Customer Relationship Management 1

Omaid Ansari

Abstract

In order to compete effectively in globalized economy, organizations must be customer-

focused. Customer relationship management (CRM) is the way to integrate this approach
throughout an organization. Many a time’s organizations are likely to believe that it is
function of marketing to have the customer relationship management. In reality it is
meant for everyone in the organization starting from the security person, telephone
operator and accounting department. Providing good service and then finding a way to
leverage the good will created by quality service a company can tie deeply into a
consumers psyche and develop a strong business/client relationship. This paper examines
customer complaints as a major source of losing customers and suggests suitable policy
measures to overcome these handicaps. In addition, there is discussion on role of
information technology as an enabler of customer relationship management. The paper
also develops a model for organizations to follow and summarizes the discussion.

Customer relationship management (CRM)

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Customer relationship management (CRM) is a broadly recognized,

widely-implemented strategy for managing and nurturing a company’s
interactions with customers and sales prospects. It involves using technology
to organize, automate, and synchronize business processes—
principally  sales  related activities, but also those for  marketing,  customer
service, and  technical support. The overall goals are to find, attract, and win
new customers, nurture and retain those the company already has, entice
former customers back into the fold, and reduce the costs of marketing and
customer service.

Customer relationship management (CRM) is a term applied to processes

implemented by a company to handle its contact with its customers. CRM
software is used to support these processes, storing information on current
and prospective customers. Information in the system can be accessed and
entered by employees in different departments, such as sales, marketing,
customer service, training, professional development, performance
management, human resource development, and compensation. Details on
any customer contacts can also be stored in the system. The rationale behind
this approach is to improve services provided directly to customers and to use
the information in the system for targeted marketing

While the term is generally used to refer to a software-based approach to

handling customer relationships, most CRM software vendors stress that a
successful CRM strategy requires a holistic approach. CRM initiatives often
fail because implementation was limited to software installation without
providing the appropriate motivations for employees to learn, provide input,
and take full advantage of the information systems.

Business Objectives of CRM

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CRM applications, often used in combination with data warehousing, E-commerce

applications, and call centers, allow companies to gather and access information about
customers' buying histories, preferences, complaints, and other data so they can better
anticipate what customers are looking for. The other business objectives include:

 Increased efficiency through automation

 The ability to provide faster response to customer inquiries

 Having a deeper knowledge of customer needs

 Generating more marketing or cross-selling opportunities

 Better information for better management

 Reduced cost of sales and increased productivity of Sales Representatives

 Receiving customer feedback that leads to new and improved products or services

 Conducting more one-to-one marketing

Customer Relations Management (CRM) and Role of

Information Technology

In the era of information revolution, customer relations, or rather "customer

relations management" (CRM) is playing an ever-increasing role. CRM entails compiling
information concerning customers' profiles, their previous purchases, their preferences,
etc. This is very useful when, for example, a customer requests repairs to his refrigerator,
because the service company has all the information, such as make and type of
refrigerator, date of purchase, etc. readily available. It makes it easier, both for the
customer and for the service company, to arrange for a technician's visit because most of
the necessary information is already on file.

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CRM applications are also useful in gathering information from various business
departments and merging them into one file, so that the company representative who
takes a customer's call can answer most questions that the customer may have. This
avoids the problem of having to transfer customers to other departments. Of course, CRM
is a "two-way street," in that it enables companies to use information on a customer's
previous purchases to focus their marketing on items of special interest to a particular
customer. For instance, a bookseller may send information on new travel books to a travel
enthusiast.

While acknowledging the benefits of CRM (a technology which would seem to be

mainly applicable to large organizations), it must be recognized that CRM covers only a
small percentage of what we refer to as "Customer Relations." Customer relations is a
multifaceted domain which ranges from business policies, practices and strategy at the
management level, to enthusiasm, eagerness to achieve customer satisfaction,
resourcefulness, flexibility, and a positive attitude towards customers on the part of
employees and company representatives who are in direct contact with customers or
clients.

Both management decisions and employee behaviors/interactions should be

governed by what is referred to as "organizational culture". It is the perceived internal
environment of the organization that has a major influence on how an organization
operates, values it espouses, and how it treats its employees. In a company culture that
stresses customer satisfaction, strives for excellence, values its employees, and is able to
instill in them a sense of mission, or of common purpose, all members of the organization
will recognize that their contributions play an important role in the overall success and
profitability of the organization of which they are a part.

