You are on page 1of 18

Chapter 14: Customer Relationship Management

Learning Objectives
Building Customer Relationships, 1:1
According to Harvard Business Review authors Thomas Jones and Earl Sasser, Increased customer loyalty is the single most important driver of long-term performance. In an environment of scarce attention and customer control, a firms ability to build and maintain relationships with customers, suppliers, and partners may be more important than a firms land, property, and financial assets.

(PPT 14-2)

Relationship Marketing Defined


Relationship marketing is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment. Relationship marketing today means promise fulfillment, two-way communication with stakeholders and understanding individual customer needs.

Stakeholders
Firms also use relationship marketing to build bonds with employees and suppliers in addition to consumers. The four most affected by the Internet are: employees, business customers in the supply chain, lateral partners, and consumers.

Custome r Relations hip Management (CRM)


CRM is the process of targeting, acquiring, transacting, servicing, retaining, and building long-term relationships with customers. Firms now focus on the idea that if they dont keep their customers happy, someone else will. CRM Benefits CRM benefits include increased revenue from better prospect targeting, increased wallet share with current customers, and retaining customers for longer periods of time. CRM tactics can also decrease costs, resulting in greater profitability. Arguably the most significant benefit is CRMs cost savings advantage. CRM Facets Many e-marketers suggest that CRM has three facets: sales force automation, marketing automation, and customer service. Sales Force Automation Sales force automation can simply be defined as increasing your sales, not the sales force. Sales force automation allows salespeople to build, maintain, and access customer records; manage leads and accounts; manage their schedules; and more closing sales, seizing all sales opportunities, updating opportunities, accounts, and contact info, and recognizing market trends.

166

Marketing Automation Marketing automation activities include those that aid marketers in effective targeting, efficient marketing communication, and real-time monitoring of customer and market trends. Customer Service Customer service permeates every stage of customer acquisition, retention, and development practices, although most service occurs post purchase. Activities may include e-mail and Web self-help, online chat, package tracking, among others.

CRM Building Blocks


Businesses are aware that CRM is necessary to be successful, but nearly all firms are currently losing money on the investment of CRM software. Businesses want to use CRM technology, but want to know how to use it effectively and efficiently. CRM Vision Any business that purchases CRM technology simply to be part of the CRM movement is destined to fail. Management must start with a vision that fits the company culture and makes sense for the firms brands and value propositions. Many firms underestimate the costs and fail to realize how pervasive CRM projects are. Guarding Customer Privacy A delicate balance must be reached between using customer data and protecting information so as not to anger customers. CRM is based on trust and customers must believe that the information they give companies will be used responsibly. Junk mail, spam, repeated telephone calls are all examples of upsetting messages to consumers. TRUSTe TRUSTe is an independent, non-profit organization to help online firms earn and build customer trust. TRUSTe will provide its seal and logo to any Web site meeting its philosophies and requirements as stated on exhibit 14.7. www.truste.org CRM Strategy CRM strategies and objectives may involve any stakeholders, and will likely entail targeting, acquiring, retaining, and growing specified relationships. B2B and B2C are different markets, therefore have different strategies. Relationship Intensity Many CRM goals refer to customer loyalty. As discussed earlier in Chapter 5, the goal for e-marketers is to move the customer up the pyramid of relationship intensity (awareness, identity, connection, community, and advocacy). Relationship Levels E-marketers hope to build a bond with customers that transcend the product experience itself. Experts believe that this relationship marketing may exist on three levels: building a financial bond by using pricing strategies, stimulating social interaction with customers, and creating structural solutions to customer problems. Valued Customer Experience Many consumers want brand loyalty as much, or more than firms want them to be loyal to their brand. Many consumers are loyal to products as long as promises are more or less fulfilled. Customers generally patronize stores, services, and Web sites where they are treated like individuals with important needs and where they know those needs will be met. 167

