Effects of Customer Relationship Management on Customer Retention by Agribusiness Firms in Aba Metropolis of Abia State, Nigeria
ABSTRACT
The purpose of this research is to examine the effects of customer relationship management (CRM) on customer retention by agribusinesses in Aba Metropolis of Abia State. To achieve the aim of this study, fourteen agribusiness firms were randomly selected and from each firm, two staff and five customers were randomly selected. A total of 98 respondents were therefore used for the study. Data were collected from both primary and secondary sources. Primary data were collected using a well structured sets of questionnaire designed for the respondents. The data were analyzed quantitatively using descriptive statistics (means and standard deviations) and binary logit regression analyses. The results of the analyses showed that CRM strategies play major role in customer retention, and there are effective CRM strategies agribusiness firms use that are acknowledged by customers that has encouraged their retention in the various firms. More so, the results obtained showed that certain extents of these strategies of CRM were helpful in customer retention; however certain challenges facing these agribusiness firms were identified. Some socioeconomic characteristics of the customers were found as factors that could affect customer retention (p<0.05), on the contrary, the overall effect of the socioeconomic characteristics of customers and firms were found not to have any significant effect on customer retention (p<0.05). The study concludes that effective CRM strategies are valuable tools for customer retention. The incorporation of the findings of this research work in CRM strategies would serve as competitive edge to attract and retain potential customers by agribusiness firms.
CHAPTER ONE
INTRODUCTION
1.1 Background Information
Today, businesses follow different marketing strategies to survive in the highly competitive world by identifying, acquiring and retaining most important and economically viable customers as well as developing on-going and long-lasting relationship with them, (Roger, 2005). A business that wants to succeed in today’s global competitive market, where customers are empowered and brand loyalty erosion is increasing, will have to move to customer relationship management (CRM). Customer relationship management enables organizations to provide excellent real-time customer service through the effective use of individual account information (Kotler and Keller, 2006). This requires a more complex approach. Organizations need to investigate customer needs, and build relationships with both existing and potential customers (Rootman, 2000).
Winner, (2001) noted that in a competitive environment, customer relationship management is critical to a company’s profitability and long-term success. To become so customer-focused, all managers, professionals and executives of marketing as well as employees of the organization must understand how to build profitable relationship with each customer and to make managerial decisions every day designed to increase the value of both the company and the customer that will grow their value from the customer-based strategy, (Peppers and Roger, 1993). The broad application of CRM has led to a multitude of definitions. Berndt, (2005) defined CRM as “an enterprise-wide commitment to identify the individual customers of an organization, and to create a relationship between the organization and these customers as long as the relationship is mutually beneficial. Customer Relationship Management evolved from organization process such as relationship marketing (RM) and increased emphasis on improved customer retention through effective management of customer relationships. The aim of customer relationship management is to establish long-lasting relationships with the most important customers and generate increased customer satisfaction, loyalty, and retention.
Roger (2005) observed that developing a better understanding of existing customers allows companies to collaborate, respond, and communicate more effectively to significantly improve retention rates of their customers. Currently, various companies begin to establish their networks to new as well as existing customers to increase ongoing long-term customer satisfaction, retention and loyalty. To be able to maintain this, some companies engage in competition by implementing the principles of relationship marketing via strategic and technology-based customer relationship management applications. Customer Relationship Management is an important element of organization which helps them assess customer satisfaction, loyalty, retention, and profitability in terms of repeat purchases, money spent, and longevity, (Chen and Popovich, 2003).
The origin of CRM is from relationship marketing that is aimed at improving long run profitability by shifting from transaction-based marketing that stresses new customers to customer retention with effective management of customer relationships (Chen and Popovich, 2003). According to Chen and Popovich, (2003) CRM is a more complex and sophisticated application that mines customer data pooled from all customer touch points, a single and comprehensive view of a customer while uncovering profiles of key customers and predicting their purchasing patterns. It also involves acquiring a better understanding of existing customers, which in turn allows organizations to cooperate, respond, and communicate more effectively to improve customer satisfaction and retention as much as possible (Roger, 2005).
The increase in competitive intensity is forcing marketers to be concerned with customer retention since retaining customers is less expensive, and perhaps, has a more sustainable competitive advantage than acquiring new customers. As several studies have indicated, marketers are realizing that it costs less to retain customers than to compete for new ones (Resenberg and Czepiel, 1984). For instance, it has been established that retention of five additional percent of the company’s customers can increase profits by almost one hundred percent, (Reichheld and Sasser, 1990). The goal of CRM is to create an effective customer relationship as much as possible and develop future competences within the company.
