Customer Relationship Management

Using Salesforce

Week 2 – Understanding the Customer

CRICOSCRICOS Provider
Provider No.No. 00103D
00103D
Learning Points

• Customer Journey
• Customer Acquisition
• Customer Retention
• Customer Development
• Customer Experience
• Customer Complaints
The IDIC model of CRM
Identify who your customers are and build a deep understanding of them
Differentiate your customers to identify which customers have most value now and which offer
most for the future.
Interact with customers to ensure that you understand customer expectations and their
relationships with other suppliers or brands
Customize the offer and communications to ensure that the expectations of customers are met.
Companies want relationships with customers
Why?
• because companies that manage their customer base in order
to identify, satisfy and retain profitable customers enjoy
better business results
• reduced customer churn creates
• A larger customer base
• Longer average customer tenure
• Reduced marketing costs to replace defected customers
• Better understanding of customer requirements
• More cross-selling opportunities
Defining ‘relationship’
A relationship is composed of a series of interactive episodes between parties over time.
Episodes are time bound (they have a beginning and an end) and are nameable.
Episodes are composed of a series of interactions. Interaction consists of action, and response
to that action.
Is a relationship more than interaction-over-time?
• What about emotional content ? Do relationships have some
type of affective connection, attachment or bond?
Impact of churn on customer numbers

Company A (5% churn) Company B (10% churn)

Year
Existing New Total Existing New Total
customers customers customer customers customers customer
base base

1 1000 100 1100 1000 100 1100

2 1045 100 1145 990 100 1090

3 1088 100 1188 981 100 1081

4 1129 100 1229 973 100 1073

5 1168 100 1268 966 100 1066

Connecting customer retention to customer tenure

Customer retention rate (%) Average customer tenure

50 2 years
67 3 years
75 4 years
80 5 years
90 10 years
92 12.5 years
95 20 years
96 25 years
97 33.3 years
98 50 years
99 100 years
Organisational benefits from managing customer
retention
Reduced marketing costs
• Fewer dollars need to be spent replacing churned customers
Better customer insight
• Suppliers are able to develop a better understanding of
customer requirements and expectations. Customers also
come to understand what a supplier can do for them.
• Consequently, suppliers become better placed to identify and
satisfy customer requirements profitably, selling more
product and service to the retained customer.
• Over time, as relationships deepen, trust and commitment
between the parties is likely to grow, and revenue and profit
streams from customers become more secure.
The Customer Journey
Suspect Does the potential customer fit your target market
profile?
Prospect The customer fits the target market profile and is
being approached for the first time.

First-time The customer makes a first purchase.

customer
Repeat The customer makes additional purchases. Your
customer offer plays a minor role in the customer’s portfolio.

Majority The customer selects your company as supplier of

customer choice. You occupy a significant place in the
customer’s portfolio.
Loyal customer The customer is resistant to switching suppliers,
and has a strong positive attitude to your company
or offer.
Advocate The customer generates additional referral dollars
through positive word-of-mouth.
Three stages of the customer life cycle
Customer acquisition
Customer retention
• aims to keep a high proportion of current customers by
reducing customer defections
Customer development
• aims to increase the value of those retained customers to the
company
Key customer acquisition questions
Which prospects (potential new customers) will be targeted?
How will these prospects be approached?
What offer will be made?
Two types of new customer
New-to-category customers
• are customers who have either identified a new need or have
found a new category of solution for an existing need.
New-to-company
• are customers are won from competitors.
Other tools for customer acquisition
Referrals
Events
Shows
Publicity
Telemarketing or cold canvassing
SMS campaigning
Email campaigning
Product placement and integration
Pitching
Operational CRM tools that help customer acquisition
lead management
• The lead management process includes a number of sub-
processes, including lead generation, lead qualification, lead
allocation and lead tracking
campaign management
• Campaign managers design, execute and measure marketing
campaigns with the support of CRM technologies.
Sometimes these are multi-media campaigns across direct
mail, email, fax, outbound telephony, and SMS platforms
event-based marketing
• EBM provides companies with opportunities to approach
prospects at times which have a higher probability of leading
to a sale, e.g. important life-stage events
CRM analytics supports customer acquisition
Operational CRM tools have to be supported by sound analytics to ensure that the right offer is
made to the right prospect through the right channel at the right time.
It is often possible to query current customer-related databases for clues to guide customer
acquisition.
Generic goals of customer retention & development
Customer retention: to keep a high proportion of valuable customers by reducing customer
defections (churn).
Customer development: to increase the value of those retained customers to the company.
Simple customer retention definition
Customer retention is the number of customers doing business with a firm at the end of a
financial year expressed as percentage of those who were active customers at the beginning of
the year.
The appropriate time frame
Depends on re-purchase cycle found in the industry.
• Insurance policies are renewed annually
• If the normal replacement cycle is four years, then retention
rate is more meaningful if it is measured over four years
instead of twelve months
Can you tell if a customer has defected?
May not be able to measure retention and defection if you have
• Product-based views of customers
• Channel-based views of customers
• Separate customer records in sales, marketing and service
Three measures of customer retention

Raw customer retention rate.

