CUSTOMER RELATIONSHIP MANAGEMENT UNIT I

Definition of CRM:
Customer Relationship Management (CRM) is a comprehensive strategy and process of acquiring, retaining
and partnering with selective customers to create superior value and strong relationship with customers.

“Customer Relationship Management is the establishment, development, maintenance and optimization of

long-term mutually valuable relationships between consumers and organizations”.

CRM is neither a product, nor service but a business strategy to learn more about customer behavior and
requirements in order to create long term relationship with them. CRM involves use of technology in
attracting new and profitable customers while forming tighter bonds with existing one.

NEED FORCRM / OBJECTIVES OF CRM

1. Enable the company to identify, contact attract and acquire new customers:
CRM allows the company to focus its limited marketing resources on the most promising target markets with
the highest potential value. This is typically done using the information generated by CRM application which
a) Automatically generates customer and market profiles
b) Identify and target market with high revenues
c) Generates, leads, tracks marketing campaigns across a variety of media
d) Selects appropriate contact media, plans promotions and incentives
e) Manages the proposal process through negotiations to close.

2. Obtains a better understanding of the customers- their wants and needs:

CRM applications, often used in combination with data warehousing, e-commerce applications and call
centers, allow companies to gather and access information about customers buying behavior, wants in terms
of products or services provided by the company. The information is used in planning and execution go
marketing campaigns. It enables customers to seek products and reveal their preferences in an interactive
manner.

3. Defines the appropriate product and service offering and match it to the unique needs of the
customer:
CRM provides customization and personalization capabilities that gives customers the power to view the
enterprise in a way that they can relate to, there by making it easier for them to do business with it. This
includes configuration, pricing, quotation, catalog and personal generation capabilities that harness the power
of Internet while ensuring the flexibility to respond quickly to changing technical and business conditions.

4. Manages and optimizes company’s sales cycle:

The productivity of the sale process is increased by accurating the contracting process and improving
revenue velocity. This is accompanied to capabilities such as online order entry, credit card processing, tax
calculations, auctions, billing, order status and payment processing. CRM solutions also include tools, which
provide the ability to communicate important information from supply chain modules to the customer
interface in real time. These tools can help in determining feasibility, profitability and delivery dates, while
understanding the constraints of the entire supply production and logistics chain across multiple channels and
enterprises.

5. Increases retention of existing customers through improved sales, service and support:
CRM applications document all post –close service and support related interaction with customers, record
customer requests and collect feedback from variety of communication channels and use the information to
anticipate the demand for service and technical assistance and maximize customer satisfaction and retention
while maximizing customer service staff. The goal is to ensure greater customer loyalty. CRM provides
capabilities for providing online support information, online product registration to an electronic help desk,
self service support logging and tracking and integration with call centers.

Complementary Layers of CRM / CRM perspectives

CRM is a term that is often referred to in marketing. However, there is no complete agreement upon a single
definition. This is because CRM can be considered from a number of perspectives. In summary, the three
perspectives are:

1. CRM from the Information Technology Perspective.

2. CRM from the Customer Life Cycle (CLC) Perspective.
3. CRM from the Business Strategy Perspective.

1. CRM from the Information Technology Perspective.

From the technology perspective, companies often buy into software that will help to achieve their business
goals. For many, CRM is far more than a new software package, the renaming of traditional customer
services, or an IT-based customer management system to support sales people. However, IT is vital since it
underpins CRM, and has the payoffs associated with modern technology, such as speed, ease of use, power
and memory, and so on. Information Technology (IT) and CRM have three key elements, namely Customer
Touch Points, Applications, and Data Stores. This section is based loosely upon Raisch (2001) The e-
Marketplace.

Customer Touch Points are vital since your business has a marketing orientation and focuses upon the
customer and his or her current and future needs. This is the interface between your organisation and its
customers. For example you buy a new car from a dealership, and you enter a showroom. The dealership is a
contact point. You meet with a salesperson that demonstrates the car. The salesperson is a contact point. You
go home and look at the car manufacturer's website, and then send the company an e-mail. Both are contact
points. Other contact points include 3G telephone, video conferencing, Interactive TV, telephone, and letters.

