Customer Relationship Management A Databased Approach

1
Customer Relationship ManagementA Databased
Approach

• V. Kumar
• Werner J. Reinartz
• Instructors Presentation Slides

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Chapter One

• CRM, Database Marketing
• and Customer Value

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Overview

• Topics discussed
• Marketing concept
• Link between CRM and Database Marketing
• CRM and Customer value
• Conceptualizations of CRM
• Relevance of CRM
• Data based Customer Value Management

4
Marketing-definition

• Marketing is an organizational function and a
  set of processes for creating, communicating and
  delivering value to customers and for managing
  customer relationships in ways that benefit the
  organization and its stakeholders.
• American Marketing Association,2004

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Link Between CRM and Database Marketing

• Database Marketing
• Customer Databases
• Identify and analyze customer population
• Group based on similarities
• Recommend separate marketing campaigns for
  different groups
• CRM
• Applies database marketing techniques at customer
  level
• Develops strong company-to-customer relationships

CRM
DB
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CRM

• Capture customer data and interact with the
• customer simultaneously
• Develop specific strategies for interaction with
  each customer
• Better relationships with profitable customers
• Locating and enticing new customers that will be
  profitable
• Finding appropriate strategies to deal with
  unprofitable customers, including termination of
  relationships

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Link Between CRM and Customer Value

• Customer Value The economic value of the
  customer relationship to the firm expressed on
  the basis of contribution margin or net profit
• CRM is the practice of analyzing and utilizing
  marketing databases and leveraging communication
  technologies to determine corporate practices and
  methods that will maximize the lifetime value of
  each individual customer to the firm

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Using Customer Value for Marketing Decisions

• Benefits

• Decrease in Costs
• Maximization of Revenues
• Improvement in Profits and ROI
• Acquisition and Retention of Profitable
  Customers
• Reactivation of Dormant Customers

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Conceptualizations of CRM

• Functional level focuses on technology
• Sales force automation in the sales function
• Campaign management in the marketing function
• Customer facing front-end level focuses on total
  customer experience
• To build a single-view of customers across
  contact channels
• To distribute customer intelligence to all
  customer-facing functions
• Strategy level focuses on customer satisfaction
• Frees CRM from technology underpinnings
• Describes CRM as a process to implement customer
  centricity in the
• market and build shareholder value
• Knowledge about customers affects the entire
  organization

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Components of CRM from a Business Strategy
Perspective

• Strategic process
• Spans multiple organizational functions
• Continuous effort towards becoming
  customer-centric
• Selection
• Resource allocation based on economic value of
  customer
• Interactions
• Exchange of information and goods between
  customer and firm evolves as a function of past
  exchanges

C
R
M
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Components of CRM from a Business Strategy
Perspective (contd.)

• Customers
• End-users and intermediaries such as distributors
  and retailers
• Greater fine-tuning of segmentation strategies to
  eventually target individual customers with
  customized product offerings
• Optimizing current and future value of customer
• Maximizing customer equity by maximizing profits
  over a series of transactions
• Caution Managing fairness in the exchange
  process is important to sustain mutually
  profitable relationships

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Relevance of CRM

• Firms are facing changes with respect to
• Consumers
• Marketplaces
• Technology
• Marketing functions
• CRM is a response to these changes

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Changes with respect to Consumers

• Growing consumer diversity- due to demographic
  and behavioral trends
• Ageing of the population in developed countries-
  de-youthing
• Increased diversity in ethnicity of population
• Increasing individualization
• Time scarcity
• Activities compete for customers time
• Value consciousness and intolerance for low
  service levels
• Rise in customer expectations
• Decline in consumer satisfaction level

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Time Scarcity and Value Consciousness- Example
Average waiting time (in seconds) after
which calls are abandoned by customers
Source Merchants International Call Center
Report Figure shows that customers are less and
less satisfied with the treatment they get from
corporate call centers. The average time after
which calls are abandoned fell by about 19 in
just one year.
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Declining Customer Satisfaction- Example
(American Customer Satisfaction Index) with
products and services Source http//www.theacsi.
org, University of Michigan
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Changes with respect to Consumers (contd.)

