Customer Relationship Management (CRM) in Companies - Coursework Example

Implications of Reichheld Et Al.’S Virtuous Circle Introduction In today’s modern era, selling products and services is no longer the main focus of the companies and service industries. The main focus has now shifted from selling to retaining employees and customers. It is easy to lose good employees and customers to other companies in the highly competitive environment of today. The companies are now using the concept of Customer Relationship Management (CRM) and have their systems integrated with CRM softwares. But what actually is CRM. In simple terms, it is build a strong and everlasting relationship with customers and other business partners so as to gain customer and partner loyalty and achieve organizational goals. But if this concept of CRM is evaluated, it can be inferred that CRM does not include one important relation that the organization has. It is its employees. Virtuous Cycle Keeping the above argument in view, CRM has being given a new definition by Reichheld. He has given a concept of Virtuous Circle sometimes colloquially referred to as closing the loop. A diagrammatic representation of this circle is given below: Reichheld has brilliantly explained CRM in one cycle. This cycle depicts that the key to customer loyalty is not the product or the service that is being provided, but the key is the organization’s employees. According to this circle, if the employees are satisfied with their jobs and the company, they can be easily retained by the managers. This would in return increase employee productivity meaning they would give better service to the customers. The customer will be satisfied with the company’s service and would become loyal. Loyal customers are regular customers of the company and in turn also refer the company and its product and services to other potential customers. Thus they serve as a means of word to mouth advertising. This increases the company’s profits and leads the company to growth. The company can then focus on investing the earnings in internal marketing such as rewards, benefits and compensations which would impact the employees. Besides this, employee empowerment, training and development all contribute to employee satisfaction. Thus this cycle goes on and on. John Moore has quoted in his blog ‘Reichheld on Employee Loyalty’ that “Many marketers view employee relations as a job solely for human resources—they see employees as tools. But employees—happy, rewarded employees—can work wonders for the company’s marketing efforts. There is no better spokesperson for a company, product, and brand than someone who is happy with his job and respected by his employer and peers. A happy employee will in turn, make customers happy”. Starbucks Example Let’s consider a practical example for understanding the cycle much better. I recently visited Starbucks coffee place. I was surprised to see very few customers sitting there. When I asked one of the customer how often did he come here, the answer was seldom. I asked the reason behind his answer. He replied that, “originally Starbucks was about the customer experience. Everybody loved to come to Starbucks to not only to have coffee but also to spend time with each other and talk to each other. The experience was always were soothing. But now, Starbucks has lost its touch. It is going behind profits and not looking at what the customers need. It is opening up stores in different locations. Also the employees are not trained to maintain one taste of the coffee at each location. Once I went to other customer and I had to go through a lot just to explain to the person at counter that he had given me a wrong order.” After hearing such comments, I began to apply the concept of CRM that I had learnt. The company was only focusing on achieving more and more profits and growth by expanding its business. I analyzed that the employees and the customers at Starbucks were not considered a vital resource. The company did not take any initiative in training and development of the employees. They had no role in decision making of the company. Therefore there was no internal service quality that is the employees were not properly rewarded and there was no employee empowerment which led to poor employee satisfaction and ultimately low employee productivity. This thing was reflected, when employees at the counter used to deal with the customers. Due to this attitude of the employees, customer satisfaction was affected which resulted in decreasing number of customer loyalty. When the company realized this, the management changed its policies and tried to retain the customers by offering them what they liked best, ‘good quality coffee’. The employees were trained and their pay scale was also increased. This was a small step in retaining the employees and customers. Starbucks understood that it had to focus on providing quality coffee and not on earning profits at the expense of losing customers in order to gain new customers. Insurance Company Example ‘How to Retain Customers’ is an article that illustrates the concept of virtuous cycle very well. Suppose the company’s commission policy is that every agent will receive 40% commission for the premium of first year and then 4% for the second and third year. Due to this, the company cannot retain employees as well as customers. The employees are not satisfied with the commissions that they receive in the coming years. Therefore in order to get more commissions they are always in look for customers for initial sale rather than being in touch with the existing customers. As a result 35% of the customers defect after the first year. The customer loyalty decreases. As per the company’s commission policy, the company makes no profit in the first year. It gains profit in the third year if the customers go all the way through the policy. Although employees will be productive in bringing in new business to the company, but they would be failing to satisfy the customers and the ends would remain open this is entirely opposite to the cycle. If the management changed the commission policy and offered commission at the rate of 20% for the years, the employees would get satisfied and rather than going after new business they would put their efforts in retaining the existing customers. It would happen so because the agents would realize the importance of the policy being completed as it would also affect his standard of living. This would be a great idea from management’s side for employee retention which in turn would increase their productivity. The service quality will increase as the employees or the agents will find those people who would last through the policy period. In addition the agents would also be in touch with the existing customers incase they do not defect. The company will be