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Customer Relationship Management
Customer Relationship Management(CRM)
• In marketing literature, the term Customer Relationship
Management(CRM) and Relationship Marketing(RM) are
used interchangeably.
• We have seen the shift of focus in the field of marketing from
customer need to customer centricity.
• The technique which deals with the formation and nurturing of
such long-term relationship through paying individual
attention is called customer relationship management.
• It has been known to marketers for a long time that it is
important to retain existing customers before looking for new
customers for expansion.
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• In an ongoing business situation, the goal of the marketer is
considered to be long-term business gains or profits.
• Therefore, it is necessary to enjoy not just a single-time
patronage of a customer.
• The customer if satisfied with the service will continue to
patronize the same service provider.
• This is like the services of a family doctor or physician.
• If satisfied, more than three generations of a family may
patronize him and his successor.
Continuation
• For the marketer, in this case the family doctor, the value of
fee charged for each visit, the average number of such visits
per year and the number of years for which the relationship
can continue would give the life time value of a customer.
• Thus, if there are 4 family members who visit the doctor about
4 times a year, the doctor charges Rs.50 per consultation, and
the relationship continues for a period of 10 years until the
family moves out of the area, this would represent 4members x
4 visits per year x Rs.50 x 10 years, which is equal to Rs.8000
at a minimum.
Continuation
• In the past, companies strived very hard to acquire new
customers.
• Example: The mobile phone service companies that continue
to make very attractive offers for new subscribers.
• Thus, the cost of advertisements, registration of new
customers, and sops offered to those joining in represent a
sizable investment for the company.
• While it is true that growth in the customer base is necessary, it
costs much less to retain an existing customer than trying to
attract new customers who may or may not stay with you.
Continuation
• After considering both the aspects, it has been concluded by
most marketers that it is better to develop a long-term
relationship with existing customers that will turn out to be
mutually beneficial.
Lifetime Value of a Customer
• In relationship marketing every customer is considered as a
special target.
• Relationship marketers tend to convert potential buyers into
customers and then build a long-term alliance with them.
• Powering RM is the concept of lifetime value of a customer.
• It means if the customer keeps buying the same product over
his entire lifetime, it adds up to a tidy sum.
• Hindustan Thomson Associates research shows that the
lifetime value of a one cigarette smoker is Rs.1.10 lakh over
a10 year period.
Continuation
• The continuing relationship with customers over a long period
helps an organisation to gain values in four different
parameters:
1. Monetary value: The loyal customer contributes to the profit
of the organisation by purchasing products and services over
a period of time for himself, his family and/or the
organisation he represents.
2. Value through economies in business: A sound customer
base eases the pressures of maintaining the market and saves
precious managerial time. The top management can think
confidently of the future of the business and pursue growth
and expansion strategies.
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3. Referral value:
• Word-of-mouth communication is very effective in marketing.
The consumers of the company will refer the products to
prospective buyers.
• If the company has to create a customer through its marketing
efforts, it costs heavily while a loyal customer word-of-mouth
communication is free for the company.
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4.Synergic value:
• The general consumer psychology is that he or she chooses
what the majority chooses.
• Consumers are often short of product information, have
insufficient knowledge and capability to judge the product
while making a purchase decision.
• As a way to solve the problem, they follow the majority
decision.
• This is the treason why success makes further success and
failure makes further failure
Foundations of CRM – Relationship Marketing
• Relationship marketing or relationship management is a
philosophy of doing business, a strategic orientation, that
focuses on keeping and improving relationships with current
customers rather than on acquiring new customers.
• This philosophy assumes that many consumers and business
customers prefer to have an ongoing relationship with one
organization than to switch continually among providers in
their search for value.
• Building on this assumption and the fact that it is usually much
cheaper to keep a current customer than to attract a new one,
successful marketers are working on effective strategies for
retaining customers.
Continuation
• It has been suggested that firms frequently focus on attracting
customers (the first act) but then pay little attention to what
they should do to keep them(the second act).
