CRM U II-21-09-11
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Transcript of CRM U II-21-09-11
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INTRODUCTION TO UNDERSTANING OF
CUSTOMER
INTRODUCTION TO CUSTOMER
The word derives from "custom," meaning
"habit"; a customer was someone who frequented a
particular shop, which made it a habit to purchase
goods of and with the shopkeeper had to maintain a
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relationship to keep his or her "custom," meaning
expected purchases in the future.
The slogans "the customer is king" or "the
customer is god" or "the customer is always right"
indicate the importance of customers to businesses
although the last expression is sometimes used
ironically.
This section looks in more detail at what we
mean by customers and how they are different
from consumers and clients. It considers all
external and internal stakeholders as customers,
consumers or clients of a marketing activity. So, an
internal stakeholder might be the consumer of a
service performed by another department in the
same organization. The key differences between
those stakeholders are who buy a product or service
(the customers) and those who use it (theconsumers). Customers and consumers may be the
same or different people.
Note what distinguishes a customer from a
clientand the different kind of relationship each has
with a service provider. In your own work context,
when areyou a consumer, a customer and a client?
Who areyourconsumers, customers and clients?
An understanding of marketing requires a
clear understanding of the terms customer,
consumer and client. The customer is the personbuying from an organization. The customer can also
be another organization, for example, when a
bookstore buys from a book publisher. The
customer will alsobe the consumerifthe person or
organization uses what has been bought. This is not
the case with the bookstore: there the bookstore is
the customer of the publishing company and a
person buying a book from the bookstore is likely to
be the consumer.
Here are two simple examples that highlight
the distinction (difference):
You choose, buy and eat an ice cream.
Here you are the customer and consumer.
Your child chooses and eats an ice cream
but you pay for it. Here your child is the consumer
and you are the customer.
Customers and clients
Now we turn to the difference betwee
customers and clients. The term client is generally
associated with the provision of professiona
services (such as accountancy and legal services). In
these contexts, the specific service being provided is
normally discussed and agreed between client and
provider. While the client has more influence ove
the specification of the product or service being
provided, the service provider. The marketer in this
context is often in a position to advise the client as
to what his or her needs and wants actually are, and
then charge fees for delivering services that meet
these needs. You should immediately recognize that
the power balance between the marketer and the
person being provided with a product or service can
be quite different according to whether the person is
a customer or a client.
TYPES OF CUSTOMER
Customers play the most significant part in
business. In fact the customer is the actual boss in a
deal and is responsible for the actually profit for the
organization. Customer is the one who uses the
products and services and judges the quality o
those products and services. Hence its important
for an organization to retain customers or make new
customers and flourish (grow) business. To managecustomers, organizations should follow some sort of
approaches like segmentation or division of
customers into groups because each customer has to
be considered valuable and profitable.
Loyal Customers: These types of customers are
less in numbers but promote more sales and profit
as compared to other customers as these are the
ones which are completely satisfied. These
customers revisit the organization over times hence
it is crucial to interact and keep in touch with them
on a regular basis and invest much time and effort
with them. Loyal customers want individua
attention and that demands polite and respectfu
responses from supplier.
Discount Customers: Discount customers are also
frequent visitors but they are only a part of business
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when offered with discounts on regular products
and brands or they buy only low cost products. If
the discount is more, more they tend towards
buying. These customers are mostly related to small
industries or the industries that focus on low or
marginal investments on products. Focus on these
types of customers is also important as they also
promote distinguished part of profit into business.
Impulsive Customer: These customers are
difficult to convince as they want to do the business
in urge (advise) or caprice (impulse). They dont
have any specific item into their product list but
urge to buy what they find good and productive at
that point of time. Handling these customers is a
challenge as they are not particularly looking for a
product and want the supplier to display all the
useful products they have in their tally in front ofthem so that they can buy what they like from that
display. If impulsive customers are treated
accordingly then there is high probability that these
customers could be a responsible for high
percentage of selling.
Need Based Customers: These customers are
product specific and only tend to buy items only to
which they are habitual or have a specific need for
them. These are frequent customers but do not
become a part of buying most of the times so it isdifficult to satisfy them. These customers should be
handled positively by showing them ways and
reasons to switch to other similar products and
brands and initiating them to buy these. These
customers could possibly be lost if not tackled
efficiently with positive interaction.
Wandering Customers: These are the least
profitable customers as sometimes they themselves
are not sure what to buy. These customers are
normally new in industry and most of the times visit
suppliers only for confirming their needs and create
the awareness of their product /service. They
investigate features of most prominent products in
the market but do not buy any of those or show least
interest in buying. To grab such customers they
should be properly informed about the various
positive features of the products so that they
develop a sense of interest.
Using this understanding to help turn
Discount, Impulse, Need-Based, and even
Wandering Customers into Loyal ones will help
grow our business. At the same time, ensuring that
our Loyal Customers have a positive experience
each time they enter our store will only serve to
increase our bottom-line profits.
ROLE OF CUSTOMER
The initial question is: Who is your
customer? This is not always obvious since there
are many factors involved in the purchase and use
of a certain product or service. Yet five main roles
can be identified that exist in many purchasing
situations. Often several, sometimes all of these
roles might be conducted by the same individual but
recognizing the needs and requirements of eachseparately leads to potential areas for service
design.
The following figure shows the most
common roles that customers represent.
Here is a short description of the single roles:
Initiator: The individual who initiates the search
for a solution to the customers problem.
Influencer: Individuals who have some influence
on the purchase decision.
Decider: Taking into consideration the views of the
initiator and influencer some individual will make
the decision as to which product or service should
be purchased.
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Purchaser: The individual who is actually paying
for the product or service
User: The individual who finally consumes the
product or service
It is important to understand that in any
buying situation. The various actors can and will
influence the buying decision and they will also be
either active or passive experiencing a product and
service. Therefore should be considered when
designing the overall brand experience. If
different individuals undertake these roles, it is
necessary to develop individual and differentiated
services to satisfy the different needs and
requirements.
The standard example for this is a visit to a
theme park with children. The initiator might be the
child that saw an advertising on TV, while thedecider and purchaser are the parents. While it is
important to design a great experience for children
at a theme park, it might be even more important to
focus on the experience of parents because
ultimately they will decide and pay for the next trip
to Disneyland.
The different roles become even more
apparent in a business-to-business context.
CUSTOMER INFORMATION AND
DATABASEUnderstanding your customers helps you to
sell them more of your products and services as
well as support them better.
And it starts by understanding who are they? And
what are their needs?, profiling them also makes it
easier to find new ones. You can look for similar
prospects, and sell to them in a similar way and
retain your existing ones.
As you evaluate your options, you face questions
like:
y What information to track?
y How toorganize the information?
y Which Database Software to Use?
The first question about the database you
should consider is:
WHAT INFORMATION TO TRACK?
This varies dramatically, but there are severa
frequently used types of business information:
y Contact details
y Customer preferences
y Communications history
y Sales history
y Actions
y Payments
Then there is business-specific customer
information. For example, family-oriented
organizations track family members, real estate
companies track the properties, and engineering
firms analyze equipment they maintain on behalf of
the customers and so on.
HOW TO ORGANIZE THE INFORMATION?
How all this information can be organizedfor an easy access and use? Should it fit into a
single system or multiple systems? How can I fit
my data into the database structure?
Single vs Multiple Systems
Using a single database minimizes the hassle
of synchronizing multiple sources of data and
improves data accuracy. However, if your business
software must incorporate industry-specific logic
you are unlikely to find an integrated system that
includes both that logic and a full-featured customerdatabase. In that case, the best option is to use your
industry-specific software as a primary source of
information and copy the customer records from
that software into the customer database, where you
add more information to them. As much as possible
avoid synchronizing the two systems both ways
there should be just one master customer database.
