Customer Relationship

Management-Introduction
 Overview

 Foundational aspects of relationship

orientation in business.

 From the marketing to the customer concept

 The concept of CRM/Customer Centricity

 CRM from a business strategy perspective

 Customer value management approach

 Marketing-definition-Evolution-AMA

Marketing is the performances of Marketing is an organizational

business activities that direct the function and a set of processes for
flow of goods and services from creating, communicating, and
producers to consumers. delivering value to customers and
American Marketing for managing customer
Association,1935 relationships in ways that benefit
the organization and its
“Marketing is the process of planning and executing
the conception, pricing, promotion, and
stakeholders.
distribution of ideas, goods and services to create American Marketing
exchanges that satisfy individual and organizational
objectives.
Association,2004
American Marketing Association,1985
Marketing is the activity, set of
institutions, and processes for
creating, communicating,
delivering, and exchanging
offerings that have value for
customers, clients, partners and
society at large. American
Marketing Association,2007
2008 defn. ‘includes the role marketing plays
within the society at large, and defines
marketing as a science, educational process
and a philosophy –not just a management
system. It also expands the previous scope of
the term to incorporate the concept that one
can market something to “do good”.

4
 From the marketing to the customer concept

Marketing concept
Development of
Marketing is an organizational information The customer concept is the
function and a set of processes technology and the
internet conduct of all marketing
for creating, communicating,
activities with the belief that
and delivering value to
customers and for managing Time the individual customer is the
customer relationships in ways central unit of analysis and
that benefit the organization action.
and its stakeholders.
American Marketing
Association,2004

Main function:
Main function: Meeting individual customer needs
Addressing the needs of customer segments
 Some thoughts
• Can relationships and marketing be put
together?
• When did relationship orientation appear in
marketing?
 Marketing: Traditional View

Supplier Customer

Transactional Relationship
Marketing: Contemporary view
Suppliers
Partners &
Competitiors
Customer

Company

Regulators Employees
&Influencers
Distributors

Constellation of relationships
Some theories supporting relationships

• Social exchange theory(1959)

One enters a relationship where rewards exceed
cost.
Eg. When customer subscribes only where he
thinks he is at maximum benefit.
• Social penetration theory(1973)
Describes relationship in terms of breadth and depth.
Depth is degree of personalness.
Insurance Sales person develops informality by talking
something very general gradually becomes personal in
the number of issue he discusses.
Attraction Theory(1980) postulates that one is attracted
towards other on the basis of
• attractiveness
• proximity
• Reinforcement
• similarity
“Before selling the product one needs to sell oneself”
• Equity Theory(1983)
We enter relationships where rewards are in
proportion to costs. When share of reward is less
than what is expected, we experience dissonance,
exit relationship.
Customers exit when they perceive differential
treatment.

Behavioral scientist establishes 6 stages( Devito 1993)

Contact, involvement, intimacy, deterioration, repair
and dissolution
 Analogies of Relationships
• parent-child (loan marketer),
• leader-follower (fashion brand),
• fellow enthusiast (sports car),
• confidante (financial services adviser),
• idol to be worshipped (luxury brand),
• casual friend (beer, crisps)
• soul mate (special whisky),
• old flame (brands your mum used),
• a friend whom you seek out to escape from everyday
reality (holiday)
 Age of the customer Customer Era
2010
Relationship Era
2000
Information Age
Marketing Company Era

1960
Marketing Era
Marketing Era
1940
Automation &
Communication Age Sales Era
1920

2nd Industrial Age Simple trade & Production

1840

1st Industrial Age

1760

Innovation timeline Marketing Timeline

Is relationship in business new phenomenon?

Relationship orientation of marketing in different era (Adopted from Sheth and

Parvatiyar, 1995)
 Focus Areas

• Pre-industrial era-Trust, trade within clans, silk route,

early branding

• Industrial era -IR, mass production, shift in jobs,mktg

institutions, metrics like sales, revenue, MS, profitability.

• Post industrial era -complex products, service economy,

KAM
 The paradigm shift since 1900’s

Consumer
Durables B2B Services
packaged

60’s 70’s 80’s-90’s

Transaction or exchange Relationship

approach approach
 Understanding the shift
Exchange Paradigm Relational Paradigm
Time Perspective Short Prolonged
Mktg Function Marketing mix Interactive marketing

Quality Dimension Product quality, Quality of experience

customer satisfaction
quality

Metrics Market share Share of wallet focus

Interdepartmental Low High

support
Internal Marketing Negligible Very high
 Paradigm shift in Marketing
Orientation
Process

Relational
Perspective

Value distribution Value Creation

Exchange
perspective

Outcome
 Shift continues………..
• Thetorelationship
• The 4-P paradigm involves marketing anonymousmarketing
masses of
customers paradigm in:
– services marketing
– managing channel
– strategic alliances
– B2B marketing
– SCM
– Internal (HR)
 Relationship Marketing
Long term sustainable relationships, primarily
with customer, but also with suppliers, partners,
employees, and others who might affect firm’s
business.
Idea is that everyone is a winner.