Organizational Collaboration E-marketers collaborate both within and outside of the organization. Internal cross-functional teams may focus on customer satisfaction. Externally, two or more companies may join forces to exceed results that each might have accomplished alone. CRM-SCM Integration CRM usually refers to front-end operations in which firms work to satisfy customers at all touch points (telephone calls, in-person visits, e-mails contacts, etc). SCM will focus on the back end including the entire supply chain. Integrating CRM and SCM activities can result in several advantages, which will be discussed in the outline section. Extranet Extranets are two or more intranet networks that are joined for the purpose of sharing information. The use of extranets allow CRMSCM integration. CRM Process The CRM Process includes the following stages: target, acquire, transact, service, retain, and grow. Identifying Customers Every piece of user information a firm receives goes into a database that helps firms identify the best (highest value, longest loyalty, highest frequency of purchase, etc) customers. Differentiating Customers Many firms differentiate customers by value, which is evident by the 80/20 principle (80% of a companys business comes from 20% of their customers). Technology allows firms to identify high-value customers and respond with offers in real time over the Internet. Customizing the Marketing Mix Once the firm has identified and differentiated the customers, it can customize offerings to segments or individuals. Customization occurs when firms tailor their marketing mixes to meet the needs of small target segments using electronic marketing tools. Personalization involves ways that marketers individualize in an impersonal computer environment. Interaction Interaction with customers is what allows firms to collect the data necessary for identification and differentiation and to evaluate the resulting customization effectiveness on a continuous basis. The idea is that both the firm and the customer learn from each experience and interaction. CRM Information The more information a firm has, the better it can provide to each customer and prospect in terms of more accurate, timely, and relevant offerings. Firms gain customer information less intrusively by tracking their behavior. This method is very useful to companies, but critics argue that it may violate privacy rights. The task of gathering information, filtering the information into a database, and analyzing this information is a daunting task for e-marketers. CRM Technology Technology enhances the CRM process through toll-free telephone numbers, electronic kiosks, fax-on-demand, voice mail, and other services available. These tools can be categorized into company-side tools and client-side tools.

168

Company-Side Tools These tools are pushed onto customers who are generally unaware that marketers are collecting data. Cookies Cookie files allow companies to see the path users take form site to site and assist in serving advertising banners, track shopping baskets, and other tasks so that users can quit in the middle and return later Web Site Log Conducting Web log analysis allows firms to customize Web pages based on visitor behavior. Data Mining E-marketers use software programs to find patterns of customer interest in the data collected from the Web site. Real-Time Profiling Customer profiling sues data warehouse information to help marketers understand the characteristics and behavior of specific target groups. Collaborative Filtering Collaborative filtering software gathers the recommendations of an entire group of people and presents the results to a like-minded individual to aid in the decisionmaking process. Outgoing E-Mails E-mail is used to communicate with individuals or lists of individuals in an effort to increase their purchases, satisfaction, and loyalty. Chat and Bulletin Boards Firms build community and learn about customers and products through real-time chat and bulletin board/newsgroup e-mail postings at its Web site. By analyzing these exchanges, firms are able to design marketing mixes that meet user needs. iPOS Terminals iPOS terminals are small customer facing machines near the brick-and-mortar cash register, sued to record a buyers signature for a credit card transaction. These machines can gather survey and other data as well as present individually targeted advertising and promotions. Client-Side Tools These tools come into play based on a users action at the computer, thus pulling the information. Agents Shopping agents and search engines match user input to databases and return customized information. Individualized Web Portals Individualized Web portals are more often used to build relationships in the B2B market than the B2C market. These portals allow supply chains to access inventory and account information and track various operations. Wireless Data Services Wireless users only want text data due to the screen size of wireless devices and download time for graphics. Web Forms Web forms can be used for a multitude of purposes from site registration and survey research to product purchase. Many firms require online registration before a purchase. Fax-on-Demand Many firms in the B2B market want information on demand. If a document is not in digital format, it cannot be e-mailed, so faxing is a quick and easy alternative. Incoming E-Mail Post transaction customer service is an important part of the customer care life cycle. Most companies include feedback options online only if they have staff in place

