Best Notes on Introduction to Customer Relationship Management

Introduction to Customer Relationship Management: In this article, we are covering the first part of Customer Relationship Management Complete Notes which is important for different competitive exams like Business and Marketing Exams, Management and Leadership Exams, Information Technology Exams, Sales and Customer Service Certification Exams, MBA Entrance Exams, Industry-Specific Exams etc.

Introduction to CRM

This is the first part of CRM Notes – Introduction to Customer Relationship Management where we are going to cover definition of CRM, History and Evolution of Customer Relationship Management, category of CRM, Transactional Vs Relationship Approach and Important Points of Customer Relationship Management.

Definition of Customer Relationship Management

CRM (Customer Relationship Management) is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer. The basic objective of CRM is to increase marketing efficiency and effectiveness. It is cooperative and collaborative processes that help in reducing transaction costs and overall development costs of the company.

Customer Relationship Management is a comprehensive approach for creating, maintaining and expanding customer relationships.

Significance of the words used in the definitions:

1. Customer Relationship Management: Comprehensive

Customer Relationship Management does not belong to just sales or marketing. It is not the sole responsibility of customer service group or an IT team; i.e., CRM must be a way of doing business that touches all the areas.

2. Customer Relationship Management: Approach

An approach is broadly a way of treating or dealing with something. Customer Relationship Management is a way of thinking about and dealing with the customer relationship. We can also use the word strategy because CRM involves a clear plan. In fact, CRM strategy can usually serve as a benchmark for other strategies in your organization, because any strategy sets directions for your organization. We can also consider this from a department or area level just as a larger organization has strategies for shareholder management, marketing, etc. Each strategy must support managing customer relationships. Thus, Customer Relationship Management is strategic.

To realize this, one can make a list of key strategies, to brief your area of responsibility. Then write down organizational approach towards customers. Compare the Customer Relationship Management strategies with other strategies. They should support each other. External customers are those outside the organization who buy goods and the services the organization sales. Internal customers are a way of defining another group in some organization whose work depends upon work of your group. Therefore, they are your customers. It is your responsibility to provide what they need so that they can do their job properly.

3. Customer Relationship

Finally let us see what we mean by customer relationship. In today’s world where we do business with individuals or groups with whom we may never meet and hence much less know in person-to-person sense. Customer Relationship Management is about creating the feel of comfort in this high-tech environment.

Customer Relationship Management is a discipline as well as a set of discrete software and technologies which focuses on automating and improving the business process associated with managing customer relationships in the areas of sales, marketing, customer services and support. CRM software applications facilitate the coordination of multiple business functions (such as sales, marketing, customer services, and support) and also coordinate multiple channels of communication with the customer face-to-face, call centers and the Web – so that organizations can accommodate their customers’ preferred channels of interaction.

  • Customer Relationship Management is an upright concept or strategy to solidify relations with customers and at the same time reducing cost and enhancing productivity and profitability in business.
  • A Customer Relationship Management system is implemented for small business, as well as large enterprises also as the main goal is to assist the customers efficiently.
  • The Customer Relationship Management is the procedure that is crucial for every business. As the customer is the most important part of the business.

A. Parvartiyar and J.N. Sheth defined CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer.

Gartner defined CRM is a business strategy designed to optimize profitability, revenue, and customer satisfaction.

A CRM system is not only used to deal with the existing customers but is also useful in acquiring new customers. The process first starts with identifying a customer and maintaining all the corresponding details into the CRM system which is also called an “Opportunity of Business”. The Sales and Field representatives then try getting business out of these customers by sophistically following up with them and converting them into a winning deal.

Customer Relationship Management strategies have given a new outlook to all the suppliers and customers to keep the business going under an estimable relationship by fulfilling mutual needs of buying and selling.

Relationship Management by an organization can be divided into two categories

  1. External relationship
  2. Internal relationship

1. External Relationship

  • Two major external stakeholders of a business are customers and suppliers.
  • Customer relations: customer relations can be defined as the process by which companies promote customer satisfaction and loyalty.
  • It involves managing communications with customers, particularly customer’s questions and complaints and solving their disputes.
  • The ultimate goal of customer relations program is to build long term relationships.
  • Building a strong reputation for the brand and company.
  • Supplier relations: All companies try to build a strong relationship with their suppliers.
  • Supplier relationships are different from simple purchasing transactions in several ways.
  • There can be a sense of commitment to the supplier.
  • E.g.: vendor (seller) sells certain items to the buyer for several times then he thinks that he will come for a next time purchase.

