Prof. Samir V.

Charania CRM 2_ Strategy_Planning

Chapter 2: CRM STRATEGY, PLANNING, PROCESS & STRUCTURE

2.1 Stages of Relationship with Customers
Relationship with customers can change from time to time because it is evolved under
distinguished situations. Following are the stages from where the relationship with
customers can evolve:
1. Exploration:
Exploration is the process when customer investigates or tests the supplier's capabilities and
performance or cross verifies the product's or brand's usefulness. If the test results fail to
satisfy customer's demands, the relationship can drastically come to an end.

2. Awareness:
Awareness is the process when the customer understands the motivational values of
supplier or the products he sells.

3. Expansion
Expansion is the process when the supplier wins customer's faith and customer falls under
huge interdependence of the supplier. This is time when there are more chances of business
with that particular customer and expand business.

4. Commitment: Commitment is a powerful stage when suppliers learn to adapting business

rules and goal to excel.

5. Dissolution
Dissolution is a stage when customer requirement suddenly changes and he looks for better
perspectives. This sudden change is the end of relationship.
Relationship can come to an end due to many reasons like - customer is not satisfied with
the services of supplier or customer diverges to other better brands and products. Suppliers
can also prefer to break relationships due to customer failing to be a part to increase sales
volume or when the suppliers are entangled with fraud cases.

2.2 Theory of Leaking Buckets

For any orhganization, its marketing philosophy should be:
 To acquire customers
 To retain customers
 To do business with only profitable customers
It is more expensive to acquire customers than retain customers. But customer retention
becomes a challenge in the era of heightened competition and decreasing customer loyalty.
Various research point out to the fact that customer acquisition is five to ten times more
expensive than customer retention. The diagram explains the leaking bucket theory - that all
things being equal (Firm size, service offer, rate of customer acquisition etc.), a firm, which
has half the customer leakage than its rival, will have double the market base in fourteen
years. Or putting it in a different way, if two service firms intend to have the same market
base but have different customer retention capabilities, will require different customer
acquisition rate or volume. The service firm with better customer retention will need to
acquire less customers than its rival, suffering less cost. It underlines the importance of
relationship marketing in such an intangible area as services

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2.3 Profit Chain Model

The ‘service-profit chain’ model is based on the following seven theorems
1. Profit and growth are linked to customer loyalty.
2. Customer loyalty is linked to customer satisfaction.
3. Customer satisfaction is linked to service value.
4. Service value is linked to employee productivity.
5. Employee productivity is linked to employee loyalty.
6. Employee loyalty is linked to employee satisfaction.
7. Employee satisfaction is linked to internal quality of work life (internalizing the firm's
brand).

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2.4 Types Of CRM

Customer Relationship Management systems have evolved multifold over the years from
virtually being a contact book to a holistic all-encompassing solution to enhance and nurture
relationships with customers. During this phase, they have held various roles and catered to
different dimensions of managing customer relationships and helping businesses grow.
Based on these roles, they can be classified as follows:
1. Operational CRM: In this role, the primary aim of the CRM system is to automate and
integrate the 3 backbone functions of any business: Sales, Marketing and Support. Such
systems generally consist of a dashboard that provides a snapshot view of all three
functions in a single page for any given customer. Example: The dashboard displays any
client’s contact information, past sales, previous marketing efforts undertaken and any
issues logged or support help previously provided. This summarizes the relationship status
of the customer to any CRM system user so that they can use the information to grow the
relationship in future touch points. Operational CRM systems basically aim to streamline the
business itself in three ways:
i) Sales force automation: Sales force automation basically handles all sales responsibilities.
CRM systems are used in acquiring new customers and dealing with existing customers. The
system identifies a customer and maintains all the data. It deals with all the stages in the
sales cycle, beginning from entering all the information of a contact, through the contact’s
journey from being a prospect to lead to client. This deals with sales forecasting,
opportunity and lead management, sales quota allocation and monitoring sales
performance to role out the right incentives.
ii) Marketing automation: It concentrates on automating the marketing processes.
Marketing campaigns management consists of the use of the actual information of a specific
customer in determining, evaluating and developing communications aiming at customers in
multilevel, multichannel or individual environment. The campaigns are usually simple and
use unique and straightforward communications. At multichannel environmental level, the
strategies used are a bit hard and pose a challenge to many. The implementation and
integration of a communication strategy is tricky. The performance evaluation and
campaign’s quality should be computerized and be clear to each channel.
iii) Service automation: This part of the system is all about customer service, exception
handling and support. It enables anyone around the organization to access customer
information and gives actual views of customer needs.

