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CUSTOMER CUSTOMER RELATIONSHIP RELATIONSHIP MANAGEMENTMANAGEMENT

LPU: Semester IVLPU: Semester IV

2012 - 20132012 - 2013

BooksBooks

Books:• CRM by Ed Peelen • CRM by Zikmund, McLeod & Gilbert

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Three basic principles of MarketingThree basic principles of Marketing

• 1.The root of every marketing transaction is the value proposition V=B/P, where ‘V’ is value, ‘B’ benefits and ‘P’ price

• 2. Each marketer tries to obtain competitive or differential advantage.

• 3. Focus

Today’s business environmentToday’s business environment

• Discontinuity

• Speed of change

• Globalisation

• Technology

• Liberalisation

• Competition

• Shrinking of time and space4

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Contours of today’s marketing scene Contours of today’s marketing scene

• Effectiveness of mass advertising going down in mature markets

• Fragmentation

• Customisation

• Pressure on margins

• Great increase in the number of competitors

Strategies for dealing with customersStrategies for dealing with customers• Unsegmented, mass marketing to Market segmentation to

Customised marketing• Aggregated ~ standardised offering ~ low cost per customer

to one-to-one ~ tailored offering ~ high cost per customer

Crucial aspect: right level of aggregation

Main differentiator: ability to understand & address

customers’ preferences & priorities

=> strategic implementation of this knowledge throughout the company

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CRMCRM• Process of acquiring, retaining and growing profitable customers as

a market share gaining tool, in short: grow profitable customers• Focus on value and developing loyalty• Uses IT to provide the enterprise with a comprehensive, reliable

and integrated view of its customer base• Interactions individualised and personalised• Enhance customer service, improve satisfaction and ensure

customer retention• Much more than just automating processes in sales, marketing &

service ~ it involves conducting interactions with customers on a more informed basis and tailoring these interactions to customer needs

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CRM vs. AdvertisingCRM vs. Advertising

• Decreases advertising costs• Easier to target specific customers• Easier to track effectiveness of a campaign• Competition based on service, not price• Prevents overspending on low value clients and

under spending on high value ones• Speeds marketing cycle time for developing and

marketing a product• Improves use of customer communication channel

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The context for CRMThe context for CRM

• Macro-environment (STEEP factors) -> strategy -> STP -> 4 Ps

• Customers categorised as # existing # defected # prospects # of affinity partners

• Communication channels: ~ Mail: white mail & e-mail ~ Telemarketing: outbound & inbound

• Evaluation of responses – positive and negative

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Types of CRM programmesTypes of CRM programmes

• Win back or save

• Prospecting

• Loyalty

• Cross – sell /up sell

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Implementation requirementsImplementation requirements

• Strategy – Channel , segmentation, pricing, marketing, branding, advertising

• Segmentation – particular product-market -> value of customer to business -> categorising

according to customer needs• Technology – database, software, data mining,

DSS• Process – speed, measurement, evaluation• Organisation – cross-discipline segment teams

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MIE (Market – intelligent enterprise)MIE (Market – intelligent enterprise)

• Strategic use of customer and prospect information• Transactional focus• Operational use of information• Strategic channel management• Technology-enabled new business opportunities• Enterprise-wide approach

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Customer value - dimensionsCustomer value - dimensions

• A. two questions: What does my customer value? What is the value of my customer? Value of a customer or customer segment is often decisive for

the company’s success

• B. 3 aspects: * life stage * loyalty – advocate, supporter, customer, prospect * channel – retail store, phone, direct mail, Internet

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Important termsImportant terms

• Transaction• Contextual information• Meta-service• Meta data (‘ data about data’ ) • Data warehousing• Data mining• Lifetime value• Customer lifecycle• Migration• Attrition

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Paradigm ShiftsParadigm Shifts

• Customer driven practices

• Focus on profitability

• Strategic marketing practices

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Relationship MarketingRelationship Marketing

Strategies aimed at attracting & building a relationship with customers – widening, lengthening, deepening• Developing a core service• Customising relationship• Augmenting core service with extra benefits• Pricing services to encourage loyalty• Marketing to employees to help them

provide better service

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Value AdditionValue Addition