Applications are essentially the software and programmes that support the process. Incidentally, this is what
some would call CRM - but we know better. Applications serve Marketing (e.g. data mining software* and
permission marketing**), Sales (e.g. monitoring Customer Touch Points), and Service (e.g. customer care).

Data Stores contain data on every aspect of the customer, and the Customer Life Cycle (CLC). For example,
an organization keeps data on the products you buy, when you buy them, and where they are sent. Data is
also kept on the web pages that you visit and the products that you consider, but then do not buy. Leads are
stored here. Data on the life time value of individual customers is stored here, as well as details of how and
when the customer was recruited, how - and for how long - individuals have been retained, and details of any
products that have been extended to individuals are also stored. The data is analysed using Applications.

2. CRM from the Customer Life Cycle (CLC) Perspective.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC
focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products of
services that customers need throughout their lives. It is marketing orientated rather than product orientated.
Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC
focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or
services that customers NEED throughout their lives. It is marketing orientated rather than product
orientated, and embodies the marketing concept. Essentially, CLC is a summary of the key stages in a
customer's relationship with an organisation. The problem here is that every organisation's product offering
is different, which makes it impossible to draw out a single Life Cycle that is the same for every
organisation.

Let's consider an example from the Banking sector. HSBC has a number of products that it aims at its
customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start
young when you want to save money. 11-15 year olds are targeted with the Livecash Account, and 16-17
year olds with the Right Track Account. Then when (or if) you begin College or University there are Student
Loans, and when you qualify there are Recent Graduate Accounts.

When you begin work there are many types of current and savings account, and you may wish to buy
property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It
would also be advisable to take out a pension. As you progress through your career you begin your own
family, and save for your own children's education. You embark upon a number of savings plans and
schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral
expenses - although HSBC may not offer this!).

This is how an organization such as HSBC, which is marketing orientated, can recruit and retain customers,
and then extend additional products and services to them - throughout the individual's life. This is an
example of a Customer Life Cycle (CLC).

3. CRM from the Business Strategy Perspective:

• 1. Customer Acquisition.
• 2. Customer Retention.
• 3. Customer Extension.
• 4. Marketing Orientation
• 5. Value Creation
• 6. Innovative IT.
1. Customer Acquisition - This is the process of attracting our customer for the first their first purchase. We
have acquired our customer.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of
customers that purchase from us for the first time.

2. Customer Retention - Our customer returns to us and buys for a second time. We keep them as a
customer. This is most likely to be the purchase of a similar product or service, or the next level of product or
service.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of
customers that purchase from us regularly.

3. Customer Extension - Our customers are regularly returning to purchase from us. We introduce products
and services to our loyal customers that may not wholly relate to their original purchase. These are
additional, supplementary purchases. Of course once our loyal customers have purchased them, our goal is to
retain them as customers for the extended products or services.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of
customers that purchase additional or supplementary products and services.

4. Marketing Orientation - means that the wholes organization is focused upon the needs of customers.
Customer needs are addressed by the Three Levels of a Product whereby the organizations not only supplies
the actual, tangible product, but also the core product and its benefit, and also the augmented product such as
a warranty and customer service. Marketing orientation will focus upon the needs of consumers for all three
levels of a product. (N.B. 'market' orientation and 'marketing' orientation are not the same).

5. Value Creation - centres on the generation of shareholder value based upon the satisfaction of customer
needs (as with marketing orientation) and the delivery of a sustainable competitive advantage.

6. Innovative IT - is exactly that - Information Technology must be up-to-date. It should be efficient, speedy
and focus upon the needs of customers. Whilst IT and/or software are not the entire story for CRM, it is vital
to its success. CRM software collects data on consumers and their transactions. Huge databases store data on
individuals and groups of individuals. In some ways, CRM means that an organization is dealing with a
segment of one person, since every consumer displays different purchasing habits and preferences.
Organizations will track individuals, and try to market products and services to them based upon similar
buyer behavior seen in other individuals (e.g. When Amazon tells you those customers that viewed/bought
the same product as you, also bought another product).

