Chapter 7
Customer
Relationship
Management
(CRM)
Chapter Overview
 Relationship Marketing
 CRM
– Growth & Process
 CRM in Action
 Limitations/Dangers of CRM
 Measuring Effectiveness
 Benefits of CRM
 CRM Strategies
Building Customer
Relationships, 1:1
 The key: Treat customers like friends
 A major shift in marketing thought:
– from mass marketing to individualized marketing
– From focus on acquiring lots of new customers to
retaining and building more business with fewer
loyal high-value customers
– Goal: build long-term relationship, 1:1
 “Relationship Capital” may be more valuable than
land, property, and financial assets.
Relationship Marketing
 “Establishing, maintaining, enhancing,
commercializing customer relationships through
promise fulfillment”
 Building long-term profitable relationships with
mutual benefit
Mass marketing
Relationship marketing
_____ transactions
_____ transactions
Short-term emphasis
Long-term emphasis
Two-way communication /collaboration
One-way communication
_____ focus
_____ focus
Share of _____
Share of _____
Exhibit 7 - 1 Continuum from Mass Marketing to Relationship Marketing
Relationship Levels
Relationship marketing is practiced on
three levels.
–.
–.
–.
Customer Relationship
Management (CRM)
What is CRM?
– A holistic process of identifying, attracting,
differentiating, and retaining customers
– Integrating a firm’s entire supply chain to create
customer value at every step
– Basically……. a lot like Relationship Marketing!!
Reasons for growth in CRM
The 80/20 Rule
Labor costs rising, competitive pressures
have kept prices low
CRM is cost-effective
–
–
–
–
cheaper to retain than attract
easier to sell to one customer than many
reduced promotional expenses
positive WOM
The CRM Process
1 . Ide ntify
Interaction
2. Differe ntiate
Exhibit 7 - 4 CRM Process
3. Cu stom ize
1. Identifying customers
 Firms gather information about customers from:
– Sales force
– Customer service encounter
– Bar code scanners at retailer
– Web site activity
 Firms obtain prospect, business customer, and end
consumer information through:
– Personal disclosure
– Automated tracking
2. Differentiating Customers
 Companies differentiate customers by:
– Similarities and differences in groups and individuals
– Customer value: 20% of the customers provide 80% of
the profits
– Lifetime Value (LTV) – the total value of the customer
over that customer’s lifetime
 “All animals are equal, but some animals are more
equal than others.” George Orwell, Animal Farm
– if necessary, fire customers
3. Customizing
the Marketing Mix
Mass Customization:
– Marketing communication messages tailored to
individuals and delivered electronically.
– Customers who can customize to meet their
individual needs are more likely to use that
company’s products and services over time.
Interaction
 It allows companies to collect the data necessary for
identification and differentiation, and to evaluate the
resulting customization effectiveness on a
continuous basis.
= “learning relationship”
 Both the firm and the customer learn from each
experience and interaction
 Increase trust & loyalty
Application Exercise
Create a classification scheme to
differentiate between customers of an
online banking service (create a name for
each level)
Determine how many different categories
seem appropriate
Describe how you will classify customers
CRM in action: Illustration of
the Process
Four key aspects of an operational CRM
operation
–
–
–
–
.
.
.
.
Coding
Customers are “graded” based on how
profitable/desirable they are.
Employees are instructed to handle
customers differently based on their
category code.
First Union Bank online banking
IKEA customer service
Sears repair appointments
Routing
Incoming call centers route calls based on
how customer was coded.
Best customers get to speak (almost)
immediately to a live phone rep, less
profitable customers wait on hold.
Electric company
Charles Schwab
Targeting
Best customers are targeted for special
deals and promotions that less profitable
customers never hear about
– waive fees
– special offers
Centura Bank (Raleigh, NC)
First Bank (Baltimore, MD)
First Union Bank (Philadelphia, PA)
Sharing
Customer information is shared throughout
the organization
Everyone knows purchasing history and
potential.
United Airlines
Continental Airlines
Limitations/Dangers of CRM
Customers don’t like unequal treatment
Privacy issues are a concern
What someone spends today not
necessarily a good predictor of what they
will spend tomorrow
Can lead to red-lining/discrimination
CRM Metrics: Measuring
Effectiveness
Metrics are used to determine how
effective the CRM initiatives are and to
classify customers based on loyalty and
value.
Identify less profitable customers and
minimize interactions with them.
