Customer relationship

Management
Session 1
Introduction to CRM, Building relationships,
Customer Loyalty and Satisfaction
 Peter Drucker defined the marketing concept as
the business as seen from the customers point of view.
Marketing concept evolved. Mantra of segmenting market and
designing marketing programs to fit (?) needs of the segment.
Do these companies designing marketing
programs to fit needs of the segment ?
 Concept of segmented approach
marketing is becoming irrelevant in
changing times .

Why ?
Why Managing each Customers is More
Critical than Ever?

Modern firms face gradual but still

seismic changes with respect to four
major forces: consumers,
marketplaces, and marketing
functions.
Changes with Respect to Consumers
Demographic Changes and Increasing Consumer Diversity
Aging populations in developed countries
Increasing diversity in ethnicity
Increasing individualization ( full time home maker is rarity)
Behavioral Changes
Time Scarcity
Value Consciousness and Intolerance for Low Service Levels
Information Availability and Technological Aptitude
Increased Use of Social Media
Decreased Loyalty
Need for Convenience and the Rise of Self-Service
 Consumers are demanding, want personalized attention.

Demand is becoming more and more heterogeneous, individualized, and fragmented.

 Changes with Respect to the
Marketplace
Intensified Competition for Customers (global
markets)
Fragmented Markets
Difficult Differentiation
Market maturity
Market Maturity
 Changes with Respect to the
Marketing Function

Media Dilution and Channel Multiplication

Decreasing Marketing Efficiency and
Effectiveness

Marketers must be better to demonstrate their

impact on the bottom line. Otherwise, they will take
a back seat and effectively be restricted to advertising
and media planning.
Given all these changes, marketers need to learn more
about customer preferences, value provision, and
product and service customization.

Marketers need management approach that realizes

increasing customer heterogeneity, addresses concerns
about marketing accountability, puts available data to
good use, and uses customer profitability as a key
objective function.

We term this approach as customer relationship / value

management.
But there is good news for marketers which
facilitate them to face this challenge
 Technology as facilitator ..
Better Information technology
Affordable IT solutions & infrastructure
Data analytics
Data Storage Supply & demand

Firms have never confronted a better situation for

informing themselves about customer behavior and
attitudes.
Today, understanding and meeting individual customer needs have become the key
dimension on which firms forge their competitive advantage.

(Its possible. Credit goes to Information Technology)

 The marketing concept needs to
make way for the customer concept

The customer concept is the

conduct of all marketing activities
with the belief that the individual
customer is the central unit
of analysis and acti on.
Is this old wine in a new bottle ?

Imagine business in preindustrial era

Even Kotler outlines the importance of the
relationship approach to stakeholders:
The consensus inbusiness is growing: ifcompanies are to
compete successfully in domestic and global markets, they
must engineer stronger bonds with their stakeholders,
including customers, distributors, suppliers, employees,
unions, governments and other critical players in the
environment. Common practices such as whipsawing
suppliers for better prices, dictating terms to distributors and
treating employees as a cost rather than an asset, must end.

Companies must move from a short-term transaction-

orientated goal to a long-term relationship-building goal.
Now no one can deny importance of relationship Marketing (RM)..

Lets understand some background & fundamentals of RM

Major shifts is marketing philosophy
 Redefine Market (total stakeholder)

The development of this broader wave of

marketing thinking by marketing academics
and practitioners has influenced the perceived
role of marketing in business.
Marketing department given lead (but not
sole) responsibility for strengthening the firms
market performance
Three major shifts in new philosophy

Silo (functionally
based) approach
Cross functional

Customer
focused Focus on all
stakeholders

Emphasis on
Customer
acquisition Emphasis on
retention, loyalty
The transition from traditional, transactional
marketing to relationship marketing
The key principles of relationship marketing

An emphasis on retention of profitable customers

Maximizing the lifetime value of a customer
Treat Loyal customers as an intangible asset (retain them)
An emphasis on multiple markets
focuses marketing action on multiple stakeholder markets.
recognizes that multiple market domains can directly or indirectly
affect a businesss ability to win
An emphasis on a cross-functional approach to Marketing
marketing is too important to be left to the marketing
department
philosophy of marketing across the business enterprise
(organization wide culture, collaboration, cooperation)
Relationship marketing, CRM and customer
management
 Transaction Marketing Relationship Marketing
Dominating Marketing Marketing Mix elements Interactive Marketing
Function supported by marketing mix
elements
Transactional Marketing Vs. Relationship Focus Focus on single sale Focus on customer retention

