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THE IMPLEMENTATION OF CUSTOMER RELATIONSHIP MANAGEMENT IN MULTI-LEVEL MARKETING COMPANIES

Yrd.Doç.Dr.Nihal Paşalı TAŞOĞLU

Abstract:

Today, transaction marketing focused on selling only for one time has changed into a concept that puts the customer first and aims to establish long-term relationships built on trust and loyalty. With the developments in database marketing, it is now possible to implement one-toone marketing to customers and the CRM concept has made progress.

On the other hand, the direct marketing sector draws the attention with its success on the frequent application of database marketing and defining and targeting its customers individually. The sale that the direct marketing makes through media (catalogue, TV) is made face-to-face in direct selling and multi-level marketing (also called network marketing) which is a version of direct selling. Multi-level marketing is a type of marketing that enables the sales staff to earn from their individual sales and the sales of the staff that have become part of their sales team by their registration.

When we look at multi-level marketing from a CRM perspective, it has the infrastructure necessary to handle customer relationships. CRM is provided by an organization and communication integration that starts within the corporation and involves the suppliers, distribution channels and customers. When we look at the organizational structure of multilevel marketing, the staffs called ‘‘distributors’’ undertake the flow of the product or service from producer to consumer, and all the distribution, promotion, sales, sales organization and warehousing functions.

JEL Classification: M0

1.INTRODUCTION

Today, understanding, creating, communicating and delivering customer value and satisfaction are at the very heart of modern marketing thinking and practice. (Kotler and Armstrong, 2001:5) These two fundamentals, knowledge-based and experience-based marketing, will increasingly define the capabilities of a successful marketing organization. Knowledge-based marketing requires a company to master a scale of knowledge: of the technology that can alter its competitive environment; and of its own organization, capabilities, plans, and way of doing business. (McKenna, 1991:3)

Three key elements of information-based marketing are information technology, database marketing and relationship marketing. The goal of the information technology is to design and manage the computer an communications system of a firm to support it database marketing and relationship marketing actions.(Berkowitz et al., 1997:265)

Beyond creating short-term transactions, marketers need to build long-term relationship with valued customers, distributors, dealers, and suppliers. They want to build strong economic and social connections by promising and consistently delivering high-quality products, good service, and fair prices. Increasingly, marketing is shifting from trying to maximize the profit on each individual transaction to building mutually beneficial relationships with consumers and other parties. (Kotler and Armstrong, 2001:11)

1.1. Relationship Marketing, CRM and Direct Marketing

Relationship marketing, by putting the customer at the center of the enterprise, has a number of process impacts such as putting data and associated guidance at the point of use by frontline personnel, shifting decision making from “hitting home runs” to “hitting singles” and changing from making occasional high-level strategic decisions that could have material short-term impact, to more frequent, tactical decisions that help the company win over the long-term. (Gordon, 1998:66-67) In fact, customer relationship management describes a process which has strategic goals not a result. In this process, CRM uses the technology in order to combine relational approach with database marketing possibilities.

Until recently, customer relationship management has been defined narrowly as a customer database management activity. More recently, however, CRM is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. (Kotler and Armstrong, 2004:15-16)

Today, it is also possible to use direct marketing activities easily because of increasing database technologies and developing new media such as internet, computer. Marketing researches show that organizations can build long-term relationship to their customers by using direct marketing. Therefore, direct marketing may be also called ‘‘direct relational marketing’’ (Göksel et al., 2004:61)

The major forms of direct marketing include face-to-face selling, telemarketing, direct-mail marketing, catalog marketing, direct-response television marketing, kiosk marketing and online marketing. (Kotler and Armstrong, 2001:627)

1.2. Direct Selling and Multi-Level Marketing

Direct selling involves direct sales of goods and services to consumers through personal interaction and demonstrations in their home or office. Direct selling is likely to continue to grow in markets where the lack of effective distribution channels increases the importance of door-of-door convenience and where the lack of consumer knowledge about products and brands will increase the need for a personal-to-personal approach. (Berkowitz et a., 1997:480) Multi-Level marketing is also called network marketing because the organization is referred as a distributor network and marketing is placed in every point of the network by virtue of promotion, advertising and product selling. (Clothier, 1997:21)

The most apparent difference between traditional marketing and multi-level marketing is that wholesaler and retailer activities placed in distribution channel maintaining by independent distributor in multi-level marketing organizations. (Clothier, 1997:21)

Multi-Level marketing give an opportunity to distributors to earn multiplex income. The distributors have not only linear income they earn steadily in their current organization for a week or a mount but also residual income (also called royalty income) increasing day by day. (Mukherjee, 2003:490)

2. CUSTOMER RELATIONSHIP MANAGEMENT IN MULTI-LEVEL MARKETING ORGANIZATION

Personal service is one benefit offered by direct selling that is often lacking in traditional retail service. Customers like to feel that they are being given individualized attention; they also appreciate a relaxed atmosphere in which to ask questions and learn more about the product. (Lumpkin et al., 1989:4) Hence from an operational or activity perspective, direct selling epitomizes relationship marketing. (Dwyer et al,. 1987:11)

Creating and developing customer value, customer satisfaction and customer loyalty involves in customer-centered philosophy is very important to apply customer relationship management strategies.

