Customer Realtionship Marketing - Research Paper Example

Customer Relationship Marketing Part – A Introduction Marketing as an activity that is focused on customers is found in its very definition of identifying the needs of customer and satisfying those needs. However, the realization of the importance of customer relationship to marketing and its contribution to competitive understanding is more recent development in the late twentieth century. Customer relationship marketing should not be misconstrued as convincing customers to behave, react and relate to the organization in the manner that the organization would like them to, but instead, understood as relating to the development of relationships in such a manner, as to make the customers feel that they are working as equal partners in the relationship and retain the ability to manage the relationship. Customer Relationship Marketing (CRM) Defining a new concept normally follows a winding and time-taking path, and this applies to the case of CRM. Over time the understanding of CRM has enlarged to find that it functions through the three domains, which are operational, analytical, and collaborative. The common thread that weaves through these domains of CRM is that these activities are all targeted towards enhancing the revenue and profitability of an organization through proactive interaction with the customer. Thus customer CRM is not a marketing activity that focuses on providing delight to the customers, or demonstrates the love that the business organization has for its customers. Instead CRM is all about identifying the appropriate CRM actions to the right customer segments at the right time to produce the required business objectives (Greenberg, 2004) A simple definition of CRM may lie in considering it as the marketing efforts that are executed towards the establishment, development and maintenance of successful relational exchanges with customers. A better understanding of CRM is to focus on the four pillars or concepts on which it stands. The first pillar or concept is that CRM is all about the commercial relationships between economic partners, serviced providers and customers at the several layers present in the marketing channel and also the wider business environment. The second pillar or concept results from this understanding and consists of the development, maintenance and termination of such relationships, in such a manner as to ensure that every party to such a relationship is able to achieve their objectives towards that is mutually beneficial. The third pillar or concept is profit, which is the underlying concern of any business organization and that this relational objective is achieved through the fulfillment of promises given. The final pillar or concept is the presence of trust in the relationship, which is essential for the fulfillment of promises given, from which trust is derived (O’Malley & Tynan, 2003). Commercial relationship is the basis of the interaction between marketing and the satisfying of needs of the customers. This is because in the final process in the satisfying the needs of a customer entail exchange of products or services and finance with the customer and the other economic partners of this endeavour. This is not new and is clearly understood. Yet, there is changed understanding of the commercial relationship with customers with the addition of a new dimension to marketing through relationship marketing and that is the addition of the exchange of information, along with the exchange of products and services and finance in relationship marketing. The physical exchange of products and services and finances has not seen innovative changes as the addition of information in commercial relations with the customer. In this age of where information has become an integral part of the development of humankind due to the dramatic improvements in information technology, this tool has become a part of the armoury for marketing to enhance the quality of the commercial relationship. The content of the information interaction between a business organization and its economic partners may be seen as two kinds of information. The first is the basic technical and commercial information or data, which has been the conventional information flow between the business organization and its customers. Into this arena comes the new soft data, which deals with the personnel interaction between an organization and customers to strengthen the commercial relationship (Naude & Holland, 1996). The key influential factor in the development, maintenance and termination of a relationship with the customers by a business organization is the human asset that the organization possesses. The importance of people who are responsible from the development of the product to the selling and service of the product in the development and maintenance of relationship with customer has gained recognition. From the marketing perspective, the marketing efforts of a business organization include the training of staff in customer relationship, its development and maintenance. The focus has on the development and maintenance of customer relationship of marketing in some very competitive organizations like Pepsico has become so focused on customer relationship development and maintenance that their recruitment, development, and retention policies are focused on this aspect of marketing (Buttle, 2004). A fundamental goal in relationship marketing is to maximize the life time value of a customer. So what does life time value of a customer mean? Christopher, Payne and Ballantine 2002, p.5, define life time value of a customer as “the future flow of net profit discounted back to the present that can be attributed to a specific customer”. Profit thus becomes a central concept in relationship marketing. By adopting the principle in the life time value of a customer, causes marketing to realize that customers are not all equal in terms of profit and it needs to classify its customers and device strategies to enhance the profitability element in the customers that it targets. The common thread in these strategies of marketing is the emphasis on tailoring and customizing the relationship strategies for the purpose of enhancing net profitability (Christopher, Payne & Ballantine, 2002). The concept of trust is an integral part of any of the relationship theories in marketing. From a customer perspective trust is given on the basis of belief in the trustworthiness of the business organization, which the business organization demonstrates through its expertise and reliability or intentionality. There is a vulnerability shown here in terms of the customer for the reliance on a business organization’s actual behaviour or behavioural intention. This vulnerability stems from pretentious behaviour or behavioural intention that a customer may fall for. Yet, when over a period of time promises made by marketing are not kept the pretentious behaviour