CHAPTER-2

THEORETICAL BACKGROUND OF CRM

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Overview of CRM

Customer relationship management is a business model given backup by the

information technology, which is generated to enhance the nature of human
interactions amid customers as well as businesses. It is an incessant plus strategic
initiative which demands a dynamic technique for taking care of customer
relationships. As a result, CRM is regarded as the provision of customer care
services as a unique product containing reward while producing a happy set of
customers via the retention (Lubis et al., 2020, p.84). The model is made up of
numerous methods plus technological orientations by organizations in managing
customer relationships. The model further proposes that information about existing
and potential customers be properly analyzed in order to provide relevant
information for business decision-making. The use of automated CRM processes is
used to generate automated personalized marketing based on data stored in the
organization’s database.

Most businesses have remained committed to the concept of long-term CRM as a

means of recruiting and retaining valuable consumers. The conventional forms of
customer connection and marketing tactics, which stressed the creation of
commercials and other promotional strategies to appeal to the target market, have
continued to evolve into the current forms. Today, the emphasis is on the
capabilities of information technology (IT) to create value for businesses and
customers (Valmohammadi,2017). With the advent of high-tech technology that
has consumed the market and the business environment, modern CRM has seen
tremendous growth. The demand for a more advanced CRM has resulted in eCRM,
which has evolved from traditional CRM. As a result, most businesses have
indicated growth in their businesses in several ways and this section is going to
concentrate on discussing the significance customer relationship management to
businesses.

2.1 CRM Objectives

It is considered that CRM is not a product or service; it is an overall business

strategy that enables companies to effectively manage relationships with their
customers. It provides an integrated view of a company’s customers to everyone in
the organization. The reasons for CRM coming into existence are the changes and
developments in the marketing environment and technology. The goal of an efÞ
cient Customer Relationship Management (CRM) strategy is to develop, keep and
retain proÞ table customers. Therefore, the objectives of CRM are presented as:

Improve the Communication Process with Customers

CRM itself is a learning process in which information is regularly updated and

communicated with customers so that customer demand can be analyzed and
appropriate response to the customer can be carried out (Alehojat, Chirani and
Delafrooz, 2013). It facilitates organizations to maintain a stable market demand of
the product offered by them.

To Identify the Key Elements of CRM

CRM is important for an organization for the sustainable growth of its proÞ tability.
IdentiÞ cation of CRM determinants relates to the nature of the organization. CSR
determinants can be used to promote service quality for making customer satisÞ ed.
The elements are the power indicators that directly inß uence CRM’s overall
studies. People, culture, relationship management process, knowledge
management, IT, organization, customer and value are the valuable elements of
CRM. These elements also affect the factors of CRM (Shamsuddoha, Tasnuba and
Alamgir, 2011).

To Identify the Factors Related to CRM Effectiveness

According to Karakostas, Kardaras and Papathanassiou (2005), the factors that inß
uence the CRM implementation are new customer attraction, consumer buying
behavior, competitive advantage, customer satisfaction, customer retention,
acquisition, long-term relationship, knowledge management, web enabled customer
service, customer value, etc. Tekin (2013) argues that IT, long-term relationship,
higher proÞ tability and signiÞ cant investment in technology are the main inß
uencing factors of CRM. CRM factors relate to IT, human resources, organizational
structures, and reward systems (Rigby, Reichheld and Schefter, 2002). Multiple
CRM factors approaches by different researchers includes: reliability,
customization, customer attraction, customer retention, information technology
(IT), responsiveness, commitment, and customer orientation.

2.2 Benefits of CRM

CRM is an essential way to understand what motivates customers. Customer

relationships are becoming even more important as market conditions get more
adverse. Due to increasing competition in the marketplace, demand patterns of
customers are changing, as well as the life cycle of products and services. CRM can
be used to investigate what the customers expect, what channel of distribution they
prefer, and what attributes should be incorporated in product and services.
Understanding the customer through CRM allows organizations to offer the desired
service to the customer. CRM beneÞ ts to customers may include:

CRM Increases Customer Retention and Loyalty

Basically, a customer is loyal when he is committed to repurchasing a preferred

service or product even when there are marketing efforts and situational inß uences
having the potential to cause switching behavior (Oliver, 1999). It is suggested to
the companies to invest in relationship building and customer intimacy with loyal
customers as it will in turn lead to stronger loyalty (Oly Ndubisi, 2004). The
customers who regularly purchase a company’s product over a long period of time
tend to generate more revenues and are relatively cheaper to serve than other
customers (Reichheld and Aspinall, 1993). Higher customer proÞ tability is ensured
by CRM. CRM creates more value for the customer, so undoubtedly CRM builds
proÞ table customer relationships.
Customization of Products and Services

The main concentration of CRM is on two major areas: To create a closer and
deeper relationship with customers and to increase organizational capability to
coordinate its behavior with individual customers based on customer needs, or what
the organization knows about his/her requirements and interests. This is because
existing customers are always more proÞ table than new ones, and selling more
products to existing customers is less costly. Coordinating the products and
services with consumer needs and expectations results in attracting more
customers. Consequently, attracting new customers is much more costly. Indeed,
the main goal of CRM is to maximize the value of customer life cycles for the
organization (Payne and Frow, 2004). The recent marketing procedures are
approaching towards providing a unique service; this is why acquiring large
volumes of customer information and details has become a pivotal requirement. In
order to predict the probability of repeat purchase, or buying additional products
and individual marketing programs, the organization has to collect the customer’s
information based on their interactions with the organization (Peppard, 2000).

