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CLASSIC MARKETING MODELS

There are several classic marketing models where the nature of customer management is not specified explicitly, but where there is a very strong implicit model of customer management. These include:

Retailing;

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Sales force management-especially in B2b marketing

Mail order

Customer product and company brand management;

Business product management-closely related to technical innovation models. 3

MODELS OF CUSTOMER MANAGEMENT

1. PARTNERSHIP CRM MODEL2. SPOT SELLING/BUYING VIA AN AGENT3. PURE SPOT MODEL4. ONE TO ONE MODEL OF CRM GIVEN BY

D PEPPERS AND ROGGER’S

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1. PARTNERSHIP CRM MODEL

What is it?

Partnership CRM is a model which seems to have a very good pedigree, but which is quite difficult to implement.

It is suggested as a model where both supplier and intermediary have strong visibility of and to the final customer, as in the automotive industry or in financial services.

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GENERAL IDEAS BEHIND THE MODEL

1. If both supplier and intermediary (the ‘partners’) use CRM techniques on the final customer, then both will gain.

2. For them to work together in this way, a true partnership approach is needed

3. This approach normally also requires business-to-business CRM techniques to be used between the supplier and intermediary.

4. Partners need to accept that customers will decide which relationships, if any, they want to have with which partners, and it is up to the partners to decide which relationships they would like to have and how to motivate customers to take them up.

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5. If this approach is taken, it needs to work strategically instead of tactically.

6 If supplier and intermediary are not working in partnership, both sides need to determine potential partnership objectives

7. Whether for existing or potential future partnerships, rules and rights in managing the relationship must be determined

8. The key to success is trust between organizations involved

9. The overall success of a partnered CRM program will be in the hands of final customers, and they will chose to access and compare an organization’s propositions through different means 7

WHAT KIND OF PARTNERSHIP?

both partners have choices about other partners, channels and communications media.

A supplier at any level of the value chain may sell products through agents, through resellers and through retail outlets as well as on the telephone and or Internet

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It may have well-established parameters for so doing, such as: Customer research Data requirements Customer management strategies – acquisition,

retention and development; campaign planning and implementation; media usage etc.

Success measures

This is because direct channels cannot be run successfully without such parameters.

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COMPLICATIONS OF THIS APPROACH AT LATER STAGE

The direct operation was set up as a deliberate attempt to disinter mediate other channels

The propositions developed for the direct channel are very different to those offered by intermediaries.

The business model of direct is very different from that required to work in partnership with intermediaries. 10

In these situations, CRM program will tend to focus on small parts of the Customer base, so restricting the gains.

In the worst case, they will look for other companies who are prepared to partner with them.

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HOW TO SUCCEED IN PARTNERSHIP CRM

Making intermediated CRM work does seem to depend on resolving a number of issues, such as:

“Ownership” of customers

The implicit and legal contract with customers

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Branding/co-branding promise

Power of joint proposition

Customer understanding

Strategy – size Vs niche

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2. SPOT SELLING/BUYING VIA AN AGENT

Here agents make choices on behalf of suppliers and customers.

Agents are web based The aim for the supplier is to get on to the agent

and then deliver best value. The aim of the customer is to ensure that the

agent has all the information necessary to secure the most appropriate supplier and deal.

The main investment is the set-up cost for the system to hold it (including security aspects), plus marketing.

However, there is evidence that technological progress has made spot buying easier, in ways that it may reduce customer loyalty.

E.g.-Auctioning of hotel or antiques.

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3. PURE SPOT MODEL

Here, the customer rejects all relationships and buys whether from an original supplier or intermediary purely on the basis of current perceived value.

This is strongly influenced by classic marketing mix variables- brand, perceived product quality, price (including promotional discounts), availability and so on.

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In these cases, classic marketing mix variables become more important – particularly brand image and customer service.

To avoid being drawn into this situation, suppliers must seek to differentiate their offer such that the customer sees pure spot buying as being risky.

Egs of Spot Selling via agent and pure Spot selling Good examples of this are

• purchases made in the newly deregulated energy market

• Like in UK consumers directly get gas and electricity supply from supplier that’s pure spot selling

• In Spot selling via agent consumers puts his/her specifications as he wants which source of energy and price specification

4. ONE TO ONE MODEL OF CRM GIVEN BY D PEPPERS AND ROGGER’S

According to this model, most aspects of marketing mix are actively attuned to the changing individuals based on information given by them before or during contacts

In one to one idea of one segment is rejected as this is considered as static. Some (but not all) customers are seen to be very receptive to this i.e. customers have different propensities to respond in terms o returning value.

