Customer Relationship Management - KLM Royal Dutch Airlines - Case Study Example

Table of Contents Table of Contents 1 Introduction 2 Description and Overview of CRM 3 Components of CRM 4 Case Studies of Application of CRM in Businesses 6 CIAO: KLM Royal Dutch Airlines 6 Walt Disney: Disneyland 8 Business and Organisational Impact of CRM 11 Conclusion 12 References 14 Customer Relationship Management Introduction In today’s highly competitive business environment, a considerable number of organisations have realised the significance of becoming highly customer–centric. As a result, these organisations have invested a substantial amount of their resources and time in “Customer Relationship Management” (CRM) with the aim of enhancing and managing their relationships with their customers. CRM can be defined as an elaborate business model or strategy that is often used to enhance and manage a company’s interactions or relationship with its sales prospects, clients and customers (Payne & Frow, 2005). According to Jha (2008, p. 1), “CRM is a multifaceted process that is mediated by a set of information technologies which focus on developing two-way exchanges with customers so as to enable a company to have concise knowledge of customer needs, wants and buying behaviours”. Basically, CRM helps companies to understand and even anticipate the needs of its clients and potential customers. This can in turn help companies to enhance their profitability and realise positive business outcomes (Jha 2008). However, there are various issues and challenges that affect the application of CRM in modern day businesses or companies. This report seeks to provide a critical outlook on CRM. Foremost, it will provide an in-depth description and overview of CRM. Secondly, this report will examine the application of CRM in modern day organisations. In this case, it will provide two examples of organisations which employ a CRM model and it will subsequently appraise the effectiveness of this model in these organisations. Thirdly, this report will explore the issues and challenges revolving around the application of CRM in organisations. In addition to this, it will discuss the potential impact of CRM in organisations. Description and Overview of CRM Payne and Frow (2005) observe that, CRM is essentially a cross-functional organisational process that mainly focuses on enhancing and maintaining long-term interactions or relationships with customers. Similarly, Jha (2008) notes that, CRM is basically a multifaceted process that is aided by different sets of information technologies which are geared towards developing two-way exchanges with customers in order to enable an organisation to get concise information regarding the wants, needs and buying habits of their customers. According to Artos Origin (2002), CRM is generally a business philosophy that gives vision and direction to an organisation on how to relate or deal with their customers. A CRM strategy essentially gives shape to an organisation’s sales, customer service, marketing and activities relating to data analysis. Most companies use CRM with the goal of enhancing their relationship value with their customers and capitalising on profitable relationships with their customers (Artos Origin 2002). On the other hand, Gray and Byun (2001), further notes that, CRM is a broader concept that not only entails marketing but also incorporates business and organisational level approaches that take up a customer centric approach to doing business instead of a simple marketing approach or strategy. Gray and Byun further note that CRM also incorporates all corporate functions that involve indirect or direct customer contact. Some of these corporate functions include; customer services, marketing and field service among many other functions. The term “touch points” is commonly used in CRM to imply to the different ways that organisations and their customer’s interact (Gray & Byun 2001). Based on the various definitions and description highlighted in the above section, CRM may appear to be a straightforward and simple concept however, there are varying outlooks, descriptions, implementation and applications of CRM. One of the key outlooks of CRM as expressed in varies literatures is that, it is an IT driven program that is designed and implemented to enhance long-term contacts and relationship between an organisation and its customers. Another outlook on CRM is that it is a comprehensive business model or strategy that is developed to optimise enhance long-term contacts and relationship between an organisation and its customers. Based on the various definition highlighted in this report , it is worth noting that, one of the common aspect of CRM is that, it is geared towards forming profitable long-term relationships with customers (Pokharel 2011). Components of CRM Artos Origin, (2002) recommends that, any CRM process should begin with a vision and strategy outlining the objectives and aims of a company. Subsequently, the company should adjust its organizational structures and processes in order to execute its model effectively. According to Pokharel (2011), CRM is a comprehensive approach that has to be aligned with different business aspects. Some of these aspects