CRM Maintains Lower Process and Higher Quality of Products and Services

The activities of CRM directly inß uence products and services and also internal
processing systems. CRM can help reduce operational costs by effective
relationship with customers and minimizes the size of overall processes. On the
other hand, an effective CRM can help increase qualitative products and services
by customer interactions.

Meet Customer Expectations

The key to customer loyalty is customer satisfaction, which largely depends on the
service quality offered by service providing Þ rms (Rahman, 2014). Service quality
and customer expectations have been identiÞ ed as key elements of the
service-profit chain (Heskett, Sasser, and Schlesinger, 1997). Better service quality
results in satisÞ ed customers, which in turn leads to strong customer loyalty. It can
be stated that customers, when satisÞ ed with the services they have experienced,
are more likely to establish loyalty (Taylor, Sharland, Cronin, and Bullard, 1993),
resulting in repeat purchases (Fornell, 1992) and favorable word-of-mouth
(Halstead and Page, 1992). Customer service quality is a signiÞ cant source of
distinctive competence and often considered a key success factor in sustaining
competitive advantage in service industries (Palmer, 2001). Therefore, a firm can
be able to meet customer expectations through effective CRM.

Improvement in Customer Satisfaction and Loyalty

Feliks and Panjaitan (2012) suggest that companies implementing CRM in a proper
way will enjoy increased customer satisfaction. Kusnadi’s research results (2008)
also showed that the CRM application helps companies to gain customer
knowledge that helps them improve customer satisfaction. This is also supported by
the study of Wetsch and Lyle (2006) who found that the potential impacts caused
by the customer involvement in the CRM implementation are trust, satisfaction and
customer loyalty. Munandar and Dadang (2011) suggest that CRM has positive and
significant effects on customer loyalty, and that changes in the company’s customer
loyalty are directly related to changes in the implementation of CRM. This means
that to increase customer loyalty, CRM needs to be implemented Þ rst. A better
CRM implementation links to customer satisfaction and loyalty. This indicates that
customer loyalty needs more companies’ attention, because loyalty will ultimately
affect the performance of the company.

2.3 Factors Affecting CRM

Reliability - Reliability is one of the most common factors of CRM. The activity of
CRM is to identify reliable customers and to communicate with them. On the other
hand, CRM reliability largely depends on the reliability of IT systems in which
customer relations are managed. Customer relationship management activities
always try to Þ ll a customer’s expectations and provide better customer service,
which isn’t always possible without reliability. Reliability is depened as performing
the task dependably and accurately (Parasuraman, Zeithaml and Berry, 2004). This
is achieved through keeping promises to do something, providing the right service,
consistency of performance and dependability, service is performed at the right
time, the company keeps accurate billing and keeps records correctly, and
transactions and records are error-free. Reliability also consists of accurate order
fulfillment, accuracy records, accurate quotes, accurate billing, accurate calculation
of commissions and keeping any promises regarding services.

2- Customization - The core of customization is based on acceptable delivery

times and prices, and providing customers with personalized products. CRM offers
the customization of products and services, so that the existing and potential needs
of customers are met. CRM provides a variety of useful information to the
customers. CRM allows mutual connectivity between customer and organization in
order to allow customization in products and services delivered.

Customer Attraction - Valued customers are always providing good feedback.

Customer attraction acts as a driver of customer commitment. CRM is a systematic
marketing effort of understanding customers, especially what they expect, to what
extent, and what should be incorporated into products and services.

Customer Retention - Customer retention is one of the most important indicators

of customer satisfaction. The more satisÞ ed customers are, the greater is their
retention. Customer retention is becoming an important managerial issue,
especially in the context of a saturated market, when the growth of the number of
new customers is declining. It has been acknowledged as a key objective of
relationship marketing primarily because of its potential in delivering superior
relationship economies, i.e. it costs less to retain than to acquire new customers

Responsiveness - Responsiveness is the determinant that deÞ nes the willingness to

help customers and to provide prompt service. CRM has been always responsible to
provide information to the customer. Service propositions like “what can I do for
you” clearly underline the importance of customers. It is also involved in
understanding the needs and wants of the customers, convenient operating hours,
individual attention given by the staff, attention to problems and customers safety
(Arun Kumar, Tamilmani, Mahalingam and Mani, 2010).

Customer Orientation - Customer relationship management is a customer

oriented, organized managerial effort to ensure perceived value of customers in
order to make them satisfied and loyal. Customer relationship management cares
about suggestions and preferences given by customers. CRM allows customers to
share the post consumption experience, therefore, management can effectively take
care of customer inquiries.

2.4 CRM Effects on Customer Satisfaction

Customer satisfaction is the extent to which customers are satisÞ ed with their
purchased goods and services (Boone and Kurtz, 2013). Customer satisfaction is a
statement to the buyer about the appropriateness of the reward, received in
exchange for the service experienced. Every firm tries to fulfill customers’ needs,
desires, wants, aims and expectations. Therefore, production and marketing
department collaboratively produce economic utility for customers. Customer
satisfaction is generally understood as the pleasure of using product and service.
Customer satisfaction is the voice of customer that will differ from person to
person. It is an appraisal of how products and services of a company meet up or
exceed customer anticipation

2.5 CRM Effects on Customer Loyalty

Customer loyalty can be seen as a customer commitment to deal with a particular

firm, and buy their products and services. A loyal customer encourages others to do
business with the firm. Loyal customers are also considered to be the most
important assets of a company and it is thus essential to keep loyal customers who
will contribute long-term profit to the organization. In a business context, loyalty is
a psychological awareness process or the observable reaction of a consumer, where
intentional and factual retention or intensification of the relationship is based on
specific reasons (Keaveney, 1995). Loyalty requires a positive attitude of the
consumer towards a company and its services; retention, on the