Customer Relationship

Management

McGraw-Hill/Irwin
PPT 11-1 Retailing Management, 5/e
Levy/Weitz: Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 Customer Relationship Management

A business philosophy and set of strategies,

programs, and systems that focus on identifying
and building loyalty with a retailer’s most
valuable customers.

What is loyalty? Is it the same thing as liking a

retailer or frequently patronizing a retailer?

PPT 11-2
 Customer Loyalty

• Committed to purchasing merchandise and

services from a retailer
• Resist efforts of competitors to attract the loyal
customer
• Emotional attachment to retailer
– Personal attention
– Memorable positive experiences
– Brand building communications programs

PPT 11-3
 CRM Process

PPT 11-4
 Collecting Customer Data

• Types of Information in the Customer

Database
• Approaches for Collecting Information
• Privacy Concerns

PPT 11-5
 Information About Each Customer in the
Data Base
• History of purchases
– Purchase date, price paid, SKUs bought, whether or
not the purchase was stimulated by a promotion
• Customer contacts by retailer (touch points)
– Visits to web site, inquires to call center, direct mail
sent to customer
• Customer preferences
• Descriptive information about customer
• Customer’s responses to promotions
PPT 11-6
 Approaches for Collecting
Customer Information

Need to connection contacts with a specific

customer identifier
• Ask for identifying information
– Telephone number, name and address
• Encourage use of frequent shopper cards
• Link checking account number and/or third
party credit cards to customer

PPT 11-7
 Privacy Concerns

Control over Collection

• Do customers know what information is being
collected?
• Do customers feel they can decide on the amount
and type of information collected by retailers?
Control over Use
• Do customers know how the information will be used
by the retailer?
• Will the retailer share the information with third
parties?

PPT 11-8
 Heighten Concerns When Using
Electronic Channel

• Information collected without the

awareness of customers
• Collecting click stream data using
cookies
– Similar to an invisible person
videotaping a customer as they
walk through a store

PPT 11-9
 Customer’s Decision to
Offer Information
Balance benefits and risks

Disclosure of Information
Unwanted Sales Contacts
Discounts
Special Treatment
Personal Attention

PPT 11-10
 Consumer Protection Differences

United States European Union

• Limited protection in specific • Information only can only be
areas collected for specific purposes
• Purpose must be disclosed to
– Credit reporting
customer
– Video rentals • Information can only be used
– Banking for specific purpose

– Medical records • Information can not be

exported to countries with less
stringent regulations

PPT 11-11
 Analyzing Customer Data

Data Mining – technique used to identify

patterns in data. Expl :DVD Player
Market Basket Analysis
Identifying Market Segments
Identifying Best Customers

PPT 11-12
 Market Basket Analysis

Data analysis focusing on

the composition of the
customer’s market basket
– what items are bought at
the same time.

Uses:
-Adjacencies for displaying merchandise
-Joint promotions
PPT 11-13
 Example of Adjacencies

PPT 11-14
PPT 11-15
 Identifying Best Customers

• Estimating Lifetime Value

• Classifying Customers by recency, frequency, and
monetary value of purchases (RFM Analysis)

PPT 11-16
Which Customer Probably Has the Greatest
Lifetime Value

Purchases Over Last 10 Weeks

1 2 3 4 5 6 7 8 9 10
Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20
Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0

PPT 11-17
 Customer Pyramid

Platinum
Best
Most loyal
Least price sensitive

PPT 11-18
 Customer Pyramid

Gold
Next best
Not as loyal

PPT 11-19
 Customer Pyramid

Iron
Doesn’t deserve
much attention

PPT 11-20
 Customer Pyramid

Lead
Demands attention
May have
negative value

PPT 11-21
 RFM Analysis

PPT 11-22
 RFM Target Strategies

PPT 11-23
 Illustration of RFM Application

A catalog retailer is deciding which group of

customers to send a catalog.. Based on experience
and an RFM analysis of customer database:
•Average order size for customers in cell - $40
•Contribution margin – 50%
•Response rate – 5%
•Cost of catalog and mailing -$.75

Will the retailer make a profit mailing to this RFM

segment?
PPT 11-24
 Illustration of RFM Application
A catalog retailer is deciding which group of
customers to send a catalog.. Based on
experience and an RFM analysis of customer
database:
•Average order size for customers in cell - $40
•Contribution margin – 50%
•Response rate – 5%
•Cost of catalog and mailing -$.75
Will the retailer make a profit mailing to this RFM
segment?
$20.00 contribution x .05 response rate - $.75 cost

PPT 11-25
= $.25 profit per catalog mailed
 CRM Programs

Retailing Best Customers

Converting Good
Customers to Best
Customers
Getting Rid of
Unprofitable
Customers

PPT 11-26
 Customer Retention Programs

• Frequent Shopper
Programs
• Special Customer Services
• Personalization
– 1-to1 Retailing
• Community

PPT 11-27
 Elements in Effective
Frequent Shopper Programs

• Tier Based on Customer Value

• Offer Choices of Rewards
– Non-monetary incentives
• Reward all Transactions
• Transparent and Simple

PPT 11-28
 Issues with Effective
Frequent Shopper Programs
• Expense
• Difficulty in Making Changes
• Impact on Loyalty Questionable
• Easily Duplicated – Difficult to Gain Competitive
Advantage
– Need to offer “invisible” benefits

PPT 11-29
 Personalization

Hello, Barton Weitz

PPT 11-30
 Converting Good Customers to Best
Customers
• Cross-selling
• Add-on selling

PPT 11-31
 Dealing with
Unprofitable Customers

• Offer less approaches for dealing with

these customers
• Charge customers for extra services
demanded

PPT 11-32
 Implementing CRM Programs

• Need systems, databases

+
• Close coordination between departments –
marketing, MIS, store operations, HR
• Shift in orientation

Product Centric Customer Centric

PPT 11-33
 Thank You

PPT 11-34