MNM3014 Study Notes

TOPIC1: The Nature of Relationship MarketingIn this module you will be introduced to one of the key assets of any organisation, namely customer relationships. You will discover how marketers can create new value for their customers, suppliers, employees and other stakeholders by managing these relationships. If these relationships are the key assets of the organisation, then all the organisation's efforts should be geared towards building them.Relationship marketing is about establishing and maintaining long-term customer relationships with all stakeholders (eg end-customers, employees and suppliers). Thus there is a new focus on customer retention, high commitment to customers and a long-term perspective.We will look at the changes in marketing practices and the solutions offered by relationship marketing. Throughout this module we stress the profound impact of technology on virtually every aspect of marketing and the organisation, and the way in which technology enables the business to focus on individual customers.It is important to understand the terms ``relationship marketing'' and ``customer relationship management'' (CRM), and how these terms may be used interchangeably. The relationship marketing concept draws on traditional marketing principles and, in effect, takes marketing back to its roots. Relationship marketing is the new philosophy, while the implementation of this new philosophy is known as customer relationship management (CRM).

THE TRADITIONAL MARKETING APPROACH

1. Criticism Levelled Against Traditional Marketing Traditional marketing is seen as a functional approach, no innovation and make use of

defensive strategies. Practise marketing management instead of marketing-orientated management.

2. The Marketing Concept Focus on customer needs and wants Only practiced in theory, ignored in practice Management does not portray a client focus

3. The Traditional Marketing Approach Serve all customers as if they want the same thing Needs, wants and expectations of customers not really seen as important

Marketing mix too restrictive to apply to B-2-B (business to business) and service marketing Intangible service characteristics and customer service considerations are becoming the

prime differentiating factor between products Must see 4 P’s (Product/Place/Price/Promotion) from customer-orientated

perspective

4. Transactional Marketing Objective is to sell Marketing process ends when sale has occurred Retaining consumers is not regarded as important Focus on new customers Perceive that customers do not want to buy, but rather has to be persuaded

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5. Market Segmentation Difficult to group customers into categories Focus on individual customers has become necessary Get competitive edge rather through delivery of superior customer value

Nb!! Bases Of Segmentation-Tb5 Geographically, mostly used, dividing market into different geographical areas Demographic(using variables such as, income, education, and living standards) Psychographic – by use of categories such as social class, lifestyle and personality Behavioural –basis of buying behaviour such as benefits sought,loyalty status , attitude

toward the product.

Assessment Question:Explain the shift in business thinking from traditional marketing to relationship marketing?

MNM3014 study notes Study Unit 22.1 The relationship marketing concept (p6 t/b)Customers remain very important, successful companies never lose sight of their customers’ demands and carefully keep track of these needs as they evolve and change

Definition Relationship Marketing: the objectives of relationship marketing are to identify and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders at a profit so that the objectives of all parties involved are met. This is done by mutual exchange and fulfilment of promises.

Dimensions of the definition:Relationship marketing (RM) seeks to create new value for customers and then share it with these customers, because customers estimate which offer will deliver the most value. Adam Toil- ‘ the real price of anything is the toil and trouble of acquiring it; the total cost includes the buyers time and energy’

RM recognises the key role that individual customers have, both as purchasers and in defining the value they wish to achieve

RM businesses are seen to design and align processes, communication, technology and people in support of customer value

RM represents continuous co-operative effort between buyers and sellers RM recognises the value of customers purchasing lifetimes (ie their lifetime value). Lifetime

value is the present value of the future profits expected over the customer’s lifetime purchases.

To create the value the customers want, RM seeks to build a chain of relationships within the organisation and between the organisation and its main stakeholders including suppliers, distribution channels, intermediaries and shareholders One of the main principles of RM is to identify the most profitable customers so that the business can focus on customers appropriate to its strategy

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MNM3014 Study Notes

Figure 1.1 depicts traditional and relationship marketing. Relationship marketing is a new philosophy of marketing – implementation of which is known as customer relationship marketing (CRM). CRM is important and most companies use a mixture of transactional and relationship marketing practices. figure 1.1 illustrates: the development of relationship marketing points to a significant paradigm shift: from independence and choice to mutual independence. Transactional marketing was rapidly becoming outdated- unsuited to the complex modern marketing reality, with no consideration of future contact with customersAn organisation thus needs to orient itself towards total customer relationships as opposed to focusing on a single transaction with a customer. This implies the linking of separate transactions – because only this approach enables the utilisation of things such as cost saving potential of customer retention.Relationship marketing is an ongoing process of identifying and creating new value with individual customers and they share the benefits from this over a lifetime association. Involves collaboration amongst supplier and selected customers for mutual creation.

Figure 1.1 transactional and relationship marketingMutual independence

Relationship marketing

Completion and mutual co-operationConflict

Transactional marketing Independence and choice

2.2 Focus areas of relationship marketing

2.2.1 Individual Customer ApproachKey aspect of RM is to focus on individual customers, in terms of the definition of RM- CRM recognises the key role individual customers have and the most profitable customers have to be indentified so that the business can focus on customers appropriate to its strategy21st century companies are different. In the old economy – companies focus was to standardise production, products and business processes, invested in large buildings and was run like machines. In the new economy- the business is supported by information, which has the ability to differentiate, customise and personalise, and which enables it to gather information about individual customers and business partners such as suppliers. They are more flexible and have the ability to individualise the market offering, messages and media.Different customers should be treated differently, its key to know who the best customers are and to treat them as such. For larger companies with many customers one-to-one marketing is an impossible task, customers should rather be segmented based on what is known about them. Segments can be described as value and potential value to an organisation, and appropriate communication strategies can de designed for each segment. Effective segmentation E.g. allows for a bank manger to know that customers from one particular segment are 3 times more likely to respond to an investment product offer and customers from another segment. The concept of ‘a

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MNM3014 Study Notes

segment of one’ can be seen as a further extension of CRM. In terms of CRM, the marketer should focus on the most profitable customers and reject the unprofitable ones. The most successful companies in any industry are those that succeed in developing and maintaining long trm relationships with customers and most importantly that embrace the one-to-one marketing.One-to-one marketing is not suitable for every company. Customisation can be very difficult to implement for complex products such as motor cars- it can raise the cost of goods by more than the customers are willing to pay. Some customers do not know what they want until they see actual products. Customers cannot cancel the order after the company has started to work on the product. The product may be hard to repair and have little sales value- In spite of this customisation has worked well for some products- laptops, clothes, skincare products. A business should focus of most profitable customers and eliminate to unprofitable ones. It is felt that customers who are unprofitable today will most likely be unprofitable tomorrow, and they do not merit further attention.One-to-one marketing is basically a simple idea, however implementing a one-to-one marketing program is not simple. In order to build one-to-one relationship a company must learn continuously from individual interactions with customers – it must respond dynamically to the information those interactions elicit – it must engage its customers – especially the best ones and ensure they do not leave.

2.2 Reconsidering the traditional marketing mixAccording to the new focus on customer relationships, the traditional 4 Ps of marketing, namely product, price, promotion and place/distribution, need to be approached differently. Technology can assist in combining the 4 Ps in numerous variations, thereby offering the customers many choices so that they can obtain precisely what they want (product), when and how they want it (distribution), and at a price that represents the value they wish to receive (price). Technology also enables the company to engage individual customers when and how they wish to communicate (promotion). Thus we can see that technology can assist in digitising the traditional combination of the marketing mix (the 4 Ps), offering the customer many choices. The focus has changed from the marketer providing what he or she thinks the customer wants to what the customer chooses.By using technology appropriately, an organisation can serve customers as individuals. A data-driven approach enables organisations to assess each customer's needs and potential profitability, and to tailor sales offers and service. This involves using multiple channels ö the internet, direct mail, telesales and field sales to improve effectiveness and efficiency. Companies using technology have the potential to be close to the customer and to gain a competitive advantage.

. ProductTraditionally, the marketer developed product concepts, researched the customers and then developed the product that would yield the desired profit margin for the business. This never took into account the fact that customers want different things at different times and are not interested in one standard product or service.Relationship marketing involves real-time interaction between the company and its priority (most profitable) customers, as it seeks to move more rapidly to meet customer requirements. The customer participates in the development of the product.The product that results from this collaboration may be unique or closely tailored to the requirements of the customers with much more of their knowledge content incorporated into its production than was previously the case. Thus, for products and services where the lifetime and volume and margin warrant it, individual customers can and should be considered in every aspect of

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the business, including the processes that drive new product and service design. This act recognises that customers are not equal - they want different things in different amounts at different times -and that the profit derived from each will vary.

The key challenge for the marketer is to identify the core strategic value that will be delivered to the customer and the elements that the customer can change, allowing the buyer to be firmly in charge, assembling the value he or she wants. For most organisations, mass customisation requires a material shift in current practice and the marketer can lead the charge

PriceTraditional marketing sets a price for a product and offers that price in the market. The price is set to secure a fair return on the investment the company has made in its more or less static product. With relationship marketing, the product varies according to the preferences and dictates of the customers, with the value varying commensurately. So, when customers specify that a product should have specific features and that certain services should be delivered before, during and after the sale, they naturally want to pay for each component of the value bundle separately. Just as the product and services are set in a process of collaboration, so too will the price need to reflect the choices made and the value created from these choices.Customers want to participate in decisions regarding the value they receive and the prices they pay. Give them a standard offering and they will expect to pay a single price. But offer them options on the product and they will want some more than others, and will pay more for these. Give them a chance to have an even more tailored solution and they might pay more again. Give them options they do not want and they will expect these to be removed and deleted from the price.Relationship marketing, especially in the case of industrial marketing, therefore invites customers into the pricing process and all other value- related processes, giving customers an opportunity to make any trade-offs and to further develop trust in the relationship.

. Marketing communication (or promotion) Traditional marketing uses one-way mass advertising to communicate with customers. This one-way communication, typically employed by marketers with their customers, such as mass advertising,

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Car manufacturers could consider offering customers the following:. To allow customers to specify what type of wheels they prefer.. Instead of telling a customer that a particular car is available only in a certain range of colours, they could allow him/her to choose the colour.. They could consider customising steering wheels to meet the

Rethinking product/service:. Some of the leading banks in the United States are customising their services to meet the particular needs of their clients. For example, the client assists in designing his or her chequebook, credit card and savings account to meet his or her personal needs. Does this ever happen in South Africa?. General Electric makes jet engines capable of meeting Boeing's specifications. General Electric engines for one type of Boeing plane differ from another, partly because Boeing's knowledge and direction is incorporated in the design and

MNM3014 Study Notes

promotional offers, manuals, price lists and warranty response cards, must be replaced with two-way communications to involve the customers much earlier in all matters which affect their future purchase behaviour. Technology can make promotion become communication because technology can engage individual customers when and how they wish to relate. Relationship marketing gives individual customers an opportunity to decide how they wish to communicate with the business. Customers can be served as individuals by using technology appropriately. With technology, individual end-customers can be interactively and uniquely engaged. Using technologies such as the internet, computer- telephony integration (CTI) at call centres, intelligence at point of sale, smart cards, interactive voice response and the use of SMS, companies can give customers a host of options for communicating with the company and have information on hand to engage, inform and direct each customer with complete knowledge as to their preferences.

. Distribution (place)Traditional marketing sees distribution as the channel that takes the product from producer to consumer. For example, in the case of the computer industry, Dell sees distribution as a direct sales approach, primarily using telephone sales and other placement, while IBM uses many approaches to distribution, including its own stores, a direct sales force and retailers that resell the firm's personal computers. Relationship marketing instead considers distribution from the perspective of the customer who decides where, how and when to buy the combination of products and services that comprise the supplier's total offering. Seen this way, distribution is not a channel but a process. The process allows customers to choose where and from whom they will obtain the value they want.

It is thus more accurate to think of distribution as a ``placement'', giving the customers a choice with regard to the location at which they will specify, purchase, receive, install, repair and return individual components of the products and services. While traditional marketing considers a product as a bundled package of benefits, relationship marketing unbundles the product and service and allows the customer to initiate a placement decision for each element. Relationship marketing offers many solutions to the dilemma of traditional marketing. Relationship marketing offers marketers a chance to help the company to grow in a competitively challenging environment. Enabled by new technologies, relationship marketing provides the marketer with the tools needed to serve individuals as they wish to be served throughout their purchasing and consumption lifetimes.Companies that are first to adopt relationship-marketing principles in their industries and to apply the concepts with vigour have the potential to gain a first-mover advantage, difficult for competitors to emulate. Importantly, this means that companies have the potential to gain a pre-emptive position with the best customers and to ensure that the needs of these customers are well addressed long before competitors try to copy and target these same individuals or companies.

2.3 New capabilities for companiesBefore embarking on CRM, a company must know who its customers are, their value, what they buy, where they are allocated and through which channels they want to interact with the company. Management needs to formulate a CRM strategy at all levels, including people, the business process,

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Buying a computer the relationship marketing wayThe customer can choose whether to buy a computer off the shelf from a reseller and take it home immediately, order one that is built to individual preferences at the factory and shipped within a week or so, or have one configured in-store and available within a few days.

MNM3014 Study Notes

the organisational structure and the technical infrastructure. To implement CRM the support of top management is essential

For relationship marketing to be successfully implemented, the following capabilities are required in an organisation:

Support at executive level Processes Excellent customer service Technology to gain customer knowledge and insight Support at the Executive Level

Support at executive levelAn organisation wishing to implement CRM must have support and commitment at executive level. The whole organisation must change. The CEO must take the lead and ensure that the message is broadcasted throughout the organisation- they must understand the real meaning of a relationship before committing the company to CRM and must focus on the value that can be created through relationships with key stakeholders- a value must be shared by the company and the customer.Companies trying to forge relationships with this underling approach to customers will find that customers have no interest in long-term bonding with such suppliers. The opportunity to create continuously new and mutual value over time will go to competitors more amenable to share customers.Managers need to recognise that the relationship with customers needs to be managed. Relationship manager should ensure customers get the value they seek. Each person in a company communicates and creates value with his/her customer counterpart – the relationship manger guides this process. In this process it is necessary to integrate all communications with the customers with the aid of technology.

A CEO should consider some of the following actions to create , first of all, a customer –centric approach in the company:

Convince senior management of the need to become customer focused. CEO personally exemplifies strong customer commitment and rewards those in the company that do likewise.

Obtain outside help and guidance. Consulting firms have the experience to help companies move towards a customer orientation

Develop string in-house marketing training programmes for corporate management, divisional managers, marketing and sales personnel, manufacturing personnel and other similar to those run by successful companies such as Motorola and Accenture.

Establish an annual marketing excellence recognition programme. Reward the winning tem at a special ceremony

Shift from department focus to a process-outcome focus. This means appointing process leaders and cross-disciplinary teams to re-engineer the process around the customer and implementing these processes

Empower employees. Progressive CEO’s empower their employees to settle customer complaints and other problems in order to retain the customers business. IBM for example, let its frontline employees spend up to $5000 to solve a customer’s problem on the spot.

