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University of Washington MBA Program ‘06
Managing Customer Relationships
through Direct Marketing
“Relationship Marketing & CRM Intro ”
Instructor: Elizabeth Stearns
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Many choices
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The answer ?
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The Customer: DefinitionNot just the end user!!
Manufactureror
Distributor
Dealeror
Retailer
End User/Purchaser Consumer
Firm
Influencers/Gatekeepers/Spoilers
Customer: Any person or organization in the chain of distribution and decision whose actions can affect the purchase of your products and services
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MegaCorp
Customer Definition includes the process of identification, understanding their role,
and then determining how to reach them.
- Decision Makers?
- Purchasers?
- Influencers of - Policy? - Purchase? - Training? - Referrals?
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Remember, not all customers are worth the same!
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Understand Your Customers• Their Demand for Your Product or Service
• Their Changes over Time
• Their Growth Needs
• Their Technology/Personal Service Conundrum
• Their Available Choices for Solutions
Their Value to You!
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Determine/Understand the composition of
your best customers
A B
A B C
A C E
A D E
X Y Z
##
##
##
##
##
Characteristic Quantity
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What is Relationship Marketing?
How do you define relationship marketing as you
understand it?
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Relationship Marketing
• Marketing on the Differences
• Marketing with a Memory• Demassifying the Communications
Process
• Customizing Communications and Products/Services
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Relationship Marketing
• Evolutionary process, not an event
• Experience-based, not
transaction-based
• Mutually beneficial, two way
• Emotional and/or logical appeals
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Relationship Process
MeasurementMeasurement
On-going DialogueOn-going Dialogue
Database SupportDatabase Support
CommunicationCommunication ObjectivesObjectives
Customer SegmentationCustomer Segmentation
Brand Equity / PromiseBrand Equity / Promise
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Relationship Marketing
• Relationship marketing recognizes that prospects and customers can be at different points of awareness, interest and intent-to-buy along the prospectivity continuum
• Persuasion is a process: Dialogue precedes purchase/engagement for most products and services
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Model of Market ProspectivityUnaware
Vague Awareness
Category Familiarity
Brand Familiarity
Passive Consideration
Active Interest
Purchase Usage
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Brand Relevance to Customers
“To enhance customer loyalty, a company must strengthen the relationship with the brand”
“A focus on loyalty segmentation provides strategic and tactical insights that assist in building strong brands”
David Aaker, “Building Strong Brands”
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Customer Loyalty
• Reduced or No Desire to Switch
• Increased Perception of Value /
Quality
• Reduced Risk of Buying (More)
• Trial New Products or Services
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Customer Loyalty
• Feels Recognized and Special
• Volunteers Information
• Positive Word of Mouth /
Recommends to Others
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Satisfaction =
Performance minus Expectations
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“One of my customers cornered me at a charity board meeting
and told me, “I got a call after I picked up my car asking if I
was satisfied with the sales experience. Then I got a call after
the car was serviced, asking if I was satisfied with the service
experience. Finally, another surveyor called several weeks later
to check if I was happy with the ownership experience. So when
am I going to get a call asking if I’m satisfied with the
satisfaction survey experience?””
Reichheld, The Loyalty Effect
Make Surveys Count!
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Why Relationship Marketing?
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Economic Value to Keeping Customers
2% Retention equals approximately 10% reduction in costs
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Why Customers Are More Valuable Over Time
Com
pan
y P
rofi
t
Time
Base Profit
Increased Purchases & Higher Balances
Reduced Operating Costs
Referrals
Price Premium
CustomerAcquisitionCost
• Profit Comes from Different SourcesReichheld & Sasser, Jr.
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Relationship Marketing Can Increase Lifetime Value
• Increase the retention rate
• Increase the referral rate
• Increase the spending rate
• Decrease the direct costs
• Decrease the marketing costs
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Continuous revenue relationship marketers have an expanded vocabulary with meanings unique to their world.
