Rev: Feb, 2012
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory
(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management Engineering
POSTECH

※ Discussion Questions
1 Introductions of CRM
1) Fundamental Introductions of CRM
2) CRM Architecture
3) Application Cluster in CRM
4) Strategy of CRM
5) Executions of CRM
6) Limitation and Future of CRM
2 Case Study

Discussion Questions
■ Define CRM by your own words
■ What benefits do you think are there of CRM? Give your own opinion
■ How does CRM help sales and marketing?
■ Develop your own strategy for retaining existing customers
3

Evolution of Marketing
1. Introductions of CRM
1) Fundamental Introductions of CRM
Marketing Age
The Dark Ages
The Renaissance
The Industrial Revolution
The Information Age
The Age of Optimization
Techniques
Artistry and Alchemy
Craftsmanship
Mass Marketing
Database Marketing
Customer Relationship
Management
Technology
None
Focus groups, interviews
Computers store mailing lists
Flat File MCIFs
Data Warehousing, Data
Mining, Analysis Tools (OLAP)
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What is CRM? (1/3)
1. Introductions of CRM
1) Fundamental Introductions of CRM
Managing the full range of the customer relationship involves two related objectives
(1) Providing customer-facing employees with a single, complete view of every customer, at every touch point, across all channels
(2) Providing the customer with a single, complete view of the company and its extended channels
CRM uses IT to create a cross functional enterprise system that integrates and automates customer-serving processes
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Definitions by various authors
1. Introductions of CRM
1) Fundamental Introductions of CRM
■ Couldwell ,1998
– CRM is a combination of business process and technology that seeks to understand a company’s customers from the perspective of who they are, what they do, and what they’re like
■ Kutner & Cripps, 1997
– CRM is founded on four relationship-based tenets:
• Customers should be managed as important assets
• Customer profitability varies; not all customers are equally desirable
• Customers vary in their needs, preferences, buying behavior and price sensitivity
• By understanding customer drivers and customer profitability, companies can tailor their offerings to maximize the overall value of their customer portfolio
■ Merlin Stone et al., 1996
– Relationship marketing
– The use of a wide range of marketing, sales, communication, service and customer care approaches to:
• Identify a company’s named individual customers
• Create a relationship between the company and its customers that stretches over many transactions
• Manage that relationships to the benefit of the customers and the company
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Characteristics of CRM
1. Introductions of CRM
1) Fundamental Introductions of CRM
■ Key Characteristics of CRM (Lynette Ryals & Simon Knox, 2001)
– A customer relationship perspective aimed at the long-term retention of selected customers
– Gathering and integrating information on customers
– Use of dedicated software to analyze this information (often in real time)
– Segmentation by expected customer lifetime value
– Micro-segmentation of markets according to customers’ needs and wants
– Customer value creation through process management (Hammer & Champy, 1993; Hamel &
Prahalad,1994)
– Customer value delivery through service tailored to micro-segments, facilitated by detailed, integrated customer profiles
– A shift in emphasis from managing product portfolios to managing portfolios of customers, necessitating changes to working practices and sometimes to organizational structure
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Why CRM?
■ It is easier to retain a customer than to gain a new customer
– It is 6-7 times more expensive to gain a new customer than retain an existing customer (Harvard Business Review)
– It is far more expensive to win back a customer after they left than it is to keep them satisfied in the first place.
– It is far easier to sell a new product to an existing customer than it is to a new customer
– Customers become more precarious
– A 5% increase in customer retention can increase profits 60-100% proved customer retention
1. Introductions of CRM
1) Fundamental Introductions of CRM
The impact of a 5% increase in retention rates
Industry
Advertising Agency life-insurance company branck bank deposits publishing auto service auto/home insurance credit card industrial brokerage industrial distribution industrial laundry office-building management
Increase in profits
95%
90%
85%
85%
81%
80%
75%
50%
45%
45%
40%
Source: The Loyalty Effect (Harvard Business School Press)
By Frederick Reichhek
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Explanation of CRM
Origin of CRM
DBM  DW  OLAP  Call Center
 Service Center  CRM
Various Types of CRM
 Direct e-mails
 Call Center
Operational CRM
 Mass customization or developing products that fit individual customer’s needs
Key Point to Succeed
Main concept of CRM: managing valuable customer in a long-term view
 Company should focuses on value of customer , instead of short-term profit
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1. Introductions of CRM
1) Fundamental Introductions of CRM
Create a Database
Analysis
Customer Selection
Customer Targeting
Relationship Marketing
Privacy Issues
Metrics
CRM Framework

