© Paul Haiselden 2010 CB602 E-Marketing: Week 20 Loyalty, CRM and Data Mining Paul Haiselden

© Paul Haiselden 2010

CB602 E-Marketing: Week 20

Loyalty, CRM and Data Mining

Paul Haiselden

Learning Objectives

In this session: Define loyalty, CRM and data mining To explain their importance and use Expand the idea of e-CRM Consider the threats and opportunities of

aggregators/comparison sites To explain the methods of achieving consumer

lock-in© Paul Haiselden 2010


The Click Chain

USERFILTERTO SERVICEPROVIDER

SERVICEPROVIDER

'Click Chain': Laffey (2009)

Promotions andCRM

Revision from Last week:• Today we will exploring Marketing and Sales

element of Primary activities

LoyaltySome Facts:

Fundamental principle: Keeping existing customers is cheaper than acquiring new ones

In 1991 Xerox used a 5 point Likert scale to poll its customers. It found that 'very satisfied' customers were six times more likely to re-purchase than those who were simply 'satisfied'. These customers they termed 'apostles' as they were likely to convert uninitiated consumers to their product. Conversely at the other extreme the 'very dissatisfied' were termed 'terrorists' as they would vent their unhappiness publicly damaging Xerox (Heskett et al, 2008)

Why is this Important? The outlays for acquiring a new customer for 'pure play' e-commerce

firms are 20% - 40% more than traditional retailers (Reichheld and Schefter, 2000)


Benefits of LoyaltyMainspring and Bain & Company (Rigby et al, 2000):

• e-tailers could not break even on 'one time' shoppers, 18 months retention required for B/E in grocery industry

• Repeat purchasers spend more and generate larger transactions over longer time period. Grocery purchasers spent 26% more in month 31-36 than in first 6 months

Therefore:• Increase share of wallet• Opportunities to cross sell• Loyal customers are less price sensitive, less likely to be

lured away


Acquisition Costs

Acquisition costs are those incurred by the business in the gaining of a new customer:

These Include: • Advertising, Promotions, Introductory/Special

Offers, Gifts etc• These acquisition costs can be very high...


Acquisition CostsExamples of Advertising Costs:

24hr banner on Yahoo.co.uk £100-250k

Sunday Times full page (B&W) £56,150

Carlton 30s weekday peak time slot £30,500

TV Times full page (colour) £18,500

Virgin Radio (AM/National)30s slot, Thursday (1600hrs - 1900) £850

BRMB (Birmingham Radio)30s slot, weekday peak time £200

Lancaster Regal Cinema 30s slot (each day, one week) £192

(UK Advertising Association and Business Week, 2006)

Acquisition Costs


Acquisition Costs

• Acquisition costs depend on price of product, potential profits and strategy of organisation

These acquisition costs need to be recovered and reduced over time for profitability How?

• Switching costs….positive and negative

• Word of mouth

• Brand recognition

• Linked to these LOYALTY… trying to develop ongoing relationships with customers


Loyalty: The Reality...In many industries acquisition costs are high and customer

loyalty is generally seen as low or worsening

Reasons:• Competitive pressure has led organisations to focus on

customer acquisition not on retention• Increasing levels of churn

• Impact of comparison sites/aggregators and general awareness of price/product information (reduced search costs)

Example:

• In UK 20% of credit card customers are serial switchers…. continuously move balances to 0% cards


Comparison Sites...The Challenge to Loyalty• Imperfect competition: Why can some firms charge

more for a commodity service? e.g. utilities, financial services etc

Reasons why customers stay put:Negative factors Positive factorsInformation overload Effective serviceLack of knowledge BrandConfusion/Laziness Loyalty?ApathyFear of change/TimeContractual factorsSwitching costs (e.g. penalties)• The above allows differentiated and premium prices to be charged

for a commodity good/service© Paul Haiselden 2010

Comparison Sites...The Challenge to LoyaltyReasons why customers stay put:Negative factors Positive factorsInformation overload Effective serviceLack of knowledge BrandConfusion/Laziness Loyalty?ApathyFear of change/TimeContractual factorsSwitching costs (e.g. penalties)

Double Edged Sword: (Revision from last week)• Retailers desire long-term relationships with consumers, however

Comparison Sites promote switching (encourage 'churn')...• Reduction of Information Asymmetry, price is there for all to see with

the potential of competitive pressure driving prices down© Paul Haiselden 2010

E-Loyalty?• With ‘a competitor..a click away’ within the world of the

Internet we would expect loyalty to be even worse

• However...Reichheld and Schefter (2000) found that most on-line customers exhibit a clear proclivity towards loyalty

