Customer Relationship Management Assignments Short Research Report

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Section1
CRM Theory and Development

Chapter 1
Introduction to Customer Relationship Management

1.1 Definition of CRM and CRM Applications

“CRM is often so broad that it lacks definition. If you can’t define it, how can you assess it? No one knows what it is, but we know we have to have it.”

“CRM Starting to Live Up to Its Promise,” Wall Street & Technology (January 4, 2004)

1.1 Definition of CRM and CRM Applications

CRM = Customer Relationship Management
CRM enables an organization to better manage relationships with suppliers, distributors, dealers, etc.
CRM is a difficult business practice to define:
It can apply to different levels of customers.
Some of the key components of CRM shift when considering business-to-business (B2B) versus business-to-consumer (B2C) relationships.
The composition of CRM systems will be different in big versus small companies, even though their objectives will be the same.

1.1 Definition of CRM and CRM Applications

5 Key Processes that help define CRM:
Strategy development
Value creation
Multichannel integration
Information management
Performance assessment

1.1 Definition of CRM and CRM Applications

Definitions of CRM can be grouped as:
Those that equate CRM with a software package, process, system, or technology.
Those that equate CRM with a focus on data storage and analysis.
Those that equate CRM with a change in corporate culture from a transaction focus to a relationship or customer-centric focus.
Those that equate CRM with the important concept of “managing demand.”
Those that equate CRM with new strategies focused on current customers.

1.1 Definition of CRM and CRM Applications

When CRM is viewed in terms of systems, it must:
Gather customer data from all touch points
Warehouse the data, providing easy access for all
Deliver useable information based on the data

1.1 Definition of CRM and CRM Applications

A comprehensive CRM system should contain four major technology components:
A data warehouse
Analytical tools
Campaign management tools
Interfaces

1.1 Definition of CRM and CRM Applications

When CRM systems fail, it tends to be as a result of cultural, as opposed to technological, issues.
Many companies focus on the opposite of “relationship” (i.e., on the transaction itself).
Transaction marketing views the sale as the end of the relationship, whereas relationship marketing views the sale as the beginning.
Relationships require two-way communications between customers and the organization.

1.1 Definition of CRM and CRM Applications

Companies should not necessarily make it their goal to attract the greatest number of customers.
By giving a product away free, a company can achieve 100 percent market share.
But, it would not be in business long.
A company should make its goal to attract the greatest number of profitable customers.

1.1 Definition of CRM and CRM Applications

“Management” is also important when defining CRM as it pertains to the organization’s ability to develop strategies that attract and retain customers
Management = the identification of prospects, selection and acquisition of relevant prospects, and development of the relationship
Managing strategies and tactics requires effective planning and effective and timely implementation

1.1 Definition of CRM and CRM Applications

CRM is founded on four tenets:
Customers should be managed as important assets
Not all customers are equally desirable
Customers vary in their needs, preferences, and buying behavior
By better understanding their customers, companies can tailor their offerings to maximize overall value

1.1 Definition of CRM and CRM Applications

The more a company knows its customers, the greater the opportunity to increase market penetration and share of wallet

This leads to greater market share and the opportunity to trade customers up and increase the speed of new product acceptance

Which eventually leads to quickened cash flow with less volatility and risk

1.1 Definition of CRM and CRM Applications

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1.2 The Purpose and Benefits of CRM

The focus of CRM is the customer, particularly all existing ones
The knowledge base contained in a CRM system will, in fact, aid in the acquisition of new customers
As companies gather information about their current customers, view their purchase history and interactions with the organization, compute customer lifetime value, and understand what motivates them to increase their purchases or trade up to higher-priced items, the company forms a knowledge base that will enable them to attract others

1.2 The Purpose and Benefits of CRM

As companies gather information about current customers who buy infrequently, buy only when products or services are on sale, frequently return merchandise, and complain often, the company can avoid attracting similar customers
Many nonusers are long-time customers, so the purpose of CRM systems is not simply to retain customers, nor is the purpose simply to please customers

