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CRM Concep ptual Foundations

Session Coverag ge

Benefits of CRM Transaction vs. Relationsh hip orientation Schools of thought on CR RM Defining CRM , Custome er Retention and Customer Acquisition
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Benefits of CRM

Customers are profitable ov ver time Customer profitability is skewed

Customers ARE NOT equal


Marketing benefits of CRM
Information Information, Knowledge Customized Promotions Productivity Gains
low cost media, improved targeting and higher conversion rates.

Service Benefits of CRM

Benefits of CRM

Service S i B Benefits fit of f CRM


96% of unhappy customers ne ever bother to complain Each dissatisfied customer on n an average will tell 14 other people Each satisfied customer will te ell no more than 6 70% of customers who complain will do business with the company again if it quickly takes care of a service problem.

Benefits of CRM

Benefits B fit of f CRM to t Custom C t mers


Satisfaction leads to loyalty Simplify buying and consuming g tasks, tasks Simplify information processin ng, Reduce perceived risks, Maintain cognitive consistency y Psychological comfort

Pre-Industrial era
Merchants & Traders Business built on trust Customisation of products/all aspects of delivery & payment Personal/social interaction with ith customers t

Industrial era
Businesses adopted mass production, mass communication, mass distribution Focus on manufacturing/efficient operations. Introduction of Intermediaries Greater efficiency, lower cost R d d di Reduced direct t contact t t with ith customers t

High

Information era
R Re-emergence of f relationship l ti hi practices ti Rapid technological advances Intensive competition Growing imporatnce of service sector Adoption p of TQM p programs g

Relationship orientation i t ti

Low Pre-industrial era


Relationship centric (Small scale)

Industrial era

Information era
Relationship centric (Small scale)

The evolution of Relationship Or rientation


(Adapted from Sheth, Parvatiyar, 1995)

Re-emergence of relationship practices s in the information era I. Advances in technology gy

Advances in information information, communic cation and production technologies Technology enabled marketers to ov vercome shortcomings of mass marketing.
Inefficiencies in mass marketing-cost red duction Lack of fast , effective and interactve mo odes of customer contact, feedback, information. Lack of consolidated information.

Re-emergence of relationship practices s in the information era I. Advances in technology gy

Advances in information information, communic cation and production technologies Technology enabled marketers to ov vercome shortcomings of mass marketing.
Inefficiencies in mass marketing-cost red duction Lack of fast , effective and interactive mo odes of customer contact, feedback, information. Lack of consolidated information.

Re-emergence of relationship practices s in the information era II. Intensive competition p

Focus on existing customers It costs 6-8 times more to attract a new customer than to retain an existing customer. Focus on CLV Shift from product centric marketin ng to customer centric marketing.

Re-emergence of relationship practices s in the information era

IV. Adoption of TQM


Provide quality products and services to custome ers at lowest prices

IV. Increase in no. of demanding customers V Increased fragmentation of markets V. VI. High level of product quality

Businesses seek sustain nable competitive advantages. Sustainable-those whic ch cannot be copied. One such sustainable advantage a is the relationship developed by the busin ness with its customers

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Re-emergence of relationship practices s in the information era III. Growing g importance p of the servi ice sector

India:Service sector contributes to 50% of economy economy. Service sector: Direct interaction bet tween marketer and buyer Leads to better understanding
Better unde erstanding Better appreciation of needs and constraints Emotional l Bonding

Relationshi ip Building

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A Model of Relat tionship p Based Buying y g

Cost Benefit C B fi Factors F Search Costs Risk Reduction Switching Costs Value-added Benefits Socio-Cultural Factors Early Socialization Reciprocity Networks F i d hi Friendships

Relationship R Ba ased Buying Trust C Commitment

Customer Loyalty Increased Buying Willi Willingness t to pay more Goodwill (customer equity) q y)

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Perceived Risk & Switching g Costs

High g Switching Costs

Constrained d in R l ti Relationsh hi hip h

Relational Buying

Low

Transaction nal E h Exchange e Low

Vulnerable Exchange High


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Perceiv ved Risk of Alternatives

Determinants of Tr rust & Commitment in Business Relations ships p


Determinants D t i t for f the th Supplier Supplier pp specific p investments Customer avoidance of opportunistic behavior Si l source policy Single li Data sharing and nurturing

Determinants D t i t for f the th Customer Switching g costs Partner specific investments Mutually shared goals C Communication i i and d product d support Supplier pp avoidance of opportunistic behavior

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Transaction vs. Relationship R p Marketing g


Relationship Marketing

Transaction Marketing One off exchanges Brand Management Short term focus Mass Communication Isolated Market Research Mass Markets or Market S Segments Market Share Profitability of transaction Brand equity

Foc cus Time Per rspective Customer r Feedback Mecha anism Marke et Size Criterion for f Success Critical Metrics

Ongoing Exchanges Customer Management Long term focus

Primary Com mmunication Personal Communication


Ongoing Dialogue Markets of One Mind Share Customers) (Share of

Customer Profitability Customer Equity

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Schools of Thou ught g on CRM

The Th Anglo-Australian A l A t li n Approach, A h The Nordic Approach h, and The North American n Approach

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Schools of Thou ught g on CRM

The Th Anglo-Australian A l A t li n Approach A h


Quality Management

Services Marketing C Concepts t ationship p Rela Ma arketing

Customer Relationship Economics

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Schools of Thou ught g on CRM

The Th Nordic N di Approach A h


Interactiv ve Network Theory

Services Marketing Concepts Relationship p Marketing

Customer Relationship Economics

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Schools of Thou ught g on CRM

The Th North N th American A i n Approach A h

Organizationa l Environment Relationship Man nager

Buyer

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Summary y
The Anglo Australian approach integ grated the contemporary theories of quality management, services marketing and d customer relationship economics to explain the emergence of relationship p marketing. The Nordic Th N di approach h views i relations l ti ship hi marketing k ti as the th confluence fl of f interactive network theory of industr rial marketing , views marketing as an interactive process in a context where e relationship building is an area of primary concern for marketers marketers. ws relationship marketing as the confluence The North American Approach view of interactive network theory, service es marketing and customer relationship economics. i The Th interactive i t ti network t k theory t th of f industrial i d t i l marketing k ti views i marketing as an interactive process in n a context where relationship building is an area of primary concern for marke eters.

