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Prof Ashish K Mitra
What is CRM? Multiple Choice :
a. b. c. d.
Sales Force Automation applications A marketing buzz word A corporate philosophy Software that implements marketing, sales and service business process e. Implemented through a wide array of applications f. A way to improve customer satisfaction and increase business g. The next wave of information technology h. Very difficult to implement i. All the above j. None of the above
• A report published by American Society of Quality and Arthur Anderson Consulting says
– A repeat customer costs 1/5th of acquiring a new customer – A customer tells eight friends about a satisfying experience and 20 friends for a negative experience. – It is much easier to influence existing customers to buy 10% more than it is to increase the customer base by 10% – 80% of successful new product and service ideas come from existing customers
Dissatisfied Customers • Studies show that of 100 dissatisfied customers:
– 4 will complain to the business – 91 will leave as customers – 100 will tend to tell 8-20 people each about the dissatisfaction
previously falling under the guise of customer satisfaction • Worldwide. service organizations have been pioneers in developing customer retention strategies • Many sectors have turned into commodity markets • All customers are not equal .Increasing Competitive pressure driving changes… • ‘Product Centric’ vs ‘Customer Centric’ • Market Share vs Share of Customer Wallet • CRM is not new .
• There has been a shift in business focus from transactional to relationship marketing – restructuring their processes around the needs of their strategically significant customers • CRM involves a comprehensive business strategy. It is a long term approach that has to be adopted at a strategic level . It helps business organize its activities around the customer • CRM does not enable a quick win.• Realization by Organizations that customers are a business assets that when managed effectively can derive continuous and sustainable economic value over their lifetime.
develop.• CRM involves business processes an organization goes through . acquire. select. and retain its most profitable customers. to serve them better. . in order to identify.
Business Strategy How do we deliver stakeholder value and build competitive advantage? Marketing Strategy How do we take advantage of Market opportunities and Mitigate competitive threats? CRM Strategy How do we get closer to the customers to deliver value to them & create value for us? .
weakness. opportunities & threats Target market segments Objective for each market segment : penetration. Brand equity and Market penetration Based on Product life cycle CRM Strategy • Vision: Customer Experience • Customer definition : Behavior & requirement audit • Capability Analysis • Target segments by customer Value • Objective for each customer segment: acquisition. retention and efficiency • Measures: Satisfaction. cost to serve and employee satisfaction • Based on the customer lifecycle • • • • . MR & Audit Analysis of strengths. maintenance & productivity Measures: Market Share. development. development. loyalty.Business Strategy Marketing Strategy • • • Vision: Market Position Market definition.
• Benefits of CRM fall into three categories: – Revenue enhancement – Increased Sales revenues. improved response time. Customer loyalty. increased win rates – Cost Savings – Increased margins. take advantage of new business opportunities . decreased general sales and marketing administrative costs – Strategic Impact – Increased Customer Satisfaction ratings.
• Operational CRM – Sales Force Automation ( SFA) • • • • • • Accounts Management Contact Management Opportunities Management Activities Management Configuration Management Sales Forecasting – Customer Service Management • Call Centre Management • Service Request / Customer Complaints Management .
• Analytical CRM • Collaborative CRM .
sales.CRM is positioned in IT corner. • In this definition . service and support) via multiple.irrespective of the type of channel through which he approaches – Does not need to provide his history to proceed with dialogue .Definition of CRM text book) (Peelen’s • “ The automation of horizontally integrated business processes involving front office customer contact points (marketing. 2000. • A company is engaged in CRM if – Customer is ‘recognized ‘ .Metagroup. interconnected delivery channels” --.
– Above definition requires more attention to be paid to goals vis-à-vis customers . and shaping their perceptions of organization and its products”. creating customer knowledge.• CRM is “a process that addresses all aspects of identifying customers. developing a longer term mutual interest deeper than the mere purchase / sale transaction. attention on customer. This definition refers CRM as a process. respected & mostly receive special attention . – An image is created that customers are recognized. building customer relationships. supplier’s interest goes beyond one sale transaction – It is important for the customer to get an impression of the company as a whole & its products and for the supplier to get to know the customer more as a person rather than just as a buyer.
revenue and customer satisfaction by organizing around customer segments. the outcome of which optimize profitability. CRM is not postulated as a process but instead as a business strategy • Goal is to increase revenue and profit. it creates strategic competitive advantage over the competition. Due to the fact that individual customer knowledge is being accumulated.satisfying behaviors and implementing customer -centric processes”. and most importantly . • Customer Satisfaction is not to occur at expense of efficiency & profitability.• Gartner group’s definition ( 2004) of CRM – “ an IT enabled business strategy. . fostering customer. . to improve customer satisfaction.
the walls between company and customer are being torn down.• Definition of CRM provided by Regis McKenna highlights the cultural change / mind set change that is needed to be brought in an Organization which pursues CRM is true spirit. • Since CRM targets building of an infrastructure for ‘real time marketing’ which helps develop a long term customer – supplier relationship . . • ‘Privacy’ of both parties are to be carefully defined.
Each will have to react to and anticipate the other’s action more directly. .• Customer and company move closer to each another. Companies will not allow the potential advantage of long-term customersupplier relationships to slip through their fingure. Processes will have to be high quality because customers now be ‘having a look in the supplier’s kitchen’. Organizations will have to adjust their cultures and will have to learn how to operate in a more customer oriented manner. • Formulate a vision and strategy at the very outset which points the way for the entire CRM programme.
