Customer Relationship Management-notes-unit I

CUSTOMER RELATIONSHIP MANAGEMENT (As per Thiruvalluvar university Syllabus of II BBA) BBA) Department of BBA M.M.E.S women’s College Melvisharam

UNIT I Unit I: Introduction – Definition - Need for CRM- Complementary layers of CRM Customer Satisfaction Satisfaction - Customer Loyalty Loyalty - Product marketing marketing - Direct Direct Marketing. ---------------------------------------------------------------------------------

Definition of CRM: Customer Relationship Management (CRM) is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value and strong relationship with customers. A commonly cited definition of CRM is that of CRM (UK) Ltd (2002), as follows:

“Customer Relationship Management is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships between consumers and organizations”. CRM is neither a product, nor service but a business strategy to learn more about customer behaviour and requirements in order to create long term relationship with them. CRM involv involves es use of technol technology ogy in attrac attractin ting g new and profit profitabl ablee custom customers ers while while forming tighter bonds with existing one.

Needs / objectives of CRM: 1. Enable the company to identify, contact attract and acquire new customers: CRM allows the company to focus its limited marketing resources on the most promising targ target et mark market etss with with the the highe highest st pote potent ntia iall valu value. e. This This is typi typica call lly y done done usin using g the the information generated by CRM application which a) Automatical Automatically ly generate generatess customer customer and market market profiles profiles b) Identify Identify and target target market market with with high high revenues revenues c) Generates, Generates, leads, leads, tracks tracks marketin marketing g campaigns campaigns across across a variety variety of media media d) Selects Selects appropriat appropriatee contact media, media, plans plans promotion promotionss and incentives incentives e) Manages Manages the proposa proposall process process through through negotiations negotiations to close. close. 2. Obtains a better understanding of the customers- their wants and needs:

Trusted by over 1 million members

Try Scribd FREE for 30 days to access over 125 million titles without ads or interruptions! Start Free Trial Cancel Anytime.













CRM applic applicati ations ons,, often often used used in combin combinati ation on with with data data warehou warehousin sing, g, e-comm e-commerce erce applications and call centers, allow companies to gather and access information about customers buying behavior, wants in terms of products or services provided by the company. The information is used in planning and execution go marketing campaigns. It enables customers to seek products and reveal their preferences in an interactive manner. 3. Defines the appropriate product and service offering and match it to the unique needs of the customer: CRM provides customization and personalization capabilities that gives customers the power to view the enterprise in a way that they can relate to, there by making it easier for them to do business with it. This includes configurati configuration, on, pricing, pricing, quotation, quotation, catalog and personal generation capabilities that harness the power of Internet while ensuring the flexibility to respond quickly to changing technical a nd business conditions. 4. Manages and optimizes company’s sales cycle: The productivity of the sale process is increased by accurating the contracting process and improving revenue velocity. This is accompanied to capabilities such as online order entry, credit card processing, tax calculations, auctions, billing, order status and payment processing. CRM solutions also include tools, which provide the ability to communicate important information from supply chain modules to the customer interface in real time. These tools can help in determining feasibility, profitability and delivery dates, while understanding the constraints of the entire supply production and logistics chain across multiple channels and enterprises. 5. Increases retention of existing customers through improved sales, service and support : CRM applications document all post –close service and support related interaction with customers, record customer requests and collect feedback from variety of communication channels and use the information to anticipate the demand for service and technical assistance and maximize customer satisfaction and retention while maximizing customer service service staff. staff. The goal is to ensure greater customer customer loyalty. loyalty. CRM provides provides capabilities capabilities for providing online support information, online product registration to an electronic help desk, self service support logging and tracking and integration with call centers. 6. Identifies Cross selling and up selling opportunities: CRM can help in identifying opportunities for cross selling and up selling of higher value added services to the existing customers, based on their past purchasing behaviour.

