Tinotenda R Chabvonga Student Number 210546075

Marketing 301 assignment

Derive a customer relationship strategy for a marketer supplying a marketing service for a business of your choice .
tinotenda reginald chabvonga

4/20/2012

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 Jacobs who 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 business activities 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 rates and reducing customer acquisition and retention costs by focusing resources on our most profitable customers.

target

retain

customer life cycle

acquire

build relations

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 customers based 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 the clients have access to internet services . (Winer,R.S ,2001) c) Nexus has strong relations with Macro Ltd (a chain of retail outlets ) that allows holders of 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 Nexus Bank

The derivation of the strategy will be done by following these steps ; i. ii. iii. iv. Creating a database Analysing the Database Defining Customer Segments for targeting 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 Database

The 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.

Customer interaction matrix

Customer interaction Direct high indirect

on

Banks (Nexus Bank) Telecom companies Retailers

Airlines Packaged goods Drugs and pharmaceuticals

Interaction frequency low Personal Computers Furniture dealers

Internet Infrastructure

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

(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 Data

Analysis 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

be assigned to each customer, the marketing managers can then decide which customers to target objectively.

3) Defining Customer Segments for targeting

A 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 emotional

loyalty 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 size of this group and, rather than the high account balances of individuals that makes them the backbone of the bank.

The apathetic these customers have accounts which they use only monthly or

quarterly 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 oneto-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 strategy

Vision To become the Bank of first preference to customers in corporate and retail banking in Africa.

Objectives

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 customer in 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 they must 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 must ensure that they are understood by everyone in the organisation. c) The program will have to funded generously overtime before actual tangible results become apparent d) The rules of business must be changed for the strategy to work effectively and managers 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 accurately and on time from Nexus banks 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.

Strengths we have ample customer information we have loyal customers high customer response and communication efficiency a strong culture of customer service which ensures customer satisfaction Strong relations with retail shops for point of sale purchases

Weaknesses Duplicated records of some customers Staff may lack skills required for new system Current organisational culture is not very keen on complete customer service there will be a time lag in switching to the new CRM technology Some retail shops are uncooperative and have ties with rivals

Opportunities improved Ability to please customers and 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 with customers Poor integration with back office systems Over reliance on computer automated processes Downtime due to malfunctions will inconvenience customers

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.

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).

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 achieved by knowing what the customer wants. For example, a good CRM system will keep track of a particular brand of product 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

Rival banks Potential entrants Suppliers and their bargaining power

Substitute services to savings e.g share investments

Nexus Bank& its CRS

Buyers(clients and their bargaing power)

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

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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 a drivers 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. The wiser 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, deselected 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 Programs
Relationships 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 customers defect 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 banking The 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 . Forwardthinking organizations make sure they act on the feedback. (www.gartner.com) 3) Alter employee attitudes towards customer service Employees 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 staff properly (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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Bibliography
Conlon, G., (1999) Growing sales from existing customers Sales and Marketing Management, Vol.15, Issue 11 Dickie , J. (1999) Why CRM projects fail CRM Journal, online article, www.crmcommunity.com accessed on 19 April , 2012 Fickel, L. (1999) Know your customer, CIO Magazine, Vol.12 Issue 21 Galbraith , J. R., (2002) Designing organizations an executive guide to strategy, structure and process Second Edition - Jossey-Bass, SanFrancisco, CA Haran ,A (2005) Development of a framework to retain customers through customer relationship management Dublin Herington,C. and Weaven,S (2007),Can banks improve customer relationships with high quality online services? , Managing Service Quality, Vol. 17 Iss: 4 pp. 404 427 Jenkinson,A and Jacobs,M (2006) The IDM Guide to CRM Mastery (www.gartner.com) Accessed 14 April 2012 Kale, S. H., (2004) CRM Failure and the seven deadly sins Marketing Management, 13 .5 Peppers, D., Rogers, M. (1999) The One to One Manager: Real-World Lessons in Customer Relationship Management, Doubleday, New York Porter, M., (1995) Competitive Advantage :Creating and Sustaining Superior Performance, Simon & Schuster, USA Satoshi (2006) Winer,R.S (2001) Customer Relationship Management: A Framework, Research Directions, and the Future 1. 4-35 www.atosorigin.com. (2012) www.gartner.com ( 2012) www.accenture.com (2012) Yao,H and Khong ,K.W ( 2011 )Effectiveness of Customer Relationship Management on Customer Satisfaction in the Commercial Banks of Taiwan Contemporary Management Research 7 . 105-116, Xu, Y., Lin, B. & Chin, D. (2002) Adoptingcustomer relationship management technology Industrial Management and Data Systems, Vol. 102, Issue 8

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