rm summary 15th feb
TRANSCRIPT
-
8/7/2019 RM summary 15th Feb
1/72
RelationshipMarketing
Course Code : 210-PM
Faculty: Soumya Dutta Gupta
-
8/7/2019 RM summary 15th Feb
2/72
Suggested reading
1. Handbook of Relationship Marketing-
Jagdish Sheth,Atul Parvatiyar
2. Managing Customer relationships_ DonPeppers and Martha Rogers
3. Customer relationship Management -
Jagdish Seth,Atul Parvatiyar,G Shainesh
-
8/7/2019 RM summary 15th Feb
3/72
Course Outline
Day 1: Strategic imperatives- 2 sessions
Day 2+ 3: Conceptual foundations- 4 sessions Day 4: Building a CRM program- 3 sessions Day 5: CRM as a process 1 session Day 6: Economics of CRM- 2 sessions Day 7 :CRM in B2C Markets Product + Service - 2 sessions
Day 8: CRM in B2B Markets - 2 sessions Day 9 : e CRM 2 Sessions Day 10 :Some popular CRM offerings in the market : 2 Sessions Day 11: CRM Road map- Implementation and Issues faced: 2
Sessions
Day 12: Case presentation : 2 Sessions :
-
8/7/2019 RM summary 15th Feb
4/72
Evaluation methodology
Group Class participation: 30% Cases given to be assessed by the group-20% At the end of discussion of a case study groups will be
randomly asked to present the case to the class-10%Project : 30% Report: :To be sent in electronically before day 12 : 20% Presentation : 10%
End term : 40%
-
8/7/2019 RM summary 15th Feb
5/72
Case study approach
Was it an effective strategy?
If yes why?
If no why?
What are your groups recommendations?
To be submitted before the class in 1 A4 sheet
-
8/7/2019 RM summary 15th Feb
6/72
Project The project examines how CRM creates competitive advantage for a firm. Name of Firm to be given by Day 4 Your report will investigate how a firm (business unit, department, function) approached
CRM, why they turned to a CRM strategy and what the desired and actual outcomes were.The challenge for you will be to stay away from descriptive platitudes and to derive realinsight as to what caused success (or failure) of a CRM strategy.
Project Components:
The first part develops the context of the CRM strategy. What are the specificenvironmental, competitive, & technological changes that lead to an adoption of CRMpractices?
The second part describes what the specific CRM strategy is and what the links to thebusiness model are.
The third part analyzes the appropriateness and effectiveness of the CRM strategy for thegiven situation. Does it generate competitive advantage? You may also compare the focalfirm's approach to that of a competitor and highlight the differences in strategy,implementation and results.
Finally, you will make a set of recommendations of how to further leverage the chosenCRM approach.
Information sources for the report are secondary data sources (such as newspapers, trademagazines, analyst reports) or primary data sources (such as interviews).
-
8/7/2019 RM summary 15th Feb
7/72
Marketing
It is an integrated process through which
companies create value for customers and
build strong customer relationships in order to
capture value from customers in return.
The management process that seeks to
maximize returns to shareholders by
developing relationships with valuedcustomers and creating a competitive
advantage."
-
8/7/2019 RM summary 15th Feb
8/72
Relationship marketing
Definition
Relationship marketing is the ongoing
process of engaging in cooperative andcollaborative activities and programs for
acquiring, retaining and partnering with
selected immediate and end-user customers
to create or enhance mutual economic valueat reduced cost
-
8/7/2019 RM summary 15th Feb
9/72
Evolution of Relationship
Marketing
Rela
t ionship
orien
tation
Pre industrial Era
( Relationship
centric- small
scale firms)
Industrial
Era-
Product
Centric
InformationEra( relationship
centric- Large
scale)
-
8/7/2019 RM summary 15th Feb
10/72
Evolution of Marketing
Practices
ProductCentric
Marketing
SegmentCentric
marketing
Customer
Centric
Marketing
1960s 1980s 1990s
-
8/7/2019 RM summary 15th Feb
11/72
Evolution of Marketing
Practices
Product centric marketing Focus on higher production capacity
Lower costs
Development of technologically superior products
Superior selling skills
Concepts evolved USP
Brand image
-
8/7/2019 RM summary 15th Feb
12/72
Evolution of Marketing
Practices
Increased competition warranted marketing
approaches according to customer segments
AT&T: Household and Business Markets IBM: Vertical industry based groups
Brands launched to target segments
Concept of Positioning
-
8/7/2019 RM summary 15th Feb
13/72
Evolution of Marketing
Practices
Customer Centric Marketing;
Increases marketing productivity: Efficiency
and EffectivenessMass
Markets
Market
Segments
Individual
Customers
Starts by focus on the needs and wants of customersas against starting from products in product centric
marketing
-
8/7/2019 RM summary 15th Feb
14/72
Customer Centric Marketing
It becomes the way to do businessCustomer centric measures becomes part of
every employees performance appraisalKRAs include metrics like: Customer acquisition value Lifetime value
Customer satisfaction Customer retention Customer share
-
8/7/2019 RM summary 15th Feb
15/72
Affordable Technological
advances
Production ( CAD-
CAM, JIT) e.g.
