Customer Relationship

Management
Part 1: Conceptual Foundation
CRM: Conceptual Foundation

• Chapter 1: Strategic CRM today

• Chapter 2: Concept of Customer value
Chapter 1: Strategic CRM today
1. An introduction to strategic CRM
2. Why managing customer is critical than ever
3. The benefit of customer value management approach
4. Evolution and growth of CRM
An introduction to strategic CRM
• The customer concept is the
conduct of all marketing activities
with the belief that the individual
customer is the central unit of
analysis and action.
• Customer-centric companies
shares a set of beliefs about
putting the customer first. It collect
and uses customer and
competitive information to develop
better-value propositions for
customers.
• Customer value: the economic value of the
customer relationship to the firm, expressed as a
contribution margin or net profit
• Using Customer value for marketing decisions
• Benefits:
• Decrease in costs
• Maximization of revenues
• Improvement in profits and ROI
• Acquisition and retention of profitable customers
• Reactivation of dormant customers
CRM
• Capture customer data and interact with the customer
simultaneously
• Develop specific strategies for interaction with each
customer
– Better relationships with profitable customers
– Locating and enticing new customers that will be profitable
– Finding appropriate strategies to deal with unprofitable
customers, including termination of relationships
Link Between CRM and Database Marketing

Database Marketing
• Customer Databases

– Identify and analyze customer population

– Group based on similarities
– Recommend separate marketing campaigns for different groups
• CRM

– Applies database marketing techniques at customer level

– Develops strong company-to-customer relationships
CRM in practice:

Functional focuses on technology

level:

Customer
focuses on total customer
facing front-end
experience
level:

focuses on customer
Strategy level:
satisfaction
CRM in practice:
• Functional level: Customer relationship management can be
practiced on a very limited functional basis (e.g., sales force
automation in the sales function, campaign management by the
marketing function).
• Customer-facing front-end level: This type of CRM focuses on the
total customer experience. The goal is to build a single view of the
customer across all contact channels and to distribute customer
intelligence to all customer-facing functions.
• Strategic level: This perspective tries to free the term «CRM» from
any technology underpinnings and from specific customer
management techniques. It describes CRM as a process to
implement customer centricity in the market and build shareholder
value.
Why is managing customer critical than ever?

• Firms are facing changes with respect to:

– Consumers

– Marketplaces

– Technology

– Marketing functions

CRM is a response to these changes.

Changes with respect to Consumers
Changes with respect to Consumers

• Demographic changes and increasing consumer diversity

• Behavioral changes

Consequences:
• Changes in customer behavior
• Customers have more power relative to vendor as their
technological aptitude and product knowledge continue to
increase
Changes with respect to the Marketplace
• More intense competition between firms for customers

• Fragmentation of markets

• Diminishing product-quality differentiation

Consequences
− Value added to customers by offering customized product

and service propositions

– To maintain market share, need to realign business strategy

to become customer-centric
Changes with respect to Data Storage Technology
• Better technology, cheaper and larger storage units
• Huge increase in demand for data storage
• Increased popularity of data warehouses
Consequences
– Better information about customer behavior and attitudes
– Better prediction of customer buying behavior
– Too much data can lead to misapplication and wrong analysis
Changes with respect to Marketing Function

• Decreasing market efficiency and effectiveness

• Media dilution and multiplication of channels
Consequences
– The shift from a one sided unilateral conversation between the
firm and the customer to a multilateral conversation between
several customers an
– Marketing in danger of being restricted to advertising and
media planning
Implications of changes in business environment

• Greater demand for learning about

– Customer preferences
– Product and service customization

• Focus on customer-centric instead of product-centric

strategies
Data Based Customer Value management
• To satisfy increasing customer heterogeneity

• To address concerns of marketing accountability

• To put available data to use

• To use customer profitability as the key objective function

The benefit of customer value
management approach
• Integrate and consolidate customer information
• Provide consolidated information across all channels to assist in
timely and relevant communication with customers
• Manage customer cases
• Personalize the service and products offered to each customer to
meet expectations
• Automatically and manually generate new sales opportunities
• Provide flexibility to adapt campaigns to take changes in customer
behavior or information into account
The benefit of customer value
management approach
• Yield faster and more accurate follow-up on sales leads,
referrals and customer enquiries
• Manage all business processes by introducing a central point of
control ensuring all business processes are executed in
accordance with correct and effective business rules

