Customer Relationship Management and Customer Retention

TABLE OF CONTENTS

ACKNOWLEDGEMENT

ABSTRACT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background of the Study
1.2 Problem Statement
1.3 Research Objectives
1.4 Research Questions
1.5 Significance of the Study
1.6 Scope of the Research
1.7 Limitations of the Study
1.8 Structure of the Research

CHAPTER TWO
LITERATURE REVIEW
2.1 Customer Relationship Management
2.1.1 Component of Customer Relationship Management
2.2 Customer Retention
2.2.1 Components of Customer Retention
2.2.2 Benefits of Customer Retention
2.2.3 Inertia as a determinant of Customer Retention
2.2.4 High Switching Costs Promotes Customer Retention
2.3 Technology
2.3.1 Importance of Data
2.3.2 Internet
2.3.3 Electronic Customer Relationship Management (E-CRM)
2.4 Customer Recognition
2.4.1 Types of Information Needed for Customer Recognition
2.4.2 Feedback and Response
2.4.3 Loyalty Programs
2.4.4 Objective of Loyalty Programs
2.5 Loyalty Programs and Customer Retention
2.5.1 Customer Lifecycle
2.5.2 Switching Barriers Effect
2.5.3 Variables involved in Customer Relationship Management
2.5.4 Trust
2.5.5 Commitment
2.6 Promise
2.6.1 Communication
2.6.2 ManagingRelationships
2.6.3 ConceptualFramework
2.6.4 Effects of Customer Relationship Management on Customer Retention

CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Paradigm
3.2.1 Purpose of the Study
3.3 Sampling Procedures
3.3.1 The Population and Sample
3.3.2 The Sampling Technique
3.4 Sources of Data
3.5 DataCollection Tools
3.6 Data Analysis
3.7 Quality of the Research
3.8 Research Ethics and Limitations

CHAPTER FOUR
RESULTS AND DISCUSSION
4.1 Introduction
4.2 Demographic Data
4.2.1 Gender
4.2.2 Age
4.2.3 Level of Education
4.2.4 Period a Customer has patronized the services of the Insurance Company
4.2.5 Trust
4.2.6 Commitment
4.2.7 Social Bonds
4.3 CustomerOrientation
4.3.1 CustomerSatisfaction
4.3.2 CustomerRetention
4.3.3 Discussion of thefindings

CHAPTER FIVE
SUMMARY FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary offindings
5.2 Conclusions
5.3 Recommendations

REFERENCES

APPENDICES

ABOUT THE AUTHOR

Abbildung in dieser Leseprobe nicht enthalten

Ama Achiaa Kankam Boadu is an author and a business consultant with a varied experience working with AngloGold Ashanti, Social Security and National Insurance Trust and Winrock International. Ama Achiaa Kankam Boadu is also a columnist for the Business and Financial Times. She holds a bachelor’s degree (B.A) in marketing, a master’s degree (MSc) in marketing and postgraduate certificates in; social media marketing from Boston University and risk management for projects from University of Adelaide.

ACKNOWLEDGEMENT

A study of this kind could not have been successful without the help of others. I therefore, wish to express my sincere gratitude to the Almighty God without him this study would not have been possible. Like any other field of endeavor, one’s success depends immensely on contributions of well-meaning individuals towards the person’s pursuit. My eternal and everlasting appreciation goes to all staff and lecturers of KNUST School of Business. I would like to express my sincere gratitude to my supervisor, Dr. Bylon A. Bamfo, for the patience and guidance as well as the several suggestions he gave in the course of this study. My thanks and appreciation also goes to all the respondents who answered the questionnaires. They deserve commendation for assisting me.

