derive a customer relationship strategy for a marketer supplying a marketing service for a business...
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Tinotenda R Chabvonga
Student Number 210546075
4/20/2012
Marketing 301 assignmentDerive a customer relationship strategy for a marketer supplying a
marketing service for a business of your choice .
tinotenda reginald chabvonga
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Introduction
In the wake of increased competition between companies offering often very similar products
that are vying for patronage of a limited pool of customers, organisations have become alert
to the reality that customers are the cornerstone and basis for their successful existence(Zamil, 2011). This increased competition is largely a result of globalization, economic and
cultural integration and the proliferation of multinational and global organisations which has
seen consumers range of options widen in terms of product and service substitutes and
product and service choice. Zamil (2011) further states that for companies to cement their
future existence they have to develop a keen and genuine desire to form mutually beneficial
relationships with their customers in order to fulfil their long term objectives, this view is also
shared by Jenkinson and Jacobswho state that success lies in identifying and attracting
customers who will value your service and then retaining them as customers and win the
largest possible share of their lifetime business. (Jenkinson and Jacobs, 2006)
This increased focus on the customer and customer satisfaction can be credited with the birth
and growing focus on Customer Relationship Management (CRM). Satoshi succinctly
defines CRM as a management strategy that combines the efficiency of information
technology with marketing and other functional programs in the firm so as to better relate
with its customers (Satoshi ,2006).Alternatively CRM is defined as a business philosophy
which provides a strategy and vision that dictates the manner in which a company seeks to
relate and interact with its customers present and potential (www.atosorigin.com). Anton and
Hoek add that these integrated technologies, processes and businessactivities must revolve
around the customer for the CRM strategy to be effective. (Anton and Hoek, 2002)
As shown above CRM has a variety of meanings to different people but the underlying
concept is to establish, nurture, and sustain long-term relationships with customers at every
level of the customer lifecycle (diagram below) in order to delight current customers and to
acquire new ones via referrals and word of mouth communication. The ultimate objective is
the conversion of these relationships into increased profit margins by increasing repeat
purchase ratesand reducing customer acquisition and retention costs by focusing resources
on our most profitable customers.
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Source www.gartner.com (Kirkby.J, 2002)
This essay seeks to derive and outline an effective Consumer relationship strategy for Nexus
bank ltd a financial services provider that focuses on retail banking and providing finance
for Small to medium enterprises in southern Africa. For the purpose of this essay we assume
that ;
a) Nexus ltd has legacy software and databases that contain information on their customersbased on their current accounts and information gathered from loan applications and
account opening transactions.
b) There is high mobile phone and internet penetration in Africa and the majority of theclients have access to internet services . (Winer,R.S ,2001)
c) Nexus has strong relations with Macro Ltd (a chain of retail outlets ) that allows holdersof the Nexus Connect credit and debit cardholders discounts and loyalty benefits .
d) Rival banks have strong relationships with other retailers and this poses a threat to NexusBank
customer
life cycle
target
acquire
build
relations
retain
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The derivation of the strategy will be done by following these steps ;
i. Creating a databaseii. Analysing the Database
iii. Defining Customer Segments for targetingiv. Crafting the strategy by ;
Carrying out an internal SWOT analysis Examining the SWOT components Using the five forces model by Porter Using the relevant factors of ten steps framework by Jenkinson and Jacobs
(2006) to tailor the strategy to Nexus bank
v. Making recommendations
1) Creating a Customer DatabaseThe foundation of the customer relationship strategy is constructing a customer database.
Since Nexus Bank is a state of the art Web-based bank with online banking site and cell
phone, automated teller machine facilities, gathering and accessing customer data will be a
simple process. Customer data are recorded simultaneously with account opening, deposit or
withdrawal transactions, contact information is collected at the onset of the relationship with
the consumer (Yao,H and Khong ,K.W 2011 ) . Nexus bank is in the service business and
so has high level of customer interaction as shown in the figure below.
