chapter 2 conceptual foundations of crm.pdf
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Customer Relationship ManagementTRANSCRIPT
ConcepConcep…………
CRMCRMCRM –ptual Foundations
CRM –ptual Foundations
………… Session CoveragSession Coverag
• Benefits of CRM
• Transaction vs. Relationsh
• Schools of thought on CR
• Defining CRM , Custome
Acquisition
gege
hip orientation
RM
er Retention and Customer
2
………… Benefits of CRM Benefits of CRM
• Customers are profitable ov• Customers are profitable ov
• Customer profitability is skeCustomers ARE NOT equa– Customers ARE NOT equa
• Marketing benefits of CRM Information Knowledge– Information, Knowledge
– Productivity Gains– low cost media, improved
• Service Benefits of CRM
ver timever time
wedll
Customized PromotionsCustomized Promotions
targeting and higher conversion rates.
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………… Benefits of CRM Benefits of CRM
S i B fit f CRM• Service Benefits of CRM– 96% of unhappy customers ne– Each dissatisfied customer onEach dissatisfied customer on– Each satisfied customer will te– 70% of customers who comp
again if it quickly takes care o
ever bother to complainn an average will tell 14 other peoplen an average will tell 14 other peopleell no more than 6lain will do business with the company f a service problem.
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………… Benefits of CRM Benefits of CRM
B fit f CRM t C t• Benefits of CRM to Custom– Satisfaction leads to loyalty– Simplify buying and consumingSimplify buying and consuming– Simplify information processin– Reduce perceived risks, – Maintain cognitive consistency– Psychological comfort
mers
g tasks g tasks, ng,
y
5
…………Merchants & TradersMerchants & Traders
Pre-Industrial eraMerchants & TradersBusiness built on trust
Customisation of products/all aspects of delivery & payment
Personal/social interaction ith t
Merchants & TradersBusiness built on trust
Customisation of products/all aspects of delivery & payment
Personal/social interaction ith twith customerswith customers
High
Relationshipi t tiorientation
Pre-industrial era Industrial eraRelationship centric
(Small scale)
Low
The evolution of Relationship Or(Adapted from Sheth, Parvatiyar,
Businesses adopted mass production,Businesses adopted mass production,Industrial era
Businesses adopted mass production,mass communication, mass distribution
Focus on manufacturing/efficient operations.Introduction of IntermediariesGreater efficiency, lower cost
R d d di t t t ith t
Businesses adopted mass production,mass communication, mass distribution
Focus on manufacturing/efficient operations.Introduction of IntermediariesGreater efficiency, lower cost
R d d di t t t ith tReduced direct contact with customersReduced direct contact with customers
R f l ti hi tiR f l ti hi ti
Information era
Re-emergence of relationship practicesRapid technological advances
Intensive competitionGrowing imporatnce of service sector
Adoption of TQM programs
Re-emergence of relationship practicesRapid technological advances
Intensive competitionGrowing imporatnce of service sector
Adoption of TQM programsp p gp p g
Information eraRelationship centric
(Small scale)
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rientation1995)
………… Re-emergence of relationship practicesI. Advances in technologyRe-emergence of relationship practicesI. Advances in technologygygy
Advances in information communicAdvances in information, communic
Technology enabled marketers to ov• Inefficiencies in mass marketing-cost red
• Lack of fast , effective and interactve mo
• Lack of consolidated information.
s in the information eras in the information era
cation and production technologiescation and production technologies
vercome shortcomings of mass marketing.duction
odes of customer contact, feedback, information.
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………… Re-emergence of relationship practicesI. Advances in technologyRe-emergence of relationship practicesI. Advances in technologygygy
Advances in information communicAdvances in information, communic
Technology enabled marketers to ov• Inefficiencies in mass marketing-cost red
• Lack of fast , effective and interactive mo
• Lack of consolidated information.
s in the information eras in the information era
cation and production technologiescation and production technologies
vercome shortcomings of mass marketing.duction
odes of customer contact, feedback, information.
