2. LITERATURE REVIEW2.1 Introduction The Literature Review comprises of relatedtheories and works of authors, discussed in order to explain the purpose of andto answer the research problems of the study.
In the first part of the theory,an overview on CRM and the different types of CRM is elaborated. The secondpart comprises of the development of a CRM Strategy especially in the FinancialSector and lastly it covers factors on Focus on the Customers; ManagingCustomer Complaints; Customer Retention through Quality Service; ServiceRecovery; Benefits and Barriers to CRM. 2.2 What is Customer RelationshipManagement? Customer Relationship Management (CRM) in its simplest form, is a way to manageleads; people having an interest into the business and its existing customersin the most efficient way possible to extract the most value. Companies don’tgo through all these efforts for nothing. They do it to increase customerloyalty, sales and make more profit in the future. Rogen Baran, ChristopherZerres & Michael Zerres, 2014 stated that CRM is a mean of addressing increasingcompetition, the changing economic conditions and promotional dependencethrough the use of customer knowledge; knowledge gained through relationshipdevelopment and marketing programs.CRMresults in high level of customer satisfaction leading to long term buyingrelationship between the supplier and the customers.
Since it is good for thebusiness, CRM is everybody’s responsibility in an organization. Paul Greenberg2017 argued that customers want to feel valued and also want to feel that thecompany respects them in ways that makes the engagement worthwhile. Gray &Byun, 2001 believe that this relationship involves the continuous corporatechange in culture and process which helps to provide flawless synchronizationbetween customer service, marketing, information technology and other customerrelated functions. 2.2.1 Types of CRM Typesof CRM could be understood through two perspective: 1. Proactive versus Reactive CRM ProactiveCRM would state that the firm is responding to customer’s reactions,complaints, suggestion or requirement whereas reactive CRM is where theorganisation anticipates the means to cope with future needs of customersthereby providing value to customers through their offerings.
2. Operational CRM/ Front office CRM Themain goal of operational CRM is to combine all business functions in terms ofsales, marketing and support databases into a specific repository which dealswith sales force automation system, interactions with customers at the firsttouch points through mails, phones, fax or loyalty programs, managing campaignsand finally sales management system. 3. Analytical/ Back office CRM Thistype of CRM is involved in analyzing different customer’s demand, preferencesand activities or complaints with the view of customizing a solution to theclient’s queries. Effective applications such as Online Analytical Processingcould be used to support decision making as well as data mining which willanalyse patterns of large amounts of information collected about customersthrough prediction, sequence and association.
4. Collaborative CRM Theaim of collaborative CRM is to use the information collected by all functionsto improve quality service and create a lifetime value with partners. This isdone through two way communication, improve effectiveness in all touch points,to raise customer switching costs and customer retention. Accordingto Kracklauer H. Alexander and Mills D. Quinn, (2004), collaborative CRM is anintegrated organisation wide system which concede for greater customer responsivenessthroughout the supply chain. 2.
3 Strategic Customer RelationshipManagement (CRM) An excellent start point for a company to define a CRM strategy is to establishwhat its ideal customer is. If the company could attract just the perfectcustomers, that have a strong relationship with the business, which areretained for a long period of time, these customers will have characteristicsand attributes that the company should be able to articulate, define andbreakdown into a profile. Aswell as defining the ideal customer, the company also needs to define thejourney – from the point where they’ve never been a customer to their firstengagement, developing a qualified sales opportunity, bringing them onboard andthen developing the relationship into a long term relationship. According toButtle, F (2008) Customer Relationship Management (CRM) is the “core businessstrategy” that bridges internal affairs and functions, and external networks,to create and deliver value to targeted customers at a desired profit.Starky,Woodcock (2000) defined it as a “business attitude” – they view it as an enhancedvalue activity, which identifies, determines and focuses the variouscapabilities of the organisation to the customers opinion in order to deliverlong term uncommon customer value, at a profit, to well-known existing andfuture customer segments. Each companyneeds to do this within the context of the market in which they operate becauseideally the way they sell will exploit the companies’ unique to the market inorder to attract the ideal customer in the first place.
