Chapter outline Define CRM;

Identify the reasons for building relationship with customers;

Identify the levels and tools for building relationship;

Explain the tools for measuring customer satisfaction;

Elaborate the CRM model. A satisfied customer tells other regarding the product. Today, customer relationship is the key to

success of a company. In this chapter, we will discuss the customer relationship management,

levels and tools for building relationship.CRM (Customer Relationship Management) is all

about the theory used by companies to administer and manage their customers, partners, vendors

and other stakeholders efficiently and effectively.

Customer Relationship Management (CRM)

Today, customer relationship management is the key to success at this moment. Building good

relationship with the companys profitable customers is at the heart of modern marketing. Since, in the cluttered commercial environment, brand switching costs is low, so companies have to

measure the customer satisfaction rate over the years. Losing a single customer does not mean a

single loss; it is a great loss for a company. Today, companies should not try to make profit on

each and every transaction; companies should focus on customer lifetime values. Now CRM is

very much important for an organization. Since it costs five times more to attract new customers

than to keep and grow the current customers. Customer Relationship Management is the process

of managing detailed information about individual customers and carefully managing all the

customer touch-points with the aim of maximizing customer loyalty. When, many companies are

intent on developing stronger bonds with their customers that is called Customer Relationship

Management. The task of creating strong customer loyalty is called Customer Relationship

Management (CRM). In short, we can say that the overall process of building and maintaining

profitable customer relationships by delivering superior customer value and satisfaction is called

Customer Relationship Management. Marketing Managements crucial task is to create profitable relationships with customers. Recently, Customer Relationship Management has been

defined narrowly as a customer database management activity.

12 Principles that Drive Profitable Customer Relationships

Reasons for building Customer Relationship

1. Continuously Learn About Your Customers. 2. Handle Different Customers Differently.

3. Anticipate Customer Needs.

4. Interact With Customers.

5. Focus on Revenue and Retention.

6. Increase Value for Your Customers and the Organization. 7. Present a Single Face Across Channels.

8. Enable Information.

9. Create Business Rules to Drive Decisions 10. Empower Employees with Information and Training. 11. Retain the Right Customers.

12. Remember That Cultivating Customer Relationships is a Way of Doing Business.

Reasons For Building Relationship With Customers

It costs five times more to attract new customers than to keep and grow the

current customers.

80% of the total revenues come from the 20% of the existing customers. Study shows that a dissatisfied customer shares his or her bad experiences with

11 other persons.

A satisfied customer shares only with three other persons. At this moment, switching cost is low; a dissatisfied customer can easily switch

the brands.

As a result of technological advances, it is very easy for the company to maintain the database of each customer. Companies can customize the message

for each and every customer and can communicate with individual customers.

Companies can easily satisfy the current customer on the basis of past dealings. Today, customers have been fragmented, changing their tastes and preferences. Making good relationship with the profitable customer is the key to success. Customer lifetime value is more important for a company than making profit

from each and every transaction.

Reasons for lost customers

There are number of reasons why customers terminate relationships. Some of the most common

reasons are shown below:

Novelty seeking A need, due to satiation, or drive, due to thrill-seeking, or an intellectual curiosity that causes people to choose variety over time

Dissatisfaction The actual performances fell short of expectations.

Relative Advantage The customer perceives a higher benefit value associated with an alternative choice and believes it to be more gratifying

Conflict A disagreement in which the customers and the companys views seem to be incomplete.

Loss of trust The customer has no confidence that the organization can reliably fulfill its promises.

Cease to need The product or solution is no longer required.

Customer Relationship Levels and Tools:

In building relationships, company has to take into account the costs of building relationship so

that costs do not exceed the gains from relationship. Companies can build customer relationships

at many levels, depending on the nature of the target market. There are different levels of

customer relationship, such as;

Basic Relationship. The salesperson simply sells the products to the customer. A company

with many low-margin customers may seek to develop basic relationships with them. For

example, Procter and Gamble does not phone all of its Tide customer to get to know them

personally. Instead, P&G creates relationships through brand-building advertising, sales

promotion. Many companies practice only basic marketing when their markets contain many

customers and their unit margins are small.

Reactive Marketing. The salesperson sells the product and encourages the customer to call if

he or she has any questions, comments or complaints etc. Many companies practice reactive

marketing when the market contains many customer and their unit margins are medium.

Accountable marketing. The salesperson phones the customer to check whether the product is

meeting expectations. The sales person also asks the customer for any product or service

improvement suggestions and any specific disappointment.

Proactive marketing. The salesperson contacts the customer from time to time with

suggestions about improved product uses or new products.

Partnership marketing. The company works continuously with its large customers to help

improve their performance. For example, General electric has stationed engineers at large utilities to help them produce more power.

High margin Medium margin low margin

Many customers/

distributors

Accountable Reactive Basic or reactive

Medium number of

customers/

distributors

Proactive Accountable Reactive

Few customers/

distributors

Partnership Proactive Accountable

Tools for Building Customer Relationship

Marketers can use specific marketing tools to develop stronger bonds with customers.

i) Adding financial benefits ii) Adding social benefits iii) Adding structural ties.

i) Adding financial benefits. Two financial benefits that companies can offer are frequency programs and club marketing programs.

Frequency programs are designed to provide rewards to customer who buy frequently and in

substantial amounts. For example, airlines offer frequent-flier programs, hotels give room

upgrades to their frequent guests and supermarkets give patronage discounts. Grameenphone

offers bonus on the basis of more usages.

