Chapter 7

Customer

Relationship

Management

(CRM)

Chapter Overview

Relationship MarketingCRM

– Growth & Process

CRM in ActionLimitations/Dangers of CRMMeasuring EffectivenessBenefits of CRMCRM Strategies

Building Customer Relationships, 1:1

The key: Treat customers like friends A major shift in marketing thought:

– from mass marketing to individualized marketing– From focus on acquiring lots of new customers to

retaining and building more business with fewer loyal high-value customers

– Goal: build long-term relationship, 1:1

“Relationship Capital” may be more valuable than land, property, and financial assets.

Relationship Marketing

“Establishing, maintaining, enhancing, commercializing customer relationships through promise fulfillment”

Building long-term profitable relationships with mutual benefit

Mass marketing Relationship marketing

One-way communication

_____ transactions _____ transactions

Short-term emphasis Long-term emphasis

Two-way communication /collaboration

_____ focus _____ focus

Share of _____ Share of _____

Exhibit 7 - 1 Continuum from Mass Marketing to Relationship Marketing

Relationship Levels

Relationship marketing is practiced on three levels.– .– .– .

Customer Relationship Management (CRM)

What is CRM?– A holistic process of identifying, attracting,

differentiating, and retaining customers

– Integrating a firm’s entire supply chain to create customer value at every step

– Basically……. a lot like Relationship Marketing!!

Reasons for growth in CRM

The 80/20 RuleLabor costs rising, competitive pressures

have kept prices lowCRM is cost-effective

– cheaper to retain than attract– easier to sell to one customer than many– reduced promotional expenses– positive WOM

The CRM Process

1 . Ide ntify

3. Custom ize

2. Differe ntiate

Interaction

Exhibit 7 - 4 CRM Process

1. Identifying customers

Firms gather information about customers from:– Sales force

– Customer service encounter

– Bar code scanners at retailer

– Web site activity

Firms obtain prospect, business customer, and end consumer information through:– Personal disclosure– Automated tracking

2. Differentiating Customers

Companies differentiate customers by:– Similarities and differences in groups and individuals

– Customer value: 20% of the customers provide 80% of the profits

– Lifetime Value (LTV) – the total value of the customer over that customer’s lifetime

“All animals are equal, but some animals are more equal than others.” George Orwell, Animal Farm

– if necessary, fire customers

3. Customizing the Marketing Mix

Mass Customization:

– Marketing communication messages tailored to individuals and delivered electronically.

– Customers who can customize to meet their individual needs are more likely to use that company’s products and services over time.

Interaction

It allows companies to collect the data necessary for identification and differentiation, and to evaluate the resulting customization effectiveness on a continuous basis.

= “learning relationship”

Both the firm and the customer learn from each experience and interaction

Increase trust & loyalty

Application Exercise

Create a classification scheme to differentiate between customers of an online banking service (create a name for each level)

Determine how many different categories seem appropriate

Describe how you will classify customers

CRM in action: Illustration of the Process

Four key aspects of an operational CRM operation– .– .– .– .

Coding

Customers are “graded” based on how profitable/desirable they are.

Employees are instructed to handle customers differently based on their category code.

First Union Bank online bankingIKEA customer serviceSears repair appointments

Routing

Incoming call centers route calls based on how customer was coded.

Best customers get to speak (almost) immediately to a live phone rep, less profitable customers wait on hold.

Electric companyCharles Schwab

Targeting

Best customers are targeted for special deals and promotions that less profitable customers never hear about– waive fees– special offers

Centura Bank (Raleigh, NC)First Bank (Baltimore, MD)First Union Bank (Philadelphia, PA)

Sharing

Customer information is shared throughout the organization

Everyone knows purchasing history and potential.

United AirlinesContinental Airlines

Limitations/Dangers of CRM

Customers don’t like unequal treatmentPrivacy issues are a concernWhat someone spends today not

necessarily a good predictor of what they will spend tomorrow

Can lead to red-lining/discrimination

CRM Metrics: Measuring Effectiveness

Metrics are used to determine how effective the CRM initiatives are and to classify customers based on loyalty and value.

Identify less profitable customers and minimize interactions with them.

