CRM Strategies
This section provides theories and models concerning different strategies of the CRM initiative.
One of the benefits of CRM solutions is that they link together the different departments of an organization (Eckerson and Watson. 2000). Popovich and Chen (2003) explain that through CRM a company‟s touch points are linked together with other business units, this lets the front office get up to date information about what is going on with the customers.
Furthermore, this information can be used in back office functions, to help with planning and setting strategies for the future.
Interaction
CRM Technology links the different departments of an organization together. Making all the “touch points” where customer interacts with the firm as effective as possible, this can be by providing access to information from inventory or shipping to the sales department, or the web site so it can better and faster serve the customer (Popovich and Chen. 2003).
As explained by Chen & Popovich. (2003) the different “touch points” vary in organizations but they define them as all the places where the customer comes in contact with the firm.
According to Davids (1999) one of the primary concerns with CRM is to synchronize the different access points in the firm to provide a unified message to the customer at each interaction point. Xu & Yen et al. (2002) further describe it as, by knowing and working with all the interaction points the goal is to improve the customers experience with the firm.
Pelen (2005) defines the following types of interaction points.
- Media, such as television or radio
- Website
- Telephone
- Personal Sales & Service Employees
2.0.2 The Value of a Customer
CRM does however not happen by simply buying software and installing it at all “touch points” in the organization, for any CRM process to be truly effective it must start with realizing who your customers are and what their value are over time (Wailgum 2007).
According to Nguyen et al. (2007) a good way of starting the CRM initiative is to build a model of each customer‟s profitability and expand from there, they use an example given by Wreden (2004):
Customer Profit = (gross revenues) – (customer allowances) – (credits and rebates) – (product costs) – (channel costs) – (cost to serve) – (administrative costs)
Similar strategies should be at the heart of every CRM initiative, ensuring that each customer is not costing more than they are worth (Nguyen et al. 2007).
An extension to this methodology is the Lifetime Value measurement, it is a way of trying to calculate the value of each customer towards the firm over the estimated time the customer will stay with the firm, ensuring that focus is on the customers that will be profitable over time. Customer Lifetime Value (CLV) is generally defined as the present value of all future generated profits.
Using this, a company can better differentiate between important profitable customers and those whom are not so profitable or even generate a loss. It can also be used to customize the way the company deals with customers, giving the company an idea of how much it‟s worth spending on each customer. (Gupta. Hanssens. et al. 2006).
According to Gupta & Lehmann (2001) there are many ways of calculating Customer Lifetime Value, the C.L.V. equations are also usually customized to each firm. Although most companies have three general points in common which are the primary factors of C.L.V., Margin of sold products, Loyalty, and Cost of Capitol and Discount rates.
The Margin reflects the revenues minus expenses of an individual customer, usually estimated on an annual basis.
The retention rate is the probability of the customer leaving to another organization or competitor. The final factor, Cost of capital and discount rates, is a way of accounting declining incomes, and the costs associated with running the business and the risk of lost capitol (Gupta & Lehmann 2001).
Zikmund (2003) defines four very similar factors as they key drivers of customer life time value.
- Profit Margin. Annual profit minus cost to serve the
- Retention Rate. Estimation of total amount of customers whom make repeat purchases.
- Discount rate. Current cost of
- How long is the customer expected to stay with the company.
Gupta & Lehmann et al. (2006) explain that once a business has developed a C.L.V. model for their customers the value of each customer can quickly be calculated instead of generalized from their segments. This is a result of the availability of large databases and powerful computers.
Xu & Walton (2005) also argue for the benefits of profiling customers to find each customer value to the firm. To find out which customers are of high value they view the following factors as important:
- Product cost
- Cost to acquire
- Cost to serve
- Cost to retain
- Retention & Loyalty Probability
Xu & Walton (2005) classify customers in four categories according to their value to the company, Figure 2.2.
They explain that even though a customer may be buying high volumes of goods it may not be profitable to keep them if costs are also high, it is important to evaluate each customer individually to determine if they are worth keeping or how they can be made profitable (ibid).
The Objectives & Benefits of CRM
This section will present several authors’ views on objectives and benefits of CRM.
