Impact of Customer Relationship Management on Customer Loyalty and Customer Retention with reference to Automobile Sector

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1 Available online at University Journal of Research ISSN (Online) , ISSN (Print) Impact of Customer Relationship Management on Customer Loyalty and Customer Retention with reference to Automobile Sector Dr. Garima Malik Assistant.Professor, Amity Buisness School, Amity Univerity, Noida , India Abstract Customer Relationship management concept and its impact on customer loyalty is gaining more and more attention in present business world. Companies are focusing on retaining their loyal customers rather than gaining new. One such strategic focus is customer loyalty, which should be viewed as a must for automakers hoping to compete. Unlike other consumer products with more frequent replacement cycles, auto buyers often don t return to market for three or four years or even longer. Some empirical evidence suggest that it costs significantly less to retain an existing customer than it does to acquire a new one, making loyalty especially critical in times when corporate marketing budgets are scrutinized. The main aim of this paper to evaluate the impact of CRM benefits on customers loyalty and retention for the benefits of enterprise and customers itself. The research was conducted though survey method and data was collected from vehicles owners. The results revealed the significant factors that lead to the customer loyalty for automobile was trust associated with on time service delivery, Promptness in handling repair work, friendliness helpfulness, arranging replacements and fulfill its obligation to customers. Keywords: Customer loyalty; customers retention; automobile sector; customer preference; customer satisfaction. 1. Indian Automobile Industry As per India Brand Equity Foundation (IBEF) India represents one of the world s largest car markets (Easy availability of finance and rising income levels are encouraging the middle class population to choose from the vast range of passenger vehicles. The Indian auto industry has been 70

2 recording tremendous growth over the years and has emerged as a major contributor to India s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of the country s GDP and employs about 19 million people both directly and indirectly (Report of Department of Industrial Policy and Promotion). Indian Automotive Industry growth decades started in the 1970s. Between year 1970 and 1984 cars were considered as a luxury product; manufacturing was licensed, expansion was restricted; there were Quantitative Restrictions (QR) on import and tariff structure designed to restrict the market, but initially in year 2000, several landmark policy changes like QR and 100% FDI through automotive route were introduced. (Automotive Mission Plan, ). In 2003, Core group on Automotive R & D (C.A.R) was set up to identify priority areas for automotive R & D in India. Indian Auto Industry is 2 nd in Two Wheelers, 3 rd in Small Cars and 5 th in Commercial Vehicles among the top 10 in the World. In addition, with Government s backing and a special focus on exports of small cars, multi-utility vehicles (MUVs), two and three wheelers and auto components, the automotive sector s contribution to the GDP is expected to double reaching a turnover worth US$ 145 billion in 2016, (Automotive Mission Plan (AMP) ). The Production of the automobiles has been increased at a compound growth rate of 13.2 per cent. In the recent years strong demand is due to rising incomes, increasing growth in the middle class, and the younger population will make India one of the leading producers of automobiles. The major factors are skilled manpower and technological advancement. Tata Nano, which has been considered as world s cheapest car and had been able to focus towards the low-income market. Hero Honda and Mahindra and Mahindra have jointly planned to develop a technology for two-wheelers which will run on natural gas. With rising income level and bombardment of middle class and youth, India is a major market for medium and heavy duty trucks and buses apart from the skilled labor and technology.ford Motors is planning for global production unit of compact cars in India, once its plant in Gujarat sets up. Hyundai considers India as the most important market. In the future Indian automobile sector is poised for steady growth.

