crm-a vehicle for value creation

8/8/2019 Crm-A Vehicle for Value Creation

1/20

1


2/20

2

GROUP MEMBERS

MARTINA COUTINHO- 10

POOJA SINGH- 47

PRIYANKA SINGH- 48

RUPAL SOLANKI- 49

Submitted To Ms. Laila Dias


3/20

3

I

N

DE

X

Sr.No Topic Pg No 1 Introduction 4 2 The value the customer

receives7

3 The value proposition 84 The value the

organisation receives11

5 Customer acquisitionand its economies

11

6 Customer retention andits economies

12

7 Customer lifetime value

analysis

15

8 Conclusion 189 Acknowledgement 19

10 Bibliography 20


4/20

4

In du n Customer relationship

management (CRM) is a roadl yre cognized, idel y-implemented strateg y or managing and nurturing a compan ys intera ctions

ith customers, clients and sales prospe cts. t involves using

te chnolog y to organize, automate, and s ynchronize usiness processes -principall y sales activities, ut also those or marketing, customer servi ce, and te chnical support. he overall goals are to ind, attra ct, and in new clients, nurture and retain those the compan y alread y has, entire ormer clients ack into the old, and redu ce the cost of

marketing and client servi ce. CRM denotes a compan y-wide usiness strateg y embra cing all client -fa cing departments and even be yond. When an implementation is effe ctive, people, processes, and te chnolog y work in s ynerg y to increase profitabilit y, and redu ce operational

costs. t is important to emphasis that CRM is a spe cialt ywithin marketing, and to implement CRM in a compan y, you can use tools as CRM s ystems, mailers, databases et c.


5/20

5

Creating customer value is increasingl y seen as a ke ysour ce of competitive advantage. Yet, despite growing attention to this aspe ct of strategi c development, there is remarkable little b y wa y of agreement amongst managers and commentators on what constitutes

customer value. Further, companies t ypicall y do not spe cif y in suffi cient details the value the y seek to deliver to clearl y identified customer segments and micro-segments, and how the y propose to deliver this value.

he value creation process consists of three ke yelements: determining what value the compan y can provide

to its customers (the value customer re ceives ); determining the value the organization re ceives from its customers (the value the organization re ceives ); and, b ysuccessfull y managing this value exchange, maximizing the lifetime value of desirable customer segments.


6/20

6

T o these companies, customer value means:

y how much mone y we can extra ct from the customers?

y how can we sell them more of the existing products and servi ces the y are bu ying?

y how can we cross -sell them new products and servi ces?

However, in toda ys competitive arena where a growing number of businesses vie for a greater share of a finite customer pool, it has be come imperative to consider customer value also in terms of customer benefit:

y how can we create and deliver value to our customers? y how can we ensure the customer proposition is relevant

and favourabl y attra ctive? y how can we ensure the customer experien ce is

consistentl y positive?


7/20

7

The V lu e The us er eceive s

T he value the customer re ceives from the supplier organization is the total package of benefits derived from

the core product and the product surround , or the added values that enhance the basic

features such as servi ce and support. s pointed out b yHarvard usiness Sc hools T heodore Levitt, competition exists not between what companies produce in their fa ctories but between what the y add to their fa ctor youtput in the form of packaging, servi ces, advertising, customer advice, financing, deliver y arrangements, warehousing, and other things that people value. T he value the customer attributes to these benefits is in proportion to the per ceived abilit y of the offer to solve whatever customer problem prompted the purchase. T his value can be calculated using the proposition concept and undertaking a value assessment -importantl y, working from a customer perspe ctive.


8/20

8

The Value PropositionT he aim of all businesses is to create a value proposition for customers, be it implicit or explicit, which is superior to and more profitable than those to

competitors. n spe cific usage, a value proposition is the

offer defined in terms of the target customers, the benefits offered to these customers, and the price charged relative to the competition. Value propositions explain the relationship between the performan ce of the produ ct, the fulfilment of

the customer s needs and the total cost to the customer over the customer relationship life cycle. s ever y customer is different and has changing needs, it is crucial that the value proposition for each customer is clearl y and individuall yarti culated, and cognizant of the customer s lifetime value.

stru ctured method for developing value propositions,

originated consulting firm McKinse y and Co. and further developed b y others, is comprised of two main parts: formulation of the value proposition and profitable deliver yof this value proposition b y means of a value deliver ys ystem.


9/20

9

Formulating th e value proposition

F ormulating the value proposition involves defining thetarget customers and the prices charged relative to the

competition , and then e xpressing this as a formalstatement. ome e xamples of value propositions , basedon work by anning and Philips are shown in F igure 1.

Figure 1: Examples of value propositions for variousindustries.

