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Summary CUSTOMER RELATIONSHIP MANAGEMENT MNM3712
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MNM3712Relationship Marketing and Customer Relationship Management
Study Unit One
Traditional marketing approach
1.1 Marketing Concept
- Marketing activities performed by the business are strongly influenced by the marketing orientation that the business
chooses to implement in interacting with customers
- Marketing orientations highlighted include: production orientation, sales orientation, marketing orientation (also
known as the marketing concept) and the societal marketing orientation
- Marketing concept is a management orientation focuses on researching the customers’ needs and wants and then
advocates the manufacturing of a product or service that will satisfy the customer needs
- To implement the marketing concept successfully, three principles must be practised, namely consumer orientation,
profit orientation and organisational integration
- Concept of relationship marketing was initiated and extended to emphasise the building of relationships with
customers, as well as profitably managing those relationships for the long-term survival of the organisation.
- Principles that achieve the marketing concept: Consumer orientation, Profit orientation, Organisational integration
1.2 Traditional marketing approach
- Marketers see traditional approach as a functional approach, that it lacks innovation and uses defensive strategies to
cope, and that marketers practise marketing management instead of marketing-oriented management
1.2.1 The marketing mix
- Marketing is a process that directs the flow of products and goods from the manufacturer to the customer with the
purpose of achieving a reasonable profit
- Requires the mix: product or service, price, place or distribution and promotion
- Product or service is anything a customer might acquire to satisfy a need or a want. For example, a Coca-
Cola soft drink or having a haircut from the hairdresser.
- Price is the amount of money one must pay to acquire a product or make use of service. For example,
paying R10,99 to acquire a Coca-Cola soft drink.
- Place or distribution is the place from where the product is to be sold or from where the service is rendered.
For example, a Pick n Pay outlet from where a Coca- Cola soft drink is bought.
- Promotion is a marketing communication method used to inform and persuade the customers to buy a
product or use a service. It encompasses the use of advertising, sales promotion, personal selling, publicity, public
relations and direct marketing. For example, a newspaper advertisement that gives information about the availability of
the Coca-Cola soft drink at various retailers and the recommended price to be paid by customers.
- Decision taken in connection with price will influence subsequent decisions on product-quality, the promotion to be
undertaken and the distribution channel to be used
- Marketing, as it has been practised traditionally, does not perceive the actual needs, wants and expectations of the
customer as being of paramount importance
1.2.2 Transactional marketing
- Main aim of the organisation is to generate a transaction or a sale
- Involves an exchange between businesses and customers without retaining future sales from existing customers
- Focus of business is to generate revenue quickly and to make possible an exchange process that is sustainable.
- Purpose of relationship marketing is to generate continuous support from existing groups of customers
- This implies the linking of separate transactions, because only this approach enables the utilisation of things such as
the cost saving potential of customer retention
1.2.3 Market segmentation
- Entails the division of the total market into similar sub-markets of customers
- Market segmentation assumes that each segment of the market has similar needs and will respond in a similar way
to the market offering and targeting strategy implemented by the business
- It has become very difficult to group customers into categories or segments
- Masses of customers who are divided into segments based on geographic, demographic, psychographic
and behavioural bases
- Focus is now moving towards segmentation that is based on profitable individual customers – a necessity because
customer wants, and needs evolve continuously.
- Three types
- Behavioural: grouping buyers based on their buying behaviour such as benefits sought, loyalty, status and
attitude towards the product
- Psychographic: by means of categories such as social class, lifestyle and personality
- Profile segmentation: allows for the consumer groups to be classified in a manner that communicates media
can target them like geographic, demographic and socio-economic segmentation
Page 1 of 46
,Study Unit Two
Relationship Marketing
- Process of building and maintaining profitable customer relationships by delivering superior customer value and
satisfaction. Satisfied customers are more likely to be loyal customers and give the organisation bigger buys
- Relationship marketing means attracting, maintaining and enhancing customer relationships
- Objectives of relationship marketing is to identify and establish, maintain and enhance, and terminate relationships
with customers and other stakeholders at a profit so that the goals of all parties involved are achieved
- This is done by encouraging and practising mutual exchange as well as fulfilment of promises
- Relationship marketing entails the following dimensions:
- It seeks to create new value for the customers. The creation of value is the core purpose of economic
exchange between individuals, businesses and countries. Market value refers to the potential of a product or service
to satisfy customers’ wants and needs.
- Relationship marketing recognises the key role that individual customers have, both as purchasers and in
defining the value they want to achieve.
