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p ment Module 1: Introduction to CRM

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MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Introduction

Welcome to the first learning unit of Module 1. It focuses on the first learning objective of this module which is for you to describe the history and evolution of CRM. Essentially, we want to be able to understand why CRM came about and the impact it had, and continues to have on the marketing discipline and the competitive environment. What was going on in business that required companies to look at CRM strategies? Why did they feel that the customer wasn’t being given enough attention? How were customers changing? To understand where you are going, it’s important to know where we’ve been.

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Definitions of Marketing- AMA

• Original 1935 Definition: The performance of business activities that direct the flow of goods and services from producers to consumers."

• In the mid-1980s: The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives."

• In late 2004: "Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders."

• 2017: "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."

Cl Sara h Ch~,r~s Modul~ 1 1 Unit 1: Evo l ution of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Definitions of Mark eting - AMA

Let’s start off by looking at how the definition of marketing has evolved and then we’ll see how CRM came into the picture. In general, we are moving from being product-oriented to customer-oriented. Pay close attention to the key words in the definition.

According to the American Marketing Association, the original 1935 definition of marketing was: “The performance of business activities that direct the flow of goods and services from producers to consumers.” The focus was PRODUCTION , and consequently the PRODUCT.

In the mid-1980s, the first revisions were made changing the definiti on to: “The process of planning and executing the conception, pricing, promotion, and distributio n of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.” Here, we begin to see the 4Ps of the marketing mix and the words “exchanges” begins to take center stage.

In the 20th century, products and services were highly commoditized. A key goal of any company was to create brand awareness, increase brand preference, and brand loyalty. In the 21st century, however, the emphasis is on gaining a sustainable competitive advantage from customer information and value creation.

In late 2004, it was again changed to: “Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in

ways that benefit the organization and its stakeholders.”

By 2007, the marketing function includes all players and participants, making it a network of activities and processes that create value. Rather than thinki ng in terms of PRODUCT, we should think in terms of CUSTOMER VALUE. Companies sometimes fall in love with their product ideas without considering the actual value that these products have fo r their customers. We must think of the COST to the customer rather than the PRICE of the product. We must consider the CONVENIENCE to the customer to acquire the product rather than the PLACE we will sell the product. Rather than thinki ng about how to PROMOTE our product, we must consider ho w to COMMUNICATE and CONNECT effectively with our customer. Networks require connections!

Most recently, as approved in 2017, "Marketing is the activity, set of institutions, and processes for creati ng, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."

So why change the focus of marketing?

Consider the se fact s:

•It costs six times more to sell to a new customer than to sell to an existing one. So why aren’t companies concentrating more on retaining their customers?

•Out of 100 dissatisfied customers, only 4 will complain to the company. We must encourage customers to complain because about 90% of dissatisfied customers that leave, will come back if the situation is resolved to their satisfaction.

•Of the 96 dissatisfied customers who don’t complain, 91 will exit as customers. Multiply this by the actual numbers and the averages purchases of each customer and you’ll get an idea of the impact this has on profitability.

•A dissatisfied customer will tell eight to ten people about a bad experience. Think of the impact this has on attracting new customers.

•A company can boost its profits by up to 85% when it increases its annual customer retention by only 5%.

•The chances of selling a product to a new customer are 15%, whereas the chances of selling a product to an existing customer are 50%.

•The purpose of this CRM course is to look at ways to RETAIN existing customers. The goal of any customer-centric company should be to create VALUE for its existing customers in an effort to gain their loyalty. That doesn’t mean we forget about acquiring new customers. Remember that the most solid sales come from repeat business. And it’s those loyal customers that recommend others to a firm. No matter how you slice it – it’s a win-win situation to focus on customer retention.

Let’s look at the trends that are

shaping the changes in marketing.

Change Marketing's Focus?

• It costs six times more to sell to a new customer than to sell to an existing one .

• Out of 100 dissatisfied customers, only 4 will complain to the company.

• Of the 96 dissatisfied customers who don't complain, 91 will exit as customers.

• A dissatisfied customer will tell eight to ten people about a bad experience . Think of the impact this has on attracting new customers.

• A company can boost its profits by up to 85% when it increases its annual customer retention by only 5%.

• The chances of selling a product to a new customer are 15%, whereas the chances of selling a product to an existing customer are 50%.

