Why is CRM Necessary?
Sam Walton, the founder of Wal-Mart stores, once said: “In business there is only one boss - the customer. And he can fire everybody in the company, from the chairman to down, simply by spending his money elsewhere.''
(Source: http://wehner.tamu.edu/mktg/faculty/gresham/Dr.G_ws/3
Today, whole of the business world follows the statement. A fundamental business shift is taking place-companies' strong focus on products is shifting to an equally strong focus on customers and the business-customer relationship. Why the intense focus on customer relationship management, or CRM? The simple (yet highly compelling reasons are short and long term profitability and sustainability, managing customer relationships effectively and efficiently, boosting customer satisfaction and retention rates to win and retain the most loyal and profitable customers. (; ; ). (Source:Business Process Management Journal, Emerald Group, 2003 Volume: 9 Number: 5 Page: 672 -- 688
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Main objective of CRM is to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right product or service, to the right customer, through the right channel, at the right time and the right cost. CRM integrates sales, marketing, service, enterprise resource planning and supply-chain management functions through business process automation, technology solutions, and information resources to maximize each customer contact. Organizations can be more successful if they concentrate on obtaining and maintaining a share of each customer rather than a share of the entire market. CRM facilitates relationships among enterprises, their customers, business partners, suppliers, and employees (Galbreath, 1998).(Source: Galbreath, J. (1998) 'Relationship management environments', CreditWorld, November-December, pp. 14-21 There are many success stories in the business world based on the use and benefit of CRM.
Ritz-Carlton, an upscale chain of hotels, records guest preferences during their stay and uses them to tailor the services that customers receive on their next visit at any other Ritz-Carlton in the world. Requests for items such as hypoallergenic pillows and additional towels are recorded for future use so that personalized goods and services can be added for repeat customers.
Mining customer data allowed Bank One to significantly reduce turnover among its most profitable small business customers by assigning dedicated account managers (). The service industry, however, is not the only industry to harness people, process, and technology to manage resilient customer relationships.
Dell Computer Corporation exemplifies CRM success by combining IT with front and back office operations. Every PC that Dell manufactures is already sold. From the Internet, Dell customers are able to configure their own system, from thousands of hardware and software combinations, with an easy-to-use ordering system that provides delivery dates as well as progress updates.
Several companies are turning to CRM systems and strategies to gain a better and deeper understanding of their most profitable customers, their wants and needs, so they can better anticipate what customers wants. The goal is to instill greater customer loyalty. CRM plays an important role at every stage of the Customer Life Cycle
Source: Teradataduke.org/customerfiles
CRM helps in gaining new customers though online and offline marketing communication activities like promotion, direct e-mail, incentives etc. It also assists in looking back at past acquisition efforts by the business to identify the profile of profitable potential customers for acquisition by an analysis with the use of technology based CRM applications.
Research has shown that a firm has a 60% to 70% chance of successfully repeat selling to an “active customer” as compared to only 5- 20% chance of selling to a new customer. (Griffin and Lowenstein 2001)
The Boston Consulting Group estimates that it costs $6.80 to market to existing customers via the Web, versus $34 to acquire a new Web customer.
CRM applications are needed in looking at the patterns of past service usage across customers to identify the next service to cross-sell to each customer and to relate exit surveys to past customer to identify early signals of attrition. According to Griffin & Lowenstein, CRM’s sophisticated technology can analyze these factors to avoid its reoccurrence. However, some studies also indicate that price gain (decrease in price) has a significant impact on repatronage ( Botton, Kannan and Bramlett 2000) But on the other hand ( Reichheld and Sasses1990) assert that loyal customer are willing to pay higher if the services are good.
