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Frame of Reference
The relevant theory to this thesis is presented in two main sections: Direct marketing and Customer loyalty. The direct marketing section includes subsections with its connections to Relationship marketing and CRM. The final main section discusses the theory of customer loyalty and the importance of loyal customers.
Direct Marketing
Previously, direct marketing was something that referred to what direct marketing and di-rect mail companies did with name and address files. But as modern information technol-ogy made information easier to gather, these files have been expanded to massive databases with marketing information. Today companies have stored tons of information about their current customers and their potential customers in their CRM systems. This data is used in order to target the customer directly and establish and maintain a relationship while offer-ing products or services. Large databases with customer- and market data is used in order to store this information.
The data consists of different information about the customer such as demographic infor-mation, personal characteristics, profession, age and purchase history. The customer is usu-ally contacted directly to be offered a new product or service, this type of marketing is called direct marketing. There are a growing number of financial services companies such as banks and insurance companies that have adopted direct marketing as their main ma r-keting strategy (Potharst, Kaymark & Piljs, 2002).
Direct Marketing as a Part of Relationship Marketing
Relationship marketing is often considered to be an umbrella philosophy with many sublevels rather than a single theory on its own. An estimation made by Dann & Dann (2001) has pointed towards nearly 50 different definitions and there will probably be more to come. As relationship marketing is such a broad area and the term relationships is vague, a single definition might not be practical or even needed (Gummesson, 1994). One definition by Grönroos (1994, p. 9) declares that the objectives of relationship marketing are to:
“identify and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties involved are met; and this is done by mutual exchange and fulfilment of promises.”
This definition clarifies three parts: the existence of the relationship, the profit target for both parts and the exchange and fulfilment of promises.
Relationship marketing is often used interchangeably with CRM and customer mana ge-ment. Payne (2006) explains the relationship between these concepts in Figure 2-1. The model is based on interviews with senior executives at UK companies and their view on the topic. As seen in Figure 2-1, most of them associated relationship marketing with high-level strategic thinking with all key stakeholders. CRM had a stronger connection to mar-keting strategies over the customer lifetime and understanding the customer‟s needs, atti-tudes, life stage, profitability and lifetime value. Customer management was, on the other hand, seen as more linked with the tactical implementation of CRM and using specific tools such as campaign management or call centre activities.
Customer Management is in Figure 2-1 described as an implementation and tactical man-agement of customer interactions. A typical interaction with a customer could be direct marketing. From this thesis perspective Figure 2 -1 then gives an overview of the connec-tion between relationship Marketing, CRM and direct marketing. The authors of this thesis interpret this as how these aspects constantly interact with each other. These interactions will be treated in this thesis to seek crucial links between them and how they can be used in order to achieve effective relationships. This will also be connected with loyalty (section 2.2) to show how this can be influenced. The hierarchy of the model outlines the core structure of this chapter.
The Economical Benefits of Relationship Marketing
There is often a false illusion that relationship marketing is unconcerned about profit be-cause of its goodhearted and cooperative image. Sustainable profitability must be an ulti-mate goal, even for companies that adopt relationship marketing. Managing the relation-ship is the short term goal but in the long run profitability is important to all parts (Mor-gan, 2000).
Many academics claim that the primary focus and benefit of relationship marketing is the retention of the customers. This is especially important in saturated markets and a longer relationship also generates higher profits (Reichheld, 1996). Buttle (1996) points out two economic advantages that underpin relationship marketing: Firstly, existing customers are less expensive to retain than to recruit. Secondly, securing a customer‟s loyalty over time produces superior profits. (The benefits of customer loyalty is discussed further in section 2.2).
Criticism of Relationship Marketing
Marketing has always and is still a very changing field with many trends where relationship marketing has been accused of being another marketing fad. Marketers are often keen to adopt and implement a new marketing trend to later abandon it for another new and more interesting theory, when they discover that the first one did not turn out to be the saviour they wanted. There have been warnings that direct marketing could be just another short lifecycled management phenomenon and marketing has proved to be especially prone to these so called flavours of the month syndromes (Payne, Christopher & Peck, 1995).
Dholakia (2001) have described the evolution of a new marketing theory as a bandwagon effect which starts out as a clever, useful concept with practical value that is later built on by others to make it more marketable and profitable. As this process goes on, it grows big-ger and there is a risk that certain aspects of the concept gets emphasised while other parts remain unseen. Blois (1997) has claimed that the rapid development of relationship market-ing has stretched the boundaries of the concept and it could then never be universally justi-fied, it is simply not precise enough. Another problem with radical changes, such as rela-tionship marketing, is also that there is a tendency to over-correct and over-hype a concept and the companies should instead focus on clarifying that the concept is right for the par-ticular industry or situation (Baker, 1999).
Another criticism with relationship marketing is that the voice of the customer is often missing. There is an increasing amount of ways to gather information about the customers but a question may arise if this is what the customers really want? There is an easy way for the customer into the relationship but soon the barriers to exit have grown and the cus-tomer cannot get out. This means that in a longer perspective, customers could be kept in the relationship against their will (Barnes, 1994).
