CHAPTER I

INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION TO THE RESEARCH STUDY

In modern management new principles and concepts have emerged. During the

mid- 20th century many management philosophers like Peter Drucker, believed that the

purpose of a business is to create a satisfied customer. The market place has been

undergoing changes under the converging pressures of demographics, global politics,

economic upheavals, scientific advancements and social evolutions. Business

organizations were not left apart from this change process. As, the organizations undergo

a change, the role of marketing within these organizations also have undergone a

transformation. It is very well understood that every business organization should be

organized around the latest information and knowledge oriented systems for its survival

in the modern age. Besides they should also be customer-focused, market-driven and

flexible in its ability to deliver superior value to customers who are continuously

modifying their definition of value.

Of late, the Indian corporate has started realizing the importance of customer

oriented practices in their marketing strategies. Much of this strategic shift has been

ascribed to the converging pressures of geo-political realignment and to the emergence of

the internet technology. Even though such a shift would involve heavy resource

commitments, monetary and otherwise, the Indian corporate have taken up this challenge

as a part of their survival in a fast moving market driven economy.

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1.1.1 Marketing in 21st century

The 21st century has seen the advent of the new economy, thanks to the

technology innovation and development. To understand the new economy, it is important

to understand in brief the characteristics and features of the old economy. Industrial

revolution was the starting point of the old economy with focus on producing massive

quantities of standardized products. This mass production was important for cost

reduction and for satisfying the large consumer base, as production increased companies

expanded into new markets across geographical areas. The old economy had the

organizational hierarchy where the top management gave out instructions which were

executed by the middle manager over the workers.

In contrast, the new economy has seen the buying power at all time thanks to the

digital revolution. Consumers have access to all types of information for product and

services. Furthermore, standardization has been replaced by mass customization with a

dramatic increase in terms of product offering. Purchase experience has also changed

with the introduction of online purchase, which can be done 24 7 and products get

delivered at office or home.

Companies have also taken the advantage of information available and are

designing efficient marketing programs across consumers as well as the distribution

channel. Digital revolution has increased the speed of communication with the help of

mobile phones, e-mail, SMS facilities, etc. This helps companies take faster decisions and

implement strategies more swiftly.

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 Marketing is based on identifying, anticipating and satisfying customer needs

effectively and profitably. It encompasses market research, pricing, promotion,

distribution, customer care, brand image and much more. 1 However, marketing is not

just limited to goods and services; it is extended to everything from places to ideas and in

between. This brings forth many challenges within which marketing people have to take

strategic decisions. And answer to these challenges depends on the market the company

is catering to, for consumer market decision with respect to product, packaging and

distribution channel. For business market, knowledge and awareness of product is very

essential for marketing people as businesses are on the lookout to maintain or establish a

credential in their respective market. For global market, marketing people have to

consider not only on cultural diversity but they should also pay respect to international

trade laws, trade agreement, and regulatory requirements of individual market. For non-

profit organizations with limited budgets, importance is related to pricing of products, so

that companies have to design and sell products accordingly.

Marketing philosophy employed by any given company has to be a mix of

organization interest, consumer interest and societal interest. In production

philosophy, companys focus is on numbers, high production count, which reduces cost

per unit and along with mass distribution. This kind of concept is usually adopted in a

developing market where there is the need of product in large numbers. The product

philosophy talks about consumers who are willing to pay an extra premium for high

quality and reliable performance. So companies focus on producing well made products.

The selling concept believes in pushing consumers into buying of products, which under

normal circumstance, they would be resistant. The marketing concept believes consumer
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http://en.allexperts.com/q/Marketing-1090/Real-defination-meaning-marketing.htm

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satisfaction, thereby developing and selling products keeping focus solely on customer

needs and wants. The customer philosophy believes in the creation of customized

products, where in products is design looking at historical transaction of consumers. The

last philosophy is the societal concept which believes in developing products, which not

only generate consumer satisfaction but also take into account well being of society or

environment.

Digital revolution and 21st century have made companies fine tune the way they

conduct their business. One major trend observed is the need of stream lining

processes and systems with the focus on cost reduction through outsourcing. Another

trend observed in companies is, encouragement to entrepreneur style of work

environment with global (global-local) approach. At the same time, marketers of

companies are looking forward to building long term relationship with consumers. This

relationship establishes platform for understanding consumer needs and preference.

Marketers are looking at distribution channels as partners in business and not as

customers. Companies and marketers are making decisions using various computer

simulated models.

1.1.2 Retail Industry

Retail consists of the sale of goods or merchandise from a fixed location, such as

a departmental store, boutique or kiosk, or by mail, in small or individual lots for direct

consumption by the purchaser. Retailing may include subordinated services, like delivery.

Purchasers may be individuals or groups. In commerce, a "retailer" buys goods or

products in large quantities from manufacturers or importers, either directly or through a

wholesaler, and then sells smaller quantities to the end-user. Retail establishments are

4
often called shops or stores. Retailers are at the end of the supply chain. Manufacturing

marketers see the process of retailing as a necessary part of their overall distribution

strategy. The term "retailer" is also applied to service where service provider services the

demands of a large number of individuals, such as a public utility, like electric power.

Shops may be on residential streets, shopping streets with few or no houses or in a

shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping

street has a partial or full roof to protect customers from precipitation. Online retailing, a

type of electronic commerce used for business-to-consumer (B2C) transactions and mail

order, are forms of non-shop retailing.

Shopping generally refers to the act of buying products. Sometimes this is done to

obtain necessities such as food and clothing; sometimes it is done as a recreational

activity. Recreational shopping often involves window shopping (just looking, not

buying) and browsing and does not always result in a purchase.

1.1.3 Types of retail outlets

A marketplace is a location where goods and services are exchanged. The

traditional market square is a city square where traders set up stalls and buyers browse

the merchandise. This kind of market is very old and countless. Such markets are still in

operation around the whole world.

In some parts of the world, the retail business is still dominated by small family-

run stores, but this market is increasingly being taken over by large retail chains.

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Retail is usually classified by type of products as follows:

Food products

Hard goods ("hard line retailers") - appliances, electronics, furniture, sporting

goods, etc.

Soft goods - clothing, apparel, and other fabrics.

