Understanding Customer Relations Management (2)

It has become well known that retaining customers is more profitable than building new relationships. Consequently, relationship marketing was developed on the basis that customers vary in their needs, preferences, buying behavior, and price sensitivity. Therefore, by understanding customer drivers and customer profitability, companies can better tailor their offerings to maximize the overall value of their customer portfolio. In his seminal study, Reichheld (1996a, b) has documented that a 5 percent increase in customer retention resulted in an increase in average customer lifetime value of between 35 percent and 95 percent, leading to significant improvements in company profitability.
Customer relationship marketing techniques focus on single customers and require the firm to be organized around the customer, rather than the product. Customer-centric organizations seamlessly integrate marketing and other business processes to serve customers and respond to market pressures. Firms that evolve to this stage will benefit from a marketing-manufacturing interface, resulting in the flexibility to meet changing customer needs efficiently and effectively (Prabhaker, 2001). Figure 4 demonstrates the change from weak to strong customer relationships based on changing marketing strategies of mass marketing, target marketing and customer relationship marketing.
Despite the technological perspectives discussed in the previous section, the philosophical bases of CRM are relationship marketing, customer profitability, lifetime value, retention and satisfaction created through business process management. In fact, Anton (1996) characterizes CRM as an integrated approach to managing customer relationships with re-engineering of customer value through better service recovery and competitive positioning of the offer. Couldwell (1998) further depicts CRM as a combination of business process and technology that seeks to understand a company's customer from the perspective of who they are, what they do, and what they are like. In fact, companies have been repeatedly warned that failure is eminent if they believe that CRM is only a technology solution (Goldenberg, 2000).
The statement “retaining customers is more profitable than building new relationships” is especially true in the changing Internet market. The Boston Consulting Group estimates that it costs $6.80 to market to existing customers via the Web, versus $34 to acquire a new Web customer (Hildebrand, 1999). A recent Deloitte Consulting survey of more than 900 executives across different industries also revealed that manufacturers that set goals for improving customer loyalty are 60 percent more profitable than those without such a strategy (Saunders, 1999). A CRM strategy can help create new customers, and more importantly, develop and maintain existing customers.
Customer relationship management is an enterprise-wide customer-centric business model that must be built around the customer. It is a continuous effort that requires redesigning core business processes starting from the customer perspective and involving customer feedback. The Seybold Group starts this process by asking customers what barriers they encounter from the company (Seybold, 1998; Seybold et al., 2001). In a product-focused approach, the goal is to find customers for the products using mass marketing efforts. In a customer-centric approach, the goal becomes developing products and services to fit customer needs. In Seybold's work, five steps in designing a customer-centric organization were suggested:
1. make it easy for customers to do business;
2. focus on the end customer;
3. redesign front office and examine information flows between the front and back office;
4. foster customer loyalty by becoming proactive with customers; and
5. build in measurable checks and balances to continuously improve.
The goals of a customer-centric model are to increase revenue, promote customer loyalty, reduce the cost of sales and service, and improve operations. Optimizing customer relationships requires a complete understanding of all customers; profitable as well as non-profitable, and then to organize business processes to treat customers individually based on their needs and their values (Renner, 2000). Within the paradigm of business process re-engineering, Al-Mashari and Zairi (1999) offer a holistic view of success and fail factors. Specifically, change management, management support, organizational structure, project management, and information technology were highlighted. Companies considering CRM implementation can also benefit from addressing these five BPR issues.