Customer Satisfaction:
Oliver defines Customer satisfaction as follows “Satisfaction is the customer fulfillment response. It is a
judgment that a product or service feature, or the product or service itself provides a pleasurable level of
consumption related fulfillment.”
Satisfaction can be viewed as contentment. Satisfaction may also be associated with some sense of
happiness. For those services that really surprise in the positive way, satisfaction may mean delight. And in
some situations, where the removal of negative aspect leads to satisfaction, the consumer may associate a
sense of relief with satisfaction.
Retention in competitive markets is generally believed to be a product of customer satisfaction. Satisfaction
is a psychological process of evaluating perceived performance outcome based on predetermined
expectations.

Satisfaction drivers:

Cumby and Barnes suggest that driver exist on five levels and, that these generally involve progressively
more personal contact with the service supplier:
1. Core product or service
2. Support service and systems
3. Technical performance
4. Elements of customer interaction
5. Affective dimension of services

1. Core Product or service: this is the basic product or service provided by the company and probably
provides the supplier with the least opportunity to differentiate or add value.

2. Support services and systems: These include the peripheral support services that enhance the provision
of the core product or services. The customer may well receive an excellent core product or service from the
supplier but are dissatisfied with the supplier because of inferior support service and systems.

3. Technical Performance: The level of “customer satisfaction model” deals with whether the service
provider gets the core product or whether service and the support services and systems are in place but they
do not get them right on every occasion.

4. Elements of customer interaction: This level relates to the way the service provider interacts with the
customer either face-to –face or through technology based contact.

5. Affective dimensions of service: Beyond the basic interaction of the company are the messages,
sometimes subtle and often unintentional, that companies send to their customers that leave them with
positive or negative feelings towards them. A considerable amount of dissatisfaction has nothing to do with
core products and services. Indeed the customer may be satisfied with more aspects of interaction. The
problem may lie with “little things” that may not be noticed by the staff.

It is quite possible for the supplier to get things right on the first four levels and to dissatisfy the customer
because of something that happens on the fifth level. This emphasize the importance of ‘critical episode’ in
the exchange process

Customer Satisfaction Process:

At the heart of any successful strategy to ‘manage’ customer satisfaction is the ability to “listen to the
customer”. They suggest five categories of approach.
1. Customer satisfaction indices
2. Feedback
3. Market research
4. Front-line personnel
5. Strategic activities

1. Customer Satisfaction Indices:

Customer satisfaction indices are among the most popular methods of tracking or measuring customer
satisfaction. Indeed, business of all sorts now divert consider energies into tracking customer satisfaction in
this way.
2. Feedback:
Feedback in this context includes comments, complaints and questions ,It may be among the most effective
means of establishing what the customer regards as a satisfactory level of performance and whether
‘dissatisfiers’ exist within the operation as it is based on actual performance rather than contrived situations.
3. Market Research:
In addition to research among customers and non-customers into potential ‘satisfiers’, ‘dissatisfiers’ and
‘customer expectations’, market research can be used as customer entrance (to establish drivers which
bought the customer to the company) and customer exit (to establish those factors which cause the customer
to go elsewhere).Again more valuable information may be achieved in the latter rather than the former as it is
based on actual behavior rather than the perception.
4. Frontline Personnel:
Direct contact with staff can provide a good means of listening to the customer. As it is frequently suggested
that many customers, rather than making a formal complaint to the company, will simply break the
relationship. Frontline staff provides an opportunity for less formal sounding on complaints which might to
otherwise not be heard. The crucial factor here is how this information is fed back into the decision-making
process.
5. Strategic activities:
Actively involving in the customer in the company decision making may be means of pre-empting potential
“dissatisfiers” and establishing potential “satisfiers”.

Benefits of Customer satisfaction

Many companies adopt strategies to improve customer satisfaction with the perceived objectives of
strengthening bonds and achieving customer loyalty. Great claims are made regarding higher satisfaction
levels. It is suggested that customer satisfaction:
 Increases customer loyalty
 Reduces price elasticity
 Insulates market share from competitors
 Lowers transaction cost
 Reduces failure rates and cost of attracting new customers
 Improves the firm’s reputation in the market place

Customer Customer Customer

satisfaction Retention profitability

Customer Loyalty:

Definition of Loyalty:
Loyalty may be defined as “The biased behavioral response, expressed over time by some decision
making unit with respect to one out of a set of processes resulting in brand commitment”.

