This document contains two questions related to customer relationship marketing and sales management. Question 1 discusses evaluating the comment that "the ultimate accountability of marketing [and sales] activities lies in their contribution to the life-time value that the customer base represents." It also identifies limitations a sales manager may face developing a strategy from transactional to relationship-based. Question 2 discusses the extent to which sufficient customer data can be collected to inform future marketing decisions and product alignment. It provides examples of how organizations can analyze customer data to improve customer service, marketing strategy, segmentation, and cost savings.

1. Customer Relationship Marketing and Sales Management
7BSP1016 (B/ 2010-11)
❶Question 1: ‘The ultimate accountability of marketing [and sales] activities lies in their
contribution to the life-time value that the customer base represents’ (Peelen, 2006).
Discuss and evaluate this comment in relation to the principles of customer relationship
marketing. Identify the limitations that a sales manager may encounter when developing
a sales strategy which moves from a transactional to a relationship basis.
❷Question 6: In order to develop a value proposition for customers, organisations must
collect sufficient data on their customer base. Discuss the extent to which sufficient data
can be collected to inform future marketing decisions and product alignment.
❸References
Deniz Kurugollu
10283502
MSc Marketing
5th May 2011

2. ❶Customer retention has been shown to attract more attention within marketing activities.
Customer Relationship Marketing (CRM) can be regarded as a manifestation of acknowledging long
term value of customers. In this regard, Peelen (2006) indicates that “the ultimate accountability of
marketing activities lies in their contribution to the life-time value that the customer base
represents.” Lifetime customer value refers the monetary amount of purchases made by the
customer from a particular company in a given period of time. It can therefore be inferred that the
longer a customer stays with a company, the greater the customer’s value (Vavra, 1994). Having
accepted the importance of customers today, companies are trying the streamline their operations.
For example, companies like Campbell Soup, Coca-Cola, Hershey, Intel and Hewlett-Packard all have
Chief Customer Officers (CCO) now so as to response better the needs and wants of their customer
base (Brandchannel, 2011). Building close relationship with customers on the basis of trust and
commitment seems to be vital to cut above the competition (Gobe, 2001). However, there are
several limitations that can arise when building a strategy based on establishing relationship. The
aim of this essay is to acknowledge both the advantages and limitations of relationship marketing.
Drucker (2007) considers that marketing has two main tasks; attracting new customers and
retaining already existing ones. As is the case in almost every dichotomy, the optimum results are
tied to the balance between two ends. Hence, it is expected that the limited marketing resources
should be spent between two tasks in an optimal way. Yet, research (Payne, 1994) shows that
marketing efforts (i.e. time and money) still disproportionately focus on acquiring new customers
rather than customer retention even though the positive correlation between customer retention
and profitability has been acknowledged as the fact of business life for a long time (Rosenberg and
Czepeil, 1983). Retaining customers are more profitable for several reasons (Payne, 1994). First of
all, existing customers cost less to service. Figures reveal that it costs five times less to keep an
existing customer than it does to attract a new one (Duddy and Kandampully, 1999). Second,
customer expenditure is expected to increase over time. Xu and Walton (2005) points out that 20 %
of existing customers contribute 80 % of the profit or revenue. Moreover, customer retention is cost
effective. Marketing costs can be amortized during a longer time period. Furthermore, it is evident
that satisfied customers provide positive word of mouth and they are most likely to pay price
premiums (Aggarwal, 2004).
In the light of foregoing, building a long-term relationship with customers on the basis of trust and
commitment is the key to long-term success. In line with this target, the marketing focus shifts from
transaction marketing to relationship marketing. The Figure 1 shows the paradigm change in
question. Therefore, the relationship marketing is long-term approach focusing on customer
retention with high emphasis on customer service and contact.

