Strategies of Customer Relationship Profitability in Retail Banking
Retail Customer Relationship Management
Transcript of Retail Customer Relationship Management
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McGraw-Hill/IrwinRetailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.
Chapter 11
Customer Relationship Management
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Retail and Site Locations
Chapter 7 and 8
Retailing Strategy
Organizational Structure and
Human Resource Management
Chapter 9
Retail Market and Financial Strategy
Chapter 5, 6
Customer Relationship Management
Chapter 11
Information Systems &
Supply Management
Chapter 10
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Questions
■ What is customer relationship management?■ Why do retailers want to treat customers
differently?■ How do retailers determine who their best
customers are?■ How can retailers build customer loyalty?■ What can retailers do to increase their share of
wallet?■ What can retailers do to alleviate the privacy
concerns of their customers?
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Customer Relationship Management (CRM)
■ A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers.
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CRM
■ All customers are not equally profitable, and more or less profitable customers need to be treated differently
■ Retailers now concentrate on providing more value to their best customers using targeted promotions and services to increase their share of wallet – the percentage of the customers’ purchases made from the retailer
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Customer Loyalty
■ Committed to purchasing merchandise and services from a retailer
■ Resist efforts of competitors to attract the loyal customer
■ Emotional attachment to retailer Personal attention Memorable positive experiences Brand building communications programs
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Can Offering Price Discounts Achieve Customer Loyalty?
No! Retail strategies like these can be
copied by competitors
These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer
McGraw-Hill Companies, Inc./Gary He, photographer
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The CRM Process
CRM is an iterative process that turns customer data into customer loyalty through four activities:
1. Collecting customer data2. Analyzing the customer data and identifying
target customers3. Developing CRM programs4. Implementing CRM programs
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CRM Process Cycle
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Collecting Customer Data:Customer Database
■ Transactions – a complete history of purchases Purchase date, price paid, SKUs bought, whether or not the
purchase was stimulated by a promotion
■ Customer contacts by retailer (touch points) --visits to web site, inquires to call center, direct mail sent to customer
■ Customer preferences■ Descriptive information about customer
Demographic and psychographic data
■ Customer’s responses to marketing activities
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Collecting Customer Data: Identifying Information
Approaches that store-based retailers use:■ Asking for identifying information
Telephone number, name and address■ Offering frequent shopper cards
Loyalty programs that identify and provide rewards to customers who patronize a retailer
Private label credit card (that has the store’s name on it)
■ Connecting Internet purchasing data with the stores
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Privacy Concerns
■ Control over Collection Do customers know what
information is being collected? Do customers feel they can
decide upon the amount and type of information collected by retailers?
■ Control over Use Do customers know how the
information will be used by the retailer?
Will the retailer share the information with third parties?
Steve Cole/Getty Images
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Heighten Privacy Concerns When Using Electronic Channel
■ Information collected without the awareness of customers
■ Collecting click stream data using cookiesSimilar to an invisible person
videotaping a customer as they walk through a store
Stockbyte/Punchstock Images
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Customer’s Decision to Offer Information
Balance benefits and risks
DiscountsSpecial TreatmentPersonal Attention
Disclosure of InformationUnwanted Sales Contacts
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Protecting Customer Privacy:Differences between U.S. and EU
■ Limited protection in specific areas
Credit reporting Video rentals Banking Medical records
■ Opt out: Consumers must explicitly tell retailers not to use their personal information
■ Stringent consumer privacy laws■ Information only can be collected for
specific purposes■ Purpose must be disclosed to
customer■ Information can only be used for
specific purpose■ Information cannot be exported to
countries with less stringent regulations
■ Opt in: Consumers own their personal information, and retailers must get consumers to explicitly agree to share this personal information
United States European Union
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FTC Guideline for Fair Information Practices
■ Notice and awarenesscomprehensive statement about
information storage, manipulation, and dissemination
■ Choice/consentOpt-in and opt-out options
■ Access/participationCustomer able to confirm accuracy
■ Integrity/security Controls for theft and tampering
■ Enforcement/redressMechanism to insure compliance
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J.Crew Security and Privacy Policy
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Analyzing Customer Data and Identifying Target Customers
Ryan McVay/Getty Images
Analyze the customer database and convert the data into information that will help retailers develop programs for building customer loyalty
Data Mining – technique used to identify patterns in data
■ Market Basket Analysis■ Identifying Market Segments■ Identifying Best Customers
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Market Basket Analysis
Data analysis focusing upon the composition of the customer’s market basket – what items are bought during a single shopping occasion
Uses:■ Adjacencies for displaying
merchandise■ Joint promotions
Bananas in the cereal aisle as well as in the produce section
Beer with baby dippers Tissues with cold medicine
Burke/Triolo Productions/Getty Images
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Market Basket Analysis Taught Wal-Mart to Change!
