Customer Relationship Management

Course Instructors:
Prof. Pravesh Padamwar
&
Prof. Niraj Vishwakarma
Evolution of “marketing management”

Production oriented

Product oriented

Sales oriented

Market oriented – Customer Centric

The three main forms/stages of CRM

1. Strategic CRM: Marketing oriented – Customer Centric

2. Operational CRM: Customer data

 Internal Environment (IE) – Traditional ERP
 Marketing automation
 IE and external environment – modern ERP with CRM
 Campaign management

 Sales force automation

 B2B, B2C, sales lead management

 Service automation
 Customer records and communication, Call by credit card customer.

3. Analytical CRM
 ‘Big data’
Customer Centric
 CRM: Customer Centric

Strategic CRM | Operational CRM | Analytical CRM

People develop and implement the process (Strategic CRM) that enable by
IT (Operational CRM).
IT cannot compensate for “bad processes and inept people”.

In an industry, various players implement CRM, yet there are significant
difference in performance (customer loyalty/satisfaction) among them.
 E.g., Banking industry: ICICI, SBI, HDFC, IDBI
 Why CRM?

To be Competitive
Millions of customers of varying needs
Technology
 IT
 Availability of data
 Digital/social marketing
 Feasibility
 CRM Definition
CRM is an integrated approach to identifying, acquiring and retaining customers.
 Integration of internal (Company) process/functions and external (Customer) network.

Enabling organizations to manage and coordinate customer interactions across

multiple channels, departments, lines of business, and geography.
 CRM Definition…..
CRM helps organizations maximize the value of every customer
interaction and drive superior corporate performance.

Profit Customer satisfaction Volume: NGOs

“CRM aligns business processes with customer strategies to build

customer loyalty and increase profit over time.”
Customer Centric
Technology and software are not included in definition.
 C Relationship M

Transactional

Relationship Customer supplier dyad

 Series of interactions
 Affective/Emotional connect
 Independence to interdependence

CRM enable organizations to manage and coordinate customer interactions across multiple channels,
departments, lines of business, and geography.
 C Relationship M
Change within relationships: R evolve over time
1. Awareness
2. Exploration
• Relationship ends if trial is unsuccessful

3. Expansion
• Increased interdependence

4. Commitment
5. Dissolution
• Bilateral or unilateral
 C Relationship M

The two attributes of highly developed relationship

Trust
 Benevolence
 Integrity/honesty
 competence

Commitment
• Cooperation to preserve relationship indefinite
 Customer supplier dyadic relationship

Why supplier (company) wants it?

• It’s 20 times more costlier to acquire a new customer than to retain an existing one.

Why customer wants it?

Customer lifetime value (CLV)

Dr. V. Kumar
 Customer lifetime value (CLV)

CLV is the present-day value of all net margins earned from a

relationship with a customer or customer segment.

Value in monitory terms

Not all customers/segments are worth serving

 Customer lifetime value (CLV)
“CLV is the present-day value of all net margins earned from a relationship with a customer or
customer segment.”

How to compute CLV?

 Probability of conversion period-by-period

 Gross margins (profit) period-by-period

 Cost of acquisition

 Cost of serving
 May vary across customers

 Discount rate (Cost)

CLV of one customer
 CLV of a customer segment
Cost of serving reduces over time $10 million was spent. That resulted in 100,000 new customers
Inclusion of CRV in CLV
• Customer Referral Value (CRV): WOM

Firms adopt advanced models and sophisticated methods to compute

CLV
 CRM Models
The IDIC model Peppers and Rogers (2004)

 Identify and understand

 Differentiate
• Value to the firm
• Customer’s need

 Interact
• Customer’s need
• Customer’s relation with competition

 Customize and communicate

The IDIC model
Peppers and Rogers (2004)
 Buttle’s CRM value chain model
Francis Buttle (2004)
Four types of Strategically Significant Customers (SSC)
1. High CLV SSC
• Not all high volume customers are of high CLV (coz high serving cost).

2. “Benchmarks” SSC
• That other customers copy

3. ‘Inspirations’ SSC
• new application

4. “Cost magnets” SSC

• Absorbs high volume of fixed cost; other customers become profitable
Buttle’s CRM value chain model
Francis Buttle (2004)
Payne and Flow’s 5-process model
 Payne and Flow’s 5-process model

E-Retailers have majorly benefitted from this model

Strategic CRM Operational CRM
 The Gartner competency model

The Gartner model is developed by the market research and

consulting firm, Gartner Inc.
The Gartner model has been constructed after assessing and profiling
eight companies that were listed in the Fortune 500.
These 8 companies were selected on the basis of their year-after-year
revenue growth and high ranking in their respective industry.
This model of CRM stresses on 8 competencies that a business
should focus on.
The Gartner competency model
CRM term project - Mid term submission
by
15th October 2019
 The three main forms/stages of CRM
1. Strategic CRM: Marketing oriented – Customer Centric

2. Operational CRM: Customer data

 Marketing automation
 Campaign management
 Sales force automation
 B2B, B2C, sales lead management
 Service automation
 Customer records and communication, Call by credit card customer.