Following is the classification of retailers by marketing strategy:

Department stores - very large stores offering a huge assortment of "soft" and

"hard goods; often bear a resemblance to a collection of specialty stores. A

retailer of such store carries variety of categories and has broad assortment at

average price. They offer considerable customer service.

Discount stores - tend to offer a wide array of products and services, but they

compete mainly on price offers extensive assortment of merchandise at affordable

and cut-rate prices. Normally retailers sell less fashion-oriented brands.

Supermarkets - sell mostly food products;

Warehouse stores - warehouses that offer low-cost, often high-quantity goods

piled on pallets or steel shelves; warehouse clubs charge a membership fee;

Variety stores or "dollar stores" - these offer extremely low-cost goods, with

limited selection;

Demographic retailers - aim at one particular segment (e.g., high-end retailers

focusing on wealthy individuals).

Mom-And-Pop - is a retail outlet that is owned and operated by individuals. The

range of products are very selective and few in numbers. These stores are seen in

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local community often they are family-run businesses. The square feet area of the

store depends on the store holder.

Specialty store: A typical specialty store gives attention to a particular category

and provides high level of service to the customers. A pet store that specializes in

selling dog food would be regarded as a specialty store. However, branded stores

also come under this format. For example if a customer visits a Reebok or Gap

store then they find only Reebok and Gap products in the respective stores.

General store - a rural store that supplies the main needs for the local community;

Convenience store: is essentially found in residential areas. They provide limited

amount of merchandise at more than average prices with a speedy checkout. This

store is ideal for emergency and immediate purchases.

Hypermarkets: provides variety and huge volumes of exclusive merchandise at

low margins. The operating cost is comparatively less than other retail formats.

Supermarkets: is a self service store consisting mainly of grocery and limited

products on non food items. They may adopt a Hi-Lo or an EDLP strategy for

pricing. The supermarkets can be anywhere between 20,000 and 40,000 square

feet.

Malls: has a range of retail shops at a single outlet. They endow with products,

food and entertainment under a roof.

Category killers or Category Specialist: By supplying wide assortment in a single

category for lower prices a retailer can "kill" that category for other retailers. For

few categories, such as electronics, the products are displayed at the centre of the

store and sales person will be available to address customer queries and give

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 suggestions when required. Other retail format stores are forced to reduce the

prices if a category specialist retail store is present in the vicinity.

E-retailers: The customers can shop and order through internet and the

merchandise are dropped at the customer's doorstep. Here, the retailers use drop

shipping technique. They accept the payment for the product but the customer

receives the product directly from the manufacturer or a wholesaler. This format

is ideal for customers who do not want to travel to retail stores and are interested

in home shopping. However it is important for the customer to be wary about

defective products and non secure credit card transaction.

Vending Machines: This is an automated piece of equipment wherein customers

can drop in the money in machine and acquire the products.

Some stores take a no frills approach, while others are "mid-range" or "high end",

depending on what income level they target.

Other types of retail store include:

Automated Retail stores are self service stores, robotic kiosks located in airports,

malls and grocery stores. The stores accept credit cards and are usually open

24x7.

Big-box stores. It encompasses larger department, discount, general merchandise,

and warehouse stores.

Convenience store - a small store often with extended hours, stocking everyday or

roadside items;

General store - a store which sells most goods needed, typically in a rural area;

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 Retailers can opt for a format as each provides different retail mix to its customers

based on their customer demographics, lifestyle and purchase behaviour. A good format

will lend a hand to display products well and entice the target customers to spawn sales.

1.1.4 Marketing Mix

The consumer behavior can be influenced favorably by the marketer if the

Marketing Mix strategies are drawn carefully. The marketing mix consists of a

companys service, product offerings to consumers, the methods and tools it selects to

accomplish the exchange. The Marketing mix consists of four elements:

1) The product or service (i.e. the Features, Designs, Brands, and Packaging

offered, along with the post purchase benefits such as Warranties and Return

policies);

2) The Price (the list price, including discounts, allowances, and payment methods);

3) The Place (the distribution of the product or service through specific store and

non-store outlets),

4) The Promotion (the advertising, sales promotion, public relations and sales

efforts designed to build awareness of and demand for the product or service).

1.1.5 Retail FMCG Consumers

Indian Retail industry offers a good attraction not only to the domestic investors

but also to the foreign investors. As such, it would appear that there is potential for per

capita retail consumption in India to more than double as income improves. India's large

population base and the significant number of people who are becoming upwardly mobile

could initiate substantial expansion in demand for retail FMCG products.

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 In addition to the increasing per capita consumption, the more affluent Indian

consumers are also demanding better quality goods and value for money. As evidenced

by the explosion of branded goods in India, international brand franchises seem to be the

benchmark for quality goods. Today, consumers in India are very much aware of

consuming quality products, which are fresh and hygienic. Hence, the market players in

retail industry are now concentrating over offering the hygienic and packed branded

product which gives more value to the consumers. However, Indian retail sector could

not make significant inroads in the domestic market due to several impediments like poor

infrastructure, low procurement of goods, ineffective marketing programmers due to poor

understanding of the retail consumer behavior and dominance of un-organized sector etc.

1.1.6 Customer Relationship Management

For a long time, marketers implemented their 4Ps strategy to attract and satisfy

their target customers. But post-liberalization, the highly competitive and dynamic

business environment has forced the business to think not only to attract but also to retain

their customers, especially profitable ones. This approach of business to build, and

maintain one-to-one life-long relationship with their large number of customers has led to

the emergence of a new term CRM, which stands for Customer Relationship

Management.

Levy and Weitz2, authors of "Retailing Management", defines CRM as, "A

business philosophy and set of strategies, programs, and systems that focuses on

identifying and building loyalty with a retailer's profitable customers." It is based on the

business philosophy that all customers are not profitable in the same way and retailers
2
Michael Levy, Babson College, Barton A. Weitz, University of Florida, ISBN: 0073381047

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can increase their profitability by building relationships with their regular and better

customers. The goal is to develop a base of loyal customers who patronize the retailer

frequently.

This change in perspective is also supported by research findings that it costs up

to 6-8 times more to attract a new customer than to retain an existing customer (Gruen,

1997)3. Moreover, studies have shown that a small proportion of the customer base (20%

or less) accounts for more than 70-80% of firm's revenues and profits.

