CRM and LoyaltyCRM and Loyalty

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ContentsContents

Part 1. Customer Relationship

Part 2. Customer Loyalty

Part 3. Approach to Loyalty Program

Part 4. Loyalty Program case study

Part 5. Summary and Conclusions

Part 6. References

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Part 1. Customer RelationshipPart 1. Customer Relationship

1. CRM

2. Relationship Marketing

3. CRM and Behaviour Type

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What is CRM?What is CRM?

What is CRM?

Simply stated, Customer Relationship Management (CRM) is

about finding, getting, and retaining customers.

CRM is at the core of any customer-focused business

strategy and includes the people, processes, and technology

questions associated with marketing, sales, and service. In

today's hyper-competitive world, organizations looking to

implement successful CRM strategies need to focus on a

common view of the customer using integrated information

systems and contact center implementations that allow the

customer to communicate via any desired communication

channel. Lastly, CRM is a core element in any customer-centric

eBusiness strategy.

From www.realmarket.com

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Service/

Product

Satisfaction

dissatisfaction

repurchase

Good word of mouth

Loyalcustomization

Creating new customer

Increaserevenue

Brand switch

Bad wordOf mouth

Losing customer

losing potentialcustomer

DecreaseRevenue

Effect of CRMEffect of CRM

CS Guarantees Company’s Revenue?CS Guarantees Company’s Revenue?

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CM(Customer

Management)

Products

ControlResultSecret

Sales Volume

Departure

Route

Destination

Customers

CommunicationContinuity

Public

Loyalty

Acknowledgement about Relationship

CRM

(Customer

Relationship

Management)

CRM and Customer LoyaltyCRM and Customer Loyalty

There is always the risk that a customer will defect when a competitor offers better

value or a wider range of value added options. -> Loyalty Programs must motivate loyal

buyers to repurchase.

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Relationship MarketingRelationship Marketing

Relationship Marketing

• Focuses on getting and keeping customers

• Concerned with customer loyalty

• Aimed at developing long-term, cost-effective links between an

organization and its customers

• All customer relationships are worth keeping

Customer retention

• Impact on profitability and past research has claimed that it can be 5 times

more expensive to obtain a new customer.

• The Pareto rule

Profit in business comes from repeat customers, customers that boast about your

product and service, and that bring friends with them ( cited in Lowernstein, 1995)

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Customer satisfaction and Behaviour typeCustomer satisfaction and Behaviour type

1 2 3 4 5

Strong dissatisfaction so – so Strong satisfaction

Possibility of Loyalist

(expectation < experience)

Defectors

Mercenaries(Expensive to Acquire,

Quick to Depart)

Hostages

Terrorists

Who’ve had Bad Experienceswith the Company

&The Company didn’t respond to them.

Competitors’ discountsoffering or benefits

Source :Keki R. Bhote, “Beyond Customer Satisfaction to Customer Loyalty”, 1996

Proliferation of Loyalists

(10~50%)

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Why customers leave even they are satisfied?Why customers leave even they are satisfied?

In US, survey of CS about Cars, Almost 90% of answers are satisfied.

Repurchase rate of same brand car company is below 30%.

•Hard for finding rule of relationship between CS and customer break away.

•CS does not guarantee repurchase of customers

Customer loyalty is needed.

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CS strategyCS strategy

Step #1

Issue Discovery

Step #2

Value Identification

Step #3

Needs Differentiation

Step #4

Customization

Customer Segmentation

Customer DB analysis/ Define

marketing issues

Customer investigation/an

alysis

Customer’s needs finding / customer

value segmentation

Product/service, channel, reward

strategy

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Part. 2 Customer LoyaltyPart. 2 Customer Loyalty

1. What is Customer Loyalty?

2. Customer Satisfaction Strategy

3. Why Customer Loyalty?

4. Case Study (online and offline)

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What is Loyalty?What is Loyalty?

The key to the successful adoption of relationship marketing lies in the building of client loyalty in dynamic business environments. (Morris, 1999)

In a business context loyalty has come to describe a customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates. (Barnett,2000)

Loyal Customer can mean a consistent source of revenue over a period of many years. However, this loyalty cannot be taken for granted. It will continue only as long as the customer feels they are receiving better value than they would obtain from another supplier.

