The study of customer relationship management in e commerce

Management Science and Research June 2014, Volume 3, Issue 2, PP.23-28

The Study of Customer Relationship Management in E-Commerce Hualin Wang Jiangxi University of Finance & Economics, Industrial Clusters and Enterprise Research Center, Nanchang China, Email: wanghualin2002@163.com

Abstract The rapid spread of the Internet not only promotes the development of electronic commerce, but also changes the traditional business model. In recent years, with the online market competition intensifies, merchants have been realized that it has been increasingly important to enhance their management level to win customers. To achieve profits, e-commerce suppliers must rely on customers and improve their satisfaction degree, thus building their confidence and loyalty both in products and e-commerce.

Therefore, if e-commerce suppliers intend to maintain a long-term stable development, they must focus on customer relationship.

By taking the online store -- Taobao as an example, this paper mainly focuses on discussing Taobao’s current situation of customer relationship management (CRM), and on exploring the necessity to implement CRM, and on putting forward the measures to build and maintain a good customer relationship of Taobao.

Keywords: Customer Relationship Management; Taobao; Online-Shop; E-Commerce

1 INTRODUCTION Modern information technology revolution has greatly changed our business model, especially for the development of e-commerce. By taking the online shop -- Taobao as an example. It enjoys tens of thousands of shop registration every day. And now most of the online stores attach a lot of importance to develop new customers and to find ways to improve the visitors flow rate, and as a result they usually make a huge investment in advertising, event planning and some other aspects. However, they neglect the maintenance and mining of old customers, so the profits they brought only maintain a relatively short period of time. Therefore, how to provide customers with a sustainable value is a question worth of considering for e-commerce suppliers. At present, those online suppliers win visits through a various of promotional activities and the optimized campaigns, but along with the homogeneous of their service and products, the competition between them become more and more intensifying. The market competition is the competition of winning customers, since online merchants must rely on customers if they want to win profits. So it is necessary to attach importance to customer relationship management if online merchants tend to keep the advantage in the fierce market competition and to maintain a long-term stable development.

2 THE ANALYSIS OF CRM IN E-COMMERCE In current, the analyses of the online stores’ customer relationship management include two aspects: first, the analysis of the current situation of CRM in e-commerce; second, the analysis of the necessity of CRM in reality.

2.1 The Current Situation of CRM in E-Commerce Many online stores attach great importance to the development of new customers. And in order to improve their visitors flow rate, e-commerce suppliers usually make a huge investment in advertising, event planning and so on.

However, they often neglect the maintenance and mining of old customers. Then, how to make the marketing costs continue to provide contribution to the sellers? How to maximize the value of these costs? These are the questions wait to be answered. Roughly speaking, the answer lies how to allow customers to bring sustainable value. It takes a large amount of advertising costs and labor costs for the online store to win a customer. First, it has to undertake - 23 www.ivypub.org/msr

various promotional activities to attract the potential customer; and then it has to equip with a customer service to provide the service of consulting, before a customer finally becomes its formal buyer. But once the customer enjoys a good shopping experience, he is likely to go back again to repeat the purchase.

According to incomplete statistics, less than 10% of Taobao’s shops have their own customer relationship management system, while more than 90% of shops are not concerned about it. Most of these shops pay attention only on invoices, express orders and billing order. They also believe that CRM is not necessary for small online stores.

2.2 The Necessity of CRM in E-Commerce To understand the necessity of the customer relationship management for online stores, it is necessary to distinguish between the differences in the buying process of both the new and the old customers, and to understand the value of the old customers.

1) Differences in the Buying Process of the New and the Old Customers The ways by which the new customers access to online stores are usually through online research and advertisements.

Since it is their first time of buying, they will first see the style of the products, and then check on the shop’s credibility level, sales records, customer reviews, and then compare product prices and after-sale services, and last, after consulting and haggling, they will choose whether or not to buy products in the shop. And if a certain part of the service is not dealt well or the communication between the customer and seller is not going smoothly, it will be easy to arise dispute between them. In contrast, the old customers directly access online stores through shop collections or URL. Since they have purchase experience in the same shop before, they will be more comfortable with the products and service of it. And the old customers pay more attention on the style of the products and its instore activities. And they will simply communicate with the sellers, or directly pay the sellers without consulting.

Also, the disputes which often arouse after the receipt will be relatively small, and the satisfaction degree of customers is very high. Clearly, when compared with the new customers, the buying process of the old customers is more streamlined and the service costs of them are much lower. Through scientific estimates, the cost of developing a new customer is the seven times of maintaining an old customer.