169

to respond, because and e-mail address on a Web site implies a response will come. CRM Technologies CRM success depends on all eight building blocks, not simply technology. To be considered a leader in CRM software, companies: must set the pace for the market, enabling a competitive advantage for their customer; must offer CRM functionality for all business models; must have highly scalable solutions; the solutions must support cross-application business processes; must have an established ecosystem if implementation partner, and must have a proven track record of successful deployments, evidenced by satisfied customers who report real ROI. CRM Metrics Experts believe the three most important metrics to be customer retention rates, ROI, and customer lift (increased response or transaction rates). An emerging metric that many e-marketers are placing extreme importance on is lifetime value (LTV). Lifetime value is an adaptation of an LTV calculation form the Peppers and Rogers Group, explained in Exhibit 14.21

Chapter Summary
Marketers have practiced relationship marketing for some time; however, Internet technologies made it possible to manage relationships one at a time. In the move from mass marketing to relationship marketing, the emphasis has become long-term customer retention rather than many discrete transactions with new customers. Customer relationship management is used to create and maintain relationships with employees, business customers in the supply chain, lateral partners, and final consumers. CRMs benefits include cost-effective acquisition, retention, and growth of current customers as well as word-of-mouth referrals. The three legs of CRM are sales force automation, marketing automation, and customer service. The Gartner Group model of CRM covers eight building blocks; CRM vision, CRM strategy, valued customer experience, organizational collaboration, CRM processes, CRM information, CRM technology and CRM metrics. The CRM vision must include guarding of customer privacy and building user trust. CRM strategy starts by defining what the company wants to accomplish with CRM technology. Relationship intensity ranges from awareness (the lowest intensity) to advocacy (the highest intensity). Three relationship levels mark the bonds the emarketers build with customers. The highest level of CRM involves creating structural bonds that raise switching costs and build loyalty. E-marketers need to think about the experience of their valued customers, how customers prefer to interact with companies, and how they can forge ties through community building. An important trend in CRM is the integration with supply chain management (SCM). When the firms front end, back end, and supply chain all focus on the consumer, value is delivered, satisfaction is increased, and the firm has a competitive edge. The customer care life cycle covers the stages of targeting, acquiring, transaction, servicing, retaining, and growing customers by identifying customers, differentiat ing customers, and customizing the marketing mix for targeted segments or individuals customization. CRM depends on information and on technology using company-side tools (including cookies, Web site logs, data mining, real-time profiling, collaborative filtering, outgoing

170

e-mail, chat and bulletin boards, and iPOS terminals) and client-side tools (including agents, experiential marketing, individual Web portals, wireless data services, Web forms, fax-on-demand, and incoming e-mail). Then e-marketers use a variety of software for implementation and metrics to assess the performance and value of using the Internet for CRM.

Chapter Outline
Opening Vignette: The Cisco Story (PPT 14-3, 14-4)
Have the class read the opening vignette on Cisco. How has the Internet helped Cisco in acquiring, retaining, and growing customer business? What has Cisco done to build customer relationships? How has Cisco converted offline customers to online customers? www.cisco.com

I. Building Custome r Relationships, 1:1


Increased customer loyalty is the single most important driver of long-term performance. Many experts believe that relationship capital is the most important asset a firm can have.

A. Major shift in marketing practice 1. Old style was mass marketing 2. New style is individualized marketing a. Focus on acquiring new customers b. Retaining and building more business from loyal, highvalue customers B. Consumer Services Market 1. Internet technologies facilitate relationship marketing 2. One key is identifying key Internet tools

II. Relationship Marketing Defined

(PPT 14-5)

A. Defined relationship marketing is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment. B. Promise Fulfillment is making offers in their marketing communications programs, customer expectations would be met through branding experiences.

