CHAPTER II
LITERATURE REVIEW
This chapter discuss literature review to explore relevant theorie
this research. The theories consist of CRJvf, research methodologi
Oriented approach used to modelling the system. The exploration of t
support the idea in conducting this research, so this research could me
The following section will describe each theory used in this research.
2.1 Customer Relationship Management (CRM)
2.1.1 Definition and Current Condition
Increasing business competition in this era has influenced the
meanwhile the current economic condition moves forward along u
compete and make certainties in the business, the company shoul
customer needs, provide products and services that can meet those
manage the customer relationship to ensure that customer satisfact
purchase occur to winning the competition. Each company to suctess
these approaches.
In the past, most organizations assumed that their products or
and aggressive in their demand, not only for superior quality but also
service. The only way to provide this condition is through Custom
Management (CRM), which develops a long lasting relationship bet
and customer. But what is CRM?
There are many definitions of CRM; some of them are presented
"It is a comprehensive set of processes and technologies for m
relationship with potential and current customers and business pa
marketing, sales, and service regardless of the communicati
(Greenberg, 2001, p. 16).
"...It's a business strategy that aims to understand, anticipate, and
needs of an organization's current and potential customers. It's
strategic, process, organizational, and technical change whereby
seeks to better manage its own enterprise around customer behaviou
acquiring and deploying knowledge about one's customers an
information across the various touch points to balance revenue and
maximum customer satisfaction" (Brown, 2000, p.l ).
"CRM is defined as an integrated sales, marketing, and service
precludes lone showmanship and depends on coordinated action
and Robinson, 1999, p. 111).
Based on
those definitions, there are several keywords that cou
implementing the CRM. The CRM is about implementing integr
strategy, using existing relationship to
increase customer sa
revenue, using integrated information for excellent service, optimi
value, and creating proactive solution.
It is
vital that
organization's
focus
on
the customer as
preoccupation and attempt to get close to them, know them, understand
The concept of CRM has come up a long time ago before
concept was introduced (e.g. e-commerce). The CRM as a conventio
been used by old generations to serve each customer by hearing his
critics, and suggestions. They use that information as an input to
business. However today, it is difficult to maintain one-to-one busin
such that
in the past, because the globalisation has forced the co
various customers, not only the customer from the local country bu
customer from all countries in the world. This condition is chall
maintaining large number of customer is not an easy job. It is importan
implementing CRM is a critical business strategy. In this globali
customer is the pilar of the business success. Therefore, the managem
relationship should be improved, maintained, and managed to incre
revenue.
2.1.2 Why CRM?
Does CRM critical to the survival of company? Why company n
CRM as a business strategy?
In answering those questions, firstly, people should realise sev
'
research conducted by Sindell has found several facts regarding cu
(Sindell, 2000, p. 2-3):
•
It costs four to six times more for an organization to attract new
•
There is a very strong correlation between high customer rete
sustainable high profits.
•
Referred customers have on average a 25 percent higher retention
three years than customers who come from any other source.
•
Reducing customer defections by as little as 2 percent is ofte
cutting costs by over 1 0 percent.
•
Customer retention, not sales volume, market share or being low
frequently the only factor that con·elates to the long-term profitabi
•
For many companies, sustaining a 5 percent improvement in th
customer retention rate can nearly double profits in five years.
In addition, Kalakota and Robinson put several facts as follows
Robinson, 1999, p. 110):
•
A typical dissatisfied customer will tell 8 to 10 people about his or
•
The odds of selling a product to a new customer are 15 percent, w
of selling a product to an existing customer are 50 percent.
•
70 percent of complaining customers will do business with the co
it quickly takes care of a service snafu.
•
A company can boost its profits 85 percent by increasing its a
retention by only 5 percent.
Those facts are the inputs to the company to consider maintaining bet
with customers in order to get more profit.
products easily
are
the factors
that people
should
consider
i
environment nowadays. The CRM could answer those problems b
customer-focused sales, marketing, and service programs, which can
through the combination of business process and Information Techn
customer characteristics, starting from who are the customers, what a
dislike, etc.
The CRM
also
prepares the action for
maintain
relationship according to the customer characteristics. In implemen
people should realise the needs of adoption and coordination of a
channels to communicate with customers and using Internet m
automation process and cross-organizational boundaries leading t
enterprise.
2.1.3 Managing Customer Life Cycle
In personal relationship, the level of understanding and intim
time as long as both parties are committed to making the relationship
is true in the world of business. Competition is increasingly so fast tha
rapidly finding out that they have a wide selection of partners from wh
According to the statement above, managing customer life cyc
•
factor in producing effective CRM. Kalakota and Robinson define
customer life cycles in the CRM context (see figure 2.1) (Kalakota
ACQUIRE
L----;Oiffcrcntlution.f----"""
- Innovation
-Convenience
Bundling
- Reduce Cost
- Customer Servic
Adaptability
-Listening
- New Products
7
Figure 2.1 The Three Phases ofCRM (Kalakota and Robinson,
1.
