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Syllabus
UNIT I
Customer Relationship Management Fundamentals- Theoretical
perspectives of relationship, Evolution of relationship marketing,
Stages of relationship, Issues of relationship, Purpose of
relationship
marketing,
Approach
towards
marketing:
A
paradigm shift, Historical Perspectives, CRM Definitions,
Emergence of CRM practice:, CRM cycle, Stakeholders in CRM,
Significance of CRM, Types of CRM, Success Factors in CRM,
CRM Comprehension, CRM Implementation
Theoretical Perspective of
Relationship
I Social Penetration Theory:
This theory was formulated by professors Irwin Altman and
Dalmas Taylor.
The social penetration theory states that this process
occurs primarily through self-disclosure and closeness
develops if the participants proceed in a gradual and orderly
fashion from superficial to intimate levels of exchange as a
function of both immediate and forecast outcomes
Developing Relationship through Social Penetration
goes through following stages:
Orientatio
n stage
Explorator
y affective
stage
Affective
stage
Stable
stage
.
Depenet
ration
• Small talk and simple, harmless clichés
• At this stage discussions follow standards of social desirability and
norms of appropriateness.
• Starting to reveal ourselves
• Expressing personal attitudes about moderate topics such as
government and education.
• Discussion is graduated to private and personal matters
• Criticism and arguments may arise. In romantic-type relationships
• The relationship now reaches a plateau in which personal things are
shared and each can predict the emotional reactions of the other
person.
• Withdrawal of disclosure which leads to termination of the
relationship
• Bitching, Ditching leads to mental itching and running away
becomes the resultant behaviour.
Example
An insurance agent does not start the sales call
with immediately starting the benefits of the
policy or need of insurance. Instead, he first tries
to develop some informality by talking something
very general and gradually moves towards
becoming personal in the number of issue he
discusses. It is only after this that he starts
introducing his offer and the rationale of it.
II. Social Exchange Theory:

This theory explains social change and stability as a process of negotiated exchanges
between parties. Social exchange theory states that all human relationships are formed
on the basis of a subjective cost-benefit analysis and the comparison of alternatives.
Example
Lot many salespeople visit a customer, but the customer subscribes only where he
thinks he is at the maximum benefit. Similar is the trend observed in many of
the services industries as insurance, telecom and tour and travel.



Outcome is defined to be the difference between the benefits and the costs:
Outcome = Benefits – Costs
Satisfaction is defined as the difference between the outcome and the comparison level:
Satisfaction = Outcome - Comparison Level
Dependence is formalized as the difference between the outcome and the "comparison
level of alternatives":
Dependence = Outcome - Comparison Level of Options
III. Equity Theory:
 Equity theory was developed in 1963 by John Stacey Adams, who
emphasized that employees seek to maintain equity between the inputs
they bring to a job and the outcome that they receive from it against the
perceived inputs and outcomes of others (Adams, 1965).
 Inputs are defined as each participant’s contributions to the relational
exchange and are viewed as entitling him/her to rewards or costs.
 Outputs are defined as the positive and negative consequences that an
individual perceives a participant has incurred as a consequence of
his/her relationship with another.