There is also a discussion whether relationship marketing really is a new concept and if not relationships always has been important to marketers. Payne (2000) has described relation-ship marketing as a rediscovery and a return to the pre-industrial era when producers and consumers traded and dealt directly with each other. Others claim that direct marketing is nothing more than a makeover and simply changing the sign on the departmental door from sales to marketing (Brown, 1998).
Relationship marketing has in the end brought back relationships into the mainstream of marketing and made marketers questioning the four (or seven) Ps approach and instead fo-cused on more important factors such as the core firm and its relationships (Gummesson, 1999).
CRM – Customer Relationship Management
After investigated CRM one can find that it is closely related to relationship marketing. From the beginning, the marketing mix as well as the 4 Ps was created in order to make use of the demand market and to increase the individual firms‟ demand in the market (Payne, 2006). One can see these two above mentioned theories as to strive for sales maximization by optimizing expenses and not focusing on relationships. A CRM system is the method which builds on the relationship between firms and customers i.e. how the firm should serve their customers (Payne, 2006). One definition of CRM is:
“A management approach that enables organizations to identify, attract and increase retention of profitable customers by managing relationships with them” (Hobby, 1999, p. 28-30).
This definition shortly describes the massive concept of CRM. Payne (2006) describes CRM systems as an important tool that is applicable in most businesses. The definition does not point out the usage of IT applications to maintain relationships with important customers and suppliers. Information about key customers is kept in databases and links them together with suppliers, products and services. This procedure is done to help the company understand and identify important shareholders (internal and external) and their behaviour in order to plan and carry out sustainable marketing strategies.
CRM as a Growing Factor
The importance of CRM has evolved as the marketing approach has altered in focus, which can be seen in four trends (Payne, 2006): The first trend is relationship marketing and the second trend is that the customers should be seen as an asset instead of addressees and an external part of the company.
The third trend is that companies should change their view on their organisational structure and transactions. Instead of seeing the business as transactions and single sales it should in-stead be seen as a set of processes. This would change the individual firms‟ usage of their investments and could be seen as old-fashioned and especially ineffective as well as in inef-ficient. Customers rarely see a product as a single item; it is rather seen as a set of items and services where one expects fast and smoothly deliveries, guaranties and product support.
Forth, to increase customer involvement and collect more information about needs and behaviour firms should realise the usefulness of customer service. If a client is unsatisfied with a product they do not bother to complain, they will instead go to the competitors. By implementing a department of customer care, firms will have a chance to improve their portfolios for the future and retain customers.
In order to understand the customers and their behaviour firms need to complement their whole CRM system with IT components. Two of those are given by Payne (2006): data re-pository and applications. The first mentioned is used in order to analyze customers‟ past, current and future behaviour. The applications are used to create more value for the cus-tomers. These applications will help the customer care department to enhance the service towards the customers.
Last, the trade-off between receiving and handing on customer value is explained by Payne (2006) in three dimensions: the value for the customer, the value which the company can receive from the customer and the learning‟s for the company where customer lifetime value (see 2.2.3.2) will be created for the individual and for the entire segment. This means that a firm should be careful in collecting customer information, it might become expen-sive. The firm should also be careful when giving the customer too much value since this may cause decreasing in profit margins (Payne, 2006).
As discussed in chapter 2.1.7 direct marketing is a dialogue between a company and the in-dividual consumer. If the consumer has a small role, which may be the issue in B2C the consumers might be divided into segments (Payne, 2006). However, it is difficult and ex-pensive to deal with customers on the individual basis since when segments get to the point of individual customers the character of marketing modifies. According to Peppers & Rogers (1993), segments lack the core of memories, interaction and they do not complain. Peppers et al. (1993) further points out that individual consumers has all those core fea-tures which is vital in the direct marketing procedure. The procedure is to connect those features in order to establish a continuing relationship to the consumer (Peppers et al., 1993).
This relationship is possible via CRM systems as the user holds memory tracking of all relevant consumers. This will enable the user (the company) to know, at every decision making point, the individual consumers previous behaviour. If a company posses consumer data analysis the information will be a natural part of the organization and decision making will be more efficient and decreased costs (Payne 2006).
1 Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose
1.4 Definitions.
2 Frame of Reference
2.1 Direct Marketing
2.2 Customer Loyalty
3 Method
3.1 Case Study.
3.2 Abduction
3.3 Secondary Data Collection
3.4 Primary Data Collection
3.5 Validity and Reliability
3.6 Ethics
3.7 Qualitative Analysis
3.8 Generalisability
4 Empirical Findings
4.1 Market Overview
4.2 Internal interviews
4.3 The Beneficiary Customer Survey.
5 Analysis
5.1 A Company Perspective
5.2 A Customer Perspective
5.3 The Relationship between LF and Their Beneficiary Customers
6 Conclusion
7 Discussion
7.1 Contribution
7.2 Practical Use
7.3 Further Investigations
References
Bachelor thesis within Business Administration
