Customer Retention Strategy: CRM
From the point of view of supply, the globalization of markets and the fragmentation of demand are two trends that mark the commercial activity and that drive an intensification of competition at the international level.
At the same time, the current market scenario is characterized by technological development that shortens the life cycles of existing products and forms the launch of new ones. Its increasing homogenization derived from the rapid advancement of technology, can also point as a definition of the current environment and leads companies to seek differentiation through alternative ways such as quality of service, personalized treatment or satisfaction of needs of customer macro-segments.
On the other hand, information and communication technology has been the catalyst for the exponential growth experienced in recent decades, both in the quality of information available and the means of access to it. The Internet is a means of information and a two-way communication between the company and the customer. In this sense, companies are forced to adopt a proactive attitude if they want to be competitive and not settle for marginal areas of the market. There has been a change in the relations between producers and consumers. Now the client holds a higher level of power compared to previous times. This change is motivated, essentially, by the greater availability of information. Current consumers are informed. They compare and evaluate the different market alternatives and demand quality and service. The consumer is critical, demanding and selective, trained and informed, who demand individualized products and services that meet their personal needs and desires; who values their free time, marked by the immediacy in the delivery. It is also a customer increasingly difficult to satisfy, and that with a single click can change the provider, so as to claim a bonus of added value in exchange for their loyalty.
All these factors create an increasingly complicated situation in which competition in the business environment has grown to the point of thinking of the customer as a scarcity factor. In this context, it is necessary to modify the usual strategic and management systems from an orientation focused on the product to the one focused on the client. Companies have been forced to reverse the order of priorities to win and retain a more and more specialist customer. If traditional approaches focused on maximizing profit per product, in the framework of the 21st century the focus of the business is the client, around which the entire strategy of the company revolves. In this context, the business management philosophy called customer relationship management unites strategy and technology in order to know the customer and institute a two-way interaction and communication with the ultimate goal of improving the efficiency and effectiveness of business processes that increase the value for both the company and the customer.
The objective of this article is to contribute to a better understanding of the meaning and implications of the CRM strategy. For this we contextualize this business management philosophy, we make a conceptual approach, we describe the different periods in its implementation and we address the benefits, challenges, and applications of this strategy, as well as the main lines of future research.
1. Marketing of the 19th century with means of the 21st century
At the beginning of the 21st century, we used the marketing strategies of the small owner of the 19th century. As then, we wanted to go beyond the mere transaction and be accomplices of our clients, create bonds based on trust, agreement, and loyalty. The fundamental difference between one context and another is the number of clients and information regarding each of them. The small number of clients allows the small owner to keep all the information referring to them in his memory. At present, information has become a strategic category asset that makes it necessary to have information systems capable of generating, recording, analyzing, comparing and efficiently distributing all the knowledge related to customers. Effectively, an efficient management of information supported by new technologies will allow the company to reach the consumer with a personalized product and service, competitively and proactively attending to their demand. Even in the global market, it is possible to give an individualized service. The CRM tactic seeks to establish closer relationships and interactions between a company and its most important customers. More specifically, the important referent of the company lies in the loyalty and retention of truly profitable customers and those who have a potential for sufficient profit so that the company uses all its resources and thus keep that customer linked to the organization. attending your demand competitively and proactively.
CRM is a process that involves new technologies that identify, develop, integrate and focus different competencies of the company on the client, in order to generate superior and long-term value to customer segments, current and potential, perfectly identified. They consider that behind the CRM concept there are three key aspects: market orientation, information technologies, and integration.
The CRM, however, is still in its definition stage; proof of this is that no agreement has been reached regarding its meaning, since it differs according to who tries this concept. This translates into limited empirical research in the field of CRM strategy, as has been mentioned by different authors. Although there is no universally accepted academic definition of CRM, there is a deep agreement regarding the principles of this concept. Seen as a propensity, the CRM shares with the traditional concept of marketing a concern to satisfy customers effectively and efficiently. In fact, the common basis of different CRM definitions is the focus on customer orientation and retention.
Although the acronym CRM has been the central concept of many articles, conferences, and seminars to date, the greater part of them corresponds to business initiatives and there is a lack of academic research. This has placed the study of the CRM strategy as a priority research line of the most advanced and prestigious universities of research institutes) and reputable academics.
In the business world, there is a firm interest in the effective and efficient management of customer relations, which has led to a global market of products and services related to CRM that reached 34 billion dollars right in 1999. However, few companies and organizations are currently taking full advantage of the potential associated with this new business strategy based on the symbiosis between technology and marketing. The vision of the CRM is simple but its implementation is complex, which is why a large number of CRM projects fail.