Complementary Layers of CRM / CRM perspectives













2. CRM from the Customer Life Cycle (CLC) Perspective. 3. CRM from the Business Strategy Perspective. 1. CRM from the Information Technology Perspective .

From the technology perspective, companies often buy into software that will help to achieve their business goals. For many, CRM is far more than a new software package, the renaming of traditional customer services, or an IT-based customer management system to support sales people. However, IT is vital since it underpins CRM, and has the payoff payoffss associ associate ated d with with modern modern technolog technology, y, such such as speed, speed, ease ease of use, use, power power and memory, and so on. Information Technology (IT) and CRM have three key elements, namely Customer Touch Points, Applications, and Data Stores. This section is based loosely upon Raisch (2001) The e-Marketplace.

Customer Touch Points are vital since your business has a marketing orientation and focuses upon the customer and his or her current and future needs. This is the interface between your organisation and its customers. For example you buy a new car from a dealership, and you enter a showroom. The dealership is a contact point. You meet with a salesperson whom demonstrates the car. The salesperson is a contact point. You go home and look at the car manufacturer's website, and then send the company an e-mail. Both poi Oth poi includ includ 3G teleph teleph vid conf nci













Mark Market etin ing g (e.g. (e.g. data data mini mining ng soft softwa ware re* * and and perm permis issi sion on mark market etin ing* g**) *),, Sale Saless (e.g (e.g.. monitoring Customer Touch Points), and Service (e.g. customer care). Data Stores contain contain data on every aspect of the customer, customer, and the Customer Life Cycle (CLC). For example, an organisation keeps data on the products you buy, when you buy them, and where they are sent. Data is also kept on the web pages that you visit and the products that you consider, but then do not buy. Leads are stored here. Data on the life time value of individual customers is stored here, as well as details of how and when the customer was recruited, how - and for how long - individuals have been retained, and details of any products that have been extended to individuals are also stored. The data is analysed using Applications.

*Data *Data Mining Mining is where where an organi organisat sation ion evalua evaluates tes large large Data Data Stores Stores for patter patterns, ns, or relationships between groups or individuals (or segments). Applications present 'patterns' in a format that can be used for marketing decision-making. ** Permission Marketing is where a customer elects to accept (or 'opt-in' to) marketing material from an organisation e.g. where you buy insurance and the vendor asks if you wish to receive further details from them, or similar organisations. It is so called because marketers need your 'permission' to market to you. Permission marketing can occur at any of the Customer Touch Points. 2. CRM from the Customer Life Cycle (CLC) Perspective.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products of services that customers need throughout their lives. It is marketing orientated rather than product orientated. Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation. The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives. lives. It is market marketing ing orient orientate ated d rather rather than than produc productt orient orientate ated, d, and embodi embodies es the marketing concept. Essentially, CLC is a summary of the key stages in a customer's relationsh relationship ip with an organisatio organisation. n. The problem here is that every organisation' organisation'ss product product offering is different, which makes it impossible to draw out a single Life Cycle that is the same for every organisation.













Let's consider an example from the Banking sector. HSBC has a number of products that it aims at its customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start young when you want to save money. 11-15 year olds are targeted targeted with the Livecash Account, and 16-17 year olds with the Right Track Account. Account. Then when (or if) you begin College or University there are Student Loans, and when you qualify there are Recent Graduate Accounts. When you begin work there are many types of current and savings account, and you may wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It would also be advisable to take out a pension. As you progr progres esss thro through ugh your your care career er you you begin begin your your own own fami family ly,, and and save save for for your your own children's education. You embark upon a number of savings plans and schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral expenses - although HSBC may not offer this!). This is how an organization such as HSBC, which is marketing orientated, can recruit and retain retain customers, customers, and then extend additional products products and services to them - throughout throughout the individual's life. This is an example of a Customer Life Cycle (CLC). Another important point is that a lifetime CLC is made up many shorter CLC's. So, for example, Volkswagen Cars retains a customer for many years and one can predict the products that meet a customers needs throughout his or her family lifetime. However the purchase of each car, will in itself be a CLC with many Customer Touch Points. The













factory, and returns every year for its annual service. Then after three years, the customer decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is simply the shorter-term life cycles viewed consecutively. 3. CRM from the Business Strategy Perspective:

