crm unit ii (building customer relationship management)

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By :

Prof. Amit Kumar

Customer Relationship Management Building Customer Relationship Management

IILM-GSM

Course Contents

Loyalty Building as a Process (CRM Cycle) Ladder of Loyalty

Case-Study: BMW Turns Prospects into Customers Bonding for Customer Relationship CRM Framework Zero Customer Defection Customer Retention Program


IILM Graduate School of Management

Loyalty Building as a Process (CRM Cycle)

• The foundation of effective CRM is built on an iterative process of learning & customization.

• IDIC framework explain the process of converting existing customer into loyal customer.(IDIC represents four key steps in relationship building process)-

1. Identity

2. Differentiate

3. Interact

4. Customize




Identity:

• This step requires the company to locate & contact a large number of its customers directly and know as much detail about them as possible.

• Every interaction with the customer through any channel should be seen as an opportunity to learn about them & this knowledge has to be used to serve them better.

Differentiate:

• Differentiate on the basis of the value they represent and also on their needs.

• Differentiation should help the company tailor its offerings to each customer to reflect their value’s & needs.



Relationship Officer:ABN AMRO Slide No : 06 ERP Functional Consultant

Interact:

• The purpose of interaction is to learn more about the customers starting with more valuable customers.

• These interactions can happen when the customer……

Customize:

• Step is most critical as it builds upon all the learning about the customers to offer real value to them by tailoring P & S.

• It helps customer enjoy a high level of convenience, which can not be easily duplicated by a competitor.

Conclusion

• The IDIC framework is useful in understanding the process to be adopted for building relationship with existing customer.






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Ladder of Loyalty


• It is equally important to know the stages through which a prospect becomes a customer and a loyal customer.

• Use the concept of ladder of loyalty to explore the complete relationship building process.

Prospect

Customer

Client

Supporter

Advocate

Partner



Ladder of Loyalty


Prospect:

• An individual, which fulfils the requirements of the marketer’s definition of target.

Customer:

• A prospect who gets attracted by a company’s marketing programme may try out its product & services offerings and becomes a customer.



BMW Turns Prospects into Customers

Ladder of Loyalty


Client:

• Customer purchases the product/services more than once.

• In several buying situations, customers become clients due to nature of the product or services.

• Cross-sell multiple products to an existing customer. e.g. Wells Fargo a leading financial services firm in US sells more than four of its services to each customer.

Supporter:

• A client becomes a supporter when he is satisfied with the offerings and recommends it to his friends, relatives.

• This positive word-of-mouth(WOM) has tremendous positive impact as it helps the company get new customers.



Ladder of Loyalty


Advocate:

• An advocate is a supporter who, in addition to referrals (WOM), proactively works with the company to improve its P & S.

• While developing new products software company regularly depend on the feedback from the lead users of their clients during the Beta test phase.



Ladder of Loyalty

Partner:

• An advocate becomes a partner when they become actively involved in the decisions of the company.

• e.g. kind of Relationship exists between P&G and Wal-Mart.

Relationship between FedEx and IBM

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IILM-Graduate School of Management


Ladder of Loyalty

Partner:

• Relationship exists between P&G and Wal-Mart. Wal-Mart shares the scanner data from its check out counters in its over 4500 stores through the satellite. It helps P&G plan its production, better management of its production runs and keep its inventories low as it no longer depends on sales forecast but actual sales data. Wal-Mart gains as it does not have to keep inventories, get faster replenishments.

• Relationship between FedEx and IBM where FedEx stocks IBM’s spare parts in its own warehouses and delivers them across the world on instructions from IBM’s service personnel.

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Bonding for Customer Relationship






Financial Bonds:

• Volume and Frequency Rewards.

• Bundle and Cross-Selling

• Stable Pricing

- Companies also offer the assurance of stable prices or lower price increase than those paid by new customers to retain their old customer.


One of the biggest disadvantage of the financial bonds is that they can be easily imitated. Also, it attracts a lot of price sensitive customers who switch to a cheaper option at the first available opportunity. Hence this is a weakest bonds. Unfortunately they the most commonly used bonds across industries.




Social Bonds:

• Personal Relationships

• Continuous Relationships

• Social bond among customers Harley Davidson ‘Owners Club’, Hero Honda ‘Passport Program

’, Saturn Performance Club, Various by Volkswagen. Airtel’s ‘Friends and Family rewards program’ creates a social

bonding in addition to financial reward received by the customer.



Social events create opportunities for sharing common interests and activities that bring the customers together and keep them from switching. Hence, social bonds are relatively more difficult to break.



Customization Bonds:

• Customer intimacy Marriott Hotels knows likes, dislikes & special habits of ‘C’,

Information are shared across its hotels worldwide

• Mass Customization

- Providing tailored P/S with little additional effort & cost-

effective production and using communication technologies.

- At its special outlets, Levis gives customers the option to buy

jeans made to their own specifications.






• Mass Customization National Bicycle Corporation, Japan, can potentially make over

eleven million varieties of bicycle using flexible manufacturing

systems and make delivery in two weeks. MyCNN.com or MyBBC.com or MyDELL.com are examples of

information services provided over the internet which help the

surfers customize the services to meet their specific requirements.






• Mass Customization Reflect.com markets customized skincare, hair care,

fragrances and color cosmetics over the internet. ‘One-of-a-kind products for One-of-a-kind YOU’ ‘We will recustomize your product until it is right or we will

refund your money’.



Customization bond is difficult to break as the customer would need to start from scratch and teach the new potential provider even if the provider has the capability to meet the customer’s requirements.