• Back office whose task is to fulfill the promises made by the front office. the customers are watching. logistics. • Processes have to be well defined . and will have to be executed flawlessly and efficiently. . will ultimately have to learn to cater for individual customers. because after all.CRM as a business Strategy • CRM is a business strategy & therefore affects the organization as a whole : marketing. finance. service. HR etc. IT .
on Increasing efficiency & reliability. However. Eg self service provides customers continuous access & at the same time reduces load on back office. the underlying processes have to be perfectly defined & controlled .• In practice CRM strategies of many companies began by focusing on Operational excellence.
help trust & make a commitment to one another for the long term.• A business strategy whose goal is the development of long term. Two parties get to know one another. places customer in a central position. mutually profitable customer – supplier relationships. together with the customer? • As a Business Strategy. . CRM’s goal is ‘customer intimacy’. Who is the customer and what does he or she want? What types of solutions should the organization provide to make the customer more satisfied? How can the organization develop & deliver these .
the four cornerstones of CRM are: – – – – Customer Knowledge Relationship Strategy Communication The individual value proposition . from Business Strategy perspective.Elements of CRM (Peelen’s text book) • While ability to create an infrastructure which makes it possible for customer and supplier to recognize one another and be able to interact in ‘real time’ is an obvious technology underpinning need for CRM.
preferred communication mode. preferences • Customer Data base must be current ( relevant for ultimate goal fulfillment) • Supplement customer characteristics with independent Market research intelligence .Customer Knowledge • Customer ( also Prospects) must be identifiable • Customer’s profile must be known – past purchases.
the purchase only marks the beginning of the relationship in which trust & commitment must grow. Interest in individual customers does not end at the moment the transaction is completed. .lasting customer – supplier relationship vs stimulation of transaction • Relationship strategy has a longer-term horizon – ‘tell’ and ‘listen’ more than seducing to ‘sell’.Relationship Strategy • Long. • On the contrary. • The Company has to develop the contours of a policy necessary to develop & deepen the relationship.
any time. any place’ • Dialogue should be possible without repetition and reiteration of the identification ritual : who are you and what do you like? • Shifts can be made between various channels.. and the transitions between them should proceed smoothly. .Communication • Supplier’s capability to carry out dialogue with individual customers is crucial. must be deployed through which it is possible to communicate ‘any where. rather than engage in a dialogue? • A network of communication channels .Can only predetermined information’s be provided .
.The Individual Value Proposition • Knowledge of individual customer enables offering the customers an individual proposition customized to their needs ( product. price etc). ( might be assembled from standard modules) • Pricing of the proposition can also be tuned • One of the pitfalls involved in the development of the customized propositions is that companies create a complexity which may be too large. • Customization / design of the product or service can be done together with the customer . Combining large scale aspect with flexibility is practical using technology. service .
the expected benefit of CRM will not be encouraging & might cause disappointments for sustained commitment of top management. • If too much is invested in one of the subelements. .• The development of these four cornerstones / competencies must occur in a step-by-step . balanced manner • It is not desirable for one of the four to move much ahead of the others in its development.
for a dialogue to be conducted . • The system must make it possible for customer knowledge to be developed in an efficient manner. a portion of which is of low value to supplier. • Old day craftsmanship approach – only possible with small customer base where each customer represent sufficient value to justify an individual approach to CRM. and for customization to be supplied. Many customers prefer electronic communication.CRM processes and systems • In many situations. for the relationship strategy to be implemented. use of IT becomes inevitable. the achievement of the four competencies is to a great extent dependent on IT. . • With large customer base.
difficult to integrate -difficult to ‘real time querying’ necessary for implementing CRM strategy. the call centre and sales information systems for account managers and sales person. Often these systems are developed independently & linking them together for conducting ‘ongoing dialogue’ with customer is a challenge. • Customer asking a question which deviates from the standard is a challenge when system integration reduces role of human element. • Most often. . Many companies find themselves confronted with ‘legacy’ systems which are outdated. • Effective linkage of front office with back office systems is a ‘moment of truth’ for many companies.• The construction of appropriate IT system presents a real challenge. the creation of CRM strategy involve the Internet as a channel.
• CRM is a strategy that affects the entire company. • CRM is much more than just some of a number of innovative IT projects. • Investments have to be made in infrastructure to communicate with customers through variety of channels • Organizations have to learn how to conduct a dialogue with the customers • Formulate marketing strategy which targets relationship building instead of stimulating transactions. • Product oriented organizations will have to translate themselves into a customer oriented ones. . • Patience is a prerequisite.
the single event of a transaction. • After transaction – salesman ‘looks elsewhere for next sale’ & the buyer feels –’ You don’t care’ • Within transaction marketing.. . • The attention for the relationship and investments in relationship is lacking • Marketing defined as ‘an exchange process between buyer and seller’ and thereby formed the basis for subsequent conceptualization of Relationship marketing. the process between two or more transactions is neither analysed nor influenced.History of CRM • In marketing theory & practice – there has been a long standing & clear tendency to focus on sale .
Transactions were planned & administered instead of being conducted in an ad-hoc basis. binding commitments among the organizations involved. • An after-effect of analysis & research studies led to importance of customer retention and ‘ customer lifetime value’ concept (Reichheld 1995). • Relationship marketing with its origin in business to business markets & the Service industry was then applied to the consumer markets for branded goods. • Mostly in the shape of voluntary. • . long term.• Relationship marketing was first conceptualized in B 2B market – interaction & networking between buyers and sellers.
the various players may be more easily replaced in general • The transitional area between secondary & primary relationship is rather large. man & women – Secondary relationships – such as between customer & supplier.long term interpersonal relationship based on emotional bonds & feelings of mutual obligation.Customer Supplier Relationships • Relationship – Interaction must take place between at least two parties. like mother & daughter. activities of one of the parties influence those of the other & vice-versa – A certain degree of continuity must be present in a relationship – The effects of interactions are dependent upon the actual events • Psychologists classify relationships between : – Primary relationships. . are by contrast relatively short relationships with fairly clear rules of etiquette & reasonably well defined social roles. Deep emotional involvement rarely occurs.
• Relationship Marketing uses the event-driven approach of customer retention marketing. but treats marketing as a process over time rather than single unconnected events . • Customers do not want that.Relationship Marketing • Relationship marketing is not about having a "buddy-buddy" relationship with your customers.
• Is a long-term process • There are a number of identifiable stages in long term customer relationship • This can be explained through the Relationship Ladder constituting of six different phases of relationship .
Customer – Supplier Relationship ladder .
Phases of Relationship • At the foot is the ‘prospect’ or target market • The traditional or classical marketing emphasizes on means of converting prospects into customers • In relationship marketing customer is – Someone who has done business with us only once or occasionally • The next is ‘client’ who is someone who will do business with us on a repeat basis but may be neutral or negative about company • The client when converted into a ‘supporter’. strength of relationship becomes apparent .