Benefits of CRM
1. Introductions of CRM
1) Fundamental Introductions of CRM
Benefits of CRM
Identify and target the best customers
Real-time customization and personalization of products and services
Track when and how a customer contacts the company
Provide a consistent customer experience
Provide superior service and support across all customer contact points
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Three Phases of CRM
1. Introductions of CRM
1) Fundamental Introductions of CRM
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Entire CRM Framework
1. Introductions of CRM
1) Fundamental Introductions of CRM
■ Operational CRM
– The automation of horizontally integrated business processes, including customer touch-points, channels, and front-back office integration
■ Analytical CRM
– The analysis of data created by the Operational CRM
■ Collaborative CRM
– Application of collaborative services including e-mail, personalized publishing, e-communities, and similar vehicles designed to facilitate interactions between customers and organizations
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CRM Architecture (1/2)
1. Introductions of CRM
2) CRM Architecture
Contact
History
Transaction
History
Customer
Profile and
Account
Data
Warehouse
External data
Business Rules and Metadata Management
Data Source Marketing Data
Source
Decision Support
Applications
Campaign management
Campaign management
ETL Tools Marketing
Data mart
Analytics Data
Mart
Reporting Data
Mart
Data Mining/
Analytics
Ad Hoc Query and
Reporting
Communication
Channels
Direct Mail
Contact
Management
Call Centers
Sales Force
Customer Service
Centers
Internet
E-Mail
Other
Workflow Management
13

CRM Architecture (2/2)
Web applications are the capstone
Data mining is the architectural blueprint
1. Introductions of CRM
2) CRM Architecture
Customer profitability is the cornerstone
Data warehousing is the foundation
The customer touch points are the bedrock
CRM system that can execute closed loop marketing to display continuous improvement over time
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Application Clusters in CRM
1. Introductions of CRM
3) Application Cluster in CRM
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Contact and Account Management
1. Introductions of CRM
3) Application Cluster in CRM
■ CRM helps sales, marketing, and service professionals capture and track relevant data about
– Every past and planned contact with prospects and customers
– Other customer business & life-cycle events
■ Data are captured through touch points
– Telephone, fax, e-mail, Websites
– Retail stores, kiosks, personal contact
16

Sales
1. Introductions of CRM
3) Application Cluster in CRM
■ A CRM system provides sales reps with the tools and data resources they need to
– Support and manage sales activities
– Optimize cross- and up-selling
Up-selling & Cross-selling
■ CRM also provides the means to check on a customer’s account status and history b efore scheduling sales calls
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Marketing and Fulfillment
1. Introductions of CRM
3) Application Cluster in CRM
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Customer Service and Support
1. Introductions of CRM
3) Application Cluster in CRM
■ CRM helps customer service managers create, assign and manage customers’ req uests for service
– Call center software
– Help desk software
– Web-based self-service
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Retention and Loyalty Programs (1/2)
The odds of selling to an existing customer are 50%; a new one 15%
70% of complaining customers will do business with the company again if it quickly fixes a problem
It costs 6 times more to sell to a new customer
An unhappy customer will tell
8-10 others
Boosting customer retention 5% can boost profits
85%
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1. Introductions of CRM
3) Application Cluster in CRM

