CUSTOMER RELATIONSHIP MANAGEMENT

LPU: Semester IV 2012 - 2013

Books
Books: CRM by Ed Peelen CRM by Zikmund, McLeod & Gilbert

Three basic principles of Marketing

1.The root of every marketing transaction is the value proposition V=B/P, where V is value, B benefits and P price

2. Each marketer tries to obtain competitive or differential advantage. 3. Focus

Todays business environment

Discontinuity Speed of change Globalisation Technology Liberalisation Competition Shrinking of time and space
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Contours of todays marketing scene

Effectiveness of mass advertising going down in mature markets Fragmentation Customisation Pressure on margins Great increase in the number of competitors

Strategies for dealing with customers

Unsegmented, mass marketing to Market segmentation to Customised marketing Aggregated ~ standardised offering ~ low cost per customer to one-to-one ~ tailored offering ~ high cost per customer Crucial aspect: right level of aggregation Main differentiator: ability to understand & address customers preferences & priorities => strategic implementation of this knowledge throughout the company

CRM
Process of acquiring, retaining and growing profitable customers as a market share gaining tool, in short: grow profitable customers Focus on value and developing loyalty Uses IT to provide the enterprise with a comprehensive, reliable and integrated view of its customer base Interactions individualised and personalised Enhance customer service, improve satisfaction and ensure customer retention Much more than just automating processes in sales, marketing & service ~ it involves conducting interactions with customers on a more informed basis and tailoring these interactions to customer needs

CRM vs. Advertising

Decreases advertising costs Easier to target specific customers Easier to track effectiveness of a campaign Competition based on service, not price Prevents overspending on low value clients and under spending on high value ones Speeds marketing cycle time for developing and marketing a product Improves use of customer communication channel

The context for CRM

Macro-environment (STEEP factors) -> strategy -> STP -> 4 Ps Customers categorised as # existing # defected # prospects # of affinity partners Communication channels: ~ Mail: white mail & e-mail ~ Telemarketing: outbound & inbound Evaluation of responses positive and negative
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Types of CRM programmes

Win back or save Prospecting Loyalty Cross sell /up sell

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Implementation requirements
Strategy Channel , segmentation, pricing, marketing, branding, advertising Segmentation particular product-market -> value of customer to business -> categorising according to customer needs Technology database, software, data mining, DSS Process speed, measurement, evaluation Organisation cross-discipline segment teams
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MIE (Market intelligent enterprise)

Strategic use of customer and prospect information Transactional focus Operational use of information Strategic channel management Technology-enabled new business opportunities Enterprise-wide approach

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Customer value - dimensions

A. two questions: What does my customer value? What is the value of my customer? Value of a customer or customer segment is often decisive for the companys success B. 3 aspects: * life stage * loyalty advocate, supporter, customer, prospect * channel retail store, phone, direct mail, Internet
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Important terms
Transaction Contextual information Meta-service Meta data ( data about data ) Data warehousing Data mining Lifetime value Customer lifecycle Migration Attrition
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Paradigm Shifts
Customer driven practices Focus on profitability Strategic marketing practices

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Relationship Marketing
Strategies aimed at attracting & building a relationship with customers widening, lengthening, deepening Developing a core service Customising relationship Augmenting core service with extra benefits Pricing services to encourage loyalty Marketing to employees to help them provide better service
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Value Addition

Service enhancements Incentive Tailored interactions

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Important concepts in RM
Trust Customer perceived quality Benchmarking internal & external Internal marketing (TQM) Buy grid (new task straight rebuy modified rebuy) Customer value value chain Life time value Recency

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Relationship Marketing Programmes

Continuity Marketing Programmes Partnering programmes One to one Marketing Integrated telephone marketing

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Loyalty
Result of an organisation creating benefits for customers so that they maintain or increase purchases from the organisation. Win-win relationship to be obtained Customer becomes an advocate, without incentive

