If you do build a great experience, customers tell each other about that. Word of mouth is very powerful.

Jeff Bezos, CEO Amazon.com

Learning Objectives:After studying this chapter, you should be able to learn:

How CRM has changed over time. Explain the concepts of customer retention and

customer recall management. About customer experience management (CEM). Customer profitability. Customer lifetime value (CLV). How organisations can leverage the latest concepts

coming up in the area of CRM.3

Introduction

As we know, there is only one which is constant in the world and that is change. Every discipline evolves and so is the case with management. Management in general and marketing in particular are evolving very fast with passage of time. Marketing has evolved from customer acquisition to customer relation. Even in companies, Customer Relationship Management approach has moved far from customer satisfaction to customer delight and customer ecstasy.

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Changing Roles of CRM The explosion of new channels and new media, web in

particular, has caused organisations to look at ways to exploit their benefits. Customers want the flexibility of being able to chose when and how they make contact whether via phone, web, e-mail, fax or by any other means. The challenge for organisations is to look for low-cost solutions that will ease the development and deployment of new and existing applications over new channels.

Most organisations are structured by functional specialisation (e.g. marketing, sales, and customer service) in which each department has a unique relationship with the customer. In this model, there is no comprehensive view of the customer and no broad strategy for the relationship. The enterprise typically does not also understand the existing or potential profitability of that customer.

On the other hand, an end-to-end CRM strategy focuses on the complete customer value chain. In this model, lines of business collaborate around the customer, focusing on enhancing the customer experience and increasing customer lifetime value.

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Customer Retention Management In this era of intense competition, it is very important for any

service company to understand that merely acquiring customers is not sufficient because there is a direct link between customer retention over time and profitability and growth. Customer retention, to a great extent, depends on service quality and customer satisfaction as well as the ability of the organisation to encourage customers to complain and then recover when things go wrong.

According to a report published by the American Society of Quality and Arthur Anderson Consulting, Inc. in 1977, it costs five times more to attract a new customer than retaining one. The operating cost decreases when a customer stays. Financial services being rich in experience and credence qualities, it takes some time for customers to get accustomed to them and once they are used to the services and are satisfied with the service provider, they tend to purchase more over a period of time.

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Customer Retention . . . Contd.

Considering the importance of retaining customers in Banking Industry, Reicheld and Sasser coined the term zero defection. They highlighted that companies can boost profits by almost 100% by retaining just 5% more of their customers. In his book on the loyalty effect, Frederick Freichheld brought out the following facts relating to customer retention:

Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers.

The average company loses 10% of its customers each year. A 5% reduction in the customer defection rate can increase

profits between 25% and 85%, depending on the industry. The customer profit rate tends to increase over the life of the

retained customer.7

Reasons for Customer Switching:Pricing (high, unfair and deceptive)Inconvenience (wait for service and for appointment)Core service failure (service mistakes and billing

errors)Service encounter failure (uncaring, impolite and

unresponsive behavior)Response to service failure (negative, no and reluctant)Competition (found better service)Ethical problem (cheating, unsafe)Involuntary switching (customer moved, provider

closed)

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Strategies for Customer Retention

It requires a well carved out strategy to retain the existing customer with the company and with its offers. Following is the set of strategic initiatives required for customer retention:

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Complaint Management System Any worthwhile complaint management system has to have the

following basic features:1.Visibility: Customer should know where to complain.2.Accessibility: Customer should know how to complain. As a rule of

thumb, the more formal the system for lodging complaints, the less accessible it is to customers.

3.Responsiveness: Complaints need to be dealt quickly. The quicker the complaints are dealt with, the higher the customer satisfaction.

4.Customer-focused approach: A service provider who adopts a customer-focused Approach invites complaints and indicates commitment of resolving the complaint by its words and actions in all fairness.

5.Accountability: Someone in the organisation has to take responsibility for complaint handling.

6.Continuous improvement: This is about looking at the root causes and fixing them.

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Service Recovery Strategies

It is very important for service companies to have service recovery strategies, which can be applied in case of service failure. The following steps are useful in an effective service recovery system:

1. Measure the costs of effective service recovery. It should include the indirect cost also, when a customer departs unhappily.

2. Break customer silence and listen closely for complaints.3. Act fast.4. The front line people or employees must be trained and

empowered by the organisation.5. Close the customer feedback loop.

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Managing Customer Waiting The organisation should analyse

its operational processes in order to identify and remove inefficiencies or bottlenecks, if any.

In case waiting cannot be avoided, a reservation system can be used.

Since unoccupied time is felt longer than occupied time, keep the customer occupied by installing distractions that entertain and physically involve him. For example, TV sets, magazines and reading material can be provided in waiting area.