2) The Value of the Old Customers When an old customer visits the same store for the second time, this shop will enjoy a lower cost in many ways and also a high recognition on its brands and products which improves its user’s stickiness. Moreover, an old customer will usually buy more than one products, so the store will be able to enjoy a higher profits per customers. Therefore, because of the customer’s recognition on the shop, the communication between them will be more smoothly. Even if the service provided by the seller does not reach the designated position, the customer is able to understand him and gives the store a high remark. Moreover, many customers are willing to write favorable comments and wonderful word-of-mouth reports, thus bring the online shop a good reputation propagation effects.

3 THE ESTABLISHMENT AND MAINTENANCE OF CRM IN E-COMMERCE 3.1 The Establishment of CRM in E-Commerce The establishment of customer relationship is mainly through three links: first, to identify customers, including the judgment of the customers’ value to the shop; second, to choose customers, in other words, to decide who will be the target customers for the seller to establish relations; finally, to develop customers, that is to say, to build relationships with customers and to find ways to attract and develop them.

1) The Understanding of the Customers The understanding of customers includes the understanding of their value and status. Customer value means the value of customers to the online shop. It is not just the profit contribution that customers directly bring for the online shop after buying products; it also includes the sum of value which they bring for the shop in all. The customer is a basic condition for the survival and development of an online shop, so it must rely on the customer so as to win - 24 www.ivypub.org/msr

profits. The value of customer mainly reflects in the following three aspects: the polymerization effect, the information value and the value of public praise. Firstly, the polymerization effect since ancient times, popularity is a shop’s key to success, which is especially true for online stores. In general, people’s sense of herd mentality is very strong. When a customer visits an online store, he will first check this shop’s sales, reputation degree and the evaluation of other customers. Secondly, the information value, When a customer buys products from an online store, he has to provide his address and telephone number to the sellers, since the personal information of customers will help the online stores carry out the operating activities more efficiently and accurately. Thirdly, the value of public praise, every customer has his own social circle. And a satisfied customer will publicize the products and services of the online shop. In this way, he will bring more new customers to this shop, so the number of its page view (PV)， unique visit (UV) and the volume of sales will largely increase.

According to the status of customers, they can be divided as follows: the potential customers, the target customer, the practical customers, the lost customers and the non-customers. Also, these five kinds of customers can be transformed into each other.

2) Choosing customers Different from the traditional business model, the online shop has no accurate customers to choose. Because the customers themselves will actively search for the products, then decide whether or not enter the store. So the store’s so-called of choosing customer is actually choose the products it sells, thus positioning its target consumer groups.

However, the customer management which often occurs after the customers have bought the products should be treated well. The online sellers have to decide which customers do not have to spend too much thought in managing, and which customers have to spend time in management. Since the delivery of goods needs to go though a thirdparty to reach the hands of customers, so the information between the sellers and the customers are in a rather asymmetric way. In this context, both the good customers and the bad customers will come into being. For those good clients, the sellers should try their best to maintain. For those bad clients, however, the sellers should treat them with respect. For example, for those clients who give us bad remarks, the sellers can communicate them with telephone, thus figure out the reasons of customers’ dissatisfaction. If it is because of customers’ misunderstanding, then the sellers can try to solve the problems. In this way, the information between the two sides will be balanced.

3) The Development of Customers For the newly opened shops, their primary task is to attract and develop customers. While for those shops which have been opened for some time, they also need to attract and develop new customers for their sustainable development.

Based on some characteristics, the online shops can only attract customers through marketing skills. For example, they can carry out some promotional activities, such as “ reward for purchase”, “store coupons” etc. Then the online shops can optimize their operation. They can use some highlights to attract customers, like the beautiful decoration and the harmonious color of their web; finally, the online shops can also do some external marketing, such as express train of Taobao, masonry booth, the whole network marketing and the search engine marketing (SEM) etc. Of course, these are just some of the measures that attract customers to the shops and increase their page views. And at the stage of customer development, the role of the customer service center also cannot be overestimated. When a customer enters the shop for consultation, a customer service officer should not only warmly answer the customers’ questions, but also guide the customers in making a purchase. Moreover, because of the special nature of the communication style of the online customer service center, it asks for the customer service officers possess a fast rate of typing, so as to avoid customers wait too long and thus prevents the loss of potential customers.

