The Main Features of Customer Relationship Management - Case Study Example

Customer Relationship Management Name Course Professor’s Name University Name City, State Date of Submission 1.0 Background ACME Sports & Distribution is a company in Taiwan founded in the year 2003.It is a small and medium- sized company as it has a workforce of 15 employees. ACME does not have a factory but imports bicycles as well as their components from the brand owners and sell them to bicycle shops. The company’s main clients are bicycle dealers from various parts of the world. In addition, the company had a shop that sold bicycles to end users but closed down after one year of operations. This bicycle distributor depends on dealers to market their products to end-user customers. Since the year 2003, the Taiwanese bicycle market continued to be stable until 2008. Various factors like media promotions, increase in price fuel among others led to rise in the demand of bicycles in the year 2008.However, the increase did not last for long because after one year the market became normal again. Following the stable market, the company’s sales declined causing many problems. To strengthen its customer relationships, ACME should focus on bicycle shops rather than the final customers in order to boost its sales. The report will focus on the relationship between ACME and its customers and the strategies that ought to be used to improve it. It sells its products to bicycle dealers who distribute them to the final consumers. These dealers promote bicycle brands from various distributors all over the world. Consequently, it is difficult for a dealer to concentrate on the promotion of a brand from only one distributor. The other problem is the closure of the store shop after a year. The company’s sales also fluctuate over the years but worsen after the year 2008.The phenomenon is attributed to the incompetence sales personnel and the company’s failure to concentrate more on marketing its products.CRM is one way of addressing the problems in the company that will contribute to increased sales. 2.0 Literature Review 2.1 Customer Lifetime Value Customer Lifetime Value is the total present value of future profits gained from each customer during his or her time of relationship with a business enterprise. It uses similar approach as that used by Discounted Cash flow in the field of finance. The model puts into consideration some things like the probability of customers to move to the competitors in the future and estimation of individual consumers[Bar08]. It therefore assists a firm in determining the amount to invest in retaining customers so that it can achieve the maximum return on its investment. Businesses have limited resources at their disposal so they must invest in only those customers who bring maximum profits in the company. Another benefit of CLV to firms is that it forms the basis to analyze purchase sequence and specific communication strategies of customers. It can thus be considered as the metric that guides the allocation of resources for ongoing marketing activities in a firm adopting customer-centric approach[Kum08]. In some instances, CLV model may forecast that customers with high risk are more profitable hence valuable to the company than the low risk customers. Using this information, a firm will concentrate on acquiring and retaining high-risk customers[Bej13]. On the other hand, a firm is expected to maintain a portfolio with both high and low risk customers. Firms need to make wise decisions to balance their portfolio of customers and still gain optimal returns from them. 2.2 Relationship portfolio Customer Relationship Management (CRM) is a broad approach that focuses on getting, retaining, as well as collaborating with selective customers to create better value for both the customer and the company. It includes integrating sales, marketing, supply chain functions of the company and customer service to maximize effectiveness and efficiency in delivering customer service[Kum12]. One of the CRM strategies that assist in building and maintaining relationships companies and their customers is the Customer Relationship portfolio theory. In recent years, development of customer relationships has become a crucial part of marketing as firms have realized that customers are the most valuable asset of any organization. Portfolio theories started within financial investment but their use like a tactical planning aid has developed over the years into a management context. If used effectively and efficiently, the theories provide assistance in resource allocation[Elt09]. The relationship portfolio models take the relationship as the main unit of analysis. It is also assumed that the norms in this market structure are long term and interactive relationships. Studies show that various mechanisms are used to assess the proposed axes of the model. For instance the difficulties involved in managing a customer depends on the customer buying behavior, competition level of a customer, and characteristics of any product bought by a customer[Elt09]. On the other hand, strategic importance is a function of the prestige and potential of the customer, volume of purchases, desirability of the supplier to make adaptation and improvements according to customer specifications and customer market leadership. Moreover, business attractiveness depends on factors such as position of customer’s business in the market and the customer’s market. The strength of the company-customer relationship is also measured by mixing subjective and objective factors that include the length of the relationship, social distance, friendship, importance of the customer, and cooperation during product development. Customer profitability is then calculated through taking the revenue earned from the customer then subtracting from it pseudo-direct costs and direct costs, pseudo-direct costs are those attached to similar customers hence are apportioned accordingly. After calculating profitability of each consumer, it was found that 20 per cent of consumers contributed to 80 percent of all the profits[But09]. The perceived strength of this relationship was then calculated using variables like pricing requirements, trust, friendship, technical ability, speed of response, management distance, pricing requirements and degree of cooperation. After analyzing two key customers, the report showed that even if both were profitable, the firm was supplying less than half of the consumer’s requirements. It could also increase its revenues significantly. There is another dimension of the analysis, which is multivariate because it involves profitability of the customer to the firm, age of the relationship, sales volume, company’s share of consumer’s purchases and sales volume. This categorization is believed to enhance the understanding of the way strategic resources are allocated among the various customers. The next step of this analysis looks at the customer’s performance as part of customer portfolio planning. The final step is selecting the main customers for analysis. At this stage a two dimensional grid is proposed which has growth rate of the customer’s market on the vertical axis. The competitive position is on the horizontal axis[Bre07]. It is evident that the customer portfolio analysis offers a strategic contribution into an organization’s planning processes. In addition, this might be the solution to a successful customer management strategy. Corporate managers then use this model to forecast costumer demands, preferences, brand switch probabilities, impact on innovations and response to pricing strategies. The data is only useful if it is well, interpreted. There are steps to follow in order to interpret the information from the model[Mal13]. The first step is to identify the needs of the firm and highlight the problem that requires a solution. Secondly, the firm should analyze the results from the model as well as take repeated analysis of information. Thirdly, prepare the most suitable action plans. The final and the most important step is to implement the actions, examine and evaluate the results of the plans and then feed them back to the planning process. 3.0 Recommendations It is evident from the literature review that Customer Lifetime Value and Relationship Portfolio greatly assist firms to build and maintain strong relationships between companies and their customers. ACME needs to implement the following recommendations: (a) Identify all its customers and determine the profits that each of them contributes to the company over their lifetime. They should also determine the high and the low risk customers.CLV model will be the most appropriate to achieve these results. After identifying the most profitable customers, ACME should then lay down strategies to build stronger relationships with them. These include offering them after sales services, sending their sales persons to those bicycle shops often among others. The salespeople will check how the dealers relate with their consumers. (b) ACME can also open new store shops to sell bicycles to the end consumers. They will serve to determine the buying patterns of end user, volume of purchases, their loyalty among other things. Promotional means like advertisement will help in creating awareness of these stores. (c) The firm should always have enough stock. It should also use the Relationship portfolio to know which customers should be given a priority. Allocation of the stock will depend on the profitability of the customer to ACME. The most profitable consumers will always be given their purchases on time. In conclusion, businesses in the modern world are required to put into consideration Customer Relationship Management strategies in order to increase their sales volume in the market. In this case, the Taiwan company strategies like CLV and Customer Relationship Portfolio to improve and sustain their relationships with the bicycle shops and bicycle buyers. References Bar08: , (Baran, et al., 2008, p. 29), Kum08: , (Kumar, 2008, p. 104), Bej13: , (Bejou & Aksoy, 2013, p. 11), Kum12: , (Kumar & Reinartz, 2012, p. 57), Elt09: , (Elton, et al., 2009, p. 93), Elt09: , (Elton, et al., 2009, p. 66), But09: , (Buttle, 2009, p. 40), Bre07: , (Brennan, et al., 2007, p. 92), Mal13: , (Malthouse, 2013, p. 111), Read More