3. Analytical CRM
 ‘Big data’
 Avoid the Four Perils of CRM

 When CRM works, it allows companies to gather customer data,

identify the most valuable customers, and increase customer
loyalty by providing customized products and services.
 It also reduces the costs of serving.

 But when CRM doesn’t work—which is often—it can lead to

debacles.
 55% of all CRM projects don’t produce results, according to
Gartner Group.
 Avoid the Four Perils of CRM
• Why do CRM initiatives fail so often?
• According to the research many executives stumble into one or
more of four pitfalls while trying to implement CRM.

• CRM is a software tool that will manage customer relationships

for you. It isn’t.

• “CRM aligns business processes with customer strategies to

build customer loyalty and increase profits over time.”
 Avoid the Four Perils of CRM
• Peril 1: Implementing CRM Before Creating a Customer Strategy

Only after—a traditional customer-acquisition and retention strategy has been

conceived of and implemented.

Effective CRM is based on good segmentation analysis.

 Avoid the Four Perils of CRM
• Peril 2: Rolling Out CRM Before Changing Your Organization to
Match
Installing CRM technology before creating a customer-focused organization is
perhaps the most dangerous pitfall.

Organization and its processes—job descriptions, performance measures,

compensation systems, training programs, and so on—should be restructured in order
to better meet customers’ needs.

Internal environment should be corrected.

 Avoid the Four Perils of CRM
• Peril 3: Assuming that More CRM Technology Is Better

• Peril 4: Stalking, Not Wooing, Customers

Mangers often end up trying to build relationships with the wrong customers, or
trying to build relationships with the right customers the wrong way.
CUSTOMER LIFECYCLE MANAGEMENT
 CUSTOMER LIFECYCLE

• Customer lifecycle: Stages that customers go through in their relationship

with the company, as seen from the company’s perspective
• Customer acquisition

• Customer retention

• Customer development

• Manage company’s relationship profitably

 Manage company’s relationship profitably
CUSTOMER LIFETIME VALUE
• The net present value (NPV) of the streams of future profits expected over the
customer’s lifetime purchases

• monetary value of customer as an asset

• upper limit on what the firm would be willing to pay to acquire the customer
relationship
• upper limit on what the firm would be willing to pay to avoid losing the
customer relationship
 CUSTOMER ACQUISTION

• Customer acquisition plan: Should be guided by CLV considerations

Which prospect will be targeted?

How will these prospects be approached?

What offer will be made?

 CUSTOMER ACQUISTION

New customer
• New to the product category
• Identified a new need
 Individual life cycle

• Have found a new category of solution for an existing need

 Liquid hand wash

• New to the company: Won from the competitors

• Saturated market
• Commitment in the existing relationship
 Cost of acquisition
 CUSTOMER ACQUISTION

• Portfolio purchasing
• Customers buy from a choice set of several more or less equivalent alternatives.

• Strategic switching

• Flipkart vs Amazon

• Share-of-wallet
• Big Bazaar vs D’mart

• SBI, ICICI, HDFC credit cards

 THE CONVERSION MODEL
• Questionnaire for assessment of commitment

How happy are you with……………….

Is this relationship something that you care about?

Is there any other ………………………… that appeals to you?

If so, how different is the one………………….. From the other?

 THE CONVERSION MODEL
• Customers
• Committed
• Entrenched: Unlikely to switch in the foreseeable future
• Average: May switch in the medium term
• Un-committed
• Shallow: Already considering alternatives
• Convertible: Most likely to defect
• Non-customers
• Open
• Available: Prefer the alternative to their current offer
• Ambivalent: As attracted to the alternative as to their current brand
• Unavailable
• Weakly unavailable: Prefer their current brand
• Strongly unavailable: Strong preference for their current brand
 PROSPECTING
• Searching for opportunities that might generate additional
value for the company.

• Segmentation and targeting process.

• Segmentation divides a heterogeneous market into homogenous subsets.

• Targeting is the process of choosing which market segments to approach with

an offer.
 B2B PROSPECTING
Lead generation and follow up
Sources of B2B prospects
• Personal referrals from satisfied customers
• Online sources
• Search engines
• Company websites
• Networking: business-related personal relationship.
• Promotional activities
• Attendee and delegate lists from exhibitions,
seminars, workshops, tradeshows, conferences,
events
• Lists and directories
• Canvassing: Cold calling
 B2C PROSPECTING
Advertising
• Prime method for generating new customers in B2C

• Learn-Feel-Do : cognitive and affective

• High involvement

• Learn-Do : High involvement

• Feel-Do : Low involvement

 B2C PROSPECTING
Sales promotion
 B2C PROSPECTING
Sales promotion

“Sales promotion is any behavior-triggering temporary incentive

aimed at prospects, customers, channel partners or salespeople.”
 B2C PROSPECTING
Sales promotion
• Sampling
• Free trial: test rides
• Coupon
• Discount
• Cash-back
 B2C PROSPECTING
WOM influence the beliefs, feelings and behaviors of others.