2.1. Customer Value and Life-time Customer Value in Multi-Level Marketing Organizations

Relationship marketing needs to generate “value” for their customers when it manages to acquire and retain them. Customer value is the difference between the values the customer gains from owning and using a product and the costs of obtaining the product. (Kotler and Armstrong, 2004:9)

Considering the time and money needed to develop prospects and to convince them to buy, it makes sense to maintain good customer relations. Keeping customers is especially important for network marketers because the best customers often turn out to be the best prospects to join sales network. (Kishel and Kishel, 1999:83)

One the other hand, companies today face the reality that the costs of attracting new customers are raising. In fact, on average, it costs 5 to 10 times as much to attract a new customer as it does to keep a current customer satisfied. Customer lifetime value is the value of the entire stream of purchases that the customers would make over a life-time of patronage. (Kotler and Armstrong, 2004:16)

A network marketer serves two types of customers: the retail customer, who buys products or services, and the downline distributor, who buys products or services, sells products or services, and also sells the business opportunity. Beyond customer value, it is also essential to evaluate the lifetime value of a retail customer and a downline distributor. (Ziglar and Hayes, 2001:197-98)

2.2. Customer Satisfaction and Customer Loyalty in Multi-Level Marketing Organization

There is a powerful correlation between customer retention skill and customer satisfaction. According to a research, the customers who evaluate the customer service perfect were very reluctant to retire other product or service suppliers and the rate of purchasing was 95%. On the other hand, the rate of purchasing of the customer who evaluates customer service ‘good’ decreased to 65%. (Brown, 2000:XXI )

In multi-level marketing organizations four elements contribute to a customer’s level of satisfaction: the product, the environment, the sales and promotion methods, and the followup. No amount of sales skill, personal attention, or promotion can overcome a defective or illconceived product. The environments is also very important because the products that are in demand and deliver satisfaction are those that are right for the times and circumstances in which we live. Demonstrating the product with knowledge and concern for the customer as an individual, on the other hand, will greatly enhance the customer’s satisfaction level. Followup -the postsales activities, which are performed to ensure that the customer gets what, he or she bought- is crucial to creating customer satisfaction. (Kishel and Kishel, 1999:83-85) The objective of relationship marketing is to turn new customers into regularly purchasing clients, and then to progressively move them through being strong supporters of the company and its product, and finally to being active and vocal advocates for the company thus playing an important role as a referral source. (Christopher et al., 1991:22)

Customer loyalty, as a result of the organization generates some benefits for their customers, is to be provided that the customer continue and increase to buy from the organization. When the customer is advocate for the organization customer loyalty occurred. (Brown, 2000:55) Both customer retention and total share of customer are essential to loyalty. A firm’s share of customer denotes the percentage of customer’s budget spent with the firm. (Griffin, 1997:5) Ziglar and Hayes emphasize that ‘‘knocking yourself out to satisfy your customers won’t guarantee that your customers will continue returning your business. You‘ve got to go one step better than satisfaction. You’ve got to give your customers –both retail buyer and distributor- reasons to be loyal to your business. (Ziglar and Hayes, 2001:295-296) It is important to know customer expectations and exceeding them for gaining loyalty. When a distributor sell to the same people over and over again, it’s easier to get to know them. Being attentive to the customers, in a one-to-one relationship, is the best way to keep customers loyal to your business. (Ziglar and Hayes, 2001:296)

2.3 The Role of Communication regarding Distributor Relations in Multi-Level Marketing Organizations

The most important feature of communication in multi-level marketing, that the distributor communicates with the company as a distributor, an employee and a costumer. (Peterson and Wtruba, 1996:5, Ziglar and Hayes,2001:95)

The main barriers for relationship marketing is to overcome early on are not with customers or others in the chain of relationship, but are inside the company itself. (Gordon, 1998:86) The idea behind internal marketing is to insure that all members of the staff provide the best representation of the company and successfully handle all telephone, mail, electronic, and personal interactions with the costumer. (Cristopher,1999:29) Thus, every person working within an organization must perceive each other as a customer. (Buttle, 1996:5) Despite the growth of self-service retailing, direct marketing and the internet, salespeople continue to provide the link between company and customer necessary to effect exchange in many settings. (Camey, 1997:2)

The relationships between distributor and organization have an essential importance, since there is no employee selection or hiring process. A current distributor introduces most new recruits into multi-level marketing organization. Because they have no control over distributor selection or individual goals, multi-level marketing organizations must rely to a greater degree on influence strategies and the relationship within the organization to influence performance after the salesperson has become part of the organization. (Camey, 1997:16)

Amway, the largest multi-level marketing organization in the world, pay attention very much in order to support their distributors. Amway Japan Limited, for example, started to provide distributors a wide variety of support to help them to grow their business. In 1996, these customer service centers received approximately 1.2 million incoming calls, about 90 percent from distributors and 10 percent from end customers. Major activities included customer services, distributor relationship, logistics, marketing and public relations. (Peterson, 2001:343)

The channels between organization and the customer maintain to align products and services properly regarding customer needs and then to provide to reach these products and services easily by virtue of efficient distribution channels and present to the end customer. The cost of these channels for the customers is 20% between 40% of total retail price.