Provide 'waiting duration information', i.e. information about the expected length of wait, and/or 'queuing information', i.e. a customer's position in queue with continuous update.

If unexpected delays occur, explanation should be given to the customer. This helps in reducing uncertainty and customer irritation. The key is to impress upon the customer that he has not been forgotten. Simple things such as providing a glass of water or a cup of tea to the waiting customer can do wonders.

Keep resources not serving the customer out of sight. This can be done by keeping idle employees out of view and conducting activities that do not involve customer interactions out of customer's sight.

Try to reduce pre-service waiting time by transferring some of the pre-service waiting to the service encounter phase.

A smiling service person who knows his job well can be very helpfulin overcoming many negative effects of waiting. Therefore, trainingand incentive/rewards for providing good service should be made.

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Managing Customer Waiting . . . Contd.

Besides, Berry and Parasuraman have developed a framework which suggests that retention marketing can occur at four different levels. Each of the successive levels of strategy results in ties that bind the customer a little closer to the firm. The four levels of retention strategy are:

Level one: Financial bonds Level two: Social bonds Level three: Customisation bonds Level four: Structural bonds.

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Customer Recall ManagementWith increasing competition and at the same time decreasing

customer loyalty in the service markets, the service providers have to address not only prospective and existing customers but also the lost ones as a third distinct target group for their customer management initiatives. Customer recall management is about winning back the customers who have either reduced their level of business transactions with the company or have stopped transacting at all. It adopts a specific management process consisting of analysis, actions and controlling and offers marketers a profitable customer market.

In order to recall the lost customers, the marketers may adopt the following strategies:

Personalisation Strategy Differentiation Strategy Customer Delight Approach

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Customer Experience Management To become customer-focused, a company needs to be able to

deliver the right customer experience. Growing customer demand comes from a focus not just on products, but on the total experience.

According to Shaun Smith, co-author of the book "Managing the Customer Experience: Turning Customers into Advocates":

More than $46 billion was spent on CRM systems to help institutions get closer to customers.

Yet, Gartner Research estimates that 55% of the CRM programmes drive customers away and dilute earnings.

Brand loyalty has declined overall by 25%, but good brand experiences can increase customer loyalty by 33%.

The organisations practising CEM are proving that the answer lies in optimising the entire experience for customers across all points of interaction and in all activities. Front-end or customer-facing applications, contact centres, branches and every employee must provide the consistent and desired experience across every touch point.

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As Bernard Schmidt of Columbia Business School, in his book "Customer Experience Management", explained that the customer experience could be looked at in terms of three key components —

the brand experience (encompasses the "look and feel" of logos and signage, packaging, and retail space. It also includes messages and imagery in advertising, collaterals, websites, and the design and experiential features of the product itself. It is mostly about static design elements.)

the customer interface (consists of all the dynamic exchanges and contact points where the company interacts with a customer, namely, face-to-face in a store, in a sales visit, at a hotel check-in, or a customer event. It also comprises automated interactions such as e-commerce or an ATM machine, and mediated human interactions such as call centers, e-mail, or instant messaging.)

Innovation (includes anything that improves end consumers' personal lives and business consumers' work life. A great customer-centric company does not sit on its laurels with the same experience year after year. Innovations demonstrate the company's commitment to the customer and are what keep the experience compelling, relevant, and unique. They can range from major new products to small innovations in design to fresh marketing campaigns and customer events.)

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Conclusion

The concept of Customer Relationship Management is evolving and is providing sample scope for many other developments in an industry to take place. Over recent past, the researches and practice of CRM has led to many discoveries of concepts and theories already discussed. The Customer Relationship Management has now become Customer Experience Management. The customers have now been evaluated on the basis of not just immediate profitability but all the future profits they may come with in due course by calculating their lifetime value for the organisation.

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Project Assignment

Assume that you are Store Manager of a newly-opened retail hyper market and want to leverage customer potential based on superior service and excellent experience. Design your customer experience initiatives at the store. Who would be the customers for whom superior service would be offered and how would they be selected?

REVIEW QUESTIONS1. What do you mean by the concept of

Customer Experience Management? How is this different from Customer Relationship Management?

2. "Customer profitability is a key factor that needs to be identified before designing exclusive CRM programme." Elucidate.

3. How can organisations use the concept of customer profitability for strategic gains?

4. Customer lifetime value is calculating all the future gains of the organisations and treating the customer on service parameters accordingly. How far do you agree with the approach?

5. Is it possible to calculate the future earnings of a customer? If yes, how?

6. What is EMM? Discuss its advantages in solution to CRM.

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