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Effective Customer Relationship Management System
This assignment explores the need for customer relationship management systems. It begins by explaining how the organisational environment has changed and the pace of change is accelerating. It then considers how a better understanding the customer contributes to organisational success. Following this, it defines what is understood by ‘CRM’ or customer relationship management, and finally it considers the importance of using technology effectively when designing a CRM system.
The emergence of CRM is a response to a changing global environment, as Court (2004:4) observed twenty years ago, large companies used one of very few television channels to reach 80% of the US population, but the media explosion would require them to advertise across 20 channels to reach the same. Furthermore, brand loyalty is in decline, and product life cycles are shortening: customers are becoming more indifferent to marketing messages since “customers, whether consumers or businesses, do not want more choices. They want exactly what they want, when, where and how they want it – and technology now makes it possible for companies to give it to them” (Pine et al, 1995:104). This belief forms the very basis of the purpose of CRM – that customers have hidden or overt preferences that marketers can reveal by building a learning relationship (Mukerjee, 2007). Thus, it involves not only attempting to interpret the needs of customers based on their buying behaviour but predicting their future needs.
However, there remains no universal definition of CRM – some distinguish between customer relationship management and others argue the M refers to marketing (Gamble et al, 1999) and as a result, different approaches to CRM have been identified.
A strategic approach is a core customer-centric business strategy which aims to win and keep profitable customers whereas an Operational approach focuses on the automation of customer-facing processes such as selling, marketing and customer service. A third approach is analytical in nature: focusing on the intelligent mining of customer-related data for strategic or tactical purposes and finally, a collaborative approach applies technology across organisational boundaries with a view to optimizing company, partner and customer value (Buttle, 2009).
These different approaches when combined, however, do enable firms to explore their relationship with the customer in a more holistic way. Thus CRM is not merely a matter of database marketing, nor just a marketing process of segmenting the market and acquiring customers or any single IT initiative or loyalty scheme (Buttle, 2009). Firms must be driven by a desire to be more customer-centric if they want to compete effectively and thus, CRM can be thought of as “a core business strategy that integrates internal processes and functions, and external networks, to create and deliver value to targeted customers at a profit. It is grounded on high quality customer-related data and enabled by information technology” (ibid, 2009: Loc 852).
A strategy is the long-term direction of an organisation and operates on three main levels. Firstly, it is concerned with the overall scope of an organisation and how to add value to the organisational as a whole, or the corporate-level. Secondly, at a business level: how the business should compete in their particular market. And thirdly, how the components of an organisation deliver effectively the corporate-level strategies in terms of resources, processes and people (Johnson et al, 2014:7).
Therefore, a CRM approach must devise clear objectives to be achieved and which are measureable. Clearly one of those objectives is profit but clearly linked to this is sustainability. Mukerjee (2007) argues that this requires a firm to have four capabilities. The firm must have the technological capabilities to enable the desired functionality for the CRM practice. Secondly, its people must have the skills, abilities and attitudes responsible to generate CRM and implement initiatives. Thirdly, it must focus on the processes that the company has identified to enable the CRM initiatives to be fulfilled, including its transactional interactions with customers, and finally the firm must identify the right approaches to acquire the knowledge and insight into enhancing the customer value by developing stronger and deeper customer relationships with the right set of customers.
Thus ‘finding the right set of customers’ is the starting point for CRM. The IDIC model devised by Peppers and Rogers (1996) suggest firms must first identify who its customers are and build a deep understanding of them. Then, the firm must identify which customers have the most value now and which will offer the most for the future. Following this, the firm must interact will customers to ensure an understanding of customer expectations and their relationship with other suppliers or brands, and finally the firm must customise the offer and communications to ensure the expectations are met.
The next step is building a relationship with the customer. Buttle (2009: Loc 1082) defines a relationship as distinct from a transaction: The latter is a one off, but the former is a more enduring social construct, but emphasises trust and commitment. Thus a CRM system must continually strive for improved customer retention as well as recruiting new customers who have future profit potential. A useful tool for exploring this is customer portfolio management.
A portfolio segments customers into mutually exclusive customer groups which are clustered on the basis of one or more strategically important variables. This allows for different groups to manage in different ways as it recognises differing needs, preferences, expectations, but also enables analysis of revenue and cost profiles. Clusters can by consumer type, e.g. other businesses (B2B) or ultimate consumer (B2C). And each sub-group can be further categorised, e.g. business type, or through psychological, geographical, demographical and behavioural clusters (Jackson, 2015).
Then it is to appraise the value of such groups. It is a mistake to value according to revenue or volume since they take no account of the costs to win and keep the customer, it must be related to profit (Ambler et al, 2004). Such comparisons can then be modelled on a bivariate grid, and then combined again, for example, ‘attractiveness’, or kept separate, and adding a third dimension (trivariate grid approach) for example, assessing against the company and network fit: the operational, marketing, technological, people and other competencies and liquidity a company has, or can develop, to exploit the segment (Buttle, 2009).
