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21

Customer Relationship
Management (CRM)

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Learning Outcomes

LO 1 Define customer relationship management

LO 2 Explain how to identify customer relationships


with the organization

LO 3 Understand interactions with the current customer


base

LO 4 Outline the process of capturing customer data


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Learning Outcomes

LO 5 Describe the use of technology to store and


integrate customer data

LO 6 Describe how to identify the best customers

LO 7 Explain the process of leveraging customer


information throughout the organization

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What Is Customer
Relationship Management?

Define customer
relationship
management

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What Is Customer
Relationship Management?

Customer Relationship
Management (CRM) is…
a company-wide business strategy
designed to optimize profitability,
revenue, and customer satisfaction by
focusing on highly defined and precise
customer groups.

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Customer Relationship
Management Strategy
Organize the company around customer segments

Encourage and track customer interaction with the company

Foster customer-satisfying behaviors

Link all processes of the company from its customers


through its suppliers

Allows companies to tightly focus in on their target markets

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Exhibit 21.1
A Simple Flow Model of the
Customer Relationship Management
System
Identify customer relationships

Leverage customer Understand interactions


information with current customer base

Capture customer data


Identify best customers
based on interactions

Store and integrate


customer data using IT

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Implementing a CRM System

Key Points:

1. Customers take center stage

2. Business must manage the customer


relationship across all points of
customer contact

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Identify Customer Relationships

Explain how to
identify customer
relationships with
the organization

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Identify Customer
Relationships

Customer-centric is…
a philosophy under which the company
customizes its product and service
offering based on data generated
through interactions between the
customer and the company.

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Identify Customer
Relationships

Learning is…
an informal process of collecting
customer data through customer
comments and feedback on product
or service performance.

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Identify Customer
Relationships

Knowledge Management is…


the process by which learned
information from customers is
centralized and shared in order to
enhance the relationship between
customers and the organization.

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Knowledge Management
Experiential
observations

Comments
Collected
Information
Includes: Customer actions

Qualitative facts

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Empowerment

Empowerment is…
delegation of authority to solve
customers’ problems quickly—usually
by the first person the customer
notifies regarding the problem.

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Successful CRM
Occurs when a customer
and a company
Interaction representative exchange
information and develop
learning relationships

• The success of CRM can be directly


measured by the effectiveness of the
interaction between the customer and the
organization.

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Understand Interactions
of the Current Customer Base

Understand
interactions
with the current
customer base

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Exhibit 21.2
Customer-Centric Approach for
Managing Customer Interactions

© Image Source/Jupiterimages
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Interactions of the
Current Customer Base

All possible areas of a business


Touch Points where the customers communicate
with that business.

Communications between
Point-of-Sale customers and organizations that
Interactions occur at the point of sale, normally
in a store

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Capture Customer Data

Outline the
process of capturing
customer data

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Capture Customer Data
The traditional approach for acquiring data from
customers is through channel interactions.

Store visits

Conversations with salespeople

Interactions via the Web

Traditional phone conversations

Wireless communications

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Capture Customer Data

In a CRM system, channel interactions are


viewed as prime information sources based on
the channel selected.

Interactions between the company and the


customer facilitate collection of large amounts
of data, captured across several touch points.

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Store and Integrate
Customer Data

Describe the use of


technology to store
and integrate
customer data

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Customer Data
• Only useful if consistent and accurate.
– Use information technology to capture,
store, and integrate important information
(data warehousing)
• Useful information:
– Customer vital stats
– Purchasing habits
– Transaction methods
– Product usage
• Access vast amounts of information required to
make decisions

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Store and Integrate
Customer Data
Response list Compiled list

::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::
Database \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\
///////////////////////////////////////////////////////////
~~~~~~~~~~~~~~~~~~~~~~~~~~
~~~~~~~~~~~~~~~~~~~~~~~~~~

Data Warehouse

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Identify the Best Customers

Describe how to
identify the best
customers

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Identifying the Best
Customers

Data Mining:
A data analysis approach that identifies
patterns of characteristics that relate to
particular customers or customer groups.

