Key successful factors in customer relationship management FPT Software case study.PDF

85 Table 3 – Appendix E: Relationship between Customer Response Time and Customer Satisfaction Level Percentage based on row total.... 85 Table 4 – Appendix E: Relationship between Custo

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

Le Do Tuan

KEY SUCCESSFUL FACTORS IN CUSTOMER RELATIONSHIP MANAGEMENT

FPT SOFTWARE CASE STUDY

Major: Business Administration

TABLE OF CONTENTS

TABLE OF CONTENTS ii

LIST OF TABLES iv

LIST OF FIGURES v

LIST OF ILLUSTRATIONS vi

LIST OF ABBREVIATIONS vii

INTRODUCTION 1

1 Necessity of the thesis 1

2 Purpose 1

3 Key Research Area 1

4 Methodology 2

5 Contribution of Thesis 3

6 Outline 3

LITERATURE REVIEW 4

1.1 What is CRM 4

1.2 Why we need Customer Relationship Management 9

1.3 Benefits in implement CRM for organization 14

1.4 Customer Analysis 18

1.4.1 Customer Satisfaction 20

1.4.2 Customer Retention 21

1.4.3 Customer Loyalty 22

1.4.4 Relationship between CS and CR in term of industry 24

1.4.5 Consumer Customers versus Business Customers 26

1.5 CRM Model 30

1.6 Technology application in CRM 34

1.7 Key Successful Factors in CRM implementation 41

CASE STUDY OF FPT SOFTWARE 45

2.1 FPT Software Introduction 45

2.2 Methodology 46

2.2.1 Research problem 46

2.2.2 Research objectives 46

2.2.3 Research method 47

2.2.4 Research strategy 47

2.2.5 Sample collection 48

2.2.6 Data collection 48

2.2.7 Data analysis 49

2.3 Empirical data presentation 50

2.4 Data analysis 56

FINDINGS AND RECOMMENDATIONS 66

3.1 Research findings 66

3.1.1 Customer Relationship Management 66

3.1.2 Research Question One 67

3.1.3 Research Question Two 69

3.1.4 Research Question Three 70

3.2 Recommendations 70

3.2.1 Recommendations for FPT Software 71

CONCLUSION 75

APPENDIX A 76

APPENDIX B 78

APPENDIX C 80

APPENDIX D 84

APPENDIX E 85

APPENDIX F 88

GLOSSARY 89

REFERENCES 91

LIST OF TABLES

Table 2.3-1: How important do you think is Relationship with current customers? 52 Table 2.3-2: Which level does your customer demand and quality driven? 54 Table 1 – Appendix E: Relationship between Customer Lifetime and largest

Customer’s revenue (Percentage based on the column total) 85 Table 2 – Appendix E: Relationship between Customer Lifetime and largest

Customer’s revenue (Percentage based on the overall total) 85 Table 3 – Appendix E: Relationship between Customer Response Time and

Customer Satisfaction Level (Percentage based on row total) 85 Table 4 – Appendix E: Relationship between Customer Response Time and

Customer Satisfaction Level (Percentage based on overall total) 85 Table 5 – Appendix E: Statistic figures in term of customer complaints 86 Table 6 – Appendix E: Statistic figures in term of ways to approach new customers 86 Table 7 – Appendix E: CRM Perception 87 Table 8 – Appendix E: Statistics of KSFs in CRM implementation 87

LIST OF FIGURES

Figure 1.1-1: Three waves of CRM 6

Figure 1.2-1: Causes of CRM Implementation 9

Figure 1.2-2: Cost of Acquisition 14

Figure 1.3-1: Way to improve CRM Return on Investment 15

Figure 1.4-1: Customer Satisfaction Influent Factors 20

Figure 1.4-2: Customer Retention Tree 22

Figure 1.4-3: Relationship between CS and CR 25

Figure 1.4-4: Fundamental Forces Influence Consumer Market 26

Figure 1.4-5: Fundamental Forces Influence Business Market 29

Figure 1.5-1: Traditional Structure 31

Figure 1.5-2: Modern Structure 31

Figure 1.5-3: Customer Interaction Model 32

Figure 2.3-1: Respondents Proportion 50

Figure 2.3-2: Respondents in term of Groups 50

Figure 2.3-3: Respondents in aspect of positions 51

Figure 2.3-4: Number of Clients managed by Team 51

Figure 2.3-5: Customer Lifetime Expectancy and Customer Retention 52

Figure 2.3-6: Customer Lifetime 53

Figure 2.3-7: Customer Retention Rate 53

Figure 2.3-8: Relationship between Customer Lifetime and Largest Customer’s revenue (Percentage based on the column total) 54

Figure 2.3-9: How do managers decide to allocate the best resources to largest customers? 55

Figure 2.4-1: Relationship between Customer Response Time and Customer Satisfaction Level (Percentage based on row total) 56

Figure 2.4-2: Relationship between Customer Response Time and Customer Satisfaction Level (Percentage based on overall total) 57

Figure 2.4-3: Software Life-Cycle Model 58

Figure 2.4-4: Main complaints of FPT Software Customers 58

Figure 2.4-5: Ways to develop Relationship with new customers 60

Figure 2.4-6: Which channels does the company keep in touch with current Customers? 61

