Unit 30:Chapter 3 Customer Relationship Management

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

Building Customer Relationships, 1:1 Cisco: Develops long-term customers relationships one at a time (1:1) & handle millions of these close relationships thanks to information. A customer with an investment in software and high satisfaction is brand loyal: Will not easily be enticed by competition. Will slowly spend an increasing amount of money on additional products/services and also refer others. Relationship capital: A firm’s ability to build and maintain relationships with customers, suppliers, and partners may be more important than a firm’s land, property, and financial assets.

Building Customer Relationships, 1:1 A major shift in marketing practice: from mass marketing to individualized marketing, from focusing on acquiring lots of new customers to retaining and building more business from a smaller base of loyal high-value customers. Industrial firms have practiced customer relationship management for a long time, Consumer services market (e.g., the local hair salon) + consumer packaged goods are now considering how to build long-term customer relationships, 1:1. Internet technologies can facilitate relationship marketing, yet many firms that purchase and install relationship-management technologies are losing money on them.

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

Relationship Marketing Defined Relationship marketing(= 1:1 marketing): is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment. Firms try to build profitable, mutually beneficial relationships in the long term, The balanced scorecard customer focus was created from this idea. Promise fulfillment = when firms make offers in their marketing communications programs, customer expectations will be met through actual brand experiences. Good relationships are built when company personnel meet the promises made by salespeople and promotional messages.

Relationship Marketing Defined Involves two-way communication with individual stakeholders, one at a time (1:1), Firm focuses on share of mind = share of customer = share of wallet, rather than share of market, Procter and Gamble: Must differentiate its brands of laundry detergent for sale to the masses, It tries to build relationships with mothers who will buy increasing numbers of P & G products over the years, From Ivory powder for washing baby clothes and Pampers diapers to Crest toothpaste for the family and Olay cosmetics for themselves.

Relationship marketing Discrete transactions Continuing transactions Mass marketing Relationship marketing Discrete transactions Continuing transactions Short-term emphasis Long-term emphasis One-way communication Two-way communication /collaboration Acquisition focus Retention focus Share of market Share of mind Product Differentiation Customer Differentiation Continuum from Mass Marketing to Relationship Marketing

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

Stakeholders Firms also use relationship marketing techniques to build mutually supportive bonds with stakeholders other than consumers. The 4 stakeholder groups most affected by Internet technologies are: Employees. Difficult to persuade buyers when employees are not happy. Employee relationship building is handled by human resources departments. Employees are instrumental in building relationships with customers = they have to be trained + to have access to data & systems used for relationship management. Business customers in the supply chain. Business customers (the B2B market): P&G uses Internet technologies to work with numerous wholesale and retail intermediaries. Firm’s suppliers: GE uses the Internet to receive bids from its suppliers (lowers transaction costs + enhances competition + speeds order fulfillment).

Stakeholders Lateral partners. Other businesses that join with the firm for some common goal but not for transactions with each other (not-for-profit organizations, or governments). Consumers. The individuals who are end users of products and services. Marketers must differentiate between business customers and final consumers because different tactics are often employed in the B2C and B2B markets.

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

Customer Relationship Management (CRM) Is used to define the process of creating and maintaining relationships with business customers or consumers. Is a holistic process of acquiring, retaining, and growing customers. Includes all online and offline relationship management. Firms are recognizing that if they don’t keep their customers happy, someone else will.

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

CRM Benefits Key CRM benefit = its cost-effectiveness. Consider the following: U.S. businesses saved $155 billion between 1998 and 2000 by using Internet technology for both CRM and Supply Chain Management. A 5% increase in customer retention translates to 25% to 125% profitability in the B2B market. Customer defection rates are near 20% per year. The cost of acquiring a new customer is typically five times higher than the cost of retaining a current one.

Retain 5 current customers ($100 each) $ 500 Acquisition Emphasis Retention Emphasis Gain 6 new customers ($500 each) $3,000 Gain 3 new customers $1,500 Retain 5 current customers ($100 each) $ 500 Retain 20 current customers ($100 each) $2,000 Total cost $3,500 Total number of customers 11 23 Maximizing Number of Customers Source: Adapted from Peppers and Rogers (1996)

CRM Benefits Retention is less costly than acquisition because: Reduced promotion costs for advertising and discounts, Higher response rates to promotional efforts yield more profits, Sales teams can be more effective when they get to know individual customers. Loyal customers are experienced customers = They know the products well, = They know who to call in the firm when they have questions. Loyal customers cost less to service.