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Customer interaction matrix
Customer interaction
Direct indirect
high
Banks (Nexus Bank)
Telecom companies
Retailers
Airlines
Packaged goods
Drugs and
pharmaceuticals
Interaction
frequency
lowPersonal Computers
Internet Infrastructure
Furniture dealers
Car dealers
Figure 1. Customer matrix (Winer, 2001)
To enhance The quality of information collected and customer contact and feedback internet
and cell phone banking and ATMs can be used as contact points these touch points especially
the internet reduce the cost of Bank to customer communication (Yao and Khong,2011) . To
get customers to use these contact points the Bank can offer free use of ATM and internet
services to groups like students and pensioners, increased frequency of use ensures that more
updated and accurate data is readily available to internal departments like marketing,
accounting and customer service via the intranet and shared records (Winer, 2001).
According to Winer (2001) a model database should contain the following aspects
Transaction History. In the case of Nexus Bank transaction history should include average
deposit and withdrawal amounts , punctuality of loan repayments or payment defaults
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(credit records ) , frequency of internet , cellphone and ATM transactions and average
account balance .
Customer contacts.
Contact details like postal and email addresses, telephone numbers can be used to initiate
customer contact for communicating new Bank offerings and service notifications . Social
networks like Facebook allow the company more informal interaction with clients.
Descriptive information.
This is for segmentation and other data analysis for example gross monthly income, race, age
employment status and special needs groups like students and revenue and cash flow status
for businesses. This information is important for segmentation and provision of personalized
or customized services. The ability to obtain descriptive customer information creates a
competitive advantage (Yao and Khong, 2011).
Response to marketing stimuli.
This part of the information file should contain
Whether or not the customer responded to a direct marketing initiatives.
2) Analysing the collected DataAnalysis of the database helps to create predictive models for customer interaction and
purchasing behaviour insight ; on the basis of these models the bank can define customer
segments. Customer segments can be refined based on customer profitability, and growth potential to best
allocate scarce marketing resources. The goal of the analysis is to aid the targeting of the most
profitable customers and tailoring customised and personalised service for them. the
information created is an asset for the all the consequent steps of the strategy which are
efficiently targeting, acquiring, developing and retaining high life time value customers .
(www.gartner.com). data analysis in addition to helping Nexus bank understand customer needs
helps forecast the rate of customer churn , customer loyalty levels , effectiveness of contact
points and and sales campaign performance.
The data analyses allows the bank to pay more attention to consumers as individuals on a
One-to-one level to cater to their idiosyncratic needs.it indicates each customers profit
potential or their Lifetime Customer Value (LCV). The idea is that each customer should be
analysed in terms of current and future profitability to Nexus Bank .When a profit figure can
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be assigned to each customer, the marketing managers can then decide which customers to
target objectively.
3)
Defining Customer Segments for targetingA study conducted in Australia for St George Bank showed that conversion rate i.e. the
proportion of initial loan and account inquiries resulting in actual transactions could be raised
by tailoring service packages to each customers level of Banking needs. on the basis of its
databases , it classifies prospective clients as
Nuggets - A small number of high account balance users with high brand emotionalloyalty who use their accounts frequently and contribute for as much as half of
transaction volume. They consist about 20% of all clients and generate 80% of profits
Backbone these are more numerous and are a relatively loyal to the bank It is the sizeof this group and, rather than the high account balances of individuals that makes them
the backbone of the bank.
The apatheticthese customers have accounts which they use only monthly orquarterly they are generally disinterested in additional services other than savings
accounts . ( www.gartner.com)
The staff of Nexus bank can adopt this model and use it to create offerings most suitable for
the clients level of usage respond to customer needs in a customer centric manner on a one-
to-one basis. In the case of St George Bank the inquiry to transaction the conversion rate
Increased from 33% to 51%, improving both profit levels and customer service
simultaneously. (www.gartner.com)
Effective targeting of clients becomes possible when the segmentation is complete targeting
is discussed in detail later in the ten steps framework.
4) Crafting the strategyVision
To become the Bank of first preference to customers in corporate and retail banking in
Africa.
Objectives
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To understand and segment our current customer base of 600 000. To develop the loyalty of current customer segments and to use differentiated service
based on customer needs to increase customer satisfaction.
