Customer Relationship Management

Dr Sherif Kamel
The American University in Cairo

Outline

Overview
Why CRM?
CRM basics
Defining CRM
Managing the customer life cycle
5 key drivers of the customer value
4 stages of a customer relationship
Interactivity v individualization
Challenges to understanding customers
Remarks
Conclusions

Bits and bytes

CRM the hottest buzz word in business today

Developing a personal and a professional profile about
each customer

Basic and historical information

Personal preferences
Trends and habits
Demographical information

Building a CRM culture

The power of integration
Using emerging technology to get closer to the
customer

Current facts

Today customers are in charge they make the rules

Putting technology at the center stage
Business intelligence is one of the most growing segment in the
marketplace
Customer loyalty is very difficult to maintain due to competition
Customers want an excellent service and they want to feel special
Most companies think they are customer-focused however in reality
they are product-centric
There is a need to formulate customer-focused firms which needs:

CRM strategy
Organizational change
Corporate culture

Economics of customer retention

Winning back a lost customer can cost up to 50-100 times as much as keeping a
current one satisfied.
Rob Yanker, Partner, McKinsey & Company

Understanding your customer is key to retention..

Market size

CRM market grew 66% in 1999

34 Billion US dollars by 2003 and probably around 125
billion US dollars by 2004
60% of the CRM software license market is controlled
by 3 vendors

Siebel
Trilogy
Baan/Aurum

Why CRM?

It costs 6 times more to sell to a new customer than to

sell to an existing one
A typically dissatisfied customer will tell 8 to 10 people
about his/her experience (mainly related to poor
customer service)
The odds of selling to a new customer is 15% versus
50% to an existing customer
70% of the customers complaining will do business
again with the company if the complaints are quickly
addressed
90% of existing companies do not have integrated CRM
tools and platforms

Customer Relationships Today

Customer
Relationships
Branding

Product

Pricing

Distribution

Building a customer-centric
approach to Internet
marketing by focusing on
customers

Community

Communication

CRM Basics

CRM is the timely delivery of excellent service

customer relationship management
CRM is a combination of business process and
technology that seeks to understand a companys
customers from a number of perspectives including:

Who they are?

What they do?
What do they like?

Age of the never-satisfied customer

CRM becomes a support tool in a time characterized

by:

Increased competition
Globalization
Growing cost of customer acquisition
High customer turnover

CRM is all about creating a better value proposition to

customers
Information and communication technology is now
acting as a catalyst for CRM

Extended enterprise
World wide web and the Internet

Defining CRM

CRM is an integrated sales, marketing and service

strategy that is based on a timely and accurate
information infrastructure and that depends on
coordinated enterprise-wide activities

Example: tracking customers interactions with the firm

Customer tracking includes steps in the selling and customer
service cycles

CRM steps include

Targeting
Acquisition
Retention
Expansion

Defining CRM

Targeting

Who do we target?
What segments are most profitable?
What segments match our value proposition?
What is the best segmentation strategy for us/our industry?

Acquisition

What is the best channel for each segment?

What is the acquisition cost for a channel/segment?
Do certain channels deliver certain types of customers?
Cost effective acquisition?

Defining CRM

Retention

How can we improve retention?

What is our average customer relationship length?
How can we hold customer for as long as possible?
What is the most cost effective method of retention?

Expansion

How many products does our average customer buy?

How can we induce our current base to buy more products?
Who are the prime targets for expansion?
What is the cost of expansion?

Goals of CRM

Using existing relationship to grow revenue

Using integrated information for excellent service
Introducing consistent, replicable channel processes
and procedures

CRM

CRM is a business strategy and not a product

Putting CRM into practice requires developing a set of
integrated applications to address all aspects related to
the front-office needs
CRM could be a major support platform for small and
medium-sized enterprises
Cost of the information and communication technology
applications and infrastructure should be calculated as
opposed to the return-on-investment

Evolution of information requirements

Materials requirements planning (MRP)

Manufacturing resource planning (MRP II)
Enterprise resource planning (ERP)
Supply chain management (SCM)
Customer relationship management (CRM)

Managing the customer life cycle

Acquiring

Enhancing

Retaining

new customers

profitability of existing
customers

profitable customers
for life

Acquiring new customers

Promoting the companys product and service

leadership
Redefine the companies competitive edge and
innovations
Offer a superior product backed by an excellent service

Example: Browsing on the net, submitting a request, receiving

a phone call

Model for a sales and service strategy

Enhancing profitability of existing

customers

Encouraging cross-selling and up-selling

Cross selling is used by suggesting alternative products or upselling by rendering the customer more informed with the new
products and services.

