From THE HINDU group of publications
Thursday, November 08, 2001


Seeking customers and retaining them

S.Ramesh Kumar

Customer Relationship Management (CRM) has become a topic of interest, especially with the onset of e-commerce. As CRM is a term that is used in a broad sense, a marketing practitioner needs to understand what CRM is, in terms of its applicability to the organisation, its impact and its benefits to customers. There is a need to understand that CRM is an overall strategy for the organisation and not just a sales tool with short-term orientation. It requires long-term planning and anything long-term requires a strong organisational commitment and appropriate investment.

CRM as a concept is as old as marketing itself. Firms in both consumer and business-to-business marketing have always (either by accident or by intent) made attempts to encourage repeat buying from consumers.

A consumer would have experienced and realised this aspect of CRM in an indirect form from grocery shops or even large outlets. In todays context, what has been added to this kind of CRM is the collaborative and co-operative aspect from the consumers end. This kind of collaborative effort could assume either a complex form in business-to-business marketing (with different buying influences) or it could just involve the consumer using a credit card sharing his personal (demographic and psychographic) information with the marketer. The CRM structure for business-to-business marketing may be different from that of consumer marketing.

The concept of CRM

CRM is a relationship process which a company can cultivate with its customer groups/segments in such a way that it would benefit both the customer and the company. The prerequisites of any CRM programme are:

1) Both the company and the customer should be willing to stay committed to the relationship that is based on mutual benefit. This is required because process changes may have to be initiated in both organisations. Hence, the top management has to be convinced about CRM in both the companies (especially in the case of a business-to-business marketing context).

2) A non-transactional orientation on the part of the marketer. A transaction is a one-off interaction and hence CRM involves a combination of strategies that builds the relationship between the marketer and customer over a period of time (though transaction-based loyalty programmes can be formulated).

3) The marketer must be willing to invest in infrastructure required to implement CRM. The infrastructure could include Web-based hardware/software, which could effectively harness the advantages of CRM.

CRM and its linkagesAny CRM programme should be associated with the aspects of loyalty and customer satisfaction. These two aspects point out that different customer segments/groups would be interested in different dimensions of the offerings made by the marketer. The implications will depend on the manner in which loyalty programmes are planned and satisfaction parameters are monitored. The selection of the target segment (or specific companies in a business-to-business context) is also of utmost importance. This is because profitability of a CRM programme will vary across segments (or companies).

Research shows that only around 20 per cent of consumers using the frequent flier programmes in the airline industry contribute to around 80 per cent of profitability. Given the fact that these programmes cannot be stopped abruptly (should the need arise due to profitability reasons), especially when competitive airline companies are following suit, a company has to be very careful in selecting specific segments of customers even for a strategy such as frequent flier programme (common in the international airline circuit).

A company such as Tata Steel, which has invested heavily in its cold-rolled mill infrastructure, would like to select a segment such as automobiles and/or specific companies in this segment, which are conscious of the advantages of having a relationship with Tata Steel. These companies are also likely to pay a premium for the relationship, as it is likely to produce the differentiation which consumers of the end-product are likely to appreciate (for example, consumers buying cars). While there is substantial growth in the SOHO (small office home office) segment and in SMEs (small and medium enterprises), a company such as Dell Computers may decide to concentrate on large companies for its CRM programmes for loyalty and profitability. It may also be essential for a company to assess the lifetime value of a customer before formulating a CRM programme.

While loyalty and satisfaction are strongly linked to CRM programmes, the specific objective of one may have to be decided by a company before planning it. For example, reducing the cost of distribution may be the objective of a CRM programme. This may involve working out and restructuring ordering patterns, taking into consideration the consumption patterns and inventory levels at the customers end and the production systems at the manufacturers end.

Similarly, in consumer marketing, the objective of a CRM programme for a fast food company may be to increase the frequency of purchase of a food item. A promotion for the brand can be a part of the CRM programme. This would result in repeat purchase from a cross-section of consumers and they may also be satisfied with the manner in which the company has done it (for example, providing a variety of recipes with a food item, for a segment which the company believes could be loyal). Loyalty in categories such as fast foods, soaps and confectionery could be driven through innovative CRM programmes.

Apart from loyalty and satisfaction linkages, communication is a vital aspect of any CRM programme. Communication with regard to sophisticated offerings concerning the product category, the efforts of the company/brand to keep itself updated in terms of the benefits offered, satisfied customers of a CRM programme and specific benefits of a CRM programme may help a marketer keep in touch with a prospective target segment of consumers who may like to be a part of a CRM programme.

The following guidelines may enable a marketer to identify specific customer groups which may be amenable to CRM programmes.