• Other studies have supported this. e.g Mercer

• Non price factors were seen as more important such as convenience, delivery and TRUST

• Reichheld and Schefter (2000) show when trust is established the customer is more likely to share personal information with the seller, and as such a detailed customer orientated offering can be tailored to suit their needs...CRM


The unrecognised loyalty of on-line customers

In their stores

In their catalogues

On-line

% of on-line customers shopping with competitors

Source: Mercer Management Consulting (2001) 7 14 21% 50 100%

Price

Delivery

Payment

90 100

70 80

75 55

On-line Off-line

Relative Utility for shoppers

CRM and Data Mining• Customer Relationship Management - Creating and

maintaining strong relationships with profitable customers

• Crucially, for CRM need to able to identify customers through Data Mining

• Takes a long term view of the customer relationship building data which can be attributed to different profile patterns

• Offers specifically tailored communications and promotions

• e.g. Amazon collaborative filtering (e.g. Customers with similar searches purchased...)


CRM: DataPersonal and profile data• Contact details

• Preferences

• Page (route) tracking

Transaction data• Sales history

Communications data• Campaign history

• Research / Feedback / Support queries

• Contact reports (B2B)© Paul Haiselden 2010

Permission Marketing via E-mail

Key concepts:• Not SPAM

• Requires opt-in & Can Opt-out

• Learning about the customer

• Initial and continued relationship is based on relevancy

Central tension: CRM and loyalty programmes require the customer to give up some privacy in exchange for better service


Tailored OfferingsWebsites can be personalised and customer specific e.g.

Tesco ClubCard customers can view shopping basket online; Amazon 'Your Page' recommendations based upon search/purchase data

For content:• Automated login, customised options and pagesFor price• Differential pricing….charge different prices for the same

product, accepted practice in travel/insurance• But...Amazon in 2000 experimented with differential

pricing...public outcry...! • Industry Dependant


e-CRM

Lee-Kelley et al (2003:241)“...refers to the marketing activities, tools and

techniques, delivered over the Internet (using technologies such as websites and e-mail, data-capture, warehousing and mining) with a specific aim to locate, build and improve long-term customer relationships to enhance their individual potential.”


Service Quality and Loyalty

Service element of transaction process (see 'Click Chain' slide 2)

Beware the technology solution:• Goods suppliers rely on efficient delivery

• Service – delivering what is offered is the crucial element

• Companies are no longer “...shielded..from the penalties of providing anything less than the best product and service quality” (Reichheld and Schefter (2000:113)).


An Example: • Founded in 1994; Online 'pure play' book store offering

larger choice than 'bricks and mortar' competitors as not constrained by premises size

• Listed on Nasdaq stock exchange in 1997

• Finally reached profitability in last quarter of 2001: $5m on revenues of over $1bn

• Why is this important?

• These losses were whilst Amazon rapidly expanded its customer base through the acquisition of new customers, i.e. during this period the losses incurred through acquisition outweighed the profits secured from 'early joiners'


An Example: However...

• Despite not turning a profit for over 6 years Amazon experienced sales turnovers of nearly $3bn pa

• During this time it was developing and growing a loyal customer base of returning customers

• Ensuring long term profitability


Summary

We have considered:• The importance of loyalty• Concepts of loyalty to the e-commerce

environment• The solution of CRM: what it is, components

and the one-to-one dream (tailored offerings)


Further References

Heskett, J. Jones, T. Loveman, G. Earl Sasser Jnr, W. Schlesinger, L. (2008) 'Putting the Service Profit Chain to Work'. Harvard Business Review, July – August 2008

Lee-Kelley, L. Gilbert, D. Mannicom, R. (2003) ‘How e-CRM Can Enhance Customer Loyalty’ Marketing Intelligence and Planning, Vol. 24 No. 4. pp.239-248

Laffey (2009) 'The Click Chain' British Academy of Management Conference 2009 Submission, 2009

Reichheld, F Schefter, P (2000) 'E Loyalty: Your Secret Weapon on the Web'. Harvard Business Review, July – August 2000

Rigby, D. Bavega, S. Rastoi, S. Zook, C. Hancock, S. (2000) 'The value of customer loyalty and how you can capture it' Bain & Company/Mainspring Whitepaper, 17 March. Published at www.mainspring.com


http://www.mainspring.com/

Documents

© Paul Haiselden 2010 CB602 E-Marketing: Week 20 Loyalty, CRM and Data Mining Paul Haiselden