Definition

The concept of Customer Relationship Management has been evolving and different definitions
attempted to incorporate the meaning discovered till then. A few of the prominent and accepted
definitions of Customer Relationship Management are as follows:
Enterprise approach to understanding and influencing customer behaviour through meaningful
communications in order to improve customer acquisition, customer retention, customer loyalty,
and customer profitability.
(Swift 2001)
CRM is a comprehensive strategy and process of acquiring, retaining and partnering with
selective customers to create superior value for the company and for the customers.
(Parvatiyar and Sheth 2001)
CRM is considered as strategic, process oriented, cross-functional and value creating for
buyer and seller and a means of achieving superior financial performance.
(Lambert 2004)
The practice of CRM is described as the process for achieving a continuing dialogue with
customers across all available touch points to offer them customized treatment, based on their
expected response to available marketing initiatives, such that the contribution from each
customer to overall profitability is maximized.
(Bohling et al. 2006)
A customer relationship management (CRM) system is a combination of people,
processes, and technology that seeks to provide understanding of a company's
customer and to support a business strategy to build long-term, profitable relationship
with customers.(Shang and Feng Ko 2006)

CRM is defined as an effective tool to achieve the objectives such as satisfied and loyal
customers and increased market share.(Shafia et al. 2011)

Full involvement and empowerment of employees and appropriate technology are two
essentials for successful CRM."
The above definition tries to lay the foundation of CRM along with the objective for
which it should be designed. The definition implies:
1. CRM is a process.
2. It needs continuous revision and updation.
3. Customer value identification is a must.
4. Company interaction requires customisation suiting to the exclusive profile of the
customer.
5. It strives for customer delight.
6. CRM process aims at profitable relation with the customers.
7. It also aims to convert them to act as a company's brand ambassador.
8. Employees involvement and empowerment is a must for its successful implementation.
9. Adequate technological support is also essential for successful CRM.
These statements also conclude upon the productivity of marketing. To increase the productivity
of marketing, its efficiency and effectiveness need to be increased as well. With the practice of
CRM, which ultimately focuses on increasing the collaboration and cooperation with the
customers, efficiency itself increases.

Such customer involvement in the marketing of the company leads to reduction in marketing
transaction costs and, hence, the overall development costs for the company.
CRM is an integrated approach to identify, acquire, and retain the customers. By enabling to
manage and coordinate customer interactions across multiple channels, departments, lines of
business, and geographies, CRM helps organisations maximise the value of every customes
interaction and drive superior corporate performance.
It is imperative therefore for today's organisations to manage customer interactions across
multiple communication channels-including the Web, call centres, field sales, and dealers.
Many organisations also have multiple lines of business with many overlapping customers as
banks now, in addition to selling banking products, have started offering insurance, mutal funds,
stock brokering, and many other services. The challenge is to make it easy for customers to do
business with the organisation the way they want-at any time, through any channel, and in any
language or currency-and to make them feel that they are dealing with a single, unified
organisation that recognises them at every touch point.
Diagram

