Chapter 7

1. Chapter 7 Customer Relationship Management (CRM)

2. Chapter Overview • Relationship Marketing • CRM • Growth & Process • CRM in Action • Limitations/Dangers of CRM • Measuring Effectiveness • Benefits of CRM • CRM Strategies

3. Building Customer Relationships, 1:1 • The key: Treat customers like friends • A major shift in marketing thought: • from mass marketing to individualized marketing • From focus on acquiring lots of new customers to retaining and building more business with fewer loyal high-value customers • Goal: build long-term relationship, 1:1 • “Relationship Capital” may be more valuable than land, property, and financial assets.

4. Relationship Marketing • “Establishing, maintaining, enhancing, commercializing customer relationships through promise fulfillment” • Building long-term profitable relationships with mutual benefit

5. Exhibit 7 - 1 Continuum from Mass Marketing to Relationship Marketing

6. Relationship Levels • Relationship marketing is practiced on three levels. • . • . • .

7. Customer Relationship Management (CRM) • What is CRM? • A holistic process of identifying, attracting, differentiating, and retaining customers • Integrating a firm’s entire supply chain to create customer value at every step • Basically……. a lot like Relationship Marketing!!

8. Reasons for growth in CRM • The 80/20 Rule • Labor costs rising, competitive pressures have kept prices low • CRM is cost-effective • cheaper to retain than attract • easier to sell to one customer than many • reduced promotional expenses • positive WOM

9. The CRM Process Exhibit 7 - 4 CRM Process

10. Identifying customers • Firms gather information about customers from: • Sales force • Customer service encounter • Bar code scanners at retailer • Web site activity • Firms obtain prospect, business customer, and end consumer information through: • Personal disclosure • Automated tracking

11. 2. Differentiating Customers • Companies differentiate customers by: • Similarities and differences in groups and individuals • Customer value: 20% of the customers provide 80% of the profits • Lifetime Value (LTV) – the total value of the customer over that customer’s lifetime • “All animals are equal, but some animals are more equal than others.” George Orwell, Animal Farm • if necessary, fire customers

12. 3. Customizing the Marketing Mix • Mass Customization: • Marketing communication messages tailored to individuals and delivered electronically. • Customers who can customize to meet their individual needs are more likely to use that company’s products and services over time.

13. Interaction • It allows companies to collect the data necessary for identification and differentiation, and to evaluate the resulting customization effectiveness on a continuous basis. = “learning relationship” • Both the firm and the customer learn from each experience and interaction • Increase trust & loyalty

14. Application Exercise • Create a classification scheme to differentiate between customers of an online banking service (create a name for each level) • Determine how many different categories seem appropriate • Describe how you will classify customers

15. CRM in action: Illustration of the Process • Four key aspects of an operational CRM operation • . • . • . • .

16. Coding • Customers are “graded” based on how profitable/desirable they are. • Employees are instructed to handle customers differently based on their category code. • First Union Bank online banking • IKEA customer service • Sears repair appointments

17. Routing • Incoming call centers route calls based on how customer was coded. • Best customers get to speak (almost) immediately to a live phone rep, less profitable customers wait on hold. • Electric company • Charles Schwab

18. Targeting • Best customers are targeted for special deals and promotions that less profitable customers never hear about • waive fees • special offers • Centura Bank (Raleigh, NC) • First Bank (Baltimore, MD) • First Union Bank (Philadelphia, PA)

19. Sharing • Customer information is shared throughout the organization • Everyone knows purchasing history and potential. • United Airlines • Continental Airlines

20. Limitations/Dangers of CRM • Customers don’t like unequal treatment • Privacy issues are a concern • What someone spends today not necessarily a good predictor of what they will spend tomorrow • Can lead to red-lining/discrimination

21. CRM Metrics: Measuring Effectiveness • Metrics are used to determine how effective the CRM initiatives are and to classify customers based on loyalty and value. • Identify less profitable customers and minimize interactions with them. • LTV, AOV, RFM, and others