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………… Re-emergence of relationship practicesII. Intensive competitionRe-emergence of relationship practicesII. Intensive competitionpp
Focus on existing customersFocus on existing customers
It costs 6-8 times more to attract a ncustomer.
Focus on CLV
Shift from product centric marketin
s in the information eras in the information era
ew customer than to retain an existing
ng to customer centric marketing.
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………… Re-emergence of relationship practicesRe-emergence of relationship practices
IV. Adoption of TQM • Provide quality products and services to custome
IV. Increase in no. of demanding customers
V Increased fragmentation of marketsV. Increased fragmentation of markets
VI. High level of product quality
Businesses seek sustainSustainable-those whicOne such sustainable adeveloped by the busin
s in the information eras in the information era
ers at lowest prices
nable competitive advantages.ch cannot be copied.advantage is the relationship ness with it’s customers
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………… Re-emergence of relationship practicesIII. Growing importance of the serviRe-emergence of relationship practicesIII. Growing importance of the servig pg p
India:Service sector contributes to 5India:Service sector contributes to 5
Service sector: Direct interaction bet
Leads to better understanding
Better undeBetter appreciation of
Better undeBetter appreciation of
EmotionalEmotional
Relationshi
s in the information eraice sectors in the information eraice sector
0% of economy0% of economy.
tween marketer and buyer
erstandingneeds and constraintserstandingneeds and constraintsl Bondingl Bonding
ip Building
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………… A Model of RelatA Model of Relat
C B fi FCost Benefit FactorsSearch CostsRisk ReductionSwitching CostsValue-added Benefits R
Ba
Socio-Cultural FactorsEarly Socialization
Ba
•CEarly SocializationReciprocityNetworksF i d hiFriendships
tionship Based Buyingtionship Based Buyingp y gp y g
Relationship ased Buying
Customer LoyaltyIncreased BuyingWilli t ased Buying
•TrustCommitment
Willingness to pay moreGoodwill (customer equity)q y)
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………… Perceived Risk &Perceived Risk &
High ConstrainedR l ti h
gRelationsh
Switching Costs
TransactionE hLow
Switching Costs
Low
ExchangeLow
LowPerceiv
& Switching Costs& Switching Costsgg
Relational Buying
d in hi Buyinghip
nal Vulnerable
High
e Exchange
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Highved Risk of Alternatives
…………Determinants of TrBusiness RelationsDeterminants of TrBusiness Relations
D t i t f th Determinants for the CustomerSwitching costsgPartner specific investmentsMutually shared goalsC i i d d Communication and product supportSupplier avoidance of ppopportunistic behavior
rust & Commitment in shipsrust & Commitment in shipspp
D t i t f th Determinants for the SupplierSupplier specific investmentspp pCustomer avoidance of opportunistic behaviorSi l liSingle source policyData sharing and nurturing
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………… Transaction vs. RTransaction vs. R
Transaction Marketing
One off exchanges
Brand Management
Foc
Short term focus Time PerShort term focus Time Per
Mass Communication Primary Com
Isolated Market Research CustomerIsolated Market Research CustomerMecha
Mass Markets or MarketS
MarkeSegments
Market Share Criterion f
Profitability of transactionBrand equity
Critical
Relationship MarketingRelationship Marketingp gp g
Relationship Marketing
cus Ongoing Exchanges Customer Management
rspective Long term focusrspective Long term focus
mmunication Personal Communication
r Feedback Ongoing Dialoguer Feedback anism
Ongoing Dialogue
et Size Markets of One
for Success Mind Share (Share ofCustomers)
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Customers)
Metrics Customer Profitability Customer Equity
………… Schools of ThouSchools of Thou
Th A l A t li• The Anglo-Australian
• The Nordic Approach
• The North American
ught on CRM ught on CRM gg
A hn Approach,
h, and
n Approach
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………… Schools of ThouSchools of Thou
Th A l A t li• The Anglo-Australian
QualityQuality
Services Marketing C tConcepts
RelaMa
ught on CRM ught on CRM gg
A hn Approach
ManagementManagement
Customer Relationship Economics
ationship
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parketing
………… Schools of ThouSchools of Thou
Th N di A h• The Nordic Approach
InteractivTheory
Services Marketing Concepts
Relationship
ught on CRM ught on CRM gg
hh
ve Network
Customer Relationship Economics
p Marketing
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………… Schools of ThouSchools of Thou
Th N th A i• The North American
Organizational Environment
Relationship Man
ught on CRM ught on CRM gg
A hn Approach
Buyer
nager
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………… SummarySummaryyy
• The Anglo Australian approach integ• The Anglo Australian approach integmanagement, services marketing andexplain the emergence of relationship
Th N di h i l ti• The Nordic approach views relationsinteractive network theory of industrinteractive process in a context whereconcern for marketersconcern for marketers.