Goldberg and Davis (1957) viewed agribusiness as the total operations involved in the manufacture and distribution of farm supplies, production activities on the farm, storage, processing and distribution of farm commodities and items made from them. They went on to add that agribusiness involves three sectors which include:
i The input sector which deals with the supply of inputs required by the farmers for raising crops, livestock and other allied enterprises. Usually, the inputs in this regard include seeds, fertilizers, chemicals, marketing, fuel etc.
ii The farm sector which aims at producing crops, livestock and other products.
iii The product sector which deals with various aspects like storage, processing and marketing the finished products so as to meet the dynamic needs of consumers.
Therefore, agribusiness is the sum of all the operations or activities involved in the business of production and marketing of farm supplies and farm products for achieving the targeted objectives. Agribusiness in the context of this study will focus on the input sector that deals with various aspects of supply of inputs required by farmers for raising crops, processing, and marketing of finished agricultural product in the study area.
According to Tores et al, (2007), developing effective marketing strategies and anticipating the needs of current and future customers is one of the most significant challenges faced by agribusiness firms. The drastic and rapid changes in the structure of farm sector compel agribusiness firms to continually adapt their marketing strategies in order to remain competitive and to attract and retain customers. Baran et al, (2008), noted that agribusinesses are experiencing a trend towards closer relationship between buyers and sellers of agricultural products in a bid to cope with the uncertainty of environmental changes due to globalization, rapid technological advances and increasing consumer power. He went on to state that agribusiness firms strive to achieve competitive advantage by moving away from the adversarial buyer-seller interactions towards more cooperative long-term relationships that create value and are difficult to duplicate. Value is created when the competitive abilities of the two trading partners are enhanced by being in the relationship. It has become increasingly evident that for agribusinesses to survive and grow, they must begin to meet and exceed the expectations of their most important assets- their customers. It is only through the process of understanding the customers’ needs and meeting those needs that agribusinesses can begin to keep and maintain these customers. Winner (2001), is of the opinion that customer satisfaction and retention is all about keeping the customer happy with the product and service offering provided. Customers do not buy what companies sell but rather what those goods and services can do for them (Oliver, 1997).
Understanding customers’ problems and providing solutions, help to make customers profitable to the agribusiness firm and make them feel good about the transactions as well (Tores, et al 2007). As agribusiness firms seek to fulfill the expectations of their specific customers they can concentrate on providing consistent values that will increase the relationship and retention of customers thereby increasing their chances of more purchases which will also improve the economic conditions of the business.
1.2 Problem Statement
Customer Relationship Management is a business strategy which leads to the value for customers, anticipating and managing their expectations, and demonstrating the ability of and the responsibility to satisfy their needs (Dominic and Guzzo, 2010). Qualities of services are critical factors for the success of any business (Gronroos, 1990). As Rootman (2000) points out, enterprises exist because they have a customer to serve. The key for the achievement of sustainable advantage lies in delivering high quality service that result in satisfied customers (Shamham, 1998).
Sharma and Patterson (2000) argue that it is difficult for customers to evaluate professional services and the benefits of making such investments. Consequently, customers need to place higher confidence on professional service providers. The central characteristic of a professional service is that it is a product of the interaction between the providers and the clients (Thakor and Kumar, 2000). Hence, it becomes essential for firms to identify factors useful in service conception, provider selection and customer behaviour prediction in such ways that are satisfactory for both parties involved in the relationship .As a result, if one wants to study the success and failure determinants of any relationship, the study of both partners’ behaviour in the interactive process is necessary.
One of the main characteristics of a professional service is the high degree of interaction that exists between the provider of goods/services and the customer and also the high degree of uncertainty in terms of what is actually going to be delivered (Lowendahl, 1997). Maister (1993) in Lowendahl (1997) argues that there are two major factors that make services interesting to look at. The first factor is that quality services involve a high degree of customization. This means that traditional management principles such as, for instance, standardization, and supervision are difficult to apply. The second factor is the strong component of face-to-face interaction with the client, which leads to major challenges in quality assurance, and requires very special skills of top performers.
Jobber (2001) observed that not all service encounters have the potential for a long term relationship and the service providers must raise the following questions before applying any relationship marketing activities: “does the customer have an ongoing or periodic desire for the service? Does the customer have any other alternatives? It is important for service providers to understand why customers stay or leave and also what creates value for them. In other words, firms need to identify those customers with whom they wish to create long term relationships.
