CRM as a Marketing Approach - Assignment Example

The increasing power of consumers has significantly reshaped business distribution and marketing models. In turn this has required retailers to add value in stores to compete with the multiple retail channels and highlighted the need for businesses to adopt customer relationship oriented approach in order to create value for the consumer (Merz, He & Vargo 2009). It is evident that retailers are now moving away from the conventional economics based approach to consider the benefit of integrating effective customer relationship management (CRM) into business strategy to create value for its customers. As a result, CRM has significantly reshaped how businesses approach strategy planning with a distinct shift in solely focusing on product development to implementing strategy that acknowledges the increasing power of consumers. The CRM model stems from the marketing concept of relationship marketing and work of marketing theorists Berry (1983) and Reichheld (1996), who argued that: “a 5% growth in customer retention rates culminated in a mean customer lifetime value figure ranging between 35% to 95%, with knock on effects on profit margins” (In Ryals & Knox, 2001). There are many definitions of CRM but generally, CRM is defined as a marketing approach that focuses on building customer relationships and as a result, the sales, marketing and customer service fall within this overall model (Christopher et al, 1991). Moreover, Galbreath posits that effective with effective CRM activities “an enterprise performs to identify, select, acquire, develop, and retain increasingly loyal and profitable customers”(Galbreath, 1998:14). Furthermore, it is further submitted that globalisation whilst fuelling numerous business opportunities, has simultaneously led to market saturation due to the lower costs of market entry under the e-commerce business model within the retail sector. This in turn has brought the customer to the fore (Merz, He & Vargo, 2009). Accordingly, the contextual backdrop of the contemporary marketplace arguably highlights the benefit of organisations using CRM in business growth strategy. This is further highlighted by the central arguments pertaining to the benefits of innovation in CRM. Indeed, Chan & Mauborgne highlight the point that the effective use of CRM provides ample scope for business growth where: “Companies can create new industries or create a new market ….which changes the parameters of existing industry” (Chan-Kim & Mauborgne, 2005). To this end, Chan Kim & Mauborgne (2005) argue that purchaser value is increased by offering customers new experiences, increasing customer retention rates. In turn, the relationship between consumers and branding is arguably paramount in determining the centre of how value should be marketed to retain and persuade new customers (Merz, He & Vargo 2009). Indeed, whilst loyalty programs have been viewed as incentives for consumers, the type of loyalty programs in ensuring brand loyalty in the long term has become increasingly dictated by the consumer (Capon, 2009). Therefore, the increase of consumer power arguably forces organisations to undertake a more lateral approach to marketing as opposed to merely focusing on competitors (Avlonitis & Indounas, 2007). This argument is reinforced by the proposition of Weinberg et al that organisations shouldn’t assume what the customers want, but that it is imperative for organisations to add value in addressing consumer needs to survive in the multi-channel marketplace (in Avlonitis & Indounas, 2007). For example, Tesco has been able ability to sustain growth in the competitive grocery sector has been the continuous innovation in service offering to adapt to the contemporary consumer (Burch & Lawrence, 2007). Prime examples of this include the development of Tesco’s in house brand and the use of customer loyalty schemes; which boost profits in the long term (Capon, 2009, p.135). Additionally, another significant aspect of the efficacy of Tesco’s loyalty program is the use of CRM computer systems for securing valuable consumer information in order to provide specifically targeted consumer loyalty schemes. For example, the purchasing system tracks consumer preferences from the receipt and provides discount loyalty vouchers for specific products that the specific customer regularly purchases. Similarly, with the email marketing campaigns run by Tesco, it runs targeted email campaigns with targeted special offers. Additionally, the structure of the campaign operates through the use of trigger points, which serve to continue building trust with the consumer whilst simultaneously selling the special offer promotions available. Moreover, Tesco’s strategy management and effective implementation of CRM has expanded the brand beyond the UK grocery market (Capon, 2009). This is further evidenced by Tesco’s CRM strategy and implementation via partnership with Accenture in South Korea. Tesco entered the Korean business market through introducing the HomePlus discount store to Seoul. In partnering with Tesco, Accenture was responsible for providing CRM support technology for the retail joint venture between Samsung and Tesco as part of Tesco’s expansion plans for the Korean market. The Korean retail market is extremely competitive and there are significant cultural and socio-economic barriers to market entry. Accordingly, Accenture point to the fact that Tesco had to create a niche market to maximise chances of success in the market. To this end, it appointed Accenture to implement CRM strategy. Additionally, Accenture argues that it was their implementation of CRM strategy that contributed to success, through the