Customer Relationship Management (CRM) in Retail Industry

By | January 17, 2018

This dissertation/thesis/research paper seeks to explore the impact that Customer Relationship Management (CRM) has on the retail business industry and how it relates to the key stakeholder in the relationship
This is a sample paper.

Abstract

This paper seeks to explore the impact that Customer Relationship Management (CRM) has on the retail business industry and how it relates to the key stakeholder in the relationship; the customer. Another aspect covered by the paper is assessing the challenges faced by the industry, and how developments are being undertaken to overcome these.

The ability of customers to influence the policies and strategies of corporations make them the key link for the successful management of a business. It is important that an ideal solution be devised to counter any unexpected changes in trends and the environment.

The implementation of CRM has gained ground in recent years, with stronger competition driving the need to attract customers more vigorously. This paper aims to make a thorough review of various literatures on the subject, before concluding with suggestions.

Concept

Since consumers are the primary reason that businesses exist, marketing has become the core component for successful management of the organization. For most businesses, marketing can account for almost 50% of the product sale price, provided services such as distribution and promotion are accounted for in this.

For any business to succeed with its consumers, they need to establish a working relationship that understands the customer. One way of doing so is by implementing CRM. The term CRM is used to define the tools and methodologies used by an enterprise to manage the relationships it has with its customers. It forms the foundation by which a company brings sense to the needs of customers and can analyse the future changes that could develop. As knowledge is important in gaining competitive advantage in a challenging market, companies make every effort to differentiate themselves and retain customers, while reducing operational costs.

Another view of looking at CRM is as a process of learning, by which organizations can develop stronger relationships with customers having gained information on their needs and behaviours.

In order for a company to implement CRM within its organizational strategy, it is essential that the customer is regarded as the most valuable asset by the management, and the relationship considered vital for future progression. Additionally, the collaboration of various departments within an organization helps establish a defined process for data retrieval and the effective use of the information to bring positive change to the organization.

Objectives

The aims of this paper are:

  • To discover the implementation of CRM by businesses across the world, and the onward impact that this has on the organization’s marketing strategy;
  • To assess the experience that customers gain from the CRM process; and
  • To evaluate the challenges and opportunities that exist for businesses, and how they can be overcome through developments in CRM.

Methodology

According to Saunders et al (2007:610), research is defined as “the systematic collection and interpretation of information with a clear purpose, to find things out”.

When conducting research, there are two approaches that can be used: Quantitative and Qualitative. Quantitative research methods usually involve large randomized samples, more application of statistical, and few applications of cases demonstrating findings (Saunders et al, 2007). The objective of quantitative research is to determine the covariance or relationship factor between two variables or entities. Qualitative research methods focus on providing a complete picture of the situation with the aim of understanding of behaviour and inter-relations (Saunders et al, 2007).

For this study, the writer has chosen to go with quantitative research to accurately collect the data as it allows for clear objectives to be defined for research, eases the data comparison process, and allows for a quick and cheap way to collect information.

The research for this paper was conducted through literature review, without any empirical work being conducted. A large resource of written material was used, which included books, magazine articles, academic journals, as well as the websites of various companies.

The analysis of numerical data, referred to as the quantitative method, is considered to be fairly accurate as it is based on the findings from actual printed material.

Generally, quantitative methods include both empirical and theoretical types. Empirical type concentrates on collecting data from evidence and experiment e.g. surveys, etc. Theoretical approaches are normally based on certain objectives, and utilise existing figures to make future projections.

1:  Introduction

In the global business world, customers have become an important aspect of success for companies, and their management is core to the fundamentals that drive the organization forward. Large corporations have taken the active step of investing heavily into various modes of relationship management, also known as CRM.

The underlying basic of CRM is to help a company by highlighting the procedures and processes for understanding a customer. Entry-level CRM software provides a company’s sales staff with valuable information about a customer, including some that could be more of personal nature. Call centre businesses often end up being the biggest users of this software (Wikipedia, 2009), by saving customer details in order to provide a more personable service in the future. However, the whole concept of CRM is not simply software. It is also the front-line staff and employees from the lowest level of the organization, who should be trained in the principles of customer relationship in order for the processes to be more effective and efficient.