2.3.1 Developing a CRM strategy GettingCRM right is tough, and involves quite commitment but both time and money. Eventhough CRM technology gets more and more sophisticated and Project Managementgets more and more mature, it is still reported that between 40% to 50% of CRMprojects fail to make their objectives. Researches made by Gartner Group (2001)disclosed an average of 50% of failure.
A survey made by Forrester in 2009found that the rate of failure was to 47%.RickCook (2010) underlined that the common facts and factors that usuallycontributes to these failures are;· Lack of focus – where the company fails toalign its focus on the enterprise’s most strategic imperatives, which for him,the company knows what its goals are and being able to express them in clearand measureable terms.· Lack of commitment – from the topmanagement to the sales staff and the collective group of customer-facingemployees.· Engaging into CRM Technology as the onlysolution – Successful CRM also involves a willingness to change any aspect ofthe way the company use to relate to its customer and embrace the change as thenew normal.
This can imply the improvement and redesigning of customer facingsales, marketing customer support activities, among others.Shah(2002) states that the planning and the development of a CRM strategy is notthe task of an individual but a team – taking us to the conclusion that thefirst step on developing a CRM strategy is to build a team and then eventually,to define the company’s vision and set high level but attainable goals in orderto avoid lack focus and lose track of the ended goals. 2.4 Customer Relationship Managementin Financial Institutions Inthe myth of business, customers’ expectations tend to be the moving target inorder to get CRM right and have loyal customer.
However, no one just meets thecustomers’ expectations – we either exceed it of we fall off. Some of thecommon expectations of customers in the banking sector are:Ø Trustand Security – give them the comfort that their money is in safe hands and canbe trusted to keep it in confidentiality.Ø Accessibility– banking services or products should be accessible in a convenient way.Ø Courtesy– showing politeness & professionalism either interacting personally orthrough telephone to the customer and that, despite the financial status of theperson.Ø Professionalismand Appearance – in terms of grooming of the employees and the infrastructureof the bank itself; IT; Websites and physical bank units.
The expectations of customers in thebanking sector may look familiar to those in other sectors but still, some arepeculiar in banks – and it they have difficulties in handling and coping withthese expectations, the threat of disruption from other banking serviceproviders will become a reality. Holdingbid data about the current/future trend in the sector is a competitiveadvantage for any firm. According to (Venkatraman and Henderson, 1998): Ø Customer response to campaignsØ Order and order fulfilment datesØ Products sales and purchase dataØ The account transaction informationØ The web interaction dataØ Customer demographic dataØ Sales data with various channelsArethe following data financial organization should collect in order to haveeffective CRM systems. Moreover (Beckett-Camarata et al., 1998) added that Theability to identify profitable customers and then customize marketing on thebasis of customer value has enabled many banks to punch above their weight intoday’s competitive environment. 2.5 Focus on the customer Manycompanies talk about being customer focused without really knowing what itmeans. Many companies begin, and many continue without a clear sense of theirtarget customer.
Most of them like to feel like the company is addressing themdirectly. Because of high competition and availability of similar products onthe market, customer satisfaction is a vital part of successful customerrelationship management. Buttle (2009) states that customer satisfaction andloyalty is one of the main reasoning for CRM, hence improving the company’sbusiness performance. Evenif the supplier does not offer the best price in a particular transaction, customerloyalty means sticking with the supplier who treats them well and gives themgood value in the long term – Lovelock and Wirtz (2007).
