CRM - a Vital Retail Strategy to Gain New Customers - Research Paper Example

PART A: CUSTOMER RELATIONSHIP MARKETING The increasing power of consumers has significantly reshaped business distribution and marketing models. In turn this has required retailers to add value in stores to compete with the multiple retail channels and highlighted the need for businesses to adopt customer relationship oriented approach in order to create value for the consumer (Merz, He & Vargo 2009). It is evident that retailers are now moving away from the conventional economics based approach to consider the benefit of integrating effective customer relationship management (CRM) into business strategy to create value for its customers. In turn, the relationship between consumers and branding is arguably paramount in determining the centre of how value should be marketed to retain and persuade new customers (Merz, He & Vargo 2009). Indeed, whilst loyalty programs have been viewed as incentives for consumers, the type of loyalty programs in ensuring brand loyalty in the long term has become increasingly dictated by the consumer (Payne et al, 2004). Therefore, the increase of consumer power arguably forces organisations to undertake a more lateral approach to marketing as opposed to merely focusing on competitors (Avlonitis & Indounas, 2007). This argument is reinforced by the proposition of Weinberg et al that organisations shouldn’t assume what the customers want, but that it is imperative for organisations to add value in addressing consumer needs to survive in the multi-channel marketplace (2007). With regard the contemporary business environment the application of CRM is also impacted by the increase of online business. The ecommerce business model has dramatically reshaped consumer consumption and the classic bricks and mortar business mantra of “location, location, location. As a result, consumers have increased control and therefore an application of traditional vertical integration will not suffice in attempting to launch the business online. Nevertheless the low economic barriers to market entry and access to a potentially global demographic of consumers, renders the ecommerce paradigm a significant business opportunity if exploited correctly. Therefore it is important for businesses to understand the internet medium to apply CRM effectively in the current retail climate, This is particularly important in light of the strategic driver of the internet medium being information sharing and increased knowledge. As a result, the manner in which consumers online are purchasing has significantly changed. They often seek out reviews and social networks to get peer recommendations on products and therefore any company marketing online has to understand the complexities of the medium and the increased power of consumers and adopt this in CRM management. Indeed, leading marketing expert Seth Godin highlights the weakness of applying traditional marketing and conventional vertical integration to online marketing on grounds of what he terms the “meatball sundae” principle (Godin 1999;Godin, 2008). Godin utilises the metaphor of a meatball sundae to suggest that traditional marketing principles will not work in the online business model because of the completely different nature of the medium to conventional bricks and mortar business. As such, Godin argues that marketers attempting to apply conventional vertical integration often fail online and end up creating a “meatball sundae” effect (Godin, 2008). Therefore, this reiterates the importance of the company understanding the medium and its audience. For example, a strategic driver of the internet economy is the value of a network, which is linked to market shares and therefore this correlates to the increased connection of users. As a result, the more users which connect and are part of online networks; the more valuable it becomes for companies to understand this and cater to this communication shift in marketing online. This is particularly so as ecommerce has enabled consumers to buy goods from anywhere and anyone (Carbone, 2004). The difficult economic conditions have created changes in consumer attitudes towards price sensitivity with consumers increasingly attracted to discounts and money saving initiatives (Aktas, 2010, p.19). Additionally, the contemporary marketplace has seen the phenomenon of social networking and media revolutionise how people communicate with each other. From a business perspective, this has implications for consumer relationship management as the control is increasingly with the consumer. For example, Seth Godin highlights that people are more likely to seek peer reviews of services and products in the increasingly networked environment, which has implications for businesses particularly when dealing with complaints (Godin, 2008). Therefore in terms of effective CRM, businesses need to adopt a multifaceted interactive customer relationship strategy and use new media to access an increasingly diverse consumer demographic. One option would be to use video and in particular YouTube, which is the world’s biggest video streaming site. Currently YouTube is estimated to have 2 billion views a day with 24 hours of video uploaded every minute (website-monitoring.com). In developing a YouTube strategy specifically geared towards the long wait lines, one approach would be to use humour, which is a great tool to engage with customers (Meyerson, 2010). A prime example of a successful business use of YouTube to engage with customers was Blender, who created humorous YouTube videos to promote their product. Therefore, in applying a successful YouTube strategy as part of CRM it is imperative to think outside the box and one way would be to create humorous videos. The key to a successful YouTube campaign is not just engaging with the customer base but to increase brand awareness and exposure and therefore any YouTube campaign should take advantage of its viral potential. YouTube enables people to share videos and post to other social networking sites such as StumbleUpon, Facebook and Twitter. In encouraging users to share videos, this can help videos go viral, which would be great for brand exposure and new customers. Furthermore, in addition to YouTube strategy, another great way to engage and deal with consumer issues would be to adopt social media marketing particularly with Twitter and Facebook (Prince, 2010). A prime