3 1.1 Key Statistics The Indian automobile industry has been registered with an annual growth rate of 8.27 percent when it was compared to August 12 as it produced 1.56 million vehicles which include passenger vehicles, the commercial vehicles and three wheelers. There was an inflow of USD 8,922 million in automobile sector from foreign direct investment in between April 2000 to August 2013 that is an increasing inflow of 4.51 %, as per the data published there has been rise in overall exports of automobiles during the period of April- September There recorded 3.33 million production of passenger vehicle in and has been expected to grow at a rate of 14 per cent annually. (Automotive Component Manufacturers' Association of India, ) The auto industry produced a total 1.81 million vehicles, including passenger vehicles, commercial vehicles, three wheelers and two wheelers in February 2014 as against 1.73 million in February 2013, registering a growth of 4.41 per cent over the same month last year. The increase continues to be on account of growth in two wheelers production. (Report of FDI, 2015) Moreover, the overall domestic sales during April February 2014 grew marginally by 2.68 per cent over the same period last year. Refer to table 1 The passenger vehicles production in India is expected to reach 10 million units by The industry is estimated to grow at a compound annual growth rate (CAGR) of 13 per cent during In addition, the industry is projected to touch US$ 30 billion by , according to data from Automotive Component Manufacturers Association (ACMA). The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 to January 2014 was recorded at US$ 9,344 million, an increase of 4 per cent to the total FDI inflows in terms of US$. (Report of Department of Industrial Policy and Promotion (DIPP) ) Table 1. Top Automobile Companies in India (Figures in Crores) 2011 ET 500 Rank Company Turnover PAT MCRP CR Assets 7 Tata Motors Ltd Mahindra and Mahindra Ltd Maruti Suzuki India Ltd

4 41 Hero MotoCorp Ltd Bajaj Auto Ltd Ashok Leyland Ltd Sundaram Clayton Ltd TVS Motor Company Ltd Eicher Motors Ltd Force Motors Ltd Source: The overall automobile exports grew by 6.39 per cent during April February Passenger vehicles, three wheelers and two wheelers registered growth at 6.44 per cent, per cent and 5.41 per cent respectively, compared to the same period last year. 1.2 Role of Customer Relationship Management in Automobile Industry Customer relationship management (CRM) is increasingly important to firms as they seek to improve their profits through longer-term relationships with customers. In recent years, many have invested heavily in information technology (IT) assets to better manage their interactions with customers before, during and after purchase (Bohling et al., 2006). Yet, measurable returns from IT investment programs rarely arise from a narrow concentration on IT alone, with the most successful programs combining technology with the effective organization of people and their skills (Bhardwaj, 2000; Piccoli and Ives, 2005). It follows that the greater the knowledge about how firms successfully build and combine their technological and organizational capabilities, the greater will be our understanding of how CRM influences performance. Although the market for CRM software and support is strong that remains considerable skepticism on the part of business commentators and academics as to its ultimate value to the corporation and customers (Maoz et al., 2007). Surveys of IT executives in the business press report that CRM is an overhyped technology (e.g. Bligh and Turk, 2004) and some academics claim the concept is fundamentally flawed because CRM ignores the reality that many customers do not want to engage in relationships (Dowling, 2002; Danaher et al., 2008). Empirical studies examining the success of CRM technology have failed to alleviate this skepticism as investigations to date span a limited range of activities (Sutton and Klein, 2003) and are noticeably silent on the extent to which CRM investment contributes to firm performance

5 (Boulding et al., 2005). A lack of clear and generalizable empirical support for the expected return from CRM investments has important practical implications for market development and firm profitability. It also raises questions regarding the most appropriate mix of capabilities to effectively exploit investment in CRM Customer Relationship management is the strongest and the most efficient approach in maintaining and creating relationships with customers. Customer relationship management is not only important for business but also useful to create strong personal bonding within people. Development of this type of bonding drives the business to new levels of success. Once this personal and emotional linkage is built, it is very easy for any organization to identify the actual needs of customer and help them to serve them in a better way. It is a belief that more the sophisticated strategies involved in implementing the customer relationship management, the more strong and fruitful is the business. Most of the organizations have dedicated world class tools for maintaining CRM systems into their workplace. Some of the efficient tools used in most of the renowned organization are Batch Book, Sales force, etc. Faced with the increasingly complex and competitive environment that characterizes the automotive industry with challenges ranging from tighter profit margins to new entrants in the new- vehicle and aftermarket service business original equipment manufacturers (OEMs) and dealers are turning more aggressively to customer relationship management (CRM) to help attract new customers, increase brand loyalty, reduce costs, increase efficiency, and maintain a competitive advantage. Today s automotive consumers are increasingly well-informed and have an unprecedented level of choice in the marketplace. Customer loyalty is no longer a given and forward-looking automotive, companies have to work harder than ever to earn and retain it. To respond to high customer expectations, companies are finding, they have to use both traditional and emerging channels to deliver more effective, efficient, and profitable marketing, sales, and customer service.