• Service enhancements

• Incentive

• Tailored interactions

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Important concepts in RMImportant concepts in RM

• Trust• Customer perceived quality• Benchmarking – internal & external• Internal marketing (TQM)• Buy grid (new task – straight rebuy – modified

rebuy)• Customer value – value chain• Life time value• Recency

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Relationship Marketing ProgrammesRelationship Marketing Programmes

• Continuity Marketing Programmes

• Partnering programmes

• One to one Marketing

• Integrated telephone marketing

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LoyaltyLoyalty

• Result of an organisation creating benefits for customers so that they maintain or increase purchases from the organisation.

• Win-win relationship to be obtained

• Customer becomes an advocate, without incentive

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Components of loyaltyComponents of loyalty

• Behavioural + Attitudinal

• Behavioural: consistency in repurchase; types - # undivided loyalty # occasional switcher

# switched loyalty # divided loyalty

# indifference

• Attitudinal: based on

# beliefs # emotional responses # intentions

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Degree of customer loyaltyDegree of customer loyalty• Attitudinal loyalty + Behavioural loyalty

• Attitudinal loyalty: Satisfaction + emotional bonding + trust + risk reduction• Behavioural loyalty: Choice reduction + habit + history with the company

LoyaltyLoyalty

ATTITUDE

-ATTITUDE

+

BEHAVIOUR -

No Loyalty Latent loyalty

BEHAVIOUR +

Inertia Loyalty Loyalty

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Factors lessening loyaltyFactors lessening loyalty

• Competitive parity

• Variety-seeking behaviour

• Low involvement

• Price sensitivity

• Deal proneness

• Low share of voice or presence in information landscape

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Transaction Vs. RelationshipTransaction Vs. Relationship

Transaction Relationship

Objective Make sale Create customer

Characteristic Anonymity Inter -dependence

Success criteria Volume, price, new customers

Value, repeat purchase

Interaction tone

Conquest,

Discrete

Agreement

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Loyalty & value: fried egg modelLoyalty & value: fried egg model

Selected customers

CRM Strategy

Relation perceived as highly valuable

High degree of customer satisfaction

High degree of loyalty

Value of relation high for both parties

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Customer lifetime valueCustomer lifetime value

Customer’s lifetime value

CustomerSatisfaction& loyalty

Customer acquisition

Customer retention

Strategic customer care

Courtship

Relationship

Marriage

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Cost of Lifetime ValueCost of Lifetime Value

• Cost of acquisition

• Selling cost

• Customer care cost

• Revenue

• Profits

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The path to S-CRMThe path to S-CRM

• Customer acquisition: loyalty measurements relate to transactions, e.g. turnover, profit margin

• Customer retention: relationship oriented, e.g. customer satisfaction index, profitability (share of wallet)

• S-CRM: dialogue oriented – share of life

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Loyalty and profitabilityLoyalty and profitability

Relationship

Customer retention( L +, P -)

Marriage

Strategic CRM( L +, P + )

Courtship

Customer Acquisition( L - , P - )

Relationship

Customer retention( L -, P +)

PROFITABILITY

LOYALTY

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Strategic customer careStrategic customer care

Customer’s lifetime value

CustomerSatisfaction& loyalty

Customer acquisition

Customer retention

Strategic customer care

Transaction

Retention

Dialogue

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Customer lifecycleCustomer lifecycleSuspect

Prospect

Customer 1st transaction

Loyal advocate

Repeat customer

Inactive regularcustomer

Lost customer

Feedback

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Reasons for terminating relationshipReasons for terminating relationship

• Novelty seeking

• Dissatisfaction

• Relative advantage

• Conflict

• Loss of trust

• Cessation of need

The need for analyticsThe need for analytics

• Greater need for customer-centricity

• Differentiation becoming more difficult

• Marketing cycle times becoming compressed

• Increased transparency of markets

• Attention span of customers decreasing

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CRM ecosystemCRM ecosystem

• Collaborative CRM

• Analytical CRM

• Operational CRM

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Another look at customer lifecycleAnother look at customer lifecycle

Engage

Transact

Fulfill

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Customer life-cycle managementCustomer life-cycle management

3 domain business system aligning

• Business processes: sales, service, marketing

• CRM technologies: operational, analytical, collaborative

• Customer life-cycle phases: engage -> transact -> fulfill -> service

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Where does analytics fit?Where does analytics fit?