To differentiate our banking service from that of other banks by the end of 2012
To identify 20% population of our customers who are our most most-valuable customerin terms of profitability
To increase retention of the most-valuable customers by 75%. To win new customers and to win back valuable ex-customers. To handle customer inquiries in real time. To increase customer contact points by 15 % in 2012 by allowing customers can to access
their accounts via Wi-Fi tablets and smartphones. To reduce the costs of customer acquisition and communications by 50%
Critical success factors
For this strategy to be successful the following factors need to strengthened
a) The senior management must be committed to the CRS and its programs and theymust take the lead in directing and advocating the need for the strategy and its
benefits to all the banks employees
b) The strategy and its goals must be communicated effectively and management mustensure that they are understood by everyone in the organisation.
c) The program will have to funded generously overtime before actual tangible resultsbecome apparent
d) The rules of business must be changed for the strategy to work effectively andmanagers will have to engage in change leadership to ensure the strategy and its
programs are accepted.
e) For the program to be successful customer data will have to be gathered accuratelyand on time from Nexusbanks databases and legacy enterprise software.( Jenkinson
and Jacobs 2006)
SWOT analysis
The next step in the strategy is to carry out a SWOT analysis to understand the banks
Strengths, Weaknesses, Opportunities and Threats) in customer acquisition and retention.
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Figure 1: SWOT Analysis of CRM (Haran,2005)
The SWOT involves weighing our strengths and weaknesses in order to take advantage of
market opportunities and to avert or mitigate threats exist in the market.
Strengths
Strong ties with retail shops
Nexus bank has strong ties with retail shops such as Macro allowing customers to get
discounts on purchases made with the Nexus connect card customers can also make
purchases at the selected stores on low interest credit. These benefits are the foundation of
the next strength which is loyal customers who have a low propensity to leave the bank
resulting in low customer churn.
Strengths
we have ample customerinformation
we have loyal customers high customer response and
communication efficiency
a strong culture of customer servicewhich ensures customer satisfaction
Strong relations with retail shops forpoint of sale purchases
Weaknesses
Duplicated records of some customers Staff may lack skills required for new
system
Current organisational culture is notvery keen on complete customer service
there will be a time lag in switching tothe new CRM technology
Some retail shops are uncooperativeand have ties with rivals
Opportunities
improved Ability to please customersand retain them
Increased client base due to referrals Improved relationship with customer
resulting in brand loyalty
A chance to increase switching costs
Threats
Loss of personal interaction withcustomers
Poor integration with back officesystems
Over reliance on computer automatedprocesses
Downtime due to malfunctions willinconvenience customers
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Rapid response to customer demands because of wide contact point network
The bank has numerous contact points making communication consumers with and response
to consumer queries rapid Nexus customers can access their accounts via ATMs, mobile
phones, and the Internet making its access mix one of the richest in the world.
(Galbraith,2002)
Ample database information on customers which simplifies targeting and segmenting
consumers
A good CRM strategy is anchored in its ability to identify the best and most profitable
customers (Conlon, 1999) the identification process is facilitated by transactional history
which Nexus has in its database. Good customers conduct at least a single transaction daily
and the best customers transact regularly generating 10 times as much revenue as the good
customer best customers must be identified and rewarded (Kale, 2004).Kale argues
passionately that the major strength of CRM is that it stores valuable customer information
customer permitting Nexus personal level familiarity with the customer. (Kale, 2004).
Strong customer service culture
The bank staff are willing to bend over backwards to meet customer needs and interact with
them in a cordial and professional manner and they know most big customers by name this is
the jewel in the crown which creates emotional brand loyalty .this sales staff efficiency
allows customers to be more reliant on the organization and discourages customers to leave
the organisation (Xu et al., 2002) .
Weaknesses
Some retail shops are affiliated with other banks
This represent a weakness in the strategy this inconveniences customers who patronise these
shops regularly and they might be lured away by rivals who offer in store discounts by using
their credit or debit cards.
Duplicated customer information may cause information overload
Due to improper data capturing the relevant information maybe there, but if not managed
Properly it could lead to failure of the CRM strategy. This creates an overload of customer
data (Kale, 2004).
