Customer Relationship Management - Essay Example

Relationship Marketing and Sales Management Are all the fish in the pond worth catching? A discussion on the dilemma faced by an organisation when customer relationship coming to an end By Submitted to (2010) Photo credit: Top: http://www.mastercardadvisors.com/us/advisors/en/publications/Issue_2-2008/art/Issue_2-2008/CaseStudy/cs_mainimg.gif Bottom: http://www.mastercardadvisors.com/us/advisors/en/publications/Issue_2-2008/art/Issue_2-2008/CaseStudy/cs_img2.gif Are all the fish in the pond worth catching? A discussion on the dilemma faced by an organisation when customer relationship coming to an end Brief: Relationships mean holding onto customers and common sense suggests that we should retain our customers for as long as possible by adjusting the value proposition However, discuss the dilemma facing an organisation if a customer relationship appears to be coming to an end. 1. Introduction Is the customer always right? The customer may be the king, but is it worth pursuing to retain all the customer accounts? These are some of the dilemmas an organisation face, especially when a customer relationship have entered a cul-de-sac. The basic premise of customer relationship management is about attracting, developing, maintaining and retaining profitable customers over a period of time (Massey et al., 2001). Figure 1: The basic premise of customer relationship management Adapted from source: Massey et al., (2001) 2.Theoretical underpinning Payne and Frow (2005) delineate functional dimension of CRM and stated that it concerns with creating improved shareholder value through development of appropriate relationships with key customers and customer segments by making a fusion of the potential of relation marketing strategies with IT to create profitable, long-term relationships with customers and other key stakeholders. The underlying idea is that CRM provides opportunities to use data and information that helps understanding the customer needs and also in creating value for customers (Hussain et al., 2009); and integrating people, operations, and marketing capabilities enabled by IT (Boulding et al., 2005). Another aspect of CRM is that it serves to create value for all stakeholders such as customers, employees, and shareholders. Figure 2: The service profit model suggested by Bentum and Stone (2005) Source: (Hussain et al., 2009, p.120) From the figure above, the service profit chain (SPC) is evident and urges that the value creation process is indeed a horizontal cross-functional process, rather than standalone views contained within each function (Heskett et al., 1994). Behind the theoretical underpinning of CRM, a major vector is to be able to fight competition; and an enterprise after implementing the CRM system should be profitable and add to shareholder’s value. However, at the core of the CRM remains the customer which must be attracted, developed, maintained, and retained in a profitable way. But does it mean that all the customers to be retained for as long as possible? Should the organisation pursue it with obsession? Saubert’s (2011) case study on “Which accounts are worth keeping?” provides a clue to this question. Saubert suggests that there should be a fruitful communion of attrition propensity and profitability models (Saubert, 2011). Studying in the context of Australian Banks for credit card holders, Saubert opine that while devising customer retention strategies, firms should weigh the value earned from each customer. The firm’s CRM strategy needs to be guided by answer to two fundamental questions: Figure 3: Two fundamental question that must guide a firms CRM strategy Adapted from source: (Saubert, 2011) Saubert (2011) opines that while firms usually strive to increase customer loyalty and reduce attrition but tend to overlook these two questions. The Performance Improvement Council (2008) states that in an ideal world, loyal long term customer relationships would eventually evolve towards partnerships and quotes Michael LeBoeuf, author of How to Win Customers & Keep them for Life, and point out that mere rewarding customers with good services is not enough. The customer has to be made aware of the goodness of the deal they are getting by dealing with the firm. This need not have to be a onetime affair, but instead the customer should be reminded time to time in innovative ways. LeBoeuf suggests five means on how this could be done: 1. Develop a customer profile that will give clear picture of the kind of customers the firm intends to win and keep. The more precise it is, the easier it would be to achieve this objective. 2. Develop a habit of looking the firm from the customer’s perspective. 3. Use problems as opportunities to demonstrate how the company is dedicated towards the customer. 4. Developing a unique relationship with the customers; each one of them must be treated as special. 5. Keeping in touch with the customers and keeping them informed about the fine services the firm has been providing would help (The Performance Improvement Council, 2008). Despite all these measures, there will certainly be customer defections. Models devised by Mastercard Advisors predict that 20 per cent of the cardholders in Australian banks are most likely to close their accounts, which would eventually generate 55 per cent of account attrition. Figure 4: Initial attrition models of credit card holders predicting 20 per cent of cardholders would account for 55 per cent attrition. Source: (The Performance Improvement Council, 2008) They also observed that in every attrition decile, there were profitable customers. A few important insights were beginning to emerge. For instance, certain cardholders were identified as being not only unprofitable but entrenched in their unprofitable behaviors. Clearly, the bank should not expend its energy trying to prevent them from taking their unprofitable behaviors elsewhere. Conversely, there were highly profitable customers in the middle attrition deciles who, we believed, should be made to feel appreciated for their loyalty (The Performance Improvement Council, 2008). To successfully address this situation firms should first identify its most valuable customers – those that are contributing the greatest profit and actively work to retain these customers. Accordingly, pricing alternatives may be framed and the customer service representatives need to be given a set of offers to entice these customers (The Performance Improvement Council, 2008). 3. Conclusions Back in 1996 when Reichheld & Teal prescribed in their book “The Loyalty Effect”, a new framework for thinking about retaining customers, along with them many others in the industry also held the view that “loyalty is dead” and the way to retain ‘fickle customers’ is arduous if not impossible (Saubert, 2011). As Saubert (2011) says, the solution to arrest customer defection is very well within the hands of the firm, as it is not contained in the CRM system but lies in delivering value to the customers. Customer defection is a direct consequence of wrong value delivery, that means when a customer defects, it is time for the firm to restart, where its CRM system started – understanding the customer. References Bolton, R.N. & Tarasi, C.O., 2006. Managing Customer Relationships. 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