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Unfortunately, in many organizations, ambitious and well-meant plans are made
at the top management. While the behavior of employees who are in actual contact with
customers may be negatively influenced by a number of factors. Some of the factors are,
1) Feelings of not being appreciated by management,
2) Unwillingness to go beyond the basic requirements of their jobs and to tap into their
own resourcefulness/Entrepreneurship,
3) Seeming lack of interest in advancing the company's business through their
interactions with customers.

What seems to be misunderstood by people working for companies is that

everyone, from the business owner or manager to the telephone operator or receptionist
or the sales associate, plays an important part in how customers view a company. Rude,
unfriendly, uncooperative, or inappropriate behavior on the part of company
representatives who are in direct contact with customers may translate into loss of
business, regardless of the quality of the goods or services the company has to offer. It has
been estimated that 68% of business losses are because rude behavior of employees.

Furthermore, customers who encounter this type of treatment are likely to tell
others about their experience, who in turn, will not be very interested in dealing with that
particular company, thereby magnifying the extent of customer loss (actual and
potential).

In this era of fierce competition, both on a local and a global level, it becomes
increasingly important to ensure that a business is "customer-centered." There is an
abundance of merchandise available, and there is no shortage of businesses that offer the
same type of goods. It is therefore necessary for companies to try to set themselves apart
from their competitors by offering superb customer service. This can be achieved by
listening to customers' comments and suggestions; by upper management spending time
at the reception desk, at the service counter, or in the store, observing customers'

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comments and reactions. Anyone associated with a company needs to see him/herself as
a company representative who contributes to the company's image. Of course, everyone
working for a company needs to receive recognition for special efforts, ingenuity, and
problem solving, geared towards achieving customer satisfaction.

No doubt, excellent plans are made at the management level of many companies, but
inadvertently, the message communicated to customers or potential customers often is
more akin to saying, "We do not really care whether the organization become or remain
our customer or not!" How else could one interpret the message that "Our computer
department is too busy to take order," or "We will let organization know when the item
you wish to purchase is in stock," and never getting back to the customer. Alternatively,
turning away a group of patrons in a restaurant, just because the kitchen will close in ten
minutes?

Similarly, customer complaints or suggestions do not seem to receive the attention

they deserve. It has been pointed out that customer complaints should be treated as gifts
because they enable a company to take corrective action and to make improvements.
Apparently, customer complaints are relatively rare--customers are inclined to tell their
friends and relations about negative experiences, rather than informing the companies in
question. For that reason, it seems incomprehensible that some large companies tend to
dismiss customer complaints and consider them immaterial (if one goes by the reactions
of the company representative receiving the complaint).

In order to ensure excellence in customer relations and customer service,

organizations need to assess all aspects of their operations, in order to determine whether
any of their business practices and interactions with customers needs to be improved.
Corrective actions could take the form of training or retraining staff, establishing a code
of conduct, empowering staff to apply company guidelines less rigidly, where warranted,
and keeping focused on the customer at all times.

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Why are the reasons for customer complaints?

Most customers complain because they purchased a product or service with

certain expectations and, for any number of reasons, those expectations was not met.
Some of the research done by organizations found the following to be among the major
causes of consumer complaints.

Product Service Causes:

1) Poor product quality
2) Maintenance difficulties
3) Inadequate or poor repair work
4) Delays in delivery of goods or services
5) Failure to fulfill product or service warranties
6) Incompetent or discourteous employees

Accounting Causes:
1) Billing errors
2) Failure to provide timely refunds and adjustments, as promised

Sales Practice Causes:

1) Deceptive or inaccurate advertising, advertised are not available or are in limited
supply.
2) Misleading or false representations by sales staff.

Underlying Causes:

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1) A wide range of product choices coupled with a lack of information on which to base
purchase decisions
2) Advanced technology --- complicated product design
3) Inadequate, or complicated product instructions

The foundation of customer goodwill is the existence, promotion, and practice of a

sound customer relations policy. Such a policy is a formal promise to customers
representing commitment to their satisfaction. A customer should not be forced to run
from department to department, or individual to individual to get satisfaction. The policy
should spell out specifically how, when, where, and who handles complaints or questions.

One person within the company should have ultimate authority and responsibility
for customer relations. In a small firm, it may be the owner, while in a large organization
it may be customer affairs executive. It is important that the person designated be readily
available, and authorized to act on behalf of the company in all customer relations
matters. The organization may want to consider incorporating a commitment to a third
party dispute resolution mechanism into customer relations policy. Even if organization
follows and carries out a sound customer relations policy, there still will be some
complaints that are difficult to settle, and a few customers whom the company cannot
seem to satisfy.