Customizing databases tofit your information
The organization analyzes what information
goes into your database and where it comes from
consider how this data can fit into the database. The
simplest method of customizing a database is
creating extra fields in the customer record. Many
database programs make it easy and so you can
accommodate business-specific information by
adding more and more fields.
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When you have hundreds of fields, the
system becomes difficult to manage. This is
probably because you have put together information
about different objects. Re-structuring your data
makes it easier to access and manipulate. There are
two methods of re-structuring such data:
Splitting customer records into related
record types
Storing some information in external files
Splitting customer records into related record
types:
Suppose we need to record basic family
information:
y Family name
y Husband's name and birthday
y
Wife's name and birthdayy Child 1 name and birthday
y Child 2 name and birthday
y Child 3 name and birthday
If you were to add all these details to your
customer record, they will occupy eleven fields.
Finding a John Smith will be difficult - you need to
search four times - for John as the husband, Child 1,
Child 2 and Child 3. And the system won't
accommodate families with four or more children.
To handle this information, the databasescan store it in different record types and relate these
records to one another. Because of these ability
these databases are called relational (as opposed to
flat) databases. In a relational database, you would
have family and person information in different
records and link persons' records to their family
record.
In our example, each personal record will
then have three fields: name, birthday and the link
to the family record. John Smith can be easily found
with one search, no matter who he is in the family.
The difference in ease of use is even more apparent
when you need to store more information, like
insurance policies with number, name of the
insurer, monthly premium, expiration date etc.
To see if a piece of customer information
should be tracked in a separate record type check
whether a customer can have more than one of it.
Can a customer have multiple policies? Family
members? Air conditioners? Can a customer be
included into multiple lists? If the answer is yes
then those objects should be tracked separately and
linked to the customer records. If no, they can be
incorporated into the customer record.
Store some information in external files.
There is a natural desire to track all
customer information on the database, but is it
really required? There are some data types that
databases don't handle well, for example
spreadsheets. The databases are designed to work
with large number of similar records, while in a
spreadsheet each row could be different from the
previous one. Spreadsheets' formulas can be easily
modified, while in databases they are programmed.So if you are used to tracking some
customers information in spreadsheets or some
other external files (photos, text documents etc)
perhaps it is worthwhile to continue doing so
linking those files to the customer records. You wil
keep your database simple and agile and retain the
familiar ways of working with these files, but can
still easily access all customer information from a
central location.
The down side is that you cannot easilysearch on or otherwise process the information that
is stored externally. If you store customer
borrowing power calculations in E
spreadsheets, you can easily access this data on any
customer, but cannot find customers who can
borrow in a specified range without going through
each and every record.
Which Database Software to Use?
Many people consider one or more of the following
choices:
y Microsoft Access
y Popular contact managers, such as ACT or
Goldmine
y Accounting program
y Employing a software developer
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y A package that is both simple and easily
customizable, such as Simply Contacts
Database.
Microsoft Access
Perhaps one of the first programs people
turn to when it comes to building customer database
is Microsoft Access, probably the single most
popular database program. Most already have it as
part of Microsoft Office Professional orPremium,
making it an easy choice. The system comes with
Wizards assisting in setting up new databases,
creating tables and basic forms.
Access is a great system in the hands of a
professional, but developing a functional customer
database in it usually requires more expertise and
time than a business person can afford.Popular Contact Managers
Many people have heard about ACT and
Goldmine. Unlike Access, which is a generic
database tool, these programs are business
applications designed with customer management in
mind. They offer rich contact management
functionality out of the box and can be extended by
adding extra fields, reports or buying add-on
modules.
The program's functionality suits a busysalesperson whose day is filled with appointments,
pursuing leads, writing proposals, closing sales and
so on. But for many other users it is simply
excessive.
Accounting Program
The main purpose of a customer database is
to improve service and relationships with your
customers. The main purpose of accounting
software is to balance your books. Customer
database deals with the client side of your business
and does not go beyond order fulfillment.
Accounting software deals equally with the sale and
supply sides. You should track prospects on your
customer database, but a prospect is of no interest to
accounting.
Employing a Software Developer
Use a software developer if your needs are
radically different from other companies.
Developers can build a system highly tailored to
your business but you need to know very well what
you want to accomplish and relate this to a
developer in a clear and concise brief.
Very often business people describe what
they need as a "simple program". But as the project
unfolds, it turns out the software should do more or
handle special cases that were not initially planned
This causes disputes, cost increases and frustration
on both sides.
Simply Contacts Database
Then there are programs like Simply
Contacts Database. Out of the box, it includes
basic contact information, customer history, an
notes and can attach external files, such as text
documents, spreadsheets or pictures to the customer
records or history. It can print mailing labels and domail merge and e-mail merge.
But the best thing about this software is its
flexibility and expandability. There is a simple
function to add extra or remove unwanted fields that
automatically adjusts all standard screens and
reports. On top of this, users can define their own
screens and reports. For example, if you want to
track both customers and suppliers on your database
you can create "customer view" and "supplier view"
with different fields to view the respective recordsyet display full information in the "contact view".
With a program like Simply Contacts Database, you
can start with the data that you already have and
easily add more fields as the need arises, perfecting
the understanding of the business requirements for
your customer database.
CUSTOMER ANALYSIS
The American marketing association
www.marketingpower.com defines market research
as: "The systematic gathering, recording, and
analysis of data about problems relating to the
marketing of goods and services". Consumer
analysis is an important part of this marketing
research. Without marketing research, it is quite
impossible today to start any business. Consumer
analysis is the first step of any marketing research.
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In this module, our objective is to develop
your skills in consumer analysis. Consumer analysis
allows you to identify your prospect and segment
market. The objectives of this consumer analysis
lesson are to give you the fundamental notions
about:
*Customer benefit
*Customer profile
*Market customer
By the end, consumer analysis techniques
will enable you to establish your market
segmentation.
1. Customer benefits 2. Customer profile
3. Market customer 4. Do it yourself 5. Coaching
Understanding is beginning with
segmentation. Segmentation is all about splitting a
market up into relevant sections to make marketingmore effective. In order for a business
to segment its market, it needs to understand and
analyze its target customers. A problem that faces
any start-up or small business is that customers are
not all the same.
In short, the challenge for a business is to:
Identify groups of customers who have similar
needs and wants
Find a way of offering (positioning) a product
which is attractive to those customer groups
Markets consist of customers with similar
needs. For example, consider the wide variety of
markets that exist to meet the need to:
Eat (e.g. restaurants, fast food)
Drink (e.g. coffee bars, pubs & clubs)
Travel (for business and leisure, near or far)
Socialize (as couples, with family, with friends)
Be educated (as a child, adult, for work or other
reasons)
As you can imagine, such markets (if they
were not further divided into smaller parts) would
be very broad and difficult for a new business to
target.
The great news for any new business is
that customers in any broad market are not the
same. For example, within the market to provide
meals, customers differ in the:
y Benefits they want (food quality, ambience
dietary health)
y Amount they are able to or willing to pay
(budget, expensive)
y Quantities they buy (bulk buy or one-off
purchase)
y Time and place that they buy (fast-food
up-market restaurant)
It therefore makes sense for businesses to
divide (orsegment) the overall market and to
target specific segments of a market so that they can
design and deliver more relevant products
Understanding Customers will give you a
theoretical introduction to understanding and
analyzing business information.
