CRM – Customer Relationship Management

Learning OutcomesConcept of customer value

Limitations of CRM

Role of Technology in CRM

Importance of Retaining customers

Difference between Transaction & Relation

Transaction – a one time activity

Relation – several transactions lead to a relation

Transactional marketing – acquiring new customers

Relationship marketing – retaining existing customers

Relationship MarketingAttracting

Developing

Retaining customer relationships

Creation of customers who enjoy service, feel valued and who will be loyal.

Create win-win situations.

BENEFITS OF CRM > COST INVOLVED (money + time + effort involved)

Revenue for Supplier > Financial cost of attracting the customer + establishing relationships + executing each transaction.

CRMRelationship – Long Term

Value Proposition to Customer

Short term – benefits, discounts, preferred booking

Long term – benefits in the long run example – frequent flyer

Technology Enablers ( ATM, Phone banking, Online booking, Account balances on mobiles).

For a customer, Value = (Perceived benefits in dealing with you – Perceived costs in dealing with you.)

CRMSuccess of CRM is not dependent on technology alone. Why ?

Lack of personal touch in services that are backed by technology (Phone banking vis-à-vis a personal visit to the branch).

Customer Loyalty defines CRM.

For a new firm, customer acquisition is important

For established companies, customer retention is important.

DefectorsCustomers who go to competitors

Price as a reason for defection – Cell Phone, AirlinesProduct as a reason – Aspiration to have a superior product (may be

a perception) examples – Internet connection of BSNL, Airtel, MTS.Service is bad – Hotels, Couriers, RestaurantsMarket Defectors – Customers may move from one city to another

or one locality to another so they will prefer the nearest available service.

Technology defectors – Mobile Phone, Computers, Laptop, MP3 Players, IPOD players.

Social defectors – under peer pressure, family influence causes defection.

Solutions to handle defectors

• Talk to customers – exit interview

• Find out reasons for defection

• Use a survey to identify strong points

• Benchmark against competition –intelligence gathering, market surveys

• Dealing with change (Change management) is important.

Customer value, always dynamic

Customer value

• Predicting customer value is complex – unpredictable

• Credit has to be given for customer referrals

• Generally customer value is computed over a period of time (5 to 7 years)

• Loyalty demands a value

GOOD CUSTOMER

S

ADVOCATES

BRAND AMBASSADO

RS

Ladder of LoyaltyADVOCATE

SUPPORTER

CLIENT

CUSTOMER

PROSPECT

Emphasis on developing &

enhancing relationships

Emphasis on new

customers

Customer acquisition

Customer Retention

Objectives of CRM

• Turn prospects to advocates

• Minimize defection rates by corrective and preventive actions

• Build a large number of loyal customers over time.

• Maintain balance in the relationship – neither too close nor too distant

• Cross selling : banks selling insurance policies under the Bank assurance scheme.

Implementing CRM

Front line staff , performance important. Provide customers with “moments of truth” during the service

encountersEmployees must feel part of the CRM processClear objectivesStaff empowerment – To take decisionsUnderstand the variable and intangible nature of service

customersProduct(Service) Innovations to augment service e.g. Surprise

Gifts at Planet M, On-board auctions within a flight

Implementing CRM (cont’d)

• Regular communication with customers

• Tangible benefits to reward loyalty– Loyalty cards, Membership cards : Max,

Pantaloon(Green Card), Reliance Retail– Treating unsolicited customer feedback with

respect and responding to it.

Success of CRM

Setting tough standardsTrainingMake the customer feel importantCommunicate reasons for failure instead of not communicating at allGiving importance to every encounter as though the entire business depended on itConstructive approach/ response even to the most aggressive customer complaints

Why are some companies better at CRM as compared to others

• Market driven approach

• Customer focus

• Deliver better value to customer

• Microsoft was the first international company to exploit CRM – selling office suite and further upgrades to an individual : they also had differential pricing for corporate and individual purchases.

CRM strategy

An effective CRM strategy starts with segmentation based on what different groups value and what will make them loyal.

Develop a blueprint to understand what a particular segment seeks from a relationship with your company

Implement CRM

Measure and monitor the goal

Research by Coyles & Gokey

• Emotional loyalists are important

• Deliberators if influenced can yield rich rewards

• Communicating benefits to customers

• Dealing with even a small level of dissatisfaction is vital

Lifetime value in a CRM

Lifetime value = value of all future revenues from a customer, based on their current and future product holding.

Value is difference between revenue and costs.

LTV – Life time Value LTV= Total Revenues – Fixed Cost –

Variable CostRevenue = total of all orders placedCosting – activity based costing/

accountingWe have to use cost estimates

LTV calculations

• Retain existing customers

• Find more customers who match the profile of the most profitable customers

• Calculate which products/ product-service combinations contribute most to profit

• LTV based on assumptions, Review assumptions periodically.

Data Mining• Profile the customer behavior to model the future

• Gives an indication of the propensity to buy for any given market segment

• Examples – HDFC Phone banking, Customer ID – data warehousing solution – all transactions of customer can be viewed at the click of a button

• Warehouse pulls information from different transaction systems and customer interface channels and centralises it in a single database. This helps the bank in finding out the profitability of a customer.

Quiz

• Segmentation of customers in CRM relates to what dimensions of customers.

• Neither practical nor profitable to meet all customer expectations

• Companies try to identify segments (tiers of customers) – that differ in current and/or a future profitability of a firm.

• This approach tracks costs and revenues for segments of customers.

• Thus segmentation in CRM refers to profitability of customers.