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CUSTOMER VALUE CREATION THROUGH CUSTOMER RELATIONSHIP MARKETING OF THE MOBILE SERVICE PROVIDERS IN JAFFNA DISTRICT

BY MR. SIVANANDAMOORTHY SIVESAN FGS/02/10/02/2010/040

This Thesis Submitted to the Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lank, in Partial Fulfillment of the Requirements for the Master of Commerce Degree Program

Department of Commerce & Financial Management Faculty of Commerce & Management Studies University of Kelaniya Sri Lanka 2012

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Introduction 1.1 Introduction

This chapter provides an overview of the study. This chapter deals with background of the study, research problem, significance of the study, objectives, limitations and chapter organizing.

1.2 Background of the study

Marketing practices can be traced back as far as 7000 B.C (Carratu, 1987), marketing thoughts as a distinct discipline was borne out of economics around the beginning of 20th century. As the discipline gained momentum, and developed through the first three quarters of the twentieth century, the primary focus was on transactions and exchanges. However, the development of marketing as a field of study and practice is undergoing a reconceptualization in its orientation from transactions to relationships (Kotler 1990; Webster 1992).

Customer relationship marketing is very important concept to attract and keep the customers in organizations. In modern business world, marketing focus reflect the move away from transactional marketing to relationship marketing. Establishing, maintaining and enhancing customer relationships have always been an important aspect of business. However, over the last few years there has been a significant increase in customer relationship marketing (CRM) related researches (Kamakura, 2005; Ngai, 2005). The concept of customer relationship marketing (CRM) is widely understood, both academically and professionally. Its goal is to bolster strong relationships and convert indifferent customers into loyal ones (Berry and Parasurarnan, 1991). Customer relationship marketing is determined by trust, commitment, empathy, power, cooperation, financial bonds, social bonds, dependency, duration, and rapport.

Customer relationship marketing has many implications for markets planning, employee training, advertising, promotion, public relations, direct marketing, 2

package design, and so on. Customer relationship marketing requires us to refocus our attention on the economic value of brands.

The CRM goals is to win and keep brand loyal customers. Building enduring, profitable, growing, brands is all about creating, nurturing defending and strengthening loyal brand relationships.CRM is to attract and retain customer loyalty. The loyalty customer is the most profitable customer, yet the focus is still often only on attracting new customers. In business, CRM brings stability and decreased uncertainty to a company by acting as a barrier to competitor entry and maintaining a stable and solid base of customers (Alexander and Colgate, 2000). For customers, CRM provides closer and longer-term relationships that yield three types of benefits: 1) Social (familiarity, friendship and information-sharing), 2) Economic (discounts or

other

money-saving

benefits)

and

3)

Customization

(tailor

made

services/products), as noted by Sheth and Parvatiyar (1995), Berry (1995), Gwinmer (1998) and Peterson (1995). Recent research has highlighted the importance of developing relationship for effective marketing (Morgan & Hunt 1994). Nowadays, many business organizations desire to maintain good relationship with their customers.

The origins of the concept of value lie in social psychology (Milton Rokeach 1968, 1973, and 1979). Nowadays, concept of value penetrates every field. Customer value creation (CVC) is a customer – centric framework for helping company to choose the best opportunities for growth by optimizing the value creation among the enterprises.

Customer value is synonymous to attributes of particular offering and signifies the trade –off between benefits received and sacrifices made by a customer (Ulaga & Eggert, 2005). Customer value comprises three key dimensions of customer value; self oriented, reactive, and extrinsic (Holbrook 1996). Organizations are vastly different in the ways they interact with their customers; there are some basic recurring themes in those interactions. Every business organizations try to build the customer value in several ways such as creating positive attitude and feelings, product differentiation, product quality, service support, delivery, time to market, customer satisfaction, availability of services, feature and their usability, security, and process cost. Payne and Holt (2001) dealt in to diagnosing customer value: 3

integrating value process and relationship marketing. They argued that value creation was a dynamic element to existing value concept. Value creation shall be looked over a time on multiple transactions. Creation of mutual value focuses of both customer and the firm, value is jointly shared among all the parties involved on relationship. Customer value is the overall benefit derived from the product, however the customer defines it, at the price the customer is willing to pay. Information about customer value allows the firm to adapt its offerings to meet customer value expectations. Customer value influences customer attitudes and correspondingly customer choice behavior.

Customer value creation is manifested by the development of new customer solutions, enhanced acquisition of inputs that lead to desired customer outputs and development of linkages and relationships to entities in the external market place (Srivastava,Shervani,&Fahey 1999) CRM, focus on the long-term profitability of keeping customers for life (Sauers, 2008:). Customer relationship marketing (CRM) explicitly recognizes the long-run value of potential and current customers, and seeks to increase revenues, profits, and shareholder value through targeted marketing activities directed toward developing, maintaining, and enhancing successful company-customer relationships (Berry, 1983; Morgan and Hunt, 1994; Gronroos, 1990).

In the current business phenomena, Telecommunication is considered as an important sector in national and world economy. It also has a growing impact on our lives as individuals.

In case of Sri Lankan telecommunication market, mobile

service providing companies are certainly and seriously forced to deliver new services to their customers, due to that each companies are facing more competition. Mobile communication service can be understood as services and devices that enable the information and communication transfer among the persons. These kinds of services are currently confronted with large changes due to the price erosion of services and entering new service providers. Mobile service providing industry is experiencing a radical change, generating new opportunities and challenges for infrastructure and service providers with the increase in production of mobile devices and services as international market in recent years, according to the triple play of 4

telecom, entertainment and information technology convergence the global telecommunication market is growing and changing.