Thus the portfolio approach provides a sense of focused decision-making that can take into account a number of variables and classifications and assist with forming the strategy of the organisation from a corporate prospective. It provide the ‘vision’ of the organisation. It follows, then, that the business and operational CRM strategies can then focus on the ‘how’ to implement CRM systems.
This starts with determining priorities to determine the goals and objectives. Chan (2005) believes that in order to successfully build a customer-centric organisation, all the organisational interactions with the target customers must be tracked whether it is at a primary stage, e.g. marketing, during the interaction, or following the interaction. One approach to this is Value Chain analysis.
Porter’s (1985) Value Chain identifies nine ways that company create value, and classifies them as primary or secondary, as the diagram below demonstrates:
Value is created by companies managing each component more efficiently and effectively, and in particular improving the co-ordination of these activities across the business. The competitive position is strengthened by understanding which of these are especially significant to customers, how rare and difficult to mimic these core competencies are, as well as any other factors which support the organisation in achieving its goals (Johnson et al, 2014).
These other factors include understanding the role that the organisational stakeholders, including suppliers, customers, owners, partners and employees contribute (Buttle 2009). He (ibid: Loc 9638) argues that the relationship between suppliers is particularly critical. The organisation, therefore, acts as a link between the suppliers and customers, and for the customer-centric organisation that relationship between the suppliers and customer must de-emphasise the short-term, opportunistic behaviours to maximise immediate profit but rather stress the long-term mutually beneficial gains.
Furthermore, companies need to keep adding value to retain customers in order to sustain competitiveness, and potentially leap-frog rivals. There are several approaches that organisations can enhance customer value, for example, product and service innovation, finding complete solutions, lowering costs, using more efficient technology and removing ‘pain points’ – simplifying or removing those activities which a customer must endure to get the value (Mukerjee, 2007). Shaw and Ivens (2002) believe that it is the latter issue that is the main focus for CRM: understanding the customer experience rather than just the customer.
Firms can make use of a number of methods for investigating customer experience, including ‘mystery shopping’ and experience mapping, a process to chart and improve what happens at every point the customer interacts with the organisation; process mapping (Buttle, 2009). Another approach is to study the customer activity cycle, which involves breaking down the process into basic elements and collecting data at each point in the cycle (Vandermerwe, 1993).
Thus, CRM systems make use of sophisticated analytical tools, and these must be supported by CRM technologies. CRM technology must be able to meet a wide-range of functions, not just to capture data, but assist with assimilating that data into databases, which must be robust, scalable and secure (Mukerjee, 2007). Furthermore, such technologies must be accessible to all stakeholders, meaning they cannot be difficult to navigate or configure. They must also be able to operate across any communication channel and integrate with other systems to contribute to a single view of, and for, the customer (Buttle, 2009) who lists many well-known CRM solution providers, for example Oracle, SAP, salesforce. Com, Microsoft and E.piphany (ibid: Loc 8026).
Therefore, when designing a CRM systems a thorough understanding of the interconnectivity of the customer, the suppliers, the technology, analytical tools and the firm’s strategy is required and needs to be constantly monitored, as the model below demonstrates:
Adapted from: Buttle (2009: Loc 2863)
Earlier in this assignment, ‘finding the right set of customers’ was suggested as the starting point for CRM system design, and thus it is appropriate to return to this in order to stress the importance of the cyclical and interconnectedness of CRM when designing a system. The activity of ‘finding the right set of customers’ means right now and in the future in order to devise an appropriate strategy, and do so profitably. This process is known as data mining. Buttle (2009) defines data mining as “the application of descriptive and predictive analysis to support the marketing, sales and service functions”. Data mining provides answers to questions that are at the heart of CRM and therefore when designing a system, it is important to understand that CRM is a holistic approach.
Another key consideration when designing a CRM system is that it should assist the organisation in its quest to keep abreast of and prepare for changes in current trends. Traditional marketing methods have been challenged in recent years by changing social trends, the reduction of governmental controls, rising income levels, threats from rivals, an increasingly sophisticated customer who has greater access to information (Mukerjee, 2007). All of this, has contributed to the shortening product life cycle, which as substantially increased the pressure on firms to not just acquire customers but retain them.
Any system that is designed must also be implemented. Narver et al (1998) state that customer orientation is a type of organisational culture, therefore before embarking in CRM, the organisational culture must be ready and able to fulfil the CRM objectives. The organisation, or rather the people within it, must be able to respond quickly, and the company able to support, train and hire people with the necessary attitude, skills and abilities in order for them to contribute to CRM. Furthermore, the company may have to radically reconstruction its entire systems, particularly the structural design of the organisation in order to change the culture from resistant to embracing change.
This assignment has explored the notion that CRM is a holistic approach which assists the organisation in not just responding to its environment but to also compete against rivals. Customer relationship management cannot deliver its promised benefits without appropriate customer-related data, which in turn must be analysed using a wide-range of tools in order to meet the strategic, operational, analytical and collaborative CRM purposes. To design a CRM system means putting the customer at the heart of the organisation and adapting and sustainably exploiting all the resources available in order to meet their needs.
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