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CHAPTER 1

INTRODUCTION

The Impact of CRM on Customer Loyalty

This introducing chapter will provide the reader with an insight to the research area. We will begin by briefly discussing the background of Customer Relationship Management, we move from a general perspective towards the focus on the specific problem This chapter builds on the theoretical background of the project that, what is Customer Relationship Management and its impact on customer Loyalty, the previous studies on the related topics, and a conceptual model that will be researched. It discusses about various constructs used in the conceptual model like Relationship Marketing Tactics, Relationship Quality Service quality, price perception, Brand Image and Value offers. The chapter is further divided into three parts that is Introduction, Review of Literature and Need of the study.

1.1 Introduction

In today’s world, a good product or a good idea is no longer enough. Customer orientation and customer loyalty have become a matter of survival. “Gaining new customers, intensifying existing relationships” is the motto. Companies can't afford to lose customers now, and many realize it is easier and more cost effective to retain current customers than it is to find new ones. To compete in such overcrowded and interactive marketplace, marketers are forced to look beyond the traditional 4Ps of marketing strategy.

Therefore Customer Relationship Management has become an alternative means for organizations to build strong ,ongoing associations with their customers. As a part of marketing strategy , Customer Relationship management seek to acquire and retain customers by providing good quality customer services, and therefore has become one of the keys to success in acquiring strong competitiveness in the present markets, because of its implications for access to markets, generation of repeat purchase, creation of exit barriers, and the view it benefits all parties (Andaleeb, 1996)

CRM solutions help you interact closely with your target groups, attract customers, and promote customer loyalty.

1.1.1 Background

While retaining customer loyalty has been a sales and marketing principle for quite a long time, Customer Relationship Management (CRM) is actually a tremendous step forward in creating a system that can provide a means for retaining individual loyalty in a world of about 6 billion population (Croteau & Li, 2001). Greenberg (2001) stated that in order to understand CRM, you must also understand the changing nature of the customer because customers are not what they used to be. Khalifa and Liu (2001) noted that, a survey of more than 1.600 businesses and IT professionals conducted by the Data warehouse Institute, found that, some of the respondents have CRM project budgets of over $ 10 million. This finding indicates that CRM is very important for organizations. The Cap Gemini further added that, the average total investment in CRM of 3oo US and European companies was $ 3.1 million. More than 69% of the companies surveyed spent less than $ 5 million and more than 13% or the companies spent over $10 million


(Sterne, 2000). This finding also indicates that a great number of companies spend great amount of their budget on CRM and therefore in our opinion we believe that it is important for service companies to know the objectives of their CRM initiatives and the type of benefits these organizations intend to derive from them. A survey of 300 companies conducted at a CRM conference concluded that CRM is not a cheap, easy, or fast solution (ibid). Mooney (2000) further added that, more than two-thirds of CRM projects end up in failure. However, he went further to say that, the successful third could obtain up to 75% return on investment (ibid).

1.1.2 Customer Relationship Management

CRM is a customer-focused business strategy that aims to increase customer satisfaction and customer loyalty by offering a more responsive and customized services to each customer. According to Wilson (2002) CRM is a concept that enables an organization to tailor specific products or services to each individual customer according to his or her need .In the most advanced scenario, CRM may be used to create a personalized, customized. one-to-one experience that will give the individual customer a sense of being cared for, thus opening up new marketing opportunities based on the preferences, previous behavior and history of the customer (ibid).However there is no universal explanation of what CRM is, since the area is fairly new and still under development.In my opinion, it is important to know that numerous attempts to defining CRM exist and that many organizations adapt the definition to their own business and unique needs.CRM is an Infrastructure that enables the delineation of increase in customer value, and the correct means by which to motivate valuable customers to remain loyal-Indeed, to buy again (Dyche, 2001p.4) . CRM is an enterprise wide mindset, mantra, and set of business processes and policies that are designed to acquire retain and service customers .I have decided to use the definition stated by (Tanner, Honeycutt & Erffmeyer 2009). for this study. This is because I think that this definition is the most extensive one, the most recent one and that it makes no mention of any particular means of communication, or channels, whether traditional or new.

Customer Relationship Management is the process of identifying and grouping customers in order to develop an appropriate relationship strategy so that the organization can acquire, retain ,and grow the business (Tanner, Honeycutt & Erffmeyer 2009).

CRM solutions help you interact closely with your target groups, attract customers, and promote customer loyalty.Customer Relationship Management is quantified into following two factors.

Relationship Marketing Tactics Relationship Quality


1.1.2.1 Relationship Marketing Tactics

(Berry, 1995) in his article signifies that the impetus for development has come from the maturing of services marketing with the emphasis on quality, increased recognition of potential benefits for the firm and the customer. Relationship marketing tactics is done by many relationship marketing tactics. Furthermore, relationship marketing was alsodescribed as “establishing relationships with customers and other parties at a profit, by mutualexchange and fulfilment of promises” (Grönroos 1991). The significance of this study lies in the fact that creating and managing a proper relationship with key customers, can enhance the company’s profit. There are many studies that approve the incredible benefit which service companies obtain from their loyal customers. The crucial aim of many successful service companies is to target, gain, and retain the beneficial customer. These companies attempt to create loyal customers.On the basis of previous researches four ways of implementing relationship marketing tactics are focused on this study, such as Service quality, price perception, Brand Image and Value offers. These four tactics will be discussed in the following chapters in detail.

