Customer Relationship Management

Chinese Companies Need Better Customer Relationships

Growth is slowing down in many industries

Competition is increasing

Price wars

Increasing savings rate and slack demand

Company growth strategies must include customer relationships - loyalty and retention!

 Loyalty is Built on Customer Relationships and Value

Customer relationship management (CRM) Integrated databases that create a single, unified view of the customer across the company and its channels (Ritz) (Amazon.com) Customized offerings and communication for greater customer value (Amazon.com)


Obstacles to Building Customer-Oriented Companies :
The need for sales volume: TV industry

: Channel power: insurance Lack of perceived brand difference Lack of brand management : Price wars: everywhere (
Marketing and Customer Service are treated as costs (but who is destroying your prices and your brand?)


Obstacles to CRM in China Returns are difficult to measure, while CRM is accounted a current expense Intermediaries lack means or incentives to share access to data
Fragmented channel ownership increases implementation difficulties and cost

Companies slow to appreciate the value of marketing in pricesensitive markets


Too Many Companies are Running Up Hill!

30% 40% 50% Even in Chinas financial services sector, companies are experiencing customer turnover greater than 30, 40, or even 50% : Result: Companies are running up hill to build revenue and market share growth The future for companies that ignore CRM: negative growth and declining market share

A Scenario (1)

100
A RMB 1 billion company

30%
30% customer turnover

15%
15% market growth

A Scenario (2)

, 1.5 If the company acquires new customers at the market growth rate, it loses 150 million in revenue , Customer acquisition must double the market growth rate for the company to grow at the same rate as the market 30% The company must devote 30% of sales management and marketing expense to digging itself out of a hole

 ?
Is this a Realistic Scenario?

:
Yes chances are you work for a company that is:

,
Ramping up production and sales force to push new product to market, and:

Not investing enough in keeping the customers it has

,
Yes as competition increases and growth slows, the company that fails to improve retention cannot continue to grow

, 30% ?
Yes even if your market growth is still high, can you really afford to devote 30% of marketing and sales to re-gaining ground?


Consequences of the Make and Sell Marketing Model

, ( )
Your salespeople and channels are pushing price not value for easy sales

Margins declining and sales costs increasing

, :
Inattention to service and relationship building, resulting in:

Customers that will never come back

Bad word of mouth

!
Bad word of mouth

 CRM ?
How Much Can You Spend on CRM? - quick assessment

, +
The value of sales management time spent re-gaining lost revenue, +

X , +
Marketing expense X turnover rate, +

, +
Present value of lost referrals/good word of mouth, +

Target retention (in $ of revenue) - Current retention

= CRM
= the costs to your revenue growth that could be re-allocated to CRM

CRM

 CRM?
What is CRM?

( ) Integration of customer data - single view of the customer across the company and its channels , ,
Analytics that support customer segmentation, campaign planning, product planning, and market analysis

Customization of communications and promotions

A strategy not only a technology

 CRM
The Steps Towards CRM

CRM

Customized promotions

1 - 1

Target Marketing

1 to 1 relationship

Sales push

Targeted direct sales

Segment brand loyalty

,
Brand recognition

 :
Best Practice Case: Harrahs Casinos

Not the most beautiful casinos

Not the best known

CRM,
But through CRM, Harrahs is among the most profitable and fastest-growing


Harrahs Customer Relationship Knowing what special gifts a valued customer wants in their room

?
Is it champagne, or a box of chocolates?

Knowing what kinds of incentives the customer likes

,
Cash, a free meal, etc

,
Knowing how much the customer is going to spend, and what will encourage the customer to spend more


Deepening the Customer Relationship

:
Bring the customer back: re-selling and cross-selling

1998-1999: 33%
Harrahs 1998-1999: revenue from customers visiting more than one casino jumped 33%

Personalized service and promotions based on customer purchase and service history

, ( ).
If you typically vacation in April, Harrahs sends a promotion in February


Increasing the Value of the Customer Relationship

Greater frequency and amount of purchase

90% 5000 500

Harrahs analytics predict accurately 90% of customers who can be switched from $500 per visit to $5000 per visit


Harrahs Loyalty Card : The Data: customer history :
Gaming activity: what games and how much Personal data

Customers responses to different types of promotions

Projected customer lifetime value

Results

Custom promotions and incentives

CRM ,
Profits at Harrahs have doubled since implementation of CRM


Harrahs Loyalty Card

, . , .
Our competitors compete on hardware. Were competing on software. They spend money to attract customers, but we build the technology infrastructure to invite customers.

