“Customer Relationship Management (CRM) is the new title for relationship marketing”. Explain why this is so, and suggest how CRM be effectively incorporated into a Marketing Plan.
Over the last few years, a number of concepts have been applied to the new customer management models emerging, via technological advancements, to create increasingly intimate relationships with their customers. Österle (2002) cited in Muther (2002) suggests that “electronic commerce, supply chain management, one-on-one marketing [and] customer profiling to name a few are developments which can be attributed to the “dramatic” changes in the supplier-customer relationship observed. It is this amalgamation of business functions which could loosely be referred to as modern customer relationship management.
This essay seeks to explore the differences between the concepts of “customer relationship management” and “relationship marketing,” while observing the extent to which organisations have adopted the new frameworks. By looking at a range of examples, an analysis of how CRM has become an integrated part of many company marketing plans shall be observed.
Contextual Background
The era in which marketers have increasingly acknowledged the importance of customer retention has seen an evolution of related models and frameworks. Increasingly, customer retention has needed greater emphasis in company strategies due to the environmental changes occurring in many markets.
Factors such as the Internet have given consumers access to a far greater choice of products and services. Stone (2000), for example, suggests that the very technology behind CRM and in particular eCRM models (a concept which will be addressed later in this essay) have created the means for consumers to manage their suppliers as well as the intended other way around. Via the Web, customers have access to a greater number of outlets than on the high street, for instance, all of which must compete aggressively on areas such as price, service, and quality to maintain market share. East (1997) suggests that retaining customers can be less expensive than procuring new ones due to start up costs associated with new purchases (e.g. introductory offers on credit cards). Online competition has since exacerbated this situation. Hence, the importance of creating relationships at a time when this retention faces threats from greater customer choice is clear.
Customer Relationship Management (CRM) & Relationship Marketing (RM)
Academics appear to generally agree on the assertion that CRM developed from RM. It would appear that the increasingly sophisticated model of CRM is an attempt to further interact with the consumer in a way which RM failed to adequately address. Greenberg (2002) suggested that the concept of CRM emerged around 1999 at around the same time as eCRM, summarising it as “customer focused, customer controlled interactivity”.
Stone et al. (2000) acknowledge that the concept of RM always “included a very strong focus on the consumer”. Arguably, CRM takes this a step further in its incorporation of the other business functions, invariably contributing to the provision of a value maximising service to the consumer via the management of customer relationships, and increasing the relative likeliness of creating loyalty and retention.
Table 1 below demonstrates the levels of interactivity provided by the varying approaches to customer management observed:
| Individualising of Solution | Intensity of Customer Relationship | |
| Customised Marketing
Product Construction Product Configuration |
Individual Marketing
Customer Profiling Self Customisation Database Marketing Mass Customisation Learning Relationship |
|
| Mass Marketing
Transaction Standard Product Repetitive Buy |
Relationship Marketing
Partnership Loyalty Customer Integration |
|
Table 1: Adapted from Link & Hildebrand (1997) cited in Muther (2002)
Relationship marketing has been successful in creating strong ties with consumers on a large scale. The technique has traditionally sought to apply its marketing communications to its customers depending on their relative needs. This involves customising marketing and product offerings to the various individual consumer groups to create a more personalised service[1], as well as to develop a relationship based on interactivity.
CRM, on the other hand, adheres more to the individual marketing attributes summarised above. Due in the main part to the technology to make such a system “technically and economically feasible” (Österle 2002 cited in Muther 2002), organisations are now able to further customise their marketing and product offerings, not just to groups but to individuals themselves. Hence, consumers need not be grouped together into lifecycles with others, as companies can adapt their services to meet individual requirements.
Using this system, large organisations are able to provide mass customisation of its services to its consumers; unfeasible in preceding years. Mass customisation could be seen as the ultimate form of customer service for large global companies who were previously not able to provide the sort of personalised service smaller or individual businesses could. The hotel chain Ritz Carlton, for instance, developed technology to provide individualised service via an electronic customer database which records previous guest requests so staff can better tailor their next stay. The company also uses a Service Quality Indicator (SQI) to “monitor the key production and guest service processes up to the minute”. Integration of databases and technology, in this respect, can lead to high quality personalised service on a mass scale.
CRM systems are able to provide the sort of strong customer relationships found within RM approaches, and also tailor products, services and communications. By offering one on one communications, a company is able to build up detailed individual customer profiles based on individual choices, purchase decisions and attribute behaviour over time. This type of “learning relationship” can be used to “refine” a company’s understanding of the consumer (Muther 2002).
An example of a company using such knowledge to provide individualised service to its customers is the online retailer Amazon. In purchasing certain items from a set up account, Amazon’s software provides a returning customer with recommendations based on prior activity. The company has built up a database of its customers which provides information on a whole range of behaviours, such as purchase frequencies or product tastes, allowing them to construct a profile of that customer. Using reinforcement techniques such as customised email newsletters and special offers, the company is able to provide genuine benefits to its customers, explored in further detail later in this essay.