• the number of customers doing business with a firm at the end of a trading period
expressed as percentage of those who were active customers at the beginning of
the period.
Sales-adjusted retention rate.
• the value of sales achieved from the retained customers expressed as a percentage
of the sales achieved from all customers who were active at the beginning of the
period.
Profit-adjusted retention rate.
• the profit earned from the retained customers expressed as a percentage of the
profit earned from all customers who were active at the beginning of the period.
Retention issues
Retention measures should be made with an understanding of customer
profitability issues
The fundamental purpose of focussing CRM efforts on customer
retention is to ensure that the company maintains relationships with
strategically significant customers.
It may not be beneficial to maintain relationships with all customers.
Some are
• too costly to serve
• strategic switchers constantly in search of a better deal
• not strategically significant in roles such as benchmark, door opener, inspiration
or technology partner
Customer retention vs. value retention
Companies should focus on retaining customers that contribute value.
Sometimes this will mean that the focus is not on retention of customers, per se, but on retention
of share of wallet.
• In the banking industry, for example, it may be more
important for companies to focus on managing the overall
downward migration of customer spending than customer
retention. Many customers simply change their buying
behavior rather than defect.
The economic argument for customer retention
Purchases grow as tenure grows
Customer management costs fall over time
Customer referrals grow
Premium prices
• Customers who are satisfied in their relationship may reward
their suppliers by paying higher prices.
Which customers to retain?
Strategically significant customers
• High life-time value customers
• High volume customers
• Benchmarks
• Inspirations
• Door openers

But… these may also be attractive to your competitors

Which Customers are strategically significant?
High future life-time value customers.
• These customers will contribute significantly to the
company’s profitability in the future
High volume customers.
• These customers might not generate much profit, but they are
strategically significant because of their absorption of fixed
costs, and the economies of scale they generate to keep unit
costs low
Which Customers are strategically significant?
Benchmark customers.
• These are customers that other customers follow. For
example, Nippon Conlux supplies the hardware and software
for Coca Cola’s vending operation. Whilst they might not
make much margin from that relationship, it has allowed
them to gain access to many other markets. ‘If we are good
enough for Coke, we are good enough for you’, is the
implied promise. Some IT companies create ‘reference sites’
at some of their more demanding customers.
Which Customers are strategically significant?
Inspirations.
• These are customers who bring about improvement in the
supplier’s business. They may identify new applications for a
product, product improvements, or opportunities for cost
reductions. They may complain loudly and make
unreasonable demands, but in doing so, force change for the
better.
Door openers.
• These are customers that allow the supplier to gain access to
a new market. This may be done for no initial profit, but with
a view to proving credentials for further expansion. This may
be particularly important if crossing cultural boundaries, say
between west and east.
Commitment and retention
The level of commitment between your customer and you will figure in the decision about which
customers to retain.
• If the customer is highly committed, i.e. impervious to the
appeals of competitors, you do not need to invest so much in
retention.
• If strategically significant customers are not committed to
you, you may want to invest considerable sums in their
retention
Why focus on newly acquired customers?
New customers may have greater future life-time value potential than longer tenure customers.
• evidence suggests that retention rates rise over time, so if
defections can be prevented in the early stages of a
relationship, there will be a pay-off in future revenue streams
Two basic strategies for customer retention
Negative and positive customer retention strategies
• Create exit barriers
• Enforce the contract
• Extract switching penalties

• Delight customers
• Create customer-perceived added value
• Create social and structural bonds
• Create customer engagement
Build customer engagement
Engaged consumers are generally thought to have a higher intensity of participation in and
connection to a brand or organization.
They feel a strong sense of connection to the organization or brand based on their experiences
of the firm’s offerings, activities and reputation.
4 types of engagement
1. cognitive engagement
2. affective engagement
3. behavioural engagement
4. social engagement
Building engagement
Interactivity
• Gamification
Relational attachment
Values-based attachment
Values defined

Values are core beliefs that transcend context

and serve to organise and direct attitudes
and behaviours
Values-based attachment
Body Shop International
Harley Davidson
Virgin Group
Context makes a difference to customer retention
strategies
Number of competitors
Corporate culture
Channel configuration
Purchasing practices
Ownership expectations
Ethical concerns
KPIs for customer retention programs
1. Raw customer retention rate.
2. Raw customer retention rate in each customer segment.
3. Sales-adjusted retention rate.
4. Sales-adjusted retention rate in each customer segment.
5. Profit-adjusted retention rate.
6. Profit-adjusted retention rate in each customer segment.
7. Cost of customer retention
8. Share of wallet of the retained customers
9. Customer churn rate per product category, sales region or channel.
10. Cost-effectiveness of customer retention tactics.
The role of research
Why are customers churning?
Are there any lead indicators of impending defection?
What can be done to address the root causes?
Two main strategies for customer development
Cross-selling is selling additional products and services to an existing customer.
 
