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What percentage of profit can a company increase by improving customer retention by 5 percent?
What is the probability of selling a product to an existing customer?
Which customer segment contributes the highest percentage of profits according to the analysis?
What key strategy should be implemented to retain the top customers?
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What should be done for the middle customer segment to improve profitability?
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What action should be taken for the bottom customer segment due to their low profitability?
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What percentage of customers accounts for draining 50 percent of profits?
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According to the findings, which of the following is a recommendation for managing customer relationships?
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What is the primary goal of Customer Relationship Management (CRM)?
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Which of the following is NOT an advantage of CRM over traditional loyalty building methods?
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What does Brand Relationship Management (BRM) primarily focus on?
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Which step is NOT part of the fundamental CRM process?
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Which challenge is NOT mentioned as a reason for developing loyalty programs?
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Why is it essential for organizations to retain loyal customers?
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What does the successful implementation of CRM lead to?
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Which of the following describes a key element of BRM?
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What type of benefits does the Taj Inner Circle Card offer to its regular customers?
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What is the primary goal of the Jet Privilege Program?
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Which loyalty program aims to improve customer retention by providing enhanced value related to lifestyle?
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In the book reward program by Crossword, what is the primary purpose of customers picking up their gifts?
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What is the main characteristic of loyalty programs in the mobile industry?
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How is loyalty measured at the lowest level according to the discussed criteria?
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What do rebate programs generally award to customers?
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What is a key feature of partnership loyalty programs?
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What does the 'prospect' stage represent in the ladder of loyalty?
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What is the primary benefit of partnering activities in customer relationships?
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What distinguishes a 'client' from a 'customer'?
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What unique data does Wal Mart provide to Procter and Gamble?
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At which stage does an individual recommend the brand to friends and acquaintances?
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How does the relationship between P&G and Wal Mart help P&G reduce selling costs?
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Which of the following best defines an 'advocate'?
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What is one potential advantage for Wal Mart in its partnership with P&G?
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What is the primary characteristic of the 'partner' stage?
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Which aspect is NOT highlighted by the Customer Service / Sales Profile model?
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Why is positive Word Of Mouth (WOM) significant for a company?
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Which measurement tool is NOT mentioned in the context of customer commitment?
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What is a key question that firms must consider regarding their customer relationships?
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What is a possible reason for a 'client' to become a 'supporter'?
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What role does customer satisfaction play according to the CRM model?
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What is a potential misconception about firms without a formal CRM strategy?
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Study Notes
Customer Probability
- A 5% increase in annual customer retention can boost company profits by 85%.
- The probability of selling a product to a new prospect is 15%, while the probability of selling to an existing customer is 50%.
- Top 20% of customers contribute 150% of profits, while the bottom 20% consume 50% of profits.
- The remaining 60% of customers break even.
- The top 23% of customers in a large public sector bank contribute 77% of revenues.
- Top 27% of customers of a leading cellular phone service provider contribute 75% of revenues.
Implications of Skewed Customer Profitability
- Companies should not treat all customers equally.
- Organizations must develop different strategies for different customer groups.
- Companies need to retain and build stronger relationships with top customers to prevent them from being poached by competitors.
- Activity-Based Costing analysis should be applied to the middle customer group to reduce the cost of serving them.
- Implement cross-selling and up-selling strategies to increase profitability for the middle customer group.
- Analyze the bottom customer group to identify those that can be shifted to the "potential" group.
- Reduce the cost of service for the remaining bottom customers by encouraging them to use lower-cost channels.
- In extreme cases, some bottom customers might be encouraged to defect to competitors.
Loyalty Base
- Customer loyalty can create awareness of the brand among friends and colleagues, leading to positive brand perceptions.
- Loyal customers project the brand image, especially when products require after-sales service or prospective customers need assurance of product performance.
- A loyal base provides marketers with time to respond to competitors' innovations.
Strategies to Build and Maintain Loyalty
- Customer relationship management (CRM) is the process of acquiring, retaining, and growing profitable customers.
- CRM is a management culture that emphasizes building and sustaining effective customer relationships.