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Scope of analytical CRMScope of analytical CRM

• Capturing all relevant customer information

• Measuring & optimising customer relationships

• Customer Behaviour Modeling

• Customer Value Assessment (profitability, LTV, profiling & scoring)

• Deploying analytical results to improve planning & customer interaction

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Business Architecture of Analytical CRMBusiness Architecture of Analytical CRM

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From customer centricity to profitable growthFrom customer centricity to profitable growth

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The customer knowledge baseThe customer knowledge base

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The 4 building blocks of CRMThe 4 building blocks of CRM

• Customer Knowledge

• Channels

• Value Proposition

• Relationship policy

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Relationship phasesRelationship phases

• Exploratory – Growth – Maturity – Decline

• In each phase, the marketer’s response vis – a – vis transaction, commitment, objective and policy is different

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Relationship data Relationship data management - issuesmanagement - issues

• Customer identification ~ operationalisisng data quality

• Expanding size of customer database ~ external lists and own channels

• Customer profiling ~ characteristics, maintenance, data sources

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Objectives of Data WarehousingObjectives of Data Warehousing

• Data to be current

• Data to be accurate

• Data to be secure

• Data to be easily available to authorised users

• Data descriptions to be maintained for users & system developers

Phases of data analysisPhases of data analysis

Database / data warehouse ~ selection &

sampling ~ Target data ~ preprocessing& cleaning ~ Cleaned data ~

transformation & reduction ~ Transformed data ~ data mining ~ Patterns / models ~ Evaluation of knowledge & performance system

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Management & controlManagement & control

STAGING AREAETL –extraction, transformation & loading

WAREHOUSE DATA REPOSITORY

METADATA REPOSITORY

INFORMATION DELIVERY

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RepositoryRepository

• Geographic data

• Demographic data

• Activity data

• Psychographic data

• Behavioural data

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Data typesData types

• Numeric

• Alphanumeric

• Graphic

• Audio

• Video

• Varying granularity

• Entities at different hierarchical levels

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Tables – navigation - securityTables – navigation - security

• Dimension tables relate to descriptions• Fact tables relate to quantitative measures• Information packages should relate

dimension tables to fact tables• Navigation: drill down – drill through – roll

up – drill across• Security (stages): deterrence – prevention –

detection - remedies

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Data miningData mining

• 1. Retrieval of detailed & summary data from data warehouse

• 2. Transformation of data into information

• 3. Presentation of information

• Level: macro - micro

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Tasks related to CRMTasks related to CRM

• Classification

• Regression

• Link analysis

• Segmentation

• Deviation detection

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Tools for data miningTools for data mining• Decision trees• Rule induction • Case based reasoning• Visualisation• Nearest neighbour• Clustering algorithms• Neural networks• Evolutionary computation• Association rules

Segmentation criteriaSegmentation criteria

• B 2 C: geographical, demographic, socio – economic, behavioural, psychographic, buying motives

• B 2 B: demographic, operating variables, purchasing approaches, situational factors, personal characteristics

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Segmentation techniquesSegmentation techniques

• ( Measurability, substantial, accessibility, differentiable, actionable)

• RFM (Recency ~ Frequency ~ Monetary Value)

• CHAID ( Chi – squared automated interaction detection)

• CART ( Classification & Regression Trees)

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Retention & cross-sell analysesRetention & cross-sell analyses

• Retention ~ former customers, current customers

• Cross – selling ~ over time, within the product range

• Customer profile ~ relationship client-supplier ~ product history

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Effects of marketing activitiesEffects of marketing activities

• Effectiveness of sales process

• Effectiveness of targeting

• Contribution of marketing activities to LTV

• Experiments

• The learning organisation – Knowledge Management (KM)