CRM, as concept, according to Scoot Fletcher, started gaining prominence in

early 1997, and emerged as a management buzz and a topic of interest among business

firms, media, software vendors, management gurus and academic institutions.

In words of Parvatiyar and Seth (2001)4, "CRM is a comprehensive strategy and

process of acquiring, retaining, and partnering with selective customers to create superior

value for the company and the customer." It is a process or methodology used to learn

more about customers' needs and behaviors in order to develop stronger relationships

with them.

Customer Relationship Management is a process or methodology used to learn

more about customers' needs and behaviors in order to develop stronger relationships

with them. There are many technological components to CRM, but thinking about CRM

in primarily technological terms is a mistake. The more useful way to think about CRM is

as a process that will help bring together lots of pieces of information about customers,

sales, marketing effectiveness, responsiveness and market trends. CRM helps businesses

3
Gruen, T.W. (1997), ``Relationship marketing: the route to marketing efficiency and
effectiveness'', Business Horizons, Vol. 40 No. 6, pp. 32-8.
4
Atul Parvatiyar & Jagdish N. Sheth, Journal of Economic and Social Research vol. 3(2), pp 1-34, 2001

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friendly technology and human resources to gain insight into the behavior of customers

and the value of those customers.

1.1.7 Consumer Behaviour

The changing income demographics, age profile and macro environment are

visible in the growth of consumption of products. Customers are changing. Earlier loyalty

was given prime consideration. Higher business risk owing to dynamism in customers

expectation, innovative strategies by the competitors and other macro level changes

demands the contemporary managers to be strategic with regard to maintaining profitable

customer relationship through product and process design, pricing, product mix and

distribution decisions. It becomes very important for the marketing managers to study the

behaviour of the target customers in a systematic way.

Generally speaking, behavior is the response to stimuli. For a consumer, the usual

stimulus is a product anything that possesses want-satisfying capability. In simple

words Consumer Behaviour can be defined as the set of activities and actions of

consumers in purchasing and using goods and services. However, it involves a study of

buying motives in order to examine the selection criteria of the consumers for the

products they choose and what motivates them to behave as they do in the market places.

Consumer behavior focuses on how individuals make decision to spend their available

resources like time, money and effort on consumption related items.

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1.2 INTRODCUTION TO CRM

This topic deals with the conceptual framework of customer relationship

management.

Customer wants cost-effective products or services that deliver required benefits

to them. Any single product or service can deliver different benefits to different

customers. So it is important to look at things from the customers perspective even at

this level. More significantly however, customers want to have their needs satisfied.

Customers needs are distinctly different to and far broader than a product or service.

Now the question arises as why organizations could manage or worried about customer?

Because customers are the usual source of income for the organizations. Customers are

also an exceptional source of information information which is vital to enable a

business to succeed.

By taking the above said factors into consideration, Customer Relationship

Management (CRM) refers to the methodologies and tools that help business manage

customer relationships in an organized way. CRM is a customer-centric business strategy:

which dictate re-designing of functional activities; which drive re-engineering of work

processes and which require CRM technology to implement.

1.2.1 An overview of Customer Relationship Management

Since the late 1990s CRM has become a buzzword especially among business

practitioners and consultants, companies have invested or are planning to invest huge

amounts to implement CRM strategies, tools and infrastructure in order to win the battle

in todays growing market. Collaborative business that interlinks the supply chain with

the demand chain (customer facing activities) and form an extended value chain, governs

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the success or failure of businesses. The purpose of this book is to highlight the

improvement of CRM in business growth and how CRM is entering the main stream of

business thinking despite the uncertainties and weak corporate spending.

Todays companies operate within a complex economic environment featuring

continuous and radical changes owing to the steady arrival of new kind of competition.

So many factors push companies in the direction of chance, including the market and the

development of new technologies. The relationship between company and customers are

confliction in nature and limited to the negotiation (quality, price, delivery terms etc.) and

service provision phases.

Therefore, companies have to adopt a relational approach, that is to say a strategy

meant to develop and reinforce steady and durable relationships with customers, who

become active partners in the process of innovating and creating value to create loyal

customers for the organization.

According to Berry (1983), Marketing is the establishment, maintenance and

reinforcement (usually, though not always, on a long-term basis) of relationship with

customers and other partners, in order to achieve the objectives of all the parties involved.

This is obtainable through a reciprocal exchange and keeping of mutual promises. In

fact the more the company knows about market structure and dynamics, the better it can

focus its efforts on the more promising opportunities, in order to offer value added

service to its customers.

If there is any one P that is dominating the marketing world, it is psychology

and like that first silent P, any marketer today needs to get into the mind of todays

consumer, understand his dreams, aspirations and desires. Whenever a customer

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approaches the business, they arrive with an expectation. It may be a service need, or a

new product interest, but in every case, they have an expectation that accompanies their

interest in the business. A good experience may increase their loyalty and tendency to

purchase again. A poor experience may transfer their business to your competitor. The

ability to recognize this process and activity manage it forms the basis for CRM.

1.2.2 Why CRM in this Era?

Traditionally business competed with others on the basis of price or the product

features or by locating them at the place they are in demand. But in the present day

environment, it is very difficult to compete on the basis of product features alone as so

many technologies exist that facilitate near replication of functions and features, taking

away the first mover advantage. The time lag before the competition catches up is very

small. Pricing is a major differentiator in many cases, but it does not have the same effect

any longer. Location is the oldest form of differentiator, but with e-commerce, the world

has become smaller and this form of competitive advantage has also gone. But most

important of all, the change is shifted from product related differentiation to service

related differentiation. Customers are no longer satisfied with only products but expect

the best possible service. Similarly the size of the company, mass production capabilities,

economics of scale all have lost their relevance. Thanks to the huge volumes of

information available on the Internet, the customer has become knowledgeable and the

balance of power is shifted towards the customers. Customers can access any information

about a product or service or any other issue in real time. This is no doubt facilitating the

customer into taking an informed decision, but posing a great challenge to the businesses

in satisfying these knowledgeable customers. With all the necessary information at their

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command, the customer has become very choosy and demanding. The scales now clearly

titled in favor of the customer.

