chpt 1 intorduction to knowledge & customer relationships
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INTRODUCTION TO
KNOWLEDGE & CUSTOMER
RELATIONSHIPS
CHAPTER 1
OCS462 MANAGING CUSTOMERKNOWLDGE
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Chapter Learning Objectives
Understand the basic concept of knowledge hierarchy and the types ofknowledge.
Recognize the importance of knowledge management in buildingrelationships with customers.
Know the distinction between operational CRM and analytical CRM.
Explain the methods to increase the value of the customer base by using theGet-Keep-Grow model.
Define Customer Strategy Enterprise and understand the four quadrants ofthe Enterprise Strategy matrix.
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Knowledge Hierarchy (or DIKW Pyramid)
Wisdom
Knowledge
Information
Data
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Knowledge Hierarchy
Data
Raw and unprocessed facts and figures,
without
any added interpretation or analysis.
Characterized as being discrete, objective facts or
observations, which are unorganized and
therefore have no meaning.
Symbols
E.g
: It is raining.
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Knowledge Hierarchy
Information
Organized and structured data which can be learned,
known about or understood.
Processed data which has relevance for a specific
purpose or context.
Who, what, where and when questions.
Therefore meaningful, valuable, useful, and relevant. E.g: The temperature dropped 15 degrees and then it
started raining.
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Knowledge Hierarchy
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Knowledge
The combination of data and information, to which is added
expert opinion, skills, and experience, to result in a valuable
asset which can be used to aid decision making
through
learning experience.
It exists privately in the minds of people, and it can be made
external and public through being recorded in some way
Answers how questions
Ex: If the humidity is very high and the temperature drops
substantially the atmospheres is often unlikely to be able to
hold the moisture so it rains.
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Knowledge Hierarchy
Wisdom
Evaluated understanding of principles, which there
has previously been no understanding. It asks
questions to which there is no easily-achievable
answer.
Wisdom requires judgement; between right and
wrong, good and bad. It has the ability to increase
effectiveness.
Evaluate understanding
Ex: It rains because it rains. And this encompasses an
understanding of all the interactions that happen
between raining, evaporation, air currents,
temperature gradients, changes, and raining.
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Types of knowledge
TACIT(hidden)
Unwritten knowledgethat is hidden in the mind
of every individual.
Shared andcommunicated through
activity and interaction.
Examples:
Past experiences
On the job training
Observation
EXPLICIT (open)
Articulated knowledge,
which are expressed,codified, and
recorded/written down.
Shared andcommunicated in written
or verbal forms.
Examples:
Words, numbers & codes
Documents, Procedures
Mathematical & scientific
formula
Musical notations
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Knowledge Management (KM)
Refers to a range of practices used by organizations to identify, create, represent,
and distribute knowledge for reuse and learning across the organization.
The way a company stores, organize and accesses internal & external information.
Knowledge management applications/ tools are used to tie organizational
objectives to the achievement of specific business outcomes such as improved
performance, competitive advantage, and higher levels of innovation.
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Customer Knowledge (CK)
Knowledge for, about and from customers.
Customer knowledge helps companies to understand customers needs, wants and to
align processes, product and services to build customer relationship.
The collection of information, insights & view points that companies has about its
customer to build stronger relationship with its customers.
Customer knowledge can be
explicit the structured customer information in databases.
tacit knowledge in mind of employees and customers.
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Customer Knowledge Management (CKM)
Customer Knowledge Management is the effective power of information and experience
in the gaining, development and retention of profitable customer.
The knowledge must then be applied and managed in ways that best support investment
decisions and resource deployment.
CKM provide customer insight, profiles, habits, contact preferences and understanding toimprove a companys relationship with the customer.
In the competition for a customer, the successful enterprise is the one with the mostknowledge about an individual customers needs.
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Knowledge
management
The way a company
stores, organize and
accesses internal &
external information.
Customer
knowledge
The collection of
information, insights &
view points that
companies has about
its customer to build
stronger relationship
with its customers.
Customer
knowledgemanagement
Customer insight,
profiles, habits,
contact preferences
and understanding to
improve a companys
relationship with thecustomer.
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Issues of Customer Knowledge
In B2B marketing, each
salesperson knew each customer
and prospect as individuals.
Well-trained salesperson
recognized each customers
buying habits, behaviors and
preferences.