• Calculation of LTV

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Call centre managementCall centre management

• Customer management activity: targeting ~ enquiry management ~ welcoming ~ getting to know the customer ~ customer development ~ managing problems ~ win back

• Elements of a call centre: manpower, IT, telecom, process management

• Quality of contact ~ service level ~ capacity planning ~ predicting staff needs ~ routing ~ managing satisfaction ~ managing quality

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Key performance indicatorsKey performance indicators

• Average value of a call

• Costs per call

• % abandoned

• Customer satisfaction

• Errors

• AHT (average handling time)

• Forecast load vs. actual60

Internet & the websiteInternet & the website

• Traffic building ~ on line & off line

• Visitor expectations ~ content & context ~ creating trust ~ offering convenience ~ personalisation

• Quality during visit: design of page, content, site

• Visit ~ transaction ~ delivery ~ retention

• Measuring results

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Direct mailDirect mail

• Developing, producing, sending & following up

• Marketing briefing ~ creative briefing ~ traffic ~ fulfilment ~ evaluation

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Collaborative CRMCollaborative CRM• Various departments of the company like sales, service,

technical support & marketing share information they collect about customers to improve quality of customer service and increase customer loyalty

• It allows company to synchronise & manage efficient and productive interaction with customers, prospects, partners & internal associates across all communication channels. The customer’s viewpoint is taken care of at every transaction level

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Collaborative ProcessCollaborative Process

• Segmentation

• Shopper Knowledge building

• Objective setting & KPIs

• Joint Business Planning

• Implementing

• Monitoring

• Learning & improving

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CRM SystemsCRM Systems

• Primary task of CRM systems: customer contact processes

• Secondary task: providing customer & management information

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Components of CRM Systems• Front office: * sales force automation or sales

information system * partner management system (support to intermediaries) * call or contact centre * website * kiosks

• Middleware: * data warehouse * campaign management system * content management system

• Back office: legacy systems – generally older and have a longer lifespan – designed for management of transactions or products

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Components of CRM Systems - II

• Call centre: * switches, computers & connections * calling life identification * automated outbound dialing * voice processing * computer telephone integration * database

* tele-business software

• Internet & the website: * intranet, extranet & internal computer networks * security * e-commerce

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Levels of e-commerce infrastructure

(in ascending order)

• Communications network infrastructure

• Message distribution infrastructure

• Electronic publishing infrastructure

• Business service infrastructure

• Electronic commerce applications

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Campaign management systemsCampaign management systems

• Opportunity identification – relationship planning – campaign management – customer interaction – measuring & evaluating

• Types of campaigns:

# Single shot

# Wave

# Triggered

# Longitudinal ( over time)

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Sales Force AutomationSales Force Automation

• Mobile phones• Voice messaging systems• Fax• E-mail• Laptops• PDA• Interactive Websites• Wireless data transmission• CRM databases

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Use situations for SFAUse situations for SFA

• Contact management

• Lead management

• Opportunity management

• Knowledge management & intranet access

• Price quotations and order configuration

• Follow up

• Sales analysis

• Reporting

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Why SFAWhy SFA

• Salesmen now spend more time out of office (travelling, telecommuting)

• More time working in teams – as products are more complex and technical

• Integration of information available across system

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3 Ws of Technology in CRM3 Ws of Technology in CRM

• Web: eyes, ears & mouth – enables customers and suppliers to access information themselves

• Data warehouse: brain & nervous system – overlay to existing IT infrastructure

• Workflow management: arms & legs - scheduling & routing tasks within a process

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Integration pointsIntegration points

• Web interface

• Order / provisioning system

• Trouble ticketing system

• Call centre

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Data warehouseData warehouse

• Large scale reservoir of detailed & summary data describing firm’s activities over time

• Data marts: sections meeting specialised needs of business areas

• Prepares input data for storage ~ stores data ~ describes data for retrieval ~ performs management & control function

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Architecture & packagesArchitecture & packages

• Architecture: client / server, with one or more servers – now moving to web based

