The International Conference on Administration and Business

ICEA - FAA 2009 14 15 NOVEMBER 2009 http://conference.faa.ro

The Faculty of Business and Administration University of Bucharest

The International Conference on Economics and Administration, Faculty of Administration and Business, University of Bucharest, Romania ICEA FAA Bucharest, 14-15th November 2009

IMPORTANCE OF CUSTOMER RELATIONSHIP MANAGEMENT FOR RETAIL TRADE

Michal Stojanov Chief Assist. Prof. Dr. michal_bg@yahoo.com

Abstract In highly competitive environment the customer relation ship management (CRM) is concerning on critical importance of clients for every business activity in market economy. And when the economic is uncertain and the surrounding is changing dramatically the customers require with actual value and to get to know them personally, or at lest to foreknow what they want. The main aim of the present article is to show up the importance of customer relationship management for retail trade. The significance of customer relationship management is to lead to satisfied and loyal clients. From one side it is oriented to synchronize relations between the customers and the retail company, from the other side it is dedicated to optimize sources of information for better comprehension of consumer behavior. The CRM also outline the main directions for development of client oriented products, high level consumer service and long term partnership with the company audiences. Key words: Costumer relationship management (CRM). Retail trade, 1. Introduction Under the conditions of market economy, every advantage, based on product, price, place and promotion are not lasting and quickly loses its significance1. In such a situation the customers relationship management (CRM) replaces the traditional marketing model and introduces the relation with the client as the most important factor for the stability of the trade business. Therefore, it will be extremely difficult, even

impossible, to manage the clients; but it is completely right to suggest that it is possible to manage the relations with the customers, hence the desired effects from the trade activity and the improvement of the trade indicators. This requires clarifications of the most important theoretical issues and the issues related to practice and application, in view of the customers relationship management, as every business that neglects the customers fails. From this standpoint we should perceive CRM as a systematic approach, which is manifested as a customers management process in all points of contact, in order to increase the value of the relationships 2. Two3 main factors exist for the growing popularity of CRM: on one side, the fact, that the attraction and the keeping of the client is a main management priority, on the other side, the growing significance of the electronic technologies and Internet for the customer care and as a sale channel, creating a considerable insecurity for the companies. Although there is variety of existing notions for CRM, one should always proceed from the understanding that no universal solutions exist, and that CRM is not the panacea4, which will solve all problems of business. The CRM technology is an instrument of the intelligent company management in the filed of customers relationship, taking into consideration the personal preferences and characteristics. This approach emphasizes the possibility to evaluate the separate clients according to their significance for business by realized sales, profitability and development potential.

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The International Conference on Administration and Business

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2. Literature review The customers relationship management is an example of a technology which provides considerable business usefulness5. At first sight, CRM is a technologically supported resource, allowing the sellers to improve the profitability of the time, invested in sales activities6. However, this does not mean that the technology is at the end of everything; people, the related processes and the qualitative information are also inherently necessary7. The understanding about CRM as a technology must be bound with the formation of an organizational strategy for successful and effective sales. The trade companies should perceive their clients as the most important asset, and the relations with them should be managed, since the customers who have come to us themselves are favourably loyal8, and the attraction or return of one lost client is, from economic point of view, considerably more unfavourable than preserving the existing clients. From this aspect, CRM is a process directed to identification of the clients, creating of knowledge and establishing of partnership relations with the customers and modeling of the relations for better perception of business9. This places the clients in the focus of all activities in the company and defines CRM as numerous activities in the whole organization, directed to guaranteeing of profitability 10, since not continuing the work with the clients is a short-sighted behavior in view of selling 11. CRM may be subdivided into two main types: on one side, operative, and on the other side, analytical. The first one places the accent on achieving the operative effectiveness from the realized trade activity. It combines the optimization of the company costs with the achievement of better justification of the benefit for consumers and efficiency for interest stimulation. The second one is related to the accumulation of considerable arrays of information for the consumers and its utilization, for the purpose of optimizing the company activity and decisions. This allows the creation of an improved network, connecting the trade business with its real and potential targets. Therefore, in most cases CRM will stimulate the information asymmetry in trade exchange, as the traders accumulate considerable information about their clients and their behavior for long periods of time.