falls apart and the customer terminates the relationship, which is not the objective of customer relationship. Therefore a key ingredient to trust is the keeping of promises made to a customer to enhance the value of the relationship (Saren, 2006). Conclusion Customer relationship marketing is a fairly recent development in marketing, for which a clear definition is yet to emerge. However, it is based on four concepts. The first concept is it involves a business organization’s relationship with its economic partners and customers in the meeting of marketing objectives. This relationship extends to interaction with customers on a personal basis. The second concept is the vital role that the human asset of the organization plays in customer relationship marketing. The third concept is that enhancing profit is the purpose of customer relationship. The final concept is the importance of trust in customer relationship, which is derived from the keeping of promises made by the organization. Part – B Introduction The Harley’s Owners Club supported by Harley-Davidson, is a club with more than 200,000 members. It provides insurance support, travel support, emergency roadside services and the like to its customers. This story demonstrates the changed state of marketing. In modern times marketing is no longer a simple business activity of developing products, manufacturing them and selling them. Instead marketing has progressively transcended into developing and maintaining mutually satisfying long term relationships with customers in what is known as customer relationship marketing (CRM). Marketing has demonstrated a changing nature in facing the challenges in which it functions. In the 1950’s mass-marketing was the marketing strategy, while in the 1970’s market segmentation became the focus of marketing. From 1990’s onwards the marketing became more personalized, wherein the focus was on individual customers to understand them and develop marketing strategies to retain these customers through relationship marketing. This change was driven by the changes in the environment in which marketing functioned. Intense competition with global ramifications, greater fragmentation of markets, high degree of product quality, more demanding customers and the changes in buying behaviour were these changes that acted as drivers for relationship marketing (Buttle, 1996). Customer Relationship Marketing (CRM) According to Gronross 2004, p.101, the relationship marketing perspective is based on the notion that on top of the value of products and/or services that are exchanged, the existence of a relationship between the two parties creates additional value for the customer and also for the supplier or service provider”. There are four key characteristics present in CRM, which are that each and every customer is perceived as an individual person or unit; the activities of the business organization are more directed towards its existing customers; the basis of the relationship is interaction and dialogues between the business organization and individual and that the revenue objectives of the business organization are attempted to be achieved through the reduction in customer turnover and the strengthening of bonds between the business organization and the customers through relationship marketing (Groucutt). Commercial Relationship in Customer Relationship Marketing The commercial aspect is an ever present aspect in the relationship between marketing and a customer. However, in customer relationship marketing information exchange also becomes a part of the commercial exchange in addition to the exchange of products or services for financial returns. This aspect becomes clear when we examine the marketing relationship strategy in different sectors of business organization functioning (Buttle, 2009). Retail customers make up a portion of the customers of banks. Banks employ CRM to reduce customer defection and to increase cross-sell performance. Within the framework of this commercial exchange the banks have added physical and online contact centers for interaction with customers. This strategy is used to elicit information on which of their customers pose a potential risk for defecting, measures needed to win them back, which customers show the high potential for cross-sell offers and what is the most effective means for communicating the cross-sell offers. This within the commercial framework of CRM, banks employ the strategy of information gathering and information dissemination from and to their customers (Buttle, 2009). Automobile manufacturers seldom have the opportunity to be in contact with the end-use of their products, for they use partners in the supply chain in the form of distributors and dealers for interaction with the end users. This physical disconnection in their commercial interaction with customers could act as a detriment. For the purpose of commercial advantage to their partners in the supply chain through retention of customers, automobile manufacturers have created online facilities, so that they can be in contact with their end-user directly and understand their needs and concerns and inform them of the actions of the organization in addressing them. This is yet another example of the strategy pf exchange of information within the commercial relationship (Buttle, 2009). Consumer goods manufacturers are another set of business organizations that do not interact directly with their customers and instead rely on the retail trade. The retail trade is an important partnership for consumer good manufacturers and they need to build sting commercial relationships with the retail trade. Key relationship strategies are developed by marketing, which include the use of information technology for interacting with the retail trade to ensure appropriate stock replenishment and support for the marketing activities of the business organization (Buttle, 2009). Human Asset in Customer Relationship Marketing Analysis of business organizations with a successful track record of customer relationship demonstrates the value of the human asset of an organization to customer relationship marketing. It is the human asset or the people in an organization that are responsible for most of the activities that are part of a business organization and the marketing of its products. In customer relationship marketing it is essential that the right people with the right capabilities and commitment are present, for it is these factors combined with clear customer that are responsible for effective customer relationship marketing (Foss & Stone, 2001). When we talk of people in customer relationship marketing, quite often it is misconstrued to consist only of the human asset in the customer services department and the customers. People in customer relationship marketing are a much broader concept that takes in all the people in the organization that add value to the products or services of the business organization. Porter’s