However, much of this
information was never codified or
recorded.
When a salesperson retired or
quit, the company lost a great
deal of specific customer
information.
Implementation of CRM information
systems and loyalty building programs,
allows capturing detailed customer
information on the companys database.
Management of customers
knowledge allows the company to
allocate resources to key business
activities in order to gain
competitive advantage.
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Importance of
Managing Customer Knowledge
To understand
customers needs,
wants .
To meet their
expectation and
perception.
To build stronger
long-term
customer
relationships
To ensure that
information is
captured and can
be shared across
organization and
also for future
usage.
To support
business make
informed
decision.
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Competitive advantage
Condition which enables a company to operate in a more efficient and higher-quality
manner than the companies it competes with, and which results in benefits go to that
company.
Thus, competitive advantage means having low costs, differentiation advantage, or a
successful focus strategy.
By applying customer knowledge management (CKM) and customer relationship
management (CRM), companies can focus on allocating resources to key business activities
in order to gain competitive advantage
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Source of competitive advantage
The ability to learn more about thecustomers faster than the
competition
Companies knows who their customers are, howthey behave and what buying patterns they display
The ability to turn that learning andcustomer knowledge into action
faster than the competition
Companies more likely to spot up-and-comingmarket opportunities before their competitors, andrapidly create economic value for the business, its
shareholders, and its customers.
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Customer Relationship Management (CRM)
Application of technology in making managerial decisions with the end goal of increasing
the value of the customer base through better relationships with customers, usually on an
individually basis.
CRM involves the purchase of hardware and software that will enable a company tocapture detailed information about individual customers that can be used for better target
marketing.
By examining a customers past purchases, demographics, and psychographics, the
company will know more about what the customer might be interested in.
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Customer Relationship Management (CRM)
The company will send specific offers only to those with the highest possible interest and
readiness to buy, and will save all the mailing or contact costs usually lost in mass marketing.
Using the information carefully, the company can improve customer purchase, cross-selling,
and up-selling.
CRM helps track data and information about customers to enable better customer service, by
treating different customers differently.
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Examples of CRM initiatives
A car rental customer rents a car without having to complete another
reservation profile.
An online customer buys a product without having to reenter his credit
card number & address.
A supervisor orders more computer components via web page that
displays his firms contract terms, his own spending to date, and his
departmental authorizations.
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CRM Process:
Operational & Analytical
ANALYTICAL CRM
The analysis of data created on the
operational CRM and other operationaldata sources for the purpose of business
performance management and customer-specific analysis.
Involved gaining information on customer& strategic planning to build customer
value.
CRM systems manage and evaluateknowledge about customers for a betterunderstanding of customers behavior.
Data warehousing and data miningsolutions are typical systems in the area.
OPERATIONAL CRM
Automation of integrated business
processes involving front-office acrosssales, marketing & customer service via
interconnected delivery channels.
Involved software installation and thechanges in process affecting the day-to
day operations of a firm.
CRM systems improve the efficiency ofCRM business processes comprise
solutions for sales force automation,marketing automation, and call center
management.
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Analytical CRM
Focuses on the strategicplanning needed to build
customer value
Measurement,
organizational changesrequired to implement
strategy successfully
Operational CRM
Focuses on the softwareinstallation and thechanges in process
affecting the day to dayoperation of the firm
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Differences Among KM,CRM & CKM
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Roots of customer relationship management
Steps to increase the Value of the Customer Base is as follows:
Acquire profitable customers
Retain profitable customers longer
Win back profitable customers
Eliminate unprofitable customers
GET
KEEP
Up-sell additional products in a solution
Cross-sell other products to customers
Referral and word-of-mouth benefits
Reduce service and operational costs
GROW
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Customer Strategy Enterprise
An organization that builds its business model around, increasing value of the customerbase.
Applies to companies that are product-oriented, operations-focused, or customer-intimate.
The exchange between a customer and the enterprise becomes mutually beneficial, ascustomers give information in return for personalized service that meets their
individual needs.
Ex : Insurance for women
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Enterprise Strategy Map
A model which categorize and rate an enterprise capabilities in the arenas of interactingwith customers and tailoring products/services for them.
An enterprise can be mapped in terms of two dimensions:
interaction with customers.
tailoring (customizing) products/services for them.
