E-Marketing, 3rd edition Judy Strauss, Adel I. El-Ansary, and Raymond Frost

E-Marketing, 3rd editionJudy Strauss, Adel I. El-Ansary,and Raymond Frost Chapter 14:Customer Relationship Management © Prentice Hall 2003

Overview Building Customer Relationships, 1:1 Relationship Marketing Defined Stakeholders Customer Relationship Management (CRM) CRM Benefits CRM’s Facets CRM Building Blocks 1. CRM Vision 2. CRM Strategy 3. Valued Customer Experience 4. Organizational Collaboration 5. CRM Processes 6. CRM Information 7. CRM Technology CRM Metrics

Building Customer Relationships, 1:1 • Cisco: Develops long-term customers relationships one at a time (1:1) & handle millions of these close relationships thanks to information. • A customer with an investment in software and high satisfaction is brand loyal: • Will not easily be enticed by competition. • Will slowly spend an increasing amount of money on additional products/services and also refer others. • Relationship capital: A firm’s ability to build and maintain relationships with customers, suppliers, and partners may be more important than a firm’s land, property, and financial assets.

Building Customer Relationships, 1:1 • A major shift in marketing practice: • from mass marketing to individualized marketing, • from focusing on acquiring lots of new customers to retaining and building more business • from a smaller base of loyal high-value customers. • Industrial firms have practiced customer relationship management for a long time, • Consumer services market (e.g., the local hair salon) + consumer packaged goods are now considering how to build long-term customer relationships, 1:1. • Internet technologies can facilitate relationship marketing, yet many firms that purchase and install relationship-management technologies are losing money on them.

Relationship Marketing Defined • Relationship marketing(= 1:1 marketing): is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment. • Firms try to build profitable, mutually beneficial relationships in the long term, • The balanced scorecard customer focus was created from this idea. • Promise fulfillment = when firms make offers in their marketing communications programs, customer expectations will be met through actual brand experiences. • Good relationships are built when company personnel meet the promises made by salespeople and promotional messages.

Relationship Marketing Defined Relationship marketing: • Involves two-way communication with individual stakeholders, one at a time (1:1), • Firm focuses on share of mind = share of customer = share of wallet, rather than share of market, • Firm differentiates individual customers based on need rather than differentiating products for target groups. • Few firms fall on either end of the continuum but instead use varying strategies for different products and markets. • Procter and Gamble: • Must differentiate its brands of laundry detergent for sale to the masses, • It tries to build relationships with mothers who will buy increasing numbers of P & G products over the years, • From Ivory powder for washing baby clothes and Pampers diapers to Crest toothpaste for the family and Olay cosmetics for themselves.

Continuum from Mass Marketing to Relationship Marketing

Stakeholders • Firms also use relationship marketing techniques to build mutually supportive bonds with stakeholders other than consumers. • The 4 stakeholder groups most affected by Internet technologies are: • Employees. • Difficult to persuade buyers when employees are not happy. • Employee relationship building is handled by human resources departments. • Employees are instrumental in building relationships with customers = they have to be trained + to have access to data & systems used for relationship management. • Business customers in the supply chain. • Business customers (the B2B market): P&G uses Internet technologies to work with numerous wholesale and retail intermediaries. • Firm’s suppliers: GE uses the Internet to receive bids from its suppliers (lowers transaction costs + enhances competition + speeds order fulfillment).

Stakeholders • Lateral partners. • Other businesses that join with the firm for some common goal but not for transactions with each other (not-for-profit organizations, or governments). • Consumers. • The individuals who are end users of products and services. • Marketers must differentiate between business customers and final consumers because different tactics are often employed in the B2C and B2B markets.

Customer Relationship Management (CRM) CRM: • Is used to define the process of creating and maintaining relationships with business customers or consumers. • Is a holistic process of acquiring, retaining, and growing customers. • Includes all online and offline relationship management. • Firms are recognizing that if they don’t keep their customers happy, someone else will.

