chapter14-crm vkumar

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www.drvkumar.com Copyright Dr. V. Kumar, 2005

Customer Relationship

ManagementA Databased Approach

V. Kumar

Werner J. Reinartz

Instructor¶s Presentation Slides




Chapter Fourteen

Impact of CRM on Marketing

Channels




Topics Discussed

� Role of traditional channels in customer relationships

� Emerging channel trends that impact CRM

� Recent opportunities and challenges for CRM with respect todistribution channels

� Implications for CRM

� CRM through direct channel

� Drivers and Behavioral Characteristics of multi-channel buying




Channels

� ³Flow´ of the organization¶s offerings, e.g. physical goods or

information, to the ultimate end users (³end customer´), as well as

that of sales proceeds or realizations from the customer back to the

marketing firm

� ³Marketing or distribution channels´:

± All entities (e.g. distributors, wholesalers, retailers, broker, agents, etc.)

that perform certain functions for the marketing firm

� ³Communication or contact channels´:

± Convey information to the customers to raise their awareness about the

firm¶s products and services and persuade them to make purchases




Channel Management

Channel Management

of:Contact Channels:

Managing the flow of information

between any two parties, using

one or more contact modes

Distribution Channels:

Managing the flow of goods and

services from manufacturer to

end-user




Customer Relationships:

Direct, Upstream & Downstream

Manufacturer End Customer

Channel

Intermediaries

Goods

Information

Dollars

Goods

Information

Dollars

Goods

Information

Dollars

Goods

Information

Dollars

Goods

Information

Dollars

Goods

Information

Dollars

DIRECT RELATIONSHIP

UPSTREAM

RELATIONSHIP

(from channel perspective)

DOWNSTREAM

RELATIONSHIP

(from Channel perspective)




Role of Traditional Channels in

Customer Relationships

� Indirect Customer relationship

± Building a good working relationship with the channel member

(Upstream Relationship)

± Providing the channel member incentives to build a strong customer relationship

(Downstream Relationship)

� Direct Customer relationship

± Firm communicates product information to consumer through contact channels

± Point of purchase advertising and promotions at the channel outlet (e.g. retail

point) persuades consumer to make the purchase

± Consumer information flows indirectly to the firm through the channel¶s sales data

± By building brand equity helps firms often try to build a ³pseudo-relationship´ with

all prospective consumers




Key Factors Affecting CRM through

Traditional Channels

� Incentives for coordinating information exchange

± Eg: Procter & Gamble and Wal-Mart invested in EDI (Electronic Data

Interchange) technology

± Allowed Procter & Gamble access to real time customer data to forge customer relationships as well as reduce distribution costs

� Protecting the Interests of the Channels

± Toyota Motor Corporation¶s Lexus division required dealers to invest in facilities,

systems and personnel required to deliver extraordinary customer service

± Result: Lexus enabled its dealers to make several thousand dollars on the sale

of each new car




Challenges Facing CRM through

Traditional Channels

� Prevent Dilution of CRM strategies

± Traditional intermediary entities make continual and direct interaction with end

customer difficult

± Private label promotions by retailers often go diametrically against customer

relationship programs of the national brands

� Indirect Control of CRM through Channels

± Vertical integration and strategic alliances by firms to control or align interests of

their channels to their customer relationship strategy

� Eliciting Customer Information from all Channels for Central Processing

± Lack of precise information about individual customers complicates CRM

implementation

± Since retailers often compete against one another, it is difficult for many firms to

convince them to part with critical sales information that will be centrally

processed by the firm




Emerging Channel Trends that Impact CRM

� Proliferation of Direct Channels

± Firms have direct access to the end-customers

± Firms can recognize at every instance of interaction a prior customer

± Interaction through a technology enabled channel, enables firm to record and

store all relevant information about the customer

± Avoids trouble of negotiating with, providing incentives to, and training a third-

party channel member, such as a retailer

� Media channel proliferation and emergence of multi-channel shoppers

± People change their channel habits and different consumers derive differingbenefits from different channels

± New channels allow agents other than the firm and its dedicated marketing

channels to transmit or even broadcast information related to the firm or product




Recent Opportunities and Challenges for CRM

� Opportunities for increasing returns for CRM

± Widening Coverage of the Consumer Population

± Improved Customer Information for the Firm

± Lower dependency on Specific Channel Partners

± Customer Self-selection across Channels and Individualization

� New challenges for the firm to benefit from CRM

± Media Planning becoming increasingly difficult

± Consistency in service level and the need for IT systems

± Channel Conflict and Channel Differentiation




Impact of Emerging Channel Environment

on CRM

OPPORTUNITIES CHALLENGESAccess to a larger number of consumers Re-engineering IT systems and physical logistics

each time a new channel emerges and captures the

customer¶s imagination

Multi-channel habits of consumers Media dilution and message dissonance across

different channels

Direct and customized interaction with customers

over different channels nurturing differentiated

customer relationships

Multi-channel conversation with the consumers ±

Inter-channel coordination problems: problems in

managing integrated marketing communications

Customer self-selection into channels ±

individualization and segmentation

Channel conflict± multi channel interaction with

consumers can lead to conflict of interest among

competing channels for the same share of customer contact or service

Channel specialization ± each performing a

different channel function can mitigate channel

conflict

Possible rise in consumer expectation of product or

service quality




Implications for CRM

� Electronic channels and availability of precise customer information

± Possible to individualize the marketing mix offering including products and

services more precisely to each customer

± Opportunities to sell complementary products

± Sophisticated customer databases may also allow firms to conceive and test

market new products to meet needs of the customers

� Seamless Customer Information Systems

± Marketing proposition and initiatives remain consistent to a particular end

customer across channels

� Co-opetition among Channels

± Co-operation in terms of exchange and availability of customer information across

channels




Customer Relationships throughDifferentiated Channels

Customer Decision StageChannel Function

Facilitate search

Inventory Control

Transaction

Point of Purchase

Awareness

Learning

Trial

Evaluation

Repeat

Purchase

Channel 1

Channel 3

Channel 2

Channel 4

Channel 5

Preferred Channel

Mass media and the internet can perform efficiently as Channel 1

A well-trained sales force can be more effective as channels 2 & 3.

