Role of Customer Relationship Management in UK Banking Industry
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Transcript of Role of Customer Relationship Management in UK Banking Industry
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1. INTRODUCTIONThe era in which we are living has different dimensions with regards to customer care
and satisfaction. Globalization and diversification in businesses has created a battle ground
and competition amongst different organizations in upholding customer loyalty. To achieve
these ends, there has been a great shift in the marketing techniques applied by different
organizations over the years (Gronroos, 1997). Companies are now having more of a
customer-centric approach rather than product-centric approach which has captured
marketing phenomenon over decades. This shift which is result of the denial of the long term
relationship benefits for the companies to the acceptance of giving advantage to the
customers has changed the way companies used to market their products and earn profits.
This change or shift, the customer-centric approach, is primarily what we may call customer
relationship management as illustrated in the following figure:
Source: (BigPlate, 2000)
In achieving customer satisfaction, businesses need to be well aware of the emerging
trends associated with customer care. Gone are the days when banks, insurance companies,
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hotels etc had cordial and personal relationships with their customers. In those times,
customer interaction and satisfaction level had different heights as compare to what they are
today. Companies used to satisfy the needs of their customers by offering special attention to
their requirements. Moreover, businesses and their clientage had one-to-one relations. Sellers
and their staff knew their customers and their needs. On the other hand, customers had
pinpointed the shops or businesses from where they had to do their dealings. So much so that
staff used to be aware of the fact that which customer would pay in time and which would
linger on their payments. Commerce and trade was much easier a task to be done. However,
over the period of time, this proved to be ineffective and costly to sellers. With growth in
organizations and advancement of technology, keeping track of each and every customer was
virtually impossible for the organizations which poorly affected their customer relationship
thus resulting in loss of valuable customers.
Financial institutions were no more different from other organizations. Banking in
every part of the world is serving as backbone of the countrys economy. Goldsmith states
that financial development in different countries of the world starts with Banking Financial
Institutions (1969). This is primarily due to the fact that amongst all financial institutions,
banks have the major share in granting loans to individuals for their needs. For businesses
requiring short term working capital, banks are the main source (Rose & Hudgins, 2005).
However, with increased competition over the years, banks started losing customers. Findings
by Basel Committee in 1999 revealed that banks have a large deficiency in know-your-
customer policies which resulted in loss of valuable customers (Basel Committee on
Banking Supervision, 1999). This was a shocking manifestation since banking cannot survive
without customers and un-satisfaction amongst the clients could lead to shut down of the
complete organization. There appears to be growing recognition by retail banks that to
compete in the new world of work they need to focus not only on processes and efficiencies
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but more importantly on customer experience and service, . UK banks are bucking the
retrenchment trend and actually hiring large numbers on new staff. It is believed could hire
up to 6000 new staff over the next two years, 600 of which will be hired in the coming
months and will be focused around improving customer experience and service (Dean van
Leeuwen, 2010).
1.1 Background
Trace back in the history of customer care by organizations reveals that in order to
prevent losing a customer by not giving him/her appropriate attention, organizations
developed segmented or group marketing technique where customers having same needs
were put together in one group or segment. But this too again became inappropriate since by
using this marketing technique, groups of customers were to some extent satisfied by the
organizations but that lacked individual care and attention thus negatively affecting the
organization (Bose, 2002).
In 1980s, a concept referred to as Relationship Marketing surfaced to overcome the
above stated problem. Relationship Marketing encompassed several methodologies which
were to be worked out by organizations in gaining customer loyalty and satisfaction. These
included quality of goods to be sold, excellent service to customers and developing long term
relationships (Levitt, 1983). Gronroos (1997) defined Relationship Marketing as to
establish, maintain and enhance relationships with customers and other partners, at a profit,
so that the objectives of the parties involved are met. This is done by a mutual exchange and
fulfillment of promises.
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Marketing strategy of organizations in those days was more focused on attracting new
customers and clients instead of retaining and keeping hold of the old ones. This strategy, the
transactional or traditional marketing approach, was replaced by Relationship Marketing. In
transaction marketing, emphasis was laid on the 4Ps of marketing namely product, price,
place and promotion. These 4Ps of marketing, or the marketing mix, essentially focused on
attracting new customers for organizations without paying any head to retaining the old ones
(Gummesson, 1999). According to this concept, the marketer was considered as an
ingredients mixer, with ingredients to be the 4Ps. Mixing of all the 4Ps of marketing used to
offer solutions in such a way as to offer competitive prices thus enabling new customers to
buy their products. However, this approach soon failed due to obvious reasons and thus
Relationship Marketing came as an answer to the transaction marketing approach.
Gummesson (2004) defined the concept of Relationship Marketing to include the
following:
Reduction in costs More security Risk management Trust building Control
1990s again brought a new thinking paradigm for organizations in the development of
customer relationships. It was realized that a customer does not only interacts with the
marketing department of a company or organizational but with the whole organization itself
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including all the departments. So customer care was given a holistic view to please the
customer from every aspect.
This approach also failed since achieving short term results was a difficult option
keeping in view the costs of maintaining database of customers which proved to be too
expensive and tedious a task (Xu, Yen, et al, 2002).
1.2 Customer Relationship Management (CRM)
Coming back to the present day world, with advanced technology and growing
awareness along with latest marketing strategies, it has become easy for companies to have
better relations with their customers with a surety that they wont be traded off to their
competitors. This has been possible with the availability of new techniques which have
revolutionized todays mans psyche. Organizations can now trust on the loyalty of their
customers by offering reasonable and competitive prices, variety in their product lines and
personal care, a basic ingredient in building customer relationship. All these factors, which
were missing in the past, are now available to organizations due to advancement in
information and communications technology making them more customers friendly and
trustworthy. One such advancement which may be referred to as modification in
Relationship Marketing is Customer Relationship Management (CRM).
