Chapter 2 Conceptual Foundations of CRM.pdf

ConcepConcep…………

CRMCRMCRM –ptual Foundations

CRM –ptual Foundations

………… Session CoveragSession Coverag

• Benefits of CRM

• Transaction vs. Relationsh

• Schools of thought on CR

• Defining CRM , Custome

Acquisition

gege

hip orientation

RM

er Retention and Customer

2

………… Benefits of CRM Benefits of CRM

• Customers are profitable ov• Customers are profitable ov

• Customer profitability is skeCustomers ARE NOT equa– Customers ARE NOT equa

• Marketing benefits of CRM Information Knowledge– Information, Knowledge

– Productivity Gains– low cost media, improved

• Service Benefits of CRM

ver timever time

wedll

Customized PromotionsCustomized Promotions

targeting and higher conversion rates.

3


S i B fit f CRM• Service Benefits of CRM– 96% of unhappy customers ne– Each dissatisfied customer onEach dissatisfied customer on– Each satisfied customer will te– 70% of customers who comp

again if it quickly takes care o

ever bother to complainn an average will tell 14 other peoplen an average will tell 14 other peopleell no more than 6lain will do business with the company f a service problem.

4


B fit f CRM t C t• Benefits of CRM to Custom– Satisfaction leads to loyalty– Simplify buying and consumingSimplify buying and consuming– Simplify information processin– Reduce perceived risks, – Maintain cognitive consistency– Psychological comfort

mers

g tasks g tasks, ng,

y

5

…………Merchants & TradersMerchants & Traders

Pre-Industrial eraMerchants & TradersBusiness built on trust

Customisation of products/all aspects of delivery & payment

Personal/social interaction ith t

Merchants & TradersBusiness built on trust

Customisation of products/all aspects of delivery & payment

Personal/social interaction ith twith customerswith customers

High

Relationshipi t tiorientation

Pre-industrial era Industrial eraRelationship centric

(Small scale)

Low

The evolution of Relationship Or(Adapted from Sheth, Parvatiyar,

Businesses adopted mass production,Businesses adopted mass production,Industrial era

Businesses adopted mass production,mass communication, mass distribution

Focus on manufacturing/efficient operations.Introduction of IntermediariesGreater efficiency, lower cost

R d d di t t t ith t

Businesses adopted mass production,mass communication, mass distribution

Focus on manufacturing/efficient operations.Introduction of IntermediariesGreater efficiency, lower cost

R d d di t t t ith tReduced direct contact with customersReduced direct contact with customers

R f l ti hi tiR f l ti hi ti

Information era

Re-emergence of relationship practicesRapid technological advances

Intensive competitionGrowing imporatnce of service sector

Adoption of TQM programs

Re-emergence of relationship practicesRapid technological advances

Intensive competitionGrowing imporatnce of service sector

Adoption of TQM programsp p gp p g

Information eraRelationship centric

(Small scale)

6

rientation1995)

………… Re-emergence of relationship practicesI. Advances in technologyRe-emergence of relationship practicesI. Advances in technologygygy

Advances in information communicAdvances in information, communic

Technology enabled marketers to ov• Inefficiencies in mass marketing-cost red

• Lack of fast , effective and interactve mo

• Lack of consolidated information.

s in the information eras in the information era

cation and production technologiescation and production technologies

vercome shortcomings of mass marketing.duction

odes of customer contact, feedback, information.

7

………… Re-emergence of relationship practicesI. Advances in technologyRe-emergence of relationship practicesI. Advances in technologygygy

Advances in information communicAdvances in information, communic

Technology enabled marketers to ov• Inefficiencies in mass marketing-cost red

• Lack of fast , effective and interactive mo

• Lack of consolidated information.


cation and production technologiescation and production technologies

vercome shortcomings of mass marketing.duction

odes of customer contact, feedback, information.

