English
中文1. Background
William Morrison as named, who was the father of the current Chairman, founded the company in 1899. From its origins as an egg and butter merchants in Bradford, it has grown to be on the country’s largest supermarket chains offering a wide range of products including branded and its own label products. Employing around 130,000 people and with a customer base of 10million its philosophy is to offer outstanding quality and service and a pleasant shopping experience.
[1]Since 1899 the company has expanded exponentially and has much to its history. In 2004 the company took over Safeway’s establishing itself as one of the 4th largest supermarkets in the UK. Following a 35 year record of sales and profit growth since going public in 1967, Morrison’s joined the FTSE 100 for the first time in April 2001 [2]. According to its published AGM 2005 [3] Operating profits of the company was £ 308.3 m representing 3.1% of the turnover. However one of the major disadvantages of the company in 2005 was the loss of 74 million due to their Information Systems and Strategic decisions.
Staying with the trend with all other large businesses today Morrisons & Safeways make extensive use of Information systems & Information technology, which are mission critical to the organisation. One major part of the Information Systems of any organisation is the basis of a Customer Relationship Management (CRM) System. Its objective is to return to the world of personal marketing. The concept itself is relatively simple. Rather than market to a mass of people or firms, market to each customer individually. In this one-to-one approach, information about a customer (e.g., previous purchases, needs, and wants) is used to frame offers that are more likely to be accepted. This approach is made possible by advances in information technology [4]. However Morrison’s don’t have a CRM and neither does Safeway and is therefore lacking a fundamental approach to business. Before we divulge ourselves on the use of CRM and its Cost benefits we will first understand the notion of CRM and how it relates to being used in Supermarket outlets.
2. What is CRM
Customer Relationship management as overall means managing all customer interactions. In reality this means using information about customers and its potential benefits of interacting effectively in all stages of relationship with them. It is also a business strategy that goes beyond just increasing transaction volume. The motive behind a CRM system would be to increase profitability, revenue and customer satisfaction. That is, CRM involves all of the corporate functions (marketing, manufacturing, customer services, field sales, and field service) required to contact customers directly or indirectly. The main components of CRM include the following [4] and as shown in figure 3:
Customer
Relationship
Management
Customer:The customer is the sole source of the company’s profit and future growth. However, a good customer, who provides more profit with less resource, is always scarce because customers are knowledgeable and the competition is fierce. Sometimes it is difficult to distinguish who is the real customer because the buying decision is frequently a collaborative activity among participants of the decision-making process [4]. Information technologies can provide the abilities to distinguish and manage customers. CRM can be thought of as a marketing approach that is based on customer information [4].
Relationship: The relationship between a company and its customers involves always two way communications and interaction. The relationship can be short or long-term, continuous or discrete, and repeating or one-time. Relationship can be attitudinal or behavioral. Even though customers have a positive attitude towards the company and its products, their buying behavior is highly situational.
Management: CRM is not an activity only within a specific department. Instead it involves continuously corporate change in culture and processes. The customer information collated is transformed into corporate knowledge that leads to activities that take advantage of the information and of market opportunities. CRM requires a comprehensive change in the organization and its people.
The Customer life cycle has three stages [8]:
Gather Customer
Increasing the value of the Customer
Maintaining good customers
Data mining can significantly add to the profitability towards each of the stages in the lifecycle through Integration or as standalone applications. CRM applications that use data mining are called analytical CRM. The first step to data mining is to describe the data – for example provide a synopsis of its statistical attributes. But data description alone cannot provide an action plan. A predictive model [8] must be made based on the known results then test it.