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Components of loyalty
Behavioural + Attitudinal Behavioural: consistency in repurchase; types # undivided loyalty # occasional switcher # switched loyalty # divided loyalty # indifference Attitudinal: based on # beliefs # emotional responses # intentions
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Degree of customer loyalty

Attitudinal loyalty + Behavioural loyalty Attitudinal loyalty: Satisfaction + emotional bonding + trust + risk reduction Behavioural loyalty: Choice reduction + habit + history with the company
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Loyalty

ATTITUDE

ATTITUDE

BEHAVIOUR No Loyalty

+
Latent loyalty

BEHAVIOUR Inertia Loyalty Loyalty

+
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Factors lessening loyalty

Competitive parity Variety-seeking behaviour Low involvement Price sensitivity Deal proneness Low share of voice or presence in information landscape
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Transaction Vs. Relationship

Transaction Relationship

Objective
Characteristic

Make sale
Anonymity

Create customer
Inter dependence Value, repeat purchase Agreement

Success criteria Volume, price, new customers Interaction tone Conquest, Discrete

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Loyalty & value: fried egg model

CRM Strategy Relation perceived as highly valuable Selected customers High degree of customer satisfaction

High degree of loyalty

Value of relation high for both parties

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Customer lifetime value

Marriage
Relationship Strategic customer care Customer retention

Customer Satisfaction & loyalty

Courtship

Customer acquisition Customers lifetime value

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Cost of Lifetime Value

Cost of acquisition Selling cost Customer care cost
Revenue Profits
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The path to S-CRM

Customer acquisition: loyalty measurements relate to transactions, e.g. turnover, profit margin

Customer retention: relationship oriented, e.g. customer satisfaction index, profitability (share of wallet)
S-CRM: dialogue oriented share of life
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Loyalty and profitability

Relationship Customer retention ( L +, P -) Marriage Strategic CRM ( L +, P + )

L O Y A L T Y

Courtship Relationship Customer Acquisition Customer retention (L-,P-) ( L -, P +)

PROFITABILITY
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Strategic customer care

Dialogue
Retention Strategic customer care Customer retention

Customer Satisfaction & loyalty

Transaction

Customer acquisition Customers lifetime value

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Customer lifecycle
Suspect Prospect Loyal advocate Repeat customer Customer 1st transaction Inactive regular customer

Lost customer Feedback

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Reasons for terminating relationship

Novelty seeking Dissatisfaction Relative advantage Conflict Loss of trust Cessation of need
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The need for analytics

Greater need for customer-centricity Differentiation becoming more difficult Marketing cycle times becoming compressed Increased transparency of markets Attention span of customers decreasing

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CRM ecosystem
Collaborative CRM Analytical CRM Operational CRM

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Another look at customer lifecycle

Engage
Transact Fulfill Service
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Customer life-cycle management

3 domain business system aligning Business processes: sales, service, marketing CRM technologies: operational, analytical, collaborative Customer life-cycle phases: engage -> transact -> fulfill -> service
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Where does analytics fit?

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Scope of analytical CRM

Capturing all relevant customer information Measuring & optimising customer relationships Customer Behaviour Modeling Customer Value Assessment (profitability, LTV, profiling & scoring) Deploying analytical results to improve planning & customer interaction
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Business Architecture of Analytical CRM

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From customer centricity to profitable growth

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The customer knowledge base

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The 4 building blocks of CRM

Customer Knowledge Channels Value Proposition Relationship policy

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Relationship phases
Exploratory Growth Maturity Decline In each phase, the marketers response vis a vis transaction, commitment, objective and policy is different

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Relationship data management - issues

Customer identification ~ operationalisisng data quality Expanding size of customer database ~ external lists and own channels Customer profiling ~ characteristics, maintenance, data sources

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Objectives of Data Warehousing

Data to be current Data to be accurate Data to be secure Data to be easily available to authorised users Data descriptions to be maintained for users & system developers
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Phases of data analysis

