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Customer Relationship

Management

A Databased Approach

V. Kumar Werner J. Reinartz

Instructor’s Presentation Slides

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Chapter Fourteen

Impact of CRM on Marketing Channels

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Chapter Fourteen Impact of CRM on Marketing Channels www.drvkumar.com Copyright Dr. V. Kumar, 2005

Copyright Dr. V. Kumar, 2005

Topics Discussed

Role of traditional channels in customer relationships

Emerging channel trends that impact CRM

Recent opportunities and challenges for CRM with respect to distribution channels

Implications for CRM

CRM through direct channel

Drivers and Behavioral Characteristics of multi-channel buying

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• Channels “Flow” of the organization’s offerings, e.g. physical goods or information, to the ultimate end

Channels

“Flow” of the organization’s offerings, e.g. physical goods or information, to the ultimate end users (“end customer”), as well as

that of sales proceeds or realizations from the customer back to the marketing firm

“Marketing or distribution channels”:

All entities (e.g. distributors, wholesalers, retailers, broker, agents, etc.) that perform certain functions for the marketing firm

“Communication or contact channels”:

Convey information to the customers to raise their awareness about the firm’s products and services and persuade them to make purchases

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Channel Management

Distribution Channels:

Managing the flow of goods and

services from manufacturer to end-user

Channel Management Distribution Channels: Managing the flow of goods and services from manufacturer to end-user Channel

Channel Management of:

Contact Channels:

Managing the flow of information between any two parties, using one or more contact modes

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Customer Relationships:

Direct, Upstream & Downstream

DIRECT RELATIONSHIP

Manufacturer
Manufacturer

Goods

Goods

Dollars

Dollars

 

End Customer

 
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Goods Goods
Goods
Goods

Information

Information

Dollars

Dollars

DOWNSTREAM

Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods

Information

Information

Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods
Goods Goods Information Information Dollars Dollars
Goods
Goods
Information
Information
Dollars
Dollars
Channel Intermediaries
Channel
Intermediaries
Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Manufacturer Goods Goods Dollars Dollars End Customer Goods

UPSTREAM

RELATIONSHIP

(from channel perspective)

RELATIONSHIP

(from Channel perspective)

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Role of Traditional Channels in

Role of Traditional Channels in

Customer Relationships

Indirect Customer relationship

 

Building a good working relationship with the channel member (Upstream Relationship)

Providing the channel member incentives to build a strong customer relationship (Downstream Relationship)

Direct Customer relationship

 

Firm communicates product information to consumer through contact channels

Point of purchase advertising and promotions at the channel outlet (e.g. retail point) persuades consumer to make the purchase

Consumer information flows indirectly to the firm through the channel’s sales data

By building brand equity helps firms often try to build a “pseudo-relationship” with all prospective consumers

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Key Factors Affecting CRM through

Traditional Channels

Incentives for coordinating information exchange

 

Eg: Procter & Gamble and Wal-Mart invested in EDI (Electronic Data Interchange) technology

Allowed Procter & Gamble access to real time customer data to forge customer relationships as well as reduce distribution costs

Protecting the Interests of the Channels

Toyota Motor Corporation’s Lexus division required dealers to invest in facilities,

systems and personnel required to deliver extraordinary customer service

Result: Lexus enabled its dealers to make several thousand dollars on the sale of each new car

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Challenges Facing CRM through Traditional Channels • Prevent Dilution of CRM strategies – Traditional intermediary entities

Challenges Facing CRM through

Traditional Channels

Prevent Dilution of CRM strategies

Traditional intermediary entities make continual and direct interaction with end

 

customer difficult

 

Private label promotions by retailers often go diametrically against customer relationship programs of the national brands

Indirect Control of CRM through Channels

Vertical integration and strategic alliances by firms to control or align interests of their channels to their customer relationship strategy

Eliciting Customer Information from all Channels for Central Processing

Lack of precise information about individual customers complicates CRM implementation