CRM, in effect, implies building long-term relationship with the customers, understanding their
needs, and responding via multiple products and services via multiple channels (Figure 2.2).
CRM should finally enable "a targeted mutually beneficial profitable relationship with individuals
and groups."
EMERGENCE OF CRM PRACTICE
Sheth and Parvatiyar (1995) had observed that developing customer relationship had been
there since pre-industrial days. The earlier businesses were between the agriculture producers
and their customers. They used to have direct interaction. Similar was the case with the people
of other industries which were primarily cottage-based and have been making other essential
items such as cloth and handicrafts. They have offered customised products to the customers.
Since, in most of these cases, there was direct interaction between the seller and the buyer,
some of relationships tend to be built. The indirect form of marketing came only when the
concept of mass production started and a mass production society was created. This process
separated the production and consumption functions, leading to the emergence of middlemen in
the marketing function.
Factors Responsible for Growth of CRM
The recent growth of CRM can be attributed to various factors. These include the reduced role
of intermediaries, especially with the advent of sophisticated computer and telecommunication
technologies. This growth in technology again allowed the producers to directly communicate
and get in touch with the customers 24 × 7 at a very low cost. For example, in the airline
industry, most of the airline companies are now de-intermediating the ticketing system. Till
recently, the sale of airline tickets had been dominated by agents who, from time to time, have
been dictating their terms and conditions and have been controlling the flow of customers.
But now, most of the airline companies have done away with this format and have introduced e-
ticketing where the customers can directly buy ticket from the company website. This is how the
de-intermediation in the industry has effected the industry greatly, Such processes are fast
changing the nature of marketing and, consequently, make relationship marketing need felt
keenly by the corporate. The technology has given marketers more means at lesser cost to
customise the marketing efforts. Hence, a modern service provider does not require middlemen
to the same extent as it once used to. Modern consumers are also found to be more interested
and happy dealing with the company directly. The recent success of online banking, online
shopping, selling of books, etc. are just a manifestation of the interest shown on both sides, i.e.
the buyer as well as the seller.
This success of doing without intermediaries is also on account of the growth of service
economy. Since services are produced and delivered at the same time, the role of intermediary
gets lessened. Since the customers transact directly with the service provider, he develops
greater relational bonding with the company and its people. This leads to greater need of
maintaining and enhancing the relationship which provides greater fruits. This makes CRM so
important for all those people involved in marketing of services in some form or the other (Berry
and Parsuraman 1991; Bitner 1995; Crosby and Stephens 1987; Crosby et al: 1990;
Grönroos 1995).
Another factor which has been responsible for the increased need and use of CRM, is
enhanced emphasis that companies lay on adopting total quality management as an essential
component of modern business. This increased use of total quality in all functions of the
management by the companies has forced them to involve the suppliers and the customers
across the value chain. The application of various supply chain initiatives such as Just in Time
(JIT), Material Resource Planning (MRP), and Enterprise Resource Planning (ERP) is not
possible unless the company works in close relationship with all the stakeholders.

The advent of digital technology has enabled companies to sell even complex products.
Earlier cars were sold only through dealers. Today, the concept of permission marketing is
doing the rounds. Marketers have become so personal in their service offers and delivery that
they seek permission even before making a visit and asking for sale. The car salesmen take
prior appointment with the prospective buyer, visit him with all the details along with a demo car
to get him the taste of the drive. At times, they also take a person from the finance company
along to get the finance issue resolved then and there. Such procedures have led to the
foundation of strategic partnering within the overall domain of Customer Relationship
Management.
In this era of hyper competition, marketers are forced to be more concerned with customer
retention and loyalty (Dick and Basu 1994; Reicheld 1996). As several studies have indicated,
retaining customers is a less expensive and, perhaps, a more sustainable competitive
advantage than acquiring new ones (Rosenberg and Czepiel 1984). On the supply side, it pays
more to develop closer relationships with a few suppliers than develop more vendors. In
addition, several marketers are also concerned with keeping customers for life, rather than
making a one-time sale (Cannie and Caplin 1991). There is greater opportunity for cross-selling
and up-selling to a customer who is loyal and committed to the firm and its offerings. In the
world of ever-changing customer expectations, cooperative and collaborative relationships with
customers seem to be the most prudent way to keep track of their changing expectations and
appropriately influencing them.
CRM CYCLE
The Customer Relationship Management cycle consists of those stages that conform to the
objectives laid down in its definition. That is, from acquisition of customers by creating value to
them to learning from the customers, going by the route of earning profits from them for the
organisation on a sustained basis.
The CRM cycle is as follows:
1. Obtaining information from customers
2. Creating superior customer value
3. Building loyal customers
4. Acquisition of new customers
5. Working towards increased profitability.
CRM revolves around the customer life cycle management as shown in Figure 2.4.
Customer acquisition starts either through the traditional advertising or through referrals.
The next stage is of customer development through personalisation of communication and
customisation of products and services by way of a mutual learning process. As a result,
leveraging of customer equity occurs through cross-selling and up-selling. Then retention of
existing customers takes place. The organisation also benefits from the new customers that it
acquires through positive referrals.
Diagram
Source: Adapted from Vijay Ahooja (2001), Changing patterns of e-CRM solutions, in the future.
CRM: Emerging Concepts, Tools and Applications, Tata McGraw-Hill, New Delhi, p. 94.
In the same system, whatever be the CRM programmes used by the companies, there will be a
certain amount of customer defection at different stages of the customer life cycle due to a
variety of reasons. Such customer defection is also called as customer migration (Xavier,
Shantakumar 2002). It needs to be checked, which is possible only through a comprehensive
study conducted by the company of the customers.

