CUSTOMER RELATIONSHIP MANAGEMENT EXAM

Link Between CRM and Customer Value

-Customer Value: The economic value of the customer relationship to the firm – expressed
on the basis of contribution margin or net profit.
-CRM is the practice of analyzing and utilizing marketing databases and leveraging
communication technologies to determine corporate practices and methods that will
maximize the lifetime value of each individual customer to the firm

Conceptualizations of CRM
>Functional level: focuses on technology
- Developing sales force automation in the sales function
- Developing campaign management in the marketing function
>Customer facing front-end level: focuses on total customer experience
- Building a single-view of customers across contact channels
- Distributing customer intelligence to all customer-facing functions
>Strategy level: focuses on customer satisfaction
- Freeing CRM from technological underpinnings
- Describing CRM as a process to implement customer centricity in the market and to
build shareholder value
- Understanding that knowledge about customers affects the entire organization
Within this context CRM will be defined from a business strategy perspective

Definition
CRM is the strategic process of selecting customers that a firm can most profitably serve
and shaping interactions between a company and these customers. The ultimate goal is to
optimize the current and future value of customers for the company.

Key Components of CRM from a Business Strategy Perspective

▪ Strategic process
>Activities are initiated from the top of the organization
>CRM activities span multiple organizational functions
>Continuous efforts towards a customer-centric organization
▪ Selection
>Resource allocation is based on the economic value of customers
▪ Interactions
>Exchange of information and goods between customers and companies evolve as a
function of past exchanges
▪ Customers
>Including end-users and intermediaries such as distributors and retailers
>Greater fine-tuning of segmentation strategies to eventually target individual customers
with customized product offerings
▪ Optimizing the current and future value of customers
>Maximizing customer equity by maximizing profits over a series of transaction
Changes with respect to Consumers
Demographic changes and increasing consumer diversity
▪ Aging populations, especially in developed countries
▪ Increasing diversity in term of ethnicity
▪ Increasing individualization
Behavioral changes
▪ Time scarcity
▪ Value consciousness and intolerance for low service levels
▪ Information availability and technological aptitude
▪ Decreased loyalty
▪ Rise of convenience and self-service
▪ Increased usage of social media

Evolution and Growth of CRM

First generation – functional level:
- CRM developed as two independent product offerings
- Sales force automation (SFA) addressing pre sales functions
- Customer service and support (CSS) addressing aftersales function

Second generation – customer facing front- end level

- Attempt to integrate different independent subsystems
- Increasing disillusionment with CRM technology

Third generation – strategic level

- CRM O organizations learned from experience
- Integration of front-end customers with back-end systems
- Integration of Internet technology helped to boost CRM

Fourth generation – agile and flexible strategic CRM

- Agile, flexibility and low costs are key
- Customer empowerment becomes a bigger topic

Satisfaction-Loyalty-Profit Chain
Increased customer satisfaction will lead to greater customer retention, which is often used
as a proxy for customer loyalty, which then is expected to lead to greater profitability.

Direct Link between Customer Satisfaction and Profits

-Direct link suggests, that as customers experience greater satisfaction with a firm’s offering,
profits rise
-Positive correlation between customer satisfaction and ROA
-Improving customer satisfaction comes at a cost and once the cost of enhancing
satisfaction is factored in, offering “excessive satisfaction” doesn’t pay
-Marginal gains in satisfaction decrease, while the marginal expenses to achieve the growth
in satisfaction increase
-There is an optimum satisfaction level for any firm, beyond which increasing satisfaction
does not pay

Link between Satisfaction and Retention

-Link between satisfaction and retention is asymmetric: Dissatisfaction has a greater impact
on retention than satisfaction
-Even if the level of satisfaction is high, retention is not guaranteed If customers are
dissatisfied, other products become more enticing
-The link is nonlinear in that the impact of satisfaction on retention is greater at the extremes
-The flat part of the curve in the middle has also been called the “zone of indifference”
-Factors like the aggressiveness of competition, degree of switching cost, and the level of
perceived risk influence the shape of the curve and the position of the elbows

Link between Loyalty and Profits

-Reichheld hypotheses:
● Long term customers spend more per period over time
● Cost less to serve per period over time
● Have greater propensity to generate word-of-mouth
● Pay a premium price when compared to that paid by short-term customers
-Does not hold true in a non-contractual relationship
● Revenue stream must be balanced by the cost of constantly sustaining the
relationship and by fending off competitive attacks
● Efforts at increasing customer satisfaction and retention not only consume a firm’s
resources but are subject to diminishing returns