Figure 2.4-7: Will software tools provide greater customer management resources than human inter-face? 62

Figure 2.4-8: CRM Perceptions of FPT Software Managers 62

Figure 2.4-9: CRM Benefits 64

Figure 2.4-10: Key Successful Factors in CRM implementation 65

Figure 3.1-1: Main points to persuade existing Customers (Cross-selling) 67

Figure 3.2-1: Japan vs Vietnam Testing Defections Model 73

LIST OF ILLUSTRATIONS

Illustration 1.3-1: Ritz-Carlton Customer Relationship Management 16 Illustration 1.3-2: Value creating at Taco Bell 18 Illustration 1.7-1: Sony Reorganization 43

LIST OF ABBREVIATIONS B2C: Business to Consumer

B2B: Business to Business

CRM: Customer Relationship Management

CR: Customer Retention

CS: Customer Satisfaction

CLI: Customer Loyalty Index

CMS Contact Management System

FCRM: FPT Customer Relationship Management Software FWB: FPT Worldwide Business

IT: Information Technology

IVR: Interact voice response system

KSFs: Key Successful Factors

VoIP: Voice over Internet Protocol

1 Necessity of the thesis

The need in order to understand customer behavior and the interest of many managers to focus on those customers who can deliver long-term profits has changed how marketers view the world The questions were imposed such as how we define the most profitable customers Which channel do we interact with customers? How

do we manage the customer service with different customer interactive channels in speedy shifting information technology era? How do we sustain competitive advantage in fast changing of demand market? How do we forecast and serve customer with better services? Etc… for that reason, it is necessary for us to understand deeply about customers, customer habit, customer preferences, know exactly way to interact with customers…and then the more you care customers, the more customers bring benefit to you Therefore, it is changing the tone of the conversation from customer acquisition to retention to customer loyalty This requires a different mindset and a different and new set of tools

2 Purpose

To understand about CRM and CRM implementation with respect to theory and practical, what are Key Successful Factors in implementation?

3 Key Research Area

As mentioned, Customer Relationship Management (CRM) has become a number one focus, as today’s competitive markets were getting more saturated and aggressive Now the marketing model is changing from the product-centered stage to the customer-centered stage Customers are demanding a different relationship with

suppliers than the traditional sales model As customers become more and more sophisticated and products more and more commoditized, service becomes dominant Customer retention is critical and customer satisfaction is needed this lead to loyalty which is brought about by great service, trust and, to different degrees, personalization

A completely new world of demands has risen and business rush into the CRM that is unavoidable trend This comes as an answer to a most competitive environment, availability of new technologies; therefore, the study of the elements that determine success factor becomes more valuable Even though the level of satisfaction with CRM implementation has not shown the best results, moreover, CRM is very new concept toward Vietnamese companies At that time, Vietnam is in sale era, and begin first step in marketing era Therefore, this research will focus on the little experience that service companies like FPT Software has done so far The research problem can then be stated as follows: To gain a better understanding of Key Successful Factors CRM implementation for organization, FPT Software is typical case study

4 Methodology

In the thesis, I use quantitative research through conducting the questionnaires survey (See in Appendix C) Moreover, in order to dig out the deep root of issues, I carry out the interview of some managers as Group Leader in FPT Software This methodology will be described fully in Section 3.2

5 Contribution of Thesis

This thesis helps audience to have comprehensive view of Customer Relationship Management With understanding the Customers Satisfaction, Customer Retention and Customer Loyalty will facilitate viewers define the objective to manage customers in a better way Moreover, thesis distinguishes between kinds of customer

as B2C or B2B market Furthermore, through FPT Software Case study, we will find out the KSFs of one Vietnamese IT Company, what has done and not done in CRM implementation Comparing with theory, this thesis will give out recommendations for FPT Software in particular and Vietnamese Companies in general

CHAPTER 1 LITERATURE REVIEW

1.1 What is CRM

Peter Drucker said, “The purpose of a business is to create customers.” Implied in his

words and his work is the importance of keeping those same customers and of growing the depth of their relationship with you After all, as research by many famous theorists show, most customers are only profitable in the second year that they do business with you That is right Initially, new customers cost you money—money spent on advertising and marketing and money spent learning what they want and teaching them how best to do business with you. [ ]1

CRM has been defined in a variety of different ways For some, CRM is a way to identify, acquire, and retain customers For others, it is a way of automating the front office functions of sales, marketing, and customer service

While the CRM literature has many definitions (see Appendix B for an expanded list) I believe the definition put forward by Galbreath and Rogers to be the most

comprehensive: “Activities a business performs to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right products or services, to the right customer, through the right channel, at the right time and the right cost CRM integrates sales, marketing, service, enterprise resource planning and supply-chain management functions through business process automation, technology solutions, and information resources to maximize each

1 Kristin Anderson and Carol Kerr, 2002, Customer Relationship Management, McGraw-Hill

customer contact CRM facilitates relationships among enterprises, their customers, business partners, suppliers, and employees” [ ]2