Toyota, Dell
Consumption ( Unique IDs,
cost effective channels like
ATMs, Call centre, Internet
Distribution ( CALS) eg
3PLs, Forecasting
Facilitation ( E
commerce, online
buying) e.g. Amazon
Affordable
Technology
Advances
-
8/7/2019 RM summary 15th Feb
16/72
Benefits of CRM
-
8/7/2019 RM summary 15th Feb
17/72
Drivers for growth in
Relationship Marketing
Traditional Marketing
1to1
Marketing
Increasing Returns
Diminishing
returns
Custom e
rNeedssatis
fied
Customers Reached
-
8/7/2019 RM summary 15th Feb
18/72
Drivers for growth in
Relationship Marketing
Rising cost of new customer acquisition and
hence customer retention in mature markets
Faster tracking of the changing requirements
of customers and hence taking necessary
actions to ensure retention and satisfaction
Emerging
markets
Mature
Markets
New Customers
Repeat Customers
Capacity CreationCapacity
Utilization
-
8/7/2019 RM summary 15th Feb
19/72
Customers are profitable over
time
Initial costs >gross Margin
Retention cost
-
8/7/2019 RM summary 15th Feb
20/72
Customer Profitability is
Skewed
increasing loyalty of profitable customers. Mass market products: the top 20% of typical bank customers produce as much as
150% of overall profit, while the bottom 20% of customers drain about 50% from the bank's
bottom line and the
revenues from the rest just meeting their expenses
B2B products The largest and the smallest customers are almost always
the least profitable
-
8/7/2019 RM summary 15th Feb
21/72
Correcting Revenue and profit
misalignment
Rs
CustomersBiggest Smallest
Cost
Revenue
-
8/7/2019 RM summary 15th Feb
22/72
Marketing benefits of CRM
I know that half of my advertising budget is wastedbut I am not sure which half
Example of wastage : Cost of sending 1,00,000 mailers: Rs 22,50,000 Cost of address database: Rs 5,00,000 Printing Mailer+ envelope: Rs 12,50,000 Handling and Mailing- Rs 5,00,000 Hit rate i.e. response got 3%- 3000 Conversion 25%: 750 Direct Marketing cost per sale: Rs 3000
Can be improved through better understanding ofcustomers
-
8/7/2019 RM summary 15th Feb
23/72
Service benefits of CRM
95% of customers donot complain- they take
their businesses elsewhere
A typical dissatisfied customer tells 14 others
A typical satisfied customer tells 6 others
70% of who complain will do business with
the company again if service problems are
quickly taken care of
-
8/7/2019 RM summary 15th Feb
24/72
Loyalty Strategy for Customer
segmentsHigh profitability
Low profitalility
Short term customer Long term customer
Butterflies- Good fit between company's offerings and customer's needs- High profit potentialActions:- Aim to achieve transactional satisfaction, not attitudinalloyalty- Milk the accounts only as long as they are active- Key challenge is to cease investing soon enough
True Friends- Good fit between company's offerings and customer's needs- Highest profit potentialActions:- Communicate consistently but not too often- Build both attitudinal and behavioural loyalty- Delight these customers to nurture, defend and retain them
Strangers- Limited fit between company's offerings and customer'sneeds- Lowest profit potentialActions:- Make no investments in these relationships- Make profit on every transaction
Barnacles- Limited fit between company's offerings and customer'sneeds- Low profit potentialActions:- Measure both the size and share of wallet- If share of wallet is low, focus on up- and cross-selling
- if size of wallet is small, impose strict cost controls