C. Relationship Marketing is more than promising fulfillment 1. Has to have two-way communication 2. Cannot define customers without asking who they are

171

D. Wallet share is the amount of sales a firm can generate from one customer a. Word of mouth b. Publicity

III. Stakeholders

(PPT 14-7)

Relationship marketing can be used to build mutually supportive bonds with stakeholders other than consumers, such as employees and suppliers. The following groups are those most affected by Internet technologies. A. Employees 1. Some customers are completely, emphatically loyal to a brand 2. This creates an atmosphere of a lifestyle 3. Yahoo! and Harley Davidson are examples B. Business Customers in the Supply Chain 1. Firms build and maintain relationships with those companies upstream and downstream 2. Both business customers and suppliers are extremely important C. Lateral Partners 1. Not-for-profit organization 2. Governments 3. Organizations that have common goals but not for transactions with other. D. Consumers 1. The end users of the product or service 2. Marketers must differentiate between business customers and final customers

IV. Customer Relationship Management (CRM)

(PPT 14-8)

CRM is the process of targeting, acquiring, transacting, servicing, retaining, and building long-term relationships with customers. Firms now focus on the idea that if they dont keep their customers happy, someone else will. A. CRM Benefits (PPT 14-8) 1. Increased revenue from better prospecting a. Most companies use customer data and mathematical models to determine who is a good customer b. Can define prospects that are most likely to respond to promotional offers 2. Increased wallet share with current customers a. Current customers will spend more of their disposable income with the firm b. Brand loyalty is a must to increase wallet share 3. Retaining customers for longer periods of time a. It is five time more expensive to attract new customers than to retain a current customer.

172

b. Money would be better spent marketing to current customer due to the 80/20 principle 4. More customer leads to more sales 5. Word-of-mouth communication among customers is the heart of CRM B. CRM Facets Many e-marketers suggest that CRM has three facets: sales force automation (SFA), marketing automation, and customer service. 1. Sales Force Automation (SFA) (PPT 14-9) a. Increase your sales, not your force b. Primarily used in B2B markets c. Helps the sales force to: i. Acquire customers ii. Retain customers iii. Grow customers iv. One software offers these benefits 1) Close more sales 2) Seize all sales opportunities 3) Update opportunities, accounts, and contracts offline 4) Enable collaborative and consistent customer management 5) Recognize big picture market trends 2. Marketing Automation (PPT 14-10) a. Aids marketers in effective targeting b. Efficient marketing communication c. Real-time monitoring of customer and market trends 3. Customer Service (PPT 14-10) a. Permeates ever stage of customer acquisition, retention, and development practices b. Most often occurs post purchase c. E-mail and Web self-service are emerging trends

V. CRM Building Blocks

(PPT 14-11)

Businesses are aware that CRM is necessary to be successful, but nearly all firms are currently losing money on the investment of CRM software. Businesses want to use CRM technology, but want to know how to use it effectively and efficiently. A. CRM Vision (PPT 14-12) Any business that purchases CRM technology simply to be part of the CRM movement is destined to fail. Management must start with a vision that fits the company culture and makes sense for the firms brands and value propositions. Many firms underestimate the costs and fail to realize how pervasive CRM projects are. 1. Guarding Customer Privacy a. Using customer information can be very tempting b. Marketers must use customer and prospect information responsibly

173

c. A majority of users still consider privacy to be a significant concern d. CRM is based on trust marketers must use the customer data for specified and agreed upon purposed 2. TRUSTe (PPT 14-13) a. A non-profit, independent organization to help Web users build and earn trust in companies. b. TRUSTe will not sponsor or recommend an organization unless specific requirements are met c. TRUSTe offers security to online customers B. CRM Strategy CRM strategies and objectives may involve any stakeholders, and will likely entail targeting, acquiring, retaining, and growing specified relationships. B2B and B2C are different markets, therefore have different strategies (PPT 14-14) 1. Relationship Intensity (PPT 14-15) a. CRM goals refer to customer loyalty b. Harley Davidson and Apple computers are examples c. As discussed in Chapter 10, marketers want to move customers up the relationship intensity pyramid. 2. Relationship Levels (PPT 14-15) a. Marketers build a financial bond i. Use pricing strategies ii. Price promotions are easily imitated b. Marketers stimulate social interaction with customers i. Ongoing personal communication ii. Aggressive pricing strategies iii. Customers are more loyal due to the social bond iv. Can also use community building c. Marketing relies on creating structural solutions to customer problems i. Firms add value by making structural changes that facilitate the relationship ii. Customizing Web pages C. Valued Customer Experience (PPT 14-16) 1. Most companies want brand loyalty as much as the firms want customer loyalty 2. Consumers want to patronize the same Web site 3. Many consumers are loyalty prone 4. Communication preferences vary by individual. D. Organizational Collaboration (PPT 14-17) 1. Marketers must collaborate both internally and externally 2. Internally a. Cross-functional teams focus on customer satisfaction to create a CRM culture b. Creates a better company culture as well