IV. Attraction Theory:
This theory postulates that one is attracted to others on
the basis of four major factors:
(i) Attractiveness
personality),
(ii) Proximity
(iii) Reinforcement and
(iv) Similarity
(physical appearance and
Evolution of relationship
marketing
 Transaction-based marketing
 Buyer and Seller exchanges characterized by
limited communications and little or no ongoing
relationship between the parties
 Relationship marketing
 Development and maintenance of long-term,
cost-effective relationships with individual
customers, suppliers, employees, and other
partners for mutual benefit
The Shift from Transaction-Based
Marketing to Relationship Marketing
 Shift
away
marketing
from
production-oriented
 Emphasis on individual sales and transactions
 Limited communication
 No ongoing relationship
 Limited in some markets, such as residential
real estate
10
The Shift from Transaction-Based Marketing
to Relationship Marketing
 Shift toward relationship marketing
 Views customers as equal partners in
transactions
 Encourages long-term relationships, repeat
purchases, and multiple brand purchases from
the firm
 Leads to increased sales and low marketing
costs
11
Relationship Marketing
 Focuses on long term rather than short term
 Emphasizes retaining customers over making a sale
 Ranks customer service as a high priority
 Encourages frequent customer contact
 Fosters customer commitment with the
firm
 Bases customer interactions on cooperation and trust
12
Elements of Relationship Marketing
• Firms build long-term relationships
in four ways
– Gather
information
about
their
customers
– Analyze the data and use it to modify
the marketing mix
– Monitor interactions with customers
– Use
customers’
preferences
and
knowledge
13
Internal Marketing
External customers - People or
organizations that buy or use a
firm’s goods or services
Internal customers - Employees
or departments within the
organization whose success
depends on the work of other
employees or departments
14
Three Levels of Relationship
Marketing
15
First Level: Focus on Price
• Most superficial level, least likely to lead
to long-term relationships
• Marketers rely on pricing to motivate
customers
• Competitors can easily duplicate pricing
benefits
16
Second Level: Social Interactions
• Customer
service
and
communication are key factors
• Example: A wine shop holding a
wine-tasting reception
17
Third Level: Interdependent
Partnership
• Relationship transformed into structural changes
that ensure partnership and interdependence
between buyer and seller
• Example: Canadian software marketer Corel chose
a cloud-based approach
– Its tech-help agents can now answer customer queries via
chat, telephone, the Web, or social media
18
THE RELATIONSHIP MARKETING CONTINUUM
• Firms try to move buyer-seller relationship from the lowest to the
highest level of the continuum of relationship marketing to strengthen
the mutual commitment between them.
How Marketers Keep Customers
 Retaining customers is more profitable than
losing them
 Customer churn - Customer turnover
 Is expensive for a company
 Firms generate more profits with each additional
year of a relationship
20
How Marketers Keep Customers
 Frequency marketing - Frequent-buyer
or -user marketing programs that reward
customers
 Affinity marketing - Solicits responses
from individuals who share common
interests and activities
21
Database Marketing
 Use of software to analyze data about customers
 Helps firms to:
 Identify their most profitable customers
 Calculate the lifetime value of each customer’s business
 Build relationships and encourage genuine brand
loyalty
 Improve customer retention and referral rates
22
Database Marketing
 Reduce marketing and promotion costs
 Boost sales volume per customer or targeted
customer group
 Expand loyalty programs
23
Database Marketing
 Possible sources of data
 Credit card applications
 Software registration
 Product warranties
 Point-of-sale register scanners
 Customer opinion surveys
 Websites
 Telecom companies database
24
Database Marketing
Interactive television - Television
service package that includes a
return path for viewers to interact
with programs or commercials by
clicking their remote controls
Application service providers
(ASPs) - Outside companies that
specialize in providing both the
computers and the application
support for managing information
systems of business clients
25
 Grassroots marketing - Connecting directly with
existing
and
potential
customers
through
nonmainstream channels
 Viral marketing - Satisfied customers spread the
word about products to other consumers
 Buzz marketing - Gathers volunteers to try
products and then relies on them to talk about
their experiences
26
Approach towards Marketing: a
Paradigm Shift
 Marketing Phase One: Practices in the
agricultural Economy
 Marketing Phase Two: Practices in the
Industrial Economy
 Marketing Phase Three: Practices in the
Post-industrial Economy
CRM: A Historical Perspective
•
•
•
•
CRM is often considered as database marketing primarily linking
marketing of the organisation with the database of the customers.
Some theorists have been considering it as an exercise for customer
retention as many theories and studies have been emphasising on the
rationale for keeping the customers. This requires a variety of techniques,
especially post-sale initiatives, to keep the customers for life. This was
believed to be a mechanism to keep the existing customers happy so that
they remain with the organisation and may, if possible, generate positive
referral for the company's products and services.
