Customer Relationship Management - Developing an Effective Customer Loyalty Program - Assignment Example

Customer relationship management xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Letter of transmittal April 13, 2012 Dr. Davidson McMurrey, CEO for Utel Inc. 421 French Hall Lexington, MA 071342 Dear Dr. McMurrey, In keeping with our agreement about researching on a Customer Loyalty and Relationship Marketing Program, I submit herewith an accompanying background report entitled ‘Report on Customer loyalty and relationship marketing program’. The purpose of this report is to provide introductory information concerning the main issues pertinent to CLRM programs. The report provides a general overview of CLRM as detailed in literature and makes reference to other companies that have used the program in the past. Findings from a brief survey carried out in line with this topic have also been discussed. The paper concludes by providing recommendations of strategies that can be employed within the company so as to effectively implement a CLRM program. It is my sincere hope that the report will be satisfactory. Respectfully Yours, Lionel Ken, Director CRM Utel Inc. Executive summary Customer relationship management is founded on the notion that development and maintaining of good relationships with clients is the best way to get them loyal and they are more beneficial than non-loyal customers. In recent years, marketing strategies have drastically taken a different turn due to the increasing need for loyal customers. Managers and marketers are now focusing their marketing activities in not only attracting customers but ensuring that they receive the best experience from the company relative to competitors. Loyalty programs are particularly gaining popularity among company as they are perceived as the best devices of ensuring that customers remain loyal. Of importance in loyal programs is to create customer value so that they may feel appreciated hence influence them to give back to the company by not only remaining there but also recommending the company to other customers. The purpose of this report is to provide a conceptual understanding of CLRM programs. It begins with a brief literature review discussing some facts and theories that scholars have detailed in literature. The second part is a survey study that was conducted to determine the general perception of people about loyalty programs. The third part gives examples of two companies that have already established loyalty programs; it will examine the benefits and drawbacks of the programs. The paper concludes by giving recommendations of how a CLRM program can be implemented successfully. Table of Contents Executive summary 3 Table of Contents 4 1.0 Introduction 5 1.1 Company profile 5 1.2 Aims 6 1.3 Scope 6 2.0 Customer Loyalty and Relationship Marketing 6 2.1 Literature-based Evidence 6 2.1.1 Managing value through Loyalty programs 7 2.1.2 Customer benefits and sacrifices in the value equation 9 2.1.3 Benefits of retaining customers 10 2.2 Survey 12 2.2.1 Participants and methodology 12 2.2.2 Results and discussion 12 2.3 Existing Loyalty and Relationship Marketing programs 13 2.3.1 American Airlines AAdvantage program 13 2.3.2 Everyday Rewards 14 3.0 Conclusion 14 4.0 Recommendations 15 References 16 Appendix 1 17 1.0 Introduction The importance of business relationships as well as the interpersonal, idiosyncratic relationships within business has been documented throughout history. Yet customer relationship management and marketing have emerged as first priorities for managers and marketing academics. The sudden outburst in the interest in this field has been contributed by a number of factors including the increasing globalization, global competition, faster product commodization and advances in technology, communication, computer technologies and logistics. These trends have reinforced the increasing need for relationship based loyalty besides other marketing mix factors on the side of the seller. To customers, there is increasing desire for more unique characteristics in the relationship based exchange such as greater flexibility, higher trusts, enhanced cooperation and reduced perceived risk. Thus, in contemporary organizations, both customers and sellers are becoming more interested in conducting business based on concrete relationships (Barry 2006, p.123). 1.1 Company profile Utel is a startup company registered as an Australian public company. It is basically a telecom company specializing in telephones, mobile phones and loyalty programs. The need to start the company came after realization of the various gaps in telecommunication industry in Australia. The company therefore, intends to address these issues as well as capture market dominance. The short term goal of the company is to introduce a unique internet broadband in the company at highly competitive prices. In the long run, the company intends to engage in most if not all areas involved in the telecom industry. Clearly, the company’s success will be founded on a comprehensive market survey conducted through a detailed marketing plan and marketing plan prior to its commencement. Even so, the top management of the company has realized the increasing need for customer relationship marketing which is the reason why this report has been complied. 1.2 Aims To determine the benefits of good customer relationships through CLRM programme To determine ways of developing and implementing CLRM programme To determine the effectiveness of the CRLM programme 1.3 Scope Basically, the purpose of this report is to explore the benefits of establishing a Customer Loyalty and Relationship Marketing programme in Utel. The report begins by discussing CRLM as detailed by scholars in literature. This part will specifically tackle management of value through loyalty programs, customer’s benefits and sacrifices in the value equation and the benefits of retaining customers. The second part of the report is a brief survey carried out with the aim of identifying how people perceive loyalty programs. The third part of the report gives examples of companies that have integrated CRLM programs. It will specifically discuss some of the benefits and drawbacks of these programs. Lastly, the paper concludes and provides recommendations to the management on strategies that can be adopted to develop and successfully implement a CLRM program. 