Listening to customers must become everyone’s business.
With most competitors moving ever faster, the race will go to those who listen and respond more intently”. – Tom Peters, Thriving on Chaos
Chapter 1: Conceptual Framework for CRM
What is Customer Relationship management?
Before we begin to examine the conceptual foundations of CRM, it will be useful to define what is CRM. A narrow perspective of customer relationship management is database marketing emphasizing the promotional aspects of marketing linked to database efforts. Another narrow, yet relevant, viewpoint is to consider CRM only as customer retention in which a variety of aftermarketing tactics is used for customer bonding or staying in touch after the sale is made. Shani and Chalasani define relationship marketing as “an integrated effort to identify, maintain, and build up a network with individuals consumers and to continuously strengthen the network for mutual benefit of both sides, through interactive, individualized and value-added contacts over a period of time”. The core theme of all CRM and relationship marketing perspectives is its focus on co-operative and collaborative relationships between the firm and its customers, and/or other marketing actors. CRM is based on the premise that, by having a better understanding of the customers’ needs and desires we can keep them longer and sell more to them. Growth Strategies International (GSI) performed a statistical analysis of Customer satisfaction data encompassing the findings of over 20,000 customer surveys conducted in 40 countries by Infoquest. The conclusions of the study were: • A Totally Satisfied Customer contributes 2.6 times as much revenue to a company as a Somewhat Satisfied Customer.
• A Totally Satisfied Customer contributes 17 times as much revenue as a Somewhat Dissatisfied Customer.
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• • A Totally Dissatisfied customer decreases revenue at a rate equal to 1.8 times what a Totally Satisfied Customer contributes to a business. • By reducing customer defection (by as little as 5%) will result in increase in profits by 25% to 85% depending from industry to industry. An important facet of CRM is “customer selectivity”. As several research studies have shown not all customers are equally profitable (Infact in some cases 80% of the sales come through 20% of the customers). The company must therefore be selective and tailor its program and marketing efforts by segmenting and selecting appropriate customers for individual marketing programs. In some cases, it could even lead to “ outsourcing of some customers” so that a company better utilize its resources on those customers it can serve better and create mutual value. However, the objective of a company is not to really prune its customer base but to identify appropriate customer programs and methods that would be profitable and create value for the firm and the customer. Hence, CRM is defined as: Customer Relationship management is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer. As is implicit in the above definition, the purpose of CRM is to improve marketing productivity. Marketing productivity is achieved by increasing marketing efficiency and by enhancing marketing effectiveness. In CRM, marketing efficiency is achieved because cooperative and collaborative processes help in reducing transaction costs and overall development costs for the company. Two important processes for CRM include proactive customer business development and building partnering relationship with most important customers. These lead to superior value creation. The basic concept is that the customer is not someone outside the organisation, he is a part of the organisation.
Key CRM principles
Differentiate Customers: All customers are not equal; recognize and reward best customers disproportionately. Understanding each customer becomes particularly important. And the same customers’ reaction to a cellular company operator may be quite different as compared to a car dealer. Besides for the same product or the service not all customers can be treated alike and CRM needs to differentiate between a high value customer and a low value customer. What CRM needs to understand while differentiating customers is: – Sensitivities, Tastes, Preferences and Personalities – Lifestyle and age – Culture Background and education – Physical and psychological characteristics • Differentiating Offerings
→ Low value customer requiring high value customer offerings → Low value customer with potential to become high value in near future → High value customer requiring high value service → High value customer requiring low value service High Low value customers who require high levels of service must either purchase the higher level of service or become our competitors low value/high cost customers High value customers who require a high level of service are maintained without expanding the costly offering to the entire customer population
Low Low Customer Value Fig. 1 Customer value – Service Matrix High
Keeping Existing Customers Grading customers from very satisfied to very disappointed should help the organisation in improving its customer satisfaction levels and scores. As the satisfaction level for each customer improve so shall the customer retention with the organisation. • Maximizing Life time value
Exploit up-selling and cross-selling potential. By identifying life stage and life event trigger points by customer, marketers can maximize share of purchase potential. Thus the single adults shall require a new car stereo and as he grows into a married couple his needs grow into appliances. • Increase Loyalty
Loyal customers are more profitable. Any company will like its mindshare status to improve from being a suspect to being an advocate. Company has to invest in terms of its product and service offerings to its customers. It has to innovate and meet the very needs of its clients/ customers so that they remain as advocates on the loyalty curve. Referral sales invariably are low cost high margin sales. (Fig 2. Categorizing Customers) High
*You have No Choice But To Handle Them Very Carefully. Will Consume Energy *Cultivate Relationship. Spend Energy. Go Out Of Your Way.
Strat egic # Think Of Innovative Ways of Impo Getting them On Your Side, But The rtanc ‘Cost Of Acquisition’ Must Be e To Controlled Your *Focus On Short Term Profitability. Busi ness Spend Minimum Energy To Meet Your Plan Objectives.
#Think Of Strategies TO Move Them Away From decision needed. Re-examine *Very cautiousCompetition. business Plan & Strategy. Evaluate That Your Loss (i.e. Your competitor’s gain) Doesn’t become nightmare for you.
*Existing Customers #Potential Customers
LowUse Opportunity As It Comes. Low Short Term Acquisition Shouldn’t Affect
Long Term Image.
