1. 14-1

2. McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 14 Customer Relationship Management

3. 14-3 Components of a Customer-Based Strategy Customer Acquisition (i.e., getting new customers). Customer Retention (ie., keeping current customers satisfied via enhancing brand loyalty or through superior service). Customer Expansion, getting customers to either buy more of what they are currently buying (increasing usage) or “cross-selling”other products. Customer Deletion, dropping customers that are not profitable (both now and potentially in the future) in such a way as to not generate legal problems or public relations disasters.

4. 14-4 Buyer Seller Relationships Buyer Seller A B C Sales Department

5. 14-5 Economics of Loyalty Acquisition Cost Base Profit Revenue Growth Operating Costs Referrals Price Premium

6. 14-6 Impact of Five-Percentage-Point Increase in Retention Rate on Customer Net Present Value

7. 14-7 Why Loyal Customers Are More Profitable

8. 14-8 The Impact of Customer Retention on Profits Company profit index Acquisition cost Average length of customer relationship (in years) Resulting retention rate 0%50%67%75%80%90%

9. 14-9 CRM Model Create a Database Analysis Customer Selection Customer Targeting Relationship Marketing Privacy Issues Metrics

10. 14-10 Customer Information File

11. 14-11 Content Areas of the CIF Basic customer descriptors Purchase history Contact history Response information The value of the customer

12. 14-12 Getting More Customer Interaction DirectIndirect Customer Interaction High Low Interaction Frequency Banks Telecom Retail Airlines Packaged Goods Drugs Personal Computers Internet Infrastructure Furniture Autos

13. 14-13 Margin Multiple

14. 14-14 Customer Life Cycle Profit Pattern in the Credit-Card Industry

15. 14-15 Customer Profit Ordering for Physicians: Highest to Lowest

16. 14-16 Factors Associated with Good Perceived Service Quality 1.Professionalism and skills 2.Attitudes and behavior 3.Accessibility and flexibility to solve the customer’s problem 4.Reliability and trustworthiness 5.Recovery of negative service encounters 6.Reputation and credibility

17. 14-17 Customer Satisfaction Model -Market communications - Image -Word of mouth -Past experience -Customer needs Total perceived quality Experienced quality Expected quality

18. 14-18 The Concept of Loss Aversion to Service Quality “Gain” “Loss” Product utility or preference (Delivered service quality) Minus (Expected service quality)

19. 14-19 Discrepancies between Expectations and Realizations 1.Gap between customers’ expectation and management perceptions 2.Gap between management’s perceptions and service quality specifications 3.Gap between service quality specifications and service delivery 4.Gap between service delivery and external communications

20. 14-20 The Augmented Product Core product Expected product Augmented product

21. 14-21 Approaches to Mass Customization 1.Collaborative customization 2.Adaptive customization 3.Cosmetic customization 4.Transparent customization

22. 14-22 Elements of Excellent Customer Service Programs 1.A marketing strategy 2.Top management buy-in 3.The right people 4.Appropriate product design 5.An infrastructure to handle customer service 6.A measurement system