This makes it possible to improve the mechanisms for individual stimulation and servicing on one side, and places the client in a more unfavourable position regarding the opportunities for individual choice, on the other side. CRM is also an investment related to understanding the clients12, and it is necessary to proceed from some main stipulations: The marketing approach perceives CRM as a key component of the strategy, aiming at delivering usefulness that exceeds the customers expectations. This approach points out the advantages connected with the economy of time and diligence when solving the clients problem. The inner-directed approach creates a consistently structured portfolio of customers, which may be lost in the mass process of servicing. The gradually accumulated customers data base assists for reduction of the servicing costs, speeding up of the process of successful completion of sales and improvement of the effectiveness purposeful marketing influences. The approach itself is realized through engaging the information resources in the company, which, however, often does not take into consideration the real market situation and the adopted competitive strategy. Under such conditions, the wish to solve the emerged problems does not lead to real benefits for the customer. Defensive approach. With this approach the company which is not a market leader creating innovations, but a follower, adopts a strategy for adapting the experience of others. Therefore, the company accepts and makes a certain sacrifice by beginning to apply market behavior, similar to the one of the market leaders, which allows the company to continue to operate on the same market. In practice, the companies often turn to the realization of one or more of the following strategies: 1. Attraction of new clients such an approach is related to extreme expenses of resources. The main reserves that exist here are related to the defining of the customers target group, the suitable complex of influences that motivate the purchase and a communication strategy for the active customers attraction. 2. Preserving the present customers, focusing on the customers that are

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The International Conference on Administration and Business

ICEA - FAA 2009 14 15 NOVEMBER 2009 http://conference.faa.ro

The Faculty of Business and Administration University of Bucharest

important for the company or have a potential for development. The attention here must be focused mainly on customer satisfaction, as it is well known that the insufficiently satisfied clients spread information about their dissatisfaction to far more people, compared to the situation when they are satisfied. Additional importance is assigned to: customers loyalty, which may be classed in different stages, the cross sales and the purchase frequency. 3. The reactivation is a process of repeated attraction of past customers, which may turn out to be an extremely risky approach. The main considerations are connected with the necessity for active interference and the creation of a complex set of favourable circumstances. Each strategy, related to the successful interaction with the customers requires the realization of a thorough analysis in the following fields: Evaluation of usefulness, or what are the real and potential benefits from the different customers; then, on the basis of this evaluation one should group the customers by appropriate criteria. Customers behaviour, requiring knowledge about the reaction of customers to external incentives. Attitude of customers to the business, the competitors; and the state and evolution of their expectations in the future. In accordance with these considerations, the need for some requirements towards CRM clearly stands out: The system must be open, allowing customer settings according to the specific needs of the business and their development in future. It must perform and control effective distribution of resources among many tasks and users. It must be able to cope with more complex processes and unexpected development. Multitask performance. Network connectivity. Convenient and intuitive graphic interface, easy training. The automation of the routine processes allows the justified definition of the parameters of the segments, serviced by the company, optimization of the product portfolio, minimization of the ineffective articles positions, control of the spent time, etc.

Based on the above, we should view CMR as controlled and well directed servicing during and after the sale, oriented towards customers (see fig.1).

