Customer Relationship Management (CRM)

Customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving and they are approached by many more competitors with equal or better offers. The challenge according to Jeffrey Gitomer as reported by Keller and Kotler (2006) is not necessary to produce satisfied customers, several competitors can do this. Hence, the challenge is to produce delighted and loyal customers.

One technological approach designed specially to enable customer service and retention is customer relationship management (CRM). There are three main approaches: Strategic, where CRM is seen as a core business strategy; operational, CRM is about automating different aspects of an organization’s selling, marketing and service functions; and finally analytical, where CRM is about manipulating data to improve the efficiency and effectiveness of each phase of the customer relationship lifecycle.

Hence, CRM can be described as the delivery of customer value through the strategic integration of business functions and technology. CRM is the process of managing detailed information about individual customers and carefully managing customer ‘touch points’ to maximize customer loyalty. A customer touch point is any occasion on which a customer encounters the brand and product-form actual experience to personal or mass communications to casual observation. 

For example, in an hotel, the touch points include reservations, check-in and check-out, frequent-stay programs, room service, business service, exercise facilities, laundry service, restaurants and bars. CRM is the establishment, development, maintenance and optimization of long term mutually valuable relationship between consumers and organization.

CRM applications typically consist of cal management, lead management, customer records, sales support and payment systems. These are necessary in order to respond to questions from customers and questions from internal stakeholders about issues such as strategy, processes, operations and sales forecasts. These systems should be used to at each stage of the customer lifecycle in order to develop an understanding about customer attitudes and behavior that the organization desires. CRM should be used to assist in making decisions about whom to target, which customer differences should be used to assist in making decisions about which target, which customer differences should be taken into account and what impact this will have on profitability.

Customer relationship management enables companies to produce excellent real­time customer service through the effective use of individual account information. Based on what they know about each valued customer, companies can customize market offerings, services, programs, messages, and media. CRM is important because a major driver of company profitability is the aggregate value of the company’s customer base.

Framework for one-to-one Marketing in relation to CRM

Peppers and Rogers as reported by keller and Kotler (2006) outine a four-step framework for one -to-one marketing that can be adopted on CRM marketing as follows:

i.                   Identify your prospects and customers- Do not go after everyone, but build, maintain and mine a rich customer database with information derived from all the channels and customers touch points

ii.                Diffrentiate customers in terms of (a) their needs and (b) their value to your company. Spend proportionately more effort on the most valuable customers. Apply activity based costing and calculate customer lifetime value. Estimate net present value of all future profits coming from purchases, merging levels and referrals, less customer-specific servicing costs.

iii.     Interaction-Interact with individual customers to improve your

knowledge about their individual needs and to build stronger relationship. Formulate customize offerings that are communicated in a personalized way.

iv.     Customization- Customize products, services and messages to each

customer. Facilitate customer/company interaction through the company contact centre and website

A key driver of shareholder value is the aggregate value of the customer base. Winning companies improve the value of their customer base by excelling at strategies such as:

1.       Reducing the rate of customer defection

2.      Increasing the longevity of the customer relationship

3.     Enhancing the growth potential of each customer through share-of-wallet, cross selling and up-selling; and

4.     Focusing disproportionate effort on high-value customers. The most valuable customers can be treated in a special way. Thoughtful gestures such as birthdays greetings, small gifts or invitation to special sports or arts events

can send a strong signal to the customer.

Building Loyalty

While building customers loyalty, this involves costs. Thus, companies should be careful in building customer loyalty in relation to costs to be incurred. Five levels of investment in customer relationship building are briefly examined below:

a.      Basic marketing- The salespersons who sells the product

b.     Reactive marketing- The salesperson sells the product and encourages he customer to call if he /she has questions, comments or complaints

c.      Accountable marketing-The salesperson phones the customer to check whether the product is meeting expectation. The salesperson also asks the customer for any product or service improvement suggestions and any specific disappointments

d.     Proactive marketing- The salesperson contacts the customer from time to time with suggestions about improved products uses or new products

e.     Partnership marketing- The Company works continuously with its large

customers to help improve their performance.

It should be noted that all these activities involved costs. Therefore, companies should carefully compare the costs and the benefits in terms of profits and sales-volume to be derived from such activities.

Notwithstanding, most companies practiced only basic marketing when their markets contain many customers and their unit profit margins are small. For instance, Boeing works closely with American Airlines to design airplanes that fully satisfy American requirement. An increasing essential ingredient for the best relationship marketing today is the right technology. These days, companies are using email, websites, call centers, databases, and database software to foster continuous contact between company and customers. For example:

The discount brokerage service Ameritrade provides detailed information to its customers, which helps to create strong bonds. It provides customized alerts to the device of the customer’s choice, detailing stock movements and analyzes recommendations. The company’s website permits online trading and provides access to a variety of research tool.

This is similar to alerts sent by Nigeria Airlines remaining their customers about their booking with the such airlines. Similarly, MTN also alerted their teeming customer on their credit usage. To achieve this, these mobile telecommunication companies maintained databases of their customers.

Reducing Customer Defection

There are five main steps a company can take to reduce the defection rate, namely:

1.     The company must define and measure its retention rate

2.     The company must distinguish the causes of customer attrition and identify those that can be managed better

3.     The company needs to estimate how much profit it loses and when it loses customers

4.     The company needs to figure out how much it would cost to reduce the defection rate and

5.      Listening to customers- Some companies have created an on-going

mechanism that keeps senior managers permanently as demonstrated by Banks in Nigeria through their ‘customer care units’