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Customer Relationship Management(CRM)

Presented by:

Morteza NazemiRoohollah Dehghan

April 23, 2009

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Highlights

Evolution Definition of CRM Goals & Benefits Architecture of CRM Basic Steps in CRM Customer Loyalty & Lifetime Cycle Competition Advantages Conclusion

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Evolution

Initially, there were Door-to-Door sales forces to approach the customers.

Then, Mass marketing replaced the intimacy of a direct sales force.

Later, Targeted marketing evolved. Use of direct mail and telemarketing.

Latest is Customer Relationship Management (CRM), the next step in Evolution. A concept supported by latest technologies.

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OLD VS. NEW MARKETING

OLD MARKETING Transaction oriented Market share oriented All customers are equal Marketers sell 4P marketing Mass marketing Sell to the customer Focus on new customers Broadcast oriented Transaction profit

NEW MARKETING Relationship oriented Share of wallet oriented All customers are not equal Marketers manage demand Relationship marketing Individual marketing Manage customer experience Focus on existing customers Dialogue oriented Customer lifetime value

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Most organizations -even the largestand the most prestigious firms-cannot answer the following critical questions:

Do all customers represent equal opportunities for profitability? Which ones are more service sensitive and less price sensitive? How are they different or similar in product preferences and needs? Which customers are profitable today? Which one has the greatest opportunity for long term value? Of those customers who are of high value, how much longer will they stay

with you? What channels does each customer respond to more favorably? What is the next product you should offer each customer?

Changing the Paradigm From

To

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The concept of CRM is:

CRM is about « Keeping the old-time spirit of customer connection even when you can not shake every hand ».

Customer relationship management (CRM) is a business strategy to select and manage the most valuable customer relationships.

CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes.

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Definitions of CRM

Customer Relationship Management (CRM) is an enterprise approach to understanding and influencing customer acquisition, customer retention, and customer value-current and lifetime-through interactive, relevant information exchange (Marketing Science Institute).

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CRM is…

Any application or initiative designed to help an organization optimize interactions with customers, suppliers, or prospects via one or more touch points for the purpose of acquiring, retaining, or cross-selling customers.

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What is CRM?

“Customer Relationship Management is the initiation,

enhancement, and maintenance of mutually beneficial

customer and partner long-term relationships through

business intelligence-generated strategies based on the

capture, storing, and analysis of information gathered from all

customer and partner touch points and transaction processing

systems.”

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General Statistics

The average business never hears from 96% of its unhappy customers, 91% never come back Those people will tell a minimum of 4 other people, Getting a repeat customer from this group is 1 in 11, Dissatisfied customers may tell 9-10 people about their experience, For every positive they tell 4-5 people, For every complaint received the average business in fact has 26 customers

with the similar concern,

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Drivers of CRM

Pareto’s principle: 80/20 rule 8 to 10 calls to make a sale to new customers, 2 to 3

to existing customers 5-10 x more expensive to sell to new rather than

repeat customers Increase retention 5 percent and improve

profitability in net present value from 20-85 percent.

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Goals of CRM

Retention rate: CRM, relationship building, increases customer loyalty which increase revenue per customer and frequency of purchases.

Referrals: CRM can turn customers into advocates. Referrals typically have higher retention rates and spending rates than other newly acquired customers.

Increased sales: CRM leads to increased cross-selling, upgrades, or simply more products by existing customers.

Reduced costs: CRM can lead to more cost effective marketing; avoids expenses of mass marketing, free-up sales professionals, reduces direct mailings.