#Needs In-depth strategic review as acquisition alone and dissatisfaction later could be more harmful
Relationship & Profitability Potential
Summarizing CRM activities: The CRM cycle can be briefly described as follows: 1. Learning from customers and prospects, (having in depth knowledge of customer) 2. Creating value for customers and prospects 3. Creating loyalty 4. Acquiring new customers 5. Creating profits 6. Acquiring new customers
Creating Profits Acquiring new customers Learning from customers a& prospects
Fig.3 CRM Activities 4
Creating value for customers & prospects
Creating loyal customers
Figure 4 Customer Life Cycle Management Customer Need Assessment & Acquisition
Customer Retention and referrals for new customers Customer Development through personalization and customization
Customer Equity Leverage through Cross Selling and Up Selling
The Emergence of CRM Practice
The Past: Looking back at a snapshot history of marketing, we can see the following clear developments and progression over the last four decades: • • • • 1960’s – the era of Mass Marketing, when Gibbs SR toothpaste began the first marketing of this kind with its black and white campaign. 1970’s – saw the beginning of segmentation, direct mail campaigns and early telemarketing (such as publishing) 1980’s – where Niche marketing made millionaires of those who were best at it. 1990’s – Relationship Marketing. The explosion of telemarketing and call centres, all set up to develop relationships with customers. The recognition of the true value of retention and the use of Lifetime Value as a business case. In addition to this, a number of key marketing concepts can also be used to see where CRM has developed from: • • • Satisfying Needs, Customer Orientation The organisation needs to be arranged so that all functions contribute Profit must be the consequence of delighting customers (Kotler)
Developing customer relationship has historical antecedents going back into the pre industrial era. Similarly artisans often developed customized produce for each customer. Such direct interaction led to relational bonding between the producer and the consumer. It was only after industrial era’s mass production society and the advent of the middlemen that there were less frequent interactions between producers and the consumers leading to transactions oriented marketing. The production and consumption factions got separated leading to marketing functions being performed by the middle men and middlemen are in general oriented towards the economic aspects of buying since the largest cost is often the cost of goods sold.
In recent years however, several factors have contributed to the rapid development and evolution of CRM. These include: 1. The growing de-intermediation process in many industries due to the advent of sophisticated computer and telecommunication technologies that allow producers to directly interact with end-customers. For example, in many industries such as airlines, banks insurance, software or household appliances and even consumables, the de-intermediation process is fast changing the nature of marketing and consequently making relationship marketing more popular. Databases and direct marketing tools give them the means to individualize their marketing efforts. 2. Advances in information technology, networking and manufacturing technology have helped companies to quickly match competition. As a result product quality and cost are no longer significant competitive advantages. 3. The growth in service economy. Since services are typically produced and delivered at the same institution, it minimizes the role of the middlemen. 4. Another force driving the adoption of CRM has been the total quality movement. When companies embraced TQM it became necessary to involve customers and suppliers in implementing the program at all levels of the value chain. This needed close working relationships with the customers. Thus several companies such as Motorola, IBM, General Motors, Xerox, Ford, Toyota, etc formed partnering relations with suppliers and customers to practice TQM. Other programs such as JIT and MRP also made use of interdependent relationships between suppliers and customers. 5. Customer expectations are changing almost on a daily basis. Newly Empowered customers who choose how to communicate with the companies across various available channels. Also nowadays consumers expect a high degree of personalization. 6. Emerging real time, interactive channels including e-mail, ATMs and call centre that must be synchronized with customer’s non-electronic activities. The speed of business change, requiring flexibility and rapid adoption to technologies. 7. In the current era of hyper competition, marketers are forced to be more concerned with customer retention and customer loyalty. 8. As several researches have found out retaining customers is less expensive and more sustainable competitive advantage than acquiring new ones.
9. On the supply side it pays more to develop closer relationships with a few suppliers than to develop more vendors. 10. In addition several marketers are concerned with keeping customers for life than making one time sale. There is a greater opportunity for up selling and cross selling. In a recent study, Naidu, et al(1999) found that relational intensity increased in hospitals facing a high degree of competitive intensity 11. The globalization of world marketplace makes it necessary to have global account management for the customers.
CRM Formation Process
In the formation process, three important decision areas relate to defining the purpose (or objectives) of engaging in CRM, selecting parties (or customer partners) for appropriate CRM programs and developing programs (or relational activity schemes) for relationship engagement with the customer.
Purpose Increase Effectiveness
Team Structure Role Specification Planning Process Process Alignment Relationship Performance Strategic Financial Marketing
Programs Account Management Monitoring Process Communication Employee Motivation Employee Training Evolution • Enhancement
Fig 5. CRM Purpose
CRM Process Framework
The overall purpose of CRM is to improve marketing productivity and enhance value for parties in involved in the relationship. By seeking and achieving operational goals, such as lower distribution costs, streamlining order processing and inventory management, reducing the burden of excessive customer acquisition cost, and through customer retention economics, firms could achieve greater marketing efficiencies. They can enhance marketing effectiveness by carefully selecting, customers for its various programs, individualizing and personalizing their market offerings to anticipate and serve the emerging needs of individual customer, building customer loyalty and commitment, partnering to enter new markets and develop new products, and redefining the competitive playing field for their company. Thus, stating the objectives and defining the purpose of CRM in a company helps clarify the nature of CRM programs and activities that ought to be performed by the partners. Defining the purpose would also help in identifying suitable relationship partners who have necessary expectations and capabilities to fulfill mutual goals. It will further help in evaluating CRM performance by comparing results achieved against objectives. These objectives could be specified as financial goals, marketing goals, strategic goals, operational goals, and general goals. Customers are motivated to engage in relational behavior because of psychological and sociological benefits associated with reduction in choice decisions. In addition, to their natural inclination of reducing choices, consumers are motivated to seek the rewards and benefits associated with CRM programs. Relational Parties In the Initial phase, a company has to decide which customer type and specific customers or customer groups will be the focus of their CRM activities. CRM Programs A careful review of literature and observation of corporate practices suggest that there are three types of CRM programs: continuity marketing; one-to-one marketing; and, partnering programs. These take different forms depending on whether they are meant for end-consumers, distributor consumers, or business-to-business customers.