But do not use common Single Order terms such as:
Retention
Churn
Cancel
Marketing Allowables
Active Enrollees
AttritionLive
Lapsed Enrollment
Add-on Services
Open
Winback
Defection
Enrollments
Average Order Size
Circulation
Sales per thousand contacts
ReturnsOut-of-stock
Break-even Source: Kestnbaum
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There are two distinct ends to the marketing spectrum with only a few relationships in the somewhat gray middle.
Single Order(s) Continuous Revenue
Initial Marketing Investment Low High
Key Factors Driving Value Recency, Frequency, Monetary Tenure, Revenue, Cross-sell
On-going Marketing Decisions Repromote: who, when, what Dialog, reward, winbackPromote to expand relationship
Revenue StreamSporadic, but relatively large
payment(s)Constant, but relatively
small payments
How Relationship Ends Whimper Bang
Source: Kestnbaum
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“eLoyalty”
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Thank you!!
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CRM
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The CRM Goal
Individual Permission – Based Interaction
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The CRM Process
CRM
Interact& Deliver
Understand &Differentiate
Acquire& Retain
Develop &Customize
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Customer Experience Cycle
CustomerUnderstanding
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Customer Experience Cycle
CustomerUnderstanding
•Stages of the Purchase Cycle•Length of each Stage•Related Complexity of Each Stage•Indicators of When a Customer Enters a Stage•Frequency at Which a Customer Repeats the Cycle•Level of Resources Directed at Each Stage
Customer Purchase Cycle
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Customer Experience Cycle
CustomerUnderstanding
•Information•Convenience•Efficiency•Price•Reputationetc.
Customer Needs
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Customer Experience Cycle
CustomerUnderstanding
•Tied to specific stages of the purchase cycle.•Inbound and outbound.•Cross-channel and cross-media.•Situation-driven or driven by a deeper understanding of customer needs and behaviors
Customer Interaction Opportunities
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CustomerUnderstanding
Corporate Comm./Public Relations
Advertising
Customer Care Web
CallCenter
Point of Sales/Service
MarketingCommunicationsField Sales
CustomerValue
CustomerSatisfaction
CustomerLoyalty
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“Customer Experience Management”
• What is today’s experience?
• Who is in control of the touchpoints?
• What is the desired experience in customer terms?
• How can you make that happen?– Understand the gaps– Understand resources to achieve the desired state
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The Customer Experience is not just about the sale:
Pre -Sale
Sale
Post -Sale
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Questions
• When would one buy?
• Who would buy?
• Where would one buy?
• Roles: Influencer, Purchaser, and End user
• Turn those insights into a Customer Interaction Map
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Craft a Customer Interaction or Customer Experience map for PFL…
Step One:1)Identify the specific Customer and role--
purchaser/end user/influencer
Step Two:2)Consider 2 broad categories: PFL controls and
does not control
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Purchasing Catalyst
Customer Interaction MapEVENT: Birthday, Anniversary
Holiday
EVENT: Promotion, Interview,
New Job
ACTIVITY:Participation in new activity or sport
ACTIVITY:Travel (business or pleasure)
REALIZATION:Worn out, wrong sized, soiled, or damaged clothes
REALIZATION:Out-of-date or unfashionable wardrobe
IMPRESSION:Observe idols, peers and others wearing new styles
REFERRAL:Recommendation by influencer to purchase new clothing
EMOTION:Boredom or frustration with current wardrobe (self-confidence)
WISH LIST:Identify and prioritize needs for particular items
DISCUSS:With peers, family, and influencers
PERCEIVE:Quality of brands and products, develop preferences
IMPRESSION:First encounter with catalog cover, messages, & models
RECEIVE:Catalog in a timely manner
REQUEST:Addition to catalog mailing list via reply card or 800 number
OBSERVE:Television and print advertisement
RECEIVE:Catalog information card or direct marketing
GATHER INFO:Read product descriptions and look at pictures
COMPARE:Products, features, prices
SELECT:Items for purchase, planned or impulse
ASSESS:Size and fit.