Alternatively, we may consider offering resolution through a third party

mechanism on a case-by-case basis. An independent and neutral third party will act as a
mediator, helping organization and customers communicate to reach an understanding.
In the event that an agreement is not reached, organization should be prepared to offer
arbitration. Arbitration is a process where a neutral person listens to both sides and
makes a final decision based on fairness and equity.

Complaint Handling Procedures:

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Complaint handling system, which is structured from customer relations policy,
must operate simply, effectively, and quickly. Speed is essential in responding to
customer dissatisfaction. Customer should be assured that organization care and that
prompt remedial action will be taken to resolve any reasonable problem. A sound
complaint handling system should include the following essential procedures:

 Screening And Logging -- There should be a formal procedure for recording the date a
complaint is called for attention, along with a record of pertinent information. For
example, the type of product or service; manufacturer/brand name; model
name/number; date of purchase/contract; warranty expiration date; salesperson; cost
of product/service; date problem occurred; and a description of the problem should be
listed. This will allow organization to exercise control, and assure proper follow-
through.
 Investigating -- customer's explanation of a problem can provide much information.
Nevertheless, to assure we have all the information needed for a thorough review of
the facts involved, by:
 Researching in-house records on the customer;
 Requesting receipts, or other records;
 Inspecting the product, or service performed; and
 Following-up with the customer for any necessary additional information.
 Acknowledging -- When organization cannot resolve an issue immediately, it is
important to let customer know that the matter is receiving attention. Prompt
acknowledgment will set customer at ease, demonstrate that organization care, and
begin the process of preserving goodwill. Whenever possible, tell customer how long
it will take to complete action on the complaint. If there is further delay, be sure to
advice customer why and when organization expects to have an answer.

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 Formulating A Solution -- solution must be consistent with established customer
relations policy and should take into account a number of important criteria.
organization should consider:
 Contractual and/or warranty obligations;
 The customer's expectations;
 expectations of the customer;
 The cost/benefit of alternative solutions;
 The probability and cost of customer seeking redress in some other way;
 The comprehensiveness and fairness of solution;
 ability to perform the solution; and
 What to do if the customer rejects solution.
 Responding -- The response should be clear and appropriate. The customer must
understand the response, and the response must address the issues raised in the
customer's original complaint.

We should avoid "stock" language and form letters when an individual response is
needed, and refrains from using excessive technical jargon. An explanation of decision
may preserve the goodwill of customer, even if the decision itself is adverse.

 Following-Up -- Contact customer following response to verify whether or not the

matter has been resolved satisfactorily.

If customer is unhappy with response, organization should refer the matter to a third
party dispute resolution mechanism for assistance.
If we intend to seek the assistance of a third party, be sure to give the customer a name
and telephone number of the person, or office to be contacted.
The follow-up step is critical to ensure the effectiveness of system. While organization
may never satisfy everyone, this contact will provide direct feedback, and can be
extremely valuable in making customer relations the best possible.

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Management should monitor complaint-handling procedures to ensure that complaints

are being handled properly, fairly, and promptly. Analyze complaints as a basis for
reviewing customer relations policies and operating procedures, and for evaluating
product or service quality.

Types/Variations of CRM
There are several different approaches to CRM, with different software packages
focusing on different aspects. In general, Campaign Management and Sales Force
Automation form the core of the system (with SFA being the most popular).

Operational CRM
Operational CRM provides support to "front office" business processes, e.g. to sales,
marketing and service staff. Interactions with customers are generally stored in
customers' contact histories, and staff can retrieve customer information as necessary.

The contact history provides staff members with immediate access to important
information on the customer (products owned, prior support calls etc.), eliminating the
need to individually obtain this information directly from the customer.

Operational CRM processes customer data for a variety of purposes:

H 'Managing Campaigns'
H Enterprise Marketing Automation
H Sales Force Automation
H Sales Management System
H

Sales Force Automation (SFA)

Sales Force Automation automates sales force-related activities such as:

H Scheduling sales calls or mailings

H Tracking responses
H Generating reports

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Analytical CRM
Analytical CRM analyzes customer data for a variety of purposes:

 Designing and executing targeted marketing campaigns

 Designing and executing campaigns, e.g. customer acquisition, cross-selling, up-
selling

Analyzing customer behavior in order to make decisions relating to products and services
(e.g. pricing, product development)

Management information system (e.g. financial forecasting and customer profitability

analysis)

Analytical CRM generally makes heavy use of data mining.

