Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
CB602 E-Marketing: Week 20 Loyalty, CRM and Data Mining Paul Haiselden © Paul Haiselden 2010 Learning Objectives In this session: Define loyalty, CRM and data mining To explain their importance and use Expand the idea of e-CRM Consider the threats and opportunities of aggregators/comparison sites To explain the methods of achieving consumer lock-in © Paul Haiselden 2010 The Click Chain Revision from Last week: • Today we will exploring Marketing and Sales element of Primary activities USER © Paul Haiselden 2010 FILTER TO SERVICE PROVIDER SERVICE PROVIDER Promotions and CRM 'Click Chain': Laffey (2009) Loyalty Some Facts: Fundamental principle: Keeping existing customers is cheaper than acquiring new ones In 1991 Xerox used a 5 point Likert scale to poll its customers. It found that 'very satisfied' customers were six times more likely to re-purchase than those who were simply 'satisfied'. These customers they termed 'apostles' as they were likely to convert uninitiated consumers to their product. Conversely at the other extreme the 'very dissatisfied' were termed 'terrorists' as they would vent their unhappiness publicly damaging Xerox (Heskett et al, 2008) Why is this Important? The outlays for acquiring a new customer for 'pure play' e-commerce firms are 20% - 40% more than traditional retailers (Reichheld and Schefter, 2000) © Paul Haiselden 2010 Benefits of Loyalty Mainspring and Bain & Company (Rigby et al, 2000): • e-tailers could not break even on 'one time' shoppers, 18 months retention required for B/E in grocery industry • Repeat purchasers spend more and generate larger transactions over longer time period. Grocery purchasers spent 26% more in month 31-36 than in first 6 months Therefore: • Increase share of wallet • Opportunities to cross sell • Loyal customers are less price sensitive, less likely to be lured away © Paul Haiselden 2010 Acquisition Costs Acquisition costs are those incurred by the business in the gaining of a new customer: These Include: • Advertising, Promotions, Introductory/Special Offers, Gifts etc • These acquisition costs can be very high... © Paul Haiselden 2010 Acquisition Costs Examples of Advertising Costs: 24hr banner on Yahoo.co.uk £100-250k Sunday Times full page (B&W) £56,150 Carlton 30s weekday peak time slot £30,500 TV Times full page (colour) £18,500 Virgin Radio (AM/National) 30s slot, Thursday (1600hrs - 1900) £850 BRMB (Birmingham Radio) 30s slot, weekday peak time £200 Lancaster Regal Cinema 30s slot (each day, one week) £192 (UK Advertising Association and Business Week, 2006) Acquisition Costs © Paul Haiselden 2010 Acquisition Costs • Acquisition costs depend on price of product, potential profits and strategy of organisation These acquisition costs need to be recovered and reduced over time for profitability How? • Switching costs….positive and negative • Word of mouth • Brand recognition • Linked to these LOYALTY… trying to develop ongoing relationships with customers © Paul Haiselden 2010 Loyalty: The Reality... In many industries acquisition costs are high and customer loyalty is generally seen as low or worsening Reasons: • Competitive pressure has led organisations to focus on customer acquisition not on retention • Increasing levels of churn • Impact of comparison sites/aggregators and general awareness of price/product information (reduced search costs) Example: • In UK 20% of credit card customers are serial switchers…. continuously move balances to 0% cards © Paul Haiselden 2010 Comparison Sites...The Challenge to Loyalty • Imperfect competition: Why can some firms charge more for a commodity service? e.g. utilities, financial services etc Reasons why customers stay put: Negative factors Information overload Lack of knowledge Confusion/Laziness Apathy Fear of change/Time Contractual factors Switching costs (e.g. penalties) Positive factors Effective service Brand Loyalty? • The above allows differentiated and premium prices to be charged for a commodity good/service © Paul Haiselden 2010 Comparison Sites...The Challenge to Loyalty Reasons why customers stay put: Negative factors Information overload Lack of knowledge Confusion/Laziness Apathy Fear of change/Time Contractual factors Switching costs (e.g. penalties) Positive factors Effective service Brand Loyalty? Double Edged Sword: (Revision from last week) • Retailers desire long-term relationships with consumers, however Comparison Sites promote switching (encourage 'churn')... • Reduction of Information Asymmetry, price is there for all to see with the potential of competitive pressure driving prices down © Paul Haiselden 2010 E-Loyalty? • With ‘a competitor..a click away’ within the world of the Internet we would expect loyalty to be even worse • However...Reichheld and Schefter (2000) found that most on-line customers exhibit a