Utilize sizing charts & staff recommendation
CHOOSE:Appropriate size & desired color or style
LEARN:Ordering procedure, shipping methods, & return policy
CONSIDER:Product promotions and purchase incentives
ESTIMATE:Shipping costs & delivery dates
ORDER:Fill out & send order form or call 800 number
SERVICE:Call center staff recommends related products
or promotions
REFLECT:Expectations, Performance, Satisfaction
IMPRESSION:In accordance with desired appearance
( by self & others)
EXAMINE:Fabric, features, overall quality
TRY-ON:Assess fit, style & comfort
THANK:Express appreciation for gift
OPEN GIFT:Immediate reaction to product
GIFT:Wrap and give gift (already wrapped?)
INSPECT:Right product, right size, right color
REVIEW:Packing list, return form & print insert offers
OPEN:Package remove contents
RECEIVE:Package from carrier at home
DECIDE:Keep or return product
COMPLAINT:Contact customer service about problems with order or product
RETURN:Product if not satisfied, possibly “re-gift”
ALTERATIONS:Hem cuffs or otherwise modify the item
STORAGE:Place item in a location, reflecting anticipated use
WEAR:Develop usage pattern,/ frequency
OBSERVE:Other people’s reactions to wearing the item
DEVELOP:Preference based on comfort, confidence & versatility
MAINTAIN:Keep item clean and in good condition
EXPERIENCE:Overall impression of the transaction
RELATIONSHIP:Continued desire to receive catalog in future (actually read it not trash)
REFERRAL:Recommend company or products to peers
LOYALTY:Develop a preference for channel & brands
INTENTIONS :Purchase again in future: similar items & different
COMPANY:Convenience, customer service & value
PRODUCT:
Quality, durability & brand perception
Long-Term Perceptions
Use Experience
Receipt/Gift/Try-On
Shopping
= Company has direct control
Pre-Shopping
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CATALYST
EVENT: EVENT: EMOTIONAL: NEED: REALISATION: REWARD:
DISCUSS: REFERRAL: OBSERVE: RECEIVE: RESEARCH: WISH LIST:
CHANNEL SELECT: COMPARE: IMPULSE PURCHASE: ORDER: SERVICE:
INSPECT: OPEN: REFLECT: RECEIVE:
DELIVERY OF GIFT: IMPRESSION: THANKS: STORAGE: SAFETY: CLEANLINESS OBSERVE / FEEDBACK:
DISPOSAL: PERCEPTIONS: LOYALTY: COMPLAINT: EXPERIENCE: PRODUCT:
ONGOING USAGE / PERCEPTION
GIFT GIVING
POST SHOPPING
SHOPPING
PRE-SHOPPING
= identify direct control or indicate whose control
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CRM Implementation
1. Situation Assessment– Internal evaluation of your capabilities– External evaluation of the customer’s experience with your org.
2. CRM Gap Analysis– Comparison between an organization's current state and the desired state. It
is essential to define the desired customer experience.
3. CRM Action Plan– Cost to implement– Benefit– Feasibility (organizational readiness, senior management acceptance, etc.)– Time
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Business FocusProducts Sales Channels Marketing Services Customers
Organizational StructureProduct
Management
Place
Management
Promotion
Management
Channel
Management
Contact
Management
Customer
Management
Business MetricsProduct
Performance
Place
Performance
Program
Performance
Customer
Revenues
Customer
Satisfaction
Customer
Lifetime Value
and Loyalty
Customer InteractionMass
Transaction
Opportunistic
Promotion
Targeted
Campaigns
Segment-Specific
Communication
Customer-Contact
Integration
Individual
Permission-Based
Interaction
TechnologyTransaction
Processing
Data
Maintenance
Data
Access
Data
Warehouse
Data
Marts
Customer
Touchpoint
Systems
CRM Transformation Map
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StrategyFormulation
ProgramFormulation
Contention
DifferingPerspectives
Marketing
FinanceHuman Resources
R&D
Operations
Sales
Project Planning
Consensus Execution
CoordinationCreativity
The Strategy Development and Implementation Process
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Designing Offers for Customers
Offer
CostValue
PriceTimeEffortRisk
TechnicalInnovation
SalesRelation-ship
BrandEquity
Delivery Services
Product
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A Business Focus on Customers Means:
• The organization's primary focus is on acquiring, deepening, and retaining customer relationships.
