Customer Relationship Management - Literature review Example

? How hotels can use relationship management to enhance loyalty and retention: An empirical study of Chinese hotels Literature review Customer Relationship Management Customer relationship management has become a subject of interest to many scholars and business people. This management tool has been fronted as one of the most effective tools of achieving and enhancing sustainable growth and profitability. Most of the scholars have focused on the following issues regarding customer relationship management: definition of CRM; process of developing and maintaining an effective CRM framework; and the benefits of CRM. Customer relationship management is broadly defined as a model through which a company manages its interaction with customers, both current and potential (Kumar & Reinartz, 2012). With the development of technology, the model has incorporated technology and has made it easier and efficient for firms to automate, organize, and synchronize marketing, sales, technical support and customer service. Buttle (2012) states, “customer relationship management is the major function of an organizational strategy that combines the internal functions and process, and external networks, to create and offer value to target market at a profit.” (Buttle, 2012) Greenberg (2004) defined CRM as “a philosophy and a business strategy, supported by a system and technology, designed to improve human interactions in a business environment.” (Greenberg, 2004) Fostering good relations with customers is very essential for any business that wants to survive and achieve profitability. Customers form the society in which the business operates, hence, they determine to a great extent the performance of the company. They are ‘kings’ in business and therefore should be treated with utmost care and respect. A good customer relationship is healthy for an organization in that it makes consumers develop confidence in the organization and improves their perception on the capability and competence of the business (Kumar & Reinartz, 2012). This eventually creates customer loyalty leading to customer retention. As a result, the company will be in a position to increase its revenues due to the favorable market. According to previous researches, it has been found that it is easier to retain a customer than to attract a new customer. This therefore underlines the importance of a firm to foster good relations with its customer in order to retain them. The main objective of CRM is to create a continuous mutual business relationship with current and potential customers in order to help an organization achieve competitive advantage as it also creates value for the customers (Microsoft Dynamics, 2009). According to Nordic school of thought, in order for an organization to have an effective CRM, knowledge of how to develop customer value and enhance the degree of customer satisfaction is necessary. This school of thought tries to explain the importance of relationship marketing theory and acknowledges the value and importance of such relationship to the business and the customers. It also notes the crucial role played by customers and suggests that customer service should be joined with marketing (Buttle, 2012). According to Morgan and Hunt (1994), customer trust is essential in having a successful customer relationship. Customers’ trust in the business comes up as a result of an assurance that the organization will perform certain activities that will benefit them. Anderson and Narus (1990) state that it is hard to break a trustworthy relationship; even if one party is negatively affected by the deeds of the other, trust can still be restored. In order to build customer trust, a firm should ensure there is consistency in its actions. It should ensure that products and services have the right quality at all times and meet the customers’ needs. In addition, goods and services should be availed at the right place and time. There should be no cases of goods shortages in the market (Kamakura, et al., 2005). One of the main ways that a company can use in achieving a successful customer relationship management is by focusing on existing customers. Towards this end, the company should maintain a customer database. This should include all the relevant details concerning customers such as customers’ names, addresses, type of customer (individual or corporate), mode of payment, buying behavior, among others. With this information it will be easier for an organization to identify key customers and establish a cordial relationship with them. Furthermore, the information in the database will help the company in segmenting the market (Kumar & Reinartz, 2012). With a segmented market and a customer database it becomes easier for the organization to evaluate the profitability of each customer and decide the ones to do business with. Organizations should develop an inbound type of communication that is effective, proactive, efficient, and markets the organization to the customers. This can be achieved by developing an automated system that would notify customers about important issues, for example, defects or products call back. Similarly, an organization could create a system that automatically sends short messages to consumers, for instance birthday messages. Anderson and Narus (2009) it is the “little things” that strengthen and enhance relationships between customers and the company. Customer loyalty Customer loyalty is one of the major products of customer loyalty. Customer loyalty creates a strong commitment for the customers to do repeat purchases and also refer other people to buy the company’s goods or services. According to Chen and Popovich (2006), customer loyalty is the extent to which a consumer will keep on purchasing products from a particular company or brand (Chen & Popovich, 2007). This is referred to as repeat purchasing and enables the firm to increase its sales and increase its profitability. It is important for a business to develop customer loyalty since the cost of attracting a new customer is relatively higher than that of retaining an existing one. A company can conduct massive and successful promotional programs but with no additional business earned. For instance, preparing a business fair will consume hours of valuable staff only for it to attract a few customers with only a handful of them becoming profitable customers. This shows the importance of the existing customers since they are more likely to give the company more business with little struggle (Microsoft Dynamics, 2009). There are two ways that firms try getting more business from their customers: first, motivating them to buy in large quantities for any purchase they make. They can achieve this via sales promotions where companies give discounts for bulk buying, attractive prices or use up-selling. Secondly, encouraging the current customers to purchase more often. In this case, loyalty programs and rewards play an important role (Griffin, 2002). Loyalty programs were introduced more than 100 years ago by companies in different industries such as hospitality, airline, and transport. Up to today, loyalty programs/rewards remain an important element in retaining customers. Before developing any loyalty program, the following requirements should be considered: frequent buying of product/services; customer should have a choice of supplier from whom to buy; offerings should be similar across the board; and