• James L.Schorr, the executive vice president of marketing at
Holiday Inns was famous for what is called the “bucket theory
of marketing”
• By this he meant that marketing can be thought of as a big
bucket.
• It is what the sales, advertising and promotion programs do
that pours business into the top of the bucket.
• As long as these programs are effective, the bucket stays full.
Continuation
• However, “There’s only one problem,” he said, there’s a hole
in the bucket.”
• When the business is running well and the hotel is delivering
on its promises, the hole is small and few customers are
leaving.
• When the operation is weak and the customers are not satisfied
with what they get, however, people start falling out of the
bucket through the holes faster than they can be poured in
through the top.
The Evolution of Customer Relationships
1. Customers as Strangers:
• Strangers are those customers who or not aware of or,
perhaps, those who have not yet had any transactions with a
firm.
• At the industry level, strangers may be regarded as customers
who have not yet entered the market.
• At the firm level, they may include customers of competitors.
• Clearly the firm has no relationship with the customer at this
point.
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• Consequently, the firm’s primary goal with these potential
customers (strangers) is to initiate communication with them
in order to attract them and acquire their business.
• Thus, the primary marketing efforts directed towards such
customers deal with familiarizing those potential customers
with the firm’s offerings and subsequently encouraging them
to give the firm a try.
2. Customers as Acquaintances
• Once customer awareness and trial are achieved, familiarity is
established and the customer and the firm become
acquaintances, creating the basis for an exchange relationship.
• A primary goal for the firm at this stage of the relationship is
satisfying the customer.
• In the acquaintance stage, firms are generally concerned about
providing a value proposition to customers that is comparable
with that of competitors.
Continuation
• For a customer, an acquaintanceship is effective as long as the
customer is relatively satisfied and what is being received in
the exchange is perceived as fair value.
• With repetitive interactions, the customer gains experience and
becomes more familiar with the firm’s product offerings.
3. Customers as Friends
• As a customer continues to make purchases from a firm and to
receive value in the exchange relationship, the firm begins to
acquire specific knowledge of the customer’s needs, allowing
it to create an offering that directly addresses the customer’s
situations.
• The provision of a unique offering, and thus differential value,
transforms the exchange relationship from acquaintance to
friendship.
• This transition from acquaintanceship to friendship,
particularly in service exchange relationships, requires then
development of trust.
4. Customers as Partners
• As a customer continues to interact with a firm, the level of
trust often deepens and the customer may receive more
customized product offerings and interactions.
• The trust developed in the friendship stage is a necessary but
not sufficient condition for a customer-firm partnership to
develop.
• Thus, in order to move the relationship into a partner
relationship, a firm must use customer knowledge and
information systems to deliver the highly personalized and
customized offerings.
• At the partnership stage, the firm is concerned with enhancing
the relationship.
Services marketing & CRM
Traditional Marketing Vs Relationship Marketing:
• Traditional marketing is transaction oriented and as such it is
also called transaction marketing.
• The changing business scenario has forced many business
organizations to shift their focus from transaction oriented to
customer relationship orientation.
Traditional Marketing
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Focus on making sale.
Product features are focused.
Short-term focus.
Little emphasis on customer service.
Customer commitment is low.
Moderate customer contact.
Quality is primarily a concern of production.
Customer satisfaction.
Relationship Marketing
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Focus on making a customer loyal.
Product benefits are focused.
Long-term focus.
High customer service emphasis.
Customer commitment is high.
High customer contact.
Quality is the concern of all.
Customer retention.
Benefits for Customers and Firms
• Both parties in the customer-firm relationship can benefit from
customer retention.
• That is, it is not only in the best interest of the organization to
build and maintain a customer base, but customers themselves
also benefit from long-term associations.
I. Benefits for Customers
• Customers will remain loyal to a firm when they receive
greater value relative to what they expect from competing
firms.
• Value represents a trade-off for the consumer between the
“give” and the “get” components.
• Consumers are more likely to stay in a relationship when the
gets (quality, satisfaction, specific benefits) exceed the gives
(monetary and non monetary costs).
