crm unit (operational issues in implementing crm)
TRANSCRIPT
1
By :
Prof. Amit Kumar
Relationship Officer:ABN AMRO Slide No : 02 ERP Functional Consultant
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Relationship Officer:ABN AMRO Slide No : 03 ERP Functional Consultant
Course Contents
Process Overview of CRM Developing CRM Programmes
1. Customer Retention
2. Converting Good Customers into Loyal
3. Dealing with Unprofitable Customers
Implementing CRM Customer Loyalty Programs & Rewards Evaluating Loyalty Programs
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Action
Learning
Developing CRMProgrammes
Implementing CRM Programmes
Analyzing customer data & identifying target customers
Collecting customer data
CRM Process Cycle
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Collecting Customer Data
• Customer database
• Identifying information
• Privacy & CRM programmes
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Customer Database
Ideally, database contain following information:
• Transactions
• Customer contacts
• Customer preferences
• Descriptive information
• Response to marketing activities
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Identifying Information
1. Asking for identifying information
2. Offering frequent shoppers card
3. Linking checking account & credit cards to customer names
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Privacy concerns….
THERE IS GROWING CONSENSUS THAT PERSONAL INFORMATION MUST BE FAIRLY COLLECTED, THE
COLLECTION MUST BE PURPOSEFUL, & DATA SHOULD BE RELEVANT, MAINTAINED AS
ACCURATE, ESSENTIAL TO THE BUSINESS, SUBJECT TO THE RIGHTS OF THE OWNING
INDIVIDUAL, KEPT REASONABLY SECURE, & TRANSFERRED ONLY WITH
THE PERMISSION OF THE CONSUMER.
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Analyzing Customer Data & Identifying Target Customers
• Data mining
• Market Basket analysis
• Identifying market segments
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Market basket analysis
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Customer Relationship Management Operational Issues in Implementing CRM
• Market Basket Analysis is a modeling technique based upon the theory that if you buy a certain group of items, you are more (or less) likely to buy another group of items. For example, if you are in an English pub and you buy a pint of beer and don't buy a bar meal, you are more likely to buy crisps (US. chips) at the same time than somebody who didn't buy beer.
• The set of items a customer buys is referred to as an itemset, and market basket analysis seeks to find relationships between purchases. Typically the relationship will be in the form of a rule: IF {beer, no bar meal} THEN {crisps}
• The probability that a customer will buy beer without a bar meal (i.e. that the antecedent is true) is referred to as the support for the rule. The conditional probability that a customer will purchase crisps is referred to as the confidence.
One that precedes another IILM Graduate School of Management
Market basket analysis in RETAIL
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Customer Relationship Management Operational Issues in Implementing CRM
Market basket analysis in the retail business .In this case retailers use it to understand the purchase behaviour of groups of customers, and use it for cross-selling, store design, discount plans and promotions.
A widely used example of cross selling on the internet with market basket analysis is Amazon.com's use of suggestions of the type:
"Customers who bought book A also bought book B“
e.g. "People who read History of Portugal were also interested in Naval History".
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Market basket analysis in RETAIL
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Customer Relationship Management Operational Issues in Implementing CRM
• In the case of retailers with stores, market basket information enables the retailer to understand the buyer's needs and rewrite the store's layout accordingly, develop cross-promotional programs, or even capture new buyers (much like the cross-selling concept).
• This even helps retailers avoid discounts, e.g. knowing that people who buy more than 12 cans of Pepsi also usually buy 12 cans of 7up during the same store trip, allows them not to discount both drinks at the same time, for the sale of one item usually leads to the sale of another.
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Identifying Best Customers
• Lifetime value• Customer pyramid• RFM analysis
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Lifetime value (LTV)
• Lifetime customer value (LTV) is the expected contribution from the customer to the retailer’s profits over his or her entire relationship with the retailer:• LTV is estimated by using past behaviors for forecasting:
– Purchases in future – gross margin from these purchases– costs associated with servicing the customers
• Some of the costs associated with customer: – advertising & promotions used to acquire the customer & – cost of processing merchandise & promotions that the customer has
returned• These assessments of LTV are based on the assumption that future
purchase behavior will be same as in the past
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Best profitable
Customer
Least profitable
Customers
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Customer Relationship Management Operational Issues in Implementing CRM
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RFM Analysis
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Customer Relationship Management Operational Issues in Implementing CRM
RFM analysis is a marketing technique used to determine quantitatively which customers are the best ones by examininghow recently a customer has purchased (recency), how oftenthey purchase (frequency), and how much the customer spends (monetary). RFM analysis is based on the marketing axiom that"80% of your business comes from 20% of your customers."
Recency - When was the last order?
Frequency - How many orders have they placed with us?
Monetary Value - What is the value of their orders?
RFM stands for:
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RFM analysis for a Catalogue retailerRecency
Frequency Monetary 0-2 mths 3-4 mths 5-6mths Over 6mths
1 – 2 <$50 .050* .035 .010 .0011 – 2 Over $50 .050 .036 .011 .001
3 – 4 <$150O .080 .050 .015 .006
3 – 4 Over $150 .090 .050 .017 .008
5 – 6 <$300 .100 .060 .025 .010
5 – 6 Over $300 .120 .080 .027 .012
Over 6 <$450 .150 .100 .035 .018
Over 6 Over $450 .160 .110 . 040 .020 *% of customers in the cell who made a purchase from the last catalogue mailed to them .
