Chapter 3: Customer Relationship Management

1. Chapter 3: Customer Relationship Management Process Management: Creating Value Along the Supply Chain (1st edition) Wisner and Stanley

2. 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

3. 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

4. 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.

5. 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.

6. 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.

7. 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.

8. 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

9. 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

10. 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.

11. Segment Customers (cont.) Figure 3.2

12. Segment Customers (cont.) • Segmenting customers by niche • Psychographics: customer life-style choices or personalities • Neighborhood marketing: based on geography. • Income segmentation

13. Segment Customers (cont.) • 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.

14. 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 Internet to target customer segments • e-CRM: electronic communication with customers • Time and cost advantage • False positive blocking and other complications

15. 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

16. 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.

17. 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

18. 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

19. Develop CRM Performance Metrics Balanced Scorecard Approach

20. Revising and Improving CRM Efforts • Need for continuous improvement of CRM programs • Decreasing CRM budgets and implications • Example: Churchill Downs Inc.

21. 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

22. 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