CRM Benefits • Key CRM benefit = its cost-effectiveness. • Consider the following: • U.S. businesses saved $155 billion between 1998 and 2000 by using Internet technology for both CRM and Supply Chain Management. • A 5% increase in customer retention translates to 25% to 125% profitability in the B2B market. • Customer defection rates are near 20% per year. • The cost of acquiring a new customer is typically five times higher than the cost of retaining a current one.

Maximizing Number of Customers Source: Adapted from Peppers and Rogers (1996)

CRM Benefits • Retention is less costly than acquisition because: • Reduced promotion costs for advertising and discounts, • Higher response rates to promotional efforts yield more profits, • Sales teams can be more effective when they get to know individual customers. • Loyal customers are experienced customers = They know the products well, = They know who to call in the firm when they have questions. • Loyal customers cost less to service.

CRM Benefits • Increase the amount purchased by each customer: Amazon cross-sells by offering music, videos, and toys to its book customers. • Word-of-mouth: • Satisfied customers recommend Web sites, stores, and products to their friends. • = The heart of CRM. • Positive word of mouth can attract many new customers, but negative word of mouth can drive them away. • Each dissatisfied customer tells 10 people about the unhappy experience, • BUT “If you have an unhappy customer on the Internet, he doesn’t tell his six friends, he tells his 6,000 friends” (through e-mail, newsgroups, chat, and personal Web pages).

CRM’s Facets • CRM has 3 facets: • Sales force automation: in the B2B market, • Marketing automation: important in all markets, • Customer service: important in all markets.

Sales Force Automation (SFA) • “Increase your sales, not your sales force” (B2B market), • Allows salespeople to: • Build, maintain, and access customer records, • Manage leads and accounts, • Manage their schedules, • Send the results of sales calls & • Send activity reports to the data warehouse for access by others. • Up-to-date customer and prospect records help customer service representatives and others build customer relationships.

Sales Force Automation (SFA) Salesforce.com's software boasts the following benefits: • Close more deals. Teams can effectively work together to close accounts by scheduling events, coordinating meetings, and updating client files on every account. • Seize all sales opportunities. Leads are recorded, routed to the right person. • Update opportunities, accounts, and contacts offline. • Enable collaborative and consistent customer management. Real-time, company-wide access to detailed account data enables you to facilitate collaboration between sales, customer service & support, and marketing personnel. • Recognize "big picture" market trends. Analyze current and historical sales data that you immediately spot changes in customer behavior or shifts in key market indicators.

Marketing Automation Marketing automation: • Helps for effective targeting, efficient marketing communication, and real time monitoring of customer and market trends. • Is “a disciplined approach to the capture, integration, and analysis of customer data [that] is needed to identify and leverage customer relationships and opportunities to their fullest.” • Softwares: • Take data from Web sites and databases and turns it into reports for fine-tuning CRM efforts, • Include e-mail campaign management, database marketing, market segmentation, Web site log analysis, and more.

Customer Service • Customer service permeates every stage of customer acquisition, retention, and development practices, • Most service occurs post-purchase when customers have questions or complaints. • Mercedes-Benz takes customer service to a new level with its “teleweb” technology: • The consumer types a question into a Mercedes representative. • The consumer & representative discuss the question while viewing the same Web pages. • Softwares allow customer service reps on the telephone with a customer to take control of the user’s mouse and guide her around the company Web site.

Shopping Paying Receiving Returning Exhibit 14 - 3 Customers Receive Service at Every CRM Point Source: Forrester Research as cited in Speech by Tod Famous at Internet World (2001)

CRM Building Blocks • Firms understand CRM’s benefits and are investing heavily in CRM software, • BUT 70% lose money on this investment. • Businesses are trying to determine what works and what doesn’t, • The first businesses to get CRM right will win. • These businesses want to know how to do it effectively and efficiently.

