CHAPTER 1 Overview of CRM E-Customer Relationship Management
Objectives Defines CRM as a process and as a hub of learning for the organization Outlines costs and benefits of the CRM system for organizations and customers
Old VS. New Marketing OLD MARKETING Transaction oriented (no future/end of relationship) All customers are equal 4P marketing (+preferences) Mass marketing Focus on new customers Broadcast oriented Transaction profit NEW MARKETING Relationship oriented (beginning of relationship) Share of wallet oriented (cross-selling, up-selling) All customers are not equal Relationship marketing Individual marketing Focus on existing customers Dialogue oriented (one-toone dialogue with each customer) Customer lifetime value Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
Transaction vs. Relationship Oriented Transactions are one-shot exchanges without any concern for the future Transaction marketing views the sale as the end of the relationship, whereas relationship marketing views the sale as the beginning of the relationship Relationships require two-way communications between customers and the organization. Further, information from these communications, when integrated, recorded, and managed enable relationships to be developed and maintained Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
Relationship Marketing The origins of CRM are in the concept of Relationship Marketing Relationship marketing focuses on maintaining a continuous relationship with customers and building long-term bonds Over time, a company learns more and more about the customer s needs and wants and is therefore able to provide more personalized and relevant one-to-one service Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
Customer Lifetime Value The present value of the future profits to be received from a given number of newly acquired or existing customers during a specified period of years It should be mentioned that it is not the customer s lifetime that is being estimated; rather it is the period of time that a company can reasonably expect them to be a customer Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
CRM: Why Now? The increasing number of high-quality competitors and products: Consumers today can choose from a large number of high quality items in every product category. When a company does innovate, its improvements are quickly copied Companies are creating bonds between themselves and their customers in order to better retain them; bonds created through CRM strategies foster loyalty. Loyalty cannot be quickly copied by competitors Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
CRM: Why Now? Changes in the pace of life: Consumers are demanding quicker and better service since there are more sources vying for their scarce time Families in which both spouses work and increasing hours on the job have led to less time available for shopping Companies who have CRM systems that can help the hurried consumer have a differential advantage Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
CRM: Why Now? Internet and Multi-channel Usage: Multi-channel customer contact is the key to CRM strategy The more environments a company can provide, the richer its customers experiences are likely to be. Companies are developing multi-channel contact centers (not simply call centers) to provide customers with meaningful interactions Companies need to maintain contact with customers in both synchronous and asynchronous manners in both live and automated formats Source: Baran, Galka, Strunk (2008), Principles of Customer Relationship Management
The Concept of Relationship Management The function of an enterprise s marketing activities is to bring buyers and sellers together, to create customers While getting customers is fundamental to business success, keeping customer is more important Major goal of organizations engage in interactions with customers over the long-term
The Concept of Relationship Management Consider the local butcher of years ago When a female customer walked into the shop, the butcher said hello and called the customer by name The butcher knew how the customer wanted her steaks and chops trimmed
The Concept of Relationship Management He knew her family always grilled hamburgers on the weekend Although he specialized in meats, he also stocked hamburger buns so his customer needed to make only one stop She appreciated the personalized service she received Both the butcher and the customer profited from this loyalty relationship
The Concept of Relationship Management Making a sale should not be viewed as the end of the marketing process, but rather as the start of the organization s relationship with a customer Successful small firms, such as the traditional butcher, have to be relationship oriented They know that their customers-buyers who purchase promises of satisfaction prefer to do business repeatedly with people and organizations they trust
The Concept of Relationship Management They know that establishing relationships with customers can increase long-run sales and reduce marketing costs In summary, a business enterprise must focus on both getting and keeping customers
Customer Relationship Management A customer relationship management (CRM) system, by its simplest definition, is a process to compile information that increase understanding of how to manage an organization s relationships with its customers
Customer Relationship Management CRM, a business strategy that uses information technology to provide the enterprise with a comprehensive, reliable, and integrated view of its customer base so that all processes and customer interactions help maintain and expand mutually beneficial relationships
Customer Relationship Management A CRM strategy should help organizations improve the profitability of their interactions with current and potential customers while at the same time making those interactions appear friendlier through individualization and personalization
Customer Relationship Management The purposes of a CRM system are to enhance customer service, improve customer satisfaction, and ensure customer retention by aligning business processes with technology integration
Customer Relationship Management An effective CRM system describes customer relationships in sufficient detail so that all aspects of the organization can access information, match customer needs with satisfying product offerings, remind customers of service requirements, know what other products a customer has purchased