Lifetime Duration-Profitability Association

- Reinartz and Kumar: Across the different firms,
- There is a segment of customers that is loyal but not very profitable (due to excessive
resource allocation)
- There is a segment that generates very high profits although it has only a short tenure
- Since these short-term customers can be very profitable, it is clear that loyalty is not the
only path to profitability

Components of CRM Strategy

1. Customer Management Orientation
▪ Defined as the set of organizational values, beliefs, and strategic actions that enable the
implementation of customer management principles
▪ Characterized by a top management belief and commitment that the customer is at the
center of activity
▪ Recognizes that customers are heterogeneous in needs and value to the firm and reflects a
readiness to treat different customers differently
▪ Considers the fact that a longer-term view of revenues from customers needs to be taken
into account

2. Integration and Alignment of Organizational Processes

▪ Comprises organization wide creation and synchronization of processes and systems
enabling the implementation of customer management principles
▪ Firmly incorporates needs of the customer and goals of the firm into product and service
delivery
▪ Strategic CRM works best for organizations that are organized around cross-functional
processes rather than functional silos
▪ Characterized by an understanding that value provided to target customers should be what
drives all processes
▪ Individual processes work in sync with common goal of attracting and retaining target
customers
▪ Customer management compatible incentives drive employee and organizational goals
simultaneously
▪ Processes are designed in such a manner that they automate a feedback
3. Information Capture and Alignment of Technology
▪ Comprises all necessary technology and processes to collect, store, and process relevant
and timely customer information
▪ Characterized by the capability of leveraging data to actionable information
▪ Makes customer management processes not only more efficient but also more effective
▪ Helps to create entirely new processes and channels based on online and mobile
applications
▪ Firms that are able to generate intelligence and act on it will derive a competitive
advantage
4. CRM Implementation Matrix
Each cell in the matrix corresponds to a specific implementation activity or process
Customer dimension: captures influences of changing phase of a customer-firm relationship
Management dimension: constitutes analytical and operational aspects of CRM

Characteristics of Marketing-Driven CRM Implementation

▪ Activities and processes that constitute analytical CRM
▪ Activities and processes that constitute operational CRM
▪ A firm’s ability to understand the value of the customer to the firm and the variety of needs
different customers have
▪ An acquisition and retention process that continuously aligns the offering with customer
needs and values
▪ An ability to continuously improve what the company offers by learning about its customers

Steps in developing a CRM Strategy (4):

1. Gain Enterprise-wide Commitment
(Budget allocation for the solution + Top down management commitment + Bottom-up buy-in
from system users + Top down management commitment + Dedicated full-time project team)
2. Build A CRM Project Team Obtain active representation from:
▪Management - Provide leadership, motivation and supervision
▪Information services/ technical personnel – Ensure that CRM system is compatible with
existing software applications
▪Sales, marketing and services groups - Evaluate usability of CRM system based on
effectiveness, efficiency and satisfaction
▪Financial staff - Provide critical analysis for assessment of increased sales productivity,
evaluation of operating costs, estimated cost of system expansion and ROI projections
▪External CRM expert - Provide a valuable source of objective information and feedback
3. Analysis of Business Requirements
Gathering information to:
1. Identify the services and products that are being supported
2. Map current workflows, interfaces, and inter-dependencies
3. Review existing technologies, features and capabilities
4. Discuss the vision for the business and the operational plan
5. Define business requirements
6. Develop enhanced business workflows and processes
7. Identify gaps in technology functionality
8. Map functionality to business processes
9. Develop a new technology and functionality framework
10. Develop a conceptual design and prototype plan
4. Define the CRM Strategy. Characteristics of a defined CRM strategy:
-Value Proposition
e-Business Case
-Customer Strategy
-Enterprise Transformation Plan
-Other Stakeholders

Customer Strategy
▪ Defines how the company will build and manage a portfolio of customers
▪ Covers:
Customer understanding > Customers benchmark expectations against past experience and
best-in-class standards
Customer competitive context > Awareness of competitor’s services and how to increase
customer share
Customer affiliation > Primary factor affecting ability to both retain and extract greater value
from customer through cross sell and up-sell efforts
Customer management competencies > Providing customized offers including customized
products, services, communication, prices, etc

Relationship Management of Other Stakeholder

Practice of Strategic CRM: Partner, Environment, Competitors, Product, Management,
Employees, Customer.