• Packages: # Siebel # Oracle Apps # MySAP.com # Clarify # Vantive( Solution offerings: # customer development # service

centre # sales mgt & support # market analysis # internet & telemarketing # product & brand management )

* 80 -20 rule (standardisation: customisation)

Suppliers of CRM systemsSuppliers of CRM systems

• Integrated ERP applications

• CRM suites

• CRM frameworks

• Best of breed

• Building own applications

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S- CRM: pillarsS- CRM: pillars

• Profiling customers

• Segmenting customers

• Researching customers

• Investing in technology

• Managing customers

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S-CRM: stepsS-CRM: steps• Align management team • Assess readiness for change• Segment customers• Profile strategic customers (‘crown jewels’)• Listen to the voice of your customers• Analyse gaps• Mobilise strategic team• Outline strategic action programme• Validate action plan and assess fit• Train teams• Implement strategies and activities• Track performance

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Customer Acquisition : important termsCustomer Acquisition : important terms

• Relationship marketing

* strengthening firm – customer relationship

* understanding uniqueness of each customer

* analysing customer value

• Lifecycle:

prospects – first time buyers – early repeat buyers – core customers – core defectors

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Customer Acquisition: important terms: IICustomer Acquisition: important terms: II

• ACTMAN: acquisition tactical management

• CAE: computing acquisition equity

• Profiling: demographical, behaviour based, index based

• Regression scoring

• NPV - LTV

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Customer retentionCustomer retention

• Stages: Welcome cycle, upselling, cross-selling, renewal, lapsed customers, inactive customers

• Difference between customers’ expectation and quality delivered

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Measuring customer satisfactionMeasuring customer satisfaction and loyalty and loyalty

• Objective: determining how well a product or service is meeting customer expectations and organisational objectives

• Loyalty results in # lower costs of service # increased purchases # less price sensitivity # favourable word of mouth # sustainable advantages

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Factors in measuring loyaltyFactors in measuring loyalty

• Acquisition cost

• Operating costs

• Per customer revenue growth

• Price premium

• Base profit

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QualityQuality

Customer perceptions of tangible aspects such as

• Performance

• Features

• Conformity to specifications

• Reliability

• Durability

• Aesthetic design

• Serviceability

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SERVQUALSERVQUAL

• Perceived service quality is measured by discrepancy approach or gap analysis:

Service quality = Perceptions – expectations

• Dimensions: # Tangibles # Reliability # Responsiveness # Assurance # Empathy

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Loyalty measurementsLoyalty measurements

• Customer satisfaction is not equal to loyalty

• Loyalty measurements need to measure attitudinal and behavioural elements => connection between objective behaviour and more subjective perceptual feelings

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Channel management & CRMChannel management & CRM

• Basic questions:

# What is to be produced ?

# Who is going to buy?

# How is it to be sold?• Conflict of interests: customer wants best

price and quality whereas organisation wants to reduce costs and increase sales

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Evaluation of channels - customerEvaluation of channels - customer

• Information: characteristics, service, price

• Communication: direct or through intermediary

• Transaction: exchanging of orders, invoicing & payment, distribution

• Service: before and after purchase, incl. installation, running-in period, trustworthiness, delivery, courtesy, response in case of defects

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Evaluation of channels - organisationEvaluation of channels - organisation

• Market coverage: current channels, new channels

• Control: standard product vs. one requiring bundling

• Conflict• Profitability• Support: marketing, promotions, training,

repair warranties, material for stock, delivery, selection

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Reasons for conflictReasons for conflict• Supplier bypasses intermediary• Supplier gives product to new channels for

market coverage• Supplier appoints more intermediaries in same

area• Intermediaries not happy with margin• Supplier perceives intermediary as disloyal• Intermediaries refuse to share end user account

information

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Points important for CRMPoints important for CRM

• Strong correlation between customer satisfaction and customer retention

• Studies show strong connection between increase in customer satisfaction and additional revenue over next period

• Key to enhance revenue lies in linking particular products and services to particular customer segments through appropriate channels

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E-channel studyE-channel study

• Key challenges: # meeting customer demands # technology change and integration

# maintaining employee skills

• Stages in building sound e-business models:

