RM summary 15th Feb

8/7/2019 RM summary 15th Feb

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RelationshipMarketing

Course Code : 210-PM

Faculty: Soumya Dutta Gupta


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Suggested reading

1. Handbook of Relationship Marketing-

Jagdish Sheth,Atul Parvatiyar

2. Managing Customer relationships_ DonPeppers and Martha Rogers

3. Customer relationship Management -

Jagdish Seth,Atul Parvatiyar,G Shainesh


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Course Outline

Day 1: Strategic imperatives- 2 sessions

Day 2+ 3: Conceptual foundations- 4 sessions Day 4: Building a CRM program- 3 sessions Day 5: CRM as a process 1 session Day 6: Economics of CRM- 2 sessions Day 7 :CRM in B2C Markets Product + Service - 2 sessions

Day 8: CRM in B2B Markets - 2 sessions Day 9 : e CRM 2 Sessions Day 10 :Some popular CRM offerings in the market : 2 Sessions Day 11: CRM Road map- Implementation and Issues faced: 2

Sessions

Day 12: Case presentation : 2 Sessions :


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Evaluation methodology

Group Class participation: 30% Cases given to be assessed by the group-20% At the end of discussion of a case study groups will be

randomly asked to present the case to the class-10%Project : 30% Report: :To be sent in electronically before day 12 : 20% Presentation : 10%

End term : 40%


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Case study approach

Was it an effective strategy?

If yes why?

If no why?

What are your groups recommendations?

To be submitted before the class in 1 A4 sheet


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Project The project examines how CRM creates competitive advantage for a firm. Name of Firm to be given by Day 4 Your report will investigate how a firm (business unit, department, function) approached

CRM, why they turned to a CRM strategy and what the desired and actual outcomes were.The challenge for you will be to stay away from descriptive platitudes and to derive realinsight as to what caused success (or failure) of a CRM strategy.

Project Components:

The first part develops the context of the CRM strategy. What are the specificenvironmental, competitive, & technological changes that lead to an adoption of CRMpractices?

The second part describes what the specific CRM strategy is and what the links to thebusiness model are.

The third part analyzes the appropriateness and effectiveness of the CRM strategy for thegiven situation. Does it generate competitive advantage? You may also compare the focalfirm's approach to that of a competitor and highlight the differences in strategy,implementation and results.

Finally, you will make a set of recommendations of how to further leverage the chosenCRM approach.

Information sources for the report are secondary data sources (such as newspapers, trademagazines, analyst reports) or primary data sources (such as interviews).


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Marketing

It is an integrated process through which

companies create value for customers and

build strong customer relationships in order to

capture value from customers in return.

The management process that seeks to

maximize returns to shareholders by

developing relationships with valuedcustomers and creating a competitive

advantage."


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Relationship marketing

Definition

Relationship marketing is the ongoing

process of engaging in cooperative andcollaborative activities and programs for

acquiring, retaining and partnering with

selected immediate and end-user customers

to create or enhance mutual economic valueat reduced cost


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Evolution of Relationship

Marketing

Rela

t ionship

orien

tation

Pre industrial Era

( Relationship

centric- small

scale firms)

Industrial

Era-

Product

Centric

InformationEra( relationship

centric- Large

scale)


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Evolution of Marketing

Practices

ProductCentric

Marketing

SegmentCentric

marketing

Customer

Centric

Marketing

1960s 1980s 1990s


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Practices

Product centric marketing Focus on higher production capacity

Lower costs

Development of technologically superior products

Superior selling skills

Concepts evolved USP

Brand image


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Practices

Increased competition warranted marketing

approaches according to customer segments

AT&T: Household and Business Markets IBM: Vertical industry based groups

Brands launched to target segments

Concept of Positioning


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Practices

Customer Centric Marketing;

Increases marketing productivity: Efficiency

and EffectivenessMass

Markets

Market

Segments

Individual

Customers

Starts by focus on the needs and wants of customersas against starting from products in product centric

marketing


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Customer Centric Marketing

It becomes the way to do businessCustomer centric measures becomes part of

every employees performance appraisalKRAs include metrics like: Customer acquisition value Lifetime value

Customer satisfaction Customer retention Customer share


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Affordable Technological

advances

Production ( CAD-

CAM, JIT) e.g.