• Beyond the specific inherent benefits of receiving service
value, customers also benefit in other ways from long term
associations with firms.
1. Confidence Benefits
• Confidence benefits comprise feelings of trust or confidence in
the provider along with a sense of reduced anxiety and comfort
in knowing what to expect.
• Across all the services studied in the research just cited,
confidence benefits were the most important to customers.
• Human nature is such that most consumers would prefer not to
change service providers, particularly when there is a
considerable investment in the relationship.
• The costs of switching are frequently high in terms of dollar
costs of transferring business and the time related costs.
2. Social Benefits
• Over time, customers develop a sense of familiarity and even a
social relationship with their service providers.
• These ties make it less likely that they will switch, even if they
learn about a competitor that might have better quality or a
lower price.
• This customer’s description of her hair stylist in a quote from
the research just cited illustrates the concept of social benefits:
“I like him…. He’s really funny and always has lots of good
jokes. He’s kind of like a friend now… it’s more fun to deal
with somebody that you’re used to. You enjoy doing business
with them.”
3. Special Treatment Benefits
• Special treatment includes getting the benefit of the doubt,
being given a special deal or price, or getting preferential
treatment as explained by the following quotes from the
research:
• “You should get the benefit of the doubt in many situations.
• For example, I always pay my VISA bill on time, before a
service charge is assessed.
• One time my payment didn’t quite arrive on time.
• When I called them, by looking at my past history, they
realized that I always make an early payment. Therefore, they
waived the service charge. “
II. Benefits for Firms
• The benefits to organizations of maintaining and developing a
loyal customer base are numerous.
• In addition to the economic benefits that a firm receives from
cultivating close relationships with its customers, a variety of
customer behavior benefits and human resource management
benefits are also often received.
1. Economic Benefits
• The first economic benefit is, over the long run, relationshiporiented service firms achieve higher overall returns on their
investments than do transaction oriented firms.
• Another economic benefit is lower costs.
• Some estimates suggest that repeat purchases by established
customers require as much as 90 percent less marketing
expenditure.
Continuation
• Many start-up costs are associated with attracting new
customers, including advertising and other promotion costs,
the operating costs of setting up new accounts, and time costs
of getting to know the customers.
• So, it is to the firm’s advantage to cultivate long-term
relationships.
2. Customer Behaviour Benefits
• The contribution that loyal customers make to a service
business can go well beyond their direct financial impact on
the firm.
• The first, customer behavior benefit that a firm receives from
long-term customers is the free advertising provided through
word-of-mouth communication.
• When a product is complex and difficult to evaluate and when
risk is involved in the decision to buy it - as is the case with
many services - consumers often look to others for advice on
which providers to consider.
Continuation
• Satisfied, loyal customers are likely to provide a firm with
strong word-of-mouth endorsements.
• This form of advertising can be more effective than any paid
advertising that the firm might use, and it has the added benefit
of reducing the costs of attracting new customers.
• Example: At a physical therapy clinic, a patient who is
recovering from knee surgery is likely to think more highly of
the clinic when fellow patients provide encouragement and
emotional support to the patient during the rehabilitation
process.
• Finally, loyal customers may serve as mentors.
3. Human Resource Management Benefits
• Loyal customers may also provide a firm with human resource
management benefits.
• It is easier for a firm to retain employees when it has a stable
base of satisfied customers.
• People like to work for companies whose customers are happy
and loyal.
• Their jobs are more satisfying, and they are able to spend more
of their time fostering relationships than scrambling for new
customers.
Essentials of Relationship Marketing
In order to make relationship marketing workable, service
companies need to do the following:
1. Identify the need for relationships in different areas of
business operations.
2. Collect data and information relating to the prospects.
3. Carefully scrutinize the list of prospects.
4. Design programmes for building relationships.
5. Develop plans for approach and reapproach.
6. Develop packages for maintaining relationships.
7. Develop packages for enhancing relationships.
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8. Train personnel in relationship marketing.
9. Design the system, infrastructure and support services that
facilitate relationships.
