Customer Relationship Marketing Is the Key to Successful Marketing - Case Study Example

Introduction Marketing is a tricky business. It is difficult to understand preference and companies adopt various approaches to persuade customers towards their products or services. Traditional marketing devoted time on finding out what motivates the customer as was explained by Boom and Bitner (1981) through their 7Ps of marketing and study of consumer behaviour. Later Gummeson (1996) came out with 30 relations of marketing and Achrol & Kotler (1999) attempted to cement this with their 4Cs but none of them produced the desired results. In fact Gummesson (1994) went as far to say that these models were manipulative and exploitative in nature. Since the nineties the new concept that is taking hold is that the most effective way of getting and retaining customers is through the practice of Customer Relationship Marketing (CRM). Practitioners and strategists both believe that in the current scenario of stiff competition and rivalry the only practical way of reaching and convincing the customer is through CRM. Customer confidence in the companies can be regained by this method which is more personal and certainly more intimate than promotions. Products have become similar and homogenous and even the services provided are becoming standard practice as any new move is easily substituted or copied by competition and effectively it looses its edge. In saturated and matured markets the problem is even more acute and schemes and loyalty programmes are so similar that customers find no novelty in them. Indeed Palmer (1998) is of the opinion that promotions are no more than an encouragement to customers to switch their loyalties. In the wake of these developments CRM has become the new focus of retaining as well as gaining customers. Literature Review The foundation of Strategic Behavior Theory is that firms take specific actions, like developing objectives, implementing goals, formulating strategies and using tactics, to augment their competitive position against rivals and thereby capitalize on firm performance (Kogut 1998). Strategic Behavior Theory is also consistent with the strategic choice perspective (Child, 1972) in that it accepts that while a firms choice of strategies and tactics are guided by the external environment, they are not completely determined by it. Strategic Behaviour theory also explains that a firm’s choice of behaviour is related more to its strategies and goals and not so much to transaction costs. As a consequence firms try to build competitive advantage against their rivals by developing those strategies that put them in favourable positions (Porter 1996). One such strategy is to build a more enduring relationship through Participatory Collaboration between stakeholders. Satisfaction is another human trait that will bring harmony in relations. Participatory collaborations will benefit in this direction as stakeholders will be more satisfied with each other in this arrangement. Indeed the existing resources are utilized in a far efficient manner under such a relationship and will fulfill the strategic objectives of the firm and will cut costs for customer retention as well as that of new acquisitions. There will be more synergy in operations. These cost effective results also offer greater flexibility to firms where prices are the measure of competitive advantage between rivals and competition is intense and hostile (Porter 1980). According to Bull (2003) CRM systems enable organisations to focus on the customer. This is done through paying close attention to customer preferences, needs and requirements. This helps the company to understand the customer and to generate strategies to meet them. The ultimate goal of the company is to have a satisfied customer and CRM aids in understanding what will satisfy him. It is now a fact that loyalty is vanishing but it is generally desirable to retain customers and therefore the effort to get them should not end at one transaction only. It has been suggested after research that if 5% of existing customers are retained the net present value of customers increases between 25-85%, (Ahmad and Buttle, 2001). In effect, the small percentage has a multiplier effect on sales realization. This extra value of additional sales does not represent just the direct sales to them but is the combined result of cross-sales of other products, up-gradations and other services that go along with it. (Selnes 1995). Reichheld (1996) suggests that the emphasis of CRM is on promoting strategies aimed at customer retention rather than on recruiting new customers as he believes the retention is both practical and cost effective. He further states that this effort is not a standalone one and needs an effective collaboration of others in order to be fruitful. He has therefore suggested what he has named as the Virtuous Circle. It can be seen from the above diagram that there is a positive role played by the employees in transacting with the customer. The employee is the first point of contact and therefore plays a vital role and is an important link with the customer. His interaction with the customer produces the positive vibes that not only satisfies the customer but also brings him back for further transactions. He can influence the customer and instill confidence that will convert him to this company and product. This personal and intimate touch creates the loyalty that is craved by companies. In turn it is only a satisfied employee who can function in the above fashion He has to be both well trained and intrinsically satisfied to be able to deliver this performance. His competencies develop from the best Human Relation Management (HRM) that is practiced by the company. Contemporary HR practices are aimed at meeting the challenges of satisfying the intrinsic and extrinsic requirements of employees as well as moulding them into the cultural fit of the organisation to get maximum value out of this human capital. Example 1 – Southwest Airlines One of the outstanding examples of customer retention through the virtuous circle is that of Southwest Airlines of USA. Ever since its inception in 1971 Southwest Airlines has been a star. It has never suffered a loss, even during the turbulent years when almost 40% of the US Airlines either applied for bankruptcy for survival or became defunct. It is a low cost/low fare carrier that depends on its low fares, short hauls and the shortest turnaround times. The fares are at least 30% below its competition, maximum flight time is 60-90 minutes between two points, and shortest ground time that is routinely 24-27 minutes between landings and takes off of an aircraft. However the real reason of its success is its remarkable Human Resource Policy and its Organizational Culture. Southwest believes, and practices, that its employees are family and the culture is entirely informal. These seemingly informal practices are highly formalised as it is impossible to have high performance without systems and rules in place. Southwest’s culture of hard work, high-energy, fun, local autonomy, and creativity is taught through training at its own University of People, rewarding performance through contests and recognition of personal initiatives. It is to the credit of Southwest that it values its employees at par with its customers. The belief of the top management is that a satisfied employee guarantees a satisfied customer. As a result the employees have been empowered to the