366 Chapter 1

Roots of Customer Relationship Management

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  The role of technology: �  Although many believe CRM is a synonym for software,

customer strategy involves analytical as well as operational processes.

�  Technological advancements in interactivity, such as the Internet, mobile technologies, and social media, have driven the growth capacity of CRM, but such technology is a means of managing customer relationships, not the end in itself.

Traditional Marketing Redux

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  The Four Ps of traditional marketing focus on the “get” portion of “get, keep, and grow” customers.

�  Product �  Place �  Price �  Promotion

Market Share vs. Share-of-Customer Strategies

Market Share Share of Customer

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Products and brands as source of company value

�  Sells one product at a time at a time to as many customers as possible

�  Differentiates products from competitors

�  Sells to customers �  Finds a constant stream of new

customers �  Makes sure each product is profitable,

even at expense of customer confidence �  Uses mass media to build brand and

announce products

�  Customers by definition only source of revenue

�  Sells as many products as possible to one customer at a time

�  Differentiates customers from each other �  Collaborates with customers �  Finds a constant stream of new business

from established customers �  Makes sure each customer is profitable, even

if loses money on occasional product or transaction

�  Uses interactive communication to determine needs and communicate individually

Learning Relationship: Definition

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

A Learning Relationship is one where the customer teaches an

enterprise about his or her preferences and the enterprise tailors its response to those preferences, such that it becomes more worthwhile for the customer to remain loyal than to switch to a competitor for any price.

Benefits of Learning Relationship

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Customer loyalty �  The customer learns more about his or her preferences �  The enterprise learns more about its own strengths and

weaknesses

The Technology Revolution and the Customer Revolution

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Increased enterprises’ ability to connect with customers one- to-one

�  Increased customers’ expectations to be treated as an individual

Where Is a Firm on the Customer Strategy Map?

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

Interacting

Tailoring

Quadrant III

Database Marketing

Quadrant IV

1to1Learning Relationships

Quadrant I

Mass Marketing

Quadrant II

Niche Marketing

Customer Retention and Enterprise Profitability

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Reichheld and Sasser (1990) found that a customer’s profitability increased with length of retention, based on four factors:

1. Increased purchases 2. Reduced operating costs 3. Referrals to other customers 4. Price premium (conversely, new customers usually pay lower introductory prices)

�  Additional benefit of retention: acquiring new customers is costly

Becoming a Customer-Strategy Enterprise

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Becoming a customer-strategy enterprise requires a unified view of the customer across the five principal business functions:

1. Financial 2. Production, logistics, and service delivery 3. Marketing communications, customer service, and

interaction 4. Sales distribution and channel management 5. Organizational management strategy

Managing Customer Relationships: A Strategic Framework

Chapter 1 Evolution of Relationships with Customers

Course Title Instructor

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

Introduction �  From the Industrial Age to the Information Age, the

customer-enterprise relationship has changed �  Industrial Age businesses structured around:

�  Competitive advantage from product innovation �  Assembly-line technology: mass production and mass

distribution �  Mass media and branding

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

Introduction

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Information (Interactive) Age businesses structured around: �  Customer information as competitive advantage �  Interactive technologies �  Two-way brands or branded relationship

Roots of Customer Relationship Management

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  If customers are key to competitive advantage, the main task of the enterprise becomes growing the value of the customer base.

�  To grow the value of the customer base, the enterprise must get, keep, and grow customers.

�  This kind of customer relationship management is an enterprise- wide strategy, not merely the implementation of the right technology or a quick add-on to one department.

Roots of Customer Relationship Management

Managing Customer Relationships: A Strategic Framework, Second Edition Don Peppers and Martha Rogers

�  Definition of customer relationship management:

�  Customer relationship management is an enterprise-wide approach to understanding and influencing customer behavior through meaningful analysis and communications to improve customer acquisition, customer retention, and customer profitability.