MASTER'S THESIS. Customer Relationship Management within the automotive industry. A case study of Müllers Bil AB. Malin Fältmark Fanny Keisu PDF

MASTER'S THESIS Customer Relationship Management within the automotive industry A case study of Müllers Bil AB Malin Fältmark Fanny Keisu 2013 Master of Science in Business and Economics (Civilekonom)

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MASTER'S THESIS Customer Relationship Management within the automotive industry A case study of Müllers Bil AB Malin Fältmark Fanny Keisu 2013 Master of Science in Business and Economics (Civilekonom) Business and Economics Luleå University of Technology Institutionen för ekonomi, teknik och samhälle Customer Relationship Management: Within the automotive industry ACKNOWLEDGEMENTS Writing this thesis has been a great challenge for us, we have been thrown between pleasure and desperation as we worked to compile all the parts of this essay. We are very excited and proud to finally, after six months, be able to present this thesis as finished. We have found it both fun and difficult to deliver at all elements, and we have been working with milestones in order to facilitate for ourselves. We would like to thank our personal supervision at the university, Anne Engström, for always being there for us. She has been a great resource for us throughout our work on this thesis; she has acted as a support and guided us along the way. While we worked with this thesis, we have extended ourselves further in the term Customer Relationship Management, which has been very interesting and educational. We have learned more about the subject and have had access to several different theories that we have applied in our research. Learning more about Customer Relationship Management has been amusing and it has been particularly interesting to investigate and analyze how a company applies and uses Customer Relationship Management in practice. During our work with the thesis we have met many supportive, helpful and encouraging people that we would like to thank. Jan Müller, our contact person at Müllers Bil AB, who always was courteous and open about how his company is working with their Customer Relationship Management strategy. Håkan Perzon, supervisor at the university who has given us feedback on our thesis along the way. We would also like to thank the other participants in this course, for helpful and insightful feedback at the seminars. We would also like to extend a special thanks to Emilia Oliveira. I Customer Relationship Management: Within the automotive industry ABSTRACT Companies constantly strive to increase their profits, but the competition is tough in the market. Businesses try to either keep their existing customers through increased satisfaction, or to win new customers and new market shares in order to reach their objective. The term Customer Relationship Management (CRM) was developed in the late 1990s, in order to facilitate relationships at the business to consumer market. CRM is used as a tool in order to build longterm relationships between sellers and buyers. Through this relationship both the company and its customers should receive mutual benefits, such as retention and good service. The purpose of this thesis is to gain a better understanding of how CRM can be used in an automotive retail company. To reach this understanding the thesis starts with three research questions, about challenges of CRM, the core components and core dimensions of CRM and factors affecting the CRM strategy. In order to be able to find answers to the research purpose and questions, a literature review was performed, this review resulted in a frame of reference which was used as a basis to the case study. A descriptive case study was chosen, as we aimed to create deeper understanding. The research strategy was qualitative and empirical data was collected through a deep interview at a middle sized company within the automotive industry. The findings of this thesis indicate that much of the explored theories regarding CRM and its structure are true. Furthermore, the findings indicate that CRM in the automotive industry is an important tool in order to create customer loyalty in a highly competitive market. II Customer Relationship Management: Within the automotive industry TABLE OF CONTENT 1 INTRODUCTION INTRODUCTION BACKGROUND Marketing - Towards customer orientation Customer Relationship Management Automotive industry PROBLEM DISCUSSION RESEARCH PURPOSE RESEARCH QUESTIONS DISPOSITION OF THE STUDY LITERATURE REVIEW CRM DEFINITION BUILDNING BLOCKS CRM STRATEGY FOUR CORNERSTONES CORE COMPONENTS & CORE DIMENSIONS OF A STRATEGY CHALLENGES RELATED TO CRM INTERNAL AND EXTERNAL FACTORS INFLUENCING CRM THEORETICAL FRAMEWORK THEORETICAL MODEL BUILDING BLOCKS CRM STRATEGY CORE COMPONENTS & CORE DIMENSIONS OF A STRATEGY CHALLENGES RELATED TO CRM INTERNAL AND EXTERNAL FACTORS INFLUENCING CRM EMERGED FRAME OF REFERENCE METHODOLOGY PURPOSE OF THE RESEARCH RESEARCH APPROACH RESEARCH STRATEGY LITERATURE REVIEW DATA COLLECTION METHOD Interview