Customer Relationship Management in Todays Marketing Mix - Essay Example

Relationship Management I. Introduction In a specific market or industry where companies seem homogenous, what with similar products which are at par in quality with each other and similar structures and strategies, people look for differentiating measures upon which they can base their choice of company to patronize. Corporations battling within a specific market for the bulk of market share look for ways to gain that competitive advantage over other companies. What is competitive advantage Competitive advantage happens when a company maintains profits that surpass the average for the industry it belongs to (Competitive Advantage). It is achieved when a company is able to provide similar benefits as their competitors but at a lesser cost, or deliver benefits that are better than those of the competing products. The two types of competitive advantage therefore are cost advantage, which offers lower cost and differentiation advantage, which offers better benefits. Competitive advantage helps the company gain higher profits and aids it in creating superior or excellent value for its customers. Companies offer products to customers with the aim of continuous and growing patronage and positive feedback directed to possible customers. They aspire to maintain a solid customer base while aiming to increase that number by active marketing and selling of the products. Products may be classified into different kinds. Products may be physical objects or tangible goods, people, services, ideas or concepts, places, organizations and activities. All these material and non-material products are offered by the companies to their existing and prospective customers with the promise that the customers will benefit from their products in greater ways than if they support the competition. In order for the companies to offer the appropriate products to specific customers, they have to first identify the needs and wants of the customers. No two customers are exactly alike in their preferences. Each person differs from another. Focusing on the individual needs and wants of a multitude of customers is not feasible and practical fro companies. The cost will be too much to handle. The strategy used is to segment or group customers into clusters. Members of clusters share common characteristics which may be concluded as leaning towards a support, need or want of specific products. This way companies may determine the approaches they need to apply for specific customer groups or clusters. Aside from the actual selling techniques of companies, marketing strategies propel organizations to higher profits and bigger market share. According to the American Marketing Association, "Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders" (AMA Adopts New Definition of Marketing). Marketing revolves around the theory that customers use a product or a service because they have a need or a want for it or the product offers a perceived benefit. Thus, determining the actual needs of customers is the very basic strategy for marketing. Markets today are very competitive in that the players more often than not have products of the same quality and similar sales and marketing strategies. This homogenous quality of markets makes it difficult for customers to choose a preferred company and establish loyalty with that company. Since the kinds and qualities of products are similar, prices of goods and services are often at the same level. Same levels of pricing do not give the companies cost advantage, so they resort to gaining differentiation advantage. They gain differentiation advantage by the provision of excellent customer service which translates to customer loyalty and creation of customer value. Customer Relationship Management is a vital element in the provision of excellent customer service. It aims to systematically manage customer information in order for companies and their personnel to provide a more personalized and effective customer service experience to their existing and prospective customers. This paper aims to discuss the role of Customer Relationship Management (CRM) in today's marketing mix and the ways which CRM may be utilized to enjoy competitive advantage. This paper will likewise analyze and evaluate the implementation of CRM by an airline company, Lufthansa and the implications of that implementation to its competitive position. II. Customer Relationship Management (CRM) Defined Customer Relationship Management (CRM) is a strategy used by companies to reduce costs and increase profits by establishing and developing customer loyalty (What Is CRM , 2002). The strategy focuses on acquiring customer information and bringing data together from a variety of sources within the company. A system is then set-up so that all the data can be accessed by all departments within the organization. The purpose of the access is to provide all employees with consistent and meaningful data about customers so they may provide services better. Services are better provided if the identity as well as the characteristics, needs, wants and previous purchases of a particular customer are known prior to another interaction with that customer. This will help the employee offer the appropriate products for the customer and it helps in the anticipation of a customer's next move or purchase. Customer relationship management aspires to create more significant communications with customers by applying customer data like demographics, purchase history and industry to all communication channels (customer relationship management). Employees who are in the areas of sales, marketing and customer support and who face customers on a regular basis find customer relationship management as very effective in the performance of their tasks or the fulfillment of their duties. They can confidently engage in cross-selling or up-selling of products depending on the company priorities and positioning, because they have additional knowledge on the purchase possibilities or the opportunities open in relation to an interaction with a customer. Customer relationship management has three key components: people, process and technology. Integration of these three components would spell success for the CRM initiative. The People component is the component involved in the first stages of planning for a CRM program. CRM needs a solid support from the