Product Placed NearBananas cornflakes, produceKleenex paper goods, cold medicineMeasuring spoons housewares, Crisco shorteningFlashlights hardware, Halloween costumesLittle Debbie snack cakes coffeeBug spray hunting gear
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Identifying Best Customers
■ Estimating Lifetime Value (LTV) The expected contribution from the
customer to the retailer’s profits over his or her entire relationship with the retailer
■ Use past behaviors to forecast future purchases, the gross margin from these purchases, and the costs associated with serving the customers
■ Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis)
(c) Brand X Pictures/PunchStock
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Which Customer Probably Has the Greatest Lifetime Value
Purchases Over Last 10 Weeks
1 2 3 4 5 6 7 8 9 10Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0
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Customer Pyramid
PlatinumBestMost loyalLeast price sensitive
80-20 rule:80% of sales or profits come from20% of the customers
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Customer Pyramid
Gold
Next bestNot as loyal
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Customer Pyramid
IronDoesn’t deserveas much attention
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Customer Pyramid
LeadHave negative LTV value
“Lead out”
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RFM Analysis
Used by catalog retailers and direct marketersRecency: how recently customers have made a purchaseFrequency: how frequently they make purchasesMonetary: how much they have bought
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RFM Target Strategies
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Illustration of RFM Application
■ A catalog retailer is deciding which group of customers to send a catalog. Based on experience and an RFM analysis of customer database:
Average order size for customers in cell - $40 Contribution margin – 50% Response rate – 5% Cost of catalog and mailing -$.75
■ Will the retailer make a profit mailing to this RFM segment?
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Illustration of RFM Application
■ A catalog retailer is deciding which group of customers to send a catalog. Based on experience and an RFM analysis of customer database:
Average order size for customers in cell - $40 Contribution margin – 50% Response rate – 5% Cost of catalog and mailing -$.75
■ Will the retailer make a profit mailing to this RFM segment?
$20.00 contribution x .05 response rate - $.75 cost = $.25 profit per catalog mailed
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Developing CRM Programs
Retaining Best Customers
Converting Good Customers into Best Customers
Getting Rid of Unprofitable Customers
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Customer Retention
■ Frequent Shopper Programs■ Special Customer Services■ Personalization
1-to1 Retailing
■ Community
Royalty-Free/CORBIS
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Elements in EffectiveFrequent Shopper Programs
■ Tiered rewards based on customer value■ Offer choices of rewards
No all customers value the same rewards Non-monetary incentives, altruistic rewards
■ Reward all transactions to ensure the collection of all customer transaction data and encourage repeat purchases
■ Transparent and simple so that customers easily understand when they will receive rewards
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Issues with Effective Frequent Shopper Programs
■ Expense■ Difficulty in Making Changes■ Impact on Loyalty Questionable■ Easily Duplicated – Difficult to
Gain Competitive Advantage Need to offer “invisible” benefits
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Personalization
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Converting Good Customers into Best Customers
■ Customer alchemy: converting iron and gold customers into platinum customers
■ Add-on selling as a way to achieve customer alchemy
Involves offering and selling more products and services to existing customers and increasing the retailer’s share of wallet with these customers
The Oprah Winfrey Show to sell books, movies, and TV specials (Harpo Productions), a cable channel (Oxygen Media), a Web site (www.oprah.com), magazine (O)
Shopping Buddy
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Dealing with Unprofitable Customers
■ Offer less approaches for dealing with these customers
■ Charge customers for extra services demanded
Don Farrall/Getty Images
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Implementing CRM Programs
■ Need systems, databases
■ Close coordination between departments – marketing, MIS, store operations, HR
■ Shift in orientationProduct Centric
Customer Centric