ELC 310

Day 018

Agenda Questions? Marketing Plans

Good results 2 A’s, 2 B’s, 1 C

Exam 3 will be on November 12 Chaps 12, 13, 14 & 15 Same format as before We will not cover chap 16

Today Customer Relationship Management (Chap 14) November 9 e-marketing in Emerging Economies (Chap

15) November 16 we will be in the other text

ebusiness.marketing Case Studies

Left to Do Exams (4 @ 8% each)

Two to go One Nov 12 The other in the last week of class 16% of grade

Assignments General assignments (3 @ 4% each)

One to go (4%) Case Study analysis and presentation (10%)

Peer Grading Case Study (16%)

Peer Grading Marketing Plan 20% Done

44% of your grade is determined at this point

E-Marketing, 3rd edition Judy 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 technology.

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.

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

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 DefinedRelationship 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.

Mass marketing Relationship marketing

Discrete transactions Continuing transactions

Short-term emphasis Long-term emphasis

One-way communicationTwo-way communication /collaboration

Acquisition focus Retention focus

Share of market Share of mind

Product Differentiation Customer Differentiation

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:

1. 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.

2. 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).

Stakeholders3. 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).

4. 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.

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

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.

Acquisition Emphasis Retention Emphasis

Gain 6 new customers ($500 each)

$3,000 Gain 3 new customers ($500 each)

$1,500

Retain 5 current customers ($100 each)

$ 500 Retain 20 current customers ($100 each)

$2,000

Total cost $3,500 Total cost $3,500

Total number of customers

11 Total number of customers 23

Maximizing Number of CustomersSource: 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:

1. Sales force automation: in the B2B market

2. Marketing automation: important in all markets

3. 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.

0%

10%

20%

30%

40%

50%

60%

70%

Productsearch

Productattributes

Billing Checkout Orderstatus

Shipping Postdelivery

Pro

port

ion

Usi

ng S

ervi

ce

Shopping Paying Receiving Returning

Exhibit 14 - 3 Customers Receive Service at Every CRM PointSource: Forrester Research as cited in Speech by Tod Famous at Internet World (2001)

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 Technology8. CRM Metrics

CRM Building Blocks

Firms understand CRM’s benefits and are investing heavily in CRM software,

BUT 70% lose money on this investment. Why??

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.

1. CRM Vision: Leadership, value proposition

2. CRM Strategy: Objectives, target markets

3. Valued Customer ExperienceUnderstand requirementsMonitor expectationsMaintain satisfactionCollaboration and feedbackCustomer interaction

4. Organizational CollaborationCulture and structure

Customer understanding People, skills, competencies

Incentives and compensationEmployee communication

Partners and suppliers

5. CRM Processes: Customer life cycle, knowledge management

6. CRM Information: Data, analysis, one view across channels

7. CRM Technology: Applications, architecture, infrastructure

8. CRM Metrics: Value, retention, satisfaction, loyalty, cost to serve

Exhibit 14 - 4 Eight Building Blocks for Successful CRMSource: 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 VisionGuarding 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 VisionGuarding 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 VisionTRUSTe 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 VisionTRUSTe 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 StrategyRelationship 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.

Advocacy

Community

Connected

Identity

Awareness

Tell others about the brand Communicate with each other

Communicate with company between purchases Display the brand proudly It is on the list of possibilities

Highest intensity

Levels of Relationship Intensity Source: Adapted from Duncan (2002

2. CRM StrategyRelationship 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:

1. Build a financial bond with customers by using pricing

strategies. Price promotions are used to build share of customer BUT easily imitated.

2. 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.

3. 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.

Level Primary Bond Potential for Sustained Competitive Advantage

Main Element of Marketing Mix

Web Example

One Financial Low Price www.cdnow.com

Two Social Build 1:1 relationships Build community

Medium Personal communications

www.palmpilot.com

Three Structural High Service delivery my.yahoo.com

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 ExperienceCustomer 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.