clear proclivity towards loyalty • Other studies have supported this. e.g Mercer • Non price factors were seen as more important such as convenience, delivery and TRUST • Reichheld and Schefter (2000) show when trust is established the customer is more likely to share personal information with the seller, and as such a detailed customer orientated offering can be tailored to suit their needs...CRM © Paul Haiselden 2010 The unrecognised loyalty of on-line customers %of on-line customers shopping with competitors Relative Utility for shoppers 90 In their stores Price In their catalogues Delivery On-line Payment 100 80 70 75 55 7 14 Source: Mercer Management Consulting (2001) 21% 50 On-line Off-line 100% CRM and Data Mining • Customer Relationship Management - Creating and maintaining strong relationships with profitable customers • Crucially, for CRM need to able to identify customers through Data Mining • Takes a long term view of the customer relationship building data which can be attributed to different profile patterns • Offers specifically tailored communications and promotions • e.g. Amazon collaborative filtering (e.g. Customers with similar searches purchased...) © Paul Haiselden 2010 CRM: Data Personal and profile data • Contact details • Preferences • Page (route) tracking Transaction data • Sales history Communications data • Campaign history • Research / Feedback / Support queries • Contact reports (B2B) © Paul Haiselden 2010 Permission Marketing via E-mail Key concepts: • Not SPAM • Requires opt-in & Can Opt-out • Learning about the customer • Initial and continued relationship is based on relevancy Central tension: CRM and loyalty programmes require the customer to give up some privacy in exchange for better service © Paul Haiselden 2010 Tailored Offerings Websites can be personalised and customer specific e.g. Tesco ClubCard customers can view shopping basket online; Amazon 'Your Page' recommendations based upon search/purchase data For content: • Automated login, customised options and pages For price • Differential pricing….charge different prices for the same product, accepted practice in travel/insurance • But...Amazon in 2000 experimented with differential pricing...public outcry...! • Industry Dependant © Paul Haiselden 2010 e-CRM Lee-Kelley et al (2003:241) “...refers to the marketing activities, tools and techniques, delivered over the Internet (using technologies such as websites and e-mail, data-capture, warehousing and mining) with a specific aim to locate, build and improve long-term customer relationships to enhance their individual potential.” © Paul Haiselden 2010 Service Quality and Loyalty Service element of transaction process (see 'Click Chain' slide 2) Beware the technology solution: • Goods suppliers rely on efficient delivery • Service – delivering what is offered is the crucial element • Companies are no longer “...shielded..from the penalties of providing anything less than the best product and service quality” (Reichheld and Schefter (2000:113)). © Paul Haiselden 2010 An Example: • Founded in 1994; Online 'pure play' book store offering larger choice than 'bricks and mortar' competitors as not constrained by premises size • Listed on Nasdaq stock exchange in 1997 • Finally reached profitability in last quarter of 2001: $5m on revenues of over $1bn • Why is this important? • These losses were whilst Amazon rapidly expanded its customer base through the acquisition of new customers, i.e. during this period the losses incurred through acquisition outweighed the profits secured from 'early joiners' © Paul Haiselden 2010 An Example: However... • Despite not turning a profit for over 6 years Amazon experienced sales turnovers of nearly $3bn pa • During this time it was developing and growing a loyal customer base of returning customers • Ensuring long term profitability © Paul Haiselden 2010 Summary We have considered: • The importance of loyalty • Concepts of loyalty to the e-commerce environment • The solution of CRM: what it is, components and the one-to-one dream (tailored offerings) © Paul Haiselden 2010 Further References Heskett, J. Jones, T. Loveman, G. Earl Sasser Jnr, W. Schlesinger, L. (2008) 'Putting the Service Profit Chain to Work'. Harvard Business Review, July – August 2008 Lee-Kelley, L. Gilbert, D. Mannicom, R. (2003) ‘How e-CRM Can Enhance Customer Loyalty’ Marketing Intelligence and Planning, Vol. 24 No. 4. pp.239-248 Laffey (2009) 'The Click Chain' British Academy of Management Conference 2009 Submission, 2009 Reichheld, F Schefter, P (2000) 'E Loyalty: Your Secret Weapon on the Web'. Harvard Business Review, July – August 2000 Rigby, D. Bavega, S. Rastoi, S. Zook, C. Hancock, S. (2000) 'The value of customer loyalty and how you can capture it' Bain & Company/Mainspring Whitepaper, 17 March. Published at www.mainspring.com © Paul Haiselden 2010