Since retailers often compete against one another, it is difficult for many firms to convince them to part with critical sales information that will be centrally

processed by the firm

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Emerging Channel Trends that Impact CRM

Proliferation of Direct Channels

 

Firms have direct access to the end-customers

Firms can recognize at every instance of interaction a prior customer

Interaction through a technology enabled channel, enables firm to record and store all relevant information about the customer

Avoids trouble of negotiating with, providing incentives to, and training a third-

 

party channel member, such as a retailer

Media channel proliferation and emergence of multi-channel shoppers

People change their channel habits and different consumers derive differing

benefits from different channels

New channels allow agents other than the firm and its dedicated marketing channels to transmit or even broadcast information related to the firm or product

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Recent Opportunities and Challenges for CRM

Opportunities for increasing returns for CRM

 

Widening Coverage of the Consumer Population

Improved Customer Information for the Firm

Lower dependency on Specific Channel Partners

Customer Self-selection across Channels and Individualization

New challenges for the firm to benefit from CRM

Media Planning becoming increasingly difficult Consistency in service level and the need for IT systems Channel Conflict and Channel Differentiation

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Impact of Emerging Channel Environment

on CRM

OPPORTUNITIES

CHALLENGES

Access to a larger number of consumers

Re-engineering IT systems and physical logistics

each time a new channel emerges and captures the

customer’s imagination

Multi-channel habits of consumers

Media dilution and message dissonance across

different channels

Direct and customized interaction with customers

Multi-channel conversation with the consumers

over different channels nurturing differentiated

Inter-channel coordination problems: problems in

customer relationships

managing integrated marketing communications

Customer self-selection into channels

Channel conflictmulti channel interaction with

individualization and segmentation

consumers can lead to conflict of interest among

competing channels for the same share of customer

contact or service

Channel specialization each performing a

Possible rise in consumer expectation of product or

different channel function can mitigate channel

service quality

conflict

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Implications for CRM

Electronic channels and availability of precise customer information

 

Possible to individualize the marketing mix offering including products and

 

services more precisely to each customer

 

Opportunities to sell complementary products

Sophisticated customer databases may also allow firms to conceive and test market new products to meet needs of the customers

Seamless Customer Information Systems

 

Marketing proposition and initiatives remain consistent to a particular end customer across channels

Co-opetition among Channels

Co-operation in terms of exchange and availability of customer information across channels

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Customer Relationships through Differentiated Channels

Channel Function

Customer Decision Stage

Preferred Channel

Awareness Channel 1 Learning Channel 2 Trial Channel 3 Evaluation Repeat Channel 4 Purchase Channel 5
Awareness
Channel 1
Learning
Channel 2
Trial
Channel 3
Evaluation
Repeat
Channel 4
Purchase
Channel 5

Facilitate search

Inventory Control

Transaction
Transaction

Point of Purchase

Mass media and the internet can perform efficiently as Channel 1 A well-trained sales force can be more effective as channels 2 & 3. Word-of-mouth plays a greater role as Channel 4

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CRM through a Direct Channel the Internet

Communication and Sales

CRM through a Direct Channel – the Internet • • Communication and Sales – Broadcasted as

Broadcasted as well as customized marketing communication Low cost (direct) channel for transacting business

Auto-Segmentation

Automatically targets a certain segment of consumers - younger, more educated, with a higher than average income, and probably with a lower base rate loyalty

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CRM through a Direct Channel the Internet (contd.)