• These people like being associated us and may also be persuaded to become advocates • The final step is when customers become partners in which mutual advantage can be gained from relationship .
Scope of Marketing in Relationship Marketing • Emphasis in relationship marketing is on – Finding appropriate means to move customers up the ladder and to keep them there • Conventional marketing focuses on – Winning of customers and building market share without emphasizing more on customer retention • There is wider view of marketing rather than simply focusing on end user • For building and sustaining real customer value – Relationships need to be built with numerous constituents – This is known as ‘Six Markets’ model .
• Internal markets – Individuals and groups within organization who determine the style and ethos of business • Referral markets – From sources of professional advice (doctors. lawyers. bank managers etc) – Building relationships with these sources of wordof-mouth should be integral part .
• Influence markets – Entities. individuals and organizations having the ability positively or negatively to influence the marketing environment in which the company competes • Employee markets – There is need to recruit and retain employees who will further the aims of the company in the marketplace .
• Supplier markets
– Refers to network of organizations that provide material, products and services to the organization – Results in improved quality, faster time-to-market, more innovative products and lower levels of inventory
• Customer markets
– All people and organizations that buy goods or services from us – Can be either end users or intermediaries – Customer service is the most important tool
Is CRM New?
No! • Simply an extension of relationship marketing • Builds on customer service and satisfaction concepts • Just the latest buzzword for creating customer orientation • Bottom-line is still the same
Yes! • A shift in corporate philosophy concerning the approach to value delivery • Customer-centric approach to value chain • New and technology-enhanced processes • Focus is not just on bottomline, but on top-line • Goal is to create satisfying experiences across all customer contact points
CRM Programs Can Potentially Improve
• Analytical CRM
– Customer Segmentation – Trend Analysis
• Operational CRM
– – – – – – – – – – – Campaign Management Tele-Marketing/Tele-Sales Activity and Time Management Quotation and Order Processing Delivery and Order Fulfillment Customer Service and Support Remote Access Enterprise Portals Customer Access Supplier Access Personalization
• Collaborative CRM
Areas of CRM Activity • Sales Force Automation (SFA) • Customer Service and Support (CSS) • Help Desk • Field Service • Marketing Automation .
forecasts for opportunities (SWOT) • Goldmine and SalesLogix are examples of prepackaged SFA solutions. tracks movement of leads through the pipeline.Areas of CRM Activity: Sales Force Automation • 35-40% of all CRM activity • Manages lead generation. allows better usage of customer data. Staples used SFA to integrate catalog. • Ex. in-store sales efforts directed at its best customers . simplifies relationship management. online. integrates activities across sales channels.
Areas of CRM Activity: Customer Service and Support (CSS) • 20-25% of CRM • Assign. inquiries. Siebel. 3M Adhesive Products division . escalate. and track trouble tickets.. and Clarify are major vendors • Ex. solution attempts through resolution • Provides information to support customer call center activity • Gleans customer data from those interactions and records it in SFA for later use • Remedy. Vantive.
are providers • Ex. Land’s End Live allows customers browse FAQ’s but also click a link to talk directly with live representative. .Areas of CRM Activity: Help Desk • 15-20% of all CRM • Allows individuals to access network database to solve their own problems or find information. LivePerson. Tivoli.. • Can be internal or external • Offers many bottom-line savings • Human Click.
Metrix. • Can feed information from customer problems into SFA for salesperson leads. • Ensures appropriate resource allocation by matching available resources to job requirements • Major vendors are RTS. as well as access information from the remote site. eDispatch . • Market information can be gathered and logged into central database.Areas of CRM Activity: Field Service CRM • 3-5% of all CRM activity • Mobile service technicians can log information about work orders and service calls.
• www. so that the right offer goes to the right person at the right time. and promotions. customerization. Epiphany. mass customization.com.webgroove.Areas of CRM Activity: Marketing Automation • 3-5% of CRM. Oracle. Siebel. but growing 5X faster than all others • Interfaces with data warehouses and data mining activities to tailor page views. • Can interact with SFA to support field sales efforts • Provides customized customer interactions critical to segment of one marketing. products. and Personify are leaders . etc.
. the objective is to continue the relationship. producing outcomes which are as beneficial as possible for both parties. there is no relationship. Within this framework of commitment.Core elements of a customersupplier relationship (Peelen’s book) • Interaction & reciprocity – without a reciprocal basis. The exchange of resources will influence the level of commitment present in the relationship. • Commitment – is defined as ‘an enduring desire to maintain a valued relationship’.
Trust also originates in the competency of the organization . protecting customer’s interest. .• Trust – is a basic condition necessary in order for a relationship to grow and has been defined as ‘a willingness to rely on an exchange partner in whom one has confidence’. It can be ‘the perception of confidence in the exchange partner’s reliabilty and integrity.
• A degree of continuity. . activities of one of the parties influence those of the other and vice versa. interactions from the past influence present and future interactions. • The effects of interactions are dependent upon the actual events and the subjective approach to these events.The relationship orientation • Interactions must take place between at least two parties. – extend over a longer period of time.
1 Pyramid of relationships .Figure 2.
Table 2.2 Profile of close and weak relationships Source: Peelen et al. . 1996.
despite situational influences and marketing efforts having the potential to cause switching behaviour.Loyalty Loyalty is a deeply held commitment to rebuy or repatronise a preferred product/service consistently in the future. thereby causing repetitive same-brand or same brand-set purchasing. . Source: Oliver (1996).
Three Value Disciplines • Treacy and Wiersema in their study identified. • Each of the value disciplines addresses how companies can define a value proposition in relation to the customers • An analysis of the environmental context will show which of the value disciplines is most appropriate for a specific organisation in a specific market. • Attention will also be focused on the results which may be obtained by implementing a CRM strategy . what they call. three value disciplines of the successful market leaders.
luxury cruises and short cruises. ferries.• The Orange Line case describes an operator of cruise ships and ferries. The organisation brings three product offerings to the market. .e. • The challenge is to make product portfolio decisions and to choose between one or two value disciplines that can be realised within the organisation. • Each of the activities contributes to the success in a different degree and their success asks for a different value discipline. i.
