4/29/10 1 crm overview
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CRM Overview
Nihat Solakoglu
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What is wrong with this message? When did I receive this message?
Was it an insert?
What did I think?
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Customer powerIn advanced economies, consumption has become a larger share of GDP than production. Hence, consumer choices gains importance in the decision making process of companies and they feel the need to think like a customer than a producer.
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Customer power
(1) Producers think they are making products. Customers think they are buying services.
(2) Producers worry about visible mistakes. Customers are lost because of invisible mistakes.(3) Producers think their technologies create products. Customers think their desires create products.
(4) Producers organize for managerial convenience. Customers want their convenience to come first.
(5) Producers seek a high standard of performance. Customers care about a high standard of living.
Producer-Customer Logic
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CRM Overview
Although CRM receieved considerable attention in the last decade, there is no clear (agreed upon) definitions in the industry or academia.
CRM Global Marketplace
Year Market Size
1996 $64M
1998 $100B
2002 $200B
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CRM OverviewZablah (2004) finds 45 distinct definitions in the literature.
So let’s ask ourselves what CRM really is.
Class Discussion
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What is CRM? Is it a technology solution?
Technology: Data warehousing,User tools
It can be an excel spreadsheet or a full infrastructure that supports data warehousing, data mining, MIS, reporting etc.
E.piphany, SAP, Siebel’s CRM, Peoplesoft, Unica are examples of CRM architectures that can be used.
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What is CRM? Is it business analytics/data mining?
Analytics:Business analyticsFinancial analysisCustomer analysis...
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What is CRM? Is it marketing?
Marketing:Direct mailOutbound telemarketingInbound telemarketingInternetEmail
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What is CRM? Well, it includes all.
Analytics
Technology
Marketing:
CRM
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What is CRM?Zablah (2004) identifies 5 major perspectives among these 45 definitions.
These perspectives are:
(1) CRM as a business process.
A business process refers to a group of activities, that can be divided into sub-levels, that convert organizational inputs into desired outputs.
It can be defined at two levels:
(a) a higher level that includes all activities to build long-lasting, profitable and mutually-beneficial customer relationship
(b) Norrowly defined as managing customer interactions
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What is CRM?(2) CRM as a strategy.
An overall plan for deploying resources to establish a favorable position.
Resources are meant for relationship building and maintenance efforts should be allocated based on customers’ lifetime value to the firm.
Building “right” type of relationship
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What is CRM?(3) CRM as a philosophy.
There is a strong link between customer loyalty and corporate profitability.
Case: If you have 10 million customers, and each customer has a lifetime value of $1,000.00. What would be the lifetime gain of reducing attrition by 10% from its existing level of 9% at the customer level?
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What is CRM?- 9% of 10 million customers 900,000 customers are attriting
- 10% of 900,000 is 90,000 customers.
- If we save 90,000 customers, the benefit on lifetime value to the corporation will be
90,000*$1000 = $90 million
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What is CRM?
According to this view, most effective way to achieve such loyalty is by proactively seeking to build and maintain long term relationship with customers.
This view suggests that firms’ day-to-day activities be driven by an understanding of customers’ evolving needs.
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What is CRM?(4) CRM as a capability.
Firms must invest in developing and acquiring a mix of resources that enables them to modify their behaviour towards individual customers or groups of customers on a continual basis. Capabilities are knowledge based, complex, cannot be easily purchased, and requires hard to imitate skils.
CRM demand that a firm at a minimum should(a) Gather inteligence about its current and prospective customers, &
(b) Apply that intelligence to shape its subsequant interactions with customers.
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What is CRM?(5) CRM as a technology.
Technology plays a substantial role in CRM efforts, but it is now widely recognized that “CRM is more than a technology”
Technology enables data mining, collecting and storing large quantities of data (how large?), build knowledge from this data, and disseminate the knowledge across organizations.
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What is CRM?We can say:CRM is not just a technology solution that solves all customer related problems. It is a business philosophy/strategy that enables people, technology and processes to focus on customer related problems or opportunities.The essence of CRM is understanding customer needs and leveraging that knowledge to improve company profitability.
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What is CRM?CRM has two major subprocesses.
(a) Knowledge management: creation, storage, retrieval and application of knowledge.
CRM technology provides the tools to store the data, to derive and disseminate the information.
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What is CRM?A CRM system brings together
İnformation about customers Customer characteristics Sales transactions Marketing effectiveness/responsiveness Market trends What else?
With large number of customers, CRM approach relies on information technology.