Sri Lanka owns one of the most modern telecommunications industries in the region and has been the first to introduce latest technologies, such as Global System for Mobile Communication (GSM), Code Division Multiple Access (CDMA) fixed wireless telephone services, General Packet Radio Service (GPRS), Asynchrony Digital Subscribers Line (ADSL), World Interpretability for Microwave Access (WiMAX), High Speed Downlink Packet Access (HSDPA) and 3.5G services. Also, the market hosts a number of players, leading to increased competition, which in turn, fast tracked technological developments and increased market penetration. However, in line with the vision to become services so as to enhance the productive capacity of the economy and the country‘s attractiveness to foreign investment.

In 2010, the numbers of mobile phone subscribers worldwide were raised to four billion. Telecom industry body, the Global System for Mobile Communication Association, have announced that by 2010 mobile networks were covered 90% of the world‘s population.

In Sri Lanka, five cellular mobile service providing companies registered under Section 17 of the Sri Lanka Telecommunications Act No 25 of 1991 as amended. Furthermore, mobile phone subscribers per 100 people are 82 and also numbers of cellular mobile subscriber are continually increasing. We can obviously see in the following table.

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Table 1.1: Number of subscribers No

Year

Subscribers

01

1992

2644

02

1993

14,687

03

1994

29,182

04

1995

51,316

05

1996

71,029

06

1997

114,888

07

1998

174,202

08

1999

256,655

09

2000

430,202

10

2001

667,662

11

2002

931,403

12

2003

1,393,403

13

2004

2,211,158

14

2005

3,361,775

15

2006

5,412,496

16

2007

7,983,489

17

2008

11,082,454

18

2009

14,095,346

19

2010

17,359,312

Source; Report of Sri Lankan telecommunication Regulatory -2010

In Jaffna District, 2001-2008 period, there were two number of cellular mobile service providing companies such as Dialog and Mobitel. Nowadays, five companies such as Dialog, Mobitel, Hutch, Airtel, and Etisalat are providing services for the people in Jaffna peninsula. They are using different strategies to attract and retain the customers because of the competition. So that these companies highly focuses on customer relationship marketing which is important in general with the concept of ―your satisfaction is our satisfaction‖. In a view present study is initiated on customer value creation through customer relationship marketing of mobile service providing companies in Jaffna district.

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1.3 Research Problem In modern business world, companies are increasingly concentrated on managing customer relationship. Customer relationship marketing may be defined as the alignment of business processes with a customer strategy that increase customer loyalty and profits overtime. Customer value creation is more essential concept in marketing from customer perception and also organizational perception. Some researchers define customer value primarily on monetary terms, such as the revenue received from the customer and the cost of serving that customer, while others use boarder definitions which include non monetary benefits such as competitive gains, competencies, social relationships, knowledge (Moller and Torronen 2003). Customer relationship marketing is determined by following factors such as trust, commitment, communication quality, empathy, power, shared value, conflict handling and independency. Relational Variables influence on Value Creation in Buyer–Seller Business Relationships and also distributor commitment is a direct and positive antecedent of value creation in a relationship, understood from a functionalist perspective, distributor trust, the other relational variable, has an indirect effect on value creation through the distributor‘s commitment (Jose Angel Lopez Sanchez, Maria Leticia Santos Vijande and Juan Antonio (2010). Customer relationship marketing leads to value creation which is created by both customer and supplier (Willson 1995).

Some researchers expressed that customer relationship marketing is one of the aspects to determine the customer value (Wilson, 1994; Ravald and Groonroos, 1996). Need for the measurement of customer value proposition is reflected in different interpretations of customer value concept. Value could be interpreted as satisfaction, which customer receives from the offer delivered (Tzokas, Saren, 1997) or as customer attitude towards the ability of product to satisfy his/her needs (Kuvykaite, 2001). Some other marketing applications

are

not

researches indicate that customer relationship uniformly delivering anticipated

business

improvements (Reinartz, 2004; Berry, 1995, Gwinmer, 1998, that the problem may stem because of lack of customer orientation (Rigby, 2002). But customers may be suspicious of customer relationship marketing implementations (Bhattacherjee, 2002; 7

Hoffman, Novak, & Peralta, 1999) and customer relationship marketing applications may not actually assist in the creation or maintenance of customer relationships (Peters & Fletcher, 2004).But sometimes customer relationship marketing initiatives are not only failed to deliver profitable growth, but also had damaged long – standing customer relationships (Bain,2001). CRM is not only one strategy to retain customers towards companies regardless of its size (Nor Azila, 2011). In some situation, CRM fail to maintain certain limits, taking into consideration the consumer‘s need for privacy. Sometimes, the CRM can be quite a stressful experience for the customer. In this situation; customers have not good relationship with organization. So, this leads to damage of profit earning atmosphere of the business.

Customer relationship marketing (CRM) is replacing the traditional '4Ps' of marketing - product, price, place and promotion. Long-term relationships with customers are the key to stability in an increasingly dynamic market. Customer relationship management (CRM) has become the main strategy to retain customers for companies regardless of its size. It has been regarded as a comprehensive strategy and process of acquiring, retaining, and collaborating with selective customers to create superior value for the company and the customer. It involves the integration of marketing, sales, customer service, and the supply-chain functions of the organization, to achieve greater efficiencies and effectiveness in delivering customer value. Le Pla, (2002), and Markowitz, (2002), and IDC, (2002) reviewed on the implementation of CRM technology, focusing on the lack of commercial benefits gained from substantial CRM investment.