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There will be a Time lag for loading data in new systems
No CRM system comes preloaded with customer information. The bank will have to
transfer data from legacy systems into the new system this could cause the project to fail and
the organization losing valuable time and money. (Bultema, 2000).
Organisational culture
CRM strategy implementation will lead to cultural change within the organization, especially
among frontline staff (Fickel, 1999) i.e. staff in a retail banking firm may be focused on
managing accounts but not customer relationships. Through the implementation of a CRM
technology, staff will be forced to change their approach to their work and they may resist
this change.
Opportunities
Better relationships with customers
CRM allows the bank to know who its customers are and what solutions and service s they
expect from the bank and this helps improve relationship with customer. The secret of better
customer relations is making customers feel appreciated and important as pointed out by
Todman, (2001). To achieve this requires good control of CRM technology, ensuring
customer data clarity and accuracy and ensuring that staff is good with the customers.
Increased customer satisfaction
CRM strategy enhances customer satisfaction using technology and so the bank has an
opportunity to increase profitability (Galbraith, 2002). This can be achievedby knowing
what the customer wants. For example, a good CRM system willkeep track of a particular
brand ofproduct a customer may use and anticipates new customer needs and it also provides
the bank with an opportunity to widen its offerings and revenues. According to Galbraith,
sources of future profits lie with existing customers. Organizations are able to increase their
revenue by selling more to their existing customers. To adopt a statement by Peppers &
Rodgers (1993) rather than trying to get as many clients as we can to save with us we can
increase the transactions per existing customer by including services such as stock exchange
brokerage and consulting as well as providing financial planning advice as part of our
service. The revenue base can be increased by including extra services or incentives.
Threats
Loss of personal interaction
A real threat of CRM is loss of personal interaction and human warmth. Through extended
use of technology the customer becomes an identification number rather than a person and
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this induces feelings of insignificance in customers. The bank must ensure that staff is
meeting customers face-to-face to combat this threat (Haran 2005).
Over reliance on computer automated processes
Its possible that CRM can become too computerized and impersonal again resulting in the
loss of personal interaction. Haran (2005) suggests this could lead to the customer feeling
unappreciated because customers place import on their relationships with their Bank and
resent being just another client on a database.
Poor integration with back office systems
Another threat lies in the probable inability to integrate CRM technology with existing
(legacy) BackOffice systems this is a critical success factor for CRM implementation and
success (Haran, 2005). According to Haran, implementing a new CRM module requires
guidance to ensure everything fits together in function and form.
The five forces that shape strategy
Porters five forces
The most important of these factors in CRM are the buyer associated pressures. Jenkinson
and Jacobs (2006) suggest considering the marketplace from the viewpoint of the customer.Current levels of customer loyalty must be taken into account. In the banking services
Nexus
Bank&
its CRS
Substitute
services to
savings e.g share
investments
Potential
entrants
Rival banks
Suppliers and
their bargaining
power
Buyers(clientsand their
bargaing power)
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marketplace the customer loyalty factor power is as significant as buyer bargaining power in
the commodity marketplace ultimately for Nexus Bank customer loyalty is what produces a
competitive advantage.( Jenkinson and Jacobs , 2006)Brand loyal Customers tend to
patronise the bank regularly, resist competitive offers and be less sensitive to price changes.
This produces customer inertia which translates into brand equity which represents the
strength and competitive advantage that the Nexus brand commands. Clients that have a
strong attachment to our services have less bargaining power.Emotional customer brand
loyalty will serve as an entry barrier to potential new entrant the CRs should aim to increase
positive emotions the customers have for the banks services.
To increase the chances of success of the strategy the strategy will draw from the ten steps
framework to successfully target acquire and retain customers .these ten steps will serve as adrivers of the strategy however only those relevant to Nexus Bank will be discussed
(Jenkinson and Jacobs,2006)
Source Jenkinson and Jacobs (2006)
Investment: Invest according to customer value
Relationship: Optimise the whole customer relationship
Touchpoints: Manage the relationship at all appropriate touchpoints
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Investment
From the segmentation process the most valuable customers will have been identified, Nexus
Bank must then proceed to invest its resources in the most profitable customers . According to
Pareto we should invest in the 20% of our customers who generate 80% of our revenue. This
implies that the marketer bank investing resources equally on all clients is wasteful. Thewiser approach is to tailor the investment by prioritising customers with the highest
account, contact point usage and marketing media response rates, brand loyalty, the
biggest account and loan balances and the customers who repay loans promptly.