Generally the customers are classified into
**Internal customers**External customers.
Internal customers are members of staff or outside
suppliers that contribute towards the service
provided to external customers. They include:
y Colleagues
y Managers/supervisors
y Staff in other functional departments
Good customer service to internal customers wil
help to establish good working relationships
between colleagues, managers and staff teamsThese relationships are important if the business is
to function effectively. For example, working in a
pleasant environment where staffs are supportive o
each other can keep staff turnover and reduce the
absenteeism.
External customers, on the other hand, are the
people who we more usually associate with the term
customer, i.e. the people that actually buy or use
an organizations products and services.
A key point to remember is that there are
many occasions in which a business comes into
contact with external customers. It is not just about
the moment a transaction takes place. Points of
customer contact take place:
y When a customer is enquiring about the
product
y Taking a customer order or payment
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y Delivering a product
y When handling a complaint or problem
y When making repairs or doing maintenance
y Providing after-sales care
Knowing vs. Understanding Your Customer
There's a difference between knowing who
your customer is and understandingyour customer.
You need to do both. Most people spend most of
their time on the former and too little time on the
latter. This will ultimately result in failure. Why? If
you don't understand your customer, you won't have
full clarity on your value proposition.
Knowing your customers is information
typically collected by a business. It means you
know who they are demographically, what content
they're reading, and so on. Most companies do agood job on this front.
When it comes to understanding customers,
however, many companies come up short.
Understanding customers helps businesses deliver
an online product with meaningful and compelling
value propositions that meet not only their current
needs but also their evolving and future needs.
Nissan Motor India opens first field quality
centre and training facility in India. Training
facility opens at Nissan manufacturing plant atOragadam. The purpose for fieldquality & training
centre is to achieve a better understanding of
customer need s so it can build vehicles that
garner(acquire) a higher level of customer
satisfaction. This will be 7th facility set up by
Nissan across the globe.
Nissan Motor India Managing Directorand
Chief Executive Kiminobu Tokuyama said, At
Nissan, quality is a key attribute in establishing
brand value. The training centre will provide
product, process and soft skill training for
dealership staff, which will help us better focus on
ensuring a quality ownership experience for our
customers.
IMPORTANCE TO KNOW ABOUT
CUSTOMERS
First, customers are not created equal. They
come and buy from you for different reasons based
on different motivations. Some buy because they
find your price to be the lowest, some because they
find your services to be outstanding, while some
purchase from you because of your reputation in the
industry.
Second, by knowing and understanding your
customers, you will be able to better leverage your
time, energy and resources to pursuing the right
customers. You can adapt your selling strategies to
each type of customer: shorter and quicker selling
strategies to price-conscious customers, while
dedicating more time and resources to your most
important and high-potential customers. Especially
if you are a one-person business owner, you need to
reevaluate your customer relationships and makechoices about how to maximize and effectively use
your limited time and resources.
Below is a list of questions that can help you
look at your customer's motivations and in the
process learn new insights about your customers
their needs and threats and opportunities that exist
These five questions will help you get a snapshot of
your business where your healthy relationships
exist, where there are opportunities, and where there
are potential problems.Why does your customer buy?
Customers have different motivations when
they buy. Some consider price as the main deciding
factor, often looking for the lowest available price
Others try to find ways to reduce cost and at the
same time enhance revenue and improve quality.
But most of all, customers buy your
products because of the value that it can give them
They are not buying your product per se, but what
your product can give them. They are buying the
satisfaction of a want. It is important that you know
what customers consider most valuable about your
products or services. Ask and talk to your customers
to find out. Once you have a list, ask them again if
you are indeed delivering what they want.
The two questions will determine the
relationship that you will have with the customer.
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What does the customer value with regards
to your products and services?
How well do you provide that value?
How much of the customer's total business do
you have compared with your competitors?
Your relationship with your customer is also
shaped by the amount of business that you have
with them. You may either be the sole supplier, or
you may be constantly fighting for a share of the
customer's business.
If you share your customer's business with
your competitors, you may want to select and
pursue appropriate and inventive (creative)
opportunities to increase that share, and carefully
document the profitability efforts. Think of possible
ways to make the customer want to do business
with you alone, or at least bring the major bulk oftheir business to your company. You can even ask
the customer directly, "How can I earn more of your
business?" With this knowledge in hand, you can
develop a focused strategy for your key customer
that delivers on what each customer agrees is
important to him or her.
How does your customer see you?
According to Larry Wilson, author of the
bookStop Selling, Start Partnering: The new
thinking about finding and keeping Customers, acustomer may view you in three ways: you are just
anothervendor, a problem solver, or a partner.
The most ideal would be to be viewed by
your customer as a partner. You are trusted and
relied upon to make the collaboration work for the
both of you. These are the types of relationships that
result in long-term profitability.
How difficult is it for the customer to shift to
your competitor?
Loyal customers are important to your
bottom line. Studies show that repeat customers
often spend more money, generate larger
transactions, refer more customers, and buy a
broader range of products than one-time shoppers.
Hence, it is vital to understand the ease or difficulty
with which your customer can shift business to a
different supplier.
Some businesses tend to have inherently
high switching costs for customers, while others
enable to switch to a competitor at a low cost
Customers who have made significant investments
in people, time, manufacturing processes or
technology to use your products have high
switching costs.
Some of the strategies to keep the customer
locked into your business include lengthening lock-
in cycle through purchase agreements, contracts or
licensing; incorporating proprietary improvements
designing products and promotions to get customers
to invest in your product such as special offers to
loyal customers or trial usage for new customers
and leverage your customer base by selling
complementary products.
What does the customer expect after a sale?
The hardest part of the sale is after the sale
is made. It is the make or break period: the
customer's expectations will either be realized or
failed. It is the time where you will know whether
the level of activity, delivery, customer service and
commitment to promises made all supported the
sales effort.
It is important to carefully establish the level
of expectation that customers should have after the
sale. Some customer may expect little or no supportwhile some require processes or systems be put in
place to guarantee that their purchasing experience
remains smooth (e.g. return of the merchandise
provision of required technical support, etc.).
Knowing your customers can help you
increase sales, loyalty and profits. If your business
is not doing as well as you expected, you may want
to think about customers and your business
differently than you might have in the past and be
willing to change the behaviors that produce your
current results.
CUSTOMER CHARACTERISTICS
You can start by defining your ideal
customer and list all characteristics you will expect
in this profile:
***Business to consumer: The main
characteristics are quite unlimited: Geographic area
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age, sex, income, level of study, employment and so
on. So keep close to your benefit analysis and just
list the characteristics that correspond to the
benefits you offer: If you sell bathing suit, you will
not care for people living in North Pole. If you sell
fur clothes, do not lose your time with the
characteristics of people living in Central Africa!
***Business to business: The main characteristics
are the company size, the products or services, the
level of technology, the turnover, the staff number,
the location and so on. You must describe the
required customer profile according to your product
or service
Example: What's the customer profile for fun
board?Demographic characteristics: 15 to 25
years old, male, and healthy
Economic characteristics: Student or
young professional, not less than $30,000 income
coming from parents or work.
Social characteristics: Middle and upper-
middle class.
Geographical area: North America,
Australia, Northern Europe.
Special interests: Sport like and sea like.
You just have to think in order to define
your customer profile: Of course, he is a young
man. He has good money because you cannot afford
to buy a fun board when you are short for your daily
living. So, you can expect that he comes from
developed countries. Obviously, he likes sports and
sea very much.
Why do you need all these characteristics?