Successful CRM

implementation and adoption requires visible, concentrated and

long-term senior management buy-in and significant organizational change if its full benefits are to be realized (Bohling, 2006; Casselman, 2003; Fleischer, 2002; Ling & Yen, 2001; Yu, 2001).

The underlying expectation of CRM technology is to deliver customer loyalty and enhanced corporate profitability, however the META Group states that ―55% of all CRM projects don‘t produce results‖ (Davis, 2002; and Seligman, 2002).

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A survey of 1,500 companies found that 91% of businesses plan

have deployed

CRM solutions, however 41% of the firms with CRM projects were experiencing serious implementation problems (The Data Warehousing Institute, 2000).

Davis (2002) stated that up to 70% of companies had not realized any benefit from CRM technology implementation or failed to meet basic company goals like return on investment. This may in part reflect the difficulty in identifying and matching the appropriate CRM investments and returns (Ang & Buttle, 2002). Other studies indicate that 20% of senior executives reported that CRM initiatives had failed to deliver profitable growth and in some cases had even damaged existing customer relationships (Rigby, 2002). In response of CRM vendors have undertaken new development, focusing on adding additional features, benefits and value (Songini, 2002).

Customer value creation is at the heart of relationships between services recipients and service providers (Batiz-Lazo, 2001). It provides the basis for loyalty, relationship enhancement (decreased perception of risk), (i.e., perceived net benefits) (Morgan & Hunt, 1994; Selnes, 1998; Sirdeshmukh, 2002).Customer relationship marketing goal is to provide increased value to the customer and results in a lifetime value for the service provider (Liu, 2000).

There were no mobile services providing companies in Jaffna district, before the year of 2001 because of the prevailed situation. At the beginning of the 2002, Dialog Company launched its business in Jaffna District. In this circumstance, most of the Jaffna people willing to use the mobile phone service because of lack of land line service (Land line service were issued based on priority like high level business people, and executive officers in government sectors). Dialog Company enjoyed first mover advantage. In other word they used this situation as a good opportunity to develop their business activities very quickly. The Mobiltel Company initiated their business activity on 2003. In this situation, Mobital Company faced more competition to capture their market share. But Dialog Company has already established their business activity in rural and urban areas, and they used the high level sales promotion strategies (providing bulk package for Government officers, University students, Academic staffs as well as Non academic staffs at cheap rate). 9

According to the wording of district manager of the Mobital company, who said that nowadays, Mobital Company has 25 towers, 20% of market shares are maintaining by Mobital Company, most of the customers of the Mobital company are forces (military, air force, navy, army and police) in Jaffna. This company too concentrates its business activity in the urban side than in the rural side.

Airtel Company penetrated to Jaffna mobile service market at middle part of 2010 with well designed promotional scheme (Data SIM, SIM card issued at lower price of Rs 50/- with advanced reload Rs 20/=, and also they donated lot of valuable thinks to Jaffna teaching hospital). District manager of Airtel Company expressed that present-day, 25%of the market share captured and 30 towers were established around the Jaffna district. He further said that company acquired 50,000 customers within one year. This is an excellent achievement of the company compared to the Mobital Company. When Airtel Company entered to Jaffna market, there were many direct and indirect well established competitors (Dialog and Mobital) in the market. Airtel Company introduced youth package, whereas, Dialog Company has introduced love package. Target customer of both package are youth. According to the Jaffna district market, each company is adopting more valuable strategies to differentiate with other companies and also attract new customers which are concentrated to the customer relationship marketing. Customer relationship marketing becomes more effective source to gain competitive advantage. In this field, lots of studies have been done. Even though, they have focused on different aspects of the relationship marketing. Few amounts of the researches were found on the effectiveness of relationship marketing, and little empirical research has been conducted on the values relationship marketing programs. Customer value creation is considered important as mobile service providing companies too. The lack of research in this area represents a significant gap of seeks to address. Researcher conducted a pilot study with 107 customers of the Dialog, Airtel, and Mobitel companies, with the aim of identifying the research problem. According to this pilot study, 78% of respondent are customer of the dialog company. 13% and 6% respondents are customers of Mobital and Airtel Company respectively and 10% of the respondents are the customers of the both Dialog and Airtel Company

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Satisfaction level of customer regarding to the service of mobile service providing companies is the middle level. 38% and 30% of respondents were not satisfied with clearness and cost of factors of services whereas more than 20% respondents were not satisfied with customer care, easy payment system, and motivation. Majority of respondents satisfied with reliability, new product and free incoming call. In addition pilot study revealed that there were difference on satisfactory levels of customer with service of among Dialog, Airtel, and Mobitel. . However, above three companies have to meet a high competition in the market. So that, they strategically introduced different types of services in order to, attract people and sustain them in the market. Even though this situation creates customer as a king they confuse in selecting above companies for their benefits. Therefore researcher felt that there is a need for present study on customer relationship marketing and customer value creation of mobile service companies in Jaffna district.

Therefore the present study is initiated to find out that to what extent the Customer Relationship Marketing (CRM) impact on Customer Value Creation in mobile service providers? and also to identify which company has high level of customer relationship marketing in order to attract their customers?

1.4 Significance of the study

Customer relationship marketing is the biggest paradigmatic shift in marketing theory and practice in existing world. Customer relationship marketing concerns attracting, developing and retaining customer relationship (Berry and Parasuraman 1991). Customer relationship marketing is to identify establish, maintain, enhance, and when necessary, terminate relationship with customers and other stakeholders (Gronroos).