Table 1 presents various types of CRM programs developed for different types of customers. Customer Types Program Types Continuity Marketing • • One-to-One Marketing Partnering/CompanyMarketing • • • • • After- Marketing Loyalty Programs Cross-Selling Permission Marketing Personalization Affinity Partnering Co-Branding • • • • • Continuos Replenishment ECR Programs Customer Business Development Logistics Partnering Joint Marketing • • Table 1 Continuity Marketing Programs Take the shape of membership and loyalty card programs where customers are often rewarded for their member and loyalty relationships with the marketers. The basic premise of continuity marketing programs is to retain customers and increase loyalty through long-term special services that has a potential to increase mutual value through learning about each other. CRM Programs • • • Key Account Global Account Strategic Partnership Co-Design Co-Development Mass Markets Distributors Business Business Markets • Special Sourcing Arrangements to
One-to-one Marketing Meeting and satisfying each customer’s need uniquely and individually. In the mass markets individualized information on customers is now possible at low costs due to the rapid development in the information technology and due to availability of scalable data warehouses and data mining products. By using online information and databases on individual customer interactions, marketers aim to fulfill the unique needs of each mass-market customer. Information on individual customers is utilized to develop frequency marketing, interactive marketing, and aftermarketing programs in order to develop relationship with high-yielding customers. In the context of business-to-business markets, individual marketing has been in place
of quite sometime. Known as Key Account Management Program, here marketers appoint customer teams to husband the company resources according to individual customer needs.
Partnering Programs The third type of CRM programs is partnering relationships between customer and marketers to serve end user needs. In the mass markets, two types of partnering programs are most common: co-branding and affinity partnering.
CRM Governance Process • Greater the scope of CRM program and associated tasks, and the more complex is the composition of the relationship management team; the more critical is the role specification decision for the partnering firms. • It is essential to establish intra-company communication particularly among all concerned individuals and corporate functions that directly play a role in managing the relationship with a specific customer or customer group. • With mass-market customers frequent face-to-face interactions will be uneconomical. Thus marketers should create common bonds through symbolic relationships, endorsements, affinity groups, and membership benefits or by creating online communities • Involving customers in the planning process would ensure their support in plan implementation and achievement of planned goals. All customers are not willing to participate in the planning process nor is it possible to involve all of then for relationship marketing programs for the mass markets. • Operating process between the company and customer partners: Operating alignment will be needed in order processing, accounting and budgeting processes, information systems, merchandising process, etc • Human resources decisions are also important in creating the right organisation climate for managing relationship marketing. Training employees to interact with customers, to work in teams, and manage relationship expectations are important. So is the issue of creating the right motivation through incentives and rewards.
Periodic evaluation of goals and results, initiating changes in relationship structure, design or governance process if needed, creating a system for discussing problems and resolving conflicts.
CRM Performance Evaluation Process Without a proper performance metrics to evaluate CRM efforts, it would be hard to make objective decisions regarding continuation, modification, enhancement, or termination of CRM programs.
If co-operative and collaborative relationship with the customers is treated as an intangible asset of the firm, its economic value add can be assessed using discounted future cash flows estimates. Here the term relationship equity comes in where you measure the intangible assets of the firm.
Another global measure used by firms to monitor CRM performance is the measurement of relationship satisfaction. By measuring relationship satisfaction, one could estimate the propensity of either party’s inclination to continue or terminate the relationship. Such propensity could also be indirectly measured by measuring customer loyalty.
CRM Implementation Issues
One of the most interesting aspects of CRM development is the multitude of customer interfaces that a company has to manage in today’s context. Until recently, a company’s direct interface with the customers, if any was primarily through sales people or service agents. In today’s environment most companies interface with their customers through a variety of channels including sales people, service personnel, call centres, Internet websites, marketing departments, fulfillment houses, market and business development agents, etc. For large customers it also includes cross-functional teams that may include personnel from various functional departments. While each of these units could operate independently, they still need to share information about individual customers and their interactions with the company on a real time basis. For example, a customer who just placed an order on the Internet and subsequently calls the call centre for order
verification expects the call centre staff to know the details of his or her order history. Similarly a customer approached by a sales person unaware that she has recently complained about dissatisfactory customer service, is not likely to be treated kindly by the customer.
Therefore effective CRM requires a front-line information system that shares relevant customer information across all interface units. Relational databases, data warehousing and data mining tools are thus very valuable for CRM systems and solutions.
However, the challenge is to develop and integrated CRM platform that collects relevant data input at each customer interface and simultaneously provides knowledge output about the strategy and tactics suitable to win customer loyalty and support. If a call centre personnel cannot identify or differentiate a high value customer and does not know what to up-sell or cross sell to him then it would be a tremendous loss of opportunity for the company. Although most CRM software solutions based on relational databases are helping share customer information, they still do not provide knowledge output to the front line personnel. As shown in Figure.6, CRM solutions platform needs to be based on interactive technology and processes. It should assist the company in developing and enhancing customer interactions and one-to-one marketing through the help of suitable intelligent agents that help develop front-line relationship with customers. Such a system would identify appropriate data inputs at each customer interaction site and use analytical platforms to generate appropriate knowledge output for front-line staff during customer interactions.
In addition, implementation tools to support interactive solutions for customer profitability analysis, customer segmentation, demand generation, account planning, opportunity management, contact management, integrated marketing communication, customer care strategies, customer problem solving, virtual team management of large global accounts, and measuring CRM performance would be the next level of solution sought by most enterprises.
Internet Sales Group
Data Input Data Input Knowledge
Knowledge Information Platform
Output Data Input Knowledge Output Data Input Knowledge Output
Output Data Input Knowledge Output
• • • •
Information Content Relational Databases Decision Support System Active Intelligence
Customer Operations/ Service
Figure 6 . Information Platform for CRM Since CRM implementation comprises a significant information technology (IT) component, these companies have handed over the responsibility of CRM implementation to information technology departments. They are focussed on simply installing CRM software solutions without a CRM strategy or program in place. This leads to creating an operational tool within the company, but the usability and effectiveness in producing desirable results from such tools is limited. CRM tools would be valuable when they are used to identify and differentiate individual customers and to generate individualized offer and fulfill customized solutions. The lack of CRM strategy or CRM programs, would leave the front-line people without any knowledge of what they should be doing with the additional customer information that they now have access to. For those who apply themselves and develop improvised solutions, it could backfire as ad hoc solutions could cause unintended deterioration in customer relationships. Appropriate strategy and excellent implementation are both needed for obtaining successful results. From a corporate implementation point of view, CRM should not be misunderstood to simply mean a software solutions implementation project.
