Customer Relationship Management - Essay Example

Customer Relationship Management Customer relationship management, or CRM, can broadly be defined as a basic company-wide strategy that has been carefully drafted so as to help the company or organisation in being able to increase its profitability and reduce costs by firmly solidifying the customer loyalty that the organisation enjoys. It is for this reason that for CRM to be able to function effectively, it is of vital importance that relevant information and data from both outside and within the company is brought together and analysed so as to provide a holistic view of each of the organisation’s customers in real time (destinationcrm, 2010). According to Schäfer (2007), in order to achieve its aims, CRM works by developing healthy and mutual beneficial relationships between itself and the various customers in the organisation. Schäfer’s (2007) leads to the realization that with the aid of CRM, an organisation is far better able to understand all of the customer’s needs as well as be better equipped to provide various service and product offerings that have been designed to surpass all of the customer’s expectations. Engaging in CRM allows company employees, who work in various customer contact departments such as customer support, marketing and sales, to become better placed and able to make rapid and well informed decisions on every aspect of the business ranging from competitive positioning tactics to up-selling and cross-selling opportunities. According to CRM Magazine, although it was once thought to be a type of software, CRM has gradually evolved and has now become a customer-centric philosophy that most organisations are adopting and developing various policies that help it permeate throughout the various organisations. CRM is seen to encompass a set of three key elements that play an important role in the success of a well formulated CRM program. These three elements are basically technology, people and process (destinationcrm, 2010). Customer Lifetime Value Customers have long been considered as being the biggest asset to any business enterprise and more often than not, this definition is seen to specially apply to those customers who will continue engaging with the business and hence remain its customers in the future (Rust, Lemon and Zeithami, 2004). Customers are usually perceived as the main reason for which companies as well as business enterprises exist. The value of a given customer can be calculated so as to show the customer lifetime value. The customer lifetime value (CLV) is commonly defined as the current value of the entire monetary profit that can potentially be realized as the business continues to engage with an average customer as the business or company continues carrying out various business transactions with a given customer (Rust, Lemon and Zeithami, 2004). In summary, customer lifetime value is, in a simple sense, the present sum total value of a customer’s contribution to a business over time. Understanding the different customer life values of a business’s customers can potentially change the perception of a business enterprise. Knowing its current customers’ lifetime values can help a business in segmenting its customers into various categories. This can greatly aid a business in concentrating more of its marketing efforts on more profitable customers (Wharton Magazine, 2011). Once customers have been correctly segmented based on their general profitability, it then becomes possible for a business enterprise to tailor make its offerings based on these segments (Graf and Maas, 2008). Main Developments in Customer Relationships Management: Customer Lifetime Value Marketing Customer relationships management is a fast changing field of management which has been experiencing a wide variety of trends in recent years. Some of these recent trends include the use of subscription based web tools such as: Cloud Computing: Technological advances have resulted in a profound transformation of the previous techniques employed in the development, consummation, delivery and purchase of systems. Cloud computing is widely regarded by many as being the newest wave of innovation in customer relationships management. It is commonly referred to using various names such as cloud or public cloud IT services. The idea behind cloud computing is enabling software to essentially become a service as opposed to the traditional setups where it was regarded as being a product (IDC, 2011). Cloud computing has several major appeals to IT decision makers and various business users. The recent new wave of CRM application software is helping in spearheading the use of cloud computing by various businesses within the hospitality and tourism industry. This software is seen to have been designed with the various inbuilt options targeting various delivery models including the ability of calling services and delivering them within the application. This new generation of CRM services are seen to be fundamentally cloud aware and have an open interface that enables easy integration with other related services such as customer data, device location, network information, product specifications or user presence, which is a feature that helps one identify if there is any user available online and which can help solve any of the problems arising. These features are seen to play a vital role as they are continuously adapted for use in the hospitality and tourism industry. This continual integration is seen to boost the customer lifetime value as customer’s various needs continue to be met (IDC, 2011). The net goal of cloud computing is to try and immediately deliver to the end user, simple and yet useful technology that has been designed to support human interactions. In the tourism industry, these interactions include hotel booking services and customer care among others. These technologies are found to be relatively easy for an IT system to manage in addition to their facilitation of continuing business values. Cloud applications are also referred to as software as a service (SaaS) and can effectively be deployed momentarily after purchase (IDC, 2011). This is seen to effectively provide users with access to several useful innovations as they are being developed. Access to these new innovations is seen to play an active role in further increasing the CLV of a company’s clients. IT managers benefit from cloud computing as cloud computing is seen to provide them with effective cloud applications that can be matched to their current on-site