In the coming weeks, we will review about how an effective customer relationship management (CRM) system allows a company to adjust strategies for different customer segments. For today, before moving into those sectors, we will briefly discuss the major benefits and costs of an effective CRM approach to the customers as well as the company.
Benefits to customers
Customers may profit from CRM approaches and relationship marketing efforts in a number of ways. First, the continuity of the relationship with the same seller simplifies the buying process of the customer. Continuity implies a stable connection or linkage. A Honda advertisement says, “Life is full of complicated decisions. Simplify.” This advertisement reflects an understanding that people want their buying decisions to be easier. Many customers do not want to evaluate too many factors when choosing among alternatives. If your company can consistently meet your buyer’s needs over time, the continuity of the exchanges serves to simplify the process and reduce the risk of dealing with a new supplier.
Secondly, regular customers want to do business with companies that will provide a consistent level of product or service quality. For example, most people are loyal to their hairdressers, tailors or opticians. Being a regular can reduce customers’ perceived risk. Effective CRM systems provide a number of contact points or touch points, where customers can communicate and explain their needs, thus enabling the company to learn more about each one’s requirements. A contact point is a method of interaction such as the telephone, e-mail, point-of-purchase, customer service desk, to name a few.
For example, the sales personnel at boutique clothing stores ask regular customers about their jobs, families and lifestyles. They keep an eye out for clothes to suit their customers’ tastes and put aside possible selections. Today, sales personnel noted such information in laptops or palmtops. CRM systems today are designed to offer these details to the entire company.
In an age when personalization is rare, CRM information technology is bringing it back. Personalization implies that the company knows the customer by name, knows the customer’s normal purchasing routine and can forecast the customer’s need for variety as well. With the appropriate information technology, customers can increasingly benefit from personalized service. Relationship marketing has been called ‘one-to-one marketing’ because it allows marketers to tailor offerings to individual customers.
Benefits to company
The satisfaction of consumers’ needs and wants is the justification for a company’s existence. An effective CRM system is a way for the company to develop a customer focus that allows the company to hear the customer’s voice. A customer focus means that the company is ready to view the purchasing process from the customer’s point of view, to empathize with the customer’s feelings and to treat the customer’s information with great care.
If your company can learn enough about your individual customers, then the customer should be more satisfied, trusting and willing to talk positively to others about your wonderful approach - the systems should enable the company to retain regular customers as it acquires new ones.
Retaining customers and establishing customer loyalty are major objectives of CRM approaches. The cost of acquiring a new customer can be high. There are no acquisition costs for existing customers who tend to buy the same items again and who seek other related products or services from other companies. Higher customer retention rates will generally increase revenues and in most cases, reduce costs. In summary, a good CRM system can satisfy your customers and/or offers variety such that they repeat transactions with your company over and over again.
The development of CRM systems also leads to a different kind of thinking about the nature of a business. Historically, marketers have thought in terms of a single product and their goal has been achieving a high share of the market - more customers than their competitors have. In CRM, the company objective often is to achieve a high share of customer. The company tries to sell an individual customer as many goods and services as it can over the lifetime of that customer’s patronage. In essence, share of customer or share of wallet, means that the organisation wants to please customers to the point that they want the organisation to sell them something else.
Cost to company
Implementation of a CRM system may require a significant investment in the company’s information technology (IT) infrastructure. The IT infrastructure is the processing capacity required to fulfil customer needs. With significant web-based processes, the system must be available 24 hours each day for seven days of each week for 365 days of each and every year.
Another significant cost in developing an effective CRM system is the price of process change. Process change implies an alteration in the habitual pattern for accomplishing a task implementing new systems and changing traditional thought patterns may both be very difficult to accomplish.
However, if the CRM approach is viewed, for example, as simply a way to provide financially- based incentives, customer loyalty may not develop and, in fact, the company may damage its brand image as customer anger develops. As competitors match the financial incentives, the entire industry may experience higher operating costs for the same level of sales—a decline in profitability.
Despite the best efforts of companies to design effective CRM systems, it is finally the people who must implement those systems and customers who must appreciate them, use them with ease and feel safe in the process. Companies must appreciate ‘the dance of change’, the inevitable interplay between growth and limits/benefits and costs if positive outcomes are to accrue.
Cost to customers
Perhaps the most obvious cost of the CRM systems to the customer is the inevitable loss of privacy. Companies want to know which people purchase which products in which colours on which days of the week with which credit card. Customers want to feel that no one knows that much about their personal choices. The ability of companies to track related purchases is extensive and potentially tied to the customer’s phone number, bank account or credit card number. Another intangible cost to the customer of developing a sole-source relationship with an organisation is the opportunity cost associated with ignoring other offers from competitive sources. If customers take the time to search, they may find a better price for the same features or find options that better meet the original need. Yet, once a habit is formed, most customers will refrain from exerting the effort to assess other options.
A fundamental principle of marketing is that each customer is different. Some customers cost a great deal to attract and require a great deal of service while others require very little service and seem anxious to learn about your company. A basic tenet is that different customers represent different levels of profit for the firm.
Successful companies attempt to define characteristics of the best customers and then estimate the lifetime value of such customers and to adjust marketing strategy accordingly. Best customers represent a proportion of all customers in an industry who provide profitable interactions, cost little to care for, and who tend to spread positive word-of- mouth information about the company.
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at firstname.lastname@example.org)
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