Customer relationship management (CRM) is a strategy, used in combination with software system, to manage a firm’s interactions with existing as well as potential customers. CRM systems consolidate customer data from various channels and analyses it to understand more about the customers needs, behavior, and preferences. Here’s more on why capturing customer experience is key to successful CRM implementation and why your business needs a CRM system.
Definitions & Advantages of CRM
Various Definitions
Customer relationship management (CRM) is everywhere but it can be is a difficult business practice to define because it can apply to different levels of customers — for example, distributors, dealers, lateral partners, and consumers. Also, some of the key components of CRM shift when considering business-to-business ( B2B ) versus business-to-consumer (B2C) relationship.
CRM is the ability to blend technology with customer requirements, an important success factor for companies to manage customer relationships. Importantly, CRM provides enhanced opportunities to use data and information both to understand customers and implement relationship marketing strategies better. This requires cross-functional integration of people, operations and marketing capabilities enabled through information technology and applications.
CRM is a strategic approach to improving shareholder value through the development of:
- appropriate relationships with key customers and customer segments.
- CRM unites the potential of IT and relationship marketing strategies to deliver profitable, long-term relationships with key customer and customer segments.
Kutner and Cripps suggest that CRM is founded on four tenets:
- Customers should be managed as important assets;
- Not all customers are equally desirable;
- Customers vary in their needs, preferences, and buying behaviors;
- By better understanding their customers, companies can tailor their offerings to maximize overall value
Advantages of CRM
Here’s how CRM benefits businesses:
CRM allows a business to target customers more closely and implement ‘one to one’ marketing strategies where appropriate.
CRM “raises the bar” for customer service expectations as companies exhibit greater customer recognition and treat customers as individuals. Thus, CRM can provide organizations in many industries with a competitive advantage.
CRM simplifies company-client relations by providing a centralized repository for collecting information on prospective customers and established clientele. The ideal CRM system synchronises various marketing activities and optimises marketing results by automating customer communications.
CRM is all about managing the customer experience. However, effective management of customer experience is achieved when the organizations understand their customers’ needs and purchasing behaviors and effectively manage each interaction they have with each customer.
These interactions can arise with personnel in the store, customer contact center, or elsewhere in the channel, but also through advertising, sales, and sales promotion.
CRM Components & CRM Systems
CRM Components
To achieve the CRM objective, there is a set of factors involved (Mendoza, 2006).
Customer Relationship Management (CRM) is a combination of:
People: Humans are a critical part of the CRM strategy in any organisation both of employees and customers. People should be involved with the strategy and motivate them to reach the objectives.
Processes: CRM implementation should influence the way in which the process incorporate with the rest of the organization
Technology: IT plays a key role in implementing CRM by making it possible for companies to collect, organize, save, and use data about its customer.
CRM Systems
CRM systems (or software) helps businesses better manage relationships with their customers throughout the customer lifecycle.
These systems are efficient at storing and organizing customer data, tracking communication with customers, and provide tools that help manage sales, marketing, and customer service processes.
These are used as they enhance productivity across the range of key marketing functions: Identifying prospects, Acquiring prospects, Developing prospects, Cross-selling, Up-selling, Managing migration, Servicing, Retaining, Increasing loyalty, Winning back defectors.
Three Main Types of CRM Systems:
Operational CRM
The operational type of CRM deals with the automation of business processes (Rababah et al., 2011).
Operational CRM integrates both technologies and business processes to achieve customers’ satisfaction within an interactive context. It is centred on helping organisations to improve the efficiency of customer operations on a daily basis (Peppers and Rogers, 2011).
Operational CRM is termed as “a customer-facing applications of CRM, including sales force automation, enterprise marketing automation, and customer service automation”.
Analytical CRM
The most critical CRM component is the analysis (Reynolds, 2002). The term analytical CRM is defined as “a bottom-up perspective, which focuses on the intelligent mining of customer data for strategic or tactical purposes.
Analytical type of CRM enables organisations to examine customer behavioural patterns in order to develop marketing and promotional strategies (Xu and Walton, 2005)
Collaborative CRM
Collaborative CRM manages all types of interactions between an organisation and its customers. It uses collaborative services and infrastructure to enable interaction between an organisation and its multi-channels possible.
This type of CRM provides an opportunity for information sharing and cooperation across different distribution channels, as well as all departments in an organisation (Dyche, 2001).