Toyota, Dell

Consumption ( Unique IDs,

cost effective channels like

ATMs, Call centre, Internet

Distribution ( CALS) eg

3PLs, Forecasting

Facilitation ( E

commerce, online

buying) e.g. Amazon

Affordable

Technology

Advances


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Benefits of CRM


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Drivers for growth in

Relationship Marketing

Traditional Marketing

1to1

Marketing

Increasing Returns

Diminishing

returns

Custom e

rNeedssatis

fied

Customers Reached


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Drivers for growth in

Relationship Marketing

Rising cost of new customer acquisition and

hence customer retention in mature markets

Faster tracking of the changing requirements

of customers and hence taking necessary

actions to ensure retention and satisfaction

Emerging

markets

Mature

Markets

New Customers

Repeat Customers

Capacity CreationCapacity

Utilization


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Customers are profitable over

time

Initial costs >gross Margin

Retention cost


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Customer Profitability is

Skewed

increasing loyalty of profitable customers. Mass market products: the top 20% of typical bank customers produce as much as

150% of overall profit, while the bottom 20% of customers drain about 50% from the bank's

bottom line and the

revenues from the rest just meeting their expenses

B2B products The largest and the smallest customers are almost always

the least profitable


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Correcting Revenue and profit

misalignment

Rs

CustomersBiggest Smallest

Cost

Revenue


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Marketing benefits of CRM

I know that half of my advertising budget is wastedbut I am not sure which half

Example of wastage : Cost of sending 1,00,000 mailers: Rs 22,50,000 Cost of address database: Rs 5,00,000 Printing Mailer+ envelope: Rs 12,50,000 Handling and Mailing- Rs 5,00,000 Hit rate i.e. response got 3%- 3000 Conversion 25%: 750 Direct Marketing cost per sale: Rs 3000

Can be improved through better understanding ofcustomers


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Service benefits of CRM

95% of customers donot complain- they take

their businesses elsewhere

A typical dissatisfied customer tells 14 others

A typical satisfied customer tells 6 others

70% of who complain will do business with

the company again if service problems are

quickly taken care of


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Loyalty Strategy for Customer

segmentsHigh profitability

Low profitalility

Short term customer Long term customer

Butterflies- Good fit between company's offerings and customer's needs- High profit potentialActions:- Aim to achieve transactional satisfaction, not attitudinalloyalty- Milk the accounts only as long as they are active- Key challenge is to cease investing soon enough

True Friends- Good fit between company's offerings and customer's needs- Highest profit potentialActions:- Communicate consistently but not too often- Build both attitudinal and behavioural loyalty- Delight these customers to nurture, defend and retain them

Strangers- Limited fit between company's offerings and customer'sneeds- Lowest profit potentialActions:- Make no investments in these relationships- Make profit on every transaction

Barnacles- Limited fit between company's offerings and customer'sneeds- Low profit potentialActions:- Measure both the size and share of wallet- If share of wallet is low, focus on up- and cross-selling

- if size of wallet is small, impose strict cost controls


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RelationshipMarketing Concepts

Six Market model


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Marketing mix approach vs


Marketing Mix- 4P: Focus on products and

Markets

However limited in approach for assessing

and developing customer relationships

Need to have a model which focuses on

customers and relationships


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Marketing

Mix

4Ps

Relationships

Networks Interaction

Relationship

MarketingRelationships

Networks

Interaction

Products

Price Place

Promotion

The Current Marketing Mix Paradigm andThe Current Marketing Mix Paradigm and

the Future Relationship Marketing Paradigmthe Future Relationship Marketing Paradigm


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CustomerCustomer

MarketsMarkets

Internal

Markets

Referral

Markets

Influence

MarketsRecruitment

Markets

Supplier

Markets

aimed at ensuring a long-term conflict-free

relationship in which all parties understand each

other's needs and exceed each other's expectations

can reduce costs and improve quality.

