12.1 Introduction The retail marketing mix i.e.

the merchandise, promotions, distribution and pricing which you have already learnt are all important part of the retail strategy but it is all incomplete without a proper relationship marketing system. Developing relationship with the customer is the key to customer retention. Customer Relationship Marketing (CRM) refers to all marketing activities directed towards establishing, developing, and maintaining successful relationship with their customers. The theories and concepts of CRM draw upon a number of distinct areas including service quality, services marketing, customer retention economics, and issues related to interpersonal and social interaction. However, the practice of relationship marketing is as old as marketing and selling. The relationship marketing philosophy suggests that, at a macro level, retail organizations should consider their impact across a broad range of market relationships in the value chain. Objectives After studying this unit, you should be able to: Identify the benefits of relationship marketing State the objectives and goals of CRM Contrast relationship and transactional marketing Assess a relationship marketing programme Discuss CRM strategies 12.2 Benefits of Relationship Marketing Retaining customers for the long-term offers many benefits. The aim of the company is to obtain life time customers. Some of the benefits of relationship marketing include: 1. Loyal customers are willing to try some of your new products, because they trust you. 2. Loyal customers will recommend your business to others, thus expanding your business for you. 3. Loyal customers will tell you about problems with your products/services enabling to improve your products/services. 4. Customers will be willing to pay more for your services/products if there are adjustments in pricing because they are loyal to you and trust your services/products. 5. The ultimate benefit will be an increase sales, market share and dominance. Self Assessment Questions 1. The aim of relationship marketing in retail is to acquire____________ 2. Loyal customers are likely to be___________ price sensitive than others. 12.3 Management of Relationship

Customer Relationship Management (CRM) had its origins in two unrelated places. One was in the US where it was driven by technology. Under the direction of marketers, information technology and statistical algorithms were developed to increase the efficiency and effectiveness of selling what a company makes. This popularly came to be referred to as database marketing. CRM systems such as call centres, websites, customer service and support teams, and loyalty programmes were used to manage the relationship with customers. Customer relationship marketing in retailing has emerged out of two major considerations: l Macro Level: At a macro level, the recognition that marketing influences a wide range of areas including customer, employee, supply, internal, referral, and influencer markets such as the governmental and financial markets; and l Micro Level: At the micro level, the recognition that the nature of interrelations with customers is changing. The emphasis is on moving from a transaction focus to a relationship focus. An essential factor to be understood from this is the difference between customer relationship marketing and transactional marketing. Few of these differing points are given in the Table 12.1. Table 12.1: Difference between Relationship Marketing and Transactional Marketing

Thus, customer relationship marketing is different from the old concept of marketing, which used to be based more on increasing the customer base. Relationship marketing focuses on using relational strategies to acquire customers, retain them, and enhance relationship with them. In fact, as per Paretos Law, 80% of the total sales comes from 20% of the customers, and, thus, relationship marketing attempts to optimize the resources for the retailer by retaining the most profitable of the customers. The retailing industry plays an important role in the success of relationship marketing as it serves as the major link between the supplier and customers. Therefore, it engages, maintains, and enhances the relationship with the ultimate entity of the value chain, which in turn determines the success of all the members of the value chain. The retailers have always acknowledged the importance of long-term relationship with customers in their business. Sub-sequent sub-sections discuss some important aspects of relationship management. 12.3.1 Objectives of relationship management The objectives of relationship management are:

Increase in customer service If you want your CRM initiative to be successful, then you must establishing customer loyalty should be one of your top CRM goals. For this task it is essential that the whole organization realize that they play a part in this goal. This objective cannot be achieved with the help of a few employees only. Increasing efficiency Another important objective of CRM is increasing organizational efficiency and effectiveness. This is almost always adopted by every organization. This is necessary as it increases the chances of success. CRM achieves this through cost reduction and customer retention. Adequate CRM training achieves this goal. Lowering operating costs CRM also attempts to reduce costs of operation. This goal should be clearly established and conveyed to all those involved in the CRM implementation process. CRM manages to reduce operating costs through a workforce management system. This helps to maximize skills and thus reduce cost. Aiding the marketing department CRM activities support firms marketing efforts. This includes marketing campaigns, sales promotions etc. If this is fixated as one of the goals of CRM, then it should be communicated to those involved. This goal is fundamental as it boosts sales indirectly thereby increasing the profitability. 12.3.2 Goals of relationship management CRM is an approach that involves interaction with customers and prospects that helps to provide a flawless flow of information and service to the customer from marketing, through sales and customer service for the entire customer life cycle. CRM initiatives typically are built upon a central customer database that integrates data from every form of interaction with customers to enhance relationships. Companies expect to achieve high sales-conversion rates, high customer retention and high profitability per customer by providing: The right product (or service) To the right customer At the right price At the right time Through the right channel To satisfy the customers need or desire

