Chapter 8 Customer Relationship Management Benefits of CRM Helps in improving customer retention and loyalty Helps in generating high customer profitability through a steady flow of customer purchases from the same retail outlet CRM can result in reduced cost of sales Meaning Of CRM CRM may be referred to as a business philosophy, a set of strategies, programmes and systems which focuses on identifying and building loyalty with a retailer s most valued customers Quote on CRM Relationship marketing is the process of building long term, win-win relationships with customers, distributors, dealers and suppliers. Over time relationship marketing promises and delivers high quality, efficient service and fair prices to the other party Philip Kotler The basic purpose of an organization is to create customers and retail them Peter Drucker Three Key Issues Evolved In CRM Process Focuses on customer retention and relationship Emphasizes on maximizing the life time value of customer segments and enhancing customer satisfaction Retailers focus on quality, customer service and marketing Through CRM Retailer Tries to Identify or find customers Try to understand customer needs Keep in touch with them Make all efforts to ensure that they get all they want from them Continuously strives to ensure that the customer is getting what has been promised
Critical Issues Affecting Customer Relationship Non availability of merchandise on the shelf Try to increase the number of contact points with the customer Use the concept of Loyalty Card Management to create the desired loyalty among the customers Issues Relevant to CRM Trying to control and manage out-of-stock situations Work on concepts like self service kiosks and self checkouts to take care of consumer trends Be more customer oriented and understand their buying behavior Managing Out of Stock Situations If non availability of merchandise on the shelf occurs frequently, it could lead to losing the customer for ever. To avoid such situations, the retailer needs to re-engineer the end-to-end processes and combine it with suitable IT tools Benefits of Self-Service Kiosks Without increase in space can be used for range expansion Enables customers to spends more shopping time Expansion to other services without increasing traffic Increase in sales points Benefits of Self-Service Kiosks Shopping becomes a pleasurable experience Supermarket retailers and established branded retailers can set up online kiosks for customers to place order fro merchandise from them Kiosks will be useful and help customers to save time and purchase the goods they want by shopping in several stores together Steps Involved in the CRM Process Gathering customer data and conducting a customer database Analyzing customer data and identifying target customers Develop CRM programmes for the different customer segments
Effective implementation of CRM programmes A. Collecting Customer Data Transactions A record of customer interactions Customer preferences Descriptive information Feedback on customer s response to marketing activities Identifying Customer Information Ask customers for the identifying information Offer a frequent shopper card to those customers who regularly patronize their retail outlet Benefits of Frequent Shopper Programme Customers provide demographic and other information about themselves to the retailer, when they sign up for the programme Customers are motivated to identify themselves at each transaction Customers are motivated to repeat purchase and increase no. of transactions B. Analyzing Customer Data Data Mining Technique Market Basket Analysis Focuses on the composition of basket or bundle of products purchased by the customers or household during a single shopping occasion Identifying Specific Market Segments Determine the lifetime customer value-ltv Work on the customer pyramid 80-20 Rule 80 % of the sales or profit usually comes from 20 % of customers Recency, Frequency, Monetary(RFM) Analysis First time customers Strategy: Try to convert this segment of customers to early repeat customer by offering schemes which motivate them to purchase more frequently Early repeat customers
Programmes directly towards maintaining loyalty, increase retention and spend more amount repeatedly Recency, Frequency, Monetary(RFM) Analysis High volume customers Programmes directed towards customers who fall in the high value segment such that they continue to maintain loyalty, increase retention and gain bigger share of the wallet by selling more quality merchandise to them C. Develop CRM Programmes for Different Customer Segments Retain best customers Special customer services Personalization Convert good customers to best customers Dealing with unprofitable customers Retail Best Customers Frequent shopper programme Offer special customer service Personalized rewards Develop a sense on community among customers Special Customer Services Retailers provide very high quality customer services so as to ensure the continued support or loyalty of its elite customer E.g. Jet Airways, allows its business/executive class customers to report fro check in at the airport just 15 minutes before the departure of the particular flight Personalization With technology and databases, retailers today are able to workout packages, deals targeted at individual customers. Personalization is a big challenge for retailers Converting Good Customers into Best Customers Try innovative ways Retailers go for a mix of cross selling and add-on selling For instance, banks such as HSBC or Citibank, to their existing credit card customers
offers add on or additional credit card which can be used by their spouse, parents, brothers Dealing With Unprofitable Customers Very often retailers may have to deal with customers who may actually be having negative LTV, and retailers may actually be losing money on the sale transactions they have with the customers Effective Implementation of CRM Programme Coordination of different functional activities in the retailers organization MIS department has to collect,analyze and make the relevant information easily accessible for employees to implement the programmes Model of Relationship Based Buying Antecedents I.e. the motivations which drive relationship based buying The concept of relationships The outcomes of the relationship Cost Benefit Factors Customers go for relationship buying when it results in saving of time, effort and inconvenience Customers will be interested in relationship buying if they expect positive reinforcement from it and perceive it to help them to avoid risk Customers maintain buying relationships if a change would involves costs At times customers resist change because it may involve extra effort on their part and they may prefer inertia Search costs Perceived risk Performance risk Financial risk Social risk Switching costs Constrained in Relationship Relationship buying
Transactional exchange Vulnerable Relationship Value added benefits Socio-cultural Factors Socialization Reciprocity Networks Purchase based on friendship Relationship Based Buying Trust Trust is a vital and essential ingredient in any relationship Trust as a willingness to rely on an exchange partner in whom one has confidence Commitment Ending desire for the relationship to continue and work Outcomes of Relationship Based Buying Supplier loyalty Increased buying Willingness to pay more Proactive word of mouth and customer-equity or good will Customers support for the suppliers well being Importance of Customer Retention Management Changing consumer attitudes and buying behaviors are forcing retailers to rethink the manner in which business is done The retailer will be interested in earning the customer store loyalty, which can be said to be a customer s pre-dominant patronage of retail outlet based on his or her favorable attitude The What Factors Quality of merchandise Assortment Value for price paid Store brands
The How Factors Store Layout In-store Assistance and Information Convenient Location Complaint Handling Personalization Efforts for Customer Retention Management Conducting a systematic research, microscopic in approach to understand consumers attitude and behavior and the market trends on a continuous basis Develop a core concept, which differentiates the retailer from competitors Have a meaningful branding with a message Have a strong retail design so as to match the consumer psyche and create differentiation through merchandising both inside and outside the outlet Adopt suitable management techniques to establish good supply chain system and source products differently from the market