1.1.2.1.1Service Quality

Quality is ballet, not hockey. ‘—Philip Crosby (1979) Quality is an elusive and indistinct construct. Often mistaken for imprecise adjectives like goodness, or luxury. or shininess. or weight” (Crosby 1979).Service and physical products are different from each other. (Thomas, 1978) discusses how pure services are different from product oriented business. In pure service business any transfer of a physical or concrete product is incidental to the service. As the products are centered on a uniformity and it has concrete dimensions which is sold as a package, so it can take advantages of economies of scale, however service business rarely have this luxury, So he defines service as an abstract, perishable quantity, which must be produced and delivered by a single company, often by a single unit of equipment or people. The more abstract and complex the service is, the greater the need and potential for developing a reputation that will serve as a barrier to entry. Parasuraman et.al (1988) defined service quality as the consumers judgment about a firm’s overall excellence or superiority.

Due to the above peculiar differences in attributes among services and product, service can be taken as more complex then evaluation of product quality. The famous measurement model of Service Quality is developed by Parasuraman et.al (1988) which is famously known as RATER model also known by the name of SERVQUAL, It is called as RATER model because it measures differences between customer expectations and perceptions across five determinants.


The Acronym RATER is for the following components and its reference to is given in the below table.

Dimension Refers toRELIABILITYDelivering on promises

Your ability to perform the promised service dependably and accurately

ASSURANCE Inspiring trust and Confidence

The knowledge and courtesy of staff; their ability to inspire trust and confidence

TANGIBLESRepresenting the service physically

The physical representations or images of your service

EMPATHYTreating customers as Individuals.

The caring individualized attention you provide your stakeholders

RESPONSIVENESS

Being willing to help

Your willingness to help customers and to provide promptService.

Table 1.2 RATER model

According to (Gi-Du Kang & Jeffrey James(2004) Service quality researchers to date have paid scant attention to the issue of the dimensions of service quality. Much of the earlier work accepted the content measured by the SERVQUAL instrument. Following the argument that SERVQUAL only reflects the service delivery process, the study empirically examines the European perspective (i.e. Grönroos' model) suggesting that service quality consists of three dimensions, technical, functional and image, and that image functions as a filter in service quality perception. The results from a cell phone service sample revealed that Grönroos' model is a more appropriate representation of service quality than the American perspective with its limited concentration on the dimension of functional quality. Higher the Service Quality is regarded as the key to succeed. Customers trust, customer satisfatction and customer switching is related to service quality and in turn repurchases is directly related to good service quality. So more the service quality will be, more will be the customer loyalty.

1.1.2.1.2 Price Perception

The amount of money charged for a product or service, or the sum of values that customers exchange for the benefits of having or using the product or service.Almost every company is looking for ways to slash prices. Yet, cutting prices is often not the best answer.Reducing prices unnecessarily can lead to lost profits and damaging price wars.It can signal to customers that price is more important than the customer value a brand delivers (Kotler,2011).


According to Schiffman and Kanuk (2004) price perception is about how customers see a product’s price, as high, low or fair. They also stated that perception of price unfairness affect consumers’ perceptions of value and ultimately their willingness to buy a product. According to Moore et al. (2003) years of research concerned with price show both positive and negative perceptions serve as marketplace cues. Several studies have also portrayed the role of price perceptions as an attribute to success (Jiang and Rosenbloom, 2004). When the price perceptions are high this is a sign of positive quality, prestige and status (Moore et al., 2003). The concept of reference price is related to price perceptions. Schiffman and Kanuk (2004) stated that reference price is the price the consumers use as a basis for comparison in judging another price. It is through reference price that the price perception of a brand of product is formed. When the consumer plans to buy a product, he or she will judge prices comparatively with the reference prices in order to determine whether the price is acceptable or not (Alvarez and Casielles, 2004). They also stated that, a result of consumers’ comparison between the prices and the reference price, potential losses and gains emerge. The consumer perceives a gain when the reference price is higher than the observed price. If the observed price is higher than the reference price, the consumer experiences a loss. Price plays a big role in deciding whether a customer find worth the service which they are getting .

Many researchers have come to a conclusion that Price Percetion effects customer’s trust and satisfaction .Therefore in order to increase customer satisfaction service companies must take care of consumer’s price perception.

1.1.2.1.3 Brand Image

A Brand represents everything that a product or service means to consumers. As such, brands are valuable assets to a company.Some analysts see brands as the major enduring asset of a company,outlasting company’s specific products and facilities.The value of Brand name lies in the following two statements given by following two CEO’s : John Stewart, former CEO of Quarker Oats in the US ,once said”if this business were split up, I would give you the land and bricks ad Mortar, and I would keep the brands and trademarks, and I would fare better than you.” Second statement was given by A former CEO of McDonald’s declared ,”If every asset we own, every building, and every piece of equipment we own were destroyed in a natural disaster,we would be able to borrow all the money to replace it very quickly because of the value of our brand. This shows that Brand is valuable even more then the totality of assets.(Kotler,2011) ".A successful brand image enables consumers to identify the needs that the brand satisfies and to differentiate the brand from its competitors, and consequently increases the likelihood that consumers will purchase the brand".

