Customer Relationship Management (CRM) PDF

 CUSTOMER RELATIONSHIP MANAGEMENT Jackson - applied the individual account concept in industrial market to suggest markets CRM to mean, marketing oriented toward strong, lasting relationship with individual accounts McKenna - offered a more strategic view by putting the customer first a...

 CUSTOMER RELATIONSHIP MANAGEMENT Jackson - applied the individual account concept in industrial market to suggest markets CRM to mean, marketing oriented toward strong, lasting relationship with individual accounts McKenna - offered a more strategic view by putting the customer first and shifting the role of marketing from manipulating the customer (telling & selling) to genuine customer involvement (communicating & sharing the knowledge). Berry - in a broader term stressed that attracting new customers should be viewed only as intermediate step in the marketing process. Developing closer relationships with this customers and turning them into loyal is an equally important aspect of marketing. Thus, he defined relationship marketing as attracting, maintaining, and, enhancing customer relationships. By focusing on the value of interaction in marketing and its consequent impact on a customer relationships, a broader perspective espouses that customer relationship should be the dominant paradigm of marketing.  As Gronroos stated: Marketing is to establish, maintain and enhance relationship with customers and other partners, at a profit, so that the objectives of the parties involved are met. - This is achieved by a mutual exchange and fulfillment of promises. - The implication of Gronroos definition is that customer relationships is should be devoted to building and enhancing such relationship. Similarly, Morgan and Hunt suggested that relationship marketing refers to all marketing activities directed towards establishing, developing and maintaining successful relationships.  BENEFITS OF CRM Customers are Profitable over a period of time Studies by the US-based Bain and Company have shown that a customer becomes more profitable with time because the initial acquisition cost exceeds gross margin while the retention costs are much lower. When an organization retains the customer, it gets a larger share of the customers wallet at a higher profit-one percent increase in sale to existing customer increase profits by 17 per cent while the same amount of sale to new customer increased profit by only 3 per cent.  BENEFITS OF CRM Customers are Profitable over a period of time This huge different is explained by the fact that for most companies the cost of acquiring the customer is very high. It costs six to eight times more to sell to a new customer than to sell to an existing one. The same study also highlighted that a company can boost its profit up 85 per cent by increasing its annual customer retention by only 5 per cent. Similarly, studies have shown that the probability of selling a product to a prospect is 15 per cent while it is 50 per cent to a existing customer. Thus, the time, the effort and the costs of selling are much lower for an existing customer.  Customer probability is Skewed An analysis of the revenue and profit contribution of customer base of banks in the US, Europe and Australia showed the following: - The top 20 per cent of the customers contribute to 150 per cent of the profits while the bottom 20 per cent drain 50 per cent of the profits and the rest 60 per cent just break even. Experiences of Indian organizations are on similar lines. In a large public sector Banks, the top 23 per cent of the customers contribute to 77 per cent of the revenues. Similarly, the top 27 per cent customers of a leading cellular phone service provider contributes to 75 per cent of the revenues. - Experiences of Indian organizations are on similar lines. In a large public sector Banks, the top 23 per cent of the customers contribute to 77 per cent of the revenues. Similarly, the top 27 per cent customers of a leading cellular phone service provider contributes to 75 per cent of the revenues  Customer probability is Skewed The implication of such a skew in customer profitability and revenue contribution are startling for organizations, which use to conventionally treat all customers are equal‘. Competitors have to just lure these top customers and the organization would face serious problems. It also highlights the fact that one must adopt different strategies for different customer groups: - Programs have to be developed to retain and build stronger bonds with the top gold standard‘ customers so that they do not get poached‘  Customer probability is Skewed - Activity-Based Costing analysis has to be done with the middle group of potentials‘ so that the cost of serving this customers are reduced. In addition, cross-selling and up selling should be done to increase the profitability of these customers. - An analysis of the bottom growth has to be done to identify those customers who can be shifted to the potential‘ group. For the remaining, the cost of service has to reduce by encouraging them to use lower cost channels. In extreme cases, some of these customers will be encouraged to defect to competitors. Outsourcing of loss-making customers to specialized low overhead agencies is an emerging trend.  