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University of Washington MBA Program ‘06 Managing Customer Relationships through Direct Marketing “Relationship Marketing & CRM Intro ” Instructor: Elizabeth Stearns Many choices The answer ? The Customer: Definition Not just the end user!! Firm Manufacturer or Distributor Dealer or Retailer End User/Purchaser Consumer Customer: Any person or organization in the chain of distribution and decision whose actions can affect the purchase of your products and services Influencers/Gatekeepers/Spoilers Customer Definition includes the process of identification, understanding their role, and then determining how to reach them. MegaCorp - Decision Makers? - Purchasers? - Influencers of - Policy? - Purchase? - Training? - Referrals? Remember, not all customers are worth the same! Understand Your Customers • • • • • Their Demand for Your Product or Service Their Changes over Time Their Growth Needs Their Technology/Personal Service Conundrum Their Available Choices for Solutions Their Value to You! Determine/Understand the composition of your best customers Characteristic Quantity A B ## A B C ## A C E ## A D E ## X Y Z ## What is Relationship Marketing? How do you define relationship marketing as you understand it? Relationship Marketing • Marketing on the Differences • Marketing with a Memory • Demassifying the Communications Process • Customizing Communications and Products/Services Relationship Marketing • Evolutionary process, not an event • Experience-based, not transaction-based • Mutually beneficial, two way • Emotional and/or logical appeals Relationship Process Measurement On-going Dialogue Database Support Communication Objectives Customer Segmentation Brand Equity / Promise Relationship Marketing • Relationship marketing recognizes that prospects and customers can be at different points of awareness, interest and intent-to-buy along the prospectivity continuum • Persuasion is a process: Dialogue precedes purchase/engagement for most products and services Model of Market Prospectivity Unaware Vague Awareness Category Familiarity Brand Familiarity Passive Consideration Active Interest Purchase Usage Brand Relevance to Customers “To enhance customer loyalty, a company must strengthen the relationship with the brand” “A focus on loyalty segmentation provides strategic and tactical insights that assist in building strong brands” David Aaker, “Building Strong Brands” Customer Loyalty • Reduced or No Desire to Switch • Increased Perception of Value / Quality • Reduced Risk of Buying (More) • Trial New Products or Services Customer Loyalty • Feels Recognized and Special • Volunteers Information • Positive Word of Mouth / Recommends to Others Satisfaction = Performance minus Expectations Make Surveys Count! “One of my customers cornered me at a charity board meeting and told me, “I got a call after I picked up my car asking if I was satisfied with the sales experience. Then I got a call after the car was serviced, asking if I was satisfied with the service experience. Finally, another surveyor called several weeks later to check if I was happy with the ownership experience. So when am I going to get a call asking if I’m satisfied with the satisfaction survey experience?”” Reichheld, The Loyalty Effect Why Relationship Marketing? Economic Value to Keeping Customers 2% Retention equals approximately 10% reduction in costs Why Customers Are More Valuable Over Time Company Profit Price Premium Referrals Reduced Operating Costs Increased Purchases & Higher Balances Base Profit Customer Acquisition Cost Time • Profit Comes from Different Sources Reichheld & Sasser, Jr. Relationship Marketing Can Increase Lifetime Value • Increase the retention rate • • • • Increase the referral rate Increase the spending rate Decrease the direct costs Decrease the marketing costs Continuous revenue relationship marketers have an expanded vocabulary with meanings unique to their world. Retention Churn Defection Active Enrollees Cancel Winback Enrollments Attrition Marketing Allowables Open Lapsed Enrollment Live Add-on Services But do not use common Single Order terms such as: Average Order Size Returns Out-of-stock Sales per thousand contacts Circulation Break-even Source: Kestnbaum There are two distinct ends to the marketing spectrum with only a few relationships in the somewhat gray middle. Single Order(s) Continuous Revenue Low High Recency, Frequency, Monetary Tenure, Revenue, Cross-sell On-going Marketing Decisions Repromote: who, when, what Dialog, reward, winback Promote to expand relationship Revenue Stream Sporadic, but relatively large payment(s) Constant, but relatively small payments Whimper Bang Initial Marketing Investment Key Factors Driving Value How Relationship Ends Source: Kestnbaum “eLoyalty” Thank you!! CRM The CRM Goal Individual Permission – Based Interaction The CRM Process Acquire & Retain Interact & Deliver CRM Develop & Customize Understand & Differentiate Customer Experience Cycle Customer Understanding Customer Experience Cycle Customer Purchase Cycle Customer Understanding •Stages of the Purchase Cycle •Length of each Stage •Related Complexity of Each Stage •Indicators of When a Customer Enters a Stage •Frequency at Which a Customer Repeats the Cycle •Level of Resources Directed at Each Stage Customer Experience Cycle Customer Needs Customer Understanding •Information •Convenience •Efficiency •Price •Reputation etc. Customer Experience Cycle Customer Interaction Opportunities Customer Understanding •Tied to specific stages of the purchase cycle. •Inbound and outbound. •Cross-channel and cross-media. •Situation-driven or driven by a deeper understanding of customer needs and behaviors Field Sales Marketing Communications Corporate Comm./ Public Relations Customer Value Customer Satisfaction Point of Sales/ Service Customer Understanding Advertising Call Center Web Customer Care Customer Loyalty “Customer Experience Management” • • • • What is today’s experience? Who is in control of the touchpoints? What is the desired experience in customer terms? How can you make that happen? – Understand the gaps – Understand resources to achieve the desired state The Customer Experience is not just about the sale: Pre -Sale Sale Post -Sale Questions • • • • • When would one buy? Who would buy? Where would one buy? Roles: Influencer, Purchaser, and End user Turn those insights into a Customer Interaction Map Craft a Customer Interaction or Customer Experience map for PFL… Step One: 1)Identify the specific Customer and role-purchaser/end user/influencer Step Two: 2)Consider 2 broad categories: PFL controls and does not control Customer Interaction Map Purchasing Catalyst = Company has direct control EVENT: EVENT: ACTIVITY: ACTIVITY: REALIZATION: REALIZATION: IMPRESSION: REFERRAL: EMOTION: Birthday, Anniversary Holiday Promotion, Interview, New Job Participation in new activity or sport Travel (business or pleasure) Worn out, wrong sized, soiled, or damaged clothes Out-of-date or unfashionable wardrobe Observe idols, peers and others wearing new styles Recommendation by influencer to purchase new clothing Boredom or frustration with current wardrobe (selfconfidence) Pre-Shopping WISH LIST: DISCUSS: PERCEIVE: IMPRESSION: RECEIVE: REQUEST: OBSERVE: RECEIVE: Identify and prioritize needs for particular items With peers, family, and influencers Quality of brands and products, develop preferences First encounter with catalog cover, messages, & models Catalog in a timely manner Addition to catalog mailing list via reply card or 800 number Television and print advertisement Catalog information card or direct marketing Shopping GATHER INFO: Read product descriptions and look at pictures COMPARE: SELECT: ASSESS: CHOOSE: LEARN: CONSIDER: ESTIMATE: ORDER: SERVICE: Products, features, prices Items for purchase, planned or impulse Size and fit. Utilize sizing charts & staff recommendation Appropriate size & desired color or style Ordering procedure, shipping methods, & return policy Product promotions and purchase incentives Shipping costs & delivery dates Fill out & send order form or call 800 number Call center staff recommends related products or promotions Receipt/Gift/Try-On REFLECT: IMPRESSION: EXAMINE: TRY-ON: THANK: Expectations, Performance, Satisfaction In accordance with desired appearance ( by self & others) Fabric, features, overall quality Assess fit, style & comfort Express appreciation for gift OPEN GIFT: Immediate reaction to product GIFT: INSPECT: REVIEW: OPEN: RECEIVE: Wrap and give gift (already wrapped?) Right product, right size, right color Packing list, return form & print insert offers Package remove contents Package from carrier at home Use Experience DECIDE: COMPLAINT: RETURN: ALTERATIONS: STORAGE: WEAR: OBSERVE: DEVELOP: MAINTAIN: Keep or return product Contact customer service about problems with order or product Product if not satisfied, possibly “re-gift” Hem cuffs or otherwise modify the item Place item in a location, reflecting anticipated use Develop usage pattern,/ frequency Other people’s reactions to wearing the item Preference based on comfort, confidence & versatility Keep item clean and in good condition Long-Term Perceptions EXPERIENCE: RELATIONSHIP: REFERRAL: LOYALTY: INTENTIONS : COMPANY: Overall impression of the transaction Continued desire to receive catalog in future (actually read it not trash) Recommend company or products to peers Develop a preference for channel & brands Purchase again in future: similar items & different Convenience, customer service & value PRODUCT: Quality, durability & brand perception = identify direct control or indicate whose control CATALYST EVENT: EVENT: EMOTIONAL: NEED: REALISATION: REWARD: PRE-SHOPPING DISCUSS: REFERRAL: OBSERVE: RECEIVE: RESEARCH: WISH LIST: SHOPPING CHANNEL SELECT: COMPARE: IMPULSE PURCHASE: ORDER: SERVICE: POST SHOPPING INSPECT: OPEN: REFLECT: RECEIVE: GIFT GIVING DELIVERY OF GIFT: IMPRESSION: THANKS: STORAGE: SAFETY: CLEANLINESS OBSERVE / FEEDBACK: ONGOING USAGE / PERCEPTION DISPOSAL: PERCEPTIONS: LOYALTY: COMPLAINT: EXPERIENCE: PRODUCT: CRM Implementation 1. Situation Assessment – Internal evaluation of your capabilities – External evaluation of the customer’s experience with your org. 2. CRM Gap Analysis – Comparison between an organization's current state and the desired state. It is essential to define the desired customer experience. 