The Business Strategy perspective has most in common with many of the lessons and topics contained on this website, and indeed within the field of marketing itself. The diagram below shows the Marketing Teacher Model of CRM and Business Strategy. Our model contains three key phases - customer acquisition, customer retention and customer extention, and three contextual factors - marketing orientation, value creation and innovatove IT. We now consider the Business Strategy Perspective on CRM. Here, we propose a model, which is a hybrid, and typical of many of the models and diagrams of CRM that you will find on The Internet and in popular books on the topic of eMarketing/eCommerce. The model has three key phases and three contextual factors:

Three key phases: • • •

1. Customer Acquisition. 2. Customer Retention. 3. Customer Extension.















1. Customer Acquisition - This is the process of attracting our customer for the first their first purchase. We have acquired our o ur customer. Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase pu rchase from us for the first time. 2. Customer Retention - Our customer returns to us and buys for a second time. We keep them as a customer. This is most likely to be the purchase of a similar product or service, or the next level of o f product or service. Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase pu rchase from us regularly. 3. Customer Extension - Our customers are regularly returning to purchase from us. We introduce products and services to our ou r loyal customers that may not wholly relate to their original purchase. These are additional, supplementary purchases. Of course once our loyal customers have purchased them, our goal is to retain them as customers for the extended products or services. Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase pu rchase additional or supplementary products and services. 4. Marketing Orientation - means that the wholes organisation is focused upon the needs of customers. Customer needs are addressed ad dressed by the Three Levels of a Product whereby the organisations not only supplies the actual, tangible product, but also the core product and its benefit, and also the augmented product such as a warranty and customer service. Marketing orientation will focus upon the needs of consumers for all three levels of a product. (N.B. 'market' orientation and 'marketing' orientation are not the same). 5. Value Creation - centres on the generation of shareholder value based upon the satisfaction of customer needs (as with marketing orientation) and the delivery of a sustainable competitive advantage.













Customer Satisfaction: Oliver defines Customer satisfaction as follows “Satisfaction “ Satisfaction is the customer fulfillment response. It is a judgment that a product or service feature, or the product or service itself provides a pleasurable level of consumption related fulfillment.” Satisfaction can be viewed as contentment. con tentment. Satisfaction may also be associated with some sense of happiness. For those services that really surprise in the positive way, satisfaction may mean delight. And in some situations, where the removal of negative aspect leads to satisfaction, the consumer may associate a sense of relief w ith satisfaction. Retention in competitive markets is generally believed to be a product of customer satisfaction. Satisfaction is a psychological process of evaluating perceived performance outcome based on predetermined expectations.

Satisfaction drivers: Cumby and Barnes suggest that driver exist on five levels and, that these generally involve progressively more personal contact with the service supplier: 1. Core Core prod product uct or serv servic icee 2. Suppo Support rt ser servi vice ce and and syst system emss 3. Tech Techni nical cal perfo perform rman ance ce 4. Elemen Elements ts of of custo customer mer intera interacti ction on 5. Affect Affective ive dimens dimension ion of servic services es 1. Core Product or service : this is the basic product or service provided by the company and probably provides the supplier with the least opportunity to differentiate or add value. 2. Support services and systems: These include the peripheral support services that enhance the provision of the core product or services. The customer may well receive an excellent core product or service from the supplier but are dissatisfied with the supplier because of inferior support service and systems.

