Strategic use of CRM

Table of Contents

List of Abbreviations

CHAPTER
1.1. Introduction
1.2. Problem Definition
1.3. Objectives of the study
1.4. Relevance of the study
1.5. Research methodology
1.6. Limitations of study

CHAPTER 2 -The new challenges
2.1. Changing customers
2.2. Theoretical background of CRM
2.2.1. The marketing paradigm shift
2.2.2. Relationship marketing
2.2.3. One-to-one marketing
2.2.4. Critics on relationship marketing
2.2.5. The new marketing model
2.3. Customer satisfaction and profitability
2.3.2. Identifying profitable customers
2.4. Increasing demands on the companies
2.5. CRM – a way out?

CHAPTER 3 - CRM
3.1. Definition of customer relationship management
3.1.1. Strategic definition
3.1.2. CRM as technology
3.1.3. How companies see CRM?
3.1.4. Related definitions
3.2. Introduction to CRM
3.2.1. CRM driving forces
3.2.2. CRM benefits
3.3. Strategic CRM framework
3.3.1. Strategic goals of CRM
3.3.2. CRM strategy
3.3.3. CRM value chain
3.3.4. Strategic framework for CRM
3.3.5. Conclusion on CRM strategy
3.4. Technology enabler
3.4.1. CRM technology overview
3.4.2. CRM software solutions
3.5. Outsourcing (ASP)

CHAPTER 4 - CRM at work
4.1. When is CRM required?
4.1.1. Costs of CRM implementation
4.1.2. Financial benefits of CRM systems
4.1.3. Implement or not?
4.2. CRM implementation
4.3. Internet privacy
4.4. CRM outlook

CHAPTER 5 - Recommendations and conclusion
5.1. Recommendations
5.2. Conclusion

References

Appendices

List of Abbreviations

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Chapter 1

Strategic use of CRM

1.1. Introduction

"Half the money I spend on advertising is wasted; the trouble is I don't know which half"

J. Wanamaker, legendary Philadelphia retailer^[1]

In the 80’s it was downsizing and cost cutting, which was driving the stock prices of the companies. In the 90s the businesses became more efficient, but suddenly the customers started running away. The lack of customer orientation was the reason why made many of them turned their backs to the previously preferred companies. In the world of e-Business it gets even harder – the next competitor is just one mouse-click away. After this crisis the companies realized that a satisfied customer is a loyal customer and only a long-term relationship with a high level of satisfaction will prevent the customer of switching to the competition. Customer satisfaction was a long time just a marketing and sales issue. Through the time the companies understood the importance of it and involved a more integrative approach. An integrated view on the product development emerged, aiming to satisfy the customers by providing them with the products they really want. An example for that are the quality improvement programs, which underline the customer perception of the quality and a necessity to consider it. But today the quality of the product is not the only factor the customer considers. The product characteristics are widened by the service capabilities of the companies. Therefore the product itself cannot provide the long-term customer loyalty. It is the relationship the customer has with the company. That’s the point, where customer relationship management (CRM) starts. By creating a long-term relationship with the customer the company will bind the customer. The new technologies are enabling a huge potential for the companies to manage these relationship and provide higher level of customer satisfaction and loyalty. Firstly, by collecting, sorting and analyzing the customer relevant data the companies get a better view of the customers’ needs. Furthermore, a company, which is customer-centric, instead of being product-centric, will use this customer knowledge for developing and maintaining long-term relationships with the customers. The capability to use this knowledge on every customer touch point and deliver the ultimate customer value is the intention of CRM. But CRM is not about satisfying every customer. It is about win-win strategy, where both the customer and the company receive the maximum value from the relationship. By analyzing the customer profiles the company can determine the value and potential of each customer. This knowledge will be used on every customer contact point, every communication channel and therefore deliver the decisive experience for the customer. On the other hand the company will be able to get the maximum value from its customers by identifying the strategic important customers, by maintaining long term relationships and by increased ability for up-selling and cross-selling activities.

