MELVIN M.

SARSOSA, MBA
6
• Quality begins and ends with customers. An organization’s
success depends on the number of customers it has, the
quantity they buy, and the frequency of their purchases.
Customer driven quality represents a proactive approach to
satisfying customer needs that is based on gathering data
about customers to learn their needs and preferences and
providing products and services that satisfy them. A satisfied
customer will tell three more people if he/she liked the
service but will tell 11 more if he/she does not like it. Finally,
when a company’s customers are happy with the service and
the product and find enthusiastic and knowledgeable
personnel who are eager to help, then there are chances that
the company will continue to enjoy the lucrative patronage
of their customers for a long time.
Who is a customer? Defi nitions of a custom
are as follows:
• The lifeblood of any business; without them,
businesses have to shut shop
The most important person in any
organization
• Not dependent on employers; the latter
depend on the customer
• A part of business and not an outsider
• People who have needs and wants; it is the
employer’s job to fulfil them
• Quality in a service or product is not what
you put into it. It is what the client or
customer gets out of it.”

Peter F. Drucker
Upon completion of this chapter, you will be
able to:

1.Explain customer focus

2. Understand customer relationship
management (CRM)
3. Discuss customer value management
4. Learn CRM in the context of B2B and B2C
5. Describe e-CRM
Introduction
• A healthy organization, motivated
workforce, delighted customers are all part
of a cyclic phenomenon. A dedicated and
loyal workforce will reflect, in a positive
way, the company and its values.
• A motivated workforce will feel an
additional obligation to serve the
customers better. Every organization has
thus realized the growing importance of
grooming its employees to make them an
impressive force in the eyes of the
consumers.
Who Is a “Customer”?

• A Customer is an individual or business that

purchases the goods or services produced
by a business.
• Webster defines a customer as “one that
purchases a commodity or service.” This
definition talks of an interface between the
seller and the customer who are two
different entities. Here, customers are
beyond the bounds of an organization.
 Difference Between
Consumer and Customer

?
 Difference Between Consumer and Customer

• Consumer is the person who consumes or

uses the goods or the services.

• Customer is the person who pays the price

and purchases the goods or services of a
certain producer or a business.

• The customer can be the consumer as well,

however not in all cases.
• Attracting customers is the primary goal of
most public-facing businesses, because it is
the customer who creates demand for
goods and services. Businesses often
compete through advertisements or
lowered prices to attract an everlarger
customer base.
• Customer expectations. refers to the
perceived value or benefits that the
customers seek when purchasing a good or
availing a service.
Three dimensions of customer requirements
are:
1. Basic requirements;
2. Performance requirements and
3. Delight requirements
• Basic requirements: Basic requirements
relate to those that the customer takes for
granted. These are never a subject of
negotiation. For example, safety of an
airline.
• b. Performance requirements: These relate
to customer expectations that are
negotiated and agreed. For example, the
flight schedule of an airline.
• c. Delight requirements: These relate not
only to meeting customer expectations but
exceeding them. For example, a fashion
show during a flight
• Customer Perception. is a marketing
concept that tells us what customers think
about a brand or a company or its offerings.
It can be positive or negative feelings,
perceptions, inhibitions, predispositions,
expectations or experiences that a
customer has.
Customer Perceptions of Quality
• Customer Perceptions of Quality One of
the basic concepts of the TQM philosophy
is continuous process improvement. An
American Society for Quality survey on end-
user perceptions of improvement factors
that influenced purchases showed these
rankings: (1) performance, (2) features, (3)
service, (4) warranty, (5) price and (6)
reputation
End user
• The term "end user" refers to the consumer
of a good or service, often who has some
innate know-how that is unique to
consumers. In a literal sense, the term end
user is used to distinguish the person who
purchases and uses the good or service
from individuals who are involved in the
stages of its design, development, and
production.
 Need for Customer Focus
• Internal customers are people working with
the organization who have to be served a
motivating experience for them to replicate
and carry out the same to the external
customers. Customer focus has to be
started with employee service.
Buyer–Supplier Relationships
• Almost every company purchases products,
supplies or services for an amount that
frequently equals around 50 per cent of its
sales. Traditionally, most companies follow
the “lowest bidder” practice where price is
the critical criterion.
 Customer Relationship Management (CRM
• Customer relationship management (CRM) has
become a strategic initiative in most companies
today. This is due to several reasons such as the
growth of service sector industries, affordable
advances in digital technology and the shift among
companies from market share to share in the
wallet of the customer. CRM requires a company to
develop a customer centric business model (CCM).
• CRM first came into focus in the 1980s.
 Customer Relationship Management (CRM
• Customer relationship management (CRM) is a
term that refers to practices, strategies and
technologies that companies use to manage and
analyze customer interactions and data throughout
the customer lifecycle, with the goal of improving
business relationships with customers, assisting in
customer retention and driving sales growth.

