Retail CRM (Consumer Relationship Management) Retailing MKTG 3346 Retail CRM (Consumer Relationship Management) Professor Edward Fox Cox School of Business/SMU

Customer Relationship Management Recognizes that the customer, rather than individual purchases or contracts, is the source of value to the firm Focuses on customer acquisition and retention Highlights repeat purchase and loyalty over time as key goals Recognizes the importance of customer satisfaction Requires customer data to forecast their response to potential offerings and manage customers over time

Customer Relationship Management Relating with few customers Emphasizes sales force Usually B-to-B Relating with many customers Emphasis is on purchase history Often, though not always B-to-C With retail consumers (i.e., many customers)… The retailer must be able to customize the product or price or service offering The retailer must be able to address consumers individually

Customer Relationship Management OBJECTIVES Create loyal purchase behavior Customize product and price offerings to target customers Increase customer lifetime value Consumer Targeting Continuum Mass Marketing Segment Marketing Niche Marketing Micro-Marketing

Customer Relationship Management ORGANIZATIONAL REQUIREMENTS Performance measures Internal incentives Customer information / data architecture

Customer Relationship Management PROGRAMS Card programs Discount Credit Membership Specific examples Catalina coupons catalina marketing Collaborative filtering (recommenders) amazon.com Virtual model landsend.com How can the retailer reward loyalty rather than purchase volume?

Customer Relationship Management LOYALTY PROGRAMS Loyalty programs are set up to reward customers with incentives such as discounts on purchases, free food, gifts, or even cruises or trips in return for their repeated business. Retailers use them for three reasons: to retain loyal customers to increase loyalty of non-loyal customers to collect information about them and what they buy Loyal customers are the source of most profits Less price sensitive More purchases per customer – higher share-of-requirements

Customer Relationship Management RETAIL CUSTOMER DATA Customer Relationship Management (CRM) is enabled by the gathering and warehousing of consumer data Retailers gather customer data from: Frequent shopper or shopper loyalty cards Store credit cards Identifiable tender

Customer Relationship Management RETAIL CUSTOMER DATA Retail customer databases are organized collections of data about individual consumers including: Geographic Demographic Behavioral data Purchase histories Appended behaviors Databases may enable retailers to gain a competitive advantage Adapted from Prentice Hall

Customer Relationship Management RETAIL CUSTOMER DATA Most leading retailers use card programs 89% of retail “leaders” in the practice of CRM use card programs (Progressive Grocer, 2001) However, retailers are not using the resulting data effectively “The retailers have collected all of this frequent shopper data, but few, if any, attempts have been made to mine the opportunities that it probably presents.” (Shulman 2003) Issues How can retailers better exploit consumer data? How can it be used for targeted marketing offers?

Customer Relationship Management DATA WAREHOUSING Data warehousing is the coordinated and periodic copying of data from various sources, both inside and outside the enterprise, into an environment ready for analytical and informational processing Wal-Mart makes good use of its data warehouse. It should. Experts estimate that it is second in size to that of the U.S. government

Customer Relationship Management DATA MINING Data mining is the process by which insights are derived from vast amounts of data, such as that contained in a data warehouse. Statistical algorithms are applied to customer data to identify merchandise buying patterns and relationships.

Customer Relationship Management MARKET BASKET ANALYSIS A market-basket analysis is uses data mining techniques to determine what predominant categories individual consumers are buying. Based on these analyses, Wal-Mart has changed the traditional locations of several items: Since bananas are the most common item in America’s grocery carts, they sell bananas next to corn flakes (to help sell more cereal) as well as in the produce section. Kleenex tissues are in the paper-goods aisle and also positioned among the cough and cold medicines. Measuring spoons are in housewares and also hanging next to Crisco shortening.

RETAIL CRM ISSUES How does the retailer respect the shopper’s privacy while gathering information to respond more effectively to that customer? What does the retail shopper get out of CRM? Why should (s)he give is the retailer information about (her-)himself? Should the retailer offer different levels of price or service? What is the advantage of uniformly high prices or customer service? What is the appropriate level of customization? How much does the retailer gain by individual, rather than store-specific offers? At what cost?