2. A trip to the client
The creation of a CRM strategy must be a slow and permeable process to all layers of the organization, which allows to progressively decrease the distance with the client until it becomes a participant in the activities of the company. One of the most widely disseminated and that meets the above characteristics is a process that begins with the identification of the clients that we want to retain, continues with the differentiation or segmentation and the interaction with each of them, to conclude with the personalization of the offer, the service, and the communication.
2.1. Identification of clients
The first step in the CRM strategy is to identify the clients that we want to retain. We must concentrate on those that present a higher current value for the company and those that exhibit a higher potential, that is, we have to know our customers). At this point, it is necessary to remember a double aspect:
a) Not all loyal customers are profitable. Customer loyalty is a necessary condition, but not enough.
It is a mistake to say that loyal customers are always more profitable. Moreover, the intangible manifestations of loyalty are not indicative of the presence of a business-consumer relationship, unless they are accompanied by emotion or by some other effective dimension. The lack of these emotions reduces the repeated purchase behavior to a mechanical process free of substantial reasons that cause the consumer to continue their relationship with the company. The key is to achieve sustainable consumer satisfaction; it is an emotional connection and not simply behavioral. In fact, 70% of repeat purchases from a customer to a defined company occur because of indifference, not loyalty. This is only achieved when the customer is satisfied with the product or service, but also with the deal; Meanwhile, that indifferent client will be vulnerable to the marketing exercised by the competition.
When evaluating the loyalty of a client, we must also take into account the possibilities of choice that he has. In uncompetitive markets where supply is limited, customers are simply retained, even when their level of satisfaction is low, because there are few substitute products or the costs of change are high.
In this sense, the CRM strategy seeks customer loyalty based on its satisfaction, hence its key is to achieve customer satisfaction as a basis for the stabilization of long-term relationships that translate into a higher value for the company.
From the point of view of their capacity, customers are usually categorized as follows: i) profitable customers, who are the heart of the business, therefore, the first goal of satisfaction and retention; ii) strategic clients, they are not very profitable but they have high growth capacity, their strategic value exceeds the real value. The emphasis, in this case, is focused on increasing its link with the company through, for example, cross-selling, incentivizing and offering privileges, that is, investing in them to develop them; iii) unprofitable clients, will probably never generate a sufficient profit to justify the investment that supposes offering them an individualized offer. It may be worthwhile to stop investing in this type of consumer.
b) Not all clients are prepared to settle in a long-term relationship with the company. Consumers are motivated to engage in long-term relationships with the company to the extent that this allows them to reduce the number of options and risk. On the other hand, consumer satisfaction comes from the greater ability to choose between alternatives and not from their reduction. The CRM philosophy is based on providing the client, in the best possible way, the alternative that he has selected, therefore, the number of alternatives between which the client can choose does not vary, but now has one that meets their needs and wishes better than the rest.
2.2. Customer differentiation / segmentation
Once we have identified the clients with whom we want to engage in a durable relationship, the next objective is to deepen our knowledge about them. To have a complete knowledge we must listen to them.
It is basically to obtain and analyze information systematically to distinguish the most valuable customers, identifying their preferences, tastes, behavior patterns, in short, it consists of highlighting the individual characteristics of the client that make it unique. For this, statistical techniques such as cluster analysis or artificial intelligence techniques such as neural networks or genetic algorithms are used.
Differentiation establishes the basis for greater and better interaction with customers and the personalization of the offer of products and services. Effective segmentation will guide clients' macrosegments and allow the company to understand how to reach them, know what products and services they investigate, what support needs they must provide and understand the value of the client; In short, it will allow you to execute a one-to-one marketing strategy.
Thus, the company will deploy a ranking of clients according to their value, since this evaluation concludes how much time and resources to invest in them. Efforts will be prioritized by allocating resources to guarantee the loyalty and increase of the most valuable clients and will try to satisfy their needs better than competitors, distinguishing between group and individual.
2.3. Interaction with each client
If we want to achieve a 360 vision of the client, we not only convey our message to him but also interact with him. Companies must use each point of contact to approach the consumer, obtain information and strengthen their relationship with him. The development of consumer loyalty derives from the constant refinement and updating of the information available about specific customers, particularly their preferences, habits, and models of purchase and consumption, trends, profiles and other specific data of individual consumers.
But we have to go further and get the client involved, help them participate. The goal is to get them on our side and act as spokesperson for the company's products and services. It is about converting new customers into habitual consumers; then, gradually, make them great defenders of the company and its products and, finally, be active and influential advocates of the company, and thus have a significant role as a reference source. In fact, the number of clients that recommend the company and its products is one of the variables that is usually used to measure the success of a CRM strategy.