Related: Understanding eCRM
Key Processes that Define CRM
CRM Steps
Peppers et al. suggested regarding one-to-one marketing that there are really four basic steps in CRM:
Identify your customers in as much detail as possible, including demographics, psychographics, habits, and preferences.
Differentiate among them (e.g. most and least profitable).
Interact with your customers (make this interaction more cost-effective through automation whenever possible).
Customize your offerings to fit each customer’s needs through mass customization or individual tailoring.
Payne and Frow (2005) emphasize the need for a cross-functional, process-oriented approach that positions CRM at a strategic level. They identify five key cross-functional CRM processes: a strategy development process, a value creation process, a multichannel integration process, an information management process, and a performance assessment process.
Here are the key processes that help define CRM:
Strategy development: at both the business level and customer level, with the latter involving decisions regarding the appropriateness of various customer segmentation approaches: mass, segmented, and one-to-one.
Value creation: involves determining what product/service attributes customers value and which customers and customer segments are valuable to the company. CRM enables companies to identify and direct relationship efforts to those with high customer lifetime values (CLV).
Multichannel integration: involves efforts to provide the “perfect customer experience” through integrating sales personnel, outlets, customer contact centers (CCCs), direct marketing, e-commerce, and m-commerce (mobile phones, SMS, and 3G and 4G mobile services).
Information management: involves collecting, organizing, and using customer data and customer information from all touchpoints (including sales force automation [SFA] and CCCs) in order to learn more about each customer and generate the appropriate marketing response.
Performance assessment: includes measuring the success of CRM efforts through metrics on customer acquisition, retention, win-back, satisfaction, loyalty, and profits.
Value Creation
This stage aims to transform “the outputs of the strategy development process into programmes that both extract and deliver and coproduce (or co-create) value” (Payne and Frow, 2005, p.88).
Here, the organisation identifies profitable customers (based on Customer Lifetime Value analysis), and implements customer retention strategies accordingly.
The three key elements of the value creation process are:
- Receiving customer value: determining what value the company can provide to its customer;
- Receiving organizational value: determining what value the company can receive from its customers, and
- Maximizing customer lifetime (CLV) value by successfully managing this value exchange (Baker and Hart, 2008), which involves a process of cocreation or coproduction, maximizing the lifetime value of desirable customer segments.
The Value the Customer Receives
The value the customer receives from the organization draws on the concept of the benefits that enhance the customer offer. The customer is now a cocreator and coproducer which contributes towards the establishment of relationships.
These benefits can be integrated into the form of a value proposition.
Value proposition explains the relationship between the performance of the product, the fulfilment of the customer’s needs, and the total cost to the customer over the customer relationship life cycle (Lanning and Michaels 1988).
To determine whether the value proposition is likely to result in a superior customer experience, a company should undertake a value assessment to quantify the relative importance that customers place on the various attributes of a product. Analysis is done to identify market segments not serviced by the value currently on offer.
The Value the Organization Receives and Lifetime Value
From this perspective, customer value is the outcome of the co-production of value, the deployment of improved acquisition and retention strategies, and the utilization of effective channel management.
Calculating the customer lifetime value of different segments enables organizations to focus on the most profitable customers and customer segments.
The value creation process is a crucial component of CRM because it translates business and customer strategies into specific value proposition statements that demonstrate what value is to be delivered to customers, Thus, it explains what value is to be received by the organization, including the potential for cocreation.
Customer Value Chain
Buttle’s Customer Value Chain outlines the five stages in creating customer value and provides a systematic means of displaying and categorizing value activities.
Relationship Management
CRM recognizes the importance of initiating, maintaining, and enhancing relationships with customers. Customer service delivery function revolves around CRM and, is focused on satisfying customers, creating customer loyalty, and, creating commitment between the company and customers.
Organizations invest heavily in research to determine and to understand consumers perceptions. To sustain relationships with current customers the company needs to create a passionate customer-centric environment.
B2B businesses may require different CRM strategies solutions (compare to B2C) due to their unique environmental components.
Value Delivery Networks
An organization’s value delivery network must be taken into consideration when devising CRM strategies.
Organizations have a tendency to outsource many of their non-core competency activities. Outsourcing creates new inter-organisational relationships with organisations and they need to be managed effectively.