Retention and Loyalty Programs (2/2)
1. Introductions of CRM
3) Application Cluster in CRM
■ Enhancing and optimizing customer retention and loyalty is a primary objective of CRM
– Identify, reward, and market to the most loyal and profitable customers
– Evaluate targeted marketing and relationship programs
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Develop a CRM Strategy
Best-Practice CRM Principles
■ Derive customer patterns by applying “ETFS” as a lens to drive sales, service, marketing and commerce chain process
■ Anchor offer, channel, and business processes around customer patterns
■ Technology-enable customer relationship with CRM eco -system
1. Introductions of CRM
4) Strategy of CRM
Customer Life Cycle Management (CLCM) as a Three-Domain Business System
Customer Life Cycle
Engage
Service
Cust.
Pattern
Transact
Customer-Related
Business Processes
Channels & “POIs”
Sales Mktg.
Service
“ Offer”
Fulfill
CRM Technology
“ Ecosystem”
Collaborative Analytical
Operational
CRM is not an IT project — it is an iterative and continual transformation of people, process and technology
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CRM Implementation Point
1. Introductions of CRM
4) Strategy of CRM
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Managing Campaigns
■ Campaign management systems
– To help marketing professionals manage and execute campaigns
– To require as complete a view of the customer as possible
– To manage interactions between the company and the customer
1. Introductions of CRM
5) Executions of CRM
■ Required functions in campaign management systems
– Marketing insights from data mining about what new promotions to create
– Accommodation of many new touch points besides direct mail
– Focus on profitability
– Optimization of the sequence of promotion delivery
– Tools for constructing experiments that allow the marketing professional to test out the effectiveness of new promotions and new segmentation techniques
– Accommodation by the system of predictive modeling
■ The transition from just defining and deploying a direct mail campaign to supporting all customer touch points
■ Customer profitability across all touch points
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Closed Loop Marketing
1. Introductions of CRM
5) Executions of CRM
■ “Close the Loop”
– CRM systems can also execute “close the loop” and measure the results of the campaigns
– Once marketing’s effectiveness can be measured, it can be improved the next time around
■ Three basic steps of closed loop marketing
– Measure
• Measure the results of the marketing effort, based on customer profitability
• Use Web-based tools to access the customer data warehouse and perform enterprise-level ROI analysis
– Predict
• Use data mining technology to predict consumer behavior and learn from past experiments
• Use the results of the data mining system to focus and refine future campaign
– Act
• Use campaign management systems to be sure that the campaigns are executed in an understandable and measurable customer data warehouse or data mart
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Limitation of CRM
Domestic CRM Market Transition (license)
CAGR:13.5% unit: billion won
58
45.7
39.9
36.4
35.3
34.9
2002 2003 2004 2005 2006
Source :http://www.krgweb.com
2007

CRM Market is getting bigger but, companies should pay too much cost and time to implement CRM.
Also, the CRM system does not guarantee higher performance
1. Introductions of CRM
6) Limitation and Future of CRM
CRM Failure
• 75% of CRM projects that do not deliver measurable ROI will have failed because of poor business executive decision-making
• ½ of the companies got worse performance tasks, ¼ of companies which implement CRM system didn’t get improvement of tasks
• 20% damaged customer relationships
Source: Gartner Group, Insight Technology Group report
CRM Failure Reasons
Sin One : Failing to Plan
Sin Two : Failing To Establish Outcomes
Sin Three : Excluding the Human Factor
Sin Four : Automating Flawed Processes
Sin Five : Ignoring Constraints
Sin Six : Disregarding Politics
Sin Seven : Choosing the Wrong Vendor
Source: interview of Gartner Research’s Beth Eisenfeld with CRMDaily

Future CRM
1. Introductions of CRM
6) Limitation and Future of CRM
[Improvement in reception of customer] purchase develop
-ment manu
-facturedelivery sales marketing service enterprise infrastructure customer
[Business structure innovation] customer customer customer customer customer customer customer customer customer
Future CRM purchase develop
-ment manu
-facture delivery sales marketing service enterprise infrastructure enterprise customer enterprise
Future CRM customer
CRM
Step of introducing Future CRM investigation set up strategy design implementation
/ introduction
Consulting through investigation and innovation of cultural features is important settlement
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Next Generation CRM
1. Introductions of CRM
6) Limitation and Future of CRM
■ Continuously expanding in functionality and in scope across the enterprise
– Sales Force Automation (SFA)
– Enterprise Resource Planning (ERP)
■ The force opposing the fusing of information and technology
– Internal difficulties in getting various customer information form different customer touch points
– External difficulties in keeping customer privacy
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Case Study
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References
■ Euiho Suh, “CRM (PPT Slide)”, POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ Euiho Suh, “CRM II (PPT Slide)”, POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”,
McGraw – Hill, Chapter 7, pp. 265~271
■ Euiho Suh, “Customer Relationship Management (CRM) in Financial Services”, POSMIT
Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
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