Customer Relationship Management for Service Provider

Table of Contents

I. Specials of Service Products

II. Managing Customer Relations
1. The customer’s impact
2. The Way to CRM
3. Which components belong to CRM ?
4. Architecture of CRM
a Operational CRM
b Analytical CRM
c Collaborative CRM
d Strategic CRM
e Staff requirements
5. Results of CRM
6. An additional tool: BSC

III. List of Sources

I. Specials of Service Products

To learn about the relevance of the customer relationship in service marketing first we have to learn about what service means. We see and consume a lot of different services in our daily life. Services include transportation, computer software or justice. But what is the difference between services and other products ?

illustration not visible in this excerpt

Figure 1: Systematic of Goods, Corsten, page 20

As essential criterias of services Corsten mentions

- Immateriality and
- Concurrency of production of service and its consumption, that results from integration of the external factor^[1]

The external factor in producing service products is the consumer – the customer. As the customer is directly included in the production and consumption process and the customer can check the quality of the product he got at once the relation between the provider and consumer is very closely. In other words: Services cannot be produced to be laid in stock – they only can be produced if demand exists. Without demand no service can be dropped to the market. Consequently the service provider cannot realize sales – the enterprise won’t share the market long-term.

II. Managing Customer Relations

1. The customer’s impact

The word of mouth has an essentially impact on customers decisions. In some branches 70-80% of new clients decided in favour for a certain service provider only based on word of mouth of existing customers.^[2] So we see on one hand the customers are a chance to get additional request for our service, on the other hand unsatisfied customers are going to talk about their experience, too. As only 5% of unsatisfied customers complain, a company won’t learn about the other 95% unsatisfied customers that will change their supplier and will pass their impression by the word of mouth.^[3]

2. The Way to CRM

To avoid a bad reputation and to prevent displeasedness of the customers a service provider has to learn about his customers. Often the wants of customers were not completely right appraised. As the client does not values different parts of a product but the whole service it is necessary to guarantee perfect overall quality – nothing else counts.^[4]

The following figure shows all parts of service quality that the customer realises:

illustration not visible in this excerpt

Figure 2: GAP model of Service Quality, own illustration based on Bruhn/Meffert (2002) page 21

This GAP model was developed in 1985. The gaps mark discrepancies between the customer’s cognition and the provider’s cognition:

GAP 1: Discrepancy between real customer’s expectation and the expectation the
management sees.

GAP 2: Discrepancy between the customers’s wants the management notices and
their realisation.

GAP 3: Discrepancy between the service quality specifications and the actually
provided service.

GAP 4: Discrepancy between actually provided service and the communication to the
customer about this service.

GAP 5: Discrepancy between the customer’s expectation about the service and the really recognised service.^[5]

Every gap shows potential reason for dissatisfaction of the customer. Unsatisfied customers are willing to change their supplier to get service that hits their needs and wants better. As a result the service provider has to substitute lost customers. This will cost a lot of money for marketing activity to win new clients.^[6] So the companies’ aims first are to keep existing clients.

Opposite the customers’ satisfaction develops through his experiences with the service product or in general with the provider or his brand. The satisfaction the client feels is the result of comparison between the service he got, and his expectation. Thereby customer satisfaction is the result of judgement after consumption of the product. As “manufacturing” and consumption of services happen at the same time, the judgement takes place very quickly. First the experience of the customer relates to the service quality, further to price-performance ratio but although to kindness of staff, reach ability (i.e. at phone), liability and more that belongs to the complete service. Therefore it is an individual comparison between expectation and actual service value. The result of this comparison is one of the following chances:^[7]

- “The service value is higher than expected: the customer gets more he had expected
- The actual service value is equal the expected value: the expectations of the client are served
- The value the customer feels to get is less he had expected: the expectations of the customer are not met.”^[8]

As satisfied customers are willing to consume the service from their current provider in future too, and frequent buyers are less price sensitive than new customers it is the company’s objective to keep current clients and to serve them long-term.^[9] They way to keep them is to meet their expectations. Customer Relationship Management (CRM) helps to serve the customers and to enhance their satisfaction:

- “CRM manages the entire customer relationship, for the entire duration of the customer’s interaction (…)
- CRM aims to align the organization to meet customer needs as thy change over time
- CRM also aims to anticipate future customer needs, rather than simply meeting the current need”^[10]

As CRM helps to meet customer needs it has several advantages for the service company that all yield to better customer satisfaction. In detail it contains the following points:

- Image improvement
- Efficiency heightening
- Winning new customers
- Customer Loyalty^[11]

So the implementation of a CRM system promises loyalty of current and future customers and by thereby long-term business.^[12] As I mentioned before particularly service companies are very sensitive in their relationship with customers, because the production of the “good” service and consumption happen in the same moment. This allows the customer to decide about his satisfaction at once (in the moment of service preparation). As some service markets show glut on the market customers can choose their provider from several alternatives. Considering this the long-term customer retention should be a focus, more important than winning new customers.^[13] Especially in the service branch CRM can be a successful tool to reach this goal.

