The CRM strategy development process

The CRM strategy development process

► The CRM strategy development process is the first process to be

considered in the CRM Strategic Framework. It not only shapes the
nature of the other four key CRM processes but, more importantly, it
defines the overall objectives and parameters for the organization’s
CRM activities.

► This process consists of the business strategy and the customer

strategy to ensure that they are integrated.
The CRM strategy development process
(cont.)
1- Business strategy
“Where are we and what do we want to achieve in our business?”
• Business vision
• Industry & competitive characteristics

2- Customer strategy
“Who are the customers that we want and how should we segment
them?”
• Customer choice & customer characteristics
• Segment granularity
 Business strategy
► The first part of the CRM strategy development process is to
review the organization’s business strategy.

► The CRM is not about developing a business strategy. Rather it is

about fully understanding the business strategy in order to
determine an appropriate customer strategy.

► The business strategy is usually the responsibility of the CEO,

board and strategy director.
Business strategy (cont.)

► Business strategy addresses the following points:

1- Role of business strategy

2- Business vision

3- Industry and competitor characteristics

4- Analyzing the industry and competitive environment

5- Determining business strategy

 1- Role of business strategy
► Business strategy is a top management responsibility that involves
identifying the future direction of the enterprise as well as managing
the creative interaction of the functional disciplines of operations,
marketing, finance and human resource management.

► The business strategy is both a process and a way of thinking which

leads to the development of a set of strategies that assist the
business in achieving its corporate objectives.
2- Business vision

► The process of business strategy formulation should

commence with a review or articulation of a company’s
vision.
► A business vision should act as an important device for
coordinating activity in an organization.
The most important questions that the organization should
answer them are:
● What are we here for?–Purpose
● What is our long-term destination? –Vision
● What beliefs and behaviours will guide us on the
journey?–Values.
 2- Business vision (cont.)

► Organizations are now realizing that developing a vision and

a set of values associated with it may be difficult but is a
very useful activity.

► A strong and appropriate vision and values enable companies

to develop a distinctive culture and a focus for their
employees. This can result in a ‘people advantage’ that is
difficult, if not impossible, to imitate.

► Therefore, a strong vision and values can create

differentiation and build motivation, trust and customer
focus among employees.
 Good examples “Vision statements”
❑ Ex: ‘A computer on every desk and in every home’ Microsoft,
original vision
❑ Ex: ‘Making communication with pictures as easy as using a
pencil’ George Eastman, Kodak, c.1920
❑ Ex: ‘not just to be a good service company, but to be the best
service company’, Watson “the founder of IBM”

“Goldman Sachs” one of the best companies in the

investment-banking industry.
► Vision: To be the world’s premier investment bank in every
sector
► Values: • Client first
• Teamwork
The business vision and its associated values form an important
element of a company’s strategy.
3- Industry and competitive characteristics

► A review of the industry and competitive environment including an

assessment of both existing and potential competition. This review
includes the following points:

a) The new competitive landscape

b) Putting the new economy in context

c) Changes in industry structure and evolution

 3- Industry and competitive characteristics
(cont.)
A) The new competitive landscape:
► The new competitive landscape is characterized by a new fiercely
competitive environment where customers have so much choice and so much
power. In this environment the capacity to learn and act fast is increasingly
a major source of competitive advantage.
► Therefore, it is imperative to all organizations to be continually learning
about their customers and innovating new ways in which to provide them
with ever-greater value.
► Some changes that are taken place in the new competitive environment:
1. Digitization and information processing power
2. Interconnectivity
3. Information transmission speed
3- Industry and competitive characteristics
(cont.)
B) Putting the new economy in context
► The growth of the digital economy has strong implications for
strategy, it is essential that the on-line world is seen in context.

► Therefore, companies need to understand the implications of

the new digital world, but ensure the integration of strategies
developed for the new economy with their existing business
activities.
3- Industry and competitive characteristics
(cont.)
C) Changes in industry structure & evolution
► Recent developments in electronic channels as well as new
strategic insights have led to greater competitive activity on the
part of both new entrants and existing competitors.
► Two types of structural behavior are important:
disintermediation – where a company reduces the number of
intermediaries or channel members; and reintermediation –
where changes in the current business model result in the
emergence of additional new intermediaries.
4- Analyzing the industry and competitive
environment
1. Industry analysis model

2. The generic strategies framework

3. The market leaders framework

4.1 Industry analysis model
 4.1 Industry analysis model (cont.)
Three elements have been added to the 5 forces of Porter:

1. Environmental analysis (this analysis, known as PESTE)

2. Disruptive technologies (the environmental analysis should help
consideration of evolutionary technological factors impacting on your
business)
3. Co-opetition and networks (increasingly networks of companies are
being developed that combine simultaneously cooperation and
competition.
4.2 The generic strategies framework
► Cost leadership strategy
A cost leadership strategy requires a company to set out with the
objective of being the lowest cost producer in the industry. Companies
must seek economies of scale, and cost minimization over a wide range
of areas.
► Differentiation
With a differentiation strategy a firm seeks to be different within the
industry it is operating in by being unique on some dimension or set of
dimensions of value to buyers.
► Focus strategy
A focus strategy involves concentrating on a particular buyer group,
geographic area or product/market segment. By selecting a particular
segment or group of segments the company attempts to tailor its
strategy to serving the needs of its segment better than the competition.
4.3 The market leaders framework
► Operational excellence
Means providing customers with reliable products or services at
competitive prices, delivered with minimal difficulty or inconvenience.
(cost leadership, standardisation, less expenditures on innovation)
► Product leadership (ex: Apple)
Means providing products that continually redefine the state of the art
(the most recent stage in the development of a product, incorporating
the newest ideas and features.) (innovation, renewal, price premium)

