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Information Systems: the Foundation of E-Business (CIS 108)

Customer Relationship Management, (CRM)

Lecture SEVEN (28th February 2005)

Amare Michael Desta

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What is CRM? “Customer relationship management is a

business strategy to select and manage the most valuable customer relationships. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes.

CRM applications can enable effective customer relationship management, provided that an enterprise has the right leadership, strategy, and culture.” -The CRM Primer, www.crmguru.com

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Outline Benefits of a CRM program

Cultural changes The four phases of implementation

Research & Best practices Casino case

IT’s role in CRM CRM’s relation to the supply chain

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Benefits of CRM Improved customer retention

Greater retention results in a larger future customer base

The impact of a 5% increase in retention rates

Industry Increase in profitsAdvertising Agency 95%life-insurance company 90%branck bank deposits 85%publishing 85%auto service 81%auto/home insurance 80%credit card 75%industrial distribution 45%industrial laundry 45%office-building management 40%

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Benefits of CRM (cont’d) Improved customer retention Purchase amount increases over

time Average of 8%/year in the insurance

industry Reduction in costs

Order processing Short-term acquisition costs Customer referrals

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Benefits of CRM (cont’d) 2-way communications

Improves customer satisfaction Impact on the “grey markets”

Often harmful to profits Frequently used to level inventories

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Cultural changes Top executives must drive the initiative

Shift from product orientation to customer Shift in marketing type

Away from mass, towards personal “1:1” Change in attitude at all levels

Compensation system must change to reinforce new behaviors

New positions or teams should be formed

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Pre-implementation Classify customers based on

diversity of value and needs Determine who the customers are

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Phase 1 Consolidate customer information

Existing computer and hard copy records into one large database

Minimum information categories: Biographical information Total spent/year on that good/service Total sales/year from that customer Customer share ratio Allocatable costs Profit ROI of marketing and sales expenses

Consumer categories Identification Customer Rating Background Presale

Communication Purchase behavior Post-purchase

behavior Predicted behavior Creditworthiness Attitudes and

perceptions

Business categories Identification Customer Rating Background Presale

Communication Decision makers Decision making Influences Post-purchase

behavior Channels Pricing Predicted Behavior Creditworthiness Relevant

information

Source: Boyett & BoyettThe guru’s guide to the knowledge economy

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Phase I: The Privacy policy Means to gather information

Interviews Surveys “Loyalty” cards

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Casino CRM ProgramPre-Implementation

1999 – Recognized need for CRM program, but unwilling to commit fully

Began implementation of “Epic” program – requiring manual log-in and log-out of players Cost measured in thousands rather than millions Worked well with table games, but highly

inconvenient to slot players No outside marketing to encourage participation

Effectiveness of program dependent on employees

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Casino CRM ProgramPre-Implementation

Spring 2001 – management convinced to fund automated players club program

Pre-launch focus on previous card-holders Updating database and explaining new

system to old customers Program launch complemented with

marketing campaign, including incentives to register and to use card

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Casino CRM ProgramBuilding a Database

Upon sign-up: Name Contact

Information “Interests”

Over time: Money spent

(coin-in) Per day Per trip

Win/Loss Per day Per trip

Jackpots won Playing habits

Rate of play Time of play Frequency of trips Machines played

Denomination Type

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Phase II Classify the customers according to

sales volume Focus on the top 20% of the customer

base Two basic types of customer needs

Community: shared needs/preferences for a grouping of individuals

Individual: unique needs specific to a single person

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Phase II (cont’d) Information gathering

Focused on top 20%: less effort required Interviews considered the best method

Personal Additional information Evaluation of future potential Not as cost prohibitive as believed

Surveys are functional… But they are often ignored.

E-mail: a reasonable middle ground Cheapest method Convenient for the customer

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Phase II (cont’d) Suggested questions

Satisfaction with products/services Cross-selling/up-selling opportunities Gaps in the value proposition-satisfaction Loyalty indicators: preferred supplier, future

purchases, referrals Budgets for your product/service Identification of competitors Customer contact preferences

Create a profile for distribution

Source: The guru’s guide to the knowledge economy

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Casino CRM ProgramCustomer Classification

Casino customer classification generally dependent on coin-in and total losses These tend to coincide

Also looking at place of residence and frequency of visits

Marketing department uses CRM program to distinguish customer groups - find “high-rollers” and target them for special events

Special “Top 1%” segment

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Casino CRM ProgramCustomer Classification

The program can be used to find undesirable customers as well as desirable ones

People who abused Epic system easily spotted

Customers who present a net loss to casino discouraged from returning

Machines that show lack of profitability removed or altered

Middle-range customers encouraged but within reasonable expense level

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Phase III Maintain communications with

current customers Should be through the medium

desired by the customer Make contact at the “appropriate

time” Excessive attempts will annoy the

customer

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Rules of engagement for customer interactions (Contd..)