It increases risks, as there is loss of control as well as potential issues with the quality of products, services, communication, and, ultimately, the strength or weakness of the customer relationship.
Each member of the value delivery network has its own unique opportunities and challenges with regard to the creation and execution of a CRM strategy.
Related: Relationship marketing
Partner Relationship Management (PRM)
Forming relationships with members in the value delivery network is not new. Organizations are now adopting structured approaches with specialized strategies and tools to build and sustain these relationships.
Partner relationship management (PRM) optimizes relationships with value delivery network partners as part of the overall CRM strategy.
A PRM strategy is instrumental in managing channel conflicts, much of which can detract from a successful CRM effort. This requires partner role definitions, rules of behavior, suggested conflict resolution procedures, and possible solutions.
Business relationships form over time
The sales process provides for the initial interactions with prospects and that is still at the heart of any CRM strategy.
a) Customer Acquisition: Selecting the right business customer is key to a successful CRM initiative. Also, long-term relationships are desirable for the organization.
b) Sales Force Automation (SFA): New technology solutions provide organizations with the ability to automate the areas of the acquisition process that support the relationship-building process. Most of these tools have fallen into a category labelled sales force automation (SFA).
Similarities and Differences between B2B and B2C Technology solutions and basic CRM methods are similar. Loyalty and customer equity (monetary value of the customer) measurement may use similar formulas, and retention strategies may use similar tactics.
The B2B relationships and expectations tend to be more formal than with B2C relationships. They are usually established via a written legal document or contract. There is generally a formal dialogue and even prescheduled meetings to discuss the ongoing relationship.
Performance Assessment Process
The performance assessment process ensures that the organisation’s strategic CRM objectives are being delivered to an appropriate and acceptable standard, and that a basis for future improvement is established. This process has two components:
Shareholder results
This provides a macro view of the overall relationships that drive performance. The organization should consider how to build employee value, customer value, and shareholder value and how to reduce costs.
Performance Monitoring
This provides a micro view of metrics and key performance indicators are used to measure performances.
Indicators that can reveal future financial results, not just historical results, need to be considered as part of this process (such as balanced scorecard).
Standards, metrics, and key performance indicators for CRM should reflect the performance standards necessary across the various major processes to ensure that CRM activities are planned and practiced effectively and that a feedback loop exists to maximize performance improvement and organizational learning.
Related: Customer Profitability: CLV and other Metrics
Customer Relationship Management Strategy
Success of CRM (the benefits it confers) depends on the effectiveness of CRM implementation.
Implementing CRM is a complex, lengthy, costly, and time-consuming effort that requires careful consideration, and improving firm performance should be a major consideration when implementing CRM.
To have a successful CRM implementation, organisations must find the best fit in both the industry’s best practices and the capability of adaptation.
The strategy development process involves a detailed assessment of business strategy and the development of an appropriate customer strategy. This should provide the enterprise with a clearer platform on which to develop and implement its CRM activities.
In Strategy Development, one should aim to develop an organisational strategy – wherein an analysis of the industry and its competitive environment is conducted. This stage is a combination of both business and customer strategy.
The organisations need to understand how CRM fits into the strategic context of the company. Thus firms should be able to fully understand and develop their vision and mission plans within a competitive business environment.
The business strategy must be considered first to determine how the customer strategy should be developed and how it should evolve over time. The business strategy process can commence with a review or articulation of a company’s vision, especially as it relates to CRM.
In the next stage, the industry and competitive environment should be reviewed. It involves carrying out the traditional industry analysis and conducting a deeper environmental analysis and impact of disruptive technologies.
Business strategy is the responsibility of the chief executive officer, the board, and the strategy director.
Customer strategy involves examining the existing and potential customer base and identifying which forms of segmentation are most appropriate. Failure to develop customer strategy is detrimental to the implementation of CRM.
Customer strategy formulates the plan of how to attract new customers and how to retain the most valuable customers from the existing base”. As part of the process, the organization needs to consider the level of subdivision for customer segments, or segment granularity. This involves decisions about whether a macro, micro, or one-to-one segmentation approach is appropriate.
Customer strategy is typically the responsibility of the marketing department.
Although CRM requires a cross-functional approach, it is often vested in functionally based roles, including IT and marketing. When different departments are involved in the two areas of strategy development, special emphasis should be placed on the alignment and integration of business strategy.