Orientation Orientation on product / Orientation to customer value

service features
Time perspective Short Term Long Term
Emphasis on customer Little emphasis on customer High emphasis on customer
service service service
Customer commitment Limited customer High customer commitment
commitment
Customer contact Moderate customer contact High customer contact
Marketing

Quality Responsibility Quality is primarily concern of Quality is concern of all

production / operations
functions
Quality Dimension Quality of output is Quality of interactions
dominating (technical quality (functional quality dimension)
dimension) grows in importance and may
become dominating

Measurement of Monitoring market share Managing the customer base

customer satisfaction (indirect approach) (direct approach)
approach

Customer information Ad hoc customer satisfaction Real-time customer feedback

system survey
system
Role of internal No / Limited Substantial
marketing
Satisfaction, Retentions, Loyalty
& firm Profit
 Customer Satisfaction
Gratification, pleasure of fulfillment of desire
The buyers cognitive state of being
adequately or inadequately rewarded for
sacrifice he has undergone. Howard & Sheth
(1969)
Two forms of customer satisfaction
Transaction specific satisfaction
Overall / cumulative satisfaction
 Singh, Sirdeshmukh (2000)
CUSTOMER LOYALTY is
The Marketplace currency of 21st Century
 Customer loyalty
Oliver (1999) A deeply held commitment to
rebuy or repatronize a preferred product
consistently in the future thereby causing
repetitive same brand or same brand set
purchasing despite situational influences and
marketing efforts having the potential to cause
switching behavior.
Complex multi dimensional concept
No single agreed definition.
 Customer loyalty defined
Behavioural loyalty refers to the observed
actions (e.g. repeat purchase) that customers
have demonstrated toward a particular
product or service.
Attitudinal loyalty instead refers to a
customers perceptions and attitudes (e.g.
feeling of belongingness) toward a particular
product or service.
 Two types Customer loyalty - variables

BEHAVIOURAL LOYALTY VARIABLES ATTITUDINAL LOYALTY VARIABLES

Repurchase frequency Emotional attachment
Word of mouth Commitment
Referrals Trust
Cooperation (working Switching cost
together to achieve mutual
goals)
Willingness to partner
Resources invested by
customers (time, money)
Types of loyalty based on
Patronage and attitude
 Loyalty dimensions ..
Loyalty to the firm is typically measured, in terms of
customer loyalty owned by the firm (loyalty to the seller
specifically, independent of the salesperson, that is based on
elements the seller as an organization controls or in other
employees of the seller with whom the customer interacts;)
customer loyalty owned by the salesperson. (the customers
intention to perform behaviours that signal motivation to
maintain a relationship specifically with the focal salesperson)
synergistic loyalty, loyalty engendered neither by the seller
apart from the salesperson nor by the salesperson. (due to
seller sales person association)
Customer ladder of loyalty
 Four Phases of customer loyalty
Choosing a product on the basis of perceived superiority of the offer
Cognitive Influenced by knowledge about the brand and its benefit
loyalty

Repeated confirmations of customer expectations lead to development

Affective of favorable attitude towards the brand
loyalty

Loyalty generated from high involvement and motivation with strong

Conative purchasing intentions
loyalty

Sustained even a strong desire to overcome every possible obstacle

Action loyalty that might come in the way to buy
 Rationale for Customer loyalty
Repeat business Lower cost of acquisition
Increased sale Lower retention cost
Cross selling Lower price sensitivity
opportunities Consistent buying
Cope with competition behavior
Word of mouth Familiar customers are
Benefit of doubt easy to serve so
employees perform
better
Satisfaction-Loyalty-Profit Chain
Linking Satisfaction with retention
environment affects the
How the competitive

satisfaction-loyalty
relationship ?

In the competitive automotive industry, very high levels of satisfaction are

necessary for a customer to repurchase the same brand again.
Two different industries might have identical satisfaction levels, yet
the relationship between customer satisfaction and retention might
be quite different for the two firms.
 Relationship Marketing Programmes
SOCIAL PROGRAMME - Relationship marketing programs aimed at
increasing communicationthe amount, the frequency, and the quality
are especially effective early in the lifecycle, because communication is a
strong driver of relationship quality and future relationship growth

STRUCTURAL PROGRAMME, such as electronic order-processing interface,

customized packaging, and other policy or procedural changes, also
enhance relationships between the customer and the selling firm.
Structural RM programs should target high-volume, existing, or growing
customers, because a larger sales volume supports implementation costs.