Advantages for setting up Loyalty:

1. Building lasting relationships with customers by rewarding them for their patronage.
2. Gathering high profits through extended product usage and cross-selling
3. Gathering customer information
4. Decommodifying brands i.e., differentiating from crowds.
5. Defending market position
6. Planning against competitive activity.

Classification of customers with reference to Loyalty:

There are six classifications of customers in respect of loyalty:
1) Current loyal customers who will continue to use the product or service
2) Current customers who may switch to another brand
3) Occasional customers who would increase consumption of the brand if the incentives were right.
4) Occasional customers who would decrease consumption of the brand if competitor offered the right
incentive.
5) Non-users who could become customers.
6) Non- users who could never become customers.
It is important to distinguish between loyalty to the generic product, the brand and particular supplier. Many
people drink coffee as beverage. Those who drink considerable quantity of coffee can be described as having
a product loyalty. Within the group, there will be some that buy just the cheapest coffee or drink whatever
available. They are product loyal but not brand loyal. They are not disloyal as that implies that there has been
a loyalty, but they have no loyalty at all to a particular brand. Those who have a particular brand loyalty, they
always buy a particular brand or at least a brand from the same product.

Types of Customer Loyalty:

1. Supplier Loyalty:
Many customers are not only loyal to a particular brand, but also loyal to particular supplier, a type of
customer known as hostage i.e., somebody who has no choice but to be a customer of a particular brand or
supplier. Such a situation could occur in a small village community where there is only a shop selling
perhaps just one brand of bread. A customer who is without transport could be forced, if they really want
bread beans, to be loyal to that one brand and that one supplier. The term introduced for this is PSEUDO-
LOYALTY.
2. Supra-Loyalty :
Supra-loyalty is a term that can be applied to those who are extremely loyal to an organization, product or
service. In the case of loyalty to an organization, that have normally build up a personal relationship with the
organization over a period of time or in these of product/service, their identify themselves with it. It is as if
they have internalized relationship and consider themselves almost part of the organization instead of being a
customer.
3. De-loyalty:
A customer who makes a deliberate decision to move to another organization because he or she has been let
down by an organization that they were previously loyal can be described as being DE-LOYAL. This is not
same as disloyalty, which suggests that it is the customer who is doing something wrong. In the case of de-
loyalty, it is the organization which has let the customer down. There is evidence that people are willing to
forgive one mistake or one case of poor service. Customer loyalty can be retained even after a mistake
provided that rectification (an apology) is speedily forthcoming. However, if a super-loyal customer becomes
disenchanted, they may take their business else where, in effect becoming de-loyal. if they are very
disappointed they may become ANTI-LOYAL, seek retribution against the organization.

4. Disloyalty:
It is a mute point as to whether a customer can actually be disloyal. Customers owe nothing, in terms of
loyalty to suppliers. Many customers may feel that they are being disloyal if they go else where but feeling
disloyal is not the same as being disloyal. The only obligation actually placed on the customer is to render
payment for the product or service provided by payment of monetary and other terms.
Organizations, having a responsibility to their customers, can be disloyal too. Disloyalty is not providing a
product or service deliberately to a previously loyal customer. An example of this would be an organization
that treated a new customer better, deliberately or unintentionally than the existing customers. In this case,
the organization would be being disloyal to relationship that had been built up. If the existing customer
decides to go elsewhere, then they would be making a perfectly valid and proper decision. Disloyalty implies
an act and not the customer is capable of such an act. The customer may be a – loyal, de-loyal or even anti-
loyal but never disloyal

Product Marketing:
Product Marketing: - Definition
"The essential element of marketing is customer want satisfaction. The customer’s want satisfaction is the
economic and social reason for an organization’s existence."

Product marketing deals with the first of the "4P"'s of marketing, which are Product, Pricing, Place, and
Promotion.