Another factor is customer experience. Paul Greenberg (2001) author of popular

CRM at the speed of Light says, When customers approach a business for a product or

service, they also have an expectation associated with their interest. The completed

transaction leaves some kind of experience in the minds of the customers with regard to

their expectation. If the experience is pleasant the customers will repurchase or

otherwise they will not. Many surveys conclusively proved that repeat purchases are

based on customer satisfaction and experience with that company.

In the face of highly demanding customer, increasing competition, mature

markets, lowering product, price differentiation, and the new reality had dawned on to the

business that only paved way to sustain revenues and growth by treating the existing

customers well and providing best experience to them. Various studies have brought out

that it is 7 to 10 times more expensive to attract a new customer than retraining the

existing ones. Further a satisfied customer can discourage many potential customers.

Business clearly understood that the only way for survival and growth is by ensuring that

the customer comes back to them in future. A study by PricewaterhouseCoopers (PWC)

found a strong correlation between the customer satisfaction and customer retention. The

study found that 95% of the customers would come back if they perceive the service as

Excellent and this is dropped significantly to 60% if service level is perceived as

good. This study also found that the revenues improve only when needs of the

customers are well understood and the organization fulfils those needs effectively by

offering suitable products or services. Organizations have become alive to these

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important findings and many of them are making sincere attempts to serve the customer

better. This is reflected in IBMs philosophy when they say that they did not sell products

but sold solutions.

1.2.3 Definitions of CRM

CRM (Customer Relationship Management) is a comprehensive strategy and

process of acquiring, retaining and partnering with selective customer to create superior

value for the company and the customer. (Kotler, 2000)

In simple terms, Customer Relationship Management is the utilization of wide

range of marketing, sales, promotional techniques and processes to identify create and

manage a customer. Berry first used the term Customer Relationship Management to

establish, maintain and enhance relationship with customers and other partners for a

profit so that the objective of the parties involved are met.

According to Scoor Fletcher, CRM as a concept started since early 1997 and also

generated huge interest among business, technology, media and academic institutions.

Each one of these organizations defined CRM as they perceived and practiced it or

depending on their interests. This has resulted in hundreds of definitions and created great

amount of confusion. So far there is no universally accepted definition.

Some of the well recognized definitions are as follows:

CRMGuru.com, a well known group of CRM experts, defines CRM as a

business strategy to acquire and retain the most valuable relationships. CRM requires a

customer centric business philosophy and culture to support effective marketing, sales

and service processes.

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 The London Chartered Institute of Marketing defines CRM as a comprehensive
approach that provides seamless coordination between sales, customer service,
marketing, field support and other customer touching functions. CRM integrates people,
processes and technology to maximize relationships with all your customers including e-
customers, distribution channel members, internal customers and suppliers through the
integration of people, process and technology, while taking advantage of revolutionary
impact of Internet.

According to Paul Greenberg (2001), CRM is a complete system that:

1) Provides a means and method to enhance the experience of individual customers

that they remain customers for life.

2) Provides the technological and functional means of identifying, capturing and

retaining customers

3) Providing a unified view of the customer across the enterprise.

Lawrence Handen (2000) defines CRM as a Process of acquiring, retaining and

growing profitable customers.

Hewlett Packard defines CRM as Business strategy that involves focusing

knowledge business process and organizational structures around customers and

prospects enterprise wide.

Jill Dyche defines CRM as The infrastructure that enables the delineation of and

increase in customer value and the correct means by which motivate valuable customers

to remain loyal indeed to buy again.

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 Ronald S Swift defines CRM as, an enterprise approach, to understanding and

influencing customer behavior through meaningful communications in order to improve

customer acquisition, customer retention, customer loyalty and customer profitability.

So in short CRM is an integrated approach to identify, acquire and retain

customers.

1.2.4 CRM Strategy and Technology

FIGURE 1.1

CRM Strategy and Technology

CRM Tactics
Organizational CRM Strategy CRM Plans CRM Objective
Implement 24 x 7
Goals Establish Long-term Invest in CRM 60% customer
call centers
Profitability etc. Relationship technologies retention
(technology)

Source: Developed from article by Ronnie T Marshak

1.2.5 CRM drives and key factors

The number of factors has contributed to the growing relevance of CRM as a

source of competitive advantage. Drives are subdivided into four classes as: -

Market drivers

Customer related drivers

Business drivers

Technological drivers

In the past, a few companies have begun CRM projects, but the major problem is

that they neither identify an appropriate strategy which is able to support the business

goals nor focus on change management initiatives.

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 The creation of a customer relationship strategy is the very first step in a CRM

project which requires knowledge, listening, and evaluation of results.

Through new approaches and use of the available technology it is now possible to

understand the actual needs of a customer, so as to operate on an ad hoc basis and offer

services to each customer segment through the most suitable channel (branch, ATM,

Mailing, E-mail, Financial Promoters, Remote banking with customized browser

interface, telephone banking, interactive TV. etc.). The highlights on major drivers and its

impacts are as follows: -

1.2.6 CRM drivers and impacts

Market Drivers Impacts

Competitive environment, An effective CRM strategy is now a days a

standardization of products and services, critical factor in achieving objectives such
reduced switching costs, aggressive price as differentiation and customer loyalty.
competition and saturation/maturity of
markets.
Customer Drivers Impacts
End of mass marketing, growing Today, Customer is the king. Customers
importance of one to one relationships. can better evaluate the purchase
convenience as they have wide range of
personalized products and services and can
demand high level post-sales assistance.
The traditional four Ps of the marketing
mix have been replaced by the four Cs of
rational marketing Costs, Convenience,
Communication and Customer needs and
wants.

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Business Drivers Impacts
80/20 rule (80% of profits are produced Production of added value for customers is
by 20% of customers); acquiring new the real source of a companys competitive
customers is much more expensive than advantage.
maintaining existing ones; loyal
customers are more profitable than new
ones; a longer customer relationship
brings higher profits.
Technology Drivers Impacts
Development of interactive IT and Internet allow the use of new
communication tools such as call center, channels to enhance the retention rate of
development of front office solutions of profitable customers while reducing the
data mining etc. service costs of the less profitable ones.

1.3 IMPORTANCE OF THE STUDY

CRM is an iterative process that turns customer data into customer loyalty
through four sequential activities shown in the CRM Model.