FINANCIAL PROGRAMME, (e.g., price reductions, rebates, discounts) and

instead consider these programs only as price/volume discounts or
competitive responses
Understanding Relationship
Marketings Financial Impact
Unfolding financial outcome of relationship
marketing programs
Sales-based Outcomes Profitability-based
Sales growth Outcomes
Price levels
Sales diversity (number
Selling costs
of different products /
Aggregate Outcomes
services sold)
Lifetime value
Sales volatility (variability
ROI measures
of sales over time)
Knowledge-based Outcomes
Share of wallet
Patents
New customers Time to market
Retention rates New product success
CRM - definitions
CRM - Customer Value perspective

CRM is the practice of analyzing and using

marketing databases and leveraging
communication technologies to determine
corporate practices and methods that maximize
the lifetime value of each customer to the firm.
 CRM from strategy perspective
CRM is the strategic process of selecting
customers that a firm can most profitably
serve and shaping interactions between a
company and these customers.
The ultimate goal is to optimize the current
and future value of customers for the
company.
 CRM - Definition
CRM, also more recently called customer
management, is a business approach that seeks to
create, develop and enhance relationships with
carefully targeted customers in order to improve
customer value and corporate profitability and
thereby maximize shareholder value.

CRM is often associated with utilizing information

technology to implement relationship marketing
strategies.
 CRM evolution four stages
First Generation (Functional CRM)
Sales force automation (SFA)
Customer service and support (CSS)
Second Generation (Customer- Facing Front-End
Approach) - goal was to create a single view of all interactions with customers,
Third Generation (Strategic Approach)
Integration of front end systems with back end systems
Fourth Generation (Agile and Flexible Strategic CRM)
Agility, flexibility, and low fixed costs are key.
On demand functionality
 Todays days are of Mobile & cloud based CRM
Engage
Analyze
CRM Evolution

Transact
The CRM continuum
Many times CRM is criticized ..
 But many times organizations often view CRM
from a limited perspective or adopt CRM on a
fragmented basis
the lack of a widely accepted and clear definition of
its role and operation within the organization
an emphasis on information technology aspects
rather than its benefits in terms of building
relationships with customers
the wide variety of tools and services being offered
by information technology vendors, which are often
sold as CRM.
 CRM definitions
CRM is a business strategy combined with technology to effectively
manage the complete customer life-cycle
A term for methodologies, technologies and e-commerce capabilities used
by companies to manage customer relationships
CRM is an e-commerce application
CRM is about the development and maintenance of long-term mutually
beneficial relationships with strategically significant customers
Numerous aspects, but the basic theme is for the company to become
more customer centricmethods are primarily technology based
CRM can be viewed as an application of one-to-one marketing and
relationship marketing, responding to an individual customer
A management approach that enables organizations to identify, attract
and increase retention of profitable customers by managing relationships
with them.
It is information intensive marketing strategies aimed at building long-
term relationships and profitability
Data-driven marketing
Confusion about CRM terminology
Customer relationship management is often used
interchangeably with the terms
relationship marketing,
customer relationship marketing,
enterprise relationship marketing (ERM),
technology enabled relationship marketing (TERM),
customer managed relationships (CMR) or
customer management (CM).
It is also used to refer to a specific IT solution such as a data
warehouse or
a specific application such as campaign management or sales force
automation.
 Reason behind failure of CRM projects .

Most of the time the reason is half hearted (not considered strategic) , compartmentalized (disintegrated),
poorly executed (not able to create right organizational culture) CRM.
 What is not CRM?
Piece of software solution
Sales tactics
Call center services
Empowerment to pass goodwill waivers
Relationship building by software attributes of
a contact person
CRM (piece of software & consulting industry)
as a business segment

CRM a career option!!!

 Trends in CRM industry

CRM vendors other than the Big 4, this

group grew its collective market share
from 46 percent in 2007 to 58 percent
in 2015.

According to Gartner, the CRM software

market reached $26.3B in 2015, showing a
12.3% annual growth. The analyst firm
forecast the CRM market reaching $36.5
billion by 2017.
 Trends in CRM industry
Gartner previously positioned IBM as the
number 5 CRM vendor, however, now positions
Adobe number 5.
Not only is the CRM industry growing at a rapid
pace, but
Mobile CRM is expected to grow by 500%,
CRM growth is driven by cloud service revenue,
which, in the application space, uses SaaS as
the major delivery model
Thank you