STAKEHOLDERS IN CRM
There are four principal stakeholders who play a major role in the entire process of Customer
Relationship Management:
1. Customers: Customers, of course, are the most important persons in the CRM design for
whose delight the whole exercise is conducted.
2. Employees: They are the set of people who execute the CRM design. They include those
right from the frontline staff who actually executes to the top management who designs the
CRM.
3. Suppliers: They are the part of system who provide input to a company's value chain.
4. Partners: They are the creators of additional value for the customers.

Vijay Mallya's no-frills airline Kingfisher Red has decided to launch a handful of customer
friendly initiatives this week. These are aimed at grabbing the number one slot, which it recently
lost to SpiceJet. Kingfisher Red will launch common IT code to make booking of its tickets
simpler. It will provide multiple check-in facilities- web check-in, tele check-in, return check-in,
kiosk check-in and valet check-in.

SIGNIFICANCE OF CRM
Johnson & Johnson Co. has been conducting surveys on pregnant women and has been gifting
greeting cards after delivery. This shows how seriously CRM has placed in the very philosophy
formation of the companies.
The American Society of Quality and Arthur Anderson Consulting Inc., in their report
published in 1977, have brought out following findings about customers:
1. Customers tell eight friends about a satisfying experience and 20 friends for a negative
experience.
2. It is easier to influence existing customers to buy 10% more than increase the customer base
by 10%.
3. Eighty per cent of successful new product and service ideas come from existing
customers.
4. Repeat customers cost one-fifth less than new customers and can substantially increase
profits.
CRM is a company-wide initiative and is a process to be continued with the organisation.
The return on investment of CRM is overestimated in the short run and underestimated in the
long run. But what is sure is that companies do accrue certain definite advantages of
implementation of CRM. The advantages could be as follows:

1. Perpetual stream of revenue: A better served and delighted customer gradually becomes
loyal. Once customer loyalty is built, the customer remains with the company and proves to be a
perpetual source of revenue and profit often increasing over a period of time.
2. Positive referral creation: A satisfied customer often spreads positive things about the
company to the would-be customers. Such positive opinion proves to be more reliable and
authentic than companies' propaganda, including advertisements and consequently, brings in
more customers.
3. Provides premium:
A customer satisfied with the service of a particular company
is found to be ready to pay a little premium on the products/services and does not want to take
risk with a new company.
4. Helps customer retention: One of the biggest advantages of CRM is that through personal
and effective customer care and service, it helps the company keep customers for life. Retaining
customers with the company helps in many ways and contributes straight away to the
company's bottomline.
5. Lowers cost of sale: A satisfied customer does not require to be lured every time by the
company and, hence, his subsequent acquisition cost to the company decreases.
This helps the company lower cost of sales.
6. Helps understanding consumer behaviour: By providing personal service to its customers,
the company understands the consumers and can adapt itself to their changing requirement.
This also helps companies offer a complete set of personalised solutions to customers.
7. Provides opportunity to cross-sell and up-sell: A satisfied customer is expected to come
back to the same company for repeat purchases. In case of any cross-sell and up-sell, he again
comes back to the same company and with no extra expense, the company is able to get him
for more products.
8. Reduces marketing time: Through positive referrals and opportunities to cross-sell and up-
sell, the customer acquisition becomes easier and consequently leads 10 reduced marketing
time.
9. Channel cost rationalisation: An effective CRM provides an opportunity to the companies
to value the cost of various channels with respect to its profitability and the customers may be
served via a channel that is cost-effective for the company and suitable for the customer.
10. Enables business process re-engineering: CRM programmes enable a company to have
an insight of individual customer and helps in assessing its profitability for the company. The
company may subsequently redesign its offer to various customers as per their profitability for
the company and can, thus, re-engineer their business process.
The above advantages itself elucidate that implementing an organisation-wide Customer
Relationship Management is of huge importance in modern businesses. These advantages
provide reasons strong enough to ignore. The success of modern business is dependent on
how successfully the firms implement the Customer Relationship Management and how long
they are able to keep their customers happy.