In general the returns for such enormous system, data investment required to achieve this, are not clear and reliable 18

In fact in many cases this approach applies to relationship between large suppliers and large intermediaries

E.g.-Link between a grocery food company such as Unilever, Procter and Gamble and large retailers Wal-Mart, Tesco or Carrefour

Although products are supplied are normally standard, rest of the offer (payment terms, delivery information so on) is heavily customized

IMPACT OF WEB BASED MARKETING ON THESE MODELS

Serious analysis of the requirements for translating practices developed in the era of telephone and mail- based database marketing is now being carried out not just for developed economies, but also for the more hybrid situations

The general conclusion from all this work is thatthe web has freed the consumer from the

constraints of physical channels of communication and distribution.

More informed consumers can construct their own channels from a variety of offers.

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They can decide to conduct some aspects of their buying direct with suppliers, in other cases via agents.

They may get information from agents and buy direct or vice-a-versa.

Another conclusion is that

the web can accelerate the processing of business and

The web put at risk those companies that are slow to react to, or anticipate customers’ needs, new competitors or even new types of competition.

At the same time, companies that use the web as an opportunity to give customers more information can save costs and improve customer service.

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PARADOX OF TECHNOLOGICAL PROGRESS

MANY direct marketers are culling their prospect mailing or phone lists with the goal of reducing waste and improving profitability. With the advent of computer database marketing tools such as merge/purge and regression analysis, direct response advertisers can identify and target their offers to a select group of potential customers, thereby improving their response rate. But as with any technology, an application misused can sometimes be worse than none at all.

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Direct marketers often merge their response database to the original database and with other public or private databases (i.e., drivers' licenses, product warranty cards, etc.). Then one or more target customer profiles are developed by comparing the characteristics of those who responded to those who did not respond to an offer. Marketers subsequently use these profiles when purchasing or renting prospect lists.

Trouble can occur when the databases from several different offerings are combined to develop a target customer profile. Most direct marketers are cautious of profiles created from dissimilar offers.

For example, most would feel that a profile was invalid if it was formed from a combination of auto insurance and mutual fund response databases. However, more subtle conditions can result in a completely distorted profile.

For e.g.

In its first year of business, Hong Kong Toy Importers Ltd. (H.K. Toys) sent out its first catalog in the spring to a 4 million household mailing list with favorable results.

Forty-two percent of the households purchased one or more toys from the spring catalog.

In comparing the characteristics of the purchasers with the non-purchasers, H.K. Toys discovered that addressees who were right-handed were more likely to purchase toys from their catalog than left-handed addressees.

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Table One Spring Toy Catalog -- Purchase Analysis Addressee

Handedness Total

Left RightPurchase % 42.0%

30.0% 50.0%No. Purchased (*) 1,680.

480. 1,200. No. Mailed (*) 4,000.

1,600. 2,400.(*) in thousands

They showed these figures to a marketing consultant

He knew from prior experience that left-handed adults were more likely to give children books or clothes than toys. Only 60 percent of the addressees on the list that H.K. Toys used were right-handed. To improve their sales, the consultant recommended that H.K. Toys mail to more right-handed addressees.

With Christmas coming, H.K. Toys ordered a new mailing list of 20 million households with an addressee mix of 95 percent right-handed and 5 percent left-handed.

The results were disappointing. Christmas sales were only 17 percent above spring sales, even though they mailed to five times more households.

H.K. Toys combined the results of their spring and Christmas catalogues to ascertain what happened. Table Three shows the results. More surprising was that the combined results showed that the left-handed addressees were more likely to purchase the company's toys than the right-handed addressees -- the opposite finding from the spring catalogue.

After reviewing the results, the second consultant concluded that there had been a shift in the purchasing habits of right-handed people. Had H.K. Toys mailed more Christmas catalogues to left-handed addressees than right-handed addressees, the sales would have been better.

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Confused, H.K. Toys approached the first marketing consultant again. He reviewed the results and concluded that a delay in mailing the catalogues affected the Christmas orders.

Table Two Christmas Toy Catalogue -- Purchase Analysis

Addressee Handedness Total Left

RightPurchase % 9.8% 6.0%

10.0%No. Purchased (*) 1,960. 60.

1,900.No Mailed (*) 20,000. 1,000.

19,000.  (*) in thousands

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Table Three Spring and Christmas Toy Catalogue Combined Purchase Analysis

Addressee Handedness Total Left

RightPurchase % 15.2%

20.8% 14.5%No. Purchased (*) 3,640.

540. 3,100.No. Mailed (*) 24,000.

2,600. 21,400. (*) in thousands

This case study demonstrated a well-known statistical phenomenon called Simpson's paradox.

