Now all the organizations are customer focused by preparing products, price, promotion, and distribution policy according to the needs and wants of the customer because more customers will ensure profit security of the organization. It is said that creating a new customer is ten times expensive than retaining an existing consumer. Let’s know what is customer relationship management and how to improve it.
So it is better to attract and retain the consumers by building a good relationship with them. The overall process of building and maintaining a profitable relationship with a customer by providing superior value is called customer relationship management. Dominos Pizza is giving home delivery to the customer by charging something marginally.
Agora has introduced membership cards which will enable the members to buy the goods at a reduced price. Banglalink is expanding their coverage to attract and retain the existing users. Bashundhara City Shopping Mall is giving a coupon in each purchase worth of Taka 100 and above which is drawn at the end of each month and a consumer can win even a Maruti car as the first prize.
Apon Jewelers send sweets and cards to their valued customer on different occasions. Unilever organized programs at Nandan Park to celebrate the family day, 2005, BRAC Bank has introduced a teacher’s loan at a lower interest rate to attract and retain teachers as their customer. All these are the examples of customer relationship management in Bangladesh.
But think of some stores of Dhaka New Market, where you can see a statement “Goods that are sold once will not be taken back” in their cash memo which means that there will be no further change of products in those retail shops.
This may not attract and retain customer as a customer will feel insecure about the products in those retail shops. This may not attract and retain customer as a customer will feel insecure about the product after having purchased it from those outlets.
Most of the companies are now giving an option to their customers for a change within a certain period of time that may add value to the purchasing decision of the buyer. For example, Lass Pharma gives the option to change and even refund the money for the product within a specific time period if you can show the cash memo them.
This strategy helped them to create a large customer base for the last 25 years. The underlying reason for the customer relationship is that it will attract and retain more customers to the organization. A dissatisfied buyer will refer his or her dissatisfaction to others which in turn may cause a reduction in the number of buyer for that organization.
Organizations are doing business with a long-term vision and prospect. To fulfill the vision they need more and more customers. That’s why how many units a consumer may buy in the future is definitely important to the organization. The total value of the entire purchase that a customer would make is called customer lifetime value.
Each and every organization must try to maximize customer lifetime value by building a profitable relationship with the customers. For example, if an individual buys two pieces of chicken breast per week from western Grill the estimated sales to that person per year may be 2* 4* 12 = 96 per year approximately that gives revenue of 96* 110=10, 560 Taka. If that person has the potentiality to buy chicken breast for the next 10 years the value would be 105600 Taka is what we call customer lifetime value.
If that customer is satisfied with Western grill and refers to ten other people, the value world is 10,56,000 floor for the next ten years. This is only for a single buyer. Now you can imagine what will be the actual customer lifetime value if you consider the actual number of the customer to Western Grill?
Ultimately the main strategy of the organizations should be to attract, retain and grow the number of customers. To do that organization must be concerned about customer perceived value and satisfaction.
Relationship Building Blocks: Customer Relationship Management:
Customer perceived value is the difference between what the customer is willing to pay and what he/she is actually paying. This is also called consumer surplus. For example, an individual wants to buy a shirt.
After a huge evaluation, he is convinced with a shirt and decided to buy that one with a price of Taka 500 (willing to pay). If the transaction takes place with a cost of Taka 300 (actually paying), the customer will enjoy a perceived value of taka (500-300) = Taka 200. Higher the customer perceived value, more satisfied will be a customer.
Why do people buy the product that is of the same quality but charging less? The only reason is the customers are getting more consumer surplus or perceived value from the product. Continental Courier is also delivering goods to abroad, still why people rely on Fed-EX? The ultimate reason is again the customer perceived value.
For example, with Fed-EX, one can track the current position of his product through the internet. But that facility is not available in Continental Courier. Not only that there is a matter of experience.
No one knows the world better than Fed-EX and this may be another reason to rely on Fed-EX. As customers are getting value-added services from Fed-EX, they go with Fed-EX even it is charging quite higher than local courier companies like Continental or Shundarban courier.
Probably for the better customer value, Coca-cola is still dominating the soft drink industry of Bangladesh (See the capsule-1.9), even though there are many companies offering cola flavor at a lower price like Pran Coal at Taka 7 only could never get the business. The marketer must continue to generate more customer value but not at a cost of loss of course.
Customer Satisfaction: Customer satisfaction is the difference between what the customers are expecting from the product and the performance of the product.
If the performance of the product falls shorter than an expectation of the customer it may not be purchased further. On the other hand, opposite situating may result in a frequent purchase or even loyalty to that specific brand.
For example, RC Cola is performing well with high-quality cola flavor and their innovative advertisement is resulting in an incremental change in their customer base and has already emerged as a threat for Coca-Cola, the market leader.
Whenever a student is taking admission in a private university, their first criteria to evaluate is the image of the university in the job market of course. Students are choosing North-South University not only for the reason that it is providing quality education but also because it has a good image in the job market that will help NSU graduate to get a job quickly.
Students are satisfied with the quality education that is providing by NSU and thus they are referring others to North-South University. An organization can increase customer satisfaction by lowering its price or increasing its value. LG electronics in Bangladesh is providing free installation of air conditioners and thus giving more satisfaction to the consumers.
BATA is using best quality leather in their shoes that have created a large consumer base due to its best performance products (See the capsule- 1.10). To retain a customer, Bangla Link is expanding their network in Bangladesh. Grameen Phone has introduced “My Choice” option for their user which will enable the users to talk at a lower rate.
Customer Loyalty and Retention: Highly satisfied consumers become loyal to the brand; whenever they want to buy a specific category of product they are choosing a specific company and their brands.
Loyalty provides many benefits to the organization. Satisfied/loyal customers are less price sensitive. In a case of extreme loyalty, the demand curve of the product becomes perfectly vertical/inelastic shows that, people are ready to pay more for the same product/service.
