Customer data analysis in relationship management systems

Customer relationship management takes a holistic look at the organization's interactions with customer. Value, it is proposed, is not merely developed from the sales transaction, but from the careful cultivation of long-term relationships with the customer. Relationship marketing takes this concept further, and applies it to all stakeholders. If an organization can engage all stakeholders and leverage those relationships, it can build competitive advantage and ultimately drive value. These concepts provide the underlying framework for a shift in managerial thinking and tactics away from a transactional approach to business and towards a long-term relationship based approach.

Customer Relationship Management

Customer relationship management has become a critical success factor for a number of businesses. The modern competitive landscape is, for most firms, challenging. Almost every industry is characterized by intense competition. In order to win market share, each firm attempts to offer a unique proposition to customers. Doing so, however, is not always easy. Many products and services are relatively commoditized. Even ones that are unique today soon will not be, if the idea is of any value. For example, FedEx introduced overnight courier service. Soon, UPS and DHL were in that space as well. When competition becomes intense, firms can respond in a number of ways. One of these ways is to lower prices, that is to engage in a cost leadership strategy. The other way to address the competitive intensity is to find a way to differentiate your offering from that of your competitors. With commoditized products, this soon falls to the marketing department. One tactic that has proven consistently useful is customer relationship management.

Customer relationship management is a deliberate strategy that the organization implements to organize its customer relations process. This approach is holistic, meaning that the entire organization becomes involved. Various points of contact with customers, such as marketing, technical support, customer service and contract negotiation, become streamlined. The objective is to develop a total relationship with the customer that goes beyond the immediate transaction, or even set of transactions (Anderson & Kerr, 2002).

There are several goals of customer relationship management, including improving customer retention, developing new business with old customers and attracting new customers. Customer retention is improved through CRM techniques in a number of ways. CRM tactics often emphasize regular contact (Ghavami & Olyaei, 2006). Traditional marketing is often focused on finding new customers, but CRM emphasizes the need to retain existing customers. Consumers are bombarded with advertising and marketing, and it is reasonable to expect that some of this comes from the organization's competitors. By keeping in regular contact with its customers, and organization can effectively neutralize the impact of competitors' marketing campaigns.

Customer retention is also improved because each communication is a fresh marketing opportunity. The contact may be about an offer, but it may not be. It may simply be a courtesy call, or even an incoming service call. When communication is established with the customer, it provides an opportunity to engage the customer. Information can be gathered about the customer's needs, so that the sales team can tailor an opportunity. The contact person may be able to determine if there is an area where the customer is dissatisfied but for some reason does not wish to volunteer that information. Each contact can help to make the customer happy, to identify new opportunities for business, or simply to keep the organization front and center in the customer's mind. This is one of the critical steps to fostering loyalty in the customer -- make sure they understand that you are there to meet their needs, and they will turn to you when they have needs to be met.

Another goal of customer relationship management is to develop new business with existing customers. This can mean several things. The customer could patronize the business more frequently; the customer could make larger purchases; or the customer could select the company as a business partner on an entirely different project. It is sometimes assumed that if an organization has a customer, that customer is giving all of its business to the one organization. In reality, this is seldom the case. Many customers prefer to do business with multiple companies, in order that they keep their own options open. Ideally, however, a firm could convince its customers to do the majority of their business with them. For example, a restaurant could, through sound CRM practice, convince their customers to dine more often. A beauty salon could convince its patrons to purchase additional services. An accounting firm could foster a relationship with its customers that leads to work at its consulting arm.

Lastly, customer relationship marketing can serve to attract new customers. There are two mains ways in which this occurs. The first is through referrals. If a firm with a strong customer relationship management program satisfies its customers, those customers may in turn refer other business to the company. In addition, a strong customer relationship management program can be a selling point to help attract new customers. The firm can develop a reputation for its treatment of customers, which can in turn attract new customers. An example of this would be with Nordstrom and their strong customer relationship building. Alternatively, the CRM program can become part of the sales pitch, used to attract customers by highlighting it as one of the benefits of choosing your organization.

The underlying philosophy of CRM is that because of the high cost of attracting new customers, relative to the cost of a CRM program, the cost per dollar of revenue earned will be lower when that revenue is earned from existing customers rather than from new customers. This requires the building on strong relationships, not just fleeting transaction-based relationships. The relationships, ideally, would be at the organizational level. The relationship, therefore, is multifaceted. It is also long-term in nature. While traditional marketing approaches emphasize transactions, customer relationship management is predicated on the theory that the transactions will come, steadily and over time, as long as the relationship is maintained. It is not, therefore, necessary to complete a sale with each communication. As long as the relationship has been further cultivated as a result of that communication, then the strategy has been effective. The reward, it is believed, will come later.

Implementation of Customer Relationship Management

When the customer relationship management field first came to prominence, CRM was largely viewed as an information management issue. Software systems were introduced to help companies organize their clients, prioritize their sales calls, track communications and other functions relating to CRM. This software was vital because it reintroduced the concept of the long-term relationship to business. At one point, all business relationships were interpersonal, but as companies grew larger customer relations became impersonal. Customers deal with different departments and different contacts constantly, and this software allowed for the reintroduction of the long-term time frame to customer relationships. Any agent, speaking to any customer, could immediately gain access to the customer's history with the firm, records of previous transactions, and a communications history.