• Customer relationship management (CRM) is an

approach to managing a company’s interaction
with current and potential future customers
CRM Defined
• CRM is a comprehensive strategy and
process of acquiring, retaining and
partnering with selective customers to
create superior value for the company and
the customer. It involves the integration of
marketing, sales, customer service and the
supply-chain functions of the organization
to achieve greater efficiencies and
effectiveness in delivering customer value
CRM approach
• The CRM approach tries to analyze data
about customers’ history with a company,
to improve business relationships with
customers, specifically focusing on
customer retention, and ultimately to drive
sales growth.
 Schools of Thought on CRM
• The growth of the practice of relationship
marketing is supported by the growing
research interest in different facets of this
concept. The initial approaches of CRM can
be very broadly classified as:
1. The Anglo-Australian Approach
2. The Nordic Approach
3. The North American Approach
4. The Asian (Guanxi) Approach
• The Anglo-Australian approach. integrated
the contemporary theories of quality
management, services marketing and
customer relationship economics to explain
the emergence of relationship marketing.
• The Nordic approach. views relationship
marketing as the confluence of interactive
network theory, services marketing and
customer relationship economics. The
interactive network theory of industrial
marketing views marketing as an interactive
process in a context where relationship
building is an area of primary concern for
marketers.
• In contrast, the initial focus of the North
American scholars was on the relationship
between the buyer and seller operating
within the context of the organizational
environment, which facilitated the buyer–
seller relationship.
• Guanxi. has become a necessary aspect of
Chinese and Asian business due to the lack
of codified enforceable contracts such as
those found in Western markets. Guanxi
determines who can conduct business with
whom and under what circumstances.
Business is conducted within networks, and
rules based on status are invoked
Purpose of a CRM system
• The purpose of a CRM system is to attract
and retain customers. Implementing a CRM
System gives businesses the tools to
manage, measure, and improve processes.
Types of CRM
• Types of CRM Four broad classifications are
possible when it comes to the application
of CRM. They are:
• Strategic CRM: It is focused upon the
development of a customer-centric
business culture. This culture is dedicated
to winning and keeping customers by
creating and delivering value better than
competitors.
• Operational CRM: It is a process by which
companies maximize the process of
gathering and understanding customer
information from all touch points, i.e. point
of sale, call centres, web, etc. in an effort to
increase customer loyalty and to retain
them over their lifetime. It enables and
streamlines communication to and from
the customer.
• Analytical CRM: It is also known as back-
office or strategic CRM and involves
understanding the customer activities that
occur in the front office. It involves
analyzing large amounts of cross-functional
data using data mining and other methods
and feeding the result back to operational
CRM.
• Collaborative CRM: The primary goal of
organizations is to build a long-term and
“profitable relationship” with the “chosen”
customers. It is necessary that all
concerned parts of the organization work in
collaboration with aligned purpose,
objective and strategy to achieve this
outcome. A “lifetime” value extraction is
possible only through close collaboration of
internal stakeholders and customers.
 The Ladder of Loyalty
• Customer Loyalty Ladder is a systematic
way of classifying customers of an
organization into different categories
depending upon the business level
engagement of customers with the
organization.
• The loyalty ladder is a relationship
marketing concept that sees cus tomers
gradually moving up through relationship
levels, starting at the bot tom as Suspect
and ending up at the top as partners.
• Suspect
• The first step begins with deciding the
target market segment.
• Suspects are aware of the company and its
products or services. However, they do not
have a clear message about the brand, its
promise and its values. The company needs
to build the brand value and its promise in
the mind of the suspect customer. The
company organizes awareness and brand
building activities to make the market
aware of it and its products.
• Prospect
• The prospect is an individual in a retail
market or an organization in the business
market who fulfils the requirements of the
marketers’ definition of the target. The
prospect will be on the verge of making the
first purchase. They have accepted the
invitation of the brand—its promise and its
values—and it is important that the
company delivers on consumer
expectations to convert the prospect to a
customer.
• Buyer
• The prospect becomes a buyer when he or
she gets attracted by the offering of the
marketer and buys the product/service.
They have started to identify some
preferences in their purchas ing patterns in
relation to the company. The organization