• The North American Approach viewof interactive network theory, service
i Th i t ti t k teconomics. The interactive network tmarketing as an interactive process inan area of primary concern for marke
grated the contemporary theories of qualitygrated the contemporary theories of quality d customer relationship economics to p marketing.
hi k ti th fl fship marketing as the confluence of rial marketing , views marketing as an e relationship building is an area of primary
ws relationship marketing as the confluence es marketing and customer relationship th f i d t i l k ti itheory of industrial marketing views n a context where relationship building is eters.
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………… Six Markets FramSix Markets Fram
Internal
Customer Supplier Markets
Recruitment Markets
mework of CRMmework of CRM
Markets
Markets Referral Markets
Influence Markets
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………… Defining CRM Defining CRM gg
CRM i d t b • CRM is database mar– emphasizes the promotio
to database effortsto database efforts
• CRM is customer ret– aftermarketing tactics are
and staying in touch after
k ti (Bi k t 1992)rketing (Bickert, 1992)onal aspects of marketing limited
ention (Vavra , 1992)e used for customer bonding r the sale is made
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………… Defining CRM …Defining CRM …Defining CRM …Defining CRM …
• RM is the application of IT to f• RM is the application of IT to fcustomers that integrate retenand Rogers, 1993)
• RM puts the customer first anmanipulating the customer (te
t i l t (customer involvement (commknowledge) (Mckenna, 1991)
… contd.… contd.… contd.… contd.
focus on 1to1 relationships with focus on 1to1 relationships with ntion and growth strategy (Peppers
d shifts the role of marketing from lling and selling) to genuine
i ti d h i th unicating and sharing the
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………… Defining CRM …Defining CRM …gg
• Attracting maintaining and in • Attracting maintaining and - in enhancing customer relationsh
• Establish, maintain and enhancEstablish, maintain and enhancother partners, at a profit, so tinvolved are met. This is achif lfill t f i (Gfulfillment of promises (Gronr
• RM refers to all marketing actideveloping and maintaining sucdeveloping and maintaining sucHunt, 1994)
… contd.… contd.
multi service organisations multi service organisations -hips (Berry, 1983)
e relationships with customers and e relationships with customers and that the objectives of the parties ieved by a mutual exchange and
1990)oos, 1990)
ivities directed towards establishing, ccessful relationships (Morgan and ccessful relationships (Morgan and
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………… Defining CRM …Defining CRM …gg
CRM i th i • CRM is the ongoing pcooperative and collaprograms with immeprograms with immecustomers to create aeconomic value at reeconomic value at re
… contd.… contd.
f i i process of engaging in aborative activities and ediate and end user ediate and end user and enhance mutual duced costduced cost.