Traditional and Customer Based Marketing Metrics

Market share (MS)

Market share only looks at the sales of a firm in total, it's not a good indicator for individual
relationships. Measured in percentage. Market Share is a share relative to the sales of all
firms →Important information and evaluation (It's not worthy for CRM).
Sales growth
Compares changes in sales volume or sales value in a given period to sales volume or value
in the previous period. Measured in percentage. Indicator of the degree of improvement in
sales performance between two or more time periods. You can get all the information
internally. It's used as a quick indicator of the current health of a company. Problem, you
don’t have information on changes on customer size (Not a good indicator for CRM either).

Acquisition Rate
First purchase or purchasing in the first predefined period. Acquisition rate is always a (%)
Number of people that buy is divided by the customer target.
▪ Important metric
▪ Gives a first indication of the success of a marketing campaign
▪ But cannot be considered in isolation(you need to look at the acquisition cost).

Acquisition Cost
▪ Measured in monetary terms
▪ Acquisition cost ($) = Acquisition spending ($) / Number of prospects acquired
▪ Indication of how expensive it was to acquire new customer and minimum sales you have
to do to with that customer to remain profitable
▪ Difficult to monitor on a customer by customer basis

Retention and Defection Rate

Customer who will remain with the company after a period of time. Ex. You start with 100
and only 50 stay. You have 50% of retention.

Size of Wallet
How much budget available in a certain category - indicator economical
attractiveness.
Critical measure for customer-centric organizations based on the assumption that a large
wallet size indicates more revenues and profits.
Ex: Budget available for groceries, travel, study, etc.
A consumer spends on average $400 on groceries in different supermarkets per
month. Thus his/her size of wallet is $400.

Share of Wallet
Quantity of money of the budget spent one a single company (brand) - indicator and
important measure of customer loyalty.
Ex: How much money you spend in rewe

If you look both together you see the real value of a customer.
Firms can use information about size of wallet and share of wallet together for the optimal
allocation of resources.

Difference between share of Wallet and Market Share

MS is calculated across buyers and non-buyers, whereas SW is calculated only among
actual buyers.

RFM Method
Technique to evaluate customer behavior and value based on three criterias:
Recency: Elapsed time since a customer last placed an order with the company
Frequency: Number of times a customer orders from the company in a certain defined period
Monetary value: Amount that a customer spends on an average transaction

Every customer has 3 codes, one of each to evaluate their value.The higher the RFM score,
the more valuable a customer is. It creates transparency.

Past Customer Value

Calculation of the financial value in the present taking into account the profits and sales in
the past. It is a monetary value. The higher the financial value the more valuable the
customer is. The problem is that the company assumes that a customer will do the same
that did in the past (without taking into consideration whether a customer will be active in the
future and without incorporating the cost of maintaining the customer in the future).

Spending pattern of a customer

Comparing the PCV of a set of customers leads to a prioritization of directing future
marketing efforts.

Lifetime Value Metrics

What would be the value of the customer in the future. LTV is a measure of a single
customer’s worth to the firm (worthy for CRM).
LTV is measured through: Recurring Revenues, Recurring costs, Contribution margin,
Lifetime of a customer, Discount rate, Lifetime Profit and Acquisition cost.

Customer Equity
Indicator of how much the firm is worth at a particular point in time as a result of the firm’s
customer management efforts

Profiling
Looking for so-called look-alikes, potential customers that share the same demographics
and lifestyle. It is based on the assumption that the most profitable customers share
common characteristics. Disadvantage:
-Only customers that are similar to existing ones are considered
-Profitable customer segments that do not match the current customer base might be missed

Loyalty
Two types:
▪ Behavioral loyalty refers to the observed actions that customers demonstrate toward a
particular product or service
▪ Attitudinal loyalty instead refers to the perception and attitudes a customer has toward a
particular product or service
There should be a strong correlation between customers‘ attitudes and behaviors. However,
in some instances customer behavior differs strongly from their attitudinal perceptions about
the product or service.

Loyalty program
▪ A loyalty program (LP) comprises a marketing process that generates rewards for
customers, based on their repeat purchases. LPs offer an important CRM tool that marketers
use to identify, award and retain profitable customers.

