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Customer Relationship Management
Chapter 1
Introduction to Customer Relationship
Management
Thomson Publishing 2007 All Rights Reserved
OLD VS. NEW MARKETING
• OLD MARKETING
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Transaction oriented
Market share oriented
All customers are equal
Marketers sell
4P marketing
Mass marketing
Sell to the customer
Focus on new customers
Offensive
Broadcast oriented
Transaction profit
• NEW MARKETING
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Relationship oriented
Share of wallet oriented
All customers are not equal
Marketers manage demand
Relationship marketing
Individual marketing
Manage customer experience
Focus on existing customers
Defensive
Dialogue oriented
Customer lifetime value
Five Different Orientations Toward CRM
1.
CRM is software, system, technology.
2.
CRM is data storage and analysis.
3.
CRM is a change in corporate culture from a
transaction focus to a customer centric one.
4.
CRM is “managing demand.”
5.
CRM is a strategy cycle focusing
on customers.
A CRM System Contains Four
Components
• Data warehouse
• Analytical tools
• Campaign management tools
• Interfaces to maintain databases
CRM System Failure
When CRM systems fail, it tends to be as a result of
cultural as opposed to technological issues.
The Market Share Fallacy
Increasing market share should not be a company’s
goal. Rather, increasing share of the right kinds of
customers should be the goal.
CRM is Founded on Four Tenets
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Customers should be managed as important assets.
Not all customers are equally desirable.
Customers vary in their needs, preferences, and buying
behavior.
By better understanding their customers, companies can
tailor their offerings to maximize their overall value.
THE CRM ADVANTAGE
Better
Customer
Knowledge
Increases
Market
Share
Creates Up
and Cross-Selling
Opportunities
Quicker Cash Flow
Increased
Product
Acceptance
Definition
“Customer Relationship Management is the initiation,
enhancement, and maintenance of mutually beneficial
customer and partner long-term relationships through
business intelligence-generated strategies based on the
capture, storing, and analysis of information gathered
from all customer and partner touch points and
transaction processing systems.”
Baran, Galka, Strunk
Do You Want To Keep These Customers?
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Do not buy frequently
Buy your products only when they are on sale
Frequently return your merchandise
Complain a lot
Recommend your company to others just like them
Offensive vs. Defensive Marketing
• OM refers to increasing your customer
base.
• DM refers to activities aimed at existing
customers.
– Defensive marketing has become more
profitable. “Mass and Blast” is being replaced
by 1:1.
Why CRM Systems are Being Used
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Identifying prospects
Acquiring customers
Developing customers
Cross-selling and up-selling
Managing migration
Servicing
Retaining
Increasing loyalty
Winning back defectors
Four Basic Steps in CRM
1. ID your customers in detail.
2. Differentiate the most and least
profitable.
3. Interact.
4. Customize your offerings to fit each
customer’s needs.
CRM Systems
• Allow companies to ID and focus on their high-profit
customers while enabling companies to transform
low-value customers into higher-value ones.
Retail Banks Have Realized the Following
Benefits from CRM Benefits
• Increase in average products sold per customer over
one year from 4.6 to 6.2
• 3-5 percent decrease in administrative costs
• 200 percent return on technology investment through
cost reduction over one year
• 96 percent reduction in average time for a CCC agent
to refer a customer to a branch loan office
• 83 percent decrease in average customer info retrieval
time
• 15 percent increase in product revenue in one year
CRM Benefits
• Benefits Realized in Retail Banking
– Increase in average products sold per
customer over one year from 4.6 to 6.2
– 3-5 percent decrease in administrative
costs
– 200 percent return on technology
investment through cost reduction over
one year
– 96 percent reduction in average time for a
CCC agent to refer a customer to a branch
loan office
– 83 percent decrease in average customer
info retrieval time
– 15 percent increase in product revenue in
one year
A Customer Focus Can Aid Retention
• Annual Defection Rates
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Newspaper subscriptions
Residential tree and lawn care
U.S. long distance telephone
Clothing catalogues
Internet service providers
Griffen and Lowenstein 2001
66 percent
32 percent
30 percent
25 percent
22 percent
Customer Retention and Profits
• Increase retention 5 percent and improve
profitability in net present value from 20-85
percent.
• It costs five to ten times more to obtain a new
customer than it does to keep an existing one.
The Objectives of CRM
• ID potential customers
• Understand needs
• Differentiate dollars and
cents
• Decrease attrition
• Increase usage
• Increase cross usage
• Increase usage of more
prestigious items
• Increase satisfaction
• Integrate marketing and
sales throughout channels
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Improve campaign management
Increase referrals
Win back lost customers
Move customers up relationship
hierarchy
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Strangers
Acquaintances
Friends
Partners
Multichannel Marketing
• Over half of all customers in certain industries
(apparel and banking) are using multiple channels
for shopping and purchasing: store, telephone,
ATM/Kiosk, catalogue, online, etc.
• Multiple channel users have two to four times more
to spend. In retail banking they are 25-50 percent
more profitable.
Customers Transact Business through the
Following Channels
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Web application
Free form e-mail
Telephone with a live agent
Internet VOIP through a live agent
Text chat with a live agent
Telephone through an interactive VRS
Fax
ATM/Kiosk
Entering the store or branch
Which Companies Benefit Most from
CRM?
• Companies serving large numbers of customers
through complex and frequent interactions:
– Communications companies
– Retail banks
– Insurance companies
– Healthcare organizations
– Utilities
• Companies with a steep skew
• Companies in “lost for good” markets
Which Companies Benefit the Least from
CRM Today?
• Companies that engage in minimal
interactions with each customer
– Auto dealers
– Government agencies
• Companies with simple transactions
Movie theaters
Retail stores
Questions?