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Customer Relationship Management

Cross selling 2

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Page 1: Cross selling 2

Customer Relationship Management

Page 2: Cross selling 2

Facts about customer relations

• Cost of selling to a new customer is six times as high as to existing customer

• Odds of selling to a new customer = 1/7 to an existing customer = 1/2

• Each dissatisfied customer tells 8 to 10 people• 70% of dissatisfied customers will do business again

if they feel their complains are handled well• 1 extra % of customer retention can boost turnover

by as much as 15%• Many companies don’t have proper customer support• CRM = doing things right + actively seeking new

business

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retention

Industry % Increase inCustomer NPV

Advertising Agency 95

Life Insurance 90

Bank 85

Insurance 84

Car Service 81

Credit Card 75

Laundry 45

Software 35

Impact of a 5% Increase in Retention Rate on Customer Net Present Value

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CRM definition

• “customer centric” approach • Business philosophy which places the customer

at the heart of organisations’ processes, activities and culture

• IT is the tool to implement this

“a sales and service business strategy where the organisation wraps itself around the customer [such that] whenever there is interaction, the message is appropriate for that customer”

Curley, B. (1999) “Profiting from the relationship” Insurance and Technology, 24 (3), pp. 34-38.

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Why CRM?

• Customers don’t care about their suppliers’ internal difficulties

• They want to be able to access product and services at the least cost

• They want a single point of entry• Existing loyalty programmes are a start but

don’t go far enough • Variations in the cost of selling to different

customers => CPA

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A bit of history

• In the 50’s mass marketing• In the 1970’s market segmentation• In the 1990’s personalised marketing• Since: relationship marketing

– acquiring customers is far more expensive than keeping them • knowledge about individual customers is required to

guide highly focused marketing strategies – More intense, global competition– more fragmentation of markets– high level of product quality

• The Internet reduced switching costs in many industries• Shift in power from the seller to the consumer

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The 3 phases of CRM

• Acquiring new customers– Promotion / Advertising– Better products and superior service

• Enhancing profitability of existing customers– cross-selling and up-selling (one stop shopping)– Provision of additional services– Generally re introducing switching costs

• Retaining most profitable customers– best customer list – customer profitability analysis– make best offer to best customer - personalisation

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Novelty of the CRM Approach

• Complete and integrated solution - breaks down the walls of conventional functional areas

• Most companies are good at one of the 3 activities - CRM concentrates on all 3

• Overall corporate objective of providing customer satisfaction – Data collection aspects– Data mining aspects– Dissemination aspects

• Offer single point of entry for customer queries

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Survey of CRM initiatives

• 80% of CRM initiatives are quick win projects• Important to have clearly define goals

– Reduce call numbers– Produce more finely tuned products– Sell more unit per deal– …

• CRM must be profit making• 50% of top 500 firms said lack of internal

collaboration is an obstacle• Only 30% of companies have metrics in place

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Clear obstacles

• Lack of collaboration• Outright conflict between departmental

needs• Fragmentation of existing customer facing

processes– Most unstructured in most firms

• Idiosyncrasy of processes will lead to scope creep

• Customer frustration may lead to excessive demands

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Develop common goals centred on the customer

• CRM project is as multi-disciplinary as ERP project• Data also comes from disparate systems• Using key scenarios is supposed to help• Potential for conflicts must be removed• Involve trusted customers when applicable• Do genuine fact finding on how customers are dealt with

today– Process mapping– rules and procedures– Case studies

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Mapping process change

• Integration of customer content

• integration of customer contact

• integration of end-to-end CRM business processes

• Integration with ERP

• Integration of activities never computerised before

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ABC of data mining in CRM

• Affinity analysis: odd / unexpected patterns in customer behaviour.

• Clustering sorting customers into similar groups based on certain attributes or behaviours.

• Predictive modelling uses historical purchase data plus information about promotions to predict future behaviour.

• Segmentation like clustering; but used to support the development of tailored offerings

• Tapscott: help to perform ‘surgical strikes’ instead of ‘carpet bombing’

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Data Issues

• As with ERP Bad data quality will be a problem– Data stewards– Building up to a DQM strategy– Dynamic process of tidying up live data

• Interface into existing systems– Front and back office– Multiple communication channels with outside– 360° view

• New data collection mechanisms => increased cost

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Metrics

• Sales analysis • Returns• Warrant service requests• Calls / complaints• Time to closure• New contacts generation• Sales conversion• Customers retention• Campaign tracking• Pricing strategy changes

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Staff buy in

• Even more so than for ERP, CRM requires staff buy in.