CRM

Figure 1. Operative functions of CRM It is a means, whose effectiveness achieves immediate effects in highly competitive and relatively limited markets, where the effective company performance is reduced to the personal contact between the trader and the customer. The companies, confronting resource limitation and economic instability cannot allow themselves big expenses to ensure marketing research of the market. In such situation, the personal attitude to already established commercial contacts has an exceptional importance and significance. Additionally, all trade techniques for sales incentives, directed to the mass cannot cover specific and desired by the company customer segments and cannot response to their specific needs and requirements. That is why it is expedient for every trade company to accumulate information and to build an effectively structured customers portfolio, which must define mainly the best customers with important contribution for the effects of the commercial activity and the customers with development potential. The competitors monitoring allows detection of early signals for starting market changes and assortment renewal, caused by new needs and preferences of the customers. Therefore, the only way for the trade companies with complex and well diversified product portfolio to compete successfully for preserving the preferences in the mind of the customer, is the individual approach to each customer. Under the conditions of economic downturn, it is especially important for the economic

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The International Conference on Administration and Business

ICEA - FAA 2009 14 15 NOVEMBER 2009 http://conference.faa.ro

The Faculty of Business and Administration University of Bucharest

agents to form adequate proposals at the right time. The main accent must be placed on the mutual benefits for the participants in the commercial exchange, since the trader can apply flexible mechanisms for price offers. Every trade company should concentrate its sales efforts on two main issues: evaluation and additional stimulation of the most important customers, without lowering of the general level of quality of the offered trade service, and intensifying the work with the potential customers and stimulation of their decision for realization of purchase. The main attention in the relationships with the customers should be focused on realization of their expectations according to the promises, formulated in the trade offer. The inadequate satisfaction of consumer expectations may result in a set of negative consequences, related to a serious risk for the trade business. Hence, the application of CMR may reduce the instability of the trade process and stimulate customers loyalty. We should consider loyalty as a balance of the interest of the participants in the exchange, and such a state is achievable with CRM. The application of perfected customer relationships allows the human resource in the trade company to develop their intellectual business potential and to obtain maximum usefulness of the accumulated information about the customers of the company. 3. Factors and measures of effectiveness The main external factors defining the need of integration of CRM in trade business are connected with: Fragmentation of customers market; Increased price sensibility of customers; Growing product diversification and swarming of trade marks; Lessening loyalty to the mark; Rationalization of customer behaviour; Competition mounting; Insecurity and instability of the economic development, etc. In view of the above we could define a system of indicators, helping us to study the CRM functioning. One group of indicators should be directed to assessing the effect and the effectiveness of customers, and another should evaluate the sales personnel activity. The first group of indicators may comprise: Volume of sales per customer;

Purchase frequency; Profit per customer; Inclination for purchase of other products of the company. The second group of indicators, related to sales personnel, may include: Total, average number and structure of the contacts with the customers (visits, telephone calls, e-mail, etc.); Average cost per contact (for existing and new customers); Average and individual productivity of labour; Profitability of sales (total and by separate customers existing and new ones). The evaluation and analysis of the above listed indicators should juxtapose their significance from the moment preceding the CRM integration in the company activity. Additionally, a thorough analysis should be performed, from point of view of the relation among the separate indicators and the possibility to develop continuously the system of indicators, used to assess the effectiveness of customer relationships. Therefore, the responsibilities of the sales specialists are subject to considerable change, they should concentrate their efforts on improvement of customer service. After providing the information, needed by them, they should focus on the interpersonal relations, the art of effective communication and ability to convince. Besides, the processes automation redirects the sales specialist from activities connected with information accumulation to its use. The latter allows the transformation of the collected customers information into a resource allocation, which simultaneously maximizes the customer satisfaction and stimulates the company effectiveness. The participation of the sales specialist and the customer in the mechanism of effective functioning of CRM must be bound with effective instruments for stimulation of the interest of both sides. The motivation of the sales specialist should be developed to an extent, engaging interest and it should lead to improvement of the competency of the seller and clarification of the direct benefits for the seller from the long-term functioning of CRM, and not to threat that the seller is not needed in the exchange process. A serious problem may the rejection of the unfamiliar technology and the need for training and innovation adaptation. This

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The International Conference on Administration and Business

