Customer Relationship Management

"A business absolutely devoted to Customer Service

Excellence will have only one worry about profits. They will
be embarrassingly large."
-Sir Henry Ford
"The cost of retention is $180 per customer," he says. "But most
automotive dealerships are set up for customer acquisition - which
is crazy when you consider the average cost of customer
acquisition is $1,000 or more."
-Arthur Hughes, author of several books on using databases to
enhance CRM.

"70 to 90 percent of decisions not to repeat a purchase of

anything are not about product or price. They are about some
dimension of service."
-Barry Gibbons, former CEO, Burger King
"The first rule of any technology used in a business is that
automation applied to an efficient operation will magnify the
efficiency. The second is that automation applied to an inefficient
operation will magnify the inefficiency."
-Bill Gates
The Cisco Story
• Cisco provides Internet networking systems for
corporate, government and education clients.
• The Internet plays a major role in acquiring, retaining
and growing customer business.
• 2.5 million users log onto the Cisco site each month.
• 90% of orders come through the Internet
• 82% of all customer questions handled online
• Cisco has become an expert at online customer
relationship management (CRM).
The Cisco Story, cont.
• Cisco set a goal to migrate customers to the
online channel.
• In 1996, 5% of their customers placed orders on the
Web site.
• In 2001, 90% of their orders came through the
Internet.
• Cisco saves $340 million a year in customer
service costs due to automation.
• Can you think of other B2B marketers that
utilize the Internet as successfully as Cisco?
Relationship Marketing Defined
• Relationship marketing (1:1 marketing) is about
establishing, maintaining, enhancing, and
commercializing customer relationships through
promise fulfilment.
• Relationship capital may be the most important
asset a firm can have.
• A firm using relationship marketing focuses
more on wallet share than on market share.
• More $ from each customer instead of more
customers
Continuum from Mass Marketing to
Relationship Marketing
Relationship
Mass marketing
marketing
Continuing
Discrete transactions
transactions
Short-term emphasis Long-term emphasis
Two-way
One-way
communication
communication
and collaboration
Acquisition focus Retention focus

Share of market Wallet share

Product Customer
differentiation differentiation
Stakeholders
• Firms can establish and maintain relationships
with different stakeholder groups through
Internet technologies:
• Employees who need training and access to data
and systems used for relationship management.
• Business customers in the supply chain.
• Lateral partners, such as other businesses, not-for-
profit organizations, or governments.
• Consumers who are end users of products and
services.
Customer Relationship Management
• CRM is the process of acquiring, servicing,
retaining and building long-term relationships
with customers.
• The benefits of CRM include:
• Increased revenue from better targeting.
• Increased wallet share with current customers.
• Retention of customers for longer time periods.
• The cost of acquiring a new customer is
typically 5 times higher than the cost of
retaining a current customer.
Acquisition Emphasis Retention Emphasis

Gain 6 new customers $3,000 Gain 3 new customers $1,500

($500 each) ($500 each)

Retain 5 current $ 500 Retain 20 current customers $2,000

customers ($100 each)
($100 each)

Total cost $3,500 Total cost $3,500

Total number of customers 11 Total number of customers 23

Customer Relationship Management,
cont.

• CRM has 3 facets:

• Sales force automation (SFA).
• Marketing automation.
• Customer service.
• Used primarily in the B2B market, SFA helps
salespeople to:
• Build, maintain, and access customer records.
• Manage leads and accounts.
• Manage their schedules.
 1) Customer orders 10 3) database trends
newcomputers.
Hmmm, 21%of
customers can’t
find “on” switch.
Sales rep

Customer
Where is the Database
%@#&“on”
switch? 4) Redesign computer
switch

2) Customer calls
company

Customer service rep

Customer Relationship
Management, cont.
• Marketing automation software aids marketers
in effective targeting, marketing communication,
and monitoring of customer and market trends.
• Software solutions include e-mail campaign
management, database marketing, and market
segmentation.
• Most customer service occurs post purchase
when customers have questions or complaints.
• E-mail and Web self-service are often used.
8 Building Blocks for Successful CRM
1. CRM Vision: Leadership, value proposition

2. CRM Strategy: Objectives, target markets

3. Valued Customer Experience 4. Organizational Collaboration

Understand requirements Culture and structure
Monitor expectations Customer understanding
Maintain satisfaction People, skills, competencies
Collaboration and feedback Incentives and compensation
Customer interaction Employee communication
Partners and suppliers

5. CRM Processes: Customer life cycle, knowledge management

6. CRM Information: Data, analysis, one view across channels

7. CRM Technology: Applications, architecture, infrastructure

8. CRM Metrics: Value, retention, satisfaction, loyalty, cost to serve

1. CRM Vision
• To be successful, the CRM vision must start at
the top and filter throughout the company to
keep the firm customer focused.
• One key aspect of CRM vision is how to guard
customer privacy.
• The benefits of using customer data must be
balanced by the need to satisfy customers and
not anger them.
• TRUSTe provides its seal and logo to any Web
site meeting its privacy philosophies.
2. CRM Strategy
• E-marketers must determine their objectives and strategies
before buying CRM technology.
• Many CRM goals refer to customer loyalty.
• An important CRM strategy is to move customers up the relationship
intensity pyramid

