Role of Customer Relationship Management in UK Banking Industry
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1. INTRODUCTION The era in which we are living has different dimensions with regards to customer care and satisfaction. Globalization and diversification in businesses has created a battle ground and competition amongst different organizations in upholding customer loyalty. To achieve these ends, there has been a great shift in the marketing techniques applied by different organizations over the years (Gronroos, 1997). Companies are now having more of a customer-centric approach rather than product-centric approach which has captured marketing phenomenon over decades. This shift which is result of the denial of the long term relationship benefits for the companies to the acceptance of giving advantage to the customers has changed the way companies used to market their products and earn profits. This change or shift, the customer-centric approach, is primarily what we may call customer relationship management as illustrated in the following figure:
Source: (BigPlate, 2000)
In achieving customer satisfaction, businesses need to be well aware of the emerging trends associated with customer care. Gone are the days when banks, insurance companies,
hotels etc had cordial and personal relationships with their customers. In those times, customer interaction and satisfaction level had different heights as compare to what they are today. Companies used to satisfy the needs of their customers by offering special attention to their requirements. Moreover, businesses and their clientage had one-to-one relations. Sellers and their staff knew their customers and their needs. On the other hand, customers had pinpointed the shops or businesses from where they had to do their dealings. So much so that staff used to be aware of the fact that which customer would pay in time and which would linger on their payments. Commerce and trade was much easier a task to be done. However, over the period of time, this proved to be ineffective and costly to sellers. With growth in organizations and advancement of technology, keeping track of each and every customer was virtually impossible for the organizations which poorly affected their customer relationship thus resulting in loss of valuable customers. Financial institutions were no more different from other organizations. Banking in every part of the world is serving as backbone of the country‟s economy. Goldsmith states that “financial development in different countries of the world starts with Banking Financial Institutions” (1969). This is primarily due to the fact that amongst all financial institutions, banks have the major share in granting loans to individuals for their needs. For businesses requiring short term working capital, banks are the main source (Rose & Hudgins, 2005). However, with increased competition over the years, banks started losing customers. Findings by Basel Committee in 1999 revealed that banks have a large deficiency in „know-yourcustomer‟ policies which resulted in loss of valuable customers (Basel Committee on Banking Supervision, 1999). This was a shocking manifestation since banking cannot survive without customers and un-satisfaction amongst the clients could lead to shut down of the complete organization. “There appears to be growing recognition by retail banks that to compete in the new world of work they need to focus not only on processes and efficiencies
but more importantly on customer experience and service, ……. UK banks are bucking the retrenchment trend and actually hiring large numbers on new staff. It is believed could hire up to 6000 new staff over the next two years, 600 of which will be hired in the coming months and will be focused around improving customer experience and service” (Dean van Leeuwen, 2010).
Trace back in the history of customer care by organizations reveals that in order to prevent losing a customer by not giving him/her appropriate attention, organizations developed segmented or group marketing technique where customers having same needs were put together in one group or segment. But this too again became inappropriate since by using this marketing technique, groups of customers were to some extent satisfied by the organizations but that lacked individual care and attention thus negatively affecting the organization (Bose, 2002).
In 1980s, a concept referred to as „Relationship Marketing surfaced to overcome the above stated problem. Relationship Marketing encompassed several methodologies which were to be worked out by organizations in gaining customer loyalty and satisfaction. These included quality of goods to be sold, excellent service to customers and developing long term relationships (Levitt, 1983). Gronroos (1997) defined Relationship Marketing as “to establish, maintain and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is done by a mutual exchange and fulfillment of promises”.
Marketing strategy of organizations in those days was more focused on attracting new customers and clients instead of retaining and keeping hold of the old ones. This strategy, the transactional or traditional marketing approach, was replaced by Relationship Marketing. In transaction marketing, emphasis was laid on the 4Ps of marketing namely product, price, place and promotion. These 4Ps of marketing, or the marketing mix, essentially focused on attracting new customers for organizations without paying any head to retaining the old ones (Gummesson, 1999). According to this concept, the marketer was considered as an ingredients mixer, with ingredients to be the 4Ps. Mixing of all the 4Ps of marketing used to offer solutions in such a way as to offer competitive prices thus enabling new customers to buy their products. However, this approach soon failed due to obvious reasons and thus Relationship Marketing came as an answer to the transaction marketing approach.
Gummesson (2004) defined the concept of Relationship Marketing to include the following:
Reduction in costs
1990s again brought a new thinking paradigm for organizations in the development of customer relationships. It was realized that a customer does not only interacts with the marketing department of a company or organizational but with the whole organization itself
including all the departments. So customer care was given a holistic view to please the customer from every aspect.
