Customer Relationship Management A Databased Approach

V. Kumar Werner J. Reinartz Instructors Presentation Slides

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Chapter Fourteen

Impact of CRM on Marketing Channels

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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 organizations 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 firms 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 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
Goods

Manufacturer

Information Dollars

End Customer

Goods Information Dollars

Goods

Channel Intermediaries

Information Dollars

UPSTREAM RELATIONSHIP
(from channel perspective)

DOWNSTREAM RELATIONSHIP
(from Channel perspective)

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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 channels 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 Corporations 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 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 thirdparty 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
Access to a larger number of consumers

CHALLENGES
Re-engineering IT systems and physical logistics each time a new channel emerges and captures the customers imagination Media dilution and message dissonance across different channels Multi-channel conversation with the consumers Inter-channel coordination problems: problems in managing integrated marketing communications

Multi-channel habits of consumers

Direct and customized interaction with customers over different channels nurturing differentiated customer relationships

Customer self-selection into channels individualization and segmentation

Channel conflict multi channel interaction with consumers can lead to conflict of interest among competing channels for the same share of customer contact or service Possible rise in consumer expectation of product or service quality

Channel specialization each performing a different channel function can mitigate channel 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 Facilitate search Inventory Control Transaction Repeat Purchase Point of Purchase Customer Decision Stage Awareness
Learning

Preferred Channel Channel 1 Channel 2 Channel 3

Trial
Evaluation

Channel 4 Channel 5

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

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

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

Behavioral Characteristics
Revenues Share of Wallet Past Customer

Supplier Specific Factors

Number of different contact channels
Type of Contact Channel Contact Channel Mix

Multi-channel Buying

Value

Likelihood to Stay
Active

Customer Demographics
Number of Employees Annual Sales Industry Category

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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 suppliers 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 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:
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 multichannel 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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