datacenter resources. Loyalty Programs: According to Aghaie (2009), recent consumer relationship management and customer lifetime value developments have seen CLV increasingly being used in the calculation and estimation of the future profits that a business organisation stands to gain from its loyalty program. This includes the calculation of results from different customer rewards and marketing programs offered in the tourism and hotel industry such as various special services and discounts given. These loyalty programs have been seen to increase the number of return customers visiting the hotels and facilities within the tourism industry offering them. As such, they are seen to help in boosting the sales revenue derived from repeat customers. Customer Service: The establishment of CLV is now used by most companies in the establishment of the most profitable marketing avenues to be used by the company (Kumar, Shah and Venkatesan, 2006). Some of the marketing products and services such as upgrading and event invitations that are being offered to different players in the tourism industry are clearly defined and targeted at only those customers who happen to have posted the highest CLV values. This is seen to help marketers within the tourism industry in maintaining their current customers in addition to attracting others. Market Communication: Recent developments have seen companies in the tourism industry increasingly spending more on marketing costs, with recent years showing that more than half of these costs are wasted. Companies now become better placed to achieve good results by choosing the communication channels, the message to be delivered and the relevant target group based on results delivered by using CLV. It is recommended for companies to focus on allocating the larger portion of their communication budgets to direct customer communication as opposed to allocating it to mass communication marketing strategies. By doing this players in the industry will be able to focus their resources on targeting the most promising clients and hence will not end up wasting their resources on disinterested parties. Customer Defection: CLV can be used to predict the probability of a customer defecting and halting the conducting of any future business activities with a company (Pfeifer and Farris, 2004). Certain operations such as cancellation of a subscription policy or hotel booking by a customer can be recorded and a subsequent CLV score posted on the customer’s page on the operator’s computer screen. The score could potentially play a vital role in helping the operator decide what to do. Based on these CLV scores, it should, however, be taken into consideration that it is of little monetary value for the company to diligently follow up on some of these customers. For the more valuable customers, incentives can be offered in an attempt geared towards trying to deter them from cancelling their existing contracts with the company (Libai, Narayandas and Humby 2002). In the event that customers who are perceived as being valuable to the company based on their CLV scores proceed to cancel their contracts and subscriptions with the company, it becomes beneficial for the company to ensure that it adequately follows them up to try and persuade these high value CLV customers to withdraw the cancellation that has been made. These customers can be offered various discounts on food and other hotel services so as to further entice them. If possible, customer data focused on profitability scores can be kept next to cancellation orders within the system. This will greatly aid the organisation’s efforts at improving the general quality of the customer defection analysis and subsequently increase the success rates of any future win-back efforts that are conducted by the company (Libai, Narayandas and Humby 2002). If this data is well handled it can be effectively used in reducing the number of various cancellations on bookings and reservations made by customers in the industry. Win-Back: Once a customer defects from carrying any transactions with a company, and luckily, the company is successful in getting the customer to cancel the withdrawal (CLV), new CLV data on the customer is collected by the company. This new data is in most cases considered to be better than the initial CLV data (Marshall, 2010). It is important for all players in the industry ranging from airlines to the hotels to ensure that this new data is well incorporated into the system as it will is a vital asset in helping to ensure that the various industry players are better placed to understand all their customer’s unique needs. Annual Report: CLV information can potentially be included in a company’s annual report so as to provide detailed projections of a company’s future profit margins based on its customer base in contrast to the use of projections that are based on product groups and brands. This information can be used by shareholders in the tourism industry to effectively estimate and calculate the future prospects of the industry. (Mohammed and Rashid, 2006). Compliant Management: In the event that one of the company’s customers happens to raise any complaints in regard to a serious problem that they might be experiencing with a company in the hotel industry, the company’s staff members can be able to conduct an easy and quick CLV index analysis based on the individual that will help these staff members in determining the most effective action that can effectively be taken so as to help in not only resolving the issue but also establish exactly how much is to be spent in attempting to resolve the problem (Mohammed and Rashid, 2006). This is of vital importance especially in the tourism industry’s airline sector where such complaints are common and more time and resources needs to be allocated towards solving the issues raised by the more frequent customers. Reactivating Dormant Customers: In the event that a company wishes to attempt to reactivate some of its present existing inactive customers, effort should be placed on only reactivating those employees whose CLV ratings are shown to be potentially above the current average score. Data that has been collected from their previous visits can be used to contact the various hotel and airline clients and special discounts and offers that have been tailor made to their specific needs can be offered to them. This will server to further boost the chances of reactivating these customers. Marketing Campaigns: It is generally accepted that a business should focus its