# presence # integration # transformation

# convergence

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E-channel management - challengesE-channel management - challenges

• Consistency

• Balance

• Technology

• Change management

• Customer expectations

• Legacy customer care environment

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Pressures on today’s companiesPressures on today’s companies• Maintain customer loyalty

• Generate new revenue

• Control costs

AND

• Race to beat competitors to market

Competition increased by mergers & acquisitions,

consolidation & deregulation

Thus NPD becomes a critical component of CRM

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NPD process (CATI model)NPD process (CATI model)

• CREATE – ASSESS – TEST – IMPLEMENT• Create: technology – idea sources – brainstorming –

tools • Assess: parameters – options – scenarios – strategic fit

– customer/competitor/market• Test: product and market – speed to market –

technology – KPI• Implement: concurrent efforts – alliances – partial

launches - teasers

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The scene todayThe scene today• Rapid advance in technology and science ->

new developments• Globalisation: smaller marketplaces and more

competition• Consolidation & mergers, leading to

convergence• New sales channels / marketing tools -> niches• More consumer education• PLC shorter• Obsolescence increasing

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US auto industry: customer US auto industry: customer centric integrated processescentric integrated processes

• NPD: define product, deliver concepts, engineer products and components

• Demand fulfilment: plan production, process orders, plan material, manufacture product

• Customer acquisition and retention: pricing, configuration, brand image and equity, customer communication and need assessment, sale and delivery of product, services financing and insurance

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TrendsTrends

• NPD: # more electronics # global collaboration # falling cycle times

• Demand fulfilment: # from push to pull–based manufacturing # suppliers assuming more responsibility

• Customer acquisition and retention: # process of sensing customer needs to after-sales relationship # work toward a one on one connection

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Customer-centric scenario : impactCustomer-centric scenario : impact

• OEMs: closer to customer

• Suppliers: push to pull

• Dealers / retailers: squeezed on both sides

(more quality, better customer service, lower cost, cycle time going down)

• Consumers: biggest beneficiary

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Prerequisites for implementationPrerequisites for implementation

• Anchoring

• Estimating resource needs

• Realistic expectations

• Sufficient training

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Balanced scorecardBalanced scorecard(Robert Kaplan & David Norton)

• Financial objectives: how do we look at our shareholders?• Customer outcomes: how do our customers perceive us?• Internal business processes: in what areas must we excel?• Learning and growth: how can we continue to grow and

develop?

CRM within balanced scorecardCRM within balanced scorecardCurrent period Medium term Long term

Financial perspective Turnover Cumulative turnover Life time value

Customer perspective

Average customer satisfaction

Individual customer satisfaction

Individual customer commitment

Process : communication

Primarily one way Attuned between business units

Dialogue through multi channels

Learning & growing : customer knowledge

Customer knowledge withinorganisation

Shared customer information

Integrated customer knowledge

L & g : organisation Product oriented Market oriented Customer oriented

Learning & growth : organisation (2)

Market divided into product groups

Market segments identified

Individual customers & groups identified

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Road map for catalytic measuresRoad map for catalytic measures

• Identify area needing change

• Identify relevant milestone

• Create a measurement approach

• Announce and implement quickly

Causes for failureCauses for failure

~ lack of a business case with clear objectives

~ organisation not ready for CRM ~ poor data quality

~ scope of the project was too broad ~ lack of

sponsorship from top management ~ project was IT

driven ~ insufficient attention to change management

~ stakeholders do not react positively ~ misconception

that CRM can be contracted out to system integrators

~ bureaucratic approach ~ resistance from IT department

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InterfaceInterface

• Strategy

• Data management

• Customer management

• Channel management

• Operational management

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Overview of CRM projectsOverview of CRM projects

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CommunicationCommunication

StrategyStrategy New business modelsNew business models

Contact centreContact centre

InternetInternet

CRMCRMSoftwareSoftware

CustomerCustomerManagementManagement

CustomerCustomerknowledgeknowledge

CultureCulture

AccountabilityAccountability

CustomisationCustomisation

Fulfilment