Shani and Chalasani (1992) define relationship marketing as "an integrated
effort to identify, maintain and build up a network with individual
consumers and to continuously strengthen the network for the mutual
benefit of both sides, through interactive, individualised and value-added
contacts over a long period of time".
Similarly, Jackson (1985) applies the individual account concept in
industrial markets and sees CRM as, "marketing-oriented towards strong,
lasting relationships with individual accounts".
•
29
Definition
•
"Enterprise
approach
to
understanding and influencing
customer
behaviour
through
meaningful communications in
order to improve customer
acquisition, customer retention,
customer loyalty, and customer
profitability".
•
•
(Swift 2001)
•
CRM is a comprehensive strategy
and process of acquiring, retaining
and partnering with selective
customers to create superior value
for the company and for the
customers.
(Sheth and Parvatiyar 2001)
31
•
CRM is considered as “strategic,
process oriented, cross-functional and
value creating for buyer and seller
and a means of achieving superior
financial performance”
(Lambert, 2004)
The practice of CRM is described as
the process for achieving a continuing
dialogue with customers across all
available touch points to offer them
customized treatment, based on their
expected response to available
marketing initiatives, such that the
contribution from each customer to
overall profitability is maximized.
(Bohling et al., 2006)
Based on the understanding available of Customer
Relationship Management, it can be defined as ;
“Customer
Relationship
Management
is
a
continuously updated process of identifying
relative value of customers and designing
customized company interaction to delight them
so that they do not just remain with the company
profitably but also be the company’s ambassador.
Full involvement and empowerment of employees
and appropriate technology are two essentials
for successful CRM.”
The above definition tries to lay the foundation of CRM along with
the objective for which it should be designed. The definition
implies:
•
CRM is a process
•
It needs continuous revision and updation.
•
Customer value identification is a must
•
Company interaction requires customization suiting to the
exclusive profile of the customer.
•
It strives for customer delight.
•
CRM process aims at Profitable relation with the customers.
•
It also aims to convert them to act as a company’s brand
ambassador.
•
Employees involvement and Empowerment is a must for its
successful implementation.
•
Adequate technological support is also an essential for
successful CRM.
CRM
Emergence of CRM Practice
• Sheth and Parvatiyar (1995) had observed that developing
customer relationship had been there since pre-industrial days.
• The earlier businesses were between the agriculture producers
and their customers. They used to have direct interaction.
• Similar was the case with the people of other industies which
were primarily cottage-based and have been making other
essential items such as cloth and handicrafts. They have offered
customised products to the customers.
• Since, in most of these cases, there was direct interaction
between the seller and the buyer, some of relationships tend to
be built. The indirect form of marketing came only when the
concept of mass production started and a mass production
society was created. This process separated the production and
consumption functions, leading to the emergence of middlemen
in the marketing function.
CRM Cycle
The Customer Relationship Management cycle consists of
those stages that conform to the objectives laid down in its
definition. That is, from acquisition of customers by
creating value to them to learning from the customers,
going by the route of earning profits from them for the
organization on a sustained basis.
Customer life cycle management:
Stakeholders in CRM
There are four principal stakeholders who play a major role in the
entire process of Customer Relationship Management:
1.
Customers:
Customers, of course, are the most important
persons in the CRM design for whose delight the whole exercise
is conducted.
2.
Employees: They are the set of people who execute the CRM
design. They include those right from the frontline staff who
actually executes to the top management who designs the CRM.
3.
Suppliers: They are the part of system who provide input to a
company's value chain.
4.
Partners:
customers.
They are the creators of additional value for the
Significance of CRM
• Perpetual stream of revenue: A better served and delighted
customer gradually becomes loyal. Once customer loyalty is
built, the customer remains with the company and proves to be a
perpetual source of revenue and profit often increasing over a
period of time.
• Positive referral creation: A satisfied customer often spreads
positive things about the company to the would be customers.
Such positive opinion proves to be more reliable and authentic
than companies' propaganda, including advertisements and
consequently, brings in more customers.
• Provides premium:
A customer satisfied with the service
of a particular company is found to be ready to pay a little
premium on the products/services and does not want to take
risk with a new company.