The response is that you need the larger information
to channel effectively your advertisement: For
example, the fact to know where he is located will
conduct you to advertise mainly in English and in
sportsmen newspapers.
***High and low involvement benefits
Now, we have to examine another topic: Are
these functional or psychological benefits quite
important for the customer. It means that we have to
distinguish low and high involvement products.
Definition:Ifa consumer pays attention to buy a
product, then it is considered as a high
involvement product. If he does not pay too
much attention, there is a low involvement
product.
Of course, all the expensive products are
always high involvement products: Flats, cars
antiques and so on. Nevertheless, some inexpensive
products can be said high involvement products
For example, the consumers pay attention in
buying cheap drugs because health is an
important stake. What is more, this feature
depends also on the customer: For example, a
fashionable dress is a psychological benefit but it becomes also a high involvement item for hi
appearance.
So, it is always fruitful to bring some high
involvement topics to your product. High
involvement feature to a quite basic product. It
enables you to differentiate your product from the
competition and to charge a high price.
Finally, the product which gives the greater
benefit to the consumer must gather both thre
characteristics: Functional benefits, psychologicabenefits, high involvement features.
Customer buying process
According to your customer profile, you
have to focus on the customer buying process. It is
not the same thing to buy a candy, a car or a rea
estate. You have to emphasize on the following
aspects. I call it the DTHP process:
Who is the decision making person?
DECISION
TIME
HOW
PAY
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In business to business, the purchaser may
be a top ranking executive: The more hierarchical
levels involved, the more difficult the sale.
In business to consumer, the buying process
could imply on person or the entire family. The
same observation applies: The more individuals or
groups involved, the more difficult the sale.
At what time or period, does he buy?
Consider frequency and regularity of the
purchases. Some business follows seasoning periods
such as the toys, the bathing suit. This period can be
short: For example, the selling of flowers on
Sunday, or the clothes during the discount periods.
How does he buy?
The buying decision includes the following
process:
STEP-1: The customer becomes aware of a need:The need could originate from an impulse (candy)
or from a recognized deficiency (such as a
refrigerator)
STEP-2: The customer begins to explore how
meeting the need: He reads newspapers, yellow
pages, and so on. It is very important to know how
he explores to target advertisement channels.
STEP-3: According to the need and his income, the
customer refines the buying criteria and defines a
budget.STEP-4: He narrows the field of his choice in
comparing quality/price ratio. He could need
physical touch or face to face interaction such as a
test drive.
STEP-5: Finally he closes the sales. In many
process, he needs to be helped by a salesman.
How does he pay?
Does he use cash, check, or credit card?
Does he ask for times payment? Does he need a
loan? If you could link some financial services to
your product, such as times payments, it should give
you a high advantage especially for expensive
items.
USES OF CUSTOMER ANALYSIS
Identifying WHO your best customer is
Customer analysis can help you identify
who your customer is and thereby improve the
segmentation targeting and positioning process
Remember 80% of your business will come from
20% of your customers. It is important you know
who those customers can be.
Planning out retention plans for your new
customers
New customers are important but so ar
returning customers. Thus customer analysis can
help convert your first time customers to returning
customers
Inducing further buying from your existing
customers
Cross selling, impulse purchases are some of
the methods which increase purchasing by your
existing customers. Example, if you know
customers who have bought jogging equipment, you
can cross promote other jogging related fashion tothem.
Improving customer service
Once you know who your customer is, you
can know what kind of services they will demand
Thus customer analysis will also help in service
deliverability.
Effective campaign planning
The demography and purchasing habits of
your customers will help you with planning a highly
effective campaign thereby improving your target.Increasing market share
What if while doing customer analysis you
recognize a set of customers that havent been
targeted by you? At the same time, you also
establish procedures better then the competitors. It
will increase in market share.
Increasing overall profitability
Once the above factors are analyzed the
company reaches or attains profit. Businesses are
established for profits. And overall profitability as
well as well being of the organization increases
once its customers are satisfied. And customer
satisfaction will happen only through customer
analysis.
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CUSTOMER PERCEPTION
A customer perception analysis is an
investigation into customer expectations as well
their requirements by a company or a business or
any organization catering to specific customers.
Any company needs to be aware of what its
customers are thinking, how trends change with
their customers preferences, what their expectations
are and how to meet those expectations. Thus, a
customer perception analysis is a vital exercise
which can lead to considerable improvement in the
companys handling of its customers, and their
behavior towards them. The results of such a
customer perception analysis must be tabulated
properly and it can be a valuable source of figuring
out how customer perceptions change the way a
company operates.
It is important to underscore the word
perception. Perception is the act of discriminating,
realizing, and becoming aware of through the
senses. The customers perception is what counts,
not what we think it is. To understand this point it
helps to consider perception categorized into (4)
quadrants:
How a Graphic ArtsCompany views itself
How the customerviewsthe Graphic Arts
company
The realview of the
Graphic Arts company
How a Graphic Arts
Company thinks the
customerviews the
company
The first quadrant has value, but includes
obvious blind-spots. Some of us score higher in self
objectivity than do others. The second quadrant is
the one that counts most and the goal of assessing
customer perception is to develop as accurate a
picture of the customers view as possible. The
third quadrant is a companys perception of how its
customers perceive it. Bias creeps into this
quadrant as well. The fourth quadrant is an mixture
of 1 3 and deals with a philosophical discussion
similar to, If a tree falls in the forest .
In practice, our profile of customer
perception resides in the third quadrant because our
ability to vision, listen, and interpret is in itself a
perception which carries filters. A quick review o
concepts related to perception helps attain higher
degrees of accuracy when assessing customer
perception because it is wise to remember tha
beauty is in the eyes of the beholder and in this
case the beholder writes the check.
CUSTOMER COMPLIENTS/FEEDBACK
Assessing customer perception is useless
unless the information leads to actionable
feedback. By this I mean that the information is
not only relevant, but based on its presentation, it isclear what action should be taken to improve overall
customer satisfaction.
To this extent, assessing customer
perception should be part of an overall systematic
approach aimed at improving customer satisfaction
There are five basic categories of methods to gather
customer perception information.
1. Surveys
2. Feedback Cards/comment card3. Focus groups (e.g. 20 groups
derived from the auto industry)
4. Face to face interviews
5. Telephone interviews
6. Customer Complaint Process
7. Employee feedback
SURVEYS
Our experience suggests that providing the
customer with a survey is the most frequently used
method to obtain customer feedback. These vary in
length and focus with the most common categories
for questions covering,
1) Quality of product, 2), timeliness of
delivery,
3) Price, 4) responsiveness & flexibility,
5) Service quality,
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6) Cooperativeness of Customer Service
Representatives and/or Sales Representatives,
7) Innovation and creativity,
8) Vastness (immensity) of service
offerings etc.
MERITS: Relatively easy to coordinate the
distribution.
Relatively inexpensive.
DEMERITS:
Response rate is not usually stellar. We
have not performed a formal study to define an
average response rate, but we are told that if you do
really well, a company might approach 50%.
You cant control who responds and who
does not. So, you may not necessarily obtain arepresentative perspective of the overall customer
base.
Poorly crafted questions may create a built-
in bias by leading the respondent to answer in a
certain way. This is an issue with all methods of
assessment, but with a survey there is no
opportunity for two-way communication that might
resolve misunderstanding.
FEEDBACK CARDS /COMMENT CARDSThese are attached to the product, or to an
invoice, and focus on the quality of a product
shipment. Areas of focus typically include;
1) product quality, 2) condition of the
product when it arrived, 3) timeliness, and 4)
packaging.5)name ,age gender, of customer
MERITS:
Inexpensive to execute.