Winner (2001) observed that in building successful relational exchanges with the customers, there is a need to understand customer behaviours and to focus on those customers who can deliver long term profits to the firm. However, no firm can hold on to all its customers and aim at full customer retention (Egan, 2004). This is due to several factors; one factor is for example, the fact that in highly competitive markets, customers may switch either temporarily or permanently to another product or service. Egan (2004), succinctly reiterate this fact in the statement that firms must know when to ‘cut and run’. Hence, firms are turning more and more towards seeing customer retention as a strategic tool. Further, Egan (2004) define customer retention strategies as strategies focusing on a firm’s existing customers with the aim of securing a customer’s loyalty over time.
Erikson and Vaghult (2000), pointed that in order for firms to benefit from customer relationships, they need to understand the mechanisms behind it by studying already retained customers. They further argued that however, studying already retained customers is not an easy task as customer retention is relative to a firm’s specific context. For instance, it is complicated for a firm to know when the customer should be considered as being ‘retained’. In some cases, a customer is considered as retained when the customer makes repeated purchase. However; it then becomes complicated to evaluate how often this customer is expected to purchase the product or service.
As today’s markets and industries are characterized by high competition, it is crucial for firms in such environments to create new ways to gain competitive advantage over competitors (Morgan and Hunt, 1994). Recent studies have shown that strong customer relationships may provide such competitive advantages for firms. According to Bejou and Palmer (1998), for many services the essence of marketing is the development of long-term and value-laden relationships with the customers.
Despite the explosion in the practice of relationship marketing, many questions about CRM practices continue to be debated in academic journals (Shugan and Sharp, 1997). Though most CRM practices involve special treatment of a firm’s more valuable customers (Fournier, Dobscha, and Mick, 1998; Winner, 2001; Rigby and Ledingham, 2004), should firms provide special services early to increase the number of customers it attracts or later-on to enhance its ability to keep the consumers already attracted?
Most industry analysts and academics recommend that firms focus on retention rather than on acquisition (Thomas, Reinartz, and Kumar, 2004). They opined that the cost of retaining existing customers is considerably lower than the cost of acquiring new customers (Hart, Heskett and Sasser, 1990; Reichheld and Sasser, 1990). However, systematic empirical evidence of this is meager (Shugan and Sharp 1997; Reinartz and Kumar 2000; Dowling 2002). Blattberg and Deighton (1996), observed that in some industries the low intrinsic retainability of customers makes retention strategies ineffective. Little or no research has been done on the effects of CRM on customer retention in agribusiness therefore this study intends to fill this knowledge gap.
1.3 Objectives of the Study
The broad objective of the study is to examine the effects of customer relationship management (CRM) on customer retention by agribusinesses in Aba Metropolis of Abia State. The specific objectives are to:
- discuss the role of customer relationship management process in customer retention.
- examine the effects of socioeconomic characteristics of both customers and firms on customer retention.
- ascertain effective customer relationship management strategies.
- determine the extent to which effective CRM can lead to customer retention.
- ascertain the effects of CRM on agribusiness firms.
- examine the challenges of agribusiness firms in their practice of CRM.
1.4 Hypotheses of the study
The following null hypotheses were tested:
Ho1 Socio-economic characteristics of customers have no significant effect on customer retention.
Ho2 Firms characteristics have no significant effect on customer retention.
1.5 Justification of the Study
The study serve primarily as a bridge and springboard for further studies in the field of customer relationship management (CRM), generally by agribusinesses, particularly agribusiness firms which have been growing rapidly. The research findings are expected to be of benefit to the corporate bodies (banks and insurance etc), academic and researchers in general.
The findings of this study has provided detailed record on the strategies of customer relationship management and their positive effects on customer retention; this will guide agribusiness firms on how to allocate and combine productive resources towards achieving a successful customer relationship management strategies. To researchers and students this study has provided clues to the important tools necessary to implement a successful CRM program so as to acquire, maintain, serve and retain its customers and be profitable. The results of this work can help the managers of agribusinesses as an input to evaluate performance status of its CRM strategy, in decision making and take timely necessary actions.
1.6 Limitations of the Study
The following limitations were inherent in the study. In the course of carrying out this research, the researcher was faced with the problem of regulating and tracking down the respondents because of their busy schedules. This was overcome by the researcher going to the business location of the agribusiness customers.
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