Service Benefits of CRM Research findings conducted across industries as a part of a Technical Assistance Research Project (TARP) indicate that: - 95 per cent of the customers do not bother to complain, the just take their business else where. - Most loyal customers take time to complain. This enables the product / service provider to improve and ensure that such mistake do not recur. - - A typical dissatisfied customer will tell an average of 14 others about a bad experience while she will tell only six about a satisfying experience with an organization. - - 70 per cent of customers who complain will do business with a company again if it quickly takes care of a service problem.  2. BRAND LOYALTY Loyalty is at the heart of equity and is one of important brand assets. Brand loyalty is a conscious or unconscious decision expressed through intention or behavior to repurchase a brand continually. When the consumer buys with respect to product features, price and convenience, with little concern to the brand there is likely little equity. 2. BRAND LOYALTY But, if the consumers prefer the brand even at the face of competitors with superior features and offers, then brand is said to have high brand equity. Loyalty reflects the consumers attitude towards the brand, especially when there is a change, either in price or product features. As the brand loyalty increases, the vulnerability of the customer base to competitive action gets reduced. Reduced Marketing Cost Loyal customers minimize the cost of running business because the amount spent on getting new customers is far more than retaining present customers. The higher the loyalty, the easier it is to keep customers happy. Loyal customer becomes an advocate for the brand, without any incentive Loyalty base of customers, act as a strong entry barrier for potential entrants by which an organization can minimize the risk Trade Leverage A brand having strong loyalty base force retailers to maintain adequate stock and allot enough shelf space to accommodate the brand. At the extreme, customer‘s shop choice depends on where their preferred brand is available. So, at the retail brands enjoy special recognition and treatment.  Attracting New Customers Existing loyal customers help marketers to get more business through prospective customers. They create awareness of the brand among friends and colleagues, who develop positive attitude towards the brand by actually seeing the brand in action. Brand image is projected by these customers especially when the product requires after sales service or, prospective customers require assurance of product performance. Time to Respond to the Competitive Threats Loyalty base also supports marketers against competitor‘s innovation by providing sufficient time for them to retaliate.  STRATEGIES TO BUILD AND MAINTAIN LOYALTY Retaining the customers, keeping them happy, enhancing their satisfaction level is the continuous endeavor of any organization as it cannot afford to miss any of the loyal customers. Ever changing consumer, cut throat competition and emerging new technologies are the thrown challenges to develop loyalty programs. Customer Relationship Management (CRM) In simple words, CRM is the process of acquiring, retaining and growing profitable customers. It is not a mere technique, but a management culture to build and sustain an effective customer relationship. Organizations must significantly revamp their traditional learning and knowledge management programs. The customer relationship management model, with its customer-centric focus, places the customers needs first. IT involves three fundamental steps: 1. Understanding customer completely 2. Aligning organizational capability in order to better deliver what its customers may perceive as high value. The result of successful implementation of CRM creates great value of marketers and customers which leads to mutual trust and loyalty. Following are the advantages of it over traditional loyalty building methods: Reduce advertising cost Makes it easier to target specific customers by focusing on their needs Allows organizations to complete for customers based on service, but not on price Prevents over spending on low-value clients or under spending on high values ones.  Brand Relationship Management (BRM) BRM is newly developed holistic approach to retain customers and create brand loyalty. It stands for all activities linked with relational exchanges‘ and transactional exchanges‘. It helps to establish, maintain, and develop the relationship between a brand and its consumers. Its integrated effort continuously strengthens the relationship through interactive, individualized, and value added contacts. This leads to a mutual exchange and fulfillment of promises in future. BRM Process  Key steps to manage BRM ❖Identifying the key driving force of brand preference ❖ Estimating expected brand utility of consumers ❖ Analyzing the customer response for each market stimuli ❖ Grouping target customers into actionable segments based on profitability, usage and characteristics ❖ Defining offers and corresponding value proposition that meets the identified need  Impact of Brand Relationship Program on a Brand Perception Brand relationship program has a great impact on a brand‘s perception in various ways: Improves customer perception of the brand Gives an opportunity to better know the brand Provides a chance to learn new things about the product category Aids to select among brands in that category Helps to discover new ways of consuming the product category All these perceptional changes leads the customer towards brand loyalty.  Integrating BRM with CRM The effectiveness of BRM depends on proper integration of BRM with CRM strategies. This leads to effective collection and utilization of customer information resulting in maximum brand utility to consumers.  