1.2. Problem Definition

CRM is a "buzzword" nowadays. This catchphrase has become the revenue driver for the consultants and a nightmare for the people responsible for its implementation. Although this topic receives broad media attention, the presented strategic CRM issues are very fuzzy. Attracted by the enormous revenue potential, there is a vast of “CRM experts” giving tips on the CRM strategies, which results in a very unclear and even contrary coverage of this subject. The companies “feel” that they need CRM, but as soon as they try to find out what that is and how could it be beneficial for their business, they get very diverse and vague answers. This work will seek to provide a consistent picture of CRM strategy and the underlying technology

1.3. Objectives of the study

The focus of this paper is to offer a critical analysis of different strategic CRM concepts and integrate them into one CRM framework. As CRM is made possible by the technology developments, the understanding of opportunities provided by the underlying technology is necessary. Therefore the center of attention will be in the explanation of the interaction between the customer oriented strategy and the enabling technology.

In order to uncover the essence of CRM, this paper will provide a look at the roots of CRM. It will explain the theoretical background of CRM and the new market challenges, which have been pushing the development of the CRM concept. Also the relationship between the customer satisfaction and the customer profitability must be evaluated, as satisfied customers is one of the main intentions of CRM.

I want also to approach some practical issues of CRM. This study will seek to outline the findings about the bottom line impact of CRM and the issues on the accessibility of the customer information.

Finally, with the last chapter I will try to close with useful recommendations regarding CRM strategy development and provide a conclusion on the results achieved in this work.

1.4. Relevance of the study

This research paper is of high relevance for the decision makers, which want to gain insights in the CRM world and find how it can deliver the strategic and operational benefits for their organization. CRM is a hot topic nowadays and many experts predict that CRM potential is by far not exhausted. At the same time there is no clear common direction in the CRM theory and practice and everybody has his own definition of this term. With this work I intend to clear this dilemma, identify the trends in the CRM thoughts and provide the orientation in this mostly misunderstood and underestimated area.

1.5. Research methodology

CRM is one of the fastest developing IT sectors and the slow paper-based publishing cannot keep the pace with CRM development. Therefore the Internet comes as a natural place for placing the CRM literature. As result the most of the research for this paper derives from the Internet-based resources.

In order to provide a consistent picture of the CRM strategy, several concepts have been reviewed, analyzed and integrated into a single CRM strategic framework. Furthermore many empirical observations, surveys and studies are provided, with the intention to support the theoretical findings.

The CRM brings many opportunities for the companies, but as the research suggests many enterprises are not aware of the possible benefits. For better illustration of the theoretical concepts several examples have been given.

1.6. Limitations of study

This study concentrates on the CRM strategy and technology. However it cannot afford to cover the whole range of the technological aspects. The development is so rapid and complex that a complete overview is not reasonable and too costly. There are thousands of providers of CRM solutions and the definition of the CRM technology itself is getting wider and wider. CRM software gets closer to the other e-business applications like Enterprise Resource Planning (ERP) and Supply Chain Management (SCM). Therefore just a general overview of the state-of-the-art will be provided, depicting the trends existing in the industry. Also many issues, which emerge in the implementation stage of every strategy, cannot be considered in this work. Company’s culture, change management and leadership are very complex issues and will not be discussed here in a detail, although they must be considered when implementing CRM. Thus for the implementation just a general guidelines will be provided.

Chapter 2 The new challenges

2.1. Changing customers

In the recent history there have been several developments, which transformed the economy. From the eighteenth century the industrial revolution created huge dynamics in the world’s economy and shifted the power to the new industrialized countries. This revolution was driven by the technology. The steam engine, electricity and other technological advances moved the world. Although this development caused a wave of social instability and even revolutions, at the end it provided the wealth for the majority of people.

Soon the mass-production took over the industry, providing goods for the majority of population at acceptable price level. The most successful companies were those, which were able to produce on the most efficient ways and thus offer the lowest prices and reach the most customers.

Through the time the markets became more saturated and companies had to fight for the market share, offering more then just the best prices. In the 1970s the competition started becoming global and the customers more demanding.

