Customer Relationship

Management Process
L3
 Definitions …

CRM is “the development and maintenance of mutually beneficial

long-term relationships with strategically significant customers”
(Buttle, 2000)

CRM is “an IT enhanced value process, which identifies, develops,

integrates and focuses the various competencies of the firm to the
‘voice’ of the customer in order to deliver long-term superior
customer value, at a profit to well identified existing and
potential customers”.
(Plakoyiannaki and Tzokas, 2001)
 Definitions …

• In a B2B environment , customer

relationship management is the supply
chain management process that provides
the structure for how relationships with
customers are developed and maintained.
– Profit growth
– Customer loyalty
– Customer satisfaction
– Value of goods delivered to customers
 Definitions …

The process of integration of sales, marketing,

service and support strategy, process,
people and technology to maximize customer
acquisition, value, relationships, retention
and loyalty.
• A Redesigning of your Business from the Outside In.
• Customers, Data and Database at the Center of your
Organization (Customer-centricity).
• A organization-wide single customer view.
• A Foundation for “1to1 Marketing: Treating Different
Customers Differently” (Single Ticket Buyer vs. Subscriber)
• A Means to Your Total Customer Development Ends.
 CRM
• It typically costs 5-10 times as much to acquire a new customer as it does to
retain an existing one.
• “Some companies can boost profits by almost 100% by retaining just 5%
more of their customers.” Harvard Business Review (Reicheld & Sasser)
• A recent McKinsey study showed that the average new customer spends
$24.50 at a given web site in the first 3 months as a shopper. The average
repeat customer spends $52.50 every 3 months.
• Most companies lose 50% of their customers in 5 years (Harvard University)
• On average only 15% of a site’s customers consider themselves loyal to it.
The loyalty rating among people who had experienced a problem was only
6%. Customers who had not experienced problems indicated a customer
loyalty rating of 19%. The loyalty rating among customers who had
experienced problems but were satisfied with the way they were handled:
21%. (Digital Idea)
• 70% of repeat purchases are made out of indifference to the seller, NOT
loyalty. (eLoyalty)
• The web customer is ‘only 1 click away from your competition’.
 CRM: The Business Focus

Benefits and Challenges of CRM

• Identify and target the best customers
• Customization and personalization of products and
services
• Track customer contacts
 CRM: The Business Focus
Telstra Corporation: The Business Value of CRM

• Provides fixed, wireless, and e-Commerce

services to customer base in 19 countries
• Offers voice, data, internet, multimedia and
communications services
• Sought CRM solution to integrate more than 20
core legacy databases across the system
• Benefits quickly followed
• Reduced training time
 CRM: The Business Focus

CRM Failures
• 50% of applications fail to meet
expectations
• 20% of the time CRM damaged customer
relationships
• Lack of understanding and preparation is
blamed
 CRM: The Business Focus
Gevity HR and Monster.Com: Failures in CRM
Implementation
• Employees undercut the system believing their jobs
threatened by CRM on-line customer problem
solutions.
• Complex installation since it touches so many
legacy systems
• Failures lead to loss of customer goodwill and
business and negatively affects employees also
 CRM - Critical Business Process

• Competitive pressures
• Need to achieve cost efficiency
• Inequality in profitability
• Inequality in terms of knowledge
• Customer retention
 CRM as SCM

• Customer relationship management and

supplier relationship management provide
the critical linkages throughout the supply
chain .
– Change in profitability of a customer /segment
of customers.
 CRM as SCM process

• CRM process has strategic and operational

elements
• Strategic process
– In strategic process the firm establishes and
strategically manages the process
– Management team
– Develop and implement strategic procedures
• Operational process
– Operational process is the actualization of process
once established.
– Customer team
 Customer Relationship Management
Strategic Sub-Processes Process Interfaces Operational Sub-Processes

Review Corporate
Customer Service Differentiate Customers
and Marketing Strategy
Management

Prepare the Account/Segment

Demand Management Management Team
Identify Criteria
for Categorizing Customers

Internally Review the Accounts

Order Fulfillment

Provide Guidelines for the Identify Opportunities

Degree of Differentiation in the Manufacturing Flow
with the Accounts
Product/Service Agreement Management

Develop the Product/Service

Supplier Relationship
Agreement
Management

Develop Framework for Metrics

Product Development Implement the Product/service

Agreement
& Commercialization

Develop Guidelines for Sharing

Measure Performance and
Process Improvement Benefits Returns Management Generate Profitability Reports
with Customers

Source: Keely L. Croxton, Sebastián J. García-Dastugue, Douglas M. Lambert, and Dale S. Rogers, “The Supply Chain Management Processes,” The International Journal of Logistics
Management, Vol. 12, No. 2, 2001, p. 15.
 Strategic CRM Process……..
• Developing and managing relations with
customers
• Align functional expertise from the supplier and
customer to support other processes.
• Consists of five sub-processes
– Review corporate and marketing strategies
– Identify criteria for segmenting customers
• Profitability, growth potential , volume, competitive
positioning issues , access to market knowledge , market
share goals, margin levels, level of technology, resources
and capabilities, compatibility of strategies..
– Provide guidelines for degree of differentiation in PSA
 Strategic CRM Process
Process interfaces Strategic sub-process Activities

• a Review Corporate •Identify markets and target segments

Customer Service and Marketing Strategy
Management

• Choose app . Criteria

Demand Management -Profitability - Margin
Identify Criteria -Growth - technology
for Categorizing Customers -Volume -resources
-Comp. positioning - compatibility
Order Fulfillment -Market knowledge -trade channel
-Market share goals -buying behavi