Other CRM Strategy Considerations
a) Employee Feedback Systems: Internal CRM is critical to external CRM. If employees are not engaging in productive relationships with one another, it is highly unlikely that they will foster positive outcomes with their business customers.
One way of improving employee performance is with feedback systems. These tools enable employees to receive feedback on their strengths and weaknesses from peers, subordinates, and managers. These efforts can tie into a discussion of employee appraisals and internal service-level agreement.
b) Core Selling Teams: A valuable CRM resource that enables firms to adapt to the needs of different customers is the core selling (CS) team. These teams are created around the needs of the customer.
CS members development and implement the sales strategy for the customer. As the demands placed on selling organizations increase, firms embrace customer needs–driven CRM strategies.
Understanding the role of CS teams play gives a firm a competitive advantage.
c) Customer Contact Touch Points: Outsourcing customer contact touchpoints provides benefits but also comes with trade-offs. Non-core competency functions are outsourced because someone else can perform these functions better, faster, and cheaper.
Outsourcing creates uncertainty with regards to customer-sensitive areas. E.g areas such as customer service, call centres, website management, order fulfillment, installation, maintenance, or billing, must be monitored, and quality measurement mechanics must be put in place.
Using service-level agreements helps, but they do not ensure adherence to a CRM initiative.
d. Partner Selection: Organizations must assess what can be expected of their partners in regards to their part in the execution of a CRM strategy. The emphasis is on the selection of partners as they are included in CRM strategy formulation. Expectations of partners must be set and agreed upon.
e. Salespeople: A key component of any B2B CRM strategy is the salesperson. If the salespeople are successful, it increases the odds that the CRM initiative will be successful.
“strategy suffers and execution fails when companies don’t help salespeople manage the tension between serving the customer and serving the company.” Baran and Galka (2013).
f. Contractual Obligations versus Flexibility: Organizations must also evaluate the trade-offs between strict adherence to a contractual obligation versus being flexible. In markets that potentially provide new business opportunities, relationship partners must retain a certain degree of flexibility to react to market changes.
g. Customer Service, Satisfaction, and Retention: The degree of consistency in customer service has an impact on customer retention and satisfaction.
h. Mobile Technology: Growth in mobile technology and applications requires companies to develop a dynamic 24/7, mobile CRM strategy. Choice of technology solutions, hardware, and software must be made, taking mobile requirements into consideration. These mobile applications are becoming increasingly important to the CRM initiative.
CRM Success and Failure Factors
CRM failure is caused by the complexity of technical and organizational issues that are associated with CRM implementation. Main causes of CRM failure include Organizational change, Company policies/inertia, Little understanding of CRM, Poor CRM skills.
Factors that are considered as the main reasons for failing CRM projects are Poor CRM strategy, Lack of top management support, Poor management of change, Lack of skilful human resources, Poor customer-centric orientation and Lack of assessment process.
CRM- Critical Success Factors
Here are some of the most important factors:
Top management commitment: This factor focuses on the willingness of the top level management to provide sufficient and necessary recourses needed to the implementation process.
CRM strategy: This factor focuses on the clear definition of CRM strategy and its alignment to the organisation’s general strategy.
Data management: This factor focuses on acquiring and analyzing the right quantity and quality of information on customers to help to meet customer’s needs.
Culture change: The ability of the organisation to transform into customer-oriented and to consider CRM as an organisation philosophy that is shared organisation-wide.
Process change/structure redesign: Developing necessary changes in the organisation’s structure and the related process to fit CRM compatibility including the hierarchy and reporting relations.
IT systems: This factor focuses on the availability and management of technological resources including data warehouse management, ERP capabilities, internet facilities, and software selection and configuration.
Skilful, Motivated, and trained staff: This factor focuses on the availability of experienced and qualified personnel and the ability to provide training programs.
Customer involvement/consultation: This factor focuses on consultation, interaction, and communication with customers through enhancing interaction between the organisation and the customers.
Monitoring, controlling, measuring, and feedback: This factor focuses on creating and implementing measurements for CRM implementation, and CRM impact on the organisation’s performance, as well as developing appropriate channels to gain feedback for enhancing the learning process of CRM implementation for required improvements.
Inter-departmental integration: Integrating departments and areas of the organisation to meet the CRM, the company’s, and departmental objectives.
Customer Involvement: Such involvement helps the organization to analyse the customer relationship life cycle and consequently find the areas of problems that can be managed by CRM solutions.