In the 1990s the Internet boom spread over the globe. In the beginning overseen by the companies this mega trend created whole new industries and pushed the American economy in the new heights. But along with the opportunities, the Internet changed the rules of the game. Also this technology started working for the customers. The power increasingly shifted from sellers to buyers. This new power started treating the whole industries. For example, the online file exchange communities like Napster and its followers are responsible for the sleepless nights of the music industry executives. The expectations of the customers have been raised dramatically. They expect lower prices, because they are aware of the global competition and the process improvements made possible for the companies by the new technologies. The customers expect higher level of service – they want professional treatment of their requests through every communication channel. They want more personalized solutions, suited to their own needs. The companies, which manage to change their orientation, to become customer-centric instead product-centric will gain the customers´ attention and loyalty. Such change in customer’s demands is shown in APPENDIX 1.

The increased customer satisfaction becomes both strategically and operationally important and beneficial for the companies. Strategically seen, the satisfied customers represent the active customer base, which is one of the three components of the company’s intellectual capital. This intellectual capital, consisting of human, customer and structural parts, is the main driver of the company’s value.^[2] Furthermore the research shows that retaining the current customers is about five times cheaper than gaining the new customers^[3] therefore the customer satisfaction is also important on the operational level. However it will be shown that it is vital to identify the most profitable customers and focus the service efforts on those, while reducing the share of the unprofitable and strategically not important customers.

2.2. Theoretical background of CRM

2.2.1. The marketing paradigm shift

The mentioned changes in the economy were followed by the changes in the marketing. We can identify three eras of marketing:^[4]

In the 50s it was very popular to say: “good product sells itself”. The Europe was recovering from the Second World War and the demand was overflowing the supply. It was the first era in history of marketing – the production era.

In the 60s the production capabilities were expanded to satisfy the increasing demand. However the number of intermediaries – wholesalers, distributors, salesman – was very high, which created immense competition among them. This led to enforced sales and advertisement strategies. The main idea was that creative advertisement and selling would overcome consumer resistance and convince them to buy. Thus the sales era in history of marketing emerged.

In the 70s the supply of goods rose above the demand. Many companies struggled with the sales difficulties and only those, which managed to anticipate and satisfy the customer needs survived. The slogan became: “The customer is a King. Find a need and fill it.” It was the start of the marketing era.

2.2.2. Relationship marketing

Still, traditional marketing theory and practice focused on attracting new customers and making the sale. In the times of rapidly growing markets and expanding economy the companies were able to afford such approach. It was possible to win new customers without loosing old customers. However, today the companies are facing some new marketing realities. The slowed down economy, increased competition and overcapacity are limiting the expanding possibilities. On this way every customer becomes more important. And the costs of attracting new customers are rising.

As result the marketing focus shifted from strategies to attract new customers and create transactions with them towards retaining current customers and build lasting customer relationships.^[5]

Many marketers started to look for new approaches to the customers. Martin Christopher^[6] was one of the pioneers in the relationship marketing. This new approach emphasizes the relationships between the supplier and the buyer as a competitive advantage. Marketers have to "ensure that customers keep coming back, without having to be sold to again every time".^[7] Thus the paradigm shift from transactional towards relationship marketing took place. This approach of the relationship marketing provides the theoretical background of the concept of customer relationship management.

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Figure 1. Relationship Marketing^[8]

2.2.3. One-to-one Marketing

One-to-one marketing can be seen as a type of relationship marketing. But here, the relationships are targeted on individual basis. That means it is not about building and maintaining relationships with market segments or targeted groups – it’s about specific relationships with each customer. One-to-one marketing was developed from the direct marketing idea and means “getting to know customers as unique individuals, winning their trust and loyalty through satisfying needs on a personalized basis and transforming them into active business partners that provide sustained revenues over long periods of time.”^[9]

One-to-one marketing stands as opposite of mass marketing and targets each individual’s needs, unaffected how many individuals there are. This is made possible by the developments of the information and communication technology, especially of the Internet. The costs of communicating with customers will continue to decline and therefore broad the importance of one-to-one marketing. However despite the low costs, it is not reasonable to threat each customer on individual basis, especially the less profitable. Identifying the prosperous customers is not incorporated in the idea of one-to-one marketing and is therefore lies the main point of critics on it.^[10]

CRM is theoretically based on the ideas of one-to-one marketing. However, in CRM we also see this important component - assessment of customer value. In CRM, the individuals will be targeted on individual basis only if it is profitable for the company.