FIGURE 1.2

CRM Model

LEARNING Analyzing Customer Data

Collecting
Customer Data and Identifying Target
Customers

CUSTOMERS

Implementing CRM ACTION Developing CRM Strategies /

Strategies / Programs
Programs

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 CRM is a new phenomenon in retailing industry. It is only the big retailers who

have understood the potential and installed CRM systems to identify and track customer

purchases and take appropriate management decisions, especially on managing customer

relationships.

Now, organized retailers like Big Bazaar, Westside, Shoppers' Stop, etc., have

started concentrating on providing more value to their valuable customers using targeted

promotions and services to increase their share of wallet, i.e., the percentage of the

customers' purchase made from these retailers with these customers. Almost all of them

have started Loyalty Programs, i.e., frequent shoppers program in order to reward the

existing customers. These programs help the retailers in increasing the number of

footfalls as well as enhancing their sales revenues and profits. For example, Shoppers'

Stop, one of the leading apparel retailer in India, had net sales of Rs. 1.6 Billion,

increasing net profits by 96% with the company's loyalty program, First Citizen Club (a

CRM program) accounting for 63% of the sales. (Source: Economic Times, August 12,

2006).

In organized retail where the market is stable and where there is high switching

and low involvement and low risk, consumer behavioral measures are appropriate for

predicting future brand loyalty. Due to liberalization and globalization Indian retailing

has attained huge growth in terms of size, business volumes, product availability and

other marketing related activities. Consumers are highly complex individuals, subject to a

variety of psychological and sociological needs apart from their survival needs. Needs

and priorities of different consumer segments differ drastically. In this competitive era, a

large number of organized retail brands are available to consumers and the study

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examines how they prefer to buy from the quantum. Consumers are extremely aware of

the various brands in the market and are conscious of the products they use or consume.

They pick and choose carefully according to their needs, styles and preferences, for

buying or consuming the product.

Through this study, the wish is to provide valuable insights to the marketers on

the level of brand consciousness among FMCG retail stores, consumers and its influence

on their buying behavior. Thus, enabling them to formulate their marketing strategies

based on the findings. Further, the wish is also to study what the retail FMCG consumer

is actually looking for in a branded product, whether consumers value, only branded

products or give equal value for unbranded product from unorganized sector. The

importance of the study extends to help the firm to take an active role in anticipating the

consumer needs and wants, shaping their desires and aspirations and solving many of the

consumers day -to-day problems in retail FMCG purchases by understanding consumer

behavior.

1.4 STATEMENT OF THE PROBLEM

With the passage of time, the characteristics and the number of activities in

retailing as well as approaches to manage customer relationship in retail sector have

changed across the globe, including India. CRM has emerged as the latest buzzword in

retailing, especially in organized retail sector, and an important tool to enhance retailer

performance. But, before understanding CRM in this sector, one must know the dynamic

retailing scenario in India.

Most of the studies conducted in retail industry have focused mostly on the

procurement, logistics and pricing problems. Only few studies on buying pattern of

23
retailing FMCG consumers and customer relationship management have been conducted.

Similarly, though much research has been done into the product attributes and benefits,

only few studies deal with the elements of CRM and consumer behavior in formulation of

marketing mix strategies.

In order to bridge this gap in this important area of marketing the present study

titled Integrating the CRM Strategies for Organized FMCG Retail units in Chennai

district towards customer loyalty was undertaken.

The present study has two dimensions to it, viz,

a) To study the CRM STRATEGIES of the Organized Retailing units

b) To study the Organized FMCG Retail units Customer loyalty and relationship

strategies on service marketing perspectives.

1.5 OBJECTIVES OF THE STUDY

1. To assess the extent to which socio-economic characteristics have a significant

effect on the buying pattern of the consumers among organized FMCG Retail

units.

2. To identify the CRM factors integrating retail business with reference to select

retail outlets in Chennai district.

3. To know the brand awareness, brand consciousness and brand loyalty of the

consumers with retail organizations.

4. To find out the contemporary strategies of retail outlets for improving the

business.

5. To identify the factors influencing the brand preference and satisfaction level of

organized FMCG Retail units.

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 6. To know the consumers opinion towards the services of organized FMCG Retail

units with the CRM perspective.

7. To study the importance of CRM strategy for retail business in modern retail

business.

8. To analyze the employees characteristics of select organized retail outlets with

their retailing and CRM practices.

9. To suggest appropriate marketing mix strategies for influencing the consumption

pattern and buying behavior of organized FMCG Retail units.

10. To find out the effectiveness of employees in CRM practices with regard to the

organized retail outlets in Chennai district.

1.6 FORMULATION OF HYPOTHESIS

1. There is no close relationship between satisfaction levels and the characteristics of

the employees who are working in the organized retail stores.

2. There is no close relationship between satisfaction levels of respondents for all the

listed Pricing aspects in retail outlets.

3. There is no close relationship between characteristics of the employees and the

satisfaction level of customers of organized retailing.

4. The overall satisfaction level is similar for all the listed e-CRM factors in

retailing.

5. There is no close relationship between free home delivery and average number of

items purchased.

6. There is no close relationship between awareness of the organized retail outlets

that does not depend on the Family income of the customers.

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 7. There is no close relationship between awareness of the organized retail outlets

that does not depend on the Education of the customers.

8. There is no close relationship between the opinions about the various aspects in

increasing the CRM practices that are not significantly different.

9. There is no correlation between purchasing pattern and demographic factors of

respondents.

1.7 RESEARCH METHODOLOGY

1.7.1 Research Area of the study

The present study was carried out in Chennai District. The study area covers high-

density areas, where the highest Organized FMCG retail outlets are located. Chennai is

the capital city of Tamilnadu. This location was chosen, since it constitutes the main

market for branded retail stores. In order to study only the branded stores like Reliance

fresh, Spencers Daily, Nilgiris, More and Big Bazaar are selected. During the time, in

which the research was conducted, branded products were widely available in and

through various outlets making it has become possible to assess consumption pattern and

buying Behaviour of the branded retail store consumers.

