1. CHAPTER 10 CUSTOMER RELATIONSHIP MANAGEMENT
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD

2. © 2009 South-Western, a division of Cengage Learning
Learning Objectives
You should be able to:
Discuss the strategic importance of CRM
Describe the components of a CRM initiative
Calculate customer lifetime value
Discuss the implementation procedures used for CRM programs
Describe how information is used to create customer satisfaction & greater profits for the firm
Describe some of the popular CRM applications & their suppliers
© 2009 South-Western, a division of Cengage Learning

3. © 2009 South-Western, a division of Cengage Learning
Chapter Ten Outline
Introduction
Customer Relationship Management Defined
CRM’s Role in Supply Chain Management
Key Tools & Components of CRM
Designing & Implementing a Successful CRM Program
CRM Software Applications
Trends in CRM
© 2009 South-Western, a division of Cengage Learning

4. © 2009 South-Western, a division of Cengage Learning
Introduction
“Finding a new customer costs five times as much as keeping an old customer”
CRM means focusing on customer requirements, then delivering products and services in a manner resulting in high levels of customer satisfaction
Also refers to automated transaction and communication applications, however this can cause problems for some firms
CRM must still include talking to customers, understanding their behavior and their requirements, and then building a system to satisfy those requirements.
© 2009 South-Western, a division of Cengage Learning

5. Customer Relationship Management (CRM) Defined
“The infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal—indeed to buy again.”
“…managing the relationships among people within an organization and between customers and the company’s customer service representatives in order to improve the bottom line.”
“… to keep track of customers, learning about each one’s likes and dislikes from various sources like transaction records, call-center logs, web site clicks, and search engine queries.”
More simply: Building & maintaining profitable long-term customer relationships
© 2009 South-Western, a division of Cengage Learning

6. CRM’s Role in Supply Chain Management
The firm seeks position as a value-enhancing supplier to its customers.
Firms must create methods for finding & developing good suppliers
Firms must create methods for becoming & staying good suppliers themselves.
It may be necessary for a firm to certify its intermediate customers as to their ability to adequately represent their firm’s products.
© 2009 South-Western, a division of Cengage Learning

7. Key Tools & Components of CRM
Segmenting Customers- Grouping customers to create specialized communications about products
Target marketing efforts- or direct mail saves labor & postage, reduces chances of being a nuisance
Relationship marketing or permission marketing- customers select the type & time of communication. Requires software & customer participation
Cross-Selling- Additional products are sold as the result of an initial purchase (e.g., s from Amazon.com describing other books bought by people)
© 2009 South-Western, a division of Cengage Learning

8. Key Tools & Components of CRM (Cont.)
Predicting Customer Behaviors- firms forecast likelihood of customers’ purchases.
Customer Defection Analysis- finding methods to retain customers.
Churn reduction- reducing customer defections.
Customer Value Determination- verify the customer lifetime value for individuals or segments (see next slide).
Personalizing Customer Communications- Understanding customer behaviors & preferences, firms customize communications
Clickstream, how a customer navigates a Web site
Event-Based Marketing - offer the right products & services to customers at the right time.
© 2009 South-Western, a division of Cengage Learning

9. Calculating customer lifetime value (Ex. 10.1)
Avg. Annual Sales Avg. Profit Margin Expected Lifetime
Nursery A: $22, % years
Nursery B: $16, % years
Using a discount rate of 8 percent, and treating the average sales figures as annuities, the present value of the two nursery lifetime values is:
NPVA = a
= $22,000(.2)
= $4,400
= $17,488
NPVB = a
= $16,000(.15)
= $2,400
= $20,522
Where:
a = average annual profit, or the (annual sales)×(profit margin)
i = annual discount rate
n = expected lifetime in years.
Based on these calculations, Nursery B is the more important customer, based on expected lifetime value.
© 2009 South-Western, a division of Cengage Learning

10. Key Tools & Components of CRM (Cont.)
Automated Sales Force Tools-
Sales Force Automation (SFA)- Used for documenting field activities, communications with the home office, & retrieving sales history.
Sales Activity Management- Tool offering sales reps a guided sequence of sales activities
Sales Territory Management- Sales managers obtain information of each sales rep’s activities (e.g., total sales per sales rep.)
Lead Management- Sales reps can follow prescribed tactics when dealing with prospects to aid closing the deal.
Knowledge Management- Enables quick decision making, better customer service, & a better-equipped & happy sales staff.
© 2009 South-Western, a division of Cengage Learning