3.2 The Maintenance of Customer Relationship in E-Commerce The maintenance of customer relationship means the owner of the online shop makes great efforts to consolidate and further develop a long-term and stable relationship with customers in a dynamic process. The target of CRM is to win the loyalty of customers, particularly to avoid the loss of quality customers, thus winning the loyalty of quality customers.

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The issues to be addressed by the online stores are as follows: what if customers never go to your store for the second time? What would you do to the old customers on holidays? How to judge your customers’ likeness from their spending habits? How to find the related potential products which customers are likely to buy?

The maintenance of the customer relationship should have the following steps: the accumulation of information, the classification of grades, the classification of customers, and customer care.

1) The Accumulation of Information When a customer completed a transaction with the seller, what kind of impression the customer leaves to the seller?

This kind of impression is not just about money, but also the customer’s phone number, address, e-mail, and his birthday. Furthermore, during the process of communication with the customer, the online seller has to pay attention to customers’ personalities and hobbies. The more accurate the seller grasp the information of the customer, the more likely for the seller to do the post-maintenance of customers.

In Taobao’s online stores, for example, the online sellers can look for the detailed information of customers through the membership data. After input the query information, the system will display the customers who meet the requirements of their inquiries. And through the data of membership system, the sellers can look for the detailed information of members and their transaction records in the stores. Also, in the page of membership portfolio, the sellers can also maintain the level of membership and attach notes to the information manually. After labeling and setting, the sellers can display the detailed information of the customers, along with their previous buying information in the customers’ Aliwangwang accounts. In this way, the online sellers can have a full range of understanding of customers, thus facilitating a better communication with them.

2) The Classification of Grades Different from the traditional enterprise’s classification of customers, which is based on customers’ age, gender, income and other factors, the online store’s classification of customers is mainly based on its members’ transaction records. And the aim of the new classification is to carry out the promotional sales for the benefit of customers with different grades. And according to these records, sellers is able to set up different membership hierarchy and valid dates, and they can also set up thresholds and preferential policies for different membership level.

The management tool of Taobao’s membership system provides a setting function which controls the level of its members. This system can classify members into ordinary members, senior members, VIP members and Supreme VIP members. Moreover, according to the RFM’s model of customer relationship management, that is the last purchase, consumption frequency, the amount of consumption, we can classify these three aspects of RFM into five degrees, and at the same time divides customers into 5*5*5=125 kinds, thus setting marketing strategies in this way.

3) The Classification of Customers In order to understand whether our customers are dormant customers or not, we have to carry out the classified management according to their purchase amount, frequency, period, customer price and so on.

First, classifying customers manually, for example, for some customers who contribute a relatively small purchase amount, but they are willing to share their purchase experience, and because of their feedback and advocacy, they bring the online shops page views and dealing volumes, therefore, for these customers, the online shops can directly set them as VIP membership manually. So the online shops can take the initiative to contact these quality buyers, and make an exception to give them the quality of the VIP membership. And in return, these members will become their loyal customers.

Second, labelling the customers, in addition to the classification of membership system, the online stores can also attach self-defined labels to customers. And then according to these labels, they can do customer care and marketing.

The name of labels should be personalized, easy to remember, and reflect customers’ characteristics. For example, the sellers can label those customers who do not bargain or buy the products at a high price as “the rich”, and label those who buy at a higher frequency as “shopaholic”, and then label those customers who love bargains as “a good housewife” etc. Later, with the help of the search engine, we can do the marketing which aims at the same labelled customers.

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4) Customer Care After grasping and understanding all the information of customers, the online shops can use the information to interact and communicate with customers. Customers need care from sellers, they should not only be treated as the target to be harassed and marketed. It is only when the sellers win the trust of customers that they will become the sellers’ loyal clients. In order to establish a direct connection with the VIP members, the sellers can build an Aliwangwang account or a forum designed for those VIPs. In this way, sellers can share feelings with customers and publish promotion information, thus maintaining the VIP groups. Moreover, in addition to Taobao’s discount system, sellers can issue membership cards to the VIPs and make assessment each year, so as to give them a more noble feeling and help them pay more attention to this VIP status. The assessment of the VIP members can refer to the following procedures.

Meet the conditions

Call the customers

Register as the VIP members ; The qualification valid for one year

Mail the application form and the Golden membership card

Receive the receipt from customers; register information of the VIP customers

Within one year The failure of the VIP qualification

NO

Re-assessment

YES

VIP customers

FIG.1 SETTING OF THE MEMBERS

3.3 The Rupture and Restoration of the CRM in E-Commerce Before the loss of customers, the online shops have to guard against the loss of customers and try to maintain customer loyalty. But if it has become a reality that the relationship between customers and sellers breaks, the sellers should timely restore their relationship, otherwise they will lose the customers forever.