- Organizations must revamp their traditional learning and knowledge management programs to focus on a customer-centric approach.
- CRM involves three fundamental steps:
- Understanding the customer completely
- Aligning organizational capabilities to deliver high-value services from the customer's perspective.
- Creating mutual trust and loyalty through successful CRM implementation.
- Advantages of CRM over traditional loyalty building methods:
- Reduced advertising costs
- Easier targeting of specific customers based on their needs
- Competition based on service rather than price
- Prevention of overspending on low-value clients or underspending on high-value clients.
Brand Relationship Management (BRM)
- BRM is a holistic approach to retaining customers and creating brand loyalty.
- It includes all activities linked to relational and transactional exchanges.
- BRM aims to establish, maintain, and develop relationships between the brand and its consumers.
- It continuously strengthens relationships through interactive, individualized, and value-added contacts.
- BRM leads to a mutual exchange of promises for the future.
Book Reward Program (Crossword)
- Mumbai-based bookstore chain rewards customers for frequent purchases.
- Customers earn points that can be redeemed for purchases.
- Members receive monthly benefits that can include free gifts, discounts, or events.
- Customers are required to visit the store to claim their gifts.
Taj Inner Circle Card (Taj Hotels)
- Offers both tangible and intangible benefits to regular customers.
- Provides discounts and image-building opportunities.
Jet Privilege Program (Jet Airways)
- Recognizes and rewards loyal customers.
- Focuses on infrequent customers with potential to become loyal.
- Customers earn points that can be redeemed for special discounts and packages.
Mobile Industry (BPL & Orange)
- Industry features built-in barriers to switching brands: changing the brand means changing numbers.
- Loyalty programs focus on increasing customer usage and tenure through discounts at shops and restaurants.
Other Programs
- Rebate Program Awards gift certificates when customers reach a spending threshold.
- Partnership Program: Rewards are given to partner company customers with the aim of encouraging them to become customers.
- Affinity Program: Offers additional information and value-added benefits tailored to specific customer lifestyles.
Measurement of Brand Loyalty
- The criteria and factors for loyalty measurement differ at each level of loyalty.
- At the bottom level, there is no recognizable loyalty.
- At the bottom level, loyalty is measured using sales turnover, product profit margins, price attractiveness, and price sensitivity.
- These factors are used to analyze customer purchase and repurchase behavior.
- At the middle level, loyalty is measured through satisfaction levels, total spending on the brand, liking (measured by factors like respect, friendship, trust), and reasons for purchase.
- Customer commitment is also assessed based on their involvement in word-of-mouth marketing and the number of people they refer the brand to.
- Measurement tools include structured questionnaires (both closed-end and open-end), Likert scale, semantic differential scale, attitude rating scales, projective techniques, and in-depth interviews.
The Ladder of Loyalty
- The ladder of loyalty outlines the different stages a prospect goes through to become a loyal customer, client, supporter, advocate, and ultimately, a partner.
- Prospect: An individual or organization that meets the marketer's target definition.
- Customer: A prospect who purchases a product or service.
- Client: A customer who makes repeat purchases, indicating a satisfactory initial purchase experience.
- Supporter: A client who is satisfied with the offering and recommends it to friends and acquaintances. Word of mouth marketing significantly impacts converting prospects into customers.
- Advocate: A supporter who proactively works with the company to improve its products and services, offering valuable feedback.
- Partner: An advocate who actively participates in company decisions.
- Partner relationships are characterized by joint investments and structural bonding, leading to stronger customer-marketer connections.
The Customer Service/Sales Profile
- Analyzes customer relationships.
- Identifies strengths in existing CRM practices, even in the absence of a formal CRM strategy.
- Identifies the type of customer relationships the business seeks to build.
- Determines the importance of satisfied customers acting as word-of-mouth advocates.
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Description
Explore the dynamics of customer profitability and retention with this quiz. Understand how various segments of customers impact overall profits and revenues. Learn strategies that companies can adopt to enhance relationships with valuable customers while managing costs effectively.