earning loyal customers as well as profits. Harley Davidson Example Who has not heard of the name Harley Davidson? It is the name of one of the most successful manufacturers of high-end motor bikes in the world. Just what makes this company successful? The answer lies in its employees, dealers, suppliers and a large base of loyal customers. After going through a lot of resources, I found out that Harley-Davidson gives a lot of emphasis on relationship building. This relationship building is not just with the customers, but it is also more importantly with the employees. If a body (company) does not work well with its parts then the body cannot function properly. Therefore, the company believes in strong relations with its employees and views them as the most vital resource for the company’s success. Due to such relations with the employees, other people want to work with the company. Employees are so loyal that they refer their friends and families to the managers. Loyal employees can only be created if the employees are highly satisfied. The company has different retention strategies for the employees offering job security benefits and also an environment that is fun to work in. Employees have the freedom to express themselves openly and make any decision in the manufacturing process for improving quality and efficiency. All this creates productive and happy employees. If the internal management/service is good then it would lead to better employees. The dealers of the company build and maintain customer relationship. They sell top-quality customized products that crater the needs of the customers. Satisfied customers and employees in return refer the company to others. Thus customer loyalty grows bringing growth in the company. Consciously or unconsciously, the company is following the Reichheld’ cycle by closing all the loops. ASDA Example ASDA is one of UK’s largest food retailers with almost 15 million customers. These are not just customers. They are ASDA’s loyal customers who bring in more customers for the company. The key to the company’s success are its employees. At ASDA employees are referred to colleagues. The company and its management listen to their colleagues and also if possible implements on their suggestions. There is an informal environment at the company that allows the management and employees to communicate openly with each other. For this they have a programme known as ‘We’re listening’. In this every employee can participate and put their views in front of the management. The management acts on those suggestions to continuously improve their services to the customers. The company has different employee development programmes. They also provide a great reward and benefit structure to the employees. The company provides flexible working times to employees so that they can enjoy with their families or use that time for some other important family occasion. Employees at ASDA are all treated equally and with great respect. With ASDA providing such a nice and friendly working environment, who would not like to work with ASDA! With all the internal marketing the company does for its employees, the employees are greatly satisfied and love doing their jobs. All this marketing also helps in employee retention. With the employees morale high and they themselves highly satisfied, they productivity is much higher than any other employee working in any other supermarket. This shows in the services they provide their customers. Customers at ASDA are greeted warmly by the employees not because it is the company’s policies but because the employees love serving them. It creates a friendly atmosphere for the shoppers. The employees help out the customers all the time. Besides this excellent hospitality, ASDA also provides its customers some great values and deals. Therefore customers not only become satisfied but become loyal by just shopping the first time. This whole experience at ASDA is explains the Reichheld’s virtuous cycle. Dell Example Dell, a name that stands for inspiration and innovation, is a great example of one of the few companies that follow the virtuous cycle. Although this cycle is not followed according to the name given to it, but the elements that make up this cycle are followed by this company. How does Dell see its employees and its customers as a part of its success? The answer lies in Dell’s core values. Dell has a culture of recruiting highly talented employees who are committed to serve the customers and the world to the best of their abilities. Dell’s culture is all about promoting and motivating employees to help them perform their best. Dell has barrier-free offices so that a better workplace can be created. It has many incentives and promotions packages as well as training and development for the employees. Employees are proud to work for a company like Dell that caters the needs of its employees first and then its customers. Like mentioned in previous examples, the culture and environment of Dell also helps in retaining its employees which leads the employees to generate higher levels of productivity. As the cycle goes, happy employees can make customers happy. This is precisely what the employees do at Dell. The use their minds and capabilities along with Dell’s technology and make customers dreams come true. For this reason, loyal customers of Dell, always buy its product because they trust not the company but its employees as they are the ones dealing with them. This leads to promotion of Dell by the customers and ultimately its growth. Overall Implication of Virtuous cycle As the examples given above have already established that the concept of employee and customer retention which was not very common, now-a-days forms the basis of organization’s success. In an interview Reichheld said, “"You cant build a business by trying to optimize every transaction. So you cant argue that everyone optimizes every deal. The world doesnt work that way. Its too complex. Business is based on relationships, even though accounting doesnt make that clear. Of course, customers want good economic value, but they want more. An extremist might say loyalty is all about the emotional side. But both sides — economic and emotional — are vital” (Hunter, Customer Loyalty Guru) Works Cited “Dell History.” 5 August, 2008. Harley Davidson. 5 August, 2008. Hunter, Richard. “Customer Loyalty Guru: Fred Reichheld.” Gartner. 24 July, 2003. 5 August, 2008. Hughes, Arthur. “How to Retain Customers.” CRM Today. 5 August, 2008. Moore, John. “Reichheld on Employee Loyalty.” Brand Autopsy. 13 July 2006. 5 August 2008. Moore, John. “What Must Starbucks Do?” Change This. 5 April, 2007. 5 August, 2008 “Serving our Customers.” ASDA. 5 August, 2008. < http://www.about-asda.com/inside-asda/serving-our-customers.asp> “Working for ASDA.” ASDA. 5 August, 2008 Read More