1.3 Definition of CRM
Scholars and professionals belonging to different school of thoughts have defined this
term in no of ways. We will be quoting few definitions of Customer Relationship
Management to elaborate the concept clearly.
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Gartner Group (2008, pg 2) defines CRM as follows:
CRM is an IT enabled business strategy, the outcomes of which optimize
profitability, revenue and customer satisfaction by organizing around customer
segments, fostering customer-satisfying behavior and implementing a customer-
centric process.
Similarly, Jobber defined CRM as a term for the methodologies, technologies and e-
commerce capabilities used by firms to manage customer relationships (2004) as illustrated
in the following figure:
According to Bose (2002), at the core, CRM involves the integration of technology
and business processes used to satisfy the needs of a customer. He further explained CRM in
banking terms as an enterprise wide integration of technologies and functions such as data
warehouse, web sites, intranet/extranet, telephone support system, accounting, sales,
marketing and production.
Following figure illustrates the concept of CRM more clearly:
Source: Joint Information Systems Committee
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Classification of CRM
Popular classifications of CRM which are widely accepted worldwide are as follows:
Operational CRM systems: CRM business processes have a direct impact bythis category since it improves the overall efficiency of the system.
Operational CRM systems are handy in providing solutions and support to
problem areas such as marketing automation, sales automation and
management of customer interaction centre.
Analytical CRM systems: This is the warehouse of information aboutcustomers as to their likings and disliking. It helps in better understanding of
customer behavior and aptitude. Analytical CRM systems provide solutions
such as data mining and data warehousing. Graphical representation of typical
analytical CRM system is as under:
Source: (David Roe, 2010)
Collaborative CRM systems: Streamlines channel of communicationbetween customers and the organizations. In other words, providing help and
support to customers in the shape of emails, telephone, websites etc.
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E-CRM: Automatic response to customers emails, automatic help andseveral other personalized services comes under this category.
1.4Why CRM?According to Xu (2002), goal of CRM is to understand the needs and demands of
customers giving them more value. Interaction with customers helps an organization to better
understand its clients thus improving their performance. Customers are more at ease with
companies with whom they have a better level of cooperation. By understanding the needs of
their customers, companies develop a long term relationship with their customers. Thus CRM
earns customer loyalty which in turn increases its revenue.
Need for CRM arose due to the fact that different customers have different choices
and preferences of buying. No single scale could be set out for all the customers since need of
every customer is different. If this hadnt been the case, mass marketing and mass
communication marketing techniques which were once used by companies would have
continued without any failure. Need for customized marketing led the companies to switch to
CRM. Operations related to CRM with their support to customers can be seen in the
following figure:
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Source: (Richard, Chijoriga, Kaijage, Peterson and Bohman, 2008)
CRM-related services have also been a major cause in the popularity of this approach.
The growing demands of customers and limited available resources of organizations to satisfy
the needs of the customers has forced corporate to switch to CRM due to wide range of
services it offer.
1.5Research ProblemCustomer relationship management has become the first priority of majority of the
organizations due to increased saturation level in the markets. Relationship of companies
with their customers has switched from the traditional sales model to customer-centric
approach. According to Bose (2002), companies most likely to benefit from CRM services
relates to financial organizations such as banks and telecommunications. Prime reason of this
is that both these sectors have to deal with lot of customers and they have to gather and
accumulate lot of data on each customer for properly satisfying his needs. Future is for those
organizations that can successfully understand and deliver what each of their customer wants
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and demands. Comparison of a traditional model to customer-centric business model in
financial institutions such as banks is illustrated in the following figure:
Source: (Andrew Carton, 2004)
As stated above, financial institutions amongst others are the most likely
organizations which can benefit from CRM system to the max. Reason behind this statement
is the fact that financial institutions have to gather lot of data about each and every customer
not only to satisfy his/her need but also to secure their own transactions. Financial matters are
quite sensitive and need to be handled with utmost care. Customers, on the other hand, have
more aspirations while dealing with financial companies since it relates to money matters and
no individual would expect or can afford to take risk of any sort in this regard. So its more of
a compulsory affair for both financial organizations and customers to have better
understanding and coordination in order to avoid any mishaps.
Moreover, for financial institutions, CRM is important since it helps them identify the
profitable customers which financial institutions such as banks have to look about apart from
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creating opportunities for new customers. Research has proved that the most profitable
segment of customers for banks is relatively very small (Leverin and Liljander, 2006).
According to Rowley (2002), 20% of a banks customers often account for 150% of its
profits. Therefore, banks pay more attention to this small segment which would earn them
more profits. However, with the introduction of Internet Banking, keeping customer loyalty
has greatly been endangered since due to this facility, other banks or competitors have the
leverage of targeting that 20% segmented group of a particular bank. Thus it becomes a do or
die situation for banks to maintain customer loyalty and provide services to them according to
their needs.
Source: (Amigolog, 2003)
This phenomenon of banking sector is not related to a particular region of the world
but is generally witnessed everywhere. Studying the implementation of CRM in banks of
some developed country such as UK seems more fruitful as it would answers questions
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critical to the survival of both the system and the bank. Thus, our research problem for the
thesis can be formulated as:
Role of CRM in UK Banking Sector.
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BIBLIOGRAPHY
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