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Customer Retention-CRM Application https://doi.org/10.48009/2_iis_2010_44-47 CUSTOMER RETENTION – CRM APPLICATION Sam Nataraj, Morehead State University, [email protected] ____________________________________________________________________________________________ ABSTRACT Customer retention is a primary objective of CRM. Although most firms use CRM for new customer Customer retention is an important customer acquisition, many believe the real value of CRM is relationship management (CRM) strategy. To be customer retention . This emphasis allows firms to effective, retention programs must embrace a learn meaningful information about the customer, customer-centric management approach to identify learn how to satisfy them, and determine how and customer needs, segment profitable customers and why customers interact with the company [16]. CRM facilitate satisfaction and loyalty. In cyclical business also builds technical and non-technical environments, firms often make adjustments to communication networks which strengthens the address changing markets and economic relationship between business and consumers [25]. environments. Firms will adapt and modify previous practices to meet contemporary needs. This trend has occurred with customer relationships as many firms Satisfaction, loyalty and commitment are three use relationship strategies to build stronger primary components of an effective CRM-retention consumer-business bonds. CRM-retention also has program [27]. Each customer’s needs are different, significant advantages for consumers by providing and CRM-retention would not be necessary if all information which helps them become more customers were homogeneous. CRM-retention informed. Yet, CRM-retention programs are identifies and helps retain valued customers, it helps frequently misunderstood, and firms often rely on IT increase the customer base, and it utilizes pricing solutions that often fail. CRM-retention programs signals to encourage less profitable consumers to must include a customer-centric management become loyal and more profitable [16]. Higher approach which identifies and segments profitable retention leads to lower customer defection and customers, while fostering satisfaction and loyalty. higher profits [26]. Lengthy customer relationships This is mutually beneficial for the business and reduce acquisition and business activity costs. This customers, and it facilitates the efficient use of labor can be significant when new customer acquisition and technical resources to meet even more consumer costs are high [29]. Moreover business relationships needs. that foster customer tenure can improve the firm’s Keywords: Customer Retention, Customer efficiency as purchase volume increases and Relationship Management, CRM, Customer relationship cost decrease [1]. Retention Management, e-CRM While retention based CRM programs can provide INTRODUCTION intangible benefits, organizations can enjoy economic benefits as well. CRM-retention’s return on There was a time when consumers were familiar with investment is greater than ROI for CRM-new the merchant’s products, and storekeepers knew their acquisition [16]. There is a direct relationship consumers and their needs. However, 19th and 20th between retention and profitability [14]. A one century technological developments provided buyers percent increase in retention can have almost five with greater market opportunities and merchants times more impact on a firm’s financial wellbeing slowly began to lose their local monopoly on than a one percent decrease in the cost of capital or commerce. The personal merchant-consumer discount rate[8]. Research also indicates a firm can relationship gradually diminished when technology gain a 25 percent net present value increase with just provided shoppers with other options. a five percent increase in customer retention [8] and boost profits from 25 to 85 percent [22]. Customer relationship management (CRM) evolved when businesses began to recognize the need to retain lost consumer knowledge. The goal is to improve service and regain lost market share. Volume XI, No. 2, 2010 44 Issues in Information Systems Customer Retention-CRM Application CRM-RETENTION AND TQM customers, as “Loyalty requires a commitment from CRM-retention can help by providing customer the customer that mere satisfaction cannot always centric information which improves the value chain bring” [27]. Likewise, loyal customer may not between the businesses and consumers [7]. Total always be satisfied consumers, as the cost of Quality Management (TQM) is a similar customer switching may exceed the benefit of loyalty. This centric management approach which is harmonious can occur with some proprietary IT software systems. with CRM-retention. The TQM initiative has Businesses may feel embedded rather than prompted firms to use CRM-retention to develop completely satisfied with their current software greater value-chain relationships, or stronger vendor, but the conversion cost may exceed the customers-suppliers alliances [19]. Supplier-customer benefit of switching. Consequently, CRM-retention relationships are critical for the success of the can help identify the incongruence between customer organization’s profitability by improving quality, satisfaction and loyalty. cutting cost to improve customer satisfaction [18]. Although academic literature advocates formal Milakovich [17] validates the role of CRM-retention planning, budgeting and accountability for customer by stating TQM’s quality service goals cannot be satisfaction, research by Ang and Buttle [1] could not effective unless the firm collects consumer data and identify statistical relevance between these factors feedback. For example, firms should ask what the and high customer satisfaction. However, they did customer actually wants, what products they will find statistical evidence that predicts favorable need in the future, and what do customers like about customer satisfaction levels when CRM-retention is the firm’s competitors [5]. Moreover, these questions implemented with a formal and documented could also help firms identify potential product or complaint handling process. Many firms are using service defects [4]. CRM-retention is an essential resources such as the International Organization for part of any quality movement to not only satisfy, but Standards (ISO) which developed a formal complaint exceed customer expectations. handling guide book and standards. ISO believes this will improve customer loyalty and satisfaction [1]. Ang and Buttle [1] further believe a formal complaint CRM-RETENTION AND SATISFIED process is critical for excellent CRM-retention. CUSTOMERS While repeat or high-volume customers may indicate CRM-RETENTION IMPLEMENTATION some level of satisfaction, purchasing behavior is just one component of customer loyalty as it may reflect Although CRM is much more than an information circumstances other than customer satisfaction [13]. system, the proliferation of computer technology Work ethic pride also affects customer satisfaction as enabled businesses to retain and distribute detailed it usually motivates employees to meet customer customer information throughout the organization. needs and expectation. Yet employee failures, Yet, effective CRM-retention is not simply an IT product/ service delays, or other malfunctions may solution. IT can improve the value chain, but it is affect the customer’s future relationship with the only a means to an end. Unfortunately, software business [6]. CRM identification and resolution of systems often create information silos because these issues can increase the customer efficiency valuable intelligence may not be accessible across ratios as satisfied customers normally have greater and enterprise system. This often results from a lack purchase volume than non-satisfied customers, and of integration within the IT system [7]. This is easier the relative cost per-customer drops. Moreover, there said than done as firms face a hurdle when seems to be more price elasticity with seasoned developing a CRM platform to ensure it collects customers since price does not seem to be a relevant data that identify high-value customers who determining factor with purchasing decision [1] [13]. may need additional products [19]. Although satisfied or loyal customers may exhibit some price insensitive, issues such as convenience, trust, security, and service quality may be critical Although IT provides economic and efficiency [15]. In business to business CRM relationships, advantages for firms many CRM projects fail because some consumers may be committed rather than loyal, companies regard CRM as an IT project, rather than a and this provides opportunities for competitors to system-wide business process [6]. These projects exploit a firm’s weaknesses [4]. Likewise, some often fail because managers do not understand what satisfied customers may not always be loyal they are implementing and only three of five senior Volume XI, No. 2, 2010 45 Issues in Information Systems Customer Retention-CRM Application managers routinely monitor retention levels [4]. This customer, and exploit opportunities to maximize the lack of understanding can be a very “dangerous relationship with preferred customers. This can be pitfall” [23]. Moreover, it is dangerous to assume a accomplished with metrics to determine the amount simplistic perspective of CRM-retention, rather than of CRM-retention time and expense that is needed emphasizing an approach of developing and with each customer. For example,
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