Customer Probability Insights
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Questions and Answers

What percentage of profit can a company increase by improving customer retention by 5 percent?

  • 85 per cent (correct)
  • 10 per cent
  • 25 per cent
  • 50 per cent

    • What is the probability of selling a product to an existing customer?

  • 50 per cent (correct)
  • 15 per cent
  • 75 per cent
  • 25 per cent

    • Which customer segment contributes the highest percentage of profits according to the analysis?

  • Bottom 20 per cent of customers
  • Top 20 per cent of customers (correct)
  • Top 50 per cent of customers
  • Middle 60 per cent of customers

    • What key strategy should be implemented to retain the top customers?

    <p>Develop stronger bonds with them</p> Signup and view all the answers

    What should be done for the middle customer segment to improve profitability?

    <p>Conduct cross-selling and up-selling</p> Signup and view all the answers

    What action should be taken for the bottom customer segment due to their low profitability?

    <p>Encourage use of lower-cost channels</p> Signup and view all the answers

    What percentage of customers accounts for draining 50 percent of profits?

    <p>20 per cent</p> Signup and view all the answers

    According to the findings, which of the following is a recommendation for managing customer relationships?

    <p>Differentiate strategies based on customer profitability</p> Signup and view all the answers

    What is the primary goal of Customer Relationship Management (CRM)?

    <p>To acquire, retain, and grow profitable customers</p> Signup and view all the answers

    Which of the following is NOT an advantage of CRM over traditional loyalty building methods?

    <p>Competes based on price</p> Signup and view all the answers

    What does Brand Relationship Management (BRM) primarily focus on?

    <p>Creating brand loyalty through relational exchanges</p> Signup and view all the answers

    Which step is NOT part of the fundamental CRM process?

    <p>Reducing the price of products</p> Signup and view all the answers

    Which challenge is NOT mentioned as a reason for developing loyalty programs?

    <p>Internal organizational conflicts</p> Signup and view all the answers

    Why is it essential for organizations to retain loyal customers?

    <p>To have sufficient time to respond to competitors</p> Signup and view all the answers

    What does the successful implementation of CRM lead to?

    <p>Mutual trust and loyalty</p> Signup and view all the answers

    Which of the following describes a key element of BRM?

    <p>Individualized and value-added contacts</p> Signup and view all the answers

    What type of benefits does the Taj Inner Circle Card offer to its regular customers?

    <p>Tangible and intangible benefits</p> Signup and view all the answers

    What is the primary goal of the Jet Privilege Program?

    <p>To recognize loyal customers and target infrequent ones</p> Signup and view all the answers

    Which loyalty program aims to improve customer retention by providing enhanced value related to lifestyle?

    <p>Affinity Program</p> Signup and view all the answers

    In the book reward program by Crossword, what is the primary purpose of customers picking up their gifts?

    <p>To increase customer frequency at the store</p> Signup and view all the answers

    What is the main characteristic of loyalty programs in the mobile industry?

    <p>High difficulty in changing brands</p> Signup and view all the answers

    How is loyalty measured at the lowest level according to the discussed criteria?

    <p>In terms of sales turnover and price sensitivity</p> Signup and view all the answers

    What do rebate programs generally award to customers?

    <p>Gift certificates upon reaching a spending threshold</p> Signup and view all the answers

    What is a key feature of partnership loyalty programs?

    <p>They reward a partner company’s customers to entice future customers</p> Signup and view all the answers

    What does the 'prospect' stage represent in the ladder of loyalty?

    <p>An individual or organization that fulfills the marketer's target definition.</p> Signup and view all the answers

    What is the primary benefit of partnering activities in customer relationships?

    <p>Creates greater bonding between customers and marketers</p> Signup and view all the answers

    What distinguishes a 'client' from a 'customer'?

    <p>A client purchases the product or service more than once.</p> Signup and view all the answers

    What unique data does Wal Mart provide to Procter and Gamble?

    <p>Scanner data from checkout counters</p> Signup and view all the answers

    At which stage does an individual recommend the brand to friends and acquaintances?

    <p>Supporter</p> Signup and view all the answers

    How does the relationship between P&G and Wal Mart help P&G reduce selling costs?

    <p>By using actual sales data instead of forecasts</p> Signup and view all the answers

    Which of the following best defines an 'advocate'?

    <p>A supporter who increases sales through referrals and feedback.</p> Signup and view all the answers

    What is one potential advantage for Wal Mart in its partnership with P&G?

    <p>Lower inventory holding costs</p> Signup and view all the answers

    What is the primary characteristic of the 'partner' stage?

    <p>Actively participating in company decisions.</p> Signup and view all the answers

    Which aspect is NOT highlighted by the Customer Service / Sales Profile model?

    <p>Determining employee training needs</p> Signup and view all the answers

    Why is positive Word Of Mouth (WOM) significant for a company?

    <p>It serves as a main source for customer referrals.</p> Signup and view all the answers

    Which measurement tool is NOT mentioned in the context of customer commitment?

    <p>Online surveys</p> Signup and view all the answers

    What is a key question that firms must consider regarding their customer relationships?

    <p>Is business success based on stand-alone transactions or long-term partnerships?</p> Signup and view all the answers

    What is a possible reason for a 'client' to become a 'supporter'?

    <p>The client recommends the product after satisfactory experience.</p> Signup and view all the answers

    What role does customer satisfaction play according to the CRM model?

    <p>It transforms customers into word-of-mouth advocates.</p> Signup and view all the answers

    What is a potential misconception about firms without a formal CRM strategy?

    <p>They cannot be successful in business.</p> Signup and view all the answers

    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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    Customer Relationship Management (CRM) PDF

    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.

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