One of the dominant focuses of CRM is customer win back which focuses on the reinitiating and management of relationship with the customer who have lapsed or defected from a firm. This suggests that a key opportunity for firm is in maintaining, mining and evaluation of the firm’s database of defected customer (Strass and Freige, 1999). Strass and Freige made this argument even more convincing in a case study which showed that the net ROI (Return on the investment) on a new customer is 23% as compared to 214% on reinstatement of a customer who has defected as CLV profitability metric in the customer relationship analysis. SLTV should be a guiding factor in deciding which customer should be recaptured and how much should be spent to acquire them, how they’re priced after being reacquired. E.g. Self care, a health care product marketers, offer discounts of up to 25% to customers who have not ordered from the company in last 18-24 months (Kiley 1996)
Advantages of CRM
CRM is a 360-degree, customer-centric view covering the entire business cycle. CRM involves improved and increased communication and understanding between a company and its customers, as well as within the company itself. Not only must competing departments such as sales and marketing, accounting, customer service/support, and manufacturing or fulfillment within the enterprise learn to share information and communicate more effectively, but every point of contact with the customer is enhanced. CRM has made a positive effect on the functioning of the business. The improvement in the functionality of some of them can be seen as follows:
Model: CRM & business functions
- From a marketing perspective
CRM identifies and targets best customers based on recency, frequency and monetary scoring. It helps manage marketing campaigns with clear goals and quantifiable objectives. It also creates and manages solid sales leads for field and telesales representatives. Marketing and cross-selling opportunities are also increased with the use of CRM. This enables tight and accurate customer targeting and one-to-one marketing, which increases returns on marketing investments. CRM solutions also add to valuable knowledge gained directly from customer interaction. This knowledge improves product development process.
CRM solutions improve telesales, field sales and sales management through real time information sharing among multiple employees. Sales efficiency is increased through wireless and Internet-based order entry. Territory management is improved with real time account information updates. The entire salesforce is improved by capturing, distributing and leveraging the success and expertise of highest performers. By focusing on growing the best accounts, the revenue per call is also increased.
- From the perspective of customer
Customer support and shared relationships with individualized customer care based on specific customer history and preferences are strengthened by CRM. Help desk support quality is improved with the automated scripting based on known solutions, call center efficiency, web-based support functionality etc as all customer contact from sales, support, field service and marketing are centralized. This results in higher customer satisfaction as the best services are available in the shortest possible time with at the least prices. CRM solutions not only improve customer loyalty, but also the internal processes which in turn increase efficiency
- From the field service perspective
customer satisfaction and retention are ensured by solving customer problems quickly. The management of people and materials within the service organization are smoothly integrated. Customer satisfaction is ensured by allocating, scheduling and dispatching the right people, with the right parts, at the right time.
How CRM is achieved
CRM can be achieved by integrating approaches to manage relationships by focusing on customer retention and relationship development.
CRM implementation model (Emerald Database)
To achieve the goal of focusing a business on the "right" customers, a creative mix of strategies, processes, technologies, information resources and people is essential. Knowledge and technology used in association with data warehousing, data mining, internet, telecommunications, call centers and other intelligence-based applications are the main drivers for CRM in achieving the business goals. The new customer-facing products and services can be implemented more quickly with the help of technology.
The first surf of technology based CRM solutions came in the late 1980s and early 1990s. These packaged solutions emphasized automating and standardizing the internal processes which relate to acquiring, servicing and keeping customers. Then in the mid-1990s the Web emerged. The new CRM system meant that the existing and potential customers were now able to interact and communicate with corporations. More importantly the client/server architecture behind existing CRM applications disappeared besides, the customer served were world-wide. In 1999, online retail activity represented less than 1 percent of overall consumer spending in North America. By 2004, it is estimated that online retailing will grow to about 5 to 7 percent of total retail sales in North America (Repository Technologies Inc., 2001).
In the present scenario of CRM; marketing intelligence, customer database and interactive communication technologies are combined to address the needs of individual customers needs. Therefore, the company can capture a market before its competitors. New concepts like e-CRM are taking place where maximum emphasis is on the electronic and net-based technologies. Some of the latest infrastructural technologies for CRM are as follows:
A data warehouse is an IT management tool that gives business decision makers instant access to information by collection of "islands of customer data", ().Data warehousing technology makes CRM possible because it consolidates correlates and transforms customer data into customer intelligence that can used to form a better understanding of customer behavior. It is clear that, to be effective, a CRM system must integrate seamlessly with the company's data warehouse.
A corporate awareness survey conducted jointly by found that 70 percent of US firms and 64 percent of European firms plan on building a data warehouse to support their CRM projects.
CRM applications take full advantage of technology innovations with their ability to collect and analyze data on customer patterns, interpret customer behavior, develop predictive models, respond with timely and effective customized communications, and deliver product and service value to individual customers
- Enterprise resource planning (ERP) systems
ERP is a linkage of all areas of a company including order management, manufacturing, human resources, financial systems and distribution with external suppliers and customers into a tightly integrated system with shared data and visibility (). Technology plays a connector’s role in this process. Consider the scenario: a customer places an order from the Web, that order flows through the manufacturer's inventory and production planning systems, pings a customer database to check credit history, hits a financial system to generate an invoice, and records the details of the transaction, so information can later be leveraged by telesales or support professionals to better service customer requests or cross-sell products. That is the promise of integrating enterprise resource planning (ERP) and CRM with the help of technology.