2.2.4. Critics on relationship marketing

The relationship marketing paradigm was supported by the idea, that “improved capability to capture, manage and use customer information and to interact with customers implies, that managing customer relationships over many transactions (an element of CRM and One to One)”^[11] becomes the most appropriate marketing concept. However several contra arguments emerged. Those were that the technology is not just enabling the companies to better know the customer, but also that the customers become more freedom and their choices become more transparent. It is claimed that this situation leads toward less importance of the relationship marketing, as the customers rely less on the relationships but rather on other factors.^[12] That means there are situations, when classical elements of marketing mix (e.g. leadership through product, price, brand, location) are more critical than managing relationships. An example of that can be found on the telephone market. This market has been widely liberalized in Europe and consumers can choose between many providers for each call – a usually at no switching costs. This process is slowed down by the price confusion strategies of the phone companies. But there are already some devices on the market, which can give the actual price information for each provider (e.g. accessed through the Internet) and can automatically choose the cheapest provider depending on each call. In this case, the authors claim, the relationship marketing would be inappropriate as the choice is made by machine, which looks on only one factor – price. This situation is not valid only in the phone sector, but also in the whole e-Business – where the new intermediaries can automatically generate the lists of suppliers, arranged by price.

These arguments show the increasing power of the consumers, but don’t overthrow the idea of relationship marketing. Although the consumers have now the opportunity to quickly identify the cheapest supplier, they don’t always use it. The reason for that is that price is only one important factor and in many cases not the decisive one. The supplier’s reputation, customer service, reliable delivery, etc. can prevail over the price considerations and are components of the customer relationship. Therefore relationships and their management are still very important issues.

2.2.5. The new marketing model

Considering the need for the new marketing approach, without throwing out the traditional marketing concepts, the Gartner Group proposed the New Marketing Model. This model involves the traditional instruments of marketing – the “four P’s”, which are however extended by the idea of the relationship marketing.

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Figure 2. The new marketing model^[13]

This model reveals the new opportunities for marketing, which are enabled by the use of ICT for relationship building. This new marketing model finds its strong support in the idea of CRM.

2.3. Customer satisfaction and profitability

The customer’s demands have changed and the companies realized that only by satisfying them they could retain old and gain new customers. But what is the impact of the increase in the customer satisfaction on the customer profitability? The research suggests that there is no general connection between the customer satisfaction and the customer profitability^[14], therefore companies must focus the customer satisfaction efforts on those profitable customers.

2.3.1.1. Definitions

Customer satisfaction is a mental state, which results from the customer’s comparison of 1) expectations prior the purchase and 2) performance perception after the purchase.^[15]

Customer profitability is defined as the revenues less the costs, which one particular customer generates over a given period of time. This is a supplier’s value of having one particular customer, not the customer’s value of having one particular supplier. There are generally two approaches in defining the customer profitability. Firstly, the historical approach refers to the past purchasing activity of a customer – i.e. the sum of the all revenues related to a customer less all the costs attributable to this particular customer. Secondly, the future approach (or “lifetime value”) uses the net present value analysis for defining the customer profitability. It refers to the sum of discounted profits on the future customer’s transactions.

2.3.1.2. Links between customer satisfaction and customer profitability

Customer satisfaction is a mental state and cannot have any direct impact on the customer profitability. It can only induce certain behavior, which will lead to customer profitability.

Several studies have shown that high customer satisfaction is positively associated with repurchase intentions^[16]. Furthermore the studies have also found that repurchase intentions tend to turn into specific behavior, like the number of orders, the purchasing volume and the purchasing amount.^[17] Therefore we can assume a positive link between the customer satisfaction and this specific behavior.

