Chapter 3
Customer Relationship
Management and
Building Partnerships
PowerPoint presentation prepared by
Dr. Rajiv Mehta
New Jersey Institute of Technology
Chapter Outline
• What Is CRM?
• Relationship Orientations
and CRM
• CRM and Repeat
Business
• CRM, Customer Loyalty,
and Lifetime Value
• CRM and Selling
• Technology and CRM
Programs
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Source: Flying Colours Ltd.
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Learning Objectives
After reading this chapter, you should be able to do
the following:
1. Master the different ways sales companies deal with
customers.
2. Build customer relationships that lead to repeat business.
3. Relate customer loyalty to customer lifetime value.
4. Apply customer relationship management (CRM) to the
selling process.
5. Use technology successfully in CRM programs.
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What Is CRM?
• Customer relationship
management (CRM) is a
systematic integration of
information technology and
human resources designed to
provide maximum value to
customers and to obtain
maximum value from customers.
• CRM uses information to meet
customer needs, for example,
technology can be used to
match up five million different
promotional products with five
million individual customers.
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Relationship Orientations and CRM
One-to-one marketing
involves matching
individual products
with individual
customers. The result
is a product
personalized for each
customer in some way.
3.
Niche
marketing
Niche marketing is offering a
specialized product or small
range of products to an
individual customer segment
with specialized needs.
4.
One-to-one
marketing
CRM
2.
Differentiated
marketing
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Mass marketing is a
way of dealing with
customers by offering
the same product to the
entire market.
1.
Mass marketing
Differentiated
marketing is selling to
different groups of
customers by offering a
unique product for each
group.
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Production Versus Marketing Orientation
Marketing-oriented companies focus
on making what could be sold, not
selling what is made.
Market-oriented firms are customercentric, where customers are the heart
of the business process.
1.
Production
orientation
Orientation
2.
Marketing
orientation
Production-oriented companies
focus on processes, allowing
large-scale, efficient, and
economic production.
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CRM and Repeat Business
• CRM is based on the premise of serving customers over
an extended period, thus generating repeat business.
Three levels of buyer-seller
relationship interactions
low
transactional
selling
medium
relationship
selling
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high
strategic
partnerships
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Transactional Selling:
Key Characteristics
Source: © Jack Hollingsworth/Corbis
• It attends to short-term customer
needs.
• It requires more frequent sales
calls.
• Buyers and sellers remain
independent.
• It involves no long-term
commitment or loyalty.
• It is more adversarial than
cooperative.
• Price is a key consideration.
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Relationship Selling:
Key Characteristics
• Attracting new customers costs significantly
more than reselling to current customers; thus
the focus is on customer retention.
• In relational exchanges both the buyer and
seller recognize that each transaction is merely
one in a series of purchase agreements.
– It involves a spirit of cooperation between buyer and
seller.
– Firms seek to develop profitable, ongoing
relationships with customers
– Firms focus on providing exceptional service.
– It requires higher levels of trust.
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Video on Relationship Selling
• To see a video on relationship selling practices,
go to
– http://www.sellingpower.com/video/index.asp?date=2
/26/2007
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Strategic Partnerships:
Key Characteristics
• Strategic partnerships result when the goals, strategies, and
resources of buyers and sellers become so interconnected and
intertwined that they develop an integrated, symbiotic relationship
although still retaining their independent identities.
•
•
•
•
Source: Triangle Images
•
•
•
•
involve firms that capitalize on the relative
strengths of each partner
are based more on inter-organizational
collaboration
involve collaborative decision making
require that firms share managerial
resources and expertise
depend on partners showing high levels of
collaboration
require equality among partners
involve firms that share vision, benefits, and
goals
involve extremely high levels of trust
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Strategic Partnerships and
Customer Loyalty
• To learn about how salespeople can build strategic
partnerships, go to
– http://www.1000ventures.com/business_guide/partnerships_mai
n.html
• To read interesting articles on generating value from
strategic alliances and selling partnerships, see
– http://www3.best-inclass.com/bestp/domrep.nsf/pages/0445A82C10671F2E852571
0900563346!OpenDocument
• To read feature articles and learn about the 12 laws of
customer loyalty, go to
– http://www.marketingprofs.com/login/signup.asp?source=/4/griffi
n1.asp
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Video on Boosting Customer Loyalty
and Customer Retention
• To see a video how on to boost customer loyalty and
retention, go to
– http://www.sellingpower.com/video/index.asp?date=8/7/2007
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Mechanisms That Govern Exchanges
• Governance refers to the mechanism that helps ensure the exchange is
fair to all parties involved.