Chapter 2: CRM and Related Concepts
Knowledge Management (KM) with focus on CRM
As Peter Drucker defined “Information is data endowed with relevance and purpose”. To effectively implement a CRM solution it is very important to identify real knowledge about different types of customers (Viz. Most valued customers, Most growable customers, Below zero customers) from plethora of internal and external data, figures, surveys, etc. A straightway technique is to create a data warehouse, thereafter information which is required to effectively implement principles of CRM, could be mined out of this data warehouse. Marketing, sales after-sales people would be knowledge workers. Front office could be more productive if they could utilize customer knowledge. Knowledge Management (KM) is about embracing a diversity of knowledge resources, like legacy systems, existing data warehouses, portals, websites, customers, suppliers, partners, external marketing research agencies and cultivating the knowledge where it resides.
Metrics, ROI, Balance Scorecard method, benchmarking are some of the common technique of KM system evaluation. KM implementation is the key to CRM. It’s a proven fact that 80% of an organisation revenues come form 20% of its customers, it becomes imperative to design CRM solutions keeping in mind these most valuable customers and to leverage 80% non structured data of about 20% of these most valuable customers. Just as more tangible corporate assets like computer systems have a finite shell life, so too does knowledge, it must be available at the right time to be able to act upon it. Retaining tacit knowledge (derived from experiences, data and documents) means retaining the individual, which is invariably not possible. It is possible to generate explicit knowledge from tacit knowledge, but it’s a complex exercise. The key ingredient of this exchange is face to face sharing of knowledge or virtual environmental tools like Lotus Notes, which can facilitate tacit knowledge exchange. Hence for tacit knowledge exchange text mining is very useful and important. There are ways to do text mining, like search engines, web solutions, text analysis tools, etc. The key to successful customer KM is personalization, i.e. how to extract the knowledge that is pertinent to the user and translate it into a format that is easily understood. The choice of Customer Knowledge Management (CKM) architecture should have a layered approach. Existing systems should be seamlessly linked with the proposed layer. The choice for
CKM system could be Web (Enterprise information portal) or a packaged solution such as Lotus Notes, Microsoft solution.
Role of CRM in the Context of SCM
In the context of SCM, where alliances and partnerships are keys to success, CRM plays an important role in building long-term relationships. Apart from the end-users, it involves internal employees, channel members and other external entities such as advertising agencies and consulting organisations. The success of relationships depends upon sharing of savings from the supply chain, which may be reinvested to further enhance its efficiency, and sustain the competitive advantage. The supply chain of tomorrow will look like a virtual organisation, seamlessly integrated through sharing data and savings as well. The bonding between partners will be closely held by CRM practices.
ERP and CRM
Like ERP, CRM solutions focus on automating and improving business processes, albeit in frontoffice areas such as marketing, sales, customer service, and customer support. Whereas ERP implementation can result in improved organisational efficiency, CRM aims to provide organisational effectiveness by reducing sales cycle and selling cost, identifying markets and channels for expansion, and improving customer value, satisfaction, profitability, and retention. While CRM applications provide the framework for embodying, promoting and executing best practices in customer facing activities, ERP provides the backbone, resources and operational applications to make organisations more efficient in achieving these goals.
“ The cost of acquiring a new customer is 9 to 12 times that of holding on to an existing customer.”-Philip Kotler A study conducted by Andersen Consulting in conjunction with EIU found that businesses are intensifying their focus on customer and are taking a more process oriented approach to customer relationship management. Key Findings of the study are:
(a) the number of businesses citing customer retention as a critically important measure in the next 5 years has jumped to nearly 60%, as companies shift their focus from attracting new customer to retaining their more profitable ones; (b) by 2002, 83% of companies expect to have customer data warehouses, up from about 40% today; and (c) companies predict their use of Internet to collect customer data will surge by 430% Consumer Life Time Value Quantifying the “value” of customers is absolutely essential in regain management. In fact, the percentage of profit a company makes from continued sales to its own customer base is consistently higher than the profit made on original sale.. Each of the customers then delivers an income stream and the stream of profit far exceeds the value of original purchase. Income streams contribute cash flows in terms of years for any single product. Regain Strategies: •Customization •Differentiation Strategies The lost customer would be segmented differently from the existing customer. Base and the company could provide additional features and benefits to win them back. “Wow” Syndrome For example, a client checks into a hotel and his/her room isn’t ready. The clerk could respond by “You are in luck! Your room isn’t ready. That means you get to eat breakfast “on us” and use our business centre for free!”
Chapter 3: Technological Tools for CRM
A good customer information system should consist of a regular flow of information, systematic collection of information that is properly evaluated and compared against different points in time, and it has sufficient depth to understand the customer and accurately anticipate their behavioral patterns in future. The customer database helps the company to plan, implement, and monitor customer contact. Customer relationships are increasingly sustained by information systems. Companies are increasingly adding data from a variety of sources to their databases. Customer data strategy should focus on processes to manage customer acquisition, retention, and development.
Other Technologies that are used are as follows: •Electronic Point of Sale(EPOS) •Sales Force Automation •Customer Service Helpdesk •Call Centres Call Centre helps in automating the operations of inbound and outbound calls generated between company and its customer. These solutions integrate the voice switch of automated telephone systems (e.g. EPABX) with an agent host software allowing for automating call routing to agents, auto display of relevant customer data, predictive dialing, self service Interactive Voice Response systems, etc. These systems are useful in high volume segments like banking, telecom and hospitality. Today, more innovative channels of interacting with customers are emerging as a result of new technology, such as global telephone based calls centres and the internet. Companies are now focusing to offer solutions that leverage the internet in building comprehensive CRM systems allowing them to handle customer interactions in all forms. •Systems Integration While CRM solutions are front office automation solutions, ERP is back office automation solution. An ERP helps in automating business functions of production, finance, inventory, order fulfillment and human resource giving an integrated view of business, where as CRM automates the relationship with customer covering contact and opportunity management , marketing and product knowledge, sales force management, sales forecasting, customer order processing and
fulfillment, delivery, installation, pre-sale and post-sale services and complaint handling by providing an integrated view of the customer. It is necessary that the two systems integrate with each other and complement information as well as business workflow. Therefore, CRM and ERP are complementary. This integration of CRM with ERP helps companies to provide faster customer service through an enabled network, which can direct all customer queries and issues through appropriate channels to the right place for speedy resolution. This will help the company in tracking and correcting the product problems reported by customers by feeding this information into the R&D operations via ERP.