ABSTRACT

Customer Relationship Management (CRM) practices are business strategies designed to reduce costs and increase profitability by solidifying customer loyalty. With intense competition among insurance companies in Ghana, this study sought to assess Customer Relationship Management practices and Customer Retention in NSIA Insurance. The study was conducted to identify critical factors necessary for customer retention in carrying out customer relationship management practices in the selected insurance company and to develop effective customer relationship management practices to manage customer retention for sustainability within the insurance industry using NSIA Insurance as a case study. Well structured questionnaires and face-to-face interview were the methods adopted for the investigation of the study. A sample size of 40 respondents was considered, they were made up of customers and the staff who are fully involved in customer relationship management of the insurance company. Data collected from the completed questionnaires and the interviews were grouped into frequency tables and expressed in percentages. The researcher relied on the SPSS in interpreting the collected data. The study shows that even though NSIA insurance has policies on customer relationship management practices, these policies are not carried out fully to accomplish the ultimate goal of customer retention. The study recommends that for the insurance company to command an adequate number of loyal customers, NSIA Insurance should consistently improve on its quality of service to address the preference of the customers and consider the five service quality constructs of reliability, assurance, tangibility, empathy and responsiveness.

LIST OF TABLES

Table 4.1 Gender

Table 4.2 Age

Table 4.3 Level of Education

Table 4.4Period a Customer has patronized the services of the Insurance Company

Table 4.5 Trust

Table 4.6 Commitment

Table 4.7 SocialBonds

Table 4.8 Customer Orientation

Table 4.9 Customer Satisfaction

Table 4.10 Customer Retention

LIST OF FIGURES

Figure 2.1. The Process of Customer Relationship Management Practices in Insurance Companies

CHAPTER ONE

GENERAL INTRODUCTION

1.1 Background of the Study

Over the last few decades insurance companies have exhausted a large chunk of resources in their quest to secure new businesses. In as much as it is important to exploit new businesses and enter emerging markets, it is also essential to maintain existing customers and enhance customer relationship (Weinstein, 2002). In reality, the cost associated with acquiring new customers is astronomically high as compared to the cost of retaining existing customers. This implies that a minimal increase in the retention rate will add several thousands of Ghana Cedis to the premium revenue.

Historical accounts vividly indicate that when a customer holds two insurance policies with an insurance company, the customer is likely to renew the policy than a customer who holds a single policy. This analytical process makes it quite strenuous to identify the type of customers that are profitable and should be retained by the company. Undoubtedly searching for new customers is indispensable but retaining and enhancing long lasting relationships with profitable customers is the main emphasis now. Insurance companies have now realized that parting ways with a customer means losing a life time’s worth of referrals and purchases and not just a single sale. The target for marketing now is to attract new customers with a promise to provide superior value and retain current customers by delivering satisfaction (Kotler& Armstrong, 2011).

In Ghana, the insurance industry is characterised with a whopping majority of the insurance companies offering the same services with little variations. Insurance companies can set unique standards through tenacious customer satisfaction and effective customer relationship management. Customer retention is a key variable in customer relationship management. Customer satisfaction is the essential condition for retaining customers; it compares the expectations of a customer to the perception of the customer being satisfied (Kracklauer et al., 2004). This highlights the relevance of customer retention as a vital tool in Ghana’s competitive insurance industry.

Customer relationship management (CRM) represents an activity to build accurate knowledge on customer behaviour in order to initiate strategies that encourages customers to continually enhance their business relationship with a corporate entity (Parvatiyar&Sheth, 2001). The strategies mostly used in customer relationship management are anticipated to litigate the occurrence of service failures that motivate customers to switch from one insurance company to the other as referenced by (Crosby et al., 1990; Jones & Farquhar, 2003; Best, 2002; Mithas et al., 2005; Uppal, 2008 and Sharma et al., 2011) in their works.

The study of Verhoef (2003) shows that customer relationship management has a positive relationship with customer retention. Other researchers like Verhoef&Donkers (2001) also confirm the use of technology as a key variable in retaining customers. This confirms that CRM plays a major role in allowing insurance companies to use strategies which rely heavily on customer database in coordinating effective customer relationship towards the ultimate goal of customer retention. Customer relationship management has quintessentially been considered as a major determinant of customer retention. Apparently the noteworthy nexus between customer relationship management and customer retention is worth studying in the highly competitive insurance industry of Ghana.