(Winer,R.S 2001)
This is the most desirable segment to Nexus Bank and it must become the primary focus in
terms of marketing resource allocation. The proportion in which of marketing tools will be
deployed between Client segments will be based on individual customer-based profitability
and Lifetime Customer Value to maximise returns . This strategy worked for PageNet a
wireless provider reportedly increased usage rates for unprofitable subscribers to drive them
out or increase their transactional value and profits. The risk of excluding potentially valuable
customers is significantly reduced by LCV analysis because it accounts for potential growth
in client purchasing. (Winer,R.S 2001).
Conversely many unprofitable customers can be placed in the Nuggets segment because of
imperfections in prediction techniques group .No matter what criterion is employed, de-
selected customers need to be chosen with care. Once driven away or ignored, unhappy
customers can spread negative word-of-mouth quickly over the web. (Winer,R.S 2001).
Relationship ProgramsRelationships are built and sustained with personalised customer centric banking solutions
rather than technology. Direct e-mails and other communications are only a delivery system
of the banks financial services. Delivering higher levels of customer satisfaction than
competing banks should be the ultimate goal of the CR strategy. To meet customer
expectations of service performance delivering higher levels of satisfaction is critical.
Research has shown that there is a strong, positive relationship between customer satisfaction
and profits. The bank must constantly develop programs which deliver performance in excess
of targeted customer expectations. The bank must make efforts to understand why customersdefect how to stop them or win them back if they defect. Customer Loyalty is created by
having the right processes and capabilities these are described below
Touch points and Customer Service
Touch points are any media that allow customer interaction with the organisation. Any
contact with the customer is an opportunity to gain repeat business and in any of these
encounters the bank must maximise positive customer experience by using customer service
to build or improve a relationship with the client. The firm must react positively in solving
enquiries and answering questions concerning customer accounts or service.
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(Jenkinson and Jacobs,2006) . Infrastructure to deal with reactive service situations such toll
free 0800 must always be available and well maintained. Managers can also pre-empt
dialogue before they complain to explain why a particular account error occurred and how it
will be solved, employees must also be trained to initiate contact and anticipate client needs.
Recommendations
1) Improving the human element of ATM and online bankingThe intensive use of online banking services reduces the human element which this may
impact customer satisfaction and inhibit the development of long lasting relationships with
customers (Cox and Dale, 2001; Herington,C. and Weaven,S 2007) . To remedy this the
bank to design online services must be designed with delighting the customers above their
expectations ensuring both customer retention and loyalty . To achieve this all customer
related processes must be Designed from the customer perspective : emphasis must be
placed on a handful of processes that customers care most about and then redesigning them
from the point of view of the clients.( Herington,C. and Weaven,S 2007)
2) Acting on customer feedback
Customer feedback on procceses must form a basis for process modification . Forward-thinking organizations make sure they act on the feedback. (www.gartner.com)
3) Alter employee attitudes towards customer serviceEmployees must be trained to see their jobs not only as managing figures in accounts but they
must see themselves as providers of financial solutions and service to individuals and
companies via their managers. service excellence enhances customers repeat purchases of
current an additional t services, reduces price sensitivity.hence the cost of training is
insignificant in comparison to the benefits that will accrue to the organisation training staffproperly (Cronin & Taylor, 1999;Haran,2005)
Conclusion
In conclusion it must be noted that the CRM strategy is not a strategy for technology and
management but it is a strategy to satisfy customers and create and sustain long lasting
relationships with them throughout the consumer life cycle from targeting , acquisition and
retention . (Winer,R.S 2001). The strategy must evolve from creating a database , analysing
the database ,creating customer segments and internal analysis of the organisation using
SWOT analysis .Improvements must be made on the banks current service delivery system
based on the Swot analysis and feedback from customers to increase customer loyalty .
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