Sales Intelligence CRM:

Sales Intelligence CRM is similar to Analytical CRM, but is intended as a more direct
sales tool. Features include alerts sent to sales staff regarding:

H Cross-selling/Up-selling/Switch-selling opportunities
H Customer drift
H Sales performance
H Customer trends
H Customer margins

Campaign Management:

Campaign management combines elements of Operational and Analytical CRM.

Campaign management functions include:

 Target groups formed from the client base according to selected criteria
 Sending campaign-related material (e.g. on special offers) to selected recipients using
various channels (e.g. e-mail, telephone, post)
 Tracking, storing, and analyzing campaign statistics, including tracking responses and
analyzing trends

Collaborative CRM
Collaborative CRM covers aspects of a company's dealings with customers that are
handled by various departments within a company, such as sales, technical support
and marketing. Staff members from different departments can share information

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collected when interacting with customers. For example, feedback received by
customer support agents can provide other staff members with information on the
services and features requested by customers. Collaborative CRM's ultimate goal is to
use information collected by all departments to improve the quality of
Services provided by the company.

Geographic CRM
Geographic CRM (GCRM) combines geographic information system and traditional
CRM. Geographic data can be analyzed to provide a snapshot of potential customers in
a region or to plan routes for customer visits.

Strategy
Several commercial CRM software packages are available, and they vary in their approach
to CRM. However, as mentioned above, CRM is not just a technology but rather a
comprehensive, customer-centric approach to an organization's philosophy of dealing
with its customers. This includes policies and processes, front-of-house customer service,
employee training, marketing, systems and information management. Hence, it is
important that any CRM implementation considerations stretch beyond technology
toward the broader organizational requirements.

The objectives of a CRM strategy must consider a company’s specific situation and its
customers' needs and expectations. Information gained through CRM initiatives can
support the development of marketing strategy by developing the organization's
knowledge in areas such as identifying customer segments, improving customer
retention, improving product offerings (by better understanding
Customer needs), and by identifying the organization's most profitable customers. [3]
CRM strategies can vary in size, complexity, and scope. Some companies consider a CRM
strategy only to focus on the management of a team of salespeople. However, other CRM
strategies can cover customer interaction across the entire organization. Many
commercial CRM software packages provide features that serve the sales, marketing,
event management, project management, and finance industries.

Implementation Issues
While there are numerous reports of "failed" implementations of various types of CRM
projects, these are often the result of unrealistically high expectations and exaggerated
claims by CRM vendors.

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Many of these "failures" are also related to data quality and availability. Data cleaning is
a major issue. If a company's CRM strategy is to track life-cycle revenues, costs,
margins, and interactions between individual customers, this must be reflected in all
business processes. Data must be extracted from multiple sources (e.g.,
departmental/divisional databases such as sales, manufacturing, supply chain, logistics,
finance, service etc.), which requires an integrated, comprehensive system in place
with well-defined structures and high data quality. Data from other systems can be
transferred to CRM systems using appropriate interfaces.

Because of the company-wide size and scope of many CRM implementations,

significant pre-planning is essential for smooth roll-out. This pre-planning involves a
technical evaluation of the data available and the technology employed in existing
systems. This evaluation is critical to determine the level of effort needed to integrate
this data.

Equally critical is the human aspect of the implementation. A successful implementation

requires an understanding of the expectations and needs of the stakeholders involved.
An executive sponsor should also be obtained to provide high-level management
representation of the CRM project.

An effective tool for identifying technical and human factors before beginning a CRM
project is a pre-implementation checklist. A checklist can help ensure any potential
problems are identified early in the process.

Privacy and data security

One of the primary functions of CRM software is to collect information about customers.
When gathering data as part of a CRM solution, a company must consider the desire for
customer privacy and data security, as well as the legislative and cultural norms. Some
customers prefer assurances that their data will not be shared with third parties without
their prior consent and that safeguards are in place to prevent illegal access by third
parties.