marketing budget and marketing campaign only on the various potential customer groups, the existing customer groups and the defected customer groups that post above average CLV scores. Several cross-selling campaigns can be designed to target customers who have previously been selected using the results of a CLV analysis (Mohammed and Rashid, 2006). By doing this marketing campaigns can serve as an effective tool that can help in boosting the revenues of the entire tourism industry. Selling, Merging or Buying of Companies: If a business venture in the tourism industry compiles all the CLV calculations on its existing, defected and potential customers, it will be seen to have a relatively exact picture of its customers. The figures derived from a CLV assessment show crucial data on the venture’s market position and customer asset. Such data can effectively be used as part of valuation that is required in the sale, merger, and purchase of companies. It should, however, be noted that this value is in most cases an estimation of the potential future value of a company. The CLV analysis conducted should include values indicating the potential risk of increased defection rates by a company’s customers as a result of the prospective sale of the company in question. Business mergers, sales and purchases are seen to drastically influence both the retention and acquisition of customer rates (Mohammed and Rashid, 2006). As such, before a company or hotel in the tourism industry can enter into such a venture, extensive consultations and an in-depth analysis should be conducted so as to ascertain that a positive boost in customer acquisition and retention rates will be realised. The Impact of Customer Relationship Management: Customer Life Value on Marketing in the Tourism and Hospitality Industry Every industry in today’s highly competitive world is increasingly facing massive competition in not only finding but also retaining its customer base (Bohari, Rannis and Marimuthu, 2010). Customers are increasingly being faced with a wide range of both services and products. This has led to a situation where customer expectations continue to increase day by day. In most service and product industries, the only remaining principal differentiator is customer service. In order for a company to remain highly competitive in this increasingly competitive environment, it is vital for it to ensure that it adequately implements a strategy that is keen to effectively manage the entire customer lifetime value (CLV). This is seen to be particularly the case in the tourism, travel and hospitality (TTH) industry (Sutherland Global Services, 2008). Efficient Customer Acquisition Although the costs that are incurred in the course of direct marketing campaigns that are conducted by players in the tourism and hospitality industries has remained steady, customer response rates have been shown to remain relatively low. This has been credited to the realization that most of the hospitality and tourism industry customers happen to receive far more offers that they can be able to efficiently absorb (Sutherland Global Services, 2008). With the advent of the explosive growth that has been witnessed in the Internet marketing and distribution industries, email marketing is an effective and powerful tool in direct-to-consumer marketing and distribution. CLV has promoted the use of specialized e-mail marketing as a form of segment focused marketing in the tourism and hospitality industry. Email marketing is increasingly being used by various different airlines as well as a myriad of resorts and hotel owners as it enables them to easily develop personalised and strong relationships with customers. These relationships are characterised by having increased conversation levels that serve to help hotels and airlines sell their product and service offerings more effectively. However, this has not been without challenges as results that were recently released by one of the leading database marketing publications showed that the percentage of unwanted e-mail marketing messages that were on average received by customers happened to comprise approximately 37% of all in-box messages. Most of the study respondents were seen to delete an average of about 39% of all their permission based e-mail messages without taking the time out to read them (Sutherland Global Services, 2008). Customer lifetime value (CLV) is increasingly being used in the implementation of successful marketing strategies focused on not only the winning of potential new customers but also on the development of loyalty of the already existing hard-won customers. According to Matias, Nijkamp and Sarmento (2013), it is estimated that a firm can be able to successfully increase its profit margins by an average range of between 25% and 85% if it strives to ensure it successfully maintains about 5% of its total customer base. However, the hospitality industry is encouraged to always ensure that it maintains high cautionary standards in its evaluation of its customer loyalty based on their customer lifetime values. This is mainly because it is difficult to ascertain the degree of customer loyalty based on the degree of repeated purchases that happen to be made by an individual customer. This has mainly been variously attributed to the fact that product and service consumption by a customer is infrequent and customers may prefer to visit several available new places (Matias, Nijkamp and Sarmento, 2013). Cross-Selling Data that is derived from conducting a CLV evaluation is useful in providing how a cross-selling marketing plan can be implemented. Cross-selling is one of the quickest methods that can effectively be used in the delivery of profitable growth within the hospitality and tourism industry. Cross-selling is seen to help in the maximization of the guest values by effectively marketing various additional products and services to the already existing guests at a hotel. Using the CLV data, profiles of different hotel guests can easily be created, which will be able to show the guest’s general preferences so as to establish which additional product or service the guest might enjoy (Sutherland Global Services, 2008). References Aghaie, E., 2009. Measuring and predicting customer lifetime value in customer loyalty analysis: a knowledge management perspective (a case study on an e-retailer). International Journal of Industrial Engineering & Production Research, pp. 21-30. Bohari, M., A., Rainis, R. and Marimuthu, M., 2010. 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