CLASSIFYING THE FORMS OF RELATIONSHIPSCLASSIFYING THE FORMS OF RELATIONSHIPS


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FocalFocal

FirmFirm

Business

Units

Buyer Partnerships

Supplier Partnerships

Late

ralPartn

ersh

ip s

Intern

al

Partnershi

ps

Functional

Departments

Employees

GoodsSuppliers Services

Suppliers Competitors

Nonprofit

Organizations

Government

Ultimate

Customers

Intermediate

Customers

CLASSIFYING THE FORMS OF RELATIONSHIPSCLASSIFYING THE FORMS OF RELATIONSHIPS


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Making

Promises

Enablin

g

Promises

Keeping

Prom

ises

InternalMa

rketing

InteractiveM

arketin

g

External MarketingBUILDING

RELATIONSHIPS:

MAKINGENABLING AND

KEEPING

PROMISES RMRM


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25th Jan 2010


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Building CustomerRelationship Programs

An Iterative learning process


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IDIC Framework

Identify Locate and contact a large number of customers

Use multiple channels

Collect as much relevant data as possible

Differentiate Based on Value Profits

Based on Needs


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IDIC Framework

Identify Locate and contact a large number of customers

Use multiple channels

Collect as much relevant data as possible

Differentiate

Based on Value Revenue or Profits Based on Needs- Standard vs customised


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IDIC Framework

Interact To learn more

During purchase, service, complaint

Through formal surveys, telephone interactions,

self service channels ( web, ATM)

Use as much low cost electronic channel as

possible To add to existing knowledge, to become smarter


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IDIC Framework

Customize Most critical

Fitting the product and service to the customers

exact need

Not easily replicated by competitor without

customer putting time and effort to teach the

same lessons about his/her preferences

Helps both organization and customer

Mass customization also possible


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Mass Customisation

Method of effectively postponing the task of differentiating aproduct for a specific customer until the latest possible point inthe supply network.

a strategy that creates value by some form of company-customerinteraction at the fabrication and assembly stage of theoperations level to create customized products with productioncost and monetary price similar to those of mass-producedproducts".

The use of flexible processes and organizational

structures to produce varied and often individuallycustomized products and services at the low cost of astandardized, mass production system.


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Essential for building a

successful CRM programs

Win Win relationship

Value to customers- Commitment

Value to the business sponsoring the CRM

program- Control


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Trust and Commitment of

customers

Built when customers sense that the firm is truly

interested in satisfying the needs of the customers

and providing value.

Commitment orientation is one of the measures ofsuccess of a CRM program


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C it t d C t l


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Commitment and Control

based CRM program

Commitment

Low High

Control

Low

H

igh

Subway

Sub-Club

Jet Airways

Jet Privilege

Columbia

House

Jeep, Harley

Davidson,Royal

Enfield


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Th l i l ti hi


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The learning relationship

process

Learning About CustomersKnowledge acquisition

Customer differentiation

Customization ofMarketing Mix


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Ladder of Loyalty

Partner

Advocate

SupporterClient

Customer

Prospect


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Ladder of Loyalty

Partner- P&G When advocate becomes involvedin the decision making of the company eg: P&G -Walmart, IBM- Fedex

Advocate- Participates in product/servicedevelopment, high confidence

Supporter- Generates WOM, sales Client- Customer who makes multiple purchases,

Cross- selling, service selling Customer Prospect

B di f C t


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Bonding for Customer

relationship

Financial Bonds

Social Bonds

Customization bondsStructural bonds

B di f C t


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relationship

Financial Bonds- Volume and Frequency rewards,

Bundle and cross selling, Stable pricing

Volume and frequency: Frequent Flyer programs,

Reward program for hotels, Loyalty program forcredit cards

Bundle and cross selling: Magazine subscriptions,

credit cards, Telecom and internet services

Stable pricing: Bank Bond holders, 30 day priceguarantee by electronics firms



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relationship

Social Bonds Personal relationships, continuous relationships, and social

bonds among customers Marketers keep in touch with their clients to find their changing

needs and offer solutions Professional service providers: Doctors, lawyers, accountants Personal service providers: Hair dressers, baby sitters Key account Managers Long standing dealers with company