CRM Benefits Increase the amount purchased by each customer: Amazon cross-sells by offering music, videos, and toys to its book customers. Word-of-mouth: Satisfied customers recommend Web sites, stores, and products to their friends. = The heart of CRM. Positive word of mouth can attract many new customers, but negative word of mouth can drive them away. Each dissatisfied customer tells 10 people about the unhappy experience, BUT “If you have an unhappy customer on the Internet, he doesn’t tell his six friends, he tells his 6,000 friends” (through e-mail, newsgroups, chat, and personal Web pages).

Customer Service (eg) Customer service permeates every stage of customer acquisition, retention, and development practices, Most service occurs post-purchase when customers have questions or complaints. Mercedes-Benz takes customer service to a new level with its “teleweb” technology: The consumer types a question into a Mercedes representative. The consumer & representative discuss the question while viewing the same Web pages. Softwares allow customer service reps on the telephone with a customer to take control of the user’s mouse and guide her around the company Web site.

1. CRM Vision Guarding Customer Privacy Using customer data is very tempting to marketers. Marketers must use customer and prospect information responsibly, for their own business health + for the image of the profession. Internet users are concerned about online privacy + the misuse of personal information and don’t want it shared with others unless they give permission. Real-time profiling and other techniques monitor online consumers behavior, marketers must address this issue before regulators make them do it. CRM is based on trust: The information customers give companies on Web forms, in e-mail, or in other ways will be used responsibly. Information is used to improve the relationship by tailoring goods, services, and marketing communications to meet individual needs. It means allowing consumers to request removal of their information from databases, to opt-out of e-mail lists, + not sharing information with other companies unless permission is granted.

1. CRM Vision Guarding Customer Privacy Intrusions into people’s lives: Junk mail, spam, repeated telephone calls = examples of marketing messages that can upset consumers. What’s a marketer to do? Build relationships through dialogue and through better target profiling. Firms must listen to customers and prospects and give them what they want. Why? Retention & development of customer relationships are more profitable than one-time customer transactions. Marketers can use consumer information to build more precise target profiles. Individuals do not get upset with firms who send valuable and timely information to them.

1. CRM Vision TRUSTe To help Web sites earn the trust of their users, an independent, nonprofit privacy initiative named TRUSTe provides its seal and logo to any Web site meeting its philosophies: Adopting and implementing a privacy policy that factors in the goals of your individual Web site & consumer anxiety over sharing personal information online. Posting notice and disclosure of collection and use practices regarding personally identifiable information via a posted privacy statement. Giving users choice and consent over how their personal information is used and shared. Putting data security and quality, and access measures in place to safeguard, update, and correct personally identifiable information.

TRUSTe Builds User Trust Source: www.truste.org

1. CRM Vision TRUSTe In addition, sites must publish the following information on their sites to gain the TRUSTe seal: What personal information is being gathered by your site. Who is collecting the information. How the information will be used. With whom the information will be shared. The choices available to users regarding collection, use, and distribution of their information. The security procedures in place to protect users’ collected information from loss, misuse, or alteration. How users can update or correct inaccuracies in their pertinent information.

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

7. CRM Technology Technology greatly enhances CRM processes. Incoming toll-free numbers, electronic kiosks, FAX-on-demand, voice mail, and automated telephone routing = examples of technology that assist in moving customers through the life cycle. The Internet is the first fully interactive + individually addressable low cost multimedia channel. Cookies, Web site logs, bar code scanners help to collect information about consumer behavior and characteristics. Databases and data warehouses store and distribute these data from online and offline touch points. These information allow to develop marketing mixes that better meet individual needs. Important tools that aid firms in customizing products to groups of customers or individuals include “push” strategies that reside on the company’s Web and e-mail servers, and “pull” strategies that are initiated by Internet users.

7. CRM Technology Company-Side Tools There are important e-marketing tools used by firms to push customized information to users. Users are unaware that marketers are collecting data + using these technologies to customize offerings. Cookies Cookie files are the reason that customers returning to Amazon.com get a greeting by name + users don’t have to remember passwords to every site for which they are registered. Cookie files allow ad-server firms to see the path users take from site to site and, serve advertising banners relevant to user interests. Cookies keep track of shopping baskets and other tasks so that users can quit in the middle and return to the task later.