1) The reasons of online stores’ loss of customers The loss of customers is the phenomenon that customers are no longer loyalty to the stores because of various reasons, but turn to other competitors to buy products or services. The reasons behind this phenomenon can be attributed both to the online stores and the customers.

Firstly, the reasons behind the online stores. The factors which affect the loss of customers are the same as the factors affecting customers’ loyalty. And the positive effect of these factors will result in customers’ loyalty, while the negative effect will only result in the loss of customers. In other words, customers’ dissatisfaction is an important factor which affects the online stores’ loss of customers. Besides, if customers receive little benefits from their loyalty to the online stores, then they will be more likely to leave the original stores. And since their emotion and attachment to the shop are not deep enough, so they pay only a low cost to leave to stores. At the same time, if the online stores lack a detailed system or norms in customer service or management, they will not be able to timely address the complaints from customers in an appropriate way.

Secondly, the reasons behind customers. It is natural for a customer to exit from a market, if his needs or spending habits change. For example, if a customer’s income rises, he is more likely to buy products in mall, rather than in Taobao’s C stores. Also, there are some customers who show little interests in good services or products, so if they change to other shops to buy products, it is not because they are dissatisfied with the original shops, but because they want to change their “taste” to try some new products or services, or just want to enrich their consumer experience.

Moreover, there are some customers who enjoy buying affordable products. For those customers, they have accustomed to compare prices; therefore, they are more likely to shift to other shops to buy the same products at a much lower price. That is to say, their degree of loyalty is not high enough.

2) Strategies to Restore the Loss of Customers - 27 www.ivypub.org/msr

First, the online stores should investigate the cause of their customers’ dissatisfaction and find ways to relieve their discontent. If the online stores can understand and clarify the reasons for the loss of customers, then they will get a lot of valuable information, and also find problems which exist in management. Thus, they can take the necessary measures to improve their stores in a timely manner, so as to avoid the further loss of customers. Therefore, the sellers should actively get in touch with the lost customers in the first place, and then access to them to express their sincere apologies. The sellers can also present free gifts to customers to alleviate their grievances. And these small gifts can be the one related to the products which the customers have already bought. Moreover, the sellers should understand the reasons behind the loss of customers and figure out what exactly is the problem. At the same time, the sellers should carefully listen to the views, opinions and demands of customers, so as to make them feel the care of the online shops, and also to give the customers an opportunity to reflect issues. For example, if one client has ordered the goods, but before long he closed the transaction, then we can take the initiative to get in touch with him to find out the reasons, be it price or the quality of the products? If the reason lies in price, then the sellers can discuss about the price with the customers; if the reason lies in the quality of products, then the seller can offer customers some of the warranty periods, or the policies of free shipping and returning to stimulate their purchase.

Second, the online sellers should act appropriately to the situation and fight for the restoration of customers. The establishment and maintenance of customer relationship requires a series of indispensable portfolio strategies. And in order to save the loss of customers, the sellers should develop appropriate countermeasures according to different situations. For example, for those lost customers who are sensitive to the price of the products, the online sellers should refer to the pricing strategies of their competitors, or even lower their price to attract customers, in this way, the lost customers will come back to their stores naturally. While for those lost customers who are fickle in affection, the sellers should be more innovative in products, services, advertising and promotions. Thus, they can provide more personalized services to customers, for the sake of winning them back.

4 CONCLUSION Customer relationship management is a significant aspect of enterprises to carry out the electronic commerce. It is also an important subsystem of enterprises in their fields of information management. Besides, it is an important tool for companies to unearth the value of customers. As we can see, the importance of CRM in e-commerce has been growing all the time. Moreover, CRM is a systematic project. It asks for a detailed data collection, a scientific classification system, a precise customer marketing, a systematic planning and a strict implementation. Only in these ways can the online sellers find the value of customers to the fullest extent. At the same time, the online shops are facing more and more tests and challenges in the increasingly competitive online environment. The concepts and methods of the customer relationship management can not only help the owner of the online shops maintain and increase their sales, but also play an invaluable role in the existence and development of the store.

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【作者简介】 汪华林，（1968- ）男，汉族，硕士，副教授，客户关系管理，武汉大学公共经济管理在读博士。 E-mail: wanghualin2002@163.com

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