SAMPLE SELECTION DATA ANALYSIS METHODOLOGICAL PROBLEMS OVERALL PICTURE OF OUR METHODOLOGY SECTION EMPIRICAL DATA INFORMATION ABOUT MÜLLERS BIL AB CRM AT MÜLLERS BIL AB Introduction CRM channels CRM objectives CRM STRATEGY CORE COMPONENTS CORE DIMENSIONS Structure & Systems Staff III Customer Relationship Management: Within the automotive industry Style Schemes CHALLENGES RELATED TO CRM Customers The automotive industry Employees Suppliers Economy INTERNAL AND EXTERNAL FACTORS INFLUENCING CRM Internal factors External factors ANALYSIS RQ1: HOW CAN THE CORE COMPONENTS AND CORE DIMENSIONS OF CRM IN AUTOMOTIVE RETAIL COMPANIES BE DESCRIBED? CRM STRATEGY Core components Core dimension (5-s) RQ2: HOW CAN THE MAJOR CHALLENGES OF CRM, ENCOUNTERED BY AUTOMOTIVE RETAIL COMPANIES BE DESCRIBED? Challenges RQ3: HOW CAN THE INFLUENCE OF MAJOR INTERNAL AND EXTERNAL FACTORS ON AUTOMOTIVE RETAIL COMPANIES CRM STRATEGY BE DESCRIBED? Internal / External CONCLUSIONS & IMPLICATIONS RQ1: HOW CAN THE CORE COMPONENTS AND CORE DIMENSIONS OF CRM IN AUTOMOTIVE RETAIL COMPANIES BE DESCRIBED? RQ2: HOW CAN THE MAJOR CHALLENGES OF CRM, ENCOUNTERED BY AUTOMOTIVE RETAIL COMPANIES BE DESCRIBED? RQ3: HOW CAN THE INFLUENCE OF MAJOR INTERNAL AND EXTERNAL FACTORS ON AUTOMOTIVE RETAIL COMPANIES CRM STRATEGY BE DESCRIBED? IMPLICATIONS OF THEORY IMPLICATIONS FOR FURTHER STUDIES LIST OF REFERENCES ACADEMIC ARTICLES LITERATURE INTERNET SOURCES INTERVIEWS APPENDIX 9.1 INTERVJU GUIDE 9.2 INTERVIEW GUIDE IV Customer Relationship Management: Within the automotive industry LIST OF FIGURES FIGURE Customer-company contact points FIGURE Building blocks of CRM FIGURE Disposition of the study FIGURE Building blocks of CRM FIGURE Four cornerstones of CRM FIGURE Core components of CRM strategy FIGURE Core dimension of relationship strategy FIGURE Selection of four cornerstones of CRM FIGURE Selection of buildingblocks of CRM FIGURE Emerged frame of reference FIGURE Conceptual framework FIGURE Method overview V Introduction 1 INTRODUCTION This chapter begins with a research background, followed by a problem discussion. The problem discussion then passes to the purpose of the study, where a specific research problem will be formulated. 1.1 INTRODUCTION Over the past years there have been changes in the business of consumer market (B2C). The market has become a very competitive place for businesses as the customers have become more demanding and the competition grows stronger every day. (Nguyen, Sherif & Newby, 2007) The increased competition has resulted in difficulties for companies to keep their customers without introducing customer-focused programs. It is more efficient to keep and develop existing customer relationships than to create new ones; consequently companies started to use relationship marketing in order to improve long-term profitability. To manage this they changed from transaction-based marketing which focused on winning new customers, to a strategy that focused on how to manage the relationships with their existing customers, in order to achieve customer retention. (Chen & Popovich, 2003) Relationship marketing later developed into a new approach - customer relationship management (CRM) - that means serving customers in an improved way (Crosby & Johnson, 2000). This concept entails various challenges for the companies when implementing CRM, and studies have shown that 70 percent of the companies fail in their CRM implementation (Bull, 2003). Companies within the automotive industry are, according to Peelen (2005), highly dependent on the relationships with the customers since they handle high involvement goods and have a low rate of customer loyalty, yet a high rate of customer satisfaction (Peelen, 2005, p. 57). The automotive industry has grown globally since the late 1980s as a result of foreign direct investment, global production and increased cross-border trades. The global vehicle production has more than doubled since 1975, from 33 to nearly 73 million in year 2007, this thanks to the newly opened markets in China and India that have helped to drive the pace of growth. (Sturgeon, Memedovic, Van Biesebroeck & Gereffi, 2009) However, the automotive industry is very dependent on the current economic situation and the problem that many traders experience is that sales are constantly decreasing (, which results in reducing profitability. In these times, it is especially important to try to keep the customers that the company has already developed a relationship with. Good customer relationships are at the heart of business success, and a working CRM system provides increased profitability. A CRM strategy must include; interaction - between customers and company, contact - manage and mapping out points between customer channels and company, knowledge - increased learning about customers through their behavior, and relating - value creating through interaction with customers, channels, suppliers and partners. (Osarenkhoe & Bennani, 2007) 1 Introduction 1.2 BACKGROUND Marketing - Towards customer orientation Historically, companies in