University of Washington MBA Program

1. University of Washington MBA Program Managing Customer Relationships through Direct Marketing “Relationship Marketing & CRM Intro ” Instructor: Elizabeth Stearns

2. Relationship Marketing • Marketing on the Differences • Marketing with a Memory • Demassifying the Communications Process • Customizing Communications and Products/Services

3. Relationship Marketing Attributes • Evolutionary process, not an event • Experience-based, not transaction-based • Mutually beneficial, two way • Emotional and/or logical appeals

4. Relationship Process Measurement On-going Dialogue Database Support CommunicationObjectives Customer Segmentation Brand Equity / Promise

5. Relationship Marketing • Relationship marketing recognizes that prospects and customers can be at different points of awareness, interest and intent-to-buy along the prospectivity continuum • Persuasion is a process: Dialogue precedes purchase/engagement for most products and services

6. Model of Market Prospectivity Unaware Vague Awareness Category Familiarity Brand Familiarity Passive Consideration Active Interest Purchase Usage

7. Understand Your Customers • Their Demand for Your Product or Service • Their Changes over Time • Their Growth Needs • Their Technology/Personal Service Conundrum • Their Available Choices for Solutions Their Value to You!

8. Some Customers are Worth More! $$ $$$ $$$$ $$ $$ $ $$ $ $$ $ $$ $$ $$$$ $$$ $$

9. Brand Relevance to Customers “To enhance customer loyalty, a company must strengthen the relationship with the brand” “A focus on loyalty segmentation provides strategic and tactical insights that assist in building strong brands” David Aaker, “Building Strong Brands”

14. Customer Loyalty • Reduced or No Desire to Switch • Increased Perception of Value / Quality • Reduced Risk of Buying (More) • Trial New Products or Services

15. Customer Loyalty • Feels Recognized and Special • Volunteers Information • Positive Word of Mouth / Recommends to Others

16. Satisfaction=Performance minus Expectations

17. Make Surveys Count! “One of my customers cornered me at a charity board meeting and told me, “I got a call after I picked up my car asking if I was satisfied with the sales experience. Then I got a call after the car was serviced, asking if I was satisfied with the service experience. Finally, another surveyor called several weeks later to check if I was happy with the ownership experience. So when am I going to get a call asking if I’m satisfied with the satisfaction survey experience?”” Reichheld, The Loyalty Effect

18. Why Relationship Marketing?

19. Economic Value to Keeping Customers 2% Retention equals approximately 10% reduction in costs

20. Why Customers Are More Valuable Over Time Price Premium Referrals Company Profit Reduced Operating Costs Increased Purchases & Higher Balances Base Profit Customer Acquisition Cost Time • Profit Comes from Different Sources Reichheld & Sasser, Jr.

21. Profit Improvement from 5% Increase in Retention Software Office Building Mgt. Industrial Laundry Industrial Distrib. Insurance Brokerage Credit Insurance Credit Card Business Banking Auto Service Percent Increase in Annual Profits Bain & Company

22. Calculating Customer Value- Credit Card Customer Profit Growth at 90 Vs 95 Percent Retention Rates 95% Retention Rate 90% Retention Rate Pretax Profits (Millions) Year • Translating the Numbers: Earnings Grow More Rapidly Reichheld, The Loyalty Effect

23. Calculating Customer Value- Credit Card Customer } 75% Increase • 5% Increase in Retention Results in a 75% Increase in Customer Value Reichheld, The Loyalty Effect

24. Relationship Marketing Can Increase Lifetime Value • Increase the retention rate • Increase the referral rate • Increase the spending rate • Decrease the direct costs • Decrease the marketing costs

25. What is lifetime value? • Net present value of the profit to be realized on the average new customer during a given number of years • Lifetime value is “Good Will” • To compute it, you must be able to track customers from year to year

26. What is the proper computation period? • Which is the correct lifetime value? 1, 2, 3, 4, 5 or more years? • They are all correct. Which you use depends on your product or service. • Long lifetimes: banks, insurance, utilities, automobiles • Short lifetimes: discount houses, package goods, catalogers

27. Computing LTV Groups • Compute LTV for groups of customers • Firm Value = LTV times customers • Devise different programs for each group • Estimate improved firm value based on better targeting of benefits and marketing programs

28. Lifetime Value as Information Powerhouse • Lifetime Value more important measure of success than the stock value • Put Retention and Referral rates and LTV on the CEO’s desk every month • A new way of thinking--long term thinking--about business success