2. Analytical CRM: In this role, the primary aim of the CRM system is to critically analyze
customer data obtained through multiple sources and present findings so as to enable the
management to make better informed decisions. Analytical CRM systems make use of
techniques such as data mining, correlation and pattern recognition.

3. Collaborative CRM: In this role, the primary aim of the CRM system is to incorporate
external stakeholders like suppliers, vendors and distributors as well as share any
information gleaned from customer interactions across the organization. Example:
Feedback gathered from a technical support call could provide direction to marketing about
products and services that might be of interest to the customer so that specific promotional
offers can be targeted.
This kind of CRM basically has improvement of communication between businesses and
their key customers at its heart. The primary objective of collaboration is to enhance the

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quality and levels of customer service being offered, ultimately leading to enhanced
customer satisfaction, retention and loyalty.
Today, social media is a new dimension of Collaborative CRM as it increases customer
engagement on a number of platforms helping businesses gain customer mind share and
build brand awareness. Customer issues resolved on social media also helps to improve
trust in the organization and adds to learning curve of the support structure. Basically,
Collaborative CRMs are all about interactive data sharing and synergy.
In the current CRM industry scenario, almost all offerings have a mix of all the 3 approaches
and have modules catering to each requirement, be it data automation, integration,
analytics or collaboration. It is up to businesses to gauge which type best suits their business
model and operational strategies while choosing a CRM for their organization.

2.5 The Ladder Of Loyalty

The ladder of loyalty shows the different stages through which a prospect becomes a
customer, a client and finally a partner.

1. Prospect: The prospect is an individual in a retail market or an organisation in the

business market, which fulfils the requirements of the marketer's definition of target.
Example: A cellular service provider may segment the market and target executives in blue
chip companies with a special offer.

2. Customer: The prospect becomes a customer when s/he gets attracted by the offering of
the marketer and buys the product/service.

3. Client: A customer becomes a client when s/he purchases the product or service more
than once. While a customer may make the initial purchase as a trial or test, the client is one
who does a repeat purchase. It is likely that the trial was a satisfactory experience for the
client. Customers can also become clients when organisations cross-sell multiple products
to an existing customer.

4. Supporter: A client becomes a supporter when he is satisfied with the offering &
recommends the product offerings to his friends, relatives or acquaintances. This positive
word-of-mouth (WOM) has tremendous positive impact as it helps the company get new
customers. WOM is the most influential source of information in converting prospects into
customers.

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5. Advocate: An advocate is a supporter who, in addition to referrals that gives increases

sales, proactively works with the company to improve its products and services. While
developing new products software companies regularly depend on the feedback from the
lead users of their clients during the Beta test phase. So is the case in new product
development situations in several industrial firms, who set up the prototype in their client's
premises for usage and feedback, which helps in improvements. In these situations, the
level of interactions between the customer and the company is at a much higher plane.
There is sharing of vital information and the comfort level as well as the confidence
between the parties is high.

6. Partner: An advocate becomes a partner when they become actively involved in the
decisions of the company. Any relationship that attempts to develop customer value
through partnering activities is likely to create greater bonding between customers and
marketers.
In many cases, there are joint investments resulting in a structural bonding. Example:
Consider the relationship that exists between Federal Express and IBM where in Federal
Express stocks IBM's spare parts in its own warehouses and delivers them across the world
or instructions from IBM's service personnel. The reliability of FedEx's service, the efficiency
of its operations due to specialization and processes all make it cheaper and faster for IBM
when compared to the alternative of doing it in-house.

The marketer's emphasis during the first two steps in the ladder, viz., prospects and
customers is customer attraction while emphasis during the subsequent steps are on
developing and enhancing the relationships.
Therefore, relationship marketing goes far beyond repeat purchase. Repeat purchases are
only a precursor of relationships. Greater value is added through the involvement of
customers, sharing of information and bonding between customers and marketers. The
greater the enhancement of the relationship through bonding, the more committed the
customer is to the relationship and hence he is less likely to patronize competitors.