- . , SVP
Richard Mirman, SVP Marketing


CRM and Strategy

CRM
CRM Changes Marketing Strategy - Dell, Levis Reverse product design - Dell, Levis - Priceline.com Reverse pricing - Priceline.com ( ) ; Amazon.com Reverse advertising - pointcasting and permission advertising; Amazon.com NetCentives Reverse promotions - NetCentives , LandsEnd.com; Reverse distribution - on-line showrooms like LandsEnd.com; download trial and purchase of digital products


A New Marketing Paradigm : The New Customer Value Model: customized offerings for lifetime customer loyalty : ! ; The New Core Competences: Marketing! - companies will focus o n owning the processes that drive customer value; ; Nike as a brand-managing company; Sony as a product design and branding company

 (1)
The Value of Brand Loyalty (1)
At MBNA ( ):

5% 5 60%
5% increase in customer retention increased profits by 60% within 5 years

AT Club Med:
2400 One lost customer costs the company $2400 in lost future business :from a bank 5% 85%

Reducing defections by 5% increased profits by 85%

(From Harrahs Casinos):

1 1 A 1 cent increase in share of customers gambling dollar equals a 1 dollar increase in earnings per share

 (2)
The Value of Brand Loyalty (2)

5
Acquiring new customers costs five times more than the cost of maintaining existing customers

10%
The average company loses 10% of its customers each year

5% 25-85%
A 5% reduction in the customer loss rate can increase profits by 25-85%

The customer profit rate tends to increase over the life of the retained customer

Source: Philip Kotler

 ? Why Loyal Customers are More Profitable

Price Premium Referrals Cost Savings Revenue Growth Base Profit Acquisition cost

0 0 0 0 0 0 0 0
Year
Source: Frederick F. Reichheld, The Loyalty Effect (Boston: Harvard Business School Press, 1996), p.39.


Focusing on Customer Lifetime Value

. Successful companies build relationships and loyalty with their customers Consistent focus on relationships and loyalty requires a focus on the lifetime value of customers (Sewell Cadillac) .ransactions do not build relationships (Sewell Cadillac)


Estimates of Customer Lifetime Value

SAS: 0 year business 0 traveler, $000 ,000 Dominos Pizza: 0 year eater, 0 $0 ,000 Coca-Cola: 0 year drinker, 0 $00 ,000

Cadillac: Marlboro: 0 years, 0 0 year smoker, 0 $000 ,000 $22 ,222 Ritz Hotel: 0 years, 0 $000 ,000 AT&T: 0 year user, 0 $00 ,000


Customer Satisfaction 25% , 5%
Customers are dissatisfied in about 25% of their purchases but only 5% complain.

8-10
Each dissatisfied customer tells 8-10 people about their experience

, :
Dissatisfied consumers can be turned into satisfied consumers by: Responding quickly

Apologizing Going out of the way to solve the problem

Offering some form of compensation Resolving quickly , 6 . Complaining customers who get resolution are 6 times more likely to buy again from the same vendor.

Customer Satisfaction

AT&T
AT&T encourages customer complaints with full page newspaper ads showing toll free telephone numbers

20%
Dominos Pizza succeeded in getting 20% of dissatisfied customers to complain

24 80% , retains 95%

Resolves 80% of problems within 24 hours, and retains 95%

24 , ( ) 46%
If resolution takes longer than 24 hours, retention drops to 46%


Cost of Lost Sales Due to Poor Service
Retaining Current Customer - 64,000 80%
X

Major transportation company 64,000 accounts produce 80% of its tonnage 5% of accounts lost each year due to poor service $40,000 in revenue is lost for each account 10% contribution is lost per account

, 5%
X

$40,000
X

10%
X

$ 12,800,000 $ 12,800,000 of profit ontribution lost each year

Figure provided by Philip Kotler

 CRM (1)
CRM in Chinese Company Strategy (1)

Product leadership difficult to achieve and impossible to defend

( )
Prices are under constant attack

Sales-lead growth is leading to a dead-end for growth

 CRM (2)
CRM in Chinese Company Strategy (2) CRM :
CRM will be the core of brand positioning strategy:

More focus on customer lifetime value

Customer care

Emotional bond

Better service for high-value accounts

Lower the cost of promotional campaigns and increase promotional efficiency

? Where is your next competitive advantage going to come from?