Exhibit 14 - 4 Eight Building Blocks for Successful CRM Source: Adapted from Gartner Group (www.gartner.com)

1. CRM Vision • Many firms purchase expensive CRM software just because everyone else is doing it. • Start: With a vision that fits the company culture and makes sense for the firm’s brands and value propositions. • Why it fails? Firms do not realize how pervasive CRM are & underestimate the costs. • When a firm installs CRM software to integrate data from the Web site and brick-and-mortar retail operations, • Customer service reps need training and must be committed to the initiative. • Success: The CRM vision start at the top and filter throughout the company to keep the firm completely customer focused.

1. CRM Vision Guarding Customer Privacy • Using customer data is very tempting to marketers. • Marketers must use customer and prospect information responsibly, for their own business health + for the image of the profession. • Internet users are concerned about online privacy + the misuse of personal information and don’t want it shared with others unless they give permission. • Real-time profiling and other techniques monitor online consumers behavior, marketers must address this issue before regulators make them do it. • CRM is based on trust: • The information customers give companies on Web forms, in e-mail, or in other ways will be used responsibly. • Information is used to improve the relationship by tailoring goods, services, and marketing communications to meet individual needs. • It means allowing consumers to request removal of their information from databases, to opt-out of e-mail lists, + not sharing information with other companies unless permission is granted.

1. CRM Vision Guarding Customer Privacy • Intrusions into people’s lives: Junk mail, spam, repeated telephone calls = examples of marketing messages that can upset consumers. • What’s a marketer to do? • Build relationships through dialogue and through better target profiling. • Firms must listen to customers and prospects and give them what they want. • Why? • Retention & development of customer relationships are more profitable than one-time customer transactions. • Marketers can use consumer information to build more precise target profiles. Individuals do not get upset with firms who send valuable and timely information to them.

1. CRM Vision TRUSTe • To help Web sites earn the trust of their users, an independent, nonprofit privacy initiative named TRUSTe provides its seal and logo to any Web site meeting its philosophies: • Adopting and implementing a privacy policy that factors in the goals of your individual Web site & consumer anxiety over sharing personal information online. • Posting notice and disclosure of collection and use practices regarding personally identifiable information via a posted privacy statement. • Giving users choice and consent over how their personal information is used and shared. • Putting data security and quality, and access measures in place to safeguard, update, and correct personally identifiable information.

TRUSTe Builds User Trust Source:www.truste.org

1. CRM Vision TRUSTe • In addition, sites must publish the following information on their sites to gain the TRUSTe seal: • What personal information is being gathered by your site. • Who is collecting the information. • How the information will be used. • With whom the information will be shared. • The choices available to users regarding collection, use, and distribution of their information. • The security procedures in place to protect users’ collected information from loss, misuse, or alteration. • How users can update or correct inaccuracies in their pertinent information.

2. CRM Strategy • E-marketers must determine what they want to accomplish before buying CRM technology. • Goals for CRM projects: • Increase order size = more effectively targeted cross sell promotions. • Build customer loyalty and repeat sales = relevant and compelling offers. • Expand wallet-share by increasing the variety of products and categories that customers buy from you. • Move overstocks by knowing which customers will buy them at list price to avoid deep discounting. • Reduce costly returns by promoting products you know your customers want. • Enable multi-channel coordination of field sales, inside sales, e-commerce and direct mail through consistent and relevant product recommendations for each customer interaction

2. CRM Strategy Relationship Intensity • CRM goals refer to customer loyalty. • Most firms would be delighted if they had customers who proudly wore their brand name on clothing and tried to talk others into buying the brand (Harley Davidson, Macintosh). • Levels of relationship intensity: • The pyramid shape indicates that fewer customers are at the highest level. • Many people are advocates because of positive experiences. • An important CRM strategy is trying to move customers upward in this pyramid.

