1181003978 chapter 1 making sense of crm

8/8/2019 1181003978 Chapter 1 Making Sense of Crm

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Customer Relationship Management:Customer Relationship Management:

Concepts and ToolsConcepts and Tools

CUSTOMER RELATIONSHIP MANAGEMENT:

CONCEPTS AND TOOLS

Chapter 1

Making Sense Of

Customer Relationship Management


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3 levels of CRM

Strategic CRM A top-down perspective on CRM which views CRM asa core customer-centric business strategy that aimsat winning and keeping profitable customers

Operational CRMA perspective on CRM which focuses on major

automation projects such as service automation,sales force automation or marketing automation

Analytical CRMA bottom-up perspective on CRM which focuses on

the intelligent mining of customer data for strategicor tactical purposes


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Strategic CRM

Strategic CRM is compatible with a customer-or market-oriented way of doing business

However, there are other business orientationsProduct orientation

Production orientation

Sales orientation


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Forms of operational CRM

Marketing automation market segmentation campaign management

event-based marketing

Sales force automation opportunity management, including lead management

contact management

proposal generation

product configuration

Service automation contact and call-centre operations

web-based service

field service


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Sales methodologies in sales force automation

SPIN

RADAR

TAS

Complex selling


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SPIN selling methodology

Situation analysisto establish background information

Problem questionsabout difficulties and dissatisfactions

Implication questionsto establish implied need

Need pay-off questionsoffered to meet the need and solve the problem


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Some decisions influenced by analytical CRM

Where should I focus my sales effort?

Which customers shall we target with thisoffer?

What is the relative priority of customerswaiting on the line, and what level of serviceshould be offered?


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Analytical CRM at Business Direct

Traditional

5000

$15,000

45

0.09%

$120

$5,400

$333.33

$2,200

$880

35%

CRM

1000

$3,000

65

6.5%

$180

$11,700

$46.15

$7,500

$3,000

80%

Number of catalogues mailed

Mailing cost

New customers obtained 1998

Conversion rate new customers

Initial sales per new customer

Total new initial sales revenues

Acquisition cost per customer

Average customer sales 98-01

2 year gross margin (40%)

98 customers still active in 01


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Misunderstandings about CRM

CRM is database marketing

CRM is a marketing process

CRM is an IT issue

CRM is about loyalty schemes

CRM can be implemented by any company


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What is a relationship?

A relationship consists of episodes between dyadicparties over time

Episodes are time-bound and nameable

Examples of episodes Placing an orderRaising a query

Playing a round of golf

Each episode is made up of a series of interactions

Business relationships are made up of task andsocial episodes


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A 5-stage model of relationship evolution

1. Awareness

2. Exploration

3. Expansion4. Commitment

5. Dissolution


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Two key features of well developed relationships

Trust

Commitment


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Trust is focussed

1. Benevolence. A belief that one party will actin the interests of the other.

2. Honesty. A belief that the other party will becredible.

3. Competence. A belief that the other party hasthe necessary expertise.

Trust is shown in the other partys ..


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Trust changes over time

Calculus-Based Trust. This is present in early stages of the relationship and

related to economic calculations. The outcomes of creatingand sustaining the new relationship are weighed againstthose of dissolving it

Knowledge-Based Trust. This relies on the individual parties interactive history and

knowledge of each other, allowing each to makepredictions about the other

Identification-Based Trust. This happens when mutual understanding is such that each

can act as substitute for the other in interpersonalinteraction. This is found in the later stages of relationshipdevelopment.


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Definition of commitment

Commitment exists when an exchange partner believes that an ongoing

relationship with another is so important as to

warrant maximum effort to maintaining it; that is,the committed party believes the relationship isworth working on to ensure that it enduresindefinitely


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Relational consequences of commitment

Commitment arises from trust, shared values, and thebelief that partners will be difficult to replace.

Commitment motivates partners to co-operate in order

to preserve relationship investments. Commitment means partners pass over short-term

alternatives in favour of more stable, long-term benefitsassociated with current partners.

Where customers have choice, they make commitments

only to trustworthy vendors, because commitmententails vulnerability, leaving them open to opportunism.


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Companies want relationships with customers

Why? because companies that manage their customer

base in order to identify, satisfy and retain profitable

customers enjoy better business results reduced customer churn creates

A larger customer base

Longer average customer tenure

Reduced marketing costs to replace defected customers

Better understanding of customer requirements

More cross-selling opportunities


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Year Company A (5% churn) Company B (10% churn)

Existing customers New customers Total customer base Existing customers New customers Total customer base

1998 1000 100 1100 1000 100 1100

1999 1045 100 1145 990 100 1090

2000 1088 100 1188 981 100 1081

2001 1129 100 1229 973 100 1073

2002 1168 100 1268 966 100 1066


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Impact of churn on customer numbers

year Company A(5% churn)

Company B(10%

churn)

Existing

customers

New

customers

Total Existing

customers

New

customers

Total

1999 1000 100 1100 1000 100 1100

2000 1045 100 1145 990 100 1090

2001 1088 100 1188 981 100 1081

2002 1129 100 1229 973 100 1073

2003 1168 100 1268 966 100 1066


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Impact of tenure on retention

Customer retention

rate

Average customer

tenure (years)

50 2 years

67 3 years

75 4 years

80 5 years

90 10 years

92 12.5 years

95 20 years

96 25 years

97 33.3 years

98 50 years


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The customer journey

Suspect - could the customer fit the target marketprofile?