The explosive growth of the Internet has brought greater customer access to the organization, such as online ordering and around the clock operations. Technologies like Web sites are building everlasting relationships with "e-customers" by offering services in traditionally impossible ways. The American Airlines Web site builds customized customer views in real time allowing two million frequent fliers to have a unique experience each time they log on (). Prior to the Internet, there was not a cost-effective way to tell millions of customers fitting a certain profile about an immediately available special fare. With the interactive capability of the Internet, American Airlines can do exactly that without having to tell everyone about every special fare.
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Networking and software technology
Innovations in network infrastructure, client/server computing, and business intelligence applications are leading factors in CRM development. CRM solutions deliver repositories of customer data at a fraction of the cost of older network technologies. CRM systems accumulate, store, maintain, and distribute customer knowledge throughout the organization. Information processing through technology is critical for product tailoring, service innovation, consolidated views of customers, and calculating customer lifetime value (LTV) ().
Despite the technological perspectives discussed in the above section, the philosophical bases of CRM are relationship marketing, customer profitability, lifetime value, retention and satisfaction created through business process management. In fact, characterizes CRM as an integrated approach to managing customer relationships with re-engineering of customer value through better service recovery and competitive positioning of the offer.
Challenges for CRM
To implement a CRM system which does not meet the organization's goals or simply can't be accepted by the users is a disaster to a company (Apex IT Inc., 2001). Some of the challenges which businesses face in the implementation of CRM systems are :
- Management/leadership Problems
In this booming CRM market, some companies are rushing for CRM products before they really understand how these products can virtually make any difference for their companies. In using CRM software applications, organizations will often be faced with a choice of different vendors and software. The ability to select the right solution will impact greatly on the level of success and returns gained from the application. In particular, the functional characteristics of applications being considered need to be thoroughly reviewed to ensure it’s compatibility with the organization’s culture and processes.
Resource allocation will significantly affect the types of application to be selected and the level to which applications can be configured for the organization. Cost involved in the research and maintenance of data warehouses and buying CRM technologies like software can make a big dent in the profit margins of the business if it is not planned well in advance.
CRM initiatives require vision and each and every employee must understand the purpose and changes that CRM will bring. Successful implementation of CRM means that some jobs will be significantly changed. Some employees may opt to leave; others will have positions eliminated in the new business model. The company must be able to convince its staff that change can be positive and that it will ultimately benefit them.
It is a big challenge to co-ordinate the multi-channel customer contact technologies involving integration between sophisticated Web marketing, retail inventory and point-of-sale systems and strategies (Zikmund et al, 2003).
If we look at it in a long-term perspective, it is easy to find out that, in terms of efficiency, two to five years on a better system is better than the cost of having no system for an additional three months. So CRM is a long-term investment, not a short-term one. Therefore, the company's leaders should be aware that as this is a long-term investment, the economic return will also be a long-term one. (Sweat, 2001).
CRM, especially e-CRM involves a lot of legal issues - security, privacy and data
protection act etc. e.g. law on electronic contracts, signatures, notices etc. ensures that before notices and disclosures may be sent electronically, consumers must give their consent and the firm must verify that the consumer will be able to access electronically the information that will be provided (Bevan et al., 2001).
The govtof USA has developed a system which will have the travel history of travellers in the last five years for better CRM & security reasons but it has a big rsisitance as it could be a threat to privicy.
CONCLUSION
Organizations today are focusing on delivering the highest value to individual customers through better personalized communication, faster delivery, and tailor made products and services. Since a large percentage of customer interactions will occur without the direct human interaction and more with the help of technology like internet. The technology should be developed to adapt to the changing and unpredictable customer needs and behavior. Organizations that implement CRM and e-business applications will have the greatest gains., the future technologies will develop powerful tools With the help of data warehouses, better knowledge based analysis of data will assist e-relationship management or eRM that will synchronize cross-channel relationships using advance knowledge and behavior prediction of the customer(). e-CRM applications could enhance the delivery of CRM strategies but such applications should be chosen carefully to fit in with organizational culture, process and legacy IT systems.
Bibliography
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by Yurong Xu, Miami University, Oxford, Ohio, USA.
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Websites
http://www.IT-Analysis.com, 2001
http://
Emerald Dababase
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http://zerlina.emeraldinsight.com
http://www.informationweek. com.
http://www.advance-sales.com.