CRM – A FRAMEWORK Traditional Approach to CRM Web-Enabled & Integration Approach • Customer Information System
• Customer Contact by Telephone Mail In Person • Personal Selling • After Sales Service
Integration with technology (Web & Internet)
• Customer Database • Electronic Point of Sale • Sales Force Automation • Automation of Customer
Data Mining for CRM: Some Relevant issues
Data mining is an important enabler for CRM. Advances in data storage and processing technologies have made it possible today to store very large amounts of data in what are called data warehouses and then use data mining tools to extract relevant information. Data mining helps in the process of understanding a customer by providing the necessary information and facilitates informed decision-making.
Operational CRM solutions involve integration of business processes involving customer touch points. Collaborative CRM involves the facilitation of collaborative services(such as e-mail) to facilitate interactions between customer and employees. All this effort produces rich data that feeds the Analytical CRM technologies. Operational CRM Analytical CRM Collaborative CRM
Fig.8 Interactions between CRM Technologies
Information Requirements Of An Effective CRM Solution The employees of a firm employing CRM would require rich information about their firm and customer base including: • • • • • • Information about the market Information about the firm The current segment Demographic Distribution (by age, sex, education, income, marital status, etc)
The firm’s best customers and the segment they belong to, products they buy, preferences, habits and tastes of each segment. Individual level information consisting of: → Customer personal details such as name, address, family details, education, etc → The customer group /segment to which the individual belongs → History of present and past behavior → Likes, dislikes, habits and preferences → Events coming up in their personal life etc.
Levels of data mining operations The aggregate or the Macro level Mining at the macro level gives us a broad overview of the data e.g. when customer of the retail store are segmented by profitability criteria, we obtain clusters who are profitable to various extent. Knowledge obtained by mining at macro level is useful when dealing with situations where: •We are dealing with a customer about whom we do not have individual information . Hence, we need to extrapolate the characteristics of the group to which he/she might belong. In retail store example, a store can segment its customers on basis of age and characteristics can be extracted. When a new customer enters the store, the salesman could use his intuition in arriving at the customer’s age and recover the characteristics of that age group such as the frequently bought products, colour preferences, etc. • Targeting new set of customers. If the retail chain has opened a new store it can use the data from the most similar current store to predict the behavior of the new prospects. •We are dealing with aspects of the service, which influence a majority of the customer and therefore cannot be customized to suit individual tastes, example being the design of the physical layout of a retail store. •Predicting the possibility of an action that the cu has never undertaken. A customer might not have tried out a new product because he/she was not aware of it. A salesman can encourage him/her to try out the product if his/her profile matches that of the current product users.
The Individual or Micro level
As interactions of the individual with the firm increases, the firm obtains more data about him/her. Offering individualized value adding propositions can strengthen relationship with the individual customer. For this, we need to track the cu and mine at the individual or micro level. Some important features to note about mining at this level are:
•Micro-level mining provides specific information about a particular customer. For example, the retail store can go to the extent of finding out the preferred colours of his
shirt •A firm takes up micro level mining to build a detailed customer profile of a regular customer. •Data mining this level might be expensive if the data mining tool has to cull out individual information from a large database. Having a separate database for profitable customer might be helpful. •Knowledge obtained at the individual level is useful in situations where: The firm wants to customize its offering to the customer based on the customer’s tastes and preferences e.g. the retail store can offer discounts on the purchase of a bundle of products that the customer prefers buying together. The firm wants to assist the purchase of a new product based on the information it has of the last purchase. For example, if a customer has bought a suit in his visit, then the store might offer a discount on the purchase of a tie of a matching colour. The firm wants to take advantage of the personal events in a customer’s life (e.g. birthdays, anniversaries, birth of child etc.) to further cement the precious relationship. Current patterns that go against usually observed customer behavior point to interesting phenomenon. If retail customer suddenly switches brand then he/she might not be satisfied with the last purchase. The most common operations used at this level are: -
Classification: Classification is a process that maps a given data item into one of the several predefined classes. CRM uses classification for a variety of purposes like behavior prediction, product and customer categorization. Regression Regression is the operation of learning a function that predicts the value of a real valued dependent variable based on values of other independent variables. Regression finds application in a CRM environment where prediction needs to be made about the behavior regarding real
value added variables. Suppose the retail store collects data on the monthly visits of the customers viz. Frequency, time spent on each visit. And purchases made during each visit. If the manager has a strong intuition that total purchase is linked to frequency of visit, then this situation can be modeled by regression. This model can then be used to predict future purchases of a customer. Regression needs sufficient amount of data to be reliable and valid. Link Analysis Link Analysis seeks to establish relationship between items or variables in a database record to expose patterns and trends. Link analysis can also trace connections between items of record over time. The most important link analysis application in CRM, called market basket analysis, is an operation that seeks relationship between product items characterizing product affinities or buyer preferences. The retail store collects thousands of interactions daily. A link analysis task performed on this data will point to items that are bought together e.g. bread and butter are bought together rather than bread and orange juice. Such information can be used to design store layouts, design coupons, etc. Segmentation Segmentation aims to identify a finite set of naturally occurring clusters or categories to describe data. Deviation Detection Deviation Detection (DD) focuses on discovering the most significant changes in the data from previously measured, expected or normative values. Most CRM solutions have a DD task running in parallel on a regular basis. Suppose a retailer finds out that the sales from a particular section of the store have been much less than expected. This deviation on further analysis points out to non-stocking of a popular brand. Tools such as decision trees, rule induction, case based reasoning, visualization techniques, nearest neighbor techniques, clustering algorithms, etc are used for the above purposes. The existing CRM Solutions Delivering the ‘360 view’ requires automation to bring together all the data concerning a customer. This implies the organisation has to change from: Mass Marketing Product Focus Product Focus Customer Focus