include; leadership, the use of effective technologies, human resources, change management and management in general. Leaders or managers in organisations play a crucial role in the success of CRM processes. Leaders or managers act as the key facilitators of implementing CRM processes, they have to consult with their employees, welcome their feedbacks and involve them in decision making. Communication is one of the essential factors needed in an organization so as to realise success in the course of implementing CRM processes (Pokharel, 2011). Moreover, for successful implementation of CRM, human resource management is also very crucial. Given that employees are the interface and the most important resource of a company, the implementation and success of CRM process is largely dependent on their performance. Therefore, it is essential for leaders or managers to train and integrate their employees into the organisation’s CRM strategy so as to help them learn and adapt to the company’s CRM processes (Pokharel 2011). In today’s competitive business environment, IT is one of the core and most crucial aspect of CRM. IT plays a crucial role in gathering, organising and analysing information related to customers’ needs, wants and buying habits (Zikmund, McLeod & Gilbert 2003; Krauss 2002). Similarly, Kincaid (2003) and Ling and Yen (2001) note that, IT plays a significant role in the development of CRM. IT applications facilitate and enable an organization to develop an infrastructural basis that supports CRM processes within the organization through the management of data that is needed to understand customers (Ngai 2005). The various advances in technology enable an organization to easily collect, organize, store, analyse and share data or information on customer’s preferences, needs, wants and buying habits. This information helps companies to respond effectively to the specific needs of their customers thus helping them to attract potential customers and retains their clients (Butler 2000). Payne and Frow (2006) further observe that, the incorporation of IT in CRM has enabled organisations to have one- to-one relationship with a huge number of customers. It has also helped organisations to realise improved customer relations. Through the use of various IT applications, organisations have at their disposal a wide range of data warehouse, databases and technologies used in data mining which can enable them to gather a vast amount of customer data, analyse this data and use it constructively. This kind of leveraged impact of IT is characterised in the ability of CRM applications to give decision makers analysed information on customer patterns, develop models of prediction and effectively customise and provide value to customers individually. As a result improved customer retention rates and acquisition are realised, this in turn the business performance of organisations which incorporate IT in CRM (Vrechopoulos 2004; Yim Anderson & Swaminathan 2004; Peppard 2000). Case Studies of Application of CRM in Businesses CIAO: KLM Royal Dutch Airlines A good example of the application of CRM in business is the CRM program at KLM Royal Dutch Airlines. From the initial CRM project initiated in 1997 by its ICT department, KLM used CRM to differentiate itself from its competition or for competitive advantage by offering superior customer experience at every interaction point with its customers (Viaene and Cumps 2005). Consistent with the principles of CRM and through extensive investment in its ICT infrastructure, KLM used CRM as a business philosophy to intensify its interactions and make relationships with its customers as intimate as possible to enhance its profitability (Peppers and Rogers 2004). In recognition of its efforts, KLM won first prize in the 2004 Gartner European Customer Management Summit held in London (Viaene and Cumps 2005). Before its merger with Air France in 2004, KLM Royal Dutch Airlines was an international airline based at Schipol Airport in Amsterdam with four core business activities: passenger and cargo transport, low cost and charter flights and engineering and maintenance of aircraft and other aviation and industry related machinery. Faced by declining revenues due to competition from newer low cost carriers in a deregulated European airline industry and unfavourable economic conditions due to events such as the September 11 terror attacks, war in Iraq and the Asian outbreaks of SARS in 2003, KLM experienced excess capacity in both airlines and fleet and urgently needed cost cutting measures as a logical means to survive (Viaene and Cumps 2005, Peppers and Rogers 2004). However, KLM instead chose a new strategic direction-to forge closer and more direct relationships with its customers as a means of turning around declining yields. KLM created a new CRM Department headed by Cristina Zanchi in 2002 to implement a new CRM project: campaign management. Campaign management would enable KLM to draw from its extensive customer data base collected through its ICT infrastructure by streamlining customer data from its contact circle- from initial marketing communication to purchase of tickets through to departure, arrivals and transfers (Peppers and Rogers 2004). The campaign