3. CRM Action Plan – – – – Cost to implement Benefit Feasibility (organizational readiness, senior management acceptance, etc.) Time CRM Transformation Map Business Focus Products Sales Channels Marketing Services Customers Promotion Management Channel Management Contact Management Customer Management Program Performance Customer Revenues Customer Satisfaction Customer Lifetime Value and Loyalty Targeted Campaigns Segment-Specific Communication Customer-Contact Integration Individual Permission-Based Interaction Data Access Data Warehouse Data Marts Customer Touchpoint Systems Organizational Structure Product Management Place Management Business Metrics Product Performance Place Performance Customer Interaction Mass Transaction Opportunistic Promotion Technology Transaction Processing Data Maintenance The Strategy Development and Implementation Process Contention Differing Perspectives Consensus Marketing Finance Human Resources R&D Operations Sales Project Planning Execution Strategy Formulation Program Formulation Creativity Coordination Designing Offers for Customers Product Delivery Technical Innovation Services Sales Relationship Brand Equity Value Price Time Effort Risk Cost Offer A Business Focus on Customers Means: • The organization's primary focus is on acquiring, deepening, and retaining customer relationships. • The business model is based on optimizing value delivered to customers to maximize value received from them. • Customers are at the core of the organization's value system, and the unifying force across business units and functions. Business Focus Products Sales Channels Marketing Services Customers Organizing around CRM • Appoint segment managers, each responsible for acquisition, development, and retention of their customer segment. • Create a cross-functional Customer Relationship department, which will ensure that CRM strategies are successfully implemented across the organization • Implement staff training, performance measurement and compensation based on CRM Organizational Structure Product Management Place Management Promotion Management Channel Management Contact Management Customer Management Customer Metrics • Customer Revenues – Who are the top customers in terms of revenue? – Are revenues from any customer segment increasing or decreasing? • Customer Satisfaction – For which customer segments has satisfaction increased or decreased? – How do satisfied customers differ from dissatisfied customers? • Customer Loyalty and Value – How can we increase customer profitability? – What drives loyalty for our most profitable customers? How can we increase customer loyal – Which prospects should our organization focus on in order to “clone” our best customers? Business Metrics Product Performance Place Performance Program Performance Customer Revenues Customer Satisfaction Customer Lifetime Value and Loyalty Developing Customer-Focused Metrics and Analyses • Collect the Right Customer Data • Increase Your Customer I.Q. – Customer Profiling – Customer Segmentation – Customer Valuation • Profitability • Lifetime Value • Share of Wallet – Customer Lifecycle – Customer Attitudes – Customer Changes • Create and Track a Customer Scorecard Two Kinds of Database People • Constructors People who build databases Merge/Purge, Hardware, Software • Creators People who understand strategy Build loyalty and repeat sales • You need both kinds! Right Side Quality First Customer Focus Customer First Service Quality Customer Satisfaction CEO’s Brain Left Side Costs Revenues Market Share Budgets Incentives Compensation Strategic Plans Profits Market Value A CRM System is: • Any application that supports the collection, cleansing, and maintenance of, and/or access to, customer information, and that provides this information to appropriate entities in support of CRM applications. Including… • Customer databases • Marketing applications • Data mining applications • Sales force automation systems • Customer care applications • Online applications Technology Transaction Processing Data Maintenance Data Access Data Maintenance Data Marts Customer Touchpoint Systems CRM Systems Issues • It is important to develop a customer information plan, including: – Where and how to efficiently collect customer data – How to transform data into meaningful, practical information – How to distribute customer information throughout the organization • Build a business case for your system • Determine whether your system should be in-house or outsourced, based on: – – – – Solution scope Core competencies Time horizons IT resources CRM Systems Issues • Monitor the quality of your data, including: – – – – Data coverage Data accuracy Data precision Data relevance • Make the data accessible to people who can put it to use • Gain the acceptance of employees who will be using the system Aspects of Measuring CRM Success: • Internal CRM Capabilities • Customer Interactions – Create a customer interaction scorecard • Customer Dynamics – – – – Customer acquisition Customer growth & development (cross-sell, upsell) Customer retention Customer reactivation • Operational Efficiencies • Bottom-Line Business Metrics – Increased revenues – Decreased costs – Increased competitive differentiation Think like a Customer: 10 rules for Building Customer Relationships 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. The “average customer” does not exist – get to know us Make our experience special: Give us something to talk about. If something is wrong, fix it quickly. Guarantee our satisfaction. Trust us, and we’ll trust you. (respect) Don’t take us for granted. Our time is as important as your time. The details are important to us – they should be to you, too Employ people who are ready, willing, and able to serve us We care whether you’re a responsible corporate citizen. Thank you!