1.2 Problem Statement

Insurance companies offer unique financial services that propel economic growth in a country. The services range from the underwriting of risks common in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers ensures financial stability in the financial markets and provides a sense of security to economic entities. The business world without insurance is unsustainable since risky business may not have the capacity to retain all kinds of risks in this ever changing and uncertain global economy (Ahmed et al., 2010). Indeed, a well-developed and evolved insurance industry is a boon for economic development as it provides long- term funds for infrastructure development of any economy (Charumathi, 2012). The National Insurance Commission, the regulatory body of the Ghanaian insurance sector, has therefore intensified its supervision, field visits, and has adopted a risk-based assessment of insurer’s activities. All of these regulatory measures are to ensure that the performance of insurance companies is in sound condition.

In spite of the important role of the insurance industry, there is little information in the industry to help professionals to work to make good policies and address the needs of customers and formulate effective policies. Availability and easy access to accurate statistics on the Ghanaian insurance market remains a big challenge to the sector today. Most Ghanaians therefore are totally at a loss about what actually transpires in the industry. This has affected insurance penetration negatively in Ghana. For instance, in 2008, insurance penetration in Ghana was 1.57%, whiles South Africa recorded 12.7% (National Insurance Commission [NIC] Annual Report, 2008). Furthermore, there is little research conducted on the effect of CRM on customer retention in the insurance industry at large and particularly in Ghana from the customer’s perspective (see Abu, 2011).

1.3 Research Objectives

The aim of the study is to assess the customer relationship management practices and how this affects customer retention in NSIA Insurance Company, Kumasi. The specific objectives are as follows:

- To examine the customer relationship management practices adopted by the NSIA Insurance company in Ghana.
- To examine the challenges NSIA Insurance is exposed to in carrying out customer relationship practices in Ghana.
- To establish the effect of customer relationship management (CRM) on customer retention in NSIA Insurance.

1.4 Research Questions

From the objectives stated above, the study seeks to answer the following questions.

- What are the customer relationship management practices adopted by NSIA Insurance?
- What are the challenges associated with customer relationship practices in NSIA Insurance?
- How does customer relationship management (CRM) affect customer retention in NSIA Insurance?

1.5 Significance of the Study

The results of this study would hopefully be significant in the sense that it would enable insurance companies to better understand why customers defect; the effect of customer relationship management and the various motivational factors which could be harnessed to inspire customers to retain them to increase and sustain productivity.

The study which focuses extensively on NSIA Insurance as a case study will contribute to the existing knowledge on customer relationship management and customer retention. The study will aid policy makers in implementing improved policies in the insurance industry as well as serve as a foundation for future research work to be conducted in this area.

1.6 Scope of the Research

This study focused on Customer Relationship Management and how it affects Customer Retention in NSIA Insurance. The customers of NSIA Insurance will be the population for the study and the study will be carried out within a time frame of 3 months.

1.7 Limitations of the Study

In spite of the significant contribution of this study to the existing literature, the study has several limitations. The study is limited to NSIA Insurance in Kumasi; inadequate financial resources and time constraint was the reason for choosing the branch of Nsiah insurance company in Kumasi.

1.8 Structure of the Research

The Chapter One, of the study is the introductory chapter, which contains the background of the study, the structure of the work, the statement of the problem, the objective of the study, limitation of the study and the organization of the study. The Chapter Two consists of the detailed discussion on the accessible studies by a variety of researchers on customer relationship management, technology and customers retention in an organization. The Chapter Three of the study contains the research methodology to be applied for the study.

It discusses the alternative methods of studying the effects of customer relationship management on customers’ retention. The fourth Chapter of this study consists of the data analysis which would be collected for the study and also comprises of the results and discussions to be extracted from objectives developed for the study. The concluding Chapter of this study consists of the summary results, conclusion of the study and recommendations for the insurance industry in Ghana.

