University of Washington MBA Program

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University of Washington MBA Program

• Managing Customer Relationships
• through Direct Marketing
• Relationship Marketing CRM Intro
• Instructor Elizabeth Stearns

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Relationship Marketing

• Marketing on the Differences
• Marketing with a Memory
• Demassifying the Communications Process
• Customizing Communications and Products/Services

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Relationship Marketing Attributes

• Evolutionary process, not an event
• Experience-based, not transaction-based
• Mutually beneficial, two way
• Emotional and/or logical appeals

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Relationship Process
Measurement
On-going Dialogue
Database Support
Communication Objectives
Customer Segmentation
Brand Equity / Promise
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Relationship Marketing

• Relationship marketing recognizes that prospects
  and customers can be at different points of
  awareness, interest and intent-to-buy along the
  prospectivity continuum
• Persuasion is a process Dialogue precedes
  purchase/engagement for most products and services

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Model of Market Prospectivity
Unaware Vague Awareness Category
Familiarity Brand Familiarity Passive
Consideration Active Interest Purchase Usage
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Understand Your Customers

• Their Demand for Your Product or Service
• Their Changes over Time
• Their Growth Needs
• Their Technology/Personal Service Conundrum
• Their Available Choices for Solutions
• Their Value to You!

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Some Customers are Worth More!















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Brand Relevance to Customers
To enhance customer loyalty, a company must
strengthen the relationship with the brand A
focus on loyalty segmentation provides strategic
and tactical insights that assist in building
strong brands David Aaker, Building Strong
Brands
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Customer Loyalty

• Reduced or No Desire to Switch
• Increased Perception of Value / Quality
• Reduced Risk of Buying (More)
• Trial New Products or Services

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Customer Loyalty

• Feels Recognized and Special
• Volunteers Information
• Positive Word of Mouth / Recommends to Others

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Satisfaction Performance minus Expectations
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Make Surveys Count!
One of my customers cornered me at a charity
board meeting and told me, I got a call after I
picked up my car asking if I was satisfied with
the sales experience. Then I got a call after the
car was serviced, asking if I was satisfied with
the service experience. Finally, another surveyor
called several weeks later to check if I was
happy with the ownership experience. So when am I
going to get a call asking if Im satisfied with
the satisfaction survey experience?
Reichheld, The Loyalty Effect
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Why Relationship Marketing?
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Economic Value to Keeping Customers

• 2 Retention equals approximately 10 reduction
  in costs

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Why Customers Are More Valuable Over Time
Price Premium
Referrals
Company Profit
Reduced Operating Costs
Increased Purchases Higher Balances
Base Profit
Customer Acquisition Cost
Time

• Profit Comes from Different Sources

Reichheld Sasser, Jr.
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Profit Improvement from 5 Increase in Retention
Software Office Building Mgt. Industrial
Laundry Industrial Distrib. Insurance
Brokerage Credit Insurance Credit Card Business
Banking Auto Service
Percent Increase in Annual Profits
Bain Company
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Calculating Customer Value- Credit Card Customer
Profit Growth at 90 Vs 95 Percent Retention Rates
95 Retention Rate
90 Retention Rate
Pretax Profits (Millions)
Year

• Translating the Numbers Earnings Grow More
  Rapidly

Reichheld, The Loyalty Effect
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Calculating Customer Value- Credit Card Customer

75 Increase

• 5 Increase in Retention Results in a 75
  Increase in Customer Value

Reichheld, The Loyalty Effect
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Relationship Marketing Can Increase Lifetime Value

• Increase the retention rate
• Increase the referral rate
• Increase the spending rate
• Decrease the direct costs
• Decrease the marketing costs

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What is lifetime value?

• Net present value of the profit to be realized on
  the average new customer during a given number of
  years
• Lifetime value is Good Will
• To compute it, you must be able to track
  customers from year to year

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What is the proper computation period?