This approach also failed since achieving short term results was a difficult option keeping in view the costs of maintaining database of customers which proved to be too expensive and tedious a task (Xu, Yen, et al, 2002).
Customer Relationship Management (CRM)
Coming back to the present day world, with advanced technology and growing awareness along with latest marketing strategies, it has become easy for companies to have better relations with their customers with a surety that they won‟t be traded off to their competitors. This has been possible with the availability of new techniques which have revolutionized today‟s man‟s psyche. Organizations can now trust on the loyalty of their customers by offering reasonable and competitive prices, variety in their product lines and personal care, a basic ingredient in building customer relationship. All these factors, which were missing in the past, are now available to organizations due to advancement in information and communications technology making them more customers friendly and trustworthy. One such advancement which may be referred to as modification in „Relationship Marketing‟ is „Customer Relationship Management‟ (CRM).
Definition of CRM
Scholars and professionals belonging to different school of thoughts have defined this term in no of ways. We will be quoting few definitions of „Customer Relationship Management‟ to elaborate the concept clearly.
Gartner Group (2008, pg 2) defines CRM as follows: “CRM is an IT enabled business strategy, the outcomes of which optimize profitability, revenue and customer satisfaction by organizing around customer segments, fostering customer-satisfying behavior and implementing a customercentric process”.
Similarly, Jobber defined CRM as “a term for the methodologies, technologies and ecommerce capabilities used by firms to manage customer relationships” (2004) as illustrated in the following figure:
According to Bose (2002), “at the core, CRM involves the integration of technology and business processes used to satisfy the needs of a customer”. He further explained CRM in banking terms as “an enterprise wide integration of technologies and functions such as data warehouse, web sites, intranet/extranet, telephone support system, accounting, sales, marketing and production”.
Following figure illustrates the concept of CRM more clearly:
Source: Joint Information Systems Committee
Classification of CRM Popular classifications of CRM which are widely accepted worldwide are as follows:
Operational CRM systems:
CRM business processes have a direct impact by
this category since it improves the overall efficiency of the system. Operational CRM systems are handy in providing solutions and support to problem areas such as marketing automation, sales automation and management of customer interaction centre.
Analytical CRM systems:
This is the warehouse of information about
customers as to their likings and disliking. It helps in better understanding of customer behavior and aptitude. Analytical CRM systems provide solutions such as data mining and data warehousing. Graphical representation of typical analytical CRM system is as under:
Source: (David Roe, 2010)
Collaborative CRM systems:
Streamlines channel of communication
between customers and the organizations. In other words, providing help and support to customers in the shape of emails, telephone, websites etc.
Automatic response to customers emails, automatic help and
several other personalized services comes under this category.
1.4 Why CRM? According to Xu (2002), goal of CRM is to understand the needs and demands of customers giving them more value. Interaction with customers helps an organization to better understand its clients thus improving their performance. Customers are more at ease with companies with whom they have a better level of cooperation. By understanding the needs of their customers, companies develop a long term relationship with their customers. Thus CRM earns customer loyalty which in turn increases its revenue.
Need for CRM arose due to the fact that different customers have different choices and preferences of buying. No single scale could be set out for all the customers since need of every customer is different. If this hadnâ€&#x;t been the case, mass marketing and mass communication marketing techniques which were once used by companies would have continued without any failure. Need for customized marketing led the companies to switch to CRM. Operations related to CRM with their support to customers can be seen in the following figure:
Source: (Richard, Chijoriga, Kaijage, Peterson and Bohman, 2008)
CRM-related services have also been a major cause in the popularity of this approach. The growing demands of customers and limited available resources of organizations to satisfy the needs of the customers has forced corporate to switch to CRM due to wide range of services it offer. 1.5 Research Problem Customer relationship management has become the first priority of majority of the organizations due to increased saturation level in the markets. Relationship of companies with their customers has switched from the traditional sales model to customer-centric approach. According to Bose (2002), companies most likely to benefit from CRM services relates to financial organizations such as banks and telecommunications. Prime reason of this is that both these sectors have to deal with lot of customers and they have to gather and accumulate lot of data on each customer for properly satisfying his needs. Future is for those organizations that can successfully understand and deliver what each of their customer wants
and demands. Comparison of a traditional model to customer-centric business model in financial institutions such as banks is illustrated in the following figure:
Source: (Andrew Carton, 2004)
As stated above, financial institutions amongst others are the most likely organizations which can benefit from CRM system to the max. Reason behind this statement is the fact that financial institutions have to gather lot of data about each and every customer not only to satisfy his/her need but also to secure their own transactions. Financial matters are quite sensitive and need to be handled with utmost care. Customers, on the other hand, have more aspirations while dealing with financial companies since it relates to money matters and no individual would expect or can afford to take risk of any sort in this regard. So itâ€&#x;s more of a compulsory affair for both financial organizations and customers to have better understanding and coordination in order to avoid any mishaps.