• Transactional exchanges are
•
controlled by market forces.
Relational exchanges are governed
by contracts.
– They include arrangements for sharing
information and tasks between the
buying and selling firm, but fall short of
spelling out specific obligations for
each party.
• Strategic partnerships are governed
•
by a mechanism known as relational
governance.
In all exchange relationships,
opportunistic behavior may occur.
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Source: Triangle Images
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CRM, Customer Loyalty,
and Lifetime Value
• CRM can lead to customer loyalty, which is important
when a firm expects repeat business from a customer.
• Customer loyalty is a function of two components:
1. customer share
– Customer share is the proportion of
resources a customer spends with one
among a set of competing suppliers.
2. customer commitment
– Customer commitment is the bond
between a customer and a sales firm.
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Source: Triangle Images
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Computing the Value of a Customer
• Customer lifetime value (CLV) is a monetary
amount representing the worth of a customer to
a firm over the foreseeable life of a relationship.
p
CLVi  
where
t 1
Rt  Ct 
– CLV = the lifetime value of customer
– R = the revenue gained from the customer in a time
period
– C = the cost of the sales and service effort directed at
the customer
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Risks of Relational Selling
• Although relational selling and strategic
partnerships have advantages, some
disadvantages include these:
– increased dependency on
a major buyer
– loss of flexibility to
capitalize on future
business opportunities with
new customers
– growth of complacency
with current customer(s)
and decreased creativity
Source: Stockbyte
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The Salesperson and
Managing Customers
• Value is often narrowly used as a
synonym for low price.
• Value is an individual’s selective
•
perception of the worth of some activity,
object, or idea.
To create value, salespersons can do the
following:
–
–
–
–
gather important data about the customer
and the market
identify the types of data needed to give
the customer better service
provide input into how the CRM system
should use data to create value for the
customer
manage the relationship between the firm
and the customers to whom the
salesperson is assigned
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Source: Digital Vision
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Product and Customer Portfolios
• A product portfolio contains a set of products a salesperson is
responsible for selling.
• Customer portfolios are sets of customers that have common
traits, for example, assigning salespeople based on medical
specialties such as pediatrics or cardiology.
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CRM and Production Systems
• There are two types of CRM systems:
1. Analytical systems
• Analytical CRM focuses on aggregating customer
information electronically, enabling the company to better
identify target markets and opportunities for cross-selling.
2. Operational systems
• Operational CRM is more focused on using information to
improve internal efficiencies, such as scheduling logistical
and production operations.
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Websites of Firms Specializing in
Customer Relationship Management
• Peruse the websites of various firms that specialize in
CRM, at
–
–
–
–
–
http://www.crmconsultantsinc.com/
http://www.crmenterprises.com/
http://thecrmconnection.com/
http://www.crmmantra.com/
http://www.customer.com/ccgsite/pages/program_development.
html
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Technology and CRM Programs
• Web technologies and CRM
–
–
Web-based technologies have
increased the effectiveness of CRM
systems by allowing the sharing of
information between buying and selling
firms.
With push technology, e-mail can be
sent to a particular customer or
customer group that might be interested
in purchasing products going on sale.
• Integrated web solutions
–
When firms take a relational approach
or become strategic partners, integrated
Web solutions can give secure access
to a strategic partner’s decision support
system in dealing with inventory
systems.o
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Sales Force Automation
• Sales force automation (SFA) is an
•
•
•
•
•
•
•
•
•
•
integrated system of computer software
and hardware that performs routine sales
functions.
