Unit 14 Customer Relationship

Management
Day 2

The Basics

Contents

Introduction
Relationship marketing vs. relationship management
Definitions of customer relationship management
Forms of relationship management
Managing customer loyalty and development
Reasons behind losing customers by organizations
Significance of customer relationship management
Social actions affecting buyer-seller relationships

Introduction

In marketing, it is often said that retaining customer is more

important than acquiring one.
Organizations use communication tools to make the consumer
aware about their products and brands.
All these have a cost to the company and in this competitive world
organizations want to reduce cost.
For this organizations develop a database which helps in creating
loyalty programs.
Many Indian companies like Infosys, Wipro and others started
offering CRM software to companies.
The benefits of CRM software are quicker, better quality, and
timely services to the customers.
This increases the word of mouth communications and reduces the
cost of mass media.

Learning Objectives
After studying this unit, you will be able to
Explain the meaning, need and relevance of customer
relationship management.
Mention the forms of relationship management.
Cite the reasons for losing customers by organizations.
Bring out the significance of customer relationship
management.

Relationship Marketing Vs. Relationship

Management

The relationship marketing approach considers customers as part

of the business and aims at building a long term and never-ending
relationship with them.
The focus of relationship marketing approach is on developing
hard core loyal customers and retaining them forever.
The relationship marketing approach has slowly taken the form of
customer relationship management.
Relationship marketing focuses only on the marketing function of
the organization.
Customer relationship management focuses on customers and the
entire functions connected with value creation and delivery chain
of the organization.

Definitions of Customer Relationship

Management

Berry defines CRM as attracting, maintaining and in multi-service organizations

enhancing customer relationships.
Berry and Parasuraman define CRM as attracting, developing and retaining
customer relationships.
From the above definitions, it is concluded that Customer Relationship
Management refers to all marketing activities directed towards establishing,
developing, and sustaining long lasting, trusting, win-win, beneficial and
successful relational exchanges between the organization and its stakeholders .

Why CRM?
It costs six times more to sell to new customer
than to sell to an existing one.
A typical dissatisfied customer will tell 8-10
people
By increasing the customer retention rate by 5%,
profits could increase by by 85%
Odds of selling to new customers = 15%, as
compared to those for existing customers (50%)
70% of the complaining customers will remain
loyal if problem is solved
90% of companies do not have the sales and
service integration to support e-commerce

Defining CRM
CRM is an integrated sales, marketing and service
strategy that is based on a timely and accurate
information infrastructure and that depends on
coordinated enterprise-wide activities.
Example: tracking customers interactions with the firm
Customer tracking includes steps in the selling and
customer service cycles

CRM steps include

Targeting
Acquisition
Retention
Expansion

Defining CRM
Targeting
Who do we target?
What segments are most profitable?
What segments match our value proposition?
What is the best segmentation strategy for us/our
industry?

Acquisition
What is the best channel for each segment?
What is the acquisition cost for a
channel/segment?
Cost effective acquisition?

Defining CRM
Retention
How can we improve retention?
What is our average customer relationship length?
How can we hold customer for as long as possible?
What is the most cost effective method of retention?

Expansion
How many products does our average customer buy?
How can we induce our current base to buy more
products?
Who are the prime targets for expansion?
What is the cost of expansion?

Goals of CRM
Using existing relationship to grow
revenue
Using integrated information for
excellent service
Introducing consistent, replicable
channel processes and procedures

Managing the customer life

cycle

Acquiring
Enhancing
Retaining
new customers profitability of existingprofitable customers
customers
for life

Acquiring new customers

Promoting the companys product
and service leadership
Redefine the companies competitive
edge and innovations
Offer a superior product backed by
an excellent service
Example: Browsing on the net,
submitting a request, receiving a phone
call
Model for a sales and service strategy

Enhancing profitability of existing

customers
Encouraging cross-selling and up-selling
Cross selling is used by suggesting alternative products or
up-selling by rendering the customer more informed with the
new products and services.

Broadening the relationship between the company and

the customers
Providing a value proposition represented by offering a
greater convenience at low cost (one-stop-shopping)
Example: Best Buy an electronic retailer with more than
300 stores capitalizes on committed relationships with
customers
3000 calls a day with more than 50% having computer-based
answers and solutions

Retaining profitable
customers for life
Retention focused on service
adaptability
Delivering not what the market
wants but what the customer wants
Providing a value proposition that
offers a proactive relationship that
works on the best interest of the
customer
Example: customer retention is
becoming a key competitive strategy for

Economics of customer
retention

Winning back a lost customer can cost up to 50-100 times as much as keeping a
current one satisfied.
Rob Yanker, Partner, McKinsey & Company

Understanding your customer is key to retention..