For example, Benson & Hedges has increased their price per cigarette to Taka four from Taka three due to government taxes. But total extra money is borne by the consumer as they are loyal to that brand and ready to any whatever is charged by the British American Tobacco. A loyal consumer talks about the company to others which have a positive impact on the company to others which have a positive impact on the company’s sales.
People refer others to “Kay craft’ for their better quality dress materials. “Aarong” may be the most recognized brand in dress material industry due to their high-quality products and made many customers loyal. Ladies are referring to the beauty parlor run by “Farzana Shakil” to get the best look at a party. However, a relationship between customer satisfaction and loyalty varies greatly across industries and competitive situations.
For example, though the services of WASA and DESA are relatively very poor, are loyal to those organizations as consumers have no other options. IBN-SINA is using 4D ultrasonography machine which may not make people loyal as people know anything about the use of that machine. Rather people will choose another diagnostic center that is close to their home.
Customer Relationship Levels and Tools: Companies can build customer relationship at many levels depending on the nature of the target market and the product/services the company is offering. Levels are showing the kind and degree of relations between the customer and the organization.
Basic relationship: IN this category of relationship, the organizations don’t necessarily keep relations by making a call to its customers but they are keeping good relations with key consumers. This is something like a spot transaction relationship where the organizations are showing good respects or relations at the time of selling the products or services. For example, it may not be possible for SQUARE Pharmaceuticals to keep contact with all users who are using their products.
Full partnership: If the number of the customer is few and giving significant profit, the organizations keep the full partnership with them by contacting through the mail, phone call or e-mail.
For example, the Sharee Shops of Baily Road keeps continuous relations with their key buyers through phone calls. Even they ask the key customers about the kind of product they should be producing and delivering.
These sari shops also make phone calls to the female faculty members of Viqurunnisa Noon School and College if a new product is in their outlet. Hatil and Brothers Furniture send their salespeople to key customers (mainly corporate clients) for further suggestions and sales. Banks are sending their calendar, diary, and periodicals to the valued customers.
Pacific (Citycell) mobile company of Bangladeshi sends cards and gifts to their customer on customer’s valued occasions like birthday, marriage day etc. Financial benefits: To retain the customer and to make them loyal, organizations are giving them financial benefits. Many companies offer frequent marketing programs the reward customers who buy frequently and in a large volume.
Agora provides a discount to their members (card holders) who buy frequently and at a large volume. Meena Bazar provides financial benefit on bulk purchase of products. Aktel Bangladesh charges less from their corporate clients and doesn’t charge any line rent if a user’s bill is more than taka 2000. Daffodil International University provides a 25% discount on tuition fees if more than one member of the same family takes admission in any program of the university.
Social benefits: Many companies are giving social benefits as well as financial benefits to their consumers to create member communities and retain them.
For example, BRAC bank has introduced “Teachers Loan” for the teacher at a lower interest rate than other categories of loan to create and attract the teacher’s community (see capsule-1.12).
Nari Mela share shop at Genetic Plaza is giving 5% discount on their products only to the teachers by saying “We want to serve a holy profession”. Pacific telecom (city cell) offers a lower rate and lower connection cost mobile package to the journalists. Consider Hamdard Pharmaceuticals, they have free Friday clinics, in which they are offering doctor’s consultancy free of cost on Friday.
Structural ties: To build customer relationship many companies add structural ties as well as financial and social benefits. Many companies link their customer with equipment.
There is a popular way called Electronic Data Interchange (EDI), where companies are linked with a computer within their supplier or retailer. The goods are kept in a locker which is linked with the main computer of the company inventory management system. If the number of goods in that locker of the retailer diminishes, automatically after a certain number the computer will provide a signal to the main computer that we are in short of the product.
Then the company will supply goods to that supplier or retailer. In fact, this prices reduces the necessity of sales people who move from shop to shop with a van to sell the product of the company. Fedex Bangladesh facilitates the consumers to track the current position and status of their product around the world. But not all customers can be profitable and even it may not be possible for the companies to keep a good relationship with every customer.
Ultimately customer relationship means attracting, keeping and growing profitable customers, because it is related with customer equity- the total combined customer lifetime values of all customers of the organization.
The better relationship will increase the number of customer in the sense that one customer brings another. And a large number of a customer will maximize customer equity.
Nowadays companies offer Frequency Marketing Programs that reward the customers who buy frequently or in large amounts. Meena bazaar offers a discount or something extra to those who purchase bulk quantity from the shop.
Club Marketing Program: In this case, the companies create a member group who buy more frequently and offer them special discounts to create and retain more customer as the member of the organization.
For example, agora offers membership card called “Infinity” to their customers by which the customers can collect point to get a discount on a purchase after a certain point of time.
Building the Right Relationships with the Right Customers
Companies should manage customer equity carefully. The company can classify customers according to their potential profitability and manage its relationships with them accordingly. Above figure classifies customers into one of four relationship groups, according to their profitability and projected loyalty. Each group requires a different relationship strategy.
Strangers have low profitability opportunity for the organization with a short loyalty time. This group is not at al profitable for the organization in the sense that three is a little chance that these people will be with the company for a long time period. The straightway strategy for this group should be not to invest anything on them.
‘Butterflies’ are profitable but not loyal. But the offers of the organization fit the needs of this group. So the company’s strategy should be to invest in them so that the company can attract them, create and satisfying them to make a long-term relationship with them. ‘Barnacles’ are loyal but not that much profitable and that’s why they are the most problematic for the company.
It will be better for the company to sell more to them. ‘True Friends are the best for the organization as they are both loyal and profitable. The firm should invest aggressively on them to maintain ca continuous relation with them.
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