2.0 Customer Loyalty and Relationship Marketing 2.1 Literature-based Evidence The American Marketing Association define marketing as a fundamental organizational function involving a set of processes for developing, communicating and delivering value to customer as well as managing customer relationships in a way that benefits the company and its stakeholders. Therefore, the overall definition of marketing underscores the importance of managing relationships in marketing activities parallel to the traditional marketing approaches. Customer relationship marketing is defined as the process of attracting, maintain and enhancing customer relationships. Servicing existing customers is just as important as attracting new ones. Customer relationship marketing is all about cementing relationships with customers and transforming those who are indifferent to become loyal. Customer relationship marketing therefore goes hand in hand with customer loyalty (O’Malley and Tynan 2001, p.243). One of the major challenges facing modern organizations is sustaining customer loyalty. This is because the market has becoming more transparent such that there is a wealth of information available to customers about companies. This has largely contributed to the migration of customers from company to company. In light of these facts, it is important for companies to deploy strategies of sustaining their customers. Davenport et al (2001, p.68) proposes that one way of preventing customer migration to competitors is by adding value to products and services. This is often done through branding, convenience and flexibility. Another important way of retaining customers is by engaging buyer-seller relationships throughout transactions. Preferably, this should be individualized through a one-to-one marketing. This kind of marketing is aimed at establishing communication channels and also addressing customer issues individually. 2.1.1 Managing value through Loyalty programs According to Cigliano et al (2000, p.74) customer loyalty is achieved through successful marketing strategy that is able to create competitive value for customers. Marketing exists due to the unfulfilled desires and needs of people and the pressing need of the company to deliver value to customers as well as establish mutually profitable and long-term relationships with them. Dowling (2002, p.103) maintains that successful marketing strategies are those that are founded on comprehensive marketing analysis such as customer, competitor and internal analysis. These are components of a marketing mix which enable a company to obtain a competitive advantage for instance in attracting and building relationships with customers and making them loyal to the company. There are two strategic step involved in developing a marketing mix: selection of the target market and the development of the marketing mix (4 Ps). The 4 P’s (product, price, place and promotion) are strategies formulated to fulfill the needs of the target market. Other components of marketing strategy include positioning, segmentation, targeting and value proposition. Value proposition embraces all the other strategies by defining ways in which the company will create differentiated value for the targeted market segment and the position it will occupy in the specific segment. Therefore, loyalty strategies and programs are developed on the basis of sustainable marketing mix and a value proposition that exceed those of competitors (Dowling 2002, p.98). Customers perceive value as the overall utility of a product or service based on the perception of what is given and what is received. Customer perceived value results from three determining stages; pre-purchase stage (expectation); evaluation during purchasing; and post-purchase assessment (after use). Besides that, customer’s perceived value is determined by the benefits received and the sacrifice given. Benefits include the desired value of the product or service for instance quality. Sacrifice, on the other hand include the non-monetary (efforts and time) and the monetary (price) values. Therefore, a customer’s perception of value is represented in the tradeoff between benefits or quality relative to the sacrifice they pay for the product or service (Shugan 2005, p.140). Loyalty programs are also fundamental in maintaining customer value. Loyalty programs are often regarded as value-sharing instruments and can greatly influence the perception of customers about what the company offers. This value enhancement function is quite important because it enables a company to strive in providing superior value which is fundamental in initiating customer relationships as well as retaining them (Youjae and Jeon 2003, p. 133) posit that a successful loyalty program is one with enhanced value perception. A commonly used loyalty program among organizations is the program where customers are allowed to accumulate free rewards after the making purchases. More common is the use of points issued during each purchase and redeemed once they have accumulated. Verhoef (2003, p.43) states that indeed these points have a psychological meaning to customers even though they never seem to have any significant importance until they are redeemed. The psychological benefit is that it increases transaction utility of a purchase and the overall value and attitude of doing business with the organization. As customers look forward to redeeming their point in future they develop a positive anticipation of future events which increased the likelihood of the customer remaining in the relationship. During the process of redeeming points, the customer receives both economic and psychological benefits from the program. The reward system serves as a positive reinforcement of the customer’s behavior in purchasing and in addition conditions and persuades them to continue doing business with