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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