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MNM3014 Study Notes

ProcessesProcess management involves all the procedures, tasks, schedules, mechanisms, activities and routines by which a product or service is delivered to customers. In traditional functional approach, all business functions operated as silos- i.e. they restricted processes strictly to functional areas, with no interaction with or dependency on other functions of the organisation. A company wishing to implement CRM needs to manage and link all work processes. High performance companies focus on the need to manage core business processes such as new product development, customer attraction and retention and order fulfilment. They re-engineer work flows and building cross-functional teams responsible for each process. Processes should be engineered around the customer – requires changes to existing process- every process should integrate with the customer – silos are eliminated.Management should focus on building customers into the main processes and customers should collaborate with management in all processes that are geared to create value e.g. communications processes may currently be developed to broadcast a market segment, when interactive or narrowcast communications may be used instead. When the company is focused on creating value for its existing customers, bring new customers n board has less merit than having the relationship managed in an integrated way by tying together the various processes, people and technologies to which the customer can relate.

Excellent customer serviceExcellent customer service is an integral part of CRM – it can only be achieved by training ALL employees e.g. the accounts department, the receptionist, the switch board operator, salesperson etc including back office staff who have no direct contact with the customer.Employees must understand their job satisfaction rests on the success of the organisation. Employees must be supported by technologies and processes to make them more effective. in CRM , the people in the front line should have the ability to communicate with customers in a way that recognises them, remembers their contact history, understands current customer issues, predicts anticipated behaviour and suggests appropriate responses or solutions. The interaction between employees and customers is referred to as the service encounter- this is the actual service the customer receives either face-to-face, telephone, e-mail etc. Providers service systems should be user friendly – unfriendly systems scare customers away (e.g. ATM’s and internet banking) e.g. clients calling for information on a new product should be met someone with appropriate information.

Technology to gain customer knowledge and insightOnce customer-centricity has been established in an organisation, technology enables it to acquire knowledge about customers, establish a database and gain insight into this knowledge through data mining. CRM is technology driven, but technology is an enabler and facilitator- the organisation use it to serve customers as individuals but technology cannot solve the problems a business may have.

The following should be achieved before a CRM system is acquired: First establish customer-centricity Develop a database Use data mining to predict

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MNM3014 Study Notes

Acquire a suitable CRM system First establish customer-centricity

Before deploying CRM technology an organisation must first include customer-centricity as part of its vision and mission- customer-centricity requires focus on the primacy of customers, whereas previous focus may have been on marketing strategies designed to promote the sales of specific products

Develop a databaseOnce customer primacy has been established, the task of how to weave the various databases required to support this primacy into a comprehensive whole, and then to manage it, comes to the fore. CRM systems must integrate knowledge about key customers into valuable business intelligence – this intelligence is key for a valuable CRM strategy. Companies capture information every time a customer comes into contact with its departments – customer purchase, customer requested service call, online query etc. This data is collected and organised in a data warehouse. Company can capture, analyse and query the data – inferences can be drawn about customer need s and responses- gives a unifies view of the customer – any employee can access information pertinent to the client

Use data mining to predictThrough data mining, marketing statisticians can extract useful info about individuals, trends and segments from the mass of data. Data mining involves the use of sophisticated statistical techniques such as cluster analysis and predictive modelling in order to:

Indentify prospects Decide which customers should receive a particular offer Deepen customer purchases and Avoid serious customer mistakes

Acquire a suitable CRM systemRequires a large investment, integrating multiple customer interaction channels with customer operations, existing enterprise applications and external business suppliers can be complex, time consuming and expensive. A CRM solution must support all channels of customer interaction and connect easily with all of a company’s front and back office enterprise applications, and with its other business functions, as well as those of its external suppliers and business partners.Companies must create a central repositories of customer data from which the can extract knowledge about their clients and translate it into appropriate action. Companies need to integrate customer information and business intelligence across every point of customer interaction and across every business function.CRM software involves every business process both inside and outside a business, it aligns business process for customer-centricity, increases corporate revenues and profit and brings considerable competitive advantage.One of the main difficulties companies experience with their customer database is that employees in the company find it difficult to become customer orientated and use the available info, and thus difficult to practice CRM. With properly developed CRM strategy – a CRM trained sales person pitching for new business with an existing client will be aware of any service problems the customer has encountered can appear to have taken ownership of the solution. By

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linking together data related to back office functions, such as accounts, with the front office, organisations can track products through the delivery cycle, providing customers with up-to-date info about their ability to fulfil orders. To have the required customer knowledge, an organisation needs technology that captures, stores and processes data needed to derive customer knowledge and an architecture of the technology that places customer data at its strategic heart. Companies should focus on gaining customer knowledge and insight, then use it to deepen and extend customer relationships

Technology in CRM CRM is strategic initiative, not an IT initiative. It is a strategy that requires fundamental

changes within an organisation: the organisation needs to become customer centric, business processes need to change and a solution needs to be defined that will support all these changes

Technology is only as good as those people who operate the systems. 95% of technological systems show no return, and in fact use up resources, simply because the people operating those systems have not been trained to optimise their benefits

CRM is not about having a fancy database, but about how knowledge is used to optimise a business and ensure long term client relations to the benefit of all stakeholders

MNM3014 SUMMARY: STUDY UNIT 3: BUILDING CUSTOMER RELATIONSHIPS

2.1 Introduction Customer relationship management focuses on building up a learning customer relationship, developing a base of loyal customers and at the same time increasing profitability. The Focus – forward thinking organizations realize the importance of knowing knowing customers and understanding their lifetime value. Goods and services are no longer sufficient to differentiate organizations. Rather, customers are increasingly making purchase decisions based on a perception of their relationship with a particular organization.

2.2 The Learning Relationship To improve a customer relationship, the marketer needs to acquire knowledge about the

customer and be able to develop insight into this knowledge and also to interact regularly with the customer to acquire new information

2.2.1 Learning Relationships Are Built On KnowledgeA learning relationship between a customer and an organization gets smarter and smarter with every individual interaction, defining in ever more detail the customers own individual needs and tastes. The more customers teach Company C - the better it becomes at providing exactly what they want and the more difficult it will be for a competitor to entice them away.

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Even if a competitor were to build exactly the same capabilities, a customer already involved in a learning relationship with Company C would have to spend an excessive amount of time and energy teaching the competitor what Company C already knows. Thus, a powerful competitive advantage has been created by Company C.For example: Every time a customer orders her groceries by calling up last weeks list and updating it , she is in effect ‘teaching’ the grocery shopping delivery service more about the products she buys and the rate at which she consumes them. The shopping service will develop a knowledge of this particular customer that is virtually impossible for a competitive shopping service to duplicate, providing a secure lock on the customers loyalty. In order to have knowledge of customers, as well as insight into this knowledge, it is, necessary to obtain information. This info is then used to create a database for the customer which becomes the foundation for subsequent CRM activities.Technology enables companies to gather and store info about every individual customer in a sophisticated customer databaseThus companies that focus on gaining customer knowledge and developing insight into this knowledge,can deepen and extend customer relationships.

For example-The database of a supermarket should ideally contain the following information: Transactions : a complete history og the purchases made by the customer, including the

purchase date, the price paid and whether or not the merchandise was purchased in response to a special promotion or marketing activity.

Customer Contacts : a record of the interactions that the customer has had with the store, including visits to the website and enquiries made by telephone, plus info initiated by the retailer, such as direct mail sent to the customer.

Customer Preferences : what the customer likes, such as favourite colours, brands, fabrics as well as clothes sizes.

Descriptive Information : Demographic data ( age, income, etc.) and psychographic data ( lifestyle,social class,etc.) describing the customer that can be used to develop market segments.

Responses to Marketing Activities : The analysis of the transaction and contat data provides information about the customers responsiveness to marketing activities.

2.2.2 Customer Interaction Enhances Relationships Interacting with a customer to learn how satisfied the customer is, or whether the customer has an unspoken complaint, is really just another way of obtaining information about that customer’s needs. What the organization wants to know is how to make the service better for that customer at the next opportunity. If a company can find out how to treat a specific customer better the next time it has dealings with them, it can begin to lock that customer into a learning relationship with it. If , every time a customer deals with you, it is more satisfying for that customer than it was the previous time, you are creating a learning relationship with the customer, and, after just a few interactions, the customer will become VERY LOYAL.However this type of interaction SHOULD NOT be used in excess, otherwise the customer will begin to resist interacting at all.One good principle is to check on a customer’s satisfaction whenever anything out of the ordinary has occurred in the relationship (eg) a large purchase such as a car,etc.

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Here are some rules of engagement that should be kept in mind when interacting with customers.

Rules of engagement when interacting with customers Do not initiate an interaction with a customer without a clear objective Do not ask a customer the same thing more than once Interact in the medium of the customer’s choice When engaging in an interaction, start with the customer, not the product Make the interaction personal and personalized Ensure that your interactions with the customers are always welcomed Protect the customer’s privacy Invite dialogue by printing toll-free numbers and website URL’s on everything Ensure that the customer can see the value of each interaction Be sensitive to the customer’s time, do not try to learn everything about a customer all at

once.

2.3 Unrealistic RelationshipsIt isn’t possible for all types of businesses to apply learning relationships, because there are no powerful benefits to be gained from some relationships. Some customers may not be suitable for the investment needed in developing a relationship, as it may prove to be too costly.

Appropriate RelationshipsCompanies such as home builders, real estate brokers and appliance manufacturers’- which donot interact frequently with end users of their products- cannot learn enough to make a learning relationship with those customers work. Nut they might find it beneficial to develop such relationships with general contractors.

Unrealistic customer scenarios includeWhere there is no reason why, or little likelihood that, a buyer will purchase again from a supplier. A buyer who is unlikely ever to patronize a supplier, will see no benefit fro establishing a relationship and may also be annoyed by the tactics associated with it, such as data capture;Where buyers want to avoid a relationship, as it may lead to a dependency on a seller. This situation may exist when any benefits associated with the relationship are outweighed by lost opportunities elsewhere;Where buying processed are formalized in a way that prevents either party developing relationships based on social bonds. Formalized buying situations may be compromised and jeopardized by too close an association between buyer and seller, and;Where the costs associated with a relationship put the buyer at a cost disadvantage in a price-sensitive market. It may be more profitable for buyers in certain markets to keep their eyes open for the best deal available, rather than narrow the field and commit themselves to one supplier. Indeed, they may well prefer to play suppliers off against one another using the organization’s potential insecurity to gain added value.

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MNM3014 Study Notes

Assessment Question:1. Demonstrate the ways in which a learning relationship can be enhanced?2. Explain to a grocery store the limitations of implementing relationship marketing and highlight

the areas where relationship marketing could be implemented.?

Study Unit 4-Ingredientsof a Relationship

Overview of Study Unit:4.1)Essential ingredients of a relationship4.2)Relationship loyalty4.3)Financial benefits of relationships4.4)Stages of relationship development

4.1) Essential ingredients of a relationship:

Ingredients of a relationship

Trust & Commitment Shared Goals & Mutual BenefitsAny interaction that lacks these two elements do not develop into relationships

Effects on a relationship that could be useful to the seller of the product & service. People with shared goal help each other, resulting in mutual benefits

Commitment-Trust Theory:Relationships exist through the retention of Trust & Commitment

Trust: (Definition)Willingness to rely on an exchange partner in whom one has confidence

Commitment: (Definition)Enduring desire to maintain a valued relationship

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*NB: The purpose of retaining customers is to create loyalty.

4.2)Relationship loyalty

Aspects of Relationship Loyalty: (4 Aspects)

Customer loyalty:Customers are committed to a specific organization.

Customer Retention:Result of satisfied customers. Long-term effect on profits. Focus should be on existing customers & not only new business.

Customer Migration:

Focus on customer migration. Upward migration-means customers spend more. Downward migration-means customers spend less.

Customer Lifetime Value:(CLV)Value of customers over their purchasing lifetimes.ORThe present value of the stream of future profits expected over the customer’s lifetime purchases.

Strategic value: the additional value a customer could yield if you had a strategy to get it.

CLV of a Supermarket customer Customers expenditure per week R 800Thus she spends R 3,200She spends per year R 38,400Remains loyal for 20 years x 20Lifetime value R 768,000

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The Customer PyramidFig-2.1

Platinum

25% CLV. Most loyal customers. Not concerned with price/place but more on customer service.

Gold

25% lower CLV. Price sensitive. Not as loyal as Platinum customers.

Iron

Do not deserve special attention due to their modest CLV

Lead

Lowest segment and often demand much attention but do not buy much. Cost the organization money

4.3) Financial Benefits of relationshipsA common assumption is that an improvement in customer perceived quality will increase customer satisfaction, loyalty and profitability. The following customer relationship lifecycles with virtuous circles or profit chains have been suggested:

Good internal quality-------Satisfied employees-------Employees stay-------Good external quality-------Satisfied customers-------Customers stay-------High profitability

Customer satisfaction is a good predictor of future profits; however, it is not enough to ascertain that 73% or even 94% of the customers are satisfied. Volvo, who started a long-term comprehensive relationship marketing programme, had previously considered satisfied customers to be loyal.There was considerable leakage though. In the Volvo relationship marketing programme the next step has been taken actively to provide incentives for satisfied customers to remain loyal. We can also say that there is a sizeable difference in retention rate between those customers who are just satisfied, and those who are very satisfied. In a study it was shown that very satisfied customers who said they would remain loyal in the future were 78%, while only 21% of satisfied customers said they would remain.It was also revealed that the strength of the relationship was important to the customers. The higher the relationship strength and the customer's feeling of loyalty toward the supplier, the fewer the perceived alternatives.

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A long and beneficial relationship may lead to increased concentration for the purchases from a single supplier and the share of customers goes up. The length and strength of the relationship also affects the types of inter- action that result from the relationships, which in turn determines costs.Finally, relationship revenue minus relationship cost establishes the customer relationship profitability or ROR.The following questions now arise: How much should be spent on retaining existing customers and increasing the duration of the relationship, and how much should be spent on getting new customers? A study conducted in theUK showed that 80% of the managers of service organisations felt they spent excessive resources on attracting new customers, and 10% that existing customers occupied too much of their resources.Only10% were happy with the balance between resources spent on new and existing customers.

Return On Relationships(ROR), the following should be kept in mind:*Satisfied customers are not enough*High customer-perceived quality is not enough*The difference between “very satisfied” and “satisfied” should be investigated*Dissatisfied customers do not necessarily defect*Customers have to be constantly encouraged to remain*Satisfied customers are not necessarily profitable*Satisfied customers may just be ”happy slaves” who currently think there is no other option

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4.4) Stages of Relationship Development

Customer relationships evolve over a period of time.At each level the customer bonds closely with the organization.

Figure 2.2-The Relationship Marketing Ladder of Loyalty

Partner

A person who has the relationship of a partner with you within the organization.

