Customer RelationshipsBusiness Strategy for Competitive Advantage

(A Working Paper)

By-

Kalpana Chauhan

Asst. Professor

FIIB, New Delhi

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Customer Focus

Customer Focus was identified as the single most important differentiator between the best and the worst companies in an industry in a survey of 100+ senior executives.

(Schmitt, 2003)

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Customer Relationship Management

CRM is a management approach that involves identifying, attracting, developing and maintaining successful customer relation over time in order to increase retention of profitable customers. (Bradshaw and Brash 2001, Massey et al 2002)

Requires alignment of business strategy, organization (relational) structure and processes, customer knowledge and technology in such a manner, that all customer interactions can be organized to the unique positive customer experience resulting value for the organization. At its highest use, it is a competitive strategy.

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CRM Focus0 Strategic marketing related processes and capabilities.

(Day 1994,99,2000, 2003)0 KM and interaction process (Zablah et al, 2004)0 Customer loyalty, profitability, acquisition ,retention

(Kumar & Shah, 1999; Reinartz & Kumar, 2003; Venkatesan, Dick & Basu, 2003; Stauss et al, 2004)

0 Organizational culture, focused on creating quality (profitable) relationships (Ngai, 2005; Romano & Fjermestad, 2003)

0 A technology providing integrated view of customers (Zikmund, McLeod, & Gilbert, 2003)

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CRM as Differentiation Strategy

0 Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation.

(Kaplan, 2004)

0 The value paradigm requires integration and real time optimization of the value chain between the customer, the firm and its extended enterprise. (Chan, 2005)

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Proposed Conceptualization

0 CRM as differentiation strategy could be conceptualized in terms of three components:0 Customer Experience as a driver0 Customer Centricity as a design0 Relationship Management as a process

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Customer Experience Facts

0 86% of consumers quit doing business with companies because of a bad customer experience.

(Harris Interactive, CEI Report, 2010)

0 It takes 12 positive service experience to make up for one negative experience. (Ruby Newell-Legner)

0 80% of the firms like to use customer experience as a form of differentiator. (Forrester: State of customer experience 2010)

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Customer Experience

At this very moment, it is happening. Across channels and touch points,

customers are experiencing every company. Whether interacting on the

Web, through a call center, on the phone, by way of e-mail or face-to-face,

customers are experientially assessing the extent to which a company

values their patronage. Those experiences are collectively serving to

strengthen relationships—or, if the company is failing to fulfill its brand

promise and to delight customers, are instead weakening the bond between

its customers and its business. (Peppers and

Rogers 2009)

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LiteratureFocus has been mainly on service quality and measuring customer satisfaction

Consumption’s experiential aspects (Holbrook and Hirschmann 1982)

Experience Economy (Pine and Gilmore 1999)

experiential marketing, Customer Experience (Schmitt 1999, 2003)

Meaning, creation strategy Meyers and Schwager, 2007, Verhoef 2007

Atmosphere Baker et al. (2002); Kaltcheva and Weitz (2006); Wakefield and Baker (1998)

Price Baker et al. (2002); Dorotic, Verhoef, and Bijmolt (2008); Gauri, Sudhir and Talukdar (2008); Noble and Phillips (2004);

Assortment Baker et al. (2002); Broniarczyk, Hoyer and McAllister (1998); Huffman and Kahn (1998); Janakiraman, Meyer, and Morales (2006)

Channel Neslin et al. (2006); Patricio, Fisk, and Falcao e Cunha (2008); Sousa and Voss (2006); Verhoef, Neslin, and Vroomen (2007)

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What is Customer Experience Management?

Customer’s interpretation of his or her total interaction with the brand

(Ghose 2007)

As such, a service provider cannot avoid creating an experience every time it interacts

with a customer (Thompson and Kolsky 2004)

The process of strategically managing a customer's entire experience with a product

or company (Schmitt 2003)

All interactions involved throughout the process and throughout the customer

lifecycle culminate in a positive customer experience if customers go away feeling

that their personal needs were met and they were treated with care.