I have chosen the Galbreath and Rogers definition for several reasons: Firstly, it addresses CRM as it related to the business activities, not just a technology (See more detail in below) Secondly, it involves the integration of many functional areas and technologies, rather than a singular focus, and thirdly it does not limit its application to the end-user or customer, but rather as an enabler for facilitation of relationships throughout the supply chain The integration of CRM across business functions has lead to its importance and prevalence in many types of businesses In fact, for e-businesses, the area of CRM has become an outcomeof e-business The shift from a transaction based economy to a relationship-based economy and the growth of the customer-centric organizational strategy has placed CRM on the priority list for most traditional organizations as well The magnitude of the significance of CRM can be seen in the level of investment in CRM related technology, which is expected to be $12 billion in 2004, representing the leading expenditure in information technology today

2

Galbreath, Jeremy and Tom Rogers (1999), Customer Relationship leadership: a leadership and

motivation model for the twenty-first century business, The TQM Magazine

Three waves of CRM

Figure 1.1-1: Three waves of CRM [ ] 3

Some companies’ efforts could be characterized as the “first wave” of CRM: bolstering the effectiveness of call centers and sales forces The goal of such projects

is to increase customer satisfaction by improving the efficiency of the existing channels used for customer interaction These initiatives typically result in convenient transactions for customers, e.g., shorter hold times for customers calling for assistance, or a sales associate’s ability to access instantly customers’ buying histories and product pricing information Hoping to do more than enhance their call center and sales force activities, other companies are focusing on how they can improve their customer interactions – with the goal being to not only increase customer satisfaction, but also to create compelling reasons for customers to continue

to patronize the organization During this “second wave” of CRM, companies seek to provide customers with multiple ways of interacting with the company and gather valuable data on customer transactions, preferences, and behavior from activity at

3 Brian Crockett, The road to CRM riches, Accenture Report

those contact points The Internet, in particular, has proved to be a powerful tool for creating new lines of communication with existing and prospective customers Having focused their CRM efforts on realizing benefits from their sales and service functions, the most forward thinking companies are now turning the spotlight on marketing - the last bastion of CRM benefit realization They are using deep customer insights and analysis, drawn from individual (yet integrated) customer interactions, to understand and predict customer behavior and fulfill customer needs

as completely as possible This “third wave” of CRM, which will bring about the ultimate transformation of the customer experience, is geared towards improving customers’ brand loyalty and creating lifetime customer value By integrating customer communications and brand across all channels, a seamless, integrated customer experience is created regardless of how an individual chooses to interact with the company

Business first, technology second

One of the fundamental misapprehensions about CRM is that the term relates to a new breed of IT applications and systems It does not Customer relationship management is a business philosophy, describing a strategy, which places the customer at the heart of an organization’s processes, activities and culture IT applications are the tools that allow organizations to implement that strategy To a certain extent, as we shall explain, new IT developments may drive organizations to adapt their strategies as they go along, but the fundamental starting point is always business philosophy

The core concept of CRM is relatively simple For years, companies have focused much of their effort on cutting costs and improving efficiency within their organization They have attempted to streamline internal processes, often automating

elements of ‘back-office’ functions such as manufacturing, logistics and finance By contrast, the management effort put into customer-facing activities, such as sales and marketing, has often lagged As markets consolidate and suppliers become more effective in delivering products and services, it becomes harder to differentiate among rival offerings What differentiates toothpaste from another? What distinguishes different stock market price information services? At the same time, as the quality of products and services improves, so customers’ expectations increase

As long as the customer has the ability to switch supplier relatively painlessly, it becomes harder and harder to keep loyalty. [ ]4

In many industries, there is nothing new about this evolutionary process volume consumer goods suppliers have fought for decades to establish brands based around quality and price What is changing, however, is the breadth of the impact of

High-‘customer empowerment’ Deregulation, for example, has forced former monopolies,

in areas such as telecoms and the utilities, to fight for customer share Cheaper travel

is forcing the leisure industry – from airlines to hotels – to deliver to customers’ expectations in a way that they have never had to do before Now, in an Internet environment, in which switching suppliers may entail merely making a couple of mouse clicks, the problem is magnified one hundredfold It also affects every organization, whether it is consumer-focused or selling business to business

Much of the management thinking which was long ago espoused by business schools such as Harvard is now entering common business parlance It has been proven that the costs entailed in retaining customers are significantly lower than those are associated with acquiring new ones – in some instances, by a factor of perhaps five to one While businesses will continue to expand their client base, they must also focus

4 Keith Rodgers and Dennis Howlett, What is CRM?, Whitepaper by TBC Research

on keeping and growing their best clients Increasing ‘share of customer’ – in other words, the amount of business which each good client gives to you –becomes as important as increasing market share The bottom line is that, by managing your relationship with a good customer, you can increase your profitability; this, essentially, is customer relationship management

1.2 Why we need Customer Relationship Management

Figure 1.2-1: Causes of CRM Implementation

Customer more demanding

Today customers are constantly changing It describes in some aspect:

Want “personalized” offerings

Customers increasingly seek the combination of product and services that are tailored

to their unique wants and needs For example, 10 days after specifying their unique wants in a new car order Japanese customers buying Toyota will have their built-to-order car