Advocate

A person who actively recommends you to others-does your marketing for you.Also good complainers.

Supporter

A person who likes your organization, but only supports you passively.Longer term buyers.

Client

A person who has done business with you on a repeat basis but may be negative or at best neutral towards your organization

PurchaserA person that has done business just once with your organization

Prospect

A person whom you believe may be persuaded to do business with you.Changers from a prospect into a purchaser.

*NB: You should be able to apply the relationship marketing ladder of loyalty to any business by indicating what can be done by the organization at each stage.Assessment questionsINGREDIENTS OF A RELATIONSHIP

1. Explain to a company the important aspects of developing relationship loyalty.2. Comment on the suggested financial benefits of relationships.3. How should a firm of attorneys use the stages of relationship development to attract &

keep more clients?

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Study unit 5: Dimensions of Customer Service

Introduction

In SA poor customer service is particularly practiced in the food and retail industry.Most customers return to the stores and restaurants that provided bad service because of value for money and convenience.High quality customer service is the key to improving relationships with customers.Enhanced relationship with one’s customer can lead to greater customer retention, customer loyalty and most importantly, profitability.Customer satisfactions is hard to win but easy to lose. If customers are not satisfied, they will simply move to other companies.

5.1 The nature of Customer Service

Customer service ties in with the marketing concept. An organisation wishing to improve its customer service should focus on customer value, quality, customer service and customer satisfaction. When you study this section in the prescribed book, note the following:

. Customer value implies that the higher the perceived benefit and/or the lower the price of a product or service, the higher the customer value and the greater the chance that the customer will choose and keep on choosing (ie becoming loyal) the product or service in future.

. Quality is the ability of the organisation to meet or exceed customer expectations. . In terms of CRM, everybody in the organisation is expected to offer excellent customer

service -from the frontline personnel to the back office personnel. Thus it is not just the person who comes into contact with the customer, such as the salesperson, who should render good service.

. Customer satisfaction is necessary before a customer will become loyal to a product or a company - thus resulting in a long-term relationship.

What is Customer Service?

It is the provision of service to customers before, during and after a purchase.Customer service is any back up service that the company provides to customers to maintain their loyalty and secure a sale.Service and customer service are becoming more important to consumers and organizations as they impact on the way in which relationships are built. Let us consider the following arguments:

*Changing customer expectations*The increased importance of customer service*The need for a relationship strategy

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Customer Service in building relationshipsTrying to get new customers by taking them away from the competitor is usually more costly than retaining current customers by really satisfying their needs.Customer satisfaction is the customer’s feeling that a product has met or exceed his/her expectations.Customer Value is the ratio of benefits to the sacrifice (by customer) necessary to obtain those benefits.

5.2 Customer Expectations

Customer expectations are what a customer expects from an organization and its product and services.

In order to understand customer expectations of service, it is necessary to understand the following factors:

*Service expected vs service received*Types of customer expectation*The zone of tolerance *Factors influencing service expectations

NB: see figure 3.1 (textbook)

5.3 Service Quality

Def: Service quality can be defined as the ability of an organization to determine customer expectations correctly and to deliver the service at a quality level that will atleast equal these customer expectations.

Evaluating Service Quality

One way of evaluating service quality is by considering two factors: the technical quality of the outcome of service delivery the functional quality of the service delivery process

Dimensions used for Evaluating Service Quality (See table 3.1 T/B) Reliability Responsiveness Assurance Empathy Tangibles

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5.4 Quality service and customer loyalty

Reasons why customer service fails

*the market is not properly segmented*the customer database is incomplete or non-existent *the organization is managed by a push strategy instead of a pull strategy *all blame is shifted downwards to front line employees *misunderstanding below the line of visibility*the focus is on attracting new customers as opposed to retention of existing customers*dehumanizing customers in that the customer is a faceless number

The extent of the customer’s satisfaction with a product or service will determine its success in the market

STUDY UNIT 6: THE PROCESS OF CUSTOMER SERVICE

6.1 MEASURING CUSTOMER SATISFACTIONSince customer satisfaction is the objective of most successful companies the service quality needs to be measured by how well they in fact satisfy their customers.

I. Benefits of Customer Satisfaction Customer feedback

o Such surveys provide a formal means of customer feedback to the organization, which may identify existing potential problems

Show that company cares o Convey the message to the customers that organization cares about their well being

and values customer input concerning its operations Evaluating employee performance

o Satisfaction results are often utilized in evaluating employee performance for merit and compensation reviews and for sales management purposes, such as the development of sales training programmes

Comparison purposeso Survey results help a company to identify its own strengths and weakness, where it

stands in comparison to its competitors Focus on customer needs

o Major advantage of customer satisfaction measurement is that it helps to secure an increase focus on customer needs and to stimulate the work practices and processes used within the company.

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II. Problems in Measuring Customer Satisfactiono There are limits to interpreting any measure of customer satisfaction because of the

following: Level of aspiration

o Satisfaction depends on and is relative to customer’s level of aspiration or expectation.

o Less prosperous customers begin to expect more as they see the higher living standards of others

Changes in level of aspiration o Aspiration levels tend to rise with repeated success and fall with failureo Products considered satisfactory one day may not be satisfactory the next day or

vice versa Personal concept

o Customer satisfaction is a highly personal concept and looking at the average satisfaction of a whole society does not provide a picture for evaluating effectiveness

III. Ways of Measuring Customer Satisfaction

After-sales Surveys o After-sales surveys attempt to contact every customer and allow the company to

take corrective action if the customer is less than satisfied with his/her purchase decision.

o It is mostly used in several motorcar dealers. Mystery Shopping

o It is a form of non-customer research that measures individual employee service behavior.

o Mystery shoppers are general trained personnel who pose as customer s and who shop unannounced at the business,

o They evaluate employees on a number characteristics such as time it takes for employees to acknowledge the customer, eye contact appearance and other specific customer service factors.

o Results obtained from mystery shopping are used as constructive employee feedback

Customer satisfaction index (CSI)o Is based on regular interview with many customers o It makes it possible to track changes in customer satisfaction measures over time

and even allows comparison among companies,o The questionnaire must be clear and easy to complete in order to ensure a higher

response rate,o Questions asked of respondents vary and data can be collected by personal

interview of self-administered questionnaires.

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o Respondents should be asked to give weighting factor ( on a scale of 1 to 5 or 1 to 10) for each requirement; each parameter towards overall customer satisfactory makes it easy for organization prioritise their action plans by comparing the performance rating (scores) with importance rating

SERVQUALo This instrument for measuring service quality is based on the differences between

the perceptions and expectations of customers regarding the various dimensions of service quality, namely tangibles, responsiveness, reliability, empathy and assurance

o Statements are formulated and based on these statements the respondent is able to indicate both the expectation and perception that they have of the specific dimension

o The difference between the perception and expectations indicate the existence of a gap

o But how does measuring service quality affect relationship?Measuring service quality indicates whether a gap exists between customer’s expectation and his/her perceptionsIf customer does not perceive that he is receiving a quality service from the organization, he will not want to build a relationship with the organizationSERVQUAL indicate what type of actions management need to take improves the quality and thus overall relationship with customer.

6.3 MOMENTS OF TRUTH Was coined by Jan Carlzon, the President of Scandinavian Airline System He used the phrase to rally the employees of SAS at a time when the airline industry was a

dire economic straits He convinced them that every contact between customer and employees of airline

constituted a moment of truth. The ‘moment of truth’ concept literally means that now is the time and the place when and

where the organization has the opportunity to demonstrate the quality of its service to customers

The moment of truth is not only the actual service that the customer receives face to face, but could also; include contact by telephone or by post.

Moment of truth is not itself positive or negative. It is how the service encounter is managed that will bring the moment of truth into a positive or negative experience for the customer

It does not necessary have to include human contact The customer experiences a moment of truth when he/she drives into parking lot. Are there

sufficient parking space? Are the grounds clean and attractive? is the entrance of your business easy to find? Are the signs placed logistically, are they easy to read? All these potential moments of the truth and they happen even before you have a chance to perfume to your customer.

The major contributing factor to the moment of truth and the impression formed is the customer’s interaction with front-line employees, in other worlds, those who deal with or have personal contact with the customers on day to day basis these include petrol attended, receptionist, switchboard operator and parts salesperson.

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1. Types of Service Encounters Remote encounter

o Occurs when there is no human contact eg (ATMs) automated teller machines or direct mail methods

o The tangible evidence of service and the quality of the process itself(the process dimension of service quality)because the basis for judging the quality of the service

Telephone or cellphone encountero Is the most frequent type of encounter with end customers o Important criteria for judging this encounter include tone of voice an employee’s

knowledge and his/her effectiveness in handling customer issueso Popularity of all centres has emphasized the importance of this type of encounter

for many companies Direct contact (face to face)

o This is a complex way of trying to establish service quality because both verbal and non-verbal behavior needs to be considered.

2. Ingredients of Moments of Truth Service context

o Can be described as the collective way of trying to establish service quality because both verbal and psychological elements that happen during the moment of truth

Frame of reference o Both the customer and service employee approach the moment of truth encounter from

the individual’s frame of the reference, which then totally dominates their thinking processes, attitudes and behavior

o Some of the inputs that create the frame of reference maybe automatic eg both people speak English and both represent social norms and customs with which they are mutually familiar

o Note that frames of reference can change in an instant , As the customer perceives that a need is being met or not being met the frames of reference filter changes

Among the many possible inputs that help create the customer’s frame of reference are:

Past experience with the business or similar Beliefs about business Expectations formed by previous experiences Attitudes, beliefs, ethics norms and values that have formed during the customer’s

life time Recommendations of warning from other customers

Among those inputs that help create the service employee’s frame of reference are

What the company has told employee what to do

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Rules and regulations set for service employees and customers Expectations of customer behavior used on past experience Attitudes beliefs and values formed during the employee’s lifetime and Tools and resources or lack of thereof, used to deliver the service or product

Congruenceo Key concepts of the moment of truth is to need for congruence ie. A working

compatibility among the three factors of context, the customer’s frame of reference

o If the inputs to the customer’s frame of reference and that of the service employee differ greatly from each other, then the moment of truth could adversely affected

o There must be some alignment of the moment of truth to the positive for the company on the consistent basis and both must be congruent with the service context

o When there is lack of congruence, the probability of satisfactory result is reduced

3. Cycle of Serviceo Moments of truths do not happen in a haphazard wayo Once the logical sequence of the moments of truths has to be determined then the cycle

of service has been createdo A cycle of service is map of the moments of truths as they are experienced by customerso The cycle of service is activated every time a customer comes into contact with the

business o The value of mapping cycles of service of various departments in a organization is that

one is able to look through the customer’s perspective o Is best done by manager or supervisor and the employee who are directly involved in

delivering service for that particular cycleo It is important to separate moments of truth from the critical moments of trutho The cycle of service is therefore the chain of events made up of particular moments of

truths or encounters that customers go through as they experience a service o Customers, in their exposure to the cycle, are usually concerned about their needs and

expectations o The company on the other hand is often more concerned with the systems that are in

place to handle any customer interaction o Managing the moments of truth implies establishing the customer’s expectations at

each critical moment of truth and then deciding on how to ensure that service is delivered to meet expectations

o Aspects that need to be considered at each encounter include skills, competencies, attitudes, time, knowledge, equipment, decision making capability and authority

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Sources of Satisfaction/ Dissatisfaction in the Moment of Truth Recovery

o The way the employee responds to the customer in terms of the content and form , leads to a favorable or unfavorable memory of the incident for the customer

Adaptabilityo Customer often perceive that something special is being done for them based on their

needs, or they are frustrated by unwillingness of the company to adopt to accommodate their need s

Spontaneityo The third factor encompasses pleasant surprises for the customer. Such as special

attention to something being done that was not requested o Unsatisfactory incidents often include negative or rude behavior

Coping o Revolves around the customer being uncooperative, where the service provided could

do nothing not would satisfy the customer or lead to him/her being pleased about the encounter

Servicescapeso Is the actual physical facility where the service is performed, delivered and consumed o Elements of the servicescape that affect service include both exterior and interior o Not all factors are controlled by the company eg. Parking at a mall, if a customer

struggles to find parking outside the shop, this will still fall under the overall service cycle.

Roles played by the Servicescape

Package the aftero The first is to package the offero This is often external image. Of what the customer can expect inside and is a moment of

truth of the customer, especially for newly established organization trying to building a specific range

o This can be extended to the actual dress of the staff and other aspects related to outward appearance

Aid in socializationo The servicescape design can also aid in socialization, in that both customer and

employees can better understand their expected roles, behaviours and relationships

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MNM3014 Study Notes

o The design can also help to establish, customers and staff exactly what type of interactions are encouraged

o Many stores now provide coffee shops within the store to encourage social interaction and further improve the experience

o Staff member encouraged to roam the aisles and socialize with the customers and provide information as needed

Differentiation o The last role that the servicescape can fulfill is differentiation of the company from

competitors o Change in servicescape can be used to reposition a company or even attract new market

segments. For example by adding a gourmet section with detailed information and wider range of product choices, a food retailer could expand its target market and attract new customers

Poor Service o Most customers are appreciate when they know a company is making a real effort to

make things right. The slipping of standards with respect to little aspects can be a death blow to customers’ perceptions of service quality

Apathy o Is an indication of an employee who has lost interest in customers and when service

employees stop caring, they should be replaced.o The worst form of apathy is when service employees convince customers that they really

do not care about the customer’s problems Brushing customers off

o This is when service employees try to dispose of customers, usually because they have something else to do, especially close to lunch

Coolness towards customerso Here the service employees is overly formal, unsmiling and officious o The service context in this situation is perceived by customer as cold and uncaring

Treating customers with condescensiono This is shown when service employees talk down to customers, use words that cannot

understand, or shout at customers who cannot speak a certain language well. Robot Syndrome

o This occurs when service employees become so used to a routine that they do everything in the same way, day after day

o Many times, service employees do not even realize that customers are there, do not acknowledge their presence and often speak to the social class of the customer rather than directly to customers

Following the rules o This occurs when rules and procedures of a company are created more for the

organization’s convenience than for convenience of customerso In terms of CRM, the rules must be designed from the customer’s pont of view

The customer turnaround o This is a way of disposing of customers by directing them to another department in the

organization o By ensuring that service system that is customer focused exists in your organization, the

common example of bad service can be minimized

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6.3 KEY SUCCESS FACTORS OF SERVICE MANAGEMENT The Customer

o All processes in our organization revolve around the customer o Service management is based on a customercentred organization that makes the customer’s

needs and expectations the central focus of the businesso The underlying principle to keep to mind is that the customer always come first

The service strategyo The service strategy directs the attention of the people in the organization toward the real

priorities of the customero It has two parts, the official corporate commitment to service and the service to customers