Word-of-mouth plays a greater role as Channel 4




CRM through a Direct Channel ± the Internet

� Communication and Sales

± Broadcasted as well as customized marketing communication

± Low cost (direct) channel for transacting business

� Auto-Segmentation

± Automatically targets a certain segment of consumers - younger, more

educated, with a higher than average income, and probably with a lower

base rate loyalty




CRM through a Direct Channel ±

the Internet (contd.)

� Channel Specialization and Differentiation on the Internet:

± Advertisers

± Incentive providers

± Bargain discounters

± Infomediaries

± Free offerer

± Recommendation systems

± Track user navigation and habits for targeted advertising




Drivers and Characteristics of Multi-channel Buying

Customer Characteristics

�Cross-buying

�Returns

�Customer Initiated Contacts

�Number of Web Based Contacts

�Tenure

�Purchase Frequency

Supplier Specific Factors

�Number of different contact channels

�Type of Contact Channel

�Contact Channel Mix

Customer Demographics

�Number of Employees

�Annual Sales

�Industry Category

Multi-channel

Buying

Behavioral

Characteristics

�Revenues

�Share of Wallet�Past Customer

Value

�Likelihood to Stay

Active




Customer Characteristics

� Cross Buying:

± Defined as the number of different product categories that a customer has bought

± Familiarity with a brand or firm is expected to reduce the perceived risk in

customer purchases leading to a higher degree of multi-channel buying

� Returns:± Returns are expected to be positively associated with multi-channel buying until a

certain threshold, beyond which an increase in the number of returns can lead to

a decrease in the motivation to shop across multiple channels

± Therefore an inverted ³U´-shaped relationship is expected between returns and

multi-channel buying

� Customer-Initiated Contacts:

± Higher degree of customer- initiated contacts are associated with multi-channel

buying due to higher degree of familiarity with the firm and the various channels of

communication




Customer Characteristics (contd.)

� Purchase Frequency:

± We can expect that the higher the purchase frequency of a customer

the higher the likelihood of multi-channel buying

� Frequency of Web-Based Contacts:

± Awareness of a supplier¶s Website indicates customer willingness to

utilize new technology, hence we can expect that the higher the

frequency of web-based contacts, the higher the likelihood of

multi-channel buying

� Customer tenure:

± The longer the tenure of a customer with a firm, the higher is the

likelihood of their buying from multiple channels




Supplier Factors

� Number of Channels used for Contact:

± Supplier contacts through multiple channels can inform a customer about

the multitude of options available for purchasing products

± Suppliers can use their contact strategy in one channel to migrate

customers to other channels

± The higher the number of different communication channels a supplier

uses to contact a customer, the higher the likelihood of multi-channel

buying




Supplier Factors (contd.)

� Type of Contact Channel:

± One-way communication: E.g. direct mail : unidirectional, limited in

content, and non-personal

± Two-way communications:

� Firms can gain greater understanding of customer needs and/or preferences

� Educate customers on the various channels available for making transactions

� Respond to customer predilections

± Contacts via more interpersonal channels can be expected to have a

greater positive impact on multi-channel buying

� Contact Mix Interactions

± Positive synergistic effect on multi-channel buying can be expected by contacting

through more than one channel due to the mutual reinforcement of the message

delivered through different contact channels at the same time




Behavioral Characteristics

� Sample of customers divided into two segments:

± Customers who have shopped in more than one channel (Segment A)

± Customers who have shopped in only one channel (Segment B)

� Findings:

± The difference between the two segments in likelihood to stay active is

significantly different and higher for the multi-channel buyer

± The mean revenue of multi-channel buyers is significantly higher than the

mean revenue of customers who shop in a single channel

± The mean share of wallet for multi-channel customers is higher than the

single channel customer




Synopsis of Empirical Findings

� Customers more likely to shop in multiple channels are those:± Who buy across multiple product categories

± Initiate more contacts with the firm

± Have past experience with the supplier through the online channel

± Have longer tenure

± Purchase more frequently

± Are larger

± Have been communicated to by the supplier through multiple

communication channels, especially through highly interpersonal

channels

� Evidence for a nonlinear relationship between returns and multi-

channel buying




Summary

� Customer relationships are created and sustained through marketingchannels

� For a successful CRM strategy directed at the final customer, conventional

channels structure has to provide incentives for coordinating information

exchange while integrating their downstream channel partners¶ interests

� CRM demands that customer information from different contact channels be

centrally processed by the firm and forms a critical input to the planning and

execution of the physical distribution of the goods

� Multi-channel buyers are likely to provide higher revenues, higher share of

wallet, have higher past customer value, and have a higher likelihood of

being active than single channel shoppers

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