Up-selling is selling higher priced or higher margin products and services to an existing
customer.
CRM technologies used for customer development
Campaign management
Event-based marketing
Data mining
Customization
Channel integration
Integrated customer communications
Marketing optimization
Strategies for terminating customers
Make them profitable by raising prices or cutting the cost to serve.
Un-bundle the offer
Respecify the product
Reorganise sales, marketing and service departments
Introduce ABC class service
A typology of companies’ termination behaviours
Hardliners
• take an active and rigorous stance in terminating
unprofitable relationships, including the regular clearance of
their customer portfolio.
Appeasers
• take a more cautious approach concerning the termination of
unprofitable relationships
The undecided
• are reluctant to terminate unprofitable relationships
Seven core customer management strategies
1. Protect the relationship
2. Re-engineer the relationship
3. Grow the relationship
4. Harvest the relationship
5. End the relationship
6. Win-back the customer
7. Start a relationship
The satisfaction-profit chain

Customer Customer Business

satisfaction loyalty performance

Understand customer requirements Revenue growth

Meet customer expectations Behavioural loyalty Share of customer
Deliver customer value Attitudinal loyalty Customer tenure

Figure 2.6
Customer satisfaction defined
Customer satisfaction is the customer’s fulfilment response to a customer experience, or some
part thereof.
 Returns from investments in customer satisfaction
High
repeat purchase rates

Low

1 2 3 4 5 6 7
not at all
satisfied
customer satisfaction level very satisfied
Figure 2.10
Loyalty
Layered model of Customer Experience

Figure 7.4
Customer experience concepts
Touch point
• Touch points exist wherever customers come into virtual or
concrete contact with a company’s products, services,
communications, places, people, processes or technologies
Moment-of-truth
• Moments of truth occur during customer interactions at
touch-points. These are the moments when customers form
evaluative judgements, positive or negative, about their
experience.
Customer engagement
• Engaged customers are more committed to the brand or firm
than customers who are just satisfied
Four forms of customer engagement 1
Cognitive
• does the customer know our brand values? Does the
customer know about our sustainability awards? Does the
customer know the name of our local sales rep?
Emotional
• does the customer like the experience offered by our firm?
Does the customer prefer our offerings to our major
competitors? Is the customer excited about our new product
launch? Customers who are engaged might express a sense
of confidence, integrity, pride, delight or passion in the
brand.
Four forms of customer engagement 2
Behavioural
• how often does the customer visit our website? How long
does the customer dwell on the website? Does the customer
click through to our newsletter?
Social
• has the customer used our Recommend-a-Friend program?
Does the customer ‘like’ our Facebook page? Does the
customer join our Twitter conversation?
4I’s engagement measures
Desired customer experience outcomes
Companies that consciously design customer experience want to evoke strong, positive
engagement.
Such engagement might be expressed in a sense of confidence, integrity, pride, delight or
passion
How to understand customer experience
Mystery shopping
Experience mapping
Ethnographic methods
Participant observation
Non-participant observation
Key questions for customer experience managers
1. What sort of outcomes do our customers want to experience?
2. What is the current customer experience?
3. What tools and strategies are available to close any gap between current and desired
experience?
4. How can we measure whether we have succeeded?
CRM’s connection to CX
The way CRM tools are used influences CX at moments of truth.
Not every CX program used CRM tools.
Appropriate, well-deployed CRM tools can enhance CX
Features of CRM applications that improve CX
Usability
Flexibility
High performance
Scalability
Complaints-handling process
A successful complaints handling process enables companies to capture customer complaints
before customers start spreading negative word-of-mouth or take their business elsewhere.
Research suggests that negative word-of-mouth can be very influential. Up to two-thirds of
customers who are dissatisfied do not complain to the organisation. They may, however,
complain to their social networks.
Unhappy customers are likely to tell twice as many people about their experience than
customers with a positive experience.
Why don’t unhappy customers complain?
They feel the company doesn’t care. Perhaps the company or the industry has a reputation for
treating customers poorly
It takes too much time and effort
They fear retribution. Many people are reluctant to complain about the police, for example
They don’t know how to complain.
Complaint-handling tips
A well-designed complaints-handling process will capture complaints from various touch-points,
then aggregate and analyse them to identify root causes.
This should enable the company to achieve a higher level of first-time reliability, reduce the
amount of rework, and lift levels of customer satisfaction and retention.
An international standard – ISO 10002 – has been released to help companies identify and
implement best practices in complaints policy and process.
Software is available to help companies improve their complaints-handling expertise
Improving the complaints management process
1.Make the complaints-handling policy and processes visible and accessible to customers and
employees
2.Design your complaints-handling policy and processes to ISO 10002 standards
3.Enable web-based complaints capture
4.Empower employees to resolve complaints
5.Install a dedicated free-phone line to receive complaints
6.Link complaints to customer satisfaction and retention goals
7.Appoint a complaints management executive
8.Teach customers how to complain; publish your process
9.Ensure all employees understand the complaints management process
10.Reward customers who complain
11.Collect complaints data and analyse root causes
12.Use technology to support complaints-handling and deliver useful management reports