8

………… Re-emergence of relationship practicesII. Intensive competitionRe-emergence of relationship practicesII. Intensive competitionpp

Focus on existing customersFocus on existing customers

It costs 6-8 times more to attract a ncustomer.

Focus on CLV

Shift from product centric marketin


ew customer than to retain an existing

ng to customer centric marketing.

9

………… Re-emergence of relationship practicesRe-emergence of relationship practices

IV. Adoption of TQM • Provide quality products and services to custome

IV. Increase in no. of demanding customers

V Increased fragmentation of marketsV. Increased fragmentation of markets

VI. High level of product quality

Businesses seek sustainSustainable-those whicOne such sustainable adeveloped by the busin


ers at lowest prices

nable competitive advantages.ch cannot be copied.advantage is the relationship ness with it’s customers

10

………… Re-emergence of relationship practicesIII. Growing importance of the serviRe-emergence of relationship practicesIII. Growing importance of the servig pg p

India:Service sector contributes to 5India:Service sector contributes to 5

Service sector: Direct interaction bet

Leads to better understanding

Better undeBetter appreciation of

Better undeBetter appreciation of

EmotionalEmotional

Relationshi

s in the information eraice sectors in the information eraice sector

0% of economy0% of economy.

tween marketer and buyer

erstandingneeds and constraintserstandingneeds and constraintsl Bondingl Bonding

ip Building

11

………… A Model of RelatA Model of Relat

C B fi FCost Benefit FactorsSearch CostsRisk ReductionSwitching CostsValue-added Benefits R

Ba

Socio-Cultural FactorsEarly Socialization

Ba

•CEarly SocializationReciprocityNetworksF i d hiFriendships

tionship Based Buyingtionship Based Buyingp y gp y g

Relationship ased Buying

Customer LoyaltyIncreased BuyingWilli t ased Buying

•TrustCommitment

Willingness to pay moreGoodwill (customer equity)q y)

12

………… Perceived Risk &Perceived Risk &

High ConstrainedR l ti h

gRelationsh

Switching Costs

TransactionE hLow

Switching Costs

Low

ExchangeLow

LowPerceiv

& Switching Costs& Switching Costsgg

Relational Buying

d in hi Buyinghip

nal Vulnerable

High

e Exchange

13

Highved Risk of Alternatives

…………Determinants of TrBusiness RelationsDeterminants of TrBusiness Relations

D t i t f th Determinants for the CustomerSwitching costsgPartner specific investmentsMutually shared goalsC i i d d Communication and product supportSupplier avoidance of ppopportunistic behavior

rust & Commitment in shipsrust & Commitment in shipspp

D t i t f th Determinants for the SupplierSupplier specific investmentspp pCustomer avoidance of opportunistic behaviorSi l liSingle source policyData sharing and nurturing

14

………… Transaction vs. RTransaction vs. R

Transaction Marketing

One off exchanges

Brand Management

Foc

Short term focus Time PerShort term focus Time Per

Mass Communication Primary Com

Isolated Market Research CustomerIsolated Market Research CustomerMecha

Mass Markets or MarketS

MarkeSegments

Market Share Criterion f

Profitability of transactionBrand equity

Critical

Relationship MarketingRelationship Marketingp gp g

Relationship Marketing

cus Ongoing Exchanges Customer Management

rspective Long term focusrspective Long term focus

mmunication Personal Communication

r Feedback Ongoing Dialoguer Feedback anism

Ongoing Dialogue

et Size Markets of One

for Success Mind Share (Share ofCustomers)

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Customers)