personnel, from the entry level staff to the top management. It needs input from the personnel, especially those who deal directly with customers as they could provide vital information regarding the present level of customer satisfaction, customer habits and customer needs. The implementation of CRM means changes in the way the employees would do their everyday jobs. It means that there are processes and systems to be learned. There are times when employees do not open themselves up to change and so are resisting developments regarding procedures and technology. Some are satisfied with the status quo that they prefer to be complacent and not progressive. Still, some foresee advancements in the office systems as being tedious and useless. These employees are not properly informed as to the reasons for the changes and the effects of the changes. Their resistance also may stem from non-consultation, meaning, the employees had no participation and awareness whatsoever in the planning stages. A reason may also be lack of knowledge on the new system due to insufficient or no training provided at all. The CRM's process component deals with the business processes of the company. The goal of these business services is to provide better service to the customer. Before embarking on a process change, a company needs to initially examine if the existing business process involving direct customer interaction utilized by the company is working. If upon evaluation some processes need to be replaced or redesigned, the processes that will be used to replace should have undergone scrutiny from the employees, especially those who will be using the processes. By doing internal consultations prior to implementing a system or a procedure, the new processes will be more easily understood and accepted by the employees. The third component is technology which comprises CRM software and the latest technology trends. Several software or CRM automated systems are available for use by companies. It is important to determine which systems are needed by the company in order to achieve their goals. It does not necessarily follow that using any CRM software would improve customer interaction processes which would then increase customer loyalty. CRM software could be all-encompassing in its ability to streamline procedures which used to involve paper trails and different mechanisms, into one basic action. However, CRM systems have their own specialties so companies should be very careful in choosing systems which consist of the items that they need. Acquiring a system which has more useless functions than effective operations, would eventually result to increase in cost without an equivalent increase in revenue. It is also important that companies choose technology that is fairly easy to use so that employees can easily master the functions and thus concentrate on delivering the proper service to customer, than spend time learning the system and correcting errors. The technology realm is oftentimes very fast paced in terms of development that it is hard for companies to always catch up and aspire to keep all their systems updated. It is better to observe first and check out the effect of the systems to the market before acquiring it. Technology is important in the sense that it produces faster results. Employees dealing directly with customers are able to obtain personalized and real-time data, which enable them to service the customers faster and more efficiently. Integration of the three components is needed in order to achieve the best CRM results. People, processes and technology should work hand in hand for a successful CRM program. III. Marketing Mix Defined Marketing mix consist of four factors which help a company sell its products: product, price, promotion and place (Marketing Mix, 2005). The factors or elements are usually called the four Ps of the marketing mix. The four Ps include product which is a thing or a service that is largely manufactured with specific volume of units or mass produced, price or the amount a customer pays in exchange for a product, place or the location where products can be bought, usually called distribution channels, and promotion which comprise all the communication techniques or venues used in the market like public relations and advertising (Marketing Mix). These four Ps are controllable variables in that they are subjected to and affected by external and internal limitations or constraints of the marketing environment. The primary goal of marketing leaders is to focus the four Ps on the customers, in making decisions to generate positive response and generate perceived value (The Marketing Mix (The 4 P's of Marketing)). Examples of decisions on the product element include safety, quality, brand name and packaging. Pricing strategy, suggested retail price and price flexibility are decisions to be made regarding price. Some of the assessment to be done regarding place involve market coverage, distribution centers and transportation, while decisions regarding promotion include advertising, sales promotions, marketing communications budget and public relations. IV. The Role of CRM in Today's Marketing Mix The present marketing mix reflects dynamism where companies adjust their utilization of the 4 Ps to stay ahead in the competition or to at least be competitive in the market. The basic role of Customer Relationship Management is to complement the strategies and decisions made by the company in relation to the marketing mix. CRM provides information and acts as a guide to the marketing leaders in determining the decisions they make regarding the 4 Ps. Information obtained from the customers, trends observed by employees based on their actual interactions with customers and the perceived needs of customers based on the demands and grievances help in the formulation of strategies in product manufacturing, pricing, product placement or distribution and promotion. CRM monitors and analyzes the changing preferences of customers which in turn translate to a customization of the elements of the marketing mix. This customization is in response to the changing tastes of customers and the adjustments or modifications are reflected in the product on sale, the pricing, the distribution channel or the target audience for promotion. CRM alongside the marketing mix creates effective strategies in the delivery of added value to the customer. This added value shown in