• In situations customers do not expect suppliers to build a relationship with them. . product quality problems.• Under which market circumstances is it unwise to aim for a customer intimacy strategy? • When the chance of repeat purchases is low. • In situations where the minimum required level of operational excellence is not realised (logistics problems. there are other priorities).
because conflicting competencies and ambitions stand as the basis of each of the disciplines. product innovation and short lead times to market. demands customer managers to be in the lead. Customer intimacy.• Why does the combination of the product leadership. . read their needs and wants and translate them to ‘new product development’. customer intimacy and operational excellence strategies lead to problems? • Partly. It requires product managers to play a dominant role. on the other hand. They can select the ‘right customers’. • Characteristics for product leadership are technology focus.
Value disciplines Customer intimacy Leading edge Performance of market leaders Minimum expectation Product leadership Best/newest product Operational excellence Cost leader .
• The process focus forms the core.• Operational excellence also asks for a organisation model that is hard to combine with product leadership and customer intimacy. the organisation is more internally oriented .
1 Offensive versus defensive strategies .Figure 3.
• It is a defensive strategy as its aim is to retain and to build relationships with existing customers.• Why is a customer intimacy strategy considered to be a defensive strategy? Explain your answer. The objective of the strategy is to create entry barriers that should stop or hinder competitors from approaching their customers. .
• Furthermore the organisation should explore if the business is related to its current activities and if its customers are willing to pay for the services or experience. Biscuits are ‘low involvement’.• Is it possible for the manufacturer of a lowinvolvement product such as biscuits or crackers to implement a customer intimacy strategy? • Most ‘low involvement’ products can be transformed into ‘high involvement solutions’. . An analysis of the market should indicate what the demand is for the intimate solution. but a celebration breakfast is not.
Trust plays a major role.• The choice of a customer for a software supplier is heavily influenced by product innovations and the software standard. will the company still exist over twenty years and will it keep its promises? . customers close a transaction with a long term horizon. • As such many customers have switched from Wordperfect to Microsoft Word and the Microsoft browser has attracted many Netscape users. • In the life insurance market.
CRM systems can be used to increase the scores on customer intimacy to some degree. . It is self service! • A customer intimacy discipline is therefore not likely to be the most appropriate. if the value proposition and market circumstances allow for it.• To what extent is the organisation of a supermarket equipped to implement a customer intimacy strategy? • Supermarkets basically have an operational excellence value discipline.
Figure 4.4 From strategy to critical success factors .
’ Gartner Research.‘High costs are associated with owning data. and Gartner believes that having bad data can increase these costs by a factor of 10 when one considers costs arising from bad business decisions and poor CRM based on such data. Customer Data Quality and Integration: The Foundation of Succesful CRM. 26 November 2001 .
Figure 5.2 Growth stages in database management .
Figure 6.1 Communication continuum
Figure 6.2 Dimensions in which channels may be scored
Figure 7.3 How far is the individual customer order integrated in the supply chain?
Source: Lampel and Mintzberg (1996).
Figure 7.5 Step-by-step plan for revenue management
.3 Relationship policy per phase Source: Peelen (1999).Figure 8.
.4 Relationship policy by segment Source: Peelen (1999).Figure 8.
stamps – Subscribe. Fox Kids • Relationship marketing programme – Minimal purchase level. complementary goods and services. increasing involvement. operant conditioning. cognitive processes. frequent flyer programmes . aimed at user situation.• Savings programme • Club programme Incentives and loyalty programmes – Rewarding transactions. providing information and eventually discounts and service.
5 Relationship management Source: Alberts and Buitendijk (1995).Figure 8. .
Figure III.1 Sub-aspects of analytical CRM .
Data quality operationalised • Complete –Within the record –Within the universe • Current –Up-to-date • Correct –Form –Content • Valid vs. correct • Integrity • Unique –No duplicates? .
e-mail transaction history 40% x 48% = 18% Data quality call centre .Identification Term Definition Measurement 95% x Accessibility Percentage of customers identified in call centre in less than 30 seconds Complete Correct Percentage of customers with complete file NA. phone.
e-mail Employee satisfaction and transaction history Employee satisfaction and Customer satisfaction retention retention Missed turnover Missed turnover . phone.Identification Term call center call center strategy/objectives strategy/objectives Accessibility % customers identified in call center < 30 sec Complete Correct Data quality call center Definition Consequences for Consequences for Measurement 95% x 40% x 48% = 18% Costs to correct mistakes Costs to correct mistakes % customers with complete file Customer satisfaction NA.
. Billing The costs of a lack of quality Irritation Waste Conversion The added value of quality Cross-selling Retention. etc.Data quality – identification The value of data quality the business case Returned . . .
Types of analysis questions • Segmentation and selections • Acquisition analyses and selections • Customer analyses and selections – Retention analysis – Relationship development analysis • Cross. deep and up-selling analysis • Analyses to determine the effectiveness of the way that the customer is approached .
1 Phases in the analysis process .Figure 10.
Datamining • The automated discovery of interesting. non-obvious patterns hidden in a database that have a high potential for contributing to the bottom line versus • The discovery of knowledge in databases. .
Datamining techniques • Neural networks • Evolutionary computation • Association rules • Decision trees • Case-based reasoning .
Cross-selling • Definition of cross-selling • Cross-selling over time Customer buys more than one of the same product during a contact (two life insurance policies) Customer buys two or more different products during a contact (home contents and liability insurance policies) Customer buys a second or third product at a later time .
Figure 14.3 Example of measurement criteria .
Figure 14. . (2000).4 Benchmarking in the financial sector Source: Beltman et al.
Marketing Aspects of CRM 91 .
Key Customers • Are the customers whose needs and wants can be satisfied by the company 92 .
Types of Customers • Loyal customers: – Perceive the company’s product as much superior to a competitor’s product • Competitive customers: – Perceive company’s product as slightly superior to competitor’s product 93 .
Cont: • Switchable customers: – Perceive competitor's product as slightly superior to the company’s product • Competitor loyal customers: – Perceive competitor’s product much superior to the company’s product 94 .