ATTRIBUTES OF CRM

From the standpoint of a service organisation, its products are the services offered there,
Production and consumption of services occur simultaneously. A service organisation being
people-intensive and people-oriented high-contact service outlet, retail environment and
interpersonal relationship between the customers and the service personnel influence greatly
the quality of service and customer satisfaction. For these reasons, the attributes of services in
service companies are highly perceptual and, hence, mostly non-standardised.
In an exploratory research on service quality determinants, Parasuraman et al. (1985) have
identified ten broad determinants of service quality: reliability, responsiveness, competence,
access, courtesy, communication, credibility, security, understanding and tangibles. He also
suggested a model of service quality which maintains that satisfaction is a function of
expectations about a product and its perceived performance (PP). When PP of a service
matches or exceeds one's expectations of service quality, satisfaction occurs; and when it falls
short of the expectations, dissatisfaction results. The root for this expectation-disconfirmation
paradigm can be found in Oliver's (1980) interpretation of Helson's (1964) adaptation level
theory.

Classification of Attributes of a Service Organisation

The service quality attributes in the context of a service organisation can be grouped under two
broad categories: (i) product per se attributes and (ii) those related to psychology. The former,
for example, in a bank includes interests, charges, accuracy of entries and reliability.
The product-related factors are cognitive elements and serve as means to an end. The latter
includes attributes such as recognition as an important customer and personal favours by the
staff. These can be evaluated only subjectively.
Unidimensional View of Customer Relationship Management
Prior to 1980 research on post-purchase customer satisfaction/dissatisfaction was mostly
related to tangible products and it was concerned only with the product per se attributes,
ignoring the associated psychological and retail environmental factors. Also, these attributes
belonged to a homogeneous group. Hence, it was not illogical to measure customer relationship
market as the two extremes of a unidimensional sale as illustrated below:
Dissatisfaction PP<E Neutrality PP>E Satisfaction
The overall satisfaction about the performance of a product would be determined by summing
up the attitudinal responses of the customers to the various attributes considered by them as
important.
For better customer relationship, a customer needs to be totally satisfied. There should be
favourable outcomes with respect to the product per se and the product-related attributes like
the physical facilities service delivery, employee behaviour, grievance handling mechanism, etc.
That is, the product should perform well instrumentally. In addition, the customer should get
favourable treatment from the staff and the service should be delivered with a sense of human
touch.
The bipolar nature of satisfaction/dissatisfaction attributes necessitates redefinition of the
basic expectation-disconfirmation paradigm as illustrated below:
Intrinsic Factors (Motivators)
No Satisfaction PP < E: PP > E Satisfaction
Extrinsic or Maintenance Factors
Dissatisfaction PP < E: PP > E No Dissatisfaction
When the perceived performance is less than one's expectations, there will be no satisfaction'
with respect to intrinsic factors and "dissatisfaction' with extrinsic factors. When the perceived
performance is greater than expectations, there will be just 'no dissatisfaction' with extrinsic
factors.
The extent of dissatisfaction with extrinsic factors or satisfaction with intrinsic factors depends
upon the degree of discontinuation between the perceived performance and the expectations.
Where the degree of discontinuation is marginal or nil, the customer will be in a state of "no
dissatisfaction' or 'no satisfaction'.

COMPONENTS OF CRM PROGRAMME

The following are the important components of a CRM programme:
1. Company's marketing programme:
This consists of five important determinants of
the company's offering, viz. the offer, tangibles, services delivery, employees and their
approach towards customers and its requirements, and the company's grievance handling
mechanism.
2. Customer expectation: The expectation created by the company about the service also plays
an important role in satisfaction determination. If hype is created about the product, customers
tend to expect more and if the expectation is not fulfilled, it leads to greater dissatisfaction. The
same level of service may at one point in time result into satisfaction but at another point in time
may lead to dissatisfaction.
This depends upon what service expectation level it generates in the minds of the customers.
3. Perceived performance: This is largely guided by the customer's cognitive ability.
So, it is important for the companies to realise that the service has got not just to be the best but
it has to be perceived as the best as well. It is this perception of the service that determines if it
would lead to satisfaction or dissatisfaction.
4. Competitors' offers: These play an important role in determining customer satisfaction. They
normally act as a benchmark for measuring the strength of the offer, i.e. the cost, the service
guarantee, the fringe benefits, etc. The growing service level of the competitor also increases
the service expectation of the customer. If it remained at the same service level it might
experience loss of sale not because of its lowering of services but by the increase in service
level of competitors.
5. Customer's resultant behaviour: Based on the analysis of the components discussed above,
the customer would decide upon his further behaviour regarding the company and its offers.
One option could be that he may become the brand ambassador in addition to the regular
benefit he delivers to the customers, the other extreme may be that he starts propagating
negative publicity about the company and its offers.

