Why Is Customer Relationship Management a Popular Marketing Strategy in Today's Business Environment - Literature review Example

Marketing Reporting Name Institution Date Marketing Reporting Introduction Customer Relationship Marketing has become a significant concept and business strategy and has been instrumental in assisting businesses attract and retain customers. According to Velnampy and Sivesan (2012) marketing focus in the modern business world has reflected the move away from the traditional transactional marketing to relationship marketing. Recent developments have seen business organizations spend billions of dollars every year on what software pioneers have referred to as CRM technology, showing the rising interest in this concept as businesses compete for customers (Zablah et al, 2004). Payne and Frow (2005) defines it as a strategic approach adopted by businesses that is concerned with the creation of improved shareholder value by developing appropriate business relationships with important customers as well as customer segments. The approach therefore unites the potential of IT and relationship marketing strategies in order to establish profitable, long lasting relationships with key customers and stakeholders. This paper, therefore, investigates this concept in detail, examining the recent developments in its application as well as the role of emerging technologies in its advancement. Also in the paper is a discussion of key CRM frameworks and models as well as a review of the process and results of the survey process. The paper aims to demonstrate deep understanding of the CRM approach as well as its application. The paper also shows the importance of this approach in modern business and the reasons why managers must consider the approach in the running of their businesses. Changes in/ Evolution of CRM Sheth and Parvatiyar (1995) argue that even though relationship marketing is a new emerging phenomenon, evidence of relationship oriented marketing practices can be traced back to the pre-Industrial era. But as Webster (1992) observes, the development of the marketing practice underwent a re-conceptualization with regard to its orientation from transactions toward relationships. The growing emphasis on relationships instead of transaction based exchanges was believed to redefine the domain of marketing. Researchers believed that the paradigm change from transactional exchanges to relationships was closely associated with the re-emergence of direct marketing both in business to consumer and business to business markets. Just like in the pre-industrial period, the 20th century has witnessed the popularization of direct marketing, although in a different form, which has contributed to the relationship orientation of marketers (Sheth & Parvatiyar, 1995). The strategic market-based approach to marketing stressed on buyer-seller relationship as an effort towards value creation for both the business and its customers. As Wahab et al (2011) argues, the changes in marketing focus have continued to be shaped from decade to decade. In the early 20th century, companies focused on consumer marketing since these companies had the ability to adapt their offerings to serve the customers at an individual level. Companies began to shift their focus on product differentiation after the world wars then in the 1950s moved focus from production process and marketing efforts towards acquisition strategies, incorporating the new communication media. With the popularization of direct marketing in the 1980s, products became more differentiated from the mass market, with the consequential satisfaction and service quality causing marketing to become more focused. Before this phase was the information era that resulted to personalization of customers, focusing on their retention. The further development of the communication medium by the 21st century has enabled companies to further understand their customers, and allowed them to target and customize their offering (Van Eeden, 2000). As companies developed their contact management, Sale Force Automation (SFA) quickly evolved. This then led to the Customer Relationship Management since sales people were not the only ones interacting with customers. The technology got extended to the whole company and during this time, organizations focused on relationship management. This then resulted to CRM as is practised today and which has proved an important component of organizational management with great desirable results. Role of new technologies in advancement of CRM Technological advancements have had great effects on the manner in which organizations carry out their CRM efforts. As Bollen & Emes (2008) point out, the balance of power has now shifted towards the customers. By accessing more information than before from the internet, customers now make informed decisions. Online companies have increased with the likes of Amazon and eBay changing their supplier-buyer dynamics by making it possible for customers to send back feedback on both the service and product provided. Customers have also increased their involvement in important business issues. Currently, there are public forums like Dell’s IdeaStorm.com and again MyStarbuckldea.com, where ideas may be posted by customers and fellow customers get to vote on them (Bollen & Emes, 2008). Further targeting has been achieved through employment of personalised e-mail services. This has been an easy way of maintaining customer records and at the same time achieving timely feedback for the growing masses that are connected to the internet. The emergence in internet enabled mobile phones has increased online interactions and in particular information exchanges between business and customers through e-mails. Greater revolution in the CRM experience has been realised by the introduction other technologies like data mining, data warehousing and campaign management software, but these have had benefits for the organizations than the customers. Data mining, for example, has enabled organizations identify valuable customers, predict future trends, and make it possible for the organizations to make proactive and well informed decisions through the extraction of hidden information form huge databases (Rygielski et al, 2002). Data mining helps managers find and retrieve information hidden in corporate data warehouses, or pieces of information dropped on websites by visitors, most of which may lead to improved understanding and use of data. It has proved a great asset for customer relationship marketing and the whole management as a whole. The use of mobile services in the implementation of CRM has also continued to take a central role. Recent developments has seen wide