Thus Brands are powerful assets that must be carefully developed and managed and its image which lies in the minds of customers should be secured and should not be wasted away. The development of Brand relationship with customers is based on a series of brand contacts experienced by customers(Gronroos,2000).Whatever a customer perceives during this experience an Image is created in their minds so the relationship between a service company and a customer


should be very good companies should give a feeling of delight to them. The more customers consider a brand valuable, the more sales can be expected to achieve (Ibid).

Therefore a positive image in the minds of customer will results in more satisfaction and trust.

1.1.2.1.4 Value Offers

(Zeithaml,1988) have given four consumer definitions of value: (1) value is low price, (2) value is whatever I want in a product. (3) value is the quality I get for the price I pay, and (4) value is what I get for what I give. These four consumer expressions of value can be captured in one overall definition: perceived value is (the consumer's overall assessment of the utility of a product based on perceptions of what is received and what is given. Though what is received varies across consumers (i.e., some may want volume, others high quality, still others convenience) and what is given varies (i.e., some are concerned only with money expended, others with time and effort), value represents a tradeoff of the salient give and get components.

According to (Kotler.2011) company should sell value not price, They should persuade the customers that paying a higher price for the company’s brand is justified by the greater value they gain. The challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates.”Give people something of value” says Ronald Shaich, CEO of Panera Bread Company in the US”, and they’ll happily pay for it. Increasing the add-ons to the core product means increasing customer benefits. This means adding something to the core product that customer perceives important, beneficial and of unique value. In Hotel and banking industry, it is essential for companies to offer something valuable to customers in service interaction process, such as reward points activities and some kind of promotional offers, in order to gain customer satisfaction and trust ,which are expected to enhance customer loyalty.

1.1.2.2 Relationship Quality

The effectiveness of Relationship Marketing Tactics can be assessed by Relationship Quality. Relationship Quality is emerged from the field of Relationship Marketing Relationship Quality is quantified into three basic components which measures relationship quality are customer trust, customer satisfaction and switching costs. Higher the level of Relationship Quality, higher will be the trust and satisfaction and lower will be switching.

1.1.2.2.1 Customer Trust

Zaltman (1993. p. 82) define trust as “a willingness to rely on an exchange partner in whom one has confidence.. They propose that an expectation of trustworthiness results from the ability to perform (expertise). reliability, and intentionality. The questions in the mind of the customers will be whether the service provider assured reliance on the character, ability, strength, or truth of someone or something. Trust is considered very important for a long term relationship, a service provider can lie about its service while making a sale but if it does not provide that thing which a customer strived for can create one dissatisfied customer which in turn can create a


http://www.merriam-webster.com/dictionary/assured%5B1%5D

number of other lost customers through Word Of Mouth(WOM) of one dissatisfied customer. So Trust is a great factor to create a repurchase and hence to create a loyal customer.

1.1.2.2.2 Customer Satisfaction

Most people in business know they need feedback from customers in order to make service delivery and product design more in line with customer needs and expectations. But too often, the process of measuring customer satisfaction and perception is more complex and convoluted than it needs to be. To measure and manage customer satisfaction service companies : First must know who their customers are.Second they must understand customers’ needs. Third must measure customer service performance. Fourth they should focus on their priorities and lastly always try to improve their processes. Businesses monitor customer satisfaction in order to determine how to increase their customer base, customer loyalty, revenue, profits, market share and survival. Although greater profit is the primary driver, exemplary businesses focus on the customer and his/her experience with the organization. Oliver (1997) defined satisfaction as "the consumer's fulfillment response. It is a judgment that a product or service feature, or the product or service itself, provided (or is providing) a pleasurable level of consumption-related fulfillment, including levels of under- or over-fulfillment" (p. 13). Customer satisfaction differs depending on the situation and the product or service. A customer may be satisfied with a product or service, an experience, a purchase decision, a salesperson, store, service provider, or an attribute.In general, a satisfied customer will be willing to repurchase and hence enhance customer loyalty.

1.1.2.2.3 Switching Costs

The negative costs that a consumer incurs as a result of changing suppliers, brands or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time based switching costs.In case of service industry it can happen when a customer switches from an existing service provider to a new one.It can either be monetary as well as non- monetary (time-effort, risk, psychological nature). It is considered as a barrier, as increase in switching means decrease in customer loyalty.

1.1.3 Customer Loyalty

Customer loyalty is viewed as the strength of the relationship between an individual's relative attitude and repeat patronage (Dick & Basu, 1994).It is basically deeply held commitment of a customer towards the company. It is considered to be the final goal that a firm apply CRM,by building long term relationships.


1.1.4 Problem Discussion

Companies are facing their toughest competition ever. To win customers and encourage them to stay loyal or repurchase the service, most companies have started finding new ways and means to satisfy the customer, as customers are in a circle of number of marketing activities which might be teleconferencing, direct mail, direct marketing, TV advertisements, radio advertisement, internet promotions, print media and number of loyalty programmers, and in this kind of environment customers can easily be attracted towards the any competitor which can give customer a better offer.

