How Can Customer Relationship Management Be Used to Sustain E-Loyalty - Term Paper Example

Technology has pervaded every field in any business today. Relationship Management (CRM) is one such tool that integrates technologies and business processes to satisfy the needs of the customer (Bose, 2002). CRM has been defined as an interactive process that achieves an optimum balance between corporate investments and the satisfaction of customer needs to generate the maximum profit (Gebert, Geib, Kolbe & Brenner, 2003). CRM involves acquisition, analysis and use of knowledge about customers in order to sell more goods or services. Businesses recognize that customers differ in their preferences and purchasing habits. The CRM professionals understand that CRM has a distinctive focus and that it has the capacity to integrate customer information not only into the database but also into relevant communications delivered to the customer (McKim & Hughes, 2000). Customer loyalty is vital to the survival of business especially in the context of e-commerce. Acquiring customers via the web is costly and hence customer e-loyalty is essential (Semeijn, Riel, Birgelen & Streukens, 2005). In a digital economy it is very easy for the customers to get lured by the numerous offers available on the internet. A customer-centric approach treats every customer uniquely and individually. This requires that the value of the customer is calculated over his entire relationship with the firm and not based on any particular transaction (Bose, 2002). Hence e-loyalty refers to repeat purchase intention or intended return visits to a website (Cyr, Bonnani, Bowes & Ilsever, 2005). E-loyalty has been defined as the customer’s favorable attitude toward an electronic business and, resulting in repeat purchasing behavior (cited by Asim & Hashmi, 2005). Barker (2006) contends that motivating customers to be loyal is more important than motivating them to buy. True loyalty can make the customer an advocate of the brand. The internet as a marketing platform can be used for three functions – distribution, transaction and communication (Teerling & Huizingh, 2008). As a communication channel, the customer receives information on the products and services while the organization can extract information about the customer through CRM technology and enhance the customer relationship through the information collected. Trust and satisfaction are important for e-loyalty and a company that has an online presence or the banks that have made most of their services available online have to ensure these two factors (Floh & Treiblmaier, 2006). While trust is related to security, satisfaction is based on several factors. It can be related to ease of navigation through the website and also the quality of website. Since transactions on the internet occur without personal contact consumers are naturally concerned about legitimacy of the vendor and the authenticity of the products and services (Cyr, Bonnani, Bowes & Ilsever, 2005). According to Asim and Hashmi (2005) there are eight factors or 8Cs that affect customer e-loyalty – customization, contact interactivity, cultivation, care, community, choice, convenience, and character. Thus loyalty can either be attitudinal or behavioral (Teerling & Huizingh, 2008). Attitudinal loyalty relates to the feelings that customers have towards the product/service or the organization. Behavioral loyalty refers to the behavioral intentions to continue purchasing the same product/service. Ease of navigation through the services offered is vital to customer satisfaction and this ensures that the customer uses the services again and again. Galbreath and Rogers (1999) cite the incident of a particular client who needed a mortgage to buy a new house. Despite opting for the company that had been handling his primary credit card, he had to keep feeding details which left him a disgruntled customer. Apparently the credit card department and the mortgage department used different computer systems and had no access to each other’s information. They lacked contact interactivity and such inefficiencies lead to a dissatisfied customer who would wait for an opportunity to defect to competition. This is where a holistic approach to customers is needed and the CRM tools and systems can effectively help to sell, service and grow the customers. Relationship marketing has shifted the focus of the marketing exchange from transactions to relationships. A stable customer base is a core business asset (Rowley, 2006). Customer loyalty is essential to build relationships. This fact has been recognized by Tesco who introduced the Club Loyalty Cards. Loyalty of customers may be expressed in number of ways – either through frequent purchase or influence others’ purchase decision. Customer loyalty is affected by the satisfaction that a customer feels. Loyalty cards provide details of the customer’s purchase habits, weekly products purchased and how product associations are made. Through data mining techniques this data can be transferred into valuable source of information, for targeted mailing and personalized communications. Customization signals high quality and increases the probability that customers will find something they wish to buy (Asim & hashmi, 2005). British Airways (BA) has been able to manage this through the use of technology. CRM is about differential customer management – doing different things to different customers. CRM requires segmentation by customer needs and the customers are given tailored information, service and communications. It has also been found that 20% of the customers provide 80% of the profitability and this is the segment that needs to be retained. BA is attempting database marketing as they have collected personal details of more than two million people. They have an effective database strategy coupled with an effective website and over time they have become familiar with frequent First Class Passengers’ preference for food, wine and reading matter and are able to meet these needs (Ashridge, 2006). BA demonstrates that it cares for is customers. Strategic Direction (2006) points out shoppers usually are free riders. Sophisticated shoppers browse through the informative website and then prefer to go and buy from regular stores. Hence lock-in is considered a driver for the success of e-commerce and is a challenge in the retail industry. Hence e-commerce companies must find ways to motivate the customers for repeated purchase. These companies must know how to lock-in the customers so that they would not have any incentive to switch elsewhere. The website should be able to provide the customers with the opportunity to tailor the products, services and information as per individual needs (Tse, 2007). This enhances the buyer-seller relationship and the customer is inclined to return to the website in future. The key to Amazon.com’s success is the strong customer