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Goal Of CRM

With an effective CRM strategy, a business can increase revenues by: Improve the ability to retain (acquire) customers Maximize the “lifetime” of customers Improve service while keeping costs low providing services and products that are exactly what your customers

want offering better customer service cross selling products more effectively helping sales staff close deals faster retaining existing customers and discovering new ones

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The ultimate goal of CRM:

The goal is to encourage the customer to make its future purchases from you and reduce the share of purchases being made from the competition DUE TO THE FACT customer knowledge has been accumulated and therefore it will be more difficult for the competition to offer a similar package

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CRM is Founded on Four Tenets

1. Customers should be managed as important assets.2. Not all customers are equally desirable.3. Customers vary in their needs, preferences, and

buying behavior.4. By better understanding their customers, companies

can tailor their offerings to maximize their overall value.

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Principles of CRM

Treat customers individually Acquire and retain customer loyalty Select good customers

How do we accomplish these goals?

Architecture of CRM

There are three parts of application architecture of CRM:

Operational CRM: means supporting the so-called "front office" business processes, which include customer contact (sales, marketing and service)

Analytical CRM: Data gathered within operational CRM are analyzed to segment customers or to identify cross- and up-selling potential.

Collaborative CRM: facilitates interactions with customers through all channels (personal, letter, fax, phone, web, e-mail) and supports co-ordination of employee teams and channel.

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Four Basic Steps in CRM

1. ID your customers in detail.2. Differentiate the most and least

profitable.3. Interact.4. Customize your offerings to fit each

customer’s needs.

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Collect Customer Information

Information should be collected on: Customer transactions-purchase histories, prices paid,

delivery dates, return histories Customer contacts-sales calls, service requests, company-

initiated contacts Descriptive information-demographic info Response to marketing stimuli-how customers responded

to company-initiated contacts Information to be collected from many sources Centralization of customer data is an important issue Retailers, banks collect data more easily

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Build Customer Profile

Demographics – age, income, gender,education Product Affinity – Product A, Product B, etc. Recency – most recent purchase date Frequency – total number of times customer

has made a purchase in a given time period Monetary – total amount spent on

products/services during a given time period

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Segment Customers

Segmenting customers by niche Psychographics: customer life-style choices

or personalities Neighborhood marketing: based on

geography. Income segmentation

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Segment Customers

Segmenting customers individually Individual marketing / one-to-one marketing:

understanding each customer's needs, characteristics, and profitability.

Importance also for business-to-business markets: building a relationship with and successfully serving one customer can mean millions of dollars.

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Target Customer Segments

The market segmentation process can be broken down into a number of steps:

1- identify the business you are in2- identify relevant segmentation variables3- analyse the market using these variables4- assess the value of the market segments5- select target market(s) to serve.

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Customer Loyalty

Customer Loyalty:

Repeat customers costs lesser to service

Word of Mouth Advertising increases customer base

Branded experience leads to emotional attachment

Willingness to pay higher price for good customer

service

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Lifetime customer value management is critical to gain strategic advantage

Responds to Offer

CreditApproved

AccountOpened

AccountActivated

BalanceBuilding

Paydown/Payoff

Re-Activation

Utilization

BalanceBuilding

CustomerService

Payoff/Paydown

Re-Activation

BalanceBuilding

Product Inquiry(Home Equity)

BalanceBuilding

Pay0ff/Paydown

NewJob

Marriage CompetitorPromotion

NewHome

Children CompetitorPromotion

NewHome

Children GoTo College

CompetitorPromotion

Retirement

CustomerEntry

Product Offerings

Lifecycle Events

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Lifetime Value (LTV) of a Customer

Lifetime value is the net present value of the profit that you will realize on the average new customer during a given number of years. – Hughes ‘00

This definition allows us to compare groups of customers with other groups of customers….

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Customer Lifetime Value

R = annual revenue received from a loyal customer i = the relevant interest rate or opportunity cost of money per periodN = the number of periods in which a customer makes purchases

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Customer Relationship Management CRM Model

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Strategy before technology

CRM depends more on strategy than on the amount spent on technology

Strategy is about the way you allocate your resources to create a competitive advantage and superior performance

Technology is not a marketing strategy

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Identify Competitive Strategies

Three strategies for competitive advantage: Differentiation: any special features (e.g., design, cost,

quality, ease of use, convenient location, warranty) that cause a product or service to be perceived by the buyer as more suitable than a competitor’s product or service.

