Customer relationship management (CRM)

According to Kotler (2003), “It is no longer enough to satisfy customers. You must delight them”. Today’s companies must build customer satisfaction, value and retention on a sustainable competitive advantage basis in order to create a profitable business in the long-term (Kotler 2003).

Since the 1990s, the application of CRM has expanded and many companies have automated their sales, service and marketing processes. Companies that have applied this new approach have sought to rationalize the management of

customer relationships by centralizing customer information management, deepening customer knowledge, improving the quality of customer experience and moving towards a client-oriented approach. Despite large economic investments in the development of CRM, in many cases the results have not met expectations. Organizations directed themselves too much towards technological development, leaving fewer resources available for necessary business development measures.

When designing development measures, it is important to identify how the CRM mechanism improves competitiveness (competitive advantage) in parallel to the company's other strategic measures. Reliable and practical indicators must be applied to the evaluation of CRM development measures, such as turnover, customer satisfaction and business performance (profits). Despite criticism, CRM, when properly developed, offers much potential for improving competitiveness (competitive advantage). The main objective of CRM is to maintain and improve a profitable business, and many enterprises have chosen this effort as one of their important strategic directions.

Companies must recognize that the development of CRM will exploit the opportunities provided by new technology, not the other way around, and consideration must be given to how the selected technology can implement CRM activities. At best, a well-implemented, well-functioning CRM process improves the company's financial results and provides the company with a competitive advantage. The company must position its CRM operation in relation to its other activities. The key task of CRM is to contribute to the company's efforts towards improving sales, service and marketing activities. Considered from the perspective of CRM operations, the company’s efforts can be classified into three groups: the operative philosophy, whose main activity is attracting customers by offering tailor-made products and services in a customer-oriented manner; applying best practices whereby sales, service and marketing are integrated into a holistic functional process; and utilizing best IT practices in order to automate business processes and manage customer information. (Bligh et al. 2004)

The marketing focus has increasingly shifted from product orientation to customer orientation. In practice, a product-specific marketing company strives to find customers to whom to offer products, while a customer-oriented company strives to maintain a product portfolio that meets customers’ needs.

Customization means that the company offers individually differentiated products via an electronic service channel. Utilizing an electronic service channel, the supplier allows the customer to participate in the product design, and the customer’s role changes as he participates as a self-producing customer. The

company's activities are to be defined in accordance with the concept of customization, combining both the customization of product operations and the customization of marketing operations. (Kotler 2003)

The possession of information from sources both internal and external to the organization is constantly expanding. Companies face challenges in maintaining IT systems and exploiting information and knowledge regarding business development, which is important from the perspective of both competitiveness and customer service. Electronic data interchange (EDI) is a standardized method of electronic communication that facilitates the electronic exchange of information between different information system applications over the internet. Utilizing EDI, two different companies, positioned either in the same country or different countries, may provide information to one another in the form of electronic documents, such as purchase orders, invoices, sales orders and shipping notifications, among many others. In order to function properly, EDI requires companies to have clear and workable business processes. A key operating principle of this system is based on business data applications that are capable of operating with one another so as to interact without the need for manual intervention. The system of information exchange should be seamless (Woodcock 2003, Copeland et al. 1997).

Figure 12 presents the supplier-customer relationship in the traditional structure and in the new economy structure respectively.

Figure 12. Supplier-customer structure (Kotler 2003).

In the structure of the new economy, the business processes between the supplier and the customer are seamlessly linked together via a communications network. By utilizing EDI and acting together through ERP systems, companies are enabled to operate a seamlessly networked environment in the new economy. In order to better understand the relationship between the companies, we must consider the concepts of value-added networks (VAN), value chains and value delivery networks (also called supply chains). Commercial VAN provide all

necessary communication services to companies that utilize EDI. Companies’ business systems communicate with each other through standardized interfaces conveying business-related information. VAN systems provide electronic mailbox software that send, receive and save email messages independently, in accordance with current business needs.

Michael Porter, a professor at Harvard University, suggests that a value chain can be defined as “a tool for identifying ways to create more customer value”. Creating value for the customer comprises activities such as design, manufacturing, marketing, delivery and product support. All the company core processes that create value for the customer together form the company value chain. The value delivery network, or supply chain as it is also known in many contexts, represent the operational environment in which the product and/or service is created. While the value chain comprises the internal functions of the company, the value delivery network is a broader concept and includes both suppliers and the company’s own value chain, as well as distributors, channels and customers.

Companies must make significant investments in infrastructure in order to be able to operate in the networked environment. The ERP system, combined with EDI, plays a key role in the company’s electronic transaction. In general, the customer is satisfied when delivery meets his or her expectations. When considering different satisfaction levels, a low level of customer satisfaction decreases the customer’s commitment to a long-term relationship with the company. A customer who enjoys a high level of satisfaction, in turn, recommends the company to others. This has a significant effect on how the company maintains its customer satisfaction levels. If the company maintains its customer satisfaction by lowering prices or increasing services, it may cause a negative impact on earnings. Better results can be achieved by improving business processes and thereby efficiency. (Kotler 2003, Copeland et al. 1997) The development of excellent products and services is not sufficient for companies to achieve a competitive advantage. In addition, the company must devote sufficient resources to fulfilling the customer's expectations, thereby sustaining competitive advantage (Mackay et al. 2008).

Customers make their product decisions on the basis of the benefits and costs of available offerings. When a buyer is planning to acquire new machinery, he considers which option offers the best total customer value in terms of perceived reliability, durability, performance, service, training, total price, restoration value, etc. Customer value creation characteristics and conditions include the ability to find new and maintain existing customers by satisfying their

expectations, ensuring delivery readiness in terms of all service providers in the entire value chain, ensuring necessary communications in the customer interface according to the customer promise and ensuring personnel are capable of fulfilling the eligible customer promises.

Research shows that a company failing to get to know the customers’ expectations has an adverse effect on the creation of customer value. Regardless of the company’s good performance, it is inevitable that some occasional deviations occur in the company's operations. The manner in which the company responds to such deviations plays an important role in customer satisfaction. The customer appreciates the fact that the supplier takes care of deviations promptly and in such a way that the customer experiences only a minor harm. In practice, effective deviations management requires the supplier’s own special processes, taking charge of a comprehensive correction of all deviations from follow-up and registration through to operational execution.

IT is an extremely important aspect of customer service. The organization’s possession of information from both internal and external sources is constantly expanding. Companies face challenges in maintaining IT systems and information, on the one hand, and exploiting the information and knowledge of business development, on the other, which is important from the perspective of both competitiveness and customer service.

Organizations must focus on strengthening and developing the process-based approach rather than developing separate functions. Organizations must consider the development of the process-based approach from both customer and organizational perspectives. The way in which organizations carry out their activities is reflected in the value of the customer's experience and, through that, customer satisfaction. In addition to the individual process performance measurement, the cost-effective implementation of the entire life cycle of the customer relationship must be considered. (Woodcock 2003)