general have not been particulary customer oriented, but this has, however, changed over the past years. Within marketing practice and theory there has been a great focus on the transaction of sales. (Peelen, 2005, p. 23) This mean that the companies primary concern was to achieve market leadership, conquering markets, and they had been more interested in sales figures and keeping the sales floating, instead of establishing long-term relationships with their customers (Peelen, 2005, p. xi). During the 1960s, the customers were seen as group of buyers with the same needs. Companies predicted customers future demand and produced goods that they forced onto customers through distributors. Later researchers found that buyers had different kind of needs, and companies started to maintain relationships as a way to establish relationship with them. Customer retention became a key factor in the field of relationship marketing. (Ahmad & Buttle, 2002) When the fact that customer relationship is built on various exchange processes was accepted, the question about how relationships change over time arouse. During the early 1980s, various phases in relationship building were defined. This resulted in a new way of thinking about designing strategies for all kind of customer relationships in the relationship marketing, customer relationships was also implemented in the field service marketing and many important factors to relationship marketing has its origins in the field of service. The nordic school, with the founders Evert Gummesson and Christian Grönroos, was the first one to define relationship marketing and to see relationship marketing as a contrast to the transaction marketing, with its marketing instruments and organization. (Peelen, 2005, p. 24) In 1990s buyer-seller relationships started to become more developed when organizations realized that relations had consequences for the entire business as they contribute to increased profitability (Peelen, 2005, p. xi). At this time relationship marketing was implemented in organizations, which resulted in changes in communications patterns, reward systems and company culture. Companies faced a new challenge trying to reach the right customers and trying to establish profitable relationships with them. (Peelen, 2005, p. xi) Customer Relationship Management The idea behind customer relationship management is not new; even the earliest merchants knew it was a good idea to build relationships with customers to keep them coming back. (Jobber, 2004 p. 797) In order to manage the increased interests in customer retention and customer loyalty, CRM was developed. CRM is, according to a comprehensive definition by Jobber (2004, p. 554), the relationships between customers and suppliers, and it is a term for the methodologies, technologies and e-commerce capabilities used by organizations to manage customer relationships. (Jobber, 2004, p. 554) CRM has its beginning in the technology of sales automation and calls centre operations. (Osarenkhoe & Bennani, 2007) According to Peelen (2005, p. xi; p. 23) CRM was created in order to receive a higher customer loyalty through increased customer knowledge and deeper communication between customers and suppliers, and to build a common understanding of buyer-seller relationship is a prerequisite for CRM. Companies that focuses on CRM uses technology-based services such as call centers, data analysis and website management in order to please a customer in the best way. Companies are nowadays using multiple channels (Figure 1) frequently for communication and information 2 Introduction gathering. These channels can be sales force, call centers, website, , fax services or distributors. The basic principle behind CRM is that a company should have a single point of contact with each customer. (Jobber, 2004 p. 600) When a company uses CRM, they are focused on building long-term relationship with their customers, and the company seeks to make the relationships sustainable in order to add value to both the company and the customers. (Nguyen, Sherif & Newby, 2007) Figure 1 Customer-company contact points Source: Jobber, 2004, p. 601 In business-to-consumer markets, CRM can be used as a tool to create customer loyalty. A company can reach higher profitability by increasing customer loyalty, since it is more efficient to maintain relationships with the existing customers than to create relationships with new customers (Bull, 2003). Today, CRM is highly demanded among businesses, due to increased global competition (Bull, 2003). Even though CRM is hard to implement, it has grown to play a significant role in the businesses to consumer market as it helps companies to create competitive advantage, and thereby increase the profitability. (Galbreath & Rogers, 1999) According to Crosby and Johnson (2000), companies want to know as much as possible about their customers (need, value, desire and behaviour) to be able to meet customers expectations in the best way. By studying a business customer base, the firm will be able to know their targets and