the firm. Psychologically, the customer feels recognized and appreciated by the firm. This feeling of belongingness enhances the overall well-being of customers and strengthens their relationship with the firm. Customer’s psychological satisfaction also influences customers to indulge in guilt-free luxuries as a way of giving back to what they consider as the firm’s overly kindness. All the psychological and economic benefits contribute to the attractive value proposition of the firm. 2.1.2 Customer benefits and sacrifices in the value equation The value created by loyalty programs has a significant impact on customer’s benefits and sacrifices. Youjae and Jeon (2003 p.137) maintain that benefits are quite alluring and this is the reason why customers continue to have renewed interest in loyalty programs. In actual fact, clients who are loyal or regular are more profitable than those who are not loyal. Billinton and Nie (2009, p.4) argue that the cost of serving a new client is much more than that of serving a regular customer. However, this is a bit contradictory as the services involved are the same which implies that the costs should be in principle the same. The reason why these costs vary is because loyal customers tend to be less price sensitive. To them, price is not as paramount as value proposition (benefits relative to price) offered by the brand. Loyal customers have gained trust with the company and they are always ready to buy commodities at any price since they believe they are of higher quality. Lemon et al (2002, p.10) maintains that high prices and brand loyalty are positively correlated. This however does not mean that loyal customers are not price sensitive but instead indicates that such customers will buy brands at higher prices simply because they consider them better. Less price conscious people could buy either expensive or cheaper commodities depending on whether the brand is able to offer a good reason (psychological and functional) to justify its prices. Michael (2004, p.286) argues that loyal customers expect some sort of extra treatment besides the ordinary. For instance, they would expect to receive price discounts or better services based on the fact that they are frequent buyers and interact with the firm more often. In other word, they expect a reward for their loyalty. The value that the company offers its customers greatly determines their loyalty. Liu (2007, p.26) asserts that it is not necessarily the architecture of the loyalty program rather the value you create in customers. Customers are more likely to pass a positive and favorable word of mouth comment about a company that shows value for its customers. This is by disguise a form of marketing. However, this is not always the case with loyal customers or those who are members of the loyalty program. This is because any satisfied customer even those not loyal to the company could give a positive comment about the company. Lemon et al (2002, p.3) maintains that the only way to ensure that loyal customers offer substantially more effective and positive comments, that will help market the company, will be to increase their value in the company. They can even go to the height of sacrificing their money, time and effort in recommending the company to others. 2.1.3 Benefits of retaining customers Customer retention is a powerful tool in the arsenal of customer relationship management. In order to gain a competitive advantage in a new or old market, the best strategy is perhaps to retain customers as since about 90-95% of the total business income comes from existing customers. Competitive strategies of retaining customers tend to be much lower than those of attracting new ones more so in mature markets where competitors are entrenched. Kanagal (2009, p.26) notes that with repeated buying the cost of doing business with satisfied customers is reduced. Dissatisfied and disloyal clients increase the cost of sales. This is because they tend to slow down their payments because they do not have direct interest with the company. Besides that they elevate complains to top management and could even engage legal representatives in order to fulfill their expectations. During such instances, the company is also forced to engage legal representatives to defend their positions which further increases costs incurred by the company. Bloemer and Odekerken-Schröder (2002, p.77) maintain the cost of serving one dissatisfied customer has the potential of taking away almost all the profits accrued from loyal and satisfied customers. This underscores the importance of maintain good relationships with clients thus making the loyal; the cost of operating the company is greatly reduced. Retaining customers also limits corporate crisis. Customers who are loyal to the company would be affected by any crisis facing the company thus would assist in any way that would ensure its survival. Customer retention is therefore a source of insulation against corporate crisis. Crisis can either be internal or external. Billinton and Nie (2009, p.2) highlight four main sources of corporate crisis relevant to customers who: Product tampering, operational breakdowns, industry restructuring and unfair competition. Product tampering is particularly becoming increasingly too common in the retail environment. Nevertheless, research has indicated that customer loyalty slows down possible decline in sales or even loss of market share that would result from the crisis. Customers loyal to a company are displeased by unethical and often unfair business activities carried out by competitors of the company. In so doing, they will expose these unfair business and marketing practices to the company management so that relevant action can be taken to counteract effects of the practices. Loyal customers tend to be patient in waiting and could even postpone purchase in times when the company has undergone internal operational problems. In the same way, loyal companies stick with the company during industry restructuring which is normally mandated by the government. Retaining customers who are loyal and satisfied generates new customers. Verhoef (2003, p.40) asserts that the best developing a business is by creating a customer base without necessarily investing significantly in marketing, product or sales resources. This is achieved through word of mouth. Loyal customers are more willing to recommend the company to potential new customers. They are willing to sacrifice their efforts and times for a number of reasons. First, they show their appreciation to the company for being treated well as customers. Second, it is their desire to kick out companies of inferior qualities from the market by promoting the company of their choice. Word of mouth communication is very powerful. It goes through less perceptual filters, it is influential, credible and can market a product better than any other form of marketing communication. Retaining customers encourages one stop shopping. Besides generating growth of the company, loyal customers will buy other products and services offered by the company. Customers prefer one stop shopping because it is economical. It is cheaper to place orders with one vendor than split them amongst different vendors. In addition, it is convenient as they become conversant with procedures of ordering, delivering and payment in a company they frequently visit. Customers often have the uncertainty of doing business with new and unknown vendors thus will prefer to relate with vendor they regularly interact with. The benefit of one stop shopping is that it encourages the company to expand its product line and enhances generation of corporate growth without significant growth. Retaining customers encourages development and implementation of successful innovations. This is because loyal customers are more open to sharing their views and opinions about their product or service experience. Michael (2004, p.282) explains that this open door communication is extremely important for innovation of new products. It is actually an interface between the company and the customers as the company will develop products according to the needs of its customers. 2.2 Survey 2.2.1 Participants and methodology Participants of the survey included 10 members of the general public who were selected randomly. Structured interviews were used for this particular survey (appendix 1). Interviews were conducted outside retail outlets of major companies in the region including supermarkets, clothes and shoe shops as well electronic shops. Permission was requested and granted by relevant authorities of the facilities before commencement of the exercise. The temporary tents that were erected outside the facilities had burners of the company and the products it offers. This did not only capture the interest of participants but also served to advertise the company. 2.2.2 Results and discussion Eight out of the ten participants demonstrated awareness of a loyalty program. Majority were particularly conversant with the use of redeemable points after each purchase. Two of them were completely unaware of such programs. Out of the eight who were aware, three did not have interest in the program thus were not members. The remaining five participants were active members of at least one of their favorite companies. Out of the five participants who were members of the loyalty programs, only one had known about it through the company marketing activities; the remaining four learnt about it from external sources. They demonstrated a deep liking of the programs and stated that it has contributed to their loyalty towards the company. Lack of awareness of the programs could be associated to the companies’ ignorance in enlightening customers about it. The survey also clearly showed that even those aware of it, learnt about it from external sources and not from the company. Companies should inform first-time clients about loyalty programs as well as all the relevant details involved. Besides enlightening customers about the programs, the company should provide its clients with enough knowledge about the company specifically giving advantages of the program so as to capture the interest of clients. 2.3 Existing Loyalty and Relationship Marketing programs 2.3.1 American Airlines AAdvantage program The program was initiated in 1981 with the objective of rewarding customers of the Airline in all its operations in the world. The program now has more than 69 registered members across the globe who are served in more than 1,000 participating companies including hotels, car rental companies, financial companies and brand name retailers. Members earn points by transacting with these participating companies as well as flying on the Airlines and the other participating airlines. Points are redeemed for flights to almost 950 destinations worldwide. Other benefits of the program include vacation packages, car rentals, flight upgrades, retail products and free hotel stays. The program has enhanced innovation within the company as evidenced by the recently designed new card benefits that encompasses the travel perk that card members value most. This action was taken as a response to invaluable feedback received from loyal customers. The company therefore continues to gain a competitive edge against its competitors through constant innovations. The new AAdvantage card provides its members with benefits such as priority boarding, in-flight discounts and free first checked bags. According to AA management, the company has generated tremendous brand and customer loyalty through the program. 2.3.2 Everyday Rewards This is a customer loyalty program operated by Woolworth Company in Australia. Under this program, customers’ earned fuel saving offers are electronically stored in the Everyday Reward cards which eliminated the need for customers to retain papers or receipts that were used for this purpose. Ones the rewards have accumulated members can redeem through supermarkets or Caltex Woolworth outlets. Besides that, cardholders can earn Qantas flyer points for buying goods at participating Woolworth supermarkets. Although the program has experienced tremendous growth since its inception in 2007, the management team that oversees the program explains that it has gone beyond their expectations due to the overwhelming number of participants. As a result, some of the benefits of the program have had to be cut off such as the fuel discount benefits for cardholders. Nevertheless, the program has been a quite helpful in attracting and retaining loyal customers. 