Brand Loyalty Programs Loyalty programs are designed to optimize every customer contact by offering an incentive to his buying behavior. Though it varies from category to category, today‘s programs are mainly focused on this area. The main objective of these programs is aimed at the highest end customer‘s retention. Some loyalty programs are intended to achieve new customers and maximize the use of the brand. Following are some of the popular loyalty programs designed for Indian consumers by different companies. A. Indian Club (From Tata Indica) Loyalty program includes 30,000-odd Indica customers from a client base of more than 1.35lakhs. These club members are provided with several benefits such as preferential treatment and discount at retail showrooms of Titan, Tanishq, hotels attached to the Taj Group and some restaurants.  B. First Citizen Club (From Shopper’s Stop) Shopper‘s stop is one of the first major chains that has been working on ways to manage its customer information for competitive advantage. It started ‘First Citizen Club‘ for regular visiting customers. Its major functions include customer information capture, intelligent warehousing and mining of transaction behavior. It emerged successfully by generating sales and continuously adding more people to it.  C. Book Reward Programs (From Crossword) Mumbai based chain of book stores runs this programs to increase the frequency of regular customers. Crossword has developed a benefit system quite differently based on the points that members earn, which can be redeemed against purchases. Members get benefit every month. The benefit could be a free gift, a discount or an every month. The benefit could be a free gift, a discount or an event. The idea is that the customers have to come to the store to pick up the gift. D. Taj Inner Circle Card (From Taj Hotels) Taj hotels provide both tangible and intangible benefits to their regular customers in the form of discounts and image building.  E. Jet Privilege Program (From Jet Airways) This program is to recognize the most loyal customers and also to focus on customers who are not so frequent, but who at some point will be made most loyal. This program awards points to the customers for special discounts and packages.  F. Mobile Industry (From BPL & Orange) Unique features of this industry is built-in barriers to switching brands as changing the brand gives the inconvenience of changing the number. In this industry, loyalty programs are designed more towards increasing a customers usage and their tenure by offering more discounts in shops and restaurants.  G. Other Programs: a) Rebate Program: Awards gift certificates on reaching a spending threshold. The reward can motivate incremental purchases or increase in store traffic. b) Partnership Program: Rewards are given to partner company‘s customers with an expectation that they may likely become customer in future. c) Affinity Program: It offers additional information, value added benefits to suit specific customer life styles. This helps customer to know more about the latest products and to build long lasting relationships.  MEASUREMENT OF BRAND LOYALTY The criteria and factors considered for loyalty measurements is different at each level of loyalty as the degree of loyalty and nature of relationship changes. In the bottom levels loyalty is not recognizable. Loyalty measurement at this level is in terms of sales turnover, product‘s profit margins, price attractiveness and price sensitivity. These are the major factors for purchase and repurchase behavior of customers at these levels.  MEASUREMENT OF BRAND LOYALTY At the middle level, loyalty is measured through satisfaction level. Total spending on brand, liking – which is scaled in variety of ways like respect, friendship, trust etc, and the reasons attributed. Another important measurement for customers commitment is their involvement in spreading good word of mouth and number of people to whom they refer the brand. Measurement tools include structured questionnaire (both closed- end, open –end), Likert scale, semantic differential scale, attitude rating scales, projective techniques and in-depth interviews.  THE LADDER OF LOYALTY The ladder of loyalty shows the different stages through which a prospect becomes a customer, a client and finally a partner. Prospect The prospect is an individual in a retail market or an organization in the business market, which fulfils the requirement of the marketer‘s definition of target. Customer The prospect becomes a customer when s/he gets attracted by the offering of the marketer and buys the product / service. Client A customer becomes a client when s/he purchases the product or service more than once. While a customer may make the initial purchase as a trial or test, the client is one who does a repeat purchase. It is likely that the trial was a satisfactory experience for the client.  