“customer satisfactio satisfaction n model” model” deals with 3. Technical Technical Performance: Performance: The level of “customer













It is quite possible for the supplier to get things right on the first four levels and to dissat dissatisf isfy y the custom customer er because because of someth something ing that that happens happens on the fifth fifth level. level. This This emphasize the importance of ‘critical episode’ in the exchange process

Customer Satisfaction Process : At the heart of any successful strategy to ‘manage ‘ manage’’ customer satisfaction is the ability to “listen to the customer ”. ”. They suggest five categories of approach. 1. Customer satisfaction indices 2. Feedback 3. Market research 4. Front-line personnel 5. Strategic activities 1. Customer Satisfaction Indices: Custom Customer er satisf satisfact action ion indice indicess are among among the most most popular popular methods methods of tracki tracking ng or measur measuring ing custom customer er satisf satisfact action ion.. Indeed Indeed,, busines businesss of all sorts sorts now divert divert consid consider er energies into tracking customer satisfaction in this way. 2. Feedback: Feedback in this context includes comments, complaints and questions ,It may be among the most effective means of establishing what the customer regards as a satisfactory level of performance and whether ‘dissatisfiers’ exist within the operation as it is based on actual performance rather than contrived situations. 3. Market Research: In addition to research among customers and non-customers into potential ‘satisfiers’, ‘dissatisfiers’ and ‘customer expectations’, market research can be used as customer entrance (to establish drivers which bought the customer to the company) and customer exit (to establish those factors which cause the customer to go elsewhere).Again more valuable information may be achieved in the latter rather than the former as it is based on actual behavior rather than the perception. 4. Frontline Personnel: Direct contact with staff can provide a good means of listening to the customer. As it is













    

Reduces price elasticity Insulates market share from competitors Lowers transaction cost Reduces failure rates and cost of attracting new customers Improves the firm’s reputation in the market place

Customer satisfaction

Customer Retention

Customer profitability

Simple return on Relationship model Except in a few rare cases, customer satisfaction is the key of securing customer loyalty and to generating superior long-term financial p erformance.

Customer Loyalty: Definition of Loyalty: Loyalty may be defined as “The biased behavioral response, expressed over time by some decision making unit with respect to one out of a set of processes resulting in brand commitment”. Loya Loyalt lty y must must be seen seen as “bia “biase sed d repe repeat at purc purcha hase se behav behavio ior” r” or repe repeat at patro patrona nage ge accompanied accompanied by a favorable favorable attitude. Loyalty Loyalty can originate from factors extrinsic extrinsic to the relationship such as the market structure in which the relationship exists, but also in intrinsic factors such as relationship strength and handling of critical episodes during the relationship.

Advantages for setting up Loyalty:













1) Current loyal customers who will continue to use the product p roduct or service 2) Current customers who may switch to another brand Occasional customers customers who 3) Occasional who woul would d incr increa ease se cons consum umpt ptio ion n of the the bran brand d if the the incentives were right. 4) Occasional Occasional customers customers who who woul would d decr decrea ease se cons consum umpt ptio ion n of the the bran brand d if competitor offered the right incentive. 5) Non-users who could become customers. 6) Non- users who could never become customers. It is important to distinguish between loyalty to the generic product, the brand and particular supplier. Many people drink coffee as beverage. Those who drink considerable quantity of coffee can be described as having a product loyalty. Within the group, there will be some that buy just the cheapest coffee or drink whatever available. They are product loyal but not brand loyal. They are not disloyal as that implies that there has been a loyalty, but they have no loyalty at all to a particular brand. Those who have a particular brand loyalty, they always buy a particular brand or at least a brand from the same product.

