University of Washington MBA Program ‘06

Managing Customer Relationships

through Direct Marketing

“Relationship Marketing & CRM Intro ”

Instructor: Elizabeth Stearns

Many choices

The answer ?

The Customer: DefinitionNot just the end user!!

Manufactureror

Distributor

Dealeror

Retailer

End User/Purchaser Consumer

Firm

Influencers/Gatekeepers/Spoilers

Customer: Any person or organization in the chain of distribution and decision whose actions can affect the purchase of your products and services

MegaCorp

Customer Definition includes the process of identification, understanding their role,

and then determining how to reach them.

- Decision Makers?

- Purchasers?

- Influencers of - Policy? - Purchase? - Training? - Referrals?

Remember, not all customers are worth the same!

Understand Your Customers• Their Demand for Your Product or Service

• Their Changes over Time

• Their Growth Needs

• Their Technology/Personal Service Conundrum

• Their Available Choices for Solutions

Their Value to You!

Determine/Understand the composition of

your best customers

A B

A B C

A C E

A D E

X Y Z

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Characteristic Quantity

What is Relationship Marketing?

How do you define relationship marketing as you

understand it?

Relationship Marketing

• Marketing on the Differences

• Marketing with a Memory• Demassifying the Communications

Process

• Customizing Communications and Products/Services

Relationship Marketing

• Evolutionary process, not an event

• Experience-based, not

transaction-based

• Mutually beneficial, two way

• Emotional and/or logical appeals

Relationship Process

MeasurementMeasurement

On-going DialogueOn-going Dialogue

Database SupportDatabase Support

CommunicationCommunication ObjectivesObjectives

Customer SegmentationCustomer Segmentation

Brand Equity / PromiseBrand Equity / Promise

Relationship Marketing

• Relationship marketing recognizes that prospects and customers can be at different points of awareness, interest and intent-to-buy along the prospectivity continuum

• Persuasion is a process: Dialogue precedes purchase/engagement for most products and services

Model of Market ProspectivityUnaware

Vague Awareness

Category Familiarity

Brand Familiarity

Passive Consideration

Active Interest

Purchase Usage

Brand Relevance to Customers

“To enhance customer loyalty, a company must strengthen the relationship with the brand”

“A focus on loyalty segmentation provides strategic and tactical insights that assist in building strong brands”

David Aaker, “Building Strong Brands”

Customer Loyalty

• Reduced or No Desire to Switch

• Increased Perception of Value /

Quality

• Reduced Risk of Buying (More)

• Trial New Products or Services

Customer Loyalty

• Feels Recognized and Special

• Volunteers Information

• Positive Word of Mouth /

Recommends to Others

Satisfaction =

Performance minus Expectations

“One of my customers cornered me at a charity board meeting

and told me, “I got a call after I picked up my car asking if I

was satisfied with the sales experience. Then I got a call after

the car was serviced, asking if I was satisfied with the service

experience. Finally, another surveyor called several weeks later

to check if I was happy with the ownership experience. So when

am I going to get a call asking if I’m satisfied with the

satisfaction survey experience?””

Reichheld, The Loyalty Effect

Make Surveys Count!

Why Relationship Marketing?

Economic Value to Keeping Customers

2% Retention equals approximately 10% reduction in costs

Why Customers Are More Valuable Over Time

Com

pan

y P

rofi

t

Time

Base Profit

Increased Purchases & Higher Balances

Reduced Operating Costs

Referrals

Price Premium

CustomerAcquisitionCost

• Profit Comes from Different SourcesReichheld & Sasser, Jr.

Relationship Marketing Can Increase Lifetime Value

• Increase the retention rate

• Increase the referral rate

• Increase the spending rate

• Decrease the direct costs

• Decrease the marketing costs

Continuous revenue relationship marketers have an expanded vocabulary with meanings unique to their world.

