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Customer RelationshipManagement (CRM)

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10-1

The Shift from Transaction-Based Marketing

to Relationship Marketing

Transaction-based marketing Buyer and Seller exchanges characterized by limited communications and

little or no ongoing relationship between the parties

Relationship marketing Development and maintenance of long-term, cost-effective relationships

with individual customers, suppliers, employees, and other partners formutual benefit.

Customer relationship management The combination of strategies and tools that drive relationship

programs, re-orientating the entire organization to a concentratedfocus on satisfying customers

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10-2

Comparing Transaction-Based Marketing andRelationship Marketing Strategies

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What is CRM?

CRM is a business strategy that aims to understand,anticipate and manage the needs of an organisationscurrent and potential customers (1).

It is a comprehensive approach which providesseamless integration of every area of business thattouches the customer- namely marketing, sales,customer services and field support through theintegration ofpeople, process and technology (1)

CRM is a shift from traditional marketing as it focuseson the retention of customers in addition to theacquisition of new customers (2)

The expression Customer Relationship Management(CRM) is becoming standard terminology, replacingwhat is widely perceived to be a misleadingly narrowterm, relationship marketing (RM) (3).

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Definition of CRM

CRM is concerned with the creation,development and enhancementof individualisedcustomer relationships with carefullytargetedcustomers and customer groups resulting in

maximizing their total customer life-time value(2).

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What is CRM?

CRM is a long term, customer-centric businessstrategy whose goal is to maximize profitability

through customer loyalty

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Strategically significant customers

Customer relationship management focuseson strategically significantmarkets. Not allcustomers are equally important (3).

Therefore, relationships should be built withcustomers that are likely to provide value forservices

Building relationships with customers that will

provide little value could result in a loss oftime, staff and financial resources

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10-7

Figure 10.1 Forms of Buyer-

Seller

Interactions on aContinuum fromConflict toCooperation

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Three Levels of Relationship Marketing

Transaction selling: customers are sold to and notcontacted again

Relationship selling: the seller contacts customersafter the purchase to determine if they are satisfiedand have future needs

Partnering: the seller works continually to improveits customers operations, sales, and profits

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Underlying principles of CRM:CRM may be understood by looking at the ideas of product andcustomer-centricity

these refer to an organizations tendency to concentrate its activitieson product or customer

The characteristics of product and customer-centricity include:the two are mutually exclusive

an organization may be somewhere between the two

discrete activities between the two may be defined

there is a natural evolution from product to customer- centricity hence the idea of "maturity"

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Mission

Competition

Environment

OrganizationIncrease

customer

profitability

Reduce

cost,

cycle time

Product-centric

strategies

Customer-centric

strategies

Product and customer strategies

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Increase customer profitabilitye.g.,

bundling

cross-selling, up-selling

maximizing high-value /low-cost customers

Retain customerse.g.,

listening

adaptability

new products

customer service

loyalty program

The strategies of CRM

Acquire new customerse.g.,

differentiation

innovation

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Attracting and

Retaining Customers Attracting

Customers Computing the Cost

of Lost Customers

Customer churn

Lifetime value

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Attracting and Retaining Customers

The Need for Customer Retention

Measuring CustomerLifetime Value (CLV)

Customer Relationship Management(CRM): The Key Customer equity

Three drivers of customer equity Value equity

Brand equity

Relationship equity

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3-14

Figure 3-5:The

Customer-

Developme

nt Process

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Attracting and Retaining Customers

Forming Strong Customer Bonds: The

Basics Cross-departmental participation

Integrate the Voice of the Customer intoall business decisions

Create superior offering for the targetmarket

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Organize and make accessible a database ofcustomer information

Make it easy for customers to reach theappropriate personnel

Reward outstanding employees

Adding Financial Benefits Frequency programs (FPs)

Attracting and Retaining Customers

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3-17

Attracting and Retaining Customers

Adding Structural Ties

Create long-term contracts

Charge lower price to highvolume customers

Turn product into

long-term service

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3-18

Figure 3-7: Customer-Product Profitability Analysis

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Classification of

Customer Loyal Segments

Strangers short-term-low profit customers

Butterflies high-profit potential but tend to be

short-term and disloyal Barnaclesstay around for the long-term but

generate relatively low profits

True Friendsare both highly profitable and arelong-term customers

(Reinartz, W. and Kumar, V., 2002)

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Exhibit 2-9: Dependence Increases

as Relationships become More

ImportantHigh

Low

Re

lationships

HighLow Dependence

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Partnering, cont

Components of partnering include:

Individual excellence

Importance

Interdependence

Investment

Information

Integration

Institutionalization

Integrity

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Exhibit Partnering contd..

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Evolving business processes to customer centricityCUSTOMER-CENTRIC

PRODU

CT-CENTRIC

Customer-centric

business

functions

Customer

value

creation

Customer

knowledge

management

Performproduct-centric

business

functions

Deliverproduct or

service

Select

markets

VARIATIONS

BY

FEATURE

VARIATIONS

BY

CUSTOMER

SEGMENT

STANDARD

FULLY

PRODUCT

FOCUSED

FULLY

CUSTOMER

FOCUSED

LARGELY

PRODUCT

FOCUSED

LARGELY

CUSTOMER

FOCUSED

ESTABLISH

HIGH VALUE

CUSTOMERS

MASS

MARKET

MARKET

OF

ONECUSTOMER

NICHEPRODUCT

VERSIONS

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Evaluating Customer Relationship Programs

Lifetime value ofcustomer: the revenuesand intangible benefits

that a customer brings tothe seller over anaverage lifetime, less theamount of money which

must be spent toacquire, market to, andservice the customer

Structuring

Relationships

Measure-

ment &

Evaluation

Assessing

Costs &

Benefits

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Additional techniques used to evaluaterelationship programs include:

Tracking rebate requests, couponredemptions, credit-card purchases, andproduct registrations

Monitoring complaints and returnedproducts and analyzing why customers leave

Reviewingreply cards, common forms, andsurveys

Monitoring "click-through" behavior onWebsites to identify why they stay or leave