Managing Relationship with Customer - Essay Example

? Managing Relationship with A study to explore the importance of keeping s for as long as possible, in what is seen often as a short-term approach to sales By Submitted to (2010) Cover page photo Credit: http://www.touristinformationcentres.net/webshop/images/webshop/152/product/large/Bear-Hug.jpg Sustained growth depends on how broadly you define your business— and how carefully you gauge your customers’ needs. Theodore Levitt In his famous article Marketing Myopia Best of HBR 1960 Managing Relationship with Customer The importance of keeping customers for as long as possible, in what is seen often as a short-term approach to sales 1. Introduction No business can exist without customers. Enterprises have early understood the difficulty in acquiring customers and also the value of maintaining good relationship with customer. Modern management techniques and use of IT though innovative means have defined added new dimensions to managing customer relationships. Now, for many enterprises empowering the customer has become a way of life, which in turn has led to shift in power with their customer relationships (Kotler et al., 2009). 2. Concept and definition Drotskie (2009) quoted Seybold (2002) and explained “customer relationship management (CRM) means determining who your customers are and building relationship with them”, and Drotskie adds further that it involves understanding each and every customer so as to develop profiles of their individual needs. Thus CRM enables the enterprise to understand the customer very closely so that its services can be tailor-made to meet each individual requirement (Zeithaml & Bitner, 2003; cited by Drotskie, 2009, p. 15). Kotler et al. (2009) also support these definitions and stated that customer relation management as the “process of carefully managing detailed information about individual customers and all customer ‘touch points’ to maximise customer loyalty. A customer touch point is any occasion on which a customer encounters the brand and product – from actual experience to personal or mass communications to causal observation” (Kotler et al., 2009, p.128). The essence of CRM is that it clearly recognises the long-run value of potential and current customers, and focuses to increase revenue, profits, and shareholder value through targeted marketing activity such as developing, maintaining, and enhancing successful-customer relationships” (Bolton & Tarasi, 2006). 3. Principles of customer relationship marketing As Kotler et al. (2009) suggest, one of the important “goals of marketing is to develop deep, enduring relationships with people and organisations that could directly or indirectly affect the success of the firm’s marketing activities. Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and learn and retain their business” (Kotler et al., 2009, p.22). Relationship marketing has four dimensions (1) customers, (2) employees, (3) marketing partners (channels, suppliers, distributors, dealers, agencies), and (4) members of the financial community (shareholders, investors, analysis) and its outcome is the marketing network, a unique asset for the company. Figure 1: The four dimensions of relationship marketing Adapted from source: Kotler et al. (2209) Of these dimensions, the customer relationship marketing is most significant and more and more companies are now designing separate offers, services and messages to individual customers, that they gather based on information about past transactions, demographics, psychographics, and media distribution preferences (Kotler et al., 2009). Their objective is to build customer loyalty, by focus on the most profitable customers, products, and channels and achieve growth and capture larger share of customer’s pocket. This they undertake by estimating individual customer lifetime value and design their market offerings and prices, which would enable them not to make instant profit, but to make a profit over the customer’s lifetime; also called as customer centricity (Kotler et al., 2009). Lifetime Value of Customer (LTV) Hong Kong Post defines Lifetime Value (LTV) as the net present value of all future contributions to overheads and profits. For calculating LTV, four components are taken into account as (1) future forecasted revenues, (2) Margins, (3) fulfilment cost expectations, and (4) cost of capital. Customer lifetime value is important as it determines the profitability of the customer. 4. Traditional CRM strategies Therefore, recognising value of potential and increasing value of current customers in the long-run is fundamental to any customer relationship management. Kotler et al. (2009) state that winning companies improve the value of their customer base by excelling in some of the following strategies: Reducing rate of customer defection Increasing the longevity of the customer relationship Enhancing the growth potential of each customer through share-of-wallet,” cross-selling and up-selling Marketing low-profit customers more profitable or terminating them Focusing disproportionate effort on high-value customers Figure 2: Strategy model for harnessing potential and current customers’ value in the long-run Adapted from source: Kotler, P., Keller, K.L., Koshy, A. & Jha, M., 2009. Marketing Mnagement. 