extent that a group consisting of all staff of a flight starting from the pilot to the cleaning staff is jointly responsible to turn around a flight in a record 20 minutes from landing to take off. Every one regardless of rank pitches in to ensure this. This remarkable achievement is despite the fact that pay scales are lowest at Southwest in comparison of other airlines. The attrition rate is very low. The company has a unique profit sharing programme which was again a first in the US Airline industry. It was introduced in 1974 and in due course has resulted in employees owning 10% of the shareholding in the company. This has given a boost to loyalty and is a just reward of their contributions to the company’s excellent performance. In the year 2000 this share of profits rose to a record breaking $ 138 million representing an increase of 14.1% of salary disbursed that year. The HR practices, stringent appointment procedures, intensive training and clear expression of corporate vision and strategy result in high performance. Southwest also follows the policy of caring for its employees on social level. More than a thousand couples work in the company offering greater and more loyal service and return their family gets support that relieves them of normal family tensions. Such people oriented practices result in better performances. The result of this is that it is the employee that works for offering excellent service to the customer, earning his loyalty for the company. Returning customers are proof of customer retention and as a result Southwest has been in profit continuously since the last 25 years. Example 2 - British Airways Formed in 1974, British Airways (BA) has been passing through turbulence ever since it was decided to overhaul it with aim to privatization. Between 1981 to 1987 Lord King and Sir Marshal revamped BA and made it profitable by cutting jobs and strengthening management and introducing service oriented policies that brought back customers and earned BA the ”best airline of the year” award in 1988 and 1989. After a gap of three years BA again emerged as the “most prestigious airline” in 2002. Finally BA as transformed itself from a Transport company to a Service company. During 2001-2 the Global recession forced further cuts in jobs and reduction in operations and during 2002-3 the threat of imminent war in Middle East affected operations as this was the most profitable segment. But the airline was loosing customers to low cost flyers like Ryanair and Virgin Atlantic and the management decided that the route to growth and profit was through customer satisfaction. For this it understood that better service was the only way to achieve this. It decided to re-cast itself from a Transport company to a Service company. As a first measure they sought to cut down the number of the workforce to more practical level and in nine months cut it down from 52000 to 43000. But being lean was just the beginning. The management realised that retraining of the entire workforce as well as the top mangers was equally important. They adopted two policies and named then as Putting People First or PPF and Managing People First or MFP. Under the programmes BA first removed all those managers that were likely to be barriers in the implementation. They realized that overnight changes were possible only by removal of internal roadblocks and smoothening internal communications. A total of 40000 BA employees took part in the PPF programmes and were asked to reflect on their interactions with colleagues, seniors, family and the customers. The honesty of the message made a tremendous impact as the real message was to treat everyone else with respect. This automatically translated into customer service and there was a dramatic improvement in customer relationships as well. The culture established through this practice changed the hierarchical nature of earlier times and a more cordial and co-operative mood set in, improving performances all round. Goals and objectives were set and small but significant techniques were explained to overcome stressful moments. Indeed during training grade differences vanished and the top management participated in the programmes as well. After each session one of the directors, even the CEO, stood up for a question and answer session thereby increasing its effectiveness. The MPF programme followed up the PPF programme to cover the middle level management that had not responded to the general PPF programme. The MPF was targeted at them to bring them into mainstream as well. The purpose was to develop the philosophy of emotional labour which aimed at replacing the historical culture of the company with a culture of mutual trust and caring. These special discussions bore fruit and encouraged them to bring forth suggestions to improve company performances. In once such instance the managers help restore lost traffic by coming forward with useful suggestions, something they had not done before. The result was an exceptional service that not only brought new customers but above all retained the existing customers. This is a remarkable example of how the Virtuous Circle works for the benefit of CRM. Internal service quality leads to employee satisfaction and employee retention leads to better service to the customer resulting in his satisfaction. This leads to growth and profitability. Conclusions It has been observed that CRM is the key to successful marketing. This is pointed out by practitioners and proven by the examples provided in this paper. The most important conclusion drawn from the above is the important role played by the employees in making CRM both possible and effective. The strategies of the companies should therefore be directed towards ensuring employee participation in this effort. This will be the foundation of a successful CRM initiative. Bibliography Achrol, Ravi S. and Phillip Kotler., (1999), "Marketing in thé Network Economy," Journal of Marketing, Vol. 63, No. 4, pp. 146-163. Ahmad, R., Buttle, F., (2001), “Retaining business customers through adaptation and bonding: a case study of HDoX”, Journal of Business and Industrial Marketing, Vol 16, No 7, pp. 553-573 Booms, B.H. and Bitner, M.J., (1981), “Marketing strategies and organization structures for service firms”, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 47-51.Bull (2003 Child, John., (1972), "Organization Structure, Environment and Performance: The Role of Strategic Choice," Sociology, Vol. 6, No. 1, pp. 1-22. Gummesson, E., (1994), A perspective on service productivity. In GUMMESSON,E., & TORESSON-HALLGREN, I. (Eds.) Service productivity: current research. Stockholm: Stockholm University/EIASM. Gummesson, E., (1996) Why Relationship Marketing is a Paradigm Shift: Some Conclusions from the 30R Approach Presented at 1st Management & Decision Internet Conference on Relationship Kogut, Bruce., (1988), "Joint Ventures: Theoretical and Empirical Perspectives," Strategic Management Journal, Vol. 9, No. 3, pp. 319- 332. Palmer, A.J., (1998) Principles of Services Marketing Kogan Page, London Porter, M. E., (1980), Competitive Advantage. New York: Free Press: Porter, M.E., (1996). What is Strategy, Harvard Business Review, Reichheld, F.F. (1996) The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value Harvard Business School Publications, Boston Selnes, B., (1995), “Antecedents and consequences of trust and satisfaction in buyer –seller relationships”, European Journal of Marketing, Vol 32 no ¾, pp 305-322 Read More