CRM: Profiting from understanding customer needs

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CRM Profiting from understanding customer needs
Anne Stringfellow, Winter Nie and David E.
Bowen Business Horizons, Volume 47, Issue 5,
September-October 2004, Pages 45-52

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• 2006/12/26

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Outline

• Introduction
• CRM requires the alignment of three building
  blocks
• Benefits of understanding customer need
• Guidelines for building a full-spectrum
  information portfolio
• Using rich channels in highly equivocal
  situations
• Using the rich information already available
• Nordstrom
• Conclusion

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Introduction

• The essence of customer relationship
  management(CRM) is understand customer needs and
  leveraging that knowledge to improve a companys
  long-term profitability. When successfully
  deployed CRM can have a dramatic effect on
  bottom-line performance.

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CRM requires the alignment of three building
blocks

• Insight into customer decision-making
• Customer information
• Information-processing capability

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Customer decision-making

• 75 percent of all buying decisions have an
  emotional component, understanding customers
  emotional needs is vital for predicting and
  influencing their purchasing behavior. There is a
  difference between knowing about customers and
  knowing customers.

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CRM information requirements and value added
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Information-processing capability

• CRM systems need to integrate information from
  multiple sources and across different functions.
  Data must be organized by customer so that
  decisions can be made at the customer or segment
  level. Fast processing allows the information to
  be used in real-time, point-of-contact
  decision-making.
• Data warehouse

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Benefits of understanding customer need

• Functional - those satisfied by product
• functions.
• Emotional - psychological aspects of product
• ownership.
• Example polo shirt- extra for the polo logo to
  fulfill his need for self-esteem.

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Benefits of understanding customer need(cont.)

• Turn strangers into friends and friends into
  customers.
• The most basic concept underlying marketing is
  that of human needs.
• To fully comprehend customer purchase behavior
  requires viewing a customer as a human being
  first and a customer second.

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Need-based segmentation

• Also known as benefit segmentation, entails
  dividing up a market on the basis of the needs
  satisfied by the product, then creating the
  appropriate value proposition for one or more
  market segments.
• Example chewing gum

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Collecting information oncustomer needs

• Reach customers and maximize response rates,
  firms need to match customers diverse
  preferences for communication by providing
  multiple communication channels.
• The channel must match the type of information
  being collected.

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Understanding customer needs
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Cost-benefit considerations

• The decision boils down to a cost-benefit
  trade-off, weighing the expenditure on rich
  channels against the potential long-term benefits
  of a deeper understanding of customer behavior.

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Cost-benefit trade-off
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Guidelines for building a full-spectrum
information portfolio
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Using rich channels in highly equivocal situations

• When a firm is entering a critical new market, it
  should use a rich channel to capture customer
  needs. The resulting information is invaluable in
  forming the market entry strategy. In the short
  run, the cost of the rich channel may outweigh
  the immediate financial benefits.

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Allocating rich channels where they produce the
best return

• When customers have a high lifetime value
  potential and the product and accompanying
  service have a relatively high profit margin, the
  use of rich channels to understand customer needs
  more than pays for itself.
• Bank - one-to-one relationships

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Using the rich informationalready available

• Salespeople and front-line service employees who
  typically interact with customers via rich
  communication channels have access to a wealth of
  information on customer needs.
• Example Call-center employees

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Substituting for rich channels

• With the advent of sophisticated modeling
  techniques, some situations that normally require
  rich channels can now be dealt with efficiently
  by using lean channels in combination with
  analytical tools.
• Example Amazon

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Nordstrom

• They record customer purchase history in a
  database, then supplement this with telephone
  interviews and face-to-face conversations to
  collect information about customer likes,
  dislikes, lifestyles, and clothing needs.

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Nordstrom(cont.)

• Nordstrom understands customer needs, translates
  them into different levels of information
  requirements, and matches the information with
  appropriate communication channels and data
  collection methods.
• The end result allows personalized service and
  builds a long-term relationship with customers.

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Nordstrom(cont.)
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Nordstrom(cont.)

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Conclusion

• The thoughtful integration of existing tools,
  based on a clear understanding of customer value,
  the properties of information, and the pros and
  cons of communication channels.

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• Thanks for your attention