Customer Relationship Management

The Foundation of Contemporary Marketing Strategy

Roger J. Baran, Robert J. Galka

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317419327
• Edition: 2
• Topic: Business
• Subtopic: Customer Relations
• Index: Business

This book balances the behavioral and database aspects of customer relationship management, providing students with a comprehensive introduction to an often overlooked, but important aspect of marketing strategy.

Baran and Galka deliver a book that helps students understand how an enhanced customer relationship strategy can differentiate an organization in a highly competitive marketplace. This edition has several new features:

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• Updates that take into account the latest research and changes in organizational dynamics, business-to-business relationships, social media, database management, and technology advances that impact CRM
• New material on big data and the use of mobile technology
• An overhaul of the social networking chapter, reflecting the true state of this dynamic aspect of customer relationship management today
• A broader discussion of the relationship between CRM and the marketing function, as well as its implications for the organization as a whole
• Cutting edge examples and images to keep readers engaged and interested
• A complete typology of marketing strategies to be used in the CRM strategy cycle: acquisition, retention, and win-back of customers

With chapter summaries, key terms, questions, exercises, and cases, this book will truly appeal to upper-level students of customer relationship management. Online resources, including PowerPoint slides, an instructor's manual, and test bank, provide instructors with everything they need for a comprehensive course in customer relationship management.

Part I

CRM Theory and Development

Chapter 1

Introduction to Customer Relationship Management

Topics

1. 1.1 Definition of CRM and CRM Applications
2. 1.2 The Purpose and Benefits of CRM
3. 1.3 The Tangible Components of CRM
4. 1.4 Customer Service and the Customer Engagement Center
5. 1.5 Important Business Constructs Related to CRM
6. 1.6 Who Uses CRM and Why?

1.1 Definition of CRM and CRM Applications

CRM is often so broad that it lacks definition. If you can’t define it, how can you assess it? No one knows what it is, but we know we have to have it.

—“CRM Starting to Live Up to Its Promise,” Wall Street & Technology (January 4, 2004). www.wallstreetandtech.com/articles/17200053

Customer relationship management (CRM) is everywhere. Let’s take, for example, a family traveling to Florida over spring break. They fly on an airline from which their frequent flyer points provide free seats. They rent a car from a car rental company that gives them an upgrade based on their previous rentals. They stay in a hotel that awards them one free night for every three they pay for, based on the points accrued on their frequent-stay guest card. The amusement park they visit on the first day admits them one hour before general opening and allows them to stay an hour after general closing as a reward for the four-day ticket they purchased. In addition, they receive a 20 percent discount on all food, beverages, and souvenirs purchased during their four-day visit. As they are walking around that evening looking for a place in town to have dinner, a nearby restaurant texts them a promotional message, so they decide to eat there. And when they arrive home, the same establishments provide them with an array of thank-you messages and super-promotional offers they can use on their next visit—as long as it occurs during off-season. All of these are examples of programmatic benefits provided by CRM systems.

A few weeks later, the father calls his bank to inquire about his credit card bill. He is instructed to key in his card number, and, within seconds, a customer service representative (CSR) greets him by name and asks how he can help. The caller explains that he does not recall making a specific charge that appears on his bill. The CSR extracts the specifics of the charge, and the caller then recalls that the charge is legitimate. The CSR inquires whether the customer has any other questions and, it being the end of April, asks if the customer had an enjoyable spring break. A few weather-related anecdotes are also exchanged.

The CSR, after reviewing the customer’s usage history, asks whether the customer is aware of the bank’s new Travel and Entertainment Card. The customer is aware of the card but did not apply because of the application form and the annual fee. The CSR replies that, given the customer’s good credit record, the card could be issued immediately without any application or annual fee. The customer agrees to the offer. The CSR extends his thank you, and the customer hangs up, completely satisfied with the service he has received.

The customer expected this to be just another transaction, but it was a friendly and satisfactory exchange. His question about the bill was answered, he acquired a card that would be useful in his business travels, and he shared a few laughs. Even more remarkable, the CSR was located in India and was empowered to make the Travel and Entertainment Card offer on the spot, based on the bank’s experience with the customer. This is an example of a humanistic benefit provided by the financial institution’s CRM system.

Both the customer and the CSR leave the exchange satisfied and more committed: the customer feels more committed to the bank, and the CSR feels more committed to his job. Over the years, the customer might recommend the bank to his friends and associates, further increasing the impact of this transaction. It is a win–win situation for both the customers and the institution, and it is made possible through the strategy and implementation of customer relationship management (CRM). While the example focuses on the impact of CRM on the end-user, CRM enables an organization to better manage relationships with suppliers, distributors, and dealers, among others in the B2B (Business-to-Business) space.

Some view CRM as being so broad and multifaceted that it lacks definition. Even the letters “CRM” have been used as acronyms for numerous different terms, such as continuous relationship marketing, customer relationship marketing, as well as customer relationship management. Frederick Newell prefers the term CMR to stand for “customer management of relationships.” CMR indicates a new balance of power that he advocates, “allowing the customer to tell us what she’s interested in, what kind of information she wants, what level of service she wants to receive, and how she wants us to communicate with her—where, when, and how often.”¹ For hundreds of years, the company–customer relationship was ruled by the company; now, in the twenty-first century, we see the rise of the customer.

Customer relationship management is a difficult business practice to define because: (1) it can apply to different levels of customers—for example, distributors, dealers, lateral partners, and consumers; (2) some of the key components of CRM shift when considering business-to-business (B2B) versus business-to-consumer (B2C) relationships—for example, sales force automation is more applicable to the former than the latter; and (3) the composition of CRM systems will be different in big versus small companies, even though their objectives will be the same.