Company/Product

Targ etCustomers

Benef its Pric e Value Proposition

Perdue

chicken)Quality consciousconsumers ofchicken

Tenderness 10percentpremium

More tender , golden chicken ata moderate pricepremium

olvo

stationwagon)

afety

conscious upscalefamilies

Durability

and safety

20

percentpremium

The safest , most

durable stationwagon your familycan travel in at asignificant pricepremium

Domino s

pizza)Convenience minded pizzalovers

Deliveryspeed andgood quality

15percentpremium

A good pizza, delivered hot to

your door within30 minutes ofordering , at amoderate pricepremium


10/20


11/20

11

The V lu e The rga n i s atio n eceive s

The value the supplierorganization receivesfrom the customer hasthe greatestassociation with theterm customer value.Customer value fromthis perspective is theoutcome of providingand delivering superiorvalue to the customer;deploying improvedacquisition and retention strategies; and utilizing effective channel management. Fundamental to the concept of customervalue in this context is understanding the economics of customer acquisition and customer retention. Theopportunities for cross-selling, up-selling and building

customer advocacy are also integral to this view of valuecreation.

Customer a cquisition and its e conomies

The importance of customer acquisition varies considerablyaccording to a companys specific situation. For example, anew market entrant to the fast-paced world of e-business willbe primarily focused on customer acquisition, while an

established manufacturing company operating in a maturemarket maybe more concerned with customer relation.

The customer acquisition process is briefly concerned with:

y Acquiring customers at a lower cost,y Acquiring more customers, andy Acquiring more attractive customers.


12/20

1 2

Customer retention and its e conomiesWriters and researchers have suggested that it costs aroundfive times more to get a new customer than it does to keep anexisting one. Despite this finding, many companies have

traditionally focusedtheir marketingactivities on acquiringnew customers, ratherthan retainingexisting customers.

This may be due tothe historical

convention in manycompanies thatreward customeracquisition to a muchgreater extent thancustomer retention, orit may be caused due

to lack of understanding of why customer retention can besuch a boon to commercial profitability.

The pro it impa ct o customer retentionimprovement

While most companies recognize that customer retention isimportant, relatively few understand the economics of customer retention within their own firm. Until fairly recently,there was little research that critically evaluated the relative

financial benefits of customer acquisition versus customerretention. In 1990, a partner consulting firm Bain & Co. anda professor at the Harvard Business Scholl, Fred Reichheldand Earl Sasser, published some revealing research, whichdemonstrated the financial impact of customer retention.


13/20

1 3

They found even a small increase in customer retentionproduced a dramatic and positive effect on profitability: a fivepercentage points increase in customer retention yielded avery high improvement in profitability in net present value(NPV) terms. Increasing the customer retention rate from, say,85% to90%representeda netpresentvalue profitincreasefrom 35%

to 95%among thebusinessestheyexamined.

The impa ct o retention on pro itabilit y Why should retention have such a great effect on profitability?

Reichheld and Sasser suggested a number of reasons toexplain their findings:

y Acquiring new customers involves costs that can be significantand it may take some years to turn a new customer into aprofitable customer.

y As customers become more satisfied and confident in theirrelationship with a supplier, they are more likely to give thesupplier a larger proportion of their business, or share of

wallet.y As the relationship with a customer develops, there is greater

mutual understanding and collaboration, which producesefficiencies that lower operating costs. Sometimes customersare willing to integrate their IT systems, including planning,ordering and scheduling, with those of their suppliers, andthis further reduces costs.


14/20

1 4

y Satisfied customers are more likely to refer others, whichpromotes profit generation as the cost of acquisition of thesenew customers is dramatically reduced. In some industries,customer advocacy can play a very important role in acquiringnew customers, particularly when there is a high risk involvedin choosing a supplier.

y L oyal customers can be less price-sensitive and may be lesslikely to defeat due to price increases. This is especially true inbusiness-to-business markets where the relationship with thesupplier becomes more valued and switching costs increase.


15/20

1 5

C US TOME SE ME T IFE T I ME V UE SIS

A balance isneeded between themarketing effortsdirected towardsexisting and newcustomers. Thisbalance will varygreatly dependingon whether thebusiness is a startup such as adotcom or amature bricks andmortar company.However, in

general, marketing expenditure is unbalanced with too muchattention being directed at customer acquisition and too little

at customer retention.

To enable a decision on the relative amount of emphasis thatneeds to be placed on them, an understanding of bothacquisition and retention economies at segment level iscritical. A calculate a customers value a company must lookat the projected profit over the life of the account. Thisrepresents the expected profit flow over a customers lifetime.

The key metric used here is customer lifetime value (C L V),

which is defined as the net present value of the future profitflow over a customers lifetime.