One way to stimulate loyalty is to reward the most loyal and profitable customers, reward their collaboration and make them part of our strategies. Only in this way will we strengthen over time and continue attracting new clients.
2.4. Customize products, services and customer service
Based on the knowledge created in previous phases, our clients should receive personalized treatment according to their value to the company, through a mass customization methodology.
To adjust our offers to the needs and desires of the client, we need to count on our collaboration, obtain feedback and integrate it into the operations of the company. This personalization constitutes the greatest competitive advantage for the company and represents an exit barrier for the client, since it has already been involved with the company and the change of supplier involves costs obtained from the risk of replacing a recognizable product or service with another unknown, search time, comparing offers and restarting the learning process of the new company about their needs, tastes, and preferences.
The CRM strategy establishes the basis for optimizing the company's innovation capacity and states that the improvements and renovations of products and services are based on the needs and preferences of the client. We go from the traditional delivery of the product to commit ourselves to value-added relationships with the client.
3. Potentialities of CRM from the marketing perspective
The CRM strategy takes as its starting point the efficient management of information, which comes essentially from corporate and external databases. With this information, the company creates a ranking of current and potential customers according to their value, as well as the characteristics that define those customers who dominate the top positions in the ranking. In the same way, we can develop early warning systems to discover situations of probable abandonment or reduction of consumption intensity. In this case, it is important to determine to what extent these clients are profitable and, if so, the necessary measures will be used to prevent their desertion. If the client does not have an adequate current or potential return, we can stop investing in it.
The next step is to ensure that the information provided by customers that suppose greater profitability reaches the research and development department of the company, which lays the basis for the redesign of personalized products and services and the launch of new ones. In this way, the innovation capacity of the company is conditioned by the suggestions of the same clients; This ensures that product and service renewals are adjusted to the maximum of your requirements. The increase of knowledge available in the company about its customers will result in differentiation and individualization, which will result in the best adaptation of the products and services to their particular needs and, therefore, will result in an increase in the degree of satisfaction.
In addition, the CRM strategy reveals opportunities for cross-selling and induced sales. One of the main creators of value for a company lies in the ability to sell more products, different, complementary to current customers and sell them higher level products, with a greater added value for the company. Thus, we can detect in our base of data which is the next product that should be offered to each specific client.
On the other hand, the company can come to recognize customers with high and low sensitivity to the price, as well as those willing to negotiate prices in each transaction. In the case of customers with lower sensitivity to the price, a 'Premium' can be charged for a service of greater added value that improves the profitability of the company. This allows a better service and obtains positive results in customer satisfaction and retention.
At the same time, installing a personal information record for each client will allow you to assign a probable level of interest regarding a specific campaign. It is possible to define which are the particularities that the system has identified as discriminant to establish if the client had a high propensity to respond to the campaign. This information may not be apparent without an analysis using data mining techniques, and is vital for the conception of product location in the campaign and creativity . In this way, we can reach the customer with personalized campaigns, achieve a strong increase in the response rate and maximize the costs associated with the countless mass promotions of questionable profitability.
With this strategy, we are able to improve significant results, the value of the life cycle, as well as the retention rates of customers and employees, their satisfaction, the conversion rate of consumers into customers, crossed and induced sales, marketing costs and the response to direct marketing campaigns.
4. Three CRM
A CRM solution is based on a large volume of customer information on which we work using new technologies. Through complex analysis, relevant information about the tastes, needs, interests, and preferences of the individual consumer is extracted. But to get quality information, we need customers to collaborate with the company, to be involved in a bidirectional communication. Finally, the company will take the necessary measures so that the information provided is translated into a personalized offer. It is a model in which value is produced for both the company and the customer
From the above it is inferred that the bases of the CRM are analysis, collaboration and operation. We distinguish, therefore, three basic branches within the common trunk of the CRM.
4.1. Analytical CRM
The information of current and potential clients from each interaction, enriched with data from external and internal databases, constitutes the raw material of the analytical CRNI. Therefore, the first challenge is to integrate the information that has its origin in different transactional databases and then perform a process of extraction, transformation, cleaning, and loading of that information. It can be stored in a corporate database as in databases corresponding to different departments.
This data is subjected to various analyzes using statistical and algorithmic techniques of artificial intelligence, with the aim of obtaining useful information, detect hidden behavior patterns, trends contained in the data, as well as seek associations between independent information, program processes, anticipate events, improve or perform simulations that will serve as support for decision making.
The fact of having quality data, integrated into a common warehouse and having mechanisms to obtain relevant information and on time from the 'company's memory' allows decisions to be made based on relevant, important and reliable information that creates a competitive advantage for the company.