example of a business adopting this approach is Dell, whose use of Twitter and Facebook has been cited as directly contributing to increased sales (Prince, 2010). Prince explains that Dell has used Twitter “to straddle both the tracking and directing sides of the customer engagement approach”. The use of Twitter enables Dell customers to interact with each other and for Dell to directly address consumer issues. As highlighted above, the low cost of market entry and potential to market to a global audience means that setting up online could prove extremely beneficial to the company. However, in addition to studying market demand and exploiting an undeveloped online market in terms of competition; this must go hand in hand with understanding what the consumer wants and building relationships through the various online mediums of communication before hitting them with the sales pitch. Understanding the online medium and consumer demands in a particular market is the key to developing an effective CRM strategy going forward. PART B: CUSTOMER RELATIONSHIP MARKETING As highlighted in the previous section, the incoming of the second media age and multiple digital platforms has created new societal trends and business opportunities through the multimedia business model, which has challenged pre-existing methods of information dissemination. On one side of the spectrum this has led to increasing commercialisation of the customer, which is further reflected by changing consumer habits and multi-chain retail strategy (Volmer & Precourt 2008). On the other side of the spectrum, the digital era has redefined how the people interact with each other, thereby marking a shift in societal relationships and trends, which in turn informs cultural norms and enables innovation in building consumer/business relationships. Appurtenant to the digital revolution has been the radicalisation of communication modes, with the inception of chat rooms, email, instant messaging and blogs. In turn these novel communication modes have reshaped social interaction in the contemporary social framework within the continuous movement towards global homogenous cultural paradigms and international business networks (Volmer & Precourt, 2008). Indeed, Volmer and Precourt (2008) refer to the comments of a 2007 interview with Nike vice president Trevor Edwards, who commented that “gone are the days of one shoe, one advertising campaign, Now you’ve got to engage consumers on every level” (In Vomer & Precourt, 2008, p.2). A prime example of one of these levels is the immediacy of the social network Twitter, which enables instantaneous connectivity with consumers. As such, Comm et al highlight that “businesses can harness the immediacy of Twitter to innovate and build relationships like never before” (2009, p.xiv). However, whilst the social networking phenomenon clearly enables businesses a much wider level of access to potential customers; the increase in networking and peer to peer information dissemination has led to an increased expectation that news and content should be free (Shimp, 2008; Gupta, 2009). Furthermore, the increase in consumer control has led to consumers wanting more information before purchasing and the availability of free information has led to an expectation of free content (Volmer & Precourt, 2008). Accordingly, the increased consumer control and expectation of certain content being free clearly impacts the traditional method of advertising and marketing as a result of changes in consumer expectation. For example, business leader and Squidoo creator Seth Godin refers to the fact that consumers are more likely to be influenced by friend recommendation on Facebook or Twitter than conventional advertising methods (Godin, 2008). As a result, the central issue facing content providers and advertisers in particular is how to adapt to the interrelationship between multi-chain strategy, increased consumer control and novel methods of communication for monetization and brand development. To this end, it is submitted that effective CRM is vital to retail strategy in gaining new customers through online and offline marketing communication activities, promotion and direct email incentives (Egan, 2004). It is further submitted that this backdrop correlates to Wheelan & Hunger’s (2008) discussion of the role of the strategic management model versus the strategic decision making process. Essentially the strategic management model focuses on strategic intent and long term goals in contrast to the strategic decision making model, which is rooted in implementation of decisions. These central differences in the two models as extrapolated by Wheelan and Hunger are further supported the commentary of Prahalad and Doz (1987) that “intent is used to describe long term goals and aims, rather than detailed plans” (in Rugman, 2009, p.518). Moreover Lynch (2003) highlights how “the mission of an organisation outlines the broad directions that it should and will follow and briefly summarises the reasoning and values that lie behind it (In Ackerman & Brown, 2005 p.189). Moreover, as highlighted above, it is submitted that directly correlated to the proliferation of the internet business model is the effects of customer relationship management systems (CRM). It has distinctly altered the way that companies view strategy, with a distinct shift from product focused strategy to customer relationship management, which is: “underpinned by information systems convergence and the development of supporting software, which in turn promises to significantly improve the implementation of Relationship Marketing principles” (Ryals & Knox, 2001). CRM essentially stems from relationship marketing and early works of Berry (1983) and Reichheld (1996), which indicated that a 5% growth in customer retention rates culminated in a mean customer lifetime value figure ranging between 35% to 95%, with knock on effects on profit margins (Ryals & Knox, 2001). There are many definitions of CRM but in broad terms, CRM is defined as an all embracing approach which integrates sales, customer service, marketing, field support and other functions that touch customers (Christopher et al, 1991). Moreover, Galbreath posits that effective with effective CRM activities “an enterprise performs to identify, select, acquire, develop, and retain increasingly loyal and profitable customers”(Galbreath, 1998 at p.14). This is particularly evident if we consider