• Information availability and technological
  aptitude
• Customers more knowledgeable in making purchase
  decisions
• More comparisons across providers and
  transactions
• Decrease in loyalty
• Diversification of holdings across service
  providers even within same household
• Consequences
• Marketers should be wary of placing heavy time
  demands on consumers
• The major challenge facing companies has become
  meeting consumer demands rather than cost
  reduction

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Decreasing Customer Loyalty- Example
Number of different financial service providers
that respondents are associated with
Number of financial service providers
Source Unidex Report
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Changes with respect to the Marketplace

• More intense competition between firms for
  customers
• Fragmentation of markets
• Diminishing product-quality
• differentiation
• Consequences
• Value added to customers by offering customized
  product and service propositions
• To maintain market share, need to realign
  business strategy to become customer-centric

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Product Parity of Grocery Private Label (US)
More switching to private-label products with
decrease in disposable income .
Switching back to national brands with
economy picking up and decreased unemployment.
This link broken today. (Source Information
Resources, Sloan Management Review, BCG Analysis)


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Changes with respect to Data Storage Technology

• Better technology, cheaper and larger storage
  units
• Huge increase in demand for data storage
• Increased popularity of data warehouses
• Consequences
• Better information about customer behavior and
  attitudes
• Better prediction of customer buying behavior
• Too much data can lead to misapplication and
  wrong analysis

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Changes with respect to Marketing Function

• Media dilution and multiplication of channels
• Proliferation of communication media focused on
  the customer
• Direct-to-consumer channels - email, telephone
• Interactive media - internet, interactive TV etc
• Reduced need for techniques focused on price
  alone due to
• Availability of new data collection and
  communication tools
• Marketing processes such as loyalty programs

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Changes with respect toMarketing Function
(contd.)

• Decreasing market efficiency and effectiveness
  due to
• Focus on acquisition, price and short-term
  transactions
• Proliferation of new contact channels
• Increased or flat cost of contact
• Decreased customer response
• Reduced value for advertising in any medium
• Consequences
• Pressure on the marketing function
• Marketing in danger of being restricted to
  advertising and media planning

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Implications of Changesin Business Environment

• Greater demand for learning about
• Customer preferences
• Product and service customization
• Focus on customer-centric instead of
  product-centric strategies

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Data Based Customer Value Management

• To satisfy increasing customer heterogeneity
• To address concerns of marketing accountability
• To put available data to use
• To use customer profitability as the key
  objective function

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Benefits of Data Based Customer Value Management
Approach

• Integrate and consolidate customer information
• Provide consolidated information across all
  channels to assist in timely and relevant
  communication with customers
• Manage customer cases
• Personalize the service and products offered to
  each customer to meet expectations
• Automatically and manually generate new sales
  opportunities
• Provide flexibility to adapt campaigns to take
  changes in customer behavior or information into
  account

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Benefits of Data Based Customer Value Management
approach (contd.)

• Yield faster and more accurate follow-up on sales
  leads, referrals and customer enquiries
• Manage all business processes by introducing a
  central point of control ensuring all business
  processes are executed in accordance with correct
  and effective business rules
• Give top managers a detailed and accurate picture
  of all sales and marketing activities
• Instantly react to a changing business environment

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Summary

• From a strategic perspective, CRM is the process
  of selecting the customers a firm can most
  profitably serve and shaping the interactions
  between a company and these individual customers
• Assessing Customer Value is critical to CRM
• Rapid changes are taking place in the environment
  in which firms operate with respect to customers,
  market places, technology, and marketing
  functions
• These changes have driven the marketplace to
  become relationship-based and customer-centric
• CRMs goal is to optimize the current and future
  value of the customers for the company