• One bad experience is enough• Communicate on what is being sought• And have clear performance measurements• Create programmes to show that it matters• Monitor performance and overall effect over the

long time• Measure €€ returns regularly

Page 17: Cross selling 2

Integration of customer content

• Transactional data• “Human” data (obtained in conversation)• Try to minimise the cost of collecting such

data• Web services are now a mainstream

channel• Intranet / CRM systems provide a platform

for distribution on a wide basis

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Integration of business processes

• Sales and Services primarily• Accounting• Logistics / shipping• + all intermediaries downstream

– Distributors– Experts in position to prescribe or recommend– Contractors supporting the provision of

services• Eg: BGE

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Integration of customer contact information

• All channels

• 24 / 7

• Available to all CCP (customer Contact Personnel)

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Customers

TelephonyInternetFace-to-FaceMailFax

Front Office CRM Processes

Sales Marketing Services

Data Mining and Analysis

Data Warehousing

Back Offices and External Systems

LegalHRFinanceR&DServersStorage

Customer Interface Infrastructure

Infrastructure for CRM

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Business Intelligence

• Making sense

• Identifying problems

• Understanding cause and effect relationships

• Anticipating future changes

• EIS / OLAP / dashboards of info

• + datawarehouses and data mining

Page 22: Cross selling 2

Customer contact point• Call centre (70% of all contact points) evolving into a

selling channel• Goals of the contact point

– Listening to the customer– creating higher levels of loyalty

– providing a better experience • CTI• Hidden cost => increased in-coming calls • But automation means complete framework for measuring

performance• Counter measures can be derived from findings• Email management provides further automation

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The Internet

• Better economics– Average cost of banking transaction = €1 / 54 cents

with call centre and 13 cents on web site.

• Unlimited connectivity (in theory)• Seamless data collection• Integration with SCM• Event driven built into services / automated• click-for-help • Significant risk in integrating with back end

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Building the case for ROI

• Will crm improve our ablity to generate revenues?– Will it improve decision making?

• Will crm improve customer satisfaction?– Will it improve quality of service?– Will it improve quality of products?

• Will it reduce operational costs?• Will it improve employee satisfaction?

– At least will it not decrease it?

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Paradox of productivity gains

Amongst otherthings, this showsthe need for METRICS

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Key decisions for ROI

• What costs must be absorbed? – see lecture on TCO for ERP

– Eg: infrastructure costs– Hardware costs

• What benefits must be measured?– What is the true impact of the software?

• Choices: sales growth, customer growth and how they will be weighted (so they can be converted into € figures)

• Also consider tradeoffs (things that could not be done without the software)

Page 27: Cross selling 2

Knowledge management

• Tacit knowledge• Explicit knowledge• Sales area dominated by the former• CRM is an attempt to codify knowledge and

store it for easy access• CRM is also an attempt to create new

knowledge• Finally CRM is an attempt to built knowledge into

the business processes of the firm– Event driven marketing / cross selling / up selling

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A study of CRM in IrelandCompany Business Maturity CRM software

Eircom Telecom 5 years Seibel CRM, GTX, Campaign Management System

AIB Financial Services Industry 3 years Client view system, segmentation tool, Campaign Management System

Irish Life Financial Services Industry 2 year Siebel eInsurance, POS system

Insurance Co Health Care 18 months Analytical tool

Eircom: old monopoly market opened to competition in Dec. 1998

AIB: interesting because no CRM specific platform but CRM unit

Irish Life: merger of Irish Life plc and Irish Permanent plc in April 1999 andAcquisition of TSB in 2001

Insurance: over 1.56 million customers (41% of the Irish population)Annual premium income is in excess of €600 million.Over 2.5 million customer contacts re forty thousand insurance claims per year

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Eircom

• Problems– poor system integration– paper based system used for order tracking and diaries– no customer contact history.– technology limited and inadequate – limited segmentation analysis and campaign management.– Legacy order management systems outdated– systems consisted of a number of disparate information systems

with no integration between the front and back offices.– Front office staff had to deal with multiple desktop applications,