Structural Bonds:

• Integrated information system

• Shared Processes and Equipments

• Joint Investments

• AMEX’s Structural Bond formation through TRS

• FedEx’s Structural Bond formation through PowerShips


Structural bond is the strongest bond and hence the most difficult to break.


Partnership



Conclusion:

• As the organization moves from level 1 to 4, they observe:- The bonds become stronger.

- Customer loyalty increases and the opportunities and scope of reaping the benefits of relationship marketing increases.

• In B2B contexts, we also see the presence of other kinds of bonds such as legal, planning and technical bonds.



CRM Framework


In competitive markets even satisfied customer switch or defect to competitive offers. Since loyal customers are more profitable for any organization, there is a need to identify better predictors of loyalty. Indicators of relationship strength like trust, satisfaction & commitment are better predictors of loyalty and by including these in customer satisfaction surveys, managers can modify service delivery with a focus on customer loyalty.



CRM Framework


Relationship Stages

PsychologicalSteps

Switching

Satisfaction

Trust

Commitment

Loyalty

Prospect Customer Client Supporter Advocate Partner

Initiation Development Maintenance/Enhancement

Major Role Minor role

Psychological Steps Across Relationship stages



CRM Framework


Switching:• Switching is very common in the initial stages of a

relationship process.• Initial interactions & experiences determine whether the

customer is willing to continue or not.• In cellular service industry,the first two weeks were more

crucial.• In health fitness industry,clubs provide personal trainer

when the customer signs up. This is to encourage the customer to start using the service. Subsequently the customer is signed up for an extended period of time.

• This prevents switching at least in the short term.




Satisfaction:• Satisfaction is a complex emotion, which depends on

the offer characteristics,expectations and usage situations.

• Customer are satisfied when the performance of P/S matches or exceed their expectations.

• Satisfaction is an important intermediate step in relationship building process and many of the satisfied customers will become clients.


CRM Framework



Satisfaction:


CRM Framework



Trust:• Satisfaction over multiple interactions lead to a stage

where the customer begins to have faith in the offerings and its consistency in performance.

• Trust is defined as the willingness to rely on an exchange partner in whom one has confidence.


CRM Framework



Trust:• The concept of trust is common among marketers in the

packaged goods industry which depends on trust to build brand loyalty. Naill Fitzgerald, Chairman-Unilever, suggested that:

“ In order to function at all human societies rely on the existence of trust. Good brand invites trust, earn trust, honor trust and reward trust. Good brands guard their reputation with their lives, and if by accident they transgress, they apologize with grace and true humanity,-quickly”.


CRM Framework



Trust:


CRM Framework



Commitment:• Commitment to a relationship is defined as an enduring

desire to maintain a valued relationship.Therefore commitment exists only when the relationship is considered important.

• Trust & commitments are key variables because they encourage marketers to work at preserving the relationship investments with partners/clients.


CRM Framework



Commitment:It can be operational using the two dimensions of:

1. Attitude towards interacting with each other, and

2. The formation of bonds. The bonds may be legal, planning, knowledge, social, technical and structural in nature.


CRM Framework



Loyalty:

• Loyalty is not simply repeat buying.

• Loyalty includes future purchase intentions, complaining and referral behavior (WOM).

• In terms of measurement of loyalty, typical questions would refer to: Intention regarding next purchase The number and intensity of complaints Tendency to talk about suppliers to other clients Degree of desire to share positive experience


CRM Framework



Loyalty:

Conclusion: It must be kept in mind that all buyer-seller relationship do not necessarily go through sequentially. In some cases, clients may exhibit a lot of loyalty related behavior when they are satisfied with the performance over multiple interactions.


CRM Framework


Zero Customer Defection The concern for reducing and eliminating customer attrition

emerged from studies that indicate the following:

– Customers are profitable over a period of time.

– Across industries, profits can increase by 35 to 85 % by increasing customer retention by only 5 %.

– About 70 % of customers switch to competitive offerings due to perceived indifference of the current provider.




Customer Defection


Why Customers Defect ?

PerceivedIndifference

69 %

Move Away 3 % ‘Other’

Friendships 4 %

Competition 9 %

ProductDissatisfaction 14 %



Zero Customer Defection Customer who defect can be broadly categorized as :1. Price Defectors – Who are bargain hunters.

2. Product Defectors – Who not satisfied with existing product.

3. Service Defectors – Dissatisfied with the quality of services.

4. Market Defectors - As they moved away from their

previous business.

1. Technology Defect– Shifted to another superior technology.

2. Organizational Def– Individual users who belong to a group may shift to an alternate

supplier/service provider because group has switched.

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Zero Customer Defection Service Defectors

Findings from PIMS (Profit Impact of Marketing Strategy) • Perceived good service provider charge an average 9-10 % more.

• They grow two times faster than their competitors.

• They improve their market share at an average of 6 % per year.

Studied by TRAP (Technical Assistance for Research Programme)

• 96 % of unhappy customers never bother to complain.

• 71 % of the customers feel their complaint has been handled satisfactorily if they only need to deal with one individual.

• If a customer complaint was handled well, 95 % of customers will return to do business with the organization.

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Customer Retention Program

Every organization should have a customer retention program to reduce customer defection. The steps include-1. Measure customer retention – most customers defect slowly,

be careful in defining customer retention - a dead account with minimal balance has to be treated as a lost customer.

2. Interview former customer – helps in defining why customers defect

3. Analyze complaint and service data – might be due to systemic errors and would need a review of service and complaint handling process

4. Identify switching barriers – through multiple offerings, convenient operating hours or speed of transactions

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crm unit ii (building customer relationship management)

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