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

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
Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

SUPERVISORS:
1. DR. TA NGOC CAU
2. MEGH SHETTY, MBA

Hanoi - 2007
i


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

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APPENDIX B ............................................................................................................ 78
APPENDIX C ............................................................................................................ 80
APPENDIX D ............................................................................................................ 84
APPENDIX E............................................................................................................. 85
APPENDIX F............................................................................................................. 88
GLOSSARY............................................................................................................... 89
REFERENCES........................................................................................................... 91

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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

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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

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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

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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

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INTRODUCTION
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
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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.

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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.

6. Outline
The outline of this thesis is as follows. In Chapter 1, Introduction, It includes
Necessity of the thesis, Purpose, Key Research Area, Methodology, and Contribution
of thesis and Outline. In Chapter 2, Literature Review, Theoretical view of Customer
Relationship Management will be presented. In Chapter 3, Case Study of FPT
Software will be described and analyzed with specific methodology. In Chapter 4,
Research findings will be presented with three Research Questions. And the
recommendation will be done corresponding to previous part. The last section is
Conclusion.

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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.

4


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 outcome of 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.

5


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

6


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

7


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. Highvolume 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
‘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.

8


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-toorder car.

9


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

10


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.

11


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.

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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.

13


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.

14


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

15


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

16


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.

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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

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Lynette Ryals, Creating Value Through Customers
Greenberg, P. (2001), CRM at the Speed of Light. Berkeley: Osborne/McGraw-Hill

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