Critics of RM
Nothing new
Lacks conciseness
RM easier said than done
 Drivers of RM
• Marketing of Services
• Service quality
• Focus on customer retention
• B2B marketing
• Industrial networks
• Supply chain management
 Marketing has come a long way

30 R’s

http://www.emeraldinsight.com/doi/pdfplus/10.1108/09564239410074
4P’s
4p’s 349

Gummensson 1997
 Transactional/traditional /product centric
marketing
• Mass production led to lack of direct
relationships.
• Only “brands” were the visible aspect of
supplier.
• Direct contact existed in service industries(retail,
travel, banking, insurance and B2B)
• ‘relationship’ was overlooked
• Focus was 4P’s, 15P’s, 4C’s
• Product advantage is short lived.
• Geographic advantage was lost.
• Stable industries shaken.
• Rising consumer power.
• Availability of customer data, cheap and
abundant
 Relationship/customer centric marketing

• Being customer centric is not being customer

friendly.
• Companies capable of leveraging customer
data at an individual level.
• Integrate offline and online data.
• Having best product, best service, and best
technology won’t always be enough.
 What is Customer Centricity?
• CC is a strategy that aligns a company’s
development and delivery of its products and
services with the current and future needs of
a select set of customers in order to maximize
their long term financial value……

“ Customer Centricity” by Peter Fader

 What CC means
• Customer heterogeneity.
• Differentiate customers based on “value”.
• Investment in technology and human
capabilities..
• Product centricity is good but customer
centricity is better for some.
• CC focusses on CLC, customer acquisition,
retention and development.
• Why focus on hypothetical average when you can
focus on a high value , real world customers.

• The differences between distinct group of customers

is something to celebrate.

Peter Fader in his book

on Customer Centriciy
In 2003, Forrester, 22% of larger organizations had
someone in charge of the customer experience. 40% of
all data analytics projects is about customer experience.

Innovation might be the buzzword on everyone’s

lips but customer and design centricity is what will
win the day with customers according to Gartner.

Gartner, citing statistics garnered from social media

conversations. There were over 76,000 conversations on
CX design, over 146,000 conversations on CX channels,
over 163,000 on CX data and analytics and over 82,000
on CX strategy.

Marketing leaders who dont know how much their customers

are worth-66%
Potential increase in sales from identifying and maximizing
top value customers-17%
 Marketing History
• 1940: effort towards marketing of
manufactured goods
• 70-90:shift towards service based companies
• 2000:experience economy
Customer Life Cycle
 Bonding for
Customer Relationship
Level 1: Financial bonds
Volume and frequency of rewards.

Level 2: Social Bonds

Personal relationships, continuous and social bonds.

Level 3:Customisation bonds

Customer intimacy mass customization

Level 4 Structural bonds

Joint investments shared processes and equipment

Berry & Parasuraman(1991)

 Customer Loyalty Exercise
• Think of a service provider to whom you are loyal.

• What do you do (your behaviors, actions, feelings)

that indicates you are loyal?

• Why are you loyal to this provider?

• What factors have influenced the formation of

your loyalty?
 CRM & Customer Centricity
• CRM and Relationship Mktg. term used
interchangeably in academics.(Parvatiyar & Seth
2001)
• CRM is more about information enabled
relationship marketing.(Ryals & Payne 2001)
 Practitioner’s view
Forrester says that
CRM is the business processes and supporting
technologies that support the key activities of: targeting,
acquiring, retaining, understanding, and collaborating with
customers.
Customer relationship management (CRM) is a business
strategy with outcomes that optimize profitability, revenue
and customer satisfaction by organizing around customer
segments, fostering customer-satisfying behaviors and
implementing customer-centric processes. CRM
technologies should enable greater customer insight,
increased customer access, more-effective interactions, and
integration throughout all customer channels and back-
office enterprise functions. Gartner
 What researchers say
CRM is the core business strategy that integrates internal
processes and functions, and external networks, to create and
deliver value to targeted customers at a profit. It is grounded
on high quality customer related data and enabled by IT
Francis Buttle 2007
 Definition.
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.
(Parvatiyar & Seth 2001)
CRM is the practice of analyzing and utilizing marketing
databases and leveraging communication technologies to
determine corporate practices and methods that will
maximize the lifetime value of each individual customer to
the firm (V. Kumar,Werner J. Reinartz)
 Link Between CRM and Customer Value

Customer Value: The economic value of

the customer relationship to the firm –
expressed on the basis of contribution
margin or net profit
 Customer Value Management

• Benefits

 Decrease in Costs
 Maximization of Revenues
 Improvement in Profits
 Acquisition and Retention of Profitable Customers
 Reactivation of Dormant Customers
Profit Generated by a Customer Over Time
Profit Impact of 5 Percent Increase in Retention
Rate

Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.
The Customer Pyramid
 Misunderstandings about CRM
• CRM is database marketing
• CRM is marketing process
• CRM is an IT issue
• CRM is about loyalty schemes
 Explosion of CRM in Marketing and IT

• In the 1990s, CRM started attracting attention of academicians

as well as practitioners from marketing and IT.

• The early adopters of CRM in the B2C markets were financial

services, retailing, telecommunication, travel and hospitality,
utilities and automotive.

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ENABLERS FOR THE GROWTH OF CRM

Emergence of service economy

Emergence of market economy

Global orientation of businesses

Aging /Changing population of the economically

advanced economies

46
THE CRITICALITY OF CUSTOMER
RELATIONSHIPS

Non traditional
competition

Misalignment
between revenue
and profits

Market maturity

47
Misalignment between Revenue
and Profit

48
Market Maturity

49
Rising Customer Expectations

Aging
population (DC)

Individualism

Time scarcity

50
Changes with respect to Consumers

Demographic changes Behavioral changes

and increasing consumer diversity

 Aging populations, especially in  Increased use of social media

developed countries
 Increased use of apps
 Increasing diversity in term of
ethnicity  Use of real time data
 Increasing individualization
 Rise of convenience and self-service
stores(SST)

 Increased demand for experience

and authenticity

 Rise of health and sustainability

consciousness
 Decreasing Customer Loyalty- Example

Number of different financial service providers that respondents are associated with
35
30.2 30.7
30
% of consumers

25
21.1
20
14.1 1996
15
10
5

0
1 2 3 4+
Number of financial service providers
Source: Unidex Report