Keeping in mind that CRM is a new and all-encompassing technique, it should not be surprising that numerous definitions for it exist. Payne and Frow provide a complete or holistic definition of CRM that identifies its purpose, strategic focus, data orientation, and organizational under-pinnings:

CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments. CRM unites the potential of relationship marketing strategies and IT to create profitable, long-term relationships with customers and other key stakeholders. CRM provides enhanced opportunities to use data and information to both understand customers and co-create value with them. This requires a cross-functional integration of processes, people, operations, and marketing capabilities that is enabled through information, technology, and applications.²

Through extensive research and discussions with CRM executives and practitioners, they identified five key processes that help define CRM:³

1. Strategy development: At both the business level and customer level, with the latter involving decisions regarding the appropriateness of various customer segmentation approaches: mass, segmented, and one-to-one.
2. Value creation: Involves determining what product/service attributes customers value and which customers and customer segments are valuable to the company. CRM enables companies to identify and direct relationship efforts to those with high customer lifetime values (CLV).
3. Multichannel integration: Involves efforts to provide the “perfect customer experience” through integrating all of the means by which consumers interact with organizations including: e-mail, mobile, social media, sales personnel, outlets, customer engagement centers (formerly called call centers or customer contact centers), direct marketing, e-commerce, m-commerce, chat, etc.
4. Information management: Involves collecting, organizing, and using customer data and customer information from all touch points (any point of contact that a customer or prospect has with the company) in order to learn more about each customer and generate the appropriate marketing response.
5. Performance assessment: Includes measuring the success of CRM efforts through metrics on customer acquisition, retention, win-back, satisfaction, loyalty, and profits.

Based on the writers’ orientations, definitions of CRM can be grouped into categories as follows:

1. Those that equate CRM with a software package, process, system, or technology.
2. Those that equate CRM with a focus on data storage and analysis.
3. Those that equate CRM with a change in corporate culture from a transaction focus to a relationship or customer-centric focus. (The key focus here is on establishing a dialogue with each customer on a one-to-one basis as opposed to generating merely a corporate monologue with large segments of customers.)
4. Those that equate CRM with the important concept of “managing demand.”
5. Those that equate CRM with new strategies focused on current customers (identification, selection, acquiring, developing, cross-selling and up-selling, managing migration, and win-back).

Refer to Table 1.1 for definitions of CRM that appear in each of these areas.

Let us investigate each of these CRM “visions” to better understand the various domains of CRM.

When CRM is viewed in terms of systems, most agree that it must do three things well: (1) gather customer data from all touch points; (2) warehouse the data, providing easy access for all; and (3) deliver useable information based on the data.

When viewed as a system, most agree that a comprehensive CRM system should contain four major technology components:

1. A data warehouse containing customer, contract, transaction, and channel data. Company customer data and programs are increasingly being stored and accessed over the Internet (the “cloud”) instead of on a company’s computer hard drive. The main purpose of data storage is to enable managers to develop strategies and close the loop that begins with the system that stores customer data. A data warehouse is the repository for all relevant customer and prospect information. Basically anything related to a marketing activity can be included in the data warehouse, including information from each customer touch point, sales force input, and even survey data.
2. Analytical tools to identify customer behavior patterns.
3. Campaign management tools to develop and evaluate the results of marketing communications, such as advertising and sales promotion campaigns.
4. Interfaces to maintain the database.

Table 1.1 How CRM Is Defined

As a Software Package, Process, System, or Technology: “CRM systems are parameter-adjustable software packages that are intended to integrate and manage all aspects of customer interactions within the organization, and so considerably improve the ability of the organization to handle customer service, sales, marketing, online transactions, and orders.”^4

“CRM is a process to compile information that increases understanding of how to manage an organization’s relationship with its customers... . It is a business strategy that uses IT to provide an enterprise with a comprehensive, reliable, and integrated view of its customer base so that all processes and customer interactions help maintain and expand mutually beneficial relationships. CRM is thus a technique or a set of processes designed to collect data and provide information that helps the organization evaluate strategic options.”^5

As Data Storage and Analysis: “CRM is the process of storing and analyzing the vast amounts of data produced by sales calls, customer-service centers, and actual purchases, supposedly yielding greater insight into customer behavior. CRM also allows a business to treat different types of customers differently—in some cases, for instance, by responding more slowly to those who spend less or charging more to those who require more expensive handholding.”^6

As a Culture Change within the Organization Itself: “CRM is first and foremost a corporate culture change—that is, a different way of doing business, enabled with powerful technology at every customer touch point.”^7

As a Management Practice that Focuses on Relationships as Opposed to Transactions: “A broader definition of CRM would include all activities that turn casual consumers into loyal customers by satisfying or exceeding their requirements to the extent that they will buy again.”^8

“CRM is an ongoing process that involves the development and leveraging of market intelligence for the purpose of building and maintaining a profit-maximizing portfolio of customer relationships.”^9

As a Practice that Manages Demand: “CRM is the dynamic process of managing a customer– company relationship such that customers elect to continue mutually beneficial commercial exchanges and are dissuaded from participating in exchanges that are unprofitable to the company.”^10

As a Strategy that Focuses on Current Customers: “CRM comprises the business processes an organization performs to identify, select, acquire, develop, retain, and better serve customers. These processes encompass an organization’s end-to-end engagement with its customers and pros...