The cards are attached to something that is
already going to be shipped or mailed.
Because it is smaller in size and therefore
less burdensome to complete, the recipient may be
more inclined to return it.
DEMERITS:
The size of the card restricts the number of
questions that can be listed.
Although directions for distribution (who
should complete it) are included on the card, the
card often does not hit its intended target.
Sometimes the receiving department
throws away the card.
You cant control who responds and who
does not. So, it is unlikely that you obtain a
representative perspective of the overall customer
base.
FOCUS GROUPS
A focus group session is a meeting conducted with
a variety of customers to assess a product or service
Meetings can also focus on service or process
issues. The automobile industry conducts what it
calls 20 Groups where it brings a group of twenty
customers together for the purpose of discussion. Ina traditional Market Research sense, the results
generated in a focus group are not considered
scientific and are used to further hone other research
instruments like a survey. We know of Graphic
Arts firms that use the concept with a twist by
bringing buyers and prepress/customer servic
representatives together for the purpose of
improving file transfers and/or job related
communication.
MERITS:Sometimes a customer will think of an idea with
others present that he/she otherwise would not.
Generates a good deal of input in a short span of
time.
DEMERITS:
If not facilitated properly (focus on the outcomes
and actionable items), the meeting can turn messy
When this happens, it is worse than if nothing was
attempted.
Sometime individuals in a group are subjected to
group think and support the viewpoints of others
rather than voice their own.
Face to Face Interviews
You may see these being executed at
shopping mall. Shoppers are escorted into a room
where a prepared survey is completed which usually
includes both open-ended questions and those that
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require a rating. In the Graphics Arts world a
company often relies on the sales force to obtain the
customers perception by sitting down and having
customer-supplier meetings.
It is important to use interviewers that are
independent of the process. It is not unusual for
ownership to say, My sales force has a handle on
the customer. After all, thats what I pay them for
and they dont get paid unless they keep the
customer happy. Ill restate the point that
interviewer independence is mission critical.
MERITS:
The setting provides an opportunity to clarify
questions and discussion topics because
communication is two-way. The interviewer can
check-in for both nonverbal and vocal cues.
The interviewee might be more attentive and
thorough in answering questions when an
interviewer is involved.
DEMERITS:
The interviewer is constrained by geography.
Either the interviewer visits the interviewee or vice-
versa. So to obtain wider coverage can be
expensive.
The interviewer may enter bias into the activity, by
either saying too much (leading the interviewee),
not listening well, or by not accurately orcomprehensively recording responses.
TELEPHONE INTERVIEWS
These are not telephone solicitations.
Rather these are contacts made with existing
customers for the purpose of assessing their
perception of how well a company is meeting their
needs. With intelligent crafting of both questions
and sequence (the nesting of questions), a
tremendous amount of useful and actionable
information can be gleaned. As previously stated, it
is critical to use interviewers who are completely
independent so as not to filter the information. (Eg:
TOLL FREE NUMBER)
MERITS:
The setting provides an opportunity to clarify
questions and discussion topics because
communication is two-way. The interviewer can
check-in for vocal cues.
The interviewer is not constrained by geography.
The interviewee might be more attentive and
thorough in answering questions when an
interviewer is involved.
DEMERITS:
The interviewer may enter bias into the activity, by
either saying too much (leading the interviewee)
not listening well, or by not accurately or
comprehensively recording responses.
Customer Complaint Process
By customer complaint process I mean a formal
process. Generally a company implements a form
or electronic recording method for capturing a
complaint. Responsibilities are assigned toindividuals to resolve the immediate issue. The log
of complaints is analyzed to determine patterns and
root causes of customer perceptions for the purpose
of permanently eliminating the condition causing
the complaint.
MERITS:
If a company genuinely listens to the complaining
customer, it is hearing an unsolicited cry for help
and there is no better substitute for that particular
perception. Proper handling of the complaint can lead to a
save which may improve the relationship.
DEMERITS:
Making this method the only source of customer
perception. Often times customers do n
complain; they just never do business with you
again.
EMPLOYEE FEEDBACK
The internal customer or employees gives
suggestion n towards the product or service before
commercialization
Applications forCustomer Perception analysis
Business performance improvement activities
Sales force effectiveness programmes
Strategic re-positioning
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Exploring current and new market needs and
opportunities
Strategic change programmes
Developing customer-centric capability models
EXPECTATION ANALYSIS
Understanding customer needs and
expectations is very important to a product or
service-oriented organization as it protects against
dissatisfied customers. Many business men run their
business by customers complaint. After customer
needs and expectations are identified, customer
satisfaction must be monitored and the findings
used to generate improvements. Proactively
conducting customer satisfaction surveys also
generates a positive impression on customers about
the organizations interest in them.
customers expectations VS perceptions
When a customer begins a relationship with
you he or she already has a specific set of
expectations. These expectations are based on their
perceptions of you, your company and yourindustry. They are formed through personal past
experience, and the experience of others with whom
the customer interacts.
Performance
Customer Satisfaction= ----------------------------------
Customer Expectations
Factors that influence customers expectations
CUSTOMER BEHAVIORBuying Behavior is the decision processes
and acts of people involved in buying and using
products. Consumer behaviour is the study of
when, why, how, and where people do or do not
buy a product. It blends elements from psychology
sociology, social anthropology and economics. It
attempts to understand the buyer decision making
process, both individually and in groups. It studies
characteristics of individual consumers such as
demographics and behavioural variables in an
attempt to understand people's wants. It also tries to
assess influences on the consumer from groups such
as family, friends, reference groups, and society in
general.
Customer behaviour study is based on
consumer buying behaviour, with the customer
playing the three distinct roles of user, payer and
buyer. Relationship marketing is an influential asset
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for customer behaviour analysis as it has a keen
interest in the re-discovery of the true meaning of
marketing through the re-affirmation of the
importance of the customer or buyer. A greater
importance is also placed on consumer retention,
customer relationship management, personalization,
customization and one-to-one marketing. Social
functions can be categorized into social choice and
welfare functions.
Consumer Buying Behavior refers to the
buying behavior of the ultimate consumer. A firm
needs to analyze buying behavior for:
Buyers reactions to a firms marketing strategy
has a great impact on the firms success.
The marketing concept stresses that a firm
should create a Marketing Mix (MM) that satisfies
(gives utility to) customers, therefore need toanalyze the what, where, when and how consumers
buy.
Marketers can better predict how consumers
will respond to marketing strategies.
The study of consumers helps firms and
organizations improve their marketing strategies by
understanding issues such as how
The psychology of how consumers think, feel,
reason, and select between different alternatives
(e.g., brands, products, and retailers);The psychology of how the consumer is influenced
by his or her environment (e.g., culture, family,
signs, media);
The behavior of consumers while shopping or
making other marketing decisions;
Limitations in consumer knowledge or information
processing abilities influence decisions and
marketing outcome;
How consumer motivation and decision strategies
differ between products that differ in their level of
importance or interest that they entail for the
consumer; and
How marketers can adapt and improve their
marketing campaigns and marketing strategies to
more effectively reach the consumer.
One "official" definition of consumer
behavior is "The study of individuals, groups, or
organizations and the processes they use to select,
secure, use, and dispose of products, services,
experiences, or ideas to satisfy needs and the
impacts that these processes have on the consumer
and society." Although it is not necessary to
memorize this definition, it brings up some usefu
points:
**Behavior occurs either for the individual
or in the context of a group (e.g., friends influence
what kinds of clothes a person wears) or an
organization (people on the job make decisions as to
which products the firm should use).