Your ability to achieve these goals depends mostly on how easily you get information about your prospects and customers buying habits and preferences and is it usable or not. To increase your Return on Investment (ROI), the right information technologies are critical to: Know who your customers are and who your best customers are; Know what they wont buy and stimulate what they will buy; Time when and how they buy; Learn customers preferences and make them loyal customers; Define characteristics that make up a great, profitable customer; Define the best channels to address a customers needs; Predict what they will buy in the future; Keep your best customers for many years. Secrets of failure It is equally important to analyse the secrets of failure, as it is to analyse the secrets of success. Gartner recently found that as many as half of all CRM implementations fail. Building a customercentric company takes time and planning, and a dedication to change from the front through the middle and back end of a company. Organizational change The relationship with a single customer depends on the integrated effort of several departments. Even prospect data is shared among sales and marketing in the least. Data integration, interdepartmental communication, and someone to oversee these processes are critical to success. Smart outsourcing for technical projects achieves specific goals while building internal expertise for tackling future projects. Metrics to measure success The good old financial measures of success commonly used in a transaction-based environment are often inadequate. A customer-based company should its branding, research and development, compensation, budgeting, and incentive policies according to a customer-centric model. Human capital becomes a tangible metric. Culture change A company should attempt to make long-term relationships with their customers even if it affects short-term sales. A company that is customer centric should give due consideration to customers interest even if they come in conflict with companys short term goals. Ethics must transcend financial goals. Channel

It is equally crucial to maintain harmonious relationships with channel partners. Partner relationship management introduces a new burden (in terms of data) and opportunity for channel marketers. Transition Planning A company that wants to become customer centric, it must be aware of the transitional process, including a step-by-step awareness, a clear funding strategy and attainable goals. This process supports a gradual approach to building network infrastructure for CRM projects rather than introducing comprehensive changes all at once. Whether you are reviving a stalled implementation or launching a new one, this is where the fine line between success and failure is often drawn. It can be costly to implement CRM project in a firm. Firms spend a lot of money scrutinizing vendors, buying the right CRM software, Hiring consultants, training employees etc. The only way in which a company can actually measure its success is if it establishes CRM goals prior to the implementation as in this way it is able to determine whether or not it has successfully implemented CRM. Despite the fact that industries have different business aspects they share some common CRM goals.

Self Assessment Questions 3. CRM is based on the structural ties between the companies as well as the ____________ among managers. 4. In CRM, the center of focus is the customer while in transactional marketing it is ____________ 12.4 Evaluation of Relationship Marketing A successful CRM program provides a firm with a distinctive capability by collecting and analyzing data on their customers and prospects and transforming that data into information for use in managerial decision-making (Empson, 2000; Grant, 1996; Spender, 1996). With this knowledge of the customer, a firm can develop a customized marketing mix (price, product, place, promotion) for each customer and begin to engage in cooperative and collaborative relationships with their customers. In a study assessing the impact of relational information and processes, Jayachandran, Sharma, Kaufman, and Raman (2005) found that firms that have higher CRM performance also had the ability to capture, access and use customer information. Another study of on-line retailers with a brick and mortar presence, Srinivasan and Moorman (2005), linked the impact of firm strategic commitment to the performance of CRM system investments. More specifically, they conclude that firm commitments to either an online or bricks and mortar presence affect the performance of the CRM initiative, emphasizing the importance of context when evaluating the impact of CRM on firm performance. Winer (2001) provides a framework for one to begin conceptualizing a CRM program. This framework although useful, is quite general and is only a starting point in the quest to identify relevant activities/behaviors/outcomes for a CRM program. Taking Winers framework into consideration, coupled with a review of the literature, six areas are identified which comprise a CRM program. These areas are: (1) objectives of the CRM program; (2) types of customer data collected/available; (3) uses of customer data for managerial decision-