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Why Customer Loyalty?

Relationship between CS and C Loyalty Relationship between Loyalty and Profitablity

0

10

20

30

40

50

60

70

80

90

100

10 20 30 40 50 60 70 80 90

X

XXX

XX

X

X

X

X

XX

X

X

X

X

X

XX

X

X

X

X

X

X

Customer Loyalty Rating (%)

Ind

ex

ed

Cu

sto

me

r S

ati

sfa

cti

on

Ra

tin

g

(%)

Profitability (%)

Lo

ya

lty

(R

ete

nti

on

Ra

te

(%)

Source : Keki R. Bhote. “Beyond customer satisfaction to customer loyalty”, 1996

X

X

X

X

X

X

X

X

X

XX X

XX

X

X

X

X

XX

80

85

90

95

100

5 10 15 20 25 30

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How to build Loyalty?How to build Loyalty?

Framework of building Loyalty

CRM

(CR Strategy)Trust/

Intimacy

Reward Program/Continuing Campaign

Repurchase/ Cross-selling

ImprovingCore Products/Service

Innovation of Channel Mgmt.

CustomerSatisfaction

CustomerLoyalty

Phased ElementsDriversDegree of

Relationship

Attitude,not Action

Action, not Affinity(Artificial Loyalty)

Recognition of Relationship,

Referral

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Case Study: Amazon.com (online case)Case Study: Amazon.com (online case)

•Suggest and find what customers wants positively

•Remind customers of relationship and be concerned about customers continuously

•Never forget customers who visit before

Customer Strategy

•Differentiated customer value suggestion

•Intensify reward program

Building customer loyalty

Mi’s Gold Box

without any input

my information

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Case Study: ScrubaDub (offline case)Case Study: ScrubaDub (offline case)

•Automotive carwash business: Differentiated strategy based on CRM

•Differentiated approach to CustomersDifferentiated approach to Customers: focus on quality than customer quantitiesInvestigated all costs in terms of customers washing times and expenditure per customers

•Findings Findings

1. 75% of whole customers are below 6 times, low visit rate in a year. Therefore, rest 25% are visit rate over 60%

2. 2. Segmented 5 level in terms of annual visit rate (the lowest level /low level/average/high level/the highest level) Between visit rates and spending money, there is relationship something.

3. So, relationship marketing need to invest high on customers who has low revenues and invest low vice versa.

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ScrubaDub StrategyScrubaDub Strategy

Who is the highest value customer?

-> high visit rates customer

Not a customer who owns a large car

★ high income customers

★ Jeep or compact car owners

★ A driver who has a car below 3 year

Relationship marketing

•New display design Offer resting place with free coffee, snacks•Building Personal relationship •Increasing staffs at peak time for saving customer waiting time•Discount scheme(Offering free washing coupon)•Car washing guarantee Car washing guarantee (free car washing if there is rainy or snowy within 3 days after car washing)(free car washing if there is rainy or snowy within 3 days after car washing)

Effects: average growth rate 12.5% (cf. others: 7%)

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Part 3. Approach Customer Loyalty ProgramsPart 3. Approach Customer Loyalty Programs

1. Loyalty programs

2. Strategic reward programs

3. Core strategies building reward programs

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Loyalty program: RewardLoyalty program: Reward

The plan objectives for this program are:

1. Effectiveness, cost savings, profitability, etc.

2. Develop a greater sense of concern and loyalty about the company or brand

3. Strengthen communications between customers and companies.

4. Provide financial rewards to customers who have demonstrated performance or

contribution

5. Enhance the Company’s ability to meet or exceed its target goals.

Campaign and Reward

•Discrete Communication Model

• individual ApproachLoyalty

•Continuous Communication Model

• Mass Approach

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Reward typesReward types

Promotion(Price)

Airline Mileage,Coupon

Lotteries(Instant Scratchies)