• Give top managers a detailed and accurate picture of all sales

and marketing activities
• Instantly react to a changing business environment
Evolution and growth of CRM
Evolution and growth of CRM
Summary
• From a strategic perspective, CRM is the process of selecting the
customers a firm can most profitably serve and shaping the
interactions between a company and these individual customers.
• Assessing Customer Value is critical to CRM.
• Rapid changes are taking place in the environment in which firms
operate with respect to customers, market places, technology, and
marketing functions.
• These changes have driven the marketplace to become
relationship-based and customer-centric
• CRM’s goal is to optimize the current and future value of the
customers for the company.
Chapter 2: Concepts of Customer Value

1. Value to the Customer

2. Value to the Company
i. From Value for Customers to Value
from Customers: The Satisfaction-Loyalty-
Profit Chain
ii. Extending the Concept of Customer Value
 Value to the Customer

• A company’s very
existence is based on
the premise that it
creates value for its
customers.
• What is value from a customer’s point of view?
• In classical economic theory, customers strive to
maximize utility, i.e. they choose the product/service
that delivers them the highest value.
• In marketing concept: customer perceived value
Customer perceived value

• A perceived value refers to the perspective or opinion of a

customer towards a product or service which is often
influenced by how the goods and services met the needs and
expectations of the customer.
• Perceived value is otherwise called customer-perceived value, it
is how a customer evaluates or rates a product or service when
compared to other similar products.
• Perceived customer
value can be
deconstructed into
perceived benefits
and perceived
costs.
A core function and
capability of CRM is its
ability to influence a
customer’s perceived
value of the company’s
offering.
Value to the Company
i. From Value for Customers to Value from Customers:
The Satisfaction-Loyalty-Profit Chain
ii. Extending the Concept of Customer Value
From Value for Customers to Value from Customers:
The Satisfaction-Loyalty-Profit Chain (SPC)
• The SPC is a key concept in the realm of customer
management as it links CRM activities to profits.
• The key underlying idea is that improving product and
service attributes will lead to an improvement in
customer satisfaction.
• Increased customer satisfaction, i.e. increased value for
the customer is expected to lead to greater customer
retention, which is often used as a proxy for customer
loyalty, which then is expected to lead to greater
profitability or value from the customer.
The Direct Link Between
Customer Satisfaction and Profits

• Customers experience greater satisfaction with a firm’s offering,

profits rise.
• In addition, increasing customer satisfaction leads, in many
cases, to an adaptation of expectation levels; consumers quickly
get used to a better service level without necessarily rewarding
the firm with additional purchases.
• Firms need to conduct longitudinal satisfaction studies to
investigate changes in customer satisfaction over time and link
them to improvements in their offering.
The Link Between Satisfaction and Retention

The data show the link

between satisfaction and
retention is asymmetric:
Dissatisfaction has a
greater impact on
retention than satisfaction.
The variable link between satisfaction and retention
The variable link between satisfaction and retention

• Firms should thoroughly investigate the nature of the link for a

specific industry, category, or segment.
• Firms must account for the attractiveness of alternatives in
addition to what they offer.
• Another aspect to consider is that the link might change,
depending on the measurement employed for the loyalty
measured.
The Link Between Loyalty and Profits

Long-term customers supposedly do the following:

• Spend more per period over time.
• Cost less to serve per period over time.
• Have greater propensity to generate word-of-mouth
customers.
• Pay a premium price when compared to that paid by
short-term customers.
The Link Between Loyalty and Profits
• It is important for companies not only to have a loyal
customer base but also to have an active or engaged
customer base.
Extending the Concept of Customer Value
Extending the Concept of Customer Value

• Customer Lifetime Value (CLV): the present value of

future profits generated from a customer over his or her
life of business with the firm
• Customer equity (CE) is the total combined customer
lifetime values of all of the company's customers. It is
calculated by multiplying the number of customers by the
average value of each customer.
Extending the Concept of Customer Value

• Customer Influencer Value (CIV): form of value that is

well established in research and management in the
form of word of mouth (WOM), (customers sharing
information and knowledge)
• Customer Referral Value (CRV): similar to CIV in
some respects as it captures the value a customer
generates from the referral of new customers
• Customer Knowledge Value (CKV): the value of the
information that a customer provides a company with
(contrary to information that a customer provides to
other customers or prospects which constitutes CIV)
Summary
• Delivering value to customers is key for companies to stay
relevant in an increasingly competitive market environment with
increasingly demanding customers.
• A customer’s value perception of an offering is a consequence
of the offering’s attributes.
• The perception of benefits and costs and, hence, the perceived value is
heterogeneous and volatile – across and within individuals.
• Attributes are not perceived individually but customers will form a
composite perception of the attributes offered.
• Attributes may be objective or perceived and their effect on value
perception may be direct or indirect and may be immediate or delayed.