Desire high quality and value

Customers are willing to pay a premium for quality, characteristics of which Americans rank from top to bottom as: reliability, durability, easy of maintenance, easy of use, a known or trusted brand name and (last) low price May be in the developing countries, for example in China, Vietnam, these order will change such as low price, trusted brand name, durability, reliability, easy of maintenance, easy of use

Require “caring” customer services

Effective customer service means having the seller’s representatives treat customers,

as they want to be treated For IBM this means an electronic customer support system that automatically diagnoses potential problem to alert IBM service people, who sometimes show up on a customer’s doorstep before the problem appears on the customer’s IBM equipment

Have reduced loyalty to sellers

For today’s customer, the issue is not that a product, brand or store served their needs last year but whether it will serve their needs today Sellers have discovered that defecting customers exact a terrible price in lost revenues, which re-emphasizes the importance of the continuing customer links of relationship marketing Studies show that reducing customer defection by 5 percent increases the future profit stream from

30 percent to 85 percent depending on business IBM estimates that if it can improve satisfaction 1 percent for worldwide customers of its world-class AS/400 minicomputer, it will increase revenues by over $200 million in the next five years.[ ]5

More fierce competition

Today, business environment will be unlashed than ever before, many new companies were established It means that new entrants are increasing It will push

5 Zeithaml and Bitner, 2003, Service Marketing, Third Edition, McGraw-Hill

the competitive forces As I mention above about changing customer tastes, in order

to keep its market share, company have to fight each other We can see through increasing in marketing budget year on year

In fact, company always wants to create its own competitive advantages It can be created through achieving superior efficiency, superior quality, superior innovation and superior customer responsiveness Still, in today, the gap among companies in the same industry is very close in term of efficiency, quality when they already applied the latest technology Therefore, superior customer responsiveness is more sustainable advantage

Consider the examples of Southwest Airlines, and IKEA Each one of these companies generates a relatively higher level of performance (in terms of profitability) in its respective industry because each has secured an advantage that others cannot afford (or do not want) to imitate Southwest Airlines has made specific trade-offs in serving its customers Yes, it offers low fares But Southwest also doesn’t have the burden of running hub operations, it flies only one type of aircraft (Boeing 737s), and it doesn’t offer meals, frills, or paper tickets, so it can guarantee 15-minute gate turns Similar focused strategies have been carved out by Enterprise (located away from airports, serving longer-term rental customers) and IKEA (pick out your furniture in a warehouse environment, haul it to the counter, pay for it, and put it together yourself) Can United Airlines, Delta Airlines, easily imitate and develop these types of relationships with customers? Would they want to? [ ]6

6 Dave Sutton and Tom Klein, 2003, Enterprise Marketing Management, John Wiley & Sons, Inc

Information Technology Development

One of the most dramatic influences on business today is being driven by technology Technology is driving change at an unprecedented pace One change that is significantly altering the traditional business landscape is how technology empowers consumers, who are now beginning to enjoy the upper hand in their relationships with businesses The shift of power creates opportunities for smart businesses to increase their market share and competitive advantage, and presents the potential for disaster on a far greater scale for businesses that choose to ignore the issue

Technology has empowered consumers with the ability to conduct business with a variety of alternatives to the traditional face-to-face contact In addition, it has given consumers access to far more information and choice than they have ever enjoyed before This increased awareness, combined with increasing demands on personal time, creates consumers that are informed and impatient Meeting their increased expectations is essential, perhaps critical

Consumer-to-business interaction started at the distance of a handshake It began to move farther apart with the invention of the phone Once thought to be an invention

of doubtful value, the telephone is now the most significant customer interaction channel for most businesses Almost all businesses today have a primary telephone contact number, and in many cases, it leads to a sophisticated call center, with advanced skill set routing, escalation, and tracking systems that optimize the ability

to deal with the customer Growing in significance are the e-business channels: email, Web, and wireless Growing consumer familiarity and comfort with these technologies is driving their growth as a medium for business interactions, creating additional challenges for businesses trying to maintain good CRM in the face of this increasing complexity

Online commerce is maturing rapidly, shaped by changes in technology, consumer behavior, and innovation in business models Even in its early stages, some fundamental consumer behaviors have emerged The easy, immediate access to a wealth of information afforded by the Internet makes it very convenient for comparison-shopping

Consumers can get much more information about the products that interest them in a much shorter amount of time They can also identify a greater variety of businesses from which they could potentially get what they want The informed consumer is much less likely to settle for an inferior product, price, or service, and consequently, has greater expectations The Internet’s immediacy and the growing demands on people’s personal time are reducing their threshold of impatience Customers are not

as content to wait in line and are placing greater value on time The buying pattern of browse by Internet, order by phone, and ship overnight satisfies the consumer’s desire to get the best deal and ensures that the purchase transaction is correctly handled and that the wait to receive the benefit is minimized

Increasing cost of customer acquisition

Some customers will require more effort to move them from prospects to first time buyers: more marketing campaign, more advertising, more promotion, more sales calls, more visits, more free samples, more advice, or more guarantees that you will cover their switching costs for example I called this cost of customer acquisition

