Influence of Crm on Customer Loyalty - an Application to the Life Insurance Industry in South Africa

Article excerpt

ABSTRACT

This article investigates the influence of CRM on customer retention at a South African long-term insurance organisation. Primary data was gathered using a questionnaire, with items referring to CRM and customer loyalty. Data was factor-analysed. The findings of the study stipulate that CRM positively influences customer loyalty. If the long-term insurance organisation successfully maintained relationships with its customers, intentional customer loyalty at the long-term insurance organisation will increase. CRM in the multiple regression analysis explained 80.2% of the variance (R) in customer loyalty. Therefore, one unit increase in CRM will increase customer loyalty with 89.5% when considering Beta.

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INTRODUCTION

Over the past twenty years, the importance of the service industries to the world economy has grown tremendously. In 2003 the service sector contributed to over 80% of the employment and Gross Domestic Product (GDP) of the United States (Zeithaml, Bitner & Gremier, 2006). In the South African economy the service sector contributed 71.4% of South Africa's total GDP in 2006. The services sector is spearheaded by the financial services sector. The services sector employs 65% of the total workforce in South Africa (Datamonitor, 2008a). Since democracy in 1994, there has been increasing competition in the South African financial services industries from niche players and foreign entrants, as technology and financial liberalisation created the stimulus for competition from new areas. The financial services sector has been subjected to changes regarding new regulation, compliance and transparency. The process of démocratisation has also required the banks, insurance organisations and securities markets to examine the extension of services to the great number of South Africans excluded from formal financial provision (Hawkins, 2004). The insurance industry emerged from the cloister of the sanctions era by expanding abroad. The foreign invasion of the banking market has spilled over into the insurance market, as direct writers of insurance policies start to erode the local market. In South Africa, factors such as crime, AIDS, increased competition in the insurance industry and proposed legislative changes have made life more difficult for the institutions that cover consumers' life, health or property. Greater competition has also put pressure on life assurers, who face a steady rise in policy lapses. The industry previously experienced remarkable growth before 1998, but it is now struggling (Business Times, 1998).

An organisation that wants to succeed in today's global competitive market where customers are empowered and brand loyalty erosion is increasing, will have to move to customer relationship management (CRM). Customer relationship management enables organisations to provide excellent real-time customer service through the effective use of individual account information (Kotler and Keller, 2006). This requires a more complex approach, organisations need to investigate customer needs, they have to build relationships with both existing and potential customers, and they will have to satisfy their customers' needs (Rootman, 2006). Organisations realise the importance of satisfying and retaining customers. Acquiring new customers can cost five times more that the cost involved in satisfying and retaining current customers. Organisations on average can lose up to 10% of their customers. When customer defections are decreased by 5%, this can lead to an increase in profits of between 25% - 85%, depending on the industry. The profit rate of a customer tends to increase over the life of the retained customer (Berndt, Du Plessis, Klopper, Lubbe & Roberts-Lombard, 2009; Kotler and Keller, 2006; Ndubisi & Wah, 2005). Long-term insurance organisations such as Liberty Life require a loyal customer base to survive. Loyal customers can be generated through CRM. …