The people o Effective frontline employees are able to maintain this focus of attention by being aware of

the need to provide the service in such a way that customers perceive it as being superioro This marks customers want to tall others about the service and come back for more

The systems o All employees in an organization must work within the systems that organize the running of

businesso These systems must be designed for the convenience of the organization o The physical facilities, policies, procedures, methods of communication and processes must

all be geared to meet the customer’s needs

Encouraging employees to recognize the Cash Value of each customero The CLV is based on the combination of factors eg the customer purchased a large amount

(volume) once (frequent) two years ago (ecency), CLV will be low since both frequency and recency are law

o Other factors that should be taken into account :1) The period of time over which CLV should be measured2) The interest rate to be used to determine the present value of customer3) All costs related the customer that should be taken into account eg cost of

merchandise sold, service provided and maintained

6.4 ELEMENTS OF GREAT SERVICE

Steps to remarkable customer service1. Fix everything two ways

o When a customer has complaint, it cannot be ignored o Solution to the customer’s immediate problem should be resolved, the second way to fix

the problem is to try to ensure that the same mistake doesn’t happen twice, therefore the root of the problem must be identified and solve d throughout the business

2. Think laterally to avoid customer offence

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o Sometimes a problem can be quite easily solved by the customer him/herself especially in the case where a customer has phoned into a help desk

o However, if the problem is simple to solve, the customer might take offence at your suggestion eg suggestion that an electrical appliance is not plugged in. Try to think laterally to solve the problem without attending the customer eg suggest that the customer blows the dust of the plug, thereby ensuring that customer checks that the appliance is plugged in, without insulting his /her intelligence

3. Make customers into fanso People make mistakes, and it is most impossible to provide perfect service every time,

first time round, however, complete recovery from service failure can sometimes leave a much bigger impact on customer satisfaction and positive WOM than good service the first time around

4. Service employees must seem eager to solve problemso Customers should not have to search for the salesperson, salesperson need to be

available to the client, and must be seen to be keen to solve problem 5. Take the blame

o Most customers just want someone to take responsibility for the inconvenience caused by the service failure

o Irate customers are often a result of service failure followed by blame shifting or further service

o When service employee takes the blame (even when it is not directly hi/her fault) it has an emotionally calming effect on customers

6. Memorise useful phraseso The following are good example “I am sorry”, “ Can I offer the following to make upfor

your loss”, “Please tell me everything that happened so that I can ensure it never happens again”

o These phrases may not be easy to say, but perhaps when faced with the prospect of a happy customer in comparison to an angry customer, the happy customer in comparison to an angry customer, the happy customer does seem a better choice

7. Practice puppetryo Often the customer does not come into contact with person responsible for the service

failure, but the customer sees the company as a whole and for this reason will take out his/her frustration on the nearest representative of the company

o One approach is to have the service employee visualize him/herself as a puppet master in puppet show

o As the puppet master, she/she needs to try to discover what would be the best thing for the puppet to say in order to appease or please the customer

8. Go the extra mileo It may just be small gesture, but it can mean the difference between good and exception

service and lead to very positive WOM o For the example it will value a customer’s time, realizing that not only money is keeping

customer away from place he/she would rather be eg at home with his family9. Honour ceremonial expectations

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o The service promised should be delivered, because even if the other service offered by the company is exceptional, if the service provider fails to offer what is promised, the customer may still be disappointed

10. Greet will get you nowhereo The responsibility should not fall on the shoulders of service employees, the company

needs to put certain process into place to help the service employee, even if they cost, the company money

o For example, having a ‘ no question asked” return policy helps the service employee provide something of value to the customer and with such a policy, the customer loses the feeling of helplessness, making the like hood of an Irate customer very slim, and finally leading to more positive WOM

Provide a performance guaranteeo A guarantee removes much of risk from purchasing a new product or a product that a

customer has purchased before but which has failedo There are a number of situations in which providing a guarantee can different a company

from its a company from its competitors when you have a new product, new product is complex or technical, when the product is not sold face to face, after service failure and when the risk of loss is high

Give customer service people a career patho By providing customer service people with a career path, the benefits to accompany will be

two fold1) The company will be able to attract the best candidate for the job2) The company will benefit from a lower staff turnover.

The career path needs to have value to service, the company example after two years in customer service, the company could after to further their studies and promise them management positions after certain targets are met

Make sure something’s in it for the employeeso Good service employees understand that building a long-term relationship with a client will

benefit them because they know if the client comes back into store, they will likely be there again and will have lead with that client

Customer service process modelo Manufacturing industries put a lot of effort into in-depth design of process models, however,

most practioners in the service industry do not give this match thoughto Implementing process model is another way by which service orientation and an interest in

customers are the most important norms within the organization

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MNM3014 Study Notes

Requirements of service cultureThere are four requirements for achieving a service culture, and the organization must manage these:Requirement 01

o A service strategy must be developed o This strategy must be clearly stated and must address the strategic aspects of serviceo The mission statement must include a service vision, establishing the scope and direction of

the company in terms of service deliveryo The service concepts, therefore will have to clearly spelled out what will be done, for whom

and how, as well as the benefits that are to be offeredo The way of measuring performance also have to reflect the objectives in terms of service

strategy, and should measure not only effectiveness

Requirements 02o All aspects of the organizational structure must reflect the service strategy and processeso What is needed is quick and flexible decision making and cooperation among the different

departments in a company in order to deliver good service consistentlyo The identification of all customers , both external and internal must be the basis of the

structure decisionso The design of operational systems, work flows and routines has to be done with customer’s

needs and expectations in mind and the use of information technology is an opportunity to make the sharing of customer culture a reality

Requirement 03o A service oriented leadership must be establishedo Members of management must support the service initiative in word and deed in order to

maintain a service cultureo It is important that there should be no ambiguity about the service emphasis and the kind of

behavior expected of employeeso It is especially important for the top manager of a company to speak continuously about

service excellence and give strong support to it. The idea is that management must guide the staff as to the correct set of values and attitudes to have through visible leadership and coaching

Requirements 04o The knowledge and attitudes and needed for goods and service must be created though

service training o The more knowledge employees are about the operations, the customer relationship and

expectation that exist, both in terms of the customer and themselves, the more likely they are to understand what is needed and why it is needed

Behavioral CodeService employees need to understand what is expected of them therefore training should be provided so that employees have a clear understanding of what constitutes great service

Only speak well of customers

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MNM3014 Study Notes

o This is not beneficial to providing exceptional customer service rather, employees need to see customers in a positive light so they want to help them instead of having it

Only speak well of competitorso Feuding should be discouraged from the service employees’ point of view, the focus

should be on improving the company not one want to help them instead of having to No temper tantrums

o Employees should be discouraged from phone slamming swearing and generally poor behavior

Speak to managers about issueso When employees have a problem, they need to speak openly and freely with supervisors

ie culture of open communication should be established Teamwork

o Offering assistance when other associates are in need should be encouragedCorporate Commitment

Commitment is worth more than the paper it is written ono ‘The customer is king ‘. This is an excellent slogan, however to have any true value, it

needs to practiced constantly Commitment needs to flow from the top down

o Managers and owners of businesses need to practice what they preach they also need to be continually reminded of the benefits of exceptions service not only to be enterprise but to each service employee as on individual

Commitment to service needs to be properly compensatedo To ensure the above, the benefits promised to service employees should not only be

stated but actually delivered.

Assessment Questions1.Discuss the benefits of customer satisfaction surveys for an organization implementing CRM.2.Explain what is meant by a moment of truth, as well as the various types of service encounter in

which these could take place.3.Explain the implications of servicescapes for a company of your choice.4.Discuss the various sins of service that should never be committed in your service organization.5.Identify and discuss the key success factors of service management.6.What are the requirements for achieving a service culture?

TOPIC 5: STUDY UNIT 7: INTERNAL MARKETING

Perspectives on internal marketing Internal marketing is the relationship that develops between the employees of the

organisation and the organisation itself in order to facilitate the implementation of the Customer Relations Management programme.

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Based on two dimensions/perspectives:

Perspective 1: The employees are a customer and the product of the company is the job which has to be sold to attract quality staff. Employee will evaluate the job in terms of its ability to satisfy his or her needs (financial and personal growth) Assume that a satisfied employee will assist in creating satisfied customers Perspective 2: Employees need to be motivated and encouraged to show initiative in the service provision process.

Staff commitment must be channeled into the issues of problem solving and opportunity seeking within the marketing efforts in order to improve customer service. Employees must be encouraged to show initiative and develop new methods of improving customer care.

Staff must be motivated so that they are willing and able to implement all the strategies of the company by providing performance-based rewards systems, training and other techniques such as linking staff bonuses to the success of retaining profitable customers for the company

Create a relationship between management, employees and all the functions within the organisation through formal contact but also through informal contacts such as social events and get-togethers. The aim of internal marketing efforts is to create an efficient unit, where functions are all focused on achieving a common goal.

Key aspects of internal marketing: no CRM strategy can be successfully implemented without the support of the staff attitudes and motivation of staff have a direct impact on the service offered to

customers organisations seek to have motivated employees who are able to deliver superior levels

of performance staff do not work in isolation but all functions are required to work together to

maximise the benefits of the CRM strategy

2. Importance of internal marketing and its components

• WHY IS INTERNAL MARKETING IMPORTANT? It has an implication on staff turnover and retention level. Satisfied staff are morelikely to

stay in the employment of the company

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It affects the organisation and its performance. The marketing activities will be performed effectively as the employees are being treated in the way they would want customers to be treated. Happy staff = happy customer

Internal marketing also has effect on customers and suppliers. Some customers are more loyal to the employees than to the company & can be taken as the reason why a customer will follow an employee to a new employer.

• THE COMPONENTS OF INTERNAL MARKETING These factors are essential in the implementation of a successful internal marketing programme

EMPLOYEE MOTIVATION AND SATISFACTION- focus on the employees of the organization & the skills that they have- If employees are not motivated it will affect the levels of services offered and will

impact on the satisfaction experienced by the customers

CUSTOMER ORIENTATION AND CUSTOMER SERVICE focus on customer Customer satisfaction is key to maintaining customers & their support of the

organisation

INTER-FUNCTIONAL CO-ORDINATION AND INTEGRATION - no function operates in isolation & the co-operation among all functions is identified. -Every function needs the other to operate efficiently.

MARKETING-LIKE APPROACH TO THE COMPONENTS - use marketing communication and other promotional activities within the

company to inform the employees about the actions and decisions of the organisation regarding marketing activities

IMPLEMENTATION OF SPECIFIC CORPORATE AND FUNCTIONAL STRATEGIE Communication and co-operation are key to CRM strategy. Internal marketing can be used to assist in strategy implementation

• MODEL OF INTERNAL MARKETING

Combine the perspectives of internal marketing with the components to get to the desired outcome of customer satisfaction, which is affected by the human resource issues as well as the marketing activities

Marketing-like approach: the company must treat customers well, but all functions must also coordinate well. This necessitates communication which can also influence employee motivation

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Customer orientation: customer is the focus of all activities in the organisation and this is only possible through the empowerment of staff and the co-operation of the functions in the organization

Service quality: refers to the customers’ overall perception of the inferiority/superiority of the organisation and is influenced by the job satisfaction experienced by the employees

Customer satisfaction: job satisfaction influences service quality and this have a direct effect on customer satisfaction

Inter-functional co-ordination and integration: the marketing-like approach affect the co-operation between the functions and will affect the customer-orientation as effected in the behaviour of the staff

Employee motivation: marketing-like approach affects motivation which will in turn affect job satisfaction and customer orientation of the employee

Empowerment: affects job satisfaction and customer orientation by the employee as well as service quality

Job satisfaction: affected by the marketing-like approach as well as the degree of empowerment that an individual has in the work situation and affects job satisfaction which affects customer service

3. Interfunctional co-ordination and integration In terms of CRM the functions in the company must be co-ordinated and integrated in order attain the goal and mission of the organisation.

The functions include the following:

• FINANCIAL FUNCTION: the financial function is mainly concerned with the costs that are associated with a

CRM programme (cost of new technology and training costs) and how profitability is affected.

wants the following questions answered: What are the costs associated with any CRM strategy? (cost of technology and

training) What are the time costs that will be associated with implementing CRM?

What will the additional income be as a result of the implementation of a CRM strategy by the organisation?(has long term effect rather that short term benefits –money may be invested without a direct return at present moment) o Will a CRM strategy create value for the shareholders share value will be affected as current customers can be made more profitable, and non-profitable customers can be removed from sales portfolio. Use Value-Driver model to determine total market value of company. This value is associated with reduction in cost associated with customer and reduced marketing time and reduced business risk associated with customer.

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• HUMAN RESOURCE MANAGEMENT Internal marketing is also a function of the HRM department. Recruitment, selection, placement and induction remains the task of the HR function Policies must be developed by the HR function that are supportive of the informal

marketing activities, and thus ensuring a corporate climate Decisions are made regarding motivation and the performance reward system

• INFORMATION TECHNOLOGY FUNCTION CRM is technology driven, so the company will need a suitable technology capability.

(hardware and software) Information regarding customers as well as staff is needed Information can be used to segment the staff and determine the nature and quantity

of information that will be given to the various staff concerning the CRM strategy Software programmes must be developed or purchased to suit the needs of the

company

• OPERATIONS MANAGEMENT The function that is responsible for the actual manufacture of the product for sale to

final consumers Info collected must be fed through this function to make the product adaptations as

required by the customers, especially with customization Internal marketing is the link between the quality of the product and the satisfaction of

the customer, thus focusing on Total Quality Management (TQM). TQM has three principles: empowerment of employees, continuous improvement of

quality and use of quality improvement teams and plays an important role in the process of customer satisfaction as illustration in the virtuous cycle of internal marketing P.113

The virtuous cycle: satisfied employees – satisfied customers – higher profits – higher quality, higher productivity – motivated individuals – satisfied employees

• CORPORATE COMMUNICATION/PUBLIC RELATIONS Bringing about changes within the company such as retrenchments may have effect

on the perception of the company and needs to be managed by this function.

• INBOUND LOGISTICS (PURCHASING) Has function of acquiring right product at the right price in the right quantities at the

right time Must build relationships with suppliers which will become more important as CRM

principles are applied that may require different levels of supply or change in the reorder quantities of the various stock items.

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4. Managerial implications of Internal Marketing • the implementation of CRM within the organisation will have a profound effect on the management styles and decisions made

•CRM requires empowerment of employees which will need a specific style of management •Will require changes in the corporate culture, levels of responsibility, requires that

management trust their employees and show this trust (must be mutual trust)

5. Roles of employees in Internal Marketing

CONTRACTORS - employees involved in the traditional marketing activities of the company. Selling and client service positions. Customer- orientated persons who can deal with situations presented to them as it is basis of their remuneration (commission)

MODIFIERS- indirect contact with customer. Not involved in traditional marketing activities. Accounting staff, security personnel, receptionists

INFLUENCERS -Involved with traditional elements of the marketing mix, but no customer contact. Market researchers and product development specialists

ISOLATEDS - Have little or no client contact, and are not involved in marketing activities. Tasks include purchasing, warehousing, information- processing activities.

