CHAPTER 1

INTRODUCTION TO CUSTOMER RELATIONSHIP MANAGEMENT

LECTURER: NGUYEN TRAN PHUOC
Main Contents

1. Definition of CRM and CRM applications

2. The purpose and benefits of CRM
3. The tangible components of CRM
4. Customer service & customer engagement center
5. Important business constructs related to CRM
6. Who uses CRM and why
 1. Definition of CRM

Customer Relationship Management (CRM) is often so

broad that it lacks definition, because:
 It can apply to different levels of customers (dealers,
distributors, lateral partners, & consumers).
 Some of key components of CRM shift when
considering business-to-business (B2B) versus
business-to-consumer (B2C) relationships.
 The composition of CRM systems will be different in
big versus small companies.
 1. Definition of CRM

Definition of CRM can be grouped into five categories.

Those that equate CRM with:
1. A software package, process, system, or technology.
2. A focus on data storage and analysis.
3. A change in corporate culture from a transaction
focus to a relationship or customer-centric focus.
4. The important concept of “managing demand”.
5. New strategies focused on current customers.
 Definition of CRM

Baran & Galka offer a view of CRM, taking into consideration

technology, corporate culture, relationships with both customers and
partners, and management strategy:

“CRM is the initiation, enhancement, and maintenance

of mutually beneficial customer and partner long-term
relationships through business intelligence-generated
strategies based on the capture, storing, and analysis of
information gathered from all customer and partner
touch points and transaction processing systems.”
 2. The purpose & benefits of CRM

The objectives of CRM systems include the following:

 Identifying potential customers
 Understanding customer needs, both current & latent
 Differentiating profitable from unprofitable customers
and segments
 Decreasing attrition by increasing value & satisfaction
 Increasing usage of current products and services
 Increasing usage of a greater number of a company’s
products and services
 2. The purpose & benefits of CRM

 Increasing usage of more prestigious items of a firm

 Increasing customer service and satisfaction
 Improving campaign management
 Increasing referrals
 Winning back lost customers
 Moving customers up the relationship hierarchy from
strangers to acquaintances to friends to partners
 Integrating marketing and sales efforts throughout
the various channels used by the company.
 2. The purpose & benefits of CRM

 Companies have adopted CRM because it can

enhance productivity across the entire range of key
marketing functions: identifying prospects, acquiring
customers, developing customers through cross-
selling & upselling, managing customer migration,
servicing, retaining, increasing loyalty, and winning
back defectors.
 Many organizations have reaped benefits of CRM:
retaining and pleasing the right kind of customers,
gaining repeat purchases, and increasing profitability.
 Kimberly-Clark spent huge
quantities of marketing
dollars, uncertain of which
promotions were producing
retailer loyalty, shelf space,
and sales and which ones
were going to waste. A CRM-
based business planner
rapidly proved a success. In
its first year, the system was
used to manage more than
2,300 promotional events
involving all of the company’s
U.S. consumer product lines.
 DHL once took 10 days to
approve salespeople’s quote
prices. Now, using a CRM
system, a salesperson’s quote
can be delivered and
approved on the spot
because of IT and data
warehousing
 Benefits of CRM Systems in Retail Banks
o An increase in the average number of products sold per
customer over 1 year—from 4.6 to 6.2.
o A 200 percent return on technology investment through
cost reduction over 1 year.
o A 96 percent reduction in the average time it takes for a
call center agent to refer a customer to a branch loan office
—from 45 minutes to 2 minutes.
o An 83 percent decrease in average customer information
retrieval time—from 12 minutes to 2 minutes per
customer inquiry.
 3. Tangible Components of CRM

a) Five key areas of any CRM system

b) Multi channel marketing
c) Database warehouse / mart / mining
d) Touch points
e) Customer service and customer engagement center
f) Sales force automation
g) 360-degree view
 Five Key Areas of CRM Systems

CRM architecture consists of

 The integrated front office;
 Business intelligence systems;
 Workflow and business rules;
 Physical links to back-office systems;
 Performance metrics.
Through the CRM ecosystem, an organization’s front and back
offices are integrated through the exchange of data, systems,
and business processes.
Basic Architecture of a CRM System
 Multichannel Marketing

 Multichannel can be defined as the variety of channels that

consumers use to interact and transact with an
organization.
 Customers are switching to multichannel shopping and
purchasing because it provides greater convenience and the
ability to obtain more targeted information and advice.
 Companies are training their customers and prospects to
use the most cost-effective channels for shopping and
purchasing
The Multichannel Customer Buys More
 Data Warehouse – Data Mart – Data Mining

 Data warehouse is the central element in the CRM system

and requires that relevant customer data be entered,
stored, and available for analysis and dissemination to
people in the organization.
 Data marts contain a subset of the data in the data
warehouse and allow for more efficient analysis of the
relevant portion of the firm’s transactions.
 Data mining is the process of using statistical techniques to
uncover patterns or relationships among variables in the
data warehouse or data mart.
 Touch Points

