Understanding Customer Relationship Management CRM

Customer Relationship Management


This Chapter reviews past literatures done on CRM.

Its objective is to understand what past researchers had done in the subject area taking note of their achievements and limitations in the course of the research.

The first part will clarify issues of relationship management as whole, describing strategic relationships, before elaborating the customer differential – CRM comprising the major role of competitive differentiation, the key concepts of satisfaction, trust and customer loyalty.

The second part will elaborate models of CRM used within companies that can be implemented mostly in Microfinance industry. Thirdly, the concept of Microfinance will be highlighted.

Finally the author will come up the suitable framework applicable in Cameroon MFIs.

2.1  Understanding Customer Relationship Management CRM

2.1.1 Definitions

Due to rapidly changing business environments and more demanding consumers, companies have to seek new ways to achieve and retain a competitive advantage through customer intimacy and customer relationship management in a bid to develop customer retention and loyalty (Kracklauer et al., 2004).

Marketing deals with customers and building profitable customer relationships.

According to Armstrong and Kotler (2007), marketing is managing profitable customer relationships with the goal to attract new customers by promising superior value and to maintain current customers in delivering satisfaction.

Generally, marketing is a social and managerial process by which individuals and organizations get what they need and want through creating and exchanging value.

Narrowly defined, marketing involves building profitable and valuable exchange relationship with customers. Consumers face a large range of products and services that might satisfy their needs.

They form expectations about the value and satisfaction that different market offerings deliver and they buy accordingly.

Thus the right level of expectations has to be set in order to create superior customer value and customer satisfaction, which are the key points for developing and managing lasting customer relationships.

Customers that are satisfied are more likely to be loyal.

The marketing process in general consists of three steps – understanding the marketplace and customer needs, designing a customer-driven marketing strategy, and constructing marketing programs- leading up to the most significant step of building profitable customer relationships.

Customer relationship management (CRM) is the overall process of building and maintaining profitable customer relationship in delivering superior value and satisfaction, dealing with acquiring, keeping and increasing consumers.

CRM is a powerful concept to align the interests of a company and its customers.

Its success depends on the appropriateness of the company’s strategy and CRM implementation effectiveness (Bouling et al, 2005). Customer perceived value is the customer’s evaluation of the difference between all the benefits and all the costs of a market offering in relation to those of competing offers.

Customer satisfaction is the extent to which a perceived performance of a product matches the buyer’s expectations.

Thus higher levels of customer satisfaction lead to greater customer loyalty and this means greater returns for the company in the long-term. The outcomes of creating customer value are customer loyalty and retention.

In order to build profitable customer relationships, a company needs to have a better understanding of their customers’ needs than their competitors while at the same time delivering more value.
So, a competitive advantage is an advantage over competitors, gained by offering consumers a greater value.

This can be achieved either through lower prices or by providing more benefits that justify higher prices.

2.1.2 Origin and Emergence of Relationship Marketing

The origins of relationship-based approach to the management of a company has come into view from various academics and practitioners in the fields of strategy, marketing and supply chain management and has appeared to be a new way of marketing management to operate.

It is based on a managerial perspective as part of a mission to make marketing effort more effective.

Thus it becomes obvious that, according to Donaldson and O’Toole (2002), strong customer relationships are important for profitability, existing customers are more significant than new and understanding customers is principal for the future direction of the business.

According to Goodhue et al (2002), managing customer relationships was easier in earlier times as then merchants have knowledge of their customers, what they generally purchases could be.

Riyad (2007sh) added to Goodhue’s view and stated that traditional marketing approaches have tended to utilize macro and micro segmentations techniques.

The knowledge helped business operators then to create highly effective customer relationships.
customer relationship management

Customer retention for relationship marketing success is crucial and discussed in various literature (e.g. Crosby and Stevens, 1987; Rust and Zarorik, 1993; Sheth and Parvatiyar, 1995 ).

Retention has a behavioural and attitudinal character.

The marketer plays an active role in retaining customers, while loyalty focuses more on intrapersonal aspects of customer behaviour. Retention and loyalty imply an intentional component and differ from repeat purchasing behaviour as there is a reason for the customer’s repeat purchasing (Hennig-Thurau et al, 2000, p.7).

Indeed, the relevance of customer retention for a company’s economic success is important as an increase in retention leads to cost reduction and sales increases.

The amortization of sales, marketing and set-up costs over a longer period of time and the reduction of services costs resulting in the growing expertise of customers are outcomes of cost reduction effects.

Hennig-Thurau (2000) proposed that sales growth is a consequence of increased expenditure over time, positive word of mouth loyal customers, as well as the willingness of loyal customers to pay a price premium.

Thus it becomes significant that retention and loyalty are closely connected to economic relationship marketing success.

2.1.3 Relationships are Strategic Strategic Relationships through Stakeholders

Relationships with key stakeholders are strategic, so managing them is a major strategic issue.

External and internal relationships are important as well as macro networks for strategic building and sustaining advantage.

Strategy is concerned with the direction and extent of a business in perspective to provide sustained value.

Without consideration of relationships as a strategic issue, companies might fail to see opportunities or might face unforeseen threats in its competitive environment.

The strategic management of relationships requires interdependence and active cooperation of connected networks.

Thus,“a key determinant of strategy is the consideration of a company’s resources and their relation to partnering organizations and individuals” (Donaldson and O’Toole, 2002, pp.23). Relationship Value

Sustainable competitive advantage is located in the unique resources of a company, such as long-term developed knowledge and management capability from a relationship that is hard to copy.

Some types of trust have competitive advantage potential, such as trust involved in goodwill or willingness to take action over and above the minimum necessary, whereas contractual, meaning to do what is signed up to may not.

Thus mutual trust and unique assets seem to be two possibilities for competitive advantages in relationships.

However, it has to be distinguished between advantages obtainable and advantages driven by environmental forces, like globalization or environmental objectives, such as sourcing sustainable raw materials, reducing energy consumption or minimizing air emissions.

Competitive advantage can be described through relationships and sustainability and emerges from characteristics of relationships.

According to Dyer and Singh (1998), these are investments in relationship-specific assets, knowledge routine and exchange, a combination of complementary resources and capabilities and lower transaction costs than competitors.

So, in order to maintain or sustain the advantage, it should be present in the relationship that is difficult to identify what generates the advantage, that the causes can be identified although there is no enough time to market, that the interconnectedness between parties may have created a unique asset, that partners to generate an advantage potential are scarce and that the relationship is unique (Dyer and Singh, 1998, pp.662-674).

In nutshell, a competitive advantage represents a strategic edge that a company has over its competitors in its market.

This may be a better product, a lower price, unique distribution channels, unique supplier relationships or even exceptional means of sales and marketing promotion.

Even more organizations rely on the customer differential as unique differentiator and source of competitive advantage, meaning the loyalty of their customers (Nykamp, 2001)

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