3. Which components belong to CRM ?

As CRM is much more than an additional software tool CRM should be seen as a philosophy for companies which puts the customer in every division in perspective. CRM means to create a customer-oriented organisation and differs in this way essentially from the traditional function-oriented marketing methods.^[14] “Customer relationship management is a customer-focussed business strategy designed to optimise profitability, revenue and customer satisfaction.”^[15]

The CRM strategy includes:

- Customer: Creating a close relationship with current and potential future customers is the focus of all activities.
- Relationship: The individual treatment of customers is the key to success.
- Management: The ability to coordinate all interaction with clients over the whole organisation and its divisions has to be developed.^[16]

“To be effective, the CRM process needs to be integrated end-to-end across marketing, sales and customer service. A good CRM program needs to do the following:

- Identify customer success factors
- Create a customer-based culture
- Adopt customer-based measures
- Develop an end-to-end process to serve customers
- Recommend what questions to ask to help a customer solve a problem
- Recommend what to tell a customer with a complaint about a purchase
- Track all aspects of selling to customers and prospects as well as customer support

Major areas of CRM focus on service automated processes, personal information gathering and processing, and self-service. It attempts to integrate and automate the various customer serving processes within a company.”^[17]

4. Architecture of CRM

There are several parts that belong to the application of CRM: Operational, Analytical , Collaborative^[18], Strategic and further Organisational.

a Operational CRM

“Operational CRM means supporting the so called “front office” business processes, which include customer contact (sales, marketing and service).^[19] The CRM strategy affects the determination of duties and responsibilities and service-goals that influence the customer contact.^[20] According to Gartner group, three general areas of business are affected by operational CRM:

- Sales force automation

Critical sales and sales force management functions are automated, i.e. lead/account management, contact management, forecasting sales administration buying habits, demographics as well as sales staff performance. The automisation tools are created to improve field sales productivity.

- Customer service support

The Customer service support automates some service requests, complaints or information requests. Additional to traditional inbound call-center support for customer inquiries and internal help desks new multiple channels should be used.^[21] For communication with clients in general the following media could be used:
- web
- e-mail
- letters/fax
- phone

- Enterprise marketing automation

This area means to provide general information about the business environment, like competitors, industry trends, and macro environmental variables. It is the execution side of campaign and lead management. The intent is to improve marketing campaign effectiveness.^[22] The orientation on real customer wants makes marketing activities predictable and manageable. This allows to set budgets and to monitor the results.^[23]

The available software tools for operational CRM are called “front office solutions” because they deal directly with the customer. Additional they can be used to allow the client to perform their own service via a variety of service cannels (see below “Collaborative CRM”).

b Analytical CRM

An important duty for operational CRM is collecting customer data. The customer data allows the personal information and processing I mentioned above. “In analytical CRM, data gathered within operational and/or other sources are analyzed to segment customers or to identify to potential to enhance client relationship. Customer analyses typically can lead to targeted campaigns to increase share of customer’s wallet. Examples of Campaigns directed towards customer are:

- Acquisition: Cross-selling, up-selling
- Retention: Retaining customers who leave due to maturity or attrition.
- Information: Providing timely and regular information to customers.
- Modification: Altering details of the transactional nature of the customer’s relationship.”^[24]

c Collaborative CRM

“Collaborative CRM facilitates interactions with customers through all channels (personal, letter, fax, phone, web, e-mail) and supports coordination of employee teams and channels. It is a solution that brings people, processes and data together so companies can better serve and retain their customers. (…) Collaborative CRM provides the following benefits:

- Enables efficient productive customer interactions across all communication channels
- Enables web collaboration to reduce customer service costs
- Integrates call centres enabling multi-channel personal customer interaction
- Integrates view of the customer while interaction at the transaction level”^[25]

By choosing the communication media the following aspects should be considered:

- rate of feedback
- quality of information
- individuality of serving customers
- quality of data collection^[26]

The available software solutions for CRM allow easy and efficient collecting and processing customer data.

