A FRAMEWORK FOR MEASURING THE EFFECTIVENESS
OF CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
DR. K. ELANGCHEZHIAN & D.MALMARUGAN

1. INTRODUCTION:

“IF YOU CAN MEASURE IT, YOU CAN MANAGE IT” Customer relationships can be measured qualitatively and quantitatively, there are two basic approaches to obtaining customer inputs.

1. The planned approach: The planned approach entails corporate initiatives to seek out both internal and external customer inputs on a proactive basis. This includes customer surveys etc.

2. The event-driven approach: The event – driven approach entails being ready to accept customer inputs when the customers reaches out to the company. This might include having a toll free number available when a customer is in trouble with your product, specifically monitoring and managing complaints, gathering information when there is a warranty claim etc.

2. QUALITATIVE MEASUREMENT:

Qualitative measurement probes the environment surrounding an observed phenomenon. The techniques are:

1. Focus group interviews: Focus group interviews are repeated interactive discussions among randomly selected customers of your product, coordinated by a moderator. The discussion will be on the usage of the product / service, attitude towards the need addressed by the product / service, attitude towards players in the market for that product, exposure to promotional aids and concluding on the customers expectation being met.

2. Advisory Panel: Customer Advisory Panel (CAP) are also repeated meetings of small group of customers. The subject matter for the meetings is a company’s relationship with its customers; unlike the focus group, where a group meets once and is disbanded, CAP Membership is a long term to develop community of action within the panel.

3. The Critical Incident Technique – CIT: CIT uses detailed narratives to uncover the essence of moments of truth i.e., interactions between the customer and the company.
   
   CIT proceeds by asking customers to identify significant interactions and to relate their experiences. The information is generated by an open ended Question of a general form such as the following, which is from a mail questionnaire addressed to retail store customers.
   
   Describe an outstandingly good or bad experience at our store, as it happened. The survey could be conducted by mail, telephone or even by face to face interview. It is not only unwise but potentially dangerous to make major changes in customer relationship management policy based solely on a Qualitative study.

3. ADAPTING A BALANCED SCORECARD FOR CRM METRICS

In their 1996 book, The Balanced Scorecard: Translating Strategy into Action, Robert Kaplan and David Norton developed the thesis that financial measures alone are insufficient for measuring a firm's performance. While financial measures hold great value in performance measurement, the firm will benefit greatly from supplementing financial measures with nonfinancial measures such as customer satisfaction. The goal is to use information from within and surrounding the organization to truly measure performance. The perspectives of employees, customers, and shareholders aid in understanding if the organization has been successful in serving customers. With CRM, a multivariate approach using several key metrics can provide an FSI with a deeper and more actionable understanding of how customers are interacting with the institution. Because CRM has an element of time built into it, it is important that FSIs become comfortable with tracking a range of CRM indicators over time. CRM performance is best understood against a time continuum, rather than on a snapshot basis. As Exhibit I demonstrates, customers' perception of an organization shifts over time. FSIs need to factor this reality into their CRM performance-measurement schemes.

1. PROPOSAL FOR DEVELOPING A CRM BALANCED SCORECARD
   Assuming an FSI decides to adopt a multivariate approach to measuring CRM, the primary challenge is deciding which indicators to incorporate. A second challenge is deciding the frequency of reporting. A third challenge is to determine how to make the information most relevant. Since many FSIs have difficulty in capturing the results of marketing programs, developing a CRM scorecard will be a struggle. We propose here an idealized version of a CRM scorecard.

2. An Ideal Basket of Metrics
   The number of performance indicators that any one FSI can monitor and manage is limited. For CRM, TowerGroup believes that quality is more important than quantity. As a result, the following list of metrics is limited to eight distinct measures. Obviously, an organization will wish to monitor many more indicators of performance, but Tower Group believes the following eight measures to be the most indicative of CRM success.
   It is crucial to consider all indicators collectively rather than to focus on any one measure exclusively. TowerGroup advocates the following basket of indicators for measuring CRM efficacy:

3. Customer profitability. A key indicator of a CRM business strategy, customer profitability allows an FSI to determine the level of service that is truly appropriate for each customer. Customer profitability should be based upon a thorough understanding of customer behavior and the resources consumed by each customer.

4. Customer satisfaction. Unlike the generic customer satisfaction surveys that FSIs have used in the past, measures of CRM efficacy should emphasize the types of interactions that customers have with the FSI. Ask customers if the FSI strives to add pertinent value to every interaction. Customers should feel that communications are focused on and appropriate to their needs.