Moreover, for financial institutions, CRM is important since it helps them identify the profitable customers which financial institutions such as banks have to look about apart from
creating opportunities for new customers. Research has proved that the most profitable segment of customers for banks is relatively very small (Leverin and Liljander, 2006). According to Rowley (2002), â€œ20% of a bankâ€&#x;s customers often account for 150% of its profitsâ€?. Therefore, banks pay more attention to this small segment which would earn them more profits. However, with the introduction of Internet Banking, keeping customer loyalty has greatly been endangered since due to this facility, other banks or competitors have the leverage of targeting that 20% segmented group of a particular bank. Thus it becomes a do or die situation for banks to maintain customer loyalty and provide services to them according to their needs.
Source: (Amigolog, 2003)
This phenomenon of banking sector is not related to a particular region of the world but is generally witnessed everywhere. Studying the implementation of CRM in banks of some developed country such as UK seems more fruitful as it would answers questions
critical to the survival of both the system and the bank. Thus, our research problem for the thesis can be formulated as: Role of CRM in UK Banking Sector.
BIBLIOGRAPHY Bose, R. (2002), “Customer Relationship Management: Key Components for IT success”. Industrial Management and Data Systems, Vol. 102 No.2, pp 89-97 Gronroos, C., 1997, From Marketing Mix to Relationship Marketing: Towards a paradigm shift in marketing, Journal of Management Decision, Vol. 35 No.4 pp 322-339 Gummesson, E., 1999, Total Relationship Marketing: Rethinking Marketing Management from 4Ps to 30Rs, Butterworth-Heinemann, Oxford Levitt, T. 1983. Forklaring till relationsmarknadsforing. [Online] 12Manage. Available at: http://www.12manage.com/methods_levitt_relationship_marketing_sv.html [Accessed: 2009/9/8] Gummesson, E., 2004, “Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts”, Journal of Business and Industrial Marketing, Vol.19 No.2, pp.136-148 Xu Y., Yen D.C., Lin B., Chou D.C. (2002), “Adopting customer relationship management technology”, Industrial Management & Data Systems, Vol. 102 No. 8, pp. 442-452 Gartner Group. 2008. Magic Quadrant for CRM Services Providers North America. Gartner RAS Core Research Note G00156898 Jobber, D. 2004. Principles and practices of marketing. 4th Ed. Berkshire, England: McGraw Hill International. (p.514, 797) Leverin A. and Liljander V. 2006, “Does relationship marketing improve customer relationship, satisfaction and loyalty?”, Internal Journal of Bank Marketing, Vol. 24 No.4, pp.232-251 Rowley J. E., 2002, “Reflections on customer knowledge management in e-business”, Qualitative Market Research: An Internaltional Jounal, Vol. 5 No.4, pp 268-280
Evelyn Richard, Marcellina Chijoriga, Erasmus Kaijage, Christer Peterson, Hakan Bohman, (2008) "Credit risk management system of a commercial bank in Tanzania", International Journal of Emerging Markets, Vol. 3 Iss: 3, pp.323 - 332 Basel Committee on Banking Supervision (September 1999). ‘Enhancing Corporate Governance for Banking Organizations’. Available at http://www.bis.org/publ/bcbs56.pdf Syed Ashraf Ali & R A Howlader (November 2005), Banking Law & Practice, Osman Gani of Agamee Prakashani. Peter S. Rose & Sylvia C. Hudgins (2005), Bank Management & Financial Services, 6th Edition, Mc Graw Hill International Edition. Goldsmith, R.W. (1969), Financial Structure and Development, New Haven, CT: Yale University Press Dean van Leeuwen (October 3, 2010). ‘Banks recognise the importance of customer experience’. Available at: http://www.newworldofwork.co.uk/2010/10/03/bank-recognisethe-importance-of-customer-experience/ Andrew Carton (Aug 3 2004). „Paradigm Shift: From Pushing Products to Delivering Solutions’. Available at: http://alteraxion.typepad.com/movies/2004/08/paradigm_shift_.html Joint Information System Committee. http://jisc.cetis.ac.uk/crm-tools/what-is-crm.html David Roe (2010). „HCL and Talisma Partner for SaaS CRM’. Available at: http://www.cmswire.com/cms/enterprise-cms/hcl-and-talisma-partner-for-saas-crm006362.php BigPlate (2000). Available at: http://www.bigplate.com/products/crm_center.html Amigolog (2003). Available at: http://www.amigolog.com/ConsultancyCRM.phtml
Published on Mar 9, 2012
Sample of a dissertation/thesis written on the topic of role of customer relationship management in UK banking industry.