Customer Relationship Management

Chapter 11

By: Amanda Dreyer, Brianna Christopherson, Shyra Hoffman

Customer Relationship Management

(CRM)

A business philosophy and set of strategies, programs, and systems that focuses

on identifying and building relationships with a retailer’s valued customers.

The Retailers Objectives: Customer Relationship

Management

The objective of the CRM process is to develop loyalty and repeat-purchase

behavior among a retailer’s best customers.

CRM enables retailers to develop a base of loyal customers and increase its

share of wallet—the percentage of the customers purchases made from the

retailer.

Loyal Customers

• Committed to purchasing from a certain retailer

• More profitable to a retailer

• Less costly and more profitable to retain and increase sales to loyal

customers than to attract new customers

Developing customer loyalty and repeat

purchase behavior

Customer loyalty can be enhanced by creating an appealing brand image,

offering exclusive merchandise, providing convenient locations, and providing an

engaging shopping experience.

The most effective method of developing customer loyalty is through personal

attention and customer service.

Personalized Customer Service

• Facilitates an emotional bond and personal connection

• Facilitates feelings of mutual friendship to the customer

• When a retailer develops a personal connection with its customers it’s

difficult for competitors to attract them away, and the customers are

encouraged to make repeat purchases and recommendations to family

and friends

The CRM Process

The customer relationship management process is an iterative process that turns

customer data into customer loyalty and repeat-purchase behavior through four

activities:

1. Collecting Customer Data

2. Analyzing Customer Data to Identify Target Customers

3. Developing CRM through Frequent-Shopper Programs

4. Implementing CRM Programs

The CRM Process

Step 1: Collecting Customer Data

The process begins with the collection of customer data, this data is collected to

construct and maintain an important tool for retailers, called a customer database.

The customer database contains all the data the retailer has collected about its

customers and is the foundation for subsequent CRM activities.

Collecting Customer Data (linking transactions to customers)

• Through Internet Purchases (information is automatically provided by

customer to receive the merchandise)

• Warehouse Clubs (in this case the identification of the customer is always

linked to the transaction through the club card)

• Store Credit Cards (linked by information supplied when the customer applied

for the card)

• Cashiers ask for Identifying Information

• Connect Internet and Store Purchasing Data

• Frequent Shopping Cards

• Use of Biometrics

• RFID Chips on Merchandise

The CRM ProcessStep 1: Collecting Customer Data

Customer database contains the following:

• Transactions—A complete history of the purchases made by the customer, including

the purchase date, the SKUs purchased, the price paid, the amount of profit, and

whether the merchandise was purchased in response to a special promotion or

marketing activity

• Customer Contacts—A record of the interactions that the customer has had with the

retailer, including visits to the retailer’s website, inquiries made through in-store

kiosks, comments made on blogs and Facebook pages, merchandise returns, and

telephone calls made to the retailer’s call center, plus information about contacts

initiated by the retailer, such as catalogs and e-mails sent to the customer.

• Customer Preferences—What the customer likes, such as favorite colors, brands,

fabrics, and flavors, as well as apparel sizes.

• Descriptive Information—Demographic and psychographic data describing the

customer that can be used in developing market segments.

The CRM Process

Step 2: Analyzing Customer Data and

Identifying Target Customers

Step 2 in the CRM process involves analyzing the customer data and converting

that data into information that will help retailers develop programs for increasing

the value they offer to their best customers, or those customers whose loyalty and

repatronage will add significantly to the retailers bottom line.

Data Analysis Objectives

• Identify the Retailers Best and Most Profitable Customers (customer

lifetime value and RFM analysis)

• Use Analytical Methods to Improve Decisions Made by Retailers (retail

analytics, data mining, market basket analysis, targeting promotions,

assortment planning)

The CRM Process

Step 3: Developing CRM Through Frequent

Shopper Programs

Frequent shopper programs, or loyalty programs, are marketing efforts that

reward repeat buying behavior. Loyalty programs seem less invasive to a

customer; instead of asking for personal information, the cashier can simply ask

to scan their rewards card or offer them to sign up.

Loyalty Program Objectives

• Build a Customer Database that Links Customer Data to their

Transaction

• To Encourage Repeat Purchase Behavior and Loyalty (loyalty programs

offer discount incentives and can be highly influential to a customer's

purchasing decisions)

The CRM Process

Step 4: Implementing CRM Programs

Having developed CRM programs, the last step in the CRM process is to

implement those programs

Implementing Effective CRM Programs

• Tiered Rewards Strategies (customer alchemy through add-on selling, ways

to move customers up the customer pyramid and the 80-20 rule)

• Personalization to Retain Customers (1-to-1 retailing, developing programs

for small groups of segmented customers which includes unique benefits and

targeted promotions and messages)

• Dealing with Unprofitable Customers ( bottom tier customers actually have a

negative CLV)

Analyzing Customer Data and

Identifying Target Customers

Convert data into information that will help retailers develop

programs to increase value offered to its best and loyal customers.