The field of customer relationship management, however, has evolved beyond software. CRM has become a "customer-centric philosophy that must permeate the entire organization" (CRM Media, 2002). Implementing CRM, therefore, is more complex than simply installing CRM software. There are three key steps to the process. Technology is the first step, and allows customer information to be stored and disseminated throughout the organization.

The second step is the people. The entire organization must be engaged, in particular the parts of the organization that have direct customer contact. Even those areas of the organization that do not have direct customer contact should be aware of the CRM strategy and how their role supports it. Each person that has customer contact, be they in customer service, technical support, billing or sales, should understand how their role impacts the relationship with the customer. They should be trained on their interactions with the customer, and on how to identify customer needs. Training is essential to the development of a group of people capable of executing a CRM strategy.

The third step is the processes. Because the different components of the organization must work together to address customer needs, there needs to be effective communications mechanisms. Traditional marketing organizations have something of a "silo" structure, where different parts of the company do not communicate with one another. For customers, this is frustrating and is not conducive to building a strong, lasting relationship. An organization with strong customer relation management will have integrated communication systems that allow different departments within the organization to communicate with each other efficiently and effectively. Some of these will be embedded in the technology, but some of the communication must come in the form of processes. Complaints delivered to a customer service agent need to be efficiently forwarded to the relevant service department. Sales opportunities identified by billing need to be forwarded to the sales team. Internal communication systems that link the organization are essential.

There also needs to be cohesive processes to follow through on problem resolution. The communication system may be able to facilitate the transfer of information, but an essential component of a CRM system is the transfer of responsibility. Somebody at the company must be responsible for every customer issue that arises. This is the only way that the company can ensure that its customers' needs are truly being met. Because of this need for responsibility, it is essential that customer relationship management become a second-nature activity, something that is ingrained in every facet of the organization and every action of its people. In other words, it must permeate the entire organization.

Relationship Marketing

One component of customer relationship management is relationship marketing. Relationship marketing takes the relationship that has been developed between the company and its customers and applies it to the marketing function. The organization will through its CRM program gather information about the customer, and this will be used to help build a better marketing relationship with the customer. The underlying theory is similar to that of CRM -- that by building a strong, long-lasting relationship with the customer, the company will be better able to meet that customer's needs. This will result in higher sales, more frequent sales, better retention and more referrals.

The key difference between relationship marketing and conventional marketing is with respect to what is being sold. In conventional marketing, the firm sells to customers a product or service. The marketing focus is on the cost-benefit proposition of that product or service. In order to retain the customer, the firm may use incentives or it may market its brand in the hopes that a positive impression sticks with the customer. Relationship marketing takes a different approach. The focus of the marketing effort is on the relationship between the company and the customer. The company sells what the relationship brings to the customer. This may be service, it may be discounts, or it may be a superior understanding of the customer's needs or any number of other benefits. In relationship marketing, the relationship is a core of the service offering. It is not just a superior product or service being sold, it is a superior product or service from your specific company. Relationship marketing adds the new element of specificity to the transaction. When the relationship is strong, the customer and company will both see benefits.

At the heart of relationship marketing is the six markets model. This model suggests that there are six main markets that are the focal point of an organization's relationship marketing efforts. These are customer markets, internal markets, suppler & alliance markets, recruitment markets, influence markets and referral markets (Peck, Christopher & Payne, 1999). This model is based on the concept that the organization needs to build relationships with all of its key stakeholders, not just customers. The marketing function is enhanced through this relationship building, because it allows the company to better control the messages it sends to the marketplace, and better identify all of the opportunities that are present. By carefully developing and implementing plans for all stakeholder markets, the company is able to gain insight into all of the conditions, constraints and opportunities in the marketplace (Payne, Ballantyne & Christopher, 2005).

Internal market relationship marketing refers to the building relationships within the company. Different departments can help each other identify opportunities through enhanced communication and a clearly defined set of common objectives. Internal departments need to be highly coordinated because they are both suppliers and customers to each other, and the degree to which they work seamlessly together will impact on the ability of the company to meet its obligations to its customers. The recruitment market is vital to the development of strong internal markets because it helps the firm to identify potential employees capable of executing the corporate strategy (Peck, Christopher & Payne, 1999). Building strong internal markets requires the building of strong recruitment markets -- this is the essential first step to an effective relationship marketing program.

Supplier and other allied firms can be an excellent avenue for marketing -- they can help direct business to you if you build a strong relationship with them. As a supplier, it is in their best interest to do this, but many relationship management programs ignore this valuable source of information, contacts and future customers. The referral market is based on the premise the best marketing for the company is done by the existing customers. Cultivating referrals, however, is an active task that must be planned. While most companies are passive in their pursuit of referrals, those with a strong relationship marketing program leverage the relationships that they have cultivated with customers and non-customers alike to promote referrals and drive more business. Key non-customer groups include networks, multipliers, connectors and third party introducers and agencies (Peck, Christopher & Payne, 1999).