5. Market share. An external view of institutional performance, market share data allows an FSI to understand if it is acquiring and retaining customers sufficiently vis-a-vis its peer institutions.

6. Wallet share. Measuring wallet share typically requires extrapolating from known, proprietary data to an understanding of modeled data. While this indicator is inherently difficult, it is critical that FSIs understand the totality of customers' financial wallet. Like market share, it requires FSIs to look outside and compare their performance to that of competitors.

7. Cross-sell ratio. An exclusive focus on monitoring the cross-sell ratio could lead an FSI to suboptimal selling behaviors, but when included in a multivariate system it is a highly effective indicator of CRM efficacy.

8. Response rates. A measure of whether the FSI is making appropriate offers to customers is response rate. Higher response rates translate into better strategizing on offers and improved targeting of customers.

9. Relationship duration. This measure of the longevity of customer account is not the same as customer loyalty. Customer loyalty implies satisfaction on the part of the customer, whereas longevity of a customer account may be attributed to inertia on the part of a dissatisfied customer too passive to change institutions. This metric does provide insights into how well the FSI's strategies for remaining relevant to customers is working. Given the curve of customer gratitude demonstrated in Exhibit 1, it is in the best interests of the FSI to monitor relationship duration carefully and strategize appropriately.

10. System availability/response time. The rationale for including this measure in a CPM balanced scorecard is that customers will judge the FSI's ability to create meaningful and appropriate interactions based on system availability and response time. FSIs that have a three-day interlude before answering emails from customers do not have an effective CRM strategy.

4. QUANTITATIVE MEASUREMENT:

The process of quantifying the link between the “Voice of the Customers” and internal process measures is called internal metrics.
Internal metric is an easily measured activity inside the company. Such as coverage response time to a customer such as average response time to a customer enquiry, average time to handle a repair etc.
These internal metrics have an impact on the customer satisfaction. So selecting the internal metrics that affect customer satisfaction for every industry is critical and then measuring it is done.
Customer perceived value is driven by quality & price.

Quality drivers are

1. Product usability drivers.

2. Service strategy drivers.

3. Service environment drivers.

4. Service delivery drivers.

5. Product usability is the capacity of a product of service to satisfy the essence of a customers need, want or expectation.

6. The service strategy driver is all those plans and policies you make in anticipation of the customers arriving to purchase your product or service.

7. The service environment driver is composed of are physical surroundings like ambient conditions, spatial layout, signs & symbols that facilitate the delivery of your product or service.

8. The service delivery driver, is everything that actually happens when the service strategy is carried out by the employees.

The facility drivers are liked to the business process of delivering the expected value to the customers. Internal metrics are identified and measured in terms of the customer perceived value.

Attribute impact diagrams can be drawn as illustrated.

Strategic decision matrix is a tool to measure the impact
Table 1

                                             Low                                                                High                                                                            Attribute performance

source: J.Anton, R.A.Feilberg CRM  London Mcgrawhill publishers

So that quadrant in which attribute performance is low & Impact on customer satisfaction is high is the area for critical improvement where both are high there is higher leverage for profitability, the other areas are given lower priority for improvement.

5. CONCLUSION:

Thus measuring the internal metric which is linked to external customer satisfaction is a path to sustainable development and higher profitability.

6. BIBILIOGRAPHY:

1. J.Anton, R.A.Feilberg 2000 CRM London Mcgrawhill publishers

2. A.Lindgreen 2000 Measuring effectiveness of Relationship marketing Newdelhi Mcgrawhill publishers

3. Jagdish Sheth –2000 Hand book of Relationship marketing NewDelhi Sage publishers

4. Khirallah, Kathleen, Summer2000 customer relationship management: how to measure success ;Bank accounting & Finance (Euromoney Publications PLC), 08943958, ,Vol13,Issue4-:

5. Malmarugan .D 2003 CRM AN OPPORTUNITY PROVIDER SPARK Journal of www.indiabschools.com

6. www. crm2day. com

7. www. crmdaily. com

Author:
DR. K. ELANGCHEZHIAN,
PHD HOD MBA AT VIT DEEMED UNIVERSITY VELLORE.
&
D. MALMARUGAN, BE., MBA.
LECTURER IN MBA DEPARTMENT OF
KSR COLLEGE OF ARTS & SCIENCE, TIRUCHENGODE
(AFFILIATED TO PERIYAR UNIVERSITY SALEM)INDIA

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