3.0 Conclusion Customer Loyalty and Relationship Marketing program is a fundamental tool in ensuring the success of an organization. In the contemporary business environment, retaining customers has become a difficult task as clients can easily access information about a company. This is the reason why customer loyalty programs are becoming increasingly important in organizations. Loyalty programs allow customers to take part in the successful achievement of goals of the company. Customers will tend to become loyal to a company that has considerable perceived value. According to customers, perceived value is what the company gives back for the client’s participation in the transaction. It is therefore, important for any organization to effectively manage value proposition in the firm in order to retain its customers. The benefits provided by an offer will directly affect the potential sacrifice by a client. A loyalty program that adds value to a customer, prompts him to become loyal to the company and even recommend products and services produced by the company to other clients. Retaining loyal and satisfied customers has indeed many benefits. The cost of operating is greatly reduced as the customers are quite cooperative in the business transaction as opposed to non loyal customers who normally tend to increase costs of operations. Retaining loyal customers is the best and the easiest way of attracting new ones. In addition, these customers have direct interest in the company thus would support the company in ensuring survival during instances of internal and external crisis. Drawing from the survey, many people do not make effective use of loyalty programs of their companies of choice even when they are aware of their existence. There is therefore need for Utel to campaign for its loyalty program so that its customer can become part of it. Evidence from the AAdvantage and Everyday Rewards programs clearly underscores the importance of establishing a customer loyalty program within Utel. 4.0 Recommendations Utel should Personalization the seller-buyer relationship. When the company and customers interact directly a concrete relationship is more likely to result. Through personalization, the company can collect information that is of important value to the customer and in turn the company will produce products that will bring maximum satisfaction to its clients. The company should also open up communication avenues with its customers. Communication is central in any given relationship as it enhances partner’s trust for each other. Communication systems will enable customers to air out their complaints, suggestions and opinions and the company will be able to respond to them through the system. This will further reinforce the relationship. The managers and marketers within Utel should strive to create a customer loyalty programs. The program will not only influence customer’s loyalty towards the company but will also increase customers perceived value towards the company. Customer loyalty is also build on a company’s ability to produce a variety of goods and services. This is because there is increasing trend in one stop shopping which, according to many customers is both economical and convenient. Therefore, Utel should diversify in terms of its product line so as to gain a large customer base. References Barry, B 2006, Developing an effective customer loyalty program. California Management Review Fall 2006, Vol. 49, Issue 1, p123. Billinton, C, and Nie, W 2009, The customer value proposition should drive supply chain design: An example in mass retailing. Perspectives for Managers, volume 177, no. 1, p. 1-4. Bloemer, J. and Odekerken-Schröder, G 2002, Store satisfaction and store loyalty explained by customer- and store-related factors. Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, volume 15, no. 1, p.68-80. Cigliano, J, Georgiadis, M, Pleasance, D, and Whalley, S 2000, The Price of Loyalty, The McKinsey Quarterly,volume 4, no. 1, p. 68-77. Davenport, T, Harris, J, and Kohli, A 2001, How Do They Know Their Customers So Well, Sloan management Review, volume 42, no. 2, p. 63-73. Dowling, G 2002, Customer Relationship management: In B2C markets, often less is more, California management review, Volume 44, no.3, p. 87-104. Kanagal, N 2009, Role of relationship marketing in competitive marketing strategy. Journal of Lemon, K, White, T, and Winer, S 2002, Dynamic Customer relationship Management: Incorporating Future Considerations into the Service Retention Decision, Journal of Marketing, volume 66, no. 1, p. 1–14. Liu, Y 2007, The long-term impact of loyalty programs on consumer purchase behavior and loyalty, Journal of marketing, Volume 71, no. 1, p.19-35. Management and Marketing Research, Volume 2, no.1, p. 1-17. Michael, L 2004, The Influence of Loyalty Programs and Short-Term Promotions on Customer Retention, Journal ofMarketing Research, volume 41, no. 1, p. 281–92. O’Malley, L, and Tynan, C 2001, Reframing Relationship Marketing for Consumer Markets, Interactive Marketing, volume 2, no. 3, p. 240-246. Shugan, S 2005, Brand Loyalty Program: Are They Shams, Marketing Science, volume 24, no. 1, p. 185–93. Verhoef, P 2003, Understanding the Effect of Customer Relationship Management Efforts on customer Retention and Customer Share Development, Journal of Marketing, volume 67, no. 1, p. 30–45. Youjae, Y, and Jeon, H 2003, Effects of Loyalty Programs on Value Perception, Program Loyalty, and Brand Loyalty, Journal of the Academy of Marketing Science, volume 31, no. 1, p. 229–40. Appendix 1 Questionnaire Are you aware of loyalty programs? Yes [ ] No [ ] Do you use the loyalty program of the companies you use? Yes [ ] No [ ] Do you think the loyalty program is effective? Yes [ ] No [ ] Did you about loyalty programs from the company? Yes [ ] No [ ] Read More