As an example for integration of different communication channels, for banking service traditional bank companies offer personal counter service, automation service in local branches, internet banking or banking via mobile phone service.^[27] Another example for differentiation of sales channels is railway business: Tickets are available at counters, machines, local franchises, via web or mobile phone service. Another practice is to choose the preferable communication channel of the single customer for campaigns: Companies can send a letter, a fax, hone call or e-mail newsletter.

d Strategic CRM

As CRM hits the whole relation between the company and the customer, the strategic framework has to be set for success. “The CRM systems base on the awareness that single solutions for sales, marketing and service cannot bring the desired success.”^[28] But before implementing a CRM system the company’s strategy has to be clear: As CRM leads to a dramatic change within the enterprise, every division will be affected. The following figure should illustrate this.

illustration not visible in this excerpt

Figure 3: CRM impact on company’s divisions and strategy, Wehrmeister (2001), page 66

First of all a CRM vision has to be developed. It is the vision of the future role of the company concerning the customer orientation. This strategy is the roadmap for deciding between several alternatives respectively correcting wrong decisions or developments. In general the CRM vision has to be reachable and must not be utopistic. Additional the personal opinion of the management should be integrated in the vision. The CRM vision must better the current situation. It is a philosophy that describes how the enterprise should develop in its customer relation.^[29] As a result of CRM the company provides “structured service, sales, & marketing processes”.^[30]

Second CRM guidelines are phrased. They describe general coordination- and organising principles. They allow staff to act in terms of the CRM vision. The guidelines are a framework for the management in its strategic and operational decisions. Furthermore the management can be judged on this basis. Therefore the guidelines are more abstract than a roadmap for single decision cases.^[31]

e Staff requirements

As the staffs has the customer contact the choice of employees from my point of view belongs to the strategic CRM framework as employees cannot be changed as fast as the business environment may change. The staff should know about the CRM vision and the guidelines and act in terms of them. In many service branches the company’s staffs is the only touchable asset. That’s why many service enterprises first implement new personnel management and development tools. Thereby in many service companies the vision is actually lived by the employees. The basis for such success is careful selection of staff members, long-term working contracts and human resources development.^[32] To the human resources development belong several single activities that together result a successful personnel strategy. The operation competence of the staff has to be centred, whereas four single components have to be considered:

- Professional competence: it means all professional abilities that are required for a certain job
- Procedure competence: the ability not only to know about different ways of solving a problem but to decide about the right tool for a certain situation belongs to this field of competence
- Social intelligence: it means especially capacity for teamwork and customer-orientation
- Psychological abilities: to the psychological competence belong aspects like willingness for dedication motivation and settings

Applicants have to meet these requirements if the company wants to have success with implementing a CRM system because the staffs influence how the customer recognises the service directly in the way how they act.^[33]

5. Results of CRM

Through implementing CRM the company will change dramatically. As a result

- The image of the company will change to service- and customer-oriented.
- The product portfolio may change through adding new services, new customer interfaces and more precise information about clients.
- Marketing activities will be much more successful.
- The company’s structure and workflows will change. New divisions can appear, other maybe will retire.
- A new IT strategy has to be implemented.
- The structure and responsibility of the staff will change.
- The efforts and focus of sales strategy will change.^[34]

These single changes altogether result a higher customer satisfaction with service (and that is what service companies offer as their single product) will be enhanced, in consequence the loyalty will increase what means that less customers are lost and via the word of mouth new clients will be found. In general the enterprise is more successful.

6. An additional tool: BSC

The Balanced Scorecard (BSC) is an additional tool that could be implemented with CRM (naturally it could be used without a relation to CRM). The BSC makes the vision and aims visible what helps for daily work and decisions because the relevant objectives are easy to catch by eyes. First the company’s vision and most important strategic aims are defined. Second the strategic concerns are transferred in countable goals for several divisions. As an example this could be

- For the IT division: to offer a 98% accessibility of the company’s homepage or to public news within two days on the homepage
- For the sales division: to increase sales within one year by 5%
- For the marketing division: To reach a long-term client base of 85% within six month

The chosen relevant aims are visualized in the BSC, while every goal is represented in a single dimension. Often the different dimensions are visualized by a coloured bend like a tachometer that makes it easy to realize the grade of target reaching.

In the case of service quality and quality management special parts belong to a service that meets customer’s expectations. First the links to service quality has to be defined. This covers every service part that hits the customer (customer’s point of view). Second an aim for the customer’s satisfaction (as a general or for every/only the most important link/s to service) is defined. Then these objectives are transferred to the BSC.

The grade of satisfaction of the customers is the grade of achievement of the objectives and is shown periodically in the BSC. A possibility to get reliable data about the customer satisfaction is to order a survey by an external supplier.

