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RELATIONSHIP MARKETING

About Merkle

Merkle, a customer relationship marketing (CRM) firm, is the nations largest privately-

held agency. For more than 20 years, Fortune 1000 companies and leading nonprofit

organizations have partnered with Merkle to maximize the value of their customer portfolios. By

combining a complete range of marketing, technical, analytical and creative disciplines, Merkle

works with clients to design, execute and evaluate connected CRM programs. With more than

1,500 employees, the privately held corporation is headquartered near Baltimore in Columbia,

Maryland with additional offices in Boston; Chicago; Denver; Little Rock; Minneapolis; New

York; Philadelphia; Pittsburgh; San Francisco; Hagerstown, MD and Shanghai

Customer Relationship Management (CRM) evolved out of the field of relationship

marketing, which is based on the premise that lifetime connections with customers are more

rewarding and advantageous than a short-term transaction-based relationship. Relationship

marketing, which became popular in the 1990s, views the customer as an asset that can be

controlled, and one that needs an adequate amount of investment, similar to the requirements of

tangible assets (Ryals and Payne, 2001). As such, customer retention therefore produces a major

foundation of relationship marketing.

Also referred to as customer relationship marketing and customer loyalty marketing,

CRM employs information technology to enforce and execute relationship marketing

approaches. Through CRM, marketing appears to have come full-circle in its evolution: from

straight sales to mass marketing, to target marketing, to relationship marketing, and now to

CRM, which is on the way to completely allowing true one-on-one marketing (Landry, Arnold &

Arndt, 2005).

Customer Relationship Management (CRM) employs people, technology, tools,

processes and activities to increase customer retention and a firm's profitability. Early CRM use

was fraught with problems, as many firms applied CRM inappropriately. In recent years,

however, firms have become selective and prudent with their CRM investments, and many of

them are now reporting success with CRM.

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Keywords: CRM System; Customer Defection; Customer Relationship Management (CRM);

Customer Retention; Customer Segmentation; Lifetime Value; Relationship Marketing;

WinBack.

In recent years, management thinking has shifted from a focus on acquiring new

customers to an understanding of the importance of retaining customers and the need to build up

loyalty among these customers (Fitzgibbon and White, 2005). It has been recognized that a

company's relationship with its customers is one of its most important assets, and this is all the

more important in today's climate of high customer turnover, decreasing brand loyalty, and lower

profitability. As a result, many organizations are moving away from product-centric and

brand-centric marketing, toward a customer-centric approach. Customers are increasingly

viewed in terms of their lifetime value to a firm, rather than being measured simply on the value

of an individual transaction. Since customers usually engage in many different types of

transactions, and since they vary a great deal as to their wants and needs, firms find the

management of their relationships with customers very challenging. Customer Relationship

Management has emerged as a way of dealing with the challenges thus posed.

CRM is based on the belief that developing a relationship with customers is the best way

to make them loyal, and that loyal customers are more profitable than non-loyal customers

(Dowling, 2002, p. 87). It is also believed that tiny improvements in customer retention rates can

yield significant increases in profits. The goal is to bring about increased customer retention.

True CRM is driven by organizational strategy and technology. It is relationship-

centered, and allows firms to align their business processes with their strategies to build

customer loyalty and the firms profits. It requires a holistic approach so that the information

that is held about customers across the organization is drawn together in one central source or at

least cross-accessed so that it can be compiled and collated (CRM demystified, 2001, p. 4).

CRM relies on automated processes and technologies; using information systems, software and

call centers.

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There is no universally accepted definition of CRM, probably because it is still in the

formative stages of development. It is not surprising, therefore, that there is much variety in the

way CRM has been, and is being, defined. Some see it as a marketing strategy: to them, CRM is

seen as the creation of customer strategies and processes supported by technology in order to

build customer loyalty (Rigby, Reichheld & Schefter, 2002). Others see CRM as a technology

for managing customer information. Stone and Woodcock (2001) have defined CRM as

"methodologies, technologies and e-commerce capabilities used to manage customer

relationships." Hobby (1999) defines CRM as "a management approach that enables

organizations to identify, attract and increase retention of profitable customers by managing

relationships with them." Rigby et al (2002) also define CRM as a mechanism for aligning a

firm's business processes with its strategies to build customer loyalty and the firm's profits.

A philosophy or approach encompassing people, technology, tools, processes and

activities, CRM appears to be a combination of all the above definitions. Its primary purpose is

to help firms understand their customers better, to build relationships with them, and to ensure

customer retention and therefore, profitability. CRM's secondary purposes include:

* The identification of a firm's customers

* The creation of customer value

* The management of complex customer relationships

* The adaptation of a firm's customer offerings and communications strategy to different

customers

* The cultivation of customer-firm dialogue

A CRM strategy provides an effective way for a firm to advance its revenues by

providing the specific services and products that precisely meet the requirements of customers

through the design and implementation of programs that effectively allocate the appropriateresources to each

customer. A good CRM strategy will also allow a firm to offer superior customer service; cross-

sell products more effectively; and allow sales staff acquire deals at a quicker pace. Current

customers will be retained, and future customers will be discovered. Customers will also

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be segmented based on their needs and their profitability.

Applications

Rigby, Reicheld and Schefter (2002) have discovered that by tracking communication

between firms and their customers, CRM can help firms in many ways, including the following:

* Analyzing customer revenue and cost data in order to identify current and future high-value

customers

* Targeting direct marketing efforts

* Capturing relevant product and service behavior data

* Creating new distribution channels

* Developing new pricing models

* Processing transactions faster

* Providing better information to the front line

* Managing logistics and the supply chain more efficiently

* Deploying knowledge management systems

* Tracking customer defection and retention levels

* Tracking customer satisfaction levels

* Tracking customer win-back levels

To successfully achieve the above objectives, CRM implementations require a

holistic approach that integrates internal leadership (in particular, strong executive and business-

unit leadership), cautious strategic preparation, precise performance measures, organizational

culture and arrangement, business procedures, and information technologies, with outside

customer touch points (Eichorn, 2004).