An integrated SFA system ties together
some or all of the following functions:
expense reports
presentation software
sales call scheduling
territory management
proposal generation
order entry
data entry
team selling materials
sales tracking
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CRM Hardware
Data mining is an
exploratory statistical
analysis of data in the data
warehouse whose
objective is to identify
relationships that enable
customers to be targeted
more accurately.
3.
Data warehouse
A data warehouse is an
electronic storage center
containing data records
from diverse information
systems that are shared
across all functional
departments.
4.
Data mining
Types of codes
of ethics
2.
Database
marketing
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1.
PDAs, laptops,
and servers
Database marketing refers
to a computerized process
for analyzing customer
databases in a way that
allows more effective
selling by tailoring product
and promotional offerings
to a specific customer’s
sales patterns.
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CRM Software
Multivariate statistical tools are necessary for CRM
4.
Automatic
interaction
detection
3.
Multiple
regression
CRM Software
1.
Cluster
analysis
2.
Discriminant
analysis
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Customer Relationship
Management Software
• Peruse the following websites to learn about CRM
software, at
– http://www.netsuite.com/portal/products/crm_plus/mai
n.shtml
– http://www.syspro.com/Corporate/US/CRM_Home_M
ain.Html
– http://www.oracle.com/crmondemand/index.html
– http://www.microsoft.com/dynamics/crm/default.mspx
– http://www.sas.com/solutions/crm/
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Video on Best CRM Practices
• To see a video on the best CRM practices, go to
– http://www.sellingpower.com/video/index.asp?date=1
1/6/2007
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CRM Successes and Failures
• Despite CRM’s popularity, its adoption is no
guarantee of success.
• CRM is not for firms using a transactional
approach.
• CRM is also not for firms whose customers won’t
realize added value from the benefits provided
by the CRM process.
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Video on the Secrets
to Successful CRM
• To see a video on the secrets of successful
CRM adoption, go to
– http://www.sellingpower.com/video/index.asp?date=1
2/7/2006
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Factors Contributing to
CRM Success or Failure
• Some factors contributing to
success or failure of CRM
implementation include the
following:
– whether top management gives
its support
– whether sales managers and
sales force buy in to CRM
– confidence in CRM vendor
– training
– a well-defined sales process
– expectations
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Source: Digital Vision
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CRM and Sales Force Automation
(SFA) Adoption Hindrances
• Salespersons may feel less job security.
– Sales managers can overcome this problem by convincing
salespersons the benefits of CRM—help them sell more and
earn higher bonuses and/or commissions.
• Assure sales force that neither CRM nor the SFA
components replace selling processes.
• These high-tech components merely enhance the
activities of sales managers and salespeople.
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Video on How to Define
and Measure CRM Adoption
• To see a video on defining and measuring CRM
adoption, go to
– http://www.sellingpower.com/video/index.asp?date=1
2/11/2006
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Video on Customer-Focused CRM
• To see a video on the customer-focused CRM
practices, go to
– http://www.sellingpower.com/video/index.asp?date=2
/20/2007
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Articles on CRM
• To read related articles on CRM, visit
–
–
–
–
http://www.destinationcrm.com
http://www.crm2day.com/crm_articles/
http://www.crm-guru.com/crm-articles/
http://www.destinationcrm.com/articles/default.asp?ArticleID=26
68
– http://www.business-software.com/crm/7-habits-of-highlyeffective-crm-consultants.php
– http://blogs.msdn.com/jim_glass/archive/2007/05/09/a-plethoraof-new-crm-articles.aspx
– http://ezinearticles.com/?CRM-Application---Role-in-ImprovingBusiness-ROI&id=843928
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Ethical Situation: What Would You Do?
Discussion Question:
Your salespeople are making sales calls on prospects to
sell multi-function video cell phones for the company’s
customer service people. As a sales manager you are
aware one of your phones’ features is not nearly as good
as that of competitors. So you’re wondering whether you
should not inform your sales team that they should skip that
feature in their sales presentation … and especially the
demonstration.
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