6. Tools in implementing Internal Marketing

Use the marketing mix to communicate with employees as to the exact nature of the marketing activities, as well as their contribution making sure employees are aware of the marketing activities of the company

Use internal communication techniques to make sure that employees are motivated Give training to make employees familiar with aspects associated with their jobs,

making them more efficient and productive and increasing their motivation.

(Ready only!)

Assessment questions

1.Explain the two perspectives of internal marketing and use the model of internal marketing to indicate these perspectives.

2.Demonstrate the relevance of interfunctional coordination and integration in terms of CRM in an organization.

3.Illustrate the different roles played by employees in internal marketing for a hotel in Kwa-Zulu-Natal.

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Study unit 8 Building Relationships with EmployeesGetting an OverviewThe employees of an organisation are central to building relationships with customers, given the huge link between employee satisfaction and customer satisfaction. Employees may be thought of as individuals in whom new value may be created, thus particular attention should be given to developing and training them and establishing relationships with them. It has been proven that those companies with the best profitability are those that are customer focused and that motivate and reward their employees. It has also been found that the best organisations attract the best people by targeting specific traits that often include passion for their product or service. They focus on keeping their employees for longer, which in turn allows these employees to develop insights about customers and cultivate long-term relationships with them.

Proceeding on the basis of mutual trust, the employee should be prepared to willingly, knowledgeably and happily entrust his or her future to the organisation and the organisation should treat this trust as sacrosanct.One way of fostering trust is to encourage self-managed work teams for key processes, thereby empowering employees to some extent to make decisions. For example, instead of senior software developers defining tasks narrowly so that individuals can write modules that will be integrated and then quality tested, a development team could simply be asked to make customers more competitive in their markets. This team would then identify a process to develop the insight it needs and its responses to this insight..

8.1 The Enhancement of Employee Relationships through Internal MarketingThe employees of a business may be viewed as an internal market and theyForm part of an organisation's stakeholders. In CRM terms we also refer to the employees as internal customers. The objective of internal marketing within relationship marketing is to create relationships between management and employees and between functions. Management has a responsibility to train and motivate employees, but should also persuade these employees to actively support marketing strategies. For this purpose, there should be open and free communication. The most successful companies are those that create channels that allow feedback to flow both upward and downward in the organisation. Employees feel they have a stake in the organisation when they have more of a voice.Internal marketing emerged from services marketing. The purpose of services marketing was to ensure that the frontline personnel ö who - interact with external customers handle the service encounter better and with more independence. It is not only essential that the employees who are in contact with the customers are well informed about their organisation's offering, but also that they understand the business mission, goals, strategies and organisational processes. In addition, it is equally important for support staff to be knowledgeable in these areas in order to be able to handle the internal customer relationships successfully.To a large extent, internal marketing must be interactive. Traditional methods of internal mass marketing, such as the distribution of formal memos and internal magazines, are inadequate. An intranet may help, but social get-togethers are also important. As a kick-off before the sales season, for example, large groups could gather to learn, to be entertained and to mix socially for a day or two.

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8.2 Training and Motivating EmployeesTraining is an important part of building relationships with employees.Look, for example, at the employee training supplied by some of successful companies:

An organisation committed to building relationships with its customers needs to broaden its employees 'scope of knowledge. The type of employee required has a ``broad'' understanding of how everything the company comes together for the customer, that is, lives up to expectations.Employees today therefore need to increase their skills in processes and technologies and have a greater understanding of the customers they serve.

Before starting a learning process, it is important to establish who the target audience is, what its expectations are, what knowledge it needs, what skills it needs and how the learning process can be monitored. The following guidelines for training will help marketers to do things right when planning to build up relationships with employees:

. Identify the relationship marketing skills required from the employees who are to participate in all the processes that deliver customer value.

. Assess the performance of employees in respect of these skills and determine any knowledge gaps by working through an assessment process with employees and communicating effectively in real time, not just in a simple questionnaire or other impersonal manner.

. Develop training programmes and technology support to re-skill and/or deskill processes where employees require additional knowledge or context.

Employees are best motivated to demonstrate service spirit and customer orientation if they are well trained and informed. Motivating and rewarding employees appropriately does not necessarily involve money.

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Training employees . Disneyland has its own university for training employees. . McDonald's has its Hamburger University, which trains

employees and franchisees. . Taco Bell, one of theworld's largest fast-food chains, uses

the Muzak system to communicate with staff in all their restaurants.

. Telkom is planning to open its own university for training staff.

Employees to master more processesA customer calling to enquire about the operation of a new product should be met by someone who has the information. This information will either come from the company employee directly, or indirectly from data warehouses or experts who have the knowledge required.This means that the company employee should be able to engage new processes to access, assess and communicate the information.

MNM3014 Study Notes

Below are some examples of rewards that are softer in nature.

ACTIVITY 8.1What role do employees play in the moments of truth dealt with in study unit 6?

FEEDBACKYou could have mentioned any facet of excellent customer service. For example, if an employee is contacted by the customer (moment of truth) he or she should have an integrated view of the customer. That means that, at the press of a button, the customer's history should be displayed on the computer screen. In this way the customer's query may be answered immediately. What other situations can you mention to illustrate the role employees play in moments of truth

8.3 Employee-Centric database Relationships with customers will, typically, not be enduring or committed until the

relationships with employees deepen. To ensure that new value will be created with employees, the best employees should be identified.

Particular attention should be paid to those who can create the most value for the company. This implies the need for an employee-centric database, which captures the full value of the

employee by describing and seeking to qualify the value each creates for the company in relation to their total cost to the business.

The database facilitates profiling the person, understanding the meaning each seeks, knowing the barriers each faces and the level and nature of bonding with the enterprise, and learning more about the staff member as he or she makes their personal journey.

The suitability of the person to do the job and his or her appropriateness to the customer personality, industry and other typology may be assisted by a human resource information system geared to achieve this. This means populating the human resource information system with data crucial to the individual's development in terms he or she finds relevant, according to the meaning they want.

The human resources information system could become a key organisational capability, matching people to processes and functions, and most importantly, to customers. End-customer relationships often depend on people to go beyond standard policies and procedures to make a difference in problem resolution and the attachment a customer

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Rewards that do not involve money Sprint PCS rewards strong sales performance with rotating assignments to

coveted special projects. Intel augments its stock options, profit-sharing and performance bonuses with

various achievement awards and eight-week paid sabbaticals for employees who spend seven years with the company.

Charles Schwab pays customer teams salaries as well as bonuses-based on customers' service experience and overall asset growth rather than commissions.

MNM3014 Study Notes

experiences to the organisation. The policies in support of the human resources information system may sometimes need to change, for example employees may need to be given access to their files.

Just as the organisation will pay particular attention to the needs of its best customers, so too should it focus on its best employees, and provide mass customised development for each, both in the functional nature of their job and in terms of their intellectual and interpersonal development.

Some of the current employees may not be suitable for relationship marketing and may need to be trained and upgraded, or may have to be referred to companies that remain focused on mass marketing.

Assessment Questions1.Bank X is planning to implement CRM and has asked you to advise it on how to build relationships

with its employees. In a presentation to the CEO, explain the principles involved in building relationships with employees & indicate how Bank X should apply these principles.

Study unit 9: One – one marketingImportant things to look at1 : 1 marketingDef: works on the principle of marketing to and targeting a customer individually.-traditionally, the concept of marketing has revolved around selling as many products to as many customers as possible.-1:1 Marketing seeks to sell to that one specific customer as many products as possible over a period of time and across different product line.

Advantages/ benefits of 1:1 marketing1. The ability to track defections by customers and attempt to find the reason for them2. The ability to know customers better and thus satisfy their needs more adequately.Contrasting 1: 1 marketing and mass marketing

Please know table 5.1 in the textbook page 122

Steps in the 1:1 marketing process

1. Identify individual customers and establish how the can be reached

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-get more information on identified customers e.g., their purchasing behaviour, preferences over a period of time.2. Differentiate customers by their needs and values.-the differentiation will indicate the most suitable and appropriate strategies that can, be used to reach each customer.

3. Interact with customers to establish a dialogue- With out a dialogue no relationship can develop and flourish.-best ways of establishing customer contact should be determined.-using technology such as sms, internet, and websites could help in this regard.4. Customise the organisation’s products-make sure that the customer’s needs are met by providing the products that can meet these needs.5. Make the relationship a continuous learning relationship.- organisation should create an ongoing learning relationship since relationships are not static, and as such require continual inputs from both parties if they are regarded as mutually beneficial.

Mass customisationDef : the process of providing and supporting profitability individually tailored goods and services, according to each customer’s preferences with regard to form, time, place and price.Def 2: the use of flexible processes and organisational structures to produce varied and often customised products and services at the low cost of a standardised, mass production system.

Preconditions of mass customisation1. Individual needs and preferences-customers needs are different and through a great deal of research on the part of the organisation, the nature of the differences in the needs will be determined and these needs can be profitably satisfied.2. Assembling unique offering-provide customers the opportunity to pick and choose different pieces to assemble the product they want or to be able to assemble the product that to the customer’s unique needs3. Customer appreciation-customers should value and respond to companies that can mass customise those products that have important purchase criteria for customers.4. Adaptable technology and processes-the technology and processes of the company should be sufficiently and flexible and adaptable to allow the customer to order a specific fabric or seat design incorporate it into the manufacture of the motor vehicle.5. Support of intermediaries and suppliers-suppliers and intermediaries have to be prepared to make the customisation options available to the customers; additional training of staff and technology will be required.6. The organisation’s readiness for such a programme should be considered.

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-specific emphasis be placed on the financial resource7. The competitive environment within which the organisation functions should be analysed

Approaches to mass customisation3 distinct options exist for customisation-the standard product, standard service and customised communication-the standard product, customised service and customised communication-customised product, customised service and customised communication

Selecting the appropriate degree of customisationOrganisations need to examine various factors when deciding on the level of customisation that it will implement.Five main areas that need to be examined before implementing customisation

1. The Organisation’s Mission (Mandate Fit)-does the organisation’s mandate and mission provide guidance as to which approach would be best2. Customer Feasibility-carry out a research into the needs of customers and the components of the product that they would like it customised.3. Competitive Advantage-mass customisation provides competitive advantage and this says the actions of the competitors should be examined4. Operational Feasibility-find out if it is possible to implement customisation and whether the organisation has the ability to actually customise its products in the way that the customers want.Financial feasibility-will the customisation bring more profits, calculation of the costs associated with it as well as potential benefits should be done.

Assessment Questions1.Explain the advantages of one-to-one marketing to an organization considering its

implementation.2.Discuss the steps that should be followed when a business needs to decide whether its ready for a

one-to-one marketing programme.3.Explain to a car manufacturer how it should consider the preconditions for mass customization to

determine whether it would be feasible.4.How would you consider the different approaches to mass customization and the degree to which

mass customization could be applied in the case of a new hotel that wishes to offer mass customization to clients?

Study unit 10 – Business-to-Business MarketingOverview Consumer markets differ from business, so do their relationships Consumer markets comprise individual buyers, each to be kept, but company will survive if it

does not win over each potential customer.

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Eg: Newspaper don’t mind too much if losing 1 customer, but the paper-company that supplies the newspaper will suffer if it looses a single customer

10.1 Business-to-Business (B2B) Markets10.1.1 Consumer & industrial products

Consumer products are purchased by consumer for final consumption (toothpaste etc) Industrial products are purchased by organisation to use in production of other goods &

serviceso Types: Mining products, installations, accessory equipment, etc

Note table 6.1 on p139.

10.1.2 Nature of CRM in B2B Markets Important to ask if the supplier wants relationship with manufacturer. 6 Important conditions are identified that influences development of relationship Conditions interdependent & influences development of relationships:

o Asymmetry – 1 organisation can exert power of the other. “Dominated” organisation will develop alternative links that will reduced the domination

o Stability – long-term contracts in order to ensure a stable price & delivery environmento Legitimacy – being associated with a large & respected organisation can help reputation

of smaller organisation.o Necessity – Having to use certain services like accountants & auditors. Using the same

firm over many years will develop a relationship.o Reciprocity – one organisation buy the goods of the other and vice versa.o Efficiency – internal contingency & refers to way in which business is carried out.

3 aspects affect efficiency in an organisation:o Types of costs associated with transactions. Various costs can be indentified. Co-

ordination costs are incurred in investigating other organisations to establish whether to do business with them Motivation costs is lack of completeness when carrying out investigation Level of transaction costs. Number of factors, like opportunistic behaviour (exploiting

situation to its advantage), moral hazard (monitor situation to ensure no exploitation happens) & bounded rationality

Dimensions of transactions. Transactions have 7 dimensions that affect their nature:1. Asset specificity. When transactions requires specific item in order to enter into

agreement2. Frequency of transactions. If it is a regular arrangement, a contract will be drawn up3. Duration of transactions. If over a long period, relationship is a much deeper one4. Complexity of transaction. For customized products, extra costs can be added by making

adjustments5. Monitoring of contract. Not possible to predict every action of a party, contract needs to

be monitored6. Measurement of actual performance. Whether all parties perform & do what they were

supposed to do7. Interrelatedness of transactions. Decision on purchase of 1 item can affect purchase of

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Types of relationships:1. Transactional exchanges. Anonymous purchasing taking place between people. Timely

exchange of basic goods at competitive prices2. Collaborative exchanges. Both parties work together to form close links and

relationships so both can get max long-term benefits3. Value-added exchanges. Lie between the above. Aim is to retain clients, rather than just

obtaining.

10.1.3 Relationships in B2B Markets Suppliers

o If an organisation wants to increase competitiveness it can develop close relationship with supplier of raw materials & services.

o Importance can be seen in: Quality of supplies Quantity of supplies Price Timing

Intermediarieso Those who help product get to marketo Retailers, wholesalers & agentso Key in supply chaino Keys to managing relationships:

Planning undertaken by both Channel-member profitability. Relationship can develop ways to improve profits Respect & trust Intermediary is customer, but often treated as nuisance. This should be avoided Keep focus on final customer

Competitorso A very important part of relationship management.o If organisation takes on competitor in the marketplace, no long-term benefit for anyone.o Could result in price-wars, reputation-loss, wasting of resources & even liquidation.o Conflict undermines entire industry & customer confidenceo In unregulated industries, cut-throat price wars end up in many bankruptcieso Collect information to establish “competitor profile”o This will help in determining how competitor will react

Co-venture Partners & Strategic Allianceso Alliance defined: an arrangement for organised & agreed relations between partieso Co-operation takes place between partieso Opportunity to exploit situation without carrying all riskso Exploit synergies between partnerso Access can be obtained to other groups of customerso Economy of scale can be achievedo What makes a successful alliance?