Grönroos (2004) explains that an on-going relationship with customers will help in providing a sense of security, trust and feeling of control. Through studies Xu & Walton (2005) have concluded that the major reasons corporation managers are implementing CRM are:
- Improve Customer Satisfaction
- Retain Existing Customers
- Provide Strategic Information
- Improve Customer Lifetime Value
Benefits of Relationships as defined by Gummerson
Gummerson (1994) explains that the building of relationships is the key to reaching and maintaining a successful market share. Gummerson defines the benefits as:
Retention
By learning relevant information about the customers such as; names, habits, preferences and expectations one-on-one relations can be formed and customers can be kept coming back continuously; maybe even become friends.
Intimacy & Profits.
Through the use of IT a feeling of intimacy can be created with the customer as no matter whom they come in contact with, they “know” them. The major benefit being that once the relationship has taken form increased profits can be attained by both parties adapting better to each other.
Benefits and Characteristics as defined by Zeng, Weng & Yen
Zeng, Weng & Yen (2003) describe the characteristics of well working CRM as:
Increased Customer Satisfaction.
Through the use of smart I.T. CRM can provide instant service responses based on customer inputs and requirements.
Provide Information on future sales.
By automatically analyzing the customer‟s purchases & previous history trends and estimations of future buying behavior can be made.
Differentiated and Customized Service
Use all of the technology available to deliver up to the second information about each customer and to provide key performance indicators about each customer.
To better meet customers’ needs
Be flexible and move on information as it arrives. Being able to accept and manage leads as they arrive and meet unexpected demand.
Objectives of CRM as defined by Xu & Walton
The main driving force behind most CRM implementations are not those of acquiring strategic information, but rather making the business process more effective. According to Xu & Walton (2005) the main points of CRM are:
Collect Information
One of the primary usages of CRM is to collect information. Every contact with the customer should be logged.
Efficiency
The main concern of CRM is to make use of the great amount of collected data. Sales representatives should easily see what has been bought in the past and what previous calls and/or complaints have been about.
Automation
CRM, specifically “Operational CRM”, is aimed at improving the efficiency of the marketing process through automation of the sales process.
Objectives as defined by Sherif, Nguyen & Newby
The general objectives of CRM systems are to collect data about customer interactions with the firm (Nguyen, Sherif, Newby. 2007). They also state these points as more specific objectives:
Increased Customer Loyalty
Collecting all important information about a customer and having all the relevant data about a customer‟s history readily available at all access points in the organization.
Superior information gathering and knowledge sharing
The CRM system updates the history of each customer as soon as an interaction occurs, no matter how the interaction took place, whether it is through, Sales, Support or the web site.
Understanding customers
Analytical CRM can further be used to build predictions of trends and try to forecast demand, as well as to better understand each individual customer and thus providing a better offer to the customer.
Superior Service
Using information about customer‟s habits and interactions with the firm to offer relevant products and services customized to each customer.
Businesses are in a constant race to increase profits, keep the current customers and gain or poach new ones, competing for customers on a globalised market like never before. One of the many sets of tools aimed at aiding the interaction between supplier and customer are the Customer Relationship Management methodologies.
CRM is aimed at building strong long term relationships that keep customers coming back repeatedly. It aims to help organizations build individual customer relationships in such a way that both the firm and the customer get the most out of the exchange, providing both parties with long term benefits.
The purpose of this thesis is to provide a better understanding of the usages of CRM in B2B firms. To reach this understanding the thesis starts with three research questions based on this purpose on which theory is collected. The three areas of concern are: objectives, strategy and measurement of CRM.
Using the collected theory about these questions a frame of reference is chosen and used to collect information from two large firms operating from Sweden, Haldex and Nefab.
These companies were studied through case analysis and compared to each other and to theory. The data collected from them was primarily attained through structured interviews.
The findings indicate that much of the explored theory regarding CRM is true for the B2B sector. There are however a few areas in which the firms diverge from theory, specifically those relating to the usages of estimated values such as loyalty and satisfaction in customer evaluations. It was also found that there is a lack of research in the areas of evaluation of CRM.
Furthermore the findings indicates that CRM in B2B focuses on the organizational aspects of CRM, and a strong goal for businesses is to unlock the information the employees have and store it in a place the business can own.