Does this pose an area of concern? It some respects it may not be a problem. The organisation is simply introducing relationship values and market intelligence in sections where it is necessary and deriving their versions of CRM. Is it possible to simply cut and paste parts of CRM or is does it needed be wholly introduced for its true potential?
Another useful example of CRM being used in the financial sector is the Royal & SunAlliance case. They supply insurance and financial services and are highly respected due to their professionalism, teamwork and customer focus. In 1996 they identified the need for effective customer database capability (CPD). Again after careful selection the Viper software was chosen. CPD uses Viper today because of its ability to perform one-way analysis to help identify those variables that appear significant when explaining particular customer behaviour. Moreso analysis is typically focused on the individual customer but can be segmented on other grounds aswell. This firm has been more customer orientated from the start. Royal & SunAlliance too this system once step further. Customers were split into ten groups which share similar profit per customer values. The top 10% of customers for this client are worth 38% of the total value and the bottom 10% made up minus 28% value. The diagram below shows how such a theory can be extremely advantageous in the fields of CRM.
- Group A- Offer preferential value , possibly tailored product/service to these customers
- Group B- Offer normal undifferentiated product/service
- Group C- or the lowest valued customers should either be turned into the higher level customers or be lost as these are seen to be unprofitable clients to the organisation
Segmenting by customer value
“Marketing and in particular the managing of the buyer-seller interactions, is composed of highly specialist tasks, often crossing business functions. Consequently, organisations must learn to perform their tasks in such a way as to deliver effective customer relationship management (CRM)”
The above statement refers to the true essence of CRM. The theory therefore will explain the different parts of the statement and then this will be compared to the two examples and they degrees in which they comply with effective CRM.
Theoretical Approach
Customer relationship management is a combination of relationship marketing and database marketing. The table below highlights some key differences of this approach to traditional marketing.
Relationship marketing Marketing mix
Customer retention new customers
One to one one to many
Mutual advantage make a sale
Active contact-interaction one way communication
Join problem solving one-way problem solving
The theory is that by endorsing a marriage like relationship, both the firm and the customer can prosper. Relationships are often described like a marriage, and the organisation must continually show the client attention, meet their needs, and satisfy them through all its efforts throughout the business. There are various benefits of this approach and a longer term stance can show the profit per customer effect.
- Non-recurring customer acquisition costs
- Long term customers “trade up”
- Long term accounts can cost less to service
- Referral business from loyal customers
- New customers often get a price discount
The second element of effective CRM is the need for a good quality customer database. This system can store all sorts of data from their personal details to minute information of buying behaviour, consumption preferences and even attitudes. Database marketing has grown rapidly over years and is a significant necessity in direct marketing campaigns. Organisations will invest huge amounts to discover knowledge and information of their target markets and potential new segments. Originally Databases were basic IT systems holding basic customer information and was generally used by the operations department of firms rather than by marketers. With the rise of loyalty cards and reward schemes companies can generate a huge degree of data about customers. This information has now been integrated into the marketing function very closely with the use of CRM. Viper software program from a company called SmartFocus is an established brand name and will be investigated later.
Customer Relationship Management is therefore a fusion of these two concepts (Database marketing and relationship marketing). There are three levels in effective CRM:
Strategic/organisational level
CRM mobilizes resources around customer relationships rather than product groups
Management systems are organised on a customer basis
Operational level
Link all business processes that come into contact with the customer. Any efforts or messages sent to the customer are personalised and relevant to their needs.
Continuity and consistency in all dealings with the customer. This achieves the flow of information to all company representatives of details regarding the customer’s needs and their records of interaction between the organisations.
Analytical level
CRM incorporates a host of analytical tools designed to understand customers and model customer behaviour. For example:
- Conduct market segmentation analysis
- Identify likely customers for new and existing product lines
- Generate direct marketing campaigns
- Track and monitor campaign effectiveness
Conclusions
Black Horse have used their CRM software solution to help the flow of information regarding their customers. They have failed to make CRM in integral part of the business environment. Instead they have only used this concept in obvious benefitail areas. They are after all mainly concerned with corporate objectives in the short to mid terms but hopefully with further use of their database will begin to identify the need to use CRM in all forms of their business and communicate this through more effective direct marketing and other business functions.
Royal & SunAlliance have been more customer focused and have a higher degree of relationship marketing. The dissection of customer value poses very powerful information but must be used to its potential. There have been trends towards using the VIPER sytems by marketers to gain the powerful data, but in practice it is not being spread through all or most of the business. CRM is not only a database solution which assists in segmentation, relationships and loyalty information but very benefitail intangible results to the organisation. It may be optimistic though to assume that companies adopt a thorough CRM ethos. It could be defended that it takes a great deal of time, money and investment to change the environment of the business in most or all of the different areas.