- Businesses that practise relationship marketing are seen to design and align their processes,
communication, technology and people in support of customer value.
- It represents a continuous co-operative effort between buyers and sellers.
- Relationship marketing recognises the value of customers’ purchasing lifetimes (i.e.their lifetime value). The
concept of lifetime value stands for the present value of future profits expected over the customers’ lifetime purchases.
- It seeks to build a chain of relationships both within the business and between
the business and its main stakeholders, including suppliers, distribution channels, intermediaries and shareholders.
- One of the principles of relationship marketing is to identify the most profitable customers so that the
business can focus on customers appropriate to its core strategy.
2.2. Focus areas of Relationship marketing
2.2.1 Individual customer approach
- Individual customer approach involves the application of segmentation, customisation and one-to-one marketing
- Emphasis is on individual customers that are profitable to the business
- Could differentiate, customise and personalise and enables it to gather information about individual customers and
business partners such as suppliers
- Customisation can be defined as tailoring some feature of the product so that the client enjoys more convenience,
lower cost and some other benefit
- Customer knowledge: employees should have the required product knowledge and expertise to effectively address
or respond to the needs of the client
2.2.2 Reconsidering traditional market segmentation
- Use of customer-centric strategies such as customisation and one-to-one marketing has led to the modification and
revision of traditional market segmentation
- In terms of CRM, a customer lifetime value-based segmentation is one that groups or divides customers into
meaningful segments based on customer profitability and lifetime value
- This segmentation approach still takes the traditional bases of segmentation into consideration when decisions are
made regarding the targeting of individual customers.
- Customer lifetime value-based segmentation helps to effectively segment the market using evidence and concrete
information about customer purchase history, attitudinal data collected from satisfaction surveys and demographic and
socio-economic data collected from loyalty/reward programmes
2.2.3 Reconsidering the traditional marketing mix
A. Product
- Marketer developed product concepts, researched the customers and then developed the product that would yield
the desired profit margin for the business
- This never considered the fact that customers want different things at different times and that they are not interested
in one standard product or service.
- Relationship marketing on the other hand involves real-time interaction between the company and its priority
customers (that is, its most profitable customers) as it seeks to move more rapidly to meet their requirements
- Customer participates in the development of the product – and the product that results from this collaboration may
be unique or closely tailored to customer requirements
- More of their knowledge and input are incorporated into product production than was previously the case
- For products and services where the lifetime and volume and margin warrant it, individual customers can and should
be considered in every aspect of the business, including the processes that drive new product and service design
- This is recognition that customers are not equal – they want different things in different amounts at different times –
and that the profit derived from each will vary.
- Key challenge for the marketer is to identify both the core strategic value that will be delivered to the customer and
the elements that the customer can change. In this way, the customer can be put firmly in charge, assembling the
value that he or she wants
Page 2 of 46
,B. Price
- Customers want to participate in decisions regarding the value they receive and the prices they pay
- Where customers are given a standard offering, they will, overall, expect to pay a single price
- Where options are offered, however, some customers will want more than others and will be willing to pay more for
these
- Where customers are given the chance to receive an even more closely-tailored solution, they may well be
prepared to pay even more than for a basic level of customisation
- Where such customers are given options that they do not want, they will often expect these to be removed and that
the price will be adjusted accordingly.
- Relationship marketing, especially in the case of industrial marketing, therefore invites customers into the pricing
process and into all other value-related processes
- It gives customers an opportunity to make any trade-offs they feel to be necessary and to further develop trust in the
relationship.
C. Marketing communication or promotion
- Traditional marketing uses one-way mass advertising to communicate with customers
- Introduction of relationship marketing means that this one-way communication must be replaced with two-way
communication to involve customers much earlier in all the matters that will affect their future purchasing behaviour.
- Technology can make simple promotion become a proper means of communication because it can engage individual
customers at the time and in the manner, that suits them.
- Relationship marketing gives individual customers an opportunity to decide how they wish to communicate with the
business
- Customers can be served as individuals if businesses use technology appropriately
- Using technology, businesses can engage, both interactively and uniquely, with individual end-customers
- Using technologies such as the internet, computer-telephony integration (CTI) at call centres, intelligence at point
of sale, smart cards and interactive voice response, companies can give their customers a host of options for
communicating with them and can always have information on hand to engage, inform and direct each customer with
complete knowledge as to his/ her preferences.