Loyalty defined • Loyalty is a deeply held commitment to rebuy or repatronise a preferred product/service consistently in the future. despite situational influences and marketing efforts having the potential to cause switching behaviour. thereby causing repetitive same-brand or same brand-set purchasing. .
Strategies for deciding key customers • • • • Nature of need fulfillment Role of product in need fulfillment Position vis-à-vis competitors Length of relationship 96 .
Strategies for key customers • Develop personal trust • Create entry barriers • Reinforce exit barriers 97 .
Factors for Segmentation • Long term objectives • Customer profile (demographics. psychographics. user status etc) • Type of usage • Purchase 98 .
Customer Value • According to Kotler: Customer value is the difference between total customer value and total customer cost • Total customer value include: – Product value – Service value – Personnel value – Image value 99 .
Contd. • Total customer cost include: – Monetary cost – Time cost – Energy cost – Psychic cost 100 .
How marketers ensure value • Customer intimacy ( senior executives Spending time with customers) • Interpreting Needs (Creation of Walkman) • Co-creating value ( product configuration-Dell) • Suitable Branding • Training and empowering personnel • Research techniques • Value based pricing 101 .
Nano) Removing pain points ( internet Banking) Use of new technology (iPod) 102 .Gillette) Complete Solutions Value at lesser cost (Air Deccan.Enhancing Customer Value • • • • • Innovative feature (Samsung .
the expected cost of attracting.Customer Lifetime Value (CLV) • “ The present value of the stream of future profits expected over the customer’s lifetime purchases. selling and servicing that customer” Kotler and Keller 103 . The company must subtract from the expected revenues.
it refers to the lifetime revenue stream 104 . of your average customers spanning the entire period that these customers are likely to do business with you.Contd. in monetary terms. • It's the potential contribution of your customers to your business over a period of time • Required when company plans for long-term relationships • Lifetime value refers to ‘lifetime profitability’ when cost data is readily available • In absence of cost data. • Customer Lifetime Value is defined as the total value.
LIFETIME VALUE LIFETIME CUSTOMER VALUE = AVERAGE TRANSACTION VALUE X YEARLY FREQUENCY OF PURCHASE X ‘LIFE EXPECTANCY’ 105 .
106 .000/2.000 = $350. for the past two years. your net profit was $700. • The Customer Lifetime Value can be calculated as: $700. • What this means is that over an average customer lifespan of two years.000. each new customer you could acquire and keep is worth $350 to you in profits.Calculating CLV • Let's say you've 2.000 steady customers and these customers remain with you for an average of two years.
you can determine how much time. • When you know the Lifetime Value of your customers. effort and money you can afford to invest to acquire that customer in the first instance. 107 .Importance of CLV • Knowing the Lifetime Value of your customers is crucial to you and your business as it serves as a benchmark without which you'll be groping in the dark.
108 . • When you realize that customers are actually an ongoing stream of revenue as opposed to a one-shot sale. • you can invest more today to reap a much larger profits later down the road as long as your cash flow is healthy and can support it.Contd. you can re-focus your marketing efforts.
Customer Equity • Total of the discounted lifetime values of all the firm’s customers • There has been shift from brand equity to customer equity • ROI Indicates how well the firm creates value from its investment. ROC quantifies how well the firm creates value from its customers 109 .
• ROC is: – Current period’s cash flow from its customers plus any changes in the customer equity should be divided by the total customer equity at the beginning of the period • Final figure of customer equity is: – The customer lifetime values of all the current and future customers added together 110 .Contd.
Cost of acquiring customers include • • • • Cost of sales Promotions Branding Customer trials etc 111 .
Lifetime Value of Customers 112 .
CLV depends on: • The length of an average ‘lifetime’ • The average revenues generated per relevant time period (mostly yearly) over the lifetime • Sales of additional products and services during that time • Referrals generated by the customer over the lifetime 113 .
customers or services are profitable or losing money • Measures the cost and performance of activities. services. then activities are assigned to cost objects based on their use 114 . resources and cost objects • Resources are assigned to activities. products and orders • Allows managers to see which products.Activity-Based costing for CRM • ABC is a budgeting and analysis process that evaluates overhead and operating expenses by linking costs to customers.
Customer Defection Curve 115 .
Categories of Customer Defectors • • • • • • Price defectors Product defectors Service defectors Market defectors Technology defectors Organizational defectors 117 .
Customer Life Cycle • • • • • Pre Purchase stage Purchase stage Usage stage Re-purchase stage Lost customer stage 118 .
CRM in Pre-Purchase Stage • • • • • • Easy access to right information Non interruptive campaigns Multiple channels Comprehensive information in right format Product demonstrations Risk-free trials 119 .
CRM in Purchase Stage • • • • • Purchase options Easy procedures Access to hire purchase Complete solution Installation and training at customer’s convenience 120 .
CRM in Usage Stage • • • • • Easy access to after-sales service Quick trouble shooting Spare parts-easy availability and affordability Updated features Engaging customers 121 .
CRM in Re-purchase stage • • • • Easy disposal of old product Loyalty bonus New products with useful value additions Keeping track of churn 122 .
CRM in winning back lost customers • Analyze the cause of departure • Make relevant offers • Follow up 123 .
and can be examined on an individual customer or against a mean average. 124 . • Your entire customer lifecycle must be properly measured throughout its duration.Customer Lifecycle Management (CLM) • CLM is simply the measurement of your CRM program’s success over time – providing you have CLM metrics from before and after your CRM implementation.
as well as post sales service and support. which includes recency. • Gross amount of money spent on acquiring and retaining the customer through marketing dollars. • And the duration or longevity of that customer’s relationship with your business. • Resources spent generating each sale. 125 .Aspects included in CLM • Purchase history. frequency and quantity.
fluctuating at all the contact points within the organization. as it’s more of a practice than a measurement. however. 126 . • CRM can be selective and not at all static. practicing on some customers but not others. • Perhaps you’re practicing CRM with a few of your biggest clients. because they are worth exponentially more than all your other customers combined. • CRM. • It can also be a practice of one department but not others.CRM Vs CLM • CRM is the overall corporate philosophy of managing your relationship with each customer in order to provide a better overall customer experience. can wane in and out and be selective.
and is more based upon a single measurement which incorporates multiple metrics than a philosophy. • CLM is always a measurement over time. or ‘manage’ them better. whereas CRM can be an act at one particular contact point with the customer.Contd. in that it by definition incorporates all interactions with the customer throughout that customer’s life. a company can take various measurements of its customer lifecycles and find ways to improve. • Without practicing CRM . • CLM however is a static entity. 127 . • CLM is also non-departmental. • The other key facet of differentiation between CRM and CLM is the element of time.