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
RFM Target Strategies
RECENCYFrequency Monetary 0 -2 mths 3-4 mths 5-6mths Over 6mths
1 – 2
1 – 2
<$50
Over $50
First time customers Low value customers
3 – 4
3 – 4
<4150
Over $150
Early repeat customers
Defectors
5 – 6
5 – 6
Over 6
Over 6
<$300
Over $300
<$450
Over
High-value customers Core defectors
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Developing CRM Programmes
1. Retaining Best customers
2. Converting good customers into high-LTV customers
3. Getting rid of unprofitable customers
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Customer Retention
1. Frequent shopping programmes
2. Special customer service
3. Personalization
4. Community
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
1. Frequent shopping programmes
• Used by retailers to:– Build customer base
– Encourage repeat purchase behavior & loyalty
• To encourage customers to enroll in the programme & use the card
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
1. Can be very expensive2. Difficult to make corrections in the programme when
problems arise3. It is not clear whether these programmes increase customer
spending behavior & loyalty towards the retailer4. Difficulty in gaining a competitive advantage:
– Can easily be duplicated by competitors, being so visible – Offer benefits on personalized basis to avoid this problem
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1. Frequent shopping programmes
Limitations: 4 factors
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Special customer service:
– Unusually high quality service to Platinum customers
– Sometimes subtle
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2. Special customer service
Customer Relationship Management Operational Issues in Implementing CRM
so slight as to be difficult to detect or describe; elusive: a subtle smile. Difficult to understand
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Limitations:• Customers not identical, even within Platinum
• Fortunately, customization possible today
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3. Personalization
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Community:
– Develop a sense of community among customers, say, for example:
• Internet bulletin board
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4. Community
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
– Silver & Gold to Platinum
– For example, Tesco
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Converting good customers into best customers
Cross-selling & add-on selling:• Customer base reveals opportunities for these
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Dealing with unprofitable customers
• In many cases bottom tier actually have negative LTV
Two approaches for getting the ‘lead’ out:
1. Offering less costly approaches for satisfying needs of lead customers
2. Charging the customers for the services they are abusing
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Implementing CRM Programme
• Increasing sales & profits from the CRM programmes is a challenge
• This experience of CRM emphasizes that effective CRM requires more than:– appointing a manager of CRM
– installing a computer system to manage
– analyze a customer database
– making speeches about importance of customers
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Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
• Effective implementation of CRM programmes requires the close coordination of activities by different functions in a retailers organization.
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Scenario Analysis
Purpose & Objectives
Business planning
Process design
Technology & vendor selection
Solution development
Implementation
Measurement
STAGES
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Relationship Officer:ABN AMRO Slide No : 31 ERP Functional Consultant
Implementing CRM Programme
Scenario Analysis• What is the business of the firm and who are its customers?• Where is the firm placed with respect to its competitors? If the
firm has a monopoly then the firm may not need the CRM approaches.
• What is the present business scenario and how is it likely to evolve in the future in short, medium as well as long-terms?
Purpose Definition• After the analysis of the environment, the firm needs to define
its purpose for going in for a CRM exercise.• This may be to build more effective, efficient and long lasting
relationship with their customers.
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
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Implementing CRM Programme
Planning• Planning phase includes documentation of high-level CRM
business goals in the form of a business document that become the focal point for strategy development
• Planning also includes details on what needs to be done and the people who would be responsible for the same.
Process design• Process design is an important phase wherein the firms look at
their current processes and try to redesign the processes to male them more customer focused.
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
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Implementing CRM Programme
Solution Development• This stage consists of various activities such as customization
of features, development of new features that are not present in the product, process integration and testing by using the prototype and design the database.
Measurement• Final stage in the CRM implementation involves development
of metrics for measuring the performance of CRM solution and comparing it with desired performance.
• If CRM solution falls short of expectations, the firm might go back and redefine its CRM objectives.
• Sometimes, the improvement may be gradual as users become more familiar with new technology and business processes.
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
• Customer loyalty and reward programmes aim at capturing customers and reward them for their loyalty.– Examples, airlines frequent flier deals (‘Desh-Videsh program’
of Indian Airlines)
– Telecommunications firms lowering their fees on getting more volume from a customer
– Banks and credit card firms offer incentives up to 5 % of the total value of transactions conducted using their credit cards.
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Customer Loyalty Programs & Rewards
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
From a customer’s perspective, five elements determine a
programme’s value. They are :
1. Cash Value
2. Choice of redemption options
3. Aspirational value
4. Relevance
5. Convenience
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Reward Programmes
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Cash Value• The cash value of a reward can be thought of as the value of a
reward that the customer would have to pay in cash to acquire it. As a percentage rebate on what the customer spending to earn the reward.
Choice of redemption• Sometimes, the redemption choice for a customer is limited.
For example, an airline that allows the customer redeem his/her frequent flyer points only when the seats are unsold makes it an unattractive proposition for the customer.
Convenience• If it is not convenient for a customer to redeem his rewards as
and when desired by him, then too, the attractiveness of a rewards programme will take a beating.
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Reward Programmes
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Aspirational value• Firms use aspirational value element by trying to appeal to the
psychology of the customer.• A discount on a telephone bill does not have the same
aspirational value as does a dinner with sachin Tendulkar.• The key is offering the right choice of aspirational redemption
options.
Relevance• Rewards programme lacks relevance if the customers are not
rewarded something in short run for their loyalty.• If they have to wait for years before becoming eligible for
some reward, most customers would probably not join such a programme.
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Reward Programmes
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management
Following points to be taken into consideration while evaluating
the retention:1. Targeting the Right customers- most valuable
customers should be targeted and rewarded.
2. Value Provided – The firm should also periodically review whether customers value the programme and consider their views about it. If it is seen that the customers are not valuing rewards provided by the firm then it is appropriate to change the reward structure.
3. Measuring Increase in Loyalty- a reward programme should generate an increase in loyalty, increase in the amount of purchases and repurchases made by customers.
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Evaluating Loyalty Programs
Customer Relationship Management Operational Issues in Implementing CRM
IILM Graduate School of Management