2. Internal Relationship

  • It is an integrative process with in a system for fostering positive working relationship in a developmental way in a climate cooperation and achievement.
  • Internal relationship is an ongoing process that occurs strictly within a company or organization.
  • Internal relationship helps to motivate and empower employees at all levels of management and its consistently deliver a satisfying customer experience.
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Features of Internal Relationship Management

Customer commitment is earned in a social contract

  • There is an open idea for mutual gain.
  • Close partnership between suppliers and customers.
  • Customers are viewed as individual people and so are value providers.
  • Continuous interaction and dialogue between suppliers and customers.
  • Focuses on discovering, creating and responding to customer needs.
  • Relationships are viewed as enterprise assets.
  • There is a systematic collection and dissemination of customer information (detailing and negotiating requirements, expectations, needs, attitudes and satisfaction)

History and Evolution of Customer Relationship Management

Customer Relationship Management is a concept that became very popular during the 1990s. It offered long-term changes and benefits to businesses that chose to use it. The reason for this is because it allowed companies to interact with their customers on a whole new level. While CRM is excellent in the long term, those who are looking for short term results may not see much progress.

One of the reasons for this is because it was difficult to effectively track customers and their purchases. It is also important to realize that large companies were responsible for processing tremendous amounts of data. This data needed to be updated on a consistent basis. In the last few years, a number of changes have been made to customer relationship management that has allowed it to advance.

These capabilities have allowed CRM to become the system that was once envisioned by those who created it. However, the biggest problem with these newer systems is the price. A number of personalized Internet tools have been introduced to the market, and this has driven down the cost of competition.

While this may be a bane for vendors who are selling expensive systems, it is a bonanza for small companies that would otherwise not be able to afford CRM programs. The foundation for CRM was laid during the 1980s.

The 1990s saw the introduction of a number of advances in this system. It was during this time that term Customer relationship management was introduced. Unlike previous customer relationship systems, CRM was a dual system. Instead of merely gathering information for the purpose of using for their own benefit, companies started giving back to the customers they deserved.

Many companies would begin giving their customers gifts in the form of discounts, perks, or even money. The companies believed that doing this would allow them to build a sense of loyalty in those who bought their products.

Customer relationship management is the system that is responsible for introducing things such as frequent flyer gifts and credit card points. Before CRM, this was rarely done. Customers would simply buy from the company, and little was done to maintain their relationship.

Before the introduction of CRM, many companies, especially those that were in the Fortune 500 category, didn’t feel the need to cater to the company. In the minds of the executives, they have tremendous resources and could replace customers whenever it became necessary.

While this may have worked prior to the 1980s, the introduction of the Information Age allowed people to make better decisions about which companies they would buy from, and global competition made it easier for them to switch if they were not happy with the service they were getting.

Today, CRM is being used to achieve the best of both worlds. Companies want to maintain strong relationships with their clients while simultaneously increasing their profits. The CRM systems of today could be called “true” CRM systems.

They have become the systems that were originally envisioned by the pioneers of this paradigm. Software companies have continued to release advanced software programs that can be customized to suit the needs of companies that compete in a variety of different industries.

Instead of being static, the information processed within modern CRM systems is dynamic. This is important, because we live in a world that is constantly changing, and an organization that wants to succeed must constantly be ready to adapt to these changes.

Landmarks in the History of CRM: 1960-2010

1960: Mass Production/Mass Product

  • 1970: Mass Market
  • 1980: Total Quality Management
  • 1990: Customer Relationship Management (CRM)
  • 2000: Customer Relationship Management (CRM)
  • 2010s e-Customer Relationship Management (e-CRM)

Transactional Vs Relationship Approach

As marketing has entered the 21st Century, a significant change is taking place in the way companies interact with customers. The traditional view of marketing as a simple exchange process—a concept that might be termed transaction-based marketing—is being replaced by a different, longer-term approach.

Transactional marketing strategies focused on attracting consumers. The goal was to identify prospects, convert them to customers, and complete sales transactions. But today‘s marketers realize that, although it remains important, attracting new customers is truly an intermediate step in the marketing process.

Marketing efforts must focus on establishing and maintaining mutually beneficial relationships with existing customers. These efforts must expand to include suppliers and employees, as well.

The concept, called relationship marketing, refers to the development, growth, and maintenance of long-term, cost-effective exchange relationships with individual customers, suppliers, employees, and other partners for mutual benefits. It broaches the scope of external marketing relationships to include suppliers, customers, and referral sources.