– overall lifespan of each customer (first transaction to most recent) etc 128 . we need to segment our customer database into as many variables as we want to measure.Measuring CLM Success • First. other than as a starting point to measure positive CLM success from. • The most important thing to remember when determining how to segment your customer database is that time is the most crucial factor in CLM measurements – so none of your segmentations should be one-time transactions. • Customer database can be put into various groups such as – repeat purchasers over time. – frequency of those repeating purchasers.
Results of CLM • Did your customers purchase more frequently. more recently? • Did they have larger overall transactions? • Were they less costly to your business in terms of service and support? • Did they respond better to marketing initiatives? • Has your Total cost of Acquisition per customer shrunk. or grown? 129 .
Classification of customers • High cost-to-serve-customers – – – – – – – Order custom products Small order quantities Unpredictable order arrivals Customized delivery Change delivery requirements Manual processing Large pre-sales and post-sales support – Require company to hold inventory – Pay slowly (high A/c receivable) • Low cost-to-serve customers – – – – – – – – – Order standard products High order quantities Predictable order arrivals Standard delivery No changes in delivery requirements Electronic processing Little or no pre-sales or post-sales support Replenish as produced Pay on time (low A/c receivable) 130 .
Classification of Customers • Profitable customers fall in different quadrants • Best ones are in the upper left-hand quadrant • These are rare. but if present should be cherished and protected as they are prime target for competitors • They need to be retained through bonding strategies 132 .
high margin customers are also profitable • They value unique functionality.Contd. • Customers who are price sensitive but have few special demands help reduce the cost to serve • The high cost. features and extensive support and service and pay for them 133 .
E. • The most challenging customers are the low margin-high cost to serve customers that include: – Convertibles: by negotiating improved ordering and delivery relationships. establishing menu-based pricing for special services and features – New Customers: may not be profitable initially but can be monitored for long term benefit – Strategic Customers: customers who give prestige and reputation or help the supplier learn and improve internal processes.g. Infosys.Contd. reducing discounts. Wipro and Birlasoft worked with GE in spite of low billing rates 134 .
Why CRM? Profitability – driving business Why CRM? Profitability – driving business Customers life time value Profit Profit generation Acquisition Phase out Time 135 .
Profitability – the CRM answer Customers life time value Profit Cross-sell & up-sell Churn analysis Reduce (Acquisition) Costs Time 136 .
The Path to Strategic Customer Care Customer Satisfaction/ Loyalty The Marriage The Relationship RM C The Courtship Customer Retention Strategic Customer Care Customer Acquisition Customer’s Lifetime Value 137 .
Measuring Loyalty in the CRM Measuring Loyalty in the CRM Process Process Customer Satisfaction/Loyalty Relation Dialing Share of Life Transact ion Share of Wallet Product M CR Customer Retention Strategic Customer Care Customer Acquisition Customer’s Lifetime Value 138 .
From Customer Acquisition to Strategic From Customer Acquisition to Strategic CRM CRM Degree of Loyalty The Relationship (Customer Retention) The Marriage (Strategic CRM) 0 + The Courtship (Customer Acquisition) 0 The Relationship (Customer Retention) + 139 - Degree of Profitability .
Customer Life Cycles Business: size or maturity of the business 140 .
Customer Life Cycle • Five Major “Life” Phases •Prospects •Responders •New Customers •Established Customers •Former Customers 141 .
Life Cycle 142 .Business Processes Organized around the Cust.
pricing changes Competition changes Data Mining helps ID prospects 143 .Business Processes . service.Acquisition Acquisition is the process of attracting prospects & turning them into customers Who are the prospects? Geographic expansion Product.
Business Processes . transcripts. (more involved) Include physical exams (most involved) 144 . reference checks.Activation Filling out registration form (simple) Include credit check. notary service. etc.
Business Processes .Activation Activation steps (generalization) The Sale (Leads) The Order The Subscription The Paid Subscription 145 .
Business Processes – Relationship Management Goal: Increase customer’s value to us Up-Selling – premium products & services Cross-Selling – other products & services Usage Stimulation – come back for more!!! Be careful with this Web-based communication (spam) 146 .
Business Processes .Retention Survival Analysis Churn Analysis 147 .
Personalized or (1:1) Marketing Transactional Model “Target Marketing” One-Way Messages Limited Hours and Capacity Relational Model (CRM) “Permission Marketing” Two-way Dialogue (24/7 Availability) Individually Addressable (On-line Chat and Networks) Integrated Marketing One-to-one media Non-addressable Undifferentiated Promotions “Occupant” Direct mail Centralized “Call Centers” Out-bound Telemarketing with really bad music Customer Care Centers Integrated Internet & Telephony Systems with personalized offers and information Buy targeted mailing lists Data Warehousing and Datamining 148 .Traditional vs.
Enterprise CRM .
Components of CRM Technologies • Operational CRM – supports traditional transactional processing for day-to-day frontoffice operations or systems that deal directly with the customers • Analytical CRM – supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers .
share any information they collect from interactions with customers . such as sales.• Collaborative CRM. technical support.the various departments of a company. and marketing.
. and – Understand the true value of their customers to the company.Analytical CRM • Companies need to – Analyze the performance of the relationships with the customers. – Uncover trends in customer behavior. • This is taken care of by Analytical CRM which is “Back-Office” CRM • Involves understanding the customer activities that occurred in the front office.
• “Back-Office” CRM
– Requires technology to compile and process customer data and – New business processes to refine customer-facing practices to increase loyalty and profitability.