Supporter A client becomes a supporter when he satisfies with the offering and recommends it to his friend, relatives and acquaintances. This positive Word – Of – Mouth (WOM) has tremendous positive impact as it helps the company get new customer. WOM is a most influential source of information in converting prospects into customer. Advocate An advocate is a supporter who, in addition to referrals that gives increases sales, proactively works with the company to improve its product and services. While developing new products software companies regularly depend on the feedback from the lead users of their clients during the Beta test phase. So is a case in new product development situation in several industrial firms, who set up the prototype in their client‘s premises for usage and feedback, which helps in improvement. In these situation, the level of interaction between the customer and the company is at a much higher plane. There is sharing of vital information and the comfort level as well as the confidence between the parties is high. Partner An advocate becomes a partner when they become actively involve in the decisions of the company. Any relationship that attempts to develop customer value through partnering activities is likely to create greater bonding between customers and marketers.  In many cases, there are joint investments resulting in a structural bonding. Examples include the kind of relationship that exist between Procter and Gamble and Wal Mart, the worlds largest retailers. This relationship is characterized by genuine partnership. Wal Mart shares the scanner data from its check out counters in its over 4,500 stores through satellite. This information gives the movement of P & G‘s products, the status of stocks in its outlets and helps the joint teams comprising of P&G and Wal Mart executives to plan replenishments. It helps P&G plan its production, better management of its production runs and keep its inventories low as it no longer depends on sales forecasts but actual sales data. Overall, it reduces the selling costs to P&G. Wal Mart gains as it does not have to keep inventories, gets faster replenishments, incurs low cost and is able to pass on the saving to the customers, thus, reinforcing its image of ‗Everyday Low Prices‘ among its customers.  THE CUSTOMER SERVICE / SALES PROFILE Now you understand that the power of CRM lies in its ability to help you create, maintain, and expand customer relationship. You‘re excited and ready to begin delving into the process of creating your own CRM strategy, whether at the organization level or as it applies to your specific area or department. Before you do that, we‘d like you to take a more in – depth look at who your current customers are and what their relationships with you look like. Our model, the Customer Service / Sales Profile, will help you to do three things. First, it will show you what kind of customer relationships you‘re trying to create. Is your success based in initial, stand-alone transactions? Or does the nature of your product or service put customers in partnership with you over longer periods of time? How important is it for you to have satisfied customers acting as a word – of – mouth advocates for you in the market place Second, the Customer Service / Sales Profile will help you identify strengths in your current CRM practices. Even in cases where there‘s no formal CRM strategy, if you‘re still in business, you must be doing some thing right, may be several or many things. Knowing what right practices have evolved naturally will help you create the greatest possible improvement with the least amount of expense. Third, because this process creates a visual image of your customer relationship, you will find it helpful in communicating to others throughout the organization. Knowing your current profile and the desired profile will naturally help you focus your energy and attention.  Why call it the Customer Service / Sales Profile? We call this model the Customer Service / Sales Profile because every business activity is ultimately justified by half its serves the customer. Even if you and your team never see cash – paying external customer, the contribution you make must have some positive impact on those external customer relationship or else you should strongly question its value and purpose. We use the phrase ―Service / Sales to remind us of three important rules. Truth # 1: Sales do not equal relationships. Way back in 1983, Theodore Levitt wrote an article for the Harvard Business Review titled ―After the Sale Is Over.‖ In it he explained that the sale is just the beginning of the relationship with your customer – a relationship more akin to a marriage then to a one – night stand. And consultants, practitioners, researchers, and authors have been building on this theme ever since. Truth # 2: Service extends beyond the buyer. Whether you‘re selling in – home plumbing repair or pace makers or e-business solutions, creating a customer relationship, and extending the opportunities you have to do business together mean more than wooing the individual who writes the check or sign the contract. Truth # 3: Service and sales are on the same team. All too often, we are called into sales organizations or customer service departments that claim that everything would be better if ―those other people‖, in service or sales ―would just straighten up and get their act together.‖ The Three Levels of Service / Sales There are three service / sales levels to the Customer Service / Sales Profile model Level 1 is initial transactions. At this level you are focused on discrete, initial interactions or stand-alone sales. This is the foundation for every business or organization. Yet, we know that the more money, time, and energy you must invest in getting customers to come to you in the first place, the harder it is to be profitable just working at this level. As we noted in Chapter 1, it‘s not unusual for customers to actually cost you money the first time they do business with you. Just consider the acquisition costs for you customers.