CHAPTER II
LITERATURE REVIEW
2.1
CRM (Customer Relationship Management)
Nowadays, almost every people in business area are talking about C
(Customer Relationship Management). It is being discussed in major enterpr
around the world. It is predicted that CRM investments will grow to over $38 bil
by 2003. Major issues in telecommunication industry such as increased competit
globalization, and the growing cost of customer acquisition have made CRM
important thing to be considered.
2.1.1 The Concept of CRM
Actually CRM is not a new thing in business world. Even it can be said
CRM is as old as the business itself. But what makes it become so famous these d
is the new method of doing it. New technologies created enable the implementat
of this new method effectively and efficiently. Some people think CRM i
teclmology, a service, even a suite of product. But actually CRM is a concept ab
"...automating
and
enhancing
customer-centric
business
process
(http://www.magic-sw.com).
Before discussing further about CRM, it is better to understand what tl1e C
is. According to Stanley A. Brown, CRM is a business strategy that aims
understand, anticipate and manage the needs
7
of an organization's current
potential customers (Brown, 2000). Meanwhile Lawrence Handen explains
concept of CRM as the process of acquiring, retaining and growing profi
customers. Treating existing customers well is the best source of profitable
sustainable revenue growth (Brown, 2000). Because, according to Kalakota
Robinson, it costs six times more in terms of marketing and sales expenditure to
for new customers rather than to maintain the existing ones (Kalakota & Robi
1999).
The new technologies such as telecommunication networks, multim
contact centers, data warehouses, data mining, marketing automation system
particularly Internet, allow organization to establish individual relationships
customers like never before. Especially the Internet, which combined, with CRM
created a new term called eCRM (electronic Customer Relationship Managem
According to Stanley A. Brown, 35% of eCRM investments are made to reengi
or upgrade significantly customer care,
20%
is in relationship marketing (lo
management, target marketing, marketing automation), 15% is in implementi
multichannel strategy and sales automation tools, and the rest 30% (keep gro
quickly) is the deployment on the Internet of all the tools of CRM in marketing, s
and service (product information, configuration pricing, product support, help
and order online) (Brown, 2000). Understanding and anticipating customer evolv
establishing a dialog with customers are some examples of these possible indivi
relationships creation.
According to Lawrence Handen, there are four types of CRM progr
(Brown, 2000):
1.
Win Back or Save
This is the process of convincing customers that have left to come back o
rejoin. Besides those defected customers, partial disconnects and reduced-u
customers are included in the organization win-back campaign target.
2.
Prospecting
This is the effort to win new, first-time customers. There are three most cri
elements of a prospecting campaign: segmentation, selectivity and sou
Segmentation will
develop
effective
needs-based model
that
allows
organization to effectively know what the customer wants from it, and pr
based model that defines how valuable the customer is and helps the organiz
decide how much it is willing to spend to get that customer.
3.
Loyalty
Loyalty is the most difficult thing to measure. In this program the organiza
tries to prevent customers from leaving. According to Anderson and Jaco
customer loyalty is actually the result of an organization creating benefit fo
customers so that they will keep purchasing products or services from
organization. The longer a customer stays with a company, the more the custo
is worth. "True customer loyalty is created when the customer become
advocate for the organization, without incentive." (Brown, 2000)
4. Cross-Sell/Up-Sell
Cross-Sell is a process of identifying complementary products or services
customer would
like. . Up-Sell
is
similar
to
cross-sell, but
instead
complementary products or services the organization offers enhanced produc
services to its customer.
2.1.2 Managing the Customer Lifecycle
According to Kalakota and Robinson, there are three phases of C
(Kalakota & Robinson, 1999):
1. Acquisition
Acquiring new customers by promoting product or service leadership that pu
performance boundaries with respect to convenience and innovation. The v
proposition to the customer is the offer of a superior product backed by exce
service.
2. Enhancement
Enhancing the profitability of existing customers by encouraging excellenc
cross-selling and up-selling. The value proposition to the customer is an offe
greater convenience at low cost (one-stop shopping).
3. Retention
Retaining profitable customers for life focuses on service adaptability (delive
what customers want). The value proposition to the customer is an offer
proactive relationship that works in his or her best interest. Retaining custo
requires a complete understanding of the needs
determination to stay in the relationship.
of the customer an
All these phases are interrelated. But companies may choose which one of th
dimensions will be their primary focus.
The evaluation criteria of the customer:
1. Information
The organization has information about the characteristics, service, price and s
of their product, which has to be communicated to the customer. The channels
this by virtue of their large interface with the market. The internet is a relativ
new medium in the channel structure and it is very efficient in terms
transmission of information.