Simpson's paradox seems counterintuitive. We expect the characteristics of the whole to correspond in general to the characteristics of segments. The preceding case study has shown that this is not always true. Several philosophers have explained how it is possible for the relationship between two variables to be distorted by a third variable. [1, 5]

Simpson's paradox can occur in direct marketing when the response databases from two or more mailings or telephone campaigns are combined to develop a target customer profile.

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Simpson's paradox can turn up in target customer profiling when both of the following conditions are met: The mailings or telemarketing campaigns have

different response characteristics (e.g., one with a 2 percent response rate merged with one with a 10 percent response rate).

The lists have a different mix of descriptor characteristics (e.g., mix of males to females or mix of New Yorkers to Californians).

Different response characteristics can be a result of many things. For example, a change in the cover letter or envelope can change the percent who inquire about an offer. The change in response rate does not have to be the result of a change in the customer profile but the effects of Simpson's paradox can make it appear that way.

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To avoid obtaining a distorted target customer profiles look at the results of each offer separately, especially if the above conditions are met. If more sophisticated statistical analyses are used, add an "offer" variable into the model. For example, in regression analysis, add a dummy variable into the database identifying the offer and include it among the independent variables. If a third party processes the databases, make sure that they are correcting for Simpson's paradox.

Using a target customer profile is a key element in profitable direct marketing. By identifying and correcting the profile distortion from merged response databases, the direct marketer can be more confident of the profile's accuracy and achieve a higher response rate.

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CUSTOMER REQUIREMENTS OF CRM

Customer relationship management (CRM) consists of the processes a company uses to track and organize its contacts with its current and prospective customers.

CRM is used to support these processes; information about customers and customer

interactions can be entered, stored and accessed by employees in different company departments.

Typical CRM goals are to improve services provided to customers, and to use customer contact information for targeted marketing.

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A major benefit can be the development of better relations with your existing customers, which can lead to: increased sales through better timing due to

anticipating needs based on historic trends identifying needs more effectively by

understanding specific customer requirements

cross-selling of other products by highlighting and suggesting alternatives or enhancements

identifying which of your customers are profitable and which are not

This can lead to better marketing of your products or services by focusing on: effective targeted marketing communications

aimed specifically at customer needs a more personal approach and the

development of new or improved products and services in order to win more business in the future

Ultimately this could lead to:

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increased value from your existing customers and reduced cost associated with supporting and servicing them, increasing your overall efficiency and reducing total cost of sales

enhanced customer satisfaction and retention, ensuring that your good reputation in the marketplace continues to grow

improved profitability by focusing on the most profitable customers and dealing with the unprofitable in more cost effective ways

WHAT DO CUSTOMERS WANT?

Customers want cost-effective products or services that deliver required benefits to them.

More significantly, customers want to have their needs satisfied.

Modern CRM theory refers to the idea of 'integrating the customer'. This implies a relationship that is deeper and wider than the traditional 'arms-length' supplier-customer relationship.

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The traditional approach to customer relationships was based on a simple transaction or trade, and little more. All communication and dealings would be between these two people, even if the customers' organization contained many staff, departments, and functional requirements (distribution, sales, quality, finance, etc).

The modern approach to customer relationship management is based on satisfying all of the needs - people, systems, processes, etc - across the customer's organization 38

COMPANY'S PERSPECTIVE OF CRM

A complete CRM solution includes a number of hardware elements and software applications. Unfortunately these alone are not able to guarantee the expected return on investment.

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In fact, CRM is mainly organizational initiative, which should, on the one hand, consider

the environmental peculiarities the system has to face and

on the other hand, provide for a complete review of organizational variables and the selling processes consequent structural changes required strong support from the bank's management, aiming to optimize change related actions and sustain them over time

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The deep "organizational gap” caused by the introduction of CRM, if not properly supported by relevant change management interventions, could potentially neutralize the system's efficiency or worse irreversibly jeopardize the relationship with not yet loyal customers.

Hence "CRM is a combination of organizational and technological mechanism aiming to buffer market knowledge of environmental variables, particularly market variables, in order to anticipate customer's needs and make production activities more stable and programmable.“ 41

In this way CRM can be considered an "organizational buffer” able to preserve the efficiency of the technical care through elimination of instabilities typical of the banking market and environment without giving up the flexibility the operational environment requires.

increased value from your existing customers and reduced cost associated with supporting and servicing them, increasing your overall efficiency and reducing total cost of sales

enhanced customer satisfaction and retention, ensuring that your good reputation in the marketplace continues to grow

improved profitability by focusing on the most profitable customers and dealing with the unprofitable in more cost effective ways