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Customers Are Changing

C) Sarah Cherres

• Demographic and Geographic Customer Information

WHAT

• Behavioral and Transactional Customer Information

• Attitudinal and Motivational Customer Information

Here is where the focus should be _____ t Module 1 I Un it 1: Ev o lution of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Today's Customers Are Changing

Marketing has evolved from focusing on the WHO to the WHAT and now to the WHY. Initially, the emphasis was on segmenting and differentiating customers based on their demographic and geographic characteristics. It was very factual in nature.

Then we began to look at their behaviors – things that could be observed. We started tracking their purchase transactions, like what and how much they spent, the number of visits to a store, the number of calls made, etc. We began tracking the customers’ interactions and decisions. And of course, technological advancements facilitated all of this.

In the era of CRM, the focus is now on WHY customers are different. We want to learn about their attitudes and their motives for the WHAT. Many companies totally skip the WHY step. It's unfortunate because the WHY step is where we can gain marketing efficiency and effectiveness – the more relevant content and experiences we can create for a customer, the higher the customer loyalty, which can generate higher revenues.

Think about the best relationships you have. There is a direct correlation between the strength of the relationship and the degree to which each party truly understands the attitudes and motivations of the other. In a true relationship, each party seeks to make the other happy, and to do this, you need to understand what makes the other happy.

Evolution

Mass Ta rget Cu stomer On e-t o-on e market ing marketing marketing marketing

Characteristics Characteristics Characteristics Characteristics • Market share • Segmented campaigns • Customer share • Interactive segmentation • Individua l sa les • Small mass marketing • Lifetime va lue • Real-time matching • Limited segmentation • Focus on products • Model distribution • Inte ractive TV • Huge campaigns • Ongoing refinement • Active Web pages • Not cost-effective • Multiple treatments • Customer interaction • Single treatments • Focus on custome r • One-to-one relat ionships • Focus on transactions • Breadth of relatio nships • Real-time marketing • Number of relationships • Event-driven • Prediction-driven

Technology Technology Technology Technology • In-house • Individual database(s) • Data wa rehouse • Integrated data warehouse • Out sourced mailings • Applicat ion for projects • Integrated data and • Internet enabled • Flat fi les I mailing lists • Propriet ary solutions applications • Many touchpoints integrated • Some packaged • Limited analysis • Customer know ledge • Cross-organization process

applications • Modeling, analysis, • Management by interaction and refinement process

Source: Swift/2001)

©Sar ahCherres Module 1 I Un it 1: Evo luti on of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Marketing Evolution

This slide shows how marketing has evolved from product orientation and a transaction-based selling model to a 1 to 1 learning, relationship orientation model. Due to the advancements in technology, marketing is able to increase its analytical abilities and as a result, increase its interactivity with customers. We are going from the traditional mass marketing strategy to a more individualized offering. Some argue that the increased cost of the 1 to 1 model is more draining on a company’s bottom line. This is not the case. For example, consider two scenarios:

In scenario 1, we send a generic offering at a cost of $5/customer, to 1,000 potential customers and only getting 3% to buy a product priced at $20. The marketing cost is $5,000, and the revenues generated are $600.

In scenario 2, we send a more tailored offering at a cost of $10/customer, to 500 potential customers and get a 10% response rate to buy a product priced at $20. The marketing cost is still $5,000 but the revenues are $1,000.

In the second scenario, we are being more intelligent at who we target, who we are sending offerings to, and increasing our chances that the potential customers will buy. Additionally, the offering is also more tailored, further increasing our chances. We are being SMARTER in how we implement our marketing decisions.

In order to achieve a 1 to 1 Relationship Marketing strategy, a company must practice learning. Companies must be willing to listen to customers and continuously learn about their needs and expectations and feed that back into their decisions.

Behind CRM

The CRM concept st ems from various disciplines.

Traditional Marketing & the

4Ps

Consumer Goods Consumer Services Quality of goods & services

Network approach, lnteractlvtty,

information age

Modul~ 11 Un it 1: Evolution of CR.M

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Theory Behind CRM

So where and when did CRM start? It’s really a blend of various disciplines:

• The first is the traditional marketing concept of the 4Ps, which was primarily focused on consumer goods or products. In your basic marketing course, we learned that product is defined in terms of the average customer and extends beyond size, color, style and so on. Place is the distribution system or sales channel used to reach the customer. Price consists of the cost to customer as well as making the product available to the customer through financing. Promotion is the means by which the company communicates its products/ services to the target customer group.