design an appropriate customer relationship strategy, which should be based on a market research and analysis. (Crosby & Johnson, 2000) According to Crosby and Johnson (2000) a business strategy must change from a short-term transaction based orientation to a long-term relationship-based orientation. Although there are many different definitions of CRM, none is currently widely accepted yet (Ngai, 2005). One definition, which point out CRM as a strategy, is presented by Osarenkhoe and Bennani (2007): CRM is a strategy used to learn more about customers needs and behaviors in order to develop stronger relationships with them. A framework constructed by Peelen, van Montfort, Beltman and Klerkx (2009) describes CRM 3 Introduction by looking at eight different components of it. (Figure 2) This approach is holistic and emphasizes that the different parts of CRM affects each other. Figure 2 Building Blocks of CRM Source: Peelen, van Montfort, Beltman & Klerkx, Automotive industry According to Peelen (2005, p. 57) the automotive industry is in a highly competitive zone where customer loyalty is low while customer satisfaction is high. It is important for manufacturers of cars, for example, that the intermediaries of their goods have a well developed relationship with their customers, since the manufacturers destiny depends on the middle hands actions. (Peelen, 2005, p. 57) The Swedish car market (B2C) is greatly affected by the economic situation, and private consumers are more price sensitive than businesses, which results in less consumption of cars by private customers during recessions. The number of individuals that invest in new cars has declined over the past two years due to the economic downturn, while investments from corporate customers have increased. (, 2008) 4 Introduction 1.3 PROBLEM DISCUSSION When a company operates on a fluctuating market, the demand of a business can easily be affected by economic instability. During such times it is valuable to have a loyal customer base that stays true to a company also when times get tougher. One market that can be seen from this perspective is the car dealership. When the economic climate gets tougher the companies in this industry observe a change in their demand rather fast. ( When such a situation occurs, it is valuable to have long-term and sustainable relationships with loyal customers that companies can maintain and continue to have a relationship with (Nguyen, Sherif & Newby, 2007). It has become increasingly important for companies to have close relationships with their customers. A reason for this is that research has shown that organizations with many loyal customers also possess larger market shares and higher rate of return on investments. It is more efficient to keep and develop existing customer relationships, than to create new ones (Bull, 2003). Satisfied customers are not necessarily always loyal customers since some of them continue to purchase only because they have no other company to buy from (Zineldin, 2006). In addition, several repeated purchases does not automatically mean true loyalty from a customer, it can be a result from a firm s low price strategy. (Møller Jensen & Hansen, 2006) This leads to the conclusion that it is not always the largest customers who are the most profitable for a company (Bishop, 2009). A company should work hard on communicating with their customers in order to gain knowledge and establish long-term relationships with them (Peelen, 2005, p. 13). One way of doing this is to implement a CRM strategy and try to develop the organization to become more CRM-oriented. CRM is important for a business as it helps to increase the profitability of the company, through close relationships that contribute customer retention and customer loyalty. (Galbreath & Rogers, 1999) Loyal customers that promote the business will spread a positive spirit among potential customers; therefore, the majority of firms strive to build and maintain these kinds of relationship with customers. This in turn means that these loyal customers are more resistant to competitor s strategies. (Møller Jensen & Hansen, 2006) Loyal customers often favors positive word of mouth 1 among other people which may result in new potential customers for a company, since a happy customer is likely to tell others that he is satisfied. (Zineldin, 2006) Therefore, a company's existing customers can be great advocates for the business future sales (Bishop, 2009). However, word of mouth can also cause problems for companies if, for example, a customer is dissatisfied with an offer and spread bad word of mouth that will hurt a company's image. Research has shown that an unhappy customer tends to tell an average of 9-10 people about their bad experience with a company, and 13 percent are willing to talk to approximately 20 people. This results of course in declining sales for the company. In order to protect a company against this type of issues, the manager should ensure to organize a program that respond
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