In relationship marketing, the term customer takes on a new meaning. Employees serve customers within an organization as well as outside it; individual employees and their departments are customers of and suppliers to one another.

They must apply the same high standards of customer satisfaction to inter-departmental relationships as they do to external customer relationships. Relationship marketing recognizes the critical importance of internal marketing to the success of external marketing plans.

Programs that improve customer service inside a company also raise productivity and staff morale, resulting in better customer relationships outside the firm.

Relationship marketing gives a company new opportunity to gain a competitive edge by moving customers up a loyalty hierarchy from new customers to regular purchasers, then to loyal supporters of the company and its goods and services, and finally to advocates who not only buy the company’s products but recommend them to others.

By converting indifferent customers into loyal ones, companies generate repeat sales. The cost of maintaining existing customers is far below the cost of finding new ones, and these loyal customers are profitable ones.

Effective relationship marketing relies heavily on information technologies such as computer databases that record customers ‘tastes, price preferences, and lifestyles along with the increase of electronic communications.

This technology helps companies become one-to-one marketers that gather customer-specific information and provide individually customized goods and services.

The firms target their marketing programs to appropriate groups, rather than relying on mass-marketing campaigns. Companies who study their customers ‘preferences and react accordingly gain distinct competitive advantages.

Important Points of Customer Relationship Management

  • Transactional marketing, which was developed in the late 1950‘s and 1960‘s.
  • Transactional marketing main concept which centers on the four P’S, was developed by Borden in 1964.
  • The marketing mix has since been described as an ―infallible guide for the effective planning and implementation of marketing strategy.
  • The focus on transactional marketing is shifting to focus on relationship marketing.
  • The firms make the market fall by providing consumer packaged goods at one extreme and the services at the other.
  • In this situation all the firms are forced to adopt from transactional to relationship approach.
  • Transactional marketing approach is on individual transaction and does not concern continuous relationship with customers.
  • Transactional marketing does not contain a strategic long-term perspective.
  • The relationship marketing focuses on continuous multiple transactions rather than isolated individual transactions.
  • It also considers customer as insiders to the business and aims to build a long term and never-ending relationship with them.

Major Areas of CRM

  • Generation and servicing more loyal customers.
  • Expansion of customer base
  • Reduction of advertising costs
  • Increase in profitable customers
  • Ease in introduction of new products
  • Personal Information Gathering and Processing, Self-Service.
  • CRM is the marketing management practice of identifying, attracting and retaining the most valuable customer to sustain profitable growth
  • CRM is the process of making and keeping customers and maximizing their profitability, behaviors and satisfaction.
  • Today customer demand opens equal access, real time specialized information, convenient access, portability, process and logistics transparency, pricing transparency, global pricing, ability to set prices, choices of distribution channels and control over their information.
  • First time customer can become a repeat customer, thereafter a client, then an advocate and finally one’s partner in progress.
  • Loyal customers always create a profit and also reduced operating cost, increased purchases and give plenty of referrals.
  • The realistic observation on customers that it costs ten times more to sell to new customers than to sell to an existing one.
  • Existing customer deliver most of the revenues.
  • It’s very important part of CRM is to identify the Most Valuable Customers (MVC) for the success of the business.
  • A small net upward migration of customers (5-10%) can deliver a dramatic improvement in business performance.
  • Marketing and sales are charged with influencing customer behavior.
  • Customer success always equal to business success.

FAQs on Introduction to Customer Relationship Management

What is CRM?

A. Parvartiyar and J.N. Sheth defined CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer.

What is meant by relationship management?

Relationship management is the technique of providing information about the customers and collecting information about prospects of customers, that allows us to help them evaluate and purchase products that deliver the best possible value to them.

Who is called as a customer?

A customer (also known as a client, buyer, or purchaser) is the recipient of good, service, product, or idea, obtained from a seller, vendor, or supplier for a monetary or other valuable consideration.

Difference between consumer and customer?

A consumer refers to individuals who buy for themselves or their family (hence the term ‘consumerism’ in economics and politics), whereas a customer can also mean the retailer or person who buys from the manufacturer, etc.

What is meant by relationship approach?

Relationship marketing approach has gradually taken the shape of Customer Relationship Management. Relationship marketing has a narrow focus on the customers and only on the marketing functions of the organization concerned. On the other hand, Customer Relationship Management focuses more widely on customers and on the entire functions connected with value creation and delivery chain of the organization concerned.

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Last updated: September 16, 2023 Updated on 9:23 AM