must customize its offerings as per the
buyer’s buying patterns. The organization
must deliver on its promises to retain the
buyer.
• Customer A customer is someone who
purchases the product or service. The
relationship is now well established and on
relatively firm footing. The customer has
clearly demonstrated that they prefer the
company’s products or services to those of
the company’s competitors. Relation ship
marketing activity should focus on
delivering products and services that meet
the brand promise, and deliver exceptional
value for money
• Frequent Customer
• Frequent customers have almost cemented
their relationship with the organization. The
customer selects the company as a supplier
of choice and the company occupies a
significant place in the customer portfolio
• Loyal Customer
• The loyal customer is reluctant to switch
over and has a strong positive attitude
about the company and its offering. Loyal
customers not only buy frequently from the
organization but also have a level of
emotional attachment to the organization
and its products and ser vices that will be
hard for the competitors to break with
tactical offers.
• Advocate
• A loyal customer becomes an advocate
when he is satisfied with the organization’s
offer ing, and also recommends and
influences other potential customers
(friends, relatives and acquaintances) to try
a similar relationship with the organization.
This positive word of-mouth has a
tremendous positive impact as it helps the
company obtain new customers. They
should be recognized and rewarded for
their recommendations
• Partner
• This is the final step that takes the
relationship to new heights. The customer
is no more a customer but a partner with
the company, and they can together find
ways and means to gain mutual advantages
from the relationship. An advocate
becomes a partner when he actively
involves in the decisions of the company.
Any relationship that attempts to develop
customer value through partnering
activities is likely to create greater bonding
ladder of loyalty
• The ladder of loyalty is a useful model to
help marketers highlight the differences
between various types of people and help
to produce appropriate communications for
each. Such communication will be better
received because they recognize the status
of each person and deliver relevant
messages.
• Salespersons can use the ladder to help
them allocate their time, devise
appropriate contact strategies for individual
prospects according to their potential and
decide what and how much to tell people
about their product.
Leonard Berry and A. Parasuraman2 developed a framework for
understanding bonding for customer relationship management (CRM). The
framework suggests that relationship marketing can occur at different
levels. Each successive level of strategy results in sustained competitive
advantage and bonds the customer closer to the firm. The four levels of
relationship strategies for bonding customer relationships are:
• Level 1—Financial Bonds:
• (a) Volume and frequency rewards,
• (b) Bundling and crossselling and
• (c) Stable pricing.
• Level 2—Social Bonds:
• (a) Continuous relationships,
• (b) Personal relationships and
• (c) Social bonds among customers.
• Level 3—Customization Bonds:
• a) Customer intimacy,
• (b) Mass customization and
• (c) Anticipation/innovation.
• Level 4—Structural Bonds:
• (a) Shared processes and equipment,
• (b) Joint investments and
• (c) Integrated information systems
Level 1—Financial Bonds
• Level 1—Financial Bonds Financial bonds
tie customers primarily through financial
incentives.
• Volume and frequency rewards:
• These are lower prices for larger volumes or
for customers who have been patronizing
the firm over time.
• For example, frequent flyer programs,
rewards programs of hotels and credit cards
Level 1—Financial Bonds
• Bundle and cross-selling: Many airlines in
the case of frequent flyer programmes link
their reward programmess with hotel
chains, auto rental and credit card usage.
Thus, customers enjoy even greater
financial benefits in exchange for their
loyalty. McDonald’s has success fully used
bundling strategies to create value for the
customers.
Level 1—Financial Bonds
• Stable pricing: In order to retain customers,
firms offer loyal customers the assurance of
stable prices or at least lower price
increases than those paid by new
customers. For exam ple, the option of
earning a higher interest rate given to ICICI
Bond holders whose bonds were getting
redeemed if they invest the redemption
amount in a fixed deposit.
Level 2—Social Bonds
• Level 2—Social Bonds Level 2 strategies
bind customers to the firm by offering more
than financial incentives. Marketers try to
retain customers by tailoring solutions to
the changing needs of customers. The
various forms of social bonds are discussed
below:
Level 2—Social Bonds
• Continuous relationships: These are
provided to customers when companies
have stable long standing dealers who bring
in local market knowledge and maintain
close relationships with customers
Level 2—Social Bonds
• Personal relationships: There is a focus on
building deep personal relationships with
customers. These are common among
professional service providers (lawyers,
teachers, accountants, etc.) and their
clients as well as among personal service