Key objectives of introducing LPs:

1. Building true (attitudinal and behavioral) loyalty:
▪ Enforcing loyalty by enticing customers with rewards and bonuses is unlikely to create true
loyalty
▪ True loyalty is a function of the value provided to customers, comprising various factors
For example:
 - Degree of involvement in the product category
- Visibility of product usage
- Value expressive nature of the product
Some products are not able to create true loyalty (for example, toilet paper)
2. Efficiency profits
-Efficiency profits result from a change in the customer‘s buying behavior induced by the LP
-Change of behavior can be measured in several ways: Basket size, Purchase frequency,
acceleration, Price sensitivity, Share of category requirements (SCR) or share of wallet,
Retention and Lifetime duration.
-Criticism: 1) For a customer to engage in an LP, the overall utility of being in the LP must be
higher than the utility of not being in an LP. The cost for the firm to entice the customer to
change behavior accordingly may be higher than it would be without the LP 2) The customer
segment most likely to join the LP consists of those who are truly loyal anyway, so their
business is already likely. In this case, the question arises about whether LPs actually
change buying behavior.

3. Effectiveness profits (what you should do in a LP to be effective):

-Derive Knowledge
▪ Gather information about behavior and preferences of individuals
-Improve Knowledge
▪ This process of learning allows the firm to improve knowledge of customer preferences
through effective product and communication offerings
-Better Offerings
▪ Increasingly better-tailored value proposition offerings to various customer is possible
→Effectiveness profits are likely to generate sustainable competitive advantages and
surrender the highest profits in the long run

4. Value alignment
Aligning (to make equal) the cost to serve a particular customer with the value he/she brings
to the firm. It allows firms to serve their most valuable customers in the best manner. Value
alignment is particularly critical when there is great heterogeneity in the customer’s value
and in the cost to serve the customer.

Design Characteristics of Loyalty Programs

1. Reward structure:
Hard vs. soft rewards
- Hard rewards: .Ex. cash back, price reduction (free coffee, discount in shoes)
- Soft rewards psychological benefit of having special status in addition to receiving
preferred customer service (lufthansa first class lounge to feel good, Joy because of
discount in Alex’s shoes)

Product proposition support (choice of rewards)

- Rewards that directly support the firm’s product proposition. Example: The US bagel
franchise Finagle-A-Bagel has a LP that allows participants to redeem their
accumulated bonus points for the firm’s own products – sandwiches and drinks
- Allows LP members to redeem points for products that are completely unrelated to
the focal firm’s offering. Example: British Petroleum’s LP users may redeem points
 from their gasoline-related purchases for merchandise such as first-aid kits,
photographic films, coffee mugs, and Barbie dolls

Aspirational value of reward:

Consumers prefer hedonic goods as opposed to utilitarian goods when receiving a gift or a
LP reward. Examples: Mercedes Benz’s LP makes it possible to transform points against a
flight in a MIG 29 combat aircraft. Example: Neimann Marcus, the US luxury retail chain,
gives out each year a new list of “wow and cool” rewards. These unique rewards include a
world famous photographer coming to a customer’s home for taking pictures.

Rate of rewards
The amount of points you need to get a prize for ex. The higher the rate of reward less costs
for the company. Always how much bonus points u have to accumulate to get a bonus in
exchange for example Lufthansa. Makes the program less or more interesting

Tiering of rewards
Fix relationships with the same reward per amount spent (if you spend x, a company gives
you x).

Timing of rewards
How long are your rewards valuable. First level Lufthansa after one year all your rewards are
gone if you don’t exchange them.

Rewards based on specific criteria

-Rewards can be design to fit certain parameters, such as the time period, person,
categories/brands and distribution channels
-Two main goals: ▪ Generating additional revenue and increasing sales during weak sales
periods ▪ Offering rewards targeted to a specific group of card holders, such as customers
whose last transaction was long ago to activate „sleeping“ customers
-Some companies tie rewards to specific categories/brands and distribution channels to
boost sales in these areas

2. Participation Requirement:
Voluntary or Automatic Enrollment
-With automatic enrollment, the company deliberately enrolls all of its customers in the LP
without differentiation
-Voluntary programs are more common, consumers can select if they want to join

Automatic or Manual Point Accumulation

-Most loyalty programs automatically record points, once the issued loyalty card is offered at
checkout or the card number is entered in Internet transactions
-Some programs such as “My Coke Rewards” require online consumers to enter a code that
can be found on products
-Although consumers generally prefer automatic point accumulations, for companies, a
manual system can be more cost effective