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Close working relationship Integrating points of contact

10.2 Managing Relationships Relationship needs to be managed, as there is no point if not. As with any relationship, effort must be made to ensure it stays positive 4 requirements for effective management of relationship:

o Awareness. Manager must be aware of problems & opportunities & expectations of other party

o Assessment. Continual evaluation of resourceso Accountability. Reporting procedures regarding state & performance of relationshipo Actions. Evaluate action in terms of impact on relationship

10.3 e-Commerce as Tool in Managing Business Relationships Most widely used tool for managing business relationships is e-commerce & electronic sites Factors to be evaluated when examining a particular B2B exchange:

o Target Market. Sites targeting large organisations don’t have support services for smaller businesses

o Focus. Vertical? – focus on provision of credit risk management & bill payment. Horizontal? – take place with service providers

o Purpose. What are you looking for?o Profitability. How will this exchange generate revenue – if anyo Community size opportunity. Exchange has to show opportunity for growtho Implementation. Organisation must commit adequate resources to exchangeo Management team. Has to be able to lead exchange towards improving relationship

with other businesses.

Assessment questions:1. Explain & illustrate the differences between final consumers & business

consumers.2. Explain the nature of CRM in B2B marketing by highlighting the appropriate

conditions for relationships between organizations, & the types of relationship in B2B markets.

3. Discuss the relationship between an organization & its suppliers & illustrate the importance of this relationship.

4. Why is it necessary to have sound relationships with competitors in certain industries?

5. Discuss the nature of co-venture partners & strategic alliances & illustrate the importance of relationships with these stakeholders & illustrate how e-commerce can be used to develop relationships with other organizations.

STUDY UNIT 11: RELATIONSHIPS WITH OTHER STAKEHOLDERS

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OVERVIEWDefinition of relationship marketing identified : building of relationships with customers & with other stakeholders. Building relationships with these stakeholders is critically important to an organisation & the quality of these relationships affects the organisation & its profitability.

A business has to look at its relationships with other stakeholders, these stakeholders include employees, suppliers, competitors, co-venture partners, strategic alliances, investors, government, community.

STAKEHOLDERS & CRM: A DEFINITIONTerm “stakeholder” describes any party or group who is able to influence (affect) or be influenced (affected) by the organisation & its activities. Stakeholders are interested in how projects are carried out (through efforts of their employees), the outcome of these projects (shareholders, community & government).

Term ‘stakeholder” means there’s many groups with whom the organisation seeks to build relationships, this means the organisation has to determine priorities in its relationship building & build relationships in an integrated way. Can be difficult, these stakeholders affect different parts of the organisation, interact with different managerial groupings eg trade unions interact with HR Dept (& managers) in the organisation, suppliers interact with representatives of the purchasing dept.

Without a unified approach to building relationships with stakeholders, the organisation doesn’t receive the benefit of these relationships. Relationship building takes place within the context of the organisations activities, mission & values. Building relationships with these groups is the task of the marketing dept & actions of top management.

These stakeholders are “strategically significant” to the organisation, due to the influence these stakeholders can have on the functioning of the organisation & its survival.

THE COMPOSITION OF STAKEHOLDERSAttempts to represent the relationship between stakeholders who influence the organisation & the organisation itself include the Six Markets model & the Relational Exchanges model proposed by Morgan & Hunt.

Stakeholders identified in relationship marketing (figure 7.1 pg157 tb). In this diagram these stakeholders are identified as a “lateral partnership”

There are a number of important aspects to note in this diagram- Organisation is central in the relationship-building process between the organisation & its stakeholders, therefore placed in centre of diagram- There’s a mutually dependent relationship between the organisation & the stakeholders identified as lateral partnerships. This is seen in the mutual influence the parties have on one another, means the organisation influences a specific stakeholder & stakeholder has an impact on the activities of the organisation.

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- The groups of stakeholders influence one another, meaning there’s no stakeholder group that doesn’t have an influence on (or isn’t influenced by) another stakeholder group. Eg effect government has on supplier & buyer partnerships. Supplier partnerships affect the lateral partnerships & affect internal & buyer partnerships. Eg how public & environmental concerns cannot be separated, they have a mutual influence on each other.

THE NATURE & IMPORTANCE OF LATERAL PARTNERSHIPS TO THE ORGANISATIONStakeholders are important to the organisation, their actions can affect the organisation. Without their support regarding certain key actions, the organisation won’t be able to successfully implement a course of action.

Eg if one uses a car manufacturing company, if it wants to build a new plant in an environmentally sensitive area, the media have the power to influence the opinion of the public against this course of action. Protests by environmentalist will negatively affect public perceptions of the organisation. Shareholders may support the programme from a financial perspective, but veto it because of the actions of these other groups.

It’s been suggested S.A. organisations do well in these areas (when dealing with social & governmental issues) due to various socio-political factors in S.A.

SIGNIFICANT DEVELOPMENTS RELATING TO LATERAL PARTNERSHIPSThe triple bottom line - “bottom line” refers to profits of an organisation, “triple bottom line” (TBL) refers to scorecard where organisations have to report on an organisation’s environmental, social, economic performance. TBL is regarded as a component of good governance.

Economic reporting is reporting on financial performance, includes supply chain, staff training & development & economic value added. Social reporting is about the social-responsibility spending of the organisation, includes interests of stakeholders such as communities, government & “licence to operate” in the society.

Problem with reporting on the TBL is many social & environmental effects cannot be measured, however these initiatives & the reporting on them are critical to the stakeholders.

Reporting on these matters can be time-consuming, challenge for organisations is to streamline their reporting structures. Some executives use this as a reason to delist from stock exchange (which insists on TBL reporting), justifying this by saying that what the organisation does is nobody’s business but its own.

Criticism has been leveled that TBL is a reason for the development of associated industries such as public relations practitioners who “feed off industry”

The King II Report – named after Mervyn King, 1st published in ‘94, followed by King Report on Corporate Governance in 2004 known as King II. Purpose of this report is to focus on corporate governance in organisations, focusing on how they should be managed.

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King II is focused on all public companies, banks & financial organisations & certain public sector enterprises. It comments on the use of integrated substantiality reporting (another term for TBL reporting) to achieve a balance among the organisation’s economic, social & environmental performances. The King report specifies the contents of this integrated sustainability reporting while providing for enforcement of the code of conduct governing this kind of reporting.

Broad-based Black Econmic Empowerment (BBBEE) – BBBEE & BEE (black economic empowerment) are strategies of government linked to the political transformation objectives of society. Purpose behind these government strategies is to promote achievement of constitutional rights of all South Africans to equality by increasing participation of black people in the economy, which results in a more equitable distribution of income.

Based on this policy, scorecards & charters have been developed to guide implementation of BBBEE. Effect of these codes is that an organisation has to examine its ownership (shareholders), management & suppliers who contribute to the organisations success. Effect of this bill is that the organisation has to build relationships with different parties than those of the past, & may require new approaches to relationship building.

1. COMMENT ON THE DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH INVESTORS, ENVIRONMENTAL STAKEHOLDERS, THE GOVERNMENT, THE COMMUNITY & THE PRESS.

1.1 DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH INVESTORS Every organization has investors. With the transformation objectives associated with BBBEE, there are people owning shares.

Role of shareholders is to provide funds to the organiSation, used in the development of the organisations activities. Reason for investing in the organisation is the generation of returns on the investment made. Number of financial methods developed & used to measure the value the organisation creates for its shareholders, such as economic value added (EVA) & shareholder valued added (SVA).

Organisations can have problems when building relationships with investors, main reason is investor churn i.e constant change of investors, as people buy & sell shares in the company. Main reason shareholders invest is to generate profits in the short term, is often the cause of this. Should these returns not be generated, investors sell their shares & shareholder churn is the result.

A number of target markets for investor relationships can be identified Johannesburg Stock Exchange – whether an organisation is listed on the main board or not

the alternative board (AltX), the JSE is an important stakeholder group. Investors (present & future) – people who have invested their money in the organisation

with the intention of generating returns (in the form of share price increases & dividends). Employees – employees who have been given shares, sometimes as part of organisations

BBBEE (or BEE) programme.

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Customers – people currently buying an organisations product may like the product so much they decide to invest in organization & so want information regarding its financial performance.

Suppliers – suppliers want to make sure they will be paid, knowledge of organisations financial situation is important to them.

Shareholder activism is increasing in S.A. & law suits have resulted on some occasions where shareholders have taken directors of organisations to court & have often won their cases.

In building relationships with investors, its been suggested organisations should make use of the RACE formula, this formula consists of a numbers of key steps:

Research – when waiting to build relationships with investors, its necessary to carry out research as to what types of investors have put money into the organisation, what their needs & perspectives are, what types of information they would like to have.

Analysis – once the organisation knows what types of investors have put money into it, its necessary to examine closely their needs & their responses. These will be incorporated into the organisations communications with investors.

Communication – refers to messages that are sent to investors & integration of the messages with the activities of the organisation. The organisation has to communicate with its shareholders using media that reach them, which include Internet (through investor relations tab), & financial media.

Evaluation – the communication is evaluated to determine whether a specific medium actually reaches the target audience, while determining the quality of the communication with the market. The relationship quality & behaviours of the investors that result from the communication can also be evaluated. Even if the investor sells his shares, the quality of the relationship that existed at the time he did so can be evaluated, as the needs of shareholders will determine when the shares were sold & this is important information for the organisation to know.

1.2 DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH ENVIRONMENTAL STAKEHOLDERSOwing to environmentalism & global warming, protection of environment has become important issue for all organisations. Members of public are more aware than ever of importance of preserving limited resources of environment, places pressure on organisations to get involved in conservation efforts.

Environmental stakeholders are not equally important to all organisations, their importance depends on nature of organisations activities. This makes the environmental stakeholders critical to manufacturing organisations & petrochemical & mining companies.

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The power of environmental stakeholders differs throughout the world. In more developed economies, power of stakeholders is higher than in developing countries. These stakeholders are beginning to exercise more power & influence over business activities. Members of public are aware of the importance of the environment & are being influenced by these groups. This has resulted in a greater degree of activism, which can cause damage to the organisations assets.

e.g. the effect of poor environmental management can be felt on the bottom line of the organisation. Iscor (now Mittal Steel) was sued by residents of Vanderbiljpark for causing pollution in the area & the company settled out of court for 33million.

1.3 DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH COMMUNITY RELATIONSOrganisations are realizing the communities in which they operate are important to stakeholders & they should ensure they have sound relationships with them because this will lead to loyalty to the organisation.

Organisations are established in areas where there is support from the community. This support takes the form of tacit acceptance of the functioning of the organisation & provision of labour to the organisation.

Research indicates the public can boycott a product/company for ethical reasons which means organisations have to take into account what the community & the public think are important & integrate this into their actions.

The communities should be kept informed about aspects such as corporate citizenship, e.g. employees should be treated fairly & business practices should be environmentally safe.

Relationships with communities have to be built on a continuous basis, this is seen in the “think globally, act locally” philosophy of organisations.

The King II Report on Corporate Governance for S.A. & the Community Advisory Panel proved guidelines for becoming involved in the community.

1.4 DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH GOVERNMENT, LOCAL AUTHORITIES & REGULATORY BODIESRefers to bodies created to oversee activities of organisation & affect organisations in geographical areas within an economic area. This group of stakeholders affects all organisations to a varying extent. All organisations are required to pay their taxes & are affected by the actions of the local authorities. Not all industries have regulatory bodies that affect their operation.

For various reasons (e.g. negative perceptions of government) managers often don’t explore full potential of sound government relations & the advantages that these might create.

E.G. of a regulatory influence can be seen in the communication industry. ICASA (the Independent Communication Authority of S.A.) has been created to regulate telecommunication & broadcasting industries to the benefit of the public. ICASA’s mandate is based on the policy of the government to provide access to basic communications to all people in the country at an affordable price.

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ICASA’s task includes licensing radio stations, enforcing compliance regulations & managing telecommunication frequencies. Service providers such as Telkom are required to get ICASA’s permission to change their prices, as this affects accessibility to the service.

Following guidelines could be followed by businesses wanting to become actively involved in a relationship with government- find a consultant who specializes in related issues- make use of trade associations- subscribe to newsletters- be aware of government regulations & legislation

1.5 DESIRABILITY/NECESSITY OF BUILDING UP RELATIONSHIPS WITH THE PRESSVitally important organisations build relations with the press as they are a powerful tool when trying to build a positive public image & can have a strong influence on members of the public, can affect the reputation of the organisation among the members of the public.

Media in there various forms are important to an organisation with respect to how the organisation communicates with the general public & community.

Establishing a good relationship with the press & media representatives can be done by organisation itself or it can use an external PR firm. Which method organisation uses depends on its specific requirements, both can provide an advantage to the organisation.

2. EXPLAIN THE STAGES IN STAKEHOLDER RELATIONSHIPS THAT ARE PROGRESSED THROUGH UNTIL A STAKEHOLDERS IS RETAINED BY AN ORGANISATION AS AN IMPORTANT ROLE-PLAYER IN ITS ACTIVITIES.Three stages exist in development of stakeholder relationships, figure 7.2 pg164 tb (an organisation might be on a different level with each stakeholders that its involved with owing to relationship building activities that were conducted previously).

(i) Stakeholder engagement – refers to making contact with the stakeholder & activity of opening the communication channels & interaction with the specific stakeholder.

Part of this engagement activity involves an audit the organisation conducts among each group of stakeholders so it can identify the key issues associated with each stakeholder group. This engagement will allow both parties to share ideas & opinions while exchanging views & allow for development of a relationship. This is done through the creation of stakeholder councils & advisory boards.

(ii) Stakeholder satisfaction – satisfaction comes about when the needs of the parties are being met & stakeholder satisfaction implies stakeholders feel their needs are being met by the organisation.

Should they not be satisfied, they will withdraw their support. Stakeholder satisfaction can be measured by using satisfaction studies.

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(iii) Stakeholder retention – organisations ability to “keep” its stakeholders as important contributors to the functioning of the organisation & the management of its various activities.

Retention will allow for creation of mutual value in the long term, to the benefit of both groups.

SUMMARYRelationships between organisations & some of their stakeholders, namely investors, environmental stakeholders, government, community & press.

Relationship building requires an integrated approach among various parts of organisation. Not all stakeholders are equally important to all organisations yet an organisation is required to build relationships with all these stakeholders in order to ensure its survival.

STUDY UNIT 12 : TECHNOLOGY: FACILITATOR OF CRM

GETTING AN OVERVIEWImagine the way business was conducted 20 years ago compared to the way we do business now. Twenty years ago, communication was by telex or telegram, typing was done on manual typewriters, and copies were made on Roneo machines. Today, we use email or telefax, type on a personal computer or laptop and use a copy machine to make copies. The rate of change in technology is one of the environmental variables that has had the most effect on businesses today. Technology, more than any other change in the marketing environment, will enable the successful implementation of relationship marketing. Above all else, technology’s power can put “custom” back into the word “customer”. But technology inappropriately applied can also serve to put the customer on the outside of the company’s walls. Used appropriately, technology can help the company learn from every interaction and deepen the customer relationship by advancing ideas and solutions likely to suit the customer, and ask questions so that next time the customer can be served even better. Technology drives the mega-processes needed to provide value for customers.