Metrics Customer Profitability Customer Equity

………… Schools of ThouSchools of Thou

Th A l A t li• The Anglo-Australian

• The Nordic Approach

• The North American

ught on CRM ught on CRM gg

A hn Approach,

h, and

n Approach

16


Th A l A t li• The Anglo-Australian

QualityQuality

Services Marketing C tConcepts

RelaMa


A hn Approach

ManagementManagement

Customer Relationship Economics

ationship

17

parketing


Th N di A h• The Nordic Approach

InteractivTheory

Services Marketing Concepts

Relationship


hh

ve Network

Customer Relationship Economics

p Marketing

18


Th N th A i• The North American

Organizational Environment

Relationship Man


A hn Approach

Buyer

nager

19

………… SummarySummaryyy

• The Anglo Australian approach integ• The Anglo Australian approach integmanagement, services marketing andexplain the emergence of relationship

Th N di h i l ti• The Nordic approach views relationsinteractive network theory of industrinteractive process in a context whereconcern for marketersconcern for marketers.

• The North American Approach viewof interactive network theory, service

i Th i t ti t k teconomics. The interactive network tmarketing as an interactive process inan area of primary concern for marke

grated the contemporary theories of qualitygrated the contemporary theories of quality d customer relationship economics to p marketing.

hi k ti th fl fship marketing as the confluence of rial marketing , views marketing as an e relationship building is an area of primary

ws relationship marketing as the confluence es marketing and customer relationship th f i d t i l k ti itheory of industrial marketing views n a context where relationship building is eters.

20

………… Six Markets FramSix Markets Fram

Internal

Customer Supplier Markets

Recruitment Markets

mework of CRMmework of CRM

Markets

Markets Referral Markets

Influence Markets

21

………… Defining CRM Defining CRM gg

CRM i d t b • CRM is database mar– emphasizes the promotio

to database effortsto database efforts

• CRM is customer ret– aftermarketing tactics are

and staying in touch after

k ti (Bi k t 1992)rketing (Bickert, 1992)onal aspects of marketing limited

ention (Vavra , 1992)e used for customer bonding r the sale is made

22

………… Defining CRM …Defining CRM …Defining CRM …Defining CRM …

• RM is the application of IT to f• RM is the application of IT to fcustomers that integrate retenand Rogers, 1993)

• RM puts the customer first anmanipulating the customer (te

t i l t (customer involvement (commknowledge) (Mckenna, 1991)

… contd.… contd.… contd.… contd.

focus on 1to1 relationships with focus on 1to1 relationships with ntion and growth strategy (Peppers

d shifts the role of marketing from lling and selling) to genuine

i ti d h i th unicating and sharing the

23

………… Defining CRM …Defining CRM …gg

• Attracting maintaining and in • Attracting maintaining and - in enhancing customer relationsh

• Establish, maintain and enhancEstablish, maintain and enhancother partners, at a profit, so tinvolved are met. This is achif lfill t f i (Gfulfillment of promises (Gronr

• RM refers to all marketing actideveloping and maintaining sucdeveloping and maintaining sucHunt, 1994)

… contd.… contd.

multi service organisations multi service organisations -hips (Berry, 1983)

e relationships with customers and e relationships with customers and that the objectives of the parties ieved by a mutual exchange and

1990)oos, 1990)

ivities directed towards establishing, ccessful relationships (Morgan and ccessful relationships (Morgan and

24

………… Defining CRM …Defining CRM …gg

CRM i th i • CRM is the ongoing pcooperative and collaprograms with immeprograms with immecustomers to create aeconomic value at reeconomic value at re

… contd.… contd.

f i i process of engaging in aborative activities and ediate and end user ediate and end user and enhance mutual duced costduced cost.

