CRM and Relationship Marketing: Building Competitive Advantage

Introduction: From Transactions to Relationships

Customer relationship management takes a holistic look at an organization's interactions with customers. 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 toward a long-term, relationship-based approach.

Customer Relationship Management: Goals and Philosophy

Customer relationship management has become a critical success factor for many 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 offerings that are unique today will soon cease to be, if the idea holds 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 option is to lower prices — that is, to engage in a cost leadership strategy. Another way to address competitive intensity is to differentiate the offering from that of competitors. With commoditized products, this task often falls to the marketing department. One tactic that has proven consistently useful is customer relationship management.

Customer relationship management is a deliberate strategy that an 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 a set of transactions (Anderson & Kerr, 2002).

There are several goals of customer relationship management, including improving customer retention, developing new business with existing 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 ones. Consumers are bombarded with advertising and marketing, some of which inevitably comes from the organization's competitors. By keeping in regular contact with its customers, an 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 need not be. It may simply be a courtesy call, or even an incoming service call. When communication is established with the customer, it creates an opportunity for engagement. Information can be gathered about the customer's needs so that the sales team can tailor an opportunity. The contact person may also be able to determine whether the customer is dissatisfied but, for some reason, has not volunteered that information. Each contact can help make the customer happy, identify new business opportunities, or simply keep the organization front and center in the customer's mind. This is one of the critical steps to fostering loyalty — ensuring customers understand that the organization is there to meet their needs, so that they turn to it when those needs arise.

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, make larger purchases, or select the company as a business partner on an entirely different project. It is sometimes assumed that once an organization has a customer, that customer gives all of its business to that one organization. In reality, this is seldom the case. Many customers prefer to do business with multiple companies in order to keep their own options open. Ideally, however, a firm could convince its customers to do the majority of their business with it. For example, a restaurant could, through sound CRM practice, convince 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.

Customer relationship management can also serve to attract new customers. There are two main ways in which this occurs. The first is through referrals. If a firm with a strong CRM program satisfies its customers, those customers may in turn refer other business to the company. In addition, a strong CRM program can be a selling point to help attract new customers. The firm can develop a reputation for its treatment of customers — as Nordstrom has done — which can attract new clients. Alternatively, the CRM program can become part of the sales pitch, highlighting it as one of the benefits of choosing the organization.

The underlying philosophy of CRM is that because the cost of attracting new customers is high relative to the cost of a CRM program, the cost per dollar of revenue will be lower when that revenue comes from existing customers. This requires building strong relationships rather than fleeting, transaction-based ones. Ideally, these relationships would exist at the organizational level and be multifaceted and long-term in nature. While traditional marketing approaches emphasize transactions, CRM is predicated on the theory that transactions will come steadily 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, the strategy has been effective — the reward, it is believed, will come later.

Implementing CRM: Technology, People, and Process

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 sales calls, track communications, and handle other CRM-related functions. 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 dealt with different departments and different contacts constantly. CRM software allowed for the reintroduction of the long-term time frame to customer relationships: any agent speaking to any customer could immediately access that customer's history with the firm, records of previous transactions, and a communications history.

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

The second step involves people. The entire organization must be engaged, particularly those parts that have direct customer contact. Even those areas without direct customer contact should be aware of the CRM strategy and understand how their role supports it. Each person who has customer contact — whether in customer service, technical support, billing, or sales — should understand how their role impacts the customer relationship. They should be trained on their interactions with customers and on how to identify customer needs. Training is essential to developing a group of people capable of executing a CRM strategy.

The third step is process. Because different components of the organization must work together to address customer needs, effective communication mechanisms are essential. Traditional marketing organizations often have 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 strong, lasting relationships. An organization with strong customer relationship management will have integrated communication systems that allow different departments to communicate efficiently and effectively. Some of these will be embedded in the technology, but some must come in the form of defined 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 facilitate the transfer of information, but an essential component of CRM is the transfer of responsibility. Someone at the company must be responsible for every customer issue that arises — this is the only way to ensure that customers' needs are truly being met. Because of this need for accountability, it is essential that customer relationship management become a second-nature activity, ingrained in every facet of the organization and every action of its people. In other words, it must permeate the entire organization.

Conclusion: Toward a Relationship-Centered Organization

Relationship marketing and customer relationship management are two complementary ideas that, when successfully implemented, can yield tremendous competitive advantage. The underlying theme of both concepts is that business value can be derived from the cultivation of strong relationships, both internally and externally. Relationships that were once defined in simple terms around single transactions are redefined as a complex set of interactions. How a company manages those interactions is a key determinant of success.

Communication, and the underlying systems that manage it, become a critical business function. In customer relationship management, each component of the organization must be committed to fostering a strong relationship with the customer. The result will be increased customer retention, increased sales from existing customers, and an uptick in new leads. In relationship marketing, the organization focuses on each set of stakeholders, since all contribute in some way to the success of the business. By improving and carefully guiding these relationships, the company derives increased value from all stakeholders. Over time, incrementally, this drives business value.

Taken together, it is apparent that customer relationship management and relationship marketing require a total shift in the outlook of the organization. The organization must be focused on finding ways to cultivate mutually beneficial, long-term relationships. The closer the organization is to its customers and other stakeholders, the more synergies can arise between different groups and their interests. Bringing this outlook to the organization requires more than investment in CRM software; it requires an emphasis on information sharing, on recruitment, and on training employees to view every action and every interaction as a source of potential future benefit.

Works Cited

Anderson, K. & Kerr, C. (2002). Customer relationship management. New York: McGraw-Hill.

Ghavami, A. & Olyaei, A. (2006). The impact of CRM on customer retention. [University]. Retrieved March 6, 2010 from http://epubl.luth.se/1653-0187/2006/02/LTU-PB-EX-0602-SE.pdf

No author. (2002). What is CRM? CRM Media. Retrieved March 7, 2010 from http://www.destinationcrm.com/Articles/CRM-News/Daily-News/What-Is-CRM-46033.aspx

Peck, H.; Christopher, M. & Payne, A. (1999). Relationship marketing for competitive advantage. Woburn, MA: Reed Elsevier.

Payne, A.; Ballantyne, D. & Christopher, M. (2005). A stakeholder approach to relationship marketing strategy: The development and use of the six markets model. European Journal of Marketing, Vol. 39 (7/8), 855–871.