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Six Markets Fram mework of CRM


Internal Markets

Supplier Markets

Customer Markets

Referral Markets

Recruitment Markets

Influence Markets

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Defining g CRM

CRM is i database d t b mar rketing k ti (Bickert, (Bi k t 1992)


emphasizes the promotio onal aspects of marketing limited to database efforts

CRM is customer retention (Vavra , 1992)


aftermarketing tactics are e used for customer bonding and staying in touch after r the sale is made

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Defining CRM contd.

RM is the application of IT to f focus on 1to1 relationships with customers that integrate reten ntion and growth strategy (Peppers and Rogers, 1993) RM puts the customer first and shifts the role of marketing from manipulating the customer (telling and selling) to genuine customer t i involvement l t( (communicating i ti and d sharing h i the th knowledge) (Mckenna, 1991)

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Defining g CRM contd.

Attracting maintaining and - in multi service organisations enhancing customer relationsh hips (Berry, 1983) Establish, maintain and enhance relationships with customers and other partners, at a profit, so that t the objectives of the parties involved are met. This is achi ieved by a mutual exchange and f lfill fulfillment t of f promises i (G (Gronroos, 1990) ivities directed towards establishing, RM refers to all marketing acti developing and maintaining suc ccessful relationships (Morgan and Hunt, 1994)

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Defining g CRM contd.

CRM is i the th ongoing i process p of f engaging i in i cooperative and colla aborative activities and programs with imme ediate and end user customers to create and a enhance mutual economic value at reduced cost. cost

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Common Issues

A process oriented i t d view vi which hi h looks l k at t the th interactions over a pe eriod of time Collaborative and co ooperative nature of the relationship for lon ng-term mutual benefit, and d Metrics include enhan nced value

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CRM

Key elements Nature of relationship with customers is changing & the emphasis is shifting from transactions to o a relationship focus. Focuses on maximising the life etime value of desirable customers Development and enhancemen nt of relationship with six key markets Q y, customer service and marketing g are closely y related. Quality, Brings these elements into a much m closer coherence

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What is the go oal of CRM ?

Build long term and profita able relationships with chosen customers Get closer to those custom mers at every point of contact with them

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Customers are p profitable f over a pe period of f time

Initial acquisition cost exceeds gros ss margin, retention costs are lower. 1% increase in sales to existing customers incease profits by 17% while same amount of sales to new customers increase profits by 3%. Companies can boost profits by 85% % by increasing annual custome retention by 5%. Probability of selling a product to a prospect is 15% while it is 50% to an existing customer

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Customer Profitability f y is skewed

Top 20% of customers contribute to 150% of profits profits. Bottom 20% drain 50% profits. Rest 60% break even. Companies have to adopt different strategies for different customer groups. Retain and build stronger bonds wit th gold standard customers so that they do not get paoched. Activity based cost analysis. Cross selling and upselling ustomers to potential group. Analyse bottom group.Shift some cu Reduce R d cost t of f service i Encourage some customers to defect t to competitors. Outsourcing g loss making g customers.

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Marketing g benefits f of f CRM

Focus on existing customers It costs 6-8 times more to attract a new customer than to retain an existing customer. Focus on CLV Shift from product centric marketin ng to customer centric marketing.

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Custome er Acquisition q
A simple definition of "Customer Customer Acquisition Acquisition" is the process of acquiring or obtaining new customers, and d/or converting prospects to customers. Successful CRM begins with the ac cquisition of the right customers. The cost Th t of f acquiring i i new custome t ers is i considerably id bl higher hi h than th the th cost t of f servicing existing customers. Adding a new customer costs three to seven times more than keeping an existing one. Firms have tried out t various ways to acquire new customers by spending less on the acquisition n costs. The cost of acquiring q g new custome ers includes the cost of sales, promotions, p branding, customer trials, etc. The erefore, the ratio of customer acquisition to retention becomes very important for the firm .

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Custom mer Retention


Customer Retention is the proces ss of keeping, sustaining, and/or growing the relationship of consumers with w the company and its products and services. It is the process of keep ping customers loyal to a company for an unending di period i d by b meeting ti the th needs n d and d expectations t ti of f customers t and d is i a significant contributing factor in n the growth rate of businesses. Customer retention is the mirror r image of customer defection or churn. High retention is equivalent to low w defection. Customer Retention is defined as s the number of customers doing business with a firm at the end of a financ cial year expressed as percentage of those who were active customers at the beginning of the year.

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Customer Retention.
Customer Retention has rep placed cost effectiveness and cost competitiveness as the greatest co oncern of business executives today. The foundation of CRM is built on n an iterative process of learning and customization. Companies interact with custome ers, treat them as organizational assets, learn about them and through the e process of incorporating feedback and co creation develop a level of intim co-creation, macy with them

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