Multi-productFrequent-buyer

Directly Directly SupportsSupports

ValueValue PropositionProposition

Other Other indirect indirect

Types Types of rewardof reward

ImmediateImmediate DelayedDelayed

“ Dowling.,Mark Uncles, 1997”

Timing of RewardTiming of Reward

Typ

e of

Typ

e of

reward

rew

ard

ContinuityReward

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4 characters to differentiate4 characters to differentiate

4 Attributes4 Attributes

((AAccomplishment)ccomplishment) (Continuity)(Continuity) (Attraction)(Attraction) (Acquisition)(Acquisition)

• Points acquisition • Reward offering cycle and Getting Reward gifts

• Not for short term events• Induce repurchase

• Based on customer needs for offering rewards• Offering diverse Reward options

• For acquiring new customer• For acquiring customers from competitors

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Loyalty Program Reward SchedulesLoyalty Program Reward Schedules

(A) Typical Response

Functions

(B) An Alternative Response

Function

(Airlines Mileage Card) Airlines often use a variation of this scheme where an economy class airfare attracts 1 point per kilometer or dollar spent

(GM Auto Card)

poin

t

#of $Spent Accumulated

Spending

Acce

ss to

Rew

ard

s

(Citibank) Citigold banking, Citibanking , General DB According to Household ( offspring get same level with parents)

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Part 4. Case Study: One of International Hotel in NZPart 4. Case Study: One of International Hotel in NZ

Background: in Palmerston North, NZ

1. Location

A provincial city, with approximately 75,000 people

It is not a major destination for international visitors to NZ. But it does host a large number of conferences each year

2. Objective

The one of an international larger chain of hotels.

The business manager believes that if it were not for the revenue from the other facilities, the hotel would struggle to

remain open on accommodation revenue alone.

3. Marketing

Corporate marketing programs initiated by head office have not always worked in the hotel, so local marketing

initiatives have been launched in Palmerston North.

Some specific events marketing to improve its weekend occupancy rates and this seems to have been successful.

Follow-up letters.

The latest marketing push= a Gold Card to increase new customers and entice past customers to return.$39.50,

provides various discounts and special occasion offers

4. Methodology: A mail survey was sent to all customers on the hotel Gold Card DB. A 4 page questionnaire to 700

customers.

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Data Analysis and discussionData Analysis and discussion

Card purchase and features

1. For personal use

2. Because good range of benefits offered

3. Because good value for money

• The data show that 2/3 purchasers were new customers of the hotel.1/3 said they purchased the

card because of persuasive sellers.

• Purchasers of card were more interested in the local facilities like the, bar, family restaurant and

health club.

• Percent of respondents using the services was fairly low, except for the family restaurant to cheap

deals. As a customer retention strategy its success is therefore doubtful.

• There were a number of comments from respondents that referred to their dissatisfaction. Customers

are unlikely to return or become loyal if they are dissatisfied with the service provided. (Dube, 1994)

This highlights the point that satisfaction is not an accurate indicator of customer loyalty.

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Part 5. Summary & ConclusionPart 5. Summary & Conclusion

The customers of the hotel who purchased a card and responded to the questionnaire, exhibit the

characteristics of Morgans “mercenaries” (1996 ).

High satisfaction, low to medium loyalty and low commitment to the company. In order to succeed,

loyalty programs need to develop “loyalists” (Morgan, 1996)- customers who have high

satisfaction, high loyalty and who will stay and be supportive of the company.

The hotel case study: to build customer loyalty and therefore retention by selling a discount

card in Palmerton North.

Discount card does not appear to increase customer loyalty and that many customers buy the

card because they perceive it to be good value for money.

Summary

Conclusion

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Part 6. ReferencesPart 6. References

•Dowling, Uncles 1997, “ Do customer loyalty programs really work?”,

Sloan Management Review, Vol. 38

•McIlroy, Barnett 2000, “ Building customer relationships: do discount

cards work? ” Managing Service Quality Journal Vol.

10 2000

•Gustafsson 2000, “ Improving Customer Satisfaction, Loyalty, and

Profit” Jossey-Bass Inc.

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A&Q