Benefits of Individualisation to the Organisation
The benefits that the accuracy of this kind of relationship with customers has to an organisation are wide ranging, on strategic, business and functional levels (Muther 2002). It is argued here that companies are able to make better decisions when moving into new markets due to the knowledge accrued from existing customers.
The kinds of databases which can be extrapolated from the utilisation of CRM can be used to build up sophisticated understanding of the consumer. Dodds (2000), cited by Egan (2004), suggested that “…companies can become truly knowledge rich”. Such knowledge gives the company many strategic advantages such opportunities to better target their marketing. Stone et al. (2000) acknowledge the importance of knowledge in the modern market, where it is not only importance from a customer and market perspective, but is also a “tangible” financial asset on the balance sheet.
By developing greater ties with the consumer, retention and loyalty can be better maintained. Interactivity increases a customer’s familiarity with a particular brand, increasingly the likelihood that they will use the product again in future due to a positive experience gained from the relationship. It would be arguably valid to suggest, from a consumer behaviour perspective, that CRM compliments the kind of reinforcement and cognitive based buying processes referred to by East (1997).
In the case of reinforcement-based “learned behaviour,” the simple act of using a service again due to the observed convenience of using the individualised nature may increase purchase frequencies or loyalty. By refining a customer’s opinion of the service by personalisation and individualisation, their cognitive purchasing processes can be altered to rationalise, for instance, that it is easier to find relevant information on purchase options using this service than that of the competition. Hence, both extrinsic and intrinsic purchase loyalties can be facilitated from the implementation of CRM systems.
Benefits of Individualisation to the Consumer
Whether in a B2B or B2C relationship, the buyer can gain many benefits from CRM, some of which have been touched upon above. Perhaps one of the main advantages to be gained is what Muther (2004) refers to as a reduction in “blind services”. By creating a two way relationship between buyer and supplier, the buyer has the opportunity to understand more about the details of a product or service, and can even contact the supplier (often via customisation of service, of which Web based e-retailers are a good example). There can be little doubt that the combination of Internet functionality and CRM implementation has improved the quality and availability of information available in markets today.
In addition, many functional and aesthetic benefits arise through CRM techniques to improve the customer experience, such as customisation of the shop storefront (in online retailing outlets), and personalised special offers and content.
Electronic Customer Relationship Management (eCRM)
It could be argued that CRM and the evolution of relationship marketing to the fully integrated interactive consumer models of today is due in part to the parallel development of technology, and specifically the Internet.
Payne et al. (1998), perhaps writing prior to the real emergence of eCRM, detail a business model which stresses the need for marketing as a “cross functional activity” across departments (HR, Finance, Operations etc.). It is argued here that this brings greater flexibility due to its integration, helping it to achieve better “quality, service levels [and] cycle times” via newly established “pools of resources”; not simply finance or marketing but a “market facing team” offering all functions of the business to the consumer.
While RM may well have achieved this level of integration, one of CRM’s main attributes remains unaddressed by Payne et al. (1998). In the former model, the authors have presented information technology as a separate function to marketing (as indeed they have with all other business departments). While their “integration” explanation hints at the potential amalgamation of the two, this potential is left unexplored.
The amalgamation of IT and other business functions is becoming increasingly central to the concept of CRM as technology improves opportunities in this area. Handen, writing in Brown (2000), suggests that technology has improved the process in three core areas: the Internet, in work flow management, and through data warehousing. The three advancements provide a company with improved cross departmental functionality in various ways; a technological solution to the Payne et al. (and RM) goal of “integration”.
CRM and Supplier Management
The integration of suppliers and other stakeholders into a company’s pursuit of relationship management is something which has always been core to the principle of RM. It could be argued that CRM places strong emphasis on supplier management in particular, ultimately to further individualise its service offerings to consumers. Sheth & Parvatiyar (2000), cited by Egan (2004), acknowledged that “interdependence (in supplier relationships) reduces transaction costs and generates better quality while keeping management costs lower”. An integrated approach to the formation of inter-company networks could be seen to be an important part in the move to mass customisation. While technology can establish a consumer’s individual product needs, efficient ties with suppliers are critical to the fulfilment of those needs.
Through the use of horizontal (i.e. collaboration in distribution channels with like-minded organisations) and vertical (i.e. supplier) partnerships, a company can better serve the needs of customers that, arguably, are merely identified by traditional RM techniques. The use of technological advancements in supplier management systems may lead to reduced lead times between the deliveries of specific goods between organisations. The integration of supplier management and other areas of CRM (e.g. a projection of specific customer’s likely upcoming purchasing requirements) can lead to a more efficient provision of individualised services not utilised in RM.
Customer Relationship Management and the Marketing Plan
For the reasons explored above, organisations are increasingly utilising the power of the latest information technology to develop integrated CRM systems to better serve the requirements of consumers. The applications of CRM within the marketing plan touched upon above shall now be addressed.
The use of marketing communications has been considered by many marketing practitioners (e.g. Fill 2002) to be key to the functionality of relationship marketing and now customer relationship management. Similarly, the potential of CRM to bolster the effectiveness of a marketing communications is evident across the various stages of the plan.