Types of Customer Loyalty: 1. Su Supp ppli lier er Loya Loyalt lty: y:

Many customers are not only loyal to a particular brand, but also loyal to particular supplier, supplier, a type of customer customer known as hostage hostage i.e., somebody somebody who has no choice but to be a customer of a particular brand or supplier. Such a situation could occur in a small village community where there is only a shop selling perhaps just one brand of bread. A customer who is without transport could be forced, if they really want bread beans, to be loyal to that one brand and that one supplier. The term introduced for this is PSEUDOLOYALTY. 2. Su Supr praa-Lo Loya yalt lty y: Supra-loyalty is a term that can be applied to those who are extremely loyal to an organization, product or service. In the case of loyalty to an organization, that have















in effect becoming de-loyal. if they are very disappointed they may become ANTILOYAL, seek retribution against the organization. 4. Dislo sloyal yalty: ty: It is a mute point as to whether a customer can actually be disloyal. Customers owe nothing, in terms of loyalty to suppliers. Many customers may feel that they are being disloyal if they go else where but feeling disloyal is not the same as being disloyal. The only obligation actually placed on the customer is to render payment for the product or service provided by payment of monetary and other terms. Organizations, having a responsibility to their customers, can be disloyal too. Disloyalty is not providing a product or service deliberately to a previously loyal customer. An example of this would be an organization that treated a new customer better, deliberately or unintentionally than the existing customers. In this case, the organization would be being disloyal to relationship that had been built up. If the existing customer decides to go else elsewh wher ere, e, then then they they would would be maki making ng a perf perfect ectly ly vali valid d and and prope properr decis decisio ion. n. Disloyalty implies an act and not the customer is capable of such an act. The customer may be a – loyal, de-loyal de- loyal or even anti-loyal but never disloyal

Comfort Zones: Tice has developed the concept of comfort zone in which people operate. Change of any type even if for the better, can be very uncomfortable. People become frozen into a particular situation and whilst it may not be the better situation available, the effort and













situat situation ions, s, custom customers ers who do not renew renew are conside considered red "lost "lost for good". good". Magazi Magazine ne subscriptions and car insurance are examples of customer retention situations. The other catego category ry is referr referred ed to as custom customer er migrat migration ionss situat situation ions. s. In custom customer er migrat migration ion situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future. In customer retention situations, the firm knows when the relationship is over. One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned). Most models to calculate CLV apply to the contractual or customer retention situation. These models make several simplifying assumptions and often involve the following inputs: Churn rate The percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate . Most models can be written using either churn rate or retention rate. If the model uses only one churn rate, the assumption is that the churn rate is constant ac ross the life of the customer relationship. Discount rate The cost of capital used to discount future revenue from a customer. Discounting is an advanced topic that is frequently ignored in customer lifetime value calculations. The current interest rate is sometimes used as a simple (but incorrect) proxy for discount for discount rate. rate. Retention cost The amount of money a company has to spend in a given period to retain













* IDENTIFY CUSTOMERS * ATTRACT THEIR ATTENTION * SATISFY WANTS Product Marketing: - Definition "The essential element of marketing is customer want satisfaction. The customer’s want satisfaction is the economic and social reason for an organisation’s existence." The Marketing Plan: - Definition ".... a document prepared for the purpose of providing guidelines for a business units marketing programmes and allocations over a prescribed planning period." Marketing Planning - Definition : Mark Market etin ing g plan planni ning ng is vita vitall for for all all succ succes essf sful ul comp compan anie iess beca becaus usee the the busi busine ness ss environ environmen mentt is highly highly comple complex, x, dynami dynamic, c, and compet competiti itive. ve. Market Marketing ing and market market planning is relevant to large and small organisations in both public and private sectors.

The Marketing Plan: 1. Market Research: - Situation Analysis 

A situation analysis is broken down into several different areas. These are: SWOT















Size - Frequency of use/level of demand in the target market, being either heavy, medium, or light Using the above factors in formulating formulating a group which satisfy all of the above points, you have now established a target market B. Competitor Appraisal: Once a target market has been established you must then analyse the competition (if any). There two three types of competition a company can have:

1. Direct Competition - When one business approaches the customers of another business and attempts to win them over. This only happens when two or more companies are producing the same product 2. Substitute Products - Another type of competition which can come from one company producing a substitute substitute product of another companies product line Competitor Monitoring:

