Customer Relationship Management CRM The Heart of Marketing
Length: 1526 words (4.4 double-spaced pages)
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Gummesson (2004) describes CRM as "the values and strategies of relationship marketing with particular emphasis on customer relationships- turned into a practical application." CRM has become a necessity to successfully and profitability manage customers and a firm’s relationship with them, with the market reaching a value of approximately $11.5 billion in 2002. (Xu et al. 2002). However, despite this large spending it is estimated that 70% of CRM implementations fail. (Xu et al. 2002). There are a number of reasons for these failures, such as a failure to implement it throughout the organisation and resistance from employees. But in some cases the buyer-seller relationship does not merit a collaborative-style relationship; the customer may only require a transactional relationship. It is because of this reason than I believe that CRM does not always have to constitute the heart of B2B marketing.
Many firms adopt CRM technologies because it is what their competitors are doing, without clarifying exactly what they hope to achieve from it. Many do not realise that they are already undertaking basic CRM practices, without the use of expensive systems such as Oracle or Siebel. Gummesson (2004) points out that the behaviour of the classical industrial salesman in many successful companies was the same that is advocated in relationship marketing, CRM and key account management such as working in the long term, not evaluating customers in terms of profit per year, aiming for the ‘share of the customer’ and not market share. IBM were doing this in the 1960’s, long before the term CRM was being used.
In the 1980’s successful Japanese firms proved to be leaders in modern management techniques with strong relationships with suppliers, allowing them to produce products of a higher quality and a faster rate than their American and European counterparts. (Ehret, 2004) Their business model focused on economies of scope, as opposed to economies of scale. Industrial firms realised they needed to manage buyer-seller relationships in order to manage cross-functional and cross-organisational processes that would allow them to become more flexible.
Today’s CRM systems are vast multi-functional systems that allow firms to manage multiple elements of relationships with their customers. Xu et al. (2002) offer the four characteristics of CRM as:
1. Sales force automation: Provides easy retrieval of information on customers, deals, products and competitors. Order placement and tracking are integrated so they can be easily monitored.
2. Customer service and support: CRM allows companies to “incorporate an exemplary customer service into its core.” It allows queries to be directed to appropriate experts.
3. Field service: Remote staff can quickly and effectively communicate with customer service personnel to meet customer’s individual expectations.
4. Marketing automation: CRM systems provide up to date information on customers buying habits so that the most effective marketing campaigns can be used to attract new customers and cross-sell to existing customers.
CRM is undoubtedly an important tool for B2B marketers more so than for B2C marketers for a number of reasons. Firstly, customers in B2B markets are much larger in terms of potential revenues they generate and they tend to be smaller in number. Losing just one customer can have a severe effect on company profits. Secondly, business customers have much more specific needs than B2C customers. They are more likely to need tailored products and services.
Before a CRM system is implemented it is essential that a firm looks deeply into its existing situation and identifies a clear view of their CRM priorities and the strategy they will use to meet these priorities through CRM. Rigby et al (as used in Hutt and Speh, 2007) identified a 5 step path in identifying a firms priorities. Once identified and implemented, a clearly defined strategy helps remove the many barriers than often result in the failure of CRM systems.
Firstly is helps to identify the customers a firm should serve. It then allows a firm to identify the best way to deliver products and equally importantly, the service capabilities that are required to ‘add value’ to your package to your customer. Next, it helps a firm to see what their employees need to develop customer relationships. And finally, it identifies the training employees will need, which will increase employee motivation and loyalty.
Once this strategy has been properly identified, the implementation of the CRM system is much more like to succeed. So what are the results of a ‘successful’ CRM system? “The basic idea behind successful CRM implementation is if a seller can create a strong and trusting relationship with its buyers, then these buyers are more likely to perceive value in the relationship and may create a long term revenue stream with the seller.” (Wilson 2006) Keeping customers is far more profitable than recruiting new ones in both B2B and B2C markets. Ehret (2004) believes CRM allows firm to develop value networks. “Value networks allow customers to reduce their degree of vertical integration and rely on a network of specialised companies for supporting operations.” They tend to contract with suppliers that are able to cooperate in a relationship context, allowing both parties to develop from a win-win position through collaborative value creation. (Ehret 2004)
With the huge costs involved in implementing CRM systems, there is a constant question of how to gauge the return on investment. In most cases, the focus is limited to the customer-supplier dyad, it is easy to measure increases in revenues since CRM implementation. Gummerson (2004) notes that accounting systems do not however capture the value of customer relationships. There are many intangible benefits derived from CRM systems such as goodwill, loyalty. He developed a relationship marketing framework with 30 relationships that should be considered when measuring success of relationships in marketing. These 30 R’s include the properties of relationships as well as the involved parties and include internal relationships that are developed when CRM systems reduce the hierarchical nature of many firms. Ultimately there a requirement for “gut instinct” in my opinion because as Gummerson identified, there are too many intangible benefits of CRM to leave the decision of its success to a case of simply looking at revenue increases or decreases.
I have looked at the implementation and results of CRM and as I have said, its plays a huge role in most B2B markets but it is not always a necessary resource. Depending on the nature of the product and the market, some customers will prefer a more distant or transactional relationship. The following characteristics of a firm tend indicate the need for a more transactional approach (Hutt and Speh 2007):
o There are many alternatives available.
o The importance and complexity of the purchase is low.
o There is a low level of information exchange.
o The supply market is stable.
This profile fits buyers of office suppliers, commodity chemicals and shipping services. (Hutt and Speh 2007) Transactional buyers display less loyalty and commitment to particular suppliers so investment in developing a relationship with these sorts of customers may be wasted. “A business marketer who offers an immediate, attractive combination of product, price, technical support and other benefits has a chance of winning business from a transactional customer.”
In conclusion, I do agree that CRM is one of the most valuable tools of the B2B marketer but they have to look closely at whether their customer desires a relationship with their supplier. In many cases they will, and should this be the case, there should be a significant investment in the development this relationship. But there are many markets where no relationship is needed and firms would benefit from investing resources in other areas of the business. CRM systems should never be adopted quickly without making sure the culture of the entire firm is focused on becoming ‘customer-centric’ as the cost of the failure of these systems is too high.
• Hutt, D., Speh, T. 2007. Business Marketing Management: B2B. 9th Ed. Ohio: Thomson South-Western.
• Ehret, M. 2004. Managing the trade-off between relationships and value networks. Industrial Marketing Management [Online] 33. pp 465-473. Available from: < http://web.ebscohost.com.remote.library.dcu.ie/ehost/detail?vid=3&hid=8&sid=9595bcb1-7b5d-49aa-b98b-e9dfaf408165%40sessionmgr2 > [Accessed 14 March 2008]
• Gummesson, E. 2004. Return on relationships: the value of relationship marketing and CRM in business to business contexts. Journal of Business and Industrial Marketing. [Online] Vol 19 (2) pp 136-148. Available from: < http://www.emeraldinsight.com.remote.library.dcu.ie/Insight/viewPDF.jsp?Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0800190205.pdf > [Accessed 14 March 2008]
• Xu, Y., Yen, D., Lin, B., Chou, D. 2002. Adopting customer relationship management technology. Industrial Management and Data Systems 102/8 pp 442-452. Available from: < http://www.emeraldinsight.com.remote.library.dcu.ie/Insight/viewPDF.jsp?Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0291020804.pdf > [Accessed 14 March 2008]
• Wilson, R. 2006. Developing new business strategies in B2B markets by combining CRM concepts and online databases. Competitiveness Review. Vol.16 (1) pp38-43. Available from: [Accessed 16 March 2008]