1.2 The Purpose and Benefits of CRM

A good CRM system identifies potentially profitable and unprofitable customers early on
To create value, CRM systems sometimes point toward de-marketing to certain groups
For example, it may benefit a company to add or raise fees to certain customers in order to either make them profitable or drive them away

1.2 The Purpose and Benefits of CRM

CRM systems are being used because they can enhance productivity across the range of key marketing functions:
Identifying prospects
Acquiring customers
Developing customers
Cross-selling
Upselling
Managing migration
Servicing
Retaining
Increasing loyalty
Winning back defectors

1.2 The Purpose and Benefits of CRM

Four Steps in CRM:
Identify your customers in as much detail as possible, including demographics, psychographics, habits, and preferences
Differentiate among them (for example, most and least profitable)
Interact with your customers (make this interaction more cost effective through automation whenever possible)
Customize your offerings to fit each customer’s needs through mass customization or individual tailoring

1.2 The Purpose and Benefits of CRM

Objectives of CRM

Identification of potential customers
Understanding of customer needs, both current and latent
Differentiating profitable from unprofitable customers and segments
Decreasing attrition by increasing value and satisfaction
Increasing usage of current products and services
Increasing usage of a greater number of a company’s products and services

Increasing usage of more prestigious items produced by a company (trading up)
Increasing customer service and satisfaction
Improving campaign management
Increasing referrals
Winning back lost customers
Moving customers up the relationship hierarchy from strangers to acquaintances to friends to partners
Integrating marketing and sales efforts throughout the various channels used by the company

1.3 The Tangible Components of CRM

Tangible components to CRM:
Data warehouses
Customer touch points
Customer call centers
Sales-force automation
360-degree view of customers

1.3 The Tangible Components of CRM

Basic Architecture of a CRM System

1.3 The Tangible Components of CRM

Multichannel Marketing
Is the variety of channels (store, telephone, ATM/kiosk, catalog, social networks, and online) that consumers use to interact and transact with an organization
Multichannel users have two to four times more to spend
In retail banking they are 25-50 percent more profitable

1.3 The Tangible Components of CRM

The Multichannel Customer Buys More

1.3 The Tangible Components of CRM

Touch Points
any point of contact that a customer or prospect has with a company
can be an inquiry over the phone, in person, or via e-mail
Social media channels
Internet forums, blogs, microblogs (e.g., Twitter), and social networking sites (e.g., Facebook)
Short message service (SMS)
messages sent to people in a business’s market area using geolocators and systems provided by a Web-based service provider

1.3 The Tangible Components of CRM

Call Center
where customer communications occur
fewer than 10% of call centers are based outside the U.S.
telephone-centered
Contact Center
extends coverage to telephone, mail, fax, and e-mail
Customer Interaction Center
has the ability to generate revenue for the organization
extends across all channels and functions

1.3 The Tangible Components of CRM

Sales-Force Automation
oriented toward developing customer relationships and improving satisfaction
360-Degree View
companies should treat customers throughout the business cycle based on their lifetime profitability
focus on profitability, not revenue or value

1.4 Customer Lifetime Value (CLV) and Second Lifetime Value (SLTV)

Customer lifetime value (CLV) = the net present value of the future profits to be received from a given number of newly acquired or existing customers during a specified period of years
Lifetime value (LTV) = the net present value of the customer’s profitability throughout the customer-firm relationship
Second lifetime value (SLTV) = focuses on only the net present value generated after a customer has been reacquired

1.5 Who Uses CRM and Why?

Firms develop CRM systems for the following reasons:
To increase customer retention and customer loyalty
To stay even with their competition
To attempt to differentiate themselves from their competitors based on their ability to provide outstanding customer service
To encourage development of customer communities and social networks

1.5 Who Uses CRM and Why?

The Types of Companies Benefiting Most and Least from CRM Systems