Provide Guidelines for the

• consider revenue/cost implications
Manufacturing Flow Degree of Differentiation in the of the various differentiation alternatives
Management Product/Service Agreement •Select boundaries for degree of differen

Supplier Relationship
Management • outline metrics of interests
Develop Framework for Metrics •Relate metrics to the customer’s impac
on profitability and profitability for the c
Product Development
& Commercialization

Develop Guidelines for Sharing •Outline options for sharing the

Returns Management Process Improvement Benefits benefits of process improvement
with Customers
 Strategic CRM Process
- Develop framework of metrics
- Outline the metrics of interest and relating them to the
customer’s impact on the firm’s profitability as well as
the firm’s impact on customer’s profitability
- CRM affects the firm’s financial performance as
measured by EVA

It is the goal of SCM to encourage actions that

benefit the whole SC while at the same time
equitably sharing in the risks and rewards.
 How Customer Relationship Management Affects Economic Value Added (EVA)

Customer Relationship Management’s Impact

Sales
Strengthen relationships with profitable customers
Sell higher margin products
Improve share of customer
Improve mix
_
Gross
Margins
Profit
From Cost of
Operations Goods sold

improve plant productivity

Net Profit
_
Improve targeted marketing efforts
_ Total Improve trade spending
Expenses Eliminate or reduce services produced to low profit customers
Taxes
Economic
Optimize physical network
Value Leverage new/or alternate distribution channels
Added Reduce customer service and order management costs
Reduce HR costs/improve effectiveness
= Reduce general overheads / mngt /admin costs

Inventory
Current
Assets Improve demand planning
_ Reduce safety stock
Make to order, mass customization of inventories
Capital Charge
+
Cost of Total Other
Capital Assets + Current
Assets
Fixed
Reduce accounts receivable
% x Assets

Improve asset utilization and rationalization

Improve prod. Development and asset investment
Improve investment planning and development
 Customer Profitability Analysis :A contribution
approach with charge for assets employed
Customer
Customer AA Customer
Customer BB Customer AC Customer
Customer Customer AD

Net Sales
Cost of Goods Sold (Variable Manufacturing Cost)

Manufacturing Contribution

Variable Marketing and Logistics Cost

Sales Commissions
Transportations
Warehousing (Handling in and out)
Special Packaging
Order Processing
Charge for Investment in Accounts Receivable

Contribution Margin

Assignable Nonvariable Costs:

Salaries
Segment Related Advertising
Slotting Allowances
Inventory Carrying Costs

Controllable Margin

Charge for Dedicated Assets Used

Net Margins
 Strategic CRM Process

– Guidelines for sharing process improvement benefits

with customers
• Agreement on fair allocation of benefits
• Timeframe for benefit sharing
• Decision on benefits/costs include
• Accurate baseline to use as a starting point for measuring
savings
• Benefit review and approval procedures
• Mechanics to accrue for and transfer values

Determine gain sharing at the outset so it does not undermine

joint objectives.
 Operational CRM Process

• Deals with writing and implementing the

PSAs
• Consists of seven sub-processes :
– Segment customers
- current and potential profitability
- competitive positioning, market knowledge ,
market share/goals/penetration , margin,
technological capabilities, resources ,
compatibility , class of trade…
 Operational CRM Process
Process Interfaces Operational-sub processes
• a Customer Service
Management
Demand Management
Order Fulfillment
Manufacturing Flow
Management
Supplier Relationship
Management
Product Development
& Commercialization
Returns Management
Differentiate Customers
Prepare the Account/Segment
Management Team
Internally Review the Accounts
Identify Opportunities
with the Accounts
Develop the Product/Service
Agreement
Implement the Product/service
Agreement
Measure Performance and
Generate Profitability Reports
Activities
•Analyze customer profitability
•Evaluate potential growth
•Document segments
•Identify sales persons to be
account/sales managers
•Select team members
•Review prod. Purchase
•Review sales growth
•Review positioning in industry
•Identify sales opportunities
•Identify cost reduction opportunities
•Identify service improvement opport
•Outline and draft PSA
•Gain commitment of the company’s
•Present PSA to account for acceptan
•For key customers, repeat until they
•Agree on a communication and cont
•Develop and follow implementation
•Meet regularly with key customers
•Measure by customer and for the cu
-revenue -costs
-profitability - others
•Report performance
 Customer segmentation based on
Pretax profit contribution

• a
Segment Percentage of Accounts Percentage of Pretax Earnings

Platinum 8.4% 65%

Gold 17.1% 25%

Silver 18.2% 11%

Bronze 22.0% 5%

Lead (Unprofitable) 34.3% -6%

Total 100% 100%

 Operational CRM Process
- Prepare the account/segment management
team
- Teams are cross-functional
- Internally review the accounts
- To determine products purchased, sales growth and
position in industry
- Establish link b/w understanding customer’s priorities
and firm’s profitability
- Identify opportunities with the accounts
- Customer’s needs, behavior, decision making
process, price sensitivities, preferences
- Priorities being ignored
 Operational CRM Process
- Develop PSA
- Agreement that matches the requirements of the
customer with the capabilities of the firm and the
firm’s profit goals for the customer.
- Implement PSA
- Measure performance and generate profitability
reports
- To measure and sell the value of relationships to each
customer and internally to upper management.
- Measured in terms of costs, impact on sales,
associated investment…
 CRM Processes / Mapping

• Re-examine all of your customer

management business processes.
• Re-/define where CRM provides the
greatest value to your “best” customers
and your organization.
- Don’t “repave the cow paths”
• Incrementally implement CRM to improve
top targeted processes.
- Ex. Subscription Renewal processes