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What is CRM?(b) Interaction management refers to any instance in which two active parties, which have the ability to exert influence upon each other, engage in the exchange of values.
Interactions should remain consistent, relevant and appropriate.
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What is CRM?
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What is CRM?An effective CRM system describes customer relationship in sufficient detail so that all aspects of the organization can access information, match customer needs with satisfying product offerings, remind customers of service requirements, know what other products a customer has purchased and so forth.
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What is CRM?So for effective CRM1. Understand the customer and understand them in a
timely manner2. Have two-way conversations with customers3. Access to customer information across sales,
service, management, ... across all relevant units of organization
4. Coordinate messages across all contact points5. Incentive plans based on customer value6. Organization structured around customers7. Customer needs anticipated and proactive actions
are taken
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What is CRM?Class discussion: How can an effective CRM help to a service representative at a bank?
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CRM process as a hub of learningCRM is another step in concept of marketing. It is a philosopy that tries to satisfy customer needs in return for higher profits.
Acquiring information before, during and after a sale is made becomes a necessity to satisfy customer needs
Exhibit 1.1 shows that information technology within a CRM system is a continuous process.
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CRM process as a hub of learning
Cultivate and develop interest, trust
Acquire customer & establish a relationship
Customize promotion, information, interactions
Customize offers, products & services
Customize channel outlets, locations
Recognize needs/wants of defined segment Collect,
warehouse & analyze data
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What is CRM?
Lets try to define CRM
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CRM Defined
At its simplest, it can be defined as the systematic use of customer information to attract and retain customers for a long-lasting mutually-beneficial relationship through an on-going dialogue.
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CRM Defined
Systemetic use of information
• Data warehouse
• Data mining
• Reporting
Attract and Retain customers
• cross-sell/up-sell
• Retention focused strategies
• Contact strategy
• Cost-efficient acquisition
Continious dialogue
• Real-time response
• Customer voice in decisions
• Personalized/timely/customized contacts through multiple channels
Long-lasting mutually beneficial releationship
• Customer based metrics
• Customer evaluation/satisfaction
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Costs & Benefits of CRMCustomers are different and different segment of customers represent different level of profit (revenue and cost) to the corporation. At the same time, they require different level of service and different products.
There are potential benefits and costs to - organization- customers
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Costs & Benefits of CRM
Benefits
Customer Focus
Customer retention
Share of customer
Long-term profitability
Costs
Infrastructure investments
Process change
Costs
Privacy
Opportunity
Benefits
Continuity
Contact touch points
Personalized service
Enhanced satisfaction, safety
Organization
Customer
Lifetime value of the relationship
Exhibit 1.2 Zikmund
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CRM System
Lets look at a CRM system
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CRM integrates marketing, analysis & technology...Source Systems
Internal &
extrenal data
Data Warehouse
Extract – transform
- load
Business
Intelligence & Data
Mining
Planning/reporting
Analysis &
Segmentation
Modeling &
Data mining
Tracking
Execution,
Personalization
& Automation
Customer lists
Offer, message
customization
Business rules
& real-time
differentiation
Message delivery
Call center
Email/fax server
Web server
Production shop
Sales force
Customer
Experiences
Satisfaction metrics
Customer feedbacks
surveys
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CRM ProcessBased on our discussion and several CRM processes, lets try to generalize CRM process that will help us understand why CRM can fail or be succesful.
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CRM Process
CRM
Customer Strategy
Cu
stom
er d
ata
Data Mining
CustomerContact
(Personalization)
Track & Learn
- Market Basket Analysis- Clustering/Segmentation- Testing- Descriptive Statistics- Prediction/classification
Business Organization
Business Case
Components of CRM process as a continuous loop
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Business CaseDo you need CRM? What questions you should ask?Does your company serve to multiple customers?Do customer service, sales, marketing and management need customer data and do they have access to the same customer data?Does your marketing department segment and do targeted campaigns?Is the customer needs and wants a priority for your company?Does your company have a high customer “churn” rate. Is employee compensation linked to customer satisfaction?
DiscussionDiscussion
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Business CaseAre you ready for CRM as an organization?
Is there a champion? Who is the champion? What is the information intensity of the
organization? Organizational dynamics
Organization structure Incentives Interaction between sales, marketing, service, IT,
information management departments IT level in the organization
Excel…
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Business CaseWhat is the best approach for your company to implement a CRM system? A Big Bang approach
High-level executive sponsorship is required Organization with a customer focus Sophisticated IT level
Small increments Do not require high-level executive
sponsorship. Divisional/channel leadership.
