Proposal of a marketing strategy



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4.2 Up-to-date Position


As for the current status of CRM software and application use there have been studies confirming that the importance of CRM has been growing recently. A study which took place in the German speaking countries by the consulting firm Cap Gemini has proved this trend not only on the growing number of employees assigned to this section of the company, but also on the increasing company budget devoted to this area.44
Implementation of a CRM system is a long-term process. Nowadays two ways of acquiring it are applied (very similarly to acquiring other assets) – purchase or leasing. The latter mentioned started in the CRM industry in 2006. This solution can be an alternative for smaller businesses since no other demans on hardware, software or implementation are raised. This kind of leasing is set up on an external basis and represents a complete opposite of licence purchase with all its advantages and disadvantages, whether it be value/money ratio, implementation costs, flexibility and implementation length on the plus side and/or lack of scalability, lower performance, worse integration into company´s system and threatened data security on the negative side. This solution of having „CRM on Demand“ however seems to be rather a marketing step by CRM providers since during the first two years advantages overweigh disadvantages, but starting from the third year the CRM standard solution would come closer and closer to cost-effectiveness, and starting from the fifth the situation is completely opposite to the situation at the beginning. This rent system is usually, that is to say, later on, transformed into a standard CRM solution, says Cap Gemini Group in its study.45

4.3 Benefits and risks of CRM


For a CRM to be implemented correctly both levels, i.e. strategic with the orientation on how best to use CRM to achieve strategic goals and which goals can be achieved this way, as well as operational replying to the question of IT support and specific details to be collected and analysed in specific processes (as suggests Buttle, p.3). We could however also accept Sin et al. idea of evaluating each of four components of CRM individually – strategy, people, technology and processes (see FIG. 8.)

FIG. 8 The Four Dimension of CRM



K
CRM
ey Customer Focus

CRM Organisation

Knowledge management

Technology-based CRM

Adapted from: Sin, L.Y.M, Tse A.C.B., Yim, F.H.K. CRM: conceptualization and scale development, p. 1267 (1264-1290)
The producers and retailers of CRM software generally promote two kinds of benefits their product brings to customers – improvement in services and economic benefits. Improvement in services can in the short-term view lead to higher costs, but can also support increase in profit. The following benefits are therefore to be expected:

    • Integrated communication channels, therefore is the same information available to any employee at any time and through any channel (face to face, e-mail, phone or online)

    • This further leads to improved communication – shorter time of response, elimination of misunderstandings, elimination of neccessity to repeat enquiries

    • Better customer service increases customer loyalty and retention rate, thus saving replacement costs

    • Simplification of marketing and sales processes reduces operating cost and increases effectivity of activities

    • Effective targeting decreases marketing cost

    • Percentage of cross-selling gets increase which leads to increased profits

    • CRM helps to identify new selling opportunities

We would like however to adopt generally used metrics showing exactly where benefits are to be found and how their impact can be traced. „Industry analysts, such as Deloitte Research, Gartner Group, and Meridien Research have all researched the CRM concept. Deloitte's study shows that CRM and supply chain applications are 81 percent more profitable for companies who use them, compared with those who don't.“46 According to a February 2004 survey by IDC, 58 percent of companies that have measured ROI-based CRM initiatives had a payback on their CRM projects within a year. Another 35 percent received payback in a timeperiod of one to three years.47



TAB. 22 Cathegorization of CRM Benefits



Yes

Quantifiable

No

No Financial Yes

Cost Reduction and Efficiency Savings

  • Increase in number of completed orders

  • More cost-effective use of channels

  • Improved use of resources

Service Improvement/Added Value

  • More efficient sales and marketing

  • Development of re-usable skills

  • Information sharing

Service Improvement/Added Value




Strategic and Intangible Benefits

  • Improved spread of information among customers

  • Increased awarness on company´s product portfolio

Resource: Pisello, T. CRM ROI: Creating a Business Case, p. 3
An important task of CRM is to have customers selected into groups. A company can thereinafter either follow the largely discussed Pareto 80/20 rule when 80 percent of company´s profit are brought just by 20 percent of its customers, or together with Kotler take into account relationship revenues and its cost and get four groups as TAB. 23suggests.

TAB. 23 Comparing Customer Relationship Revenues with Relationship Costs




Relationship revenue

Relationship costs

 

Low

High

High

Sleeping giants

Power traders

Low

Pets

Delinquents

Addapted from Kotler, P. Principles of Marketing, p. 484

Similarly, Morgan and Hunt (1994) research the ratio of revenue and cost in the meaning of relationship benefits and relationship termination cost. Their approach is rather applicable to B2B sector since it assumes the possibility of a long-term relationship. In their KMV (key mediating variable) model five antecedents and five outcomes are to be found (see FIG. 9 below). If four of these are estimated as positive (in the meaning e.g. of a purchasing act) and the fifth negative, trust and relationship commitment occur and lead to changes described in the figure, to decreases or increases. For companies entering into B2B relationship „the firm´s procurement strategy may be the most important ingredietn in its ability to deliver superior value to its customers“ – thus a belief of Webster (cited according to Morgan and Hunt, p. 24)

FIG. 9 The KMV Model of Relationship Marketing





Resource: Morgan, R.M., Hunt, S.D. The Commitment-Trust Theory of Relationship Marketing, pp. 20-38
Practice in the form of a study conveyed by Cap Gemini Ernst and Young consultants company says that the objectives the strategy of CRM is usually applied to do have much in common with recognizing own customers in common (60% in the sample of 106 addressed companies) or increasing customers loyalty (48%), nevertheless there are also targets directly connected with profitability: increase in sales effectivity (57%), increase in sales support (47%) or reduction of marketing and sales costs (18%).48
The second component we are going to concetrate on in this work is technology. Two conditions are to be maintained: accurate and up-to-date data. Both can be fulfilled through convenient tehcnology. Buttle confirms that an essential moment of effective CRM is storing and using knowledge about customers. There are different forms of data sheets used and one must be aware of the fact that the „success of CRM depends largely on how well this information is converted into enterprise-wide knowledge, and finally customer insight“49. The reason of employing two remaing components is clear and even if they deserved further explanantion they are not directly connected with the target of this work.
Due to the high cost of CRM software most companies cannot afford to have a tailored solution. Many problems however occur not because of missing moduls, but mainly because of an imperfect process of implementation. As a study says more than half of complaints concerning the use of CRM software (in 2007 even one percentage point more than in 2006) fell into the cathegory of CRM implementation without having a clear intention and/or placing CRM processes in accordance with already existing ones. CRM seems to be a good servant but bad master. The problem of most companies is that they are not able or willing to make CRM serve well. A company implementing CRM must set objectives, redefine processes, commit management as well as ordinary employees and provide all with the necessary skills for fruitful use.50
To summarise this chapter we pointed out the origin of CRM concept, its current use, benefits and problems or tricky places during implementation. Thanks to this chapter we will be able to design chosen strategies with the support of CRM system and also to present economic calculations based upon joint benefits of CRM in new strategies and CRM being a new strategy on itself.
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