CRM

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Todays Objective Learn Fundamental Concepts of
Customer Relationship Management (CRM)   o  
Definition and Goals o   Concept of Lifetime
Value of a customer o   Some customers are better
than others... o   E-commerce communication, data
collection and, technologies o   Customer
Profiling o   CRM marketing example -      
RFM -       Data Mining o   What info do you
need to capture at your e-commerce web site?
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Customer Relationship Management (CRM)
The business and technology discipline to
coordinate all of business processes for dealing
with customers. Laudon
and Laudon 02
Instead of treating customers as exploitable
sources of income, businesses are now viewing
them as long-term assets to be nurtured through
CRM. p.53
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Goals of CRM

• Retention rate CRM, relationship building,
  increases customer loyalty which increase revenue
  per customer and frequency of purchases.
• Referrals CRM can turn customers into advocates.
  Referrals typically have higher retention rates
  and spending rates than other newly acquired
  customers.
• Increased sales CRM leads to increased
  cross-selling, upgrades, or simply more products
  by existing customers.
• Reduced costs CRM can lead to more cost
  effective marketing avoids expenses of mass
  marketing, free-up sales professionals, reduces
  direct mailings.

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Lifetime Value (LTV) of a Customer
Ideally, customers LTV is the stream of expected
future value flows discounted back to current
present value.
Benefits Costs Value (to firm)
Benefits revenues, referrals Costs COGS,
marketing expenses, phone, e-mail, sales call
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Lifetime Value (LTV) of a Customer
Lifetime value is the net present value of the
profit that you will realize on the average new
customer during a given number of years. Hughes
00
This definition allows us to compare groups of
customers with other groups of customers.
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Most companies break their customers down into
five groups, (quintiles) based on LTV,
profitability or net revenue.
Some customers are better than others.
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Your best customers 80 of your revenue
Spend Service Dollars Here
Gold
Spend Marketing Dollars Here
Your best hope for new gold
Move-ups
???
Long Shots
Archive
Losers
1 of your revenue
Hughs 00
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Goals of CRM
LTV based Communication

• Retention rate CRM, relationship building,
  increases customer loyalty which increase revenue
  per customer and frequency of purchases.
• Referrals CRM can turn customers into advocates.
  Referrals typically have higher retention rates
  and spending rates than other newly acquired
  customers.
• Increased sales CRM leads to increased
  cross-selling, upgrades, or simply more products
  by existing customers.
• Reduced costs CRM can lead to more cost
  effective marketing avoids expenses of mass
  marketing, free-up sales professionals, reduces
  direct mailings.

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Using the Internet to Communicate with Customers

• Far cheaper than any other medium
• Operates 24/7/365
• Know which customers have read a message and when

• Enables customers to find out information for
  themselves
• Can build a bond with customers interactive,
  addictive
• Can communicate across borders and languages

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Dimensions of Customization
Customization of a site can occur in many
different ways

• PERSONALIZATION
• Log-in Registration
• The site recognizes return users and configures
  itself accordingly
• Cookies
• Temporary files that track and gather data about
  users behavior
• Personalized E-Mail Accounts
• Provided free-of-charge to site users
• Content and Layout Configuration
• Users select layout and content based on their
  interests
• Storage
• Sites provide virtual hard-disk storage
• Agents
• Programs designed to perform simple tasks

• TAILORING
• Based on Past User Behavior
• Many sites adjust themselves dynamically based on
  a users past behavior and preferences
• Based on Behavior of Other Users
• With Similar Preferences
• Some sites make recommendations to the user based
  on preferences of other users with similar
  profiles

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Personalization

• Client based - Customer (client) selects content
  and style of the web page presented
• Extranet the best way to communicate with
  customers (Dell Computers, Premier Pages),
  requires password
• Personalized page not as personal as extranet,
  yet very specific as to style and content
  (Excite, My Excite Start Page), requires account

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Personalization by User Example Mylook.com
Enables the user to modify site content and
context based on consciously articulated and
acted-upon preferences
The first step in this sites customization
process is to choose the category with which you
are the best fit content will then be customized
accordingly.
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Tailoring

• Server based the e-commerce firm (server)
  selects content and style of web page presented
• Collaborative filtering based on customers past
  behavior. Possibly uses registration, cookies,
  log-file analysis, purchase history

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Tailoring by Site Example Amazon.com
Enables the site to reconfigure itself based on
past behavior by the user or by others with
similar profiles
Without consciously articulating preferences,
users find that Amazon.com makes recommendations
based on their past buying habits.
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Other Methods of Communication

• E-mail complaints (should be welcomed)
• special occasions (birthdays, etc.)
• points programs (awards)
• Chatting builds sense of community
• Frequently Asked Questions (FAQs) frees
  up staff

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Goals of CRM
CRM Based Marketing

• Retention rate CRM, relationship building,
  increases customer loyalty which increase revenue
  per customer and frequency of purchases.
• Referrals CRM can turn customers into advocates.
  Referrals typically have higher retention rates
  and spending rates than other newly acquired
  customers.
• Increased sales CRM leads to increased
  cross-selling, upgrades, or simply more products
  by existing customers.
• Reduced costs CRM can lead to more cost
  effective marketing avoids expenses of mass
  marketing, free-up sales professionals, reduces
  direct mailings.

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Build Customer Profile

• Demographics age, income, sex, education
• Product Affinity Product A, Product B, etc.
• Recency most recent purchase date
• Frequency total number of times customer has
  made a purchase in a given time period
• Monetary total amount spent on
  products/services during a given time period

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Recency Quintile Code
5
2/4/2002
4
3
2
1
4/11/95
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Frequency Quintile Code
5
55
4
Average Products Purchased Per Year
3
2
1
1
20
Monetary Quintile Code
5
12,456
4
Average Amount Purchased Per Year
3
2
1
10
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Putting it all together (RFM)125 possible
combinations (5x5x5) (cells, segments, groups)
(N members)
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Putting it all together (RFM)

• Each customer belongs to a group and is coded
  accordingly Customer 1003 432
• Draw a random sample from all customers and make
  sure that it matches exactly
• Direct the pre-marketing campaign at the sample
• Tabulate the results, and direct the actual
  marketing effort only towards the profitable
  segments

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All Customers N2,000,000
-Actual campaign aimed only at profitable
cells -Can calculate meaningful Pro forma ROI
Random Sample (All cells)
-Pre-Campaign -Tabulate Results
Sample N1,000
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Data Mining

• Sample
• Explore
• Model
• Measure
• Assess

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-Run all customers through the model -Actual
campaign aimed at targeted customers with laser
like precision -Can calculate meaningful Pro
forma ROI Assess actual results
All Customers N2,000,000
Random Sample (All cells)
-Explore -Modify -Model
Sample N1,000
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Application of ANN in Banking
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What data do you need to capture at your web site
to accomplish CRM goals?

• Pre 2000 CRM leads to competitive
• advantage
• Post 2000 CRM is a minimum
• competitive threshold