This is a vital part of the market research. The best form of competitor monitoring, is to calculate their market share by estimating the total value of the market. If a competitor is gaining a greater market share, it is time for the company to re-organise their marketing plan. Compet Competit itiv ivee advan advanta tage ge refe refers rs to all all thin things gs an orga organi nisa sati tion on can can do bett better er than than its its













D. SWOT Analysis: This needless to say means an analysis of the: Strengths - which areas a business excels compared to its competitors eakness sses es - whic which h area areass othe otherr busi busine ness sses es has has to impr improv ovee on in rela relati tion on to its its Weakne competitors O pportunities - All things which benefit the business Threats - All things which can threaten a businesses survival, or a product's survival

Aspects which influence a SWOT analysis are: - Market share share - Sales - Profits - Competition Competition - Advertising Advertising - Size of customer base - Pricing Pricing - Innovative potential. - Product characteristics (company reputation, price, design, colour uniqueness, quality, warranty, packaging, sales support, and positioning in market)

2. Objectives and Strategies: A. Specific Objectives : Establishing objectives it is usually thought of as the most important feature in the planning process. The success and failure of a marketing plan are determined by how















1. Market share: An increase in a companies market share shows how the company is gaining on competitors. To attain greater market share, the following strategies, which are generally thought of as sure winners include:   

More aggressive pricing (lowering price or providing discounts) Search for new outlets to distribute your products to A change in some features of your products, to open up to a possibly wider market

2. Product Range : By expansion of a company’s product range, a company can attract a wider market than it's initial market, and maybe also expand into other markets 3. Geographical Some geograp geographic hical al market marketss offer offer greate greaterr market market Geographical Representation: Representation: Some potential than others, and is in the interests of the firm to invest there to reach these













Packaging Sizes Service Warranties Returns Positioning

Credit Terms

PLACE: Transport Channels Coverage Locations Inventory

An additional additional part of the marketin marketing g mix now exists, it is called called Service ' '. Factors here include:     

Customer Needs Installation, Maintenance, and repairs Guarantees/Warranty period After-sales Service Complaints & returns procedures













(III) Order-filling costs (Distribution and insurance costs)

Marketers use different tools in order to get the desired response from the customer or best satisfy their needs. These tools are know n as The Marketing Mix. Marketing Mix is probably the most famous term in marketing marketing..

Marketing Mix Marketing Mix is a combination of marketing tools that a company uses to satisfy their target customers and achieving organizational goals. McCarthy classified all these marketing tools under four broad categories:













The important thing to note is that all these four P’s (variable) are controllable , subject to internal and external constraints of marketing environment. Marketers, using different blends of these variables, can target different group of customers having different needs. So, a customer may call marketing mix “the offering” .

Product Product is the actually offering by the company to its targeted customers which also includes value added stuff. Product may be tangible (goods) or intangible (services).

While formulating the marketing strategy, product decisions include: •

What to offer? Brand name













Availability of the product at the right place, at the right time and in the right quantity is crucial in placement decisions. Placement decisions include: • • • • • • •

Placement Distribution channels Logistics Inventory Order processing Market coverage selection of channel members

Promotion















Seven phases to new product development Process: Only a few ideas are good enough to reach commercialization. Ideas can be generated by chance, or by systematic approach. Need a purposeful, focused effort to identify new















MIS to determine the market potential sales etc.  Find out if it is technically feasible to produce the new product. If you can produce the new product at a low enough cost so as to be able to make a profit.













puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline). In theory it's the same for a product. After a period of development it is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilises and the product becomes mature; then after a period of time the













In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.













Customer segmentation procedures include: deciding what data will be collected and how it will be gathered; collecting data and integrating data from various sources; developing methods of data analysis for segmentation; establishing effective communication among relevant business units (such as marketing and customer service) about the segmentation; and imple implement menting ing applica applicatio tions ns to effect effectivel ively y deal with the data data and respond respond to the



















































Customer Relationship Management-notes-unit I

Recommend Documents