10. Execute the programme.
11. Design a feedback system.
12. Collect feedback and make necessary improvements.
Relationship Marketing Strategies – Customer
Retention
• The trend in marketing towards building relationships with
customers continues to grow and marketers have become
increasingly interested in retaining customers over the long
run.
• Companies do spend a lot of money through different media to
attract new customers to the business.
• Attracting new customers requires substantial skill and effort.
• However, these skillful efforts will be of little use if the
company suffers from high customer churn(gaining new
customers only to lose many of them).
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• Unless organisations pursue customer retention strategies, the
problem cannot be solved.
• Every company needs to define and measure its retention rate.
• Each company must also the distinguish the reasons for losing
customers and identify those causes that can be managed
better.
• It is important to know how much loss the company makes
when it loses customers.
Continuation
• The key to customer retention is to offer continuous
satisfaction to customers. According to Philip Kotler, a highly
satisfied customer
1. Stays loyal longer.
2. Buys more as the company introduces new products and
upgrades existing products.
3. Talks favorably about the company and its products.
4. Pays less attention to competing brands and advertising and is
less sensitive to price.
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5. Offers product or service ideas to the company.
6. Costs less to serve than making new customers because
transactions take place in a routine manner.
Continuation
• It is necessary, therefore, to measure customer satisfaction
regularly by surveying the customers to know whether they are
highly satisfied, satisfied, indifferent, dissatisfied or highly
dissatisfied.
• Customer complaints are one of the important sources to track
the level of customer satisfaction.
• The speed and manner in which the company responds to the
complaints made by the customers makes a vast difference in
consumer perceptions.
Continuation
• Customers who had complained to an organization and have
had their complaints satisfactorily resolved, usually tell an
average of five people about the good treatment they received.
• Acquiring new customers can cost five times more than the
costs involved in satisfying and retaining current customers. –
Frederick.
• The key to customer retention is relationship marketing.
Continuation
The following are the 3 levels of retention strategies:
1. Level One: Financial bonds
2. Level Two: Financial and social bonds
3. Level Three: Financial, social and structural bonds.
1. Financial Bonds
• At this level, customers are offered financial incentives either
for greater volume purchases or for continuation of
relationship for a long time.
2. Financial and Social Bonds
• At this level, the firm intends to develop long-term
relationships with customers through social as well as financial
bonds.
• The customers are identified by name and services are
customized to fit individual needs.
• Marketers are looking for ways to keep in touch with their
customers by providing a personal touch and building informal
relationships.
3. Financial, Social and Structural Bonds
• The strategy is to develop structural bonds along with financial
and social bonds.
• Structural bonds are created by providing highly customized
service to the clients.
• Specific customer needs are brought into the organizational
system to design new ways and to improve offerings to the
clients.
Continuation
• In service business, sometimes there is a possibility of things
going wrong.
• Under such circumstances, a recovery strategy needs to be
designed for retaining customers.
• Effective recovery is essential to save and even build
relationships.
• The service firms should develop an orientation that ‘the
customer who complains is your friend’.
Do Customers Look for Relationship
• Yes. Customers do look for relationship with business people.
They also gain some benefits through the relationship with the
seller. They are:
1. Reliability: Customers want to build relations to find a
reliable source of supply and service.
2. Time: When consumers find a reliable seller they need not
waste time searching for various other sellers.
3. Search: The information search costs and energy costs get
minimised.
Continuation
4. Exchange: A known seller accepts return of defective goods or
executes recovery in the case of service without any
difficulty.
5. Support: Many a time, customers seek sellers support in
taking purchase decisions. The advice of a known seller
provides greater support to the consumer.
6. In absentia purchase: A continuous rapport with the seller
enables the customer to communicate his/her likes, dislikes or
preferences. He may manage to get the products at home,
without personally going out for the service.
Continuation
7. Credit: Customers may seek liberal credit without security
from a known seller.
8. Social value: Consumers are social beings and they look for
identity and recognition in society. When sellers wish them at
various social occasions, they feel very happy and delighted.