1. Customer Relationship Management (CRM)
Chapter 7
Customer
Relationship
Management
(CRM)

2. Chapter Overview Relationship Marketing CRM CRM in Action
Growth & Process
CRM in Action
Limitations/Dangers of CRM
Measuring Effectiveness
Benefits of CRM
CRM Strategies

3. 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.

4. Relationship Marketing
“Establishing, maintaining, enhancing, commercializing customer relationships through promise fulfillment”
Building long-term profitable relationships with mutual benefit

5. Exhibit 7 - 1 Continuum from Mass Marketing to Relationship Marketing

6. Relationship Levels
Relationship marketing is practiced on three levels. .

7. 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!!

8. Reasons for growth in CRM
The 80/20 Rule
Labor costs rising, competitive pressures have kept prices low
CRM is cost-effective
cheaper to retain than attract
easier to sell to one customer than many
reduced promotional expenses
positive WOM

9. The CRM Process
Exhibit CRM Process

10. 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

11. 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

12. 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.

13. = “learning relationship”
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

14. 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

15. CRM in action: Illustration of the Process
Four key aspects of an operational CRM operation .

16. 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 banking
IKEA customer service
Sears repair appointments

17. 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 company
Charles Schwab

18. 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)

19. Sharing Customer information is shared throughout the organization
Everyone knows purchasing history and potential.
United Airlines
Continental Airlines

20. Limitations/Dangers of CRM
Customers don’t like unequal treatment
Privacy issues are a concern
What someone spends today not necessarily a good predictor of what they will spend tomorrow
Can lead to red-lining/discrimination

21. 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

22. 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

23. 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
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

24. Exhibit 7 - 4 Selected E-Marketing Customization Tools
Small Segment/Group
Individual
Company-Side Tools
(push)
Collaborative filtering
Data mining and profiling
Outgoing
Cookies
Web log analysis
Real-time profiling
Outgoing
Client-Side Tools
(pull)
Agents
Experiential marketing
Individualized Web portals
Wireless data services
Web page forms
FAX-on-demand
Incoming
Exhibit Selected E-Marketing Customization Tools

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

26. 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.

27. 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 communicate with individuals and attempt to increase their satisfaction and loyalty

28. Individual Customization: Client-side Tools
Individualized Web portals are created by the user
Example:
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 inquiries, complaints, or compliments initiated by customers or prospects.
1997 study, only 62% responded to complaints. 1.

29. 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 lists
Intranets and Extranets

30. Nine Principles for Building Good Communities:
Define Community Purpose – mission statement, identify target market, create a strong site personality
Create Extensible Gathering Places – provide a good map, include rich communication features, all members to extend the environment
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
Promote Effective Leadership & Hosting – set-up your program to grow, build some flexibility into the house rules, & set reasonable expectations for online support.

31. Nine Principles for Building Good Communities, cont.
Define a Clear / Flexible Code of Conduct – create and enforce code and don’t try to stifle all conflict.
Organize & Promote Cyclic Events – hold regular, hosted, themed events, conduct community surveys, and hold contests that reinforce the purpose.
Provide a Range of Roles – offer newcomers a controlled experience, offer increased privileges to regulars, and recruit leaders and mentors from within.
Facilitate Member-Created Subgroups – provide features that facilitate small groups and create events an contests for groups
Integrate with the Real World – celebrate events that reinforce social identity, acknowledge important personal events and encourage real-life meetings (when appropriate).