value chain analysis tells us that value can be added all along the manufacture and delivery process. Using this analogy it becomes possible to add value to the product or services of an organization using the people in the organization either singly or as groups. Quite often the value that a customer perceives in a product or service is not the value addition that has been provided by the people that the customer interaction, but rather the value addition efforts of people behind the scenes in the organization. The creation of any hit movie including Star Wars or the Mission impossible series was the result of the efforts of many people. It is the value that these people put into these movies that provided thrills for a couple hours that drew customers to watch the movie and not the marketing teams that pushed the movie halls to show the movies. Individuals and groups of people constitute the business organization that they work in. Essentially they act as ambassadors for the business organization through the value that they add to the products and services of the business organization irrespective of whether they have direct contact or access to the customers of the organization. It is through the value component that is vital to customer relationship marketing and the key contributions that the people in the organization make in the addition of value that people in the organization play a significant role in customer relationship marketing (Groucutt, 2005). Profit in Customer Relationship Marketing All marketing activities are directed towards generating profits, which is the purpose of a business organization. The concept of profit, which is central to customer relationship marketing, is really focused on the real time value of a customer to the organization. This understanding also means that customer evaluated on the basis of real time value to the organization are not equal some customers offer high real time value, while some others offer low real time value, with the remaining floating in between. It is this understanding that forms the basis of key account marketing (KAM) in customer relationship marketing. In the traditional marketing of old times the buyer and the seller were on an even keel. The purchasing power of the customer in present times has tilted the balance in favour of the customer. KAM attempts to restore the even keel in the relationship. The KAM process involves six sequential steps. These steps consist of understanding the opportunity, selecting the targets, prioritizing the resources, planning the entry strategy, building diamond team relationships and developing the value proposition. A key account is any customer in which the company wishes to invest its time, people, assets, energies and capabilities. Such an investment is made in anticipation of future profitable return on investment, which is more than the expectations from a traditional marketing approach. The objective in KAM is to manage the investment made in a key account towards ensuring the anticipated profitable returns. Some of the strategies on which KAM functions include, the basing of the relationship on trust, sharing of information, access of purpose is facilitated, pricing is stable, continuous improvement is on offer and value is present with the focus on the customer. Customers in KAM get classified into four categories of accounts to enable identification. At the lowest end are opportunistic accounts that are low in relative value and attractiveness. A step higher is the maintenance accounts, which are high in relative value, but low in attractiveness. The third classification is the key development accounts, which is low in relative value, but high in attractiveness. The final classification is the key accounts, which are high in relative value and attractiveness. The prioritizing of resources in KAM means that the key accounts receives a very high proportion of the resources to ensure maintaining the as key accounts. The remaining resources are then employed to convert the key development accounts into key accounts and the opportunistic accounts and maintenance accounts to key development accounts, from where a later boost can convert them into key accounts (Cheverton, 2006). Trust in Customer Relationship Marketing In the transactional model the progression involves communication of benefits to transaction to product satisfaction to trust to brand loyalty. This sharply contrasts with the relationship model steps of dialogue plus mutual values to mutual interests to trust to commitment to customer retention. In the relationship it is mutual values and interests that cause the trust, which is maintained through commitment to the relationship and hence customer retention (Gamble et al, 2005). Carter 2003, p.58, defines trust as “confidence in the reliability and integrity of an exchange partner and a willingness to rely on that confidence”. This is the foundation on which a satisfactory customer relationship is built and maintained in customer relationship marketing. This definition also implies that that it is trust that leads to relationship between the seller and the buyer. The commitment to the relationship is founded on the keeping of promises on mutual values and interests from where the relationship started. When the cornerstone of trust in customer relationship marketing is lost, the customer is also lost. This means that the strategy of using customer relationship to generate value in the relationship with the customer will be effective only when the trust in the relationship is maintained and in its absence the strategy will fail (Carter, 2003). Conclusion: Changes in the market environment has seen changes in the approach of marketing to its customers from mass marketing to market segmentation and now customer relationship marketing. Four basic elements make up the customer relationship model consisting of the commercial relationship, the human asset, profit and trust. Commercial relationship is not a new element of customer relationship in marketing, but the there is the addition of a new dimension in personal information dialogue to enhance the value of the relationship. The human asset element is derived from the understanding that value to the product can be added to the product by the people in the business organization irrespective of whether they interact with the customer or not. Profit is the basis of a business organization, but understanding the real time value of the customer allows the allotment of greater resources to customers with greater real time value. Trust is the cornerstone of any relationship and so it is with marketing, as it responsible for the relationship between seller and buyer. The key factor in relationship marketing is the mutual value that the relationship has for both the seller and the buyer. In the absence of mutual value there is no partnership and no relationship. . 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