management project, termed as CIAO (Customer Insight, Analysis and Opportunities) was designed to attract new customers to KLM and retain loyal customers through permission based promotional communications with these customers (Peppers and Rogers 2004). The essence of CIAO as a CRM project was to use KLM’s ICT infrastructure better understand its customers, to deliver targeted marketing and sales campaigns for specific customer segments and to applied lessons learned in future marketing strategy . One of the discoveries KLM made about its customers through CIAO was that KLM’s most valuable customers were not in its privileged Flying Dutchman Frequent Flier program (Viaene and Cumps 2005). In applying the lessons learned from CIAO, KLM subsequently launched smaller time-and-customer specific marketing campaigns. The benefits were evident from as early as 2004 through indicators such as increased response rates from customers, expansion of known customer base by 20 percent and increase in revenue from known customers by 5 percent (Viaene and Cumps 2005). Walt Disney: Disneyland Another case in point of the successful application of CRM in business is the CRM program implemented by Walt Disney in its signature and trademark Disneyland Theme Parks. The Walt Disney empire spans operations in North America, Europe, Latin America and Asia Pacific and includes several business lines from movie production and sports franchises to special effects, animation, theatre production and even real estate holding. The first Disneyland Theme Park was established in California in 1955 and there are currently 11 such parks in five countries worldwide (Wasko 2001). Similar to KLM Royal Dutch Airlines as discussed in the previous case, the need for CRM at Walt Disney was due to the declining revenues experienced in Disneyland Theme Parks in the early 1990s as a result of steadily declining attendance figures and revenues. Revenues fell by at least 30 percent on aggregate due to overall decreases in attendance of about 4 percent. Some of the reasons for low attendance were long queues and high ticket prices which turned potential customers away from Disneyland (Wasko 2001). Euro Disneyland, opened in Paris in 1992, made about $2 billion in losses in its first year alone (D’Agostino 2003). CRM was therefore needed to better communicate with and understand the needs, preferences and dislikes of its customers to arrest declining revenues in Disney Theme Parks by tailoring its marketing and sales strategy based on this understanding. Based on feedback from customer data collected at the theme parks, Disneyland managed to turn around the fortunes of theme parks such as Euro Disneyland. This was by tailoring the attractions of the park to suit local French and European cultures which saw attendance figures rise and the park even become more popular than the Eiffel Tower as a tourist attraction (D’Agostino 2003). Walt Disney’s CRM model essentially consisted of application of IT technologies to collect feedback from customers on the parks. These included GPS, mobile devices and wireless technology. An example is “Pal Mickey”, a 10 and a half inch stuffed doll with an infra-red nose sensor that acts as a virtual tour guide (D’Agostino 2003). The doll helps improve interaction with customers by, for instance, suggesting which rides currently have the shortest queues and are available which aids decision making and helps solve the problem of waiting times and long queues. The doll exchanges information aided by about 500 infrared beacons concealed around the theme parks that relay information between the central data base and the doll’s central processing unit. Buses at theme parks also run on as-needed basis as opposed to a fixed schedule which reduces operation time (D’Agostino 2003). Other IT-driven CRM applications at Walt Disney include the use of a customer data base to track same tourist visits to theme parks and then making personalised offers, packages or discounts to such customers based on their specific preferences. Consistent with CRM, this enables Walt Disney to discover more about the buying behaviour of its customers and collect more information about them which can be used to design more effective marketing campaigns or theme additions (Wasko 2001). Issues and challenges revolving around the application of CRM The implementation of a CRM model can sometimes be costly, lengthy, complex and time consuming. It essentially requires specific expertise that a considerable number of companies may not be in a position to provide. As a result, organisations have to outsource the help of CRM consultants who can aid in the monitoring and implementation process. Due to the incorporation of IT in the CRM model, organisations also have to outsource IT consultants to provide direction on how to integrate IT applications with the company’s CRM goals and select suitable CRM software and hardware. Outsourcing these consultants may in turn incur additional costs. Generally, implementing CRM can be very costly. Procuring IT software and hardware alone can incur a lot of costs. Due to these financial constraints and demands, not every company can be in a position to effectively implement a holistic and comprehensive CRM