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McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
14
Customer Relationship Management
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Components of a Customer-Based Strategy
• Customer Acquisition (i.e., getting new customers).
• Customer Retention (ie., keeping current customers satisfied via enhancing brand loyalty or through superior service).
• Customer Expansion, getting customers to either buy more of what they are currently buying (increasing usage) or “cross-selling”other products.
• Customer Deletion, dropping customers that are not profitable (both now and potentially in the future) in such a way as to not generate legal problems or public relationsdisasters.
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Buyer Seller Relationships
Buyer
Buyer
Buyer
Seller
Seller
Seller
A
B
C
Sales Department
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Economics of Loyalty
• Acquisition Cost
• Base Profit
• Revenue Growth
• Operating Costs
• Referrals
• Price Premium
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Impact of Five-Percentage-Point Increase in Retention Rate on Customer Net Present Value
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Why Loyal Customers Are More Profitable
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The Impact of Customer Retention on Profits
-100
0
100
200
300
400
500
0 1 2 3 4 5 10
Profit from referral
Profit from reducedoperating costsProfit from pricepremiumProfit fromincreased purchasesBase profit
Com
pany
pro
fit i
ndex
Acquisition cost
Average length of customer relationship (in years)
Resulting retention rate
0% 50% 67% 75% 80% 90%
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CRM ModelCreate a DatabaseCreate a Database
AnalysisAnalysis
Customer SelectionCustomer Selection
Customer TargetingCustomer Targeting
Relationship MarketingRelationship Marketing
Privacy IssuesPrivacy Issues
MetricsMetrics
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Customer Information File
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Content Areas of the CIF
• Basic customer descriptors
• Purchase history
• Contact history
• Response information
• The value of the customer
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Getting More Customer Interaction
Direct IndirectCustomer
Interaction
High
Low
Inte
racti
on
Fre
qu
en
cy
Banks
Telecom
Retail
AirlinesPackaged
GoodsDrugs
Personal Computers
Internet Infrastructure
Furniture
Autos
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Margin Multiple
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Customer Life Cycle Profit Pattern in the Credit-Card Industry
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Customer Profit Ordering for Physicians: Highest to Lowest
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Factors Associated with Good Perceived Service Quality
1. Professionalism and skills
2. Attitudes and behavior
3. Accessibility and flexibility to solve the customer’s problem
4. Reliability and trustworthiness
5. Recovery of negative service encounters
6. Reputation and credibility
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Customer Satisfaction Model
-Market communications
- Image -Word of mouth-Past experience-Customer needs
Total perceived quality
Experienced quality
Expected quality
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The Concept of Loss Aversion to Service Quality
“Gain”
“Loss”
Product utility or preference
(Delivered service quality) Minus
(Expected service quality)
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Discrepancies between Expectations and Realizations
1. Gap between customers’ expectation and management perceptions
2. Gap between management’s perceptions and service quality specifications
3. Gap between service quality specifications and service delivery
4. Gap between service delivery and external communications
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The Augmented Product
Core Core productproduct
Expected Expected productproduct
Augmented Augmented productproduct
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Approaches to Mass Customization
1. Collaborative customization
2. Adaptive customization
3. Cosmetic customization
4. Transparent customization
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Elements of Excellent Customer Service Programs
1. A marketing strategy2. Top management buy-in3. The right people4. Appropriate product design5. An infrastructure to handle customer
service6. A measurement system