Advanced MIS Chapter 3 Customer Relationship Management Sep. 10, 2002 Soyoung Moon POSMIS Lab. POSTECH
Why CRM? • Companies must spend far more money to get a new customer than to retain an existing customer. • It is far more expensive to win back a customer after they left than it is to keep them satisfied in the first place. • It is far easier to sell a new product to an existing customer than it is to a new customer. • Some customers are vastly more profitable than other customers. Some customers are unprofitable, and some customers are unprofitable and will never be profitable. Find the most profitable customer!
Customer Relationship Management • To extract valid, previously unknown, and comprehensible information from large databases and use it for profit • Capture and integrate both the internal and external(purchased) data into a comprehensive view that encompasses the whole organization • “Mine” the integrated data for information • Organize and present the information and knowledge in ways that expedite complex decision-making
Entire CRM Framework • Operational CRM • The automation of horizontally integrated business processes, including customer touch-points, channels, and front-back office integration • Analytical CRM • The analysis of data created by the Operational CRM • Collaborative CRM • Application of collaborative services including e-mail, personalized publishing, e-communities, and similar vehicles designed to facilitate interactions between customers and organizations
Business Rules and Metadata Management Data Source Communication Channels Marketing Data Source Decision Support Applications Contact History Campaign management Direct Mail Contact Management Campaign management Transaction History Marketing Data mart Call Centers ETL Tools Data Mining/ Analytics Analytics Data Mart Sales Force Customer Profile and Account Data Warehouse Customer Service Centers Reporting Data Mart Ad Hoc Query and Reporting Internet External data E-Mail Other Workflow Management CRM Architecture
Managing Campaigns • Campaign management systems • To help marketing professionals manage and execute campaigns • To require as complete a view of the customer as possible • To manage interactions between the company and the customer
Managing Campaigns • Required functions in campain management systems • Marketing insights from data mining about what new promotions to create • Accommodation of many new touchpoints besides direct mail • Focus on profitability • Optimization of the sequenc of promotion delivery • Tools for constructing experiments that allow the marketing professional to test out the effectiveness of new promotions and new segmentation techniques • Accommodation by the system of predictive modeling • The transition from just defining and deploying a direct mail campaign to supporting all customer touchpoints • Customer profitability across all touchpoints
Evolution of Marketing Marketing Age Techniques Technology The Dark Ages Artistry and Alchemy None The Renaissance Craftmanship Focus groups, telephone interviews The Industrial Revolution Mass Marketing Computers store mailing lists The Information Age Database Marketing Flat File MCIFs The Age of Optimization Customer Relationship Management Data Warehousing, Data Mining, Analysis Tools (OLAP)
Closed Loop Marketing • CRM systems not only execute marketing campaigns, but also “close the loop” and mesure the results of the campaigns. • Once marketing’s effectiveness can be measured, it can be improved the next time around.
Closed Loop Marketing • Three basic steps of closed loop marketing • Measure • Measure the results of the marketing effort, based on customer profitability. • Use Web-based tools to access the customer data warehouse and perform enterprise-level ROI analysis. • Predict • Use data mining technology to predict consumer behavior and learn from past experiments. • Use the results of the data mining system to focus and refine future campaign. • Act • Use campaign management systems to be sure that the campaigns are executed in an understandable and measurable customer data warehouse or data mart.
CRM Architecure • The customer touchpoints are the bedrock. • Data warehousing is the foundation. • Customer profitability is the cornerstone. • Data mining is the architechtural blueprint. • Web applications are the capstone. These technologies are all used together to build a complete CRM system that can execute closed loop marketing to disply continuous improvement over time.