CRM PROCESS: A HISTORICAL PERSPECTIVE

CRM has long been practised by the services sector players, but in a different format. That
practice was constrained by certain factors (Figure 4.3) which are mentioned below:
1. Unorganised and unstructured: The practice of relationship marketing has always been there,
but was unorganised and unstructured, i.e. it did not follow any set pattern.
It was highly spontaneous in nature. It did not follow any specific trend resulting out of a
structured format.
A restaurant may offer a discount to a low value customer if he has asked for and may not offer
that to a high value customer if he did not ask for. In a general insurance company, a low value
customer's (having only a car of average value) claim might be settled in a week and dealt on
priority because his agent was having good relations with the company's employee and a
comparatively high value customer owning a number of cars that too of high value might be
ignored and those claim settlement takes longer time because his agent is not as befriend with
the employees. This is happening only because of absence of any structure. In the absence of
unstructured CRM, an airline may not take care of a specific seat choice of a regular passenger
and may offer the desired seat to an occasional passenger because he has come early at the
counter.

2. CRM at individual discretion; This has been another limitation of the older form of relationship
marketing, The degree of care would be given to a customer not depending upon his value to
the organisation but upon the relationship he is able to develop with the person sitting behind
the desk. So, this was relationship of another kind. A bank clerk may do the required job of a
customer if he knows him and may let a high value customer wait if he is not known to him.
Similarly, a restaurant waiter may offer a degree of personalness to customers not in proportion
to his profitability to the restaurant but to himself, i.e. the tip he gets from the customers.
3. Restricted to smaller group of customers: Since individuals have memory constraints, one
cannot offer the same set of relationship attributes to everyone as it is not possible for
individuals to know. This restricts the effective and successful practice of CRM to a larger set of
customers. For a hotel, it is difficult to always identify what is the colour of the bedsheet the
customer prefers in the room or which is the flower he would like ta be greeted with or whether
he prefers tea or coffee in the morning.
4. Confined to specific trade: In the absence of a clear set of CRM programme, it is nol possible
to derive the expected result where the customers are in masses. unstructured relationship
marketing exercise may work only in cases where the customers are very small groups and all
the individual information can be placed easily
5. No technological support: There was absence of any technological tools to support the affairs
of relationship. Unlike modern CRM softwares and sophisticated hardwares.

CRM PROCESS: MODERN VARIABLES

There can be a standard
process suggested to implement CRM in service organisations. 1
consists of the following steps:
1. Customer segmentation: Every customer is not equal to the company. They differ according
to their profitability to the company. An analysis of the revenue and profit contribution of
customer base of banks in the US. Europe and Australia
showed:
• The top 20% of the customers contribute to 150% of the profits while the bottom 20% drain
50% of the profits and the rest 60% just break even.
• The experience of Indian banking industry is on similar lines. In a large public sector bank, the
top 23% of the customers contribute to 77% of the revenues.
Hence, some conditions which has got strategic significance with customer need lo be defined.
To perform this process effectively, a customer matrix analysis (Figure 4,4) may be conducted,

Adapted from Customer Matrix Analysis Payne (2001): Customer Relationship

Management, Cranfield University.
2. Customer lifetime value: There has to have a basis for defining the customers of the
company. Not all customers should be treated as equal. Company should first decide who the
profitable customers are, what the requirements of these customers are, and how best the
companies can serve them. This may help companies allocate sales resources and service
design to the customers. A big question here is how the company decides who the profitable
customers are. The most widely accepted practice for identifying profitable customers is
calculating the customer's lifetime value, It is important because every service comes with a
cost. So, the organisation should conduct a comprehensive cost-benefit analysis and
accordingly, needs to preparo a customer databank depending upon the customer lifetime value
to the organisation.