• Analytical CRM is a consistent suite of analytical applications that help you measure, predict, and optimize customer relationships
CRM and Analytics…
1. Typically, CRM Analytics are …
Automated ‘alerts’ Automated scripts to assist Customer Service or Sales Automated data mining templates, very restrictive and inflexible
2. What’s Missing?
Who, what, why Robust qualitative: Hearing the “Consumer/Client Voice” Primary research customized to client’s real marketing and sales need True 360 degree analytic view of client General lack of understanding of client’s business and negligible insight delivery No way to do standard market driver protocols: tests, market measurement, satisfaction & loyalty assessment No guidance on what to do with all the data
3. This leads to three areas of need… • Deliver full faceted analytics • Enrich customer understanding • Optimize ‘CRM’ strategy and customer intelligence (data, customer understanding, and marketing driven solutions)
Full-Faceted CRM Analytics Are Needed Full-Faceted CRM Analytics Are Needed
1. 2. 3. 4. 5. Attitudes & Perception Customer Satisfaction Customer Propensity Branding & Awareness Segmentation (Values) Models 1. 2. 3. 4. 5. Automated Research Behavioral Data Prediction & Classification Rules /Flags/Scores Enriched database
CRM Analytics and Data Mining
CRM Analytics Include
• • • • • • • • • Segmentation studies, Customer migration analysis, Cross-sell/up-sell analysis, New customer models, Customer contact optimization, Merchandising analysis, Customer attrition and churn models, Credit risk scoring, Lifetime value (LTV) modeling and much more.
– Next.Use of CRM Analytics • Segment your customers by business value. simulate and predict customer buying behavior based on a variety of promotion strategies. • Perform a marketing-influencers analysis – To identify which customers can be influenced in their value migration – Then communicate to them in ways that move them in the right direction. model them to predict their migration into a spectrum of value segments. – Then. .
product or service. • Make accurate assessments of each customer's affinity to a message. . • Learn how frequently you should contact each customer .and which channel you should use for specific messages.Cont.
and customer lifetime value models . • Perform very detailed analyses – Market.basket analysis. – Product structure analysis. – Churn and attrition models. – Cross-product correlation analysis.Cont. – Multiple campaign response models.to spot profit opportunities. . – Customer growth models.
Scope of Analytical CRM • Capturing all relevant customer information like – Your customers' response to your marketing campaigns – Your customers' priorities in your web shop – The requests for information addressed to your customer interaction center .
Contd. • Some external information that can be included are: – Market data on your customers – Enterprise data on competitors dealing with your customers – Web surveys to supplement your customer information with details about customer satisfaction and customer preferences – Data from communities or clubs with a common interest .
The Customer Knowledge Base: a 360 Degree View .
Customer behavior modeling • You can understand who your customers are by observing their behavior and identifying relevant patterns via profiling and scoring. • This information can then be used to create predictive models that help you acquire. and retain attractive and profitable customers . grow.
and proven techniques like recency. – Analytical tools used are customer scoring and decision trees . such as clustering. monetary (RFM) analysis • Acquire the best customers using profiles of your existing top customers. frequency.Use of Customer behavior modeling • Define homogeneous customer segments and use them as the basis for your decisions in marketing. – Tools used are: Analytical methods. customer scoring. and service. sales.
. • This typically involves considering – Customer profitability.Customer value assessment • Most integral part of analytical CRM • It helps you focus limited resources most efficiently on the best and most valuable customer relationships. – Customer lifetime value. and – Customer ratings.
Customer Profitability • It is the difference between revenues and costs per customer • Sound profitability analysis requires an integrated business model for contribution margin analysis that combines – Various types of revenue. . and – Sales costs to produce a coherent picture of your customer profitability. – Product costs.
Customer Profitability .
.Customer Lifetime Value • Customer lifetime value is an appropriate measurement of how much you would or should be willing to invest to acquire a customer. • It is the net present value of the profit that a company could realize with the average new customer within a given customer segment during a given number of years.
. • You can use the results of this assessment to allocate your resources in marketing. sales. such as the assessment of the overall attractiveness or satisfaction of a customer. and service to the right customers. are used for this purpose • In this way.Customer Profiling and Scoring • Customer profiles. you can weight different aspects to perform integral customer assessments. provide insights into customer structures. • Customer scores. such as ABC analysis.
customer ratings.Customer portfolio optimization • Is a key tool for analyzing and optimizing the composition of your customer base. . – We can assess customers or customer groups more effectively and – Determine the most appropriate policy for winning over customers. – Providing them with the right kind of service and retaining their business. or strength of the customer relationship. such as customer lifetime value. • By using key figures.
Customer Portfolio .
Fundamental Steps in Analytical CRM .
analyze. and disseminate customer information throughout an organization .Use of IT in Analytical CRM • • – – – Personalization – when a Web site knows enough about a persons likes and dislikes that it can fashion offers that are more likely to appeal to that person Analytical CRM relies heavily on Data Mining technologies Data Warehousing technologies and Business Intelligence (BI) to give insights into customer behavior • These systems quickly aggregate.
Example of use of BI .
Data Mining Data mining – process of analyzing data to extract information Data-mining tools – use a variety of techniques to find patterns and relationships in large volumes of information ◦ ◦ ◦ ◦ Classification Estimation Affinity grouping Clustering .
Contd. Common forms of data-mining analysis capabilities include: ◦ ◦ ◦ Cluster analysis Association detection Statistical analysis .
Operational CRM .
which include all customer contact (sales. marketing and service). . • Tasks resulting from these processes are forwarded to employees responsible for them.• Operational CRM means supporting the "front office" business processes. • Interfaces to back-end applications are provided and activities with customers are documented for further reference. as well as the information necessary for carrying them out.
Benefits of Operational CRM • Delivers personalised and efficient marketing. sales. regardless of the touch point . and service through multi-channel collaboration • Enables a 360-degree view of your customer while you are interacting with them • Sales people and service engineers can access complete history of all customer interaction with your company.