Database / data warehouse ~ selection & sampling ~ Target data ~ preprocessing & cleaning ~ Cleaned data ~ transformation & reduction ~ Transformed data ~ data mining ~ Patterns / models ~ Evaluation of knowledge & performance system
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Management & control

STAGING AREA
ETL extraction, transformation & loading

WAREHOUSE DATA REPOSITORY

METADATA REPOSITORY

INFORMATION DELIVERY
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Repository
Geographic data Demographic data Activity data Psychographic data Behavioural data

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Data types
Numeric Alphanumeric Graphic Audio Video Varying granularity Entities at different hierarchical levels
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Tables navigation - security

Dimension tables relate to descriptions Fact tables relate to quantitative measures Information packages should relate dimension tables to fact tables Navigation: drill down drill through roll up drill across Security (stages): deterrence prevention detection - remedies
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Data mining
1. Retrieval of detailed & summary data from data warehouse 2. Transformation of data into information 3. Presentation of information Level: macro - micro
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Tasks related to CRM

Classification Regression Link analysis Segmentation Deviation detection

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Tools for data mining

Decision trees Rule induction Case based reasoning Visualisation Nearest neighbour Clustering algorithms Neural networks Evolutionary computation Association rules
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Segmentation criteria
B 2 C: geographical, demographic, socio economic, behavioural, psychographic, buying motives B 2 B: demographic, operating variables, purchasing approaches, situational factors, personal characteristics

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Segmentation techniques
( Measurability, substantial, accessibility, differentiable, actionable) RFM (Recency ~ Frequency ~ Monetary Value) CHAID ( Chi squared automated interaction detection) CART ( Classification & Regression Trees)
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Retention & cross-sell analyses

Retention ~ former customers, current customers Cross selling ~ over time, within the product range Customer profile ~ relationship clientsupplier ~ product history

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Effects of marketing activities

Effectiveness of sales process Effectiveness of targeting Contribution of marketing activities to LTV Experiments The learning organisation Knowledge Management (KM) Calculation of LTV
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Call centre management

Customer management activity: targeting ~ enquiry management ~ welcoming ~ getting to know the customer ~ customer development ~ managing problems ~ win back Elements of a call centre: manpower, IT, telecom, process management Quality of contact ~ service level ~ capacity planning ~ predicting staff needs ~ routing ~ managing satisfaction ~ managing quality
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Key performance indicators

Average value of a call Costs per call % abandoned Customer satisfaction Errors AHT (average handling time) Forecast load vs. actual
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Internet & the website

Traffic building ~ on line & off line Visitor expectations ~ content & context ~ creating trust ~ offering convenience ~ personalisation Quality during visit: design of page, content, site Visit ~ transaction ~ delivery ~ retention Measuring results
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Direct mail

Developing, producing, sending & following up Marketing briefing ~ creative briefing ~ traffic ~ fulfilment ~ evaluation

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Collaborative CRM
Various departments of the company like sales, service, technical support & marketing share information they collect about customers to improve quality of customer service and increase customer loyalty It allows company to synchronise & manage efficient and productive interaction with customers, prospects, partners & internal associates across all communication channels. The customers viewpoint is taken care of at every transaction level
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Collaborative Process
Segmentation Shopper Knowledge building Objective setting & KPIs Joint Business Planning Implementing Monitoring Learning & improving
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CRM Systems
Primary task of CRM systems: customer contact processes Secondary task: providing customer & management information

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Components of CRM Systems

Front office: * sales force automation or sales information system * partner management system (support to intermediaries) * call or contact centre * website * kiosks Middleware: * data warehouse * campaign management system * content management system Back office: legacy systems generally older and have a longer lifespan designed for management of transactions or products
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Components of CRM Systems - II

Call centre: * switches, computers & connections * calling life identification * automated outbound dialing * voice processing * computer telephone integration * database * tele-business software Internet & the website: * intranet, extranet & internal computer networks * security * ecommerce
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Levels of e-commerce infrastructure

(in ascending order) Communications network infrastructure Message distribution infrastructure Electronic publishing infrastructure Business service infrastructure Electronic commerce applications