The role of a marketing plan is to provide, and implement, answers to the various issues relating to the campaign. Such issues include who to target the marketing at, what needs to be communicated, how to deliver the message to the audience, what response is required from the audience, and how to assess whether the campaign has been effective (Fill 2002). CRM can play a role in the development of better quality decision making in various ways, including the establishment of realistic targets and likely responses to the campaign.
In all areas of the marketing mix, CRM can play a vital role in the form of research. By accessing the customer profiles built up from observed prior behaviour, a company is better placed to set appropriate prices, distribution channels, or product features relevant to particular customers.
Potential applications of CRM into a marketing plan shall now be explored using the standard marketing communications planning framework (MCPF) set out by Fill (2002).
Context Analysis
The key area in which CRM can be utilised is the establishment of the customer context. Using the technique, not only can segment characteristics can be ascertained, but also individual preferences.
In utilising the databases of customer preferences, a company is able to direct and tailor its marketing plan to these attributes. As an example, a travel company such as Lastminute.com may segment its market based on very detailed prior purchase characteristics such as those who spent over £200 on package holidays in Greece. Establishment of smaller groups of customers should help to improve the potential for success of the campaign using highly targeted communications campaigns.
Promotional Objectives
The objectives of the campaign, including sales and communication effectiveness, can be analysed according to what behaviour might be expected of existing consumers. Using CRM, it may be possible to understand a consumers behavioural attributes (e.g. susceptibility to certain types of advertising). Such information can be used to develop realistic campaign objectives.
Communication Strategy and Promotion Methods to be Used
As the idea of CRM is to place the emphasis on the consumer, the technique can be used to develop an effective strategy based on consumer preferences. Specifically, a detailed analysis of the types of media customers use can be found, together with their previous reactions to that media. New media advertising such as email marketing can be expected to be appropriate for customers who booked flights online rather than over the phone, for instance.
With a database of consumers, a company has the ability to target its marketing based on one-on-one level. Using technology, companies are able to develop increasingly sophisticated approaches to its marketing. New media applications such as mobile phones allow companies to send out extremely targeted messages. A mobile phone operator such as T-Mobile, for instance, is able to send out special offer text messages to customers aimed at increasing their spend on top up credit by offering incentives to spend more.
Evaluation
Feedback from the campaign using CRM techniques has the potential to provide organisations with detailed breakdowns in campaign effectiveness. Using technology to gather feedback data is far more feasible now due to the advent of new media. Email campaigns can be tangibly measured by click-throughs, for instance, and methods for recording interest have also become more sophisticated.
In all aspects of a marketing plan, then, it is possible to see the potential benefit and influence CRM can have. Critically, it is perhaps best used to ascertain customer preferences, and to help make decisions accordingly.
Conclusions
As suggested by McDonald (2000) cited by Egan (2004), CRM could, and has been, described in line with the many buzz-words to emerge in the area of consumer research. It is “the latest place to be – it’s fun, colourful and full of promise”. The popularity and uptake of CRM systems is evident: $12bn was the projected spend on CRM projects in 2004, with 26% of US businesses spending over $500,000 on CRM technology[2].
There can be little doubt that as technology has improved, so too has the ability to interact with customers on increasingly personal levels. Concurrently, Egan (2004) is perhaps correct in his observation that, despite the differences and advancements observed in this essay, there is little differentiation in the objectives of both concepts. If this is the case, it can be asserted that CRM is merely the latest evolution on an original concept which continues to grow ever more sophisticated in its approaches.
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Bibliography
Brown, SA. (2000), “Customer Relationship Management – A Strategic Imperative in the World of eBusiness”, John Wiley & Sons Canada, Ltd
East, R. (1997), “Consumer Behaviour: Advances and Applications in Marketing” FT Prentice Hall, UK
Egan, J. (2004), “Relationship Marketing Exploring Relational Strategies in Marketing (2nd Ed.)” Prentice Hall, UK
Fill, C. (2002), “Marketing Communications: Contexts, Strategies and Applications (3rd Ed.)”, FT Prentice Hall, UK
Greenberg, P. (2002), “Customer Relationship Management at the Speed of Light (2nd Ed.)” McGraw-Hill, Berkeley, USA
Muther, A. (2002), Customer Relationship Management Electronic Customer Care in the New Economy”, Springer-Verlag, Berlin
Payne, A., Christopher, M., Clark, M., Peck, H. (1998), “Relationship Marketing for Competitive Advantage Winning and Keeping Customers”, Butterworth Heinemann, Oxford
Stone, M., Woodcock, N., Machtynger, L. (2000), “Customer Relationship Marketing get to know your Customers and Win their Loyalty”, Kogan Page Ltd, London
Websites used
Ritz-Carlton Hotel Company
http://www.ritzcarlton.com/resources/n-+baldrige.pdf
The Drilling Down Project
http://www.jimnovo.com/Relationship-Marketing-more.htm
References
[1] Source: http://www.jimnovo.com
[2] Source: Wetsch (2003) cited by Egar (2004)