Cross-functional issues in the implementation of relationship marketing through customer relationship management

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Abstract

There is a major change in the way companies organise themselves as firms switch from product-based to customer-based structures. A key driver of this change is the advent of Customer Relationship Management which, underpinned by information systems convergence and the development of supporting software, promises to significantly improve the implementation of Relationship Marketing principles.

In this paper we explore the three main issues that can enable (or hinder) the development of Customer Relationship Management in the service sector; the organisational issues of culture and communication, management metrics and cross-functional integration — especially between marketing and information technology.

Introduction

Customer Relationship Management (CRM) has its roots in relationship marketing which is based in turn on the formative work by Berry (1983), the IMP Group (see e.g. Ford, 1990) and Christopher et al. (1991). Seminal contributions to the relationship marketing debate were made by Reichheld and Sasser (1990) reporting on the customer retention work of Bain and Co. These findings indicated that a 5 per cent increase in customer retention resulted in an increase in average customer lifetime value of between 35 and 95 per cent, leading to significant improvements in company profitability (Reichheld, p. 36) (Figure 1).

Reichheld (1996) concluded that there are six underlying reasons why retained customers are more profitable (p. 39):

  • Customer acquisition costs may be high, so customers may not become profitable unless they are retained for one or more years;

  • There will be a stream of profits from the customer in each year after acquisition costs are covered;

  • Customers buy more over time, so revenues go up; companies become more efficient at serving them (there is a learning curve to the relationship), so costs go down;

  • Retained and satisfied customers may refer other potential customers;

  • The relationship has a value to the customer too, so that retained customers tend to become less price-sensitive.

The purpose of relationship marketing is to improve long run profitability by shifting from transaction-based marketing, with its emphasis on winning new customers, to customer retention through effective management of customer relationships (Christopher et al., 1991, p. 19). While the development of theory in relationship marketing continues unabated, the key question facing practitioners is, how can this shift in management focus be implemented in practice?

This paper sets out to address issues concerning relationship marketing implementation through the application of Customer Relationship Management (CRM) and related technologies.

Section snippets

Customer relationship management

CRM complements the relationship marketing perspective. It is defined by Couldwell (1998) as, ‘.. . a combination of business process and technology that seeks to understand a company's customers from the perspective of who they are, what they do, and what they're like.’ As is the case with relationship marketing, CRM focuses on customer retention (Lockard, 1998, Deighton, 1998) and relationship development (Galbreath, 1998). According to Kutner and Cripps (1997), CRM is founded on four

The adoption of CRM by industry sectors

Despite the enthusiasm of many commentators, acceptance of CRM is by no means universal. Woods and Remondi (1996) found that many high-technology companies do not recognise the potential benefits of CRM to sales effectiveness and long-term marketing success and still use traditional marketing approaches. Others think that these classical marketing skills, and the basics of quality, cost and convenience, rather than ‘expensive IT and neural networks’, are what is really needed to give an

Committing to CRM: organisational issues

A major change is already underway. The proportion of firms organised around their customers is expected to rise from the current level of about 20–50 per cent by 2002. By that time, about three-quarters of firms expect to achieve a high degree of integration between sales and IT functions in contrast to less than 30 per cent in 1998. To support these changes, the proportion of companies operating a data warehouse is expected to more than double to over 80 per cent (Economist Intelligence Unit,

CRM adoption and management metrics

Spitler (1997) reinforces Jenning's view, pointing out the failure of many industries to adopt appropriate metrics, ‘If there is a single shortfall today in the [banking] industry's migration to a customer relationship model of the business, it is the lack of adequate, insightful customer MIS (Marketing Information Systems) and customer performance metrics.’ Many commentators are also concerned about the shortcomings of existing performance measurements, such as Return on Investment (ROI) which:

CRM convergence and cross-functional integration

The key principles involved in relationship marketing are the gathering, co-ordinating and analysing of accurate data on customers, developing marketing strategies that personalise the relationship, and maximising the value to the organisation by focussing on higher value customers. This calls for a considerable degree of cross-functional co-operation. For example, all of the departments that have dealings with customers (e.g. accounts, despatch, sales, customer service and even distributors

Managerial implications

IT has the potential to transform relationship marketing by generating market knowledge, supporting group decision-making, and facilitating customer transactions. The financial services industry has taken an early lead in CRM implementation (Codington and Wilson, 1994) because its transactions are essentially IT-based, and these firms already hold a wealth of information about individual customers. However, the use of technology on its own is not sufficient. Although most financial services

LYNETTE RYALS, Cranfield Centre for Advanced Research in Marketing, Cranfield University School of Management, Cranfield, Bedford MK43 0AL. E-mail: [email protected]

Lynette Ryals is Lecturer at Cranfield University School of Management and Director of the Executive MBA programme. She has worked in finance and marketing in industry and is co-author of Customer Relationship Management: The Business Case (FT Prentice Hall Series Management Report).

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    LYNETTE RYALS, Cranfield Centre for Advanced Research in Marketing, Cranfield University School of Management, Cranfield, Bedford MK43 0AL. E-mail: [email protected]

    Lynette Ryals is Lecturer at Cranfield University School of Management and Director of the Executive MBA programme. She has worked in finance and marketing in industry and is co-author of Customer Relationship Management: The Business Case (FT Prentice Hall Series Management Report).

    1. Download : Download full-size image
    SIMON KNOX, Cranfield Centre for Advanced Research in Marketing, Cranfield University School of Management, Cranfield, Bedford MK43 0AL. E-mail: [email protected]

    Simon Knox is Professor of Brand Marketing at Cranfield University School of Management with a strong industrial and consulting background. He is currently leading a research team on Customer Relationship Management, and is co-author of Competing on Value (FT Pitman Publishing) and Creating a Company for Customers (FT Prentice Hall).

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