-
8/7/2019 RM summary 15th Feb
25/72
RelationshipMarketing Concepts
Six Market model
-
8/7/2019 RM summary 15th Feb
26/72
Marketing mix approach vs
Relationship marketing
Marketing Mix- 4P: Focus on products and
Markets
However limited in approach for assessing
and developing customer relationships
Need to have a model which focuses on
customers and relationships
-
8/7/2019 RM summary 15th Feb
27/72
Marketing
Mix
4Ps
Relationships
Networks Interaction
Relationship
MarketingRelationships
Networks
Interaction
Products
Price Place
Promotion
The Current Marketing Mix Paradigm andThe Current Marketing Mix Paradigm and
the Future Relationship Marketing Paradigmthe Future Relationship Marketing Paradigm
-
8/7/2019 RM summary 15th Feb
28/72
CustomerCustomer
MarketsMarkets
Internal
Markets
Referral
Markets
Influence
MarketsRecruitment
Markets
Supplier
Markets
aimed at ensuring a long-term conflict-free
relationship in which all parties understand each
other's needs and exceed each other's expectations
can reduce costs and improve quality.
CLASSIFYING THE FORMS OF RELATIONSHIPSCLASSIFYING THE FORMS OF RELATIONSHIPS
-
8/7/2019 RM summary 15th Feb
29/72
FocalFocal
FirmFirm
Business
Units
Buyer Partnerships
Supplier Partnerships
Late
ralPartn
ersh
ip s
Intern
al
Partnershi
ps
Functional
Departments
Employees
GoodsSuppliers Services
Suppliers Competitors
Nonprofit
Organizations
Government
Ultimate
Customers
Intermediate
Customers
CLASSIFYING THE FORMS OF RELATIONSHIPSCLASSIFYING THE FORMS OF RELATIONSHIPS
-
8/7/2019 RM summary 15th Feb
30/72
Making
Promises
Enablin
g
Promises
Keeping
Prom
ises
InternalMa
rketing
InteractiveM
arketin
g
External MarketingBUILDING
RELATIONSHIPS:
MAKINGENABLING AND
KEEPING
PROMISES RMRM
-
8/7/2019 RM summary 15th Feb
31/72
RelationshipMarketing
25th Jan 2010
-
8/7/2019 RM summary 15th Feb
32/72
Building CustomerRelationship Programs
An Iterative learning process
-
8/7/2019 RM summary 15th Feb
33/72
IDIC Framework
Identify Locate and contact a large number of customers
Use multiple channels
Collect as much relevant data as possible
Differentiate Based on Value Profits
Based on Needs
-
8/7/2019 RM summary 15th Feb
34/72
IDIC Framework
Identify Locate and contact a large number of customers
Use multiple channels
Collect as much relevant data as possible
Differentiate
Based on Value Revenue or Profits Based on Needs- Standard vs customised
-
8/7/2019 RM summary 15th Feb
35/72
IDIC Framework
Interact To learn more
During purchase, service, complaint
Through formal surveys, telephone interactions,
self service channels ( web, ATM)
Use as much low cost electronic channel as
possible To add to existing knowledge, to become smarter
-
8/7/2019 RM summary 15th Feb
36/72
IDIC Framework
Customize Most critical
Fitting the product and service to the customers
exact need
Not easily replicated by competitor without
customer putting time and effort to teach the
same lessons about his/her preferences
Helps both organization and customer
Mass customization also possible
-
8/7/2019 RM summary 15th Feb
37/72
Mass Customisation
Method of effectively postponing the task of differentiating aproduct for a specific customer until the latest possible point inthe supply network.
a strategy that creates value by some form of company-customerinteraction at the fabrication and assembly stage of theoperations level to create customized products with productioncost and monetary price similar to those of mass-producedproducts".