174

3. Externally a. Companies join forces to create results that would reach beyond what each could have done separately. b. Can be in distribution channel or non-transactional type collaboration 4. CRM-SCM Integration a. CRM is front-end operations i. Working to create satisfying experiences at all customer levels ii. Can be challenging due to different employees and computer systems b. SCM is back-end operations i. Usually includes the entire supply chain ii. Goal is to seamlessly link all involved 5. Extranet a. Two or more intranet networks joined for the purpose of sharing information b. Proprietary to the organizations involved E. CRM Process Firms monitor and attract customers, both online and offline and they progress through: target, acquire, transact, service, retain, and grow (the stages of customer care life cycle). (PPT 14-19) 1. Identifying Customers (PPT 14-20) a. Firms must obtain prospects b. Business customers c. Consumer information d. Can be categorized as: i. Highest value ii. Longest loyalty iii. Highest frequency of purchase 2. Differentiating Customers (PPT 14-20) a. The Internet allows firms to collect information to identify various segments. b. One important way to differentiate Value i. 80/20 principle ii. allows firms to leverage resources by investing in most lucrative customers c. Firms can identify customers through i. Data mining ii. Profiling 3. Customizing the Marketing Mix (PPT 14-20) a. Defined when firms tailor their marketing mixes to meet the needs of small target segments using electronic marketing tools b. Customer needs are paramount c. Firms have data to make customized decisions d. Firms can zero in on precise needs e. Personalization ways that marketers individualize in an impersonal computer networked environment 4. Interaction (PPT 14-20)

175

a. Allows firms to collect the data necessary for identification and differentiation b. Allows firms to evaluate the resulting customization effectiveness. c. Both the firm and the customer learn from each experience and interaction F. CRM Information The more information a firm has, the better it can provide more accurate, timely, and relevant information. Some factors in facilitating customer relationship management are: (PPT 14-21) 1. Target the right customers 2. Own the customers total experience 3. Streamline business processes that impact the customer 4. Provide a 360 degree view of the customer relationship 5. Let customers help themselves 6. Help customers do their jobs 7. Deliver personalized service 8. Foster community G. CRM Technology Technology enhances the CRM process and can be categorized into company-side and client-side tools (PPT 14-22) 1. Company-Side Tools (push information to users) (PPT 14-23) a. Cookies files to assist companies in tracking customers habits and preferences b. Web-Site Log firms use software to help analyze customer behavior to customize the Web experience c. Data Mining firms use software to find patterns of interest d. Real-Time Profiling using customer profiling to offer instant promotions or coupons based on customer behaviors e. Collaborative Filtering software that gathers the recommendations of an entire group of people and presents the results to like-minded customers f. Outgoing E-Mail E-mail is used to communicate with individuals in an effort to increase their purchases, satisfaction, and loyalty g. Chat and Bulleting Boards a way to build community and learn about customers and products. h. iPOS Terminals credit card technology used to create instant sales promotions and coupons 2. Client-Side Tools (pull information from customers) (PPT 14-24) a. Agents shopping agents and search engines match user input to databases and return customized information b. Individualized Web Portals customizable Web sites My Yahoo! or My AOL c. Wireless Data Services most wireless users only want text due to slow connection speeds and small displays d. Web Forms can be used for site registrations or survey research