Channel Specialization and Differentiation on the Internet:

Advertisers

Incentive providers Bargain discounters

Infomediaries Free offerer

– – Recommendation systems Track user navigation and habits for targeted advertising

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Drivers and Characteristics of Multi-channel Buying

•Number of Web Based Contacts Customer Characteristics •Tenure •Returns •Cross-buying •Purchase Frequency •Customer Initiated Contacts
•Number of Web Based Contacts
Customer Characteristics
•Tenure
•Returns
•Cross-buying
•Purchase Frequency
•Customer Initiated Contacts

Contact Channel Mix

Type of Contact Channel

Number of different contact channels

Supplier Specific Factors

Customer Demographics

Number of Employees

Industry Category

Annual Sales

Revenues

Behavioral

Characteristics

Share of Wallet

•Past Customer Value Multi-channel Buying •Likelihood to Stay Active
•Past Customer
Value
Multi-channel
Buying
•Likelihood to Stay
Active

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Customer Characteristics

Cross Buying:

• Customer Characteristics Cross Buying:
 

Defined as the number of different product categories that a customer has bought

Familiarity with a brand or firm is expected to reduce the perceived risk in customer purchases leading to a higher degree of multi-channel buying

Returns:

 

Returns are expected to be positively associated with multi-channel buying until a certain threshold, beyond which an increase in the number of returns can lead to a decrease in the motivation to shop across multiple channels

Therefore an inverted “U”-shaped relationship is expected between returns and multi-channel buying

Customer-Initiated Contacts:

 

Higher degree of customer- initiated contacts are associated with multi-channel buying due to higher degree of familiarity with the firm and the various channels of

communication

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Customer Characteristics (contd.)

Purchase Frequency:

We can expect that the higher the purchase frequency of a customer the higher the likelihood of multi-channel buying

Frequency of Web-Based Contacts:

Awareness of a supplier’s Website indicates customer willingness to

utilize new technology, hence we can expect that the higher the

frequency of web-based contacts, the higher the likelihood of multi-channel buying

Customer tenure:

The longer the tenure of a customer with a firm, the higher is the likelihood of their buying from multiple channels

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Supplier Factors

Number of Channels used for Contact:

Supplier Factors • Number of Channels used for Contact: – Supplier contacts through multiple channels can

Supplier contacts through multiple channels can inform a customer about

the multitude of options available for purchasing products

Suppliers can use their contact strategy in one channel to migrate customers to other channels

The higher the number of different communication channels a supplier uses to contact a customer, the higher the likelihood of multi-channel buying

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Supplier Factors (contd.)

Type of Contact Channel:

One-way communication: E.g. direct mail : unidirectional, limited in content, and non-personal

Two-way communications:

 

Firms can gain greater understanding of customer needs and/or preferences

Educate customers on the various channels available for making transactions

Respond to customer predilections

 

Contacts via more interpersonal channels can be expected to have a greater positive impact on multi-channel buying

Contact Mix Interactions

Positive synergistic effect on multi-channel buying can be expected by contacting

through more than one channel due to the mutual reinforcement of the message delivered through different contact channels at the same time

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Behavioral Characteristics

Sample of customers divided into two segments:

Behavioral Characteristics • Sample of customers divided into two segments: Customers who have shopped in more

Customers who have shopped in more than one channel (Segment A) Customers who have shopped in only one channel (Segment B)

Findings:

The difference between the two segments in likelihood to stay active is significantly different and higher for the multi-channel buyer

The mean revenue of multi-channel buyers is significantly higher than the mean revenue of customers who shop in a single channel

The mean share of wallet for multi-channel customers is higher than the single channel customer

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Synopsis of Empirical Findings

Customers more likely to shop in multiple channels are those:

Who buy across multiple product categories

Initiate more contacts with the firm

Have past experience with the supplier through the online channel

Have longer tenure

Purchase more frequently

Are larger Have been communicated to by the supplier through multiple communication channels, especially through highly interpersonal channels

Evidence for a nonlinear relationship between returns and multi- channel buying

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Summary

Customer relationships are created and sustained through marketing channels

For a successful CRM strategy directed at the final customer, conventional channels structure has to provide incentives for coordinating information

exchange while integrating their downstream channel partners’ interests

CRM demands that customer information from different contact channels be

centrally processed by the firm and forms a critical input to the planning and execution of the physical distribution of the goods

Multi-channel buyers are likely to provide higher revenues, higher share of

wallet, have higher past customer value, and have a higher likelihood of

being active than single channel shoppers

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