Figure 1.2-2: Cost of Acquisition [ ] 7

Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers

1.3 Benefits in implement CRM for organization

In order to improve efficiency of organization performance in term of return on investment, we will compare the relationship between revenue and cost incurred There are many ways to improve return on investment First, we can increase revenue through expanding number of customers or increase in revenue per customer Second,

we might raise efficiency by cutting cost that is able to reduce through cost of marking and sales, cost of service and IT cost (You can see more detail in below Figure 1.3-1)

7 Kristin Anderson and Carol Kerr, 2002, Customer Relationship Management, McGraw-Hill

Figure 1.3-1: Way to improve CRM Return on Investment [ ] 8

Managers should understand how CRM programs influence metrics at all levels of the organization Managers need to understand the relationships among metrics and changes in one area affect the outcome in others For example, an attempt to reduce average call time may have adverse effects on first-contact customer issue resolutions Linkage models can be used to illustrate clear connections between metrics and discover impact across the entire breadth of CRM programs The linkage model illustrated shows both upside metrics (e.g., revenue, growth, profits) and operational metrics (e.g., average handle time, utilization)

Technology offers the opportunity to capture information and understand the impact

of marketing on purchase behaviors The customer information file enables better

8

Badgett, Melody, Steve Ballou, PhD and Steve LaValle, 2004, CRM done right, IBM Business Consulting

Service

matching of marketing offers to prospects, as well as tracking the effectiveness of marketing programs as the basis for future planning

CRM not only creates value for the customer but also creates value for the company;

we will go further both of them in order to understand the fruits

Value for the Customer

Value for the Customer expressed through much kind of customer services improvements There are a number of ways in which customer service can be rectified through CRM This includes reliability, security, efficiency, and communication as well as quality control and service monitoring CRM systems also act as an ‘organizational memory’ about the customer This can benefit the customer

by reducing the amount of repetitive form filling that the customer has to do Customer preferences can also be kept on record, making placing an order quicker and easier for the customer

Illustration 1.3-1: Ritz-Carlton Customer Relationship Management [ ] 9

Ritz-Carlton is an example of such an organization that makes use of its data warehouse to provide exceptional customer service The hotel chain provides each staff member with a ‘guest preference pad’ for recording every preference gleaned from conversations with customers and by observation of their behaviors Every day, these preferences are entered on to a worldwide database Let us say the customer calls room service in one of their hotels in Mexico and ask for an ice-cube in her drink Months later, if she orders a drink in a Spanish Ritz-Carlton, they will ask her

if she would like an ice-cube

The use of CRM to provide added value to customers can be directly linked to improved profitability and value-based marketing for the company

9 Lynette Ryals, Creating Value Through Customers

Value for the company

CRM systems can bring operational benefits and boost company performance; this,

in turn, can increase customer satisfaction and long-term success through longer and closer relationships

In addition, customer data analysis enables organizations to identify the customers it does not want to have The 80:20 rules suggest that 80% of profits are generated by 20% of customers Some retail banks have found that the picture is extreme, with 10% of their current account customers bringing in 100% of their profits In other words, on average, the other 90% are loss making

Companies have known for a long time that customer profitability varies and that not all customers are equally desirable However, it is only with the advent of powerful databases that they are able to quantify and track customer profitability, and forecast customer lifetime value at the level of the individual customer Previously, companies could only say that customers of a certain type were likely to be more commercially attractive; now they can pinpoint the individuals who are the most attractive customers One American retail bank carried out a customer profiling and targeting exercise using data mining techniques The impact on direct mail campaigns was dramatic Campaign costs fell by one third and response rates doubled the number of new accounts increased by 33% and the profitability of these new accounts by the same amount Defection rates fell by 5% and the lifetime value

of these new customers grew by an estimated 20% By combining an understanding

of customer purchasing drivers and customer profitability, companies can tailor their offerings to maximize the overall value of their customer portfolio

Illustration 1.3-2: Value creating at Taco Bell [ 10 ]

Taco Bell used data mining techniques to identify its most attractive customers It found that 30% of its customer base accounted for more than 70% of volume and, by focusing its marketing campaigns on these customers, increased sales from US$1.6 billion to US$4.5 billion over six years Profits increased by more than 300% over the same period

1.4 Customer Analysis

Who Customers are

While retaining customer loyalty has been a sales principle since the beginning of time (even Adam needed to retain Eve’s loyalty despite immense pressure from his competitor, the Snake)[11], CRM is actually a tremendous step forward in creating a system that can provide a means for retaining individual loyalty in a world of nearly

6 billion souls In order to understand CRM, we have to look at the changing nature

of the customer, because customers are not what they used to be While “the customer is king” has been a mantra, its content has changed fundamentally over the past decade It is interesting to begin with, what is defined as a customer Before I worked with FPT Software in 2004, I remembered being a bit puzzled by a designation their departments used with each other When department 1 did work for department 2, it charged department 2 fees and expenses Department 1 staff members specifically referred to this process as charging internal “customers.” At the time, I was surprised, thinking, “How could customers be employees of the same company even if they work for different departments? Aren’t they fellow employees, friends, and such?” No They were (and are) customers— even if they are fellow