Data mining can be used for both classification and regression scenarios. In classification it means anticipating what category something will come under – for instance, whether a person has a good credit or not. In regression however, you’re predicting a number such as the probability that a person will respond to that offer. In CRM, data mining is often used to assign a value to a particular customer or prospect showing the likelihood that the individual will behave in the way you want. For example, a value could measure the likeliness of response to a particular offer or switch to competitor’s product. [8]
2.1 Reasons for the introduction of a CRM
Maintain existing customers: There is high competition for customers and organisations learned that it is less costly to retain a current customer than to find a new one. In the past, the main method of attracting new customers was through media and mail advertising about what the firm has to offer. This advertising approach is mail-shot, reaching many people including current customers and people who would never become customers. For example, the typical response rate from a general mailing is about 2%. Thus, mailing a million copies of an advertisement, on average yields only 20,000 responses.
Impact of electronic commerce: The widespread growth of electronic commerce means that firms are in even more fierce competition with competitors only a few clicks away. For instance, before that ‘electronic age’ firms had the privilege of employer specialist marketing people and convincing negotiators. But now all that opportunity is no there anymore especially in the web.
2.2 Implementing CRM
Importance to Culture – A CRM solution is more than a new software package. It envisages a mindset, a way of doing business and a way of interacting with others in the firm. The success of a CRM implementation rests on the shoulders of a workforce that is willing to share information about clients and contacts. However, this “collaborative” mentality flies in the face of the culture within some professional services firms. For better or worse, many professional services practitioners are sceptical of sharing contact information for fear of losing opportunities to generate work that they can produce themselves. However, if a CRM implementation is introduced to the workforce as an opportunity to create new opportunities for all, success rates will improve significantly. Consequently, it is especially important to publicize instances when shared information benefits the firm-at-large. Management must work toward creating a culture that is based upon “the greater good” rather than “individual gain.” To reach this goal, users must see proof that the information they share will be used to improve operations and add new business that will benefit all members of the firm. It may take some time, but such a culture shift is worth the effort.
Realistic Aims – One of the greatest mistakes a management team can make is to force-feed new technology across the organization. This is particularly true with a CRM implementation. As firm management prepares for a CRM rollout, planning and patience are critical. Working with the implementation team from the software developer, management should agree upon a plan of phasing software use across the firm. Some organizations orchestrate a CRM rollout by location, others by practice group or department. Regardless, this type of phased approach gives both the firm and the implementation team an opportunity to make adjustments, manage expectations, achieve milestones and promote successes.
Obtain and Maintain Senior Management Support – Successful CRM implementations start and end at the top. Firms simply cannot achieve success without full management buy-in, nor can management set the process in motion and walk away. As a rule, successful CRM implementations are characterized as those in which management leads by example. Rolling-out a CRM solution takes hard work, but the benefits are substantial. Management should not sugar coat the process or minimize the effort involved. Similarly, as milestones are achieved, those same managers should be the first to strongly promote the benefits being realized by the firm.
Analyze Working Processes – The process of fitting a CRM solution into a professional services organization provides a wonderful opportunity to evaluate processes and procedures across the firm. Working with the implementation team from the software provider, firm management should review, analyze and evaluate the firm’s procedures as well as all of the data sources that will be migrated into the CRM solution. This is the perfect time to discuss and develop new procedures that will increase the firm’s success.
Select the Right Software Partner – While teaming with the right solution provider is important to every software implementation, it is absolutely critical when dealing with a CRM solution. The way CRM is utilized by a professional services firm differs greatly from the way CRM is used by a product-oriented organization. Therefore, it is critical for services-based organizations to choose a software provider that specializes in professional services solutions. Equally important is the software solution’s ability to seamlessly integrate with other business processes across the firm, including the firm’s financial and practice management systems. The ability to correlate client relationship management and new business development activities with firm financial performance greatly enhances the ROI generated by CRM. Finally, firms should closely review the depth and breadth of consulting services provided by CRM vendors being considered. A CRM solution is only as good as the implementation methodology used to integrate it with a firm’s business processes. Make sure that the vendor you select can provide experienced and dedicated consulting staff members that will work with your team to ensure success.