Specifically, some of the most widely used analysis tools are OLAP tools and data mining (descriptive factor analysis, basket shopping analysis, clustering, Bayesian networks, local forecasting, neural networks, decision trees, genetic algorithms). , etc.
As its name suggests, OLAP is an online, immediate, automatic response process that allows data to be efficiently and comprehensively represented as a cube or multidimensional database. The information is organized according to the parameters that senior management considers appropriate to give them a sense and carry out their analysis.
With regard to data mining techniques, some of them are presented below with a brief review:
- Descriptive factor analysis: They access visualize complex multivariate realities and, therefore, demonstrate the statistical regularities, as well as eventual discrepancies with this regularity, as well as suggest the hypothesis of explanation.
- Analysis of the shopping basket: It allows to reveal what products are obtained jointly and incorporate technical variables that support the interpretation, such as day of the week, location, payment form, etc. It can also be applied in contexts other than that of large stores and include the time factor.
- Clustering techniques: They start by establishing a measure of proximity between individuals and, from there, look for the groups that are most similar to each other.
- Bayesian networks: They consist of representing all the possible events in which we are interested, through the means of graphs with conditional probabilities of transition between events. They can be coded from the knowledge of an expert or inferred from the data. They allow to establish causal relationships and provide predictions.
- Local precision: The basic idea is that similar individuals will have similar behaviors with respect to a certain variable of response. The technique consists of placing them in a Euclidean space and making predictions of their behavior based on the behavior observed in the neighbors.
- Neural networks: Inspired by the biological model, they are generalizations of classical statistical models. Its novelty lies in sequential learning and, above all, in non-linearity. They allow learning in difficult contexts, without specifying, in general, a previous treatment of the data. Its main drawback is that for the user they are a black box.
- Decision trees: They facilitate obtaining the decision rules from which consumers operate, based on historical data stored. Its main advantage is the ease of interpretation.
- Genetic algorithms: The biological model of the evolution of the species is simulated at an infinitely greater speed. It is one of the most promising techniques. In principle, any problem that may arise as the improvement of a certain combination of different components can be solved by genetic algorithms.
4.2. Operational CRM
It is integrated by all those environments that have a direct contact with each client. Its goal is to channel and carry out, in an integrated manner, all measures gestated, designed and developed in a personalized way in the analytical CRM. In such a way that communication through each of the channels is as efficient as possible. The operational CRM, then, represents the tools or processes that allow all the visible interactions with the client to be used in a more effective way.
4.3. Collaborative CRM
It includes solutions that increase the client's ability to support business processes (self-service systems). The collaborative CRM is the system that allows establishing necessary processes to use the information acquired in each contact-channel and systematize the dialogues and messages obtained. If we promote the stats of collaborative activities by the client, their level of satisfaction will increase and, so will their loyalty and their likelihood of extending the relationship with the company.
In order to increase the results obtained from the implementation of a CRM strategy, it is necessary to emphasize these three perspectives, since the success or failure of any business attitude will depend to a large extent on the appropriate definition and interrelation between its strategies. In fact, one of the main sources of investment failure in CRM is manifested in an excessive focus on aspects of technology ignoring the role of people, employees and key customers in achieving the objectives of this type of applications.
There are many companies that understand the importance of the CRM strategy; however, there are few that take full advantage of the potential associated with this new form of business management based on the association between technology and marketing. The vision of the CRM is simple, but its implementation is complex.
In this sense, there are different challenges that companies must accept if they want the investment in this type of strategy to be a success.
CRM is a philosophy, a business culture that does not only affect the department responsible for information systems but also concerns the entire organization. Consumer loyalty is achieved by providing high-quality services and making sure they are completely satisfied. For this, it is important that the entire organization is committed to providing quality of service and retaining customers. What is highly recommended is a multidisciplinary team where all the users of the solution have a leading role. The proposed solution must be flexible and scalable, the systems must be able to grow together with the company as it increases its number of clients and the complexity of its management processes and technological platforms.
Likewise, training plays a conclusive role in achieving the objectives of this strategy. The employees of the company must first conceive what the CRM vision resides in and then learn to gather, use and share information in order to generate real value for the client. At the same time, the role of the employee changes and you may need to increase your professional skills. Likewise, the evaluation, motivation and compensation systems must adjust to the new conditions. The companies that do not determine the tasks of the employees or change the results measures, the incentive systems and the training programs are closer to experiencing a failure in the implementation of the CRM strategy.
Another important challenge is to have current, complete and quality information. Sometimes the depth of historical customer information is insufficient or not up to date to carry out effective segmentation, which stops the full development of the following phases of the process. Problems may also arise when homogenizing and debugging data from different sources; Avoid duplication and lack of data.