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Campaign management systems

Opportunity identification relationship planning campaign management customer interaction measuring & evaluating Types of campaigns: # Single shot # Wave # Triggered # Longitudinal ( over time)
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Sales Force Automation

Mobile phones Voice messaging systems Fax E-mail Laptops PDA Interactive Websites Wireless data transmission CRM databases
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Use situations for SFA

Contact management Lead management Opportunity management Knowledge management & intranet access Price quotations and order configuration Follow up Sales analysis Reporting
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Why SFA
Salesmen now spend more time out of office (travelling, telecommuting) More time working in teams as products are more complex and technical Integration of information available across system

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3 Ws of Technology in CRM
Web: eyes, ears & mouth enables customers and suppliers to access information themselves Data warehouse: brain & nervous system overlay to existing IT infrastructure Workflow management: arms & legs scheduling & routing tasks within a process

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Integration points
Web interface Order / provisioning system Trouble ticketing system Call centre

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Data warehouse
Large scale reservoir of detailed & summary data describing firms activities over time Data marts: sections meeting specialised needs of business areas Prepares input data for storage ~ stores data ~ describes data for retrieval ~ performs management & control function

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Architecture & packages

Architecture: client / server, with one or more servers now moving to web based Packages: # Siebel # Oracle Apps # MySAP.com # Clarify # Vantive ( Solution offerings: # customer development # service centre # sales mgt & support # market analysis # internet & telemarketing # product & brand management ) * 80 -20 rule (standardisation: customisation)
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Suppliers of CRM systems

Integrated ERP applications CRM suites CRM frameworks Best of breed Building own applications

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S- CRM: pillars
Profiling customers Segmenting customers Researching customers Investing in technology Managing customers

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S-CRM: steps
Align management team Assess readiness for change Segment customers Profile strategic customers (crown jewels) Listen to the voice of your customers Analyse gaps Mobilise strategic team Outline strategic action programme Validate action plan and assess fit Train teams Implement strategies and activities Track performance
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Customer Acquisition : important terms

Relationship marketing * strengthening firm customer relationship * understanding uniqueness of each customer * analysing customer value Lifecycle: prospects first time buyers early repeat buyers core customers core defectors
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Customer Acquisition: important terms: II

ACTMAN: acquisition tactical management CAE: computing acquisition equity Profiling: demographical, behaviour based, index based Regression scoring NPV - LTV
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Customer retention
Stages: Welcome cycle, upselling, crossselling, renewal, lapsed customers, inactive customers Difference between customers expectation and quality delivered

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Measuring customer satisfaction and loyalty

Objective: determining how well a product or service is meeting customer expectations and organisational objectives Loyalty results in # lower costs of service # increased purchases # less price sensitivity # favourable word of mouth # sustainable advantages
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Factors in measuring loyalty

Acquisition cost Operating costs Per customer revenue growth Price premium Base profit

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Quality
Customer perceptions of tangible aspects such as Performance Features Conformity to specifications Reliability Durability Aesthetic design Serviceability
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SERVQUAL
Perceived service quality is measured by discrepancy approach or gap analysis: Service quality = Perceptions expectations Dimensions: # Tangibles # Reliability # Responsiveness # Assurance # Empathy
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Loyalty measurements
Customer satisfaction is not equal to loyalty Loyalty measurements need to measure attitudinal and behavioural elements => connection between objective behaviour and more subjective perceptual feelings

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Channel management & CRM

Basic questions: # What is to be produced ? # Who is going to buy? # How is it to be sold? Conflict of interests: customer wants best price and quality whereas organisation wants to reduce costs and increase sales
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Evaluation of channels - customer

Information: characteristics, service, price Communication: direct or through intermediary Transaction: exchanging of orders, invoicing & payment, distribution Service: before and after purchase, incl. installation, running-in period, trustworthiness, delivery, courtesy, response in case of defects
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Evaluation of channels - organisation