CHAPTER TWO

LITERATURE REVIEW

2.1 Customer Relationship Management

CRM is an acronym for Customer Relationship Management. There is no generally accepted definition of CRM even though CRM is considered to be an essential business approach. According to Swift (2001), CRM is an enterprise approach to understanding and influencing customer behaviour through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty, and customer profitability.

Customer Relationship Management is the strategic use of information, processes, technology, and people to manage the customer’s relationship with your company (Marketing, Sales, Services, and Support) across the whole customer life cycle (Kincaid, 2003). Additionally Parvatiyar & Sheth (2001) defined CRM as a comprehensive strategy and process of acquiring, retaining, and partnering 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.

CRM has been conceptualized by Reinartz et al. (2004) from the customer perspective as: A systematic process to manage the customer relationship initiation, maintenance, and termination across all customer contacts points in order to maximize the value of the relationship portfolio. Also Padmavathy (2012) defined CRM as a set of customer-oriented activities supported by organizational strategy and technology, and is designed to improve customer interaction in order to build customer loyalty and increase profits over time.

The definitions above accentuate CRM as a complete set of approaches for administrating customer relations in terms of marketing, customer and support services.

The organizations can use information technology and information systems to combine CRM procedures to please customers. For the purpose of this study, CRM will be defined as organization of comprehensive information regarding customers through the use of complicated software and analytical tools to cautiously manage client contact points to maximize profit and retain the customers.

2.1.1 Component of Customer Relationship Management

In the paper of (Kim et al, 2003) a framework of CRM was proposed from information processing view point in the aspects of relationship initiation, worth, positioning and commitment. The approach suggests that, customer information is crucial in administrating, attracting and retaining successful relations with customers across the developmental phases. The argument continues that, when organizations concentrate on their association with customers, some of the customers will be retain and provide value for the firm in terms of generating higher profits. Therefore, organizations can improve their relationships with customers by properly managing customer information. A related conceptual framework of CRM was anticipated to integrate business procedures, organizational arrangement, investigative structures and technology to represent customers view (Chan, 2005). In a different study Kim et al. (2003), developed a framework of CRME to consist of customer knowledge, interaction, value and satisfaction. The study declares that, business interactions are handled well only when CRM activities aimed at satisfying the customers’ personal and distinctive needs. Through incorporation of business processes and technology, organizations are able to sustain and improve the relations with customers. From functional and organizational capabilities perspective, Reinartz et al. (2004 ) offered a model for CRM processes based on three different levels of relationships namely; initiation, maintenance, and termination. Payne et al. (2005) further studied the significance of business strategy in CRM implementation.

The authors developed a model that assigned the business strategy with customer strategy to establish value for both firm and customers. By so doing, the lifetime value of advantageous clients is maximized.

The Literature discussed above suggests that, when organizations implement CRM processes by considering business strategy, organizational motivation and information technology, then customer relations established can be retained. The integration of these elements permits firms to gain knowledge about profitable customers in order to achieve business performance increase.

2.2 Customer Retention

Customer Retention can be defined as the possibility of a client to be retained by the organization (Morgan& Hunt, 1994). Also Hall (1997) considers customer retention as maintaining customers for life. The life span worth of a customer to any business can be appreciated in their financial performance. Some studies considered Customer retention from a behavioural perspective. Thus, the customer feeling belong and dedicated to the company. For instance, the customer recommends the company to others and willing to repurchase services or products from the organization (Diller, 1996; Diller & MuÈllner, 1998; Gremler & Brown, 1998; Homburg et al., 1999; Oliver, 1999).

According to Keiningham et al. (2007, p 364), customer retention is defined as “customers‟ stated continuation of a business relationship with the firm. For Internet service providers (ISPs), it is continuing to use the same provider. For retail banks, it is continuing to maintain an account relationship with the bank. And for discount retailers, it is the continued repeat shopping with the retailer”. For the purpose of this study, customer retention will be defined as the company’s ability to maintain their obtainable customer base.

