12.2 Customer relationship management
Customer relationship management (CRM) is a relatively new buzzword referring to the process of understanding and retaining customers, in particular, the most valuable customers. To achieve this we need to be able to appreciate the costs and profits of each customer and then customise our products to ensure a profitable relationship. In other words CRM is about examining the lifetime values of customers to the organisation so they can be targeted and invested in wisely.
By now you should be thinking about the similarities of CRM with the marketing orientation, noting how it differs from transactional marketing, and reasoning that customer satisfaction must be important in ensuring the success of CRM. In addition, you should also be able to reflect on how the one-to-one concepts discussed in Chapter 10 could be applied to achieve CRM.
Although CRM may be a recent buzzword, it has been practised for many years. Ask your parents about the local corner store and the relationship they had with the store owner who both managed and worked in the store. The store owner would know the names of the customers, what products they would be likely to purchase, and know some personal details about the customers (birthdays, spouse and children names, favourite sports team and/or hobbies). All this information would be gained by taking the time during each transaction to chat and thus to understand the customer.
Today many of the corner stores are being replaced by shopping malls and supermarkets conducting business with hundreds or even thousands of customers per day, all being served by a multitude of employees. The chats have been replaced with the non-emotive 'Good morning how are you today'. Customers have become reduced to being a credit card number. This is why relationship marketing, the precursor to CRM, developed. Organisations realised that if they were able to regain the personal touch of the corner store and personalise product offerings to customers' needs they may be able to retain customers. If customers were being retained, greater profits were possible.
Customer retention is a long-term approach to retaining customers by focusing on existing customers rather than seeking new customers. With the ever-changing marketplace and customers becoming more informed about other products, profits could result from retaining customers. This could be due to, for example, reduced promotion expenses because a customer who is satisfied with the service will generate positive referrals through their word of mouth advertising for the organisation.
Turn to the next reading now for an overview of CRM and the benefits of actively attempting to retain customers. The additional reading is interesting as it provides a brief historical development of CRM and the ten commandments of CRM for the 21 st century.
In your text
Kotler et al. (2004) Chapter 2, pp. 45-54, 'Retaining customers' and 'Retention and customer profitability'.
Reading 12.1
Rosenfield, J. 2002, 'Customer relationship management: A brief history, and a big mystery', Marketing & eBusiness , April, p. 45.
Activity 12.1
Kotler et al. (2004) discuss three approaches to building customer value. Examine each approach and determine if they would be suitable for your organisation or one with which you are familiar.
As you may have now realised from reading Chapter 10, the use of technology such as a database is a means of being able to store and retrieve individual information about our customers gained via the techniques we discussed in Chapter 3: 'Marketing research and information systems' . In other words, technology is allowing us to do what the corner store owner achieved many years ago which is why CRM is considered by some as being a tool of the new economy.
This is where we have to be careful when thinking about CRM. Many articles focus on the technological aspect of CRM rather than the relationship or customer satisfaction aspects. This is because organisations hoped that technology would provide the shortcut to more profits. CRM is not about technology, instead, technology facilitates CRM. CRM is about becoming more focused on your customers, it is not simply a piece of technology that will solve customer-related issues. Further, CRM has a lot to do with working towards customer satisfaction and little to do with technology, except that technology may be used to achieve the end goal more efficiently. One way of thinking about this is to think about how customers can be provided with what they expect and even a bit more, and then determine how technology can help. Technology is the means, not the end.
The reason the point about technology has been laboured here is to press home the point of CRM which is to understand and retain customers in a profitable long-term relationship. The two articles in the next reading discuss the issue of the role of technology in CRM further, turn to them now.
Reading 12.2
Bryant, G. 2001, 'Know your customers', Business Review Weekly ,
9 March, pp. 82-85.Reading 12.3
Bryant, G. 2002, 'CRM means getting involved', Business Review Weekly , 14-20 February, pp. 66-68.
Another point worth noting is that some researchers have become quite mercenary about which customers they wish to retain. Some believe that only the most valuable customers should be actively marketed to and retained. This is similar to Pareto's Principle (or the 80-20 rule) which suggests that 80 per cent of profits are gained from 20 per cent of customers. Thus some researchers' views of CRM are that only these customers are retained. Some researchers suggest that the other less profitable customers should be encouraged to go elsewhere!
Activity 12.2
Write down some potential problems of only attempting to retain valuable customers and ignoring the needs of other customers.
Turn now to the following reading for further discussion on why only profitable customers should be the focus of organisations and discussion on some misconceptions about dealing with customers.
Reading 12.4
Woodhouse, M. 2001, 'Seven myths about customers', Marketing & eBusiness , February, pp. 30-31.
While the bulk of current profits may come from a small number of customers, some, or even many of the remaining customers provide the potential for growth and future profits. Some of these customers may just require nurturing to encourage a growing profitable relationship. What a customer spends today is not necessarily a good predictor for what will be spent tomorrow because, as we found in Chapter 4 on buying behaviour, customers' spending patterns change over time according to their circumstances.
If a mercenary approach to CRM is being adopted, it is necessary for the organisation to determine the:
- profitable customers
- potential profitable customers
- customers who will never be profitable
- customers who require more investigation to determine their category.
A word of warning: if the unprofitable customers are being encouraged to discontinue to the relationship, then this must be accomplished carefully and with respect. If not, as we found in previous chapters, negative word-of-mouth is a powerful medium that can result in potential profitable employees not being attracted to the organisation.
Another consideration is that not all customers want their relationship with the organisation managed, nor do they want the organisation to know more about them; instead they just want the best deal and good service.
We will finish off this section by accessing the CRM Guru Web site ( http://www.CRMGuru.com ) and working through some of the many readings on CRM available. This will help to pull together some of the issues we have discussed as well as indicating how extensive CRM can be. Access this We site when you are next online
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