• Which is the correct lifetime value?
  1, 2, 3, 4, 5 or more years?
• They are all correct. Which you use depends on
  your product or service.
• Long lifetimes banks, insurance, utilities,
  automobiles
• Short lifetimes discount houses, package goods,
  catalogers

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Computing LTV Groups

• Compute LTV for groups of customers
• Firm Value LTV times customers
• Devise different programs for each group
• Estimate improved firm value based on better
  targeting of benefits and marketing programs

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Lifetime Value as Information Powerhouse

• Lifetime Value more important measure of success
  than the stock value
• Put Retention and Referral rates and LTV on the
  CEOs desk every month
• A new way of thinking--long term thinking--about
  business success

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Continuous revenue relationship marketers have an
expanded vocabulary with meanings unique to their
world.
Retention
Winback
Enrollments
Defection
Churn
Open
Active Enrollees
Cancel
Lapsed Enrollment
Attrition
Live
Add-on Services
Marketing Allowables

• But do not use common Single Order terms such as

Returns
Average Order Size
Out-of-stock
Sales per thousand contacts
Circulation
Break-even
Source Kestnbaum
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There are two distinct ends to the marketing
spectrum with only a few relationships in the
somewhat gray middle.
Source Kestnbaum
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CRM
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The CRM Goal

• Individual Permission Based Interaction

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The CRM Process
Acquire Retain
Interact Deliver
CRM
Understand Differentiate
Develop Customize
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Customer Experience Cycle
Customer Understanding
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Customer Experience Cycle
Customer Purchase Cycle
Customer Understanding

• Stages of the Purchase Cycle
• Length of each Stage
• Related Complexity of Each Stage
• Indicators of When a Customer Enters a Stage
• Frequency at Which a Customer Repeats the Cycle
• Level of Resources Directed at Each Stage

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Customer Experience Cycle
Customer Needs
Customer Understanding

• Information
• Convenience
• Efficiency
• Price
• Reputation
• etc.

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Customer Experience Cycle
Customer Interaction Opportunities
Customer Understanding

• Tied to specific stages of the purchase cycle.
• Inbound and outbound.
• Cross-channel and cross-media.
• Situation-driven or driven by a deeper
  understanding of customer needs and behaviors

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Marketing Communications
Customer Satisfaction
Field Sales
Corporate Comm./ Public Relations
Point of Sales/ Service
Customer Understanding
Customer Value
Advertising
Call Center
Web
Customer Care
Customer Loyalty
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CRM Transformation Map
Business Focus Business Focus Business Focus Business Focus Business Focus Business Focus
Products Sales Channels Marketing Services Customers
Organizational Structure Organizational Structure Organizational Structure Organizational Structure Organizational Structure Organizational Structure
Product Management Place Management Promotion Management Channel Management Contact Management Customer Management
Business Metrics Business Metrics Business Metrics Business Metrics Business Metrics Business Metrics
Product Performance Place Performance Program Performance Customer Revenues Customer Satisfaction Customer Lifetime Value and Loyalty
Customer Interaction Customer Interaction Customer Interaction Customer Interaction Customer Interaction Customer Interaction
Mass Transaction Opportunistic Promotion Targeted Campaigns Segment-Specific Communication Customer-Contact Integration Individual Permission-Based Interaction
Technology Technology Technology Technology Technology Technology
Transaction Processing Data Maintenance Data Access Data Warehouse Data Marts Customer Touchpoint Systems
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CRM Implementation

• Situation Assessment
• Internal evaluation of your capabilities
• External evaluation of the customers experience
  with your org.
• CRM Gap Analysis
• Comparison between an organization's current
  state and the desired state. It is essential to
  define the desired customer experience.
• CRM Action Plan
• Cost to implement
• Benefit
• Feasibility (organizational readiness, senior
  management acceptance, etc.)
• Time

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The Strategy Development and Implementation
Process
Contention
Project Planning
Differing Perspectives
Consensus
Execution
Program Formulation
Marketing
Strategy Formulation
Finance
Human Resources
RD
Operations
Creativity
Coordination
Sales
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Designing Offers for Customers
Product
Price Time Effort Risk
Delivery
Services
Sales Relation- ship
Technical Innovation
Brand Equity
Cost
Value
Offer
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A Business Focus on Customers Means

• The organization's primary focus is on acquiring,
  deepening, and retaining customer relationships.
• The business model is based on optimizing value
  delivered to customers to maximize value received
  from them.
• Customers are at the core of the organization's
  value system, and the unifying force across
  business units and functions.