Thoughthere is no definite rule to create customer loyalty but according to Bonsal andGupta (2001) studies have shown these following aspects might help to buildthat; firstly – focus on key customers; secondly – generating high level of customersatisfaction with every interactionproactively; thirdly – understand customer needs and demand, then respond to thembefore the competition does; fourthly – develop closer ties with customers andfinally – create a value perception. Measuringcustomer satisfaction could be very difficult at times because it is an attemptto measure human feelings. However measuring customer satisfaction should beset as a parameter. It also considered as reliable feedback and it provides aneffective, direct, meaningful and objective way the customers’ preferences andexpectations – (Gerson, 1993). It was for this reason that some existingresearcher presented that “the simplestway to know how customers feel, and what they want is to ask them” this appliedto the informal measures – Levy (2009). 2.6 Managing Customers Complaints Acommonly used definition of complaint is “an expression of dissatisfaction”,whether justified or not. Google dictionary defines a complaint as a statementthat something is unsatisfactory or unacceptable.
(Landon 1980), defined it as a declaration of dissatisfactionon a service provider’s behalf to a responsible party.Howevermany authors saw it as an opportunity to be used as a roadmap and an audit toolfor developing a culture which is not against complaint handling but for themaximization of customer retention. (Eccles & Durand, 1998) argue that companiesshould consider factors such as the reasons behind customer complaints, mutualbenefits, therefore complaint handling and ways to instill a service recoverystrategy.”Customer complaints are a valuable source ofimportant market intelligence which companies should use to correct the rootcause of the problem and to improve the service or product”.
(McCollough, Berry and Yadav, 2000).As per the (7Tips for Managing Customer Complaints | Business Blogs, n.d.), in order to turna possible catastrophe into a solidly loyal customer, these are the followingtips companies should put into practice: (i). When a customer yells at you because he isfrustrated, disappointed, and angry for something you both know is not yourfault, don’t take it personally. This will help you control your own attitude,and that will ease the situation. (ii).
Don’t ignore complaints, even when theyare indirect and non-confrontational. When there is basis to them, it shows theflaw in the business, which was up to that point, unknown to you. When this isthe case, acknowledge such to the customer.(iii). Keep a log of complaints and review themon a regular basis. A standard form is a good idea, and everything thathappens, including follow-up should be written down and dated.(iv). Always have a standard way of dealing withcomplaints – whether phone complaints, emails, letters, and face-to-faceconfrontations.
They are all important clues to how the business is doing. (v). If a customer receives a product that isnot working, make him much happier if he can bring it right to you and exchangeit. If a new one has to be ordered, then place the order immediately, and don’twait for him to ship it back. The company will have made a friend when he getsit back just days after he has returned it! (vi).
Always try to compensate a dissatisfiedcustomer (even if there is any basis to his complaint). Refunds, a discount ona different model, getting it fixed, or replacing it, will renew his trust inyour business. (vii). When nothing you do calms your customer,ask him what he would do in your shoes. Does he have a better solution? Thenexplain why that would/would not be feasible, or modify it to a point whereboth you and he feel it is fair. Thanking him for his input will make him feelimportant and you will win kudos. 2.7 Customer Retention through QualityService Whatdoes differentiate between good, bad or indifferent companies is the quality ofservice.
An excellent customer experience can change the perception thecustomer has on the company. Attracting new customers costs more than retainingexisting customers – Good quality customer service keeps customers coming back;bad customer service drives them away, taking their family and friends withthem.Customersexpect consistent quality of customer service; with a similar, familiar lookand feel whenever and however they contact the company – good quality customerservice is only one factor in meeting customer needs. Service quality is theconsumer’s overall impression of the relative inferiority or superiority of theorganization and its services according to Bitner et al (1994), taking us tothe next factor – well-designed products and processes which meet customers’needs more often.
Consequently, to improve competitiveness, banks have tounderstand customer needs and expectations (Parasuraman, 1991) and satisfytheir customers by providing better products and service.Nyeck,Morales, Ladhari, and Pons (2002), stated that SERVQUAL measuring tool “remains as the most complete attempt toconceptualize and measure service quality”. Originally formulated byParasuraman et al.