6 2. Literature Review Reichheld and Sasser (1990) indicated that an improvement of 5 percent in customer retention leads to an increase of 25 percent to 75 percent in profit of automobile companies. Further, Wills (2009) reported that it costs more than five times as much to obtain a new customer than to keep an existing one. Moreover, with loyal customers, for example, companies can increase their revenue. First, loyal customers are less price sensitive, and the premiums of loyal customers increase 8 percent annually in the personal insurance industry (Reichheld and Teal, 1996). Second, loyal customers are willing to purchase frequently, try the firms other products or services, and bring new customers to the firms (Reichheld and Sasser, 1990). At Northwestern Mutual, the contribution of 55 percent sales is from existing customers (Reichheld and Teal, 1996). Further the author indicates that customer loyalty provides a foundation for a firm to examine their marketing strategy, relationship quality improvement activities, and value creation program. Day (1969) introduced the concept of commitment to loyalty studies, and reported that commitment to the brand is necessary in determining the loyalty. The study seeks to develop a conceptual framework of brand image on customer commitment and loyalty. Therefore, the purpose of study is to evaluate how corporate brand image affects customer commitment as well as impact on loyalty in automobile sector. Payne and Zrow (2005) had developed a structured framework of customer relationship management (CRM) which helps the better understanding of CRM and the way it enhances the customer value and shareholder. The researchers have found out theoretical aspects of CRM, and they have identified 3 alternative perspectives of CRM. The authors emphasized the need for a cross-functional and process-oriented approach that places CRM at a strategic level. Oliver (1997) indicated that customer loyalty is defined as a deeply held commitment to re-purchase a preferred product or service in the future. With loyal customers, companies can maximize their profit because loyal customers are willing to (1) purchase more frequently; (2) spend money on trying new products or services; (3) recommend products and services to others; and (4) give companies sincere suggestions (Reichheld and Sasser, 1990). Thus, loyalty links the success and profitability of a firm (Eakuru and Mat, 2008).Customer loyalty is commonly distinguished in three approaches including behavioral loyalty approach (Grahn, 1969) attitudinal loyalty approach (Bennett and

7 Rundle-Thiele, 2002; Jacoby, 1971; Jacoby and Chestnut, 1978), and integration of attitudinal and behavioral loyalty approach (Dick and Basu, 1994; Jacoby, 1971; Jacoby and Chestnut, 1978; Oliver, 1997). The attitudinal loyalty helps to examine the factors of loyalty, to avoid switching behavior (Caceres and Paparoidamis, 2007), and to predict how long customers will remain loyal (Jacoby and Chestnut, 1978). Therefore, viewing loyalty as an attitude-behavior relationship allows integrated investigation of antecedents and consequences of customer loyalty (Dick and Basu, 1994). (Tim et.,al reveled for the companies to survive in today s competitive environment; this becomes the major objective of customer relationship management in customer retention. In the present market conditions consumer are very important factors as the companies change their short term and long term policies according to customer requirement. In same line, Parvatiyar and Sheth (2001) developed the conceptual foundations of CRM by determining the literature on relationship marketing and other streams that gives the knowledge of CRM. CRM implementation challenges as well as CRM's potential to become a distinct discipline of marketing are also discussed in this paper. Milovic (2012) Customer Relationship Management is a business strategy that is based on the philosophy of "customer is king" that is customer is put in the central place. This philosophy, with the enhancement of IT in past 20 years, has experienced a major change. Today it is said that consumer is a dictator, according to whom the company will always adjusts its business. The most important task of organization is to satisfy a client's needs, which ultimately means their long-term value to the organization. This paper describes the application of CRM strategies in several industries Thuyuyen et al., (2007) place forward the methods for booming implementation of the CRM and to discusses barriers to CRM in e-business and therefore the m- business. Coltmana et.al., (2011) analyzed the impact of the customer relationship management (CRM) on a firm s performance with the employment of hierarchical construct model has been examined. when following the resource-based read of the firm, the strategic CRM has been conceptualized that is associate endogenously determined operate that the organization ability to harness and orchestrate lower order capabilities that comprise physical assets, like IT infrastructure, and structure capabilities, like human analytics and business design. The results have a positive and awfully important path between a superior CRM capability and the firm performance. In turn, the superior CRM capability has been absolutely related to the human analytics and design of business. The results recommend that the impact of IT infrastructure on the