13th ed. Pearson Education Inc, pp. 130-131. 5. Difficulties faced in transition However, the important point is that following a set of strategies for keeping the customer as long as possible is often a short-term approach, whereas customer relationship management is essentially has a strategic vision with a long-term approach. This is evident from Saubert’s (2011) case study on “Which Accounts are Worth Saving”. The following is an excerpt from the case study. Beginning in 2003 and 2004, one of the four large Australian banks noticed that its credit card portfolio was losing customers at an alarmingly high rate. Profitability was also deteriorating. An internal review discovered some gaps in the bank's offerings, but that alone could not explain the difference in cardholder attrition. The bank also found that in the months immediately following the loss of a credit card relationship, many of these customers moved other banking products and services to rival institutions (Saubert, 2011). While, the reason for this can be many, it undoubtedly provides an indication on how following a strategy just to keep the customer as long as possible can often be a short-term approach in the credit card industry. In fact, this is a reality that can be generalised to most industry sectors. 6. A suggested model One of the reasons is that when most firms in the industry such as the banking industry have adopted effective CRM technologies and related best practices the approach of keeping customers as long as possible starts defaulting (Bolton & Tarasi, 2006). Porter (1996) also endorsed this view by stating that operational systems are not a long-term sustainable source of competitive advantage. Though researches suggest that CRM technology leverages an organisation’s prior capabilities and information processes to create value for customers and the firm (Bolton & Tarasi, 2006); companies need to “create superior customer-relating capability, which can do so by aligning the organisation through incentives, metrics, accountabilities, and structure” (Day, 2003, p.77). This can be undertaken by a conscious shift in strategy from managing just customer relationship for as long as it is possible to developing relationship branding as delineated in the model below: Figure 3: Model for creating long-term customer relationship branding Source: Adapted from BrandForward’s brand insistence model; cited by VanAuken, B., 2004. The Brand Management Checklist: proven tools and techniques for creating winning brands. London: Kogan Page, p.81. 7. Conclusion Managing relationship with a customer can be somewhat like taming a bear, which can be dangerous if not managed well. There has been ample research to suggest that “customers share bad brand experiences with approximately twice as many people as they do good brand experiences” (VanAuken, 2004, p.35). Besides, while every satisfied customer can bring as much as four new customers; a dissatisfied-customer can take away as many as eleven existing customers. Moreover, it is more cost effective to keep a good customer than to attract a new one (VanAuken, 2004). As one cannot tame a bear in the first contact, it needs persistent contact to domesticate and be friendly with it. Likewise, managing relationship with the customer has to be endemically long-oriented. Any shortcut to this besides taking the company’s sales figures tumbling down can even be fatal. References 1. Bolton, R.N. & Tarasi, C.O., 2006. Managing Customer Relationships. In N.K. Malhotra, ed. Review of Marketing Reserach, Volume 3. New York: M. E. Sharpe Inc. pp.3-38. 2. Bryman, A. & Bell, E., 2007. Business Research Methods. London: Oxford University Press. 3. Day, G.S., 2000. Capabilities for Forging Customer Relationships.. Cambridge, MA: Marketing Science Institute. 4. Day, G.S., 2003. Creating a Superior Customer-Relating Capability. MIT Sloan Management Review, 44(Spring), p.77–82. 5. Drotskie, A., 2009. Customer experience as the strategic differentiator in retail banking. PhD Thesis. University of Stellenbosch Business School. 6. Hussain, I., Hussain, M., Hussain, S. & Sajid, M.A., 2009. Customer Relationship Management: Strategies And Practices In Selected Banks Of Pakistan. International Review of Business Research Papers, 5(6), pp.117-132. 7. kiwihost, 2009. Customer Service pulse. [Online] www.kiwihost.co.nz Available at: http://www.kiwihost.co.nz/uploadGallery/JRA%20Survey%202010-web.pdf [Accessed 21 December 2010]. 8. Kotler, P., Keller, K.L., Koshy, A. & Jha, M., 2009. Marketing Mnagement. 13th ed. Pearson Education Inc. 9. Leppitsch, B., 2009. Customer Relationship Management Tools to Optimize Customer Satisfaction and Loyalty. Capstone Project. University College University of Denver. 10. Levitt, T., 1960. Marketing Myopia,. Harvard Business Review, 34(4), p.45–56. 11. Malthouse, E.C. & Calder, B.J., 2005. Relationship Branding and CRM. In A.M. Tybout & T. Calkins, eds. 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