ICEA - FAA 2009 14 15 NOVEMBER 2009 http://conference.faa.ro

The Faculty of Business and Administration University of Bucharest

problem often leads to inaccuracy and errors when creating the customers data base, and the dominant model should be the one, in which the sales role of the trader becomes more complex. On the other side, the consumers culture may be easily motivated in case of clear and well understandable direct benefit, since the past years confirmed many times that every novelty is accepted with mixed evaluations and success by the consumers. Such a situation is a product of the rationalization of consumers habits, dynamic development of needs and necessities, differentiation of consumers segments, oversaturation of market with products, aggressive competition, progress of electronic technologies, etc. The introduction and development of CRM is preconditioned by the improvement of the information technologies and the growth of the electronic business. In 2008 the percentage of companies with personnel of at least 10 employees in EU-27 that used software CRM solutions to analyze customers information for marketing and sales purposes reached 17% and kept the level from the previous 2007. The level of the indicator in the two newest member states is 9% for Bulgaria and 14% for Romania (2007)13. 4. CRM solutions Some key characteristics of the following four of the most famous and largely applied in business software solutions for CRM are enclosed (see Appendix 1): SAP CRM; Microsoft Dynamics CRM; Sage CRM; Oracle CRM. The above systems were built as complex software solutions based on the concept for establishing of close relations with the customers by accumulating different information sources. The automated or semiautomated organizing, coordination and management of uniform arrays of data about customers, sales, competitors, marketing activities, state and development of market creates a proper environment for effective management decision-making and business improvements. Notwithstanding the complexity and complications of the separate class of CRM, they all integrate three basic components:

Marketing, Sales, Service. The creation of sales, stimulated by information for all participants in the sales process establishes a stable sales result and preconditions for its growth. The latter is possible by functional integration of the following tools: Transfer of information between separate components, for example the migration of data POStoCRM; CRM toSCM; CRMtoERP, etc. Marketing undertakings management; E-trade; Libraries with data about customers portfolio and models for evaluation of separate customers and groups of customers: profile, preferences, created deviations, etc.; Modules for connection companyclient: call , e-mail, blog and social groups. 5. Conclusions and implications The market insecurity and the nonpredictability of the financial crises and their dimensions stimulate the development of at least two stipulations: the first is related to sharing the risk among the representative agents of the exchange. The second is related to the desire to share information about the present and expected market development among the market participants, which considerably increases the market effectiveness. Therefore, the market instability initiates information symmetry among the market agents, which results in improvement of the market environment and exchange stabilization. References
1 Wu, I.-L., Wu, K.-W. A hybrid technology acceptance approach for exploring e-CRM adoption in organizations. Behaviour & Information Technology, 2005, Jul/Aug, Vol. 24, Issue 4, p.303. 2 Reinartz, W., Krafft, M., Hoyer, W. D. The Customer Relationship Management Process: Its Measurement and Impact on Performance. Journal of Marketing Research (JMR), 2004, August, Vol. 41, Issue 3, p.294-295. 3 Foss, B. and Stone, M. Successful customer relationship marketing. Kogan Page Publishers, 2001, p.4.

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B. and Stone, M. . , .5. Stein, D. Chaos Theory Invades CRM. Sales & Marketing Management, 2006, Jul/Aug, Vol. 158, Issue 6, p.4. 6 Pushkala R., Wittmann, C. M., Rauseo, N. A. Leveraging CRM for sales: the role of organizational capabilities in successful CRM implementation. Journal of Personal Selling & Sales Management, 2006, Vol. 26 (Winter), Issue 1, p.39. 7 Bailor, C. 10 Technologies That Are Reinventing the CRM Industry. CRM Magazine, 2004, December, Vol. 8, Issue 12, p.44. 8 Bowman, D., Narayandas, D. Managing Customer-Initiated Contacts with Manufacturers: The Impact on Share of Category Requirements and Word-of-Mouth Behavior. Journal of Marketing Research (JMR), 2001, August, Vol. 38, Issue 3, p.294. 9 Srivastava, R. K., Shervani, T. A., Fahey, L. Marketing, Business Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the Discipline of Marketing. Journal of Marketing, 1999, October, Vol. 63, Issue 4, Special Issue, p.169.
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4 Foss,