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Eircom solution

• Siebel CRM (1999) to manage corporate clients• GT-X system (1998) for the mass consumer

segment • Difference: Siebel geared towards relationship /

GT-X geared towards transactional efficiency• Also: total integration between front office,

customer information database, the data warehouse and back office systems

• Creation of CRM department (half IT / half business) in charge of all related projects

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AIB• CRM unit has end-to-end responsibility for the delivery of

CRM projects• Mosaic of in-house systems

– the client view system• up to the minute customer information, contact history log and

customer contact diary – the segmentation system

• groups customers based on demographics, and assigns specific customers to relationship managers

– the campaign management system• For both current and potential customers• Replaced a manual system

• Never upgraded legacy systems with “proper” CRM platform because functionality was already there

“So it doesn’t have the full functionality and nice bits offered by CRM software packages,it has the core bits and all the other bits are being added and tagged on” (CRM Consultant AIB).

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Irish Life - Problems

• two distinct processes. • In house semi-automated point of sale (POS) system

using Visual Basic™– not structured in terms of the information that it held or of the

processes involved.– still involved paper-based processes which were time

consuming and ineffective.

• Separate process for customer campaigns– Eg: mail shots– not automated– very hard to target the right customers with the right information– Ineffective and hard to gauge results

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Irish Life - Solutions

• Complete Siebel CRM application used by some selected actors – sales department

• In parallel, developed new POS system able to generate personalised service

• Integration means sales personnel can prepare meetings with clients

• Also used for diary keeping / scheduling

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Insurance - problems

• Lost monopoly in 2001• Started customer retention programme• But CRM big bang “impractical”• IT systems disparate with minimum linkages

between them.• integrating these involves contrived data re-

structuring• changes required would be so great it would

involve ‘starting all over again’. • Piecemeal approach followed – over next 5

years

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Insurance - solution

• Norkom’s Alchemist Customer Interaction software• predictive application models• analytical tool used to build customer models

– data mining – propensity modelling.

• Also facilitates the collection and analysis of customer information

• Creates intelligence to increase the effectiveness of marketing campaigns.

• driven by a data warehouse that extracts and stores data from the operational systems.

• Sales people only initially• Then extension to marketing and services

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Summary – drivers of projects Company Origins

AIB Eircom Insurance Co Irish Life

Poor Customer Segmentation X X X XProcess not Standardised XCompetitive Environment X X XRegulatory Environment X XInefficient use of customer data X X X XAutomation of customer centric business

processes X XImprove Campaign Management XPredictive Customer Modelling X X

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Summary – Goals and Objectives

CompanyGoals and Objectives

AIB EircomInsuranceCo

Irish Life

Holistic view of the customer X X XCustomer retention X X X XTarget Marketing X X X XIncrease in revenue X X X XImprove customer relationship X X X XBetter use of customer information X X X XCommunicate more effectively with

customers X X X

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Summary - priorities CompanyMostImportant Objectives

AIB Eircom Insurance Co Irish Life

Holistic view of the customerX

Customer retention X

Target MarketingX

Increase in revenueX X X

Better use of information X

Improve the customer relationshipX

Page 39: Cross selling 2

Eircom successKey performance indicator 1998 2002

Customer Service Level 20% in 10 seconds 85% in 10 seconds

Calls abandoned 24% 4%

Customer wait time 150 seconds 8 seconds

Transaction handling time 480 seconds 205 seconds

Query resolution at point of contact 60% 87%

Electronic enablement 17% 50%

Cost per contact-Care Centre €4.48 €3.26

Eircom.ie hits per month 285K 426K

Eircom.ie substitutable contacts 20% 35%

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Summary – problems encountered

CompanyLimitations AIB Eircom Insurance Co Irish Life

Getting ‘buy-in’ from users X XUnwillingness to change X XNo large scale processing power XLack of ‘fool proof’ systems X XLack of integration X X XNo real time CRM X X XEconomic limitations X XLack of service function X X

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Conclusions

• Complete range of CRM projects

• From complete to piecemeal approach

• From vendor driven to in-house development

• Benefits are obtained in all cases, but more so when CRM strategy is complete