Collaborative filtering Company-Side Tools (push) Description Cookies Cookies are small files written to the user’s hard drive after visiting a Web site. When the user returns to the site, the company’s server looks for the cookie file and uses it to personalize the site. Web log analysis Every time a user accesses a Web site, the visit is recorded in the Web server’s log file. This file keeps track of which pages the user visits, how long he stays, and whether he purchases or not. Data mining Data mining involves the extraction of hidden predictive information in large databases through statistical analysis. Real-time profiling Real-time profiling occurs when special software tracks a user’s movements through a Web site, then compiles and reports on the data at a moment’s notice. Collaborative filtering Collaborative filtering software gathers opinions of like-minded users and returns those opinions to the individual in real-time. Outgoing e-mail Distributed E-Mail Marketers use e-mail databases to build relationships by keeping in touch with useful and timely information. E-mail can be sent to individuals or sent en masse using a distributed e-mail list. Chats Bulletin Boards A firm may listen to users and build community by providing a space for user conversation on the Web site iPOS terminals Interactive Point of Sale terminals are located on a retailer’s counter, and used to capture data and present targeted communication. Selected E-Marketing “Push” Customization Tools

7. CRM Technology Web Site Log By performing Web log analysis, firms can do many things, (customize Web pages based on visitor behavior). Softwares can also tell which sites the users visited immediately before arriving + what key words they typed in at search engines to find the site + user domains, and much more. Data Mining Marketers don’t need a priori hypotheses to find value in databases, but use software to find patterns of interest.

7. CRM Technology Real-Time Profiling Customer profiling uses data warehouse information to help marketers understand the characteristics and behavior of specific target groups. American Express has done this for years: It sends bill inserts to groups of customers based on their previous purchasing behavior. What’s new? This can all be done online inexpensively via e-mail and customized Web pages = Real-time profiling = tracking user clickstream in real time, Allows marketers to profile + make instantaneous and automatic adjustments to site promotional offers and Web pages. For example, the software could be set to use the following rule: If a customer orders a Dave Matthews Band CD, display a Web page offering a concert T-shirt.

7. CRM Technology Collaborative Filtering In the offline world, individuals often seek the advice of others before making decisions. Collaborative filtering software gathers the recommendations of an entire group of people + presents the results to a like-minded individual. BOL.com, an international media and entertainment store uses collaborative filtering software to observe how users browse and buy music, software, games, at its site. The more time a user spends at the site, the more it will learn about her behavior/preferences + the better able it will be to present relevant products. BOL.com notes that it realized increased revenues from using this software, and achieved a positive ROI within months.

MyPoints Rewards Members for Time Spent Online Source: www.mypoints.com

7. CRM Technology Outgoing E-Mail E-mail is used to communicate with individuals or lists of individuals (distributed e-mail) to increase their purchases, satisfaction, and loyalty. Many companies maintain e-mail distribution lists for customers and other stakeholders. Permission marketing dictates that customers will be pleased to receive e-mail for which they have opted-in. MyPoints rewards consumers with points and gift certificates, all for reading targeted e-mail ads and shopping at selected sites. MyPoints client companies pay a fee for these e-mails, some of which go directly to customers as points. MyPoints advertises “responsible” e-mail messaging = consumers agree to receive commercial messages within their e-mails.

7. CRM Technology Outgoing E-Mail Spam does not build relationships but instead focuses on customer acquisition. The Internet provides the technology for marketers to send 500,000 or more e-mails at the click of a mouse for less than the cost of 1 postage stamp. Relationship-building e-mail requires: Sending e-mails that are valuable to users, Sending them as often as users require, Offering users the chance to be taken off the list at any time. It means talking and listening to consumers as if they were friends.

Chat Opportunities with the U. S Chat Opportunities with the U.S. Government and Its Citizens Source: www.commerce.gov

7. CRM Technology Chat and Bulletin Boards Firms build community + learn about customers and products through real-time chat and bulletin board/newsgroup e-mail postings at its Web site. Analysis of these exchanges is used in the aggregate to design marketing mixes that meet user needs. Expedia send e-mail notes to users who participate in the chats with offers of special tours. iPOS Terminals Small customer facing machines near the brick-and-mortar cash register, used to record a buyer’s signature for a credit card transaction. They can gather survey and other data + present individually targeted advertising and promotions as well.

