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p c:. ent Module 1: Introduction to CRM

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MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

Introduction

This is the last learning unit for Module 1. Here, we are going to look at the value of CRM for the customer and for the company (or provider) of goods and services.

Every great strategy must have a clear business goal and objectives. A creative marketing campaign doesn’t mean anything unless it can bring in sales. A beautiful website is a waste of time unless it can drive traffic to other touch points and encourage the customer to buy, resulting in sales. The best technology for customer service is meaningless unless it can help the customer’s journey be a positive experience.

Business is about selling. CRM is about generating more sales. Learning about customers leads a company to the ultimate goal: to GET, KEEP, and GROW customers to generate more sales.

SarahCherres

CRM as a Learning Process

START HERE

~ Recognize

needs/ wants of defined

segments

6 l Customize

channel outlets & locations

------- 5

Cu ltivate& develop interest,

trust & desire

Coll ect, warehouse, &

analyze da ta

-------- Acquire

customer and establish

a relationship

I Customize promotion, information & _/ interactions

Customize / 4 offers, products

and services Souru: Zik mund. McLL"o<L and Gi l"'.·rt (2003)

Modu le 11 Unit 3: GoalsofCRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

CRM as a Learning Process

The essence of CRM is to TREAT DIFFERENT CUSTOMERS DIFFERENTLY! In ord er to do so, a company must go through a continuous learning process with the customer. This slide illustrates the continuous nature of a customer relationship, starting with step 1. Once a company recognizes the needs or wants of a defined segment, it must identify the individual customers and gain their trust. Through interacti ons with those customers, the company then begins to collect informatio n about each customer in order to differentiat e that customer from the others. Through increased knowledge about the customer, the company can then customize its communications with the customer, its product and service offerings and even the way it provides it products and

services. Here’s what happens:

• The customer learns more about his or her own preferences from each experience or interaction with the company. The more they interact, the more trust is built.

• The company learns mo re about its own strengths and weaknesses from each interaction with the cu stomer.

Through customer feedback, whether good or bad (and companies must encourage bad feedback), the company learns about the perception of its customers. At the center of this continuous learning cycle is a central repository

(also called data warehouse) of customer information that can be accessed and shared with the right people in a company.

The learning relationship is a process where you’re talking with your customer and, based upon what you learn

about your customer, you tailor your product or your service or elements associated with it. But what you’re really try ing to do is give the customer a reason to i nvest time and effort in teaching you how to serve their business. The more time they invest, the more of a stake they have in making this relation ship work. For example, if you have a business custom er and they invite you into their factory for th ree days in a row, they have their team in the conference room with twenty people for half of that time . They want you to succeed. If you don’t succeed with your relationship with them, this business customer has to go to one of your competitors and do the whole thing over again. The mo re tim e they invest in telling you what they need and how to serve their business, the more stake they have. They don’t want to reinvent the relationship.

The key is, if you want customer loyalty, to demonstrate to the cu stomer that if they take the time to teach you how to serve their business or their needs, you will change how you treat them. That’s the essence of a 1-to-1 learning relationship.

IDIC Model

©SarahCherres

Identify custome<s Individually

Analysis

_._ ____ _,, Differentiate custome<s by

value, then needs

Technology Supports Iterative Process Valuable

Customers

services and remember

Action Source: Peppers & Rogcrs (20 11 )

Module 1 I Un it 3: Goal s ofCRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

The IDIC Model

To further illustrate the conce pt of 1-to -1 m arketing and the le arnin g relationship, Peppers & Rogers developed the IDIC model to explain their interpretation of CRM. Companies must be willing to listen to cust omers and continuou sly learn abou t their needs and expectations. The first two dimensions of the IDIC model (identify and differentiate) are based on ANALYSIS of customer information. The last two dimensions (interact and customize) are base d on ACTIONS with the customer. Let’s review each of these more cl osely.

• Identify (Analysis) means to recognize, link and remember the customer when he/she first comes into

contact with the company and comes back -- in person, by phone, onli ne or otherwise. Is there a unique tag or identifier for the customer?

• Differentiate (Analysis) means to prioritize value and understand different customer needs. Not all customers have the same needs and generate the same value t o the company.

• Interact (Action) with customers intelligently in the context of previous interactions and business processes means to generate and record dialogue and feedback.