Based on its rating in these two dimensions, a company can be pinpointed on theEnterprise Strategy Map
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Enterprise Strategy Map
Interactivity Dimension
High- if it knows the names of its
individual customers, send
different messages to different
customers, and remembers the
feedback from each one.
Low- if it doesnt know itscustomers identities, and sends
the same messages the same way
to every customers.
Tailoring Dimension
High- if it mass-customizes a
product or service in many
different attributes and features
Low- if it sells the same product
or service, the same way to every
customers.
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Enterprise Strategy MapIII
Database
Marketing
IV
1 to 1 Learning
Relationships
I
Mass Marketing
II
Niche Marketing
Interacting
TailoringStandardProductsTailored
Products
Customers addressed
only in mass media
Interaction with
customers individually
low
high
high
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Quadrant I: Mass Marketing
LOW in individual interaction, LOW in tailoring/customization of products and services.
Companies that competes primarily on cost efficiencies based on economies of scale and lowprice.
Products are massively manufactured, distributed and advertised.
Company may sell millions ofstandard productsto as many customers as possible
Less direct contact with end users, therefore less knowledge about the needs of the customers.
E.g. GM was the largest carmaker in the world in 2008, now reduce in rank to 2ndbehind newleader, Toyota.
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Enterprise Strategy MapIII
Database
Marketing
IV
1 to 1 Learning
Relationships
I
Mass Marketing
II
Niche Marketing
Interacting
TailoringStandardProductsTailored
Products
Customers addressed
only in mass media
Interaction with
customers individually
low
high
high
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Quadrant II: Niche Marketing
LOW in individual interaction, HIGH in tailoring/customization of products and services.
Companies that focus on target markets, produce goods & services designed for those definedcustomer groups.
Customers can participate in the actual design and product development.
E.g. Mortgage products can have:
3 different interest rates (fixed or floating according to BLR)
3 different payment schedules (monthly, quarterly or annually),
2 different types (Islamic or Conventional)
2 down payment options (zero-entry costs or normal entry fees).
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Enterprise Strategy MapIII
Database
Marketing
IV
1 to 1 Learning
Relationships
I
Mass Marketing
II
Niche Marketing
Interacting
TailoringStandardProductsTailored
Products
Customers addressed
only in mass media
Interaction with
customers individually
low
high
high
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Quadrant III: Database Marketing
HIGH in individual interaction, LOW in tailoring/customization of products and services.
Companies utilizes database management to get better & efficient use of mailing lists and
other customer information.
Technology has made it possible for a an enterprise to deal with the customers individually.
Database helps enterprise to identify and track the customer, by remembering informationabout the customer, and making the purchasing process easy and convenient.
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Enterprise Strategy MapIII
Database
Marketing
IV
1 to 1 Learning
Relationships
I
Mass Marketing
II
Niche Marketing
Interacting
TailoringStandardProductsTailored
Products
Customers addressed
only in mass media
Interaction with
customers individually
low
high
high
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Quadrant IV: One-to-One Learning Relationships
HIGH in individual interaction, HIGH in tailoring/customization of products and services.
One-to-One Marketing involves selling a single customer as many products as possible over along period of time, and across different product lines.
Interacting with customers on a personal basis and customizing products to meet the customers
needs.
Companies use data about customer to predict what each one needs next.
Able to treat different customers differently and increase mutual value with customer.
E.g. Insurance, finance & investment service, nutritionist & dietician, personal tutor, travelagency.
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III
DatabaseMarketing
Companies utilizes database
management to get better &
efficient use of mailing lists and
other customer information.
IV
1 to 1 LearningRelationships
Companies use data about
customer to predict what each
one needs next. Able to treat
different customers differently and
increase mutual value withcustomer.
I
Mass MarketingCompanies that competes
primarily on cost efficiencies
based on economies of scale andlow price.
II
Niche MarketingCompanies that focus on target
markets or niches, and produce
goods & services designed forthose defined customer groups.
Interacting
TailoringStandard
Products
Tailored
Products
Customers addressed
only in mass media
Interaction with
customers individually
Enterprise Strategy Map
low
high
high
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If retention is so much more profitable than acquisition, why
have companies persisted so long in spending more on getting
new customer than keeping the ones they have? What would
persuade them to change course?