**Consumer behavior involves the use and
disposal of products as well as the study of how
they are purchased. Product use is often of great
interest to the marketer, because this may influence
how a product is best positioned or how we can
encourage increased consumption. Since manyenvironmental problems result from product
disposal (e.g., motor oil being sent into sewage
systems to save the recycling fee, or garbage piling
up at landfills) this is also an area of interest.
**Consumer behavior involves services and
ideas as well as tangible products.
**The impact of consumer behavior on
society is also of relevance. For example
aggressive marketing of high fat foods, or
aggressive marketing of easy credit, may haveserious repercussions for the national health and
economy.
There are four main applications of consumer
behavior:
Marketing Strategy
The most obvious (clear) factor is for
marketing strategy. (i.e.)., for making better
marketing campaigns. For example, by
understanding that consumers are more receptive to
food advertising when they are hungry, we learn to
schedule snack advertisements late in the afternoon
By understanding that new products are usually
initially adopted by a few consumers and only
spread later, and then only gradually, to the rest of
the population, we learn that (1) companies that
introduce new products must be well financed so
that they can stay afloat until their products become
a commercial success and (2) it is important to
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please initial customers, since they will in turn
influence many subsequent customers brand
choices.
Public policy
A second application is public policy. In the
1980s, Accutane, a near miracle cure for spots, was
introduced. Unfortunately, Accutane resulted in
severe birth defects if taken by pregnant women.
Although physicians were instructed to warn their
female patients of this, a number still became
pregnant while taking the drug. To get consumers
attention, the Federal Drug Administration (FDA)
took the step of requiring that very graphic pictures
of deformed babies be shown on the medicine
containers.
Social marketingSocial marketing involves getting ideas
across to consumers rather than selling something.
Marty Fishbein, a marketing professor, went on
sabbatical to work for the Centers for Disease
Control trying to reduce the incidence of
transmission of diseases through illegal drug use.
The best solution, obviously, would be if we could
get illegal drug users to stop. This, however, was
deemed to be infeasible. It was also determined that
the practice of sharing needles was too ingrained inthe drug culture to be stopped. As a result, using
knowledge of consumer attitudes, Dr. Fishbein
created a campaign that encouraged the cleaning of
needles in bleach before sharing them, a goal that
was believed to be more realistic.
As a final benefit, studying consumer
behavior should make us better consumers.
Common sense suggests, for example, that if you
buy a 64 liquid ounce bottle of laundry detergent,
you should pay less per ounce than if you bought
two 32 ounce bottles. In practice, however, you
often pay a size premium by buying the larger
quantity. In other words, in this case, knowing this
fact will sensitize you to the need to check the unit
cost labels to determine if you are really getting a
bargain.
CONSUMER BUYING PROCESS
There are Six Stages to the Consumer
Buying Decision Process (For complex decisions)
Actual purchasing is only one stage of the process
Not all decision processes lead to a purchase. Al
consumer decisions do not always include all 6
stages, determined by the degree of complexity. The
6 stages are:
Problem Recognition(awareness ofneed)
It is the Difference between the desired
state and the actual condition. For example, Hunger
means Food. Hunger stimulates your need to eat
Can be stimulated by the marketer through product
information and they did not know you were
deficient?
Information search
*Internal search, memory
*External search, if you need moreinformation. Friends and relatives (word of mouth)
internet gives lot information about the product
Marketer dominated sources; comparison shopping
public sources etc.
A successful information search leaves a
buyer with possible alternatives, the evoked set
Hungry, want to go out and eat, evoked set is
Chinese food, Indian food, burger king, Klondike
kates etc
Evaluation ofAlternatives Need to establish criteria for evaluation
features the buyer wants or does not want
Rank/weight alternatives or resume search.
May think and decide that you want to eat
something spicy, Indian gets highest rank etc. If not
satisfied with choice they return to the search phase
Can you think of another restaurant? Look in the
yellow pages etc. Information from different
sources may be treated differently. Marketers try to
influence by "framing" alternatives.
Purchase decision
Choose buying alternative, includes product
package, store, method of purchase etc.
Purchase
It May differ from decision, time lapse
between purchase decision and purchase is produc
availability.
Post-Purchase Evaluation-outcome:
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It is Satisfaction or Dissatisfaction.
Cognitive Dissonance, have you made the right
decision. This can be reduced by warranties, after
sales communication etc.After eating an Indian
meal, may think that really you wanted a Chinese
meal instead.
CUSTOMER LIFE TIME VALUE
Customer Value Analysis (CVA) and
customer loyalty marketing research are far more
in-depth than our basic employee or customer
satisfaction survey reports. CVA represents the
typical benefit a marketing research study can have
on an organization. Customer Value Analysis
empowers organizations with superior business
intelligence capable of unlocking complex market
opportunities. This tool helps our clients define theactions that will result in a competitive advantage.
In marketing, customer lifetime value
(CLV), lifetime customer value (LCV), orlifetime
value (LTV) is the net present value of the cash
flows attributed to the relationship with a customer.
The use of customer lifetime value as a marketing
metric tends to place greater emphasis on customer
service and long-term customer satisfaction, rather
than on maximizing short-term sales.
Customer lifetime value (CLV)is definedasthe sum of cumulated cash flowsdiscounted using
the Weighted Avera ge Cost of Capital (WACC)
ofa customer over his or her entire lifetime with the
company.
In this chapter, we first discuss the
importance and the relevance of CLV and compare
it with other traditionally used metrics. Two
approaches for measuring CLV, namely the
aggregate approach and the individual level
approach
IMPORTANCE AND RELEVANCE OF CLV
CLV is a measure of the worth of a
customer to the firm. Calculation of CLV for all the
customers helps the firms to prioritize the customers
on the basis of their contribution to the firms
profits. This can be the basis for formulating and
implementing customer specific strategies for
maximizing their lifetime profits and increasing
their lifetime duration.
In other words, CLV helps the firm to treat
each customer differently based on their
contribution rather than treating all the customers
same. Calculating CLV helps the firm to know how
much it can invest in retaining the customer so as to
achieve positive return on investment. A firm has
limited resources and ideally wants to invest in
those customers who bring maximum return to the
firm. This is possible only by knowing the
cumulated cash flow of a customer over his or her
entire lifetime with the company or the lifetime
value of the customers.
TRADITIONALLY USED METRICSSome of the commonly used metrics for
computing customer value include RFM, Share-of-
Wallet and Past Customer Value.
RFM Method
RFM stands for Recency, Frequency, and
Monetary Value. This technique utilizes these three
metrics to evaluate customer behavior and customer
value.
Recency: It is a measure of how long it has been
since a customer last placed an order with thecompany.
Frequency: It is a measure of how often a
customer orders from the company in a certain
defined period.
Monetary value: It is the amount that a customer
spends on an average transaction.
Two methods are generally used for
computing RFM.
The first method involves sorting custome
data from the customer database, based on RFM
criteria and grouping them in equal quintiles and
analyzing the resulting data.
The second method involves the
computation of relative weights for R, F , and M
using regression techniques and then the use of
those weights for calculating the combined effects
of RFM. RFM can be considered as the sum of the
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weighted recency, frequency, and monetary value
scores for a customer.
SHARE-OF-WALLET (SOW)
Share-of-Wallet at an aggregate level is
defined as the proportion of category value
accounted for by a focal brand or a focal firm within
its base of buyers. At an individual customer level,
SOW is defined as the proportion of category value
accounted for by a focal brand or a focal firm for a
buyer from all brands that the buyer purchases in
that category. It indicates the degree to which a
customer meets his needs in the category with a
focal brand or firm (Kumar & Reinartz, 2005).