Levels of Relationship Intensity Source: Adapted from Duncan (2002

2. CRM Strategy Relationship Levels Another CRM strategy = building bonds with customers that transcend the product experience itself. Relationship marketing is practiced on 3 levels: The strongest relationships are formed if all 3 levels are used and if the product itself actually satisfies buyers: • Build a financial bond with customers by using pricing strategies. Price promotions are used to build share of customer BUT easily imitated. • Stimulate social interaction with customers. This involves ongoing personal communication with individual customers and may include aggressive pricing strategies as well. Customers are more loyal because of the social bond with the company. • Relies on creating structural solutions to customer problems. Structural bonds are formed when firms add value by making structural changes that facilitate the relationship. My Yahoo! Once consumers invest the time and effort to customize this interface, they will be reluctant to switch to another portal.

Three Levels of Relationship Marketing Source: Adapted from Berry and Parasuraman (1991)

3. Valued Customer Experience • Most customers want brand loyalty as much as the firms they patronize want it: • Being a consumer is difficult because of constant bombardment by marketing communications and unlimited product choices. • From a consumer’s perspective, the basic tenet of CRM is choice reduction. • Consumers want to patronize the same Web site, mall, and service providers because doing so is efficient. • Consumers are “loyalty prone,” searching for the right product or service and then sticking with it as long as the promises are more or less fulfilled. • Customers patronize stores, services, and Web sites where they are treated like individuals with important needs and where they know those needs will be met, “satisfaction guaranteed.” • Users believe the company cares when they get an e-mail about nifty new uses of the PalmPilot (addressed to them by name + refers to the exact product purchased).

3. Valued Customer Experience Customer Preferences Vary: • Customers’ preferences for communicating with each company vary by individual, by situation and product type. • Customers might want: • To call and speak with a live rep about an account problem, • To go to a Web site to research product information, • To use e-mail to complain about a service problem, and so forth. • These options cover many technologies, using both automated and human intervention for both synchronous (simultaneous) and asynchronous communication. • The Internet must create valued customer experiences and firms must be adept with many different technologies and processes, putting the focus on customers and their preferences, not the company’s capabilities.

Relationships Over Multiple Communication Channels

3. Valued Customer Experience Community-Building Principles: • An important way to forge relationships + strengthen loyalty. • Building a successful online community is not as simple as putting a link on a Web site and hoping folks will drop by. • As with most e-business strategies, research and planning precede success. • 9 critical success factors following good CRM principles.

9 Community-Building Design Principles Source: Adapted from Kim (2000) at www.naima.com/articles/webtechniques.html

4. Organizational Collaboration • E-marketers collaborate both within and outside of the organization: • Within the firm: Cross functional teams focus on customer satisfaction. • Outside the firm: When 2 or more companies join forces, the results often exceed what each firm might have accomplished alone. • This is true in the distribution channel or a non-transactional type collaboration. • Today’s marketplace consists of supply chain competition, not individual firm competition. • Amazon + Toys ‘R’ Us = online baby retail site BabiesRUs.com. = Amazon’s online retail expertise combined with the toy merchandising expertise of Toys ‘R’ Us benefits both partners as well as the site’s customers.

4. Organizational Collaboration CRM-SCM Integration • CRM usually refers to “front-end” operations= firms work to create satisfying experiences at all customer touch points: in-person visits to stores, e-mail contact, and so forth. • This is challenging because different employees / computer systems collect various information, and it must be integrated into appropriate customer records. • The entire supply chain can work together to single-mindedly focus on meeting consumer needs and make higher profits in the process. • Imagine that a customer orders a particular shirt from a clothing retailer’s Web site: • If the shirt is out of stock, the customer might see a Web screen with that message. • With an integrated CRM-SCM system, the system can instantly check inventory levels at the retailer, the wholesaler or manufacturer to determine availability. • Then the system notify the customer and offer options: = Wait two weeks for delivery from the manufacturer or consider a similar shirt currently in stock.

E-Marketing, 3rd edition Judy Strauss, Adel I. El-Ansary, and Raymond Frost