A successful CRM implementation can help a professional services firm stay head and shoulders above the competition. Keep these five steps in mind, and you and your firm will be well on your way to CRM success. [9]
2.3 The cost goals of CRM
Increase revenue growth through customer satisfaction.
Reduce costs of sales and distribution
Minimize customer support costs
The following shows how it can be done [4]:
1. In terms of increasing revenue growth – Increase share of wallet by cross-selling
2. To increase customer satisfaction – Make the customer’s experience so pleasant that the customer returns to you for the next purchase.
3. To reduce cost of sales and distribution – Target advertising to customers to increase the probability that an offer is accepted. Use web applications to decrease the number of direct sales people and distribution channels needed. Manage customer relationships rather than manage products (a change in marketing).
4. To minimize customer support costs. Make information available to customer service representatives so they can answer any query. Automate the call center so that representatives have direct access to customer history and preferences and therefore can cross-sell.
2.4 ROI in implementation of CRM
The cost of implementing a CRM system is easily double the Enterprise Resource Planning (ERP) implementation cost. Average implementation time for an ERP system is 23 months and the cost of ownership over the first 2 years is from 0.4% to 1.1% of company revenue. CRM can be between $15,000 and $35,000 per user in a three-year project. [6]
The principal benefits of CRM are to:
Improve the organization’s ability to retain and acquire customers
Maximize the lifetime value of each customer (share of wallet)
Improve service without increasing cost of service. [6]
Some of these benefits can be measured and others cannot. CRM is envisaged of four continuous processes, which were described each of which provide a distinctive benefits to the organization as a whole. We still have to wait-and-see to determine the Return On Investment (ROI) of CRM since CRM does not bring any direct monetary benefits after implementation. Rather, CRM requires a large amount of initial investment in hardware and software without any immediate cost saving or revenue improvement. The benefits of CRM need to be measured on a long-term basis. CRM are designed to build long-term relationships with customers and to generate long-term benefits through increased customer satisfaction and retention. [5].
The fundamental process of CRM is based on the following principles [5]:
Treat customers individually
Acquire and retain customer loyalty through personal relationship
Choose good customer instead of bad customers based on Lifetime value.
3. CRM and Food Retailing
Essentially, CRM is an attempt to regain the customer intimacy that was so much a part of the grocery industry in the past. The goal of CRM is to create and maintain customer loyalty because a loyal customer can be less costly to serve and, therefore, may be more profitable in the long run. The key CRM objectives are to increase
(1) Operational and marketing efficiency,
(2) Customer loyalty, and
(3) Long-term profitability. The difference today is that the huge size of current supermarkets makes it difficult to establish actual person-to-person relationships as in the early days of the 20th century.
Two major factors are driving the exploration and adoption of CRM by food retailers: technology and competition. Technology is enabling retailers to track purchases by individual households through bar code scanning and customer identification cards. Retailers are thereby able to target promotions and advertising to the customers who actually use various products.
For at least the past 40 years, food retailers have treated all customers as if they were equally important (i.e., profitable) to the company. Advertising fliers are universally available in stores or as newspaper inserts, as are discounts, coupons, and even frequent shopper card membership. Customers who only purchase a few discounted sale items have been treated the same as customers who purchase the majority of their food and household goods each week in one store. Today many retailers understand that as little as 30 percent of their customers may account for as much as 80 percent of their sales. Obviously, all customers are not created equally! CRM offers a vehicle by which retailers can better manage their biggest asset — customers — by rewarding the best customers for their loyalty. [10]
3.1 Tesco’s benefit from CRM
The biggest food retailer in the UK. Its uniqueness lies in how it has used its newly gained customer information better than any other large retailer, anywhere in the world. Tesco’s strategy is to Circle the Customer. After gaining customer information from its simple 1%-rebate program (roughly, earn one point per £1 spent, receive a quarterly rebate check equal to 1% of quarterly spending). Tesco has converted that data into helping build its supermarket business-and a great deal more. Customer information has been used to help develop the leading UK food home-shopping business; build, from scratch, profitable banking and insurance businesses; lay the foundations for an extensive Internet shopping mall; and add to its market appeal by allowing Tesco points be earned and redeemed at other UK retailers. The information gained by Tesco on its customer behavior has allowed it to understand their customers’ myriad needs and then find profitable ways to solve them. Rather than just thinking how to increase customers’ spending in its stores, Tesco is using its customer data to solve a bigger riddle: In what ways can we satisfy more of our customers’ needs (even if this means moving into new businesses to do so)? Tesco is a classic example of what it means to be customer-centric [7].