BENEFITS OF CRM

Customers are Profitable over a period of time:

Studies by the US-based Bain and Company have shown that a customer becomes more
profitable with time because the initial acquisition cost exceeds gross margin while the
retention costs are much lower. When an organization retains the customer, it gets a
larger share of the customers wallet at a higher profit-one percent increase in sale to
existing customer increase profits by 17 per cent while the same amount of sale to new
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customer increased profit by only 3 per cent. This huge different is explained by the fact
that for most companies the cost of acquiring the customer is very high. It costs six to
eight times more to sell to a new customer than to sell to an existing one. The same study
also highlighted that a company can boost its profit up 85 per cent by increasing its
annual customer retention by only 5 per cent.

Similarly, studies have shown that the probability of selling a product to a prospect is 15
per cent while it is 50 per cent to an existing customer. Thus, the time, the effort and the
costs of selling are much lower for an existing customer.

Customer probability is skewed:

An analysis of the revenue and profit contribution of customer base of banks in the US,
Europe and Australia showed the following:

 The top 20 per cent of the customers contribute to 150 per cent of the profits while
the bottom 20 per cent drain 50 per cent of the profits and the rest 60 per cent just
break even.

Experiences of Indian organizations are on similar lines. In a large public sector Banks;
the top 23 per cent of the customers contribute to 77 per cent of the revenues. Similarly,
the top 27 per cent customers of a leading cellular phone service provider contribute to 75
per cent of the revenues.

The implication of such a skew in customer profitability and revenue contribution are
startling for organizations, which use to conventionally treat ‘all customers are equal’.
Competitors have to just lure these top customers and the organization would face
serious problems. It also highlights the fact that one has to adopt different strategies for
different customer groups:

 Programmers have to be developed to retain and build stronger bonds with the top
‘gold standard’ customers so that they do not get ‘poached’

 Activity-Based Costing analysis has to be done with the middle group of

‘potentials’ so that the cost of serving this customers are reduced. In addition,

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cross-selling and up selling should be done to increase the profitability of these

customers.

 An analysis of the bottom growth has to be done to identify those customers who
can be shifted to the ‘potential’ group. For the remaining, the cost of service has to
reduce by encouraging them to use lower cost channels. In extreme cases, some of
these customers will be encouraged to defect to competitors. Outsourcing of loss
making customers to specialized low overhead agencies is an emerging trend.

Marketing Benefits of CRM

CRM will gradually reduce organization’s dependence on periodic surveys to gather data.
Collection of data related to buying and consumption behavior will be an ongoing
process. In many cases, the transaction data is automatically collected sometimes real
time as in the e-commerce transaction. This rich repository of customer information and
knowledge updated through regular interactions and actual customer transactions and
purchase behavior will help marketers to develop and market customer centric products
successfully.

Customized promotions-based customer preferences and purchase patterns will

substantially reduce the wasteful expenditure of mass communication and even direct
mailing. As a customized promotion are more focused and are based on a deeper insight
of existing customers, they have a greater chance of conversion to sales.

Service Benefits of CRM

Research findings conducted across industries as a part of a Technical Assistance

Research Project (TARP) indicate that:
 95 per cent of the customers do not bother to complain, the
just take their business elsewhere.

 Most loyal customers take time to complain. This enables the product / service
provider to improve and ensure that such mistakes do not recur.

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 A typical dissatisfied customer will tell an average of 14 others about a bad

experience while she will tell only six about a satisfying experience with an
organization.

 70 per cent of customers who complain will do business with a company again if
it quickly takes care of a service problem.

SUMMARY
Analytical CRM is a consistent suite of analytical applications that help the firm to
measure, predict and optimize customer relationships. To address these business issues,
analytical CRM includes a sound analytical infrastructure that allows gathering all the
relevant information about customer and organizing it consistently. The analytical
capabilities allow a firm to identify new trends in the market and then to channel the
investment in these market. They also help you gain further insights into customer needs
and preferences.

Five S’s of managing customer data are: Strategy, Standard, System, Smart people &
Statistics.

Customer data is critical to every business. Accurate customer information enables the
firm’s sales, service and marketing teams to target specific customer through an in-depth
understanding of customer. Effective data management provides a number of business
processes by eliminating duplication and wasted data collection & increased compliance
and data security through standardization and centralization of data.
A customer database is an organized collection of comprehensive information about
individual customer or prospects that is current, accessible, and actionable for such
marketing purpose as lead generation, lead qualification, sale of a product or services, or
maintenance of customer relationships.
Consumer privacy laws and regulations seek to protect any individual from loss of privacy
due to failure or limitations of corporate customer privacy measures.

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