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Customer Relationship

Management ProcessL 3

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Definitions

CRM is the development and maintenance ofmutually beneficiallong-term relationships with strategically significant customers

(Buttle, 2000)

CRM is an IT enhanced value process, which identifies, develops,integrates and focuses the various competencies of the firm to thevoice of the customerin order to deliverlong-term superiorcustomer value, at a profit to well identified existing and

potential customers.(Plakoyiannaki and Tzokas, 2001)

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Definitions

In a B2B environment , customerrelationship management is the supplychain management process that provides

the structure for how relationships withcustomers are developed and maintained. Profit growth

Customer loyalty

Customer satisfaction

Value of goods delivered to customers

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Definitions

The process of integration of sales, marketing,service and support strategy, process,people and technology to maximize

customer acquisition, value, relationships,retention and loyalty. A Redesigning of your Business from the Outside In.

Customers, Data and Database at the Center of yourOrganization (Customer-centricity).

A organization-wide single customer view. A Foundation for 1to1 Marketing: Treating Different

Customers Differently (Single Ticket Buyer vs. Subscriber)

A Means to YourTotal CustomerDevelopment Ends.

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CRM

It typically costs 5-10 times as much to acquire a new customer as it does to

retain an existing one. Some companies can boost profits by almost 100% by retaining just 5%

more of their customers. Harvard Business Review (Reicheld & Sasser)

A recentMcKinsey study showed that the average new customer spends$24.50 at a given web site in the first 3 months as a shopper. The averagerepeat customer spends $52.50 every 3 months.

Most companies lose 50% of their customers in 5 years (Harvard University)

On average only 15% of a sites customers consider themselves loyal to it.The loyalty rating among people who had experienced a problem was only6%. Customers who had not experienced problems indicated a customerloyalty rating of 19%. The loyalty rating among customers who had

experienced problems but were satisfied with the way they were handled:21%. (Digital Idea)

70% of repeat purchases are made out of indifference to the seller, NOTloyalty. (eLoyalty)

The web customer is only 1 click away from your competition.

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CRM: The Business Focus

Benefits and Challenges of CRM

Identify and target the best customers Customization and personalization of products and

services Track customer contacts

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Telstra Corporation: The Business Value of CRMTelstra Corporation: The Business Value of CRM


Provides fixed, wireless, and e-Commerceservices to customer base in 19 countries

Offers voice, data, internet, multimedia and

communications services Sought CRM solution to integrate more than 20core legacy databases across the system

Benefits quickly followed Reduced training time

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CRM FailuresCRM Failures

50% of applications fail to meet

expectations 20% of the time CRM damaged customer

relationships

Lack of understanding and preparation isblamed

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Gevity HR and Monster.Com: Failures in CRMGevity HR and Monster.Com: Failures in CRMImplementationImplementation


Employees undercut the system believing their jobsthreatened by CRM on-line customer problem

solutions. Complex installation since it touches so manylegacy systems

Failures lead to loss of customer goodwill andbusiness and negatively affects employees also

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CRM - Critical Business Process

Competitive pressures

Need to achieve cost efficiency

Inequality in profitability Inequality in terms of knowledge

Customer retention

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CRM as SCM

Customer relationship management andsupplier relationship management providethe critical linkages throughout the supplychain .

Change in profitability of a customer /segmentof customers.

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CRM as SCM process

CRM process has strategic and operationalelements

Strategic process

In strategic process the firm establishes andstrategically manages the process

Management team

Develop and implement strategic procedures

Operational process Operational process is the actualization of processonce established.

Customer team

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Strategic Sub-Processes Operational Sub-Processes

Source: Keely L. Croxton, Sebastin J. Garca-Dastugue, Douglas M. Lambert, and Dale S. Rogers, The Supply Chain Management Processes, The International Journal of LogisticsManagement, Vol. 12, No. 2, 2001, p. 15.

Review Corporateand Marketing Strategy

Identify Criteria

for Categorizing Customers

Provide Guidelines for the

Degree ofDifferentiation in the

Product/Service Agreement

Develop Guidelines for Sharing

Process Improvement Benefits

with Customers

Develop Framework for Metrics

Process Interfaces

Customer Service

Management

Demand Management

Order Fulfillment

Manufacturing Flow

Management

Supplier Relationship

Management

Product Development

& Commercialization

Returns Management

Differentiate Customers

Internally Review the Accounts

Develop the Product/Service

Agreement

Measure Performance and

Generate Profitability Reports

Prepare the Account/Segment

Management Team

Identify Opportunities

with the Accounts

Implement the Product/service

Agreement

Customer Relationship Management

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Strategic CRM Process..

Developing and managing relations withcustomers

Align functional expertise from the supplier andcustomer to support other processes.

Consists of five sub-processes Review corporate and marketing strategies

Identify criteria for segmenting customers Profitability, growth potential , volume, competitive

positioning issues , access to market knowledge , marketshare goals, margin levels, level of technology, resourcesand capabilities, compatibility of strategies..