the adjustments made by the company based on the existing customer preferences result to customer retention and loyalty. These adjustments are acceptance by the company that present markets are customer-controlled and are thus driven by customer needs and satisfaction. Customer Relationship Management helps marketing departments identify their customers, handle marketing campaigns with clear objectives, and generate leads for the sales personnel. It also provides the employees useful information and processes needed to distinguish their customers, understand customer needs, and build sustaining relationships between the distribution partners, the company and its customer base (Williams, 2006). Lack of knowledge about the customer base and target customers would lead to losses for the company and setbacks in the competition. In cases when companies do not know the customer patterns, they use generic process patterns like the identification of process breakdowns in service, marketing, sales (Roche, 2007). By acquiring a thorough understanding of the needs of customers and knowing the characteristics of a target audience, a company may effectively strategize and adjust their 4 Ps accordingly for the mutual benefit of both the customers and the organization. V. The Use of CRM in the Promotion of Competitive Advantage Customer Relationship Management builds successful and sustainable relationships with the customers. Long term and mutually beneficial relationships affects the operational processes of the company from the product development, manufacturing and even debt recovery. Successful customer relationships which lead to a competitive advantage of a company over the others in the market start with the company being customer centric. In this day and age, customers are well informed about the quality of products, the pricing range and the companies that produce them. They are likewise well aware that companies compete for their attention and patronage. They are aware of the power that they possess and they are keen on using that. Because of this, companies now need to adopt approaches or use strategies that are customer centric. A company that is customer centric is not only aware of information like the customer's name and address, but knows the complete make-up of their customers such as what their preferences and habits are, what they bought and are likely to buy, what kind of promotional activities they respond to and what they consider important (CUSTOMER RELATIONSHIP MANAGEMENT , 2006). Focusing on establishing long term relationships with customers always result to advantages for the companies. At the same time, customers also benefit from the relationship because they get the kind of product and quality of service that they want and deserve. The goals of CRM are definitely directed towards achieving competitive advantage. These goals are customer identification, customer differentiation, customer interaction, and customization/personalization (Gray & Byun, 2001). Customer identification refers to the knowledge of companies on customers based on transactions, interactions and marketing channels. Customer differentiation refers to the distinct requirements and demands of customers to the company. Understanding customer demands from their needs and wants, helps promote cost effective marketing campaigns. Customer interaction involves the important task of monitoring and obtaining information regarding customer needs and behaviors, while customization or personalization is the unique treatment of each customer or the principle of personalized treatment per customer due to their personal differences. Customer interaction advances cost effective customer service and customization aids in lowering the cost of acquisition and retention of customers (Gray & Byun, 2001). Fulfillment of the goals of CRM leads to several advantages in the other aspects of the company or organization. CRM enables processes to be streamlined or more organized and it provides complete customer information to marketing, sales and service personnel (Viniyo, 2007). CRM optimizes the use and share of information by different departments and by multiple employees because employees can simultaneously view consistent and reliable information. Cost reduction benefits for the organization include a decrease in the cost of acquiring customers, cost of serving customers, cost of retaining customers and cost of sales. VI. The Benefits of CRM: A Focus on Lufthansa Lufthansa, which is the sixth largest airline in the world and the German flag carrier, operates its services to around 100 countries and nearly 200 destinations worldwide (Lufthansa). The airline industry is comprised by companies who offer similar products and services to customers. Fares of airlines are more or less in the same range. The fares are actually categorized per a cluster or group of airlines offering the same aircraft physical amenities, services and perks. International airlines likewise offer the same routes especially those who are continent based. They are again grouped together based on their destinations. The difference lies in the provision of customer service and the creation of customer value. To set the company apart from the other airlines, Lufthansa seeks to establish lasting relationships with its customers by acquiring the services of IBM to provide Customer Relationship Management focusing on the areas of marketing, sales and support. Lufthansa aims to make available all customer-related information at all significant touch points. It is now the industry leader in the improvement of customer relationships. The Lufthansa Business Passenger Division with PeopleSoft and IBM Business Consulting Services is creating a customer-oriented business which gives its passengers more accurate and personal service (Lufthansa, 2004). Lufthansa acquired Oracle's PeopleSoft Enterprise CRM Sales, Support and Marketing. Lufthansa has set the elements of CRM in motion. It focused on technology to not only benefit its customers but also to improve the company's internal processes and help its employees do their jobs more effectively. Prior to the acquisition of the automated system, the customer data of Lufthansa are stored in systems that are unconnected. Transactional data are likewise not connected to customer data which makes it hard for employees to track and synchronize the customer movement and their behaviors and