Automated Human

Synchronous Web 1:1 self serviceOnline transactionsTelephone routing

TelephoneOnline ChatCollaboration tools

Asynchronous Automated e-mailShort Message Services (SMS)Web formsFAX on demand

E-mail responseSnail mail

Relationships Over Multiple Communication Channels

3. Valued Customer ExperienceCommunity-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.

Define the community’s purpose Construct a mission statement, identify the target market, and create a strong site personality

Organize and promote cyclic events Hold regular, hosted, themed events, conduct community surveys, and hold contests that reinforce the purpose

Create extensible gathering places Provide a good system overview or map, include rich communications features, and allow members to extend the environment

Provide a range of roles Offer newcomers a controlled experience, offer increased privileges to regulars, and recruit leaders and mentors from within

Create evolving member profiles Communicate the benefits of membership, make profile creation as easy and fun as possible, and keep the profiles up-to-date and evolving

Facilitate member-created subgroups Provide features that facilitate small groups and create events and contests for groups

Promote effective leadership and hosting Set up your program to grow, build some flexibility into the house rules, and set reasonable expectations for online support

Integrate with the real world Celebrate events that reinforce social identity, acknowledge important personal events, and encourage real-life meetings (when appropriate)

Define a clear yet flexible code of conduct Create and enforce your code of conduct and don’t try to stifle all conflict

9 Community-Building Design PrinciplesSource: 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 CollaborationCRM-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.

4. Organizational Collaboration Connecting customers with supply chain businesses provides

several advantages:1. All firms will share transaction data = inventories can be kept low.

Producers /wholesalers receive data about consumer orders + can produce goods in a timely manner.

2. Upstream firms can use the data to design products that better meet consumer needs.

3. If customer service reps have up-to-the-minute information about product inventories, they will be able to better help consumers immediately.

As more firms integrate CRM and SCM activities, they will become more responsive to individual customer needs.

Dell Computers produces and ships customized computers within days.

This type of integration is quite difficult when a firm has many different channels for its brands + when each firm uses different software/hardware to manage its internal systems.

Information Backbone

Employees

Partners

Suppliers

CRM Staff

Customers and prospects and various touch points

CRM–SCM Integration

4. Organizational CollaborationExtranet Extranets are two or more intranet networks that are joined for

the purpose of sharing information.

Extranets are proprietary to the organizations involved.

It is the use of extranets that allows CRM-SCM integration.

Electronic Data Systems (EDS) = a firm that provides enterprise-wide computer desktop services from procurement to network management for large clients.

The word enterprise means that EDS focuses on all the computer desktops in an entire company, bringing them together in a network.

5. CRM Processes CRM involves an understanding of the customer care life cycle. Firms monitor and attract customers, both online and offline,

as they progress through the stages: target, acquire, transact, service, retain, and grow.

Beginning: When companies select target markets in the e-marketing plan. When opportunities often arise when a new target group appears.

The cycle is circular in nature: e.g., while servicing customers a new target may emerge.

Based on one central tenet of CRM—it is better attract, retain, and grow customers than to focus only on customer acquisition.

Sometimes companies try to reacquire customers, as when AOL sends CDs to customers who have cancelled their accounts, with the line “We want you back... ” and an offer of free service for a certain period.

Ta rge t

A cquire

Transac t

Se rvice

R e ta in

Grow

Inte rne t Extrane t

C ustomer

P a rtne rs

Customer Care Life CycleSource: Adapted from speech by Tod Famous, Cisco Systems

5. CRM ProcessesIdentifying Customers

Firms obtain prospect, business customer, and end consumer information through:

Personal disclosure, Automated tracking through the sales force, Customer service encounters, Bar code scanners at retailers, Web site activity.

Every piece of user information goes into a database that helps firms identify the best customers.

Best = highest value, longest loyalty, highest frequency of purchase, and so on.

5. CRM ProcessesDifferentiating Customers Customers have different needs.

With the Internet, firms can collect information to identify various benefit segments and individual similarities/differences + use this information to increase profits.

One very important way to differentiate is by customer value: Not all customers have equal value to a firm.

20% of the customers provide 80% of the business’s profits.

CRM allows marketers to leverage their resources by investing more in the most lucrative customers.

Technology allows firms to identify high-value customers + respond with offers in real time over the Internet.