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………… Common IssuesCommon Issues
A i t d• A process oriented vinteractions over a pe
• Collaborative and corelationship for lon
dand
• Metrics include enhan
i hi h l k t thview which looks at theeriod of time
ooperative nature of theng-term mutual benefit,
nced value
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………… CRMCRM
Key elementsKey elements
• Nature of relationship with cuis shifting from transactions tois shifting from transactions to
• Focuses on maximising the life
• Development and enhancemen• Development and enhancemenmarkets
• Quality, customer service and Q y,Brings these elements into a m
stomers is changing & the emphasis o a relationship focus.o a relationship focus.
etime value of desirable customers
nt of relationship with six key nt of relationship with six key
marketing are closely related. g ymuch closer coherence
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………… What is the goWhat is the go
• Build long term and profitacustomerscustomers
• Get closer to those custom• Get closer to those customwith them
oal of CRM ?oal of CRM ?
able relationships with chosen
mers at every point of contact mers at every point of contact
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………… Customers are profitable over a peCustomers are profitable over a pep f pp f p
Initial acquisition cost exceeds gros
1% increase in sales to existing cusamount of sales to new customers i
Companies can boost profits by 85%by 5%.
Probability of selling a product to aProbability of selling a product to aexisting customer
eriod of timeeriod of timeff
ss margin, retention costs are lower.
tomers incease profits by 17% while same ncrease profits by 3%.
% by increasing annual custome retention
a prospect is 15% while it is 50% to ana prospect is 15% while it is 50% to an
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………… Customer Profitability is skewedCustomer Profitability is skewedf yf y
Top 20% of customers contribute toTop 20% of customers contribute toprofits. Rest 60% break even.
Companies have to adopt different s
Retain and build stronger bonds witnot get paoched.
Activity based cost analysis.
Cross selling and upselling
Analyse bottom group.Shift some cu
R d t f iReduce cost of service
Encourage some customers to defect
Outsourcing loss making customers.g g
150% of profits Bottom 20% drain 50% 150% of profits. Bottom 20% drain 50%
trategies for different customer groups.
th ‘gold standard’ customers so that they do
ustomers to ‘potential’ group.
t to competitors.
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………… Marketing benefits of CRMMarketing benefits of CRMg f fg f f
Focus on existing customersFocus on existing customers
It costs 6-8 times more to attract a ncustomer.
Focus on CLV
Shift from product centric marketin
ew customer than to retain an existing
ng to customer centric marketing.
31
………… CustomeCustome
• A simple definition of "Customer• A simple definition of Customeror obtaining new customers, andSuccessful CRM begins with the ac
Th t f i i t• The cost of acquiring new customeservicing existing customers.
• Adding a new customer costs threxisting one. Firms have tried outby spending less on the acquisition
• The cost of acquiring new customeq gbranding, customer trials, etc. Theto retention becomes very importa
er Acquisitioner Acquisitionqq
Acquisition" is the process of acquiringAcquisition is the process of acquiringd/or converting prospects to customers.cquisition of the right customers.
i id bl hi h th th t fers is considerably higher than the cost of
ee to seven times more than keeping ant various ways to acquire new customers
n costs.
ers includes the cost of sales, promotions,perefore, the ratio of customer acquisitionnt for the firm .
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………… CustomCustom
• Customer Retention is the procesthe relationship of consumers wservices. It is the process of keep
di i d b ti thunending period by meeting the na significant contributing factor in
• Customer retention is the mirrorHigh retention is equivalent to low
• Customer Retention is defined aswith a firm at the end of a financwho were active customers at the
mer Retentionmer Retention
ss of keeping, sustaining, and/or growingwith the company and its products andping customers loyal to a company for an
d d t ti f t d ineeds and expectations of customers and isn the growth rate of businesses.
r image of customer defection or churn.w defection.
s the number of customers doing businesscial year expressed as percentage of thosebeginning of the year.
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………… CustomeCustome
• Customer Retention has rep• Customer Retention has repcompetitiveness as the greatest cofoundation of CRM is built oncustomization.customization.
• Companies interact with customelearn about them and through theco creation develop a level of intimco-creation, develop a level of intim
r Retention….r Retention….
placed cost effectiveness and costplaced cost effectiveness and costoncern of business executives today. Then an iterative process of learning and
ers, treat them as organizational assets,e process of incorporating feedback and
macy with themmacy with them
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