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 TABLE 1.1

Company wise sample distribution

Sample Distribution
Sl.No Retail Store
Employees Customers Total
1 Reliance Fresh 38 72 110
2 Spencers Daily 38 72 110
3 Nilgiris 38 72 110
4 More 38 72 110

5 Big Bazaar 38 72 110

6 Star India Bazaar 37 73 110

Total 227 433 660

Sample distribution for consumers and executives:

The survey has been taken from 227 employees of various organized retail outlets

and 433 customers who are coming to those organized retail outlets.

1.7.2 Sampling frame

Universe: Retail Consumers of FMCG products and merchandising employees of retail

units in Chennai district

Sampling Unit: The sampling unit was limited to selected areas of Chennai district. They

include employees working in organized retail outlets and customers who shop there.

Sample Size: 433 customers and 227 employees of organized retail outlets.

27
1.7.3 Sampling Design

The samples were carefully selected, which were typical and true representatives

of the total population. The selection of the samples has been made without partiality and

bias. First, the list of retail stores in Chennai district was collected. Then, Lottery

Method of Simple Random Sampling was used to select the retail stores in Chennai

district for the study.

Judgment Sampling was used to identify the Customers and Convenience

Sampling was used to select the employees in the selected stores for the study. 660 target

respondents constitute the sample size for the study.

1.8 DATA COLLECTION

1.8.1 Primary data

The primary instrument for data collection in this research was well- structured

questionnaire. A detailed questionnaire was prepared to know the buying pattern and to

seek the opinion of the consumers who responded to the same.

Initially, before asking questions, a good rapport was established and good co-

operation of the consumers was solicited. Then the questions were asked in a structured

order. All kind of doubts of the consumer was clarified to get the most truthful answer

from the consumer.

1.8.2 Secondary data

Secondary data were collected from previous dissertations, Research papers,

Marketing Journals, Magazines, Text books and websites.

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1.8.3 Pilot Study

After the formulation of the questionnaire, Pilot study was conducted. A sample

of 60 from the population was selected. Based on the answering of the questionnaires and

also based on the suggestions of the respondents, relevant modifications were done to the

research instrument after which the questionnaire was finalized.

1.8.4 Data analysis

Primary data (mainly quantitative) generated by the study were cleaned to ensure

consistency and transcribed in coded form into the computer using the Statistical Package

for Social Sciences (SPSS).

1.8.5 Statistical Tools Used in Analysis

To analyze the level of preference among the retail store brands, the data were

collected from the different types of respondents based on their Educational

Qualifications, Occupation, Family Size, Monthly Income, Amount spent on retail store

per month, Type of Retail store, Quantity of Retail store Purchase, Place of Purchase and

Mode of Payment which were studied by means of Percentage Analysis, ANOVA, T-

Test, correlation analysis, multiple linear regression and factor analysis as and when

they were found necessary. The different tools of analysis and the variables studied are as

follows:

ANOVA

Analysis of variance (ANOVA) is a collection of statistical models, and their

associated procedures, in which the observed variance in a particular variable is

partitioned into components attributable to different sources of variation. In its simplest

29
form ANOVA provides a statistical test of whether or not the means of several groups are

all equal, and therefore generalizes t-test to more than two groups. Doing multiple two-

sample t-tests would result in an increased chance of committing a type I error. For this

reason, ANOVAs are useful in comparing two, three or more means.

Study designs and ANOVAs

There are several types of ANOVA. Many statisticians base ANOVA on the

design of the experiment, especially on the protocol that specifies the random assignment

of treatments to subjects; the protocol's description of the assignment mechanism should

include a specification of the structure of the treatments and of any blocking. It is also

common to apply ANOVA to observational data using an appropriate statistical model.

One-way ANOVA is used to test for differences among two or more independent

groups (means), e.g. different levels of urea application in a crop. Typically, however, the

one-way ANOVA is used to test for differences among at least three groups, since the

two-group case can be covered by a t-test. When there are only two means to compare,

the t-test and the ANOVA F-test are equivalent; the relation between ANOVA and t is

given by F = t2.

t-TEST
A t-test is any statistical hypothesis test in which the test statistic follows a

Student's t distribution if the null hypothesis is supported. It is most commonly applied

when the test statistic would follow a normal distribution if the value of a scaling term in

the test statistic were known. When the scaling term is unknown and is replaced by an

estimate based on the data, the test statistic (under certain conditions) follows a Student's

t distribution.

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Uses

Among the most frequently used t-tests are:

A one-sample location test of whether the mean of a normally distributed

population has a value specified in a null hypothesis.

A two sample location test of the null hypothesis that the means of two normally

distributed populations are equal. All such tests are usually called Student's t-tests,

though strictly speaking that name should only be used if the variances of the two

populations are also assumed to be equal; the form of the test used when this

assumption is dropped is sometimes called Welch's t-test. These tests are often

referred to as "unpaired" or "independent samples" t-tests, as they are typically

applied when the statistical units underlying the two samples being compared are

non-overlapping.

A test of the null hypothesis that the difference between two responses measured

on the same statistical unit has a mean value of zero. For example, suppose we

measure the size of a cancer patient's tumor before and after a treatment. If the

treatment is effective, we expect the tumor size for many of the patients to be

smaller following the treatment. This is often referred to as the "paired" or

"repeated measures" t-test:

A test of whether the slope of a regression line differs significantly from 0.

Calculations

Explicit expressions that can be used to carry out various t-tests are given below.

In each case, the formula for a test statistic that either exactly follows or closely

approximates a t-distribution under the null hypothesis is given. Also, the appropriate

31
degrees of freedom are given in each case. Each of these statistics can be used to carry

out either a one-tailed test or a two-tailed test.

Once a t value is determined, a p-value can be found using a table of values from

Student's t-distribution. If the calculated p-value is below the threshold chosen for

statistical significance (usually the 0.10, the 0.05, or 0.01 level), then the null hypothesis

is rejected in favor of the alternative hypothesis.

Independent two-sample t-test

Equal sample sizes, equal variance

This test is only used when both:

the two sample sizes (that is, the number, n, of participants of each group) are

equal;

it can be assumed that the two distributions have the same variance.

Violations of these assumptions are discussed below:

The t statistic to test whether the means are different can be calculated as follows:

X1 X2
t
2
S X 1X 2 .
n

where

1 2
S X 1X 2 (S X 1 S X2 2 )
2

Here is the grand standard deviation (or pooled standard deviation), 1 = group one, 2 =

group two. The denominator of t is the standard error of the difference between two

means.