Product marketing, as opposed to product management, deals with more outbound marketing tasks. For
example, product management deals with the nuts and bolts of product development within a firm, whereas
product marketing deals with marketing the product to prospects, customers, and others. Product marketing,
as a job function within a firm, also differs from other marketing jobs such as marketing communications
("marcom"), online marketing, advertising, marketing strategy, etc.

A Product market is something that is referred to when pitching a new product to the general public. The
people you are trying to make your product appeal to is your consumer market. For example: If you were
pitching a new video game console game to the public, your consumer market would probably be the adult
male Video Game market (depending on the type of game). Thus you would carry out market research to
find out how best to release the game. Likewise, a massage chair would probably not appeal to younger
children, so you would market your product to an older generation.

Product marketing in a business addresses five important strategic questions:

• What products will be offered (i.e., the breadth and depth of the product line)?
• Who will be the target customers (i.e., the boundaries of the market segments to be served)?
• How will the products reach those (i.e., the distribution channel and are there viable possibilities that
create a solid business model)?
• At what price should the products be offered?
• How will customers be introduced to the products (i.e., advertising)?

Marketing Mix
Marketing Mix is a combination of marketing tools that a company uses to satisfy their target customers and
achieving organizational goals. McCarthy classified all these marketing tools under four broad categories:

 Product
 Price
 Place
 Promotion
Product
Product is the actually offering by the company to its targeted customers which also includes value added
stuff. Product may be tangible (goods) or intangible (services).

While formulating the marketing strategy, product decisions include:

• What to offer, Brand name

• Packaging
• Quality
• Appearance
• Functionality
• Accessories
• Installation
• After sale services
• Warranty

Price
Price includes the pricing strategy of the company for its products. How much customer should pay for a
product? Pricing strategy not only related to the profit margins but also helps in finding target customers.
Pricing decision also influence the choice of marketing channels. Price decisions include:

• Pricing Strategy
• List Price
• payment period
• Discounts
• Financing
• Credit terms

Using price as a weapon for rivals is as old as mankind. but it’s risky too. Consumers are often sensitive for
price, discounts and additional offers. Another aspect of pricing is that expensive products are considered of
good quality.

Place (Placement)

It not only includes the place where the product is placed, all those activities performed by the company to
ensure the availability of the product tot he targeted customers. Availability of the product at the right place,
at the right time and in the right quantity is crucial in placement decisions.

Placement decisions include:

• Placement
• Distribution channels
• Logistics
• Inventory
• Order processing
• Market coverage
• selection of channel members
Promotion

Promotion includes all communication and selling activities to persuade future prospects to buy the product.
Promotion decisions include:

• Advertising
• Media Types
• Message
• Budgets
• Sales promotion
• Personal selling
• Public relations
• Direct marketing

Direct Marketing:

Definition:
Direct Marketing is an interactive Marketing system that uses one or more advertising media to affect a
measurable response and / or transaction at any location.

Today, many direct marketers see direct marketing as a broader role, that of building a long-term relationship
with the customer (Direct Relationship Marketing). Direct Marketers occasionally send birthday cards,
information materials or small premiums to select numbers in their customer database.

Advantages of Direct Marketing:

The following are the advantages of Direct Marketing-

1) Delivers near-perfect solutions to customer’s problems
2) Gives individual attention to customers
3) Facilitates finalizing of offers through interaction with the manufacturers, wholesalers or retailers as
the case may be.
4) Offers customized products as per the preference of the customers.
5) Helps achieve excellence in products/services
6) Eliminates the hassles of going through marketing channels / stores.
7) Facilitates sharper segmentation and targeting, ultimately each individual becomes a specific target
market.
8) Facilitates relation building with the customers
9) Is better measurable, compared to mass marketing
10) Is more cost effective
11) Saves channel costs for the most part
12) Saves advertising cost almost totally
13) Benefits the customers too by enabling them to shop by sitting at homes save their precious time
14) With every development in IT, Direct marketing’s efficiency keeps increasing, cost keeps decreasing.

