The Role of CRM in Maximizing Customer Profitability in the Banking Industry in the UK - Research Proposal Example

The role of CRM in maximizing profitability in the banking industry in the UK The role of CRM in maximizing profitabilityin the banking industry in the UK Introduction Xu et al. (2002, p. 430) argues that the battle for clients has gone extreme. Due to deregulation, diversification and globalization, competition has been intensified compelling business to shift from product-centric strategies to more client-centric approaches in their corporate strategies. The heightened price competition, decreased red tapes, and rapidly diminishing customer loyalty have been considered as the reasons for making customer retention the key business buzzword (Gambeson, 2004, p. 140). Scholarships provide that client-centric strategies in the form of CSRM have found their way into integral parts of business throughout this century. As such, the CRM software platform is among the hottest facets within the business solutions market. It is argued that the potential opportunity for CRM is massive, with a prediction indicating that the expenditure on client-facing technologies expected to soar in the next few years (Alvarez et al., 2010) Studies indicate that the key reasons for the adoption of CRM technology is the need to enhance levels of customer satisfaction, retention of existing clients, enhance client lifetime value, and attract new. The five reasons are the results of empirical studies conducted by Sweet (2001-2004) with recent trends indicating the first three attributes are the most admissible factors. With this, it can be seen that the management of most firms have warmed up to the fact that the attraction of new clients as more costly relative to the cost of retaining the loyal clients. In line with this, Walton (2005, p. 960) provides that typical CRM systems are call centers, data warehousing, contact management, websites coupled with business process management. Problem Statement The capacity, to identify and maintain the prospective clients, continues to be the objective of most businesses especially in the banking sector as most banks continue to use similar information and analysis platforms. The soliciting of ways to make such profitable clients loyal continues to gain importance. Similarly, the need to continue the search for means to enhance the profitability of such clients is also increasing (Lindgreen and Antioco,2005, p. 140). Despite being of a smaller magnitude, the most profitable client segment is very crucial to any bank. Consequently, banks are supposed to pay close attention to the demands of such clients relative to other customers. Therefore, bankers are tempted to maximize their earnings by shifting focus and resources on this valuable segment of the market. Nonetheless, as internet banking turns the easiest way to reach that profitable segment, rivals banks have the chance to target the same segment of valuable clients. Since the profitability of banks relies on the development of lucrative market segments, and the identification of the potentiality of valuable customers, danger looms for a bank that fails to take up such steps (Siaw and Yu, 2004). Purpose and research question The aim of the research is to “gain a more understanding of the role of CRM in the maximization of customer profitability in banks”. In meeting the aim of the research, the study seeks to answer the question “how does CRM enhance customer profitability in banks?” Research objectives The main objective of the study is to investigate the role of CRM in maximizing customer profitability in the banking sector. The study proposes the following specific objectives to be considered. 1. To determine the extent to which CRM enhances the profitability of the banking sector 2. To explore the degree to which CRM enhances customer retention in the banking sector in the UK. Scope of the study Since CRM is a relatively extensive concept, coupled with a limited timeframe available for the research, the researcher will be unable to explore extensively most of the aspects of the topic. As such, the topic is narrowed down to the one provided above. Moreover, the topic has mostly been researched from a corporate point of view in the banking sector in the United Kingdom. Literature review The chapter highlights the literature related to the theories if CRM and its role in customer profitability. CRM Xu et al., (2002, p. 433) asserts that the initial wave of CRM solutions hit the market in the last quarter of the 1980s and the beginning of 1990. The developers of the platform, Clarify and Siebel programmed the system to emphasize on the automation and standardization of the internal processes related to the acquisition, servicing and the retention of clients. Nonetheless, the emergence of the Web revolutionized both the CRM market and client-related commercial requirements of all magnitudes of firms. The new CRM platform implied that the existing clients and potential ones could interact and easily communicate with the organizations. As such, the year 1991 saw SAP introducing a CRM platform with web capabilities, leading to the growth of a fresh market for the e-CRM. Consequently, as the market for CRM continued to rise steadily, the demand for its web-based platform exploded (Siaw, and Yu, 2004). The inclusion of the internet in CRM, the roles of the system changed drastically. Combining the internet in the use of CRM improved the interface of the system, and customers could now transact with firms in a global context. Recent CRM versions have gone to the extent if integrating speech-enabled capabilities