Customer Relationship Management might be one of the best ways for service providers to retain customers. Customer Relationship Management has become an alternative means for organizations to build strong ,ongoing associations with their customer and can be really helpful in building customer loyalty.Many studies have provided evidences that relationship marketing tactics have impact on behavioral loyalty which affects customer retention. (Peng and Wang,2006). Therefore managing a company’s interactions with customers, clients, and sales prospects and building good relationship with them is the most significant issue.

CRM helps companies make sense of customer needs, manage these relationships more intelligently and help predict the future (Dominici and Guzzo, 2010). Organizations have discovered research studies have shown that retaining current customers is much less expensive than attracting new ones. Companies have come to realize that in order to develop successful long term relationship with customers, they should focus on the “economically valuable‟ customer, while keeping away and eliminating the “economical invaluable‟ ones.( Amoako et al,2012).Both diamond and coal are carbon but they are priced differently due to different valuations by the customer. Therefore, any business begins and ends with the customer (Sugandhi, 2002)According to (ICRA Quarterly Review,2012) With 740 million domestic travelers (in 2011) and over 6.3 million FTAs, India, after China, is considered one of the most lucrative hotel markets in the world and has the second largest construction pipeline in Asia. Growing affluence and the increasing role India is expected to play in the global economy are likely to drive both leisure and business travel in the coming years. For most global hotel majors a significant part of their hotel pipeline is centred on faster growing developing markets like India. India has an estimated 1, 70,000 hotel rooms of which around 60,000 are branded. Of the top twenty global brands (in terms of number of hotels), around 18 brands are already present in India

On the other hand ICRA expects the Indian Hotels industry to finish 2011-12 on a weaker note. It had been one of the weakest nine month (9M) periods (April-December-11) in over five years.( Lovelock et al,1996 ) also signifies that for some services, such as banking, however, the focus of activity is on processing information instead of people. In these situations, information technology, such as electronic funds transfer, can be substituted for physically depositing a payroll check; thus, the presence of the customer at the bank is unnecessary. Taking the customer out of the process, however, is becoming a common practice. Consider retail banking, in which


http://en.wikipedia.org/wiki/Customers

customers are encouraged to use telephone or computer transactions, direct deposit, and automatic-debit bill paying instead of actually traveling to the bank. Moreover, the advent of Internet commerce gives new meaning to the phrase “window shopping. In such a fierce and cut throat competition the biggest challenge for Hotel and banking sector is to attract more customers, focus on keeping good relationship quality with the customers, make customers satisfied and to maintain trust , and hence attracting customers to make revisits and step by step obtain customer’s loyalty through CRM techniques.So the focus of the study is to determine how besides the economic reasons, CRM has it’s impact on Customer Loyalty., Whether managing customer relationship effectively builds customer trust in the organization and if the customer value benefits in making another purchase, how different relationship marketing tactics effects relationship quality, in turn effects customer loyalty .So the purpose of this study was to determine the impact of Customer Relationship Management (CRM) on customer loyalty in the hotel industry ,and then on Banking industry.


1.2 Review Of Literature

The Review of Literature is undertaken to understand and define the problem. This chapter focuses on providing the reader with the necessary information about the relevant literature that is connected to our research problem. It provides theories found which can be connected to, and which covers our research problem. Also given are the benefits of CRM and the comparisons of Relationship Marketing and Traditional Marketing which helps in building the next chapters

According to Gray and Byun (2001) more than 57% of chief executives in a survey with 191 respondents believe that the major objective and strategy of CRM initiatives is customer satisfaction and retention. According to chye and Gerry (2002), one strategy of CRM initiatives is to change the organization into becoming customer-centric with a major focus on customer profitability as compare to line profitability. Again they lamented that, the understanding gained from CRM enable companies or organizations to estimate the profitability of individual accounts. They further add that, organizations are then able to differentiate their customers properly with respect to their profitability. Organizations can then build predictive chum models to retain their best customers by identifying symptoms of dissatisfaction and churning, making sure that the customers who generate profit are retained (ibid).

Thompson (2004) found four broad factors that were driving 72% of the return on investment (ROl) of CRM. They were: Customer-centric strategy. Frontline training and support. Organization change and appropriate use of metrics. These findings again support the fact that the actual objectives of CRM initiatives and the benefits should be ascertained. This further support the statement by Balaji and Alexander (2003) that the purpose of CRM is to identity, acquire, serve and retain profitable customers by interacting with them in an integrated way across a range of communication channels. According to Thompson (2004) CRM is a business strategy to acquire grow and retain profitable customer relationships, with the goal of creating a sustainable competitive advantage.

(Bolton et al,2004) in there article states that the active management of the customer base and customer loyalty is also referred to as customer asset management and is directly linked to Customer Relatonship Management. (Atos,2012) defines Customer Relationship management (CRM) as a widely implemented model for managing a company’s interactions with customers, clients, and sales prospects. It involves using technology to organize, automate, and synchronize business processes as a business philosophy which provides a vision for the way your company wants to deal with your customers (Kotler,2003) in his article signifies that Customer relationship management, in practice, involves the purchase of hardware and software that will enable a company to capture detailed information about individual customers that can be used for better target marketing. According to him this information about individual customer directly shows the significance on loyalty and satisfaction of CRM.


http://en.wikipedia.org/wiki/Customers

According to Xu (2002) the strategy and objective with CRM is to improve a customer’s experienced value of how they interact with companies, which will create satisfaction, which will intend creates loyalty and thus brings more sales. He again states that, the value of interaction will be improved by increasing companies capacity to understand a customer’s specific needs (ibid).