D. Distribution or place
- Traditional marketing sees distribution as the channel that takes the product from producer to consumer
- Relationship marketing considers distribution from the perspective of the customer who decides where, how and
when to buy the combination of products and services that comprise the supplier’s total offering
- Distribution is not a channel but a process – a process that allows customers to choose where, and from
whom, they will obtain the value they want
- “placement”, giving the customers a choice about the location at which they will specify, purchase, receive, install,
repair and return individual components of the products and services
- While traditional marketing considers a product as a bundled package of benefits, relationship marketing unbundles
the product and service and allows the customer to select each element separately to his/her specifications and for
delivery to his/her location
- It offers marketers a chance to help the company to grow in a competitively challenging environment
- Enabled by new technologies, relationship marketing provides the marketer with the tools needed to serve
individuals as they wish to be served throughout their purchasing and consumption lifetimes
- Companies have the potential to gain a pre-emptive position with the best customers and to ensure that the needs of
these customers are well addressed long before competitors try to copy and target these same individuals or
companies
2.3 Business require new capabilities
- Business must know who its customer is, their value, what they buy, where they are located through which channels
they want to interact with
2.3.1 Support at the executive level
- Organisation wishing to implement CRM must have support for this move at executive level and there needs to be a
commitment to CRM, initiated by top management - the whole culture of the organisation must change
- CEO must take the lead and ensure that the message is broadcast throughout the organisation
- They must understand the real meaning of a relationship before committing the company to CRM and must focus on
the value that can be created through relationships with key stakeholders – the value that must be shared by the
company and the customer
- Management needs to recognise the fact that the relationship with customers needs to be managed
- Relationship manager should work with customers to ensure that they receive the value they seek
- Actions such as establishing annual marketing excellence recognition programmes, strong in-house marketing
training programmes and the empowering of employees to fully implement CRM can be pursued
Page 3 of 46
, - CEO should consider following a customer-centric approach in the company if the company is to succeed in
implementing CRM
- Convince senior management of the need to become customer focused
- Obtain outside help and guidance
- Develop strong in-house marketing training programme for corporate management, divisional managers,
marketing and sales personnel,
- Establish annual marketing excellence recognition programme
- Shift from a department focus to a process-outcome focus
2.3.2 Processes
- “Processes” describes all the procedures, tasks, schedules, mechanisms, activities and routines by which a product
or service is delivered to customers
- Service quality management, service recovery and complaint management are three processes that help to create
customer-perceived value
- Two prospective have influenced service quality management, namely
- Conformance to specification: to produce error free invoices or deliver on time or produce initial response to
customer complaint
- Fitness for purpose: allow the customer to select preferred communication channel, recruit customer contact
staff members who are responsible and empathic, or to customise products for customers
- Process is the conversion of one or more of these into an output
- A company wishing to implement CRM needs to manage and link all work processes
- High performance companies are increasingly focusing on the need to manage core business processes such as
new product development, customer attraction and retention and order fulfilment
- They need to re-engineer work flows and build cross-functional teams responsible for each process
- Management should focus on building customers into the main processes and customers should collaborate with
management in all the processes that are geared to creating value.
2.3.3 People
- Refers to all aspects of employee involvement, including interaction with customers, employee recruitment, training,
motivation, rewards and teamwork
- Staff members have fundamental roles, namely as information management and relationship management
- Excellent customer service is an integral part of CRM called service encounter
- No company can even contemplate implementing CRM if it does not offer excellent customer service and this can be
achieved only by training all employees from the various departments
- For example, both those employees who have direct contact with customers and those who don’t will need to receive
training
- Employees must also understand that their own job satisfaction ultimately rests on the success of the organisation
- Employees must also be supported by technologies and processes to make them more effective
2.3.4 Technology to gain customer knowledge and insight
- Once customer-centricity has been established in an organisation, technology enables the organisation to acquire
knowledge about its customers, to place it in a database and to gain insight in it through data mining
- Only once all these steps have been accomplished should the organisation implement a CRM system
- CRM is technology driven, but technology is only the enabler
- By using technology appropriately, an organisation can serve customers as individuals
- Before a CRM system is acquired, the following should already have been achieved: customer centricity
should have been established, a database should have been developed and work and effort should have been put
into identifying a suitable CRM system.
2.3.5 The value of CRM capabilities
- Research indicates that the most profitable companies develop a very specific set of CRM capabilities
- Each business must reinvent itself to really produce benefits from the use of CRM benefits
- Because the technology is simply an enabler, the business must employ people who can use it and of applying
customer-centric principles.
- It is important to note that having CRM capabilities helps the organisation to increase profitability
- The result of establishing a relationship with profitable customers is customer loyalty and, ultimately, greater
profitability.
Page 4 of 46
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