making; (4) the firms approach to market; (5) tactics used to develop and maintain relationships with customers, and (6) the information technology infrastructure currently in use. The previous six areas of interest identify specific activities/behaviors that comprise a CRM program; however, they do not provide any information regarding the overall performance of such programs nor do they give any indication as to the challenges faced by managers when implementing CRM. Self Assessment Questions 5. ____________ facilitates collection and analysis of information about potential customers. 6. With collection of relevant customer information a firm engages in ____________ and ____________ relationship with customers. 12.5 Customer Relationship Management Strategies Customer Relationship Marketing (CRM) strategies refer to any effort that is actively made by a seller towards a buyer, and is intended to contribute to the buyers customer value above and beyond the core product and/or the service provided. This can only be perceived by the buyer after continued exchange with the seller. For instance, if the traditional Indian retailers treat their regular customers in a warm and friendly manner and also provide them with special benefits in terms of home delivery, discounts, etc, then these efforts are an attempt to provide benefits above and beyond the core service performance. From this we can figure out that strategies laid for CRM is a combination of several benefits. Lets familiarize ourselves with the major four components that help in formulating a Customer Relationship marketing strategy. Figure 12.1 shows the four components in a snap shot.

Figure 12.1 Lets discuss on each of the components starting from, Personalisation

Personalization describes the social interaction between service employees and their customers. It refers to the way in which employees relate to customers as people - cold and impersonal at one end, and warm and personal at the other. Consequently, personalization can be regarded as a means of showing recognition and respect for the other party. Some of the common examples of social relationship benefits include feelings of familiarity, personal recognition, friendship, and social support. Such an interaction afforded by shopping sometimes works as a prime motivator for some consumers to visit retail establishments. Communication Communication is without a doubt, an essential condition in the existence of any relationship. A retailers communication with a buyer conveys his interest in them and serves to strengthen their relationship. So, efforts to stay in touch with the customers have been identified as the key determinants of relationship enhancement in retailer-customer relationship. It is generally observed that buyer-seller relationships become stronger when the ease and volume of exchange between buyers and sellers increase. Rewards Providing customers with tangible rewards is often referred to as level one relationship marketing. This level of CRM relies primarily on pricing incentives and money savings to secure customers loyalty. Rewards should be designed to promote long-term behaviour and discourage short-term deal-seeking behaviour. Rewarding efforts refer to structured and planned marketing efforts that should encourage loyal behaviour, distinguishing it from short-term oriented sales promotions. Special treatment benefits A key aspect of relationship marketing is that all consumers do not need to be served in the same way. If a consumer receives personalized, customized service from retailer A, but not from Retailer B, and if this service is valued, then the consumer will be less likely to leave Retailer A for B. The retailers can distinguish between at least two identifiable customers segments: loyal customers and non-loyal customers. The next few sub-sections discuss the other important aspects CRM in the retail sector. 12.5.1 Customer relationship marketing in organised vs. unorganised retail sector Broadly the organized retail sector can be divided into two segments: In-store retailers, who operate in fixed point-of-sale locations, located and designed to attract a high volume of walk-in customers, and Non-store retailers, who reach out to the customers at their homes or offices. The organized retailers provide various standardized services to their customers. Large retail formats with high quality ambience and courteous and well-trained sales staff is the distinguishing features of these retailers. In most of the cases, they have a wide range of merchandise stocked with them so that the customers can enjoy a wider choice. People visit these stores not only for shopping but also for having a nice time outside their homes.

The unorganized retailers in India, on the other hand, comprise of the kirana or small independent stores located in neighbourhood centres and central business districts of a city. These stores have a limited reach in the sense that people living in a particular locality visit stores in their own colony. The USP of these stores is the locational convenience they provide to their customers. They provide customized services to their customers and also go to the extent of procuring merchandise and delivering them to their customers on order. In the context of Indian traditional retail formats, one -can comfortably establish the significance of relationship marketing in the success of a retail store, particularly the relationship between retailers and customers. The existence of a sound relationship between these two entities (retailers and customers) comprehensively suggests the importance of the present unorganized retail network in India in the entire value chain. The strength of the relationship enjoyed by retailers with customers has provided them with the bargaining power in the value chain, particularly in developing economies where organized retailing is at a growing stage. Sound relationship between the two is mutually beneficial both economically and non-economically. Customer service in retailing Todays competitive environment requires a retailer to understand and properly apply the concept of relationship from the perspective of the customer and other channel members. This will ensure that: Customers strongly believe that the retailer offers good value for money; and All the channel members (including the customers) would like to do business with that retailer. The challenge for a retail unit is to bring three critical areas, namely marketing, customer service, and quality, into closer alignment and the attempt of CRM is to bring these three areas together. The provision of quality customer service involves an understanding of what a customer wants and eventually buys, and determining how additional value can be added to the products or services being offered. Yet the implementation of customer service varies from one retail unit to another. Managing gaps between expectation and performance When customers expectations are greater than their perceptions of the delivered product or service, customers are dissatisfied and feel that the quality of the retailers service is poor. Thus retailer needs to reduce this gap, which is known as the service gap. There are four important dimensions that customers employ to judge the effectiveness of customer services provided by retailers, these are: Knowledge Gap: The difference between consumer expectations and the retailers perception of customer expectations. For example, a grocery store may put everything on display so that a customer chooses what he wants, but it may fail to realize that customers in the locality prefer being served personally. Therefore, what the store should have done is to keep staff to take orders from the customers and serve there over the counter. Service Standards: The difference between the retailers perceptions of customers expectations and the customer service standards it sets. For example, a mail order house may