• The second area is services marketing, which added the elements of people, process and physical evidence to the service experience. This is important considering that about 80% of our GNP is generated from services, not tangible products. Services marketing is a relatively new phenomenon in the domain of marketing. It gained importance as a discipline towards the end of the 20th century. Services marketing first came into force in the 1980s when there was debate of whether the marketing of services was significantly different from that of products, and whether it should be classified as a separate discipline. Prior to this, services were considered as an aid to the production and marketing of goods, and were not deemed as having separate relevance on their own.

• The third originates from the quality management movement, which emphasized TQM, zero tolerance and maximum quality of goods and services. Another example is six sigma, a business management concept that looks to eliminates defects, with a defect defined as any process output that does not meet customer specifications, or that could lead to creating an output that does not meet customer specification. These originally started out in the manufacturing industries but evolved into others.

• The fourth area relates to the advances in information technology. There has been an explosion over the last 30 years. From the Internet to laptops to mobile devices to social networking. Who knows what’s next!

One can think of the beginnings of CRM as a combination of bits and pieces of each of these disciplines.

SarahCherres

Evolution of CRM Technology

Accounting System

Purchasing System

Inventory System

Customer

File

Product

File

Sales

History

Call

Activity

Source: Bu ttle (2009)

FRONT-OFFICE USERS

Sales Reps (laptops & mobile devices)

Mar keting (telemarketing center)

Service Reps

(mobile equipment)

Management (decision support)

Ch annel Partners (team selling)

Purchasi ng Agents (eco nomies of scale)

Modu le 1 1 Unit 1: Evo l uti on of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Evolution of CRM Theory

When technology began to emerge in business, companies used manual data entry & manually created reports and spreadsheets. Before computers, salespeople used a combination of manual tools to track prospects and their multiple contacts with those customers. These tools included yellow paper pads, stacks of business cards with notes written on the back, and Rolodex cards. These messy methods guaranteed messy results, which is why many vendors jumped on the new PC bandwagon as a way to organize sales and service. The famous ‘spreadsheet’ was born and this provided a new way to organize random scraps of paper and data. Actually, this is the reason why many salespeople still use spreadsheets.

Then we moved to an era where we began using magnetic tapes & disks to record data, therefore eliminating a lot of the manual entry and manual tools. In the 1980s, companies began to recognize the need to consolidate customer records to create a ‘single view’ (360 degree view) of the customer. The primary driver was more efficiency for the front-office users, not necessarily more value for the customer. More recently, the retention of massive data files are facilitated in a data warehouse, which we will discuss later.

CRM technology started with stand-alone technologies such as call centers, data analytics, customer information files, etc. The diagram in the slide shows that, although there was a need for a single-view of the customer, systems and departments were disjointed. There was no integration of systems, data and information. What do you think the results were? Lost data, confusion, duplication of efforts, mistakes and ultimately errors affecting the customer.

360° View of the Customer

Sales

Management

Operations

©SarahCh erres

Call Center

Customer Data

Warehouse/

Knowledgebase

ERP/ Back Office

Internet

CUSTOMERS

Module 1 I Un it 1: Evo l uti on of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

A 360 Degree View of the Customer

The ultimate goal of CRM is to consistently provide excellent customer experiences across all channels, as in a “multi-channel CRM.” Customers expect continuous, consistent dialogue with a company, irrespective of the systems and departments within. With a CRM strategy, the disparate systems and departments are replaced with the customer data warehouse/knowledge base, as shown on this slide.

All data from all customer contact channels such as sales, partners, marketing, and the service center are consolidated into a central place, providing a single view of the customer (also called a 360o view), across all touch points. A touch point is any place or method in which the customer comes into contact with the company and interacts with the company. A touch point (contact point, customer contact, Moment of Truth, point of contact) describes the interface of a product, service or brand with customers or users, non- customers, employees and other stakeholders, before, during, and after a transaction. This may be applied in business-to-business as well as business-to-consumer environments. Touch points include face-to-face, telephone, email, web, mobile device, and wireless contact.

