CRM is “an IT enhanced value process, which identifies, develops, integrates and

focuses the various competencies of the firm to the ‘voice’ of the customer in order to

deliver long-term superior customer value, at a profit to well identified existing and

potential customer” (Plakoyiannaki & Tzokas, 2001) Discuss

Customer Relationship Management is a business strategy which focuses on

accompany being more customer orientated and places a greater emphasis on

building relationships with customers rather than focusing on the units produced and

sold. This essay will examine what defines CRM and the various elements that make

up a successful CRM process. The concepts of customer value, voice of the

customer (VOC) will be discussed. The role IT plays within enabling and enhancing

CRM processes will be looked at in detail. The pitfalls and risks involved

implementing a CRM strategy will be commented on.

Essentially CRM is ‘a business strategy focusing on winning, growing and keeping

the right customers’ (European Centre for Consumer Strategies, 2001). CRM

evolved from criticism of transaction based marketing, in that it was only concerned

with the initiation of transactions with customers. From this relationship marketing

evolved and concentrated on building, managing and maintaining successful

relationships with customers. With customer retention at the heart of relationship

management, the need for current and complex customer data was shown to play a

large role and new IT systems was seen as the key to managing this data. From this

CRM evolved, CRM is a further extension of the basic relationship marketing tools

and focuses on creating value for both customer and the supplier.

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Customers want more than to just purchase from their suppliers. They want a speed

and ease of doing business; they want their suppliers to know what they want and

the service to be tailored to their specific needs. ‘Increased confidence and

predictability can then serve as the basis for increased commitment in a relationship’

(Sanko et al 2006). A CRM system can provide a business with a wealth of

information which will enable them to manage relationships more efficiently

ultimately leading to higher customer retention. This also is reflected in the balance

sheet as ‘marketing costs go down as customer retention goes up because you do

not have to recruit as many new customers as before’ (Gummesson 2004). It was

found in a study that a reduction of 5% in customer losses leads to an increase in

profits of 60% over the next five years (Bruhn, 2003: 5)

There has been confusion over the years as to what exactly defines CRM, with some

people using the acronym for Customer Relationship Marketing. CRM has also been

confused as purely an information technology process. It may be useful then to

examine several clear definitions of CRM from practitioners and authors.

CRM “is an integrated approach to identifying, acquiring and retaining customers. By

enabling organisations to manage and coordinate customer interactions across

multiple channels, departments, lines of business and geographies, CRM helps

organisations maximise the value of every customer interaction and drive superior

corporate performance” (Siebel Software Solutions, in Buttle, 2009: 5)

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CRM “is business strategy that maximises profitability, revenue and customer

satisfaction by organising around customer segments, fostering behaviour that

satisfies customers and implement customer centric processes”

(www.destinationcrm.com, inButtle, 2009: 5)

(Buttle, 2009:15) defines CRM as “the 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”

(Knox et al, 2003: 1) define CRM as ‘an organisation wide process, which focuses on

treating different customers differently to increase value for both customer and

organisation’

Examining the various definitions on CRM exposes the common components that

define what CRM entails. These common themes include organisation wide process,

the wide spread use of IT within CRM, delivery of value both to the customer and the

organisation, customer life cycle, customer voice. These common themes will be

looked at individually to examine the role they play within CRM.

IT plays a large role within many CRM projects, without IT most large scale CRM

processes would be impossible due to their complex nature. New technologies have

enabled and facilitated firms to develop CRM by identifying, sorting and storing

greater customer information than ever before. There is an assumption that the more

money a company invests in CRM IT projects the better. This is a common mistake

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by management; building successful relationships should not solely be based upon

technology. IT should be used as an enabler and to enhance relations between the

firm and customer. There are CRM solutions suitable to all companies that range

from low, to medium, to high-tech. Too much technology can complicate and

possibly hinder existing or future relationships. Managers should remember that

‘relationships depend on people, not systems or computers’ so technology should be

used to enable a relationship and not to replace human relationships (Richard et al

2007). ‘Managers should discover what they really should be doing to strengthen

relations with their best customers –independent of technological sophistication’

(Rigby et al 2002)

At the heart of any successful CRM initiative lies the concept of value. Customer

value is a major source of competitive advantage and consists of three keys

elements, the value the customer receives, the value the company receives from its

customers and maximising the lifetime value of desirable customer segments (Knox

et al, 2003:24). Within CRM the value a customer receives can be defined as ‘the

customers perception of the balance between benefits received from a product or

service and the sacrifices made to experience those benefits’ (Buttle, 2009:187)

Companies compete in a variety of ways to deliver superior, consistent customer

value. The company must understand the customer and create and deliver a

superior product or experience compared to their competitors.

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The value the organisation receives from the relationship is a function of the

economics of customer acquisition and retention. It is generally accepted that it costs

around five times more to win a new customer than it does to keep an existing one.