*Business-to-business markets

*Segmentation criteria

*Percentage of Customer Profitability

*Price sensitive (no frill offering)

*Pre-sale service

*Annual Maintenance Contract and spares

*Willingness to try innovative products

The last criterion may be especially be useful to companies which operate with sophisticated technology. These companies, working with the latest technology, may want to establish a CRM programme for customers who are willing to try out innovative products, if it would benefit their applications. Xerox worked with aircraft companies (such as Boeing) to introduce its Docutech model of copiers, which is ideal to edit, copy and process several pages of data, most suited for aircraft maintenance manuals. A distinctive manual could be used for every aircraft.

A manufacturer of trucks (such as Ashok Leyland or Tata Engineering) may be interested in a CRM programme with fleet owners who own several vehicles of their make. A maintenance package can be customised for every customer depending on the number and usage of vehicles. The customer is likely to be involved in the programme if it also includes spares management. Loyalty is almost a logical sequence in this context because the customer realises that there is a link between the CRM programme and the cost savings (achieved by buying the same brand of truck) over a period of time. The customer is likely to have the benefit of dealing with the same company with regard to maintenance schedules, inter-personal relationships, reduction in breakdown due to a recurring problem because it can be anticipated and avoided and the probable lack of switching cost for procuring spares from different companies, if trucks are bought from different manufacturers.

A company with a CRM programme is likely to give the customer enhanced priority in terms of attention apart from cost savings over a period of time. The one-to-one marketing programme, which is generally associated with consumer products, could also be effectively applied to business-to-business marketing. Procter & Gamble has a special team to service and develop its business with Wal-Mart, the largest retailer chain in the world. The Key Account Management concept, in which customer teams are employed by companies (chemicals and computers may be examples), is a kind of one-to-one marketing and when this concept is extended to a company which has multiple locations (a company marketing machinery to a consumer product company in several locations) the concept becomes National Account Management programmes. Such strategies involve extensive resource allocation to teams and in-depth planning with customer on their specific needs.

CRM and consumer products

Loyalty programmes, which are common in the airline and credit card industries, are continuity programmes. The limitation of these programmes is the dominant presence of transaction-orientation. A typical relationship programme should not be dependent on sheer transactional value. Firms should also have appropriate segments based on customer yield, which essentially point to profitability aspects. A structured and planned effort with extensive research involving several aspects of the buying process may be required to focus on the right type of segments. The best form of such loyalty programmes should combine transactional elements with information about the category and about the specific needs of the consumers. Hence, a combination of transactional orientation and one-to-one orientation (not only in terms of price but also in terms of specialised and customised needs) is likely to be effective in seeking and keeping customers. A brand such as Ponds offers customised advice on skincare to individual consumers and in the process is able to create a database of consumers. This non-transactional approach of drawing customers towards the brand could be combined with specific strategies of offering certain benefits to special consumers who have purchased the products of the brand beyond a specific value over a period of time. Frequency marketing programmes and interactive programmes could be focused on specific segments depending on the response of consumers over a period of time.

A prerequisite for CRM, especially in consumer products, is the availability of information on demographics, psychographics and spending patterns. In the Indian context, it may take a little longer for marketers to provide such information because establishing a database would depend on the penetration of credit cards and their usage at retail points. Data-mining techniques also enhance the quality of one-to-one programmes.

The Net and CRM

In a country where computer penetration and Internet penetration is low, it may be too early to discuss the impact of the Net on CRM. But it may be worthwhile to study the e-loyalty pattern in developed markets as they offer certain interesting insights. The following aspects would be useful for e-marketers to formulate their strategies:

1. E-commerce (in B2C) should necessarily focus on value benefits. Value, in this context, could be the additional price discount, which is offered by the e-store. Retailing, the world over, is banking on the aspect of price (Wal-Mart, K-Mart and other large retailers). Amazon.coms prices are 30 to 40 per cent lower than the prices offered in brick and mortar stores. Hence, there is a need to combine information oriented non-transactional programmes with the low-price strategies.

2. Excitement in the form of exclusive launches may be required to keep online customers coming back to the store. Fabmart recently had an exclusive launch on the Net.

3. Studies show that if customer retention is increased by five per cent, profits go up by 25-30 per cent. An allied finding in research studies is that new customers cost about 20-40 per cent more than that compared to traditional retail outlets but repeat consumers spend twice as much in the second and third year than what they spend in the first six months (in certain categories). Perhaps, thats why e-stores expand their product categories even at the cost of focus. ( deals with categories such as books, music, grocery and gift items and has the infrastructure to deal with 16 million stock keeping units.) Repeat consumers are also known to spread the word of mouse through referrals. CRM, in this context, has to show great care in segmenting customers and offerings, which are customised to these micro-niches. Micro-niches could emerge as a result of diversity in preferences across categories. Yet again, the lifetime value of customers selected for relationships becomes critical, apart from the technological infrastructure required for tracking the preferences of these customers after winning their through interactive ways.

CRM could be a very useful marketing tool if marketers are able to integrate conceptual thinking and sophisticated technology.

(The author is a Professor of Marketing at IIM, Bangalore)

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