3. Transaction marketing Relationship marketing
Focus on Acquiring new customer Customer retention
Timescale Short Long
Customer service Little emphasis High emphasis
Customer commitment Limited High
Customer contact Limited High
Figure 1: Transaction vs. Relationship marketing
Adapted from: Payne, 1994
However, there are some limitations managers may encounter when moving from a transactional to
a relationship basis (Palmer, 1996). First of all, building close relationships requires thorough
information about the other party (i.e. customers). Vavra (1994) offers using customer information
files (CIF) in order to manage customer relationships. CIF is suggested to involve all information
based on the interaction between customers and the organization from basic personal information
to frequency, monetary value of purchase, and so on which, in turn, may lead to strategic
competitive advantage for the organization. Therefore, acquisition, storage, updating, and reporting
of the information means huge cost for the company, ranging ‘from $200.000 to $10 million’ (Vavra,
1994). On the other hand, some relationship marketing activities such as loyalty programs (e.g.
financial incentives, frequent flyer programs, etc) over time can become an expected standard for
customers. Consequently, it leads to losses in revenue (Mowlana and Smith, 1993).
Secondly, the nature of the exchange may not be suitable to form long-term relationship. Tourism
related businesses may suffer from this situation. For example, religious based destinations or
luxury cruise travels might be once in people’s life, so this prevents to build long term relationship
(Palmer, 1996). Likewise, in business-to-business markets strategic alliances based on short term
contracts in order to acquire specific skills may not need ongoing relationships (Main, 1990).
Next, customers may not have a positive look for building relationship with companies if they feel
that the relationship will not provide them with more benefits, but cost. For example, if one believes
that all relevant information given to an organization will be used by the organization to push,
advertise, try to cross-sell more items, and eventually make him become a victim of marketing, then
one may not want to form an ongoing relationship.
Finally, considering the mantra today ‘customer is king’, coupled with the current market place
where thousands of new brands are launched each year, fighting to satisfy the same consumer’s
needs and desires better than the competition; therefore in this context, Palmer (1994) argues that

4. consumers’ increasing level of confidence may lead them not to form ongoing, close relationship
with suppliers in order to minimize risk of dependency (Gobe, 2001; Kotler, 2005). Moreover, it
appears that the power of customers will increase much more with the help of government recent
initiative which encourage companies to release personal data back to individuals (Mitchell, 2011).
The new paradigm is called as ‘Vendor Relationship Management’ (VRM) where individuals are
equipped with the tools to control their relationship with suppliers. In this sense, VRM is put
forward as the corresponding item for CRM (Haymarket, 2011).
❷Customer Relationship Management (CRM) mostly refers to Information Technology (IT) systems
which are used to obtain, analyse and use of knowledge about customers in order to improve
organisational profitability through generating greater customer life time value (Bose, 2002; Bull,
2003). As inferred from this definition, gathering data by using IT tools is the starting point of the
whole CRM process. This essay will firstly be addressing to how and what sort of data can be
collected to improve future marketing decisions. Then, it will be producing some real life examples
to illustrate how the given data is used to direct relevant marketing activities.
Customer data can be collected through various contact points such as call centre, mail, fax, web
sites, salespeople or more specific software packages such as SAP, PeopleSoft, and so on (Xu and
Walton, 2005). Then, data mining, digital library, or more specific systems like Decision Support
System (DSS), Executive Support Stsyem (ESS), Expert System (ES), and so forth can be employed to
analyse the given data so that it leads to a strategic direction (Bose, 2002; Xu and Walton, 2005). At
this point, Raghunathan (1999) notes that the decision quality is tied to information quality that a
decision maker has got. In this respect, this essay will address what sort of data can be collected and
how they can influence the future marketing decisions.
Traditional customer information can be gathered under three components; time (i.e, when was the
last purchase), frequency (how often does the customer buy, and monetary value (i.e. how much
money has the customer spent in a given period) (Vavra, 1994). However, as Raghunathan (1999)
points out that the more the information about customer, the better is to come up with optimum
results. Hereupon, Vavra (1994) suggests that CIF should include such data as customer financial
report, customer comments and complaints, promotion participation, service request, and the
results of questionnaire and surveys that the customer was involved. In addition, more personal soft
data such as consumers’ attitudes, likes and dislikes, lifestyles, and so on can be suggested to
capture in the CIF since attitude is believed to lead consumer behaviours eventually (Elliot and