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Data Mining

 Identify and profile the best customers


 Calculate their lifetime value
 Predict purchasing behavior

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Data Analysis

Customer segmentation

Recency-frequency-monetary analysis

Lifetime value analysis

Predictive modeling

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Customer Segmentation
Customer
Segmentation:

The process of breaking large groups of


customers into smaller, more homogeneous
groups.

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Recency-Frequency-
Monetary Analysis

1. Identifies customers most likely to


purchase again
2. Identifies and ranks “best customers”
3. Identifies most profitable customers

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Lifetime Value Analysis
and Predictive Modeling
Lifetime Value Analysis:
A data manipulation technique that projects
the future value of the customer over a period
of years.

Predictive Modeling:
A data manipulation technique in which
marketers try to determine what the odds are
that some other occurrence will take place in
the future.
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Leverage Customer
Information

Explain the
process of leveraging
customer information
throughout the
organization

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Exhibit 21.3
Common CRM Marketing
Database Applications
Reinforcing customer
Campaign management
purchase decisions

Retain loyal Inducing product trial


customers by new customers

Increasing effectiveness
Cross-selling other
of distribution channel
products and services marketing

Designing targeted Improving


marketing communications customer service

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Campaign Management
Campaign Management is…
developing product or service offerings
customized for the appropriate
customer segment and then pricing
and communicating these offerings
for the purpose of enhancing
customer relationships.

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Campaign Management

Developing customized
offerings for appropriate segment

Pricing these offerings


attractively

Communicating offerings in a way


that enhances customer relationships

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Retaining Loyal Customers
Retaining an additional 5 percent of customers can
increase profits by as much as 25 percent

Improving customer retention by 2 percent can


decrease costs by as much as 10 percent

Loyalty programs reward loyal customers for


making multiple purchases

Loyalty programs provide information about


customers and trends

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Cross-Selling Other
Products and Services
• Match product profiles and consumer
profiles to cross-sell products matching
customer characteristics
• Use product and customer profiling
online to reveal cross-selling
opportunities while customers surf
company Web sites

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Designing Targeted
Marketing Communications
Infrequent Offer direct incentives, such
Users as a price discount

Moderate Offer more reinforcement of


Users past purchase decisions

Heavy Design around loyalty and


Users reinforcement of purchase

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Reinforcing Customer
Purchase Decisions
• Thanking customers for purchases and
telling them they’re important
• Updating customers periodically on order
status
• Offer customer service opportunities with
postsale e-mails

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Inducing Product Trial

• Use of marketing database to identify


new customers
– Best customer profile can be used to profile
potential customers

• Overlay demographic and behavioral


data on existing customer data

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Increasing Effectiveness of
Distribution Channel Marketing
• Use Web sites to keep in touch with
customers and gain information about
them
• Use multichannel marketing to monitor
purchases of customer shopping both in-
store and online
• Use RFID technology to improve
distribution

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Improving Customer Service

Examples of Web site tools used to get


customers to return include
– customer wish lists
– recommendations based on purchase and
search behavior
– one click purchasing and shipment tracking

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Privacy Concerns and CRM

• If customers fell their privacy is being


violated, then the relationship can
become a liability.
• Privacy policies for companies in the U.S.
are largely voluntary, but may vary
outside the U.S.

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Email Marketing Bumps Web site
Traffic
Beyond the Book

Looking for return customers? Email marketing


gets customers to click back. Being well-
established, trusted, and easy makes email the
ideal medium for marketers to get the word out.
Online traffic is fairly simple to track, and using
customer information gathered from online
purchases offers businesses a relatively simple
way to establish a relationship with customers.

Source: “Email marketing ‘a trusted method,’” www.directnews.co.uk, Wednesday November 11, 2009.

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Chapter 21 Videos

Method – Customer Relationship


Beyond the Book

Management
How has method identified customer relationships
within the organization?
What does the company do to nurture those
relationships?

http://www.cengage.com/marketing/boo
k_content/1439039429_lamb/company_c
lips/ch21.html
Chapter 21 Copyright ©2012 by Cengage Learning Inc. All rights reserved 45