Economies of Scale 1 way communication Response Time
Economies of time Interactive Real Time
Present CRM Alternatives Present CRM solutions are offered by host of vendors that are to a great extent not industry specific. While there are some vendors, who have come up with industry specific solutions, the broad model around which the CRM solutions are built remain the same. Adopting a similar or a look a like solution across industries is what causes major strain in servicing a customer. Typical offerings of the current CRM solutions (such as Siebel, Oracle Apps or MySap.com, etc) vary from solution to solution. However typical CRM offerings consist of: Customer Development Service Centre Sale management and support Market Analysis Internet, Tele marketing Product and brand management Field sales, Tele sales, Internet Sales Call Centres, Field Service Internet Customer Service Service Interaction Centre Business Partner Collaboration
The Customer focussed organisation: CRM Model
The idea here is to develop systems that allow flexibility, work on not completely predefined processes so as to enable front office to be proactive to each customer needs The Mindset impact on CRM A typical data warehouse will have the following components: •While developing a data warehouse one takes into account all the legacy and operation systems. But typically sales teams could be managing leads on an excel worksheet. Sometimes critical DSS input like “Profitability Analysis” itself may reside on a worksheet. Data Warehouse
Legacy & Operation Extract & Transfer
Mktg & Sales Cube
OLAP Tool Thus a Data Warehouse solution must be able to accept information from such “unstructured” sources as well as budget for an open architecture to enable plug-in for systems to be developed in the future. a) Generally the existing information is mapped into a data warehouse. Since a customer centric info-base is being developed, its is critical that extensive customer research is done to identify their information needs and thus what profile data will be relevant for us. Thus any data-warehousing project needs to work closely with the research team. b) After extracting the data from various systems, we need to scrub and clean the data, deduplicate. c) Even though we may find 80% of the names in a database of a million customers using combinations of lets say a 1000 first and last names, to take into account all possible combinations we may actually need a database of 10,000 first and last names. Even then we may not be able to comprehensively cover all future combinations. Now, the system must expect this kind of input on a regular basis rather than it happening by exception, as is the case with updating “masters” in a traditional system. d) Ad-hoc querying is a tool that is most often used in such applications. Unfortunately not much effort is made to make this tool “end-user” friendly so that even a layman could run his/her reports. Typically a data-warehouse and data mining person is placed in information technology to manage all queries. With the advent of tools like MetaData Repository, drill down OLAP tools and Palm Pilots it is now possible for hardcore marketing and sales types
to directly access and run their queries. Infact we need to budget for training the sales and marketing team with the use of data-warehouse. e) The real power of the CRM system is its ability to provide a rich, value added experience to our customers at all touch points – call Centres, kiosks, retail outlets, mobile devices, Internet and branches. Integration and information dissemination must happen at all these points. Thus the CRM specialist in marketing must be well versed with all these tools and techniques.
What is eCRM? In simplest terms eCRM provides companies with means to conduct interactive, personalized and relevant communications with customer across both electronic and traditional channels. It utilizes a complete view of the customer to make decisions about messaging, offers and channel delivery. It synchronises communication across otherwise disjoint-customer facing systems. It adheres to permission based practices, respecting individual’s preferences regarding how and whether they wish to communicate with you and it focuses on understanding how the economics of customer relationship affect the business. eCRM Vs CRM CRM is essentially a business strategy for acquiring and maintaining the “right” customers over the long term. Within this framework, a number of channels exist for interacting with customers. One of these channels is “electronic” – and has been labeled “e-commerce” or “e-business”. This electronic channel does not replace the sales force, the call Centre, or even the fax. It is simply another extension, albeit a powerful new one, to the customer. The thrust of eCRM is not what the organisation is “doing on the web” but how fully the organisation ties its on-line channel back to its traditional channels, or customer touch points.
Why employ eCRM? Companies need to take firm initiatives on the eCRM frontier to •Optimize the value of interactive relationship •Enable the business to extend its personalized reach
•Company-ordinate marketing activities across all customer channels. •Leverage customer information for more effective emarketing and ebusiness •Focus the business on improving customer relationship and earning a greater share of each customer’s business through consistent measurement, assessment and “actionable” customer strategies. The six “E’s” of eCRM 1. Electronic channels 2. Enterprise 3. Empowerment 4. Economics 5. Evaluation 6. External Information eCRM Architecture The primary inputs to this module are mainly from the eCRM Assessment and strategy alignment modules. During this stage the company will try and develop a Connected Enterprise Architecture (CEA) within the context of the company’s own CRM strategy. The following is a set of technical eCRM capabilities and applications that collectively and ideally comprise a full eCRM solution: •Customer Analytical Software •Data mining software •Campaign Management software •Business Simulation •A real time decision engine
Review and Assessment of CRM solutions
CRM software applications embody best practices and employs advanced technologies to help organisations achieve these goals. Categories of CRM solutions
Any enterprise , which wants to implement CRM solutions can choose from four categories of solutions Integrated applications suite Interfaced applications bundle Interfaced best of breed solutions Best of cluster Selecting an interfaced best of breed approach for pure functionality or a front office application suite solely for integration limits enterprise choices. Enterprises need to start with a clear picture of the basic truths of integration, interfacing and functionality. An integrated application suite is a set of application that employs a common architecture, referencing a common logical database with a single schema. Some suites are more often interfaced application bundle i.e. a set of interfaced application from a single vendor containing more than one technical architecture or more than one logical database- frequently assembled by the vendor through the process of acquisition or partnership An alternative approach to suites is an interfaced best of breed solution – an approach whereby an enterprise selects from multiple vendors a set of applications that must be interfaced to work together, either by the enterprise, one of the selected vendors or a third party integrator. The individual applications are not the best in any objective sense. Rather, some enterprises select the applications because they best meet the particular needs. The challenge of this approach is that, in some cases, the enterprise fails to complete the necessary interfaces to get the individual applications working together; consequently, the applications remain stove pipes. Best of cluster is similar to best of breed except that here best is chosen from the cluster and they are interfaced. Key requirements for CRM solutions Some of the functional and technical requirements for CRM solutions are as listed below: •Business intelligence and analytical capabilities •Unified channels of customer interactions •Support for web based functionality •Centralized repository for customer information •Integrated work flow