Differences between Conventional/Traditional marketing and Direct Marketing (DM):

Conventional Marketing Direct Marketing

1 Conventional marketing is mass DM is de-massified marketing, it deals with customers one-
. marketing to-one
2 Conventional marketing deals with DM deals with them directly
. customers indirectly
3 Conventional marketing is a one way DM is interactive marketing, with two-way communication
. activity between the firm and each one of the customers
4 Conventional marketing relies heavily on DM is Channel-less
. marketing channels/stores
5 Conventional marketing relies heavily on DM does not involve them
. advertising/ mass promotion

Forms of Direct Marketing:

1. Direct Mail Marketing:

Direct Mail Marketing is similar to Mail Order Marketing / Catalogue Marketing. Usually, when a trading
house markets various products by mail order, it is referred to as Mail Order Marketing and when a
manufacturer practices the same method it is known as Direct Mail Marketing. Certain softwares allow
creation of personalized letters, messages and offerings. In direct mail marketing, not only letters / brochures
are mailed to the prospects, but product samples, gifts and complaints are also mailed, depending on the
context.
Example: Mother Care India does Direct Mail Marketing .It targets the mothers who buy items meant for
kids.

2. Direct Response Marketing:

Direct Response Marketing is another expression of direct marketing. Direct Response Marketing uses
different media (including letters / mailers), like telephone, radio, TV and Internet. Some direct response
marketing campaign, rely totally on television “infomercials” (Commercials which give information about
products, benefits and usage aspects and obtain responses). Toll-Free telephones too serve as a useful tool of
direct response marketing. Toll free telephones help better ordering by the customer, better dialogue between
the customers and the company and better service to the customer.
Example: Dell Computers is one Company that heavily relies on toll free numbers to elicit customer
responses.

3. Tele-Marketing:
Telemarketing is yet another form of direct- marketing tool. Hence, the marketer goes direct to the customer
using telecom / IT facilities. Telemarketing is less expensive as compared to most other forms of selling.
Moreover, it can be used in respect of different types of products. It suits industrial products, services and
consumer durables. Telemarketing is usually done through special campaigns. Contact is established with
hundreds of prospects in a campaign that normally runs through a few days. Several tele-callers are hired for
the tele-call operations. The Call Centre is the real operation theatre in telemarketing.

5. Tele-shopping /Home Shopping:

Tele-shopping, alternately known as home shopping is yet another of direct marketing. One of the major
characteristic of Teleshopping is that it is a low cost retailing system. Here, the marketer hawks the products
on air and the consumer watches it on his TV screen at home, phone up the marketer and buys his
requirement. With tele-shopping, in addition to the convenience, discounts, gift offers are also given to the
customers.

6. Face to Face Selling:

The original and oldest form of direct selling is the field sales call. Today most industrial companies rely
heavily on a professional sales force to locate prospects, develop them into customers, and grow the business
or to hire the manufacturers representative agents to carry out the direct selling task. In addition, many
consumer companies use a direct selling force. Insurance agents, stock brokers and distributors working for
direct sales organizations such as Avon, Amway, Mary kay and Tupperware.

7. Email marketing:
Email marketing is also a direct marketing tool. A major concern is spam, which actually predates legitimate
email marketing. As a result of the proliferation of mass spamming, ISPs and email service providers have
developed increasingly effective email filtering programs. These filters can interfere with delivery of e-,mail
marketing campaigns, even if the person has subscribed to receive them as legitimate email marketing can
possess the same hallmarks as spam.

9. Voice Mail Marketing:

Another type of direct marketing which has emerged is personal voice mail boxes and business voice mail
systems. Voice mail marketing is a cost effective means to reach people with warmth of human voice. More
recently, business has utilized guided voice mail (an application where pre-recorded voice mails are guided
by live callers) to accomplished personalized business-to- business marketing formerly reserved for
telemarketing. As there are abundance of “voice spam”, jurisdictions have passed many laws for regulating
consumer voice mail marketing.

11. Online Marketing:

As many people find way onto Internet, the cyberspace population is becoming more mainstream and
diverse. As a whole, Internet population is younger more affluent and better educated, they are more likely to
use Internet for entertainment and socializing. Marketers are doing on-line marketing by creating an
electronic presence on the Internet, placing ads online, participating in forums, newsgroups, bulletin boards
and web communities, and using e-mail and web casting.