CRM

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Suggested Reading:

Rai, Alok Kumar, “Customer Relationship Management: Concept & Cases”,

PHI learning private limited, 2013 Second Edition or later
G, Shainesh and Sheth, Jagdish, “Customer Relationship Management: A
Strategic perspective”, Macmillan Publishers India Limited, 2006 or later
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.
Introduction
• Transaction-based marketing - Buyer and seller
exchanges characterized by limited
communications and little or no ongoing
relationship between the parties
• Relationship Marketing - Development,
growth, and maintenance of long-term, cost-
effective relationships with individual customers,
suppliers, employees, and other partners for
mutual benefit

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The Shift from Transaction-Based
Marketing to Relationship Marketing
• Shift away from production-oriented marketing
• Emphasis on individual sales and transactions
• Limited communication
• No ongoing relationship
• Limited in some markets

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The Shift from Transaction-Based
Marketing to Relationship Marketing
• Shift toward relationship marketing
• Views customers as equal partners in transactions
• Encourages long-term relationships, repeat purchases,
and multiple brand purchases from the firm
• Leads to increased sales and low marketing costs

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Forms of Buyer-Seller Interactions
from Conflict to Integration

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Relationship Marketing
• Focuses on long term rather than short term
• Emphasizes retaining customers over making a sale
• Ranks customer service as a high priority
• Encourages frequent customer contact
• Fosters customer commitment with the
firm
• Bases customer interactions on cooperation and
trust

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Elements of Relationship
Marketing
• Firms build long-term relationships in four ways
• Gather information about their customers
• Analyze the data and use it to modify the marketing mix
• Monitor interactions with customers
• Use customers’ preferences and knowledge

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External customers - People or
organizations that buy or use a firm’s
goods or services

Internal customers - Employees or

departments within the organization
whose success depends on the work
of other employees or departments

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Table 11.1 - Three Levels of
Relationship Marketing

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First Level: Focus on Price
• Most superficial level, least likely to lead to long-
term relationships
• Marketers rely on pricing to motivate customers
• Competitors can easily duplicate pricing benefits

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Second Level: Social Interactions
• Customer service and communication are key
factors
• Example: A wine shop holding a wine-tasting
reception

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Third Level: Interdependent
Partnership
• Relationship transformed into structural changes
that ensure partnership and interdependence
between buyer and seller
• Example: Canadian software marketer Corel chose
a cloud-based approach
• Its tech-help agents can now answer customer queries
via chat, telephone, the Web, or social media

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Understanding Customer Needs
• To build long-term relationships firms must
understand what customers need, want, and
expect
• Must measure customer satisfaction
• Marketers need to keep in touch with the needs of
current and potential customers

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Obtaining Customer Feedback
and Ensuring Satisfaction
• Sources of information include toll free numbers or
online feedback
• Some firms hire mystery shoppers posing as
customers to evaluate service
• Complaints help firms overcome problems and
demonstrate commitment to service
• Some firms conduct surveys to measure
satisfaction

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Building Buyer-Seller
Relationships
• Consumers form relationships to:
• Reduce choices
• Simplify information gathering and the entire buying
process
• Reduce the risk of dissatisfaction

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Building Buyer-Seller
Relationships
• Perceived positive value received in a long-term buyer-
seller relationships is a key benefit for customers
• Customers may switch loyalties if they perceive better
benefits from a competitor

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How Marketers Keep Customers
• Retaining customers is more profitable than losing
them
• Customer churn - Customer turnover
• Is expensive for a company
• Firms generate more profits with each additional
year of a relationship

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How Marketers Keep Customers
• Frequency marketing - Frequent-buyer or -user
marketing programs that reward customers
• Affinity marketing - Solicits responses from
individuals who share common interests and
activities

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Database Marketing
• Use of software to analyze data about customers
• Helps firms to:
• Identify their most profitable customers
• Calculate the lifetime value of each customer’s business
• Build relationships and encourage genuine brand loyalty
• Improve customer retention and referral rates

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Database Marketing
• Reduce marketing and promotion costs
• Boost sales volume per customer or targeted customer
group
• Expand loyalty programs

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Database Marketing
• Possible sources of data
• Credit card applications
• Software registration
• Product warranties
• Point-of-sale register scanners
• Customer opinion surveys
• Websites
• Telecom companies database

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Database Marketing
Interactive television - Television service
package that includes a return path for
viewers to interact with programs or
commercials by clicking their remote controls

Application service providers (ASPs) - Outside

companies that specialize in providing both
the computers and the application support for
managing information systems of business
clients

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Customers as Advocates
• Grassroots marketing - Connecting directly with
existing and potential customers through
nonmainstream channels
• Viral marketing - Satisfied customers spread the
word about products to other consumers
• Buzz marketing - Gathers volunteers to try
products and then relies on them to talk about
their experiences

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Customer Relationship
Management
• Combination of strategies and tools that drive
customer relationship programs
• Leverages technology to manage customer
relationships
• Integrates all stakeholders into a company’s
product design and development

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Benefits of CRM
• Software systems can make sense of huge amounts
of data
• Simplifies complex business processes
• CRM can be used at two different levels
• On-demand
• On-premises

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Problems With CRM
• Requires companywide commitment and
knowledge to use the CRM system
• Failure to effectively reorganize firm’s people and
processes to take advantage of benefits a CRM
system offers

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Retrieving Lost Customers
• Customers leave for a variety of reasons
• Boredom
• Move to a new location
• No longer have a need for the product
• Prefer competing products
• Customer win-back - Process of rejuvenating lost
relationships with customers

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Retrieving Lost Customers
• Rules for service providers
▮ To anticipate where problems will arise and figure out how to
prevent them
▮ To accept that mistakes will occur in even the best systems and
have a high-quality recovery effort in place that employees are
empowered to enact

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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

 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
Implementing a CRM System

Key Points:

1. Customers take center stage

2. Business must manage the customer

relationship across all points of
customer contact
Identify Customer Relationships

Explain how to
identify customer
relationships with
the organization
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.
Identify Customer Relationships

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

Comments
Collected
Information
Includes: Customer actions

Qualitative facts
Empowerment

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

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

 Identify and profile the best customers

 Calculate their lifetime value
 Predict purchasing behavior
Data Analysis

Customer segmentation

Recency-frequency-monetary analysis

Lifetime value analysis

Predictive modeling
Customer Segmentation
Customer
Segmentation:

The process of breaking large groups of

customers into smaller, more homogeneous
groups.
 Recency-Frequency-
Monetary Analysis

1. Identifies customers most likely to

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