But do not use common Single Order terms such as:

Retention

Churn

Cancel

Marketing Allowables

Active Enrollees

AttritionLive

Lapsed Enrollment

Add-on Services

Open

Winback

Defection

Enrollments

Average Order Size

Circulation

Sales per thousand contacts

ReturnsOut-of-stock

Break-even Source: Kestnbaum

There are two distinct ends to the marketing spectrum with only a few relationships in the somewhat gray middle.

Single Order(s) Continuous Revenue

Initial Marketing Investment Low High

Key Factors Driving Value Recency, Frequency, Monetary Tenure, Revenue, Cross-sell

On-going Marketing Decisions Repromote: who, when, what Dialog, reward, winbackPromote to expand relationship

Revenue StreamSporadic, but relatively large

payment(s)Constant, but relatively

small payments

How Relationship Ends Whimper Bang

Source: Kestnbaum

“eLoyalty”

Thank you!!

CRM

The CRM Goal

Individual Permission – Based Interaction

The CRM Process

CRM

Interact& Deliver

Understand &Differentiate

Acquire& Retain

Develop &Customize

Customer Experience Cycle

CustomerUnderstanding

Customer Experience Cycle

CustomerUnderstanding

•Stages of the Purchase Cycle•Length of each Stage•Related Complexity of Each Stage•Indicators of When a Customer Enters a Stage•Frequency at Which a Customer Repeats the Cycle•Level of Resources Directed at Each Stage

Customer Purchase Cycle

Customer Experience Cycle

CustomerUnderstanding

•Information•Convenience•Efficiency•Price•Reputationetc.

Customer Needs

Customer Experience Cycle

CustomerUnderstanding

•Tied to specific stages of the purchase cycle.•Inbound and outbound.•Cross-channel and cross-media.•Situation-driven or driven by a deeper understanding of customer needs and behaviors

Customer Interaction Opportunities

CustomerUnderstanding

Corporate Comm./Public Relations

Advertising

Customer Care Web

CallCenter

Point of Sales/Service

MarketingCommunicationsField Sales

CustomerValue

CustomerSatisfaction

CustomerLoyalty

“Customer Experience Management”

• What is today’s experience?

• Who is in control of the touchpoints?

• What is the desired experience in customer terms?

• How can you make that happen?– Understand the gaps– Understand resources to achieve the desired state

The Customer Experience is not just about the sale:

Pre -Sale

Sale

Post -Sale

Questions

• When would one buy?

• Who would buy?

• Where would one buy?

• Roles: Influencer, Purchaser, and End user

• Turn those insights into a Customer Interaction Map

Craft a Customer Interaction or Customer Experience map for PFL…

Step One:1)Identify the specific Customer and role--

purchaser/end user/influencer

Step Two:2)Consider 2 broad categories: PFL controls and

does not control

Purchasing Catalyst

Customer Interaction MapEVENT: Birthday, Anniversary

Holiday

EVENT: Promotion, Interview,

New Job

ACTIVITY:Participation in new activity or sport

ACTIVITY:Travel (business or pleasure)

REALIZATION:Worn out, wrong sized, soiled, or damaged clothes

REALIZATION:Out-of-date or unfashionable wardrobe

IMPRESSION:Observe idols, peers and others wearing new styles

REFERRAL:Recommendation by influencer to purchase new clothing

EMOTION:Boredom or frustration with current wardrobe (self-confidence)

WISH LIST:Identify and prioritize needs for particular items

DISCUSS:With peers, family, and influencers

PERCEIVE:Quality of brands and products, develop preferences

IMPRESSION:First encounter with catalog cover, messages, & models

RECEIVE:Catalog in a timely manner

REQUEST:Addition to catalog mailing list via reply card or 800 number

OBSERVE:Television and print advertisement

RECEIVE:Catalog information card or direct marketing

GATHER INFO:Read product descriptions and look at pictures

COMPARE:Products, features, prices

SELECT:Items for purchase, planned or impulse

ASSESS:Size and fit.