Annual Cash Flow

Customer Relationship Management

and Shareholder Value
Service/Usage Revenue
Acquisition
Cost

Cost of Service

Duration of
Relationship

Customer Life Time Value (LTV) is defined by a

customers Life Time worth to the firm and is
measured by the net present value (NPV) of the cash
flows generated over the Life Time of the relationship.
Successful
Successful Customer
Customer Relationship
Relationship Management
Management can
can generate
generate positive
positive shareholder
shareholder value.
value.

The Benefits of Customer

Relationship Management
In addition to LTV of the customer,
likelihood to recommend is another
important benefit of CRM.
Acquisition

Retention

Lift/upsell

Likelihood to
Recommend

Impact on Service Quality

High

Available at
Convenient Times

Know. Product/Svcs.
Resolution Time

Easy to Reach
# of Rings

Low

Total Perceived
Value

Ownership of Problems

Low

Access to
Live Agents

Courteous

Right Tel. #
Know. About Account

Current Performance

The
The customer
customer value
value analysis
analysis should
should be
be performed
performed for
for each
each segment
segment individually.
individually. The
The
perceived
perceived importance
importance of
of price
price and
and service
service drivers
drivers can
can differ
differ significantly
significantly by
by segment.
segment.

High

Managing Customer Loyalty and

Development

Managing
customer
development is one of the
important
aspects
of
relationship marketing.
The focus is on two things
customer
catching
and
customer keeping.
Customer catching is the
process of attracting new
customers (inviting new blood),
while customer keeping is the
process
of
retaining
the
existing ones (encouraging old
blood).

 Customer Development Process

1. Suspect: Suspect is everyone who might conceivably buy the

product or service.
2. Prospects: Prospects are those people who have a strong
potential interest in the product and the ability to pay for it. The
company rejects the disqualified prospects because they have
poor credit or would be unprofitable.
3. First time customers: The company wants to convert the
qualified prospects into first time customers.
4. Repeat customers: The company wants to convert satisfied
first time customers into repeat customers. First time and repeat
customers may also buy from the competitors.
5. Clients: The company then tries to convert repeat customers
into clients. Clients are those people who buy only from the
company.

6. Advocates: The next step is to

convert the clients into advocates.
Advocates are those people who
speak good about the company and
encourage others to buy from it.
7. Partners: The ultimate goal of the
company is to convert advocates
into partners. After reaching this
stage, the customer and the
company work actively together.
Some customers may become inactive
or may drop out due to many reasons
leading to end of the relationship. The
challenge is to re-activate dissatisfied
customers through customer win back
strategies

Reasons Behind Losing Customers by

Organizations

The cost of attracting a new customer is five times the cost of

keeping a current customer happy.
But most marketing theories and practices focus on attracting new
customers rather than retaining existing ones.
Today, however, more companies are recognizing the importance
of satisfying and retaining the current customers.
Todays companies must focus on their defection rate and take
steps to reduce it. The possible reasons for customer defection
include:

1. Price related reasons: A customer tries to match the

price of a brand with the value of the brand. If there is a
mismatch between the price and the value, he would
switch over to a competitors brand. Also, if the price of
brand goes beyond his affordability, he would switch over
to a low priced brand. Thus, the role of price in customer
retention is very significant.
2. Product related reasons: Due to technological
advancement, the new brand which enters the market
would offer better performance as compared to the
already existing brand. This would encourage the
customers to switch over to the new brand.
3. Services related reasons: The customers focus is not
only on the brand, but also on the services offered at three
different stagespre-sales, during sales and after sales.
Any dissatisfaction with services would cause the customer
to switch over from the brand.

4. Benefit related reasons: The customers may be

attracted by greater benefits offered by the competitors.
Such benefits may be more attracting and cause
customers to change brand.
5. Competitor
related
reasons:
Technological
advancement, attractive offers, value added services, etc.,
offered by competitors may also encourage customers
towards brand switching.
6. Personal reasons: The personal reasons for brand switch
over may be
The customer has moved away from the market area
where the brand is sold.
Role changes in life cycle may lead to changes in brand
preference.
Anger, disgust, distress developed during the process
of product delivery.
Sentimental reasons.
Influence of other members of the family.

Significance of Customer Relationship

Management

Reduction in customer recruitment cost.

Generation of more and more loyal customers.
Expansion of customer base.
Reduction in advertisement and other sales promotion
expenses.
Increase in the number of profitable customers.
Easy introduction of new products.
Easy business expansion possibilities.
Increase in customer partnering.

Traditional Organizational Chart Vs Modern

Customer Oriented Company Organization
Chart
Traditional Chart
Top
Middle Management
Front
Customers
Line people

Modern Chart
Top
Customers
Front Line people

Companies should understand that besides customers, their

stakeholders are equally important for organizations
success.
The stakeholders of an organization would include:
investors, the financial community, vendors and suppliers,
employees, competitors, the media, neighbors and
community
leaders,
special
interest
groups,
and
government agencies. These stakeholders can affect and
be affected by a companys marketing programme.
Kotter and Heskett (1992) found that firms that emphasized
the interests of three communities customers, employees
and stakeholders performed better than those that
emphasized only one or two.