Customer relationship marketing assists to build the good relationship between customer and organization. In today emerging business environment a growing 11

number of cluttered markets and relationship marketing are becoming necessary for organizational survival (Gronroos, 1996). Customer relationship marketing attempts to improve the profitability within two dimensions cost effective and time manner. This is the only way that a company can obtain a permanent competitive advantage and as a result ensure its own survival and growth. It implies that relationship building is considered to be a key factor to success (Jorgensen, 2001).

The main goal of customer relationship marketing is to build mutually satisfactory long term relationships with key constituents in order to gain and maintain their business (Gummesson, 2008). The purpose of customer relationship marketing is to identify and understand customers as much as possible and to build a unique company asset, which is a marketing network (Kotler and Keller, 2009). Generally customer relationship marketing involves monitoring satisfaction, and implementing actions aiming at customer loyalty and long – term relationships taking action towards reduction of risk and uncertainty perceived by the client. Building relationships with customers and stakeholders

is necessary for a company,

concentrating their marketing with focusing on their important customers and stakeholders, whom they must develop in order to build long – lasting relations. Customer relationship marketing would lead to greater marketing productivity by making it more effective and efficient. Building and maintaining relationship has considerable long term implication and have impact on strategic and long term firms‘ planning and marketing ( Sheth and Parvatiyar, 1995).

Customer value is as interactive relativistic preference experience which refers to the evaluation of some objective by some customers (Hilliard 1950). Holbrook (1996) defined three key dimensions of customer value; self – oriented, reactive, and extrinsic. In the world of sales, 'Customer Value' is a much used phrase — and rightly so, because customers buy what they perceive as being of value to them. If they have a choice, they'll take the most valuable. Customer value maximizes long term economic returns to the company. Managing customer value is more critical to all organizations in the new service- and information-based economy. Progressive 12

companies that create maximum value for their customers will survive and thrive; they will be able to carve sustainable competitive advantages for themselves. Other firms that do not provide adequate value to their target markets will struggle or disappear. Therefore, to succeed in the 21st century, organizations must do a good job of creating customer value. Developing strong bonds with customers creates loyalty, which leads to retention.

The creation of the best, unique customer value is considered as a basis for most marketing decisions, as the main factor that ensures customer loyalty. Customer value directly influences on customer behavioral intentions. Customer value acts as advertising. For example, if customers have value, they are willing to recommend to others in a positive way. Customer value (CV) is created by the interplay of customer satisfaction and customer relationship management, it is the net worth to customers from buying and using a seller‘s product or service or mix of these two benefits. The latest studies show potential challenges between customer relationship marketing (CRM) and customer value in achieving superior performance. In the modern customer-centred era, customer value is a strategic weapon in attracting and retaining customers. Delivering superior customer value has become a matter of ongoing concern in building and sustaining competitive advantage by driving customerrelationship-marketing (CRM) performance.

Companies can obtain a permanent competitive advantage and as a result ensure its own survival and growth. It considered being a key factor to success (Jorgensen, 2001). Application developer, organization, and practitioners benefit from better understanding the factors that effect relationship that can be created and maintained through customer relationship marketing technologies. This study is optimizing the customer value creation

helpful to

and more useful to design the effective

marketing strategy, effective marketing strategy generally is inextricably linked to the development of processes for the creation, production, and distribution of product that are focused on customer value.

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This study tries to disclose effect of customer relationship marketing on customer value of the mobile service providing companies in Sri Lanka. This study is intended to help them to formulate more coherent strategies aimed at attracting and retaining consumers. The findings of the research could be used by marketers and management to reshapes their critical success factors and incorporate such factors in strategic planning to improve the service provision to customers and mitigate risk. Abundant of studies were taken up on customer value creation. But in scarce of studies, analyzing the relationship and degree of influence on customer relationship marketing and customer value creation. There is no empirical study, which has been conducted using the inferential statistical tools (factor and discriminate analysis) to customer relationship marketing and customer value creation. This research gap induces the researchers to undertake the present study. This study is able to express the relationship between customer relationship marketing and customer value creation and also research is designed to provide a basis for further research and discussion. This study contributes to mobile services providing companies in several ways such as designing effective customer related project (loyalty programme, and ac ustomer care programme). Number of studies has been done customer relationship management. But few research studies have been carried out in customer relationship marketing. Some researchers (Kuvykaite, 2001: Oliver, 1999) pointed out the customer relationship marketing and customer relationship management held same meaning, but some researchers expressed that there are different from each other. Abundant of studies were taken up on customer value creation. But in scarce of studies, analyzing the relationship and degree of influence on customer relationship marketing and customer value creation. There is no empirical study, which has been conducted using the inferential statistical tools (factor and discriminate analysis) to customer relationship marketing and customer value creation. This research gap induces the researchers to undertake the present study.

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1.5 Objectives of study The following objectives are taken for the present study. 1. To find out the relationship between the customer relationship marketing and customer value creation of the mobile service providing companies:

2. To identify the impact of customer relationship marketing on customer value creation of mobile service providing companies;

3. To examine necessary indicators for the customer relationship marketing and customer value creation of the mobile service providing companies;

4. To suggest the mobile service companies to build the customer value.

1.6 Limitation of the study

1. This study is confined among the mobile service providing companies in Jaffna district.

2. Only three companies such as Dialog, Airtel, and Mobitel were taken for the present study.

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1.7 Chapter organizing

This study consists of five chapters. Chapter one is an introductory chapter which deals with the background of the study, problem statement, significance, objectives, limitation and chapter organization.

Chapter two is literature survey. It consists of summary of the previous research studies which are related to customer relationship marketing and, customer value creation with the research gap.