Many companies have created club marketing programs to bond customers closer to the

company. Club membership can be opened to everyone who purchases a product or service, or it

can be limited to an affinity group or to those willing to pay small fee.

ii) Adding social benefits. Company personnel work on increasing social bonds with customers by individualizing and personalizing customer relationships. Thoughtful companies

turn their customers into clients. According to Donnelly, Berry and Thompson draw this

attention.

Customers may be nameless to the institution; clients cannot be nameless. Customers are served

as part of the mass or as part of larger segments; clients are served on an individual basis.

Customers are served by anyone who happens to be available; clients are served by the

professionals assigned to them.

iii) Adding structural ties. The Company may supply customers with special equipment or computer linkages that help customers manage orders, payroll, and inventory. For example,

McKesson Corporation, a leading pharmaceutical wholesaler, has invested millions of dollars to

set up direct computer links with drug manufacturers and an online system to help small

pharmacies manage their inventories, their order entries and their shelf space. FedEx offers

website links to its customers to keep them from defection to competitors such as UPS.

Customers can use the web site to arrange shipments and track the status of their FedEx packages

anywhere in the world. Popular Ice Cream Company has distributed refrigerator to the retailers

to sell its Ice cream across Bangladesh.

Relationship blocks: Customer Value and Satisfaction

Customer perceived value: Our premise is that customers will buy from the firm that they see as offering the highest

perceived value. Customer perceived value is the difference between the prospective customers evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total

customer value is the perceived monetary value of bundle of economic, functional and

psychological benefits customers expect from a given market offering. Total customer cost is the

bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the

given market offering.

A particular company can improve its offer in three ways;

i) It can increase total customer value by improving product, services, personnel and image benefits.

ii) It can reduce the buyers non-monetary costs by reducing the time, energy and psychic costs.

iii) It can reduce its products monetary cost to the buyers.

Customer satisfaction: Customer satisfaction occurs when the products perceived performances matches the expectations of the customers. In general, satisfaction is a persons feelings of pleasure or disappointment resulting from comparing a products perceived performance in relation to his or her expectations.

If the performance falls short of expectations, the customer is dissatisfied, the performance

matches the expectations, the customer is satisfied, if the performance exceeds the expectations,

and the customer is highly satisfied or delighted.

Customer perceived value

Total customer value Total customer cost

Product value Monetary value

Service value Time cost

Personnel value Energy cost

Image value Psychic cost

Customer expectation: How do buyers form their expectations? From past buying experiences, friends and associates advice and marketers and competitors information and promises. If the marketers raise the expectation too high, the buyer is likely to be disappointed, however, if the company sets

expectations too low, it will not attract enough buyers. Some of todays most successful companies are raising expectations and delivering performances to match.

Value propositions: The key to generating high customer loyalty is to deliver high customer value. According to

Michael lanning, in his delivering profitable value, a company must design a competitively

superior value proposition aimed at a specific market segment backed by a superior value

delivery system.

The value proposition consists of the whole cluster of benefits the company promises to deliver;

it is more than the core positioning of the offering. For example, Volvos core positioning is safety, but the buyer is promised more than just a safe car other benefits include a long-lasting

car, good service and a long warranty period.

Tools for measuring the satisfaction: No companies measure the customer satisfaction rate or retention rate, but today, successful

companies measure the customer satisfaction rate or retention periodically. There are four

methods that are used to measure the customer satisfaction.

1) Complaint and suggestions systems: A customer-centered organization makes it easy for

customers to register suggestions and complaints. Some customer-centered companies such as

P&G, general electric, whirlpool-establish hot lines with toll free numbers. Companies are also

using web sites and e-mail for quick, two-way communication.

2) Customer satisfaction survey: Studies show that although customers are dissatisfied with

one out of every four purchases, less than 5 percent will complain. Most customers will buy less

or switch suppliers. Responsive companies measure customer satisfaction directly by conducting

periodic surveys.

3) Ghost shopping: Companies can hire people to pose as potential buyers to report on strong

and weak points experienced in buying the companys and competitors products. These mystery shoppers can even test how the companys sales personnel handle various situations. Managers themselves should leave their offices from time to time, enter company and competitor sales

situations where they are unknown, and experience firsthand the treatment they receive. A

variant of this is for managers to phone their own company with questions and complaints to see

how the calls are handled.

4) Lost customer analysis: Companies should contact customers who have stopped buying or

who have switched to another supplier to learn why this happened. Not only is it important to

conduct exit interviews when customers first stop buying; it is also necessary to monitor the

customer loss rate.

The Customer Development Process: A loyal customer is developing day by day from suspect to partners of the organization.

Figure: The customer development process

This figure shows the main steps in the process of attracting and keeping the customers. The

starting point is the suspect; here every one in this point might conceivably buy the products or

services.

From these, the company determines the most likely prospect, which may be customers for the

first time. Then the first times customers may buy again then become repeat customers. When

customers buy again and again one time he/she will become a client to whom the company treats

very specially and knowledgeably.

The next challenge is turn the clients into members. Members to whom the company offers the

special benefits. Then the members become advocates, customers who enthusiastically

recommend the company and its products and services to others. The ultimate challenge is to

turn advocates into partners. Some customers inevitably become inactive or drop out. The

challenge is to reactive dissatisfied customers through win-back strategies. It is often easier to re-

attract ex-customers than to find new ones.

Suspects

Prospects

Disqualified

prospects

First time customers

Repeat customers

Clients

Members

Advocates

Partners

Inactive or ex-

customers