5. CRM ProcessesDifferentiating Customers

How can firms identify their high-value customers? By mining and profiling in customer databases, using real-time /

real-space data collection techniques. Firms use RFM analysis (recency, frequency, monetary) to mine

databases for customers who spend the most money, buy frequently and recently.

Firms evaluate sales growth per customer over time and determine service costs for individual customers.

Some customers call more often with questions and inquiries; some return products more frequently.

Some customers are clearly not profitable and, thus, should be “fired” so that the firm can allocate resources profitably.

5. CRM ProcessesCustomizing the Marketing Mix When a firm has identified prospects & differentiated customers

according to characteristics, behavior, needs, or value, It can customize offerings to various segments or individuals.

Customization occurs throughout the marketing mix, not just in the product offerings.

Marketing communication messages can be tailored to individuals and delivered over the Internet in a timely manner.

Through customization firms can zero in on the precise needs of each prospect and customer and build long-term, profitable relationships.

Personalization marketing = Web pages that greet users by name or e-mail that is automatically sent to individuals with personal account information,=customization because it refers to much more than automated personalization.

5. CRM ProcessesInteraction Interaction with customers allows: Firms to collect the data necessary for identification and

differentiation, Firms to evaluate the resulting customization effectiveness on

a continuous basis.

A Learning Relationship between a customer and an enterprise defines in ever more detail the customer’s own individual needs and tastes with each individual interaction.

The idea here is that both the firm and the customer learn from each experience and interaction.

Increased trust, loyalty, and an increasing share of mind for the firm, with peace of mind for the customer.

The Internet is uniquely positioned to deliver on this promise.

Identify

Differentiate

Customize Interaction

CRM ProcessSource: Formulated from the ideas of Moon (2000) and Kasanoff and Thompson (1999)

Digging deeper into CRM techniques reveals that firms use this process to focus on moving specific individual customers through the customer care life cycle.

6. CRM Information The more information a firm has, the better value it can

provide to each customer and prospect in terms of more accurate, timely, and relevant offerings.

Firms entice customers to provide additional information over time.

When a customer provides increasingly more personal information, she trusts the firm enough to invest in the relationship.

Sometimes firms gather this type of information under the guise of entertainment.

Firms gain much information from customers less intrusively by tracking their behavior electronically.

Information technology allows companies to move beyond the traditional segment profiling to detailed profiles of individuals.

6. CRM Information Software tracks a user’s movement from page to page, indicating :

How much time was spent on each page, Whether the user made a purchase, The type of computer and operating system, and more.

Firms can track which sites users visited before and after theirs, They use this information to guess which competitive products are under

consideration, + learn what about users’ interests. Tracking user behavior is useful to both users and companies, but it has its

critics because of privacy considerations.

Retailers gather information from each channel + filter it into a common database.

A customer can telephone the customer service representative to discuss a product purchased in the brick-and-mortar store last week, and refer to an e-mail sent yesterday, because the data are all in the database under one customer record = A 360 degree customer view.

6. CRM Information8 critical success factors for building successful e-business relationships

with customers:

1. Target the right customers1. identify the best prospects and customers and learn as much about them

as possible.

2. Own the customer’s total experience 1. the customer share of mind.

3. Streamline business processes that impact the customer1. accomplished through CRM-SCM integration and monomaniacal customer

focus.

4. Provide a 360-degree view of the customer relationship1. this means that everyone in the firm who touches the customer should

understand all aspects of her relationship with the company.

6. CRM Information5. Let customers help themselves

1. Provide Web sites and other electronic means for customers to find things they need quickly and conveniently, 24/7.

6. Help customers do their jobs 1. if a firm provides products and services to help customers perform well

in their businesses, they will be loyal and pay a premium for the help.

7. Deliver personalized service 1. customer profiling, privacy safekeeping, and marketing mix

customizing all aid in delivering personalized services electronically.

8. Foster community 1. enticing customers to join in communities of interest that relate to a

firm’s products is one important way to build loyalty.

7. CRM Technology Technology greatly enhances CRM processes.

Incoming toll-free numbers, electronic kiosks, FAX-on-demand, voice mail, and automated telephone routing = examples of technology that assist in moving customers through the life cycle.