Acquiring new customers
The method of acquiring new customers is by promoting pro
leadership that pushes performance boundaries with respect to c
innovation. The value proposition to the customer is the offer
product backed by excellent service.
2. Enhancing the profitability of existing customers
The method of enhancing the relationship is by encouraging exc
selling and up selling. This deepens the relationship. The value pr
customer is an offer of greater convenience at low cost (one stop s
3. Retaining profitable customers for life
Retention focuses on service adaptability by delivering not w
wants, but what customers want. The value proposition to the
offer of a proactive relationship that works in their interest.
Each has a different impact on the customer relationship and each c
tie one company with the others' life. Refer to this explanation; th
develop CRM Application Model, which adopts three phases of custo
2.1.4 CRM Architecture
According to Berson, the CRM architecture consists of three m
(Berson et all, 2000, p. 45):
I. Operational
CRM:
The
automation
of
horizontally
integ
processes, including customer touch-points, channels, and fr
integrations.
2.
Analytical CRM: The analysis of data created by the Operational
3. Collaborative CRM: Applications of collaborative services in
personalized
publishing,
e-communities,
and
similar
vehicle
facilitate interactions between customers and organizations.
The Berson's CRM architecture (see figure 2.2) provides a num
touch points and delivery channels to produce and consume infom1a
the customer behaviour through On-Line Analytical Processing (OL
application reporting.
UU$Incss llules atld Metadata Management
Data Suun:es
Marketing Data Stt1res
L ,,.,,, J-
Dechlun Support
Application
(:
(
I
r::
- an
illgn
J-
-
Canlpalgn
-
-
llbtory
H1\1an
LTran5atllnJ
Management
eament
Hhtory
Customer
Profile and
Account
Data
Warthnuse
--4
.
TE1T
UIlh
t-
M:1rkeUng Data
Mart
r:::
HA""'"""")Mart
(
rt'".' "'"';J
I-
Ad Hoc Query
and Jteportlng
I
-
-,t'-
Data
I
Annlylics
I-
and ReporHng
(
Data Mining I
W"'kflow
Figure 2.2 Berson's CRM Architecture (Berson et all, 2000
The Kalakota and Robinson's CRM architecture provides differ
from the Berson (see figure 2.3). Kalakota and Robinson emphasi
nature of customer-centred application rather than the technical co
integrated information technology by Berson.
Based on both architectures (Berson and Kalakota & Robinson
will develop CRM using Integrated Information Technology S
integrates cross-functional processing by breaking down department
this reason, the support from Information Technology to implement C
>
Customer
Life Cycle
Partial
Functional
Solutions
Complete
Integrated
Solution
{
Acquire
)
Direct Marketing
>
Enhance )
>
Cross-Sell and Up-Sell
Sales Force Automation
Proa
Customer Suppo
Integrated CRlVI Applications
Cross-Functional Processes Breaking Down Departm
Figure 2.3 Kalakota's Integrated CRM (Kalakota and Robinson
I. Access layer, which provides the interaction channels of infon
customers and internal employees. The access layer would use
such as: telephone, fax, wireless communication, email or I
Providing multiple channels of information will give the cus
employees with ease of use and flexibility to obtain the infonnatio
their work. The flexibility and ease of use are correlated to the sat
which is important to measure the effectiveness of implemente
Berson's architecture, the access layer is included in collaborative
2.
Service layer, which provides functional solutions, such as: cus
(help desks and service centres), web-based services, direct mark
and up-sell, proactive services, sales force automation, etc. I
architecture, the service layer is included in analytical CRM.
middleware is used to integrate different business objects. So
platfom1s could be integrated easily as an Enterprise Information S
4. Data layer, which includes database or other sources of data. Thi
data warehouses, data marts, databases, etc. The data wareho
provide a centralised corporate infom1ation system containin
customer data. Using data warehouse for the CRM will give sever
as: avoiding infom1ation inconsistency. The consistent informat
search appropriate infommtion in answering customer problems.
Application
and
data
layers are
included
in
Operational
CR
architecture.
2.1.4.1 Data Warehouse
"A data warehouse is a subject oriented, integrated, time varia
volatile collection of data in supporting the management with dec
process" (Inmon, 1994, p. 2).
Based on the above definition, the characteristic of subject
explain the content of data warehouse based on the subject rather
function of particular applications. The user may be able to search
based on relevant or specific subject.
Integrated means the data can be integrated to fulfil the needs o
the company's organization. In the integration process, it is important