25

………… Common IssuesCommon Issues

A i t d• A process oriented vinteractions over a pe

• Collaborative and corelationship for lon

dand

• Metrics include enhan

i hi h l k t thview which looks at theeriod of time

ooperative nature of theng-term mutual benefit,

nced value

26

………… CRMCRM

Key elementsKey elements

• Nature of relationship with cuis shifting from transactions tois shifting from transactions to

• Focuses on maximising the life

• Development and enhancemen• Development and enhancemenmarkets

• Quality, customer service and Q y,Brings these elements into a m

stomers is changing & the emphasis o a relationship focus.o a relationship focus.

etime value of desirable customers

nt of relationship with six key nt of relationship with six key

marketing are closely related. g ymuch closer coherence

27

………… What is the goWhat is the go

• Build long term and profitacustomerscustomers

• Get closer to those custom• Get closer to those customwith them

oal of CRM ?oal of CRM ?

able relationships with chosen

mers at every point of contact mers at every point of contact

28

………… Customers are profitable over a peCustomers are profitable over a pep f pp f p

Initial acquisition cost exceeds gros

1% increase in sales to existing cusamount of sales to new customers i

Companies can boost profits by 85%by 5%.

Probability of selling a product to aProbability of selling a product to aexisting customer

eriod of timeeriod of timeff

ss margin, retention costs are lower.

tomers incease profits by 17% while same ncrease profits by 3%.

% by increasing annual custome retention

a prospect is 15% while it is 50% to ana prospect is 15% while it is 50% to an

29

………… Customer Profitability is skewedCustomer Profitability is skewedf yf y

Top 20% of customers contribute toTop 20% of customers contribute toprofits. Rest 60% break even.

Companies have to adopt different s

Retain and build stronger bonds witnot get paoched.

Activity based cost analysis.

Cross selling and upselling

Analyse bottom group.Shift some cu

R d t f iReduce cost of service

Encourage some customers to defect

Outsourcing loss making customers.g g

150% of profits Bottom 20% drain 50% 150% of profits. Bottom 20% drain 50%

trategies for different customer groups.

th ‘gold standard’ customers so that they do

ustomers to ‘potential’ group.

t to competitors.

30

………… Marketing benefits of CRMMarketing benefits of CRMg f fg f f

Focus on existing customersFocus on existing customers

It costs 6-8 times more to attract a ncustomer.

Focus on CLV

Shift from product centric marketin

ew customer than to retain an existing

ng to customer centric marketing.

31

………… CustomeCustome

• A simple definition of "Customer• A simple definition of Customeror obtaining new customers, andSuccessful CRM begins with the ac

Th t f i i t• The cost of acquiring new customeservicing existing customers.

• Adding a new customer costs threxisting one. Firms have tried outby spending less on the acquisition

• The cost of acquiring new customeq gbranding, customer trials, etc. Theto retention becomes very importa

er Acquisitioner Acquisitionqq

Acquisition" is the process of acquiringAcquisition is the process of acquiringd/or converting prospects to customers.cquisition of the right customers.

i id bl hi h th th t fers is considerably higher than the cost of

ee to seven times more than keeping ant various ways to acquire new customers

n costs.

ers includes the cost of sales, promotions,perefore, the ratio of customer acquisitionnt for the firm .

32

………… CustomCustom

• Customer Retention is the procesthe relationship of consumers wservices. It is the process of keep

di i d b ti thunending period by meeting the na significant contributing factor in

• Customer retention is the mirrorHigh retention is equivalent to low

• Customer Retention is defined aswith a firm at the end of a financwho were active customers at the

mer Retentionmer Retention

ss of keeping, sustaining, and/or growingwith the company and its products andping customers loyal to a company for an

d d t ti f t d ineeds and expectations of customers and isn the growth rate of businesses.

r image of customer defection or churn.w defection.

s the number of customers doing businesscial year expressed as percentage of thosebeginning of the year.

33

………… CustomeCustome

• Customer Retention has rep• Customer Retention has repcompetitiveness as the greatest cofoundation of CRM is built oncustomization.customization.

• Companies interact with customelearn about them and through theco creation develop a level of intimco-creation, develop a level of intim

r Retention….r Retention….

placed cost effectiveness and costplaced cost effectiveness and costoncern of business executives today. Then an iterative process of learning and

ers, treat them as organizational assets,e process of incorporating feedback and

macy with themmacy with them

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Chapter 2 Conceptual Foundations of CRM.pdf

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