176

e. Fax-on-Demand for documents that are not in digital


format. f. Incoming E-Mail post transaction customer service. Companies are careful to adequately staff email addresses, since customers expect a response in a reasonable amount of time 3. CRM Technology a. The Gartner Group sets the requirements to be a CRM leader i. Set the pace for the market ii. Offer CRM functionality for all business models iii. Solutions must be highly scalable iv. Solutions must support cross-application processes v. Have an established ecosystem of implementation partners vi. Have a proven track record of successful deployments, evidenced by satisfied customers who report real ROI b. Some software solutions: i. Siebel System ii. SAP iii. PeopleSoft iv. Oracle v. Onyx Enterprise CRM H. CRM Metrics

(PPT 14-25, 14-26)

Experts believe the three most important metrics to be customer retention rates, ROI, and customer lift (increased response or transaction rates). An emerging metric that many e-marketers are placing extreme importance on is lifetime value (LTV). Lifetime value is an adaptation of an LTV calculation form the Peppers and Rogers Group, explained in Exhibit 14.21

177

Exercise Answers
(Exercise answers prepared by David Lan, University of Nevada, Reno, with assistance from the authors)

Note Discussion questions may require outside research whereas review questions do not require research beyond the text.
Review Questions 1. Explain why relationship capital is the foundation of future business. In an environment of customer control, with attention a scarce commodity, a firms ability to build and maintain relationships with customers, suppliers, and partners may be more important than a firms land, property, and financial assets. It is this relationship capital that provides the foundation of future business. 2. Define relationship marketing and contrast it with mass marketing. As originally defined, relationship marketing is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment

Mass marketing Discrete transactions Short-term emphasis

Relationship marketing Continuing transactions Long-term emphasis

One-way communication Acquisition focus Share of market Product Differentiation

Two-way communication /collaboration Retention focus Wallet share Customer Differentiation

3. What are the main benefits of CRM? The one key benefit of CRM is its cost-effectiveness, and another is its future profit potential by retaining customers. Most businesses spend more money acquiring new customers than they spend keeping current customersbut this is usually a mistake. The cost of acquiring a new customer is typically five times higher than the cost of retaining a current one.

178

4. Why do companies use sales force automation and marketing automation? Increase your sales, not your sales force. This is the claim of sales force automation software (SFA). Used primarily in the B2B market, SFA allows salespeople to build, maintain, and access customer records; manage leads and accounts; manage their schedules; and more. In relation to e-marketing, SFA helps the sales force acquire, retain, and grow customers by accessing customer and product data from the companys data warehouses, both while in the office and on the road. Salespeople can also send the results of sales calls and activity reports to the data warehouse for access by others. Up-to-date customer and prospect records help customer service representatives and others build customer relationships. Marketing automation activities aid e-marketers in effective targeting, efficient marketing communication, and real time monitor ing of customer and market trends. It is a disciplined approach to the capture, integration, and analysis of customer data [that] is needed to identify and leverage customer relationships and opportunities to their fullest. This emerging space, called marketing automation, forms the core of the knowledge engine which drives customer relationship management (CRM). 5. What are the eight building blocks of CRM? 1. CRM Vision: Leadership, value proposition 2. CRM Strategy: Objectives, target markets 3. Valued Customer Experience: Understand requirements Monitor expectations Maintain satisfaction Collaboration and feedback Customer interaction 4. Organizational Collaboration: Culture and structure Customer understanding People,skills,competencies Incentives and compensation Employee communicationPartners and suppliers 5. CRM Processes: Customer life cycle, knowledge management 6. CRM Information: Data, analysis, one view across channels 7. CRM Technology: Applications, architecture, infrastructure 8. CRM Metrics 6. What are the five levels of relationship intensity and why do e-marketers strive to move customers to the top level? The five levels of relationship intensity are Advocacy, Community, Connected, Identity, Awareness. Many of these CRM goals refer to customer loyalty. Most firms would be delighted if they had customers who proudly wore their brand name on clothing and tried to talk others into buying the brandlike customers of Harley Davidson and Apple Computer. The pyramid shape indicates that fewer customers are at the highest level, where they have become advocates who tell everyone how great the brand is. Many people are advocates because of positive experiences with their MacIntosh computers or with eBay auctions. One student purchased the inventory of a bankrupt comic store and made $10,000 auctioning the comics on eBayhe became an eBay advocate. Thus, an important CRM strategy is trying to move customers upward in this pyramid.