Relationship quality is increasingly emerging as a strategy for organizations that strive to retain loyal and satisfied customers in today’s highly competitive environment ,Relationship quality has a remarkable positive effect on hotel guests‟ behavior: it creates positive word of mouth (WOM) and increases repeated guest rates (Kim et al.,2001). (Lovelock, Wirtz.2010) commented that customers pay regular prices when they are highly satisfied and tend to be less price sensitive and customers who trust a supplier may be more willing to pay higher prices at peak periods or for express work. On the revenue side, loyal customers may not necessarily spend more than one-time buyers, and in some instances, they may even expect price discounts. This shows how loyalty can vary and can be varied with trust and price.According to (Jones et al., 2007). hotels are increasing their investments to improve service quality and the perceived value for guests so as to achieve better customer satisfaction and loyalty, thus, resulting in better relationships with each customer Customers will not blindly accept poor service quality from a luxury hotel. They expect high quality of service in return for the money they spend on luxury hotels.

As per (ICRA Quarterly Review,2012) The market is expected to move towards a sustainable value-for-money proposition.CRM leads to customer satisfaction and to assess if the services provided by the hotel meets the needs and wants of customers.. The hotel industry, especially the luxury segment hotels needs to be purely customer-centric and focus on the customer needs and duly fulfill them.

According to (Amoako et al,2012) article, CRM practices can potentially impact customer satisfaction rating and can potentially lead to increased customer retention, thereby increasing customer loyalty They also commented that service quality and customer satisfaction are key factors in the battle to obtain competitive advantage and customer retention. Customer satisfaction is the outcome of customer perception of the value received in a transaction or relationship, where value equals perceived service quality, as compared to the value expected from transactions or relationships with competing vendors.

(Kotler and Keller, 2006) commented that customer relationship management enables organisations to provide excellent real-time customer service through the effective use of individual account information . It increases customer retention and loyalty: The customer retention increases since customers stay longer, buy more and buy more frequently. The customer also more often takes initiatives, which increases the bonding relationship, and as a result the customer loyalty increases as well( Lovelock et al,1996 ) in his book explains customer loyalty in a business context as customer’s willingness to continue patronizing a firm over the long term, preferably on an exclusive basis,


and recommending the firm’s products to friends and associates. According to them the objective of any firm in any industry should be to build relationships and to develop loyal customers who will do a growing volume of business with the firm in the future.

Patton (2001) stated that, one of the objectives and strategies of CRM initiatives is to provide sales force with instant information on prospective customers to boost the company's chances for rapid expansion around the world and also to help the sales force to do brisk business.

Xu, et al, (2002) indicated that, one of the objectives and the strategies of CRM initiatives is to improve and increase communication between a company and its customers as well as within the company itself. Also, they add that not only should competing departments such as sales and marketing, accounting, customer service or support, and manufacturing or fulfillment within the customer be enhanced. Furthermore they indicated that, it should help in a fundamental shift in the information flow within an enterprise, from quantitative data to qualitative data. Moreover, they say that one of the objectives is to Integrate strategy, process, technology, and people In a comprehensive change management process Again they indicated that another objective is to change the way information flow in the organization (ibid).

Patton (2001) argues that, the strategy and the objective of CRM initiative and software is to help organizations keep track of their customers and boost revenue by increasing customer loyalty. He went on to say that, another strategy of CRM is to develop customer loyalty and sales per customer to increase the bottom line. According to Crosby (2002) organizations invest so much in CRM systems and initiatives today but many of these systems fail to meet the management objectives on return on investment. He further indicated that, one reason is that, companies apply the technology with the absence of a holistic and coherent business strategy focused on the customer. Again he says that, CRM technology is only an enabler, along with people and processes. Therefore IT needs to be aligned with business objectives and strategies for establishing long-term, collaborative relationships with customers. He further indicated that, management needs to know the clear picture of what the strategy involved and the success requirements (ibid).

Hoffman and Kashmeri (2000) stated that, the strategy and objective of CRM was not just to be cost-reduction oriented but to them CRM means better management of customers and the relationship with them that enable information flow, such as pricing, inventory and planning, in both directions. According to Newell (2000) the fundamental goal and strategy of CRM is to improve organizational profitability through efficient and effective customer relations. Furthermore, he state that, the strategy of CRM initiative is to be able to identify all the customer groups, the top group, the middle group and the lower group and also be able to know the strategies


1.2.1 Benefits of Customer Relationship Management

According to Gray and Byun (2001) the following are the main benefits of CRM. They went on to say that, for an organization to get all these benefits, sales, marketing and service functions must work together:

• To improve the company's ability to retain and acquire customers • To maximize the lifetime value of each customer • To improve service without increasing cost of service.

Again they argue that, proper identification of the customer helps sales force to do cross selling. They further add that, this is through clean data about the customer and a single customer view. Further more, they say that, understanding the customer through differentiation can lead to cost effective marketing campaign, it could also reduce something like for example direct mailing cost. Also, they argue that customer satisfaction arid loyalty through interaction could also lead to cost effective customer service. Moreover, they argue that, customer satisfaction and loyalty through personalization can also lead to lower cost of acquisition and retention of customer and thereby maximizing share of wallet. (Gray and Byun 2001) .