Broadening the relationship between the company and

the customers
Providing a value proposition represented by offering a
greater convenience at low cost (one-stop-shopping)

Example: Best Buy an electronic retailer with more than 300

stores capitalizes on committed relationships with customers

3000 calls a day with more than 50% having computer-based

answers and solutions

Retaining profitable customers for life

Retention focused on service adaptability

Delivering not what the market wants but what the
customer wants
Providing a value proposition that offers a proactive
relationship that works on the best interest of the
customer

Example: customer retention is becoming a key competitive

strategy for many companies

Integrated CRM
Customer
Life cycle

Acquire

Enhance

Direct Marketing
Partial
Functional
Solutions

Complete
Integrated
Solutions

Cross-sell and Up-sell

Sales Force Automation

Retain

Proactive Service

Customer Support

Integrated CRM Applications

Core CRM process competencies

Marketing and
Fulfillment

Sales
Cross-sell
Up-sell
Telesales

Fax

Prospect
Or
Customer
Phone

Field Sales
and Service

Customer
Service and
Billing
eMail

WWW

Loyalty
and Retention
Programs

Content Management
Technical Infrastructure

How to build a CRM infrastructure

1.
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4.
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Involve top management

Decide on a vision of an integrated CRM
Establish a CRM strategy and specify its objectives
Understand the customer
Review cultural changes that will need to occur
Develop a business case
Evaluate current readiness
Evaluate appropriate applications to do a better business
Identify and target quick wins
Have one manager to own the end-to-end project
Implement in stages
Be sure to create a close-loop CRM environment
Create concrete measurement goals

Relationship depth and profitability

Evaluating Relationship Depth

$$$

Magnitude of
Purchases

Long-Term
Profitability

$$

Frequency of
Purchases

Relationship depth,
as measured by the
frequency and
magnitude of
purchases, is a
critical component
of customer
profitability

Length of customer tenure and

profitability
High

Lifetime
Profit

Low
Short

Long
Lifetime

5 key drivers of the customer value

Cost of Targeting
Cost of Acquisition
Service and Usage Revenue
Cost of service
Duration of relationship

4 stages of a customer relationship

Awareness

Customer

recognizes
the firm but
has not
initiated any
transactions

Exploration /
Expansion

Commitment

Customer

Customer

gathers
information
about the
firm which
determines
whether
repeated
transactions
will occur

and firm feel

a sense of
obligation or
responsibility
to one
another

Dissolution

Total

loss of
commitment
and
relationship

Interactivity v individualization

Interactivity is the occurrence of two-way communication between

the firm and the customer

Retail store personnel handle Internet customer service

Chat rooms are set up to discuss product-related issues
Customers subscribe to customized versions of firm newsletters

Technology has made it possible to customize each interaction to

the individual user

Consumers have privacy concerns about sharing too much

information
For individualization to be attractive, consumers must have unmet
needs
Costs and complexity for the firm increase with greater personalization
while service speeds often decline

Challenges to understanding customers

Identify the customer

Learn from customers
Know the customers value
Determine best resources
Access complete customer profile and history

Remarks

World is moving rapidly to a customer centric business

model
It is a prerequisite for survival and growth in the
marketplace
Integration of disparate customer data sources is a
primary technical challenge
CRM is becoming invaluable as a differentiation tool
The world is becoming extremely customer centric,
even cultures that have been customer-averse
Technology is just a platform an enabler

Conclusions

A firm is better able to serve customers needs if they

understand them well
Provision of the products customers want, at the right
time through a consistent service leads to their retention
CRM gives the complete and rich view of the customer,
enabling tactical and strategic actions to be taken to
meet customer needs
CRM enables consistent customer communication
regardless of channel, location, time