Parts of Operational CRM • Sales force automation (SFA) • Customer service and support (CSS) • Enterprise marketing automation (EMA) .
g. influence on buying decisions) and information about competitors . prices. promotions.. as well as soft information about individuals (e.Cont. • Document Management: Develop and retrieve standard and customizable management reports and presentation documents • Sales Analysis: Analyze sales data • Product Configuration: Assemble alternate product specifications and pricing • Marketing Encyclopedia: Provide updated information about products.
etc). using multiple channels (Web. • Key infrastructure requirements of CSS include computer telephony integration (CTI) which provides high volume processing capability. complaints. and reliability.Customer Service and Support • CSS automates some service requests. • Traditional internal help desk and traditional inbound callcentre support for customer inquiries are now evolved into the "customer interaction centre" (CIC). . and information requests. face-to-face. phone/fax. product returns. kiosk.
modify. and dispatch the right people. and time associated with service orders – View customer history – Search for proven solutions • Help Desk Management – Solve the problem by searching the existing knowledge base – Initiate. at the right time – Log materials. quality control. with the right parts.Customer Services Capabilities • Call Center Management: – Provide automated. expenses. patches. and product development • Field Service Management – Allocate. and track problem reports – Provide updates. schedule. and new versions . end-to-end call routing and tracking – Capture customer feedback information for performance measurement.
• It is the execution side of campaign and lead management. industry trends. and macro-environmental variables. . and predictive modeling on the analytical (Business Intelligence) side. including competitors. • Functions include demographic analysis.Enterprise Marketing Automation • EMA provides information about the business environment. • The intent of EMA applications is to improve marketing campaign efficiencies. variable segmentation.
Technologies Used in Operational CRM .
2. 3.Marketing and Operational CRM Three marketing operational CRM technologies: 1. List generator – compiles customer information from a variety of sources and segment the information for different marketing campaigns Campaign management system – guides users through marketing campaigns Cross-selling and up-selling Cross-selling – selling additional products or services Up-selling – increasing the value of the sale .
Sales and Operational CRM The sales department was the first to begin developing CRM systems with sales force automation – a system that automatically tracks all of the steps in the sales process .
helping individual sales representatives coordinate and organize all of their accounts Contact management CRM system – maintains customer contact information and identifies prospective customers for future sales Opportunity management CRM system – targets sales opportunities by finding new customers or companies for future sales . 3. Sales management CRM system – automates each phase of the sales process. 2.Sales and Operational CRM Sales and operational CRM technologies 1.
Customer Service and Operational CRM
Three customer service operational CRM technologies:
1. 2. 1. Contact center (call center) Web-based self-service system
Call scripting system
Operational CRM: Customer Service
1. Contact Center (call center)
Operational CRM: Customer Service
2. Web-based self-service system - allows customers to use the Web to find answers to their questions or solutions to their problems
◦ Click-to-talk –customers click on a button and talk with a CSR via the Internet
Operational CRM: Customer Service
3. Call scripting system - accesses organizational databases that track similar issues or questions and automatically generate the details to the CSR who can then relay them to the customer
CRM Metrics Sales Metrics ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Number of prospective customers Number of new customers Number of retained customers Number of open leads Number of sales calls Amount of new revenue Amount of recurring revenue Number of proposals given .
CRM Metrics Service Metrics ◦ ◦ ◦ ◦ ◦ ◦ Cases closed same day Number of cases handled by agent Number of service calls Average number of service requests by type Average time to resolution Average number of service calls per day .
CRM Metrics Marketing Metrics ◦ ◦ ◦ ◦ ◦ ◦ Number of marketing campaigns New customer retention rates Number responses by marketing campaign Number of purchases by marketing campaign Revenue generated by marketing campaign Customer retention rate .
The CRM functionality history Decision support systems SFA Data Warehousing Artificial Intelligence Internet CRM eBusiness CSS 1990 1995 Marketing Automation 1998 2001 .
Planning and Budgeting Segmentation Campaign Management Customer Loyalty Programs Events Management Branding and Awareness Service Fulfill Service Service Request Management Contract Management Invoice to Cash Cancel Orders Order Management .CRM functionality basic Sales Segmentation and Coverage Planning Forecasting Sales Compensation Territory Management Pipeline Management Order Management Marketing Marketing.
Siebel Web and Email Analytics Call Center Customers Field Customer Information Back Office Partners Marketing .the channel concept .CRM .
CRM functionality Web and Email Prospects Analytics Call Center Customers Field Customer Information Back Office Partners Customer hierarchy Customer contact Marketing ERP .
Benefits of data warehousing in CRM Customization of Marketing Mix Product Planning Management of Intermediaries Data Warehouse Targeted Promotions Relationship Marketing Sales Force Productivity Customized Services .
• Some commonly used technological tools are the telephone. . • The Three W’s to technology-web. work flow management and data warehousing has led to the creation of electronic customer relationship management (ECRM) the process by which companies can understand customers in a seamless manner. computers.Technology used in CRM • One of the key inputs in CRM is the use of technology for data mining and also for responding to the customer in real time. fax and electronic data interchange. the internet.
• The web has been compared to the eyes. • It follows the normal rules of the division of labour and sequencing of activities . • Work flow management systems automate the procedure by which documents.Contd. ears. • Principle task is to assimilate the information passed to it by the web and then to formulate the response based on current external and historical information. and mouth of the CRM process as it collects and presents the information to the user • The data warehouse servers are like a brain and central nervous system. information and all relevant tasks are distributed among participants.
• It follows the normal rules of the division of labour and sequencing of activities .Contd. • Principle task is to assimilate the information passed to it by the web and then to formulate the response based on current external and historical information. • The web has been compared to the eyes. and mouth of the CRM process as it collects and presents the information to the user • The data warehouse servers are like a brain and central nervous system. information and all relevant tasks are distributed among participants. ears. • Work flow management systems automate the procedure by which documents.
Data Mining Tools – Market basket analysis and automatic cluster generation – Decision trees and memory-based reasoning – Neural net systems .
. Customer relationships develop over time. and The basic premise of CRM is to offer superior value to customers in an effort to turn prospects into customers. The core function of CRM is the value creation process.Chapter 15: Customer Relationship Management (CRM) Summary CRM is a new business philosophy based on trust and value. and loyal customers into partners. customers into loyal customers. The role of global salespeople in the process is that of both relationship builders and relationship promoters.
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