However such for the company favorable behavior is not always leading towards increased customer profitability. The number of orders, purchasing volume and the purchasing amount consider only the revenue part of the profitability equitation. But if there is an increase in costs the profitability may even get lower. Several publications claim that large volumes may not go in hand with high profits at the customer level of analysis. For example, large-volume buyers tend to demand frequent deliveries of small volumes, discounts, expensive product adaptations and comprehensive customer support. Besides that Porter^[18] also suggested that large-volume buyers under specific circumstances might reduce supplier’s profitability. Thus the linkage between customer profitability and the extensive purchasing behavior is not considering many cost factors and is not significant. In turn, there is no direct connection between the customer satisfaction and the customer profitability on the single customer level.

This thesis is supported through the literature and there is a common thought that it becomes more and more important for the companies to identify the profitable customers and find the ways to provide them with the highest level of satisfaction.

2.3.2. Identifying profitable customers

2.3.2.1. “Advocates” and “saboteurs”

It is not the primary objective of the company to provide satisfaction of all of its customers. Renner defines the “advocates” and the “saboteurs” among the customers.

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Figure 3. Advocates and saboteurs^[19]

The first are the profitable customers, which have a high perceived value and high relative satisfaction. The second are the less prosperous customers, which have low perceived and are bad on the relative satisfaction scale. He points that the plans to reduce the number of “saboteurs” are necessary and says: “these plans may include practical steps, such as developing new products or low-cost channels to better align with customer needs, or even having the courage to fire those saboteurs that drain scarce resources and contribute little or no profitability for the company”.^[20] For these purposes the companies must develop the capabilities of estimating the each customer’s potential, even if there are thousands of them. This fact is also illustrated in the example of Swedbank:

Swedbank is one of the Sweden’s top 3 banks. After examining customer's banking activities, and comparing revenues and margins with costs, Swedbank found that 80% of its customers were unprofitable. However, they were the ones most satisfied with the service they were receiving. On the other hand the 20% most profitable customers were almost entirely dissatisfied with the service they were receiving. Consequently the bank set about investing nearly all new capital in improvements for profitable customers and, although it lost some customers, it saw its profits begin to climb with profit-producing customers increasing their usage of the bank.^[21]

2.3.2.2. Strategically significant customers

Many companies take wrong approach when identifying their important customers. For example, they use the criteria like sales volume. This approach could be very shortsighted. The large customers may abuse their purchasing power and demand preferred conditions and it could turn out to be unprofitable for the company to satisfy those demands. Therefore the concept of strategically significant customers (SSC) has been developed to identify the “good” and “bad” customers.

Strategically significant customers, or markets, satisfy at least one of three conditions.

- Customers with high life-time values
- Customers who serve as benchmarks for other customers
- Customers who inspire change in the supplier^[22]

The customers with high life-time values are the key of SSC. They must be the focus of the customer retention efforts.

A second group of strategically significant customers are the “benchmarks”. They are those customers the company wants to put with big letters on their customer lists. Although they are not always profitable the fact that they are your customers will serve as a good reference. An example for it would be a company, which has General Motors or Coca-Cola as a customer, although they are directly not profitable.

The third group of SSCs represents the customers who inspire change in the supplying company. These may be customers who find new applications, come up with new product ideas, find ways of improving quality or reducing cost. They may be the most demanding of customers, or frequent complainers, but despite their low life-time value, they offer other significant sources of value.^[23]

Other customers are not strategically significant for the company and it should be proven if the company should continue maintaining relationships with them.

2.4. Increasing demands on the companies

As already shown, the companies must identify the profitable customers and then meet and overfill their expectations with the excellent goods and services. The marketing objective of focusing on the niche markets or market segments has changed towards targeting each customer relationship. Each customer has its unique needs and the companies should be able to respond to those needs – after evaluating how prosperous that specific customer is.

Moreover the pressure for process improvement is still there. The investors demand more profitability and the technology is providing the opportunities for that. On the other side the competition in many industries is raising. For example, since July 1997 the number of competitors in the US telecommunications industry has increased 14% and the margins on residential communications sunk by 26%.^[24]

Through the electronic networks the new possibilities for automation of processes emerge, whereby not only the costs can be reduced, but also the speed increased along with the quality. This possibilities rise not only in the traditional “automation candidates” such as production and logistics, but also in the “soft areas” as marketing, sales, and customer service.

