Chapter 3: Customer Relationship Management

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Chapter 3: Customer Relationship Management

Process Management: Creating Value Along the Supply Chain (1st edition)

Wisner and Stanley


Chapter Outline

Introduction Designing an Effective CRM Process Identify Competitive Strategies Collect Customer Information Segment Customers Target Customer Segments Select a CRM Program Consistent with

Firm Strategy


Chapter Outline (cont.)

Select Compatible CRM Technology Revising and Improving CRM Efforts Develop CRM Performance Metrics Privacy Issues in CRM Some Recent Approaches to CRM Summary


Learning Objectives

After completing this chapter, you should be able to:

Understand the value of the customer relationship management process.

Discuss how to segment customers and describe why this is important.

Consider the design and improvement of a customer relationship management program.

Describe a number of customer relationship management program performance metrics.


Learning Objectives (cont.)

After completing this chapter, you should be able to:

Describe how customer relationship management programs vary based on the firm's competitive strategy.

Describe several customer relationship management process software solutions, and discuss the value of these products.

Understand the importance of information privacy for CRM programs.

Describe some of the latest trends in CRM.


Introduction

Managing the relationships between a supplier and its buyers of goods and services.

Seeking to maximize customer satisfaction, revenue, and profitability by attracting customers and then delivering behaviors, products, and services that satisfy them.

A collection of technologies that assist and integrate the CRM activities.

Technology is a facilitating mechanism for CRM.


Designing an Effective CRM Process Any successful CRM programs must begin with the

identification of the firm’s core competencies. Customers must benefit in some way. Centralizing customer info will improve customer

response times, design services to meet specific customer needs, devise marketing campaigns to improve sales to customer segments.

Customers must perceive value in any CRM initiative, the initiative must support or advance the firm’s strategy, and any investment in CRM must pay for itself.


Identify Competitive Strategies

Three strategies for competitive advantage: Differentiation: any special features (e.g., design,

cost, quality, ease of use, convenient location, warranty) that cause a product or service to be perceived by the buyer as more suitable than a competitor’s product or service.

Low-cost: low-cost leadership strategy. Response: quick, reliable, and/or flexible

response to customer demand. CRM implementations must support or

advance the firm’s strategies


Collect Customer Information

Information should be collected on: Customer transactions-purchase histories, prices

paid, delivery dates, return histories Customer contacts-sales calls, service requests,

company-initiated contacts Descriptive information-demographic info Response to marketing stimuli-how customers

responded to company-initiated contacts Information to be collected from many sources Centralization of customer data is an important issue Retailers, banks collect data more easily


Segment Customers Customer segmentation: grouping customers within firm’s existing customer

database Customers can move through different behaviors, segments, and product

choices very quickly. Satisfying most profitable customers/reducing the cost of serving unprofitable

customers is primary objective of any CRM initiative. Segmenting customers by profitability

A profitable customer: person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company's cost stream of attracting, selling, and servicing that customer

Companies should pursue, satisfy and try to retain profitable customers Marketing wizard Jay Abraham puts it this way in his new book Getting Everything You Can

Out of All You've Got: "Until you identify and understand exactly how much combined profit a client represents to your business for the life of that relationship, you can't begin to know how much time, effort, and, most importantly, expense you can afford to invest to acquire that client in the first place."

Customer lifetime value (CLV) Example: Best Buy Co.


Segment Customers (cont.)

ProfitableCustomers

UnprofitableCustomers

Profitable Products

BESTCUSTOMERS

(Quadrant I)

PROFITPOTENTIAL

CUSTOMERS(Quadrant II)

UnprofitableProducts

SLOWLEAK

CUSTOMERS(Quadrant III)

WORSTCUSTOMERS

(Quadrant IV)Figure 3.2



Segmenting customers by niche Psychographics: customer life-style

choices or personalities Neighborhood marketing: based on

geography. Income segmentation



Segmenting customers individually Individual marketing / one-to-one

marketing: understanding each customer's needs, characteristics, and profitability.

Importance also for business-to-business markets: building a relationship with and successfully serving one customer can mean millions of dollars.


Target Customer Segments

Differing CRM activities based on customer quadrant (Figure 3.2)

CRM initiatives should seek to move customers and products into Quadrant 1, or remove the products/customers from future business dealings.

Using the InternetInternet to target customer segments e-CRM: electronic communication with customers Time and cost advantage False positive blocking and other complications


Target Customer Segments (cont.) Using telemarketing to target customer segments: use of salespeople

who use the telephone to identify and qualify potential new customers. Can contact many more than field salesperson Accounts for over $100 billion in US National Do-Not-Call Registry Cold calls Keys to successful telemarketing: when customer believes there is a good reason for the call When the offer sounds good to the customer When the customer has prior knowledge about the call When the telemarketer is thoughtful and engaging.

Using direct mail to target customer segments Sending an announcement, offer, or some type of hardcopy

communication to a customer’s or potential customer's address. Use of direct mail is increasing in US Building supply chain relationships with the right customers is the

foundation for all successful CRM programs


Select a CRM Program Consistent with Firm Strategy CRM programs should support or advance customer satisfaction and

loyalty. Customer loyalty programs

Many companies focus on rewarding customers who have repeat purchases. Such reward programs have their place in assuring customer loyalty.

These customer loyalty programs often provide frequent shopper discounts, point systems and coupons that are designed to lure customers back to the store as often as possible.

Good way to attract long-term customers, gather purchase data over time, keep customers interested and attract new customers from competitors

Challenges Customer service initiatives

Reactive customer service: when customers with a problem contact the firm and the firm helps to solve the problem.

Proactive customer service: anticipating customer needs and problems and delivering solutions prior to the time when requests and complaints occur.


Select Compatible CRM Technology

CRM efforts are driven by technology. 2004 survey shows only 16% of US business respondents

succeeded with their CRM programs. Solutions must fit business model Implementation failures: The inability to create an enterprise-wide strategy The difficulty in integrating CRM applications with legacy

systems Lack of an approach to analytics Software solutions:

mySAP CRM Siebel systems PeopleSoft


Develop CRM Performance Metrics

Measurement is a key success factor in maximizing CRM performance.

Performance metrics should measure customer satisfaction and customer loyalty.

Obtaining feedback regarding programs: Focus groups (assembled group of customers giving their opinions to company personnel), phone surveys, mail surveys, customer contact personnel, spending time with key customers


CRM Perspective Key Success Factor Measure

Financial Maximize Customer Profitability

Customer Lifetime Value ($)

Customer Increase Retention, Increase Product Penetration

Retention Percent (%), Penetration Ratio (#)

Process Maximize Service Quality

Service Level per Channel (%),Cost per Service Encounter ($)

Employee Increase Employee Satisfaction,Increase Core CRM Competencies

Employees Highly Satisfied (%),Core Competency Coverage (%)

Develop CRM Performance MetricsBalanced Scorecard Approach


Revising and Improving CRM Efforts

Need for continuous improvement of CRM programs

Decreasing CRM budgets and implications

Example: Churchill Downs Inc.


Privacy Issues in CRM

Clickstream tracking software Cookie files

Current regulations By state, federal and international bodies By industry associations

Privacy policies Opt-in and opt-out


Some Recent Approaches to CRM

Voice over Internet Protocol (VoIP) Social network technology Self-service CRM (VoiceXML) Outsourced CRM / on-demand CRM The “curse” of cheap data storage RFID tracking Personal knowledge banks / customer

manager interactions

Chapter 3: Customer Relationship Management

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