Open versus Closed Loyalty Programs

-Closed loyalty programs are deliberately restricted to a particular group of customers for
example: Amazon prime because you have to pay to get in or you’re invited.
-Open loyalty programs are accessible to anyone for example: Rewe or most airline
programs

Advantages and disadvantages from open LP→more data but more invaluable customers
and closed LP→ better communication due to small groups

3. Payment function
▪ For some LP providers, it has become common practice to endow loyalty cards with a
payment function to generate purchase statistics at the individual customer level
In the United States approx. 60% of all consumers own rewarded-based credit cards
▪ Retailers offer two types of loyalty cards that include payment functions:
-Open Loop: If the transactions aim to debit the customer’s account and credit the retailer’s
account, the card must involve a banking partner
-Closed Loop: If the transactions do not actually pay for the purchase but rather grant the
retailer access to an existing customer account (e.g., automatic debit transfer systems), no
banking partner has to participate

4. Sponsorship
Single vs. multi-firm LP
-Single: LPs that reflect only transactions with its own customers
-Multi-firm: LP member may also accumulate assets at organizations associated with the
focal firm’s LP (more attractive for the customer and for CRM we have good information on
the clients)

Within sector/across sector

-Supply side dimension of multi-firm LP design-degree of cross sector partners.
-Example for within sector: The STAR Alliance of SAS, Lufthansa, United Airlines, Varig.
-Example for across sector: The LP of AOL and American Airlines, with more than 2000
partners, spans many different industries
Ownership
-For multiform LPs, the ownership dimension characterizes who owns the LP within the
network; whether it is the focal firm, a partner firm or a firm whose sole purpose is to manage
a LP
5. Cost and revenues of LPs
Any evaluation of LPs benefits must consider various sources of both cost and revenues
(costs should be less expensive than revenues).
Different costs:
-Implementation costs (e.g., initial promotions)
-Costs persisting after launch (e.g., maintance of service center)
-Variable expenses (e.g., discounts, rewards)

Campaign Management Stages (4 steps)

1. Planning:
-Strategic process by which decisions are taken.
-Definition of purposes and objectives of the campaign.
2. Development:
-Tactical process of creating the offer, choosing the support and the design, choosing the
media, and selecting the customer names

**Planning and development encompass: Setting objectives & Strategies, Identifying

customer segments, Developing communication strategy, Developing the offer, Campaign
Budget and Testing.

3. Execution:
-Operational process of running the campaign in the media chosen and controlling all related
aspects. It encompasses: Implementation & Coordination and Monitoring & fine-tuning.
4. Analysis:
-Evaluation process of the campaign results in light of the original objectives. Analysis and
control encompass: Measuring campaign results, Response Analysis and Profile Analysis.
Campaign Planning and Development – Campaign Budget
Campaign budget allocates resources and coordinates expenditures across the marketing
activities associated with the campaign
7 common ways to calculate a Campaign Budget:
1. Preset Budgeting: Determine a given year’s marketing expenditure on the basis of what
they spent the year before
2. Budgeting for an Allowable Marketing Cost: Determine the amount that can be spent on
campaign marketing activities, while preserving the required profit margin
3. Budgeting with the Competitive Parity Method: Equating budget allocation with those of
competitors
4. Budgeting with the Objective and Task Method: Determining marketing objectives and the
marketing communications tasks needed to achieve them Calculate costs of marcom tasks,
then set a budget
5. Budgeting with the Percentage of Sales Method:
-Fixed percentage of turnover allocated to marketing communications
-Marketing communication expenditure directly linked to sales level
-To determine the exact percentage that should be allocated, the company looks at
competitor allocations and industry averages
-To define the turnover the company can look at historic sales
6. Budgeting with Key Performance Indicators: Process that allows company to figure out the
cost of a special promotion (Often called front-end analysis)
7. Budgeting with the Lifetime Value Method (LTV): Allows the company to compare returns
on alternative marketing expenditures. Allows comparison of return on expenditure from
obtaining business from existing customers or from new ones
CRM and Marketing Channels
A channel is basically a format for accessing a customer base
- Distribution channels are used to manage the flow of goods and services from the
manufacturer to the end-user
- Contact channels are used to manage the flow of information between any two parties,
using one or more contact modes