22. CRM Benefits: Benefits to the Customer • The average customer desires brand loyalty as much as the firms they patronize. • From a consumer’s perspective the basic tenet of CRM is choice reduction. • Consumers want to patronize the same store, mall, and service providers • It’s more convenient

23. Internet Strategies Facilitating CRM: Customization Tools • Firms tailor their marketing mixes to meet the needs of small target segments, even to the individual level, using electronic marketing tools. • Examples: • Web pages that greet users by their name • e-mail that is automatically sent to individuals with personal account information • Mass Customization--individualize marketing mixes electronically and automatically to the individual level. • initiated by organization (company-side) or by a customer (client-side) • can be examined at two levels: small segments and individuals

24. Small Segment/Group Individual Company-Side Tools (push) Collaborative filtering Data mining and profiling Outgoing e-mail Cookies Web log analysis Real-time profiling Outgoing e-mail Client-Side Tools (pull) Agents Experiential marketing Individualized Web portals Wireless data services Web page forms FAX-on-demand Incoming e-mail • Exhibit 7 - 4 Selected E-Marketing Customization Tools

25. Small Segment Customization: Company-side Tools • Collaborative filtering software: recommendations from like-minded users in cyberspace and returns these opinions to the individual in real-time. • Data mining/profiling: extraction of hidden predictive information in large databases through statistical analysis- simply ask the software to find patterns of interest. • Outgoing e-mail from firm to customer: used to build relationships by keeping in touch with information that is useful and timely for users.

26. Small Segment Customization: Client-side Tools • Agents: programs that perform functions on behalf of the user. • Experiential marketing: gets the customer involved in the product to create a memorable experience.

27. Individual Customization: Company-side Tools • Cookies: small files written to the user’s hard drive after visiting a Web site that the site recognizes each time the customer returns and uses it to personalize the site. • Web site log: a file that keeps track of which pages the user visits, how long he stays, and whether he purchases or not. • Real-time profiling: special software tracks a user’s movements through a Web site, then compiles and reports on the data at a moment’s notice • Outgoing e-mail:communicate with individuals and attempt to increase their satisfaction and loyalty

28. Individual Customization: Client-side Tools • Individualized Web portals are created by the user • Example: http://.my.yahoo.com • Wireless data services: tailored to cell phones, pagers, and PDAs to receive wireless Internet transmission. • Web forms: Web page form that has designated places for the user to type information (registration). • FAX-on-demand: Customers telephone a firm, listen to an automated voice menu, and through selecting options request that a FAX be sent on a topic of interest. • Incoming e-mail:e-mail inquiries, complaints, or compliments initiated by customers or prospects. • 1997 study, only 62% responded to e-mail complaints.

29. Internet Strategies Facilitating CRM: Building PartnershipsUsing Community • “Groups of people or employees with similar interests and tasks” • Can present products and messages customized to the group interests and have the community forge relationships with the company. • Communities Come From: • Chat rooms • Discussion groups • Bulletin boards • Distributed e-mail lists • Intranets and Extranets

30. Nine Principles for Building Good Communities: • Define Community Purpose – mission statement, identify target market, create a strong site personality • Create Extensible Gathering Places – provide a good map, include rich communication features, all members to extend the environment • Create Evolving Member Profiles – communicate the benefits of membership, make profile creation easy and as fun as possible, keep profiles up-to-date and evolving • Promote Effective Leadership & Hosting – set-up your program to grow, build some flexibility into the house rules, & set reasonable expectations for online support.

31. Nine Principles for Building Good Communities, cont. • Define a Clear / Flexible Code of Conduct – create and enforce code and don’t try to stifle all conflict. • Organize & Promote Cyclic Events – hold regular, hosted, themed events, conduct community surveys, and hold contests that reinforce the purpose. • Provide a Range of Roles – offer newcomers a controlled experience, offer increased privileges to regulars, and recruit leaders and mentors from within. • Facilitate Member-Created Subgroups – provide features that facilitate small groups and create events an contests for groups • Integrate with the Real World – celebrate events that reinforce social identity, acknowledge important personal events and encourage real-life meetings (when appropriate).