning

E-Commerce

Sales Automation

Marketing Process Automation

Thus we observe that a combination of CRM techniques with IT and

Data Science techniques leads to the best extraction, interpretation

and utilization of customer data. An organization which follows the

above steps in its CRM will come up with a good customer data

repository. This repository leads to given solution map.

Components of CRM Technology:

The CRM technology, which is designed to implement the

Architecture and Principles given above, is basically made up of three

components:

1) The CRM Engine:

The CRM Engine is the customer data repository or the

data mart or data warehouse where all data on the

customer is captured and stored including basic things like

name, sex, birthdate, phone number and address.

This could also include more sophisticated information like

the number of time you access a particular website and

what you did on the pages you accessed.

CRM engine provides a single gathering point for all

individual customer information so that a unified customer

view can be created.

The CRM engine is the core providing personalization.

2) Front Office Solutions:

The front-office solutions are applications that run on top of

the customer data warehouse (CDW). These applications

could be Sales Force Automations, EMA or service and

support and customer interaction applications.

The hallmarks of these front office solutions are Analytics,

Reports and Instant access to information.

They provide the employees the information to decide what

to do next with the customer.

More specific applications may also provide the option of

self service to the customer.

3) Enterprise Application Integrations

These application integrations connect CRM front office

with CRM back office and also form connections between a

new CRM system and old outdated computer systems or

enterprise systems for information flows, data analytics

and reporting.

These codes also enable communications within the CRM

system itself. Thus they were also called middleware.

EAI’s essential functions are providing messaging and data

mapping services to form bridges between systems.

Note that in the above diagram:

Analytical CRM analyses the data that has been created through

operational CRM to build a picture of the customer.

Collaborative CRM uses new and traditional communication

technologies to enable customers to interact with the organization

and allows a much better level of response to the customers.

Once IT comes into the picture along with CRM, the components of

the technology increase (as seen before in the architecture segment).

The structure of a typical CRM system with IT technologies

incorporated into it looks like this:

We can say that the better the IT technology being used in

conjunction with the CRM, the better the performance of the company

because their data is better and thus customers will be more satisfied.

Now, use of Predictive Analytics on the current behavior leads to

Predictive CRM which helps identify the most lucrative customers and

give best service accordingly. Thus, use of Predictive analytics

improves the efficiency and usefulness of CRM.

Interactive CRM includes the integration of instant communication

with the analyzed data and leads to higher customer satisfaction.

Thus, we need to use specific tools for CRM which have come up from

IT technologies. These tools include:

1) Intelligent email

Email is the most powerful means of communication

between customers and companies in the current date,

however, research shows that organizations replied to very

few emails sent by customers and the replies took a lot of

time.

With the development of AI technology, faster and effective

responses to customer queries can be generated by the

computers themselves for most of the FAQs.

2) Collaborative chat

Customers’ grievances can be addressed by live chat and if

they are logged in, their entire history should be accessed

by the Customer Service Representative leading to a good

experience for them.

3) Self help

Traditional FAQs can be complemented by intelligent

FAQs, where an intelligent search system can reinterpret

the customers question to give relevant results which a

keyword search may be unable to give.

4) Telephony

Computer telephony integration (CTI) can be incorporated

as web pages can now be equipped with call-back buttons

that can, when clicked on, open a window in which a

customer can provide a phone number where he/she can be

reached for questions or other service provision

5) VoIP

VoIP is a technology whereby an organisation’s Local Area

Network (LAN) or Wide Area Network (WAN) can be used

to transfer both data and voice.

A VoIP salesperson can use web pages to show new

products or services while conversing with the customer

about their various attributes.

Customer Life Cycle:

While Customer Life Cycle Management (CLM) is not the same as

CRM but it is related to CRM and so we will see a bit about it.

Customer Life Cycle is a term used to describe the progression of

steps a customer goes through when considering, purchasing, using,

and maintaining loyalty to a product or service.

The above is an example from the banking sector. The CLC has been

applied to a customer keeping in mind the various schemes the bank

offers. This helps the bank retain its customers and increase profits.

The primary basis for CLC is that it is cheaper to retain customers

than to recruit additional customers. Thus, the entire customer

lifecycle must be properly measured throughout its duration, and can

be examined on an individual customer or against a mean average.

This includes things like purchase history, which includes regency

frequency and quantity; gross amount of money spent on acquiring

and retaining the customer through marketing dollars, resources

spent generating each sale, as well as post sales service and support;

and the duration or longevity of that customer's relationship with your

business.

Customer Lifetime Value:

A fundamental concept of Customer Relationship Management is the

lifetime value of a new customer. The basic idea is that customers

should be judged on their profitability to the firm over the total time

(thus called lifetime "lifetime") they make purchases.

A sophisticated calculation of CLV takes into account not only average

purchase of a customer, but also things like Retention Rate, influence

of Loyalty Programs, Discount Rate and Time Value of Money.

An Example shows a calculation:

Assume that 100,000 customers are obtained in Year 1 and that an

increasing percentage of those who continue from one year to the

next stay loyal. Furthermore, assume that these loyal customers will

spend more each year. The assumed cost of retaining a customer is

$6/year and that the initial cost is 5 times that, $30. The discount rate

is taken to be 20%.

The result might look as follows, with the values shown shaded:

Now, consider the fraction of the revenue that is expense, and the

cost to retain both on an individual bases (Acquire/Retain Cost) and

the Total Acquisition Cost for all customers. Note that the Total

Acquisition Cost is obtained by multiplying the Acquire/Retain Cost by

the number of customers in that year.

The gross profit is obtained by taking the difference between

revenues and variable cost. The net present value of profit is found by

discounting the gross profit (20% per year in the example) The

average customer lifetime value is obtained by dividing the

cumulative NPV by the number of original customers (i.e., 100,000).

The table can serve as a template. That is, by substituting values that

apply to a particular firm, it can be used to estimate lifetime value for

a particular situation.

Note: The above example calculation has been taken as it is from the

paper: Customer Relationship Management by Paul Gray.

Issues With CRM:

Finally, there are still some issues with CRM that will be resolved with

time:

1) Customer privacy

The personalization process in CRM requires identification

of each individual customer and collections of demographic

and behavioral data.

However, this is the very data that customers consider as

private.

The customer should always be informed about their data

being collected and allowed to decline the same.

Customers should be allowed to access and change their

own data at any time they wish to do so.

2) Data Security

With hacking becoming an increasingly alarming

phenomenon, the security of the data collected from the

customers should be of utmost importance for a company.

The company needs to invest a lot of money on digital

security systems.

3) Technical Immaturity

Technical gaffes must be avoided at all costs as they lead to

a very frustrating costumer experience and are sure to

drive them away.

These could take place because of improper maintenance

or due to insufficiently prepared technology.

Also the hardware and software for storing the data need

to be of the topmost quality.

Thank You