Customer Relationship Marketing

A kirana owner in Indore knows which families buy what, keeps their favourite brands in stock and gives regulars credit. A supermarket chain with lakhs of customers cannot remember faces, yet it wants the same loyalty.

Berry introduced the term in 1983. Relationship marketing builds long-term ties with customers, employees and partners, rather than focusing on single transactions. Its aims are retention, long-term engagement, loyalty and higher profitability.

Strategy and system. Relationship marketing is the strategy: retention goals, public relations, marketing and advertising. Customer relationship management covers the operational tasks that support it.

Kotler and Keller define customer relationship management as the process of carefully managing detailed information about individual customers and all customer touch points to maximise loyalty. A touch point is any occasion on which a customer meets the brand: marketing emails, service calls, website visits, store visits and loyalty programmes. A hotel's touch points include reservations, check-in and check-out, frequent-stay programmes, room service, business services, the gym, laundry, restaurants and bars. The internet has moved marketing from mass marketing to personalised marketing through email, websites, call centres and databases.

Thoughtful firms turn customers into clients. Customers may be nameless, served as part of a mass or segment by whoever is available. Clients cannot be nameless: the professional assigned to them serves them individually.

Why retention matters. Keeping customers usually costs less than winning new ones. Frederick Reichheld and W. Earl Sasser (1990) found that cutting customer defections by 5 per cent could raise profits by 25 to 85 per cent, depending on the industry. Churn is the rate at which customers leave. Customer lifetime value (CLV) is the present value of the profits a customer will bring over the whole relationship.

CLV, worked step by step (illustrative numbers). A family spends ₹3,000 a month at the kirana store, and the store keeps a 10% margin. That is ₹300 profit a month, or ₹3,600 a year. Suppose the family stays three more years, and money is discounted at 10% a year:

Undiscounted, the three years add up to ₹10,800. Discounting gives less, because a rupee earned later is worth less today. Losing this family over one billing error costs about ₹8,950, not one month's ₹300.

Don't confuse relationship marketing with CRM software. Relationship marketing (CRMk) is the strategy: which customers to keep, and how. CRM is the system that records data and touch points to carry the strategy out. A firm can buy the software and still treat every customer as a one-off sale.

Where it breaks. Not every customer wants a relationship; some buy on price each time and ignore loyalty offers. The 25 to 85 per cent range came from particular service industries, so it is not a rule for every firm. CLV rests on guesses about how long a customer will stay.

For exams. Know Berry (1983) for the term, Kotler and Keller's definition of CRM, Reichheld and Sasser's 5 per cent and 25 to 85 per cent, and the meaning of CLV, churn and touch points.

CRMk is the strategy; CRM is the technology.

A bank sends the same credit-card offer to ten lakh customers, including people who already hold the card. Most delete it, and some unsubscribe from all its messages.

One-to-one marketing (Don Peppers and Martha Rogers, The One to One Future, 1993) treats each customer as a segment of one. Their IDIC model has four steps. It suits complex products that need continuing engagement.

In the IDIC model, firms spend proportionately more effort on their most valuable customers (MVCs). They find them by estimating customer lifetime value: the net present value of future profits from purchases, margins and referrals, less customer-specific service costs. One-to-one marketing suits firms that collect much individual data and sell many products. Those products can be cross-sold, need periodic replacement or upgrading, and are of high value. For other firms, the investment may exceed the payoff.

Permission marketing (Seth Godin, 1999) asks for the customer's consent before sending marketing messages. Communication then becomes anticipated, personal and relevant. It is the opposite of interruption marketing, which pushes messages at people who did not ask for them.

Participatory marketing. Permission marketing assumes consumers know what they want. When their preferences are vague or conflicting, participatory marketing may fit better: firm and consumer work out together how best to satisfy the consumer. Customers help to develop and promote products, acting as co-creators, advocates and content creators. Not every consumer wants to be involved with every brand, and even then only some of the time.

Reviews and recommendations. Recommendation by a relative or friend remains the strongest influence on choice. Online ratings and reviews matter more and more, and some stores display them. Firms court bloggers and influencers with large followings through samples and early information; such favours should be disclosed. Online retailers add their own recommendations. Kotler and Keller cite one estimate that recommendation systems contribute 10 to 30 per cent of an online retailer's sales.

Don't confuse permission marketing with one-to-one marketing. One-to-one marketing is about tailoring the offer to each customer. Permission marketing is about consent to be contacted at all. A firm can personalise a message that nobody agreed to receive; that is still interruption.

Where it breaks. One-to-one marketing needs rich data and many products to sell; a firm with one cheap product rarely recovers the cost. Permission is easy to lose: one irrelevant message too many, and customers withdraw it. Paid influencer praise misleads buyers when it is not disclosed.

For exams. Match Peppers and Rogers (1993) to one-to-one marketing and IDIC, and Godin (1999) to permission marketing. Know IDIC in order, and that interruption marketing is the opposite of permission marketing.

Identify, Differentiate, Interact, Customise.