Increased utilization of the new communication channels (e-mail, chat, voice over Internet protocol) among the population and in business requires the companies to implement these in their in infrastructure. Moreover these channels offer a set of opportunities in the terms of efficiency and cost reduction. However, the customers expect consistent level of service through all customer contact points. They expect a high level of professional integrity from the company, unaffected of the communication channel they choose.

2.5. CRM – a way out?

The companies must deal with those requirements, and many of them, even the traditional ones, are started to use the benefits of the information and communication technology. The companies have realized the E-Business has much more to offer than just selling over the Internet. E-Business can improve the processes within the company, between the company, the business partners and the customers. But it goes even beyond this basic process improvement towards creation of new processes, new arts of interactions and new communication and transaction channels.

One of those concepts, which give the companies the new strategic weapons, is the concept of customer relationship management. This concept is technologically driven and mostly oriented on the areas of marketing, sales and service and provides the companies with a new opportunities in the customer relationships and the process improvement.

Chapter 3 CRM

3.1. Definition of customer relationship management

Like for the terms “Strategy” or “Management” there is no universally agreed definition of customer relationship management. Following I will present some definitions of CRM used in the academic world, but also in the business community.

Until recently, CRM most commonly stood for customer relationship marketing. Currently, it is more likely to be understood as abbreviation for customer relationship management.

Historically seen, the term relationship marketing emerged first. The companies realized that the relationships are very important and developed strategies (mostly marketing strategies) aiming to improve the relationships with their customers. But with the Internet and e-Business boom the term CRM, which was more technology driven, replaced the relationship marketing, and became the generic term for both strategy and technology oriented concepts.

For the purposes of this work I will adapt the definition given by Buttle: “CRM is fundamentally cross-functional, customer-focused business strategy”.^[25] Therefore CRM is a strategy that has an objective to increase company’s value by identifying, managing and satisfying profitable customers company wide. However there is far from consensus about the definition of CRM. In following, I will present several CRM definitions in two main approaches: strategic and technologic.

3.1.1. Strategic definition

Kalakota, R and Robinson, M. (2000) define CRM as “an integrated sale, marketing, and service strategy that preclude lone showmanship and depend on coordinated actions”.^[26]

Shaw developed the following definition of CRM: "Customer relationship management is an interactive process for achieving the optimum balance between corporate investments and the satisfaction of customer needs to generate the maximum profit. CRM involves:

- measuring both inputs across all functions including marketing, sales and service costs and outputs in terms of customer revenue, profit and value.
- acquiring and continuously updating knowledge about customer needs, motivation and behavior over the lifetime of the relationship.
- applying customer knowledge to continuously improve performance through a process of learning from successes and failures.
- integrating the activities of marketing, sales and service to achieve a common goal.
- the implementation of appropriate systems to support customer knowledge acquisition, sharing and the measurement of CRM effectiveness.
- constantly flexing the balance between marketing, sales and service inputs against changing customer needs to maximize profits."^[27]

Furthermore Thomson says: “Customer Relationship Management (CRM) is a business strategy to select and manage the most valuable customer relationships.”^[28]

Thus, in the literature CRM is widely described as a strategy, which is strongly related to the integrated marketing, sales and service processes and emphasizes the customer-centric orientation of the company.

3.1.2. CRM as technology

There is also another, narrower understanding of CRM. Many associate it with technology or even more specific with CRM software application. This has been caused by the tremendous success of the CRM software industry. According to IDC, revenue from this industry will increase at a compound annual growth rate (CAGR) of 25%, from $61 billion in 2001 to $148 billion in 2005. This growth far exceeds that of the overall IT services market, which shows a 2000-2005 CAGR of 12%.^[29] Therefore by many CRM is associated exclusively with CRM software.

Swaminathan mentions this technical viewpoint: “Customer Relationship Management is an information industry term for methodologies, software, and usually Internet capabilities that help an enterprise manage customer relationships in an organized way.”^[30]

Associating CRM only with technology is not adequate for this paper, because employing the CRM technology is not enough to realize the CRM objectives.