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0Customer experience is the internal and subjective response customers have to any direct or indirect contact with a company. (Meyer & Schwager, 2007)

-Direct contact: generally occurs in the course of purchase, use, and service and is usually initiated by the customer.

-Indirect contact: most often involves unplanned encounters with representations of a company’s products, services, or brands and takes the form of word-of-mouth recommendations or criticisms, advertising, news reports, reviews, and so forth.

What is Customer Experience Management?

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Customer Experience

0 Requires Outside-in approach0 Can be seen from the traditional information-

processing and decision oriented perspective and the experiential perspective.

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Customer Centricity as Design

0 Amongst all CRM failure only 6% are due to technology, remaining are due to failure to change behavior, culture or organizational structure.

(Richard 2008)

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Customer Centricity

0 ‘Putting customer as the center of business and activities’.

0 It refers to the orientation of a company to the needs and

behaviors of its customers, rather than internal drivers (such as

the quest for short term profit).

0 Requires alignment of operating model behind a carefully

defined customer segmentation strategy and tailor business

streams- product development, demand generation, customer

care, supply chain etc.

(Gummesson 2008)

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Dimensions of Customer Centric OrganizationDimensions  Customer centric organization

Basic philosophy 

Serve customers: all decisions start with the customer and opportunities for advantage

Business orientation Relationship-orientedProduct positioning Customer segment centers, customer relationship

managers, customer segment sales team, e.g. high net worth

Organizationalstructure

Highlight product benefits in terms of meeting individual customer needs

Organizational Focus Externally focused, customer relationship development, profitability through customer loyalty, employees are customer advocates

Performance metrics 

Share of customer wallet, customer satisfaction, customer lifetime value, customer equity

Management criteria Portfolio of customers

Selling approach 

How many products can we sell to this customer? How do we co-create value?

Customer Knowledge Customer knowledge creates a valuable asset

Shah et al 2006

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Customer Centricity1.Solve the customer’s problem completely by ensuring

that all the goods and services work, and work together.2. Don’t waste the customer’s time.3. Provide exactly what the customer wants.4. Provide what’s wanted exactly where it’s wanted.5. Provide what’s wanted where it’s wanted exactly when

it’s wanted.6. Continually aggregate solutions to reduce the

customer’s time and hassle.

(Womack and Daniel 2005)

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Relationship Management as Process

What is RM process?0 Customer relationship management as a core organizational

process focuses on various activities that an organization perform in establishing, maintaining, and enhancing long-term associations with customers. (Berry 1995; Morgan and Hunt 1994; Srivastava, Shervani, and Fahey 1999)

0 This major relationship management processes are the marketing communication, interaction and customer’s perception of value leading to relationship dialogues. (Gronroos, 2004)

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Relationship Management as Process

Why RM processes?0 To derive strategic potential of relationships and pursue

them as a differentiation strategy companies need to build relationship management capability. Capabilities are rooted in business processes and encompasses the value chain.

(Leonard-Barton, D. 1992)

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Levels of CRM processRelationship Management as process need to be dealt at-0 Macro level- process of building relationships with

customers and include sub-processes like prospect identification, customer knowledge creation etc.

(Srivastava et al 1999, Plakoyinnaki andd Tzokas 2002 Reinartz et al 2003)0 Micro level- process to manage all customer interactions

( Day and Van den Bulte 2002, Kohli 2003, Holmlund 2004, Gronroos 2004)

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Levels of CRM ProcessThere are three different possible levels: (1) functional, (2) customer facing, and (3) companywide.

CRM process entails the systematic and proactive management of relationships as they move from beginning (initiation) to end (termination), with execution across the various customer-facing contact channels.

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Customer Relationships as Differentiation Strategy

CE

• Define the customer experience that customers value and Design the services (CE)

CC

• Engaging the employees• Alignment of all touch-points

RM-P

• Strategy development process• Multichannel integration process• Customer Information Management on ongoing basis

(process)

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Thanks

Kalpana ChauhanFortune Institute of International Business

New Delhikalpana.chauhan@fiib.edu.in