spread use of mobile with a huge percentage of the population owning a mobile phone. Businesses have therefore strived to utilize this potential by enhancing customer participation and enabling feedback through personal calls and SMS services to their customers. This has helped these businesses achieved intended customer targeting specially in the event of a new product or service. It has also proved a faster way of achieving customer feedback and has reached more populations than the internet related applications. This technological advancement has in a great way revolutionised the CRM processes as well as improving the customer experience. The key CRM frameworks Researchers have identified five key generic CRM processes as has been discussed below: 1. The strategy development process During this process, special focus is directed to both the organization’s business strategy as well as the customer strategy. The business strategy process involves a review of the organization’s vision, followed by a review of the competitive environment. This process must be considered first before the determination of the customer strategy and how it will be modified with time. The development of the customer strategy will involve examination of existing and potential customer base as well as the identification of the forms of segmentation that may be most appropriate. Great consideration must be directed towards exploitation of e-commerce opportunities and other internet related applications while developing individualised marketing strategies. 2. The value creation process This process transforms the results of the first process into programs that will add value to the organization. The key things to be considered in this process include: i. Determination of the value created by the company for its customers ii. Determination of the company’s benefits from the customers iii. Ensuring maintained lifetime value of key customer segments 3. The multichannel integration process This process is critical to the success of the CRM process since it translates the outputs from the business strategy and value creation processes into value adding activities with the customers. It determines the combination of channels that will be used in the implementation process. i. Channel options Since the recent past, organizations opt to employ a hybrid channel model that combines several channels like direct mail, sales force, telephony, and business partners. Combinations of channels have been used to ensure maximum commercial exposure and return and therefore effectiveness of the CRM process. ii. Integrated Channel Management This process involves management of the integrated channels according to established set out standards for each channel which defines a specific customer experience for the given channel. 4. The information management process This process is concerned with the collection and the subsequent use of the customer information from all the customer contact points in order to generate customer understanding for appropriate marketing responses. Constituting elements during this process include the data respiratory, the IT system, analysis tools together with the front office and back office applications which support the whole system. 5. The performance assessment process This process seeks to find out whether or not the whole CRM process works according to its predetermined standards, and investigates whether or not the organization’s strategic goals are being delivered. The two main components of this process include determination of shareholder results and performance monitoring. Survey process and outcomes The survey results show interesting trends. The figures show that more than 98% of the respondents belonged to at least one loyalty program with about 58% being members of between 1 and 5 loyalty programs. Again, just 12.9% had 11 or more loyalty programs. Myers/One was the most preferred loyalty program with 16.53%, with the majority of the respondents confirming that they used their preferred program at least once a week. Interestingly, ease of use was not the determining factor for loyalty with only 6.58% mentioning it as reason to remain loyal to the program. Most respondents, 34.98%, remain loyal because they use the program more regularly. While most respondents (29.07%) have been loyal for only 1 to 2 years, 52.06% have spent more than $500 within the last 12 months on the product and services of their loyalty program. This shows the close relationship between customer loyalty and greater number of transaction which is beneficial for the business. Generally, respondents show above average loyalty levels with 27.56% recording 7 in a scale of 1-9. Analysis of the results shows interesting trends in the manner in which each individual responds to specific factors that affect the service being offered. It is generally clear that customers are extremely sensitive to any variations in the nature of services, especially to variations in the benefits that attracted them in the first place. Better packages from other competitors and loss in initial interest and enthusiasm were other major causes of customer loss. The results showed that customer loyalty directly resulted to more transactions by the customer. These customers were however attracted and retained by special packages and promotions which seemed to motivate them to remain loyal. It is reasonable to assume that customer income level and amount of time spent online had a close relationship with the nature and frequency of shopping. Analysis and integration of points 2,3,4,5 above Literature materials have shown that marketing is an old practice that has been closely associated with businesses transactions since the early pre-industrialisation era. These practices have, however, continued to be modified and transformed by changing business environments and shifts in business requirements over time. Customer relationship marketing is a more recent shift in marketing efforts that has been fuelled by the highly competitive business platform that has forced business to increase their closeness to customers. The development of this approach came after the existence of the traditional transactional approach. In this traditional approach, businesses paid more attention on transactions and short term goals. The customer focused approach, on the other hand, attempted to involve and effectively integrate suppliers, customers and other infrastructural partners into the organization’s developmental activities as well as their marketing strategies. This resulted into close interaction between all the stakeholders which proved to be more beneficial for the business and the customers experience as well (Sheth & Parvatiyar, 1995). The approach accommodates overlap in processes and plans of the interactive parties, suggesting closer emotional, economic and structural bonds among themselves. It recognizes the long run benefit of potential and existing customers, seeking to increase profits and revenue, and shareholder value by targeting marketing activities towards establishing and enhancing successful organization-customer relationships. The CRM approach has continued to transform with time, technological developments bringing more flexibility and improved business-customer interactions. In the development of their CRM projects, businesses have ensured that several interaction channels have been incorporated, giving customers great variety to choose from. These channels include the internet, sales forces, direct mail, telephony and business partners (Payne & Frow, 2005). Technological advancements have enabled m-commerce services in the form of mobile telephony, SMS and text messaging, 3G mobile services and even wireless application protocol applications. Direct marketing options have also enabled interactions at a personal level, stretching the CRM experiences to the extreme. Business have, therefore, come forward and developed CRM projects to benefit from this range of benefits and improve their business performance. As has been discussed above, researchers have identified certain key CRM frameworks that are instrumental for the successful development of the approach. By taking these into account, business may be guided into development of effective CRM models for their businesses and achieve the improved performance that is associated with this approach. Apart from giving a step by step implementation procedure, these frameworks provide business with insight into the available options during the exercise, helping businesses come up with informed CRM approaches that achieve the business strategy. While feedback forms a concrete component of the CRM approach and is a success determinant, the involvement in the survey revealed the great task it is to employ sales force in the collection of this information. The exercise was a great eye opener into the data collection process as carried out by other organizations to assess their customer loyalty. Analysis of the information collected revealed the sensitivity of the customers to shifts in the services offered, but again stressed the understanding that incorporation of motivation and promotions contributed to customer loyalty. Also revealed by the information was that customers preferred easier to use programs and are likely to remain loyal to these as opposed to complex programs Potential applications and future implications The global business environment continues to offer greater challenges and increased pressure on business. Technological advancements have, however, given customers a leading edge in the way they conduct businesses and the level of flexibility at their disposal. These advancements have made information sharing much easier and faster than it was before and business people can access what they want when they want. While this availability of information has proved beneficial for both the businesses and customers, business organizations have learnt that they must fight to win the trust and loyalty of customers who could opt to transact with other business enterprises would wide. This pressure has pushed businesses to shift attention to customer relationship management as they have learnt that it is becoming more costly to win more customers and get them to do business than to encourage more transactions with the current customers. CRM therefore continues to become more popular since it presents these organizations with the best customer retention approaches and at the same time ensures customer satisfaction by facilitating an interactive platform where both parties attend to each other’s special needs. As Boland et al (2002) points out, the airline industry, faced with their struggle to gain and maintain market share and sustain profitable business, must develop better ways to achieve customer relationship management so as to realise customer loyalty and increased revenues. Many airlines have consequently turned to CRM as a tool for the management of their customer relationships. In many cases, though, these airline companies have failed to recognize the approach as a holistic strategy, but have viewed it as synonymous to their frequent flyer programs. This has led to unnoticeable effects of the approach. More recently, though, it has becoming evident that in order to more effectively manage their customers, airlines have to change their approach to CRM in several ways (Boland et al, 2002). Among the sectors that must be reviewed are Customer segmentation, CRM initiative development as well as organizational design and management (Boland et al, 2002). Proper implementation of the CRM approach has the potential of introducing a completely refreshed business-customer interaction that will benefit organizations as well as the customers and improve satisfaction for either parties. Technological advancements will also continue to bring in new dimensions in the implementation. Recent research findings have shown the potential of using Radio Frequency Identification (RFID) in revolutionising the supply chain and enhancement of business to customer marketing and services (Uhrich et al, 2008). Conclusion With its emergence in the 20th century, CRM has grown in popularity and has become a popular marketing strategy in the today’s business environment. From its emergence, the marketing approach has advanced in complexity and flexibility and now incorporates several technological channels in its implementation. Businesses have used this approach to retain their key customers and customer segments by attending to their needs and assessing the business performance by reviewing the feedback obtained from the approach. Its development also calls for serious considerations as detailed in the key CRM frameworks. Successfully planned CRM approach has the potential of helping the business realise its strategy and also achieve stakeholder and customer satisfaction. As has been evidenced by the discussion above, CRM remains an important component of businesses’ marketing approach and a vital means for the businesses to be assured of customer loyalty. References Uhrich F., Sandner U., Resatsch F., Leimeister J. M. & Krcmar H. (2008). RFID in retailing and customer relationship management. In: Communications of the AIS (CAIS); Ausgabe/Number: 13, Vol. 23, Seiten/Pages: 219-234. Sheth J.N. & Parvatiyar A. (1995). The Evolution of Relationship Marketing. 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