The use of flexible processes and organizational
structures to produce varied and often individuallycustomized products and services at the low cost of astandardized, mass production system.
-
8/7/2019 RM summary 15th Feb
38/72
Essential for building a
successful CRM programs
Win Win relationship
Value to customers- Commitment
Value to the business sponsoring the CRM
program- Control
-
8/7/2019 RM summary 15th Feb
39/72
Trust and Commitment of
customers
Built when customers sense that the firm is truly
interested in satisfying the needs of the customers
and providing value.
Commitment orientation is one of the measures ofsuccess of a CRM program
-
8/7/2019 RM summary 15th Feb
40/72
C it t d C t l
-
8/7/2019 RM summary 15th Feb
41/72
Commitment and Control
based CRM program
Commitment
Low High
Control
Low
H
igh
Subway
Sub-Club
Jet Airways
Jet Privilege
Columbia
House
Jeep, Harley
Davidson,Royal
Enfield
-
8/7/2019 RM summary 15th Feb
42/72
Th l i l ti hi
-
8/7/2019 RM summary 15th Feb
43/72
The learning relationship
process
Learning About CustomersKnowledge acquisition
Customer differentiation
Customization ofMarketing Mix
-
8/7/2019 RM summary 15th Feb
44/72
Ladder of Loyalty
Partner
Advocate
SupporterClient
Customer
Prospect
-
8/7/2019 RM summary 15th Feb
45/72
Ladder of Loyalty
Partner- P&G When advocate becomes involvedin the decision making of the company eg: P&G -Walmart, IBM- Fedex
Advocate- Participates in product/servicedevelopment, high confidence
Supporter- Generates WOM, sales Client- Customer who makes multiple purchases,
Cross- selling, service selling Customer Prospect
B di f C t
-
8/7/2019 RM summary 15th Feb
46/72
Bonding for Customer
relationship
Financial Bonds
Social Bonds
Customization bondsStructural bonds
B di f C t
-
8/7/2019 RM summary 15th Feb
47/72
Bonding for Customer
relationship
Financial Bonds- Volume and Frequency rewards,
Bundle and cross selling, Stable pricing
Volume and frequency: Frequent Flyer programs,
Reward program for hotels, Loyalty program forcredit cards
Bundle and cross selling: Magazine subscriptions,
credit cards, Telecom and internet services
Stable pricing: Bank Bond holders, 30 day priceguarantee by electronics firms
Bonding for Customer
-
8/7/2019 RM summary 15th Feb
48/72
Bonding for Customer
relationship
Social Bonds Personal relationships, continuous relationships, and social
bonds among customers Marketers keep in touch with their clients to find their changing
needs and offer solutions Professional service providers: Doctors, lawyers, accountants Personal service providers: Hair dressers, baby sitters Key account Managers Long standing dealers with company
Social bonds among customers HOG More enduring than financial bonds
B di f C t
-
8/7/2019 RM summary 15th Feb
49/72
Bonding for Customer
relationship
Customisation Bond Mass customisation Marriot Hotels Levis
Ability to anticipate customer needs: Amazon.com using collaborative filtering technique
Difficult to break as competitor has to start fromscratch
However firms must be careful as some customersare very particular about what they need and donotwant any prompting
-
8/7/2019 RM summary 15th Feb
50/72
Structural Bonds
Integrated information systems, Joined
investments and shared processes Walmart- P&G
AMEX Travel Related Services
NPV of profits from customer
-
8/7/2019 RM summary 15th Feb
51/72
NPV of profits from customerretentions
NPV
ofPr o
fitsf
rom
acus to
me
r
50%
2Yr
40%
2.5 Yr
30%
3.3 yr
20%
5yr
10%
10 yr
5%
20 Yr
Defection
Time
period
-
8/7/2019 RM summary 15th Feb
52/72
RelationshipMarketing
8th February 2010
-
8/7/2019 RM summary 15th Feb
53/72
-
8/7/2019 RM summary 15th Feb
54/72
RelationshipMarketing
8th February 2010
3 underlying dimensions of
-
8/7/2019 RM summary 15th Feb
55/72
3 underlying dimensions of
relationship formation
Purpose
Parties
Programs
-
8/7/2019 RM summary 15th Feb
56/72
Defining the Purpose
Purpose definition is important to select the partiesand structure the programmes
Helps set the required collaboration expectationsfrom the parties involved.
