PPT 11-1

5th Edition5th Edition

PPT 11-2McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Customer Relationship Customer Relationship ManagementManagement

Chapter 11Chapter 11

PPT 11-3

Information Systems

Retailing Strategy

Retail Market Strategy

Financial Strategy Site Location

Retail Locations Organizational Structure and HR Management

Customer RelationshipManagement

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Customer Relationship Management

A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers.

What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer?

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Customer Loyalty

• Committed to purchasing merchandise and services from a retailer

• Resist efforts of competitors to attract the loyal customer

• Emotional attachment to retailer

– Personal attention

– Memorable positive experiences

– Brand building communications programs

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CRM Process

PPT 11-7

Collecting Customer Data

• Types of Information in the Customer Database

• Approaches for Collecting Information

• Privacy Concerns

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Information About Each Customer in the Data Base

• History of purchases

– Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion

• Customer contacts by retailer (touch points)

– Visits to web site, inquires to call center, direct mail sent to customer

• Customer preferences

• Descriptive information about customer

• Customer’s responses to promotions

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Approaches for Collecting Customer Information

Need to connection contacts with a specific customer identifier

• Ask for identifying information

– Telephone number, name and address

• Encourage use of frequent shopper cards

• Link checking account number and/or third party credit cards to customer

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Privacy Concerns

Control over Collection

• Do customers know what information is being collected?

• Do customers feel they can decide on the amount and type of information collected by retailers?

Control over Use

• Do customers know how the information will be used by the retailer?

• Will the retailer share the information with third parties?

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Heighten Concerns When Using Electronic Channel

• Information collected without the awareness of customers

• Collecting click stream data using cookies

– Similar to an invisible person videotaping a customer as theywalk through a store

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Customer’s Decision to Offer Information

Balance benefits and risks

DiscountsSpecial TreatmentPersonal Attention

Disclosure of InformationUnwanted Sales Contacts

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Consumer Protection Differences

United States

• Limited protection in specific areas

– Credit reporting

– Video rentals

– Banking

– Medical records

European Union

• Information only can only be collected for specific purposes

• Purpose must be disclosed to customer

• Information can only be used for specific purpose

• Information can not be exported to countries with less stringent regulations

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FTC Guideline for Fair Information Practices

• Notice and awareness

– comprehensive statement about information storage, manipulation, and dissemination

• Choice/consent

– Opt-in and opt-out options

• Access/participation

– Customer able to confirm accuracy

• Integrity/security

– Controls for theft and tampering

• Enforcement/redress

– Mechanism to insure compliance

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GAP Security and Privacy Policy

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Analyzing Customer Data

Data Mining – technique used to identify patterns in data. Expl :DVD Player

Market Basket Analysis

Identifying Market Segments

Identifying Best Customers

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Market Basket Analysis

Data analysis focusing on the composition of the customer’s market basket – what items are bought at the same time.

Uses:

-Adjacencies for displaying merchandise

-Joint promotions

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Identifying Best Customers

• Estimating Lifetime Value

• Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis)

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Which Customer Probably Has the Greatest Lifetime Value

Purchases Over Last 10 Weeks

1 2 3 4 5 6 7 8 9 10Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0

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Customer Pyramid

PlatinumBestMost loyalLeast price sensitive

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Customer Pyramid

Gold

Next bestNot as loyal

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Customer Pyramid

IronDoesn’t deservemuch attention

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Customer Pyramid

LeadDemands attentionMay havenegative value

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RFM Analysis

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RFM Target Strategies

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Illustration of RFM Application

A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:

•Average order size for customers in cell - $40

•Contribution margin – 50%

•Response rate – 5%

•Cost of catalog and mailing -$.75

Will the retailer make a profit mailing to this RFM segment?

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Illustration of RFM Application

A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:

•Average order size for customers in cell - $40

•Contribution margin – 50%

•Response rate – 5%

•Cost of catalog and mailing -$.75

Will the retailer make a profit mailing to this RFM segment?

$20.00 contribution x .05 response rate - $.75 cost

= $.25 profit per catalog mailed

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CRM Programs

Retailing Best Customers

Converting Good Customers to Best Customers

Getting Rid of Unprofitable Customers

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Customer Retention Programs

• Frequent Shopper Programs

• Special Customer Services

• Personalization

– 1-to1 Retailing

• Community

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Even Small Retailers Use Frequent Shopper Programs

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Elements in EffectiveFrequent Shopper Programs

• Tier Based on Customer Value

• Offer Choices of Rewards

– Non-monetary incentives

• Reward all Transactions

• Transparent and Simple

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Issues with Effective Frequent Shopper Programs

• Expense

• Difficulty in Making Changes

• Impact on Loyalty Questionable

• Easily Duplicated – Difficult to Gain Competitive Advantage

– Need to offer “invisible” benefits

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Personalization

Hello, Barton Weitz

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Converting Good Customers to Best Customers

• Cross-selling

• Add-on selling

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Dealing with Unprofitable Customers

• Offer less approaches for dealing with these customers

• Charge customers for extra services demanded

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Implementing CRM Programs

• Need systems, databases

• Close coordination between departments – marketing, MIS, store operations, HR

• Shift in orientation

Product Centric

Customer Centric

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