12.1 TECHNOLOGY ENABLES CRMIn CRM terms perhaps the biggest danger is to assume that technology can always effectively replace personal contact. Technology-supported developments aimed at increasing the efficiency of the organization (eg call centres, telephone menus) do not necessarily always increase value or convenience for the customer. Today’s “interactive age” customers are accustomed to having their needs met immediately, conveniently and inexpensively. That is why, for many people contacting customer service representatives can be an excruciating experience. Between navigating lengthy menus of push-botton options, waiting on hold for what seems an eternity, never getting a reply to an email, and not having you or your problems remembered the next time you call back, it is no wonder many customers the\ink customer “service” is a cruel joke.

12.2 TECHNOLOGY FOR BUILDING RELATIONSHIPSThe changes in technology and, more importantly, the performance of technology, have led to tremendous opportunities for tying in technology to the implementation and use of relationship marketing. Now consumers can be communicated with and served in real time and the same question need never be asked twice of a customer. The potential exists for the company to have an information system that gives a complete, current and intelligent profile of the customer to the

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customer interface, whether call centre, website or sales automation. If technology is used correctly it may, as we have already said, improve the customer’s interaction with the company involved and enhance the relationship.

Ways in which technology contributes to building relationships with customers:

Enhancing customer care and service – Technology has a major role to play in providing customers with the care they want. The internet can be particularly cost effective in shifting cost structures from human operators for enquiries where the customer needs basic, standard-format or repetitive informationEXAMPLE: A person who requires specific information on payments of instalments on a loan for a new car can automatically be given the following reply: “Do you wish to calculate the car repayments? Enter the total amount to be borrowed, interest rate and loan term to obtain your answer from a payment calculator on the web”.In a number of vertical markets technology is being applied to facilitate and add value to customer relationships. EXAMPLE: Book into a major hotel chain and see the power of their reservation system at work. They are becoming increasingly sophisticated, with quest history records and customer profiles, enabling a much more personal and useful dialogue to be engaged.Customer care in South Africa is particularly poor.

Identifying best customers- A key role of the CRM marketer is to define which customers will be served (ie the most profitable customers), the bonding and other objectives to be achieved, and the strategies to be followed in working with chosen customers to create more value for the customer and for the business to be more profitable. With technology, the specific customers the company whises to do business with can be identified and further evaluated for their amenability and suitability for a long-term relationship. If the data warehouse is build appropriately, the marketer should be able to “slice and dice” the data in an infinite number of ways, so that people not trained in technology find it easy to use.

Technology thus helps to decide what customers to focus on and what is needed to deliver customer value. Without technology, marketers would still be thinking in terms of serving the mass market or segments. They would still be thinking in terms of one-way communication, and they would still be thinking in terms of long production runs of standardised products- one size fitting all.

Establishing what product/service to provide – Technology helps to establish the types of product or service that should be provided to customers, and whether the business should produce the products or services or whether production should be outsourced. For, example, if a company makes furniture for the home, should it offer financing to its retailers to enable them to supply financing terms to customers? Consider the case of a customer buying furniture. Here the physical products comprises “hard” features and benefits, such as the style, fabric and construction. It may also comprise softer, less tangible features customers want in addition to the physical product.

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Enhancing capabilities- The important effect of technology, especially for implementing CRM, is that the capabilities of the business can be substantially enhanced.Technology implementations themselves comprise the heart of the company’s capabilities, by providing, for example, computing , data warehousing content – say a website or interactive voice response(IVR) –front end to the customer and communications linkages within the business and with customers.

Managing costs and value of relationships – Technology can help the company manage the costs of securing, serving and retaining customers by allowing marketers to understand, in real time, the revenues and costs associated with each other. This could obviously help the CRM manager to control and focus the relationship.

Technology can also intercede and help to manage the costs and value of the relationship, drawing upon previously developed “business rules”. Business rules incorporate the decisions management makes to guide the administration of its business and interaction with customers.(Read the example’s on page 67 Study guide)

Performing a control function- Technology performs a control function to ensure that value is created for customers and for the company, and that bills are sent and payment received on time. Technology assists by providing a tactical and strategic control function. Tactical controles are those that ensure that the business processes actually perform as planned. Strategic controls, on the other hand, trach not only product profitability but also all costs associated with the product and the customer(eg account management, servicing, support, communications).This assessment can help with the management of the customer mix. EXAMPLE: If there is a customer retention problem, technology could be operating in the background, gathering and evaluating data, and providing the relationship marketer with exception reports.

Customising products- Technology can help customers to work together with their suppliers so that there is a joint effort to continuously create and improve value. Technology allows the customer to become integrated into the processes of a business so that customization is reasonable. This means that the business collaborates with the customer to design a product the customer wants. Customers, in effect, can order exactly what they want as to meet their needs most effectively.

Customising communication and interaction- If technology is used appropriately, customers may be served as individuals. A data-driven approach enables companies to assess each customer’s needs and their potential profitability and to tailor sales offer and service. This involves using multiple channels, including the internet, direct mail, telesales and field sales, as a menas of improving effectiveness and efficiency. The challenge for the marketer is to work information technology managers to design processes and incorporate technologies to engage the customer collaboratively at appropriate times for both the customer and the organisation.

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Technology can thus help business to adapt their communication efforts to include business-to-individual conversations(two-way-communication). This is also done at a cost that is reasonable, and allows the individual customer to interact with the business in a two-way process. In this way, customers can make their needs clear to the business and businesses can make themselves more transparent to customers.

Technology can also help the company converse with individuals at a cost that reflects the value of the communications, and it can discriminate between the purposes of different communications, and it can discriminate between the purposes of different communication, assigning the appropriate media to fulfil each task.EXAMPLE: If the purpose of the communication is add no customized value to the customer, then mass media can be used. If interaction is required, the company may choose to deploy web casting or call centres for outbound calling. If the intention is to deliver considerable customized information, then it is more appropriate to use people such as the company’s own sales force. More commonly, a combination of these is reguired, so it is appropriate for the company to allocate the lowest cost technology or approach to achieve each communication objective.

Technology provides the knowledge and insight to allow the company to contact the customer at the right time – when they are ready to buy – and use the media each customer prefers to make this communication.

12.3.DEVELOPMENTS IN TECHNOLOGY

The internet – The internet provides opportunities to engage the customer interactively using processes that are standardised, but which afford customers the opportunity to assemble the value they want in a customized product. The internet offers two main types of virtual experience for customers using so-called “pull” and “push” technologies.

Pull technology is employed when a customer visits a website and makes a product or information selection decision during the course of the stay, not unlike traditional shopping. Push technology is like a standing order some customers set up with their retailers. For example, historically, a fashion-conscious customer may tell the store owner to send information when the new collection from a specific designer comes in. The same happens with push technology: customers specify what it is they wish to be informed about and under what conditions, and then they receive this information as requested when it becomes available. Push makes the computer seem more like television in that the experience van become more passive, but the information will still have been tailored to individual preferences.

Many people are familiar with the potential of pull technology, the basis of most internet storefronts and websites. Using this approach, customers enter terms in a search engine such as Yahoo or Alta Vista. The engine goes out on the web and locates sites that meet the parameters entered. Push, however, offers far more opportunity for the CRM marketer as it makes more use of technology to learn about individual preference and then acts on it.

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Data warehouses- The engine that enables CRM is the database. Customer data warehouses may be defined as large repositories of information about the customer obtained from sources inside the company and from the customer him-or herself, as well as from third sources, such as the government, credit bureaus and market research companies. Data may include behaviour , preferences, lifestyle information, transactional data and data about communications with the company before, during and after the sale. It may also include information about customer profitability, satisfaction, retention, loyalty and referrals.More generally, data warehouses may be described in terms of the processes and layers needed to automate and add value to communications with the customer and to facilitate mass customisation. Data warehousing enables companies to extract information from the underlying data to develop a better understanding of, for example, the most profitable relationships.

Data mining – Data mining is the process that employs information technology – both hardware and software- to uncover previously unknown patterns of behaviour, trends and issues arising from the assessment of warehoused data. Data mining involve companies employing huge, parallel computers and task-appropriate software to search through large volumes of data. The data often concerns customers and their purchasing behaviour, and in accessing this data companies are looking for patterns that describe customer behaviour and thus permit them to segment their markets in new ways, retain customers and become more relevant by designing products and services to meet the needs of customer “clusters”, communicate with them more effectively and earn more loyalty.Database queries are enabled by front-end tools such as FastStats and Rapidus to speed intelligent data review and response enquiry. Data mining differs from database quiries. Queries answer specific requests for information, either simple requests or ones that need multidimensional analysis or online analytical processing to provide the required answers.

Data mining on the other hand, employs tools that look for meaning, find patterns in the data and infer rules that may be casual, predictive or descriptive. This can lead to better management decision making in areas such as planning, matching inventory to customer requirements, customer targeting and improving marketing and operating processes generally.

Assessment question1. Explain & illustrate the role of technology in building relationships.2. Identify the main developments in technology that have made CRM possible.

Study Unit 13: Planning CRM Strategy

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CRM: Holistic approach to refocus business on customers, rather than on internal structure of organisation – more about competencies that organisation has, goal being to win, get to know and keep profitable customers. Putting customers firstSkill of Marketer is not in applying CRM strategies, but applying strategies to appropriate customers in given situations.

1. Factors Determining CRM Success To successfully implement CRM, there should be 1st of all be commitment from top/SNR management. Factors:

A) Customer-centricity: focus on central role of customer. Main implementation barriers to CRM aren’t raised by customers, but Snr staff members. CRM managers can experience additional challenges: Finding best CRM examples to benchmark their project against Envisioning end state of CRM, and investments and actions needed to achieve it Focusing on working with core customers to develop transition plan Determining how to really add value to customers, and faster than competitors Demonstrating feasibility and effectiveness of proposed CRM system prior to rolling it

outSNR management has vital role to play here.CRM has organisation-wide implications. Main reason for failing to deliver on promises is not CRM, but lack of planning, absence of clear goals and strategies. If CRM implemented correctly, it can offer benefits in less than 3 months.Employees should have optimum mix of skills, knowledge & personal traits, to implement CRM.

B) System Resources: CRM is heavily dependent upon alignment & integration of all related business processes. Integration of different departments within organisation can make difference between successes or failure of CRM.CRM will only succeed after organisation and processes have been restructured, to better meet customer needs.

C) Information Resources: Customer Information & Knowledge: Info on existing customers will form core of

customer data. Info held, may vary from type of market. Invaluable aid in decision making. Must be future-oriented, to drive future marketing programmes.

CRM Technology: Success of CRM depends largely on most appropriate facilitator to CRM technology selected, to utilise CRM successfully. System must be flexible & easy to customise, available for individual / concurrent users, permit future functionality, and require low level of expertise to maintain.

Technology is one of many tools that enables organisation to become customer-centric, must be accompanied by changes in organisation itself.

CRM must start with ( 1) Business Strategy (driving changes in organisation) & it’s work processes (2) People and Processes, which are in turn, enabled by (3) Information Technology. Reverse doesn’t work.

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Organisation needs to integrate every single interaction it has with customer, and link it all to different departments, to ensure adequate support provided to a particular client, to maximise value of interaction.

CRM system must be capable of transforming all knowledge about key customers into valuable business intelligence in real time through any channel.Quality of data used – NB.2. The CRM Planning Process

Role of customer retention in developing CRM strategies – Critical

1) Pre-Planning Stage: Before process begins. Providing management with justification for expenditure of time & effort, outlining components necessary to ensure initiative delivers to management’s expectations.

CRM has long term benefits, but short-term benefits = providing immediate “cheap growth” to re-allocate sales resources from customers who’s less likely to buy, to those more likely to buy.CRM vision & goals must have champions at all levels of organisation.Also reconcile magnitude of coming change with organisation’s readiness.

2) Co-ordination the CRM Initiative : Best is to treat transition as a project. NB to appoint project manager – more SNR and respected person is better. He/she will assemble a multidiscipline implementation team, incl. representatives from each dept. involved. A detailed, precise project plan & time line is req., & an overall road map, illustrating how cycle fits in overall plan, should be created. Step-by-step, phased approach, establishing tangible milestones & metrics, must be followed.

Each project/dept. should have measurable short-term goals & long-term vision for whole organisation.

3) Customer Assessment : Looks at where organisation is now with re to customers & relationship marketing. Profitability of customers needs to be established. Customer profitability is largely dependent on customer satisfaction, customer retention & customer loyalty.

Customer Satisfaction, retention & Loyalty Customer satisfaction – measured by rate @ which customers are kept = customer retention rate – expressed as % of customers at beginning of year, and still remain at end of year. As retention rate goes up – so does profitability.

Measuring the profitability of customers Decide which customers it wants to build closer relationships with in future. As they move towards one-to-one marketing, they need to develop a longer-term view of the value of their customers. Relationship marketers need to predict the future purchasing behaviour of key customers, to arrive at their customer lifetime value (CLV) – what customer is worth to organisation now. Cost to serve customer (all costs incl. sales, marketing, finance, service & support).

To calculate CLV, 3 sorts of info needed:i. Anticipated lifetime of customer relationship

ii. Profit in each future period adjusted for customer-specific capital costs

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iii. A discount rate

Value of a relationship can be increased either by increasing amount of profits (via increasing revenue from customer and/or decreasing costs to serve), or by extending relationship lifetime. Customers at beginning of relationship will need different CRM strategy than those approaching declining stage.

4) Developing CRM Strategies To treat different customers differently, it’s necessary to group them into value-based tiers; i.e. groups of customers with similar values to organisation, so most potential, and unprofitable ones, can be identified. Next, a specific set of strategies for retaining and growing best customers must be defined and cost-reduction strategies for least profitable ones.Once CLV is established, organisation can place each into one of 4 categories: Strangers, True Friends, Butterflies, & Barnacles.

STRANGERS: least profitable, no loyalty, brings no profit. Don’t invest in them, make profit on every transaction – transactional approach to be used.

TRUE FRIENDS: “soft approach” more appropriate. Likely to be loyal. Most valuable customers of all. Steady purchasers. Must be rewarded by means of, e.g. loyalty programmes & excellent service. Should communicate consistently, but not too often. Build both attitudinal & behavioural loyalty. Delight them to nurture, defend & retain them. All-out effort should be made to retain them & increase their profitability.

BUTTERFLIES: Profitable, but “un-loyal”, stays short term, but high profitability for firm. Not too much money should be invested in them in long term if profitability doesn’t improve, stop investing in them once their buying activity drops. Milk them for as long as possible. Key challenge – cease investing soon enough.