As a concept, CRM is quite old in practice. Firms involved in both business-to-business (B2B) and business-to-consumer (B2C) marketing has looked for ways to acquire regular clientele’, which can also be linked to attempts of encouragement in a bid to entice loyalty in customers. The daily consumer experiences this concept at various shopping outlets, either directly or indirectly. The change to marketing and the introduction of CRM in the process can be laid down to the collaboration and cooperation of various entities of a single organization.

The CRM structure utilized for business-to-business marketing is quite different from the one used for consumer marketing (Wikipedia, 2009). Either way, it is primarily a relationship process, where companies are looking to cultivate consumers who can provide information that is beneficial to both parties of the trade. The following form the pre-requisites of a CRM program:

  • For there to be mutual benefits, there needs to be commitment from the company and customer. The cost and time that is utilized for the company is justified, since CRM requires changes to organizational processes.
  • An orientation towards understanding the importance of ‘non transactional processes’, which is the foundation for the creation of strategies that maintain the relationship with the customer once the original transaction is completed.
  • Agreement from the organization to invest implementing in a new or revamped system that could result in changes to the current infrastructure

The requirement of CRM is different for every organization. One example of this is TISCO; a large Anglo-Saxon corporation whose area of expertise is software and compiler development. Over the years, it has undertaken market research into various segments of the consumer-base, understanding where it holds advantages for building relationships. This includes the automobile sector, where better pre-sale service would create differentiation in the end-product (Bose, 2002). In another context, Dell Computers portrays a different view, having succeeded in the computer industry with the growth of small and medium enterprises (SMEs) and home office setups. As their objectives could differ, they may focus on the large companies under the CRM programme, in order to gain loyalty.

Before a CRM programme can be formulated, a company must ascertain the true value of its customer. While loyalty and satisfaction are the more generic links for implementing CRM programmes, it is necessary for the company to set out a specific objective at the planning phase. So, if distribution costs are the objective of the corporation, a restructuring of the patterns of orders received should be looked into, after analyzing the trends in consumption and the held inventory. Alternatively, if the objective is to increase sale of a particular item, the CRM program should focus on promotional activity as a means of attracting some consumer return.

The marketing concept takes an outside look and starts with a well-defined market, focuses on the needs of customers, coordinates the marketing activities which affect customers and generates profits by creating more long-term Customer Relationships (CR) (Kotler et. al., pp. 409-10). Under this concept, the paths to sales and profits are customer focus and value.

There are a number of issues arise that need to be addressed, especially when viewing the future of relationship marketing. From the customer’s perspective, there is a need to develop a relationship that is fair on all counts. This reflects the sentiments of the last few years, where more consumers are noticing the leverage in the relationship being stronger towards the producer. In such a case where the power is in the hands of the producer, the consumer can only refuse to respond to calls for the further strengthening of relationship. Of course, this depends on the amount of choice available in the marketplace in respect to the services or goods that are being offered by the producer. Where there is any form of monopoly, the producers often ignore any consumer requests for exclusion from further relationship.

Customer satisfaction is an outcome that is realized when one experiences a company performance that has fulfilled their expectation. Satisfied customers tend to be more loyal to the company, returning to purchase and offering fewer demands. They also act as an ideal marketing form for producers, by the power of word-of-mouth. Hence, for a producer to have recognition, customer satisfaction must be measured at regular intervals (Kotler et. al., pp. 411 – 412).

In the past, many companies could take their customers for granted as there was a lack of alternative suppliers, or the choices available were as poor in quality and service. There was also the possibility of strong growths which allowed companies to forego on satisfaction levels. A company losing 50 customers in a given week will be satisfied if it gains 500 new ones anyway. Operating on what is referred to as a ‘leaky bucket’ theory of business (Kotler, et. al., pp. 405); the company believes that there will always be enough customers to replace those defecting it.

This is why customer retention programs offer a powerful tool in the CRM arsenal. An important feature for most companies, customer retention helps the organization understand that the cost of acquiring a new customer is far greater than the cost of maintaining a productive relationship with the current one.

In addition to this, retention programs also allow companies to perform data collection activities about their customers. This data is used to gain a better understanding of the customers, and to customize future interactions. Retention programs offer a relatively inexpensive means of making customers feel special.