Chapter three deal with methodology. Organizational profile of the company, data collection,

sampling

design,

methodology,

conceptualization

model,

operationalization, hypotheses, and statistical tools are described in this chapter.

Chapter four is the data presentation and data analysis measurements of variable cross- sectional analysis are clearly indicated in the chapter.

Chapter five deal with the summary of the study, findings, conclusion and suggestion, and scope for future research.

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Literature Review

2.1 Introduction In the competitive business world, customer relationship marketing (CRM) and customer value creation (CVC) are closely interrelated and play an important role in business success. The closeness of the customer relationship marketing can move into partnering and networking (Ulaga, 2001). The idea of value creation and exchange has been identified as foundation stone of the concept of the customer relationship marketing (CRM) which has evolved and has been identified as strategic approach directing all marketing activities toward establishing, developing, and maintaining successful relational exchanges (Moegan & Hunt, 1994). This chapter attempts to discuss the theoretical and empirical review concepts relating to customer relationship marketing and customer value creation covering the following aspects. (1) Customer relationship marketing, (2) Studies related to customer relationship marketing, (3) Customer value creation, (4) Studies related to customer value creation, and (5) Studies related to customer relationship marketing and customer value creation.

2.2 Customer relationship marketing (CRM)

In today‘s business world, customer relationship marketing is considered as the heart of the marketing. Many professionals and academics have defined the term customer relationship marketing in different ways. ―Berry (1983) was the first one who used the term relationship marketing, which was used as a relationship perspective.

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Earlier there was a paradigm shift from transaction marketing to relationship marketing.

Gronroos (1994) defined as customer relationship marketing as

establishing, maintaining and enhancing relationships with customers and other partners. It can be achieved by a mutual exchange and fulfillment of promises.

Relationship marketing concerns attracting, developing, and retaining customer relationships (Leonard Berry and Parasuraman 1985). Its central tenet is the creation of ―true customers‖ – Customers who are glad with the firm, they selected who perceive that they are receiving value and feel valued, who are likely to buy additional services from the firm, and who are unlikely to defect to a competitor. In industrial marketing, customer relationship marketing is referred to as marketing oriented towards strong, lasting relationships with individual accounts (Jackson, 1985).

In marketing, many scholars and researchers (Nevin, 1995, Vovra, 1992, Yau, 2000) used the terms of customer relationship marketing and customer relationship management as same meanings even though, Das (2009) articulated significant differences between customer relationship marketing and Customer Relationship Management. Customer relationship marketing is relatively more strategic in nature while customer relationship management is more tactical. Implementing customer relationship marketing using information technology is a part of the customer relationship management (Ryals & Payne, 2001).

Customer relationship marketing concentrates more on the emotional and behavioural, which are determined by bonding, empathy, reciprocity and trust. On the other hand, customer relationship management focuses more on managerial concepts such as how management can maintain and enhance customer relationships (Sin, 2005and Yau, 2000).

Customer relationship marketing is the step of

evolution of marketing. In the

current world, business organizations more concentrated on consumerised product and service. Hence, organizations used customer relationship marketing as a tool for 18

gaining competitive advantages. Many researchers clearly pointed out similarity and dissimilarity between customer relationship marketing and customer relationship management.

Customer relationship marketing gives attention to the customer‘s

psychological factors, whereas customer relationship management contemplates on managerial concept.

2.2.1 Importance of customer relationship marketing

Customer relationship marketing is very essential and unavoidable survival of the organization in the current competitive business world. So, every organization is willing to maintain good relationship with their customers to attract and retain in the business.

This is the only way that a company can obtain a permanent competitive advantage and as a result ensure its own survival and growth. It implies that relationship building is considered to be a key factor to success (Jorgensen, 2001). Customer relationship marketing forms the bridge between the organization and its customers.

Customer relationship marketing assists to convert buyers into loyalists and loyalists into enthusiasts / evangelists. Successful customer relationship marketing implementations are combination of people, processes, and technology built around giving maximum value to customers.

Effective customer relationship marketing provides more benefits, for instance optimize the interactive relationships between, leverage customer information for more effective e- marketing and e- business.

Customer relationship marketing

attempts to involve and integrates customers and other infrastructural partners into a firm‘s developmental and marketing activities (Mckenna 1991; Shani and chalasani 1991).

Its practices can help to achieve efficiency, such as customer retention,

efficient customer response (ECR), and the sharing resources between marketing partners.

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Customer relationship marketing manipulates customer satisfaction and customer loyalty. So, many businesses enthusiastic to cultivate yield through satisfying customers.

Technology of the customer relationship marketing helps to understand and manage customer better. CRM give more attention from mind space of the marketer to mind space of the customer. The key analytical Customer relationship marketing applications include (Kelly, 2000) sales analysis, customer profile analysis, campaign analysis, loyalty analysis, customer contact analysis, and profitability analysis. These analytical tools are very useful to improve the business activities of the organization.

Good customer relationship marketing leads to good quality and good customer satisfaction. Good quality arises as internal relationships/employee relationship is fostered. Good customer satisfaction arises as specific customer needs and wants are understood better and saved better. Good quality and customer satisfaction leads to customer retention and consequent improved profitability (Gummesson1999). Customer relationship marketing by working towards improving profitability based on exploiting its relationships serves this financial performance objective of marketing strategy. In fact, customer relationship marketing pays off handsomely when products or services have high switching costs e.g. automaton system. Customer relationship marketing is profitable when customers are willing to stay with suppliers for a long period of time.

