Customer Relationship Management

CRM is a cross-functional process for achieving a continuing dialogue with customers, across all of their contact and access points, with personalized treatment of the most valuable customers, to increase customer retention and the effectiveness of marketing initiatives.

CRM strategies have gained importance since commerce became a human endeavour and companies have sought to satisfy their customers. Often a retailer's CRM strategy is nothing more than a firm's attempt to build a relationship with its customers and this aspect rests with the executive leadership. In the contemporary retail business environment CRM has been appropriated by IT applications and products designed to automate CRM efforts. Companies are rushing to automate and better manage their methods in which they have traditionally dealt with customers, including people who might not be considered customers yet, as well as develop completely new concepts in managing the customer from a service perspective. CRM applications incorporate the business functions of marketing materials, developing and maintaining customer database, and coordinating a company's multi-faceted approach to interactions with customers.

CRM is a strategy resulting in developing the most appropriate relationship with a customer, a process that is supported by technology and that may not necessarily yield deep or strategic partnerships with all customers. The essence of this enterprise-level perspective of Wal-Mart is captured in the CRM framework presented in the figure below.

Strategic CRM refers to the managerial decision-making processes involved with defining and building a customer-oriented business strategy, business processes and culture, and requisite supporting technology models. At the core of the Wal-Mart's strategic CRM model, and its longer-term competitive advantage and success, is the ability to define and implement a right customer, right strategy, right organization, right channel, right people and right rewards success model. This strategic model encompasses a variety of intelligent and creative executive decisions, as captured at the centre of the CRM framework.

These decisions are fuelled by analytical and operational CRM as Wal-Mart seeks to learn from its customers, develops insights and knowledge concerning its customers' needs and requirements, and translates these insights into customer value through its product, service, and channel offerings.

Analytical CRM refers to the firm-level processes involved in analyzing customer and market-level information in order to provide the intelligence and insights that guide the Wal-Mart's strategic marketing, CRM, service, and go-to-market choices. Analytical CRM investments pay off for both the customer and the firm. Appropriately selected customers receive more personalized, timely, and relevant solutions through desirable channels. Wal-Mart benefits in the sense of rationalizing its marketing investments to desirable customers for maximum cost-effectiveness.

Operational CRM consists of the specification of suitable and replicable business processes designed to implement the Wal-Mart's desired customer relationship model in terms of customer access, customer interaction, sales and channel choices, and customer learning at the one-on-one level.

At a technology level, operational CRM involves the automation of these customer-facing aspects of the business, with emphasis on (1) marketing automation, in particular, campaign management, event- based marketing, and promotional management; (2) sales force automation, in particular, lead management, opportunity management, customer contact management, and sales forecasting; and (3) service automation, such as inbound customer call centre management, service call routing and prioritization, customer complaint handling, and customer self-service systems.

Wal-Mart knows exactly which customers they want and how valuable they are and it relentlessly seeks to exceed those customers' expectations. Wal-Mart is a great example of a company that uses a blend of high-tech solutions and high-touch employees-like flesh-and blood greeters-to increase customer loyalty. Wal-Mart lets technology work behind the scenes. Its CRM data warehouse is one of the largest in the world, tracking exactly what the customers purchase. As a result, Wal-Mart stocks more of the most popular merchandise, and clusters items that people tend to buy at the same time. But Wal-Mart does not use the technology to build profiles of individual customers by gathering addresses and phone numbers. Instead, Wal-Mart leaves that job to its local employees, who know their regular customers and understand their needs.

Basic three phases in which CRM helps Wal-Mart in developing and enhancing their interactions with customers are:

Acquire: CRM helps Wal-Mart in acquiring new customers with the help of tools like Direct marketing like mailers, content management etc.

Enhance: CRM helps Wal-Mart in enhancing the quality of interaction with existing clients. This is achieved by storing complete information about client’s previous purchase record and also basic information about its income, age etc.

Retain: CRM helps Wal-Mart in retaining customers by helping with programs which rewards customer loyalty etc which are based on stored information about client’s purchase behaviour.

Cost Leadership: Every Day Low Price (EDLP) at Wal-Mart

Everyday low price (EDLP) is a pricing strategy where consumers get a low price without the need to wait for sale price events. EDLP saves retail stores the effort and expense needed to mark down prices in the store during sale events, and to market these events. It is believed

to generate shopper loyalty. In a study of supermarket grocery chain in the United States it was concluded that a 10% EDLP price decrease in a category increased sales volume by 3%.

Wal-Mart has led the EDLP wave and successfully encroached on the turf of supermarkets and department and drug stores by advertising that their everyday prices are "always the lowest" to be found. Warehouse club operations of Wal-Mart, Sam's also has grown rapidly by pursuing limited assortment and limited service EDLP price strategies while using well-known brand names as a draw.

With an EDLP approach, it gives price credibility. Because EDLP is simple and consistent, it is easier to communicate to consumers and therefore establishes a low price image through advertising. It also reduces managerial costs because it is easy to implement by simply matching or beating the most aggressive local competition. To support this Wal-Mart has an appropriate cost structure in place.

1) EDLP also results in lower operating costs. These lower costs can be achieved in three primary ways: reduced service and assortment,

2) reduced inventory and warehouse handling costs due to steady and more predictable demand, and

3) Lower in-store labour costs because of less frequent changeovers in special displays. Warehouse operators gain additional cost savings due to less expensive locations and nonunionized labour. EDLP also can reduce advertising expenses; for example, Wal-Mart feature advertises in newspapers on a monthly basis, whereas many of their competitors do promotional advertising 52 weeks a year.

A breakdown of Wal-Mart's operating costs reveals that some costs are compressible and some are not. EDLP can reduce warehouse, shipping, and inventory holding costs, but these usually make up less than 3%-4% of total revenue (and 13%-17% of operating costs). Labour costs (salary and benefits), on the other hand, are less compressible, at least in the short run. Wal-Mart is considered a state-of-the-art retailer in terms of efficient logistics and information capabilities, but its biggest cost advantage is labour. It has a nonunionized, short tenure labour force that by industry estimates is about 50% less expensive per retail dollar than their supermarket competitors.