179

7. Why do e-marketers see community-building as an important aspect of CRM? As noted in other chapters as well as in this chapter, community-building is an important way to forge relationships and strengthen loyalty. Firms that build community can learn about customers and products through real-time chat and bulletin board/newsgroup e-mail postings at its Web site. Analysis of these exchanges is used in the aggregate to design marketing mixes that meet user needs. 8. What are the advantages to CRM-SCM integration? Give an example. CRM usually refers to front-end operations. This means that firms work to create satisfying experiences at all customer touch points: telephone calls to customer service reps, in-person visits to stores, e-mail contact, and so forth. This is quite challenging because different employees and computer systems collect various information, and somehow it must be integrated into appropriate customer records. In one study sponsored by Jupiter Communications, three phone calls were made to Forbes magazine asking why two renewal offers were different. The interviewer got three different explanations. Fortunately several firms now provide software to address this issue. For example, the Aspect Relationship Portal assists CRM staff by integrating all customer contact mediaphone, FAX, e-mail, and Webwith frontand back-office operations (www.aspect.com). 9. What are the six stages in the customer care life cycle? The six stages of the customer care life cycle are Target, acquire, transact, service, retain, grow. 10. Explain how data mining, real-time profiling, collaborative filtering, and outgoing e-mail help firms customize offerings. Data mining involves the extraction of hidden predictive information in large databases through statistical analysis. A firm can then create profiles from this information to customize and cross-sell their products. Real-time profiling occurs when special software tracks a users movements through a Web site, then compiles and reports on the data at a moments notice. Collaborative filtering software gathers opinions of like-minded users and returns those opinions to the individual in real-time. Firms can use these two technologies to immediately send targeted and customized advertising. Marketers use e-mail databases to build relationships by keeping in touch with useful and timely information. Customized E-mail can be sent to individuals or sent en masse using a distributed e-mail list based on user preferences, opt-in plans, etc. 11. How are company-side and client-side customization tools different? Explain your answer. Users are generally unaware that marketers are collecting data and using Companyside tools to customize offerings. Company-side tools include cookies, Web site logs, data mining, real-time profiling, collaborative filtering, outgoing e-mail, chat and bulletin boards, and iPOS terminals. Client-side tools come into play based on a users action at her computer or handheld device. Although the tools generally reside on a Web server, it is the customer pull that initiates the customized response. Examples of Client-side tools include agents, experiential marketing, individuals Web portals, wireless data services, Web forms, FAX-on-demand, and incoming email.

180

Discussion Questions 12. Explain the difference between wallet share and share of market. Wallet share, often called share of customer or share of mind, differentiates individual customers based on need rather than differentiating products for target groups. Owning the customers total experiencethis refers to the wallet share. Share of market is the actual share of total market sales regardless of perceptions of price, quality, brand, etc. For example, luxury items typically dont have strong market share within a given category but possess stronger wallet share. The opposite can be true as well, where an item can have poor wallet share and high share of market; this usually involves generic or commodity items. 13. If good relationship marketing means firing a companys least-profitable or most-costly customers, suggest how it might be accomplished without causing them to criticize the company to their friends. It is usually not a good idea to fire customers, however, high cost customers can be discouraged through various means. Companies try to keep customers because retention through CRM is usually less costly than acquisition costs (promotion, advertising and discounts costs). Additionally, current customers are likely to have higher response rates to promotional efforts and sales teams can be more effective since they should know their individual customers well. CRM makes sense because they build loyal, experienced customers. They know who to call in the firm when they have questions. This means loyal customers should cost less to service. Firms may not be able to fire customers individually if they endeavor to use CRM effectively. However, if a firm must fire customers they should do so with the utmost care since one disgruntled customer can be louder than many satisfied ones. By utilizing automated, Internet based tools firms can address commonly asked questions and problems posed by the most-costly customers proactively. In any case, good CRM still requires firms to do their best to satisfy customer needs. Firms can utilize the experience to create and make available a database of successful solutions online. The key is shifting costly customer interaction to cheaper online based solutions. This can be seen with companies such as Hewlett-Packard and Microsoft who have extensive online databases. By charging for interactive telephone customer support, both of these companies have effectively fired their most costly customers. To mitigate complaints from this system, HP offers free support through their warranty program which must be purchased ahead of time. Differentiation by valuation is not profitable unless a firm can say that at least half of its profits come from 20% or fewer of its customers.