29. Continuous revenue relationship marketers have an expanded vocabulary with meanings unique to their world. Retention Winback Enrollments Defection Churn Open Active Enrollees Cancel Lapsed Enrollment Attrition Live Add-on Services Marketing Allowables But do not use common Single Order terms such as: Returns Average Order Size Out-of-stock Sales per thousand contacts Circulation Break-even Source: Kestnbaum

30. There are two distinct ends to the marketing spectrum with only a few relationships in the somewhat gray middle. Source: Kestnbaum

32. CRM

33. The CRM Goal Individual Permission – Based Interaction

34. The CRM Process Acquire & Retain Interact & Deliver CRM Understand & Differentiate Develop & Customize

35. Customer Experience Cycle Customer Understanding

36. Customer Experience Cycle Customer Purchase Cycle Customer Understanding • Stages of the Purchase Cycle • Length of each Stage • Related Complexity of Each Stage • Indicators of When a Customer Enters a Stage • Frequency at Which a Customer Repeats the Cycle • Level of Resources Directed at Each Stage

37. Customer Experience Cycle Customer Needs Customer Understanding • Information • Convenience • Efficiency • Price • Reputation • etc.

38. Customer Experience Cycle Customer Interaction Opportunities Customer Understanding • Tied to specific stages of the purchase cycle. • Inbound and outbound. • Cross-channel and cross-media. • Situation-driven or driven by a deeper understanding of customer needs and behaviors

39. Marketing Communications Customer Satisfaction Field Sales Corporate Comm./ Public Relations Point of Sales/ Service Customer Understanding Customer Value Advertising Call Center Web Customer Care Customer Loyalty

40. CRM Transformation Map

41. CRM Implementation • Situation Assessment • Internal evaluation of your capabilities • External evaluation of the customer’s experience with your org. • CRM Gap Analysis • Comparison between an organization's current state and the desired state. It is essential to define the desired customer experience. • CRM Action Plan • Cost to implement • Benefit • Feasibility (organizational readiness, senior management acceptance, etc.) • Time

42. The Strategy Development and Implementation Process Contention Project Planning Differing Perspectives Consensus Execution Program Formulation Marketing Strategy Formulation Finance Human Resources R&D Operations Creativity Coordination Sales

43. Designing Offers for Customers Product Price Time Effort Risk Delivery Services Sales Relation- ship Technical Innovation Brand Equity Value Cost Offer

44. A Business Focus on Customers Means: • The organization's primary focus is on acquiring, deepening, and retaining customer relationships. • The business model is based on optimizing value delivered to customers to maximize value received from them. • Customers are at the core of the organization's value system, and the unifying force across business units and functions.

45. Organizing around CRM • Appoint segment managers, each responsible for acquisition, development, and retention of their customer segment. • Create a cross-functional Customer Relationship department, which will ensure that CRM strategies are successfully implemented across the organization • Implement staff training, performance measurement and compensation based on CRM

46. Customer Metrics • Customer Revenues • Who are the top customers in terms of revenue? • Are revenues from any customer segment increasing or decreasing? • Customer Satisfaction • For which customer segments has satisfaction increased or decreased? • How do satisfied customers differ from dissatisfied customers? • Customer Loyalty and Value • How can we increase customer profitability? • What drives loyalty for our most profitable customers? How can we increase customer loyalty? • Which prospects should our organization focus on in order to “clone” our best customers?

47. Developing Customer-Focused Metrics and Analyses • Collect the Right Customer Data • Increase Your Customer I.Q. • Customer Profiling • Customer Segmentation • Customer Valuation • Profitability • Lifetime Value • Share of Wallet • Customer Lifecycle • Customer Attitudes • Customer Changes • Create and Track a Customer Scorecard

49. Arthur Hughes’ Chrysler Story • Letter to Lee Iacocca • Eastern Region (Baltimore) Sales Manager • “Mr Hughes, I have your letter here to Mr Iacocca. Now Mr Hughes, I want to assure you that we do have a database. I’ve looked you up, and you’re on it!”

50. Arthur Hughes’ Chrysler Story(continued) • db Marketing Conference/Chrysler Exec/ • 25 million names • “So, you are in charge of the Chrysler database?” • “Yes, I am.” • “Well, tell me. What are you doing with your database?” • “Oh,” he said, “we have it on a UNIX platform.” • ! ! ! ! ! ! ! ! ! ! !