All companies require a good customer retention system in place in order to thrive in today’s competitive environment. The general perception in business used to be, “If they want my services, they know where to find me.” The modern understanding has changed to a realisation that while a potential customer is looking for you, your competition’s marketing systems may find them first (Gage, 2007).

2:  Literature Review

“A customer is the most important visitor on our premises. He is not depending on us. We are depending on him. He is not an interruption on our work. He is the purpose of it. He is not an outsider on our business. He is a part of it. We are not doing him a favour by serving him. He is doing us a favour by giving us an opportunity to do so.”

Mahatma Gandhi

Focusing on the customer has become a key factor for companies of all sizes, especially with survival in the competitive world at stake. Customer retention is particularly important to SMEs because of the limited resources they have available to them (Hubert, 2002). Another aspect of CRM is that knowledge of the customer and their traits allows for the easier acquisition of new customers.

The essence of the information technology (IT) revolution, in particular the online presence on the internet, is the opportunity for businesses to build better relationships with customers. Companies have developed a greater ability today to establish, nurture, and sustain long-term customer relationships, by combining the abilities to respond directly to requests and to provide customers with an interactive and customized experience.

According to Romano (2003), developing sustainable long-term relationships with valuable customers is economically sound for businesses in order to avoid invaluable ones. The need for gaining a better understanding of customer behaviour allows the organization to focus on those customers who can deliver long-term profits. This change in ideology has effected a change in how marketers view the world.

The traditional approach by marketers has been to acquire customers; either new ones who have not entered the respective product category yet or those who are currently linked with competitors. In order to do so, mass advertising and price-oriented promotions have been undertaken targeting customers in the hope of positive returns. Today however, the core of the conversation has evolved from acquisition to retention. This reflects the change in mindset and the adoption of a new set of tools that help businesses grow, including CRM.

CRM helps businesses manage customer relationships in an organized manner by combining methodologies, software, applications and internet capabilities. In order to build long-term customer relationships, the existence of effective communication, trust, and commitment between the participants is important (Wells et al., 1999). Every point of interaction and communication between the participants of a relationship leads to a trail of transaction and non-transaction data. It is the integration of this data that is essential to making the future interactions with customers powerful.

In the present world, most organisations are availing the benefits of the process by implementing CRM (Bose, 2002). Companies who accumulate large amounts of customer data and support a niche market avail most of the benefits of CRM. In contrast, those companies who have limited interaction with customers are less likely to be at advantage by using CRM, as they remain prone to customer turnover.

Goals and Objectives of CRM

There are four objectives of CRM as stated by Dimitris et al (2002):

      • Company movement towards customer orientation
      • Adoption of customer retention as focus
      • Provision of value to customer
      • Incorporating technology for effective data and knowledge management

According to Swift (2001), CRM increases business opportunities by improving the process of communication with customers, developing accurate information for customers, and providing the right offer to the right customer at the right time. CRM systems and applications help in operational flexibility, as well as providing the opportunity to analyse customer behaviour and data in real time (Ryals & Knox, 2001).

Customer Orientation

Customer orientation is basically a business philosophy that defines the ultimate goal of an organisation to be the fulfilment of customer needs for the purpose of maximising business profits. In the current age of competition, maintaining business advantage is becoming increasing difficult. The change in the outlook of management on the placement of customers has been propelled by accelerating technological developments, which have shortened the product life cycle and made it necessary to innovate in order to sustain a level of superior performance.

Customer orientation has often been associated with market orientation. Upon close analysis, the goal of putting customer at the centre of all marketing activities remains the primary goal for both. The dissemination of information, formulation of strategies and tactics to satisfy market needs; all form the crux of activities in this process (Hajjat & Mahmood, 2002).

Focus on Customer Retention

With the evolution of technologies and the customer, it has become more difficult for businesses to get new customers. There is a realisation that in order to be more profitable, businesses must maintain relationships with the existing customer rather than constantly seek new ones (Hildebrand, 1999).

Reichheld, (1996) proposed four reasons to outline the greater profitability gained from retention of customers, as compared to seeking new ones:

  • Acquisition of new customers costs the business in the form of sales and marketing;
  • Profits are realised from the customer in each year after acquisition;
  • Older customers show tendency to buy more and be less price sensitive; and
  • Satisfied customers are a source of profit and revenue generation for the company since they possess the powerful force of word-of-mouth marketing.

