CUSTOMER RELATIONSHIP

MANAGEMENT

Customer Differentiation
vs. Product Differentiation
Research by Professors Cooper and Kaplan at the

Harvard Business School has shown that in a large

number of companies 20 percent of customers
account for 225 percent of profits.
But the trouble is that most companies do not know

which customers make up the 20 percent and which

make up the 80 percent.
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What is CRM?
Customer Relationship Management (CRM) is an

enterprise approach to understanding and influencing

customer behavior through meaningful communications
in order to improve customer acquisition, customer
retention, customer loyalty, and customer profitability
A Customer Relationship Management (CRM) System
provides the technology to do so.

What does CRM do?

Earlier, pieces of customer data were often fragmented in

isolated systems serving finance, distribution, sales, service, and

marketing
CRM systems capture and integrate customer data from all over
the organization, consolidating the data, analyzing the data, and
then distributing the results to various touch point across the
enterprise.
Well designed CRM systems can provide a single enterprise view
of customers that can be used for improving both sales and
customer service

Enterprise Strategy Map

Individual
interaction

Database
Marketing

1 to 1
learning
relationship

Mass
Marketing

Mass
Customization

Interacting

Interaction through
Mass Media

Standard
products

Tailoring

Tailored
products

Customer Relationship
Management (CRM)
Traditional Marketing

CRM

Goal: Expand customer base, Goal: Establish a profitable,

increase market share by
long-term, one-to-one
mass marketing
relationship with customers;
understanding their needs,
preferences, expectations
Product oriented view

Customer oriented view

Mass marketing / mass

production

Mass customization, one-to-one

marketing

Standardization of customer
needs

Customer-supplier relationship

Transactional relationship

Relational approach

Needs Satisfied

Needs Satisfied

Share of the Market

vs. Share of the Customer

Customers Reached
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Customers Reached

Four implementation tasks for creating

and managing customer relationships
IDIC
Identify

Differentiate
Interact
Customize

Identify
Relationships are individualistic, not with
markets or groups of people
Must be able to identify your customers individually
and recognize them when interacting with them
You need to know how much customer
identification does a company already have (what
info do you need.
Difficult to do, can be almost impossible if channels
of communication involve intermediaries

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Differentiate
Some customers are worth more than others

80/20 rule

Want to better understand customer needs vs.

demographics
-Understand why they buy rather than what they buy

Want to better understand the value of that

customer to the enterprise

1. Knowing value of customer to the enterprise allows
prioritization
2. Lifetime value (LTV) net present value of the stream of
expected future contributions from the customer.
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Interact
Goal of interaction is to get more information directly

from a customer in order to serve him in a way no

competitor can who doesnt have the information
Want to turn the interaction into a collaboration in
which the enterprise and customer work together to
make transactions beneficial to both parties a learning
relationship
Important issue in the interaction is privacy. Research
has indicated that individuals are willing to provide
information
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Customize
Use knowledge of customer to figure out what he/she

needs
Key term is mass customization
Can be product based
Or service based on standard products
Use of information technologies key

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How does technology play a role?

Enabler .
Managing all touch points with the customer to develop

knowledge so that the relationship part of the

interaction becomes meaningful.
Note, technology is only an enabler, people and
organizational design play critical roles in CRM success

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CRM Technologies
CRM systems are integrated with other enterprise information

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systems including ERP, SCM, PLM, EIS etc.

Once data are gathered in a Data Warehouse for a CRM effort,
Data Mining and OLAP/BI tools are utilized to analyze them
Predictive modeling through Data Mining can identify range
of products and services that best suit particular customers
Using Data Mining tools integrated with GIS , one can establish
customers geographical preferences
Revenue (management) optimization software automates
the process of calculating the prices businesses need to charge for
maximum profits

CRM Market
Gartner predicts CRM will be a $ 36.5 Bn by the end of

2017.
CRM also leads all enterprise software categories in
projected growth, showing a 15.1% CAGR from 2012 to
2017
Gartner forecasts shows CRM eclipsing ERP in worldwide
market size in 2017.

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CRM in India
In Gartner's view, the Indian CRM market size is about 15% of the

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overall Asia Pacific (APAC) market, the second largest in the

region, after Australia.
Between 2009 and 2014, CRM in India is projected to grow at a
compound annual growth rate (CAGR) of 16% to 19%.
The Top 5 CRM Systems in India
Oracle, including its Oracle Siebel, PeopleSoft and Oracle On
Demand products
SAP CRM
Microsoft Dynamics CRM
Salesforce.com

CRM Software
Customer Relationship Management Software provide tools
for:
1. Sales Force Automation
2. Customer Service
3. Marketing

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Sales Force Automation Module

SFA modules in CRM systems help sales staff increase their

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productivity by focusing on the most profitable customers

CRM systems provide sales prospect and contact
information, product information, product configuration
capabilities and sales quote generation capabilities.
Such software can assemble information about a particular
customers past purchases to help the salesperson make
personalized recommendations.
CRM software enables customer and prospect information
to be shared easily among sales, marketing and delivery
departments
CRM software also has capability for sales forecasting,
territory management and team selling

Customer Service Module

Customer Service modules in CRM systems provide

information and tools to make call centers, help desks and

customer support staff more efficient.
They have capabilities for assigning
and managing
customer service requests.
CRM systems may include Web based self-service
capabilities by creating a company web site and providing
inquiring customers personalized support information as
well as the option to contact customer service staff by
phone for additional assistance
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Marketing Module
CRM systems support direct marketing campaigns by

providing capabilities for capturing prospect and customer

data.
Marketing modules would also include tools for analyzing
marketing and customer data for identifying profitable and
unprofitable customers, designing products and services and
identifying opportunities for cross selling, up selling and
bundling.