10

Lynette Ryals, Creating Value Through Customers

11 Greenberg, P (2001), CRM at the Speed of Light Berkeley: Osborne/McGraw-Hill

employees and friends It seems to be nitpicking and perhaps just for bookkeeping, but they are customers Why? It is easy to see because you are providing a service to them for a fee of some sort Additionally, a department has the right to get bids on the services from both internal departments and outside firms You could be

competing within and without For example, it is now essential to define the

customer as (1) your paying client, (2) your employee, (3) your supplier/vendor, and (4) your partner [12].What this means is that the historic customer (the individual or group that paid you for your goods and services) has become the contemporary customer (the individual or group with whom you exchange value) This makes the way that customers are handled far more complex—as if the world were not complex enough You are a company You have paying clients They give you money You give them products and/or services That is Customer #1.You have employees You give them a paycheck, benefits, and bonuses and they give you (hopefully) productive work in return That’s Customer #2 You have suppliers They give you products and/or services You give them money That’s Customer #3 You have channel partners They give you leads, sales, added value services You give them the same and/or percentages of a sale they help make That’s Customer #4

Due to limit of time, I only focus on understanding Customer #1 that every people think as usual

As Peter Drucker, the patriarch of management theory, notes, “What the business thinks it produces is not of first importance … What the customer thinks he is buying, what he considers value, is decisive Therefore, what the customer buys and considers value is never a product It is always the utility, that is, what a product does for him.” [13]

12

Greenberg, P (2001), CRM at the Speed of Light Berkeley: Osborne/McGraw-Hill

13 Mohanbir Sawhney, 2003, Fundamental of Customer Value, Kellog School of Management

In less technical term, we translate this definition to mean that satisfaction is the customer’s evaluation of a product or service in term of whether that product or service has met their needs and expectations Failure to meet needs and expectations

is assumed to result in dissatisfaction with the product or service

It is also important to recognize that although we tend to measure consumer satisfaction at a particular point in time as if it were not moving, satisfaction is a dynamic, moving target that may evolve over time, influenced by a variety of factors

Product or Service

Figure 1.4-1: Customer Satisfaction Influent Factors

Particularly when product usage or the service experience takes place over time, satisfaction may be highly variable depending on which point in the usage or experience cycle one is focusing on

Satisfaction

Clearly, Customer Satisfaction is influenced by specific product or service features and by the perception of quality Satisfaction also is impacted by situation factors and personal factors

For instance, service quality of a health club is judged on attributes such as whether equipment is available and in working order when needed, how responsive the staff are to customer need, how skilled the trainers are, and whether the facility is well maintained Customer satisfaction with the health club is a broader concept that will certainly be influenced by perceptions of service quality It will also include perceptions of product quality (Such as quality of products sold in the shop), price of membership, personal factors such as the consumer’s emotional state and even uncontrollable situational factors such as weather conditions and experience driving

to and from the health club

In order to dig out further customer satisfaction or not, we investigate next customer retention

1.4.2 Customer Retention

Customer Retention is percentage of retained customer from one purchase period to another Customer Retention and Customer Satisfaction have close positive relationship, the more Customer Satisfaction is, the longer customer lifetime is and the more Customer Retention

Let look at Customer Retention Tree (Figure 1.4-2), it describes the correlation between Customer Satisfaction, complaint behavior and Customer Retention Here is example of one telecommunication firm As shown, the business is operating at 80% Customer Retention and 20% is lost Furthermore, the majority of dissatisfaction customers who are lost do not complain to the business about their source of dissatisfaction

Retained (80%)

Lost (20%)

Retained (13%)

Lost (87%) New customer to replace

Lost customers (20%)

Retained Customers (75%)

Retained Customers (2%)

Retained Customers (3%) Lost Customers (0.5%)

Lost Customers (19.5%)

New Customers (20%)

Customers Retention (80%)

Figure 1.4-2: Customer Retention Tree [ 15 ]

A number of studies by Bain & Co demonstrated that a 5% increase in customer retention results in an increase in average customer lifetime value of between 35% and 95% Some of the industries they mention, and the improvement in customer lifetime value, are software (35%), office building management (40%), credit card (75%), publishing (85%) and advertising (95%)[ 16 ] However, to implement relationship marketing successfully companies have to know a lot more about their customers This means establishing two-way communication between company and customer Both of these requirements can be met by CRM

However, it will not enough if we only say about Customer Satisfaction, Customer Retention We will study more on Customer Loyalty including two above elements

Roger J.Best, 2004, Market-Based Management, Fourth Edition, Pearson Prentice Hall

16 Lynette Ryals, Creating Value Through Customers

requires another level of customer commitment Many ways exist to measure the psychological commitment a customer has to brand or a company, but a recommendation to others stands as the highest form of emotional endorsement When customers recommend a product or service, it means they have the highest confidence in the value created and delivered by the brand or company they recommend

We can measure customer loyalty index (CLI) through equation as below [17]:

CLI = (Customer Satisfaction)x( Customer Retention)x(Customer Recommendation)

For example, a “Somewhat satisfied” Customer (CS equal to 60) may have a high customer retention value (CR equal to 90%) when switching cost are high or there are no attractive alternatives Multiplying Customer Satisfaction by Customer Retention yields an index of 54 This high level of Customer Retention could lead a company to believe all is well despite a weak level of customer satisfaction Although, in many cases, company has high Customer Retention and relative Customer Satisfaction, customer gets rid of your service or do not introduce you with other partners How do we explain that reason? It is Customer Recommendation Therefore, if the customer is asked:

“What is probability you would recommend this brand or company to others?”