A single view of the customer requires that data and information be consolidated into one central place, also called a central repository or data warehouse. All the knowledge accumulated throughout all departments should be centralized so ANY department can access the same information on a customer. This repository is like a large brain that stores all company memory. A company that truly has a 360-degree view should never have to ask a customer the same question more than once, because it should ‘remember’ the customer’s feedback across the enterprise.

The role of the data repository is to collect, hold or store, and integrate customer information, enabling the company to develop and manage customer relationships effectively. Data repository includes various elements we will discuss further in the semester, such as databases, data marts, and data warehouses.

Trends

1. Digital marketing and social media

2. Integrated, multi-omni-channel marketing and service - The Customer Journey

3. The customer experience (CX)

4. The Voice of the Customer (VOC)

5. Big data

Modul~ 11 Unit 1: Evo1utlonofCRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Future Trends

Technology has changed the landscape of the customer experience. Today's businesses are becoming more data dependent than ever before. The problem, however, is that collecting more data doesn't make a company smarter - understanding the data does. This is easier said than done. There are plenty of good reasons to collect valuable data. The insight can help organizations learn customers' wants and needs, get a better picture of customer experiences, and improve profitability, just to name a few. All of this information is helpful, but to obtain any of it on a regular basis, organizations must address emerging trends affecting CRM.

We are rapidly running towards a day when “100 percent of shoppers will be connected 100 percent of the time.” (Deloitte Digital). This will have a profound affect on the customer experience. Google now talks about the customer's life being divided into micro moments. Businesses need to be present at all touch points of the customer journey. According to McKinsey, 70% of a customer’s buying experience is based on how the customer feels they are treated. Today, customers have more choices than ever and are pickier. This affords them the luxury of demanding more. The key to satisfying this empowered customer is offering a holistic experience across all company touch points and developing the infrastructure that allows for knowledge sharing and smart communication.

Smart organizations will streamline, hide, or eliminate the transactional parts of the customer experience. The Apple Store customer experience is designed so that registers and receipts are effectively nonexistent. That's because they don’t add to the customer experience, they just get in the way.

Given that customer loyalty is directly correlated to the customer's brand experience, having authentic personal interactions both before and after a purchase has been made will be the number one priority of all customer-facing companies. Tactics like content creation and loyalty programs will continue to play an integral role in the customer experience, but so will initiatives that enable a holistic experience, such as that provided by Uber, which allows customers to request, track, and pay for a taxi via its web site and/or mobile app.

It used to be that customers would call customer service reps (CSRs) for simple queries, such as placing an order or resetting a password. However, the Internet and automated solutions have empowered customers to do these tasks on their own. So when customers call a company for support, it's likely they have done some of the research on their own via a Google search or the company's Web site. And if the agent isn't prepared, today's knowledgeable customer can unload information that can stump even a veteran CSR. So it's important that agents are trained well enough to meet the demands of today's highly knowledgeable customers.

Organizations are also expected to interact with customers using social media. Companies are turning to outsourcers more than ever for guidance on social media strategies, technologies, and tactics.

These trends are affecting many companies around the world. Addressing them in a way that is best suited for an organization will better enable it to meet the needs of today's highly connected customers. We will cover each of these in much more detail throughout the course.

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Evolution of CRM to SCRM CRM SOCIALCRM

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Module 1 1 Unit 1: Evo l ution of CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 1

Social CRM

Another term that has emerged for customer-centric CRM is called Social CRM. In this model, we see that the customer drives the processes, the hours of operation, the available distribution channels, and the transactions. Companies must be willing to think outside-in rather than inside-out. It paints a picture of where CRM is going in the future. The customer creates the demand for the products, services, and interactions of the company.

It is estimated that more than 65% of customer support conversations will happen through blogs and forums. It is important that companies integrate traditional channels with new social CRM communities. Social media allows new possibilities for dialogue and collaboration between customers and companies that can benefits both parties. A customer-centric company recognizes the positive impact these technologies can create and fully takes advantage of them to create customer value.

According to a study by Peppers & Rogers (2010), social media can allow the company’s most enthusiastic followers to spread the word about a product, brand or experience. Social media can also empower customers to defend a poor experience or error with a brand. Social media allows companies to listen in on customer conversations, thereby obtaining more insight into needs. Social media also gives companies the opportunity to solicit the help of loyal customers (as volunteers) to help provide service to other customers.