Market coverage: current channels, new channels Control: standard product vs. one requiring bundling Conflict Profitability Support: marketing, promotions, training, repair warranties, material for stock, delivery, selection
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Reasons for conflict

Supplier bypasses intermediary Supplier gives product to new channels for market coverage Supplier appoints more intermediaries in same area Intermediaries not happy with margin Supplier perceives intermediary as disloyal Intermediaries refuse to share end user account information
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Points important for CRM

Strong correlation between customer satisfaction and customer retention Studies show strong connection between increase in customer satisfaction and additional revenue over next period Key to enhance revenue lies in linking particular products and services to particular customer segments through appropriate channels
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E-channel study
Key challenges: # meeting customer demands # technology change and integration # maintaining employee skills Stages in building sound e-business models: # presence # integration # transformation # convergence
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E-channel management - challenges

Consistency Balance Technology Change management Customer expectations Legacy customer care environment
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Pressures on todays companies

Maintain customer loyalty Generate new revenue Control costs AND Race to beat competitors to market Competition increased by mergers & acquisitions, consolidation & deregulation Thus NPD becomes a critical component of CRM
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NPD process (CATI model)

CREATE ASSESS TEST IMPLEMENT
Create: technology idea sources brainstorming tools Assess: parameters options scenarios strategic fit customer/competitor/market Test: product and market speed to market technology KPI Implement: concurrent efforts alliances partial launches - teasers
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The scene today

Rapid advance in technology and science -> new developments Globalisation: smaller marketplaces and more competition Consolidation & mergers, leading to convergence New sales channels / marketing tools -> niches More consumer education PLC shorter Obsolescence increasing
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US auto industry: customer centric integrated processes

NPD: define product, deliver concepts, engineer products and components Demand fulfilment: plan production, process orders, plan material, manufacture product Customer acquisition and retention: pricing, configuration, brand image and equity, customer communication and need assessment, sale and delivery of product, services financing and insurance
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Trends
NPD: # more electronics # global collaboration # falling cycle times Demand fulfilment: # from push to pullbased manufacturing # suppliers assuming more responsibility Customer acquisition and retention: # process of sensing customer needs to after-sales relationship # work toward a one on one connection
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Customer-centric scenario : impact

OEMs: closer to customer Suppliers: push to pull Dealers / retailers: squeezed on both sides (more quality, better customer service, lower cost, cycle time going down) Consumers: biggest beneficiary
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Prerequisites for implementation

Anchoring Estimating resource needs Realistic expectations Sufficient training

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Balanced scorecard
(Robert Kaplan & David Norton) Financial objectives: how do we look at our shareholders? Customer outcomes: how do our customers perceive us? Internal business processes: in what areas must we excel? Learning and growth: how can we continue to grow and develop?

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CRM within balanced scorecard

Current period Financial perspective Turnover Medium term Long term Cumulative turnover Life time value

Customer perspective

Average customer satisfaction

Individual customer satisfaction

Individual customer commitment

Process : communication
Learning & growing : customer knowledge L & g : organisation Learning & growth : organisation (2)

Primarily one way

Attuned between business units

Dialogue through multi channels

Integrated customer knowledge

Customer knowledge Shared customer within information organisation Product oriented Market divided into product groups Market oriented Market segments identified

Customer oriented Individual customers & groups identified

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Road map for catalytic measures

Identify area needing change Identify relevant milestone Create a measurement approach Announce and implement quickly

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Causes for failure

~ lack of a business case with clear objectives
~ organisation not ready for CRM ~ poor data quality ~ scope of the project was too broad ~ lack of sponsorship from top management ~ project was IT driven ~ insufficient attention to change management ~ stakeholders do not react positively ~ misconception that CRM can be contracted out to system integrators ~ bureaucratic approach ~ resistance from IT department

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Interface
Strategy Data management Customer management Channel management Operational management

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Overview of CRM projects

Strategy New business models Contact centre CRM Software

Customisation

Culture
Communication Customer Management Accountability Customer knowledge Fulfilment

Internet

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