CRM and Marketing Channels – Channel Types

CRM and Marketing Channels – Multichannel Trends

1. Proliferation of direct channels

▪ Ubiquitous presence of the Internet and growing number of new electronic channels
▪ Consumers take advantage of great variety of channels to seek information and transact
directly with firm
▪ Firms have direct access to end customer and can track consumers’ purchase behavior
2. Multichannel systems as a norm
▪ Multichannel strategies are increasingly implemented by firms
>Trying to comply with customer preferences and to keep up with competition, firms are
pushed (push effect) towards a multichannel strategy
>A pull effect arises due to a multichannel strategy’s potential for improvements in
customer loyalty, sales growth, and efficiency
3. Multichannel shopper
▪ Growing number of multichannel shoppers, i.e., customers who buy in more than one
channel within a specific period of time
▪ Multichannel shoppers are attractive to firms as they shop more frequently and spend more
money than single-channel shoppers
▪ Customers benefit from shopping from multiple channels as they derive differing benefits
from different channels
4. Research shopper phenomenon
▪ The research shopping phenomenon increasingly emerged with the proliferation of direct
channels
▪ Research shoppers search product information in one channel, but purchase it in another
channel
▪ Customers benefit from research shopping as they derive differing benefits across different
stages of their buying process
▪ Firms face the challenge of loosing the customer in the course of his/ her shopping
process.

CRM and Multichannel Design – Design Attributes

Critical decision factors for the design of a multichannel system:
1. Number of channels:
• Pro: Larger number of channels leads to greater market coverage
• Contra: Risk of intra-brand competition
- Pressure on product price
- Reduction of service outputs
- Damage of brand image
2. Intensity of offered channels :
• Pro: More intensive distribution leads to greater market coverage
• Contra: Risk of intra-brand competition
- Pressure Price
- Reduction Of Service Outputs
- Damage Of Brand Image
3. Types of offered channels:
• Pro: Complementary mix of channels meets more of the customers‘ service output
demands, leading to customer satisfaction
• Contra: Considerable coordination and administration effort

CRM and Multichannel Design – Designing Optimal Offers

Firms need to consider two aspects when designing a multichannel strategy:
1. The combination of channels should maximize synergies and minimize cannibalization
→ Channel synergies: The existence of one channel increases performance in
complementary channels as the two channels complete each other in terms of product and
service provision
→ Channel cannibalization: The existence of one channel decreases performance in
substitutive channels as no additional value is provided to the customer.
2. The channel system should fit the firm’s overall business strategy and environment
(Kabadayi, Eyuboglu, & Thomas, 2007).
→ Business strategy: differentiation strategy, cost-leadership strategy, etc.
→ Environmental conditions: available resources, environmental complexity and dynamism,
etc

CRM and Multichannel Management – Channel Integration

The achievement of customer loyalty is a challenge in a multichannel environment.
Problems:
- Multichannel environment as a norm
- Online price comparison possible
- Customers' search costs decrease
- Competition / price wars increase
- Customers' switching costs decrease
- Customer - retailer loyalty decreases (and hence customer value)

The integration of channel functions helps to enhance customer loyalty.

- The integration of channel functions refers to the combination of service outputs from
various channels. E.g., H&M allows customers to return their online purchases in any
store
- Channel integration allows firm to gain access to more customer data and to learn
from recorded customer behavior
- Channel integration thereby increases customer satisfaction and loyalty

CRM and Multichannel Management – Multichannel Shoppers

Multichannel shoppers, i.e., customers who buy in more than one channel within a specific
period of time, tend to be more profitable than single-channel shoppers:
1. Multichannel shoppers are more loyal
▪ Their service output demands can be easier met as multichannel shoppers choose the
most appropriate and convenient channel for each transaction
2. Multichannel shoppers spend more money
▪ They see advertisements more frequently through various channels
3. Multichannel shoppers purchase more frequently
▪ Shopping is possible in any situation
4. Multichannel shoppers are typically heavy users
▪ Customer self-selection: More profitable heavy users tend to purchase from multiple
channels (Neslin et al., 2006)

-It is important for firms to identify multichannel shoppers to increase profits. How to identify
is someone is a multichannel shopper:
CRM and Multichannel Management – Research Shoppers
-Management of research shoppers, i.e., customers who search product information in one
channel, but purchase it in another channel, is challenging
→ Risk to lose customer in his / her shopping process, e.g., if customer uses one firm’s
channel for search but another firm’s channel for purchase
→ Profound knowledge about research shopping required!