Don’t initiate an interaction with a customer without a clear objective

Don’t ask a customer the same thing more than once

Interact in the medium of the customer’s choice When engaging in an interaction, start with the

customer, not the product Make the interactions personal and personalized Ensure that your interactions with customers are

always welcomed Ensure that they are immediately identified and

treated appropriately

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Rules of engagement for customer interactions (Contd..)

Protect the customer’s privacy Invite dialogue by printing toll-free numbers

and web-site URLs on everything Ensure that the customer can see the value

from each interaction. Deliver information or value that reflects what has been learned

Be sensitive to the customer’s time. Don’t try to learn everything about a customer at once.

Source: The Guru’s guide to the knowledge economy, p. 216

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Casino CRM ProgramMaintaining Communication

Mailers sent to certain customer groups on regular basis Invitations to special events or for free gifts

Non-intrusive communication Customer chooses which ones to respond to

Toll-free phone number and email address included on all correspondence

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Phase IV Adjusting the firm to fit customer needs Four types of customization

Collaborative (mass) customization Devise a metric to determine customer needs Match needs with products/services Not very personal, but relatively inexpensive

Adaptive customization Allow customer to specify certain characteristics Very personal, but often expensive May not be possible in all industries, or cost

efficient

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Phase IV (cont’d) Customization:

Cosmetic customization Inexpensive, easy to implement in virtually

any industry Easy to replicate No actual change to the product/service may

not justify charging a substantial premium Transparent customization

The “nice little details” Very personal, but oftentimes invisible Frequently inexpensive relative to others Difficult for competitors to replicate

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Phase IV (cont’d) Combinations can be used Beware of TOO much satisfaction

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Phase IV (cont’d) Change call center operations to

service top customers Eliminate discounts and

promotions “My loyalty cannot be bought!”

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Casino CRM ProgramCustomization

As previously stated, special promotions and events aimed at “preferred” players Invitation-only events Segmented mailers, with increased

bonuses for better customers More personalized customer service Improved access to casino comps

(including non-gaming comps)

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Casino CRM ProgramCustomization

In a casino, very little product customization is possible – a slot machine is a slot machine

Focus is on cosmetics Customer service tends to distinguish

one casino from another Gift baskets, wine, and champagne

for hotel/restaurant guests

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IT’s role in CRM Three general types of eCRM

packages Marketing Automation Systems (MAS)

Customer database creation Analysis of customer attributes Automate several marketing functions

Sales Force Automation (SFA) Intended to automate many functions

performed by salespeople If completely successful, it will eliminate

the “personal touch”

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IT’s role in CRM (cont’d) eCRM package types:

Customer Service Automation systems

Augments call center personnel Some can respond to e-mails on their

own Ties-in to existing company software,

including other eCRM packages (generally…)

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IT’s role in CRM (cont’d) Selecting the right CRM packages

Step 1: size the package to your firm Step 2: gather as much information

on every package sized appropriately Step 3: using a standard formula,

evaluate the packages and make a choice

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IT’s role in CRM (cont’d)

Source: The CRM Solutions guide. 2001. www.crmguru.com

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IT’s role in CRM (cont’d) CRM and ERP

Determine if a package can be tied-in to the enterprise’s ERP system before making a purchase decision

Inventory, order processing, and accounts receivable features can be used to augment the CRM program

Goal: establish a closed-loop eCRM solution

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IT’s role in CRM (cont’d) Data mining tools

Market basket analysis and automatic cluster generation

Decision trees and memory-based reasoning

Neural net systems

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CRM in the Supply Chain Goals of Supply Chain Management:

Reduce uncertainty and risks in supply chain

Positively affect inventory levels, cycle time, processes, and end-customer service levels

Customer Relationship Management Useful for forecasting and planning Improves customer service levels

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CRM across Company Functions Marketing – Account management

expertise Research & Development – Specifications

that define requirements Logistics – Knowledge of customer

service requirements Production – Manufacturing strategy Purchasing – Sourcing strategy Finance – Customer Profitability Reports

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Customer Relationship ManagementWrap-Up

Knowing your customers improves profits

Focus on the best, treat mid-range as group, and discourage bottom-feeders

Customize product and service to retain good customers

Give CRM time to pay off; a good CRM program will be worth the investment