Prospect - customer fits the profile and is beingapproached for the first time

First-time customer - customer makes first purchase

Repeat customer - customer makes additionalpurchases

Majority customer - customer selects your companyas supplier of choice

Loyal customer - customer is resistant to switchingsuppliers; strong positive attitude to your company

Advocate - customer generates additional referraldollars


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Customers are potential income streams

A core CRM idea is that a customer should notbe viewed not as a set of independenttransactions but as a life-time income stream.


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Customer life-time value

The total present day value of a customer isthe sum ofall past net margins compounded to todays value,

andall future net margins discounted to todays value

The potential value of a customer is

all future net margins discounted to todays value


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When do companies not want relationships?

When they fear loss of control. Relationshipsare bi-lateral arrangements, which involvegiving up unilateral control over resources.

When they do not want to commit resources.Relationships require the commitment ofresources such as people, time and money.

When opportunity costs are high. If resources

are committed to one customer, they cannotbe used for another


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The satisfaction-profit chain

Customer

loyalty

Business

performance

Customer

satisfaction

Understand customer requirementsMeet customer expectations

Deliver customer value

Attitudinal loyaltyBehavioral loyalty

Revenue growthShare of customerCustomer tenure


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Two dimensions of customer loyalty

Behavioral loyalty

Is the customer active?

What is our share of

customer spend RFM variables

Recency

Frequency

Monetary value

Attitudinal loyalty

Beliefs

Commitment

Preference Intention to buy


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RFM

R = time elapsed since last purchase

F = number of purchases in a given timeperiod

M = monetary value of purchases in a giventime period


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Dick and Basus model of customer loyalty

trueloyalty

spuriousloyalty

Noloyalty

latentloyalty

Relativeattitude

Repeat purchase

strong

weak

high low


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Business performance measures

FinanceReturn on investmentEarnings per shareEconomic value added

InternalQuality conformance

Manufacturing costCycle timesSpeed to marketInventory managementCustomer information

system downtime

OTIFNE performance

Learning and growthEmployee satisfactionEmployee retentionEmployees cross-trainedEmployee productivity

CustomerCustomer satisfactionCustomer retentionCustomer acquisitionCustomer loyaltyCustomer tenureSales per customerRevenue growthMarket share

Share of customerspend


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share ofcustomerspend

high

few

low

many

Number of customers

Traditionalmarketing

CRM

Share of market vs. share of customer

l hC R l i hi M


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Low

High

re

peatpurcha s

e

rates

1 2 3 4 5 6 7

customer satisfaction levelnot at all

satisfied very satisfied

Returns from investments in customer satisfaction

C t R l ti hi M tC t R l ti hi M t


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Business customers want relationships when ..

1. the product or its applications are complex, forexample, networking infrastructure

2. the product is strategically important or mission-critical, for example, core raw materials supply for a

manufacturer3. there are down-stream service requirements, for

example, for machine tools

4. financial risk is high, for example, in buying largepieces of capital equipment

5. reciprocity is expected. A financial audit practice maywant a close relationship with a managementconsultancy, so that each party may benefit fromreferrals by the other.

C t R l ti hi M tC t R l ti hi M t


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Consumer benefits from supplier relationships

1. recognition

2. personalisation

3. power4. risk reduction

5. status

6. affiliation

C t R l ti hi M tCustomer Relationship Management:


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The CRM ecosystem

Companies that implement CRM

Customers of companies that implement CRM

Partners of companies that implement CRM

Vendors of CRM software, for example Siebel,PeopleSoft, Pivotal, Oracle, SalesLogix andSalesforce.com

vendors of CRM hardware and infrastructure

consultancies offering strategy, business, CRMapplication and technical consulting



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Computing ROI on CRM 1

What counts as an investment in CRM? IT costsSoftware licenses

Infrastructure and hardwareProcess costs

Process reengineering

Project management costsChange management costs

People costsRecruitment

Training

Redeployment



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What counts as a return on CRM?

Hard measures

Cost reductions Reduced customer acquisition costs

Reduced costs to serve

Revenue increases Greater share of customer spend

Cross-sell improvements

Up-sell improvements Soft measures

Customer satisfaction Customer retention

Customer tenure

Employee satisfaction and retention



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Over what period should ROI be measured? Strategic CRM

Long-term

3 to 5 years

Operational CRM

Medium term

1 to 3 years

Analytical CRM

Short-term

Less than 1 year

Perhaps even days for single CRM-enabled campaigns



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CRM challenges across contexts

Banks and telecommunications companiesEnhanced retention and cross-sell

Auto manufacturersMore profitable relationships with distributors

Better understanding of end-users

FMCG manufacturersBetter understanding of cost-to-serve and retail

account profitability

RetailersEnhanced basket value



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Definition of CRM

CRM is the core business strategy thatintegrates internal processes and functions,and external networks, to create and deliver

value to targeted customers at a profit. It isgrounded on high quality customer data andenabled by information technology.

1181003978 chapter 1 making sense of crm

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