3.1.3. How companies see CRM?

A research program was undertaken by Dr Robert Shaw and Business Intelligence, in which 131 senior executives in the UK, US and Europe were questioned to provide free-form definitions of their understanding of relationship marketing.

The result was a great diversity of definitions. Out of the total sample of 131 managers, 53 said they did not know, in itself a fact showing the lack of understanding of CRM. Among those who did answer, the most frequently mentioned definitions counted less than 12 hits, revealing that there is far from a consensus situation on this subject.^[31] The results in APPENDIX 2 precisely show how vast is the disagreement on CRM definition.

3.1.4. Related definitions

Like for the other e-Business buzzwords like CRM, there are many other related, but poorly defined terms, which circulate around it.

Frequently there is a mention of eCRM – electronic CRM. This expression is widely used, but actually is just a narrower approach to the CRM concept. It is CRM, which is supported by the Internet related technology and includes such components like sales, service and marketing management over the electronic channels.

Secondly, there is PRM - Partner Relationship Management. This term has its roots in CRM and focuses on the relationships between the company and the company’s business partners (wholesalers, distributors etc.). Therefore it can be seen as a sub segment of CRM, as these business partners can also be seen as customers

3.2. Introduction to CRM

3.2.1. CRM driving forces

The customer satisfaction becomes increasingly important in the current competitive environment. The companies realized that only satisfied customers provide a solid basis for success. The technology also becomes less oriented just towards incremental process improvement, efficiency gains and cost reduction, but increasingly towards customer satisfaction. The research performed by Informationweek reveals that improving customer service has the highest priority among the strategic IT projects^[32] [See APPENDIX 3]

Customer satisfaction is not only important among the IT projects. Another study conducted by Anderson Consulting (now Accenture) in May 2000 outlined that “improving customer service” was reported by 77% of the respondents as “business leaders’ top priorities”.^[33]

These empirical results underline the importance of the CRM projects, which are the first-level strategic tools for the customer satisfaction. Morkrid provides several reasons why CRM is such a hot topic today:

- “If a business loses its customers, it will not survive.
- It can be very time consuming and costly to obtain new customers.
- Assuring a customer a positive experience is critical to keeping that customer.
- Quality control programs alone no longer offer competitive advantage.
- Process re-engineering, cost control, and technological emphasis are now shifting more to top line revenue.“^[34]

3.2.2. CRM benefits

The research conducted by Cap Gemini and International Data Corporation (IDC) gives empirical insights on the intentions of the CRM projects.^[35] [See APPENDIX 4] Correspondingly to this the main objectives are to “gain customer fidelity”, “provide a personalized service to customer”, and “better knowledge of customer”. These results reflect the gap between the theoretical understanding of CRM and its practical implementation. CRM is a very new concept, which is still widely unknown in the business. The major supporters of the CRM idea are the academics, business consultants and, of course, software vendors and system integrators. These CRM supporters have outlined the possible benefits of CRM, which are still not enough communicated towards the companies. IDC and Cap Gemini also give one of the most comprehensive views of the benefits of CRM systems:

[...]

^[1] As cited in Wolfe MT, Dull SF, and Stephens T, “Divide and Conquer”, Defying the limits - new frontiers in profitable customer relationships (July 2001). www.crmproject.com

^[2] See Leliaert P, “Managing in eBusiness value networks“, Course presentation material (Maastricht: Maastricht School of Management, 2001)

^[3] See Kalakota R and Robinson M, e-Business 2.0: roadmap for success, 2nd edition (Upper Saddle River, NJ: Addison-Wesley, 2001)

^[4] See Walker D, “Marketing”, Course presentation material (Mona Shores: October 1998). http://204.38.156.20/walkerhs/; and IQ-Consult, “Marketing und Werbung”, Neue GründerZEIT (1999). www.iq-consult.com/gruenderzeit/marketing/index.html

^[5] See Kotler P, Armstrong G, Saunders J, Wong V, Principles of marketing, 2nd European edition (Upper Saddle River, NJ: Prentice Hall, 1999)