customer membership should have several classes (James, 2013). Fifield (2007) and Blythe (2008) proposed five categories of loyalty programs that a firm can use in develop customer loyalty and retention of the current customers. These are: physical rewards; membership; interpersonal contact; special treatment, and express mail (Blythe, 2006). Tangible rewards include prizes, price discounts and coupons. According to Payne (2006), tangible rewards have a great potential of increasing customer loyalty as they make consumers develop a strong relationship with the company, feel valued and develop the need of giving back to the organization. Griggin (2007) tangible rewards also change the mind of the customer from “loving the service” to “getting benefit from the service.” This makes it simpler for an organization to introduce new goods and services to the existing customers as well as enhancing customer retention. Interpersonal communication involves exchange of information between persons. Payne (2006) argues that incorporating interpersonal communication with customers in CRM makes them develop a connection with the firm hence remaining loyal to it. The customers feel valued as a result of constantly receiving communications from the company. Interpersonal communication is closely tied to reward on direct mails (Payne, Knox, Ryals, Maklan, & Peppard, 2012). Special treatment involves offering preferential treatment to customers. The most regular customers are given more customized services. This is similar to membership reward. According to Griffin (2008), satisfied customers have an 80% possibility of purchasing from the organization within 60 days, while 90% of customers are likely to refer their friends and relatives to the firm’s products and services. Customer behavior Fifield (2012) customers show diverse characteristics when making purchasing decisions and after purchasing a product. The success to attracting more customers lies in understanding the behavior of customers in their buying process (Fifield, 2012). Therefore, a firm has to understand and shape customer behavior in order to know their expectations, understand the consumer’s purchasing process and other factors and elements that affect consumers’ behavior. This will go a long way in enabling the organizations to develop better products and services, and marketing communications that match customers’ needs. Blythe (2006), states that there are various methods through which a company can influence customers’ buying decisions. To effectively influence this behavior, the company must first understand the buying process and other factors that affect customer buying decisions. According to Blythe (2006), there are two factors that are influential in the customers’ buying decisions: factors determined by the customers, and product factors which are determined by the company. Customer factors include: demographic factors (age, income, occupation, and gender), behavioral characteristics, individual preferences, previous experience, and reference groups, among others. Product/service factors include: pricing, quality, promotions, physical environment and other integrated services (Blythe, 2006). In addition, products with transactional attributes are affected by the personnel delivering it the customer. Consumer buying process is comprised of several tasks: attracting the attention of the customers, creating an interest in the customers, convincing the customers that the product/service will meet their needs, customer buying the product/service, and evaluation and analysis of customer’s buying decision and pos buying behavior (Priest, Carter, & Statt, 2013). Enson (2011) state that a firm can trigger, influence or help in customer buying and decision making process. This can be achieved through organizing effective advertising campaigns that communicate well to the customer about the company’s products and services. The advertisements should focus on educating the customers on the benefits of the product/service. Particularly, the adverts should arouse the need to consume the product. Post-buying behavior is very important to an organization. This to a large extent determines the possibility of a customer doing a repeat purchase. As a result, a company should perform an after-purchase evaluation to in order determine how well the product/service satisfied the customers’ needs. According to Griffin (2007), this is a key step towards retaining customers. It is at this stage the company reassures the customers that their decision to buy the company’s product/service was the best (Griffin, 2007). During this process a company can introduce another product to the market and the start the process all over again. During this process of after-purchase evaluation, an organization is able to acquire valuable feedback from consumers, create good relationships, introduce new products/services, and enhance repeat purchase. Jeffrey Peel, CEO of Quadriga Consulting, notes that CRM entails having knowledge of the type of interaction between customer and the company, and controlling it appropriately. The interactions not only include money element but also communication. The biggest test to an organization is on how to optimize these interactions to attain long-term relationships that are profitable (Microsoft Dynamics, 2009). Companies mostly communicate with their customers through advertising campaigns. Consequently, effective advertising campaigns and marketing channels are very important to communicate effectively to the customers about the company’s products and services and other events organized by the company under its CSR policy. According to Payne (2008), organizations affect consumer behavior via product or service factors such as price, promotions, quality and physical environment. The company should therefore evaluate these elements to find out if they fulfill the expectations of customers. Among these factors, quality is the most crucial and customers will be willing to pay a premium if the quality of the product is superior. References Blythe, J. (2006). Principles & Practice of Marketing. Cengage Learning EMEA. Buttle, F. (2012). Customer Relationship Management. Routledge. Chen, I. J., & Popovich, K. (2007). Understanding customer relationship management (CRM): People, process and technology. Business Process Management Journal. Vol. 9, Issues 5 , pp. 672-688. Fifield, P. (2012). Marketing Strategy. Routledge. Greenberg, P. (2004). CRM at the Speed of Light, Third Edition : Essential Customer Strategies for the 21st Century: Essential Customer Strategies for the 21st Century. McGraw Hill Professional. Griffin, J. (2002). Customer Loyalty: How to Earn It, How to Keep It. Wiley. James, G. (2013, November 6). Create True Customer Loyalty: 10 Rules . Retrieved December 9, 2013, from Inc.: http://www.inc.com Kamakura, W., Mela, C. F., Ansari, A., Bodapati, A., Fader, P., Iyengar, R., et al. (2005). Choice Models and Customer Relationship Management. Journal on Marketing Letters. Vol 16 No. 3 , 279-291. Kumar, V., & Reinartz, W. (2012). Customer Relationship Management: Concept, Strategy, and Tools. Springer. Microsoft Dynamics. (2009). Customer Relationship Management: The Winning Strategy in a Challenging Economy. Microsoft Dynamics CRM. Payne, A., Knox, S., Ryals, L., Maklan, S., & Peppard, J. (2012). Customer Relationship Management. Routledge. Priest, J., Carter, S., & Statt, D. A. (2013). Consumer Behavior. Edinburgh Business School. Read More