According to internal marketing approach, every person working within an organization has both a supplier and a customer. (Christopher et al., 1999:29) Recently, retailers can present their products, which are produced by themselves to the market without needing any advertising costs in proper price. Thus, producers increasingly retire to relational model regarding retailers and see them as a customer not distributor. In addition this, retailer also see his supplier as a partner not an advertiser. (Davies, 1996:27)

Direct selling as a distribution channel originated when a producer sold its products or services directly to an end user or consumer. In multi-level marketing organizations, independent distributors perform the same functions as retailers: they promote, sell, and distribute products and services to consumers. (Peterson and Wotruba, 1996:6-7)

‘‘Multi-level marketing is a unique form of direct selling in which the sales force consists of self-employed individuals who take title to the goods they sell and assume all the risks and responsibilities of the selling process. As a result, they also essentially function as a channel intermediary such as a wholesaler or retailer’’ (Camet, 1997:11-12)

Yarnells said that “Network Marketing inevitably requires you to talk to many people within your circle of influence. By reaching out to enough people, you will eventually find those for whom the time is right. And that is when the personal relationships begin-what we call ‘relationship marketing”(Yarnell and Yarnell, 1998:136)

Multi-level marketing provide customers and distributors to establish one-to-one relation each other by virtue of individual communication methods.

Instead of strong reliance on mass and impersonal promotional efforts such as advertising, direct selling organization rely on the collective efforts of independent contractors to achieve the company’s communication and promotional objectives. (Peterson and Wotruba, 1996:7)

To persuade consumers to consume, multi-level marketing organizations rely on the ancient and slower method of word-of-mouth. (Yarnell and McCommon, 1990:13) Multi-level marketing companies pay people to the ‘‘word-of-mouth’’ advertising, instead of building overpriced retail stores and hiring expensive public relation agencies. (Yarnell and Yarnell, 1998:170)

It has been seen that many organization serve to their customer by web site and internet marketing decrease to personal contact need day by day. As mentioned before, when the CRM implications are perceived as a software application it will be unsuccessful. The explosion of information and communication technology is propelling direct selling industry to unprecedented heights. Because these technologies have empowered individuals that they can do things that they could never before do for themselves. (Robinson, 1997:158) With new technologies such as internet, fax, GSM, distributors have an opportunity to build their business easily and independently.

Internet is not used for sale to end customer in direct selling organizations. From producer to distributor and to end customer, sale is maintained by distributors. The customer communicates to the distributors and learns qualifications of the product and orders them via internet. Thus, internet is an only element to provide to order for distributors. (Ergün, 2004:62-63)

One of the key strengths of multi-level marketing is its ability to unite independent distributors into a cohesive network with information and support flowing up and down throughout the organization.(Kishel and Kishel, 1999:107) This structure gives the distributor and the other members in the network a tremendous resource base on which to draw. Meeting are a very good way of showing the business opportunity to prospects at once (Clothier, 1997:93) There are two types of meeting in multi-level marketing business. As a cheap and efficient method, home parties or home meetings are often used by distributors since beginning of multi-level marketing concept. (Ziglar and Hayes, 2001:248) The other type of meeting is ‘‘business opportunity meeting’’ which is organized in big hotels (Ziglar and Hayes, 2001:248)

3. CONCLUSION

When we look at multi-level marketing from a CRM perspective, it has the infrastructure necessary to handle customer relationships. CRM is provided by an organization and communication integration that starts within the corporation and involves the suppliers, distribution channels and customers.

When we look at the organizational structure of multi-level marketing, the staffs called ‘‘distributors’’ undertake the flow of the product or service from producer to consumer, and all the distribution, promotion, sales, sales organization and warehousing functions. In multi-level marketing systems, distributors have to lead their new distributors and teach them how to do business. Thus, it is possible for them to establish close relation and distributor manage to develop these relations.

Multi-level marketing distributors often use individual communication strategies especially word-of-marketing methods. On the other hand, training seminars and meetings which are organized by the organization are designed in order to educate distributors about the company, the products and marketing plan.

It has been more easily to be distributor in multi-level marketing system via new information technologies. Because customers by virtue of setting up office materials at home have an occupation which they choose how to work.

Moreover, multi-level marketing companies have a tendency towards seeing their distributors as customers. Consequently, they have made the widely mentioned customer life time value inside customer relationship management and thus, the wallet share.

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