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    Listening to customers must become everyones business. With most competitors moving

    ever faster, the race will go to those who listen and respond more intently.

    - Tom Peters, Thriving on Chaos

    Chapter 1: Conceptual Framework for CRM

    What is Customer Relationship management?

    Before we begin to examine the conceptual foundations of CRM, it will be useful to

    define what CRM is. A narrow perspective of customer relationship management is

    database marketing emphasizing the promotional aspects of marketing linked to database

    efforts.

    Another narrow, yet relevant, viewpoint is to consider CRM only as customer retention in

    which a variety of aftermarketing tactics is used for customer bonding or staying in touch

    after the sale is made.

    Shani and Chalasani define relationship marketing as an integrated effort to identify,

    maintain, and build up a network with individuals consumers and to continuously

    strengthen the network for mutual benefit of both sides, through interactive,

    individualized and value-added contacts over a period of time.The core theme of all CRM and relationship marketing perspectives is its focus on co-

    operative and collaborative relationships between the firm and its customers, and/or other

    marketing actors.

    CRM is based on the premise that, by having a better understanding of the customers

    needs and desires we can keep them longer and sell more to them.

    Growth Strategies International (GSI) performed a statistical analysis of Customer

    satisfaction data encompassing the findings of over 20,000 customer surveys conducted

    in 40 countries by Info quest.

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    The conclusions of the study were:

    A Totally Satisfied Customer contributes 2.6 times as much revenue to a company as

    a Somewhat Satisfied Customer.

    A Totally Satisfied Customer contributes 17 times as much revenue as a SomewhatDissatisfied Customer.

    A Totally Dissatisfied customer decreases revenue at a rate equal to 1.8 times what a

    Totally Satisfied Customer contributes to a business.

    By reducing customer defection (by as little as 5%) will result in increase in profits

    by 25% to 85% depending from industry to industry.

    An important facet of CRM is customer selectivity. As several research studies have

    shown not all customers are equally profitable (Infact in some cases 80% of the sales

    come through 20% of the customers). The company must therefore be selective and

    tailor its program and marketing efforts by segmenting and selecting appropriate

    customers for individual marketing programs. In some cases, it could even lead to

    outsourcing of some customers so that a company better utilize its resources on those

    customers it can serve better and create mutual value. However, the objective of a

    company is not to really prune its customer base but to identify appropriate customer

    programs and methods that would be profitable and create value for the firm and the

    customer. Hence, CRM is defined as:

    Customer Relationship management is a comprehensive strategy and process of

    acquiring, retaining and partnering with selective customers to create superior

    value for the company and the customer.

    As is implicit in the above definition, the purpose of CRM is to improve marketing

    productivity. Marketing productivity is achieved by increasing marketing efficiency

    and by enhancing marketing effectiveness. In CRM, marketing efficiency is achieved

    because cooperative and collaborative processes help in reducing transaction costs andoverall development costs for the company. Two important processes for CRM include

    proactive customer business development and building partnering relationship with

    most important customers. These lead to superior value creation.

    The basic concept is that the customer is not someone outside the organisation, he is a

    part of the organisation.

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    High

    Low

    Low HighCustomer Value

    Key CRM principles

    Differentiate Customers: All customers are not equal; recognize and reward best

    customers disproportionately. Understanding each customer becomes particularly

    important. And the same customers reaction to a cellular company operator may be quitedifferent as compared to a car dealer. Besides for the same product or the service not all

    customers can be treated alike and CRM needs to differentiate between a high value

    customer and a low value customer.

    What CRM needs to understand while differentiating customers is:

    - Sensitivities, Tastes, Preferences and Personalities

    - Lifestyle and age

    - Culture Background and education

    - Physical and psychological characteristics

    Differentiating Offerings

    Low value customer requiring high value customer offerings

    Low value customer with potential to become high value in near future

    High value customer requiring high value service

    High value customer requiring low value service

    Keeping Existing Customers

    Low value customers whoRequire high levels of service

    Must either purchase thehigher level of service or

    become our competitors low

    value/high cost customers

    Low value customers whoRequire high levels of serviceMust either purchase the

    higher level of service or

    become our competitors lowvalue/high cost customers

    ServiceReq

    uirement

    High value customers wrequire a high level of

    service are maintained

    without expanding thecostly offering to the en

    customer population

    High value customers wh

    require a high level of

    service are maintainedwithout expanding the

    costly offering to the enticustomer population

    Fig. 1 Customer value Service Matrix

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    High

    Low

    *Focus On Short Term Profitability.

    Spend Minimum Energy To Meet Your

    Objectives.

    #Dont Pursue.

    Use Opportunity As It Comes.

    Short Term Acquisition Shouldnt Affect

    Long Term Image.

    *Very cautious decision needed. Re-examine

    business Plan & Strategy. Evaluate That

    Your Loss (i.e. Your competitors gain)

    Doesnt become nightmare for you.

    #Needs In-depth strategic review as acquisition

    alone and dissatisfaction later could be more

    harmful

    Low High

    Grading customers from very satisfied to very disappoint should help the organisation in

    improving its customer satisfaction levels and scores. As the satisfaction level for each

    customer improves so shall the customer retention with the organisation.

    Maximizing Life time valueExploit up-selling and cross-selling potential. By identifying life stage and life event

    trigger points by customer, marketers can maximize share of purchase potential . Thus the

    single adults shall require a new car stereo and as he grows into a married couple his

    needs grow into appliances.

    Increase Loyalty

    Loyal customers are more profitable. Any company will like its mindshare status to

    improve from being a suspect to being an advocate.

    Company has to invest in terms of its product and service offerings to its customers. It

    has to innovate and meet the very needs of its clients/ customers so that they remain as

    advocates on the loyalty curve. Referral sales invariably are low cost high margin sales.

    (Fig 2. Categorizing Customers)

    *You have No Choice But To

    Handle Them Very Carefully.

    Will Consume Energy

    # Think of Innovative Ways of getting

    them on Your Side, But the Cost of

    Acquisition Must Be Controlled

    StrategicIm

    portanceToYour

    Business

    P

    lan

    *Cultivate Relationship.

    Spend Energy.

    Go Out Of Your Way.

    #Think Of Strategies TO Move ThemAway From Competition.Will Consume Disproportionately

    High Energy.

    Relationship & Profitability Potential

    *Existing

    Customer

    #Potential

    Customers

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    Summarizing CRM activities:

    The CRM cycle can be briefly described as follows:

    1. Learning from customers and prospects, (having in depth knowledge of customer)

    2. Creating value for customers and prospects

    3. Creating loyalty

    4. Acquiring new customers

    5. Creating profits

    6. Acquiring new customers

    1

    Creating value

    for customers &

    prospects

    2Creating loyalcustomers

    3

    Acquiring newcustomers

    4

    5

    Creating

    Profits

    Learning from

    customers a&

    prospects

    Fig.3

    CRM Activities

    Customer Retention

    and referrals for newcustomers

    Customer NeedAssessment & Acquisition

    Customer Development

    through personalizationand customization

    Customer Equity Leverage through

    Cross Selling and Up Selling

    Figure 4 Customer Life Cycle Management

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    The Emergence of CRM Practice

    The Past:

    Looking back at a snapshot history of marketing, we can see the following clear

    developments and progression over the last four decades:

    1960s the era of Mass Marketing, when Gibbs SR toothpaste began the first

    marketing of this kind with its black and white campaign.

    1970s saw the beginning of segmentation, direct mail campaigns and early

    telemarketing (such as publ