Handbook of CRM

Adrian Payne

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136400179
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Customer Relationship Management is a holistic strategic approach to managing customer relationships to increase shareholder value, and this major Handbook of CRM gives complete coverage of the key concepts in this vital field.
It is about achieving a total understanding of the concepts that underlie successful CRM rather than the plethora of systems that can be used to implement it.Based on recent knowledge, it is underpinned by: * Clear and comprehensive explanations of the key concepts in the field
* Vignettes and full cases from major businesses internationally
* Definitive references and notes to further sources of information on every aspect of CRM
* Templates and audit advice for assessing your own CRM needs and targetsThe most lucid, comprehensive and important overview of the subject and an invaluable tool in enabling the connection of the major principles to the real world of business.

Chapter 1

A strategic framework for CRM

Customer Relationship Management, or CRM, is increasingly found at the top of corporate agendas. Companies large and small across a variety of sectors are embracing CRM as a major element of corporate strategy for two important reasons: new technologies now enable companies to target chosen market segments, micro-segments or individual customers more precisely and new marketing thinking has recognized the limitations of traditional marketing and the potential of more customer-focused, process-based strategies.

CRM, also more recently called ‘customer management’, is a business approach that seeks to create, develop and enhance relationships with carefully targeted customers in order to improve customer value and corporate profitability and thereby maximize shareholder value. CRM is often associated with utilizing information technology to implement relationship marketing strategies. As such, CRM unites the potential of new technologies and new marketing thinking to deliver profitable, long-term relationships.

Although the term CRM is relatively new, the principles behind it are not unfamiliar. Organizations have for a long time practised some form of customer relationship management. What sets present day CRM apart is that organizations can manage one-to-one relationships with their customers – all one thousand or one million of them. In effect, CRM represents a renewed perspective of managing customer relationships based on relationship marketing principles; the key difference being that today these principles are applied in context of unprecedented technological innovation and market transformation.

The marketplace of the twenty-first century bears little resemblance to bygone eras characterized by relatively stable customer bases and solid market niches. Nowadays, customers represent a moving target and even the most established market leaders can be ousted quickly from their dominant positions. The urgent need to find alternative routes to competitive advantage has been driven by profound changes in the business environment, including: the growth and diversity of competition; the development and availability of new technology; the escalating expectations and empowerment of the individual; the advent of a global operating environment; and the erosion of conventional timeframes in this electronic-enabled era. These changes have reinforced the adoption of wider business horizons and more customer-oriented perspectives.

Companies have realized that it is no longer simply enough to offer excellent products: ease of duplication and market saturation can quickly dispel initial indications of a winning formula. Today’s key differentiator is exceptional service provided on a consistent and distinctive basis. Service is more difficult to imitate than a product because service requires customer input and involvement. Competitive advantage can therefore be gained by leveraging knowledge of customers’ expectations, preferences and behaviour. This involves creating an ongoing dialogue with customers and exploiting the information and insights obtained at every customer touch point.

CRM is aimed at increasing the acquisition and retention of profitable customers by, respectively, initiating and improving relationships with them. The development of strategically targeted relationships is enabled through the opportunities afforded by advances in information technology (IT). Companies today can seek to improve their customer management by utilizing a range of database, data mart and data warehouse technologies, as well as a growing number of CRM applications. Such developments make it possible to gather vast amounts of customer data and increase customer feedback, as well as to analyse, interpret and utilize them constructively. Furthermore, the advantages presented by increasingly powerful computer hardware, software and e-services are augmented by the decreasing costs of running them. This plethora of available and more affordable tools of CRM is enabling companies to target the most promising opportunities more effectively. Credit Suisse, for example, made a rewarding investment in learning more about the source of customer satisfaction and profitability within its own operations.

Credit Suisse Group is one of the world’s leading financial services companies. It operates in fiercely competitive banking and insurance markets where customer acquisition is very expensive and the retention of profitable customers is critical. In the late 1990s Credit Suisse launched a Loyalty Based Management programme to retain its most profitable customers. Using sophisticated data mining techniques, the company analysed its data warehouse of 2.5 million customers and identified the most profitable customers and their common characteristics. Targeted marketing programmes were then established for each market segment. The data analysis also revealed potential leads which could be followed up by sales consultants, providing a cost-effective basis for developing cross-selling and customer acquisition strategies.

Over the past decade there has been an increased interest in CRM among executives, academics and the media. Success stories such as that of Credit Suisse have heightened this interest. However, despite the many books, articles, conferences and web sites devoted to the topic of CRM, there remains a singular lack of agreement about what exactly CRM is, who the main beneficiary is and how it should be addressed to give a better return. This book sets out to provide a strategic framework for understanding and defining CRM as an effective means of ensuring that overall business strategy delivers improved shareholder results.

Before entering into a detailed discussion of the key processes involved in strategic CRM, it is important to explore some background to CRM. This chapter starts by examining the development of CRM and the issues underpinning its increased business significance.