•Integration with ERP applications Functional Components of CRM solution CRM applications are a convergence of functional components, advanced technologies and channels. Functional components and channels are described below: Sales applications Common applications include calendar and scheduling, contact and account management; compensation; opportunity and pipeline management; sales forecasting; proposal generation and management; pricing; territory assignment and management; and expense reporting. Marketing applications These include web based and traditional marketing campaign planning, execution, and analysis;list generation and management; budgeting and forecasting; collateral generation and marketing materials management. Customer service and support applications These include customer care; incident, defect and order tracking; field service; problem and solution database; repair scheduling and dispatching; service agreements and contracts; and service request management. Given below is a brief review of what some of the known vendors in this area have in their applications for these verticals. The table 2 at the end gives comparative assessment of the products discussed below for the above verticals: •SIEBEL It continues to out market and out sell the competition. It is one of the few front office suite vendors having vertical specific functions. Its functionality is compelling. It can be integrated with most of the back office solution like SAP and Oracle. It has solutions for automotive, public sector (US), communications, consumer goods, apparel and footwear, energy, finance, insurance, health care, life sciences and high technology industry sectors. The solutions for the verticals described above are discussed below: • For Consumer goods: a Siebel eConsumer goods offers eBusiness solution spanning the entire demand chain from the end consumer, through the retailer and the wholesaler, to the manufacturer. It has robust trade promotions planning functionality allowing users to manage customer promotion plans and the funds to support them, while comprehensive
route planning functionality enables integrated account targeting. Using Siebel eConsumer Goods, organisations can also identify customer-buying behaviors and translate this understanding into new trade promotions and product offerings • For Financial Services: Siebel eFinance enables banking, brokerage, insurance, and capital market organisations to establish and maintain long term profitable relationship with consumers, small businesses, and corporate customers. The organisations can capitalize on information captured during each customer interaction to more effectively cross-sell and upsell additional products and services. Additionally, Siebel eFinance provides a comprehensive view of the entire customer relationship across multiple product lines, enabling financial service organisations to provide a personalized experience across all channels. • For Healthcare: Siebel eHealthcare gives organisations the ability to streamline and improve sales, member services, medical management, and network management services. By using multiple distribution channels, including the Internet, call Centres, home office staff and independent brokers, Siebel eHealthcare provides organisations with a single view of their customers, thereby ensuring better service and improved quality of care. • For telecom service providers: Siebel eCommunications helps wireless, cable, and Internet service providers to target and win the right customers, accelerate service delivery, and provide service across all touchpoints. Siebel eCommunications embodies the industry’s best practices for generating accurate service orders, managing billing inquiries and adjustments, and up-selling and cross-selling additional services. By using Siebel eCommunications’ integration technology, service representatives and salespeople can instantly access information such as billing, order management, and network management from Operation Support Systems (OSS), to deliver highly responsive customer support and significantly increase sales. Siebel 99, the vendor's major release, boasts 117 applications that span sales and service and incorporate multiple vertical markets. A major effort in the new application release is it integrates all the channels companies use to contact customers: Web, E-mail, voice, wireless and face-to-face contact. Some of Siebel employeeSome of Siebel customerSome of the additional products facing applications are: facing applications are: available in version 6.0 Siebel eBusiness Connector for SAP Siebel Call Center Siebel eChannel R/3 ®
Siebel eMail Response Siebel Field Service Siebel Marketing Siebel Sales Siebel Service
Siebel eCustomer Siebel eMarketing Siebel eSales Siebel eService
Siebel Communications Server Siebel Distance Learning Siebel Global Enterprise Support Siebel Language Extensions Siebel Wireless
It offers customer service & support and field service suite; however its sales functionality is immature.
Oracle is betting everything on its thin, Web Based, centralized computing model. The Internet computing architecture is compelling for connected non-mobile users; Oracle is rebuilding functionality on the new platform and integrates its various acquired products. It offers a broad set of functionality across e-commerce, front office and business intelligence applications.
Vantive offers a compelling customer service and support and field service suite. The rest of its front office functionality makes it suite more of a bundle. The solution is integrated with PeopleSoft at the back office. Table 2 Comparative Assessment of CRM Products for Vertical Specific Requirements CRMApplicationRequireme nt Consumer Products
Category Management Promotion Management Demand Planning Interactive Selling
Available Available Available Available Available N.A. Available
Available Available N.A. Available Available N.A. Available
Available Available Available Available Available N.A. Available
Available Available N.A. Available Available N.A. N.A.
Telecom Service Providers
Blended Sales & service contact Centre Competitive Pricing Analysis Integration with Billing System
Available Available Available N.A. N.A. Available N.A. Available Available
Available Available Available N.A. N.A. N.A. Available N.A. Available
Available Available Available Available Available Available N.A. N.A. N.A.
N.A. Available Available N.A. N.A. N.A. N.A. N.A. Available
Contact Centre Profitability Analysis Integrated Targeting Marketing Datamining
Pharma & Healthcare
Contract Management Marketing Analysis Disease Education System Knowledge Management System
Some Indian CRM solutions are by Sales Logix, Logix Microsystems, Sonata Software, Oracle India, L&T information technology, etc. Other CRM solutions are Aurum, Epiphany, Avyaya and Onyx.