Provide guidelines for degree of differentiation in PSA

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Strategic CRM Process

aReview Corporate

and Marketing Strategy

Identify Criteria

for Categorizing Customers

Provide Guidelines for the

Degree ofDifferentiation in the

Product/Service Agreement

Develop Guidelines for Sharing

Process Improvement Benefits

with Customers

D

evelop Framework for Metrics

Customer Service

Management

Demand Management

Order Fulfillment

Manufacturing Flow

Management


Management

Product Development

& Commercialization

Returns Management

Identify markets and target segments

Choose app . Criteria-Profitability - Margin-Growth - technology-Volume -resources-Comp. positioning - compatibility-Market knowledge -trade channel

-Market share goals -buying behavi

consider revenue/cost implicationsof the various differentiation alternative

Select boundaries for degree of differe

outline metrics of interests

Relate metrics to the customers impacon profitability and profitability for the c

Outline options for sharing the

benefits of process improvement

Process interfacesStrategic sub-process

Activities

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- Develop framework of metrics

- Outline the metrics of interest and relating them to thecustomers impact on the firms profitability as well as

the firms impact on customers profitability- CRM affects the firms financial performance as

measured by EVA

It is the goal of SCM to encourage actions thatbenefit the whole SC while at the same time

equitably sharing in the risks and rewards.

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Customer Relationship Managements Impact

Strengthen relationships with profitable customers

Sell higher margin productsImprove share of customerImprove mix

improve plant productivity

Improve targeted marketing effortsImprove trade spendingEliminate or reduce services produced to low profit customersOptimize physical networkLeverage new/or alternate distribution channelsReduce customer service and order management costsReduce HR costs/improve effectivenessReduce general overheads / mngt /admin costs

Improve demand planning

Reduce safety stockMake to order, mass customization of inventories

Reduce accounts receivable

Improve asset utilization and rationalizationImprove prod. Development and asset investment

Improve investment planning and development

% x

=

_

_

_

_

+

+

EconomicValueAdded

Net Profit

ProfitFrom

Operations

Taxes

GrossMargins

TotalExpenses

Sales

Cost ofGoods sold

Capital Charge

Cost ofCapital

TotalAssets

CurrentAssets

FixedAssets

Inventory

OtherCurrentAssets

How Customer Relationship Management Affects Economic Value Added (EVA)

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Customer Profitability Analysis :A contribution

approach with charge for assets employed

Customer A Customer B Customer C CustomerD

Net SalesCost of Goods Sold (VariableManufacturing Cost)

Manufacturing Contribution

VariableMarketing and Logistics CostSales CommissionsTransportationsWarehousing (Handling in and out)

Special PackagingOrder ProcessingCharge forInvestment in Accounts Receivable

Contribution Margin

Assignable NonvariableCosts:SalariesSegmentRelated AdvertisingSlottingAllowancesInventory

C

arryingC

osts

Controllable Margin

Charge for DedicatedAssets Used

Net Margins

Customer A Customer B Customer A Customer A

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Guidelines for sharing process improvement benefitswith customers

Agreement on fair allocation of benefits

Timeframe for benefit sharing

Decision on benefits/costs include

Accurate baseline to use as a starting point for measuringsavings

Benefit review and approval procedures

Mechanics to accrue for and transfer values

Determine gain sharing at the outset so it does not underminejoint objectives.

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Operational CRM Process

Deals with writing and implementing thePSAs

C

onsists of seven sub-processes : Segment customers

- current and potential profitability

- competitive positioning, market knowledge ,market share/goals/penetration , margin,technological capabilities, resources ,compatibility , class of trade

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a

Process Interfaces

Customer Service

Management

Demand Management

Order Fulfillment

Manufacturing Flow

Management


Management

Product Development

& Commercialization

Returns Management

Differentiate Customers

Internally Review the Accounts

Develop the Product/Service

Agreement

Measure Performance and

Generate Profitability Reports

Prepare the Account/Segment

Management Team

Identify Opportunities

with the Accounts

Implement the Product/service

Agreement

Analyze customer profitability

Evaluate potential growthDocument segments

Identify sales persons to be

account/sales managers

Select team members

Review prod. Purchase

Review sales growth

Review positioning in industry

Identify sales opportunities

Identify cost reduction opportunitie

Identify service improvement oppor

Outline and draft PSA

Gain commitment of the companys

Present PSA to account for accepta

For key customers, repeat until they

Agree on a communication and cont

Develop and follow implementation

Meet regularly with key customers

Measure by customer and for the c

-revenue -costs

-profitability - others

Report performance

Operational-sub processes Activities

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Customer segmentation based onPretax profit contribution

a

Segment Percentage of Accounts Percentage of Pretax Earnings

Platinum

Gold

Silver

Bronze

Lead (Unprofitable)

Total

8.4%

17.1%

18.2%

22.0%

34.3%

100% 100%

-6%

5%

11%

25%

65%

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- Prepare the account/segment managementteam- Teams are cross-functional

- Internally review the accounts- To determine products purchased, sales growth and

position in industry- Establish link b/w understanding customers priorities

and firms profitability

- Identify opportunities with the accounts- Customers needs, behavior, decision makingprocess, price sensitivities, preferences

- Priorities being ignored

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- Develop PSA- Agreement that matches the requirements of the

customer with the capabilities of the firm and thefirms profit goals for the customer.

- Implement PSA

- Measure performance and generate profitabilityreports- To measure and sell the value of relationships to

each customer and internally to upper management.

- Measured in terms of costs, impact on sales,associated investment

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CRM Processes / Mapping

Re-examine all of your customermanagement business processes.

Re-/define where CRM provides thegreatest value to your best customersand your organization.- Dont repave the cow paths

Incrementally implement CRM to improvetop targeted processes.- Ex. Subscription Renewal processes

SCM - CRM L 3

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