An introduction to CRM

Customer relationship management (CRM) is no longer a buzzword, but a necessity for business in the knowledge age we live in. Starting with this article, Khalid Sheikh begins a series that will comprehensively cover every aspect of CRM

Customer relationship management (CRM) solutions provide customer-oriented services for planning, developing, maintaining, and expanding customer relationships, with special attention paid to the new possibilities offered by the Internet, mobile devices, and multi-channel interaction. CRM enables a company to capture a consolidated customer view through multi-channel interactions in a data warehouse solution.

Sophisticated analytical techniques are then applied to this customer information to better understand and predict customer behaviour. CRM can then be used to strategically implement acquired customer knowledge in every area of the company, from the highest management level to all employees who come into direct contact with customers. CRM thus enables an organisation to address its customers’ preferences and priorities much more effectively and efficiently. CRM is a tool that can help organisations to profitably meet the lifetime needs of customers better than their competitors.

Thus, CRM involves:

• Automating processes in sales, marketing, and service functions.
• Increasing the efficiency of these processes to improve customer satisfaction.
• Conducting interactions with customers on a more informed basis.
• Individually tailoring interactions to suit the specific customer’s needs.
• Compiling information that increases understanding of customer behaviour and then analysing the acquired information to generate customer intelligence that can be used by the marketing function to find brand new customers, retain existing customers, and cultivate a deeper share of wallet from all customers.

The ability of a CRM solution to measure, predict, and optimise customer relationships is directly proportional to the quality and comprehensiveness of the information provided to the analytical solutions. Hence, the integrated enterprise application software solutions of today incorporate a data warehouse to bring together data from enterprise resource planning (ERP), supply chain management (SCM), product lifecycle management (PLM), and customer relationship management (CRM) systems. This also enables the companies to improve on their key performance indicators (KPIs) for the entire supply chain.

Basic objectives

The basic objectives of customer relationship management are:

• Extending/widening customer relationships—This involves acquiring new and profitable customers, which, in turn, requires the company to determine the following:
• Products and services of interest to the potential customers that can be supplied by the company.
• Type of customers that will contribute to the profitability and long-term growth of the company.
• Lengthening relationships with existing customers—This involves focusing on profitable customers to retain them. Recently, companies have shifted their focus from individual transactions to designing their market offerings and prices to make a profit over the customer’s lifetime. This means that company will sometimes underprice to gain new customers and it will be generous in its pricing and services to existing customers with an eye toward retaining them for the long run. This requires the company to determine the following:
• Customers that make significant contribution to profits and hence should be retained.
• Customers that might leave (churn out) because they are not satisfied with the company’s products and/or services or, because they have started to find the competitors’ products and services more attractive.

The emphasis traditionally has been on pre-selling and selling rather than caring for the customer afterward. A highly satisfied customer stays loyal longer, buys more new products and upgrades, talks favourably about the company to the prospects, is less sensitive to price, offers ideas for new product and service to the company, and costs less to serve than new customers.

• Deepening customer relationships—This involves transforming unimportant (less profitable, short-term) customers into highly profitable, long-term business partners. This, in turn, requires the company to determine the following:
• Customers whose share of wallet can be and should be increased. Share of wallet is the ratio of the expenditure of a customer on a specific product group with a specific supplier to the total expenditure of that customer on that specific product group.
• The opportunities for up-selling and/or cross-selling additional products and services that would be of interest to customers.

CRM also enables a company to keep customer information consistent throughout the organisation and makes it available across all touch-points where the company interacts with the customer.

CRM can be described as a Web-enabled sales and marketing tool that synergistically combines the functionalities of database marketing, one-to-one marketing, and sales force automation (SFA). CRM enables companies to provide excellent real-time customer service by developing a relationship with each valued customer through the effective use of individual account information. CRM holds that a major driver of company profitability is the aggregate lifetime value of the company’s customer base.

How CRM works

CRM employs the following steps of database and one-to-one marketing:

• Identify prospects and customers: One of the ways companies can generate sales leads is by advertising their products or services through advertisements that include a response feature, such as a business reply card or toll-free phone number. The database is built from these responses. The database can be sorted to identify the best prospects, who can then be contacted by mail, phone, or personal call in an attempt to convert them into customers.
• Differentiate customers in terms of their requirements and their lifetime value to the company. Lifetime value can be used to decide how much the company can invest to build relationships with a particular customer. The company might decide to invest in the customer to retain him and thus reduce the rate of customer defection (churn) or to turn low-profit customers into more profitable ones by increasing the longevity of the customer relationship and/or by enhancing the growth potential of each customer through cross-selling, up-selling, and increased share of wallet.
• Interact with individual customers to improve learning about their individual needs and to build stronger relationships.
• Customise products and services and personalise all communications with each individual customer

CRM also incorporates enhanced sales force automation (SFA) functionality. SFA puts account information directly in the hands of field sales staff, making them responsible for maintaining it and thus helps them to be more productive. Now, as part of CRM, SFA is also focused on cultivating customer relationships and improving customer satisfaction.

The author is an associate professor of Supply Chain Management at S P Jain Institute of Management & Research, Mumbai. He has authored the book ‘Manufacturing Resource Planning with an Introduction to ERP, SCM, and CRM’, published by McGraw-Hill Professional, New York and Tata McGraw-Hill, New Delhi.

He can be contacted at khalid_sheikh@hotmail.com