• Customize (Action) by adapting enterprises’ behaviors to the customers’ needs. A company ca n use its products, services, and p rocesses to customize experiences. The goal is to bec ome relevant by doing som ething for a customer that no compe tition can do.

Traditionally, retailers have focused their attention on encouraging customers to visit their stores, look through their catalogs, and visit their Web sites. To a ccomplish this objective, they h ave used m ass media advertising and sales promotions, treating all of the ir customers the same. Now re tailers are beginning to concentrate on providing more value to their best customers using targeted promotions and services to increase their s hare of wallet from a customer me aning the percentage of the customers’ purchases made from the retailer. This change in perspective is supported by research indicating that all customers are n ot e qually profitable and that more and less profitable customers need to be treated differently. We’ll use this model to better understand customer experiences and develop strategies that can increase the learning and ultimately customer loyalty.

IDIC Model

Customer Insight

~ Analytical CRM ➔

Identify Customers a s

unique. addressab le individuals

Differentiate Customers by their value &

needs

Customer Experience

~ Operational CRM ➔

Interact With customers efficiently and

effectiv~

Customize Some ospecl of the company· s

behavior

Sour ce: Peppers (2017)

10 5arahCherres Modu lel I Unit3:Goa lsofCRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

The IDIC Model

Let’s go deeper into IDIC. Note it’s not the same as market research and customer segmentation. It’s more dynamic and done during the relationship. The model can be used to dissect how these four steps function (or don't function) within a company. Think of this model as a strategy that companies can use (or not use) to set up and implement individual customer relationships. The following is taken from the Don Peppers Blog called Building Customer Relationships in Four Steps:

Identify customers individually. Obviously, you can't have a relationship with an audience or a population, but only with an individual. Before you can establish a relationship, you must be able to identify or recognize customers, one customer at a time. You don't have to have each customer's name and address, but you need to know that the customer on the phone right now is the same one who was in the store yesterday, or on your Web site the day before that.

Differentiate customers, one from another. Customers differ from each other, in terms of both their value to your business, and what they need from your business. What a customer needs from you will drive behaviors that you can observe. And behaviors will create (or destroy) value.

Interact with customers. Almost by definition, a relationship depends on some interaction between two parties. You want those interactions to be cost-efficient, so drive more and more interactions into more efficient channels. But you also want them to be effective -- that is, to tell you something about the customer's needs or value, for instance, that you can't learn simply by observing.

Customize for customers. The "pay off step" for managing a customer relationship comes when your business behaves differently toward that customer. We call this "customization" even though we're not necessarily talking about it in terms of literally customizing the product or service. But whenever I treat Customer A different from Customer B, based on what I think I know about their differences, I am "customizing" the customer's treatment.

Note the first two steps can be done within the company in its own technology department. Most companies keep a database of individual customer records, track the transactions of individual customers in order to better understand both their value and their needs, and the customer never really has to participate in the process. The customer, in fact, may not even be aware of the data you are compiling.

By contrast, the third step - interaction - demands the customer's personal attention and participation. You can't interact unless there's someone else on the other end of the interaction. And the fourth step, customizing your behavior in some way to a particular customer, also involves the individual customer directly as the "recipient" of this behavior. So you could think of the first two steps of the I-D-I-C model as "analytical" CRM, while the next two steps are "operational" CRM. Analytical CRM is required to develop better customer insight, while operational CRM is how you deliver a specific customer experience.

Goals- Increasing Value

• Get more customers • Acqu ire profitable ones

• Keep them longer - retain them • Win back profitable ones • Churn unprofitable ones - • Grow them into bigger & more profitable ones • Upsell additional products • Cross-sel l other products • Obtai n referrals and word-of mouth benefits • Reduce service and operational cost s

S,;,m:e: l'cppc,s.& Rogcrs(20 11)

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

CRM Goals - Increasing Value

So what is the primary goal of CRM? CRM is all about the customer retention of loyal customers. The higher the share of the customer a company has, the harder and more costly it is for the customer to switch to a competitor.

CRM is about increasing the value of the company through specific customer strategies. The focus is to move from traditional, transactional selling to relationship, customer-specific selling. It’s about being a customer- centric organization whose business initiatives and practices are driven by the customer learning. According to Peppers and Rogers, “CRM can be thought of as a set of business practices designed, simply, to put an enterprise into closer and closer touch with customers, in order to learn more about each one and to deliver greater and greater value to each one, with the overall goal of making each one more valuable to the firm to increase the value of the enterprise. It is an enterprise-wide approach to understanding and influencing customer behavior through meaningful analysis and communications to improve customer acquisition, retention and customer profitability.”