providers (counselors, hairdressers,
healthcare providers) and their clients.
Level 3—Customization Bonds
• Level 3—Customization Bonds Level 3
strategies involve more than social ties and
financial incentives. An intimate
knowl edge of customers and their needs
developed through a learning relationship
is very useful in retaining valuable
customers. The various forms of
customization bonds are discussed below:
Level 3—Customization Bonds
• Customer intimacy: This suggest that the
customer is actively sharing information
during interactions and contributing in the
marketer’s endeavour to customize
products, services or any aspect of the
marketing mix.
• Mass customization: This refers to the use
of flexible processes and organizational
structures to produce varied and often
individually customized products and
services at the price of standardized, mass-
produced alternatives.
• Anticipation/innovation: This brings in an
element of pleasant surprise—the wow
factor! The ability to customize, in
combination with customer intimacy, can
be used to anticipate customer needs and
innovative solutions can be recommended
to meet these needs.
Level 4—Structural Bonds
• Level 4—Structural Bonds Structural bonds
are created by providing services to the
client that are frequently designed right
into the service delivery system for that
client. The various forms of structural
bonds are
• (a) shared processes and equipment,
• (b) joint investments and
• (c) integrated information systems
 Customer Defections
• A customer defection occurs whenever a
customer switches to a competitor.
Customer defection is the rate at which
customers stop the usage of products of a
company. Businesses with high defection
rates would be losing their existing
customers. Customer defections can tell a
firm a lot about its products and services
from an external perspective, which the
firm would otherwise not have known.
When was the defection
occurs ?
• A defection occurs whenever a customer
switches to a competitor. Customer
defection is the rate at which customers
defect or stop the usage of products of a
company. Business with high defec tion
rate would be losing their existing
customers. The company should aim for
zero defection which aims at eliminating
cus tomer attrition.
• Types of Defectors Customers who defect
may be broadly classified as:
• Price defectors
• Product defectors
• Service defectors
• Market defectors
• Technology defectors
• Organizational defectors:
• Physical defectors
• Price defectors: These customers shift to a
competitor who is offering a cheaper price.
In most cases, these customers are
compulsive “bargain hunters” and one may
be better off by not having them. But in
some cases, customers do not see value in
patronizing their existing service provider
as a competitor is offering similar or better
service at cheaper rates.
• Product defectors: Product defectors are
former customers who are not satisfied
with the existing products offered by the
firm. This may be due to a bad experience
with the product performance or
availability of better products from
competitors.
• Service defectors: Service defectors are
former customers who are dissatisfied with
the service. The impact of service
dissatisfaction is normally very high. At the
same time, customers give enough
opportunity for organizations to retain
them. Customers not only expect and
demand more, they are also more
articulate in saying so.
• Market defectors: In almost every market
in every developed country of the world,
competition has increased dramatically in
the last 10 years. Globalization and
advanced manufacturing technology have
resulted in businesses becoming faster and
improving product quality. Market
defectors have stopped patronizing their
former service providers as they have
moved away
• Technology defectors: These customers
would have shifted to another, normally
superior technology. Examples include
customers shifting from a typewriter to a
word processor, from a digital diary to a
PDA (personal digital assistant), a line
printer to an inkjet printer and from fax to
e-mail, et
• Organizational defectors: If the customer
wishes, buying the simplest product or
service can be a very complex decision-
making process. Individual users who
belong to a group (organization, club,
association, etc.) may shift to an alternate
supplier because the group has switched
although some of the individuals may be
satisfied with the existing service provider
• Physical defectors: Physical factors such as
a more convenient location are ranked
quite low as are competitor action and
invention. Marketing and competitor
activity and relationship with a competitor
are about 15 per cent. The most important
and common reason for customer switching
is the indifference and lack of attention of
the business and the lack of any reason to
stay from the customer’s point of view
Customer Value Management
• Customer value management (CVM) offers
a roadmap to acquiring, developing and
retaining the most valuable customers.
CVM improves customer profitability by
understanding the value of each individual
customer and implementing marketing
strategies, retention campaigns and loyalty
programmes that maximize that value.
Three R’s of the CVM Cycle