Tesco has divided its customer base into six major “dimensions” based on customer shopping patterns, such as finer foods, healthy, convenience, and price-sensitive. Each of those are divided into smaller segments-healthy shoppers, for example, consist of those looking for organic food, those who eat healthily, and those looking to lose weight. Tesco can then send customized marketing messages to those people through direct mail, cash-register messages and its Web site. Customer insight isn’t measured only in data; observers say that Tesco also conducts qualitative research to understand its customers. “They know more than any firm I’ve ever dealt with how their customers actually think, what will impress and upset them, and how they feel about grocery shopping and dealing with Tesco,” says CRM expert Jim Barnes, Executive VP of Bristol Group, a Canadian marketing communications and information firm [10]
4. CRM at Morrison’s and Conclusion
Currently there is no CRM at Morrison’s and given that other competitors (i.e. Tescos) are actively implementing CRM it can be easily suggested that Morrison’s implement CRM. However, there is more to the implementation then just getting a few systems and procedure in place. The following paragraph illustrates the cost implications of introducing CRM:
“The 1999 Cap Gemini and IDC survey also found that, the average total investment in CRM of 300 U.S. and Europe companies was $3.1 million. More than 69% of the companies surveyed spent less than $5 million, and more than 13% of the companies spent over $10 million. [Sterne, 2000]. The cost of implementing a CRM system is easily double the Enterprise Resource Planning (ERP) implementation cost. [Morrison, 1999] Average implementation time for an ERP system is 23 months and the cost of ownership over the first 2 years is from 0.4% to 1.1% of company revenue. [Higgins, 1999] As shown in Tables 1 and 2, based on GartnerGroup data, the implementation cost of CRM depends on the industry, project size, and application requirements. According to GartnerGroup, the average implementation cost of CRM can be between $15,000 and $35,000 per user in a three-year project.[Golterman, 2000]”[4]
Table 2: Cost Allocations
Furthermore, the concept, technologies, and understanding of CRM are still in its early adapter stage. Most of the CRM technologies are immature and the typical implementation costs and time are long enough to frustrate potential users. Many software and hardware vendors sell themselves as complete CRM solution providers but there is little standardized technologies and protocols for CRM implementation in the market. Even the scope and extent of ‘what CRM includes’ differ from vendor to vendor; each has different implementation requirements to achieve the customer’s expectations. CRM is one of the busiest industries which occurs frequent merger and acquisition. Many small companies merge together to compete with large vendor. Large companies such as PeopleSoft acquired small vendor to enter this ‘hot’ CRM market. Due to these frequent merger and acquisition, the stable technical support from the market becomes rare. Vendors publish new version – maybe more integrated software – of CRM software as frequently as they can and customers should pay for that. Often these technical immaturities or unstable conditions are combined with the customer requirements which are frequently unclear and lead the project failure. These technical immaturities may be overcome over time, but the process may be long and painful. [4]
The cost to develop and maintain the individual customer relationship involves assumptions about the direct and indirect marketing and management costs. Each customer is unique, has a different lifetime value, and has personal preferences that need to be taken into account. Given the existing cost incurred due to the takeover it is not feasible to incorporate CRM at Morrison’s at the precise moment. Because implementing CRM at this moment would mean that the company exceed it current allocated budget (see 2005 annual Report for financial summary). However, the long term benefits are obvious as pointed out in section 2 and 3.