Increasing customer retention by 5 per cent represented a net present value profit

increase from 35 per cent to 95 per cent (Knox et al, 2003:26). Maximising the

lifetime value of desirable customer segments is an important role of a CRM system.

Research has shown that often companies spend a significant portion of the

marketing budget on customer acquisition at the cost of customer retention (Knox et

al, 2003:26). A company should not necessarily aim to retain all their customers as

some will be more profitable than others. Companies should calculate the customer

life time value of the customer and use CRM processes to enhance the value

proposition to the most profitable customers, while alternatively use CRM to identify

and terminate less profitable customers.

Voice of the customer plays a large role within CRM; if a firm does not listen closely

and take heed of their customer requirements, they will lose existing loyal customers

and struggle to acquire new customers.Many companies believe they have clear

understanding of the requirements of their customers. Studies have indicated that

VOC processes in 70 percent of companies are ineffective. Poorly designed VOC

data collection and the lack of VOC tools are estimated by the National Institute of

Standards and Technology (NIST) to cost U.S. corporations nearly $100 billion a

year in failed technology projects (isixsigma.com).

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A VOC process must be developed to provide information about the customer

experience across the entire life cycle to assure that the most important problems,

issues and requirements are highlighted and acted upon. Ideally, the information

should come from multiple sources - from customers, from employees and some

from internal data systems, like returns and credits. Multiple sources allow for the

biases inherent in all quality data sources. Multiple listening posts, user groups,

surveys, call centre data and other techniques should all be used in a collaborative

way to listen and learn from the voice of the customer (isixsigma.com). CRM

processes enables companies to use VOC to improve and enhance their product or

service but meeting the needs or expectations of their clients.

Research from the Gartner Group suggests that between 50% and 80% of all CRM

projects fail. Building and maintaining close customer relationships is not always

appropriate or practical in every market. Efforts to build these lasting and loyal

customer relations are continuously undercut but competitive and market forces,

loyal and profitable customers of an organisation are seen as attractive prospects for

another. Organisational capability required to deliver a meaningful and rich customer

experience to each customer is much harder to conquer than a traditional transaction

or product based approaches that do not focus on any future relationship

enhancement (Finnegan & Wilcocks 2007: 2).

While CRM can be seen as a silver bullet to fixing all customer related issues it is not

as easy as that. There are many mistake made when adopting a CRM system. The

amount of thought, pre-planning and organisational change required is often

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underestimated. Too many managers listen to the hype and believe that CRM will

make ‘a perennial problem go away’ (Rigby et al 2002). Implementing CRM without

changing the organisation internally and externally will lead to failure, ‘implementing

a CRM system requires changes throughout the company or it will become yet

another costly system with little positive effect on performance’ (Gummesson 2004).

Wide ranging organisation change is required from the inside out, the entire

corporate culture needs to become customer focused before any other investment

made. A survey found that ‘87% of managers pinned failure of CRM programs on the

lack of adequate change management’ (Rigby et al 2002).

In conclusion, CRM has been clearly defined it is a complex subject that requires the

full backing of a company if they wish for their CRM strategy to succeed. CRM must

integrated into every facet of the business and there must be a willingness for the

company to change into a fully customer centric operation. IT plays a large role

within CRM but is not at the heart of CRM, managers must remember that it is

people not processes that build a relationship. Using CRM enhances the firm’s ability

to identify, develop and retain their most valuable customers. The company should

use all the various tool available through CRM to enhance value to the customer and

the value received from the customer. The benefits of having a well implemented

CRM system can outweigh the costs ‘loyal customers become less price sensitive

as they also value relationship dimensions such as trust, commitment and

convenience’ (Gummesson 2004). Companies should also be aware that companies

whose system have failed in the past should learn from their mistakes as ‘companies

do recover from their failures’ (Rigby et al 2002). CRM will be at the heart of most

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companies that wish to retain and mange successful customer relations into the

future.

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 Bibliography and Reference

Buttle, F (2009) Customer Relationship Management: Concepts and technology,

Butterworth-Heinemann.

European Centre for customer Strategies (2001) Waiting for the customer

management revolution.

Finnegan, D & Wilcocks, L (2007) Implementing CRM: From Technology to

Knowledge, John Wiley and Sons.

Gummesson, E (2004) Return to Relationships: The value of relationship marketing

and CRM in B2B Contexts, Journal of Business and Industrial Marketing.

Knox et al (2003) Customer Relationship Management: Perspectives from the

Marketplace, Butterworth-Heinemann.

Rigby et al (2002) “Avoid the Four Perils of CRM”, published in: Harvard Business

Review

Sanko et al (2006) Building commitment in buyer-seller relationships: a tie strength

perspective, Ebsco, Business Source Premier.

John Goodman and Bruce Hayes, A Robust VOC Process to Drive Better Six Sigma

Results, http://www.isixsigma.com/index.php?

option=com_k2&view=item&id=848:&Itemid=192