Unit 14 Customer Relationship Management

Unit 14 Customer Relationship ManagementDay 2

The Basics

ContentsIntroductionRelationship marketing vs. relationship managementDefinitions of customer relationship managementForms of relationship managementManaging customer loyalty and developmentReasons behind losing customers by organizationsSignificance of customer relationship managementSocial actions affecting buyer-seller relationships

IntroductionIn marketing, it is often said that retaining customer is more important than acquiring one.Organizations use communication tools to make the consumer aware about their products and brands.All these have a cost to the company and in this competitive world organizations want to reduce cost.For this organizations develop a database which helps in creating loyalty programs.Many Indian companies like Infosys, Wipro and others started offering CRM software to companies. The benefits of CRM software are quicker, better quality, and timely services to the customers. This increases the word of mouth communications and reduces the cost of mass media.

Learning ObjectivesAfter studying this unit, you will be able toExplain the meaning, need and relevance of customer relationship management. Mention the forms of relationship management. Cite the reasons for losing customers by organizations. Bring out the significance of customer relationship management.

Relationship Marketing Vs. Relationship ManagementThe relationship marketing approach considers customers as part of the business and aims at building a long term and never-ending relationship with them. The focus of relationship marketing approach is on developing hard core loyal customers and retaining them forever. The relationship marketing approach has slowly taken the form of customer relationship management.Relationship marketing focuses only on the marketing function of the organization. Customer relationship management focuses on customers and the entire functions connected with value creation and delivery chain of the organization.

Definitions of Customer Relationship ManagementBerry defines CRM as attracting, maintaining and in multi-service organizations enhancing customer relationships. Berry and Parasuraman define CRM as attracting, developing and retaining customer relationships. From the above definitions, it is concluded that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the organization and its stakeholders.

Why CRM?It costs six times more to sell to new customer than to sell to an existing one.A typical dissatisfied customer will tell 8-10 peopleBy increasing the customer retention rate by 5%, profits could increase by by 85%Odds of selling to new customers = 15%, as compared to those for existing customers (50%)70% of the complaining customers will remain loyal if problem is solved90% of companies do not have the sales and service integration to support e-commerceDefining CRMCRM is an integrated sales, marketing and service strategy that is based on a timely and accurate information infrastructure and that depends on coordinated enterprise-wide activities. Example: tracking customers interactions with the firmCustomer tracking includes steps in the selling and customer service cyclesCRM steps includeTargetingAcquisitionRetentionExpansion

Defining CRMTargetingWho do we target?What segments are most profitable?What segments match our value proposition?What is the best segmentation strategy for us/our industry?AcquisitionWhat is the best channel for each segment?What is the acquisition cost for a channel/segment?Cost effective acquisition?Defining CRMRetentionHow can we improve retention?What is our average customer relationship length?How can we hold customer for as long as possible?What is the most cost effective method of retention?ExpansionHow many products does our average customer buy? How can we induce our current base to buy more products?Who are the prime targets for expansion?What is the cost of expansion?Goals of CRMUsing existing relationship to grow revenueUsing integrated information for excellent serviceIntroducing consistent, replicable channel processes and proceduresManaging the customer life cycleAcquiringnew customers

Enhancingprofitability of existingcustomersRetainingprofitable customersfor lifeAcquiring new customersPromoting the companys product and service leadershipRedefine the companies competitive edge and innovationsOffer a superior product backed by an excellent serviceExample: Browsing on the net, submitting a request, receiving a phone callModel for a sales and service strategyEncouraging cross-selling and up-sellingCross selling is used by suggesting alternative products or up-selling by rendering the customer more informed with the new products and services.Broadening the relationship between the company and the customersProviding a value proposition represented by offering a greater convenience at low cost (one-stop-shopping)Example: Best Buy an electronic retailer with more than 300 stores capitalizes on committed relationships with customers3000 calls a day with more than 50% having computer-based answers and solutionsEnhancing profitability of existing customersRetaining profitable customers for lifeRetention focused on service adaptabilityDelivering not what the market wants but what the customer wantsProviding a value proposition that offers a proactive relationship that works on the best interest of the customerExample: customer retention is becoming a key competitive strategy for many companiesEconomics of customer retention

Winning back a lost customer can cost up to 50-100 times as much as keeping a current one satisfied.Rob Yanker, Partner, McKinsey & CompanyUnderstanding your customer is key to retention.. 16Customer Life Time Value (LTV) is defined by a customers Life Time worth to the firm and is measured by the net present value (NPV) of the cash flows generated over the Life Time of the relationship.