2. Communication
A customer needs answers when buying a product or service. Thus it is import
that the customer can easily contact the organization in question. From
customer point of view, communicating directly with the manufacturer instead
through an intermediary (intelligent agent) makes the channel trustworth
However, the organization must realize that it takes great effort and m
resources to use the Internet as a communication channel.
3. Transaction
The term "transaction" implies the exchanging of orders, invoicing and paym
from the customer to the last link of the chrumel. The customer must be cert
that their payment goes to the right person
overcharging.
and that there is no risk
4. Distribution
Product must be delivered at the convenience of the customer. The Internet is
a new kind of distribution. Everything that can be digitalized will eventually
because it is so inexpensive.
5. Service
As a customer, it is very important to receive good service in connection with
decision to buy a product or a service as well as after the purchase has been ma
This may include help in installing the product and in the subsequent opera
period. The customer must have easy access to assistance, if there are
problems concerning the use of the product.
There are three stages of Evolutionary process in CRM strategy:
1. Stage 1: Customer acquisition
This stage creates the courtship. Loyalty is very weak. Loyalty measurement
relate to transactions, such as turnover. Customer may switch to competito
their products and prices are better. Retention rate is used to measure custo
turnover.
2. Stage II:Customer Retention and Loyalty
This stage creates the relation. Loyalty is no longer based on price and prod
Measurement of loyalty changes to being relationship-oriented using for exam
customer satisfaction index. It listens to the customer who is gradually gettin
know the enterprise. The relationship is created. A mutual desire exists and b
parties begin to see benefit in continuing to grow the relationship.
3. Stage III: Strategic Customer care
This stage creates the marriage. Loyalty is based on a high degree of satisfac
and the customer will get personally involved with the enterprise. The norm
customer value merge with those of the enterprise and the measurement of lo
will be tied to these. Differentiated service for select customers and mu
benefits of partnership with these key customers. A solid marriage translates
advocates - customers that are living advertisements for the enterprise, praisi
and recommending it to others, which creates positive word-of-mouth advertis
2.1.3 CRM Implementation in Business
Usually CRM includes a set of applications that integrates the front and
office processes, which ensures a more satisfactory customer experience. Kala
and Robinson define CRM as integrated sales, marketing, and service strategy
precludes lone showmanship and depends on coordinated actions. And in order to
the CRM business strategy into practice it needs to develop a set of integr
applications that address all aspects of front office needs, such as automatic custo
service, field service, sales and marketing (Kalakota & Robinson, 1999).
In this situation, CRM addresses the Sales, Marketing, and Services activ
of a company:
I. Sales
A company's core business usually concerns in the interaction of the sales f
with the prospect, turning the prospect into a customer and then maintaini
loyal relationship. Sales area of a company involves the direct transferrin
products and services to customers. It covers both making sure the custo
receives the correct product and the activities of people within the company
are responsible for selling.
2. Marketing
Today, initial mass marketing activities are often used for the first contact,
then are followed up by more focused campaigns with specific target audien
For maximum value, follow-up of these campaigns must be done in collabora
with the sales force to enable qualified leads and success/failure analysis.
3. Service
The most crucial functional area of the company when it comes to custo
relationship management is Service. The customer service that a com
provides is key to its ability to maintain loyal customers. The service tha
expected today goes beyond traditional telephone call centers which handli
group of communication media.
These three main functional areas of a company must be addressed wh
plans to implement CRM. Because these are the primary areas where the custo
makes contact with a company most. And in order to provide an enhanced custo
relationship, these three customer touch-points must be managed and analyzed.
Lawrence Handen describes five required elements to implement a C
program effectively (Brown,. 2000):
1. Strategy
There are three types of strategy that have the greatest impact on a CRM prog
which are channel, pricing and segmentation.
2. Segmentation
Today segmentation focuses not only on a particular product or market but
on categorizing and marketing to customers according to customers' needs.
3. Technology
The
most
impmtant technical consideration is concentrating on a si
operations-focused, integrated logical database. Software for the database,
mining and decision suppmt and campaign management tools, call ce
software and hardware as well are other essential elements to consider.
4. Process
This includes identifying the process that need to be involved in implemen
CRM,
gaining organizational buy-in, developing measurements to assess
effectiveness of new processes and implementing technology to support
enforce its use.
5. Organization
It is
impmtant
to
consider the
most
overlooked component
implementation, which is organizational structure. Departments
of
C
within
organization must work together to form metrics that reflect the new process
the collaborative nature of CRM.