Privacy and Ethics Considerations
Consumers often complain about privacy issues, but, more often than not, they do not opt out, even when provided the choice. Many users also remotely think about privacy, their use of social websites takes no regards of the hazards of creating digital trails of themselves and family members. Organizations providing social interaction platforms provide limited privacy protection. They implement appropriate privacy containment measures only when pressured by society, government inquiry, or regulation.
Organizations compile information on a prospect or customer in order to analyze and fulfil needs in a manner agreeable to the prospect or customer.
CRM efforts inherently create risks for both the customer and organisation as they enter into a relationship.
The individual’s risk is providing personal and behavioural information to an organization and there is no guarantee of adherence to a certain level of privacy.
CRM can be viewed as a partial solution to solving privacy problems. Part of CRM success is dependent on the ability to track and confirm consumer information. This process forces organizations to know consumer needs and expectations, including privacy.
Consumer Privacy Concerns
Some of the issues related to Unsolicited E-Mail are: waste of time, threat of viruses and spyware, possibility of personal information captured by other parties, use of phishing to trick people into divulging confidential information.
Solicitation via Cell Phone: Mobile phone intrusions either via texting or actual calls made to the phone. Mobile phone intrusions are invasive because a mobile phone is perceived to be more personal.
Many types of organizations require the use of sensitive or private information to conduct business with the consumer They may require sensitive/ private information to protect the customer’s privacy and the security of information that has been entrusted to them.
For example, Financial Services and Insurance Organizations are heavily transaction based. Sensitive personal information is usually required to do business.
Retail, Catalogue, and Web-Based Organizations frequently capture credit card information. Over time, they accumulate purchase history. Using private credit cards and loyalty cards facilitates the capture of personal information. There is a privacy concern because of the nature of the transaction.
Such organisation should have the ability to secure the information and should provide the assurance that the information will not be shared, other than when necessary to complete the business transaction.
Organisations Privacy Concerns
Successful CRM efforts depend on relative, accurate, and timely information on individuals, households, and businesses with which the organization wishes to sustain a relationship.
Organizations are challenged by regulation and social pressures as they have to inform the consumers about the intended use of the collected data.
If consumers do not want any further contact, the organization must ensure that future contact is stopped. Organizations acknowledge all consumer privacy requests.
What Organisation Can Do
The organisation has two key objectives that must be managed in parallel.
1. First the organizations should be in total compliance with all privacy laws and privacy legislation. This includes pending legislation at all levels of government and globally, where applicable.
2. Second, organizations must determine their customer and prospect privacy and ethical expectations and meet or exceed those expectations.
A good ethical practice, and one that ensures compliance with legislation ask the consumers for permission to share their information with other parties outside the organization. This is a common practice referred to as an opt-in and opt-out strategy.
Strategic Steps For Managing Privacy Issues
Strategic steps to start managing the privacy and ethics issues faced by businesses today;
- 1. Top management should oversee the operations of the privacy and ethic process
- 2. Verify that the technical and business infrastructures support current privacy initiatives and can be quickly modified to support new initiatives.
- 3. Create internal awareness and support internal education on privacy and ethical standards
- 4. Ensure that all data capture techniques support the organization’s privacy initiative
- 5. Identify all locations of captured information in the organization including external partners, those employees who need access to this information, and for what purpose and how this information will be used.
- 6. Implement hardware and software that ensure data security and prevent fraudulent use of information.
- 7. Create a formal privacy policy for internal use, external partner use, and for the consumer. The policy should be simple and easy to understand, and should be communicated to all of these parties using appropriate channels.
References
Baran, Roger J., and Robert J. Galka. (2013) CRM : The Foundation of Contemporary Marketing Strategy, Taylor & Francis Group.
Christopher, M. Payne, A & Ballantyne, D. 2002, Relationship Marketing, 2nd edn, Butterworth Heinemann, Oxford
Jobber, D. & Ellis-Chadwick, F. 2013, Principles and Practice of Marketing, 7th edn, McGraw-Hill, London
Payne, A. and Frow, P., (2005). A strategic framework for customer relationship management. Journal of marketing, 69(4), pp.167-176.
Payne, A. and Frow, P., (2006). Customer relationship management: from strategy to implementation. Journal of Marketing Management, 22(1-2), pp.135-168.
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