Utilize sizing charts & staff recommendation

CHOOSE:Appropriate size & desired color or style

LEARN:Ordering procedure, shipping methods, & return policy

CONSIDER:Product promotions and purchase incentives

ESTIMATE:Shipping costs & delivery dates

ORDER:Fill out & send order form or call 800 number

SERVICE:Call center staff recommends related products

or promotions

REFLECT:Expectations, Performance, Satisfaction

IMPRESSION:In accordance with desired appearance

( by self & others)

EXAMINE:Fabric, features, overall quality

TRY-ON:Assess fit, style & comfort

THANK:Express appreciation for gift

OPEN GIFT:Immediate reaction to product

GIFT:Wrap and give gift (already wrapped?)

INSPECT:Right product, right size, right color

REVIEW:Packing list, return form & print insert offers

OPEN:Package remove contents

RECEIVE:Package from carrier at home

DECIDE:Keep or return product

COMPLAINT:Contact customer service about problems with order or product

RETURN:Product if not satisfied, possibly “re-gift”

ALTERATIONS:Hem cuffs or otherwise modify the item

STORAGE:Place item in a location, reflecting anticipated use

WEAR:Develop usage pattern,/ frequency

OBSERVE:Other people’s reactions to wearing the item

DEVELOP:Preference based on comfort, confidence & versatility

MAINTAIN:Keep item clean and in good condition

EXPERIENCE:Overall impression of the transaction

RELATIONSHIP:Continued desire to receive catalog in future (actually read it not trash)

REFERRAL:Recommend company or products to peers

LOYALTY:Develop a preference for channel & brands

INTENTIONS :Purchase again in future: similar items & different

COMPANY:Convenience, customer service & value

PRODUCT:

Quality, durability & brand perception

Long-Term Perceptions

Use Experience

Receipt/Gift/Try-On

Shopping

= Company has direct control

Pre-Shopping

CATALYST

EVENT: EVENT: EMOTIONAL: NEED: REALISATION: REWARD:

DISCUSS: REFERRAL: OBSERVE: RECEIVE: RESEARCH: WISH LIST:

CHANNEL SELECT: COMPARE: IMPULSE PURCHASE: ORDER: SERVICE:

INSPECT: OPEN: REFLECT: RECEIVE:

DELIVERY OF GIFT: IMPRESSION: THANKS: STORAGE: SAFETY: CLEANLINESS OBSERVE / FEEDBACK:

DISPOSAL: PERCEPTIONS: LOYALTY: COMPLAINT: EXPERIENCE: PRODUCT:

ONGOING USAGE / PERCEPTION

GIFT GIVING

POST SHOPPING

SHOPPING

PRE-SHOPPING

= identify direct control or indicate whose control

CRM Implementation

1. Situation Assessment– Internal evaluation of your capabilities– External evaluation of the customer’s experience with your org.

2. CRM Gap Analysis– Comparison between an organization's current state and the desired state. It

is essential to define the desired customer experience.

3. CRM Action Plan– Cost to implement– Benefit– Feasibility (organizational readiness, senior management acceptance, etc.)– Time

Business FocusProducts Sales Channels Marketing Services Customers

Organizational StructureProduct

Management

Place

Management

Promotion

Management

Channel

Management

Contact

Management

Customer

Management

Business MetricsProduct

Performance

Place

Performance

Program

Performance

Customer

Revenues

Customer

Satisfaction

Customer

Lifetime Value

and Loyalty

Customer InteractionMass

Transaction

Opportunistic

Promotion

Targeted

Campaigns

Segment-Specific

Communication

Customer-Contact

Integration

Individual

Permission-Based

Interaction

TechnologyTransaction

Processing

Data

Maintenance

Data

Access

Data

Warehouse

Data

Marts

Customer

Touchpoint

Systems

CRM Transformation Map

StrategyFormulation

ProgramFormulation

Contention

DifferingPerspectives

Marketing

FinanceHuman Resources

R&D

Operations

Sales

Project Planning

Consensus Execution

CoordinationCreativity

The Strategy Development and Implementation Process

Designing Offers for Customers

Offer

CostValue

PriceTimeEffortRisk

TechnicalInnovation

SalesRelation-ship

BrandEquity

Delivery Services

Product

A Business Focus on Customers Means:

• The organization's primary focus is on acquiring, deepening, and retaining customer relationships.