Customer Relationship Management A bank s CRM should give a service representative in its telephone call center the ability to retrieve a compete record of a customer s company interactions seconds after the customer provide identification information Many CRM systems allow customers themselves to directly access information about their transactions with a company
The CRM System as a Hub of Applied Learning Information technology within a CRM system is a continuous process The firm recognizes its lack of knowledge and begins to learn about customer segments and their distinct needs before the first sale is made
The CRM System as a Hub of Applied Learning From purchases databases, mailing lists, e-mail referrals, and other sources organizations can acquire mountains of data about potential customers and thus begin to tailor promotional messages, product features and options
The CRM System as a Hub of Applied Learning If satisfied with the first transaction, the customer learns to trust the organization or to believe it will deliver on its promises The organization learns a bit about the customer s needs, and a circular process begins as the firm collects and analyzes data about customer transactions and preferences that is converted into information for different functional areas
The CRM System as a Hub of Applied Learning The basis for building effective CRM systems and strategies is to build profitable relationships in the long term that are mutually beneficial and that fulfill promises as customer experience the product or service offering
The CRM System as a Hub of Applied Learning However, many organizations experience difficulties in building information and e- commerce initiatives since implementing the new technology requires a complex array of skills to capture data from dynamic processes Further, organizations must balance the need for security with the goal of increasing personalization
The CRM Process as a Hub of Applied Learning Recognize needs/wants of defined segments Cultivate and develop interest, trust, desire Acquire customer and establish a relationship Customize channel outlets, locations Collect, warehouse, and analyze data Customize offers, products, and services Customize promotion, information, interactions
The CRM System as a Hub of Applied Learning Potential returns of CRM systems Potential benefits of CRM systems to the organization Potential costs of CRM systems to the organization Potential benefits of CRM systems for customers Potential costs of CRM systems for customers
Potential Returns of CRM Systems A fundamental principle of marketing is that customers are different Some customers cost a great deal to attract and require a great deal of service The basic tenet is that different customers represent different levels of profit for the firm
Potential Returns of CRM Systems Successful organizations attempt to define characteristics of the best customers, to then estimate the lifetime value of such customers, and to adjust marketing strategy accordingly
Potential Returns of CRM Systems Best customers A proportion of all customers in an industry who provide profitable interactions, cost little to care for, and who tend to spread positive word-ofmouth information about the organization
Potential Returns of CRM Systems Organization, or the CRM champions within the organization, tend to think of all the benefits of the systems the promise of increased revenues and lowered costs
Potential Returns of CRM Systems Customers, in contrast, may first think of the costs associated with the system and have to be reminded of some of the benefits For example, if the customer orders one product from a supplier on the Internet and there are suddenly 2,000 messages from firms that sell related goods, the customer may think twice before placing another order on the Web or with that organization
Potential Returns of CRM Systems Thus, it can be helpful for organizations to consider the benefits and disadvantages of CRM systems as they invest in their development
Potential Benefits of CRM Systems to the Organization Customer focus the organization is ready to view the purchasing process from the customer s point of view, to empathize with the customer s feelings, and to treat the customer s information with great care If organization can learn enough about individual customers, then the customer should be more satisfied, trusting, and willing to talk positively to others about the organization s wonderful approach
Potential Benefits of CRM Systems to the Organization Customer retention the organization satisfies customers and/or offers variety such that the customer comes back and repeats transactions Retaining customers and establishing customer loyalty are major objectives of CRM approaches An old business adage says, It costs six times as much to get a new customer as it does to keep an old customer
Potential Benefits of CRM Systems to the Organization Share of customer/share of wallet the organization wants to please customers to the point that they want the organization to sell them something else Historically, marketers have thought in terms of a single product, and Their goal has been achieving a high share of the market
Potential Benefits of CRM Systems to the Organization In relationship management, the company objective often is to achieve a high share of customer The company tries to sell an individual customer as many goods and services as it can over the lifetime of that customer s patronage
Potential Benefits of CRM Systems to the Organization Cross-selling The marketing of complementary products to existing customers For example, a retail bank that has a checking account customer may market a safety deposit box or a car loan to its customer overtime, it may be able to get the customer s home mortgage and equity loan business
Potential Benefits of CRM Systems to the Organization Up-selling The marketing of higher value products to new or existing customers For example, an insurance company may convince a customer to upgrade coverage, a credit card company may try to persuade a customer to upgrade to the platinum card, or a furniture store may attempt to convince a customer to purchase the more expensive version of a table
Potential Costs of CRM Systems to the Organization A major benefits of an effective CRM approach is that it follows marketers to send the right messages about the right offers to its best customers at the right time Achieving that level of quality from a CRM system may require a significant investment in the organization s information technology (IT) infrastructure For example, server-based systems, software licenses and updates, firewalls for security, personnel to install and maintain systems, training for system users in different disciplines, etc..