According to Newell (2000), there are three types of customer relationships: the top, middle and lower groups. Customers in top group make up 10% of the whole customer-base, and are the most profitable with the highest levels of loyalty to the organisation. An organization’s CRM focus should be in retaining these customers, by providing them excellent service. Middle group customers make up a large majority of the consumer-base, and are the ones who deliver good profits hold the potential for future growth and loyalty. Using CRM to target the middle group customers effectively will ensure in acquiring a good source of potential growth. Lower group customers are only marginally profitable. The expense and effort involved in targeting these customers hinders the effectiveness of servicing existing customers in the top and middle groups.

Provision of Customer Value

Customer value is an important component of a successful business-customer relationship and the ability of a business to provide superior value to its customers is regarded as successful competitive strategy. Customer value is defined as the customer’s overall assessment of the utility of a product/service, based on the perception of what is received and what is given (Wang et al., 2004).

Customer value is a strategic tool in attracting and retaining customers, and has become one of the most significant factors in the success of both manufacturing businesses and service providers. By adding more value, companies try to improve customer satisfaction so that the bonds between the two entities are strengthened and customer loyalty is gained.

Traditionally, customer value was defined and understood in terms of product/service quality and low prices. Business are continuously searching and exploring different ways to provide customer value (Wang et al., 2004).

Delivering superior customer value has become an ongoing concern in building and sustaining competitive advantage (Hansemark & Albinsson, 2004). A CRM strategy can provide a high level of satisfaction by optimizing the business processes and making every interaction more customer-centric.

Benefits of Customer Relationship Management

According to Swift (2001), companies can gain many benefits from CRM. These include:

  • Lower costs of customer acquisition: Utilising the existing customers as the primary marketing tool, companies can save on promotional activities.
  • Profitability from fewer customers: The number of customers required in maintaining sales and profitability is lower because of the loyalty of the retained customers.
  • Assessing Customer Profitability: By implementing CRM, businesses are in a position to assess which of its customers are profitable and which are not. This is essential in understanding which group of customers the business should focus on in order to generate more profit.

Characteristics of CRM

CRM has four characteristics (Xu et al, 2002):

  • Customer Service and Support: CRM improves the customer retention rate by incorporating a real time monitoring of customer service. It also helps the organisation in incorporating exemplary customer service. Companies can assign each query to the appropriate expert, who can then resolve the issue at the earliest.
  • Marketing Automation: CRM provides up-to-date information on consumer trends so that the most effective marketing campaigns can be achieved. The innovation of various technologies offered by CRM systems can be combined to enable companies to address customers’ individual needs effectively.
  • Sales-Force Automation: CRM applications effectively manage customer information, allowing for a singular view of each customer which contains all contact information and sales history. This allows for a better mapping of the customer’s spending habits and allows the companies to develop their products and marketing scheme accordingly.
  • Field service: Remote staff can effectively communicate with customer service personnel to meet customers’ individual expectations, utilising the organization’s CRM system. Utilising a knowledge-base, the organization can nominate the correct technician or personnel to a customer, based on their location. Furthermore, service instructions can be accessed for a better quality of customer service.

Elements of CRM

Customer Relationship Management is a combination of people, processes and technology that combine to understand a company‘s customer. In order for CRM to be successful, the seamless integration of every aspect of business needs to be established.

Implementing applications like CRM requires a change to the organisational structure and culture. The people component is the most difficult component to manage as users are often reluctant to change. CRM initiatives require vision that must be understood by each member in order for the system to work.

The process component of CRM is delicate in nature because inappropriate automation of the CRM system will only speed up the errant process. To realize effective process change, a company first needs to examine how well existing customer-facing business processes are working and then, either redesign or replace or incorporate new processes which will be more effective.

Technology remains the key enabler to the redesign of business processes. When applied in CRM, it facilitates the collection and analysis of customer data as well as interprets customer behaviour and proposes models for predictive strategies. Chen & Popovich (2003) state “using technology to “optimize interactions” with customers, companies can create a 360 degree view of customers to learn from past interactions to optimize future ones“.

Credit: Imran Hossain Rony – https://www.academia.edu/9847645/Customer_Relationship_Management_CRM_in_Retail_Industry

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