to increase the experience of the customer. They also improve order management and sales force automation within a single application (Bradshaw and Brash, 2011, p. 530). Leading providers of the applications include Oracle and Siebel solutions who argue that with a more user-friendly interface, the typical expensive and time-consuming platform development by system administrators can be avoided. Functions of CRM A typical CRM system supports various stages of the interaction with the client starting at the ordering phase, to the delivery stage (Rowley, 2004, p. 12). With the inclusion of the web capabilities into the system, the system now covers online transactions and e-mailing. It also extends to knowledge databases employed in the generation of customer profiles, personalization of service, generating automated e-mail responses and full-time automatic helpline. Rowley identifies an extensive list some of the functions that are available to a typical CRM software: e-commerce, online storefront Classification of CRM Walton (2005, p. 960) proposes four categories of CRM in the form of operational CRM, Analytical CRM, Collaborative, and e-CRM. The CRM systems have been widely applied in various business that typically relies on operational applications such as contact centers. However, as he claims, limited customer knowledge has been tapped from the use of the systems since accessibility to analytical CRM systems is reserved for few large institutions. As argued by some experts, analytical CRM is the most practical form of the platform. A CRM system is supposed to in addition to enhancing the interaction capacity of an organization, it should be able to establish rapport with the clients. It should also gain as much knowledge about the customers as much as possible (Kotorov, 2012, p. 220). The platform should have functionality for both existing and prospective client knowledge acquisition. With such capabilities, the system is both capable to pinpoint a panoramic client view via profiling and similarly generate consumer behavior patterns and predict forthcoming actions. Analytical CRM As earlier stated, Analytical CRM is the most practical version of the CRM fraternity. Walton explains that analytical CRM encapsulates tools that can process the typical volume of customer info to help the provision of customer information and the acquisition of customer profile. Analytical CRM combines data warehouse with intelligence analytical systems with an objective of providing competitive intelligence. It also provides the authority to tailor marketing and the info needed in the realization value from expended efforts in record time to the company using the system. Gains, (2012) assert that the platform pulls information from all the systems and organizes them properly. Consequently, the merchandise to be availed to the customers, the resultant perception of the company and the preferred customers is easily seen. Since the launching of new products in the market requires extensive marketing campaigns and a total understanding of the company clients, CRM gives the company the advantage by predicting the success of such activities (Scullin and Romano, 2011, p. 410) Analytical CRM and Banks According to Bolton (2010, p. 345), the process of checks, withdrawals and money transfer in banks by CRM is highly developed. Nevertheless, the system is still transactional and lacks the ability to identify an important customer. Nonetheless, a typical CRM system should be in a position to provide customer profiling and segmentation while doubling up with the identification of strategically important clients. The assumptions are because for most banks, the management of such strategic customers happens to be the focus of the management. Walton claims that most analytical CRM can continuously point and monitor the actions of strategic customers. Brige (2013, p. 30) has categorized strategic customers into four groups. Firstly, he identifies the high lifetime value customer who according to him presents the current value of all forthcoming margins that could accrue in a relation. Valuing such customers more than others, Brige argues that firms should calculate and predict the lifetime value of their customers. In line with, client retention efforts should hedge more on high-value customers. Analytical CRM and customer profitability in banking Literature provides that the capability, to pinpoint and maintain the most profitable clients, has continued to gain recognition as most banks continue to uptake identical information and analysis lists. Designing means to make valuable clients loyal to the bank has become of vital importance. However, of more importance is the need progressively to seek ways to enhance the profitability of such clients (Brige, 2011, p. 26). Nonetheless, for banks, the possibility of lessening some of the costs spent on the servicing of customers is possible. Of interest, is the argument that a section of customers may give preference to having more control over their interactions with their service providers. Moreover, it is argued that such customers may in most instances, find delight in handling much of the chores involved in the transaction. The action consequently lowers the workload of the provider in the provision of the required services. Contrary to these customers, highly profitable clients typically request more levels of personalized services. Nevertheless, on most occasions they may even offer to pay for such services. They pay for the services especially if they are rationally biased to their specification to make them have same gratification for the real value added