Customer relationship marketing plays an important role in protecting emotional well being of customer. Deep dissatisfactions are avoided; customers are made to feel important, private information of customers are handled fairly well, long run supply security is provided, customer care is maximized, sudden spikes in demand are managed.

Customer relationship marketing helps the company to understand consumer psyche and shifts in psyche, owing to long association and close bonding that company 20

enjoys with the buyers. Companies are able to sort out their customers‘ needs with help of customer relationship marketing.

This assists to acquire new customers,

launching new products and services, testing new concepts, improving product and services.

Goal of the customer relationship marketing is to win and keep brand loyalty which is very important in business because, brand do not have life cycle. Factories can burn down. Machinery wears out. Technology becomes outdated. Founders die. But a brand can live forever.

.CRM view recognizes the importance of reinforcement.

The constant interaction between brand use and marketing helps to reinforce attitude leading to increase brand loyalty. Customer relationship marketing requires a radical departure in business policies and practices. Customer relationship marketing is not only for big, established brands or only for large companies but also an important concept for small brands and new brands.

Customer relationship marketing is built on the foundation of trust (Morgan and Hunt, 1994). Trust ensures that the relational exchange is mutually beneficial, as the good intentions of partners are not in doubt.

2.2.2 Factors determining Customer Relationship Marketing

Lages (2005) proposed customer relationship marketing determined by information sharing, communication quality, long term relationship orientation and satisfaction with relationship.

Hewett (2002), Hibbard (2001) expressed trust and commitment are two key factors to build/construct customer relationship marketing. However, Ndubisi (2007)found that trust contributes more significantly than commitment.

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Duncan and moriarty, 1998; Lages 2005; Morgan & Hunt, 1994 explored that communication is generally considered a key antecedent or driver of a relationship and customer relationship quality.

Helfert, (2002); Morgan & Hunt, (1994); and Verhof, (2003) pointed out that commitment is considered necessary for customer relationship continuation, an antecedent to customer retention, and to positively affect relationships.

Kumar, Schear and Streenkamp (1995) demonstrated that relationship with greater total independence exhibit higher trust, stronger commitment, and lower conflict than relationships with lower interdependence.

Crosby (1990) expressed that customer relationship determined by trust and satisfaction. Effective quality communication aids relationship initiation and building, and is brought about through timeliness, frequency, accuracy, completeness and credibility (Mohr & Sohi, 1995; Mohr & Spekman, 1994).

Storbacka, Strandvik, and Gronroos (1994) identified five distinct factors Which build the customer the customer relationship service quality, customer satisfaction, commitment and social bound.

Dorsch (1998) proposed that following six factors such as trust, satisfaction, commitments, opportunism, customer orientation, ethical profile.

Anderson and Narus (1991) proposed following four factors determining the customer relationship marketing; Value to customer, relative dependence, industry norms, and customers‘ philosophy of doing business.

Cannon and Perreault (1999) have identified that following four factors determining customer relationship marketing; dependence, dynamism, complexity of purchase, and importance of product. Weitz and Bradford (1999) suggest that firms should encourage employees to build relationships by implementing systems that reward 22

relationship quality with exchange partners. Heide and John (1992); Macaulay (1996); Anderson and Narus (1991:96) propose that each industry has an ―industry bandwidth of working relationships‖ that ―reflects the explicit or implicit relationship strategies.‖ Thus, the industry‘s typical relational practices affect the customer‘s receptivity to relationship-building efforts.

Generally customer relationship marketing

affecting by trust, commitment and

communication quality while helping to initiate, develop and sustain customer relationships (Berry, 1995; Kapoulas , 2004; Ling & Yen, 2001; Mitussis, 2006; Too, Souchon, & Thirkell, 2001).

2.2.3 Studies related to customer relationship marketing

Morgan & Hunt (1994) has identified numerous factors those are associated with customer -sellers relationships, such as trust, commitment, customer value, and satisfaction.

Berry, (1983); Gronroos, (1990); Raman & Pashupati, (2004), in their study disclosed

that businesses engaged in relationship marketing create and develop

profitable exchange relationships with customers over time. This implies that longterm relationships with customers are better than short-term transactional exchanges, particularly in the business to business (B2B) environment. Tadajewski (2009), in his study, analyzed ―important of customer relationship marketing‖ with the sample 117 different types of source expressed that customer relationship marketing created

―win- win‖ relationship between

customer and

organization. Thorsten Henning – Thurau, Kevin P.Gwinner, & Dwayne.D.Gremler (1999), in their study on ―customer relationship marketing outcomes‖ with 336 customers of three different service organizations, in United States indicated that the concepts of customer satisfaction, commitment, confidence benefits, and social benefits serve to significantly contribute to relationship marketing outcomes in services.

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Mornay Robert&Lombard (2011), in their study on ―impact of customer relationship marketing and customer satisfaction and loyalty‖ with the sample of 254 customers from four major centres in South Africa revealed that customer relationship marketing positively influenced on customer satisfaction and customer loyalty. Further stated customer relationship marketing was measured through conflict handling communication and empathy.

Shaker Ismail (2009), explored that customer relationship marketing has positive relationship with enterprise performance. This leads to increase the market share in the target industry as organizational outcomes. .

Vannarajah and Jude Leon (2011) in their study of 50 customers of the Dialog and Mobital mobile service providers expressed that customer relationship marketing impact on market performance. Furthermore; there is positive relationship between customer relationship marketing and market performance. Pato Datta (2010) in his study that on ―An examination into customer relationship marketing and customer retention in grocery food retailing in Bangladesh‖ with the samples of 320 customers

from four leading grocery retailers divulged that

customer relationship marketing impacted on customer retention.