focused approach. They know how to lock-in customers and they use technology to constantly improvise and innovate. Data warehousing allows them to manage growth. Their data includes order data, inventory data, and customer data. They work hard to refine the technology, which allows them to make recommendations that make shopping more convenient and enjoyable (Customer Success, 2006). Through technology they are able to enhance the customer experience as the software can remember details and sends the shopping cart smoothly and swiftly to the check-out (Evans, 2005). They can even recall the customer’s last visit and preferences. The software also remembers the shipping address and the credit card details. Amazon.com uses technology to analyze the results of their ongoing efforts to improve personalization. They constantly evaluate the new product page layouts and new search technology. It is their ‘technology base that allows customers to find, discover and glean out of hundreds of millions of products, those that really interest them (Success story, 2000). They reach out to the customers with offers on books related to their past purchases and hence use the cultivation technique to cross-sell its products (Asim & Hashmi). Newell (2000) contends that CRM helps to identify the right customer groups and then decide which customers to focus on (cited by Bull, 2003). The financial services sector has been the first to observe that not all customers leverage the same advantage to the company. The customer relationship manager must have the ability to distinguish between the transaction and relationship customers. Transaction customers are those that have no loyalty and are only looking for the best bargain. Relationship customers on the other hand are prepared to pay a premium price for a range of reliable services or goods. Relationship customers are less likely to defect if they continue to receive the same service quality. Such customers are also cost effective as they require less persuasion to buy the company’s products or services. National Bank of Bahrain (NBB) is one of the two companies that are implementing CRM in Bahrain (Al-Alawi, 2004). Based on the concept of CRM, NBB has developed a system to enhance its customer experience and increase loyalty among the customers. They have employed the latest technology and added value to the services offered. NBB has segmented its customers and launches new and re-packaged value added financial products for each customer segment (TAIB, 2007). In the business banking segment, they actively participate in several loan syndications to finance diverse needs of all segments of the trade and industry. They are always looking for newer sources of fee-based business. NBB has the leading position and its ratings are among the highest for banking firms in the Gulf Region. NBB has extensively used IT to enhance their banking services in all segments. Because of the customer database collected by them, NBB has launched Priority Banking where they aim the High Net Worth clients. While offering personalized service, it helps them to strengthen their relationship with the High Net Worth Clients. E-loyalty is all about understanding who the customer is, segmenting and attracting the right customer, and attaining the highest absolute relationship and profitability yield from that profit segment (Steele, 2000). Internet has opened up a new channel of competitors unknown before. Through the help of CRM the insurance companies and the credit card companies can bring about massive change from the mass direct mails that burden the customers. Insurance companies realize the importance of lifetime customer relationships but they are mostly dependent on the agents. They do not have direct contact with the customers as the agent holds the direct relationship with the policy holder. Companies realize that it is not the product but the customer centric approach that drives business growth. It is the ability to respond to the preferences and the values that the customer has. Insurance companies can personalize the approach and offer solutions to the policy holders through their website. One-stop financial services will soon be the reality and where CRM will be able to attract and retain customers. SAS, the biggest airline company in the Nordic region extracts customer data through their website and determines the loyal customers (Asim & Hashmi). They then customize their services to their customers according to the needs by offering benefits and cost savings schemes. Since the communication is personalized, the customer feels special. Besides, their website is interactive and provides satisfaction due to which the customer does not get distracted to some other company’s site. Since online security is adequately provided, the customer feels secure in booking online. All these factors ultimately enhance the loyalty and the airline is able to get returning customers booking through their website. Thus it can be seen that CRM helps in segmentation, which then helps the company to decide what kind of marketing techniques to apply. Extracting data is most essential and schemes like loyalty cards merely provide this valuable data. They by themselves do not ensure loyalty but the data helps the company to formulate strategies. This is how CRM helps in deciding how to share such information across the organization. Because of the customer data collected, companies like Amazon.com have been able to personalize the experience of purchasing as they remind the customer of his previous preferences. Thus CRM helps in preparing for the relationship, interacting with the customers on a personalized basis and even reviewing the relationship from time to time. A customer-centric approach is essential to enhance the buyer experience and encourage e-loyalty. British Airways has been able to effectively segment and deliver personalized service through the use if technology. The financial sector has leveraged benefits of employing CRM in enhancing customer retention. E-loyalty has become essential in the competitive marketplace where the internet is the platform for all categories of products and services. CRM can be very effectively used to maintain loyalty by all types of products and services. References: Al-Alawi, A., (2004), Customer Relationship Management in the Kingdom of Bahrain, Issues in Information System, Vol. V No. 2 p. 380-386 Ashridge (2006). Customer Relationship Management. Available from http://www.britishcouncil.org/learning-guide.pdf; accessed 02 May 2008 Asim, M & Hashmi, Y. (2005). E-Loyalty - Companies secret weapon on the web. Available from http://epubl.luth.se/1653-0187/2005/05/LTU-PB-EX-0505-SE.pdf; accessed 02 May 2008 Barker, J. (2006). UNDERSTAND CUSTOMERS, GAIN LOYALTY IN RETURN. Sales and Marketing Management; Mar 2006; 158, 2; ABI/INFORM Global pg. 30 Bose, R. (2002). 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