patterns. In order to understand the particular needs of customers and respond appropriately to these needs, customer information should be more personalized and comprehensive. To achieve this, systems from the front-end and the back-end should be integrated. Data on the previous travels of the passenger or customer is very important. Personal information as to the preferences of the customer regarding amenities, schedules or routes are vital. Information on fare levels to be offered and the applicable discounts depending on the type of customer should always be at hand. Information about destinations, aircraft configurations and the available amenities should be available at all times. Another important set of details is the feedback of the customer which may include complaints or grievances. All these information should be included in a system where an employee who is in direct contact with the customer can access at any time. If all the needed information is acquired at the point of transaction and is used to assist the customer, added value is afforded to the customer. This then develops a positive relationship between the customer and the company. An integration of all the information mentioned is what Lufthansa aspires for and it is what the PeopleSoft Enterprise CRM system provided. Lufthansa now has a comprehensive data warehouse, readily available customer information and a central customer database. PeopleSoft gave Lufthansa a comprehensive and flexible CRM infrastructure that supports contact management, central customer data management, feedback management, incentive contract management, and sales force automation. Customer data are now all managed in one interface so there is no need to switch to other resources. Changes made to customer records are seen by all users in real time. Employees now can give customers faster and more precise responses to their needs. This definitely increases customer satisfaction. By investing in a CRM system and starting off with a technological strategy, Lufthansa increased the effectiveness and productivity of its employees, developed business practices that are efficient and organized, and initiated a move to improve its long term relationship with the customers. The new system also made the jobs of the employees easier and their functions streamlined. The benefits are directed both to the company and to its customers. VII. Conclusion Customer relationships are the backbone of organizations or companies. They are the lifeline and the heart of businesses. They spell out the success or failure of companies. In this light, customers should be the center of the business. Efforts should revolve around the acquisition, maintenance and retention of customers. Customer loyalty reflects the excellent provision of products and services of companies. It is important to not limit the resources of the company in just protecting and maintaining the current customer base. Looking at the market as a vast area of opportunities, help the company identify and target potential customers. The aim of companies in relation to Customer Relationship Management and competitive advantage should be to retain the customer base and keep them loyal while targeting potential customers in the market and building relationships with them. If companies look at all customers as potential long term partners, they would avoid one-time transactions and encourage repeat patronage and eventually customer loyalty. Markets are dynamic. They respond to the times primarily because the needs and wants of customers go with the times. Their preferences and tastes adjust to the changing market environment. Just as customers acquire habits from the markets that they are exposed to, companies likewise get their cues or signals from the market trends. Both are instrumental in the changing moods of each other. As markets or industries transform, companies alter their strategies and goals. As companies devise ways to move ahead in the competition, other companies follow suit. Companies always try to outdo one another in almost all aspects of the business. Common practice is for companies to replicate the methods of a successful company so it can stay in the competition. This is observed and at times tolerated but shunned nevertheless. Companies' similar business practices and products, with quality that are at par with one another, result to a quest to find that differentiating factor. Customers now have the luxury of shifting brands or companies because of similar product lines and qualities. A minor disappointing incident with one brand can make a customer shift to another brand. The strategy for keeping customers loyal is superior customer service and the creation of customer value. Customer value is an important factor for customers when choosing the company that they would support. Customers think that a company only exists to generate value for them or to present them with results (Kotelnikov). Customer value may be in the form of information, pricing, product quality or a more emotional factor like personal satisfaction. Satisfaction may come from the feeling of self-worth by being treated as important and being served with full and courteous attention. Customer Relationship Management encompasses the elements of people, processes and technology. As in the case of Lufthansa, the acquisition of a CRM program or initiative affected all these elements. The end results came out all positive which include improved customer service, increased employee efficiency, streamlined processes, improved profiling of customers, reduced long-term costs and profitability. Bibliography AMA Adopts New Definition of Marketing. (n.d.) American Marketing Association [online] Available from: [Accessed 31 Aug 2007]. Competitive Advantage. (n.d.) Quick MBA [online] Available from: [Accessed 31 Aug 2007]. customer relationship management. (n.d.) American Marketing Association [online] Available from: [Accessed 31 Aug 2007]. CUSTOMER RELATIONSHIP MANAGEMENT . (2006) Global Sourcing Communications [online] Available from: [Accessed 31 Aug 2007]. Goldenberg, B. (2002) Successful CRM: Getting the People, Process, and Technology Mix Right. [online] Inform IT. Available from: [Accessed 31 Aug 2007]. Gray, P., & Byun, J. (2001) Customer Relationship Management. [online] Center for Research and Information Technology and Organizations. 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