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suppliers thus fostering close working relationships with members of the marketing
system. Companies such as Intel, Xerox, and Toyota formed partnering
relationships with suppliers and customers to practice TQM.
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The Nordic approach views relationship marketing as the confluence of interactive
network theory, services marketing and customer relationship economics. The
interactive network theory of industrial marketing views marketing as an interactive
process in a context where relationship building is an area of primary concern for
marketers.
Quality
Management
Services Customer
Marketing Relationship
Concepts Economics
Relationship
Marketing
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Interactive
Network
Customer
Service Relationship
Marketing Economics
Relationship
Marketing
In contrast, the initial focus of the North American scholars was on the relationship
between the buyer and seller operating within the context of the organizational
environment which facilitated the buyer seller relationship.
Organisational Buyer
Environment
Relationship
Manager
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Internal
Markets
Supplier Referral
Markets Markets
Customer
Markets
Recruitment Influence
Markets Markets
DEFINING CRM
Some of these themes offer a narrow functional marketing perspectives while others
offer a perspective that is broad and somewhat paradigmatic in approach and
orientation. A narrow perspective of customer relationship management is database
marketing emphasizing the promotional aspects of marketing linked to database
efforts, Another view point is to consider CRM only as customer retention in which
a variety of after marketing tactics are used for customer bonding or staying in
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touch after the sale is done. A more popular approach with recent application of
information technology is to focus on individual or one to one relationship with
customer that integrates database knowledge with a long-term customer retention
and growth strategy.
McKenna offered a more strategic view by putting the customer first and shifting
the role of marketing from manipulating the customer (telling & selling) to genuine
customer involvement (communicating & sharing the knowledge).
Berry, in a broader term stressed that attracting new customers should be viewed
only as intermediate step in the marketing process. Developing closer relationships
with this customers and turning them into loyal is an equally important aspect of
marketing. Thus, he defined relationship marketing as attracting, maintaining, and,
enhancing customer relationships.
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BENEFITS OF CRM
Studies by the US-based Bain and Company have shown that a customer becomes
more profitable with time because the initial acquisition cost exceeds gross margin
while the retention costs are much lower. When an organization retains the
customer, it gets a larger share of the customers wallet at a higher profit-one percent
increase in sale to existing customer increase profits by 17 per cent while the same
amount of sale to new customer increased profit by only 3 per cent. This huge
different is explained by the fact that for most companies the cost of acquiring the
customer is very high. It costs six to eight times more to sell to a new customer than
to sell to an existing one. The same study also highlighted that a company can boost
its profit up 85 per cent by increasing its annual customer retention by only 5 per
cent.
Similarly, studies have shown that the probability of selling a product to a prospect
is 15 per cent while it is 50 per cent to a existing customer. Thus, the time, the effort
and the costs of selling are much lower for an existing customer.
An analysis of the revenue and profit contribution of customer base of banks in the
US, Europe and Australia showed the following:
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- The top 20 per cent of the customers contribute to 150 per cent of the profits
while the bottom 20 per cent drain 50 per cent of the profits and the rest 60
per cent just break even.
would face serious problems. It also highlights the fact that one has to adopt
different strategies for different customer groups:
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extreme cases, some of these customers will be encouraged to defect to
competitors. Outsourcing of loss making customers to specialized low
overhead agencies is an emerging trend.
- 95 per cent of the customers do not bother to complain, the just take their
business else where.
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- Most loyal customers take time to complain. This enables the product /
service provider to improve and ensure that such mistake do not recur.
The tremendous growth of interest and investment in CRM across the globe can be
attributed to the following macro environmental factors:
The emergence of service economy is a global phenomenon. In the US, the service
sector accounts for over 75 per cent of GNP and employees 80 per cent of the work
force. The service sector contribute to 60 70 per cent of the GDP of economically
advanced nations of Western Europe, Canada and Japan. The increasing
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contribution of service sector is not limited to develop countries. Developing
economies like China, Indonesia and Thailand employ about 40 per cent of the
work force in the service sector. In the year 2001, the service sector contributed to
48 per cent of GDP in India, 54 per cent in Philippines and 33 per cent in China.
The average annual growth rate of the services during the decade of 1990s was 8
per cent in India, 9 per cent in China and 4.1 per cent in Philippines (Statistical
Outline of India, 2002 2003).
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Emergence of Market Economy
In addition to the shift towards service, there is a global emergence of the market
economy. The power is more to the market as compare to the controlled economy.
Market regulation was in place all over the world including the US, Europe, USSR,
China and India. The 1990s witnessed acceleration in the deregulation of many
large industries including banking, telecommunications, broadcasting and airlines
across the world. As a result, market orientation firms operating intensely
competitive market now takes decision that was once controlled by the government.
The focus have shifted from capacity creation under control to the markets. Market
oriented economy necessitated a customer focus and boosted the importance of
CRM.
National boundaries are giving way to either a borderless world or atleast a regional
world resulting in the emergence of trading blocks like North American Free Trade
Agreement (NAFTA), European Union and the Association of South East Asian
Nations (ASEAN). The abolishment of the General Agreement on Tariffs and Trade
(GATT). And the emergence of World Trade Organization (WTO) helped create a
global orientation for business establishment. Increasing international trade became
the growth engine for the global economy. Liberalisation of markets and trade
proved to be a far stronger growth engine. It has eased the entry into foreign
markets. Firms need stronger customer orientation to be able to tab opportunities
in new markets while defending themselves in their home markets.
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Aging Population in Economically Developed Countries
After identifying and discussing the factors responsible for the growth of CRM
across the globe, we now evaluate the reasons as to why managing customer
relationship has become critical for business.
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