BARNACLES: Long-term customers, but low profitability. Need to be “disciplined” to try and make them more profitable, so effort should be made to look at their transactions to determine whether they could become more profitable. 1st step is to determine whether problem is small wallet (not valuable to begin with, and not worth chasing), or small share of wallet (they could spend more, and should be chased).

Only way to strengthen link between profits & loyalty = manage both at same time – technology makes it easier everyday.

5) Competitive Benchmarking It means investigating competitor’s (very best competitor) actions re relationships & their customers – how they relate to CRM. It requires comparison with best practice in whatever company/industry can be found. Its customer’s perceptions must be measured.

Measures to be used: delivery reliability, ease of ordering, after-sales service, quality of sales representatives, and accuracy of invoices & other documentation. Measure used, selected because of their importance to customer, and elements identified will form basis for benchmark questionnaire.

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One way to assess competitors’ CRM prowess – become a customer, then observe selected key processes. Or assess production processes & render judgement on flexibility, buy product of competitor and tear apart to see what’s being supplied to their customers.

Appropriate to ask questions such as: How have competitors been able to achieve this position? What can we learn from them? What are their strategies concerning CRM and more generally? Can we target their customers/distribution channel intermediaries for transfer

to our business?

6) Internal Assessment Look at itself to determine kinds of relationships most suited, and if CRM is appropriate for it. Is CRM appropriate?: should it focus on needs of individual customers or not? Some

businesses is more profitable when focusing on mass production / mass service Business culture: NB that culture of business must emphasis self-respect, respect 4

others, and a commitment to mutual & active listening. Top Management Support: supported by them Capable Staff: assessing if they possess necessary skills & knowledge for CRM Processes: tailored to the customer experience, via detailed customer touch map –

defining each interaction with company along customer life cycle – allowing organisation to understand customer’s entire experience. Begin at looking at experiences of most valued customers, then those most likely to grow. Remove pain points in experiences, and then re-engineer any inefficient back-office processes.

7) Selecting a CRM technology If organisation is looking to select a CRM provider, it’s necessary to 1st look at own business processes, organisational culture, and at all customer facing management and staff. The greater part of CRM lies in people and processes – once aligned, streamlined & optimised, will organisation begin to “feel” for its own hybrid technology requirements; and only then the “right” CRM vendor, service provider or application begin to become apparent. CRM must be business-driven, not technology-driven.

Different vendors can bid on providing specific applications and/services to meet defined specifications & results. Organisations that have already invested in technology must now assess gaps between current technology usage & their full capacity. 3 Primary areas to review 4 improvement opportunities:

Technology Integration: integrated/linked to all other company systems containing customer data.

Customisation: to extent that’s feasible, CRM applications should suit the way in which employees work, and operate in ways the company feels are a priority.

Business rules alignment: CRM technology is only as effective as the processes & business rules behind it. Organisation’s processes & business rules must be

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modified accordingly. The technology must support company’s customer vision & strategies, as well as any revised processes & business rules.

8) Training People Train your people properly. Requires an organisation to plan ahead to allocate adequate time & funding to training. Company should plan to spend 5% of its total CRM investment on training. Also training in using the technology appropriately.

9) Implementation Begin implementation via distinct CRM development cycles. These cycles allow for a small, fast start, beginning with a controlled test/pilot group. Organisation should learn from the pilots, then refine the next implementation cycle and repeat process as necessary.

10) Measuring CRM Results NB to establish appropriate, realistic metrics for assessing the effectiveness of CRM. One of best ways to measure CRM transformation is with a “balanced” ROI scorecard. Scorecard is a management tool consisting of a set of integrated performance measures that link current customers, internal processes, employees & systems performance to long-term financial success – includes financial measures that show results of actions already taken.

Balanced scorecard incorporates both lag & lead indicators. Lag: could incl. revenue, market share, new product revenue & other classic financial factors. Lead: could incl. share of customers, revenue mix, customer satisfaction & time spent with customers / customer involvement in product planning cycles that show what is coming.

Also NB to begin to quantify results as early as 1st development cycle, using most relevant data.

Assessment questions:1. Explain the factors determining the success of CRM in an organization.2. A company wishing to implement CRM has approached you, a CRM consultant, to guide it

through the CRM planning process. Explain how the company should apply each phase in the planning process.

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STUDY UNIT 14: IMPLEMENTING CRM IN THE ORGANISATION

Introduction based on this chapterThe implementation of the CRM strategy that has been developed is the next logical step in the CRM process. After the goal and objectives for the CRM strategy have been developed, it is necessary to devise the process for implementing this strategy.

PREQUISITES FOR THE IMPLEMENTATION STRATEGY. A shared vision: it is necessary to share the vision with those that will be required to implement the vision. Vision cannot be imposed on the organisation’s staff, as this breeds resentment among them. CEO has to get the co-operation of the staff so as create sense of ownership and commitment to the vision. This vision is not a document that is kept hidden, but rather something that is an integral part of the way in which the organisation does business. Staff members have to be reminded of it based on their behaviour, and for CRM strategy to be implemented.

. Decentralisation of authority and management: this is about the decision making in the organisation. Based on this authority, decisions are made at the lowest level in the organisation, by the people who actually interact with customers. By making these people responsible for decision making, these members of staff are able to show initiative in dealing with customers, so that relationships with customers are improved.

. The support of top management: it is the task of top-management to direct the activities of the organisation. Without their support, the CRM strategy will not be a success. Their support includes the allocation of resources, development of objectives, the management of reward systems and the development of the organisational structures that support strategy. Their support can result in overall support at lower levels for the strategy, while also assisting in reducing the degree of resistance to change within the organisation. It is necessary that top management communicate their intention of implementing the CRM strategy to all levels of staff thereby giving the strategy the support necessary.

THE IMPORTANCE OF THE IMPLEMENTATION PHASE IN A CRM STRATEGY

CHALLENGES IN THE IMPLEMENTATION OF A CRM STRATEGY . The scope of any CRM strategy is very broad. it impacts on the entire organisation. This

requires changes to be made throughout the organisation, and it is necessary that these changes be well managed as they are implemented.

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. There is a very real possibility that there will be resistance within the organisation to both the implementation of and the need of a CRM strategy. It will require a great deal of leadership and managerial skills for this resistance to be overcome, in order to make the implementation a success.

. The skills that are required to implement a CRM strategy place a great deal of pressure on the managers within the organisation, and where these skills are in short supply, this may cause additional stress and pressure on managers.

n.b: One of the challenges that can be used in the implementing strategy is the appointment of sponsors or influencers. These people are specifically selected for their ability to influence the perceptions of others in the organisation, while also being able to lead a team of people coming from divergent departments. They will then be able to appoint others (change agents) to assist in the implementation of specific aspects in the various departments within the organisation. This will make it possible to bring about the changes throughout the organisation that are required for the successful implementation of any strategy.

THE DEVELOPMENT OF A CUSTOMER LEADER One of the key components to the implementation of any strategy is the person who will

provide the inspiration and direction of its implementation. The leader’s task is to take a group of people, mould them into a team and motivate them to achieve a number of objectives. CRM strategy affects all the parts of the organisation and hence requires this inspiration throughout its functions to facilitate the implementation process.

Characteristics of an effective leader in an organisation can be described from a number of different perspectives, such as the skills that leaders have or the behaviour that they exhibit. In the case of CRM, the leader has a slightly different role to play and CRM oriented. Suggested – specific management and leadership concept exists for managing customers and relationships that are created with customers.

This concept seeks to build a technological environment that attempts to integrate the marketing, sales, service and supply-chain functions to enable the staff to provide superior customised and personalised service to customers. It requires specific leadership skills to implement the CRM strategy in the organisation – what can be known as customer relationship leadership (CRL).

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Consider this figure based on the relationship between CRM and CRL

The components of the CRM strategy include customisation, after sales, service and the development of personal relationships with customers. The customers are the core of the model, as they are the reason for the existence of the organisation. CRL philosophy identifies technology, organisational environment and innovation as the key to implementation. In order to implement this concept, changes in a number of key areas are needed namely in the areas of technology, processes and people.

CHANGES IN TECHNOLOGYFor a leader in the organisation, it is important that changes be brought about in technology to make it possible to implement the CRM strategy. The technology will enable the organisation to not only stay up to date with its customers, but also to collect additional information with every transaction that takes place. The technologies that have been developed for specific CRM applications are known as information and communications technologies (ICT). These technologies enable the implementation of CRM within the organisation. There are two main aspects to these technologies, namely: the front-office applications and the customer contact and access channels.

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. Implementing new technology There will be a need to be great deal of care regarding this decision as to which software will most adequately satisfy the needs of the CRM strategy, as the new technology causes confusion in the minds of staff. Examples of technology that can be introduced are the Internet, as well as CRM software that is able to track and update the customer database. New software is continually being developed that can be used to collect and interpret customer data, as well as evaluate the customer behaviour being exhibited. The development of software specific for the organisation can also be considered, depending on its needs.

. Training in new technology When new technology is introduced in the organisation, it is important to train the staff in using the technology to its full capacity. It is not only the initial training vital in making the staff be able to use the technology, but it is also necessary to continue with the training as more advanced applications are introduced. Training courses can be customised to meet the specific needs that the staff are experiencing. The challenge is that technology presents is that it is real-time technology and as such is required to support decision-making.

. Integration of technology within the organisation In large organisations with many divisions, it has been known that the technology used by the various divisions is not complementary. This means that the systems used in one department are accessible to other departments. It also means that the customers are inconvenienced, as there are no standard forms available for their use and they are required to submit new applications with all their details, rather than just to alter existing information.

CHANGES IN PROCESSES

Processes refer to the way in which things are done to enable the strategy to be implemented successfully, and CRM requires that the processes be arranged around the customer. It needs to be developed around the customer and his/her needs, and they can be used to govern the relationship that is created between the organisation and the customer. Processes refer not only to those things that affect the customer, but also to the way in which relationships are managed within the organisation, which includes the organisational structure and the corporate culture that exists.

CRM strategy requires changes in the processes within the organisation in a number of different areas:

. Implementing changes in organisational processesThese are the changes that the organisation needs to bring about with respect to internal processes such as administration procedures in order to implement a CRM strategy. These processes need to be integrated with the technology selected by the organisation for the CRM strategy. A CRM strategy team is suggested as a method of governing the relationship between the organisation and its customers in terms of the new CRM strategy being implemented. This team would involved a group of people, including management and key customers. It is suggested that the membership of this team be temporary in nature, and that meetings take place on a quarterly basis to facilitate the relashinship.

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. Implementing changes in corporate cultureCorporate culture is the key determinant of the long-term success of CRM strategy implementation. It refers to the common characteristics that exist within the organisation that traditions, values, customs and practices that characterises the people who work there. The culture is determined by the management, specifically the top management.

Four type of corporate culture can be identified: -power culture: usually found in smaller organisations and is defined by central person, a

power source. This person has the power, hence the organisation tends to be political in nature and employees tend to display a tendency to power, politics and risk taking.

-person culture: the individual determine the culture, and the culture of the organisation is subordinate to the individual. Control mechanisms such as a budget, will only be successful if there is consensus regarding their use.

-role culture: as a bureaucracy, there is a great emphasis placed on the role played by each person within the organisation. The power source is the position that individual holds.

-job culture: this is linked to the implementation of a specific project, where a team is required to complete a specific task by co-operating with other people who are concerned.

. Implementing training programmesIn order to implement a high customer focus strategy, like CRM strategy – training is required among the staff so as to enable them not only to deal with the situations presented by the customers, but also to use the CRM technology efficiently.

. Developing organisational structures that support the CRM strategy It is also necessary to adapt the structure of the organisation to reflect the change in strategy. The structure that is developed within the organisation is one that needs to support the strategy, and much has been written concerning the strategy-structure relationship, as well as the nature and type of structures, that can be used.

Factors affect the selection of appropriate organisational structures: -internal factors: these are issues that are found within the organisation that can have an effect on the structure. -external factors: these factors refer to the environment of the area/city, region and country in which the organisation operates, as well as the international environment in which it operates. -market factors: these refers to the competitors that can be identified in the environment, the organisation’s customers, the product (or service) complexity and the technological changes that can be identified.

CHANGING THE WAY IN WHICH PEOPLE WORK

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MNM3014 Study Notes

One of the most important aspects in implementing any strategy is to bring about changes in people and the way in which they do their work.

Reasons for resistance to change are diverse. Various reasons include: . Inertia: this implies that staff are content with the current way in which things are done, as

they are reluctant to do things differently. . Time pressure: if people are under pressure, there resistance to change increases, as they

are required to put more effort into getting the job done in s a shorter time. . Surprise: if the changes are unexpected and there has been little psychological preparation

for them, resistance is more likely. . Peer pressure: when a group is cohesive, its members will stand together regarding their

opinion of change, and this can increase the degree of resistance to change. . Self-interest: resistance to change comes about when it is not clear how the person will be

affected by the change being proposed. Resistance reflects insecurity regarding people’s future with respect to changes that are taking place.

. Uncertainty: this creates a situation where employees are not sure about their position or how change will affect them. Too little information and communication will increase the levels of uncertainty regarding the various aspects of the changes that are being considered.

THE IMPORTANCE OF COMMUNICATION IN THE IMPLEMENTATION OF CRMCommunication within the organisation is essential in the implementation of the CRM strategy. Without the communication of information to employees, there will be increased resistance to change, lower degrees of participation in the change process and a bad motivational effect on staff. The relationship with customers is managed through communication with them through a two way flow of information. This is done through organisation communicating with each customer – telephone, email or SMS. The employees who deal with the customer need to record the communication and need to be trained in handling complaints and comments by the customer.

CONTROL OF A CRM STRATEGYAny strategy will have key areas that will determine whether it was successful in achieving its goal. The CRM strategy is one that requires a great deal of investment on the part of the organisation, and it is necessary to determine if it has been successful. The success of any strategy is determined by the objectives that have been set for the strategy

Indicators of the strategy’s success include: -revenue increases that occur as a result of the strategy, as well as the associated decline in costs -the acquisition of new customers -good retention rates of existing customers -high revenue and profitability for new customers in comparison to existing customers -acquiring competitors’ share of business -acquiring competitors’ share of core customers’ business

THE SUMMARY In order to implement a CRM strategy, it is necessary to have the right technology, the right processes and the right people. The implementation process depends on first having these three key

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MNM3014 Study Notes

components in place, and then fully implementing the CRM strategy. These three components need to be adapted where necessary to ensure the success of the CRM strategy. It is also necessary to pay attention to the way in which control will take place in order to determine whether the strategy has been successfully implemented.

Assessment Questions Explain & illustrate the importance of & the prerequisites for implementing a CRM strategy in

an organization. The key issues in implementing CRM in the organization require changes in the following

areas: leadership, technology, processes & people. Illustrate the implications of these changes for a large manufacturing organization.

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