Understanding Customer Relationship Management: Concept, Purposes, and Customer Retention

In Business Skills, Management Skills
Understanding Customer Relationship Management

Establishing a good relationship with customers is really important for every business that provides service to the customers. The common reason is because the existing customers are very influential for the business sustainability. So, it’s really necessary for a business to perform customer relationship management to make more profits.

The Importance of Good Relationship with Customers

  • To find out more needs and expectations through the customers’ point of view that will facilitate the business in preparing the strategy of a service.
  • It encourages the loyalty of the customers towards the services from the business.
  • To improve a long-term growth and profitability the business by way of a better understanding the customers’ behavior.

An illustration from an old story about the importance customer relationship: The story of Ming Hua, a rice seller from an ancient village in China. He was thinking hard about how to keep his customers not to be the customers of his competitors. Five months earlier, he was the only rice seller in the village. In the past month, four other rice sellers have appeared in the village. They came to rival Ming Hua because indeed the rice business is really lucrative in the village.

Meanwhile, he should provide a different service to the head of every household in the village, which all of whom were his customers. At the beginning he to stayed in touch with every head of household carrying a blocknote to record how many members of their family, how many rice consumption per day, how large their rice storage capacity, what kind of rice is usually cooked, when is the birth date of the family members, and other records. He solely provides other services to keep the customers loyal to him.

From the blacknote, Ming Hua can deliver rice to every house of each of the family just exactly when their stock is running out. He also gave a birthday gift to the family members, and other extra services as if he understood the personal needs of the heads of the families in the village.

Establish Relationship with Your Customers

The story of Ming Hua tells us that establishing a good relationship with customers is really important. So, our existing customers will not move to our competitors and remain loyal to our business. Customer loyalty is absolutely necessary if a company wants to exist in an area of an industry that has a high level of competition. Such good customer relationship is what we call as Customer Relation Management (CRM) concept. So, the ancient story of Ming Hua is a classic example of a basic Customer Relationship Management (CRM) implementation.

Basically, the concept of CRM arises according to the concept of relationship marketing. If in a marketing relationship a business seeks to establish the relationship with all parties that concerned in the service, then CRM emphasizes on the customer side only (Vanessa Gaffar, 2007: 86). It is not certainly mean only concern on the external customers, but also internal customers. For example, the employees in the organization either corporate or government agency.

The Concept of Customer Relationship Management (CRM)

In the recent developments of Customer Relationship Management concept, many of them become various research activities. It’s nowadays so many companies are being focused on the Customers Maintenance activities. There are a lot of methods and programs made to gain customer loyalty, as ultimately the customer loyalty will increase the company profits.

CRM is a different concept in the eyes of different parties. For some, CRM stands for Customer Relationship Marketing. Some others believe that not all customers willing being in a relationship with the supplier. So, removing the word “relationship” and exactly choose another shortest business term, “Customer Management”. There are also other businesses or companies who prefer say “Relationship Marketing”. Obviously, whatever the term, CRM focuses on customer-oriented in the business practices.

According to Francis Buttle (2004:2), CRM is a core strategy in a business that integrates internal processes and functions with all external networks to create and realize value for the target customers on a profitable basis.

While Brown and Rigby, Reincheld, Dawson (in Vaness Gaffar, 2007: 87) stated that CRM is a process of obtaining, maintaining, and developing profitable customers and requires a clear focus on the attributes of a service that can produce value to the customers so as to generate loyalty. Therefore, in this article, CRM is not a concept or a project, but it’s a business strategy that aims to understand, anticipate, and manage the needs of existing customers and potential customers of a business or company.

The Three Levels of CRM

CRM can be studied from the three levels (Francis Buttle, 2004: 3), namely:

  1. Strategic CRM. It’s a top-down view of CRM as the most important business strategy that prioritizes consumers and aims to attract and retain profitable customers.
  2. Operational CRM. It’s a view about CRM that focuses on automation projects such as service automation, sales force automation, and sales automation.
  3. Analytical CRM. It’s a bottom up of CRM that focuses on data mining activities for strategic and tactical purposes.
    Strategically, Customer Relationship Management focuses on the efforts to develop a business culture or customer-centric. Such culture aims win the hearts of consumers and maintaining their loyalty by creating and delivering value to the customers that outperform competitors.

The main concept of CRM is the creation of customer value that aims not only to maximize revenue from a single transaction but also to create a competitive advantage. This competitive advantage is not only based on the price but also based on the provider’s ability to help customers in generating value for them and to build long-term relationships with the customers.

CRM is a combination of business processes and technologies that the goal is to understand the customers from multiple perspectives in order to differentiate the products and services on a competitive basis. CRM is an attempt to improve customer identification, conversion, acquisition, and retention.

According to Storbacka and Lehitnen (in Vanessa Gaffar, 2007: 35), the focus of Customer Relationship Management is to improve customer satisfaction, to increase customer loyalty and to increase revenue from the existing customers in the face of high levels of competition, globalization, and the turnaround of customers and the development of customer acquisition costs.

The Five Stages of the Process of Customer Relationship Management

The main focus that is developed by all CRM strategies is to develop and achieve the profitable relationship with customers. There are five stages of the process of developing and implementing CRM strategies (Francis Buttle, 2004: 57):

  • Customer Portfolio Analysis. This stage involves analyzing the basis of customers actually and potential to identify which customers you want to serve in the future.
  • Customer Intimacy. At this stage, you can identify the identity, history, demands, expectations, and the choice of your customers.
  • Network Development. To identify, explain, and manage the relationships with the network members within the company.
  • Value Proposition Development. This stage involves identifying the sources of the value for the customers and creating a proportion and experience that meets their needs, expectations, and preferences.
  • Managing the Customers Lifecycle. The Customer Lifecycle is the process of the customers from suspect status (whether the consumers match the target market profile) to be the supporters (consumers who bring in additional revenue thanks to their oral references that bring in other new customers).