It is computed by dividing the value of sales
(S) of the focal firm (j) to a buyer in a category by
the size-of-wallet of the same customer in a time
period.The information about a customers
spending with competitors is not normally available
with the firms. This is obtained from primary
market research or surveys administered to a
representative sample of firms customers. The
results are then extrapolated to the entire buyer
base. However, in certain B-to-B contexts firms can
infer the size of wallet for certain products
especially when the number of players in the market
is few.PAST CUSTOMER VALUE
This model is built on the assumption that
the past performance of the customer indicates their
future level of profitability and an extrapolation of
the results of past transactions is a measure of
customers value in the future. The value of a
customer is determined based on the total
contribution (towards profits) provided by the
customer in the past. The contributions from past
transactions are adjusted for the time value of
money and the cumulative contribution till the
present period is the past customer value (PCV) of a
customer.
Customer lifetime value has intuitive appeal
as a marketing concept, because in theory it
represents exactly how much each customer is
worth in monetary terms, and therefore exactly how
much a marketing department should be willing to
spend to acquire each customer. In reality, it is
difficult to make accurate calculations of customer
lifetime value. The specific calculation depends on
the nature of the customer relationship. Customer
relationships are often divided into two categories
In contractual or retention situations, customers
who do not renew are considered "lost for good"
Magazine subscriptions and car insurance are
examples of customer retention situations. The
other category is referred to as customer migration
situations. In customer migration situations, a
customer who does not buy (in a given period or
from a given catalog) is still considered a customer
of the firm because she may very well buy at some
point in the future. In customer retention situations
the firm knows when the relationship is over. Oneof the challenges for firms in customer migration
situations is that the firm may not know when the
relationship is over (as far as the customer is
concerned).
An ideal customer is one who is highly
profitable and loyal. The best marketing strategy is
to find such customers and keep them loyal
Customer Loyalty and Profitability are distinct
behaviors. Some of your customers could be highly profitable, but not very loyal. On the other hand
there are customers who are just mildly profitable,
who tend to stay with you for a long time. However
the vast majority of customers tend to exhibit a
behavior between these two extremes. Marketer
could alter the behavior of these customers through
innovative data-driven marketing strategies
Marketers use Customer Lifetime Value
(LTV) as a single unified measure of profitability
and loyalty of customers. More and more marketers
use LTV as a basis for their marketing programs
and strategic planning. LTV is nothing but the
cumulative Net Present Value of the profits from a
given customer (or a segment of customers) for a
given number of years.
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While estimating the LTV of your
customers, there are several factors you need to
consider, including:
Revenue per customer:
One of the key drivers for LTV is the
spending rate, or revenue per customer.
Retention:
Increase in retention rate reduces customer
service costs, increases revenue per customer.
Additional Purchase:
Existing Customer may make additional
purchases that could increase their LTV.
Referrals:
When your customers turn into advocates,
they recommend their friends, co-workers or
relatives to your company. Referrals typically tend
to have higher retention rates and spending rates.
Costs:
LTV computation should apportion costs to
the customer. These costs include cost of services or
products, plus the variable administrative costs, as
well as the acquisition cost.
Developing long-term relationships with
individual customers is a critical success factor. The
challenge for a businesses is to add value by
creating an environment where collective customer
service processes can outperform the service levels
provided by competitors, yet retain the benefits o
strong individual customer relationships.
The key elements of having a clear customer focus
and meeting their needs are:
1. Placing a high value on the customers you do
have or attract
2. Identifying the kind of customer your business
needs
3. Understanding customer choices that are
available
4. Narrowing down the best market for your
business (segmentation)
5. Selecting the appropriate level of service requiredfor your chosen target market
6. Marketing your product or service effectively
7. Converting the opportunities created from
targeted marketing into actual sales
8. Providing consistently good customer service and
have a service improvement culture.
CLV can be used to generate customer levelstrategies and optimize firm performance
Specifically these strategies include:(1) Customer selection,(2) Customer segmentation,(3) Optimal resource allocation,(4) Purchase sequence analysis, and(5) Targeting profitable prospects.
These strategies help to maximize the profitability and customer equity of the firmthereby increasing the shareholder value. They alsohave strategic impact on profitable lifetime duration
of the customers.
USES AND ADVANTAGES OF CLV
Lifetime value is typically used to judge the
appropriateness of the costs of acquisition of a
customer. For example, if a new customer costs $50
to acquire (COCA, or cost of customer acquisition)
and their lifetime value is $60, then the customer is
judged to be profitable, and acquisition of additiona
similar customers is acceptable.
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Advantages of CLV:
Management of customer relationship as an
asset
Monitoring the impact of management
strategies and marketing investments on the value
of customer assets
Determination of the optimal level of
investments in marketing and sales activities
Implementation of sensitivity analysis in order
to determinate getting impact by spending extra
money on each customer
Optimal allocation of limited resources for
ongoing marketing activities in order to achieve a
maximum return
A good basis for selecting customers and for
decision making regarding customer specific
communication strategies
Measurement of customer loyalty (proportion
of purchase, probability of purchase and repurchase,
purchase frequency and sequence etc.)
Identify the attributes that matter to your
customers and the competitors' customers.
Show exactly how customers define these
attributes.
Quantify the company's performance and yourcompetitor's performance.
Show which competitors have superior value
propositions and what can be done.
Reveal which market players are poised to gain
or lose market share.
Provide a fact-based, data driven system for
making decisions, beating the competition and
tracking progress.
TOOLS FOR CREATING CUSTOMER
VALUE
There are three values are important to create
value analysis
USER VALUES
PAYER VALUES
BUYER VALUES
USER VALUES
The user create the values in different context
Performance
Quality improvementInnovationsMass customizationWarranties and guarantees
Social
Price exclusivity
Limited availabilitySocial image adsExclusive offerings
Emotional
Emotional communications
PAYER VALUES
The payer concentrates three main factor before
they made purchase
Price
Low price from lower marginsLow price from increased productivity
(achieved through economies of scale, modernized
plant, automation, business process re-engineering)
Credit
Acceptance of credit cards
Offering of own credit card
Deferred payment
Financing
Leasing
Customized financing
BUYER VALUES
Service
Product display and demonstration
Knowledgeable salesperson
Responsiveness
User support and maintenance service
Convenience
Convenient point-of-access
Automated transaction recording
Personalization
Personal attention and courtesy
Interpersonal relationships
SELECTION OF PROFITABLE CUSTOMER
CRM helps companies understand the value
of customers, target their most profitable customers
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cultivate and maintain high-quality relationships
that increase loyalty and profits.
Precise evaluation of customer profitability
and targeting the most profitable customers are
crucial elements for the success of CRM
In todays competitive business
environment, the ability to identify profitable
customers, build their long-term loyalty and steadily
expand existing relationships is key competitive
factors to a company. To meet these factors,
companies across a wide range of industries have
made Customer Relationship Management (CRM)
one of the leading business strategies, integrating
sales, marketing and service across multiple
business units and customer contact points. CRMhelps companies understand the value of customers,
target their most profitable customers, cultivate and
maintain high-quality relationships that increase
loyalty and profits. Precise evaluation of customer
profitability and targeting the most profitable
customers are crucial elements for the success of
CRM.
Many CRM researches have been performed
to calculate customer profitability based oncustomer lifetime value and develop a
comprehensive model of it. Most of them, however,
had some limitations by not considering such as the
change of profit contribution resulted from the
customer defection (Berger & Nasr, 1998; Gupta &
Lehmann, 2003). They need further extensions
considering additional factors such as customer
reactivation possibility, attracting/service cost and
causes of customer defection.