The business strategies should be to identify the revenue and cost improvements that can result from CRM efforts. This slide outlines some of the business opportunities or goals for the three customer lifecycle phases: ACQUIRING, RETAINING, and GROWING customers. This concept of GET, KEEP and GROW customers focuses on capturing a higher share of the customer (also called share of wallet) as opposed to a higher share of a market.

The idea is to have the customer come back for more with your company. Through upselling, cross-selling, product bundling, and more, a customer spends more on your company. The company then gets a higher portion of their wallet and also reaps cost efficiencies.

Let's remember that at the end of the day, the primary goal is to increase sales revenues.

SarahCherres

Customer Retention: Link to Profitability

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□ Price P,em ium

□Cost Sav ings

□ Revenue Growth

• Base Profit

□ Acquisi t ion

Year

Sm1rce: Rcichhdd ( 1996)

Modu l e 1 J Un it 3:GoalsofCRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

Customer Retention: Link to Profitability

Now let’s look at customer retention and its relationship to profitability. This diagram is a visual representation of the four profit benefits that can result from customer-centric strategies. The horizontal axis represents the years of the relationship with the customer. It’s much more expensive to ACQUIRE the customer than it is to RETAIN him or her. It’s an investment up front so there are no profits to the company during the first year. You don’t see the returns right away.

As the customer remains with the company, profits begin to increase each year. The longer the customer is with the company, the higher the returns on investment. There are several benefits to customer retention and creating loyal customers noted on the slide and represented with each color of the bars. We have:

• Profits from increased spending (yellow, medium purple) through cross-selling and up-selling. Cross selling is the marketing of complementary products to existing customers. Up-selling involves marketing upgraded products or services. You want to sell as many products to the customer at one time, making you (the company) his/her choice for all their needs, when possible.

• Profits from reduced operating costs (turquoise) since it costs less to acquire business from an existing customer than it does from a new customer. Also, repeat customers normally require less service if they are already familiar with a product or service, especially as the relationship progresses. As customers become more experienced (B2B), they make fewer demands on the supplier and few mistakes when involved in the operational processes, thus contributing to greater productivity for the seller and for themselves.

• Profits from referrals (dark purple)– When customers talk about a company, they can reduce the need for advertising. Word-of-mouth recommendations are the most powerful advertising tool.

• Profits from price premium (orange)– loyal customers are normally willing to pay slightly more for products and services if they have a well-established relationship with the company. New customers can benefit from introductory promotional discounts.

According to studies conducted by Frederick Reichheld (called the father of loyalty) and Earl Sasser (1990), companies that build stronger individual customer relationships enhance customer loyalty. No matter what the industry, these researchers found that if you keep a customer long-term, the more value that customer can generate for the company and its shareholders, from 5% to 95%. It was also found that disloyalty could stunt corporate performance by 25% to 50%.

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\ C, Sarah Ch~rr~s Modul~ 1 1 Unit 3: Goalsof CRM

MAR 4860 – Customer Relationship Management MODULE 1 UNIT 3

Why CRM?

One of the questions I started this module with was: Why CRM?

What company doesn’t want to experience increased sales from more loyal customers? What company doesn’t want to reduce their sales costs by having better leads and reduce sales cycle times? Managing your leads better and implementing effective digital marketing strategies can help. What company doesn’t want their loyal customers to send referrals their way?

CRM technologies have evolved. But the pain points or reasons for CRM haven’t changed much. Here are some of the symptoms companies experience that lead them to say: I need CRM.

• Decentralized and scattered customer information wastes time and creates frustration

• Disjointed marketing initiatives cause confusion internally and with customers

• Customer complaints are going up

• Losing customers and accounts to the competition is affecting sales

• Drop in sales and customer service productivity – we aren’t working smart

• Disjointed front-end/back-end systems and processes don’t talk to each other

• Don’t know what the other department is doing

• Don’t really know what customers think

• No way to attract leads, convert those leads to customers, and drive revenue

• Not connecting with customers in a personal way

• Lack of online sales tools to close

more business

When you remove all of these obstacles through effective CRM, a company

will ultimately see increased

sales revenues and profitability. This course is about showing you how to do CRM

right.