use of customer profiling and categorisation of customer types. Once this was undertaken, Accenture then utilised its customer profiling data to formulate CRM strategy to ensure that the Tesco Homeplus stores secured a share of the customer marketplace. Accordingly, the Accenture and Tesco CRM strategy highlights the importance of understanding consumer behaviour and the increasing power of consumers in leading business growth strategy and supporters of the use of CRM by organisations posit that a central benefit is securing the consistent growth of profit margins via customer retention. Moreover, Galbreath posits that businesses with effective CRM activities position themselves with a competitive edge by operating “an enterprise performs to identify, select, acquire, develop, and retain increasingly loyal and profitable customers” (Galbreath, 1998 at p.14). For example, this is further evidenced by Tesco’s domestic CRM strategy, spearheaded by the famous tag line “every little helps”. Additionally, they were one of the first big companies to introduce economy goods ranges and loyalty bonus system to retain customer loyalty (Hill & Jones, 2007). Moreover, Kutner and Cripps propose a four stage CRM model, which dictates the following principles: 1) Customers should be perceived as business assets; 2) Customer profitability will always be variable; 3) Customer purchasing behaviour and requirements will continuously vary; and 4) Understanding customer requirements enables bespoke services to maximise opportunities (Kutner & Crips, 1997). As such, the globalisation of the retail industry as a result of the e-commerce business model has signalled a fundamental shift in customer and business relationships with an intense focus on CRM. Moreover, the main objective of CRM is to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right product and service to the right customer, through the right channel, which has become particularly pertinent in the multi-channel challenge reshaping retail strategy. Additionally, the factors highlighted by Kutner & Crips (1997) underline the importance of understanding consumer behaviour, which is vital to effective CRM. For example, the concomitant impact of the e-commerce business model has been the proliferation of multiple retail channels targeting consumers. To this end, it is posited that effective CRM strategy works embodies the successful blend of marketing, service, resource planning, sales and supply chain management (Ryals & Knox, 2001). Accordingly, it is submitted that effective CRM is imperative as part of business strategy in retaining and securing customers through the multiple retail channels (Trapp, 2007). Moreover, in the CRM focus, Trapp highlights the importance of CRM in developing an insight into customer preferences (Trapp, 2007). Moreover, Trapp highlights the point that whilst CRM is arguably a necessity in contemporary retail strategy, the central factor is to ensure the effective implementation of CRM to secure the advantage of consumer patronage. To this end, Trapp comments that: “much has been made in recent years, of how, for example, Tesco seems able to anticipate warm weekends and get the right amounts of beer and barbecue supplies into its stores while its rivals sell out. It’s largely down to analysis” (Trapp, 2007). Therefore, Tesco has acknowledged the increasing power of customers and continued to adapt its strategy to meet consumer demand and gaps in the market. For example, in addressing the constraints of the “mature market” and planning restrictions in the UK, Tesco has made significant inroads into the convenience retailing sector with the increase of high street and local “Tesco Express” in prime locations for passing trade (DEFRA, 2006). Additionally, it is submitted that a significant element of Tesco’s success is the ability to spot gaps in the pre-existing saturated “mature market” for profitable gain (Sadler & Craig, 2003, p.231). Furthermore, Tesco has been able to continue growing by continuing its core aggressive discounting policy from the 1970s, whilst implementing new marketing initiatives to increase the perceived value presented to customers in persuading them to continue shopping at Tesco (Sadler & Craig, 2003, p.231). To this end, Tesco has been able to sustain growth and profitability in a saturated sector through continued innovation in service offerings (Sadler & Craig, 2003, p.231). Moreover, a significant element has been the ability of Tesco to adapt to consumer habits in the multi-channel retail marketplace. Indeed, Tesco’s strategy statement highlights that its ability to diversify has been “the foundation of Tesco’s success in recent years” (tescoplc.com). This is further highlighted by Tesco’s diversification into non-food services and a commitment to the increasing public consciousness regarding fair trade and the environment with its corporate social responsibility strategy objectives being committed to environmental concerns in ensuring ethical product supply (tescoplc.com). BIBLIOGRAPHY Avlonitis, G., & K. Indounas, “Service Pricing: An Empirical investigation. Journal of Retailing and Consumer Services”, 14 (2007) 83-94. Berry, L. L. (1983). Relationship Marketing. In L. L. Berry, G.K. Shostack and G. D. Burch, D. & G. Lawrence (2007). Supermarkets and agri-food supply chains: transformations in the production. Edward Elgar Publishing. W Chan Kim & Mauborgne, R. (2005). Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. 1st Edition Harvard Business School Press. Christopher, M., Payne, A. & Ballantyne, D. (1991). Relationship Marketing, Butterworth-Heinemann, Oxford. Capon, C. (2009). 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