Customer Relationship Management (CRM)

The Shift from Transaction-Based Marketing to Relationship Marketing

Transaction-based marketing
Buyer and Seller exchanges characterized by limited communications and little or no ongoing relationship between the parties

Relationship marketing
Development and maintenance of long-term, cost-effective relationships with individual customers, suppliers, employees, and other partners for mutual benefit.

Customer relationship management

The combination of strategies and tools that drive relationship programs, re-orientating the entire organization to a concentrated focus on satisfying customers

10-1

 Comparing Transaction-Based Marketing and Relationship Marketing Strategies

10-2

What is CRM?
CRM is a business strategy that aims to understand, anticipate and manage the needs of an organisations current and potential customers (1). It is a comprehensive approach which provides seamless integration of every area of business that touches the customer- namely marketing, sales, customer services and field support through the integration of people, process and technology (1) CRM is a shift from traditional marketing as it focuses on the retention of customers in addition to the acquisition of new customers (2) The expression Customer Relationship Management (CRM) is becoming standard terminology, replacing what is widely perceived to be a misleadingly narrow term, relationship marketing (RM) (3).

Definition of CRM

CRM is concerned with the creation, development and enhancement of individualised customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value (2).

What is CRM?
CRM is a long term, customer-centric business strategy whose goal is to maximize profitability through customer loyalty

Strategically significant customers

Customer relationship management focuses on strategically significant markets. Not all customers are equally important (3). Therefore, relationships should be built with customers that are likely to provide value for services Building relationships with customers that will provide little value could result in a loss of time, staff and financial resources

 Figure 10.1 Forms of BuyerSeller Interactions on a Continuum from Conflict to Cooperation

10-7

Three Levels of Relationship Marketing

Transaction selling: customers are sold to and not contacted again

Relationship selling: the seller contacts customers after the purchase to determine if they are satisfied and have future needs Partnering: the seller works continually to improve its customers operations, sales, and profits

 Underlying principles of CRM:

CRM may be understood by looking at the ideas of product and customer-centricity these refer to an organizations tendency to concentrate its activities on product or customer The characteristics of product and customer-centricity include: the two are mutually exclusive an organization may be somewhere between the two discrete activities between the two may be defined there is a natural evolution from product to customer- centricity hence the idea of "maturity"

Product and customer strategies

Product-centric strategies Customer-centric strategies

Mission
Reduce cost, cycle time

Organization Competition Environment

Increase customer profitability

The strategies of CRM

Retain customers Acquire new customers
e.g., differentiation innovation e.g., listening adaptability new products customer service loyalty program

Increase customer profitability

e.g., bundling cross-selling, up-selling maximizing high-value /low-cost customers

Attracting and Retaining Customers

Attracting Customers

Computing the Cost of Lost Customers

Customer churn Lifetime value

Attracting and Retaining Customers

The Need for Customer Retention Measuring Customer Lifetime Value (CLV) Customer Relationship Management (CRM): The Key
Customer equity Three drivers of customer equity
Value equity Brand equity Relationship equity

Figure 3-5: The

CustomerDevelopme nt Process

3-14

Attracting and Retaining Customers

Forming Strong Customer Bonds: The Basics
Cross-departmental participation Integrate the Voice of the Customer into all business decisions Create superior offering for the target market

Attracting and Retaining Customers

Organize and make accessible a database of customer information Make it easy for customers to reach the appropriate personnel Reward outstanding employees

Adding Financial Benefits

Frequency programs (FPs)

Attracting and Retaining Customers

Adding Structural Ties
Create long-term contracts Charge lower price to high volume customers Turn product into long-term service

3-17

Figure 3-7: Customer-Product Profitability Analysis

3-18

Figure 3-8: Allocating marketing investment according to customer value

Classification of Customer Loyal Segments Strangers short-term-low profit customers

Butterflies high-profit potential but tend to be short-term and disloyal Barnacles stay around for the long-term but generate relatively low profits True Friends are both highly profitable and are long-term customers
(Reinartz, W. and Kumar, V., 2002)

Exhibit 2-9: Dependence Increases as Relationships become More Important

High

Low
Low

Relationships

Dependence

High

Partnering, cont
Components of partnering include:
Individual excellence Importance Interdependence Investment Information Integration Institutionalization Integrity

Exhibit Partnering contd..

Evolving business processes to customer centricity

CUSTOMER -CENTRIC
MARKET OF ONE

Select markets

MASS MARKET

PRODUCT VERSIONS

CUSTOMER NICHE

Customer value creation

PRODUCT -CENTRIC

Perform product-centric business functions

FULLY PRODUCT FOCUSED

LARGELY PRODUCT FOCUSED

LARGELY FULLY CUSTOMER CUSTOMER FOCUSED FOCUSED

Customer-centric business functions

Deliver product or service

STANDARD VARIATIONS
BY FEATURE

VARIATIONS BY CUSTOMER SEGMENT

ESTABLISH HIGH VALUE CUSTOMERS

Customer knowledge management

Evaluating Customer Relationship Programs

Lifetime value of customer: the revenues and intangible benefits that a customer brings to the seller over an average lifetime, less the amount of money which must be spent to acquire, market to, and service the customer
Assessing Costs & Benefits

Measurement & Evaluation

Structuring Relationships

 Additional techniques used to evaluate relationship programs include:

Tracking rebate requests, coupon redemptions, credit-card purchases, and product registrations Monitoring complaints and returned products and analyzing why customers leave Reviewing reply cards, common forms, and surveys Monitoring "click-through" behavior on Websites to identify why they stay or leave