by the personalized services. Being a computer based technology; CRM grants the company a chance to identify high-value clients efficiently (Lang and Colgate, 2013, p 30). Exploring the importance of the internet in aiding organizations to deliver tailored responses to their market through the effective sorting of exemplary customers is Ross (2015, 40). She explains upon the completion of the organization of the customer base, a business has the option of designing an individualized response to the expected degree of client profitability capacity. A study by Deloitte consultancy agency established that bigwigs in the business fraternity would continue to improve their abilities to discern top customers while differentiating their responses through internet capabilities to tailor digital loyalty networks. The structured networks hedge on customer loyalty through the management of a portfolio of clients and matching them profitably with capacities to serve them in the end. Methodology Cooper and Schindler (2006) define research as an organized inquiry conducted to provide information for the solution of challenges. Moreover, they are of the view that business research is a strategic inquiry with the goals of providing information needed in the solution of managerial challenges. Research philosophy The purpose of social research according to Neuman, (2003, p 653) can be grouped based on what the researcher intends to accomplish. He provides reasons such as the exploring of new topics, the description of social phenomena or the provision of an explanation of the cause of events. Although he claims that it is possible to have multiple research purposes embed in a single study, one purpose usually dominates the study. The study takes a descriptive approach since it intends to familiarize the reader with the basic facts, setting and concerns of the issue. The report highlights a background of the situation and more detailed image of the phenomenon making it more descriptive. However, the study will become explanatory as it tries to enrich and support existing theories through a comparison of findings. Gummesson (2000) claims that deductive research begins with existing theories and concepts, followed by the formulation of the hypotheses for testing. As such, the starting for conductive research is real-world data, categories, issues, channels, models and ultimately the emergence of theory from the study. With the completion of the initial stage, majority of the research becomes a repetition between the deductive and the inductive. Cooper and Schindler (2006) are of the view that qualitative research hedge on the provision of an in-depth understanding of situations. Thus, qualitative research encompasses the gathering of interpretive techniques that aim at describing, decoding, translating and learning the acceptance of meaning of some events in the social setting. The memo aims to create an explicit understanding of the function of CRM in customer profitability in banking. Therefore, selecting the qualitative approach was established as the more probable in the fulfillment of the stated purpose because the use of cases studies requires access to abundant information. Moreover, since the study intends to explore, describe and collect more details as possible, qualitative approaches are perceived the most approaches. Data collection Neuman (2003, p. 654) defines data as the empirical evidence gathered by a researcher basing on some set rules. The tools employed in the collection of data are either qualitative or quantitative in nature, though the effectiveness of a technique is particular to some research problems. The study intends to collect data of mostly qualitative nature due to the wordy character of the issue. There are various sources of evidence that are applicable in case study, of which, Yin, (2003) provides six. The sources, he provides, are documents, archives, interviews, observations, participation and artifacts. The study proposes to adopt documentation and interviews in the collection of the data. Sample selection According to Neuman, (2003, p 655), qualitative studies rarely draw representative samples from a variety of cases to examine the sampled case intensively. As such, the relevance to the research problem determines the manner in which the subjects for study are selected. Consequently, non-probability sampling methods are mostly applied in case studies (Saunders, 2011). Purposive approaches allow the researcher to use their judgment to pick cases that can best solve the research problem and meet the objectives. Purposive sampling will be employed in the study. United Kingdom banks with significant market share in the UK and diverse CRM practices were established to meet the sampling method of the research Data analysis Miles and Huberman (2011) opine, that analyzing qualitative data, involves data reduction, data representation and the drawing of conclusions. It is possible to reduce and transform qualitative data through selection, summaries and paraphrasing. In this study, all the aforementioned steps will be employed in the analysis of the data. Firstly using SPSS, the study will reduce the data through a case analysis that will be compared with literature. Next, the data will further be reduced through charts, tables and histograms to aid in the comparison. Ultimately, the study will draw conclusions based on the cases. Reference list Bolton M. (2004), ‘’Customer centric business processing’’, International Journal of Productivity and Performance Management, Vol. 53 No.1, pp. 44-51. Bradshaw D. and Brash C. 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