2.6 CRM Process:

Jagdish Sheth and others have developed the relationship development process model
based on the buyer-seller relationships studied by various authors. The figure below depicts
the four stages and is described in details further below:

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The model consists of four stages:

I) Customer relationship formation process.
II) Relationship management and governance process
III) Relational performance evaluation process and
IV) CRM evolution or enhancement process

I) Customer relationship formation process:

The first stage is marked by three important decisions
 Defining the purpose of engaging in CRM,
 Selecting the parties for developing CRM and
 Developing suitable relational programs for engaging the right customers.
The overall purpose of CRM is to improve marketing productivity and efficiency and thus
create a win-win situation for both the parties. The efficiency is improved by achieving
operational goals like lower distribution costs, streamlining order processing and inventory
management, reducing the burden of excessive customer acquisition costs. The marketing
effectiveness can be improved by carefully selecting customers, studying their needs and
individualizing and personalizing the offerings made so as to build customer loyalty and
commitment and helping them become co-partners in developing new products.
Once the CRM goals are clearly identified the type of CRM programs to be expected from
the partners becomes clear. This will help in identifying the right relationship partners i.e.
who have the necessary resources and commitment to implement CRM programs. Thus the
initial focus on a certain group of customers will be expanded in due course to include more
customers in the CRM program.
The process for partner selection though very important may or may not be a formalized
procedure in the organizations. It may be a purely intuitive process or a formal process
based on extensive research and evaluation of the chosen criteria. These criteria could vary
from company to company ranging from revenue potential of the customer to various
criteria such as customer commitment, resourcefulness, ethics and management values etc.
Then suitable programs are designed for the customers. There are three types of programs
– continuity marketing; one -to-one marketing; and partnering programs which differ with
the type of customer i.e. end consumer, distributor or B2B customer..
These CRM programs are aptly summarized by Atul Parvatiyar and others as shown in the
table below:
Customer Type Mass markets Distributors B2B Markets
Program Type

Continuity After marketing Continuous Special sourcing

Marketing Loyalty programs replenishment arrangements
Cross-selling ECR programs
One-to-One Permission Customer business Key account
Marketing marketing
Partnering/co Affinity partnering Logistics Strategic
marketing Co-branding partnering partnering
Joint marketing Co –design
Co- development

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Continuity marketing: These programs are aimed at retaining customers and increasing
their loyalty. For end customers these are membership and loyalty programs and added
points for cross purchased items. For distributors it is just in time inventory i.e. continuous
replenishment; electronic order processing, material resource planning i.e. efficient
consumer response .For B2B markets preferred customers, special sourcing arrangements
etc are developed as special services for customers to create mutual value and retain them.
One-to-one marketing: These are used to satisfy each individual’s needs uniquely and
individually. Individual information on customers is collected with the technological
advancements at low cost .This is then used to design programs like frequency
marketing ,interactive marketing ,after marketing for the high yielding customers .It helps in
developing business with the customer by gaining a better insight in their needs. A large
organization is treated as a single account and fully dedicated managers are appointed to
look after their requirements.
Partnering programs: For end consumers it is co branding i.e. two marketers combine their
skills to offer a better product to the market or affinity partnering where in the products of
one organization are offered to the customers of the other. In distributor customers the
marketing is done jointly while in B2B it takes the form of Co-design, co-development co-
marketing.

II) Relationship management and governance process:

CRM governance process is the second stage wherein the CRM programs as well all
individual relationship must be managed and governed. All relationships are not managed
alike and depend on the CRM process. Some of the basic issues to be addressed are role of
partners, associated tasks, and employee motivation, planning process, process alignment
and monitoring procedures. Role specification specifies what the relational partners have to
do as their role in CRM. This clarifies the level of empowerment and the resources.
Communication with customer partners is the life and blood of relationships marketing.
Establishing proper communication channels with customers and intra organizational
players is essential for effective interaction. Trust is created and an atmosphere conducive
for cooperative and collaborative relations is established because of it. The process of
planning and the degree to which customers need to be involved in the planning process is
another important issue so as to garner their support in the co-operative and collaborative
relationships. HR plays an important role in creating the right climate and the right
organization. Training employees to interact with customers, teamwork, relationship
expectations management, rewards, incentives, compensation all contribute towards
building strong relationships and customer commitment. Professionally handled customer
relationships require proper monitoring to safeguard against failure and conflicts in
relationships. These include periodic evaluation of goals, initiating changes in relationship
structure, creating new systems for problem discussion etc. If the governance process is
satisfactory it results in relationship satisfaction for the concerned parties.

III. CRM performance Evaluation Process:

It is necessary from time to time to evaluate if programs are meeting expectations and
hence whether they can be continued or modified or terminated. This can be done with
tools like balanced scorecard that combines a variety of measures, measuring relationships
satisfaction through satisfaction surveys etc. In short the evaluation metrics must be able to
evaluate whether the CRM objectives are being attained or not. The impact of these

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relationships on the firm are also measured as an intangible asset as in discounted cash
flow. In relationship measurement both the concerned parties are required to perform for a
cooperative relation and hence satisfaction of both the parties is measured.