Cost of ServiceAcquisitionCostDuration of RelationshipAnnual Cash Flow Service/Usage RevenueSuccessful Customer Relationship Management can generate positive shareholder value.Customer Relationship Management and Shareholder ValueThe Benefits of Customer Relationship ManagementRetentionLift/upsellAcquisitionLikelihood toRecommendTotal PerceivedValueImpact on Service QualityCourteousKnow. About AccountAvailable at Convenient TimesOwnership of ProblemsKnow. Product/Svcs.Easy to ReachAccess to Live AgentsRight Tel. ## of RingsResolution TimeCurrent PerformanceLow HighHighLowThe customer value analysis should be performed for each segment individually. The perceived importance of price and service drivers can differ significantly by segment.In addition to LTV of the customer, likelihood to recommend is another important benefit of CRM.

Managing Customer Loyalty and DevelopmentManaging customer development is one of the important aspects of relationship marketing.The focus is on two things customer catching and customer keeping.

Customer catching is the process of attracting new customers (inviting new blood), while customer keeping is the process of retaining the existing ones (encouraging old blood).

Customer Development Process

Suspect: Suspect is everyone who might conceivably buy the product or service.Prospects: Prospects are those people who have a strong potential interest in the product and the ability to pay for it. The company rejects the disqualified prospects because they have poor credit or would be unprofitable.First time customers: The company wants to convert the qualified prospects into first time customers.Repeat customers: The company wants to convert satisfied first time customers into repeat customers. First time and repeat customers may also buy from the competitors.Clients: The company then tries to convert repeat customers into clients. Clients are those people who buy only from the company.

Advocates: The next step is to convert the clients into advocates. Advocates are those people who speak good about the company and encourage others to buy from it.Partners: The ultimate goal of the company is to convert advocates into partners. After reaching this stage, the customer and the company work actively together.

Some customers may become inactive or may drop out due to many reasons leading to end of the relationship. The challenge is to re-activate dissatisfied customers through customer win back strategies

Reasons Behind Losing Customers by OrganizationsThe cost of attracting a new customer is five times the cost of keeping a current customer happy. But most marketing theories and practices focus on attracting new customers rather than retaining existing ones.Today, however, more companies are recognizing the importance of satisfying and retaining the current customers. Todays companies must focus on their defection rate and take steps to reduce it. The possible reasons for customer defection include:

Price related reasons: A customer tries to match the price of a brand with the value of the brand. If there is a mismatch between the price and the value, he would switch over to a competitors brand. Also, if the price of brand goes beyond his affordability, he would switch over to a low priced brand. Thus, the role of price in customer retention is very significant. Product related reasons: Due to technological advancement, the new brand which enters the market would offer better performance as compared to the already existing brand. This would encourage the customers to switch over to the new brand.Services related reasons: The customers focus is not only on the brand, but also on the services offered at three different stagespre-sales, during sales and after sales. Any dissatisfaction with services would cause the customer to switch over from the brand. Benefit related reasons: The customers may be attracted by greater benefits offered by the competitors. Such benefits may be more attracting and cause customers to change brand. Competitor related reasons: Technological advancement, attractive offers, value added services, etc., offered by competitors may also encourage customers towards brand switching. Personal reasons: The personal reasons for brand switch over may beThe customer has moved away from the market area where the brand is sold. Role changes in life cycle may lead to changes in brand preference. Anger, disgust, distress developed during the process of product delivery. Sentimental reasons. Influence of other members of the family.

Significance of Customer Relationship Management Reduction in customer recruitment cost. Generation of more and more loyal customers. Expansion of customer base. Reduction in advertisement and other sales promotion expenses. Increase in the number of profitable customers. Easy introduction of new products. Easy business expansion possibilities. Increase in customer partnering.

Traditional Organizational Chart Vs Modern Customer Oriented Company Organization Chart Traditional ChartModern ChartCompanies should understand that besides customers, their stakeholders are equally important for organizations success. The stakeholders of an organization would include: investors, the financial community, vendors and suppliers, employees, competitors, the media, neighbors and community leaders, special interest groups, and government agencies. These stakeholders can affect and be affected by a companys marketing programme.Kotter and Heskett (1992) found that firms that emphasized the interests of three communities customers, employees and stakeholders performed better than those that emphasized only one or two.