1. 5th Edition

2. Customer Relationship Management
Chapter 11
Customer Relationship Management
McGraw-Hill/Irwin
Levy/Weitz: Retailing Management, 5/e
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Retailing Strategy Retail Market Strategy Financial Strategy
Site Location
Customer Relationship Management
Retail Locations
Organizational Structure and HR Management
Information Systems

4. Customer Relationship Management
A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers.
What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer?

5. Customer Loyalty
Committed to purchasing merchandise and services from a retailer
Resist efforts of competitors to attract the loyal customer
Emotional attachment to retailer
Personal attention
Memorable positive experiences
Brand building communications programs

6. CRM Process

7. Collecting Customer Data
Types of Information in the Customer Database
Approaches for Collecting Information
Privacy Concerns

8. Information About Each Customer in the Data Base
History of purchases
Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion
Customer contacts by retailer (touch points)
Visits to web site, inquires to call center, direct mail sent to customer
Customer preferences
Descriptive information about customer
Customer’s responses to promotions

9. Approaches for Collecting Customer Information
Need to connection contacts with a specific customer identifier
Ask for identifying information
Telephone number, name and address
Encourage use of frequent shopper cards
Link checking account number and/or third party credit cards to customer

10. Privacy Concerns Control over Collection
Do customers know what information is being collected?
Do customers feel they can decide on the amount and type of information collected by retailers?
Control over Use
Do customers know how the information will be used by the retailer?
Will the retailer share the information with third parties?

11. Heighten Concerns When Using Electronic Channel
Information collected without the awareness of customers
Collecting click stream data using cookies
Similar to an invisible person videotaping a customer as they walk through a store

12. Customer’s Decision to Offer Information
Balance benefits and risks
Disclosure of Information Unwanted Sales Contacts
Discounts Special Treatment Personal Attention

13. Consumer Protection Differences
United States
Limited protection in specific areas
Credit reporting
Video rentals
Banking
Medical records
European Union
Information only can only be collected for specific purposes
Purpose must be disclosed to customer
Information can only be used for specific purpose
Information can not be exported to countries with less stringent regulations

14. FTC Guideline for Fair Information Practices
Notice and awareness
comprehensive statement about information storage, manipulation, and dissemination
Choice/consent
Opt-in and opt-out options
Access/participation
Customer able to confirm accuracy
Integrity/security
Controls for theft and tampering
Enforcement/redress
Mechanism to insure compliance

15. GAP Security and Privacy Policy

16. Analyzing Customer Data
Data Mining – technique used to identify patterns in data.
Market Basket Analysis
Identifying Market Segments
Identifying Best Customers

17. Market Basket Analysis
Data analysis focusing on the composition of the customer’s market basket – what items are bought at the same time.
Uses:
-Adjacencies for displaying merchandise
-Joint promotions

18. Identifying Best Customers
Estimating Lifetime Value
Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis)

19. Which Customer Probably Has the Greatest Lifetime Value
Purchases Over Last 10 Weeks

20. Customer Pyramid
Platinum Best Most loyal Least price sensitive

21. Customer Pyramid
Gold Next best Not as loyal

22. Customer Pyramid
Iron Doesn’t deserve much attention

23. Customer Pyramid
Lead Demands attention May have negative value

24. RFM Analysis

25. RFM Target Strategies

26. Illustration of RFM Application
A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:
Average order size for customers in cell - $40
Contribution margin – 50%
Response rate – 5%
Cost of catalog and mailing -$.75
Will the retailer make a profit mailing to this RFM segment?

27. Illustration of RFM Application
A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:
Average order size for customers in cell - $40
Contribution margin – 50%
Response rate – 5%
Cost of catalog and mailing -$.75
Will the retailer make a profit mailing to this RFM segment?
$20.00 contribution x .05 response rate - $.75 cost
= $.25 profit per catalog mailed

28. CRM Programs Retailing Best Customers
Converting Good Customers to Best Customers
Getting Rid of Unprofitable Customers

29. Customer Retention Programs
Frequent Shopper Programs
Special Customer Services
Personalization
1-to1 Retailing
Community

30. Even Small Retailers Use Frequent Shopper Programs

31. Elements in Effective Frequent Shopper Programs
Tier Based on Customer Value
Offer Choices of Rewards
Non-monetary incentives
Reward all Transactions
Transparent and Simple

32. Issues with Effective Frequent Shopper Programs
Expense
Difficulty in Making Changes
Impact on Loyalty Questionable
Easily Duplicated – Difficult to Gain Competitive Advantage
Need to offer “invisible” benefits

33. Personalization
Hello, Barton Weitz

34. Converting Good Customers to Best Customers
Cross-selling
Add-on selling

35. Dealing with Unprofitable Customers
Offer less approaches for dealing with these customers
Charge customers for extra services demanded

36. Implementing CRM Programs
Need systems, databases
Close coordination between departments – marketing, MIS, store operations, HR
Shift in orientation +
Product Centric
Customer Centric