The customer may say 10%, which paints a completely different picture A low level

of customer recommendation signals a lower level of customer loyalty When this customer recommendation of 10 is taken into account, the CLI drops from 54 to 5.4: Customer Loyalty Index = 60 x 0.9 x 0.1 = 5.4

17 Roger J.Best, 2004, Market-Based Management, Fourth Edition, Pearson Prentice Hall

1.4.4 Relationship between CS and CR in term of industry

The relationship between Customer Satisfaction and Customer Retention is naturally easy to determine They have positive effects on each other However, different competitive conditions modify this relationship For example, in less competitive market, customers are more easily retained even with poor levels of customer satisfaction because there are few substitutes or because switching costs are high In markets, where there are relatively few choices, such as water companies, electric suppliers, or hospitals, customer may stay even when dissatisfied In these types of markets, where choice is limited or switching is costly, high levels of customer retention are achievable at relatively lower levels of customer satisfaction If you see ball 1, 2 and 3 (Figure 1.4-3), you are easily seeing the Vietnamese market In these fields, it reflects the fact that Vietnamese people have very limited choices, as a result, although they have dissatisfaction with suppliers, they have no choice to use bad services For example, in Ho Chi Minh City, end users have to use the polluted water

In 2005, after 6 months, the situation was becoming worse, state agencies conduct various investigations The result showed that water is dangerous for health Meanwhile, the customers have already paid for the unhygienic water during 6 months

Highly Competitive market

Less Competitive market

Figure 1.4-3: Relationship between CS and CR [ 18 ]

However, in highly competitive markets with many choices and low customer

switching costs, even relatively high levels of customer satisfaction may not ensure

against customer defection For example, ball 4, 5 and 6 (Figure 1.4-3), grocery store,

restaurant, bank customers can switch quickly if they are not completely satisfied In

these markets, customer retention is much more difficult As a result, it takes higher

levels of customer satisfaction to retain customers from one purchase to the next

For industries as airlines or software, they provide service to customers The more

customer satisfaction is, the more customer retention is

18 Roger J.Best, 2004, Market-Based Management, Fourth Edition, Pearson Prentice Hall

1.4.5 Consumer Customers versus Business Customers

Understanding Consumer Market and Business Market play very important role in managing them effectively Especially, it helps organization to segment the market

A business with a strong market orientation will seek to understand customer needs and develop strategies to attract, satisfy and retain target customers Both consumers and businesses have market needs, but the factors influencing their need differ in important ways Understanding why customers have different needs is helpful in determining how to divide a market into useful need-based market segments

Business - to - Consumer Market

Forces That Shape Consumer Market Needs

Consumers differ in a great many ways Obviously, people have different preferences for automobiles, toothpaste, and entertainment Not so obvious are the factor that influence their preferences Although there are many factors that contribute to these differences, three primary forces shape the needs of consumers as summarized in Figure 1.4-4

Consumer Market

Demographic

Forces

Lifestyle Forces

Usage Behaviors

Demographic Influences

Needs and preferences often shift as a person moves demographically from one life situation to another Changes in income, occupation, and educational status all contribute to a changing set of customer needs for a variety of products Consider how customer needs and preferences for an automobile change as one move from college student to management trainee A few years later, the same person may get married and start a family, and changes in marital status and household will once again shift automobile needs and preferences Because of the variety of demographic differences among individuals and households, we should expect a large array of differences in what these consumers need, can afford, and buy To the extent that demographics reflect the needs and preferences of customers, they can use to identify market segments

Lifestyle Influences

Demographics are not alone in shaping customer needs and market demand Lifestyle forces created by differences in values, attitudes and interests also contribute to differences in customer needs Two consumers who are demographically the same may differ significantly in their attitudes and values orientations A consumer with strong environmental values is likely to prefer a different type of car than a demographically identical person whose values are more focused on fun, enjoyment, and personal pleasure These differences, as well as differences in preferred activities and interests, contribute to lifestyle forces that shape consumer needs and product preferences To the extent that lifestyle attributes reflect the needs and buying preferences of customers, they can be used to identify relevant market segments

Usage Behaviors

Third major forces in shaping customer needs are usage behavior How the product is used, when it is used, and how much it is used are likely to shape customer needs for certain products A family with two or three children under 10 will have a different set of usage behaviors for an automobile than a family with two children over the age

of 16 In addition, if parents are buying a first car for their child as a graduation gift, their needs are likely to be different from those of people who are buying a car for the family or for business To the extent that usage behaviors reflect the needs and buying preferences of customers, they can be used to identify relevant market segments

Business - to - Business Market

Forces That Shape Business Market Needs

Quite often, discussions of market segmentation are limited to consumer markets, and as a result, managers in business-to-business, industrial, high-tech, and commercial markets are left to identify how segmentation might apply to their market