require its employees to answer a phone call after not more than two rings. However, the customer may not be concerned with the time he has to spend over phone. Instead, he may be concerned with the time it takes to deliver the merchandise ordered. Delivery Gap: The difference between the retailers service standards and the actual service provided to customers. The retailer must try to deliver in excess of what is expected by the customers to earn their loyalty. Communication: The difference between the actual service provided to customers and the service communicated in the retailers promotion programme. For example, ICICI Bank has attracted customers through an extensive advertising campaign regarding the innovative product profile, luxurious ambience, helpful sales staff, and above all convenient and effective services. But with the unexpected increase in the number of customers the established infrastructure could not provide the services as communicated to the customers. 12.5.2 Some more relationship marketing strategies Establishing loyalty programmes Retailers rely on loyalty programmes extensively since it is believed that: Loyal customers are cheaper to serve: In most of the cases, retailers are not be required to invest to attract, maintain, and communicate with loyal customers as they are already inclined to search for information on new arrivals, services, and developments of the store in comparison to customers who are not loyal. Loyal customers are willing to pay more for package offerings: Loyal customers generally are more familiar about product offerings and can better assess their quality, that means they can develop solid reference prices and make better judgments about value than sporadic customers can. Because of this, it is almost impossible these days to work on price differentiation for any length of time. A good example to quote would be of Amazon, which almost destroyed its brand when it attempted to charge different prices to different customers for the same DVDs. Loyal customers are strong advocates for the stores offerings: The word-of-mouth marketing is very effective, and many stores justify their investments in loyalty programmes by seeking profits not so much from the loyal customers as from the new customers the loyal ones bring in. A number of factors play a part in influencing the loyalty and commitment of customers, such as the quality and value of the retailers core offering, levels of customer satisfaction, elasticity inherent in the sector or product category, other competitors in the market, and even social, demographic, and geographical influences. Sector-specific loyalty programmes Different sectors are viewing and approaching loyalty differently, and are at different stages of development, both in business terms and in the minds of consumers. Moreover, there are regional, national, and international variations and forces at work, which drive and determine the direction of loyalty programme in specific geographical areas of operation.

Supermarkets and general retail stores Today, leading supermarkets are among the most sophisticated retailers in the world. They lead most other sectors in customer data collection and analysis, in stock management, in level of customer service and in retail innovation. The questions of innovative techniques faced by the supermarket retailers are: Which sector will be the first to widely adopt RFID technology? or Which sector has the smart shopping carts? or Which one has the latest self-scanning of purchases? or Which sector has the in-store kiosk-based information and sales points? Telecom The overall telecom market around the world has been volatile over the past two years, with nontelecom firms joining the battle for consumer communications spend-including internet service provision-and governments deregulating the market, and of course the innovation of number portability. In the meantime, firms in the mobile telecom sector have been developing their offerings beyond communications into the financial services sector, through m-payments and en-cash (mobile payment systems). Some of the popular loyalty programmes in the telecom sector are the Airtels Recharge Rewards Programme and MTNLs loyalty programmes. Travel and entertainment A great deal has happened in the travel and entertainment sector in the pest few years, with particular emphasis on increasing both the visit frequency and providing compelling offers and gifts to encourage loyalty. Airlines, hotels, restaurants, and even car rental firms have focused on improving customer service and offering more relevant options to encourage consumers to buy more of what they want. Financial services Here, it is important to discuss the role of credit and debit cards as loyalty building tools for the financial services as well as the other retail sectors of the economy. Credit cards make use several co-branded and affinity programmes for establishing customer loyalty A co-branded card is the result of a partnership between an issuing bank and a co-branding partner, which could be any commercial organization such as an airline, insurance company motor manufacturer etc. One example of a co-branded card is the UKs GM Platinum Card issued by HDFC Bank. An affinity card is generally a non-profit making organization like a club, association, charity, or professional body (without a commercial partner). One example is the Amnesty International Visa Card issued by the Cooperative Bank. The affinity cards allow the issuer to mine the potential of the database of members of an already formed non-commercial group. Franchise retail outlets