The Internet is the first fully interactive + individually addressable low cost multimedia channel.

Cookies, Web site logs, bar code scanners help to collect information about consumer behavior and characteristics.

Databases and data warehouses store and distribute these data from online and offline touch points.

These information allow to develop marketing mixes that better meet individual needs.

Important tools that aid firms in customizing products to groups of customers or individuals include “push” strategies that reside on the company’s Web and e-mail servers, and “pull” strategies that are initiated by Internet users.

7. CRM TechnologyCompany-Side Tools There are important e-marketing tools used by firms to push

customized information to users. Users are unaware that marketers are collecting data + using

these technologies to customize offerings.

Cookies Cookie files are the reason that customers returning to

Amazon.com get a greeting by name + users don’t have to remember passwords to every site for which they are registered.

Cookie files allow ad-server firms to see the path users take from site to site and, serve advertising banners relevant to user interests.

Cookies keep track of shopping baskets and other tasks so that users can quit in the middle and return to the task later.

Company-Side Tools(push) Description

Cookies Cookies are small files written to the user’s hard drive after visiting a Web site. When the user returns to the site, the company’s server looks for the cookie file and uses it to personalize the site.

Web log analysis Every time a user accesses a Web site, the visit is recorded in the Web server’s log file. This file keeps track of which pages the user visits, how long he stays, and whether he purchases or not.

Data mining Data mining involves the extraction of hidden predictive information in large databases through statistical analysis.

Real-time profiling Real-time profiling occurs when special software tracks a user’s movements through a Web site, then compiles and reports on the data at a moment’s notice.

Collaborative filtering Collaborative filtering software gathers opinions of like-minded users and returns those opinions to the individual in real-time.

Outgoing e-mail Distributed E-Mail

Marketers use e-mail databases to build relationships by keeping in touch with useful and timely information. E-mail can be sent to individuals or sent en masse using a distributed e-mail list.

ChatsBulletin Boards

A firm may listen to users and build community by providing a space for user conversation on the Web site

iPOS terminals Interactive Point of Sale terminals are located on a retailer’s counter, and used to capture data and present targeted communication.

Selected E-Marketing “Push” Customization Tools

7. CRM TechnologyWeb Site Log By performing Web log analysis, firms can do many things,

(customize Web pages based on visitor behavior).

Softwares can also tell which sites the users visited immediately before arriving + what key words they typed in at search engines to find the site + user domains, and much more.

Data Mining Marketers don’t need a priori hypotheses to find value in

databases, but use software to find patterns of interest.

7. CRM TechnologyReal-Time Profiling Customer profiling uses data warehouse information to help

marketers understand the characteristics and behavior of specific target groups.

American Express has done this for years: It sends bill inserts to groups of customers based on their previous purchasing behavior.

What’s new? This can all be done online inexpensively via e-mail and customized

Web pages = Real-time profiling = tracking user clickstream in real time,

Allows marketers to profile + make instantaneous and automatic adjustments to site promotional offers and Web pages.

For example, the software could be set to use the following rule: If a customer orders a Dave Matthews Band CD, display a Web page offering a concert T-shirt.

7. CRM TechnologyCollaborative Filtering In the offline world, individuals often seek the advice of others

before making decisions. Collaborative filtering software gathers the recommendations

of an entire group of people + presents the results to a like-minded individual.

BOL.com, an international media and entertainment store uses collaborative filtering software to observe how users browse and buy music, software, games, at its site.

The more time a user spends at the site, the more it will learn about her behavior/preferences + the better able it will be to present relevant products.

BOL.com notes that it realized increased revenues from using this software, and achieved a positive ROI within months.

MyPoints Rewards Members for Time Spent OnlineSource: www.mypoints.com

7. CRM TechnologyOutgoing E-Mail

E-mail is used to communicate with individuals or lists of individuals (distributed e-mail) to increase their purchases, satisfaction, and loyalty.

Many companies maintain e-mail distribution lists for customers and other stakeholders.

Permission marketing dictates that customers will be pleased to receive e-mail for which they have opted-in.

MyPoints rewards consumers with points and gift certificates, all for reading targeted e-mail ads and shopping at selected sites.