32
For significance testing, the degree of freedom for this test is 2n 2 where n is the

number of participants in each group.

Unequal sample sizes, equal variance

This test is used only when it can be assumed that the two distributions have the

same variance. (When this assumption is violated, see below.) The t statistic to test

whether the means are different can be calculated as follows:

X1 X2
t
1 1
S X 1X 2 .
n1 n2

where

(n1 1)S X2 1 (n2 1)S X2 2

S X 1X 2
n1 n2 2

Note that the formulae above are generalizations of the case where both samples have

equal sizes (substitute n for n1 and n2).

is an estimator of the common standard deviation of the two samples: it is

defined in this way so that its square is an unbiased estimator of the common

variance whether or not the population means are the same? In these formulae, n

= number of participants, 1 = group one, 2 = group two. n 1 is the number of

degrees of freedom for either group, or the total sample size minus two (that is, n1

+ n2 2) is the total number of degrees of freedom, which is used in significance

testing.

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CORRELATION

Correlation refers to any of a broad class of statistical relationships involving

dependence. Correlations are useful because they can indicate a predictive relationship

that can be exploited in practice. For example, an electrical utility may produce less

power on a mild day based on the correlation between electricity demand and weather. In

this example there is a causal relationship, because extreme weather causes people to use

more electricity for heating or cooling; however, statistical dependence is not sufficient to

demonstrate the presence of such a causal relationship.

In loose usage, correlation can refer to any departure of two or more random

variables from independence, but technically it refers to any of several more specialized

types of relationship between mean values. There are several correlation coefficients,

often denoted or r, measuring the degree of correlation. The most common of these is

the Pearson correlation coefficient, which is sensitive only to a linear relationship

between two variables (which may exist even if one is a nonlinear function of the other).

Other correlation coefficients have been developed to be more robust than the Pearson

correlation that is, more sensitive to nonlinear relationships.

Pearson's product-moment coefficient

The most familiar measure of dependence between two quantities is the Pearson

product-moment correlation coefficient, or "Pearson's correlation." It is obtained by

dividing the covariance of the two variables by the product of their standard deviations.

34
Karl Pearson developed the coefficient from a similar but slightly different idea by

Francis Galton.

The population correlation coefficient X ,Y between two random variables X and

Y with expected values X and Y and standard deviations X and Y is defined as:

cov( X , Y ) E[( X X )(Y Y )]

X ,Y corr ( X , Y )
X Y X Y

where E is the expected value operator, cov means covariance, and, corr a widely used

alternative notation for Pearson's correlation.

MULTI REGRESSION ANALYSIS

Regression is a statistical relationship between two or more variables. When there

are two or more independent variables, the analysis that describes such relationship

among the variables is called the multiple regressions. This analysis is also adopted when

one dependent variable is performing the function of two or more independent variables.

In multiple regressions, a linear composite of explanatory variables is formed in such a

way that it has maximum correlation with an active criterion variable. The main objective

for using this technique is to predict the variability of the dependent variable based on its

co-variants with all the other independent variables. It is useful in predicting the level of

the dependent phenomenon, if the levels of independent variables were given. The linear

multiple regression problem is to estimate the coefficients 1, 2 j and 0 such that

the expression,

Y 0 1 X1 2 X2 .......... .. j Xk ; Where k = 1,2,3.

provided a good estimate of an individual Y score based on the X scores.

35
 Where,

Y = level of preference to the retail store

X1 = Educational Qualification

X2 = Occupation

X3 = Family Size

X4 = Monthly Income

X5 = Amount spent on retail store per month

X6 = Type of Retail store

X7 = Quantity of Retail store Purchase

X8 = Place of Purchase

X9 = Mode of Payment

and 0,1,2, j are the parameters to be estimated

MULTIPLE LINEAR REGRESSION

Multiple linear regression (MLR) is a multivariate statistical technique for

examining the linear correlations between two or more independent variables

(IVs) and a single dependent variable (DV).

Research questions suitable for MLR can be of the form "To what extent do X1,

X2, and X3 (IVs) predict Y (DV)?" e.g., "To what extent does age, gender, and

average amount of red meat eaten per week (IVs) predict people's levels of blood

cholesterol (DV)"?

MLR analyses can be visualized as path diagrams and/or Venn diagrams

36
Assumptions

Level of measurement

1. IVs: MLR involves two or more continuous (interval or ratio) or dichotomous

variables (may require recoding into dummy variables)

2. DV: One continuous (interval or ratio) variable

Sample size (some rules of thumb):

1. Total N based on ratio of cases to IVs:

a. Min. 5 cases per predictor (5:1) (basically, you need enough data to

provide reliable correlation estimates)

b. Ideally 20 cases per predictor (20:1), with an overall N of at least 100;

this allows sufficient power to detect a medium ES of R2 of .13

(Francis, p. 128))

2. Total N based on a constant plus ratio of cases to IVs:

a. Tabachnick and Fidell (2007) suggest that N should ideally be 50 + 8(k)

for testing a full regression model or 104 + k when testing individual

predictors (where k is the number of IVs).

Linearity

1. Are the bivariate relationships linear?

2. Check scatterplots and correlations between the DV (Y) and each of the

IVs (Xs)

3. Check for influence of bivariate outliers

37
Homoscedasticity

1. Are the bivariate distributions reasonably evenly spread about the line of

best fit?

2. Check scatterplots between Y and each of Xs and/or check scatterplot of

the residuals (ZRESID) and predicted values (ZPRED))

Multicollinearity

1. Is there multicollinearity between the IVs? (i.e., are they overly correlated

e.g., above .7?)

2. Check scatterplots and correlations between each of the Xs and/or check

the collinearity statistics in the Coefficients table:

a. The Variance Inflation Factor (VIF) should be low (< ~3-10) and

tolerance should be high (> .1 to .3) (Note that TOL=1/VIF).

Multivariate outliers

1. Check whether there are influential multivariate outlying cases using

Mahalanobis' Distance (MD) & Cooks D (CD).

2. Using PASW: Linear Regression - Save - Mahalanobis and Cook's D - OK

a. New variables called mah_1 and coo_1 will be added to the data file.

b. Check the Residuals Statistics table in the output for the maximum MD

and CD.