(1985) it firstly composed of ten various components. Laterin 1988, these ten components were collapsed into five different dimensions ofReliability, Responsiveness, Assurance, Empathy and Tangibility as a basis formaking a tool for testing the service quality. However Francis Buttle particularlynotes that SERVQUAL’s five dimensions (Reliability, Responsiveness, Assurance,Empathy and Tangibility) are not universal and that the model fails to draw onestablished economic, statistical and psychological theory. · Reliability · Responsiveness · Assurance · Empathy · Tangibility Customer Satisfaction and Retention 2.
8 Customer Retention throughRecovery Resultingfrom service failure, service recovery is the process through which the serviceprovider offers additional services for addressing customer complaints in orderto avoid negative impacts. Lovelock and Wirtz(2011) “Service recovery is an umbrellaterm for systematic efforts by a firm to correct a problem following a servicefailure and to retain a customer’s goodwill” or in simple terms, “attempt to deliver service right at thesecond try” Berry, Parasuraman, (1991). The errors, being human ornon-human, are more common in service operations due to the complexity of theconsumer’s needs. As much as the companies try to retain customersdespite that no service system is perfect – that mistakes do happen, they will always try achieve more market share and in this respect, the service recovery enhances customer satisfaction and loyalty.
Servicerecovery in 1970s and early 1980 was meant to deal mostly with damages withintelecommunication, computers renovation or recuperating from naturaldestructive forces according to Brown, Cowles & Tuten (1996). Andreasen& Best (1977) found that since then,marketers together with scholars gradually were stressing on the importance ofbeing not only reactive towards service problems but also toward potentiallong-lasting benefit from recovery which can manifest itself thorough enhancingcustomer loyalty and spreading positive word of mouth Berry, Zeithaml &Parasuraman (1988). Gilly (1987) states that often consumers who get properservice response become more satisfied than those who were satisfied from the coreservice and did not complaint. 2.9 Benefits of Customer RelationshipManagement Accordingto Swift (2001), the benefits of CRM might have an impact on the differentareas in the organisation as explained below: · CRM help companies to reduce overheadsinvolved in acquiring customers; · It is not necessary to have a high numberof customers to have a flourishing business, that is firms might retain thosegenerating high contribution to its market wallet; · Increase customer satisfaction through theuse of technology; data mining could be used to better respond to customer’sdemand and anticipate any change in taste or behaviour and innovateaccordingly; · CRM would help to decrease the number ofcustomer complaints; · CRM would bring accuracy, relevancy andquality data that would be recorded on a centralized database and this wouldimprove worker’s effectiveness for example the sales team and firms couldallocate adequate resources to the identified pattern; · CRM will help organisation in providingcustomized or personalized service thereby improving customer service; · CRM will help in fostering and maintaininglong term relationship with customers and other relevant stakeholders such assupplier among others and finally ; · Increase customer retention might increasethe share wallet of the firm with the following: Ø Reducecost; Ø Increasecross selling, up selling; Ø Morereferrals from satisfied customers; Ø Allowcompany to benefit from competitive advantage; Ø Enhancecustomer loyalty and; Ø Increasebusiness profitability.
2.10 Barriers to CustomerRelationship Management · Quick implementation of CRM without anystudy Somefirms are just implementing CRM just for the stake on being in line with itscompetitors although they do not have a knowhow on this technique; · Lack of information and training CRMwill not only function through the buying of the required technology but thisshould also be accompanied with a trained workflow together with adequateknowledge to embrace this system. · Change in organization’s culture andstructure Thewhole way of operating business functions and hierarchy should be changed inorder to cope with the new techniques of CRM. · Lack of leadership Sometimessenior management do not demonstrate or have adequate charisma or traits todeal with the CRM techniques, they neglect the motivating factor towardsemployees or omit the maintenance and up grading part of the evolution. Others:Ø Poorobjective setting; Ø Inadequateplanning; Ø Lackof change management and; Ø Inadequatepost implementation operation. Theaim of CRM is to rise customer loyalty and corporate profitability although theMETA group identified that “55 % of all CRM projects do not produce results”(Seligman, 2002).