MyPoints client companies pay a fee for these e-mails, some of which go directly to customers as points.

MyPoints advertises “responsible” e-mail messaging = consumers agree to receive commercial messages within their e-mails.

7. CRM TechnologyOutgoing E-Mail

Spam does not build relationships but instead focuses on customer acquisition.

The Internet provides the technology for marketers to send 500,000 or more e-mails at the click of a mouse for less than the cost of 1 postage stamp.

Relationship-building e-mail requires: Sending e-mails that are valuable to users, Sending them as often as users require, Offering users the chance to be taken off the list at any time.

It means talking and listening to consumers as if they were friends.

7. CRM TechnologyChat and Bulletin Boards Firms build community + learn about customers and products

through real-time chat and bulletin board/newsgroup e-mail postings at its Web site.

Analysis of these exchanges is used in the aggregate to design marketing mixes that meet user needs.

Expedia send e-mail notes to users who participate in the chats with offers of special tours.

iPOS Terminals Small customer facing machines near the brick-and-mortar

cash register, used to record a buyer’s signature for a credit card transaction.

They can gather survey and other data + present individually targeted advertising and promotions as well.

7. CRM Technology

Client-Side Tools Based on a user’s action at her computer or handheld

device. The customer “pull” that initiates the customized response.

Agents Shopping agents and search engines match user input to databases and return customized information.

Agent software often relies on more than one interaction.

A user might type in “computer” on the Dell site and then be presented with either laptop or desktop options to narrow the search.

Client-Side Tools(pull) Description

Agents Agents are programs that perform functions on behalf of the user, such as search engines and shopping agents.

Experiential marketing Experiential marketing gets the consumer involved in the product to create a memorable experience, offline or online.

Individualized Web portals

Personalized Web pages users easily configure at Web sites such as MyYahoo! and many others.

Wireless data services Wireless Web portals send data to customer cell phones, pagers, and PDAs, such as the PalmPilot.

Web forms Web form (or HTML form) is the technical term for a form on a Web page that has designated places for the user to type information for submission.

FAX-on-demand With FAX-on-demand, customers telephone a firm, listen to an automated voice menu, and select options to request a FAX be sent on a particular topic.

Incoming e-mail E-mail queries, complaints, or compliments initiated by customers or prospects comprise incoming e-mail, and is the fodder for customer service.

Selected E-Marketing “Pull” Customization Tools

7. CRM TechnologyExperiential Marketing On the Internet, Calvin Klein developed an interactive,

experience-based campaign to promote CK One, the unisex fragrance.

The advertising included 3 characters, each with social dilemmas representative of those in the target market.

The advertising invited viewers to e-mail campaign characters, and each e-mail received standard replies that developed the characters a bit more.

This type of offline/online integration, when combined with customized experiences, builds positive relationships between customers and brands.

The movie and sports industries are adept at creating online experiences.

7. CRM TechnologyIndividualized Web Portals The Wall Street Journal’s online edition allows individual

customers to create a personalized Web page based on keywords of interest.

Helpful for business readers who want to monitor stories about their competitors.

A structural bond is created with individual customers = boost loyalty.

Individualized Web portals are more often used to build relationships in the B2B market than the B2C market.

Allow supply chains access inventory and account information, and track various operations.

Webridge sells partner and customer relationship management software (PRM/CRM) that allows businesses to access all the data they need on demand. A huge improvement over the previous method, where buyers searched through piles of brochures, catalogs, and price lists that included many products not carried by channel partners and were constantly out-of-date.

7. CRM TechnologyWireless Data Services They are included as a separate tool because of their rapid

growth and distinctive features.

Wireless users only want text data due to the screen size of wireless devices and download time for graphics.

Services such as AvantGo.com offer users news headlines, sports scores, stock quotes, weather in selected cities, and more to users on pagers.

As users customize this information, they give serving firms a better idea of how to better serve them and, build relationship.

7. CRM TechnologyWeb Forms Many corporate Web sites use Web forms for a multitude of

purposes from site registration and survey research to product purchase.

Many sites strive to build the number of registered users as a prelude to transactions.