5. Percy, 2007). However, the cost of acquiring and processing data should be kept in consideration (as
mentioned in question 1). At this point, new media such as Facebook, Twitter, or even personal
blogs may help marketers to gain in depth personalized knowledge about their target audiences at
relatively lower cost.
Having acquired the relevant data by ‘360 view of the customer’ (Kotorov, 2002), the next and vital
stage is to make use of the information in question. CRM in its nature is an investment, not
expenditure. However, if the given data collected by CRM systems do not direct to add value to both
customers and the firm itself, then all efforts mean nothing, but a significant cost for the company.
Therefore, implementing CRM is expected to provide the company with long-term competitive
advantages such as cost savings, improving customer lifetime value, product alignment, better
customer service, optimal marketing strategy, and so on (Xu and Walton, 2005; Vavra, 1994). Some
practical examples from real organizations will be produced to show how relevant data can
influence marketing activities illustrated in Figure 2.
Cost
saving
Customer
Branding
service
CONSUMER
DATA
Marketing Segmenting
Tailoring
strategy Targeting
Figure 2: The usage of consumer data
Cost saving: e-CRM is defined as a web-based system to coordinate customer relationships across all
touch-points including channels, company departments, and customers. It consists of such features
as online ordering, automatic response to e-mail, virtual help, and so on (Rowley, 2002). In this
sense, e-CRM can help to reduce cost. For example, UPS customer self-tracking system helped the
company to save $164 million by outsourcing business operations directly to customers (Hamm and
Hof, 2000).

6. Segmenting, Tailoring, and Targeting: CRM data enable marketers to segment their customer based
according to, for instance, purchase frequency, preference, usage volume and so on (Vavra, 1994).
Hereupon, they can tailor their offerings to specific target audiences. For example, frequent flyer
programmes can be seen in this context. Many airlines today have their own club cards
representing certain levels such as classic, silver, gold, and so forth (TA, 2011) to provide stratified
incentives to respective customer groups. This supports the idea of key account management
(McDonald et al, 1997).
Branding: Customer data can be utilized more deeply to capture better insight for branding. Miller
(2009) argues about the ‘big five’ personality traits and what sort of information might address to
identify each traits. Hereby, he points out that, for example, ‘openness’ – one of the five personality
traits – can be captured by looking at the Amazon.com database, in particular the record of books
purchased by that person. If one buys books from diverse topics in a given period, this may indicate
that one is open to experience (i.e. openness). In this respect, it might be suggested that marketers
can segment consumers based on personality traits, and then brand their products with a congruent
brand personality that supports customer personality.
Customer service: High emphasis on customer service – one of the main principles of CRM– has
already been acknowledged (see Figure 1). As a matter of course, the CRM data is primarily
expected to enhance service by providing better insight about customers. For example, Blockbuster
realized that customers’ priority was to rent their first-choice movie when they came to the store.
By implementing a proper software system, Blockbuster improves stock availability of first-choice
items, so delivers greater customer service compare to its competitors (Newell, 2000).
Marketing strategy: Considering the CIF suggested by Vavra (1994), such consummate data can be
suggested to utilize in providing greater information for not only short term tactics such as cross-
selling and promotion but also, overall marketing strategy. For example, Hewlett-Packard review 80
marketing programs (e.g. direct marketing, e-mail marketing, customer loyalty and so on) by using
the knowledge obtained from CRM systems, and achieved to decide more effective three major
programs to follow for the future marketing strategy (Brandweek, 2008).

7. ❸References
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