181

14. Explain how the customer benefits from SCM-CRM integration. Customer relationship management (CRM) usually refers to front-end operations. This means that firms work to create satisfying experiences at all customer touch points: telephone calls to customer service reps, in-person visits to stores, e-mail contact, and so forth. This is quite challenging because different employees and computer systems collect various information, and somehow it must be integrated into appropriate customer records. Supply chain management (SCM) deals with the back-end of getting the order out to the customer once a product has been ordered. (e.g., inventory and payment). By integrating these two the entire supply chain can work together to single-mindedly focus on meeting consumer needs and make higher profits in the process. Ultimately customers should have the most up-to-date information on prices, availability, models, etc. 15. Do you agree with the statement that the customers goal in relationship marketing is choice reduction? Are consumers really such creatures of habit? Why or why not? Being a consumer can be difficult because of constant bombardment by marketing communications and unlimited product choices. This suggests that consumers want to patronize the same Web site, mall, and service providers because doing so is efficient. That is, consumers do not want to spend their days contemplating which brand of toothpaste to buy or how to find a good dentist. Many consumers are loyalty prone, searching for the right product or service and then sticking with it as long as the promises are more or less fulfilled. Customers generally like to patronize stores, services, and Web sites where they are treated like individuals with important needs and where they know those needs will be met, satisfaction guaranteed. Should those needs not be met, customers may then renege to other brands. Dependent on what kind of items consumers are seeking, choice reduction may not apply. Consumers will spend much more time researching a major purchase such as a car or house then everyday commodity items like toothpaste or milk. However, consumers are still likely to stick with trusted sites if too many choices are available. 16. Which tools do you think are more powerful for building relationships company-side tools or client-side tools? Why? Both methodologies are very powerful. Whether either is more powerful than the other is dependent on what firms value. Users are generally unaware that marketers are collecting data and using company-side tools to customize offerings. Companyside tools can be used to collect large amounts of data but may ultimately be too vague to customize responses without some consumer interaction. Client-side tools come into play based on a users action at her computer or handheld device. Although the tools generally reside on a Web server, it is the customer pull that initiates the customized response. Client-side tools while great for highly customized profiles, can only be utilized if consumers are willing to participate and take time out to fill out forms, surveys, etc. Even then users may give inaccurate information, aliases, etc. from fear of SPAM or privacy concerns.

182

17. Compare and contrast the concept of differentiating customers with that of differentiating products. Both are needed to compete aggressively in a highly commodified Internet market. Differentiating customers involves finding the unique interests and needs of individual consumers. It is the basis of relationship marketing along with customizing product offerings to meet individual customer needs. With the power of the Internetbased technologies, firms can finally micro-market to the individual effectively at a relatively low cost. Differentiating products involves building a brand name in quality, uniqueness, etc. that sets apart your product from others. It is the traditional cycle of identifying segments and then differentiating products to meet the needs of a segment rather than an individual customer. 18. As a consumer, would you be more likely to buy from a Web site displaying the TRUSTe seal and logo than from a competing Web site without the TRUSTe affiliation? Explain your answer. The relative level of trust and comfort with using Internet technologies will determine whether or not a consumer will more or less likely buy or not from a Web site displaying TRUSTe. Bargain hunters, innovators, and technology enthusiasts who use the Internet a lot may trust Web sites without reservation. TRUSTe provides another layer of reinforcement for those who may be hesitant to make online purchases. The same could probably be seen with credit cards and telemarketing when those technologies first emerged. However, it just takes one bad experience to change this trust. Though in reality the same accountability with credit cards and online purchases apply. Consumers can always challenge fraudulent charges with the credit card company whether the purchase was made online or not.

183