Helps in evaluation of results vs. defined goals Strategic Goals Financial goals Marketing Goals Operational Goals Other goals
-
8/7/2019 RM summary 15th Feb
57/72
Relational Parties
Important to choose which parties to start theengagement with
Can be scaled up to other groups based onexperience
Selection process: Intuitive judgmental On Demand Based on defined criteria Revenue/profitability potential Long term commitment Management Values Ability to act as an example for scaling up
Relationship marketing
-
8/7/2019 RM summary 15th Feb
58/72
Relationship marketing
programs
3 types of programs Continuity marketing
One to one marketing
Partnering programs
These programs take different forms based on type
of engagement
Mass market customers Distributor customers
B-2-B customers
-
8/7/2019 RM summary 15th Feb
59/72
A Process Model
Relationship Marketing is aprocess of
engaging in a co-operative and collaborative
relationship with customers.
4 Stages Formation process
Management and Governance process
Performance evaluation process Relationship enhancement process
-
8/7/2019 RM summary 15th Feb
60/72
Economics of CRM
15th February 2010
Profit impact of Market share
-
8/7/2019 RM summary 15th Feb
61/72
Profit impact of Market share
( PIMS)
Covers a wide range of industries
2600 business units
Market share %
Profitability %
-
8/7/2019 RM summary 15th Feb
62/72
Lifetime value
Looks at customers from the point of View of Their lifetime revenue
Profit contribution
Advantage of calculating Life time Value Understanding potential of Prospects Credit cards for students
-
8/7/2019 RM summary 15th Feb
63/72
Lifetime value
Depends on Length of an average lifetime
Average revenues generated per relevant time
period ( mostly yearly) over the lifetime Sales of additional products and services over
that time
Referrals generated by the customer over the
lifetime
-
8/7/2019 RM summary 15th Feb
64/72
Life time Value
Acquisition cost
Base profit
Revenue
Growth
Cost Savings
Referrals
Price premium
1 2 3 4 5 6 7
-
8/7/2019 RM summary 15th Feb
65/72
Credit cards example
Acquisition cost Advertising and promotions
Agency commissions
Cost of credit verification
Cost of processing
Cost of overheads
-
8/7/2019 RM summary 15th Feb
66/72
Credit cards example
Base profit from
Revenues Annual Membership fee
Commission for expenses charges to card( 2%)
Interest earnings
Cost
Servicing cost
-
8/7/2019 RM summary 15th Feb
67/72
Credit cards example
Revenue Growth Increasing usage of credit card for payments creates higher
commission stream
Financing purchase of high value purchases
Cost savings Customer support cost decreases with familiarity
E bills
ECS E mails and website usage
-
8/7/2019 RM summary 15th Feb
68/72
-
8/7/2019 RM summary 15th Feb
69/72
Activity based costing for CRM
Activity based costing ( ABC) is a budgeting
and analysis process that evaluates
overhead and operating expenses by linking
costs to customers, services, products andorders
Used in manufacturing and serviceorganizations
-
8/7/2019 RM summary 15th Feb
70/72
Traditional cost accounting
Allocates overhead costs to products based
on a single attribute No. of direct labour hours required/ unit:
manufacturing Purchase cost of merchandise resold: trading
Produces generalized results which do not
show exact costs
-
8/7/2019 RM summary 15th Feb
71/72
ABC
Resources assigned to activities
Activities assigned to cost objects ( product/
service/customer/ distribution channel)
Focus is on activities required to produce eachproduct or provide each service based on the
products/ services consumption of the activities
Overhead cost is traced to each product/service by
identifying how many units of output is consumed bythe product/ service
C t l ifi ti i ABC
-
8/7/2019 RM summary 15th Feb
72/72
Customer classification using ABC
Low
High
High
Netmargin
realiz
ed
Passive
-Product is critical
- Good supplier match
Price sensitive and few
special demands
Costly to service
But pay well
Aggressive
-Leverage their buying
power
-Low price and high
customization
Customers
above this lineare profitable