LTV, AOV, RFM, and others

CRM Benefits: Benefits to the Customer

– The average customer desires brand loyalty as much as the firms they patronize.

– From a consumer’s perspective the basic tenet of CRM is choice reduction.

– Consumers want to patronize the same store, mall, and service providers

It’s more convenient

Internet Strategies Facilitating CRM: Customization Tools

Firms tailor their marketing mixes to meet the needs of small target segments, even to the individual level, using electronic marketing tools.

Examples: – Web pages that greet users by their name – e-mail that is automatically sent to individuals with

personal account information Mass Customization--individualize marketing mixes

electronically and automatically to the individual level.– initiated by organization (company-side) or by a customer

(client-side)– can be examined at two levels: small segments and

individuals

 

  Small Segment/Group Individual

Company-Side Tools(push)

Collaborative filteringData mining and profilingOutgoing e-mail

CookiesWeb log analysisReal-time profilingOutgoing e-mail

Client-Side Tools(pull)

AgentsExperiential marketing 

Individualized Web portalsWireless data servicesWeb page formsFAX-on-demandIncoming e-mail

Exhibit 7 - 4 Selected E-Marketing Customization Tools

Small Segment Customization: Company-side Tools

Collaborative filtering software: recommendations from like-minded users in cyberspace and returns these opinions to the individual in real-time.

Data mining/profiling: extraction of hidden predictive information in large databases through statistical analysis- simply ask the software to find patterns of interest.

Outgoing e-mail from firm to customer: used to build relationships by keeping in touch with information that is useful and timely for users.

Small Segment Customization: Client-side Tools

Agents: programs that perform functions on behalf of the user.

Experiential marketing: gets the customer involved in the product to create a memorable experience.

Individual Customization: Company-side Tools

Cookies: small files written to the user’s hard drive after visiting a Web site that the site recognizes each time the customer returns and uses it to personalize the site.

Web site log: a file that keeps track of which pages the user visits, how long he stays, and whether he purchases or not.

Real-time profiling: special software tracks a user’s movements through a Web site, then compiles and reports on the data at a moment’s notice

Outgoing e-mail:communicate with individuals and attempt to increase their satisfaction and loyalty

Individual Customization: Client-side Tools

Individualized Web portals are created by the user – Example: http://.my.yahoo.com

Wireless data services: tailored to cell phones, pagers, and PDAs to receive wireless Internet transmission.

Web forms: Web page form that has designated places for the user to type information (registration).

FAX-on-demand: Customers telephone a firm, listen to an automated voice menu, and through selecting options request that a FAX be sent on a topic of interest.

Incoming e-mail:e-mail inquiries, complaints, or compliments initiated by customers or prospects. – 1997 study, only 62% responded to e-mail complaints.

Internet Strategies Facilitating CRM: Building Partnerships Using Community

“Groups of people or employees with similar interests and tasks”

Can present products and messages customized to the group interests and have the community forge relationships with the company.

Communities Come From:– Chat rooms– Discussion groups– Bulletin boards– Distributed e-mail lists– Intranets and Extranets

Nine Principles for Building Good Communities:

1. Define Community Purpose – mission statement, identify target market, create a strong site personality

2. Create Extensible Gathering Places – provide a good map, include rich communication features, all members to extend the environment

3. Create Evolving Member Profiles – communicate the benefits of membership, make profile creation easy and as fun as possible, keep profiles up-to-date and evolving

4. Promote Effective Leadership & Hosting – set-up your program to grow, build some flexibility into the house rules, & set reasonable expectations for online support.

Nine Principles for Building Good Communities, cont.

1. Define a Clear / Flexible Code of Conduct – create and enforce code and don’t try to stifle all conflict.

2. Organize & Promote Cyclic Events – hold regular, hosted, themed events, conduct community surveys, and hold contests that reinforce the purpose.

3. Provide a Range of Roles – offer newcomers a controlled experience, offer increased privileges to regulars, and recruit leaders and mentors from within.

4. Facilitate Member-Created Subgroups – provide features that facilitate small groups and create events an contests for groups

5. Integrate with the Real World – celebrate events that reinforce social identity, acknowledge important personal events and encourage real-life meetings (when appropriate).