3. The maximum MD should not exceed the critical chi-square value with

degrees of freedom equal to number of predictors, with critical alpha =.001.

CD should not be greater than 1.

38
 4. If outliers are detected, check each case, and consider removing the case from

the analysis.

5. See also Francis 5.1.4.2 Screening for influential case

Normality of residuals

1. Residuals are more likely to be normally distributed if each of the variables

normally distributed

2. Check histograms of all variables in an analysis

3. Normally distributed variables will enhance the MLR solution

FACTOR ANALYSIS

Factor analysis is a statistical techniques to study the inter-relationships

among the variables in an effort to find a new set of factors, fewer in number than the

original variables so that the factors are common among the original variables. In factor

analysis a small number of common factors are extracted so that these common factors

are sufficient to study the relationships of original variables. Factor analysis helps to

reduce the number of variables to be analyzed, thereby making the analysis easier. Using

Factor Analysis can reduce the large number of variables into a few dimensions called

factors that summarize the available data. It aims at grouping the original input variables

into factors which underlying the input variables.

Terminology in Factor Analysis

Factor: A factor is an underlying construct or dimension that represents a set of

observed variables. In the credit card company for example, the demographic

characteristics, socio economic status and background status represent a set of

variables.

39
 Factor Loadings: Factor loading help in interpreting and labeling the factors. It

measures how closely the variables in the factor are associated. It is also called

factor-variable correlation. Factor loadings are correlation coefficients between

the variables and the factors.

Eigen Values: Eigen values measure the variance in all the variables

corresponding to the factor. Eigen values are calculated by adding the squares of

factor loading of all the variables in the factor. It aid in explaining the importance

of the factor with respect to variables. Generally factors with eigen values more

than 1.0 are considered stable. The factors that have low eigen values (<1.0) may

not explain the variance in the variables related to that factor.

Communalities: Communalities, denoted by h2, measure the percentage of

variance in each variable explained by the factors extracted. It ranges from 0 to 1.

A high communality value indicates that the maximum amount of the variance in

the variable is explained by the factors extracted from the factor analysis.

Total Variance explained: The total variance explained is the percentage of total

variance of the variables explained. This is calculated by adding all the

communality values of each variable and dividing it by the number of variables.

Factor Variance explained: The factor variance explained is the percentage of

total variance of the variables explained by the factors. This is calculated by

adding the squared factor loadings of all the variables and dividing it by the

number of variables.

At most care was taken in applying the test on samples and the results will be put in the

findings of the study.

40
1.9 PERIOD OF THE STUDY

The period of the research study is four years. The first six months was put to

collect the review of literature and identify the research gap. Another six months were

spent to draft the research design, to prepare data collection instrument and to conduct the

pilot study. After finalizing the questionnaire, two years have been spent to collect the

data from the target respondents. It took six months to analyze and interpret the collected

data and four months to prepare the thesis.

1.10 SCOPE OF THE STUDY

In the globalised era, the Indian retail is in the stage of transition. The country has

moved from retail store scarcity to an era of abundance. Till now, the retail business in

India merely means retail store production. To sustain and enhance retail business, firms

need to focus its efforts on marketing.

A thorough understanding of consumer awareness and preference is essential for

marketing retail store. A study of this kind will facilitate in understanding the

consumption pattern and buying behavior of the retail store consumers. It will help in

market segmentation and to evolve suitable strategies for effective implementation into

the defined market segments. The firm could also take an active role by anticipating

consumer needs and wants, shaping their desires and aspirations and solving many of the

consumers day-to-day problems in retail store purchase by understanding consumer

behavior. Such knowledge would help organized dairies to evolve a better marketing

policy for creating goodwill and in building a sound reputation.

41
 In order to develop successful marketing strategies marketers must understand

consumer behavior of the target segment, keeping in view of environmental influences,

individual differences and psychological processes on which a consumer takes decision.

Once the influencing variables have been identified, the marketers can manipulate them

so as to induce a positive purchase decision on the part of their consumers.

Consumer awareness and their knowledge on rationale of processing of retail

store and retail store variants with different levels provide a framework to the marketers

for designing the marketing communication which strike the target audience precisely. In

this transition stage of retail development, the firms marketing branded retail store need

to focus on market segmentation so that they could identify the profile of distinct buyer

groups who may require variants in retail store. The mass markets have to be

demassified. Firms can also understand the product-wise buying behavior of their

consumers in the fast changing socio-economic environment and plan their production

and marketing programmes accordingly.

In consumable market like retail store market where the market is stable and

where there is high switching and low involvement and low risk, consumer behavioral

measures are appropriate for predicting future brand loyalty. In todays market where no

branded retail store brand can distinctively claim differentiation of features it is important

for the firms to assess its committed customer base.

Hence, the present study is undertaken to evaluate the present scenario.

42
1.11 LIMITATIONS OF THE STUDY

The study has the following limitations:

1. The Universe being large, the study was restricted to consumers residing in

selected areas of Chennai only. So the sample may not be true representative of

the population.

2. The data were collected only from the consumers.

3. The target respondents were scattered in the study area. Meeting them and

collecting data were difficult task.

4. Few respondents were illiterate and uneducated and hence they were reluctant and

unable to give accurate data.

1.12 SCHEME OF CHAPTERS

The present empirical study is divided into five chapters.

The first chapter deals with the introduction and design of the study. This

includes Introduction, Importance of the study, Statement of the Problem, Objectives of

the study, Methodology of the study, Period of the study, Scope of the study, Limitations

of the study and Scheme of Chapters.

The second chapter deals with the review of related concepts and the already

existing literature on this research topic. This chapter also deals with the various

empirical studies of various authors. It will be useful to have a comprehensive

understanding of the research topic under discussion.

43
 The third chapter briefly presents profile of the study area of this research

inclusive of the profile of the retail industry along with the theoretical inputs about the

FMCG retail store consumers consumption pattern , buyer behavior and customer

relationship management .

The fourth chapter expresses the analysis and interpretation of the study. In this

chapter attempts have been made to analyze the factors that influence the consumers

preferences towards buying a particular brand of retail store.

In the fifth chapter the key findings and conclusions are recapitulated. Based on

these findings, a few suggestions have been proposed for the marketers to draft

appropriate CRM strategies.

44