The franchise retail format faces a distinct set of challenges in the successful launch and operation of a loyalty programme. While the coordinated planning and execution of marketing campaign is required from the entities, parties to the loyalty programme, funding issues relating specifically to loyalty programmes in the franchise retail format become a challenge and a constraint for their successful implementation. A striking example of loyalty-programmes launched in a franchise outlet would be of Barista Coffee issuing smart cards for its regular customers named Brewards which offers flat discounts of 12.5% for students and 10% for others. Social marketing in retailing Social marketing was "born" as a discipline in the 1970s, when Philip Kotler and Gerald Zaltman realized that the same marketing principles that were being used to sell products to consumers could be used to "sell" ideas, attitudes and behaviors. In social marketing also, the main focus is on the consumers. The main aim is to learn what people want and need rather than trying to persuade them to buy whatever we produce. Marketing talks to the consumer, not about the product. The planning process takes this consumer focus into account by addressing the elements of the "marketing mix." This refers to decisions about (1) the conception of a Product, (2) Price, (3) distribution (Place), and (4) Promotion. These are often called the "Four Ps" of marketing. Social marketing also adds a few more "Ps." Product The product offered under social marketing may not always be a tangible offering. A continuum of products exists, ranging from tangible, physical products (e.g., condoms), to services (e.g., medical exams), practices (e.g., breastfeeding, ORT or eating a heart-healthy diet) and finally, more intangible ideas (e.g., environmental protection). In order to have a viable product, people must first perceive that they have a genuine problem, and that the product offering is a good solution for that problem. The role of research here is to discover the consumers perceptions of the problem and the product, and to determine how important they feel it is to take action against the problem. Price To obtain the social marketing product, customers must give up a number of things. This is known as the "Price" of the product. This price may be monetary, and/ or efforts and time put in by the consumers. If the costs outweigh the benefits for an individual, the perceived value of the offering will be low and it will be unlikely to be adopted. However, if the benefits are perceived as greater than their costs, chances of trial and adoption of the product is much greater. There are many factors that must be considered while deciding the price of a physical product, such as contraceptives, there are many issues to consider. If the product is priced too low, or provided free of charge, the consumer may perceive it as being low in quality. On the other hand, if the price is too high, some will not be able to afford it. Social marketers must balance these considerations, and often end up charging at least a nominal fee to increase perceptions of quality and to confer a sense of "dignity" to the transaction. These perceptions of costs and benefits can be determined through research, and used in positioning the product. Place The decisions regarding the channels through which the product will reach the consumers are put under "Place" decisions. For a physical product, this refers to the distribution system including

the warehouse, trucks, sales force, retail outlets where it is sold, or places where it is given out for free. For an intangible product, place is less clear-cut, but refers to decisions about the channels through which consumers are reached with information or training. This may include doctors offices, shopping malls, mass media vehicles or in-home demonstrations. Another element of place is deciding how to ensure accessibility of the offering and quality of the service delivery. By determining the activities and habits of the target audience, as well as their experience and satisfaction with the existing delivery system, researchers can pinpoint the most ideal means of distribution for the offering. Promotion Social marketing is only a part of promotions. Promotion consists of the integrated use of advertising, public relations, promotions, media advocacy, personal selling and entertainment vehicles. The main aim of these activities is to attract people, and create and sustain demand. Public service announcements or paid ads are one way, but there are other methods such as coupons, media events, editorials, "Tupperware"-style parties or in-store displays. Research is crucial to determine the most effective and efficient vehicles to reach the target audience and increase demand. The primary research findings themselves can also be used to gain publicity for the program at media events and in news stories. Additional social marketing "Ps" Publics: in order to be successful, social marketing target different groups. "Publics" include both the external and internal groups involved in the program. Target audience, secondary audiences, policymakers, and gatekeepers are all a part of external audience. On the other hand, internal public are those who are involved in some way with either approval or implementation of the program. Partnership: The complex nature of the social and health issues makes it really difficult for one agency to handle them effectively. A willing support of other organizations is required. You need to figure out which organizations have similar goals to yours not necessarily the same goals and identify ways you can work together. Policy: Social marketing programs can be good motivators in inducing change in individual behavior, but that is difficult to sustain unless the environment theyre in supports that change for the long run. Often, policy change is needed, and media advocacy programs can be an effective complement to a social marketing program. Purse Strings: this is a major concern as these programs require good amount of funds. Most organizations that develop social marketing programs operate through funds provided by sources such as foundations, governmental grants or donations.