Nelson Oly Ndubisi (2006) revealed

that loyal customers pay close attention to

issues of trust, commitment, communication, and conflict handling. In other words, the four customer relationship marketing variables like attention to issues of trust, commitment, communication, and conflict handling have a significant effect on customer loyalty and predict a good proportion of the variance in customer loyalty. Furthermore, trust is an important ingredient in firm customer relationships and ultimately in development of loyalty,

commitment as a critical factor in building

customer loyalty, and effective communication predisposes customers to stay with a provider of service.

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Roya Anvari & Salimiah Mohmad Amin (2009), in their study of 292 employees of various Indian companies found that customer relationship marketing influenced on personal needs and assessment of training customer.

Juan Pablo Maicas Lopez, Yolanda Polo Redondo & Fco.Javier Sese Olivan (2006) in their study, articulated that the length, depth and breadth of customer relationships help to determine customers‘ propensity to switch fixed-telephone suppliers. Customers who maintain a long-lasting relationship with the firm (length), use the service more (depth), and invest in complementary services (breadth) were less predisposed to switch. Patricia Sorce (2002) in his study on ―the impact of customer relationship marketing strategy on the demand for customized communication‖ identified that commitment, trust, power, control, communication, cooperation, idiosyncratic investment, conflict resolution which factors contribute to build the healthy customer relationship. Furthermore,catalogs and direct marketing were viewed very favorably by the respondents. Commercial e-mail messages were viewed somewhat less favorably.

Carmen Camarero lzquierdo, Jesus Gutierrez Cillan and Sonia San Martin Gutierrz (2005), identified that dimension of customer relationship marketing such as attraction, commitment, and loyalty effect on the market performance as compared to the economic performance.

Nik Kamariah Nik Mat and Wanida Wadee Charoen (2009), in their study of 835 international joint venture companies selected using systematic random sampling from population list of 2443 international joint venture companies exposed that relationship

marketing

orientation

crashed

on

international

joint

venture

performance.

Vahid pezeshki, Alireza and Richard Rakowski (2005), in their study on ―profitability through customer relationship marketing‖ articulated that profitability modeling based on three customer relationship marketing main principals such as customer satisfaction, customer loyalty and retention. 25

Moorman, Deshpandé, and Zaltman (1993) ,in their study disclosed that 15 interpersonal and organizational factors significantly affected users‘ trust. Furthermore, other parties‘ perceived integrity, willingness to reduce uncertainty, confidentiality, expertise, sincerity, tactfulness, timeliness, and congeniality all significantly affected trust. Other factors significantly not affecting trust included the perceived power of the provider‘s organization; the provider‘s perceived organizational culture, the reporting structure, and the firm‘s propensity for project customization.

Pressey and Mathews (2004), in a comprehensive study on ―supplier trust in longterm business to business relationship‖ found that

goodwill and contractual trust

did not co-exist within the same relationship. They also found that competence trust (the ability of the other party to perform their assigned role) was not only relied on by both parties, but may be a fundamental requirement for trust to exist. Furthermore trust may not necessarily progress from low levels of trust to higher levels of trust in a linear fashion over time, but may change based on situations and events.

Ganesan (1994), in his study of 124 US retailer buyers and 52 sellers, found that retailer and vendor commitment was mediated by trust primarily because trust reduced perceived future risk. Verhoef (2003) found that commitment is an antecedent both to customer retention and customer share development.

2.3 Customer Value

Customer value is very significant concept in marketing but many scholars deal with concept in different ways. Woodall (2003) has pointed out that customer value has many meanings. Customer value is a boarder, more systematic view of the entire value delivery network, not just the value ―added‖ by a particular piece of the network. 26

Zeithaml, Parasursman, & Berry (1991) has defined customer value as customer overall assessment of the utility of a product based on a perception of what is received and what is given.

Srivastava, Shervani, and Fahey (1999) defined as Customer value creation (CVC) is manifested by the development of the new customer solutions, enhanced acquisition of inputs that lead to desired customer outputs and development of linkages and relationships to entities in the external market place. Zeithaml

(1988) stated that

Customer value can be conceptualized as a tradeoff between benefits and sacrifices. Customer perceive value (CPV) is the difference between the prospective customer‘s evaluation of the all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the bundle of economic, functional. Psychological benefit customers expect from a given market offering.

Pleasure and pain, are core concepts in the consideration of value. In a business context, ―pleasure‖ can be described as a benefit to a customer, and ―pain‖ as a cost or risk incurred. The totality of the terms ―benefits‖ and ―sacrifices‖, are multifaceted (Grisaffe & Kumar, 1998). Each customer have own measurement scale to rank the benefits (good quality, service quality, core product feature, added service feature and customization) and sacrifices (price, search costs, opportunity costs, distribution costs, learning costs, maintenance costs, relationship cost, psychological costs, time and effort).

Researchers had different terms for the value construct, but all of them meant the same concept, such as consumption value (Sheth, Newman and Gross, 1991), customer value (Gale, 1994; Woodruff; 1997; Oh, 1999), Perceived value (Dodds, Monroe and Grewal, 1991), Service value (Joyanti and Ghosh, 1996) and Value for money (Ashowrth and Johnson, 1996). Therefore, value is typically evaluated from the consumer‘s perceives, but, customer perceived value and service value constructs are based on consumer‘s subjective 27

feeling and understanding what buyers value within a given offering, creating value for them, and then managing it over time have long been recognized as essential elements of every organization‘s core business strategy.