It can also help in retaining customers and also helps in increasing customer loyalty ,increasing customer profitability and also evaluation of customer Profitability.

According to Newell (2000), CRM is a useful tool in terms of identifying the right customer groups and for helping to decide which customers to jettison. Again he lamented that, relationship customers have more potential for loyalty as they are often prepared to pay a premium price for a range of reliable goods or services. Also he says that, once relationship customers are acquired, they are less likely to defect, provided they continue to receive quality service.

Some researchers in there articles have given benefits of CRM as:

• Higher customer retention and loyalty:

The customer retention will increase when customers stay longer, buy more and buy more frequently. The customers take more initiatives that increase bounding relationship, and as a result the customer loyalty increases.

• Increased customer profitability:

The customer profitability will increase when the customer wallet-share increases. the up-selling goes up as well as cross-selling and follow up sales and also more referrals come with higher customer satisfaction among existing customers.

• Evaluation of Customer profitability:


When the organization gets to know which customers are profitable and which ones that might become profitable in future, that is the potential profitable customers and those who will never become profitable. This is a very important area because the key to any successful business is to acquire and focus on those customers who bring profit, when you get them, you do not want to leave them.

• Reduced cost of sales:

The costs regarding selling are reduced due to the fact that existing customess are usually more responsive. In addition, with better knowledge of channels and distributors, the relationships become more effective, as well as costs for marketing campaigns are reduced.


1.2.2 Comparison of Relationship Marketing and Traditional Marketing

Relationship Marketing

Relationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions. As a practice, relationship marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages.Relationship Marketing differs from Traditional Marketing, some of the differences are given in the below table 1.1.

Relationship Marketing compared with Traditional MarketingRelationship Marketing Traditional Marketing

Orientation to customer retention Orientation to single sales

Continual customer contact Episodic customer contact

Long-term horizon Short-term horizon

High customer-service emphasis Little emphasis on customer service

High commitment to meeting customer expectations.

Limited commitment to meeting customer expectations.

Quality concerns all staff members Quality concerns only production staff

*Traditional Marketing is also considered as transactional marketing,in which each sale is considered to be a discrete event.The table is based on an idea from: F.Robert Dwyer, Paul Schurr, and Sejo Oh,” Developing Buyer-seller relationships” Journal of Marketing, Vol.51,April 1987,pp.11-27

Table 1.1 Relationship Marketing compared with Traditional Marketing

Source: Bowen and Shoemaker,2003


http://en.wikipedia.org/wiki/Customer_retention

1.2.3 Conceptual Model

This study is aimed to develop and exam a conceptual model regarding the field of Relationship Marketing in Practice, based on review of literatures and theories about Customer Relationship Marketing , Relationship Marketing Tactics, Relationship Quality and Customer Loyalty. This developed conceptual model is presented as figure 1.1.

Fig 1.1 Conceptual Model (developed by author)


Relationship Quality

Relationship Marketing

Tactics

Service Quality

Price Perception

Brand Image

Value Offers

Customer Trust

Customer Satisfaction

Switching Costs.

CRM

Customer Loyalty

1.3 Need Of The Study

Today in the era of turbulent competition where there have been many marketing strategies for

service providers to plan and implement and where a consumer is disturbed by number of

marketing activities, a service provider have to break the clutter to retain its customer and to

keep its customer loyal towards itself, a service provider must go for relationship marketing in

turn Customer Relationship Management.

In the above section, we have briefly tried to discuss some of the major and relevant studies addressing the objectives and strategies and the benefits of CRM initiatives. It has come out of the literature review that, at least there have been some studies on the area: however, it is very difficult to come by one study that is addressing the issue of Impact of CRM same. Throughout the reading and searching for the relevant theory, we found out that although there has been some studies, it is very scattered and it has been very difficult to gather all the above from various authors and put it together as one theory.

Previous studies have mainly focused on the engagement of customers in the product market.The main focus of this study is to measure the impact of Customer Relationship Management on Customer loyalty. According to Review of Literature and the study done so far explains how the CRM is related to Customer Loyalty and very less study have been done so far in Indian context across two industries. In my opinion, I think that it will be interesting to have a one single theory that encompasses the Impact of CRM on cutomer loyalty in both the industries.

Two Industries have been selected using the Lovelock Model of Understanding the Nature of

the Service Act i.e. banking and hotel. Relationship Marketing Tactics and Relationship Quality

are the two main variables that have been used to measure the impact of CRM on Customer

loyalty. Thus forms the basis for the study: To determine the impact of CRM on Customer

Loyalty.


2.1 Research Methodology

Review of literature help us to narrow certain gaps in existing researches and understand the conceptual model and the constructs used in it, which is the basis of whole study. This chapter outlines research objectives of the study and the methodology used to meet these objectives. The chapter is divided into two sections. The first section consists of the scope of the study, research objectives, hypothesis, sampling, data collection, data entry and data analysis which is the methodology of the study. The second part is the limitations of the study.