7. CRM Technology Client-Side Tools Based on a user’s action at her computer or handheld device. The customer “pull” that initiates the customized response. Agents = Shopping agents and search engines match user input to databases and return customized information. Agent software often relies on more than one interaction. A user might type in “computer” on the Dell site and then be presented with either laptop or desktop options to narrow the search.

Experiential marketing Client-Side Tools (pull) Description Agents Agents are programs that perform functions on behalf of the user, such as search engines and shopping agents. Experiential marketing Experiential marketing gets the consumer involved in the product to create a memorable experience, offline or online. Individualized Web portals Personalized Web pages users easily configure at Web sites such as MyYahoo! and many others. Wireless data services Wireless Web portals send data to customer cell phones, pagers, and PDAs, such as the PalmPilot. Web forms Web form (or HTML form) is the technical term for a form on a Web page that has designated places for the user to type information for submission. FAX-on-demand With FAX-on-demand, customers telephone a firm, listen to an automated voice menu, and select options to request a FAX be sent on a particular topic. Incoming e-mail E-mail queries, complaints, or compliments initiated by customers or prospects comprise incoming e-mail, and is the fodder for customer service. Selected E-Marketing “Pull” Customization Tools

7. CRM Technology Experiential Marketing On the Internet, Calvin Klein developed an interactive, experience-based campaign to promote CK One, the unisex fragrance. The advertising included 3 characters, each with social dilemmas representative of those in the target market. The advertising invited viewers to e-mail campaign characters, and each e-mail received standard replies that developed the characters a bit more. This type of offline/online integration, when combined with customized experiences, builds positive relationships between customers and brands. The movie and sports industries are adept at creating online experiences.

7. CRM Technology Individualized Web Portals The Wall Street Journal’s online edition allows individual customers to create a personalized Web page based on keywords of interest. Helpful for business readers who want to monitor stories about their competitors. A structural bond is created with individual customers = boost loyalty. Individualized Web portals are more often used to build relationships in the B2B market than the B2C market. Allow supply chains access inventory and account information, and track various operations. Webridge sells partner and customer relationship management software (PRM/CRM) that allows businesses to access all the data they need on demand. = A huge improvement over the previous method, where buyers searched through piles of brochures, catalogs, and price lists that included many products not carried by channel partners and were constantly out-of-date.

7. CRM Technology Wireless Data Services They are included as a separate tool because of their rapid growth and distinctive features. Wireless users only want text data due to the screen size of wireless devices and download time for graphics. Services such as AvantGo.com offer users news headlines, sports scores, stock quotes, weather in selected cities, and more to users on pagers. As users customize this information, they give serving firms a better idea of how to better serve them and, build relationship.

7. CRM Technology Web Forms Many corporate Web sites use Web forms for a multitude of purposes from site registration and survey research to product purchase. Many sites strive to build the number of registered users as a prelude to transactions. FAX-on-Demand In the B2B market, firms often want information sent via FAX machine. Services such as eFax.com allow Internet users to send and receive FAX transmissions at their Web sites. Why would a user use this service as opposed to an e-mail attachment? When the document is not in digital form, a signature is needed, or Internet access is not available so the document cannot be sent as an e-mail attachment.

7. CRM Technology Incoming E-Mail Post-transaction customer service is an important part of the customer care life cycle. The Web online channel = a feedback button or form that delivers an e-mail message to the corporation. Often an automated customer service program acknowledges the message via e-mail and indicates that a representative will be responding shortly. Research shows that firms are getting much better at responding to incoming e-mail. Companies should include feedback options online only if they have staff in place to respond: E-mail addresses on a Web site imply a promise to reply.

Review Questions Explain why relationship capital is the foundation of future business. Define relationship marketing and contrast it with mass marketing. What are the main benefits of CRM? Why do companies use sales force automation and marketing automation? Why do e-marketers see community-building as an important aspect of CRM? ? Explain how data mining, real-time profiling, collaborative filtering, and outgoing e-mail help firms customize offerings. How are company-side and client-side customization tools different? Explain your answer.

Discussion Questions Explain the difference between share of mind and share of market. If good relationship marketing means firing a company’s least-profitable or most-costly customers, suggest how this might be accomplished without causing them to criticize the company to their friends. Which tools do you think are more powerful for building relationships—company-side tools or client-side tools? Why? Compare and contrast the concept of differentiating customers with that of differentiating products. As a consumer, would you be more likely to buy from a Web site displaying the TRUSTe seal and logo than from a competing Web site without the TRUSTe affiliation? Explain your answer