^[6] As cited in Business Intelligence, “Measuring and valuing customer relationships”, Report (June 2001). www.eccs.uk.com/resources/

^[7] ibidem

^[8] From Turban E, Lee J, King D, and Chung M, Electronic commerce: a managerial perspective (Upper Saddle River, NJ: Prentice-Hall, 2000)

^[9] See NetAcademy, Business media glossary (2001). www.businessmedia.org/netacademy/glossary.nsf/

^[10] See Frawley A, “1 to 1 marketing for the masses”, CRM Forum Articles (March 25, 1999). www.crm-forum.com/library/

^[11] See Stone M, “Paradigms in customer management”, CRM Forum Articles (March 4, 1999). www.crm-forum.com/library/

^[12] ibidem

^[13] From Turban E, Lee J, King D, and Chung M, Electronic commerce: a managerial perspective (Upper Saddle River, NJ: Prentice-Hall, 2000)

^[14] See Söderlund M and Vilgon M, “Customer Satisfaction and Links to Customer Profitability: An Empirical Examination of the Association Between Attitudes and Behavior”, SSE/EFI Working Paper Series in Business Administration (January 1999)

^[15] See Westbrook O. as cited in Söderlund M and Vilgon M, “Customer Satisfaction and Links to Customer Profitability: An Empirical Examination of the Association Between Attitudes and Behavior”, SSE/EFI Working Paper Series in Business Administration (January 1999)

^[16] ibidem p.5.

^[17] ibidem p.6.

^[18] As cited ibidem p.8.

^[19] See Renner D, “Focusing on Customer Equity - The Unrealized Asset”, Defying the limits - new frontiers in profitable customer relationships (July 2001). www.crmproject.com

^[20] ibidem

^[21] See Infact research, “Sparbanken Sverige (Swedish Savings Bank - Swedbank)”, CRM Forum Case Studies (1997). www.crm-forum/library

^[22] See Buttle F, “The S.C.O.P.E. of CRM”, CRM Forum Articles (April 24, 2000). www.crm-forum.com/library/

^[23] See Buttle F, “The CRM value chain”, CRM Forum Articles (April 24, 2000). www.crm-forum.com/library/

^[24] See Brown S, Customer relationship management: a strategic imperative in the world of e-business (Etobicoce, Ontario: John Wiley & Sons Canada Limited, 2000)

^[25] See Buttle F, “The CRM value chain”, CRM Forum Articles (April 24, 2000). www.crm-forum.com/library/

^[26] Kalakota R and Robinson M, e-Business 2.0: roadmap for success, 2nd edition (Upper Saddle River, NJ: Addison-Wesley, 2001)

^[27] See Business Intelligence, “Measuring and valuing customer relationships”, Report (June 2001). www.eccs.uk.com/resources/

^[28] See Thompson B, “What is CRM”, The customer relationship management primer (2001). www.crmguru.com

^[29] See International Data Corporation, “IDC Forecasts $148 Billion in CRM Service Revenues by 2005” Press Release (June 12, 2001). www.idc.com/press/release.stm

^[30] See Swaminathan S, “Definition of CRM”, CRM.Talk Diskussion group, #55 (February 22, 2000). www.crmguru.com/content/crmtalk/

^[31] See Business Intelligence, “Measuring and valuing customer relationships”, Report (June 2001). www.eccs.uk.com/resources/

^[32] See Bachelor B, “Behind the numbers: Customer Centricity Goes Global”, InformationWeek (April 23, 2001). www.informationweek.com

^[33] See Sue P and Morin P, “A strategic framework for CRM”, CRM Forum Articles (March 19, 2000). www.crm-forum.com/library/

^[34] See Morkrid, “Customer Relationship Management”, Internet commerce course material, (DePaul University: September 22, 1999). http://shrike.depaul.edu/~dmorkrid/

^[35] See Cap Gemini and International Data Corporation, “Customer relationship management: the changing economics of customer relationships”, White Paper (June 1999). www.cgey.com/crm/research.shtml