• Helps customer retention: One of the biggest advantages
of CRM is that through personal and effective customer care
and service, it helps the company keep customers for life.
Retaining customers with the company helps in many ways
and
contributes
company's bottom line.
straight
away
to
the
• Lowers cost of sale: A satisfied customer does not require
to be lured every time by the company and, hence, his
subsequent acquisition cost to the company decreases. This
helps the company lower cost of sales.
• Helps understanding consumer behaviour: By providing
personal service to its customers, the company understands
the consumers and can adapt itself to their changing
requirement.
This
also helps companies offer a complete
set of personalised solutions to customers.
• Provides opportunity to cross-sell and up-sell:
A satisfied
customer is expected to come back to the same company for repeat
purchases. In case of any cross-sell and up-sell, he again comes
back to the same company and with no extra expense, the company
is able to get him for more products.
• Reduces marketing time:
Through positive referrals and
opportunities to cross-sell and up-sell, the customer acquisition
becomes easier and consequently leads to reduced marketing time.
CRM Success Factors:
Wilson et al. (2002) described five groups of success factors within
which he identified specific factors for success
1.
determine the intent,
2.
access the context,
3.
describe content,
4.
construct intervention process and
5.
manage intervention process)
Siebel (2004) found the CRM success factors as:
1.
Integration of back office processes
2.
software customization,
3.
clear communication of the CRM strategy.
CRM Comprehension
In
feedback
Perceived
Performance(PP)
Offers
Physical Facilities
Company’s
Marketing
Program
Customer
Satisfaction
When PP>CE
Service Delivery
Customer
Cognitive
Ability
Employee Behavior
When PP<CE
Grievance Handling
Customer
Customer
Expectation(CE)
feedback
Customer Evaluation Process
Input
Customer
Dissatisfaction
Negative Publicity
Loss in Sale
Customer
Dissonance
Company's marketing programme:
This
consists
of five
important determinants of the company's offering, viz. the offer,
tangibles, services delivery,
employees
towards
its requirements, and the company's
customers
and
and
their
approach
grievance handling mechanism.
Customer expectation: The expectation created by the company
about the service also plays an important role in satisfaction
determination. If hype is created about the product, customers tend
to expect more and if the expectation is not fulfilled, it leads to
greater dissatisfaction. The same level of service may at one point
in time result into satisfaction but at another point in time may lead
to dissatisfaction. This depends upon what service expectation
level it generates in the minds of the customers.
Perceived performance:
This is
largely
guided
by
the
customer's cognitive ability. So, it is important for the companies to
realise that the service has got not just to be the best but it has to
be perceived as the best as well. It is this perception of the service
that determines if it would lead to satisfaction or dissatisfaction
Competitors' offers:
These play an important role in determining
customer satisfaction. They normally act as a benchmark for measuring
the strength of the offer, i.e. the cost, the service guarantee, the fringe
benefits etc. The growing service level of the competitor also increases
the service expectation of the customer. If it remained at the same
service level it might experience loss of sale not because of its lowering
of services but by the increase in service level of competitors.
Customer's resultant behaviour: Based on the analysis of the
components discussed above, the customer would decide upon his
further behavior regarding the company and its offers. One option
could be that he may become the brand ambassador in addition to
the regular benefit he delivers to the customers, the other extreme
may be that he starts propagating negative publicity about the
company and its offers.
Designing a CRM Implementation Model
The following is the process proposed for effective and successful
implementation of CRM in an organization. The process goes in the
sequence shown in figure below:
48
Designing a CRM. . . Contd.
 Customer segmentation based on CLV
 Customer profiling
 Offer customization
 Matching service cost and revenue
 Employee participation in CRM design
 Motivating employees for effective implementation
 Making CRM an enterprise wide activity
 Adequate technology support for CRM implementation
 Consistency testing of CRM programs
 CRM practice evaluation
49
CRM Value Chain
Customer data
Customer information
Customer knowledge
Wisdom to satisfy
CRM Value Chain