LTV, AOV, RFM, and others
CRM Benefits:
Benefits to the Customer
– The average customer desires brand loyalty
as much as the firms they patronize.
– From a consumer’s perspective the basic
tenet of CRM is choice reduction.
– Consumers want to patronize the same
store, mall, and service providers
 It’s more convenient
Internet Strategies Facilitating
CRM: Customization Tools
 Firms tailor their marketing mixes to meet the needs of
small target segments, even to the individual level, using
electronic marketing tools.
 Examples:
– Web pages that greet users by their name
– e-mail that is automatically sent to individuals with
personal account information
 Mass Customization--individualize marketing mixes
electronically and automatically to the individual level.
– initiated by organization (company-side) or by a
customer (client-side)
– can be examined at two levels: small segments and
individuals
Small Segment/Group
Individual
Company-Side
Tools
(push)
Collaborative filtering
Data
mining
and
profiling
Outgoing e-mail
Cookies
Web log analysis
Real-time profiling
Outgoing e-mail
Client-Side Tools
(pull)
Agents
Experiential marketing
Individualized Web
portals
Wireless data services
Web page forms
FAX-on-demand
Incoming e-mail
Exhibit 7 - 4 Selected E-Marketing Customization Tools
Small Segment Customization:
Company-side Tools
 Collaborative filtering software:
recommendations from like-minded users in
cyberspace and returns these opinions to the
individual in real-time.
 Data mining/profiling: extraction of hidden
predictive information in large databases through
statistical analysis- simply ask the software to
find patterns of interest.
 Outgoing e-mail from firm to customer: used
to build relationships by keeping in touch with
information that is useful and timely for users.
Small Segment Customization:
Client-side Tools
 Agents: programs that perform functions on
behalf of the user.
 Experiential marketing: gets the customer
involved in the product to create a memorable
experience.
Individual Customization:
Company-side Tools
 Cookies: small files written to the user’s hard drive after
visiting a Web site that the site recognizes each time the
customer returns and uses it to personalize the site.
 Web site log: a file that keeps track of which pages the
user visits, how long he stays, and whether he purchases
or not.
 Real-time profiling: special software tracks a user’s
movements through a Web site, then compiles and
reports on the data at a moment’s notice
 Outgoing e-mail:communicate with individuals and
attempt to increase their satisfaction and loyalty
Individual Customization: Clientside Tools
 Individualized Web portals are created by the user
– Example: http://.my.yahoo.com
 Wireless data services: tailored to cell phones, pagers,
and PDAs to receive wireless Internet transmission.
 Web forms: Web page form that has designated places
for the user to type information (registration).
 FAX-on-demand: Customers telephone a firm, listen to
an automated voice menu, and through selecting options
request that a FAX be sent on a topic of interest.
 Incoming e-mail:e-mail inquiries, complaints, or
compliments initiated by customers or prospects.
– 1997 study, only 62% responded to e-mail complaints.
Internet Strategies Facilitating CRM:
Building Partnerships Using Community
 “Groups of people or employees with similar
interests and tasks”
 Can present products and messages customized
to the group interests and have the community
forge relationships with the company.
 Communities Come From:
–
–
–
–
–
Chat rooms
Discussion groups
Bulletin boards
Distributed e-mail lists
Intranets and Extranets
Nine Principles for Building Good
Communities:
1. Define Community Purpose – mission statement,
identify target market, create a strong site personality
2.
Create Extensible Gathering Places – provide a good
map, include rich communication features, all
members to extend the environment
3.
Create Evolving Member Profiles – communicate the
benefits of membership, make profile creation easy
and as fun as possible, keep profiles up-to-date and
evolving
4.
Promote Effective Leadership & Hosting – set-up
your program to grow, build some flexibility into the
house rules, & set reasonable expectations for online
support.
Nine Principles for Building Good
Communities, cont.
1.
Define a Clear / Flexible Code of Conduct – create and enforce
code and don’t try to stifle all conflict.
2.
Organize & Promote Cyclic Events – hold regular, hosted, themed
events, conduct community surveys, and hold contests that
reinforce the purpose.
3.
Provide a Range of Roles – offer newcomers a controlled
experience, offer increased privileges to regulars, and recruit
leaders and mentors from within.
4.
Facilitate Member-Created Subgroups – provide features that
facilitate small groups and create events an contests for groups
5.
Integrate with the Real World – celebrate events that reinforce
social identity, acknowledge important personal events and
encourage real-life meetings (when appropriate).