Customer Relationship Management

Marketing Principles

Dr. Mary Wolfinbarger

CRMRather than market to a mass of people or firms, market to each customer individuallyAlso called one to one marketingInformation about the customer (previous purchases, demographic profile) is used to predict future behaviorReduce costs wherever possibleApproach made possible by advances in technology

Short: 1 to 1 Marketing www.1to1.com

CRM DefinitionCRM is a crossfunctional process for achieving:

A continuing dialogue with customers

Across all their contact and access points, with

Personalized treatment for the most valuable customers

To increase customer retention and the effectiveness of marketing initiatives

-- George S. Day “Capabilities for Forging Customer Relationships, MSI Report 00-118

CRM and the InternetInternet can be used for a more personalized experienceCustomers can get more help and support onlineIncreased customer self-service (e.g. ordering)Quicker turnaround for customer problemsMore feedback, customer suggestionsCustomers can be tracked and data collected fairly easily onlineBUT, it’s another channel and “touch point” to manage

Why CRM?Loyal customers are the source of most profits

A relatively small percentage of customers may generate most of the profitsMarketing cost and efforts are less for existing customersDissatisfied customers tell others about their experiencesSo do satisfied customers

Slowing the rate of defection grows the customer baseReducing costs (e.g. through self-service)

Why CRM?Recent advances in computing and database management technologies have provided means of getting closer to valuable customers

Short: Why people are talking about 1 to 1www.1to1.com

E-Commerce increases competition

CRMRather than focusing on growing transaction volume, objectives are to increase profitability and customer satisfaction Involves all corporate functionsMarketing, manufacturing, customer service, field sales, field service are all “touch points”Touch point: any way in which the customer may interact with the firmShort: Using Customer Data – www.1to1.com

History of CRM3 previous applications:

Sales Force Automation

Customer Service

Database Marketing (from direct marketing)

Sales Force AutomationContact Management (customer info and contact history for existing customers)

Activity Management: Calendar and scheduling for sales people

Opportunity Management: Manage leads for new customers

Sales Force AutomationMarketing Information (products, promo, competitors, consumer behavior….)

Customer ServiceGoal: resolve customer problems quickly

Customer ServiceCapabilities

Call Center Management: capture customer feedback for performance measurement, quality control, product developmentField Service Management: Allocate, schedule and dispatch the right people and materials, view customer history, search for proven solutionsHelp Desk Management: Initiate, modify and track problem reports

Database MarketingUsing data to predict which customers will be most responsive to offers

Hails from direct marketing where customer behavior and responsiveness is most easily tracked

Important key: clean data

History of CRMMany applications integrate SFA, CS, database management and now even supply chain management (SCM)

SCM integration has advantages:Inventories can be kept low

Consumer demand can be forecasted in a timely fashion

More customized products (e.g. Nike)

Customers can access inventory information in real time

CRM tacticsIncrease customer satisfaction

Customer identification: must know and identify the customer across marketing channels, transactions and interactions (Tools:availability of customer information and records to all functions who may interact with customer)

Customer differentiation: some customers are more valuable to the company than others (Tools: analysis of customer lifetime value; coding, sorting and routing)

CRM tactics

Target promotional efforts to customers based on their likelihood of responding

Use the Internet to decrease number of direct sales people and distribution channels needed

Increase “share of wallet” through up-selling and cross-selling

Example of Sharing Information Continental Airlines has introduced a Customer

Information System where every one of Continental’s 43,000 gate, reservation and service employees will have access to the history and value of each customer.

The system suggests specific service recovery remedies and perks such as coupons for delays and automatic upgrades.

The system provides more consistent staff behavior and service delivery.

CRM tacticsSorting and routing customers based on their profitability

Coding customers: Customers are graded based on how profitable their business is. Service staff are instructed to handle customers differently based on their category code. Why? Labor costs have risen yet competitive pressures

have kept prices low.

• The end result is that gross margins have been reduced to 5 to 10 percent in many industries.

Customers have done it to themselves by opting for price, choice, and convenience over high quality service.

CRM tacticsExample of Sorting: Sears, Roebuck & Co’s most profitable credit card

customers get to choose a preferred two-hour time window for repair appointments.

Regular customers are given a four-hour time window

CRM: Not a PanaceaNot feasible for every market and customers

customers don’t want to be committed to every brand/relationship

Not feasible for low-involvement, habitual purchasing in B2B or B2C

Some markets/customers may have low “personalization potential”

CRM: Not a PanaceaShopping agents used by consumers undercut the idea of relp’s

The organizational capability to produce a seamless/personalized experience is more difficult to master than a transactional approach

Lower tier customers may become disaffected when they find out service is differentiated

CRM: Not a PanaceaCustomers change – today’s “silver” customer may be tomorrow’s “gold”; customers in the process of becoming more valuable customers may not be identified (and may switch to another business)

Peppers and Rogers suggest identifying “Most Growable Customers” (also called second tier customers)

CRM: Not a Panacea“Past history with other management fads and

mounting evidence from the field suggests that most firms will fail to gain even a fleeting advantage from their CRM initiatives. Many will be purely defensive, having been initiated to keep up with the leaders or to narrow disadvantages. Meanwhile, firms such as Oracle, Siebel and the Peppers and Rogers Group are busily diffusing best practices, and hundreds of software vendors are making their latest database, call center, and sales force automation software widely available and economical to use, thus ensuring that all competitors are equally equipped.” -- George Day