Understanding of Customer Relationship Management (CRM)

What is Customer Relationship Management?

CRM is a term that is often referred to in marketing. However, there is no complete agreement upon a single definition. This is because CRM can be considered from a number of perspectives. In summary, the three perspectives are:

  • Information Technology (IT) perspective
  • The Customer Life Cycle (CLC) perspective
  • Business Strategy perspective

1. CRM from the Information Technology Perspective.

From the technology perspective, companies often buy into software that will help to achieve their business goals. For many, CRM is far more than a new software package, the renaming of traditional customer services, or an IT-based customer management system to support sales people. However, IT is vital since it underpins CRM, and has the payoffs associated with modern technology, such as speed, ease of use, power and memory, and so on.

CRM and Information Technology.

As we have discussed, CRM is more than just software. For the purposes of this introduction – Information Technology (IT) and CRM have three key elements, namely Customer Touch Points, Applications, and Data Stores. This section is based loosely upon Raisch (2001) The eMarketplace.

Customer Touch Points are vital since your business has a marketing orientation and focuses upon the customer and his or her current and future needs. This is the interface between your organisation and its customers. For example you buy a new car from a dealership, and you enter a showroom.

The dealership is a contact point. You meet with a salesperson whom demonstrates the car. The salesperson is a contact point. You go home and look at the car manufacturer’s website, and then send the company an e-mail. Both are contact points. Other contact points include 3G telephone, video conferencing, Interactive TV, telephone, and letters.

Applications are essentially the software and programmes that support the process. Incidentally, this is what some would call CRM – but we know better. Applications serve Marketing (e.g. data mining software* and permission marketing**), Sales (e.g. monitoring Customer Touch Points), and Service (e.g. customer care).

Data Stores contain data on every aspect of the customer, and the Customer Life Cycle (CLC). For example, an organisation keeps data on the products you buy, when you buy them, and where they are sent. Data is also kept on the web pages that you visit and the products that you consider, but then do not buy. Leads are stored here. Data on the life time value of individual customers is stored here, as well as details of how and when the customer was recruited, how – and for how long – individuals have been retained, and details of any products that have been extended to individuals are also stored. The data is analysed using Applications.

*Data Mining is where an organisation evaluates large Data Stores for patterns, or relationships between groups or individuals (or segments). Applications present ‘patterns’ in a format that can be used for marketing decision-making.

Permission Marketing is where a customer elects to accept (or ‘opt-in’ to) marketing material from an organisation e.g. where you buy insurance and the vendor asks if you wish to receive further details from them, or similar organisations. It is so called because marketers need your ‘permission’ to market to you. Permission marketing can occur at any of the Customer Touch Points.

CRM from the Customer Life Cycle (CLC) Perspective.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products of services that customers need throughout their lives. It is marketing orientated rather than product orientated. Essentially, CLC is a summary of the key stages in a customer’s relationship with an organisation.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives.

It is marketing orientated rather than product orientated, and embodies the marketing concept. Essentially, CLC is a summary of the key stages in a customer’s relationship with an organisation. The problem here is that every organisation’s product offering is different, which makes it impossible to draw out a single Life Cycle that is the same for every organisation.

 

Let’s consider an example from the Banking sector. HSBC has a number of products that it aims at its customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start young when you want to save money. 11-15 year olds are targeted with the Livecash Account, and 16-17 year olds with the Right Track Account. Then when (or if) you begin College or University there are Student Loans, and when you qualify there are Recent Graduate Accounts.

When you begin work there are many types of current and savings account, and you may wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It would also be advisable to take out a pension. As you progress through your career you begin your own family, and save for your own children’s education. You embark upon a number of savings plans and schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral expenses – although HSBC may not offer this!).

This is how an organization such as HSBC, which is marketing orientated, can recruit and retain customers, and then extend additional products and services to them – throughout the individual’s life. This is an example of a Customer Life Cycle (CLC).

Another important point is that a lifetime CLC is made up many shorter CLC’s. So, for example, Volkswagen Cars retains a customer for many years and one can predict the products that meet a customers needs throughout his or her family lifetime. However the purchase of each car, will in itself be a CLC with many Customer Touch Points. The consumer may need a bigger vehicle as his or her family expands – so they visit VW’s website and register.

The customer reviews models and books a test-drive with her or his local dealer. He or she decides to buy the car and arranges finance. The car is then delivered from the factory, and returns every year for its annual service. Then after three years, the customer decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is simply the shorter-term life cycles viewed consecutively.

 CRM from the Business Strategy Perspective.

The Business Strategy perspective has most in common with many of the lessons and topics contained on this website, and indeed within the field of marketing itself. The diagram below shows the MarketingTeacher Model of CRM and Business Strategy. Our model contains three key phases – customer acquisition, customer retention and customer extention, and three contextual factors – marketing orientation, value creation and innovatove IT.

We now consider the Business Strategy Perspective on CRM. Here, we propose a model, which is a hybrid, and typical of many of the models and diagrams of CRM that you will find on The Internet and in popular books on the topic of eMarketing/eCommerce. The model has three key phases and three contextual factors:

Three key phases:

  • 1. Customer Acquisition.
  • 2. Customer Retention.
  • 3. Customer Extension.

Three contextual factors:

  • 4. Marketing Orientation.
  • 5. Value Creation.
  • 6. Innovative IT.

1. Customer Acquisition – This is the process of attracting our customer for the first their first purchase. We have acquired our customer.

Growth – Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us for the first time.

2. Customer Retention – Our customer returns to us and buys for a second time. We keep them as a customer. This is most likely to be the purchase of a similar product or service, or the next level of product or service.

Growth – Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us regularly.

3. Customer Extension – Our customers are regularly returning to purchase from us. We introduce products and services to our loyal customers that may not wholly relate to their original purchase. These are additional, supplementary purchases. Of course once our loyal customers have purchased them, our goal is to retain them as customers for the extended products or services.

Growth – Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase additional or supplementary products and services.

4. Marketing Orientation – means that the wholes organisation is focused upon the needs of customers. Customer needs are addressed by the Three Levels of a Product whereby the organisations not only supplies the actual, tangible product, but also the core product and its benefit, and also the augmented product such as a warranty and customer service. Marketing orientation will focus upon the needs of consumers for all three levels of a product. (N.B. ‘market’ orientation and ‘marketing’ orientation are not the same).

5. Value Creation – centres on the generation of shareholder value based upon the satisfaction of customer needs (as with marketing orientation) and the delivery of a sustainable competitive advantage.

6. Innovative IT – is exactly that – Information Technology must be up-to-date. It should be efficient, speedy and focus upon the needs of customers. Whilst IT and/or software are not the entire story for CRM, it is vital to its success. CRM software collects data on consumers and their transactions. Huge databases store data on individuals and groups of individuals. In some ways, CRM means that an organisation is dealing with a segment of one person, since every consumer displays different purchasing habits and preferences. Organisations will track individuals, and try to market products and services to them based upon similar buyer behaviour seen in other individuals (e.g. When Amazon tells you that customers that viewed/bought the same product as you, also bought another product).

Customer Relationship Management is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships between consumers and organisations.

What you cry? What does that mean? Let’s unpack the definition. The key to the definition is long-term mutually valuable relationship. This is based upon a definition of marketing that considers marketing as a mutually satisfying system of exchanges (for example Baker 2002). So CRM is the building and maintenance of long-term customer relationships. The relationship delivers value to customers, and profits to companies. The relationship is supported (but not driven) by cutting edge IT. The business strategy is based upon the recruitment, retention and extension of products, services, solutions or experiences to customers. This is the core of CRM.

 

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