On the other hand, the customer
segmentation based on their profitability to a
company is still an underutilized approach. This
study aims at providing an easy, efficient and more
practical alternative approach based on the customer
satisfaction survey for the profitable customers
segmentation instead of using a customer
profitability model, which is an important tool for
marketing and managing customer relationships by
providing the information of overall satisfactio
level, repurchase intentions, word-of-mouth
intentions, etc.
In our approach, we use intelligent tools
such as Data Envelopment Analysis (DEA), Self-
Organizing Map (SOM) Neural network and C4.5
to segment profitable customers.
DEA evaluates efficiency through the
relation analysis between the companys input costs
for a customer (e.g. marketing cost, production cost,
inventory cost, delivery cost, service cost and
relationship management cost) and the output (e.g
his/her satisfaction level, repurchase intentions and
word-of-mouth intentions in the customersatisfaction survey and his/her profit contribution to
it).
Through the successive mining of customer
satisfaction survey and socio-demographic data by
SOM and C4.5, we segment profitable customers
among all the surveyed customers.
Here survey-based profitable customers
segmentation system (SPCSS) that designs
executes (on-line, e-mail, etc.) the customer
satisfaction survey for all customers in customerdatabase of a company and conducts those mining
works for the profitable customers segmentation
SPCSS has an architecture based on intelligent
agent technology and also the integration of those
mining process into decision support system
framework by means of applying that technology.
PROFITABLE CUSTOMER
SEGMENTATION AND CUSTOMER
SATISFACTION SURVEY
Traditional customer segmentation models
were based on demographic, attitudinal, and
psychographic attributes of a customer (Griffin
2003). Recently, the customer segmentation based
on customer transactional and behavioral data (e.g
purchases type, volume and history, call cente
complaints, claims, web activity data, etc.) collected
by various information systems is commonly used
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However, the customer segmentation based on
his/her profitability to a company is still
underutilized.
Customer profitability is a customer-level
measure that refers to the revenues less the costs
which one particular customer generates over a
given period of time and has been studied the name
of Customer value, Customer Lifetime Value, LTV
and Customer Equity. Much customer profitability
researches focused on the future cash flow derived
from the past profit contribution and did not
considered the change of profit contribution resulted
from the customer defection (Berger & Nasr, 1998;
Gupta & Lehmann, 2003).
It is difficult and complicated to develop aneffective and exact customer profitability model and
segment profitable customers based on that model.
In this study, we provide an easy, efficient and more
practical alternative approach through the customer
satisfaction survey for the profitable customers
segmentation instead of using that model.
The typical customer satisfaction survey
collects data on the causal context of satisfaction,
i.e. antecedents (e.g. perceived performance ofvarious product attributes/service) and
consequences (e.g. overall satisfaction level,
repurchase intentions and word-of-mouth
intentions). According to the Satisfaction-Profit
Chain principle (Anderson & Mittal, 2000),
improving product and service attributes causes
increased customer satisfaction, increased customer
satisfaction leads to greater customer retention and
improving customer retention greater profitability.
The term customers overall satisfaction
level, repurchase intentions, word-of-mouth
intentions obtained from the customer satisfaction
survey and his/her profit/loss to a company derived
from the accounting database of it for the first step
of profitable customers segmentation.
PROFITABLE CUSTOMERS
SEGMENTATION BASED ON CUSTOMER
SATISFACTION SURVEY
We propose a survey-based profitable
customers segmentation system (SPCSS) based on
data mining and agent technology that designs
executes (on-line, e-mail, etc.) customer satisfaction
survey and conducts predefined mining processesfor the profitable customers segmentation. SPCSS
has a multi-agent based architecture and the
integration of predefined mining processes into
decision support system framework.
There are three types of intelligent agents
within the SPCSS architecture: Survey management
(SM) agent with survey knowledge base that
provides system co-ordination, facilitates (minedknowledge communication, and takes the charge of
design and execution of customer satisfaction
survey, profitable customers segmentation (PCS)
agent that segments profitable customers among all
the surveyed customers through the mining of
integrated data from the customer satisfaction
survey and accounting database and decides the
priority order for each non-profitable custome
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according to the size of possibility that he/she is
converted to profitable one through the mining of
integrated data from the customer satisfaction
survey and customer database, and user assistant
agent that acts as the intelligent interface agent
between the user (e.g. the engineer of customer
satisfaction center) and the SPCSS.
PROFITABLE CUSTOMERS
SEGMENTATION BY THE PCS AGENT
The first step is to find out the customers
among all the surveyed ones that have higher
efficiency about their output (e.g. the level of
customer satisfaction, repurchase intentions, word-
of-mouth intentions and profit/loss to the company)
from companys input costs for them (e.g.
marketing cost (campaign and advertisement),
production cost, inventory cost, delivery cost,
service cost and relationship management cost). We
call the group of customers with higher efficiency
HECG (High Efficiency Customer Group) in this
study.
To find out HECG, PCS agent employs
DEA ( Data Envelopment Analysis), an efficiency
measurement tool, to evaluate the cost efficiency of
all the surveyed customers (Charnes, Cooper,Lewin, & Seiford, 1994). DEA evaluates their
efficiencies through the relation analysis between
the companys input costs for them and the output.
Because the customers who belong to
HECG create more superior output than a
companys input costs for them, they have an
important effect on companys current and future
profit generation. However, undesirable customers
can belong to HECG because of the inaccuracy andinconsistency of survey data and so on. Therefore,
the next step is to form profitable customers group
(PCG) by removing undesirable customers that have
similar socio-demographic features to non-HECGs
ones among the customers belonging to HECG.
PCS agent first extracts the socio-
demographic (SD) features of HECGs customers
and classifies them into the extracted features using
SOM (Self-Organizing Map), a special type of
neural network using an unsupervised learning
scheme (Kohonen, 1989).
In other words, through SOM Training of
HECGs SD data from customer database, PCS
agent produces SOM weight vectors with the SD
features information of HECG. PCS agent classifies
all the surveyed customers into the extracted SOM
weight vectors (i.e. SD features) of HECG.
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The SOM Classification process (Lee, You,
Park, 2001) produces similarity scores by using theinner product (or dot product) between the extracted
SOM weight vectors (i.e., jZ1,.,k) that show the SD
feature patterns of HECG and the SD data vector of
a survey customer (i.e. Xi). The similarity score
indicates the level of similarity between two
vectors, the extracted SOM weight vector and
observed SD data vector of customer belonging to
the HECG.
In the case of similarity score higher than
the similarity criteria that set a lower limit on the
level of similarity, the customer is classified into the
corresponding SD feature of HECG. In other words,
the customer has that SD feature of HECG. For
example, in the customers socio demographic data
vector, Xi, is classified into the SD feature 1
(i.e.W1) among k SD features because the similarity
score of two vectors, 0.98, is higher than the
predefined similarity criteria, 0.95.
Through the SOM classification with high
similarity criteria setting as shown in above
example, PCS agent composes the profitable
customers group (PCG) by selecting the customers
with the very similar SD features to HECGs ones
among all the surveyed customers.
Finally,P
CS agent extracts the common SDrules of customers belonging to the PCG by C4.5
(Quinlan, 1993), a decision tree learning tool, and
then these mined rules are accumulated in the
survey knowledge base of SPCSS to use them for
customer management later.
NON-PROFITABLE CUSTOMERS
PRIORITY ORDER DETERMINATION BY
PCS AGENT
After PCS agent segments profitablecustomers, it evaluates the possibility that non-
profitable custom