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Operational And Analytical CRM

Operational CRM: Customer facing applications such as

tools for sales force automation, call centre and customer

service support, and marketing automation.
Analytical CRM: Applications that analyse customer data
generated by operational CRM applications to provide
information for improving business performance management.
An important output of analytical CRM is the customer
lifetime value (CLTV).

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Analytical CRM

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Operational Vs Analytical CRM

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RFM Method
(Recency, Frequency, Monetary Value )

Marketing Problem:
A firm has sent e-mail to 30,000 of its existing customers,
announcing a promotion of $100. 458 of them responded
(1.52% of the customers)

Is there any relation between the responding customers and

their historical purchasing behaviours?

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RFM Method
(Recency, Frequency, Monetary Value )
Recency
When was the last customer interaction?
Frequency
How frequent was the customer in
interactions with the business?
Monetary value of the interactions

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its

RFM Method:
Recency Coding
30,000 customers are sorted in descending order with

respect to their most recent purchases

Sorted data is divided into 5 equal groups, each of them

containing 6,000 people

Recency codes are assigned: Top group has code 5, bottom

group has code 1

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Response %

RFM Method:
Recency Coding

Recency Results
According to analysis based on customer

4.00

recency, the group having the highest

recency group has also the highest response
rate

3.1

3.00

Remark:

2.00

(3.10% + 2.00% + 1.50% + 0.62% +

0.38) / 5= 1.52% which is the response rate

1.5

1.00

0.62
0.38

0.00
5

Strict Rule: Ones who have purchased

recently are much more willing to

buy new products than others
purchasing in the past

Recency code R
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RFM Method:
Frequency Coding
Sort the 30,000 customers with respect to frequency metrics.
Frequency metrics: Average number of purchases made by

customer in a time period t

Sort customers in descending order with respect to their
purchase frequency.
Assign them to 5 groups, top %20 in the first frequency

group.
Assign frequency codes such that the top group has code 5 and
the bottom group has code 1.
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RFM Method:
Frequency Coding
Frequency Results
3

2.8

It is observed that highest

Response %

2.5

response rate is from the

customers having highest
frequency

2.1

2
1.5

1.3

0.8

0.9

0.5
0
5

Frequency code F
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RFM Method:
Monetary Value Coding
The same process as recency and frequency coding

Sorting is done with respect to monetary value metric

Monetary value metric is the average amount purchased in

a time period t
At the end of the monetary value coding, assign monetary
value codes M = 1,...,5 to groups according to their groups.

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RFM Method:
Monetary Value Coding
Frequency Results

2.5
Response %

2.1

It

1.8
1.4

1.5

1.2

1.1

1
0.5

is observed that
highest response rate is
from the customers
having
highest
monetary value

0
5

Monetary value code M

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RFM Method:
Putting the Codes Together
At the end of the monetary coding firm obtain R F M

metrics for customers. Each customer belongs to one of 125

possible combinations of the RFM values:

Database

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21

22

23

24

231

232

233

234

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RFM Method:
STEPS
Create 3 digits RFM codes cells
RFM values are used to define group of customers that

marketing campaign should target or should avoid

Used for identifying customers having high probability to
respond to campaigns:
555s response rate > 552s > 543s >541....
Increase the response rate
Increase profitability

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CRM Benefits
Lower costs of acquiring new customers
No need to acquire so many customers to maintain a steady

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business volume
Reduced sales costs. Existing customers are generally more
responsive
Higher customer profitability through segmentation and targeting
products and services
Increased customer retention and loyalty. Customers stay longer,
buy more, and contact you more
Improved customer service
Evaluation of customer profitability leads to identifying the most
profitable classes of customers

Details that underlie the Benefits

It costs 6 to10 time more to generate revenue from a new

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customer than from existing one.

A 5 percent increase in the retention rate can increase
company profits by 60 to 100 percent.
Mass mailings are wasteful. 98% of promotional coupons are
discarded.
Servicing a customer through a call center is six times more
expensive than via the Internet.
Loyal customers who refer another one generate business at
little or no cost
Referred customers generally stay longer, use more products,
and become profitable customers faster.

CRM at Work: Amazon

One of the leaders in implementing customer relationship

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management programs on the Web

Unique CRM program increased customer acquisition and
retention
In 1999 Amazon acquired 11 million new customers, nearly
tripling its number of customers from 1998
Greatest success in customer retention: Repeat customers
during the year accounted for 71% of all sales
Success attributed to the attempt to learn about
customers and their needs and then using this
information to offer value-added features

CRM problems and Issues

Most problems and issues with CRM are due to organizational

issues.
One third of all CRM projects generate great results, one third
create minor improvements, and the final third produces nothing
CRM experts believe that 80 percent of the benefits of CRM
come from new business processes, while only 20 percent
are due to the technology.
According to an InfoWorld-CTO Network Survey CRM problems
are due to
Difficult integration (39%)

High cost/low ROI (27%)

Resistance from staff or customers (24%)
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Solutions do not meet needs (5%)

Others (5%)

Measuring CRM Success

Common parameters used for measuring CRM Success are:
Reduced expenses/costs of doing business
Improved external customer satisfaction
Improved internal customer satisfaction
Reduced sales cycle
Increased productivity
Increased Sales, etc

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