2.2.1 Components of Customer Retention

Retaining customer relationships are viewed as one of the crucial possession for companies (Webster, 1992; Collier & Bienstock, 2006). Some previous studies affirms that, maintaining obtainable customers is mostly worthwhile than acquiring new customers (see Rosenberg &Czepiel, 1984; Vandermerwe, 1996). As a result, some researchers have developed interest in examining the strategies for attracting and sustaining good relationships with obtainable customers (Duncan & Moriarty, 1998; Gonza´lez et al., 2004). Again Finn (2005) suggests that, Relationship quality plays an important role in sustaining long lasting relationship. Researchers have studied relationship quality from customer’s perspective (Crosby et al., 1990; Kumar et al., 1995). Sharing information sustains the quality of relationship. Information as a main resource can help organizations to appreciate their customers and reinforce their customer base against their competitors (McKean, 1999; Fruchter & Sigue´, 2005). Thus, distributing information with customers can make and retain the assurance of customers. Hence, sharing information often with customers can help organization to retain them (Crosby et al., 1990). One of the efficient way to attract prospects is through the assistance of retain customers who offers referrals (Johnson et al., 2003;Collier & Bienstock, 2006).

A referral from existing customers permits the sales force of the organization to penetrate into markets which are untouchable (Boles et al., 2000). However, this strategic business potential of referrals is disregarded by companies (Bachrach, 1999; Connors, 1998) and very little attention has been given to it academically (Boles et al., 2000). Keeping high quality relationship with clients seems to boost their readiness to offer referrals (Finn, 2005). This leads to achievement of retained relationship. As soon as clients expect continued dealings, the clients will be willing to respond by referring colleagues, family and friends to their companies (Johnson et al., 2003; Washburn, 1996).

Also Noordewier et al. (1990), advocate that when a company expects a customer relationship to transcend, then the current interaction should be fostered. Continuous communication with the same service provider boosts customer willingness to refer others to their service providers. Base on the above academic literature reviewed, it is suggested that, when quality relationship exist between customers and their service providers, the relationship is sustain mainly by the distribution or sharing of information. Customers then feel close and part of the company which boost their moral to provide referrals to their service providers. This happens mainly because customers anticipate future interaction with their service providers. Therefore, the components of customer retention in this study are; relationship quality, information sharing, willingness to provide referrals and anticipation of future interaction.

2.2.2 Benefits of Customer Retention

Customer retention provides several benefits to an institution (Abratt and Russell, 1999). In reality, customer who stays with an institution or company for long is much more profitable than searching for prospects (Reichheld & Kenny, 1990; Rust & Zahorik1993). Numerous reasons such as reducing high cost of searching and catching the attention of prospects, expanding the volume of sales and profits, and advertising by customers through word of mouth. When customers understand clearly the services of the company, this influences the customer’s willingness to stay with the institution hence customer retention. Furthermore, customer retention positively affects the organizations returns, productivity, reducing switching of customer to competitors and introducing fresh prospect (Felvey, 1982; Reinartz & Kumar, 2000). Additionally Reichheld and Teal (1996), recommend that when a customer gets use to the company’s dealings, they make very important business connections, purchase many products, and become less responsive to price of the products of the company.

In the midst of all these benefits, Kamakura et al. (1991) states cross selling as an important tool for ensuring quality relationship with customers.

This leads to increase in product consumption by customers thus cross-selling merely supports customer retention which prevents customers from moving to competitors. When customers stay with the organization for long, it enables the company to appreciate the consumers purchasing behaviour in terms of their choices of products and occasion. According to Beckett et al. (2000), some customers pretend to be loyal to a particular service provider even though they despite their activities because of three main reasons below. Firstly, they are unable to distinguish amongst them. Secondly, customers are enticed by accessibility to the service provider. Thirdly, customers view the cost of changing to a competitor as high, and perceive the exercise tedious and useless.

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