CRM IN E-BUSINESS
Today, customers are more highly educated, under higher stress, more specialized, living longer, and more influenced by global culture than those of the 60s and 70s when my view of marketing was formed (Wilson, Daniel, & McDonald, 2002). This as well as the emergence of e-Business, organizational dynamics, and cultural change issues has dramatically shifted organizations´ functional units to focus on the customer. Consequently, organizations have recognized the need to develop customer-cantered orientations. (Romano, 2003)Organizations are learning more about their customers and their preferences, needs, and expectations. (Jukic, Jukic, Meamber, & Nezlek, 2003) According to Schultz (2000) the practice of planning, creating, and managing customer relationships has nowadays become the heart of organizational strategy and the key to customer retention. The hype surrounding CRM has only been pervasive within business, technology, media, and academic communities since early 1997 (Fayerman, 2002). According to Wilson et al. (2002) the influential study by Reichheld and Sasser ( 1990), which showed the large impact on profitability of small increases in customer retention rates, was the start out, making the marketing community more conscious of the need to manage customer relationships in the long term as well as prior to the first sale.
CRM is a concept that enables an organization to tailor specific products or services to each individual customer. In the most advanced scenario, CRM may be used to create a personalized, one-to-one experience that will give the individual customer a sense of being cared for, thus opening up new marketing opportunities based on the preferences and history of the customer. (Wilson, et al., 2002) CRM is also a costumer-focused business strategy that aims to increase customer satisfaction and customer loyalty by offering a more responsive and customized service to each customer (Fayerman, 2002). CRM technological initiatives are most commonly implemented in functional areas such as customer support and service, sales and marketing to optimize profitability and revenue. However, there is no universal explanation of what CRM is, since the area is fairly new and still under development. It is therefore important to know that numerous attempts of defining CRM exist and that many organizations adapt the definition to their own business and their unique needs. (Wilson, et al., 2002) The quotations stated below are three examples of how CRM is defined. We have chosen to use the definition stated by Bose and Sugamaran (2003) as the foundation and as a general view of CRM for this study. The reason for this is that this definition is the most extensive one, the most recent one and that it makes no mention of any particular means of communication, or channels, whether traditional or new. CRM is about managing customer knowledge to better understand and serve them. It is an umbrella concept that places the customer at the centre of an organization. Customer service is an important component of CRM; however CRM is also concerned with coordinating customer relations across all business functions, points of interaction, and audiences" (Bose& Sugamaran, 2003, p.4).
"CRM is the infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal – indeed, to buy again" (Dyché, 2001, p.4).
"CRM is an enterprise-wide mindset, mantra, and set of business processes and policies that are designed to acquire, retain and service customers. CRM is not a technology, though. Technology is a CRM enabler" (Greenberg, 2001, p.14).
According to Gefen and Ridings (2002), CRM can be divided into three different types: operational, analytical, and collaborative. Operational CRM, also known as front-office CRM, enables and streamlines communications and involves the areas where direct customer contact occurs, for example, a call centre or e-mail promotion (Romano, 2003). Operational CRM attempts to provide seamless integration of back-office transactions with customer interfaces and the majority of self-described CRM products on the market today fall into the operational category (Adebanjo, 2003).
Analytical CRM, also known as back-office or strategic CRM involves understanding the customer activities that occurred in the front office and enables an organization to analyze customer relationships through data mining (Gefen & Ridings, 2002; Shaw, 2001). Analytical CRM requires technology to compile and process the mountains of customer data to facilitate analysis and new business processes to refine customer-facing practices to increase loyalty and profitability (Adebanjo, 2003).
Collaborative CRM is almost an overlay (Greenberg, 2001). It is the communication centre, the coordination network that provides the neural paths to the customer and supplier (Schubert & Koch, 2002). It could mean a portal, a partner relationship management application, or a customer interaction centre (Gefen & Ridings, 2002). According to Fayerman (2002) could it also mean communication channels such as the Web or e-mail, voice applications, or snail mail. Fayerman (2002) further states that it also could mean channel strategies. In other words, according to Schubert and Koch (2002) it is any CRM function that provides a point of interaction between the customer and the channel itself. According to Greenberg (2001) the goal with CRM is to recognize and treat each customer as an individual using the three types of CRM. The emergence of the Internet heralded a new opportunity for customer relationship building(Croteau & Li, 2001). For one thing, search engines made it easier for customers to find online merchants and interact with them. Moreover, the Internet simplified bi-directional communication, for the first time offering a better way for consumers to relay personal information to the merchant. Instead of waiting to be mailed a form to open an account or order by phone, a prospective customer needed only to send an application through cyberspace, resulting in shorter delivery time, improved accuracy, and quite often a higher positive perception. ( Strauss & Hill, 2001) In fact, the Internet is an environment of zero latency, offering real-time information, and often on-demand product delivery (Bradshaw & Brash, 2001).