III. List of Sources:

Books:

Bruhn, Manfred / Meffert, Heribert: Exzellenz im Dienstleistungsmanagement, Betriebswirtschaftlicher Verlag Dr. Th. Gabler GmbH, Wiesbaden 2002

Corsten, Hans: Dienstleistungsmanagement, 3rd Edition, R. Oldenburg Verlag, Munich 1997

Heskett, James L.: Management von Dienstleistungsunternehmen (original title: Managing in the Service Economy), Betriebswirtschaftlicher Verlag Dr. Th. Gabler GmbH, Wiesbaden 1988

Horovitz, Jaques: Service entscheidet (origin title: La Qualité de Service), 4th edition, Campus Verlag, Frankfurt/Main – New York 1992

Teichmann, René: Customer und Shareholder Relationship Management, Springer-Verlag, Berlin – Heidelberg – New York 2003

Wehrmeister, Dierk: Customer Relationship Management, Fachverlag Deutscher Wirtschaftsdienst GmbH & Co. KG, Köln 2001

Online sources:

Büchi, Werner, E. / Elsten, Rémon (2002): http://www.crowne.ch/Dokumentation/News%20June%2002/CRM%20Business%20Case.pdf (March 26, 2006)

Engels, Friedrich, (22.03.2006): http://www.4managers.de/10-Inhalte/asp/kundenzufriedenheit.asp?hm=1&um=K (March 26, 2006)

Fahling, Loraine (2005): http://www.dla.mil/do/IMAGE%202005%20DLA%20Forum%20-%20CRM%20slides%20(Loraine%20Fahling).ppt (March 26, 2006)

Populorum, Michael A.: http://www.marktforschung.co.at/kundenzufriedenheit.htm (March 26, 2006)

n.n. http://www.logicacmg.com/de/company_info/expertise/crm/index.asp (March 26, 2006)

n.n. http://en.wikipedia.org/wiki/Customer_relationship_management (March 26, 2006)

n.n. http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM (March 26, 2006)

n.n.: http://www.deubner-recht.de/mediadb/ 22143/37057/LP_588_100-116.pdf (March 26, 2006)

[...]

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^[1] See Corsten, Hans (1997) page 27

^[2] see http://www.deubner-recht.de/mediadb/ 22143/37057/LP_588_100-116.pdf, March 26, 2006

^[3] see Populorum, Michael A. http://www.marktforschung.co.at/kundenzufriedenheit.htm, March 26, 2006

^[4] See Horovitz, Jaques (1992), page 37 f.

^[5] See Bruhn, Manfred / Meffert, Heribert (2002), page 20

^[6] See Teichmann, René (2003), page 4

^[7] See Engels, Friedreich, http://www.4managers.de/10-Inhalte/asp/kundenzufriedenheit.asp?hm=1&um=K, March 26. 2006

^[8] Engels, Friedreich, http://www.4managers.de/10-Inhalte/asp/kundenzufriedenheit.asp?hm=1&um=K, March 26. 2006

^[9] See Engels, Friedreich, http://www.4managers.de/10-Inhalte/asp/kundenzufriedenheit.asp?hm=1&um=K, March 26. 2006

^[10] Fahling, Loraine, http://www.dla.mil/do/IMAGE%202005%20DLA%20Forum%20-%20CRM%slides%20(Loaine%20Fahling).ppt, March 26, 2006

^[11] See Wehrmeister, Dirk (2001), page 17

^[12] See http://www.logicacmg.com/de/company_info/expertise/crm/index.asp, March 26, 2006

^[13] See Bruhn, Manfred / Meffert, Heribert (2002), page 4

^[14] See Teichmann, René (2003), page 100

^[15] see Büchi, Werner, Elster, Rémon: http://www.crowne.ch/Dokumentation/News%20June%2002/CRM%20Business%20Case.pdf
March 26, 2006

^[16] See Teichmann, René (2003), page 101

^[17] http://en.wikipedia.org/wiki/Customer_relationship_management, March 26, 2006

^[18] see http://en.wikipedia.org/wiki/Customer_relationship_management#Architectre_of_CRM, March 26, 2006

^[19] http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[20] see Wehrmeister, Dierk (2001), page 157

^[21] see http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[22] http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[23] see Teichmann, René (2003), page 104

^[24] http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[25] http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[26] see Wehrmeister, Dierk (2001), page 159

^[27] http://en.wikipedia.org/wiki/Customer_relationship_management#Architecture_of_CRM, March 26, 2006

^[28] Teichmann, René (2003), page 105

^[29] see Teichmann, René (2003), page 106

^[30] Fahling, Loraine, http://www.dla.mil/do/IMAGE%202005%20DLA%20Forum%20-%20CRM%slides%20(Loaine%20Fahling).ppt, March 26, 2006

^[31] see Teichmann, René (2003), page 107

^[32] see Heskett, James L. (1988), page 127 ff.

^[33] see Corsten, Hans (1997), page 332

^[34] see Wehrmeister, Dierk (2001), page 65