• The business model is based on optimizing value delivered to customers to maximize value received from them.
• Customers are at the core of the organization's value system, and the unifying force across business units and functions.
Business FocusProducts Sales Channels Marketing Services Customers
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Organizing around CRM• Appoint segment managers, each responsible for
acquisition, development, and retention of their customer segment.
• Create a cross-functional Customer Relationship department, which will ensure that CRM strategies are successfully implemented across the organization
• Implement staff training, performance measurement and compensation based on CRM
Organizational StructureProduct
Management
Place
Management
Promotion
Management
Channel
Management
Contact
Management
Customer
Management
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• Customer Revenues– Who are the top customers in terms of revenue?
– Are revenues from any customer segment increasing or decreasing?
• Customer Satisfaction– For which customer segments has satisfaction increased or decreased?
– How do satisfied customers differ from dissatisfied customers?
• Customer Loyalty and Value– How can we increase customer profitability?
– What drives loyalty for our most profitable customers? How can we increase customer loyalty?
– Which prospects should our organization focus on in order to “clone” our best customers?
Customer Metrics
Business MetricsProduct
Performance
Place
Performance
Program
Performance
Customer
Revenues
Customer
Satisfaction
Customer
Lifetime Value
and Loyalty
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Developing Customer-Focused Metrics and Analyses
• Collect the Right Customer Data• Increase Your Customer I.Q.
– Customer Profiling– Customer Segmentation– Customer Valuation
• Profitability• Lifetime Value• Share of Wallet
– Customer Lifecycle– Customer Attitudes– Customer Changes
• Create and Track a Customer Scorecard
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Two Kinds of Database People
• ConstructorsPeople who build databasesMerge/Purge, Hardware, Software
• CreatorsPeople who understand strategyBuild loyalty and repeat sales
• You need both kinds!
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CEO’s Brain
Quality FirstCustomer FocusCustomer FirstService QualityCustomer Satisfaction
CostsRevenuesMarket ShareBudgetsIncentivesCompensationStrategic PlansProfitsMarket Value
Right Side Left Side
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A CRM System is:• Any application that supports the collection, cleansing, and
maintenance of, and/or access to, customer information, and that provides this information to appropriate entities in support of CRM applications.
Including…• Customer databases• Marketing applications• Data mining applications• Sales force automation systems• Customer care applications• Online applications
TechnologyTransaction
Processing
Data
Maintenance
Data
Access
Data
Maintenance
Data
Marts
Customer
Touchpoint
Systems
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CRM Systems Issues• It is important to develop a customer information plan, including:
– Where and how to efficiently collect customer data– How to transform data into meaningful, practical information– How to distribute customer information throughout the organization
• Build a business case for your system• Determine whether your system should be in-house or
outsourced, based on:– Solution scope– Core competencies– Time horizons– IT resources
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CRM Systems Issues
• Monitor the quality of your data, including:– Data coverage
– Data accuracy
– Data precision
– Data relevance
• Make the data accessible to people who can put it to use• Gain the acceptance of employees who will be using the
system
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Aspects of Measuring CRM Success:• Internal CRM Capabilities• Customer Interactions
– Create a customer interaction scorecard
• Customer Dynamics– Customer acquisition– Customer growth & development (cross-sell, upsell)– Customer retention– Customer reactivation
• Operational Efficiencies• Bottom-Line Business Metrics
– Increased revenues– Decreased costs– Increased competitive differentiation
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Think like a Customer: 10 rules for Building Customer Relationships
1. The “average customer” does not exist – get to know us2. Make our experience special: Give us something to talk about.3. If something is wrong, fix it quickly.4. Guarantee our satisfaction.5. Trust us, and we’ll trust you. (respect)6. Don’t take us for granted.7. Our time is as important as your time.8. The details are important to us – they should be to you, too9. Employ people who are ready, willing, and able to serve us10. We care whether you’re a responsible corporate citizen.
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Thank you!