• The business model is based on optimizing value delivered to customers to maximize value received from them.

• Customers are at the core of the organization's value system, and the unifying force across business units and functions.

Business FocusProducts Sales Channels Marketing Services Customers

Organizing around CRM• Appoint segment managers, each responsible for

acquisition, development, and retention of their customer segment.

• Create a cross-functional Customer Relationship department, which will ensure that CRM strategies are successfully implemented across the organization

• Implement staff training, performance measurement and compensation based on CRM

Organizational StructureProduct

Management

Place

Management

Promotion

Management

Channel

Management

Contact

Management

Customer

Management

• Customer Revenues– Who are the top customers in terms of revenue?

– Are revenues from any customer segment increasing or decreasing?

• Customer Satisfaction– For which customer segments has satisfaction increased or decreased?

– How do satisfied customers differ from dissatisfied customers?

• Customer Loyalty and Value– How can we increase customer profitability?

– What drives loyalty for our most profitable customers? How can we increase customer loyalty?

– Which prospects should our organization focus on in order to “clone” our best customers?

Customer Metrics

Business MetricsProduct

Performance

Place

Performance

Program

Performance

Customer

Revenues

Customer

Satisfaction

Customer

Lifetime Value

and Loyalty

Developing Customer-Focused Metrics and Analyses

• Collect the Right Customer Data• Increase Your Customer I.Q.

– Customer Profiling– Customer Segmentation– Customer Valuation

• Profitability• Lifetime Value• Share of Wallet

– Customer Lifecycle– Customer Attitudes– Customer Changes

• Create and Track a Customer Scorecard

Two Kinds of Database People

• ConstructorsPeople who build databasesMerge/Purge, Hardware, Software

• CreatorsPeople who understand strategyBuild loyalty and repeat sales

• You need both kinds!

CEO’s Brain

Quality FirstCustomer FocusCustomer FirstService QualityCustomer Satisfaction

CostsRevenuesMarket ShareBudgetsIncentivesCompensationStrategic PlansProfitsMarket Value

Right Side Left Side

A CRM System is:• Any application that supports the collection, cleansing, and

maintenance of, and/or access to, customer information, and that provides this information to appropriate entities in support of CRM applications.

Including…• Customer databases• Marketing applications• Data mining applications• Sales force automation systems• Customer care applications• Online applications

TechnologyTransaction

Processing

Data

Maintenance

Data

Access

Data

Maintenance

Data

Marts

Customer

Touchpoint

Systems

CRM Systems Issues• It is important to develop a customer information plan, including:

– Where and how to efficiently collect customer data– How to transform data into meaningful, practical information– How to distribute customer information throughout the organization

• Build a business case for your system• Determine whether your system should be in-house or

outsourced, based on:– Solution scope– Core competencies– Time horizons– IT resources

CRM Systems Issues

• Monitor the quality of your data, including:– Data coverage

– Data accuracy

– Data precision

– Data relevance

• Make the data accessible to people who can put it to use• Gain the acceptance of employees who will be using the

system

Aspects of Measuring CRM Success:• Internal CRM Capabilities• Customer Interactions

– Create a customer interaction scorecard

• Customer Dynamics– Customer acquisition– Customer growth & development (cross-sell, upsell)– Customer retention– Customer reactivation

• Operational Efficiencies• Bottom-Line Business Metrics

– Increased revenues– Decreased costs– Increased competitive differentiation

Think like a Customer: 10 rules for Building Customer Relationships

1. The “average customer” does not exist – get to know us2. Make our experience special: Give us something to talk about.3. If something is wrong, fix it quickly.4. Guarantee our satisfaction.5. Trust us, and we’ll trust you. (respect)6. Don’t take us for granted.7. Our time is as important as your time.8. The details are important to us – they should be to you, too9. Employ people who are ready, willing, and able to serve us10. We care whether you’re a responsible corporate citizen.

Thank you!