2.1.1 Scope of the study

This study was undertaken to understand that how much relationship marketing is necessary for the service companies to survive in today’s competitive world and how Customer Relationship Management impacts Customer Loyalty.

The study used State Bank Of India and ICICI banks in case of banking industries on the basis of highest market share of both the banks in public and private banks in India respectively. The five star hotels in major cities of Punjab are selected. This study investigated is used to see the relationship between Relationship Marketing Tactics and Relationship Quality and the effect of Relationship Marketing Tactics, Demographic Variables, Relationship Quality and Customer Relationship Management on Customer loyalty.

2.1.2 Research Objectives

The main objectives of our study are given below and these objectives will be will be done

across Banking Sector and Hotel Sector in India.

To study the effect of Relationship Marketing Tactics on Customer Loyalty

To study the relationship between Relationship Marketing Tactics and Relationship Quality.

To study the effect of Relationship Quality on Customer Loyalty.

To study the effect of demographic Variables on Customer Loyalty.

To study the effect of CRM on Customer Loyalty

2.1.3 Hypothesis

The Hypothesis of study are divided across the objectives.

1 For Objective, To study the effect of Relationship Marketing Tactics on Customer

Loyalty.

1. H1: There is a significant effect of Relationship Marketing Tactics on Customer Loyalty

H1a(i): There is a significant effect of Service quality on Customer Loyalty.


H1a(ii): There is a significant effect of Price Perception on Customer Loyalty .

H1a(iii): There is a significant effect of Brand Image on Customer Loyalty.

H1a(iv): There is a significant effect of Value Offers on Customer Loyalty.

2. For Objective, To study the relationship between Relationship Marketing Tactics and

Relationship Quality

H2: There is a significant Relationship between relationship marketing tactics and

relationship quality.

H2a(i) : There is a significant Relationship between Customer Trust and Service quality.

H2a(ii) : There is a significant Relationship between Customer Trust and price perception.

H2a(iii) : There is a significant Relationship between Customer Trust and Brand Image.

H2a(iv) :There is a significant Relationship between Customer Trust and Value Offers.

H2b(i) : There is a significant Relationship between Customer Satisfaction and Service

quality .

H2b(ii) : There is a significant Relationship between Customer Satisfaction and price

perception.

H2b(iii) : There is a significant Relationship between Customer Satisfaction and Brand

Image.

H2b(iv) : There is a significant Relationship between Customer Satisfaction and Value

Offers.

H2c(i) : There is a significant Relationship between Switching costs and Service quality .

H2b(ii) : There is a significant Relationship between Switching costs and price perception.

H2b(iii) : There is a significant Relationship between Switching costs and Brand Image.

H2b(iv) : There is a significant Relationship between Switching costs and Value Offers.

3. For Objective, To study the effect of Relationship Quality on Customer Loyalty

H3:There is a significant effect of Relationship Quality on Customer Loyalty.

H3a(i): There is a significant effect of Customer Trust on Customer Loyalty.

H3a(ii): There is a significant effect of Customer satisfaction on Customer Loyalty.

H3a(iii): There is a significant effect of switching costs on Customer Loyalty.

4. For Objective, To study the effect of demographic Variables on Customer Loyalty.


H4:There is a significant effect of Demographic Variables on Relationship Quality in H4a(i):There is a significant effect of age on customer trust . H4a(ii):There is a significant effect of age on customer satisfaction . H4a(iii):There is a significant effect of age on switching costs .

H4b(i):There is a significant effect of gender on customer trust . H4b(ii):There is a significant effect of gender on customer satisfaction . H4b(iii):There is a significant effect of gender on switching costs .

H4c(i):There is a significant effect of marital status on customer trust . H4c(ii):There is a significant effect of marital status on customer satisfaction . H4c(iii):There is a significant effect of marital status on switching costs.

H4d(i):There is a significant effect of qualification area on customer trust H4d(ii):There is a significant effect of qualification area on customer satisfaction . H4d(iii):There is a significant effect of qualification area on switching costs.

H4e(i):There is a significant effect of individual income on customer trust . H4e(ii):There is a significant effect of individual income on customer satisfaction . H4e(iii):There is a significant effect of individual income on switching costs.

H4f(i):There is a significant effect of occupation on customer trust . H4f(ii):There is a significant effect of occupation on customer satisfaction . H4f(iii):There is a significant effect of occupation income on switching costs.

2.1.4 Questionnaire Design and Data Collection

Yin (1994) has recognized five popular ways of collecting and analyzing empirical data in business research.It includes experiments, survey, and analysis of archival information, histories and cases studies. The research used survey as the main method strategy to research. In surveys, data are standardize, and comparison is easy, however it costs much time to do it.

In this survey, a self-completion questionnaire with closed questions is developed. The self-completion questionnaire is very similar method of business research, and the research instrument has to be especially easy to follow and its questions have to be particularly easy to answer (Bryman and Bell,2003). Meanwhile, whether to ask a question in an open or closed format is one of the most significant consideration for many researchers. According to Bryman and Bell(2003), closed questions have some advantages : it is easy to process answers; it enhances the comparibility of answers, and makes them easier to show the relationship between variables. It is better than open question for this research.