Potential Costs of CRM Systems to the Organization IT infrastructure the processing capacity required to fulfill customer needs. Another significant cost in developing an effective CRM system is the price of process change an alteration in the habitual pattern for accomplishing a task Implementing new systems and changing traditional thought patterns may both be very difficult to accomplish
Potential Costs of CRM Systems to the Organization Despite the best efforts of organizations to design effective CRM systems, it is people who must implement those systems and customers who must appreciate them, use them with ease, and feel safe in the process CRM systems hold the promise of growth and benefits but the implementation of such systems carries with it limits, costs, and other risks
Potential Benefits of CRM Systems for Customer Customers may also profit from CRM approaches and relationship marketing efforts Continuity Derived from a relationship with the same seller simplifies the buying process Implies a stable connection or linkage Reduce the risk of dealing with a new supplier
Potential Benefits of CRM Systems for Customer Buyers become regular customers because they want to do business with organizations that will provide a consistent level of product or service quality For example, Most people are loyal to their hairdressers or barbers They do not want to risk service quality that is below their expectations or risk disappointing the provider of this personal service
Potential Benefits of CRM Systems for Customer Effective CRM systems provide a number of contact or touch points the customer can communicate and explain his or her needs; for examples, the telephone, e-mail, point-of-purchase, or customer service desk
Potential Benefits of CRM Systems for Customer For example, The jewelry store salesperson would often send a note to a male customer just before his wife s birthday Unfortunately, if the salesperson left the company, so did the client information CRM systems are designed to offer the salesperson s notebook to the entire firm
Potential Benefits of CRM Systems for Customer In an age when personalization is rare, CRM information technology is bringing it back Personalization the organization knows the customer, by name, knows the customer s normal purchasing routine, and can forecast the customer s needs Relationship marketing has been called one-to-one marketing Because it allows marketers to tailor offering to individuals
Potential Benefits of CRM Systems for Customer For example, Neiman Marcus stores now track customers buying habits, preferences, and special dates through their computerized cash registers Sales associates can notify a client when new merchandise comes in or send a reminder about buying a gift for a personal event like an anniversary Customers may benefit from feeling special and enjoy being recognized as an important entity to the organization
Potential Costs of CRM Systems for Customers Perhaps the most obvious cost of the widespread adoption of CRM systems by organizations is the inevitable loss or privacy for customers Privacy confidentiality or a feeling that you can have some space to yourself where other people cannot intrude Organizations want to know which people purchase which products in which colors on which days of the week with which credit card
Potential Costs of CRM Systems for Customers Customers want to feel that no one knows that much about their personal choices Another intangible cost to the customer of developing a sole-source relationship with an organization is the opportunity cost associated with ignoring other offers from competitive sources If customers take the time to search, they may find a better price for the same features or find options that better meet the original need
Potential Costs of CRM Systems for Customers As firm reward loyal customers by sending them prizes, extra frequent flyer miles, or discounts on other products, customer become less inclined to search for alternatives
Summary Customer relationship management (CRM) is a business strategy that uses information technology to provide the enterprise with a comprehensive, reliable, and integrated view of its customer base so that all business processes and customer interactions help maintain and expand mutually beneficial relationships
Summary CRM systems help organizations improve the profitability of their interactions with current and potential customers while at the same time making those interactions safer and friendlier through individualization and personalization The system s goals are to enhance customer service, improve customer satisfaction, and ensure customer retention
Summary Customer retention and customer loyalty are major benefits of CRM systems to the organization Working to retain existing customers by managing relationships with them will generally increase revenues and, in most cases, reduce costs Positive outcomes can include a larger share of a customer s business are a result of activities such as cross-selling and up-selling
Summary There are also real costs to the organization from implementing CRM systems, including investment in information technologies and the reactions of people to process changes Customers benefit from CRM systems and relationship marketing in a number of ways, Including simpler buying processes, ongoing dialogs with the firm, and personalized attention
Summary Costs to customers of CRM systems include a loss of privacy and, perhaps, missed opportunities to learn about or to purchase offerings from other organizations While CRM systems can be expensive to implement, the long-term benefits should become apparent as time progress, repeat purchases occur, and customer loyalty deepens