2.3.1 Importance of Customer Value In modern business world, customer value has been referred to as ―the keystone of business market management‖ (Anderson and Narus 1999,) and also Customer value has been considered as an essential element in an organization‘s competitive strategy and as the next source of competitive advantage. Generally customer value is considered to be an important determinant for creating satisfaction, and more recently as a driver of customer loyalty (Bearden and Teel 1983; Fornell 1992; Fornell 1996; Gale 1994; Treacy and Wiersma 1995). Better customer value leads to the organizational performance.

Customer value means to continually create business experiences that exceed customer expectations. Value is the strategic driver that global companies and small businesses use to differentiate themselves from others in the minds of customers.

Customer value blends and extends the quality and customer service movements and has emerged as the dominant theme for business success for 21st-century companies (Fagiano, 1995).

Managing customer value is more critical to all organizations in the new service- and information-based economy. Progressive companies that create maximum value for their customers will survive and thrive; they will be able to carve sustainable competitive advantages for themselves. Other firms that do not provide adequate value to their target markets will struggle or disappear. Therefore, to succeed in the 21st century, organizations must do a good job of creating customer value. Developing strong bonds with customers creates loyalty, which leads to retention.

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The creation of the best, unique customer value is considered as a basis for most marketing decisions, as the main factor that ensures customer loyalty. Customer value directly influences on customer behavioural intentions. Customer value acts as advertising. for example, If customers have value, they are willing to recommend to others in a positive way.

2.3.2 Factors determining the customer value

Ackerman (2000) proposed that six distinct factors which determine the customer value such as innovation, financial soundness, employee talent, use of corporate assets, long-term investment value, social responsibility, quality of management, and quality of products and services.

Mikko Pynnonen and Jukka Hallikas (2007) identified six major factors: availability of services, features and their usability, security, and cost availability of services. These factors are determining the customer value.

Ulaga, Mikko Pynnonen and Jukka Hallikas (2008) proposed following twelve factors determine the customer value. They are; Product Quality, Service Support, Delivery,Supplier Know-how, Time-to-market, Personal interaction, Direct product Costs, Process Costs, Potential yield, Development potential, Cross buying potential, and Loyalty potential Vibhava Srivastava and Tripti Singh (2009) identified three distinct factors determine the customer value like functional value, cost reduction and quality improvement.

In addition, research has identified that value creation can be determined in a relationship through: product innovations resulting from research and development (Mizik and Jacobson 2003; Swaminathan, Feisal, and Hulland 2008); technology improvements in the production distribution processes (Nambisan and Nambisan 2008); market-based assets (relational and intellectual) (Srivastava, Shervani, and Fahey 1998); business processes (product development, supply chain, and customer relationship management) (Srivastava, Shervani, and Fahey 1999); collaborative communication between exchange partners (Mohr, Fisher, and Nevin 1996); 29

marketing, research and development, and operations capability (Krashnikov and Jayachandran 2008); and a high level of cooperation (Fang 2008).

2.3.3 Studies related to Customer Value

Frances Frei & Patrick.Harker (2006) in their study of ―value creation and process management evidence from retail banking‖ revealed that a set of recommendation to managers of financial service organizations as to the most effective approaches for designing and managing their key service delivery process.

Eggert and Ulaga (2002) regard the concepts of value and satisfaction as two separate, inter-related constructs. Customer satisfaction surveys measure a customer‘s after the event view about whether they have experienced a positive or negative discrepancy (or disconfirmation) between the outcome and their expectations regarding a purchase. This is known as the disconfirmation paradigm (Churchill, Gilbert, 1982). Paradoxically, if a consumer started with a low expectation of the performance of a product or service, which was subsequently met in full, measured on this model, they would be ―satisfied‖. This could occur in spite of not receiving any perceived value from it.

Zhilin Yang and Robin Peterson (2004), in their study, of the relationship between customer perceived value, satisfaction and loyalty‖ with the samples of 1101 disclosed that customer loyalty and customer satisfaction have positively influenced on customer perceived value.

Upender Subramanian, Jagmohan Raju, John Zhang (2007) revealed that firing lowvalue customers decreases firm profits, and even improving their value may prove counter-productive.

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Hanna Komulainen, Tuija Mainela, Jaana Tahtinen and Pauliina Ulkuniemi (2004) in their study of ―exploring customer perceived value in a technology intensive service innovation‖ with the samples of 16 retailers revealed five customers perceived value drivers such as service quality, service support, and service provider‘s know-how, interaction and pioneer status.

Shutao Dong (2010) in his study of the impact of the operational and strategically benefits on value creation with the sample of 71 divulged both operational benefits and strategic benefits have positively influenced on value of the firm.

Ming-Tien Tsai, Chung-Lin Tsa and Han-Chao Chang (2010) analyzed on ―the effect of customer value, customer satisfaction, and switching costs on customer loyalty in Taiwan hypermarkets with sample of 236 and revealed customer value has a significant positive effect on customer loyalty and also customer satisfaction.

Day (1994); Hult & Ketchen(2001); (Slater & Narver, 1995, 2000), in their different studies, exposed that the ability to generate superior customer value which

is

dependent on the availability of distinctive marketing capabilities

Raquel Sanchez-fernandez, M. Angeles Iniesta-Bonillo, Walesska Schlesinger-Diaz, and Pilar Rivera-Torres (2010), in their study on ―Analysis of the customer Value Creation in Higher Institutions‖- A Relational Perspective revealed that results of the structural equation model (χ2 (161) =1102.39; p=.00; GFI=.90; CFI=.98; RMSEA=.07; NNFI=.98; IFI=.98) lend support for all the hypotheses. Quality of the student-professor interaction has a significant influence on perceived value (.49, p