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Business OrganizationBusiness organization is critical as there is a positive correlation between organization, CRM success and overall performance. For a successful CRM implementation, organization needs to:
Align objectives and incentives throughout the organization as consistent with a customer centric approach
Provide customer managers with authority Recruit and develop the right people with the right skill
set Make sure the relationship between employee
satisfaction, customer satisfaction, company performance and incentive plan is clearly defined.
Have customer-centric metrics
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Business OrganizationProduct-centric, channel-centric or other metrics needs to be converted to customer-centric metrics.
Traditional Metrics Customer-centric metrics
Call duration
Product P&L Response rate
Retention Average waiting time
Customer P&L Customer NPV/Revenue/Profit
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Business OrganizationWith a CRM focus, there needs to be a process and culture change within the organization. Training
On the use of customer metrics/scorecard to make decisions
Rotations to expose different departments to different methods that deals with the customer
Metrics and reporting Customer scorecards linked to business financials and
budget Performance assesment
Compensation/incentives linked to customer specific metrics
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CRM (customer) StrategyDefine business strategy and align CRM strategy with business strategyUnderstand the customer and define customer segment
A company or A household or an individual A telephone number A cookie Or maybe all...
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CRM (customer) Strategy Establish resource requirements Propose methods for learning about customers Creates a starting point for a customer information strategy
What information do I need? What information do we currently have? How can I turn information into action? How can we capture information?
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CRM (customer) Strategy Calculate Customer value
Identify ways to measure the value of the relationship Revenue: sum of annual revenue per customer Gross profit: revenue-variable cost Customer value score: weighted key performance
indicators (such as RFM score) Net present value (NPV): lifetime revenues-lifetime
costs discounted to present financial value Use the calculated value to determine
customer strategy
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Customer DataNeed: Consistently clean, reliable customer level data Continuously accessible by all units within the organization Can efficiently manage large amounts of data.
And... Can do all these in a short time period
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Data MiningData mining/knowledge discovery is defined as the
non-trivial process of identifying valid Novel (previously unknown) potentially useful and ultimately understandable patterns in
data.
Source: Advances in Knowledge Discovery and Data Mining, Fayyad, Piatetsky-Shapiro, Smyth, and Uthurusamy, (Chapter 1), AAAI/MIT Press 1996
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Data MiningIn this course, we will use data mining broadly and define it as any activity in which data is prepared, analyzed and turned into actionable information to support decision making.
Hence, we will combine statistics (predictive modeling) and strictly defined data mining.
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Data Mining
Low utility
High utility
Data
Information
Knowledge
Decisions
& Actions
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Data MiningMany techniques can be used depending on the objective.
Market basket analysis Patterns in transactional data Rules based on products purchased together
Clustering/segmentation Define customer groups. Within groups, customers are similar to each
other, between groups, they are not. Clickstream analysis
Optimize web content. Which pages are visited most often, and who visits them
Randomized experiment Test/control Experimental design
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Data Mining Descriptive Statistics
Mean/median/mode Variance/standard deviation
Classification/Prediction Regression Logistic regression Decision trees (CART/CHAID) Neural Networks
Data reduction methods Principal components Factor analysis
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Data MiningKnowledge obtained from the data needs to be improved continuously.
Measure
An
alyze
Learn
Test ContinuousLearning Cycle
• Stage 1: Test (design & execute)• Stage 2: Measure (outcome)• Stage 3: Analyze (success?)• Stage 4: Learn (adjust strategy)
Discussion: Why is it important to learn and refine our knowledge?
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Customer ContactCustomer contact is the process of
designing Channel Personalize the message
“Hey Nihat, have you seen our commercial on…” “Dear Mr. Solakoglu, …”
executing, and measuring
the customer contacts for any activity that requires an interaction between the customer and the company (i.e. marketing campaigns for a new product).
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Customer ContactCampaign execution is an example of customer contact.
Objective
Targeting
Segmentation
Optimization
Personalization
Fulfillment
High level campaign implementation process
Channel
Offer
Time
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Track and LearnTracking customer interactions and learning and adjusting customer strategy is an integral part of CRM process.
How did we contact the customer? Was it a success (e.g., a marketing campaign)? Was the outcome of the contact different than what
we expected or the previous ones? Can we leverage the result for future contacts?
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Track and LearnIn tracking the contact results, we should be careful
not to compare apples and oranges not to confuse cause versus correlation To look for the right definition of success for the
relevant audience
Remember tracking and analyzing results are linked to data mining efforts and can leverage a common infrastructure.
Results tracking and customer data should be accessible at the same data.