Highest
intensity Tell others about the brand
Advocacy

Communicate with each other

Community

Communicate with company

Connection between purchases

Identity Display the brand proudly

Is on the list of
Awareness possibilities
Three Levels of Relationship Marketing
• Another CRM goal involves building bonds with customers
on 3 levels:
• Financial
• Social
• Structural

Level Primary Bond Potential for Sustained Main Element of

Competitive Advantage Marketing Mix

One Financial Low Price

Two Social Medium Personal

Build 1:1 relationships communications
Build community

Three Structural High Service delivery

3. Valued Customer Experience
• Consumers are constantly bombarded by
marketing communications and unlimited
product choices.
• According to Jagdish Sheth (1995), the basic tenet
of CRM is choice reduction.
• Many consumers are “loyalty prone,” and will stick
with the right product as long as its promises are
fulfilled.
• Synchronous and asynchronous technologies
can provide automated and human services
that solve customer problems.
Relationships over Multiple
Communication Channels
Automated Human

Synchronous Web 1:1 self-service Telephone

Online transactions Online chat
Telephone routing Collaboration tools

Asynchronous Automated e-mail E-mail response

Short message services (SMS) Postal mail
Web forms
Fax on demand
4. Organizational Collaboration
• Marketers collaborate within and outside the
organization to focus on customer satisfaction.
• CRM, or “front-end” operations, can be linked
with the entire supply chain management
system (SCM), or “back-end” operations.
• Customer service reps have access to inventories.
• Producers and wholesalers constantly receive data
that can be utilized for production and delivery.
• The use of extranets, two or more intranet
networks that share information, allows CRM-
SCM integration.
5. CRM Processes
• Firms use specific processes to move
customers through the customer care life cycle.

T a rge t

A c quire
P a rtne rs
T ra nsa c t
Inte rne t Se rvic e E xtra ne t

R e ta in
Grow

C ustome r
CRM Processes, cont.
• CRM processes are used to:
• Identify customers.
• Differentiate customers.
• Customize the marketing mix.
• Interact with customers.
• Firms can identify high-value customers by
mining customer databases and profiling
customers in terms of: (RFM analysis)
• Recency of purchases.
• Frequency of purchases.
• Monetary value of purchases.
6. CRM Information
• The more information a firm has, the better
value it can provide to each current or
prospective customer.
• Firms gain much information by tracking
behavior electronically.
• Bar code scanner data.
• Software that tracks online movement, time spent
per page, and purchase behavior.
7. CRM Technology
• Technology greatly enhances CRM processes.
• Firms use company-side tools to push
customized information to users.
• Client-side tools allow the customer to pull
information that initiates the customized
response from the firm.
Company-side Tools
Company-Side Tools
(push) Description
Cookies Cookies are small files written to the user’s hard drive after visiting a Web site.
When the user returns to the site, the company’s server looks for the
cookie file and uses it to personalize the site.
Web log analysis Every time a user accesses a Web site, the visit is recorded in the Web server’s
log file. This file keeps track of which pages the user visits, how long he
stays, and whether he purchases or not.
Data mining Data mining involves the extraction of hidden predictive information in large
databases through statistical analysis.
Real-time profiling Real-time profiling occurs when special software tracks a user’s movements
through a Web site, then compiles and reports on the data at a moment’s
notice.
Collaborative filtering Collaborative filtering software gathers opinions of like-minded users and
returns those opinions to the individual in real time.
Outgoing e-mail Distributed e- Marketers use e-mail databases to build relationships by keeping in touch with
mail useful and timely information. E-mail can be sent to individuals or sent en
masse using a distributed e-mail list.
Chats A firm may listen to users and build community by providing a space for user
Bulletin boards conversation on the Web site.
iPOS terminals Interactive point-of-sale terminals are located on a retailer’s counter and used
to capture data and present targeted communication.
Client-side Tools
Client-Side Tools
(pull) Description
Agents Agents are programs that perform functions on behalf of the user,
such as search engines and shopping agents.

Individualized Web Personalized Web pages users easily configure at Web sites such as
portals MyYahoo! and many others.

Wireless data services Wireless Web portals send data to customer cell phones, pagers, and
PDAs

Web forms Web form (or HTML form) is the technical term for a form on a Web
page that has designated places for the user to type information
for submission.

Fax-on-demand With fax-on-demand, customers telephone a firm, listen to an

automated voice menu, and select options to request a fax be sent
on a particular topic.

Incoming e-mail E-mail queries, complaints, or compliments initiated by customers or

prospects comprise incoming e-mail, and is the fodder for
customer service.
8. CRM Metrics
• E-marketers use numerous metrics to assess
the Internet’s value in delivering CRM
performance.
• ROI
• Cost savings
• Revenues
• Customer satisfaction
• One study named customer retention, ROI and
customer lift (increased response or transaction
rates) as the most important metrics.
CRM Metrics, cont.
• One very important CRM metric is customer
lifetime value (LTV).
• The LTV calculation demonstrates the benefits of
retaining customers over time and the need for
building wallet share.
• LTV also illustrates that no matter how good
customer retention is, the firm must still focus on
customer acquisition activities.