model. Complexity is also another issue that affect the application of CRM models. Workflows, processes and tools incorporated in the CRM models are often very complex and require high expertise. As a result, of these complexities organisations have to train their workforce so that they can be able to learn and adapt to the model. Poor usability is also another issue that emerges as a result of the complexities in CRM models. Due to the complex CRM interfaces incorporated in some organisations users may find it difficult to navigate or use the model effectively (Hart-Davidson, Bernhardt, McLeod, Rife & Grabill 2008).The reputation of an organization or a business is also a key issue that determines the success of CRM processes. Developing and maintaining a positive business reputation can sometimes be challenging for some businesses. For instance, a company that has poor reputation when it comes to its product, brand image or the delivery of services may find it difficult to benefit from CRM. It is thus evident that success of CRM is also dependent on factors such as the reputation and image of the company also play a crucial role in determining the success of CRM (Jha 2008). In addition to this, other challenges revolving around CRM include security and privacy of customer data. Basically, CRM systems are designed based on the premise of collecting, organising and assessing customer information in relation to their preferences, needs, wants and buying habits. One of the key challenges that CRM developers and managers face is striking a balance between providing an easy to use CRM interface and ensuring the privacy and security of customer information. Ka-Ping (2002) observes that enforcing high security and privacy in CRM systems may comes at the expense of system usability. Basically, it is essential for organisations to put into account the needs of customers with regards to their privacy and security. They should also place attention to relevant regulation and laws so as to assure customers of their privacy and security (Buttle 2008). Business and Organisational Impact of CRM Despite of the various challenges and issues associated with CRM, a wide range of literature depict that CRM can help businesses or organisations to realise positive impacts. Nevertheless, CRM benefits are dependent on the nature or model of a business. The impact of CRM to organisations can also be determined by factors such as customer interactions, the cross-selling potential of the business, perceived risks and profitability of the business (Kumar & Reinartz 2006; Buttle 2004). Treacy and Wiersema (1995) observe that at the organisation level, CRM can help to promote operational excellence. In this case, operational excellence refers to the ability of businesses to provide customers with reliable service and products with minimal inconvenience and at cost-effective prices. Organisations are able to realise this due to improved internal efficiency (Iacovou, Benbasat & Dexter 1995). CRM enables organisations to redesign its processes so as to enhance its operation excellence in marketing , sales and customer service among many other areas. Moreover, at the business level, CRM helps companies to enhance their competitive edge in the market and enhance its processes and relationships. CRM also enables organisations to access better information regarding customer preferences, values, needs and buying habits. This can in turn help companies to gain a competitive advantage over their competitors. CRM makes it possible for the business to identify potential customers, uncover their potential customers ,win back lost customer , retain their clients , develop personalised marketing plans , new products and services , distribution channels and identify new marketing opportunities (Tokam, Davis and Lemon; Homburg, Hoyer & Stock 2007). Conclusion This report has provided a critical outlook on CRM by providing an in-depth description of CRM, its application in modern day organisations, issues and challenges revolving CRM applications and its potential impacts. The findings of this report depict that CRM is essentially a cross-functional organisational process that mainly focuses on enhancing and maintaining long-term interactions or relationships with customers (Payne &Frow 2005). It is also evident for this report that, IT is one of the core and most crucial aspect of CRM since it plays a crucial role in gathering, organising and analysing information related to customers’ needs, wants and buying habits (Zikmund, McLeod & Gilbert 2003; Krauss 2002). Some of the key issue and challenges facing CRM include the fact that the implementation of CRM is costly, time consuming and complex. Maintaining the security and privacy of customer information is also another challenge. Despite of the various challenges and issues associated with CRM, it can help businesses or organisations to realise positive impacts. For instance CRM promotes operational excellence and helps business maintain their competitive edge in the market (Tokam, Davis and Lemon; Homburg, Hoyer & Stock 2007). References Artos Origin, 2002, Customer Relationship Management, White Paper March- 2002, pp. 1-12. 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