It is easy for an organization to be confused about CRM. The "headless chicken" analogy –running around in every direction without a clear goal – is very apt. Nowadays, with a rapidly increasing number of CRM consultants, articles praising the virtues of CRM are part of the daily diet of managers. In this situation, a manager might rush into an ill-considered CRM program. (Stone, Woodcock & Machtynger, 2000) The advent of e-Business and virtual supply chains has further complicated the situation and created a competitive situation characterized b y a greater number of products and service alternatives that are becoming less Differentiable (Schultz, 2000). As a result, customers are becoming g less loyal and expect more in terms of customer service (Rust & Lemon, 2001).
According to Parthenios and Amalia (2001) what keeps a good customer coming back is good service and today's economic climate demands more than ever that customer acquisition, profitability, and retention remain central to an organization's business. But that cannot be done if customers are running out the door before organizations even discover who they were or, more important, what they potentially were. To keep them in the store, organizations need to offer a better customer experience and they are turning to CRM applications and processes to do just that. (Ibid) Another objective of CRM initiative is to transform the organization into becoming customer centric with a greater focus on customer profitability as compared to line profitability. The insights gained from CRM enable organizations to calculate or estimate the profitability of individual accounts. Organizations are then able to differentiate their customers correctly with respect to their profitability. From such insight, organizations can build predictive churn models to retain their best customers by identifying telltale symptoms of dissatisfaction and churning, keeping the customers who generate profit. (Chye & Gerry, 2002)Intimate customer relationships offer organizations several advantages. To begin with, the relationship can create a committed customer. More than simply a repeat purchaser, the committed customer has an emotional attachment to the seller. (Ragins & Greco, 2003) These emotions can include trust, liking, and believing in the organization's ability to respond effectively and promptly to a customer problem. Committed customers can be viewed as organizational assets who are likely to be a source of favmyable word -of-mouth referrals and are more resistant to competitor's offers. (Fournier, 1998)
Furthermore, CRM provides a point of leverage to realize economies of scale. Committed customers are often mo re receptive to line extensions. (Fayerman, 20 02) Leveraging the customer base can facilitate cross-selling complementary products as well as selling up to higher quality substitutes (Ragins & Greco, 2003). Cross-selling is all the rage nowadays, because selling more services or products to an existing customer increases revenue from that customer and costs less than acquiring a new one (Greenberg, 2001). This is further supported by Dyché (2001), which states that it costs an organization six times more to sell a product to a new customer than it does to sell to an existing one.
Moreover, in recent years, CRM's potential to contain and reduce cost has been explored. CRM, in concert with other processes, can help reduce churn or turnover in an organization's customer base. Better customer management can result in lower sales and service costs, higher buyer retention, and lower customer replacement expenditures. (Romano, 2003)According to Reichheld (1996) a five percent increase in retention can yield a 95 percent increase in the net present value delivered by customers. This argument has been further strengthened by data on the low cost of better retention as compared with better acquisition and the increasing profitability of customers the longer the relationships lasts (Ragins &Greco, 2003).
The traditional but to some degree incorrect view is that CRM is a technological system for information handling and analysis (Croteau & Li, 2001). Others view CRM as a sales or marketing function only (Wilson, et al., 2002). However, according to Fayerman (2002 ) the critical interface is somewhere between CRM technology and marketing and an understanding of the perspective from both of these areas is a requirement for cross-functional integration. It must be remembered that effective CRM is more than a software solution; it is about how customer information is used to create an ongoing relationship with the customer. To achieve that outcome, different relationship approaches, and perhaps even different CRM technologies, might be needed for the different types of customer relationships found in B2B or B2C markets. (Ragins & Greco, 2003)
Briefly, we have high lightened the importance and potential impact of CRM on customer relationships in e-Business as well as for traditional organizations. We have focused on the objectives of CRM, how to manage CRM, and the evaluation of CRM. It should be remembered that CRM is not just a technology it is so much more and organizations that view their customers as assets and deliver value in terms of convenience, quality, and a positive purchasing experience are the winners in today's competitive environment ( Krauss, 2002;Ryals & Knox, 2001).