Landry, T., D.; Arnold, T., J.; Arndt, A. A compendium of sale-related literature in consumer relationship management: processes and technologies with managerial implications. Journal of Personal Selling & Sales Management, 2005, Vol. 25 (Summer), Issue 3, p.231. 11 , . , . . -, ., 2002, . 450. 12 Day, G. S. Winning the Competition for Customer Relationships. Working Paper, 2002, October, The Wharton School, University of Pennsylvania, p.12. (01.06.2009). (http://marketing.wharton.upenn.edu/documents/ research/Winning_the_competition_2002.pdf). 13 Enterprises using software solutions, like CRM to analyse information about clients for marketing purposes. Eurostat. (30.06.2009). (http://epp.eurostat.ec.europa.eu/tgm/table.do?tab =table&init=1&plugin=1&language=en&pcode=ti n00116).
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Appendix 1 Key Features Business Benefits

CRM Software

Components/Services

Optimized sales, service, and marketing processes reduce cost and improve sales and service revenue with greater visibility, integrated analytics, and intuitive user interfaces. Real-time access to customer, product, and service information boost the effectiveness of customer-facing operations by leveraging data in your SAP ERP application. Technology foundation for migrating to the SAP Customer Relationship Management (SAP CRM) application transition from a hosted solution to an on-premise application as your needs evolve.

Marketing Sales Service Contact center E-Commerce

SAP Customer Relationship Management (SAP CRM)

ICEA - FAA 2009

Microsoft Dynamics CRM

Marketing Sales Costumer service

Improved customer satisfaction and loyalty. Rapid ROI. Low total cost of ownership with a software-as-a-service solution. Upgrade path for migrating to the full SAP CRM application. Protection for your current SAP technology investment. Accelerate your revenue growth. Increase your profitability. Improve customer satisfaction. Achieve greater business success.

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Sage CRM

Sales Marketing Customer Care Mobile Solutions Application Integration Productivity Tools Outlook Integration

Business Process Automation: Reduce Costs, Increase Results. Security: Information is PowerData Management Is Easy. Data Model Extensibility: A CRM Solution that Grows with Your Business. Service-Oriented Architecture: Connect for Success. Helps Businesses of All Sizes. Easy to Implement. Enhanced CRM For Even Better Results. Contact and Customer Management Sales Force Automation Marketing Automation Customer Service and Call Center Automation Built-In Reporting and Analysis Windows, Web and Wireless Access

TeleService Field Service Spares Management Advanced Scheduler Mobile Field Service Depot Repair ISupport In/Outbound Telephony Scripting eMail Center

Revenue Enhancement-increased average revenue per sale, customer retention rate, improved close rate, new representative performance, increased number of sales opportunities, share of wallet, customer Life Time Value, campaign response rate, campaign conversion rate, number of campaigns Cost Reduction-reduced customer acquisition cost, training cost, employee turnover rate, order errors, average call time, cost of providing service, campaign execution costs Align marketing, sales and service to overall corporate objectives. Drive profit through selling and service effectiveness. Maximize collaboration across all customer-facing channels; direct, partner, service and ecommerce.

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Marketing TeleSales Sales Proposals Quoting Incentive Compensation Oracle CRM Configurator Advanced Pricing Sales Contracts Partner Relationship Management and Trade Management iStore Source: SAP Customer Relationship Management (SAP CRM), (http://www.sap.com/solutions/business-suite/crm/index.epx). Microsoft Dynamics CRM, (http://crm.dynamics.com/). Sage CRM, (http://www.sagecrmsolutions.com/products/sagecrm), (http://www.bdegroup.co.uk/uploads/documents/CRM%20ROI%20business%20case%20Overview.pdf). Oracle CRM, (http://www.oracle.com/applications/crm/index.html).