The Three Activities of Customer Relationship Management

Francis Buttle (2004: 369) also mentions that the process of CRM enters the three management activities, namely:

  • Getting new customers.
  • Control and retain existing customers.
  • Develop customer values.

The Target of Customer Relationship Management

Meanwhile, according to Kalakota and Robinson (2001: 43): the target of CRM is focusing on three things, namely:

  • Getting new customers (acquire), getting new customers by providing easy access information, new innovations, and attractive services.
  • Enhance the relationship with existing customers; the business or company seeks to establish relationships with customers through the provision of good services to the customers (customer service). The implementation of selling strategies in the second phase can increase the company’s revenue and reduce the cost of getting customers (reduce cost).
  • Retain the customers; this stage is an effort to get customer loyalty by listening to the feedback of the customers and trying to satisfy the customers’ wants.

If the customer acquisition strategy aims to increase the number of subscribers on the customer base, the customer care strategy aims to maintain the proportion of customers by reducing the customer crossings, while customer development strategies aim to increase customer value for the company. When the main focus is customer acquisition, likewise is customer care and development. However, not all customers are worth and not all customers have the potential to grow.

The Goals and Benefits of Customer Relationship Management

The following are several goals of Customer Relationship Management;

  • Leverage existing relationships to boost revenue. You can enhance the profitability by identifying, attracting, and retaining the best customers.
  • Utilize the integrated information to provide the best service to your customers. This way will be useful to prevent your customers to search the same information, so as to save time for your customers.
  • Develop the procedures and processes of your sales to get repeated purchases by developing customer contact channels, and more employees participate in the sales.
  • Create new value and build customer loyalty. CRM can drive the company’s ability to respond to customer needs, accommodate customer demands, and build partnerships with them in order your customers become loyal.
  • Do a proactive solution strategy. If the customer relationship has been established then your business can early solve the problems that would arise to your customers.

The Benefits of Customer Relationship Management

  • The cost of attracting customers is lower. This includes marketing cost, correspondence cost, customer contacts cost, follow-up cost, fulfillment cost, and services cost.
  • No need to get too many customers for keeping sales volume, especially for business to business relationship.
  • Minimize the sales costs. Generally, existing customers are more responsive. CRM will reduce the campaign costs and increase the Return on Investments (ROI) in marketing and customer communications.
  • The customer profitability is higher. The share is larger, better follow-up sales, provide feedback to other customers about the service and satisfaction, you can do cross-sell or up-sell from the current purchases.
  • Improve customer loyalty and retention. Customers would be partnering with you business for a long time, a lot of buying volume, and instantly delivering queries. Such positive business performance would make the relationships get more lasting.

Evaluate every customer whether valuable or not.

Customer Retention (Customer Care)

The fundamental reason that drives a business or company to build a relationship with consumers is actually very classical, that is the motive of economic. Your business coffers will become fatter if you are able to manage the baseline of consumers to identify, satisfy, and successfully retain your most profitable customers. That’s exactly the ultimate goal every Customer Relationship Management strategies. With the increasing of the consumer retention level will automatically increase the number of consumers of your business.

What is Customer Retention?

The customer retention of a business or company is a strategic goal to seek long-term maintenance of customer relationship. Generally, customer retention becomes the reflection of customer crossings. A high level of retention equals to a low crossing rate. Conventionally, customer retention is the number of customers doing business with a firm at the end of a book year that is expressed as the percentage of customers who are active at the beginning of the book year. (Francis Buttle, 2004:371).

The increasing level of consumer retention will automatically increase the number of consumers owned by an organization. In addition, the increasing level of retention will increase consumer loyalty (customer tenure). Tenure is a term that shows how long a consumer survives to be the company’s consumer. The higher the rate of consumer retention wills automatically the greater the positive effect (Francis Buttle, 2004:46).

The Benefits of Customer Retention

The management of consumer retention and loyalty has two benefits. Firstly, it minimizes marketing costs. So, you don’t need to spend additional funds to find a consumer that gets away. Secondly, along with the increasing of your customer tenure, the willingness of your consumers is becoming more comprehensible. Meanwhile, your consumers also would understand what your business can do for them. As the relationship deepens, the trust and commitment of both parties will automatically be developing.

The Customer Retention Strategy (Francis Buttle, 2004:378)

To Fulfill and Exceed Customer Expectations

Beyond the expectation of the customers means giving something more than what usually satisfies them. Beyond customer expectations do not have to be the best in its class, yet be aware and understand what customers can be happy about.

Create Programs to Create Added Value

You can find the way to create added value for your customers. Ideally, you can add customer value without having to create additional costs for your business. If the cost should be incurred, then it should be able to recover the previous costs that are borne. In general, there are three forms of value addition programs such as loyalty schemes, customer clubs, and sales promotions.

Creating Social and Structural Bonding

You can find a social bonding in the positive interpersonal relationship between customers and supplier. The characteristic of a high interpersonal relationship is a high level of trust and commitment. Meanwhile, you can also create structural bonding when your business and customers provide resources to those relationships.

Develop Commitment

Customer satisfaction is not enough to ensure customer sustainability. So, you need to develop customer commitment when your customers already feel more than satisfied. It means they have an emotional bond with your business.

Overall, the customer retention program is one of the core activities of Customer Relationship Management. The paradigms of most companies are no longer dominated on how to get new customers. But It’s more on how to retain existing customers. Because according to the survey, the cost to retain existing customers is much lower than the cost to get new customers. Existing customers are not only a great potential to purchase your products or services, but also the products and services of other companies. As long as your customers are satisfied, your business has the potential to sell different products or services to them.

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