A mobile shop in Jaipur wins about 100 new customers a month from a promotion, yet its customer list stays the same size. Customers are leaving as fast as they arrive.

The leaking bucket. Adding customers while losing others is like pouring water into a leaking bucket. Churn has common causes: poor service, unmet expectations, billing errors and complex processes.

Measuring it, step by step (illustrative numbers). A shop starts the year with 2,000 customers. By December, 300 of them have stopped buying.

New customers won during the year do not count, because the rate follows the starting group. At 85% a year, after three years 2,000 × 0.85³ ≈ 1,228 of them remain. At 90%, 2,000 × 0.9³ = 1,458 remain. After three years, five points of retention have kept 230 more customers.

Reducing defection. Measure the retention rate; find why customers leave and which causes the firm can manage; then compare a lost customer's lifetime value with the cost of keeping them.

Customer base management (Kotler and Keller) aims to:

• reduce churn and increase the length of relationships;
• raise each customer's value through share of wallet, cross-selling and up-selling;
• make low-profit customers more profitable, or let them go;
• give high-value customers disproportionate attention.

Customers can be segmented by loyalty, profitability and engagement. The marketing funnel (awareness, interest, purchase, loyalty) shows what share of the target market reaches each stage. The conversion rate between stages reveals bottlenecks, as when far fewer triers become repeat users.

In the funnel above, 40% of aware buyers try the atta. Only 15 ÷ 40 = 37.5% of triers buy again, and 8 ÷ 15 ≈ 53% of repeat buyers become loyal. The trial-to-repeat step has the lowest conversion (37.5%, against 40% from awareness to trial), so the firm checks the product and the price before spending more on awareness.

Three kinds of activity improve loyalty and retention:

• Interacting with customers and listening to them.
• Loyalty programmes: frequency programmes reward customers who buy often and in quantity; club membership programmes are open to all buyers, or to an affinity group or a fee-paying few.
• Institutional ties, such as equipment or computer links that help customers manage orders, payroll and inventory.

Building loyalty. Leonard Berry and A. Parasuraman (1991) described three levels of relationship marketing, each binding the customer more tightly.

Other loyalty builders: superior products and experiences, listening to the voice of the customer, easy complaint channels, and recognising employees who serve customers well.

Don't confuse cross-selling with up-selling. Cross-selling sells a related product: a bank sells a home-loan customer an insurance policy. Up-selling sells a higher-value version of the same thing: a premium account instead of a basic one.

Where it breaks. Financial rewards are the easiest level for rivals to copy; a bigger discount next door can undo them. A customer held only by points or switching costs is retained, but not truly loyal. Letting low-profit customers go can also hurt, if they bring referrals or later grow.

For exams. Expect Berry and Parasuraman's three levels in order, and a retention or churn calculation.

Financial, social, structural: each binds more tightly.

A car dealership in Pune buys CRM software. A year later its salespeople still keep leads in their own notebooks, and the system holds little that is useful.

Francis Buttle's CRM value chain (2004) has five primary stages:

• Customer portfolio analysis: which customers to serve.
• Customer intimacy: knowing them.
• Network development: with suppliers, partners and employees.
• Value proposition development.
• Managing the customer lifecycle: acquisition, retention and development.

They rest on four supporting conditions: leadership and culture, data and IT, people and processes.

The five-step CRM process is the operational sequence a sales and marketing team follows.

At each step a different tool is used:

• Marketing builds buyer personas, fictional profiles of ideal customers by demographics, interests, values and challenges, to target awareness campaigns.
• Lead generation draws prospects into the sales funnel through sign-up forms, chat and content.
• Lead scoring helps sales staff spot the prospects most likely to buy.
• Support teams gather feedback after purchase, and upselling offers warranties or higher-featured products.

The dealership, in numbers (illustrative). It gets 400 leads a month, and 32 of them buy: a conversion rate of 32 ÷ 400 = 8%. With lead scoring, salespeople call the 100 highest-scored leads first. If 20 of those buy, that group converts at 20 ÷ 100 = 20%, so the team spends its time where sales are likeliest.

What CRM systems do. They record leads and contacts, and sort them into customers, lost customers, prospects, suppliers, partners and influencers. They track every interaction centrally, so all staff see the history. They reveal prospects not yet sold to, and keep customer data when staff move on.

Benefits: higher conversion rates; closer relationships; better business performance through cross-selling, up-selling and referrals; and higher employee productivity, by automating tasks such as email, lead scoring and pipeline management. Cloud-based CRM adds flexibility and access from anywhere.

Don't confuse the value chain with the five-step process. Buttle's value chain is a strategic model: five stages resting on four supports. The five-step process, from awareness to upselling, is a sales routine. Shorter versions of the value chain often leave out customer intimacy; Buttle's has five primary stages.

Where it breaks. Software fails without the supports: leaders who use it, staff trained to enter data, and processes built around it. Poor data gives poor lead scores. Holding more customer data also brings privacy duties, covered in Emerging trends in marketing (this unit).

For exams. Know Buttle's five stages and four supports, and the five process steps, in order.

Awareness, leads, conversion, support, upselling.