FAX-on-Demand In the B2B market, firms often want information sent via FAX

machine. Services such as eFax.com allow Internet users to send and receive

FAX transmissions at their Web sites.

Why would a user use this service as opposed to an e-mail attachment?

When the document is not in digital form, a signature is needed, or Internet access is not available so the document cannot be sent as an e-mail attachment.

7. CRM TechnologyIncoming E-Mail

Post-transaction customer service is an important part of the customer care life cycle.

The Web online channel = a feedback button or form that delivers an e-mail message to the corporation.

Often an automated customer service program acknowledges the message via e-mail and indicates that a representative will be responding shortly.

Research shows that firms are getting much better at responding to incoming e-mail.

Companies should include feedback options online only if they have staff in place to respond: E-mail addresses on a Web site imply a promise to reply.

8. CRM Metrics Metrics used to assess the Internet’s value in delivering CRM

performance = the contribution of each CRM tactic to ROI, cost savings, revenues, customer satisfaction.

All e-marketing performance measures assess specific tactics from different perspectives, the choice of the metrics depend on the firm’s goals and strategies.

Information about what makes customers value the products = Firms attempt to:

Increase conversion & retention rates, Reduce defection rates, Build AOV (average order value) and profits per customer over

time (acquire, retain, grow).

Target

Recency, frequency, monetary analysis (RFM)—identifies high value customers. Share of customer spending—proportion of revenues from high-value customers as

compared to low-value customers.

Acquire

New customer acquisition cost (CAC). Number of new customers referred from partner sites. Campaign response—click throughs, conversions, and more from chapter 13. Rate of customer recovery—proportion of customers who drop away that the firm can

lure back using various offers.

Transact

Prospect conversion rate—percent of visitors to site that buy. Customer cross sell rate from online to offline, and the reverse. Services sold to partners. Sales of a firm’s products on partner Web sites. Average order value (AOV)—dollar sales divided by the number of orders for any given

period. Referral revenue—dollars in sales from customers referred to the firm by current

customers Sales leads from Internet to closure ratio

Exhibit 14 - 17 CRM Metrics By Customer Life Cycle Stage

Service

Customer satisfaction ratings over time (see Cisco opening story).Time to answer incoming e-mail from customers.Number of complaints.

Retain

Customer attrition rate—proportion who don’t repurchase in a set time period.Percentage of customer retention—proportion of customers who repeat purchase.

Grow

Lifetime value (LTV)—net present value of the revenue stream for any particular customer over a number of years.AOV over time—increase or decrease.Average annual sales growth for repeat customers over time.Loyalty program effectiveness—sales increase over time.Number of low value customer moved to high value.

CRM Metrics By Customer Life Cycle Stage

8. CRM Metrics Firms use some of these methods to identify the least profitable

customers and minimize interactions with them. The point is to try to minimize the time invested in servicing low-profit

customers.

Customer lifetime value (LTV): The first year: the firm has 1,000 customers, each spending an average of

$35.90. The second year, 60% of the customers are retained, they each spend

$75.90.

The numbers may look small (calculation discounts revenue to its PV). The LTV increases after the 5th year = higher retention rate in later years. Few customers are left in year 10. This calculation demonstrates the benefits of retaining customers over time

and the need for building share of wallet. It also shows that no matter how good a firm is at retaining customers, new

customer acquisition is still an important activity. Spreadsheet to help calculate LTV

Total Retention Total Net NPV at 10-Year

Year Customers Rate Revenue Profit 15% LTV

1 1,000 60% $35,900 $ 5,900 $ 5,900 $ 66.94

2 600 65% 45,540 27,540 23,948 118.12

3 390 70% 29,601 17,901 13,536 129.15

4 273 75% 20,721 12,531 8,239 138.35

5 205 78% 15,541 9,398 5,373 143.45

6 160 79% 12,122 7,330 3,645 145.55

7 126 80% 9,576 5,791 2,504 146.81

8 101 80% 7,661 4,633 1,742 146.81

9 81 80% 6,129 3,706 1,212 146.81

10 65 80% 4,903 2,965 843 146.81

Customer Lifetime Value (LTV)Source: Adapted from Peppers and Rogers Group at www.1to1.com