Low-cost: low-cost leadership strategy. Response: quick, reliable, and/or flexible

response to customer demand. CRM implementations must support or

advance the firm’s strategies

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CRM Strategies

Customer Acquisition Gain the greatest number of new “Best” customers as early in their

“lifespan” as possible.Customer Retention Retain and expand your business and relationships with your customers

through up-selling, cross-selling and servicing.Customer Loyalty Offer programs to ensure that your customers happily buy what you offer

only from you.Customer Evangelism

Enable loyal customers to become a volunteer sales force.Cost Reduction Reduce costs related to marketing, sales, customer service and support.Improve ProductivityEnhance your e-business strategies.

Choosing a Customer-centric business strategy

Changing the Rules & processes

Phases of Implementing CRM

Designing the Roles & responsibilities

Business Process Reengineering

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Vital Factors For Successful Implementing CRM

Teaching Personnel

Process Reengineering

Modern Technology

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To be successful A CRM program must be strategy driven

CRMEnterpriseVision and

Strategic Priorities

Adaptable Value PropositionDesign and Delivery Capabilities

Customer Aligned Organization,Infrastructure, and Business Processes

EnablingCapabilities

CFO Organization Information systems Interface design Customer interaction process

design Organization structure Incentive systems

CRM DRIVERSCRM STAGE

Corporate strategy and objectives Customer vision CRM objectives & strategy

Customer marketing strategy Value proposition design Salesforce strategy Channel strategy Dynamic pricing Delivery stream/supply chain strategy

Customer Strategy

Value Creation and Value Capture

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CRM in ActionA customer orders 10 new servers through sales. When the salesperson enters the order into the CRM software, the CRM database is updated with his information.

10 servers

OrderCustomer

If there’s a problem, the customer can call a support line and enter his customer identification number. This prompts the CRM software to bring up the customer’s record and route the call to an appropriate agent, who can make sales pitches to the customer based on purchasing history.

If a customer decides to buy additional products online, the CRM database will recognize the customer and make unique purchase suggestions or offers based on purchasing history.

Latest version of server?Upgrade memory for old server?

Sales

Call CenterSupport

CompanyWebsite

Data

Redesign

Update

Customer History

Customer

History

Sales I

deas

Sales Ideas

CRMSoftware

CRMDatabase

23% of customers can’t find the “on” switch.

Where’s the %#&@! switch ?

Send me20 new servers.

Customer ID

Customer ID

Using CRM analytics software the company can track customer trends from call center data and act to fix problems or anticipate new ones.

CRM Summary

CRM is the strategic use of information, processes, technology and people to manage the customer’s relationship with a company’s (marketing, sales, services and support) across the entire customer cycle.

The Plan and Practice of managing the lifetime relationship with your customer

CRM Summary

CRM focuses on strategic impact rather than operational impact

CRM is a total discipline CRM includes all functions that directly

touch the customer throughout their entire lifetime with a company

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References

1- Richard Brock .(2003) Inside the Minds: Profitable Customer Relationships: The Keys to Maximizing Acquisition, Retention, and Loyalty. Aspatore, Inc.

2- Frederick Newell  .(2003). Why CRM Doesn't Work: How to Win by Letting Customers Manage the Relationship. Bloomberg Press.

3- Francis Buttle. (2004). Customer Relationship Management. Elsevier Butterworth-Heinemann.

4- Bryan Foss & Merlin Stone.(2002). CRM in financial Services .Kogan Page.

5- Simon Knox & Adrian Payne. (2003). Customer Relationship Management(perspectives From the Marketplace). Butterworth-Heinemann.

6- Kristin Anderson & Carol Kerr.( 2008). Customer Relationship Management. McGraw-Hill.

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THANK YOU