Social bonds among customers HOG More enduring than financial bonds

B di f C t


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relationship

Customisation Bond Mass customisation Marriot Hotels Levis

Ability to anticipate customer needs: Amazon.com using collaborative filtering technique

Difficult to break as competitor has to start fromscratch

However firms must be careful as some customersare very particular about what they need and donotwant any prompting


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Structural Bonds

Integrated information systems, Joined

investments and shared processes Walmart- P&G

AMEX Travel Related Services

NPV of profits from customer


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NPV of profits from customerretentions

NPV

ofPr o

fitsf

rom

acus to

me

r

50%

2Yr

40%

2.5 Yr

30%

3.3 yr

20%

5yr

10%

10 yr

5%

20 Yr

Defection

Time

period


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8th February 2010


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8th February 2010

3 underlying dimensions of


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3 underlying dimensions of

relationship formation

Purpose

Parties

Programs


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Defining the Purpose

Purpose definition is important to select the partiesand structure the programmes

Helps set the required collaboration expectationsfrom the parties involved.

Helps in evaluation of results vs. defined goals Strategic Goals Financial goals Marketing Goals Operational Goals Other goals


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Relational Parties

Important to choose which parties to start theengagement with

Can be scaled up to other groups based onexperience

Selection process: Intuitive judgmental On Demand Based on defined criteria Revenue/profitability potential Long term commitment Management Values Ability to act as an example for scaling up



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programs

3 types of programs Continuity marketing

One to one marketing

Partnering programs

These programs take different forms based on type

of engagement

Mass market customers Distributor customers

B-2-B customers


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A Process Model

Relationship Marketing is aprocess of

engaging in a co-operative and collaborative

relationship with customers.

4 Stages Formation process

Management and Governance process

Performance evaluation process Relationship enhancement process


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Economics of CRM

15th February 2010

Profit impact of Market share


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Profit impact of Market share

( PIMS)

Covers a wide range of industries

2600 business units

Market share %

Profitability %


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Lifetime value

Looks at customers from the point of View of Their lifetime revenue

Profit contribution

Advantage of calculating Life time Value Understanding potential of Prospects Credit cards for students


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Lifetime value

Depends on Length of an average lifetime

Average revenues generated per relevant time

period ( mostly yearly) over the lifetime Sales of additional products and services over

that time

Referrals generated by the customer over the

lifetime


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Life time Value

Acquisition cost

Base profit

Revenue

Growth

Cost Savings

Referrals

Price premium

1 2 3 4 5 6 7


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Credit cards example

Acquisition cost Advertising and promotions

Agency commissions

Cost of credit verification

Cost of processing

Cost of overheads


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Base profit from

Revenues Annual Membership fee

Commission for expenses charges to card( 2%)

Interest earnings

Cost

Servicing cost


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Revenue Growth Increasing usage of credit card for payments creates higher

commission stream

Financing purchase of high value purchases

Cost savings Customer support cost decreases with familiarity

E bills

ECS E mails and website usage


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Activity based costing for CRM

Activity based costing ( ABC) is a budgeting

and analysis process that evaluates

overhead and operating expenses by linking

costs to customers, services, products andorders

Used in manufacturing and serviceorganizations


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Traditional cost accounting

Allocates overhead costs to products based

on a single attribute No. of direct labour hours required/ unit:

manufacturing Purchase cost of merchandise resold: trading

Produces generalized results which do not

show exact costs


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ABC

Resources assigned to activities

Activities assigned to cost objects ( product/

service/customer/ distribution channel)

Focus is on activities required to produce eachproduct or provide each service based on the

products/ services consumption of the activities

Overhead cost is traced to each product/service by

identifying how many units of output is consumed bythe product/ service

C t l ifi ti i ABC


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Customer classification using ABC

Low

High

High

Netmargin

realiz

ed

Passive

-Product is critical

- Good supplier match

Price sensitive and few

special demands

Costly to service

But pay well

Aggressive

-Leverage their buying

power

-Low price and high

customization

Customers

above this lineare profitable

Documents

RM summary 15th Feb