Business Focus Business Focus Business Focus Business Focus Business Focus Business Focus
Products Sales Channels Marketing Services Customers
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Organizing around CRM

• Appoint segment managers, each responsible for
  acquisition, development, and retention of their
  customer segment.
• Create a cross-functional Customer Relationship
  department, which will ensure that CRM strategies
  are successfully implemented across the
  organization
• Implement staff training, performance measurement
  and compensation based on CRM

Organizational Structure Organizational Structure Organizational Structure Organizational Structure Organizational Structure Organizational Structure
Product Management Place Management Promotion Management Channel Management Contact Management Customer Management
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Customer Metrics

• Customer Revenues
• Who are the top customers in terms of revenue?
• Are revenues from any customer segment increasing
  or decreasing?
• Customer Satisfaction
• For which customer segments has satisfaction
  increased or decreased?
• How do satisfied customers differ from
  dissatisfied customers?
• Customer Loyalty and Value
• How can we increase customer profitability?
• What drives loyalty for our most profitable
  customers? How can we increase customer loyalty?
• Which prospects should our organization focus on
  in order to clone our best customers?

Business Metrics Business Metrics Business Metrics Business Metrics Business Metrics Business Metrics
Product Performance Place Performance Program Performance Customer Revenues Customer Satisfaction Customer Lifetime Value and Loyalty
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Developing Customer-Focused Metrics and Analyses

• Collect the Right Customer Data
• Increase Your Customer I.Q.
• Customer Profiling
• Customer Segmentation
• Customer Valuation
• Profitability
• Lifetime Value
• Share of Wallet
• Customer Lifecycle
• Customer Attitudes
• Customer Changes
• Create and Track a Customer Scorecard

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Arthur Hughes Chrysler Story

• Letter to Lee Iacocca
• Eastern Region (Baltimore) Sales Manager
• Mr Hughes, I have your letter here to Mr
  Iacocca. Now Mr Hughes, I want to assure you
  that we do have a database. Ive looked you up,
  and youre on it!

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Arthur Hughes Chrysler Story (continued)

• db Marketing Conference/Chrysler Exec/
• 25 million names
• So, you are in charge of the Chrysler database?
• Yes, I am.
• Well, tell me. What are you doing with your
  database?
• Oh, he said, we have it on a UNIX platform.
• ! ! ! ! ! ! ! ! ! ! !

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Two Kinds of Database People

• Constructors
• People who build databases
• Merge/Purge, Hardware, Software
• Creators
• People who understand strategy
• Build loyalty and repeat sales
• You need both kinds!

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CEOs Brain

Right Side
Left Side
Costs Revenues Market Share Budgets Incentives Com
pensation Strategic Plans Profits Market Value
Quality First Customer Focus Customer
First Service Quality Customer Satisfaction
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A CRM System is

• Any application that supports the collection,
  cleansing, and maintenance of, and/or access to,
  customer information, and that provides this
  information to appropriate entities in support of
  CRM applications.
• Including
• Customer databases
• Marketing applications
• Data mining applications
• Sales force automation systems
• Customer care applications
• Online applications

Technology Technology Technology Technology Technology Technology
Transaction Processing Data Maintenance Data Access Data Maintenance Data Marts Customer Touchpoint Systems
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CRM Systems Issues

• It is important to develop a customer information
  plan, including
• Where and how to efficiently collect customer
  data
• How to transform data into meaningful, practical
  information
• How to distribute customer information throughout
  the organization
• Build a business case for your system
• Determine whether your system should be in-house
  or outsourced, based on
• Solution scope
• Core competencies
• Time horizons
• IT resources

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CRM Systems Issues

• Monitor the quality of your data, including
• Data coverage
• Data accuracy
• Data precision
• Data relevance
• Make the data accessible to people who can put it
  to use
• Gain the acceptance of employees who will be
  using the system

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Aspects of Measuring CRM Success

• Internal CRM Capabilities
• Customer Interactions
• Create a customer interaction scorecard
• Customer Dynamics
• Customer acquisition
• Customer growth development (cross-sell,
  upsell)
• Customer retention
• Customer reactivation
• Operational Efficiencies
• Bottom-Line Business Metrics
• Increased revenues
• Decreased costs
• Increased competitive differentiation

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Think like a Customer 10 rules for Building
Customer Relationships

1. The average customer does not exist get to
   know us
2. Make our experience special Give us something
   to talk about.
3. If something is wrong, fix it quickly.
4. Guarantee our satisfaction.
5. Trust us, and well trust you. (respect)
6. Dont take us for granted.
7. Our time is as important as your time.
8. The details are important to us they should be
   to you, too
9. Employ people who are ready, willing, and able to
   serve us
10. We care whether youre a responsible corporate
    citizen.