IV CRM evolution or enhancement process:

In this process the CRM programs evolve as per the situation e.g. some continue as they are,
some come to a planned end or some others are terminated due to non-fulfillment of
expectations. The propensity to continue on the part of both the parties is indirectly
measured by measuring customer loyalty. When the performance is satisfactory, partners
continue the CRM program.
To manage the CRM development a company needs to manage a plethora of customer
interfaces. It includes cross functional teams in case of large organizations. These units need
to share the collected information on a real time basis for effectiveness. A company needs a
front line information system that shares relevant customer information across all interface
units. This need developing an integrated CRM platform that collects relevant customer data
at each interface and provides knowledge output about possible strategies to customer
loyalty.

2.7 Relationship Building as a Process

The foundation of effective CRM is built on an iterative process of learning and
customization. Companies interact with their customers and learn about them - who they
are, what do they want, how much they buy, and how much it costs to serve these
customers. By analysing this data, they will be able to identify the profitable customers.
This analysis would also show that many of the loyal customers make disproportionate
contributions to profitability. Therefore, it is imperative for companies to keep these
customers. To retain these customers, companies have to learn to tailor their offerings to
suit the requirements of the needs and wants of these profitable customers through
customization of some aspect of product and/or service mix. Each customer has specific
needs and as also has expectations from a company. The company should treat each
customer in a way that reinforces the trust that the customer has shown in the company.
Based on the cumulative learning from multiple interactions with the customer, the
company's offerings start matching the customer's needs better. This in turn should lead to
greater perceived value for the customer and create a strong switching barrier for the
customer. Therefore, we notice an iterative learning process, which helps in building a
relationship between a company and its customers. This process is also visible in
relationship building with other stakeholders like intermediaries and suppliers.
Peppers and Rogers (1993), the proponents of one-to-one marketing, proposed the IDIC
framework to explain the process of converting existing customers into loyal customers.
IDIC represents the following four key steps in the relationship building process:

1. Identify: This step requires the company to locate and contact a large number of its
customers directly and know as much detail about them as possible. This includes their
names, addresses, phone numbers, account details (wherever relevant), habits, preferences,
etc. Now this kind of information cannot be collected easily or through a one-time
questionnaire-based activity. Most organisations, in fact, sit on a pile of customer data but
they are typically dispersed over different databases across departments. Every interaction

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with the customer through any channel should be seen as an opportunity to learn about
them and this knowledge has to be used to serve them better.

2. Differentiate: Customers can be differentiated on the basis of the value they represent
and also on their needs. The value represented is an indication of the customer's worth to
the company - the more valuable they are, the more the company should be interested in
retaining them. Although the easiest measure of value is the revenue contribution of the
customer, this can become tricky if the cost to serve is high for the high revenue customers.
Thus, the ideal measure of customer value is the profit contribution, which in many cases is
difficult to measure as the cost to customers is difficult to isolate due to sharing of
overheads and lots of common services.
Some customers need very standard products and services while others have very
specialized needs. Customers with specialized needs create opportunities for customization.
Customization helps meet these needs and tie a customer with mutual benefit.
Differentiation should help the company tailor its offerings to each customer to reflect their
values and needs.

3. Interact: The purpose of interaction is to learn more about the customers starting with
the more valuable customers. These interactions can happen when the customer is making
a purchase, using a service or even while the customer is making a complaint. It can be done
through formal surveys, telephone interactions or self- service channels like the web, call
centres, or ATMs in banking services. They should add on to the existing knowledge about
the customer and this should be done in a cost-effective manner by using the lower cost
electronic channels. The learning relationship gets smarter with each interaction.

4. Customise: The last step is the most critical as it builds upon all the learning about the
customers to offer real value to them by tailoring some aspect of the service related to a
product or even mass customizing the product. When the customization is done on the basis
of what the customer has indicated during his interactions, it improves the ability to fit the
product and service to this customer's exact needs. This helps the customer enjoy a high
level of convenience, which cannot be easily duplicated by a competitor without the
customer having to put in the time and effort to teach the competitor the lessons already
learned by his existing company.
In spite of the overlaps across the steps, the IDIC framework is useful in understanding the
process to be adopted for building relationships with existing customers. It is equally
important to know the stages through which a prospect becomes a customer and then a
loyal customer.

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