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Chapter 11

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  1. Chapter 11 Customer Relationship Management

  2. Retailing Strategy Retail Market Strategy Financial Strategy Site Location Customer RelationshipManagement Retail Locations Organizational Structure and HR Management Information Systems

  3. Customer Relationship Management • A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers. • What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer?

  4. Customer Loyalty • Committed to purchasing merchandise and services from a retailer • Resist efforts of competitors to attract the loyal customer • Emotional attachment to retailer • Personal attention • Memorable positive experiences • Brand building communications programs

  5. Can Offering Discounts Achieve Customer Loyalty? No! Retail strategies like these can be copied by competitors These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer McGraw-Hill Companies, Inc./Gary He, photographer

  6. CRM Process

  7. Information About Each Customer in the Database • History of purchases • Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion • Customer contacts by retailer (touch points) --visits to web site, inquires to call center, direct mail sent to customer • Customer preferences • Descriptive information about customer • Customer’s responses to marketing activities

  8. Need to connection contacts with a specific customer identifier Ask for identifying information Telephone number, name and address Encourage use of frequent shopper cards Link checking account number and/or third party credit cards to customer Approaches for Collecting Customer Information

  9. Privacy Concerns • Control over Collection • Do customers know what information is being collected? • Do customers feel they can decide on the amount and type of information collected by retailers? • Control over Use • Do customers know how the information will be used by the retailer? • Will the retailer share the information with third parties? Steve Cole/Getty Images

  10. Frequent Shopper Cards Card is often squeezed out of wallet Customers forget to bring it to the store Might not even show it if in a hurry (c) image100/PunchStock

  11. Information collected without the awareness of customers Collecting click stream data using cookies Similar to an invisible person videotaping a customer as theywalk through a store Heighten Concerns When Using Electronic Channel Stockbyte/Punchstock Images

  12. Customer’s Decision to Offer Information Balance benefits and risks Disclosure of InformationUnwanted Sales Contacts DiscountsSpecial TreatmentPersonal Attention

  13. United States Limited protection in specific areas Credit reporting Video rentals Banking Medical records Consumer Protection Differences European Union • Information only can only be collected for specific purposes • Purpose must be disclosed to customer • Information can only be used for specific purpose • Information can not be exported to countries with less stringent regulations

  14. FTC Guideline for Fair Information Practices Notice and awareness • comprehensive statement about information storage, manipulation, and dissemination Choice/consent • Opt-in and opt-out options Access/participation • Customer able to confirm accuracy Integrity/security • Controls for theft and tampering Enforcement/redress • Mechanism to insure compliance

  15. J.Crew Security and Privacy Policy

  16. Analyzing Customer Data Data Mining – technique used to identify patterns in data. Market Basket Analysis Identifying Market Segments Identifying Best Customers Ryan McVay/Getty Images

  17. Data analysis focusing on the composition of the customer’s market basket – what items are bought during a single shopping occasion Market Basket Analysis Uses: -Adjacencies for displaying merchandise -Joint promotions Burke/Triolo Productions/Getty Images

  18. Market Basket Analysis Taught Wal-Mart to Change! Product Placed Near Bananas cornflakes, produce Kleenex paper goods, cold medicine Measuring spoons housewares, Crisco shortening Flashlights hardware, Halloween costumes Little Debbie snack cakes coffee Bug spray hunting gear

  19. Estimating Lifetime Value Based on assumptions that the customer’s future purchase behaviors will be the same as they have been in the past Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis) Identifying Best Customers (c) Brand X Pictures/PunchStock

  20. Which Customer Probably Has the Greatest Lifetime Value Purchases Over Last 10 Weeks

  21. Customer Pyramid PlatinumBestMost loyalLeast price sensitive

  22. Customer Pyramid GoldNext bestNot as loyal

  23. Customer Pyramid IronDoesn’t deservemuch attention

  24. Customer Pyramid LeadDemands attentionMay havenegative value

  25. RFM Analysis

  26. RFM Target Strategies

  27. Illustration of RFM Application • A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$.75 • Will the retailer make a profit mailing to this RFM segment?

  28. Illustration of RFM Application • A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$.75 Will the retailer make a profit mailing to this RFM segment? $20.00 contribution x .05 response rate - $.75 cost = $.25 profit per catalog mailed

  29. CRM Programs Retailing Best Customers Converting Good Customers to Best Customers Getting Rid of Unprofitable Customers

  30. Frequent Shopper Programs Special Customer Services Personalization 1-to1 Retailing Community Customer Retention Programs Royalty-Free/CORBIS

  31. Elements in EffectiveFrequent Shopper Programs • Tier Based on Customer Value • Offer Choices of Rewards • Non-monetary incentives • Reward all Transactions • Transparent and Simple

  32. Issues with Effective Frequent Shopper Programs • Expense • Difficulty in Making Changes • Impact on Loyalty Questionable • Easily Duplicated – Difficult to Gain Competitive Advantage • Need to offer “invisible” benefits

  33. Personalization Hello, Barton Weitz

  34. Offer less approaches for dealing with these customers Charge customers for extra services demanded Dealing with Unprofitable Customers Don Farrall/Getty Images

  35. Implementing CRM Programs Need systems, databases Close coordination between departments – marketing, MIS, store operations, HR Shift in orientation Product Centric Customer Centric