The origins of CRM

CRM is based on the principles of relationship marketing, so a brief review of the development of marketing is helpful to understanding the evolution of CRM. As industries have matured, there have been changes in market demand and competitive intensity that have led to a shift from transaction marketing to relationship marketing.

In the 1950s, frameworks such as ‘the marketing mix’ were developed to exploit market demand. The shorthand of the ‘4Ps’ of product, price, promotion and place were used to describe the levers that, if pulled appropriately, would lead to increased demand for the company’s offer. The objective of this ‘transactional’ approach to marketing was to develop strategies that would optimize expenditure on the marketing mix in order to maximize sales.

During the latter years of the twentieth century some of these basic tenets of marketing were increasingly being questioned. The marketplace was vastly different from that of the 1950s. Numerous markets had matured in the sense that growth was low or nonexistent, resulting in increased pressure on corporate profitability. In many instances consumers and customers were more sophisticated and less responsive to the traditional marketing pressures, particularly advertising. Greater customer choice and convenience existed as a result of the globalization of markets and new sources of competition and the emergence of new media and channels. Innovative business thinking and action was required to meet the challenges of this new competitive environment.

In the early 1990s Philip Kotler, a professor at Northwestern University, proposed a new view of organizational performance and success based on relationships, whereby the traditional marketing approach – based on the marketing mix – is not replaced, but is instead ‘repositioned’ as the toolbox for understanding and responding to all the significant players in a company’s environment. He outlines the importance of the relationship approach to stakeholders:

The consensus in … business is growing: if … companies are to compete successfully in domestic and global markets, they must engineer stronger bonds with their stakeholders, including customers, distributors, suppliers, employees, unions, governments and other critical players in the environment. Common practices such as whipsawing suppliers for better prices, dictating terms to distributors and treating employees as a cost rather than an asset, must end. Companies must move from a short-term transaction-orientated goal to a long-term relationship-building goal.¹

Kotler’s comments underscore the need for an integrated approach for understanding the different stakeholder relationships. In many large industrial organizations, marketing is still viewed as a set of related but compartmentalized activities that are separate from the rest of the company. Relationship marketing seeks to change this perspective by managing the competing interests of customers, staff, shareholders and other stakeholders. It redefines the concept of ‘a market’ as one in which the competing interests are made visible and therefore more likely to be managed effectively.

The development of this broader wave of marketing thinking by marketing academics and practitioners has influenced the perceived role of marketing in business. In effect, marketing is given lead (but not sole) responsibility for strengthening the firm’s market performance. In an earlier book, we have described relationship marketing as:²

• a move from functionally based marketing to cross-functionally based marketing

• an approach which addresses multiple ‘market domains’, or stakeholder groups – not just the traditional customer market

• a shift from marketing activities which emphasize customer acquisition to marketing activities which emphasize customer retention as well as acquisition.

The transition from traditional, ‘transactional’ marketing to relationship marketing is depicted in Figure 1.1.

Figure 1.1 The transition to relationship marketing

Relationship marketing emphasizes two important issues. First, you can only optimize relationships with customers if you understand and manage relationships with other relevant stakeholders. Most businesses appreciate the critical role their employees play in delivering superior customer value, but other stakeholders may also play an important part. Second, the tools and techniques used in marketing to customers, such as marketing planning and market segmentation, can also be used equally as effectively in managing non-customer relationships.

The key principles of relationship marketing

Figure 1.1 suggests three distinguishing characteristics of relationship marketing. The first is an emphasis on customer retention and extending the ‘lifetime value’ of customers through strategies that focus on retaining targeted customers. The second is a recognition that companies need to develop relationships with a number of stakeholders, or ‘market domains’, if they are to achieve long-term success in the final marketplace. The third feature of relationship marketing is that marketing is seen as a pan-company or cross-functional responsibility and not solely the concern of the marketing department.

An emphasis on retention of profitable customers

Maximizing the lifetime value of a customer is a fundamental goal of relationship marketing. In this context we define the lifetime value of a customer as the future flow of net profit, discounted back to the present, that can be attributed to a specific customer. Adopting the principle of maximizing customer lifetime value forces the organization to recognize that not all customers are equally profitable and that it must devise strategies to enhance the profitability of those customers it seeks to target.

Loyal customers are an intangible asset that adds value to the balance sheet. They represent the goodwill earned by the brand. Domino’s Pizza chain in the USA, for example, estimates that a customer who purchases one pizza for $5 may represent a net worth of approximately $5000 over the 10-year life of a Domino franchise. Similarly, the Ford Motor Company has calculated that a loyal Ford customer is worth $142 000 over their lifetime. Loyal and repeat customers not only contribute revenue by returning again and again to purchase from the same company or brand, but act as advocates, referring new customers and reducing acquisition costs.

An emphasis on multiple markets

Relationship marketing focuses marketing action on multiple stakeholder markets. The six markets stakeholder model³ provides a useful framework for reviewing the role of an extended set of stakeholders. The model identifies six key groups, or market domains, that cont...