Some frequent modules that most CRM have is: Forecast Management, Encyclopedia Management, Campaign Management, Brand
Management, Opportunity Management, and Event Management. CRM solutions are interwined combinations of technology and business processes. In order to be effective CRM service providers will need a balanced understanding of both products and services. It’s necessary to have an expertise in not CRM technology but also customer service processes. The potential use of CRM lies in it being the leading indicator of future revenue than just being used as a customer facing transaction-processing tool or as a lagging indicator communicating past consumer grievances. The complete concept of CRM can be mapped on a technology solution as per the following blue print. The databases feed the technology infrastructure which links You with the customer touch points. Thus we have four components of a CRM initiative rollout •Customer Value Management Strategy •CRM roadmap keeping in mind industry nuances •Database solutions
•Customer access channels
Case Study 1: Implementing a TechnologyBased CRM Solution
The ICICI Experience
ICICI set up as Development Bank over four decades ago to provide products and services for the corporate segment, diversified into the retail segment of the financial markets in the early 1990s. In 1994, it established ICICI bank as a commercial bank that is flexible, innovative and prompt in meeting customer requirements. In addition to the bank, the retail initiatives include Prudential ICICI AMC, ICICI Personal Financial Services, ICICI Capital Services, and ICICI web trade, Prudential ICICI Life Insurance, ICICI Lombard General insurance. This apart the retail initiatives also include a plethora of web based businesses including city portals and various other utility sites such as billjunction.com, icicimoneymanager.com, and magiccart.com, among others.
The Retail Strategy As part of plans, it is implementing various projects to establish world class CRM practices, which would provide an integrated view of its customers to everyone in the organisation. CRM at ICICI involves increased communication between the virtual universal bank and its customers and prospects, as well as within the group itself. The underlying idea is to enhance every instance of contact with the customer. ICICI believes that a true customer centric relationship can only be accomplished by considering the unique perspectives of every single customer of the organisation. Hence the pressing need to put in place a technology enabled CRM solution. The CRM Roadmap CRM, at ICICI, is viewed as a discipline as well as a set of discrete software technologies, which will focus on automating and improving the business processes associated with the customer – face –to-face, call Centre, ATM, web, telephone, kiosk, bank branch, sales associates, etc – so as to allow ICICI to carry out cradle-to-grave customer management more efficiently. It should allow ICICI to engage in one-to-one marketing by tracking complete customer life-cycle history. To begin with it will automate process-flow tracking in the product sales process, and be able to generate customized reports and promote cross selling. It will also enable efficient campaign management by providing a software interface for definition, tracking, execution, and analysis of campaigns. From an architecture perspective, the enterprise-wide CRM solution should seamlessly integrate non-transactional related customer information housed in the front-office with the transactional information housed in the back office. Implementing CRM A very detailed and comprehensive CRM action plan was developed based on the understanding that CRM will require enterprise wide transformation. The CRM Business Transformation Map below shows the various aspects of that change.
BUSINESS FOCUS Product Sales Channel Marketing Service Customer
Product Performance MARKETING FOCUS
Customer Patterns & Profitability
Customer Lifetime Value and Loyalty
Mass Advertising TECHNOLOGY
Segment Specific Marketing
Customer Touchpoint Systems
Source: “How to Get There From Here” by Melinda Nykamp, President, Nykamp Consulting group
Interviews with key individuals throughout the organisation helped identify different initiatives that have been launched, all focussed on CRM. The next step in the planning process was a Gap Analysis. This analysis essentially compared current stage against optimal relative to the five aspects of business, to identify and specifically describe the gaps. The CRM Business Cycle: •Understand and Differentiate Organisations cannot have a relationship with the customer unless they understand them… what they value, what types of services are important to them, how and when they like to interact, and what they wan to buy. True understanding is based on a combination of detailed analysis and interaction. ICICI group’s customers need to see that the company is differentiating service and communication based on both what they have learned independently and on what the customer has told them. At the same time, differentiation should be based on the value customer are expected to deliver.
•Develop and Customize ICICI believes that the extent of customization should be based on the potential value delivered by the customer segment. •Interact and Deliver ICICI is strongly of the opinion that value is not just based on the price of the product or the discounts offered. In fact, customer perceptions of value are based on a number of factors including the quality of products and service, convenience, speed, ease of use, responsiveness, and service excellence. •Acquire and Retain The more ICICI learns about customers, the easier it is to pinpoint those that are producing the greatest value for the organisation. Successful customer retention basically involves getting it “right” on an ongoing basis. And that is exactly what ICICI group aims to achieve out of its CRM initiatives. Successful customer retention is based very simply on the organisation’s ability to constantly deliver on three principles: Maintain interaction; never stop listening to customers Deliver on customer’s value definition. Remember that customers change as they move through differing life stages; be alert for the changes and be prepared to modify the service and value proposition as they change. •Prioritizing Changes Because there might be many gaps, therefore many changes that an organisation will need to make, prioritization was critical. The evaluation of each of the strategies identified to resolve the gaps at ICICI were based on: Cost to implement – including initial one time costs, as well as anticipated ongoing expenses. Overall benefit – some changes may have higher impacts on an organisation’s ability to increase customer value and loyalty. Feasibility – based on the organisation readiness, data and systems support, resource skill sets and a number of other factors.
Time Required – including the time necessary for training and addressing “cultural” change management issues related to a specific strategy
•Creating an Action Plan The next step in the planning process was the development of a very detailed action plan. While the complete plan might span three or more years, it was based on three-month phases with clear deliverables that will demonstrate both progress and quick hits or measures of success. The plan identified interdependent activities and should comprehensively detail the time and resources required for each activity. Another key factor for the planning process was the Leadership Action Plan. Advancing on the CRM transformation map required significant organisation change. This part of the action plan helped assess the drivers and restraints of change and the organisation’s readiness to assess the change. Selecting and Implementing a Technology Based Solution Technology The success of the CRM initiatives were contingent on various decisions pertaining to technology. Some of the key issues were: (a) Make or Buy: - The decision to buy was based on an evaluation of an identified set of criteria. Some criteria were Functionality, Flexibility, Scalability, Fit with existing architecture, etc. was decided to purchase an off-the-shelf CRM solution and customize it to suit ICICI’s requirements. (b) From whom to buy: Some Criteria included were CRM expertise, Retail Finance Experience, Credentials including financials, client list, life history, etc. A detailed Request for Information (RFI) was sent to each of the shortlisted companies. After receiving the RFIs, another round of evaluation was done. After shortlisting two product vendors and system integrators, reference calls were made to several of the past clients of all shortlisted companies. Processes
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