• Right customers (acquisition)

• Right relationship (development)
• Right retention (keeping valuable
customers
Three R’s of the CVM Cycle

• Right customers: The customer value management

cycle starts with identifying and acquiring the
customers who will be most valuable to the
company’s business. All customers are not equal.
Companies can no longer afford to indiscriminately
recruit customers without examining their long-
term value. Customer vintage analysis—examining
the loyalty and profitability of customers who
joined at different times through different
channels adds insight into customer base. Finer
segmentation and analysis of customer base
reveals hidden characteristics and trends that
affect value.
Three R’s of the CVM Cycle

• Right relationship: Managers must concentrate on

developing relationships with loyal cus tomers.
Customers do repeat business with vendors that
understand and respond to their individual needs,
and respond when those needs change. Unless
marketers can distinguish high potential customers
from ones who will always be low-value,
companies will waste resources trying to develop
customers who will never grow
Three R’s of the CVM Cycle

• Right retention: Retaining right customers and not

every customer is the effective retention strategy.
Marketers need to focus their retention actions on
customers with the highest lifetime value. Right
retention is; therefore, rooted in knowing which
individuals are most valuable and why.
Customer Lifecycle Management
• Customer lifecycle management or CLM is
the measurement of the CRM programs
success over time—providing a person with
CLM metrics from before and after the CRM
implementation. CLM is the measurement
of multiple customer-related metrics, which
when analyzed for a period of time
indicates performance of a business.
Stages in the lifecycle
• Contact phase: The goal of this phase is to
gain a new customer. Contact has to be
made through marketing, advertising,
telemarketing, personal selling, direct mail,
promotion and publicity.
Stages in the lifecycle
• Acquisition phase: The goal of this phase is
to increase customer retention. Information
must be collected about the customer and
their purchase condition must be
understood. They must be offered post
purchase re-assurance and the price–value
relationship must be promoted.
Stages in the lifecycle
• Retention phase: The goal of this phase is
to create long-term and committed loyal
customers. A service philosophy must be
developed and responsiveness to
customers must be increased.
Stages in the lifecycle
• Loyalty phase: The main objective goal of
this phase is to extend customers loyalty.
Loyalty, customer lifetime value and
average net worth must be defined. The
costs associated with loyalty must be
analyzed
• The various psychological stages in CRM
are:
• Switching, satisfaction,
• Trust, commitment and
• Loyalty
Various psychological stages in CRM
• Switching
• Switching is very common in the initial
stages of a relationship process. A prospect
that gets attracted by a company’s
marketing program may try out its product
or service offering and becomes a
customer.
Various psychological stages in CRM
• Satisfaction
• Satisfaction is a complex emotion, which
depends on the offer characteristics,
expectations and usage situation.
Customers are satisfied when the
performance of the product or service
matches or exceed their expectations.
Satisfied customers are more likely to
continue their patronage.
Various psychological stages in CRM
• Trust
• Trust is defined as the willingness to rely on
an exchange partner in whom one has
confidence.
• Satisfaction over multiple interactions leads
to a stage where the customer begins to
have faith in the offering and its consistency
in performance. Satisfaction leads to trust
when some more antecedent conditions
such as shared values and goals,
dependence based on stable expectation/
perception of performance and perceived
Various psychological stages in CRM
• Commitment
• Commitment to a relationship is defined as
an enduring desire to maintain a valued
relationship. Therefore, commitment exists
only when the relationship is considered
important. It can be operationalized using
the two dimensions:
• (1) attitude towards interacting with each
other and
• (2) the formation of bonds.
Various psychological stages in CRM
• Loyalty
• Loyalty is not simply repeated buying. Loyalty
includes future purchase intentions, price
sensitivity, and referral behaviour (positive word of
mouth). In terms of measurement of loyalty or
loyalty related behaviour, typical questions would
refer to:

• Intentions regarding the next purchase

• The number and intensity of complaints
• The tendency to talk about the supplier to other
clients
• The degree of desire to share positive experience
also known as word of mouth