the growth of the digital business model and the social networking phenomenon. For example, the use of internet for social communication in conjunction with the Web 2.0 application has facilitated the development of social networking platforms for online interaction; business networking and user generated content sites. In particular, the online social network model has resulted in the phenomenon of leading social networks such as MySpace, Bebo, Facebook and Twitter. In general terms, these leading social networks enable individuals to share information about themselves, hobbies and interests and additionally have redefined business strategy and traditional social interaction modes. As such, it is submitted that the social network phenomenon exemplifies the interrelationship between business networking, social communication, cultural norm shifts and the shaping of self identity within the globalisation paradigm; which in turn has influenced consumer expectation regarding incentives, freebies and free information (Godin, 2008). These networks enable signed up users to set up their own networks according to personal interests and immediate connectivity through continuous updates. Therefore whilst the sheer vast numbers of social networking and intrinsically innovative nature of this phenomenon renders it difficult to predict the future trends in social networking; the immediate future would suggest that social networking is becoming increasingly bespoke and tailored to individual interests with the public increasingly autonomous in their choices. As such, online marketing initiatives are imperative for building businesses particularly in the retail sector. However, whilst Facebook and MySpace have been obvious points of recourse for such online marketing strategy, the value of Twitter has been less obvious. Nevertheless, the key feature of Twitter beneficial to business growth is the ability to find and develop personal relationships with new customers, which is imperative in light of the increasing autonomy of consumers in the online marketplace. This proposition is further supported by Comm et al’s personal account of Twitter’s utility: “It’s helped me to build deeper relationships with my partners, my clients….. it’s extended the reach of my brand, making the name of my business known to people who might never otherwise have heard of it” (Comm et al, 2009, p.xvi). Furthermore, Comm et al posit that the dissemination of free and useful content through Twitter enables content providers and advertisers to build trust with consumers, which in turn increases customer retention rates and value for the customer (Comm et al, 2009). Therefore, whilst the social networking model enables easier business access to a wider market; the key issue for businesses is the best way to tap into this marketplace with a CRM strategy that effectively operates with the changing business models and increasing consume power (Gronroos, 2000 ). Therefore, this reiterates that5 CRM is vital to retail strategy in gaining new customers through online and offline marketing communication activities, promotion and direct email incentives (Trapp, 2007). If we further consider this in terms of effective customer relationship management “at the core, CRM is an integration of technologies and business processes used to satisfy the needs of a customer during any given interaction” (Trapp, 2007). More specifically, CRM involves acquisition, analysis and use of knowledge about customers in order to sell more goods or services and to do it more efficiently (Bose, 2002). Moreover, the “customer” includes a wide definition including vendors, channel partners, or virtually any group requiring information. Furthermore, in the contemporary marketplace, it is submitted that CRM is correlated to the theoretical rationale for the benefits of adopting blue ocean strategy and arguably underpins the justification for blue ocean strategy in corporate planning; which supports the argument for the potential benefit of CRM in organisations in the retail industry in particular. Accordingly, it is further extrapolated that the contemporary marketplace, particularly in context of the evolution of the internet business model has forced businesses to adopt a different approach to corporate marketing strategy and this is arguably supported by the development of the multi-channel retailing paradigm, which has forced businesses to “innovate” in order to survive the market (Levy & Weitz, 2008). Moreover, in terms of the need to ensure effective CRM strategy, Kim & Mauborgne argue that blue ocean marketing strategy is vital in the contemporary business paradigm by not competing in the existing market space and create an uncontested market space. Furthermore, the essence of the blue ocean strategy is that focus on competition is incorrect and it is necessary to create a new demand and that as such, the company’s systemic approach should be underpinned by differentiation and low cost, at which point (Chan Kim & Mauborgne, 2005). Indeed, Chan-Kim & Mauborgne comment that “of course competition matters. But by focusing on competition… have ignored far more lucrative aspects of strategy: One is to find and develop markets where there is little or no competition – blue oceans and to protect blue oceans” (Chan Kim & Mauborgne, 2005). Additionally, Murphy (2007) argues that blue ocean marketing is important in highlighting the need to create new markets (Murphy, 2007). Chan-Kim and Mauborgne further propose the concept of two business “spaces”, namely: 1) Red oceans (pre-existing industries); and 2) Blue oceans (unknown marketspace) (Chan-Kim & Mauborgne, 2005) Additionally, under the blue ocean “space” consumer demand is created rather than fought over, which in turn presses the need for organisations to use CRM in retail strategy. It is further submitted that globalisation whilst fuelling numerous business opportunities, has simultaneously led to market saturation due to the lower costs of market entry under the e-commerce business model within the retail sector. This in turn has brought the customer to the fore. Accordingly, whilst this arguably highlights the renewed importance of using blue ocean marketing strategy for business growth, it is submitted that the efficacy of any such strategy intrinsically correlates to the benefits of utilising CRM. BIBLIOGRAPHY Atkas, A. (2010). 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