Customer relationship management (CRM) is a customer-centric business philosophy, policy, and strategy that focuses on processes and systems that organizations undertake to enhance their relationships with customers. Customer relationship management is based on the premise that a stable customer base is a core business asset, and further, that knowledge of customer behavior and attitudes coupled with effective service delivery at every point of interaction with customers enhances business performance. CRM takes a long-term perspective, focused on customer retention, and the building of multiple levels of relationships between buyer and seller, in pursuit of enhanced levels of customer commitment. Goals of CRM typically include providing better customer service; making call centers more efficient; cross-selling products more effectively; helping staff close deals faster; simplification of marketing and sales processes; discovery of new customers; and increasing customer revenues.
Successful CRM is dependent on the coordination of different players within the organization responsible for delivering customer value (in accordance with Porter’s value chain). These include (1) customer facing operations: the people and technologies that interact directly with and deliver service to the customer; (2) internal functional operations: the people and technologies in the back office that support the activities of the customer facing operations; (3) supplier and partner organizations: the people and technologies that support organizational processes; (4) impression management operations: the people and technologies that have responsibility for managing the impression of the brand, brand reputation, and brand experience.
Types Of Relationships
Businesses can seek to create different types of customer relationships. These might include (1) basic: where the organization sells the product; (2) reactive: where the organization sells the product and encourages the customer to call with questions or problems; (3) accountable: where the organization contacts the customer a short time after the sale, to check on product performance; (4) proactive: where the organization contacts the customer with suggestions for use improvements, and with details of new products; and (5) partnership: where the organization works continuously with the customer to drive innovation and improved customer value.
The appropriateness of CRM, and more specifically, the choice of relationship type depends upon the product (e.g., level of complexity and uncertainty in purchase, margins); the customers (e.g., tendency to shop around, consumers or businesses); and, the marketing organization (e.g., structure, business process, and core values). In addition, relationships may vary on another dimension—the stage of the life cycle that they have reached with a specific business. The customer development process is concerned with moving customers through this life cycle: suspects (consumers and businesses with a profile that suggests they might become customers); prospects (consumers and businesses who have indicated potential interest in the organization’s products); first time customers; repeat customers; clients (who are in a dialogue with the business); members (who have signed up to a contractual membership engagement); advocates (who actively promote the organization); and, partners (who work with the organization to enhance its products and services to the mutual benefit of both parties).
CRM is designed to reduce customer turnover, or churn. Customer switching is determined by relationship strength (the nature and depth of the bond with the organization), perceived alternatives (e.g., competitors offerings), and critical episodes (such as an unsatisfactory experience). Relationships may terminate if the customer no longer has need for the organization’s products or services; more suitable providers enter the marketplace; the relationship strength has weakened; the organization handles a critical episode poorly; and/or there are changes in the organization’s offering (such as changes in brand reputation or price) that cause the customer to reconsider their behavior.
Types Of CRM
There are two main types of CRM. The first is operational CRM, which supports customer facing operations, including sales, marketing, and customer service. Service agents record details of each interaction into a customer contact history, so that staff can retrieve information on customers from the database to support subsequent interactions. Such data is useful in call centers, but also for managing campaigns, and marketing and sales automation. The second type is analytical CRM, which includes applications that analyze customer data generated by CRM applications to provide information to improve business performance. Analytical CRM applications are based on data warehouses that consolidate data from operational CRM systems and mine the data, to, for example, identify buying patterns, create segments for marketing, and identify profitable and less profitable customers.
Businesses need to be able to identify more profitable customers and focus relationship building on those customers. In seeking to optimize their customer portfolio, businesses seek measures of customer worth. A key measure is customer lifetime value, based on consideration of customer interactions in terms of regency x frequency x value. Other measures may be based on estimates of “relationship costs” versus “relationship revenue” for specific customers, or on the balance between the value of a customer and the risk associated with their likelihood of switching. Such analysis complements the effect of the segmenting and targeting undertaken by the organization on the customer portfolio.
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