8 superior CRM capability has been indirect and absolutely mediate with the employment of human analytics and therefore the business design. 2.1 Objectives of the Study The main objectives of the study are as follows:- 1. To analyze the effectiveness of customer relationship management on customer satisfaction. 2. To study the impact of customer relationship management on customer retention in automobile sector and further explore the various CRM activities conducted/initiated by various companies. 3. Research Method and Research Instrument The research methodology for the present study was based upon descriptive research design. Stratified Non Probability Sampling method was used, which involves the sample being drawn from that part of the population which is close to hand. The questionnaire survey technique (refer to Annexure 1) was used to collect data. Responses were collected from 120 respondents from the NCR (National Capital Region) of India. The choice of questions for the study include questions on personal background; age- lowest range was and highest was 40 and above; gender- male/female; employment type- employed (public, private and self), student and unemployed. The other questions were on variables used to assess automobile service performance; customer care services Validity of the questionnaire also done to check whether the variable used to study customer relationship management dimensions will produce consistent results (refer to Table 2). Table 2. Validity of Questionnaire Cronbach s Alpha Number of items Different Dimensions of CRM in Automobile Sector To narrate the variable in different dimensions of customer relationship management in automobile sector the factor analysis has been administered. Explanatory factor analysis is used to identify the underlying constructs and investigate relationships among the variables. To test the suitability of the data for factor analysis, the following steps are taken: The correlation matrix are computed and examined. It reveals that there are enough correlations to go ahead with factor analysis.

9 To test the sampling adequacy, Kaiser-Meyer-Olkin measure of sampling adequacy is computed which is found to be It indicates that sample is good enough for sampling. The overall significance of correlation matrices is tested with Bartlett test of sphericity (Approx Chi-square = 0.537and significant at 0.000) provided as well as support for the validity of the factor analysis of the data set. Table 3. KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Source: Primary Data Approx. Chi-Square Df 55 Sig A high value of the statistics (from 0.5 to 1) indicates the appropriateness of the factor analysis for data in hand. Here the value is which means it is appropriate to apply factor analysis. Figure. 1 Screen Plot of Components Figure 1 clearly depicts that Eigen values and component (factor) number according to the order of extraction. This plot is used to determine the optimal number of factors to be retained in the final solution. Here are 4 components having Eigen value above 1.

10 Table 4. Rotated Component Matrix Statements Component Quality work performed Comfort Willingness to satisfy you Friendliness helpfulness Convenient hrs of timing Availability appointment Receiving Promptness Arranging replacements Cleanliness On time delivery Note: Extraction method: Principal component analysis, Rotation method: Varimax with Kaiser Normalization, Rotation converged in 7 iterations. The rotated component matrix table 4 had shown that customers convenience, delivery of services, showing confidence and promptness of services being offered by the service providers in automobile sector. The Rotated variables mentioned below have factors loading of 0.6 or above. Factor 1 - Availability of Services: This factor has been loaded by two variables availability of appointment (0.691) and receiving (0.709). It s clearly shows that customers are concerned about the availability of their vehicle services at any point of time. Factor 2 - User Friendly: This factor has been uploaded by two variables friendliness (.606) and on time delivery (.771) and cleanliness (.537). Under the CRM benefits now a days companies also offered the online service booking facility, pick and drop facility for retaining their loyal customers. Factor 3 - Prompt Services: This factor has been uploaded by only one variable is promptness of the services offered by service provider and convenient hour. CRM system saves time and cost of the customers, through this system, customers expect prompt service from the service provider.