The questionnaire was composed of two parts and total forty four statements (see appendix). The first part consists of 38 statements which consists of all the constructs in the research model. Several items on each construct are developed and adopted from relevant literatures shown in


below table (Table), all of the items were measured by using a five pont likert-type response scales, anchored at 5 strongly agree and 1 strongly disagree and second part consists of individual characteristics which have six questions.

Items To be Measured

Scales Used

Service Quality Peng and Wang(2006);Gronroos(2000)Parasuraman et al.(1998);

Price Perception Cheng et al,(2008)Peng and Wang (2006);

Brand Image Aydin and ozer(2005), Gronroos (2000);Ravald and Gronroos (1996)

Value Offered Peng and Wang(2006); Zeithaml (1988);

Trust Chu(2009); Aydin and Ozer,(2005); Tian et al.(1998);Morgan and Hunt(1994); etc

Satisfaction Mouri(2005); Oliver(1997);Fornel(1992);etc.

Switching costs N’Goala(2007) Aydin and ozer(2005), Keaveney (1995 ) etc

Customer Loyalty Aydin and ozer(2005),Wulf et al.(2001);Morgan and Hutn(1994);etc

Table 1.3 :Scales used in the study

Questionnaires are administered in a single way i.e directly by face to face interaction. No online method has been used to collect data.

2.1.5 Sampling


The research design undertaken for the study is Descriptive in natureDescriptive research does not fit neatly into the definition of either quantitative or qualitative research methodologies, but instead it can utilize elements of both, often within the same study.A descriptive survey design methodology is adopted. The term descriptive research refers to the type of research question, design, and data analysis that will be applied to a given topic. Descriptive statistics tell what is, while inferential statistics try to determine cause and effect. As cause and effect relation is to be found out that’s why descriptive is chosen.

The research is designed as a descriptive one because it provides factual, accurate and systematic data description and characteristics about the population or phenomenon being studied.Descriptive statistics utilize data collection and analysis techniques that yield reports concerning the measures of central tendency, variation, and correlation. The combination of its characteristic summary and correlational statistics, along with its focus on specific types of research questions, methods, and outcomes is what distinguishes descriptive research from other research types. (AECT)

2.1.6 Industry Selection


The proposed selection of two industries for the study would be the Banking and Hotel Industry on the basis of LoveLock Model.

Who or what is the Direct Recipient of the Service?

People ThingsWhat is theNature of theService Act?

TangibleActions

Services directed at people’s bodies:

Health care Passenger transportation Beauty salons Exercise clinics Restaurants Hotels Haircutting

Services directed at goods and other physicalpossessions: Freight

transportation Industrial equipment repair and

maintenance Janitorial services Laundry and dry cleaning Landscaping/ lawn

care Veterinary care

IntangibleActions

Services directed at people’s minds: Education Broadcasting Information

services Theaters Museums

Services directed atintangible assets: Banking Legal services Accounting Securities insurance

Fig 1.2 Lovelock Matrix

On the basis of this matrix, we have two industries in two different quadrant, hence we will be conducting our study on the basis of this model.

2.1.7 Sampling Technique

Snowball sampling will be used for data collection for this study. The initial sample shall becollected on the basis of convenience and accessibility. Afterwards, the data shall be collectedfrom their references and the same process will be continued further.


2.1.8 Sampling Plan

This section includes the sample size and the basis on which particular banks and hotels have been chosen.

Two sectors have been chosen using Lovelock’s categorization i.e. banking and hotel sector for this study.(Lovelock model is given above)

i) For Banking Sector: (responses - 75)

Target population: Bank customers who on the basis of demographic variables.

In public sector- SBI bank – estimated 50 responses, SBI Bank with Net sales of Rs 106521.45 cr and a market share of 23.09 %, which is highest in this category SBI have been chosen, and in private sector- ICICI bank - estimated 50 responses with net sales of Rs 33,542.65 cr and a market hare of 25.75% in its category is highest. So these banks have been chosen on the basis of highest market share in public and private sectors respectively.

Formula used to calculate Market share:

Market Share = Net Sales of a particular bank / Total sales

The instrument i.e. questionnaire is distributed through reference and snowball sampling is used to further collect the responses. The study is confined to Chandigarh branches only.

ii) For Hotel Sector: (Responses - 75)

Target population: They will be selected on the basis of different demographic variables like age,gender,occupation area, marital status and individual income.Sample selected will be from cities in Punjab and the hotels selected are five star hotels in Punjab

Hotel Radisson in Amritsar– estimated 50 responses

Hotel Park Plaza in Ludhiana and Chandigarh - estimated 50 responses

2.1.9 Method of data collection

Both primary and secondary data will be used as a source of data for the research. . Data will be collected using a questionnaire. The questionnaire will be designed to encourage good response from busy respondents..


2.1.10 Data analysis

Correlation and Regression analysis will be done to find the significance and chi square test will be done in case of finding significance among demographic variables.

Hypothesis Data AnalysisH1: There is a significant effect of Relationship Marketing Tactics on Customer Loyalty.

Corelation and regression Analysis

H2: There is a significant Relationship between relationship marketing tactics and relationship quality.


H3: There is a significant effect of Relationship Quality on Customer Loyalty


H4: There is a significant relation between the Demographic Variables and customer loyalty.

Chi Square Test

H5: There is a significant relation between the CRM and customer loyalty in hotel industry.



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