► Customer intimacy (Based on Building relationships, this strategy is

appropriate for the CRM)
Means selling the customer a total solution not just a product or service.
 5- Determining business strategy
► The objective of addressing business strategy, as part of the
strategy development process in CRM, is to determine how the
enterprise’s customer strategy should be developed or extended
and how it will evolve in the future.

► The business strategy should be developed into specific actions

that will lead to its implementation and the achievement of its
objectives.

► The successful strategy will be one in which the company

differentiates itself from its competitors in a positive sense using
its strengths and distinctive competencies to satisfy customer
needs better than the competition.
Customer strategy (cont.)

► customer strategy addresses the following points:

1- Role of customer strategy

2- Customer choice and characteristics: market segmentation

3- Segment granularity

4- Focusing on customer strategy

 1- Role of customer strategy

► Customer strategy is typically the responsibility of the marketing

department. However, both marketing and CRM require a
cross-functional or pan-company approach if they are to be fully
effective.

► Customer strategy involves examining your existing and potential

customers and identifying which forms of segmentation are most
appropriate. The organization needs to identify the
characteristics of their customers and customer segments.
2-Customer choice and characteristics:
the role of market segmentation
1- Customers differ and thus relationships with customers will have to be managed
differently if they are to be successful. This is a key principle of CRM. The aim of CRM is to
build relationship strategies that refine and redefine relationships and in this way increase
their value.
• Identify Who is the customer (ex: final consumers), (ex: the customer may include 3
broad groups: direct buyers, intermediaries and final consumers).
2- Market segmentation
a. defining the relevant market to be addressed,
b. determining the criteria for market segment,
c. considering the alternative bases for segmentation,
d. choosing specific segments to focus on
3- Segment granularity ( from mass marketing to one-to-one marketing)
4- Focusing on customer strategy (such as market penetration, product development,
market development, diversification)
 2.A market segmentation (definition of
the relevant market)

► The choice of the market to be addressed or ‘served market’ will be

based around decisions relating to:
● the breadth of the service line
● the types of customers
● the geographic scope
● the areas of 'value added’ in which the service firm decides to
operate.
 2.B criteria for market segment viability

► There are various widely accepted criteria for determining if a market

segment is viable:
●  the segment must be measurable in size and characteristics
●  the segment must be meaningful. It must be capable of generating
sufficient long-run profit to worth separate marketing attention
●  the segment must be reachable within budget limitations
2.C considering the alternative bases
for segmentation
► B2B market segmentation
1. Segmentation by industry type
2. Segmentation by service
3. Segmentation by value
► B2C market segmentation
1. Geographic segmentation
2. Demographic segmentation
3. Psychographic segmentation
4. Benefit segmentation
5. Usage segmentation
6. Loyalty segmentation
 2.D Choosing specific segments
► Choice of the resulting target markets segments should be
based on detailed review of existing and potential value and
profitability of the segments. Identification of the economic
value of customer segments to the enterprise is critical. This
is where there is a high degree of interactivity between the
strategy development process and the value creation process.
► The strategy development process leads to an initial view
being taken on the economic desirability of different
segments. The value creation process refines this view by
identifying segment variables such as expected acquisition
costs, profit per customer, retention rates and customer
acquisition targets.
 3- segment granularity
► Segment granularity refers to the decision of whether a macro-
segmentation, micro-segmentation or a ‘one-to-one’ approach to
segmentation should be adopted. We can also call this one-to-one
approach ‘individualization’ or ‘personalization’.

► Decisions regarding level of segmentation need to be taken in the

context of a number of considerations including: the existing and
potential profitability of different customer types; the available
information on customers; the opportunity to ‘reach’ customers in
terms of both communication and physical delivery; and the cost of
doing it.
4. Focus on customer strategy
► Customer strategy is not only concerned with which customer
segments to serve but also what products and services to sell
to them. Although the latter is primarily a concern of product
policy and marketing planning some brief discussion should be
made here

► Four broad product/ market options (market penetration,

market development, product development, diversification).

► A final issue to consider under the heading of customer

strategy is the need for creativity and innovation.
How a consideration of business & customer
strategies leads to CRM strategy development?
 CRM strategy development

► An organization needs to consider its current position within its

industry and the future role it realistically can play within it.
Central to this will be making decisions about customer choice,
customer characteristics and segment granularity.
► This includes determining the extent to which an individualized
customer, or one-to-one, approach is appropriate and affordable
for the enterprise and determining the completeness of customer
information that exists and is potentially available.
► Such decisions should be based on both the present situation and
the possible situation in the future.
► The CRM strategy matrix (p.80)