WOM has been shown to be highly effective because of it’s free from
commercial influence and trustworthy.
 B2C PROSPECTING
Customer referral program.
 B2C PROSPECTING
Advertising can generate a lot of enquiries, but these may be very
poor-quality prospects, with low conversion rates.
 WOM
 Customer referral scheme

Inclusion of CRV in CLV

• Customer Referral Value (CRV): WOM
 CUSTOMER ACQUISITION

• KPIs
• How many customers are acquired?
• What is the cost per acquired customer?
• What is the value of the acquired customer over the longer term?
 CUSTOMER LIFECYCLE

• Customer acquisition
• Customer retention
• Customer development
 Customer retention and development

• Customer retention strategy aims to reduce (Valuable)

customer defections (churn).
• Customer development strategy aims to increase the value of
those retained customers.
 Customer retention

• Customer retention is the number of customers doing

business with a firm at the end of a financial year expressed as
percentage of those who were active customers at the beginning of the year.

• One year or four years

 Customer retention rate
• If you have 100 customers and lose 10 in the course of a year, your raw defection
rate is 10 per cent.

• But what if these 10 customers account for 25 per cent of your company’s sales?
Is the true defection rate 25 per cent?

• If the 10 per cent of customers that defected produce 50 per cent of your
company’s profits.
 Customer retention rate
• Measures

• Raw customer retention rate

• Sales-adjusted customer retention rate

• Profit-adjusted retention rate

• Cost of customer retention

• Share-of-wallet of the retained customers

• Big Bazaar vs D’mart

• Customer churn rate per product category, sales region or channel

 Economics Customer Retention

• Increasing purchases as tenure grows

• Lower customer management costs over time
• Customer referrals
• Premium prices
• less responsive to sales promotions of competitor.
 Strategies for Customer Retention

Negative retention strategies

• Switching cost
• Exit penalties, bank loans

• Min annual transaction value to avail credit card fee wave off. Share-of-Wallet

• B2B Contracts

• It lead to low Customer Referral Value (CRV), WOM

 Strategies for Customer Retention

Positive retention strategies

• Customer delight: exceeding customer expectations.
• CD = P > E
• CD = Customer Delight, P = Perception of performance, and E = Expectation

• The Key is Understanding of needs and expectations.

Kano’s customer delight model

Basic qualities: No brake

down.

linear quality: Mileage

attractive quality: surprise,

delight and excite

 Expectations keep updating

 Strategies for Customer Retention

Positive retention strategies

• Loyalty scheme
 Strategies for Customer Retention

Positive retention strategies

• Sales Promotions
 Strategies for Customer Retention

Positive retention strategies

• Build customer engagement
• A higher intensity of participation in and connection to a brand or
organization
 Strategies for Customer Development

Process of growing the value of retained customers

Cross-selling is selling additional products and services to an existing customer.

Up-selling is selling higher priced or higher margin products and services to an

existing customer.

 Compromise effect: LX, VX, ZX

CUSTOMER LOYALTY
 CUSTOMER LOYALTY

Behavioral Loyalty
• RFM

Attitudinal Loyalty
• NPS
 RFM measurement

Behavioral loyalty - purchasing behavior variables

Recency of purchases (R)
customer is still active
Frequency of purchases (F)
Monetary value of purchases (M)
Share of wallet

CRM analytics – RFM score

 Attitudinal loyalty
Belief -> attitude -> intention -> action
 NPS measurement
Net Promotor Score
Widely used to measure Attitudinal loyalty

Based on responses to a single question:

“How likely is it that you would recommend our

company/product/service to a friend or colleague”
Net Promotor Score
 NPS does not answer Why

1. What are the primary reasons for the score you gave us?
2. Is there anything specific that we can do to improve your
experience?
3. Would it be okay for us to follow up with you about your response?
LOYALTY PROGRAM
 Purpose of Loyalty/reward program

• An enticement for new Customer acquisition

• A positive incentive to re-purchase
• A negative incentive (switching barrier) against defection
• A sense of emotional affiliation towards the firm
• Capturing information about customers
 Reward program: A typology of benefits

Direct Indirect
Discounts, product upgrade Highdesign voucher by SBI
Hard card
Personalized greeting, membership in third-party’s
Soft membership in firm’s elite club
club
 Loyalty/reward program

A well-designed loyalty program

A well-designed loyalty program poorly-designed
Attract the right kind of prospects Wrong
Encourage customers to re-purchase Be opportunistic

Create a reluctance to defect Create customer captivity

Cultivate stronger emotional bonds Feeling of resentment
Create value for customer and firm Destroy
 Loyalty program - Warning signals

• When the fairness of the program is not transparent to all customers

• When the rewards program is overly-dependent on indirect benefits
• When the rewards program neglects to make customers feel
personally rewarded