Two Objectives:

• Identify best customers

• Retail Analytics

Identifying the Best Customers

• Use of information in customers database to determine value

• Value of a customer is called “CLV”-Customer Lifetime Value

• RFM analysis-method to determine customer segments a retailers should

target for a promotion or catalog mailings.

• Three factors are used:

Recency, Frequency, Money Spent

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Retail Analytics

• Data can be used to measure each person’s CLV

• Customer data base provides a resource for retailers to make better decisions

• Retail Analytics-applications of statistical that seek to improve retail decisions

• Data Mining- information processing method that relies on search techniques to

discover new insights into buying patterns of customers using large data bases

• Market Basket Analysis, Targeting Promotions, Assortment Planning

Market Basket Analysis

• Data mining tools determine which products appear in the market basket that a customer purchases during a single shopping trip

• Help with merchandise placement and promotions

• Computer program counts the number of times two products get purchased at the same time

Targeting Promotions

• Insights into assortment decisions and promotions

• Discovery of simultaneous product purchase

• Offer special promotions on one of the products, anticipating customers will buy the other at full price in same purchase

Assortment Planning

• Customer data can be mined to help

with assortment decisions

• Managers can ensure products that

valued customers purchase, are

available in store at all times

• Decision made to cater to CLV

customers even with relatively low

sales

Developing CRM Through

Frequent-Shopper Programs

Two Objectives:

• Build a customer database that links customer data to their transactions (discussed in preceding section)

• Encourage repeat purchase behavior and loyalty

Encourage Repeat Purchase Behavior and

Loyalty with Frequent Shopper Programs

Effectiveness of FSP’s-

• Not particularly useful for building long term loyalty. Customers perceive little difference among programs offered by competition

• Price discounts offered to all customers. This appeals to price conscious customers but not high CLV shoppers

• Hard to sustain due to cost and visibility to competitors

Making Frequent-Shopper Programs More

Effective

• Seek to encourage repeated

purchases and develop loyalty

• Emotional connection needed

• To move FSP’s beyond simple

data collection retailers might:

Create Tiered Rewards, Treat frequent

shoppers as VIP’s, Incorporate

charitable activities, Offer choices,

Reward all transactions, and Make the

program simple

Implementing CRM Programs

Customer Pyramid and each segment

Customer Retention using personalization

and community

Customer Conversion: Making Good Customers

into Best Customers using add-on selling

How to Deal with Unprofitable Customers

Customer Pyramid

80-20 Rule – 80 percent of sales or

profits come from 20 percent of the

customers

There are four segments in the

customer pyramid: Platinum (top 25

percent CLV’s), Gold, Iron, and Lead

The Customer Pyramid

Customer Retention

Two approaches used by retailers for building customer retention and loyalty are

personalization and community.

Personalization

• Provide unusually high-quality, personalized customer service

• Practice 1-to-1 retailing

• Involve best customers in business decisions

Community

• Develop a retail brand community

If done correctly, these strategies will create the positive feedback

cycle in the CRM process.

Customer Conversion: Making Good

Customers into Best Customers

Achieve customer alchemy – converting iron and gold customers into platinum

customers – through add-on selling.

Retailers are able to offer and sell more products and services to existing

customers using the customer data base and creating personalized coupons and

recommendations.

Dealing with Unprofitable Customers

The bottom tier of the customer pyramid often has a negative CLV.

How retailers lose money on every sale to these customers:

• They return more items from their purchase than they keep creating high

processing costs

• They stop buying from the retailer for a period of time and then resume

patronizing the retailer. The costs of their reacquisition make them

unprofitable

Approaches for “getting the lead out”

• Offer less costly services to satisfy the needs of lead customers

• Charge customers for the services they are abusing

Implementing CRM Programs Review

• Develop a customer pyramid so different CRM programs can be directed

toward each segment

• Retain Customers and develop customer loyalty through personalization and

community

• Achieve customer alchemy through add-on selling

• Deal with unprofitable customers by offering less costly services and charging

customers for services they abuse

Customer Relationship Management

Review

CRM is a process allowing retailers to encourage increased loyalty through its

efforts to collect customer data, analyze the data and identify target customers,

develop CRM and frequent-shopper programs, and implement CRM programs.

Retailers collect customer data by asking for it at the point of sale, through online

channels, or gather it from applications that customers submit to a loyalty

program.

The customer data is then analyzed to measure a customers CLV. RFM and

basket analysis are also done to better understand the customers.

Retailers use frequent-shopper programs. To enhance their loyalty effects, they

should create tiered rewards, treat frequent shoppers as VIP’s, incorporate

charitable activities, offer choices, reward all transactions, and make the rewards

program transparent and simple.

Retailers can use CRM data to implement effective CRM programs. They can

create a customer pyramid to know what programs need to be directed to who,

retain customers through personalization and community, and through add-on

selling retailers can convert iron and gold customers into platinum customers.

They can also identify lead customers and offer less costly services, charge them

for services abused, or exclude them altogether from the retail offer.