 A touch point is any point of contact that a customer or

prospect has with the company.
 Newer touch points are constantly being introduced. Social
media channels include many forms such as Internet
forums, blogs and microblogs (e.g., Twitter), and social
networking sites (e.g., Facebook).
 If one extends the notion of “customer” to include
suppliers, distributors, dealers, employees, and so forth,
then the notion of a touch point can be extended to
“transaction processing systems”.
Hilton Customer Touch Point Landscape
Customer Service & Customer Engagement Center

 Today, simple interaction with customers (call center or

contact enter) is not sufficient. Companies want to engage
their customers—hence the arrival of the customer
engagement center (CEC).
 CEC personnel are trained in the art of recognizing which
retention strategy is most suitable for the customer, and
they are aided in this through predictive and prescriptive
analytics, which predict which offers are most suitable for
the interaction at hand.
 Sales Force Automation (SFA)

SFA systems are an important subset of CRM systems because

they provide management of:
 The sequence of sales activities;
 Sales territories;
 Data across and within a company’s client organization;
 Leads and opportunities;
 The building of items into a total package for customers;
 Information.
 Salesforce.com is a leader
in SFA, with more than
150,000 customers
worldwide. As an
application service provider
(ASP), it provides a hosted
Web portal that allows
users to outsource the
operation and maintenance
of all data and transaction
information dealing with
their sales force–customer
interactions.
 360-Degree View

 360-degree view refers to a consistent view of the

customer from beginning to end of the relationship
available to all.
 The customer data must be integrated from all business
areas, including billing, customer contact, marketing, and
sales.
 4. Customer Service & CEC

 One of the first steps to develop closer relationships

with customers is to provide excellent customer
service.
 Companies must also offer a full set of interaction
options such as self-service, peer-to-peer, and agent-
assisted service.
 Voice of the Customer (VOC) intelligence tools such as
quality monitoring and speech analytics are ways to
gather and share the wealth of information provided
by customers.
 4. Customer Service & CEC

 Providing basic customer service is the first step in

customer relationship management; but only a first
step, for CRM is all about establishing and growing
bonds leading to increased profitability for the
company and satisfaction and loyalty for the customer
 5. Business Constructs Related to CRM

a) Customer lifetime value & second lifetime value

b) Customer Privacy
c) Customization versus personalization
d) Recency, frequency, and monetary value (RFM)
Customer Lifetime Value & Second Lifetime Value

 Customer lifetime value (CLV) is the net present value

(NPV) of the future profits to be received from a given
number of newly acquired or existing customers during a
specified period of years.
 CLV is calculated by identifying the revenue stream over
time, applying a retention rate for each year, subtracting
relevant costs, and then applying a discount rate to gross
profit.
 Second lifetime value focuses only on the NPV generated
after a customer has been reacquired.
 Customer Privacy

 Opt-in agreements

 Opt-out agreements

 Permission-based marketing
 Customization & Personalization

 “Customization” means a manufacturer designs a product

to suit a customer’s needs.
 “Personalization” means the customer is a creator or co-
creator of the content.
 Mass customization is a technique companies use to
service a particular customer’s needs in a cost-effective
way.
Nike launched NIKEiD, a
website through which
consumers can order
shoes tailored to their
specifications and
personalized with an
eight-letter identity on
the back.
 Amazon.com’s purchase
circles suggest similar
books based on the
customer’s past
purchases and books that
others in their location
are reading.
(Source: neilpatel.com
 Recency, Frequency, & Monetary (RFM)

 RFM is an approach to compute a score for each customer

based on how recently the customer purchased, how
frequently the customer purchases, and how much
revenue or profit the customer generates.
 The score is used to predict the customer’s likely response
to future marketing expenditures and efforts.
 RFM measures have shortcomings, however, in that they
ignore the “pacing” of a customer’s purchases (i.e., the
time between each purchase).
 6. Who uses CRM and Why?

Firms develop and purchase CRM systems for the

following reasons:
 To increase customer retention and customer loyalty.
 To stay even with their competition.
 To attempt to differentiate themselves from their
competitors based on their ability to provide
outstanding customer service.
 To encourage development of customer communities
and social networks.
 6. Who uses CRM and Why?

The practice of CRM varies by industry. According to

IBISWorld, the current CRM system market looks like this:
 Financial Services: 26 percent of the CRM market
 Retail: 22 percent
 Healthcare and other service industries: 21 percent
 Manufacturing: 17 percent
 Education: 14 percent
 6. Who uses CRM and Why?

 The companies serving large numbers of customers

through increasingly complex and frequent
interactions would gain the most from CRM systems.
 Companies that engage in minimal interactions with
each customer or companies with simple customer
transactions would benefit the least from CRM
systems.
Types of Companies Benefiting Most & Least from CRM
 Thank you
Insert the title of your subtitle Here