Business Market

Firmographic

Forces

Business Culture

Usage Behaviors

In consumer market, one of the key forces is demographics A more appropriate term

in B2B market would be firmographics Differences in the size of a commercial or industrial business in both employees and sales are likely to contribute to differences

in customer needs Likewise, the newness of a business, number of location and financial stability are also important firmographics that may play a role in shaping customer needs in business-to-business markets

Business Culture

Just as consumer markets have lifestyle, businesses have cultures that can have a profound impact on their needs Two firms those are similar in firmographics may have different needs due to major differences in their corporate style or culture A firm with a strong technological base and growth orientation is going to have a different set of needs from a commodity business with no aspirations for growth Other differences in attitudes with respect to innovation and risk and centralized

20 Roger J.Best, 2004, Market-Based Management, Fourth Edition, Pearson Prentice Hall

versus decentralized decision-making are likely to shape the customer need and requirements in a purchase decision

Usage Behaviors

Finally, as in consumer markets, usage behavior can play a role in shaping business customer needs How much a business buys how often it purchases, who uses the product and how it is used all influence the specific needs a business-to-business customer will have in selecting one vendor or product over another

1.5 CRM Model

Traditionally, the relationship between suppliers and customers has been ‘multi- channeled’ The finance department in one organization would ‘talk’ to the accounts department in the other (via various methods) The sales department would talk to the purchasing department; the service department would talk to the technical support section None would have the ability to benefit from the knowledge or experience of another department Would it make sense for the Finance Director to put a customer

on hold just when the customer was about to place another large order? As Figure 1.5-1 states, traditional structure will define clearly Back Office (Such as Supplies, Manufacturing, Logistic, Finance, HR…) and Front Office including Marketing, Sale and Customer Service Department Traditional organization thinks that Front Office interacts with customer only Back Office is responsible for supporting Front Office serving its customers As I mentioned above (Section 2.4), Customer here means that Customer#1 as usual people think For example, many companies are structured around product lines, meaning that the same customer may be purchasing from different departments under different account numbers Surely, it makes sense for a customer who purchases from one product range to have easily access to another without the rigmarole of having to set up a new account

Back Office Front Office

Figure 1.5-1: Traditional Structure [ 21 ]

So, what differences between traditional structure and modern structure are? I can say that it is technology Technology enables a business to build a ‘unified view’ of its customers To be truly effective there needs to be a constant stream of data feeds from all departments and that data has to be correlated, analyzed and presented in a meaningful and tailored fashion to all relevant employees (one of the great strengths

Customer Service

Customers Partners Suppliers

ACCESS AUTHORIZATION CUSTOMER DATABASE

Advertising

Res

Service Histor

Purchase Histor

Credit Ratin

Customer

Information

Supplier Information

Partner Information

Customers Complaints

Sale

De

Marketing De

partment partment

Finance

De

HR De

Production Admin/

Lo partment partment gistic

At a practical level, the positive benefits of a unified customer view are obvious Subject to access authority, any individual should be able to access all information relevant to a customer - from his/her purchasing history to his/her service record and credit rating A salesperson selling to an existing customer should be aware of any service problems, which that customer has encountered and can appear to have taken

‘ownership’ of the resolution Alternatively, armed with a track record of previous purchases and customer service problems, a service department could turn problem resolution into an opportunity to cross- or up-sell By linking together data related to back-office functions such as manufacturing or logistics with the Front Office, organizations can track products through the delivery cycle, providing customers with up-to-date information about their ability to fulfill the order

Which channel company interacts with customers?

CUSTOMER

Figure 1.5-3: Customer Interaction Model [23]

23 Caroline Stokes, The Business Manager’s Guild to CRM, White paper

CONTACT CENTRE AGENTS

Intelligent E-mail Management

Digital

TV IVR

FAQ’s Knowledge Base

Website

VoIP

Chat Phone

The diagram shows the complexity of interacting with customers through multiple channels and indicates some of the areas in which technology can both reduce the burden on support personnel and cut costs

Interactive voice response (IVR) systems

The automated voice systems, which respond to telephone calls and offer callers keypad driven options, form one method of routing and prioritizing calls and can help to reduce the duration of calls However, many for being cumbersome and intrusive criticize the process

Intelligent e-mail management

E-mail management is a fast-growing area of CRM, and auto-response technology has huge potential Intelligent systems can search for key words in e-mails and

der of probable accuracy Typically,

The Web offers large potential savings by encouraging visitors to find out answers

can be done indirectly by ‘call-me’ requests live text-based discussions with agents

suggest several possible responses, ranked in or

an auto-suggest facility routes the proposed answer to an agent who checks and forwards it In basic cases, the response can go directly to the user (auto-respond)

Web

for themselves At a basic level, this consists of pages showing the answers to frequently asked questions (FAQs) More systems that are intelligent can search vast knowledge bases for answers While this process can filter out some queries, users must be able to assess live agents This

from the Web Customers can also engage in

(‘chat’) while on-line Increasingly, voice-over-Internet protocol technology will allow users to talk while on-line (See example in Appendix F)