Next Generation CRM • Continuously expanding in functionality and in scope across the enterprise • Sales Force Automation (SFA) • Enterprise Resource Planning (ERP) • The force opposing the fusing of information and technology • Internal difficulties in getting various customer information form different customer touchpoints • External difficulties in keeping customer privacy
Customer Relationship Management (CRM) in Financial Services Joe Peppard European Management Journal Vol 18 pp 312-327, 2000
The new economics of information • The traditional economics of information • Reach • Access, connection • Richness • Depth, detail • The new economics of information • Connectivity • Relative easy and cheap to connect to global networks, resulting in the PC and mobile phone emerging as ubiquitous devices • Convergence • Digital technology are converging : wireless application protocol • Interactivity • Human and technical communication • Data gathering • Collaborative problem-solving • Negotiation
ECRM • Ebusiness • The integration of e-business activities within the framework of all existing and future commercial activities • Channel management • The channel of greatest impact or economy anytime, anywhere, and anyone • Integrated and interactive channels of access and distribution • Relationships • Real commercial relationships built on service excellence, value and convenience • Management of the total enterprise • Total back-office/front-office process integration
Ebusiness • Ebusiness • Internal – use technology to reengineer business processes • External – use technology in how the organization interfaces with business partners whether they are customers or suppliers • New business models – innovative products and services • Establishing e-banks with no presence in the physical world • E-billing or electronics bill presentation • Banks establishing online purchasing sites • Issuing e-bonds • Virtual wallets
Internet banking • Electronic banking – Security First Network bank(1995,10) • UK’s Barclays Bank, Germany’s Commerzbank, Bayerische banks, Norway’s Christiana bank, Credit suisse • Meritanordbanken • Finland’s largest bank • Telephone banking (1982) • PC banking(1984) • Mobile payment service(1992) • E business network(1996) • Internet banking, e-billing, internet TV(1998) • Basic banking, stock trading, investment fund transactions, purchase and sales bonds, account opening, credit cards ordering……. • ATM, telephone, GSM mobile, PC, internet TV, WAP
The new business Ecosystem • Reduce cost of business • Transaction cost –In-branch teller(1.20)>ATM(0.40)>telephone(0.20)>PC banking(0.20)>internet banking (0.01) < source data monitor 1999 > • Increase service levels • Reposition existing products and services, devise new offerings, increasing the quality of service : PC, mobile phone, pay bills, loan • Reduce entry barriers • ‘pirates’ can infiltrate the value chain of traditional players • Extend global reach • A financial institution with a presence on the internet is a global player
The new business Ecosystem • Challenge brands • Strong brands instantly convey solid trust and trust is integral to effective customer relationships • Confidentiality and security • Bundling and unbundling products and services • Cross-subsidization of products and services – unbundled, competitive necessity, customer power • Dislocation of location • The concept of location is irrelevant • Returns power and control back to the customer • Rise in customer power
Relationship management(1/2) • High levels of customer satisfaction are associated with increased retention of customers • Relationships builds more easily when there is two-way communication • By engaging in an interactive dialogue customer preferences can be determined • Retained customers are inevitably more profitable • The challenge for an organization in to move to a situation where the customer starts buying from you rather than being sold to
Relationship management(2/2) • Financial services organizations • Who best customers are • How to keep them • How to increase ‘share of wallet’ by knowing what other service or product they can sell to them • Have a customer-centric or one-to-one relationship • Increase shareholder value • Require information that can help make the best decisions to create and manage the right relationships, risks, costs, markets • Redesign core product offerings • Devise appropriate channel strategies
Management of the Total enterprise • Imperative to have total-office/back-office integration • Customer-facing functions • Sales, marketing, call centers and other on-line support • Become organizationally integrated with back-office processes • Run on separate mainframes and must be accessed through widely varying interfaces • Move from data centric point solutions to customer-centric enterprise solutions
Conclusion An integrated Perspective of ECRM
Definitions of CRM • CRM is a combination of business process and technology that seeks to understand a company’s customers from the perspective of who they are, what they do, and what they’re like. (Couldwell ,1998) • CRM is founded on four relationship-based tenets: (Kutner & Cripps, 1997) • Customers should be managed as important assets. • Customer profitability varies; not all customers are equally desirable. • Customers vary in their needs, preferences, buying behaviour and price sensitivity. • By understanding customer drivers and customer profitability, companies can tailor their offerings to maximise the overall value of their customer portfolio.
Definitions of CRM • Relationship marketing (Merlin Stone et al., 1996) • The use of a wide range of marketing, sales, communication, sevice and customer care approaches to: • Identify a company’s named individual customers; • Create a relationship between the company and its customers that stretches over many transactions; • Manage that relationships to the benefit of the customers and the company.
Key Characteristics of CRM (Lynette Ryals & Simon Knox, 2001) • A customer relationship perspective aimed at the long-term retention of selected customers. • Gathering and integrating information on customers. • Use of dedicated software to analyse this information (often in real time). • Segmentation by expected customer lifetime value. • Micro-segmentation of markets according to customers’ needs and wants. • Customer value creation through process management (Hammer & Champy, 1993; Hamel & Prahalad,1994) • Customer value delivery through service tailored to micro-segments, facilitated by detailed, integrated customer profiles. • A shift in emphasis from managing product protfolios to managing portfolios of customers, necessitating changes to working practices and sometimes to organisational structure.
CRM in IT fields • www.crmguru.com • www.siebel.com • www.eaijournal.com • Beyond CRM • Seperating CRM myths from Reality