What Does CRM Do?

As outlined previously, CRM definitions are as varied and as diverse as the authors and practitioners who propose them. So too is the case with defining exactly what CRM does. In this section the researcher outlines some of the more common explanations of what CRM does.

Kale (2003) states that the heart of CRM is the notion of customer lifetime value (LTV).

LTV is the estimated profitability of a customer over the course of his/her entire relationship with an organisation. Kale (2003) cites a recent study by Deloitte Consulting which shows that companies who understand customer value are 60% more profitable than those that do not.

Kale (2003) concludes that in order for CRM to be profitable, companies must be able to retain customers over long periods of time highlighting that a 5% increase in customer retention can lead to a 20-85% increase in profitability (this generalisation is argued against later this chapter).

On a similar note Panda (2002) says that CRM goes beyond the transactional exchange and enables the marketer to estimate the customer's sentiments and buying intentions so that the customer can be provided with products and services before he/she starts demanding. The process reorients the traditional business models to suit the integrative approach of CRM by emphasising customer LTV rather than product LTV. The product life cycle approach strategy is now obsolete and it gives way to customer LTV.

Lewis (2005) states that the calculation of customer value without regard to marketing policy is problematic because the value of managerial flexibility and the impact of consumer learning are neglected. The author suggests that the use of estimated parameters to conduct policy experiments yield more accurate forecasts of customer value. In support of this Ryals (2005) shows when using calculations of the LTV of customers, customer management strategies change as more is discovered about the value of the customer. These changes in turn lead to better organisational performance.

With regards to making CRM financially successful Ang & Taylor (2005) say to do this well, an organisation must first understand customer profitability achieved by using as customer portfolio methodology. Essentially this process involved going beyond customer

loyalty and advocating a proactive way of managing different customer groups based on their profitability.

According to Newell (2001 p.84) CRM is customer-centric; meaning that while its objective is still to add profit to an organisations bottom line, it accomplishes that goal by concentrating on customer benefits and values rather than on what the organisation wants to sell, thereby strengthening the relationship between the customer and the organisation.

Zikmund (2003) states that the purposes of a CRM system are to enhance customer service, improve customer satisfaction, and ensure customer retention by aligning business processes with technology integration.

Peel (2002 p.3) says that CRM is about people on both sides of an exchange

understanding each other; it is also about deriving some form of utility satisfaction from that exchange.

Turban (2002 p.315) suggests that CRM enables an organisation to build its products and services around its customers and that to achieve this, an organisation must continuously interact with customers, individually. He goes onto say that one reason so many organisations are beginning to focus on CRM is that this kind of marketing can create high customer loyalty and, as a part of the process, help the organisation's profitability.

Ragins & Greco (2003) suggest that CRM requires that an organisation view customer relationships as a means to learn about customers’ needs and wants and how best to create satisfy and sustain them while concomitantly helping the organisation to meet its objectives.

Ragins & Greco (2003) outline three advantages intimate customer relationships have in relation to the importance of CRM as a core business process as follows:

1. Relationships can create a committed customer.

2. CRM relationships provide a point of leverage to realise economies of scope.

3. In concert with other processes, CRM has the potential to contain and reduce costs by reducing churn or turnover in an organisation’s customer base.

Chye & Gerry (2002) state that CRM initiatives usually seek to fulfil several objectives which include three broad objectives as follows:

1. Getting closer to the customer by utilising the data “hidden” in scattered enterprise

2. Transforming the organisation into a customer-centric organisation with a greater focus on customer profitability as compared to line profitability.

3. Cross selling possibilities, improved lead management, better customer response and improved customer loyalty.

Lin & Su (2003) state that in high quality hotel enterprises, application of CRM is a great opportunity to increase customer value and provides a way to systematically attract, acquire and retain customers. In line with this Cuthbertson & Laine (2004 p. 303) state that CRM has the potential to help strengthen loyalty and build profitability, though it can be very expensive to implement. CRM techniques allow the retailer to focus on developing customer profitability, rather than aggregate profitability. This allows for a more targeted use of marketing and operational resources. Furthermore, loyal and profitable customer activity can be tracked to facilitate continually relevant retail development. Thus, CRM activities can be very effective in enhancing customer loyalty for profit.

Plakoyiannaki & Tzokas (2002) say that CRM serves to improve marketing efficiency and enhance mutual value for both parties involved. Gosney (2000) says CRM has the basic theme of enabling an organisation to become more customer-centric.

Crosby & Johnson (2002) state that CRM strategy depends on a top-down commitment to make deep and enduring customer relationships the organisation's top investment priority.

The result is a unique organisation differentiation based on relationship knowledge and strong, unbreakable bonds.

Hansotia (Hansotia, 2002) claims that CRM is the organisation's ability to leverage customer data creatively, effectively and efficiently to design and implement customer-focused strategies. De Torcy (2002) writes that CRM systems can reduce costs significantly, shorten the lead times and limit the number of phone enquires from customers. Langerak &

Verhoef (2003) state that a strategic orientation of CRM links to a strategy of customer intimacy centres on the customer. This orientation should lead to a customer driven organisation structure and culture. The aim of CRM is to develop customer relationships.

According to (Dyché, 2001) The real value of CRM is in its capability to track not only where customers are but also who they are in terms of their influence and decision-making clout.

Although explanations as to what CRM does are as varied as are the definition of what CRM is, the above summaries once again raise a variety of research questions the researcher needs to address in this thesis. Research issues arising from the above literature are as follows.

CRM Question 25: Does lifetime value impact on profitability at Unison?

CRM Question 26: What steps did Unison take to enhance customer service and improve satisfaction?

CRM Question 27: How did Unison work better to understand its customers and improve profitability?

CRM Question 28: How did Unison CRM work to build profitability through better understanding of customers?