11. Key Tools & Components of CRM (Cont.)
Managing Customer Service Capabilities
What does customer service actually mean?
“Seven Rs Rule” having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer, at the right costs.
Performance measures are often designed around satisfying the seven Rs. These kinds of services can come at a cost.
© 2009 South-Western, a division of Cengage Learning

12. Key Tools & Components of CRM (Cont.)
Customer Service Elements-
Pre-transaction elements- Precede the sale (e.g., customer service policies, the mission statement, org. structure, & system flexibility).
Transaction elements- Occur during the sale & include the order lead time, the order processing capabilities & the distribution system accuracy.
Posttransaction elements- Occur after the sale & include warranty repair capabilities, complaint resolution, product returns, & operating information.
© 2009 South-Western, a division of Cengage Learning

13. Key Tools & Components of CRM (Cont.)
Call Centers
Can categorize calls, determine average resolution time, forecast future demand, improve the overall productivity of the staff, increasing customer satisfaction levels.
© 2009 South-Western, a division of Cengage Learning

14. Key Tools & Components of CRM (Cont.)
Website Self-Service-
Web sites act as support mechanisms for call centers. Customers can access their account information & operating hours, contact information, etc.
Field Service Management-
Customers can communicate directly with product specialists using wireless devices & the right diagnosis can be made quickly.
Measuring Customer Satisfaction-
Customers are frequently given opportunities to provide feedback about a product, service, or organization.
Customer Privacy Capabilities-
Two important issues are ability to assure privacy & ability to minimize customer harassment.
© 2009 South-Western, a division of Cengage Learning

15. Designing & Implementing a Successful CRM Program
Step 1. Creating the CRM Plan:
Objectives of the CRM program
CRM’s fit with corporate strategy
New applications to be purchased or developed
Integration or replacement of existing legacy systems
Personnel Requirements- personnel, training, policies, Upgrades, & maintenance &
The costs & time frame for implementation.
© 2009 South-Western, a division of Cengage Learning

16. Designing & Implementing a Successful CRM Program (Cont.)
Step 2- Involve CRM users from Outset- employees should understand how it affects their jobs.
Create a project team with members from all affected organizational areas.
Test with a pilot application
Step 3- Select the Right Application & Provider- Find an appropriate application & determine the extent of customization.
© 2009 South-Western, a division of Cengage Learning

17. Designing & Implementing a Successful CRM Program (Cont.)
Step 4- Integrate Existing CRM Applications- CRM is a collection of various applications implemented over time.
Customer contact mechanisms need to be coordinated so that every CRM user in the firm knows about all of the activity associated with each customer.
Centralized database or data warehouse containing all customer information.
Step 5- Establish Performance Measures- allows the firm to:
Determine if objectives have been met
Compare actual to planned variance
© 2009 South-Western, a division of Cengage Learning

18. Designing & Implementing a Successful CRM Program (Cont.)
Step 6- Providing CRM Training for All Users-
Provide & require training for all of the initial users & then provide training on an ongoing basis as applications are added.
Training can also help convince key users like sales, call center, & marketing personnel of the benefits & uses of CRM applications.
© 2009 South-Western, a division of Cengage Learning

19. CRM Application Providers
Oracle’s CRM Application
Oracle Service- management of service needs
Oracle Sales- processes across all sales & customer interaction channels.
Oracle Marketing -provides automation & tools for the entire marketing process.
MicroSoft Dynamics CRM Application
Service Calendar- service schedules by resource, time, or service
Marketing Automation- build customer lists, & create and track marketing campaigns.
Campaign Wizard- blasts to targeted lists
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20. © 2009 South-Western, a division of Cengage Learning
Trends in CRM
New Privacy Regulations- Rules & laws regarding invasion of privacy are springing up. Solution: develop a privacy policy & post it on their Web site.
Application Service Providers (ASPs)- Fifty 50 percent of all CRM programs are now designed & maintained for clients by ASPs.
Adapting CRM for global uses is increasing-New Markets out side of traditional industrialized countries require adaptation to local needs, language, & culture
© 2009 South-Western, a division of Cengage Learning