5. People changes
Implementation of enterprise technology, such as CRM and ERP, requires changes to organizational culture (Al-Mashari and Zairi, 2000). While both technology and business processes are both critical to successful CRM initiatives, it is the individual employees who are the building blocks of customer relationships. There are several underlying dimensions surrounding management and employees that successful CRM implementations require.
Top management commitment is an essential element for bringing an innovation online and ensuring delivery of promised benefits. Top management commitment, however, is much more than a CEO giving his or her blessing to the CRM project. Customer-centric management requires top management support and commitment to CRM throughout the entire CRM implementation. Without it, momentum quickly dies out. Furthermore, top management should set the stage in CRM initiatives for leadership, strategic direction and alignment of vision and business goals (Herington and Peterson, 2000). This view was reinforced in a recent META Group Report (1998) that singled out top management support and involvement as a key success factor for CRM implementations.
As in most major change efforts, objections and disagreement among various functional departments that arise in the process of business reengineering and CRM implementation can only be solved through personal intervention by top management, usually resulting in changes to corporate culture. The META Group Report (1998) concluded that investing in CRM technology without a customer oriented cultural mindset is like throwing money into a black hole. Dickie (1999) also warns against starting a CRM project if senior management does not fundamentally believe in re-engineering a customer-centric business model.
CRM projects require full-time attention of the implementation project team with representatives from sales, marketing, manufacturing, customer services, information technology, etc. Cap Gemini and IDC found that top management and marketing and sales management are generally the initiators of a corporate CRM project (1999). In addition, project teams require not only sponsorship by top management but also a project champion that can persuade top management for continuous change efforts (Al-Mashari and Zairi, 1999). In general, project teams assist companies to integrate their core business processes, combine related activities, and eliminate the ones that don't add value to customers.
A functional organization often takes “ownership” of customer data. Many departments and individuals see customer handling as a sales or marketing function, and regard the release of their data to another function as a loss of power. A customer-centric model requires sharing the data enterprise-wide; this usually requires a fundamental paradigm shift in the culture to sharing information and knowledge. Especially in organizations where tradition has established separate goals and objectives, top management must not take a passive role in change efforts. Silo-based organizational myopia must be replaced with a customer-focus so departments will collaborate rather than compete with each other. Many of these changes efforts can be aided by effective communication throughout the entire project and reaching all levels of employees.
CRM initiatives require vision and each and every employee must understand the purpose and changes that CRM will bring. Re-engineering a customer-centric business model requires cultural change and the participation of all employees within the organization. Some employees may opt to leave; others will have positions eliminated in the new business model. Successful implementation of CRM means that some jobs will be significantly changed. Management must show its commitment to an ongoing company-wide education and training program. In addition to enhancing employee skills and knowledge, education boosts motivation and commitment of employee and reduces employee resistance. Additionally, management must ensure that job evaluations, compensation programs, and reward systems are modified on a basis that facilitate and reward customer orientation. After all, how people are measured will determine their behavior.


6. Conclusion
Somewhere along the turn of the twentieth century, buyers and sellers lost their intimate relationships. Prior to the Industrial Revolution, sellers knew their customers, many times by name, and generally understood their needs. Mass production built a wall between buyers and sellers where the main concept was to find customers for standardized products. Customers are more empowered today than ever before and the Internet is accelerating the trend toward greater customer empowerment. CRM applications attempt to focus on the customer first, specifically one customer at a time, to build a long-lasting mutually beneficial relationship.
Customer relationship management is a comprehensive approach that promises to maximize relationships with all customers, including Internet or “e-customers”, distribution channel members, and suppliers. Getting to “know” each customer through data mining techniques and a customer-centric business strategy helps the organization to proactively and consistently offer (and sell) more products and services for improved customer retention and loyalty over longer periods of time. Peppers and Rogers (1999) refer to this as maximizing “lifetime customer share”, resulting in customer retention and customer profitability. On the other hand, advanced customer data analysis also allows a company to identify the customers it does not want to serve. Beside the technological advances, CRM initiatives represent a fundamental shift in emphasis from managing product portfolios to managing portfolios of customers, necessitating changes to business process and people. As companies start to re-engineer themselves around customers, individual employees must also come to terms with changing business process, organizational culture and, thus, the ways they view their customers and how they treat them.
Organizations today must focus on delivering the highest value to customers through better communication, faster delivery, and personalized products and services. Since a large percentage of customer interactions will occur on the Internet rather than with employees (Bultema, 2000), technology must adapt to the changing and unpredictable market. Organizations that implement CRM and e-business applications will have the greatest gains (Lange, 1999). The future of CRM is e-relationship management or eRM that will synchronize cross-channel relationships (Saunders, 1999). It is also envisioned as an “e-partnering ecosystem” with a complex network of partners that operate as an interconnected whole, spanning entire markets and industries (Creighton, 2000; Siebel, 2001).
CRM implementations and the changing effect of the Internet offer abundant research opportunities. The identification of some implementation issues in this study raises several important research questions. In particular, what are the roles of suppliers and supply chain partners in CRM? How does e-CRM strategies affect brick and mortar companies? What business processes, integration challenges, and organization structures are common throughout successful CRM implementations? Research in these areas will contribute to building thriving customer relationships and long-term corporate survival. Years of academically researched topics of relationship marketing and customer retention are now practical and cost-effective to implement due to emerging technology. It is time to put academic theories to practice.


Understanding Customer Relations Management (2) - To learn more about this author, visit Dr. Fathi El-Nadi's Website.

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