11 Factor 4 - Replacements: This factor has been uploaded by only one variable is promptness of the services offered by arranging replacement for the auto parts etc. Table 5. One-Sample Test Customer Satisfaction and preference of second purchase T Df Si Test Value = 0 H 01 : Customer satisfaction has no association with customer retention. Confidence level: 95%g. (2- tailed) Mean Difference 95% Confidence Interval of the Difference Lower Upper Satisfaction has strong association with customer retention (repetitive purchase). According to the above table, we can conclude that the significance level or the p value is less than 0.5 so we will reject the null hypothesis in favor of alternative hypothesis which is customer Satisfaction and loyalty: Table- 6 highlights the relationship between the satisfaction of the respondents and they recommended the vehicle and service to their friends or relatives for purchasing. Table 6. satisfaction * recommend to others Parameters Recommend to others Total highly satisfied satisfied neutral least satisfied dissatisfied Total Yes no

12 Above Table shows that 82(43 highly satisfied and 39 satisfied) of 120 customers recommend the product or service to others. This infers that satisfaction leads to loyalty (spread of positive word of mouth). 4. Multiple Regression Analysis To identify whether different dimensions of CRM has strong impact on customer loyalty, multiple regression was used. Table 8. Contribution of variables in the dimensions of trust dependent variable: customer loyalty scores (y) Independent Variable Unstandardized Coefficient Standard Standardized Co- t-value Significant Error efficient Constant (y) On time service delivery (Promises ) (X1) Promptness in handling repair work (X2) Note: Multiple R 0.514, F-Value : d.f (2,137) p < 0.05: and R2 = Source: Primary Data The above Table explains contribution of trust dimensions of customer relationship management to customer Loyalty. Y = (X1) (X2) Where Y is the estimated customer Loyalty Score. The above equation revealed the variables of trust and on time service delivery, consistent in providing services. On an average, if the perception score of trust changes by 1 unit, there will be unit increase in customer loyalty, other variable being remain constant similarly the multiple R of revealed that there exist the relationship of 51 percent between trust and customer loyalty. Similarly R2 indicates change in trust explained and variation of 26 percent in customer loyalty. The relative importance of variables in predicting trust can be determined by comparing beta co-efficient. Values of Beta are 0.502, respectively for customers work promises are reliable, and consistent in providing services. This shows that among all aspect of trust, on time service delivery and Promptness in handling repair work had most powerful impact

13 on customer loyalty. It has been noticed from the above analysis that for further designing customer retention programme for trust and on time delivery could play major role for retaining the customers. Co-efficient Error Table 9. Contribution of variable in the dimensions of caring. Dependent variable: Customer Loyalty Score (Y) Independent Variable Un Standardized Standard Standardized Co- t-value Significant efficient Constant Friendliness helpfulness (Quickly handling customer query) Arranging replacements Fulfill its obligation to customer Note: Multiple R 0.633, F value ; d.f (3.136): P < 0.05: and R Source: Primary Data Y = (X1) (X2) (X3) Where Y is the estimated customer loyalty score. The above equation shows the impact of the variable of, Friendliness helpfulness, arranging replacements full fills its obligation to customers. On an average, if perception score of caring on an average changes by 1 unit, there will be units. Increasing in customer loyalty, similarly the multiple R of Shows that there exist the relationships of 63 percent between caring and customer loyalty. Similarly R of exhibits that the variable of caring explained a variation of 40 percent in customer loyalty. The relative importance of variable in predicting. Caring can be determined by comparing standardized regression co-efficient (beta Co-efficient). Values of beta are 0.093, 0.016, and respectively for Friendliness helpfulness, arranging replacements full fills its obligation to customers. This shows that among all aspects Friendliness helpfulness (Quickly handling customer query), arranging replacements and Fulfill its obligation to customer had powerful impact on customer loyalty.