Characteristics of Business-to-Business (B2B) Markets

▪ Organization (company or institution) as customer
▪ Large purchase amounts
▪ Complex organizational buying process with professional (group) buying and decision
making units
▪ Collaborative rather than transactional relationships between buyer and seller to build
strong ties over time

Premise of CRM in the B2B Context

“B2B CRM is the strategic process of strengthening relationships with business customers,
especially important clients, beyond transactional relationships to better manage the value of
these buyer-seller relationships.“

SFM and its Subtopics as most Important Topics to Realize the CRM Premise in the B2B
Context
▪ Why is SFM one of the most important topic in the B2B CRM context?
>The sales force is entrusted with the seller‘s most important asset: the customers
>Due to the sales force long-lasting and strong relationships can be established
▪ What is the task of the sales force?
>Effectively and efficiently manage the relationships with the organization’s buyers to fulfill
the B2B CRM premise
>But how can that be realized?

CRM and Key Account Management (KAM) – What Is KAM?

KAM can be defined “as the performance of additional activities and or/designation of special
personnel directed at an organization’s most important customers.”

CRM and Key Account Management (KAM) – Implementation of the KAM Program: A
Stepwise Process
There exist three key steps for implementing a successful KAM program

Implementation of the KAM Program: Step 1 – Selection Criteria

Selection criteria serve to decide which customer is a key account.
● Quantitative criteria: Sales volume, Market share, Revenues/contribution/profit
● Most commonly applied financial “rules”:
-Key accounts must generate 50-60% of the sales volume
-The Pareto rule identifies key accounts (20% of customers that account for 80% of sales)
-Key accounts are the top 10 customers
● Qualitative criteria: Image of key account, Reference potential of key account,
Technology potential and know-how of key account, Interorganizational and cultural
fit
Advantages and disadvantages of quantitative and qualitative selection criteria

Implementation of the KAM Program: Step 2 – Design Elements of the KAM Program
Actors – Who does it?
▪ Special actors represent the personal coordination mode of KAM entailing top management
involvement, the use of teams, and key account managers
▪ With senior-level involvement in KAM, the firm can display its commitment to key accounts
leading to greater involvement and strengthening of the buyer-seller relationship
▪ The use of team can ensure a broader set of skills and resources and thus, dedicated
teams preferably should be composed of members from various functions and backgrounds
▪ Key account managers are the main point of contact for the key account
▪ These managers need specific skills, including integrity, extensive product/service
knowledge, communication skills, selling and negotiating skills, and a deep understanding of
the buying company’s business and environment
▪ Exhaustive training of key account managers is necessary

Resources – With whom is it done?

▪ Successful KAM requires the coordination of activities within the organization
▪ Important assets for building strong, collaborative buyerseller relationships: access to
(non)marketing and (non)sales resources and esprit de corps of the selling center
▪ Esprit de corps of the selling center is the extent to which members of the selling center
feel linked to common goals and to other members

Formalization – How formalized is it?

▪ Formalization refers to the extent to which key account handling has been formalized
through rules and standard procedures established in the seller’s organization
▪ A high degree of formalization leads to bureaucracy and a lack of flexibility in responding to
the different needs of heterogeneous key accounts

Implementation of the KAM Program: Step 3 – Advancement of the KAM Program

Optimizing phase
▪ Financial investments necessary to integrate the KAM program throughout the entire
organization
▪ All members gain education in and become engaged with KAM
▪ The whole culture of the organization adopts a strong KAM orientation
▪ Internal performance measurements fade away, replaced by benchmarking against
competitors and reliance on customer feedback
▪ Necessity of adoption of internal processes, policies, and IT systems

Improvement phase
▪ The seller’s organization has to become increasingly focused and targeted, with fewer and
fewer key accounts
▪ To reduce the cost or waste of expensive resources, top management becomes less
involved
▪ The main element is the focus on cost management
Keep in mind:
KAM is never fully implemented but is always an ongoing, continuous, very long-term
commitment to improving among the best practice KAM companies!

CRM and the Goods to Services Shift – What Are Hybrid Offerings?
Hybrid offerings can be defined as a combination of “one or more goods and one or more
services, creating more customer benefits than if the goods and service were available
separately”.