It should not be assumed that companies will wish to retainall their customers. Some customers may cost too muchmoney to service, or have such high acquisition costs inrelation to their profitability, that they will never prove to be


16/20

1 6

wo

h whil nd p o

i

bl l l i

wo ld b in dvi bl

oinv

h in h

o n

i lik l

h

w i

hin iv n po

olio o

o

h b o

n

h

p o

i

bl o

h

b k- v npoin

nd o

h

np o

i

bl Th in in

o

n

ion do no

lways y i ld in ases in cust o er p r o

ita bili ty. I n s o e in sta n ces, in creas in t h erete n t ion o

suc h u np r o

ita bl e cust o ers w ill d ecreasep r o

ita bili ty. It s ho u ld b e rec o ni ! e d , ho we ver, t h atu np r o

ita bl e cust o ers may b e va lua bl e in t h e ir c on tr ib ut ion t owar d s f ix ed costs a nd con s id era bl e caut ion n ee d s t o b epl ace d in t h e a llo cat ion o f f ix e d a nd var ia bl e c osts t o en suret h at cust omers w ho ma k e a c on tr ib ut ion are no t s im pl e

di scar d ed .M ode lling custom er li fe time value

Researc h h as hi " hli " h te d t h e n ee d f or ma n agers t o a dop t astr on ger f ocus on cust omer rete n t ion a nd measur in g C # V.Howe ver, t h ere is curre n t l y a lac k of a va ila bl e a n a l yt ica l t ool st o h e lp id en t ify C # V f or cust omer segme n ts in a s p ec if icb us in ess. So me c om p a ni es are no w start in g t o b u ild com p re h en s ive framew or k s a nd m od e ls t h at e n a bl e t h em t o measure C # V at t h e segme n t leve l.

$

e h a ve d eve lop e d on eframew or k , t h e Rete n t ion gram M od e l % t o u nd erta k e suc h m od e lin g. Thi s m od e l, w hi ch d er ives its n ame fr om a u ni & uegra phi ca l re p rese n tat ion met hod , is use d t o visua ll y d epi ctt h e tra d e-o ff b etwee n acqu is it ion a nd rete n t ion strateg ies in s p ec if ic b us in esses. It e n a bl es t h e p r of it im p act o f c h a n ges in cust omer rete n t ion , cust omer acqu is it ion a nd ot h er var ia bl est o b e measure d at t h e aggregate, segme n t, m icr o- segme n t a nd

individ ua l cust omer leve ls. Th e m od e l a llo ws a tra d e -o ff t o b ema d e in t h e a llo cat ion of scarce orga ni ' at ion a l res ourcesb etwee n strateg ies c on cer n ed w it h reta inin g e xi st in gcust omers a nd strateg ies c on cer n e d w it h attract in g n ewcust omers f or a s p ec if ic orga ni ' at ion . C hoi ces ca n a ls o b ema d e a bo ut t h e re lat ive em ph as is t o b e pl ace d on strateg iesf or di ffere n t cust omer segme n ts.


17/20

1 7

M odelling uture pro it potential

Such models are important in helping organizationsdetermine customer value in terms of C L V. However, feworganizations have reached the stage of understanding their

existing acquisition economies and retention economies, letalone gone beyond it. Those that have can move on tomodelling future profit potential for each market segment.Modelling of future profit potential takes into account thatindividual consumers may be

persuaded to buy other products, or more of an existingproduct over time. Corporate customers, for example, tend tobuy from a range of suppliers. By enhancing its predictive

modelling capability the supplier organization may be able toincrease share of wallet as well as market share, especiallythrough more creative exploitation of alternative channelstructures such as the internet.


18/20

1 8

Co clusio U nderstanding and undertaking the value creation process is crucialin transforming the outputs of the strategy development process inCRM into programmes that both e xtract and deliver value. Aninsufficient focus on the value provided to key customers , asopposed to the income derived from them , can seriously diminishthe impact of the offer in terms of its perceived value. Only abalanced value e xchange will ensure that both parties enjoy a goodreturn on investment , leading to a good ( long ) term and profitable)relationship.

Achieving the ideal equilibrium between giving value to customersand getting value from customers is a critical component of C RMand requires competence in managing the perception and projectionof value within the reality of acquisition and retention economies. Toanticipate and satisfy the needs of current and potential customers , the supplier organi zation must be able to target specific customers , and to demonstrate added value through differentiated propositions

and service delivery. This means adopting an analytical approach tovalue creation , supported a dynamic , detailed knowledge ofcustomers , competitors , opportunities , and the company 0 s ownperformance capabilities.

Increasingly sophisticated technologies provide essential aids indeveloping and deploying 1 intelligence 0 for competitive advant age.Many consumers have achieved greater organi zational efficiency and

market place effectiveness through automating the businessprocesses that deliver value to their customers ( as well as suppliersand employees). 2 owever , such innovations do not negate the vitalrole fulfilled by employees. Indeed , excellent customer careremains the key determinant of winning and keeping customers .


19/20

1 9

Acknowledgment

We express our deepest thanks to Ms. Laila Dias and MMK College Library for their meticulous attention and support without

which it would have been difficult to complete this project .


20/20

2 0

Bibliography

www.google.com www.wikipedia.com

A Business Is A Value Delivery System by Lanning, M. and Michaels

crm-a vehicle for value creation

Documents