1. Customer Relationship Management A Databased Approach
V. Kumar
Werner J. Reinartz
Instructor’s Presentation Slides

2. CRM, Database Marketing
Chapter One
CRM, Database Marketing
and Customer Value

3. Overview Topics discussed: Marketing concept
Link between CRM and Database Marketing
CRM and Customer value
Conceptualizations of CRM
Relevance of CRM
Data based Customer Value Management

4. Marketing-definition
“Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”
American Marketing Association,2004

5. Link Between CRM and Database Marketing
Customer Databases
Identify and analyze customer population
Group based on similarities
Recommend separate marketing campaigns for different groups
CRM
Applies database marketing techniques at customer level
Develops strong company-to-customer relationships
CRM DB

6. CRM Capture customer data and interact with the
customer simultaneously
Develop specific strategies for interaction with each customer
Better relationships with profitable customers
Locating and enticing new customers that will be profitable
Finding appropriate strategies to deal with unprofitable customers, including termination of relationships

7. Link Between CRM and Customer Value
Customer Value: The economic value of the customer relationship to the firm – expressed on the basis of contribution margin or net profit
CRM is the practice of analyzing and utilizing marketing databases and leveraging communication technologies to determine corporate practices and methods that will maximize the lifetime value of each individual customer to the firm

8. Using Customer Value for Marketing Decisions
Benefits
Decrease in Costs
Maximization of Revenues
Improvement in Profits and ROI
Acquisition and Retention of Profitable Customers
Reactivation of Dormant Customers

9. Conceptualizations of CRM
Functional level: focuses on technology
Sales force automation in the sales function
Campaign management in the marketing function
Customer facing front-end level: focuses on total customer experience
To build a single-view of customers across contact channels
To distribute customer intelligence to all customer-facing functions
Strategy level: focuses on customer satisfaction
Frees CRM from technology underpinnings
Describes CRM as a process to implement customer centricity in the
market and build shareholder value
Knowledge about customers affects the entire organization

10. Components of CRM from a Business Strategy Perspective
Strategic process
Spans multiple organizational functions
Continuous effort towards becoming customer-centric
Selection
Resource allocation based on economic value of customer
Interactions
Exchange of information and goods between customer and firm evolves as a function of past exchanges C R M

11. Components of CRM from a Business Strategy Perspective (contd.)
Customers
End-users and intermediaries such as distributors and retailers
Greater fine-tuning of segmentation strategies to eventually target individual customers with customized product offerings
Optimizing current and future value of customer
Maximizing customer equity by maximizing profits over a series of transactions
Caution: Managing fairness in the exchange process is important to sustain mutually profitable relationships

12. Relevance of CRM Firms are facing changes with respect to: Consumers
Marketplaces
Technology
Marketing functions
CRM is a response to these changes

13. Changes with respect to Consumers
Growing consumer diversity- due to demographic and behavioral trends
Ageing of the population in developed countries- “de-youthing”
Increased diversity in ethnicity of population
Increasing individualization
Time scarcity
Activities compete for customers’ time
Value consciousness and intolerance for low service levels
Rise in customer expectations
Decline in consumer satisfaction level

14. Time Scarcity and Value Consciousness- Example
Average waiting time (in seconds) after which calls are abandoned by customers
Source: : Merchants International Call Center Report
Figure shows that customers are less and less satisfied with the treatment they get from corporate call centers. The average time after which calls are abandoned fell by about 19% in just one year.

15. Declining Customer Satisfaction- Example
(American Customer Satisfaction Index) with products and services
Source: University of Michigan

16. Changes with respect to Consumers (contd.)
Information availability and technological aptitude
Customers more knowledgeable in making purchase decisions
More comparisons across providers and transactions
Decrease in loyalty
Diversification of holdings across service providers even within same household
Consequences
Marketers should be wary of placing heavy time demands on consumers
The major challenge facing companies has become meeting consumer demands rather than cost reduction

17. Decreasing Customer Loyalty- Example
Number of different financial service providers that respondents are associated with
Number of financial service providers
Source: Unidex Report

18. Changes with respect to the Marketplace
More intense competition between firms for customers
Fragmentation of markets
Diminishing product-quality
differentiation
Consequences
Value added to customers by offering customized product and service propositions
To maintain market share, need to realign business strategy to become customer-centric

19. Product Parity of Grocery Private Label (US)
Source: Information Resources, Sloan Management Review, BCG Analysis
More switching to private-label products with decrease in disposable income Switching back to national brands with economy picking up and decreased unemployment. This link broken today. (Source: Information Resources, Sloan Management Review, BCG Analysis)

20. Changes with respect to Data Storage Technology
Better technology, cheaper and larger storage units
Huge increase in demand for data storage
Increased popularity of data warehouses
Consequences
Better information about customer behavior and attitudes
Better prediction of customer buying behavior
Too much data can lead to misapplication and wrong analysis

21. Changes with respect to Marketing Function
Media dilution and multiplication of channels
Proliferation of communication media focused on the customer
Direct-to-consumer channels - , telephone
Interactive media - internet, interactive TV etc
Reduced need for techniques focused on price alone due to
Availability of new data collection and communication tools
Marketing processes such as loyalty programs

22. Changes with respect to Marketing Function (contd.)
Decreasing market efficiency and effectiveness due to
Focus on acquisition, price and short-term transactions
Proliferation of new contact channels
Increased or flat cost of contact
Decreased customer response
Reduced value for advertising in any medium
Consequences
Pressure on the marketing function
Marketing in danger of being restricted to advertising and media planning

23. Implications of Changes in Business Environment
Greater demand for learning about
Customer preferences
Product and service customization
Focus on customer-centric instead of product-centric strategies

24. Data Based Customer Value Management
To satisfy increasing customer heterogeneity
To address concerns of marketing accountability
To put available data to use
To use customer profitability as the key objective function

25. Benefits of Data Based Customer Value Management Approach
Integrate and consolidate customer information
Provide consolidated information across all channels to assist in timely and relevant communication with customers
Manage customer cases
Personalize the service and products offered to each customer to meet expectations
Automatically and manually generate new sales opportunities
Provide flexibility to adapt campaigns to take changes in customer behavior or information into account

26. Benefits of Data Based Customer Value Management approach (contd.)
Yield faster and more accurate follow-up on sales leads, referrals and customer enquiries
Manage all business processes by introducing a central point of control ensuring all business processes are executed in accordance with correct and effective business rules
Give top managers a detailed and accurate picture of all sales and marketing activities
Instantly react to a changing business environment

27. Summary
From a strategic perspective, CRM is the process of selecting the customers a firm can most profitably serve and shaping the interactions between a company and these individual customers
Assessing Customer Value is critical to CRM
Rapid changes are taking place in the environment in which firms operate with respect to customers, market places, technology, and marketing functions
These changes have driven the marketplace to become relationship-based and customer-centric
CRM’s goal is to optimize the current and future value of the customers for the company