14 5. Findings This paper has drawn attention on the impact of different dimensions of customer relationship management to customer loyalty. From the analysis, it is concluded that customer works and promises are reliable. Automobile service provider fulfills its obligation to customer, are offering advice on how to invest the predominant variable which will increase customer loyalty. So the automobile sector needs to focus more attention in the above stated variables, thereby increasing customer loyalty. 94.2% of the customers are in the satisfaction and above satisfaction level. The customers are satisfied with the company s services and hence they will be loyal customers and will be retained. This indicates that satisfaction leads to customer loyalty and retention. Crosstab results show that satisfied customers are retained as they would go for the second purchase of the product Crosstab results show that satisfied customers recommend the product or service to others that is they spread a positive word of mouth. According to customers, breakdown of charges are not explained to them and the paper work is not completed in time so the companies need to improve on the above mentioned attributes. Most of the service representatives are courteous and knowledgeable but when it comes to call handling there is difference of opinion among respondents 31 percent are strongly agree that there is quick call handling where as 30 percent disagree on quick call handling, so call handling should be quick rather than keeping customers on hold or make them waiting for long. 6. References Bennett, R. & Rundle-Thiele, S., (2002). A comparison of attitudinal loyalty measurement approaches. Journal of Brand Management, 9(3), Bharadwaj, A.S. (2000). A Resource-Based perspective on information technology capability and firm performance: An Empirical Investigation. MIS Quarterly, 24(1),

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16 Jacoby, J. and Chestnut, R. W. (1978). Brand Loyalty: Measurement and Management. New York: John Wiley. Maoz, M., Collins, K., Davies, J., Kolsky, (2007). The Gartner CRM Vendor Guide. Milovic, B., (2012). Application of CRM strategy in different business areas, Economic and Organization, 9(3), Oliver, R. L., (1997). Satisfaction: A Behavioral Perspective on the Consumer. 6 th Edition New York: McGraw Hill Parvatiyar, A. and Sheth, J. N., (2001). CRM: Emerging practices, process and discipline. Journal of Economic and Social 4(1), Payne, A., and Frow, P., (2005). A Strategic framework of customer relationship management. Journal of Marketing, 69(3), Piccoli, G (2005). IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: A Review and Synthesis of the Literature, MIS Quarterly 29(4), Reichheld, F. F. and Teal, T. (1996). The Loyalty Effect: The Hidden Force behind Growth, Profits, and Lasting Value. Boston, Mass: Harvard Business School Press. Reichheld, F. F. and Sasser, W. E. (1990). Zero defections: Quality comes to services. Harvard Business Review, 68(5), Report of the Committee on Compilation of FDI in India. Reserve Bank of India.( ). Report of Department of Industrial Policy and Promotion on Automobile sector ( ) Richard I. Levin, David S. Rubin., (1998), Statistics for Management, 7 th edition Pearson Prentice

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18 Annexure-I (Questionnaire) Respondent name Address Contact Numbers Id Gender And Age 1. Rate from 1 to 5 on the basis of preference the following services 1 being highly preferred and 5 being least preferred Services Free after sales service Test drive Free training 2. What type of CRM services do you avail? E-CRM Tele-customer service 3. What activities company does to maintain continuous relation with you? Loyalty program Bonus card Annual offers Club invitations 4. Rate the Benefits of CRM Benefits CRM activities saves time CRM activities reduces cost CRM activities helps in better decision making Cross selling Strongly agree Agree Neutral Disagree Strongly disagree 5. In thinking about your most recent experience with [COMPANY], was the quality of customer service you received:

19 Very poor Somewhat unsatisfactory About average Very satisfactory Superior 6. The following questions pertaining the customer service representative with whom you spoke recently. The customer service representative was: Very courteous Handled my call quickly Very knowledgeable Strongly agree Agree Neutral Disagree Strongly disagree 7. On your most recent service visit, how would you rate the service department on the following areas? Highly Satisfied Neutral Least satisfied Dissatisfied satisfied Quality of work performed Avoiding inconvenience Made you feel comfortable Willingness to go out of their way to satisfy you Friendliness and helpfulness of cashiers Having convenient hours for service Ease of obtaining an appointment Quickly acknowledging your arrival Promptness in handling repair work Arranging replacement Clean, comfortable waiting area On time delivery 8. Did the following things occur on your most recent service visit?

20 Statements Yes No You were explained the work to be performed before hand You were explained the work performed and the breakdown of the charges You were informed when your car was ready The paperwork was completed and waiting for you when you arrived 9. Would you recommend the product to others? Yes No 10. Would you prefer the same company or the product for your second purchase? Yes No 11. How satisfied are you with the service? Highly satisfied Satisfied Neutral Least satisfied