Customer Relationship Management

1. Customer Relationship Management Basic Assumptions for this paradigm: 1. There is a lifetime-profitability correlation 2. Profits increase over time 3. Serving long-term customers is less costly 4. Long-life customers pay higher prices Marketing Management

2. Graphical representation of consumer/profit development Price Premium Referrals Cost Savings Revenue Growth Base Profit Acquisition Cost PROFIT 1 2 3 4 5 6 7 Years Marketing Management

3. Some explanations • Acquisition costs: depending on the category, it could be quite substantial. In fast growing businesses, firms are willing to spend upfront in hope of future recovery. Cellphones are prime examples. Average acquisition cost in the US: $ 300. However high churn rates may not justify this. (There is a market segmentation reason) Marketing Management

4. Further explanations • Base profit: the average margin • Revenue growth: retained customers might buy more from the company (partly because of cross-selling partly, because of they are happy) • Operating costs: it is less costly to serve loyal customers Marketing Management

5. More explanations • Referrals: satisfied customers make recommendations (however if you force them they become suspicious) • Price premium: loyalty makes blind and customers are willing to pay higher prices (though it could just be inertia) Marketing Management

6. Discussion • If the basic assumptions hold, firms should pursue loyalty building strategies • Loyalty strongly depends on customer satisfaction • However, if the basic assumptions do not hold, caution is advised Marketing Management

7. The Customer Satisfaction Branch • Customer Satisfaction is usually approached based on the expectancy-disconfirmation theory: Looking at the match of expectations and experience Marketing Management

8. Customer satisfaction • Is a multidimensional construct based and measured on many dimensions. • Usual dimensions: response, info exchange personal service, price, availability, attributes • Need for own measures: customersat.com Marketing Management

9. Customer satisfaction measures • Behaviour (based on data) • Surveys • Lost customer analysis • Mystery shopping • Benchmarking for competitors Marketing Management

10. The impact of market segmentation • Not all customers are equal, therefore pursuing loyalty in general, is not a good strategy • Even highly satisfied customers switch • There could be some free-riding • Membership (contract) and non-membership business can be different Marketing Management

11. Low Lifetime Revenue High Long Lifetime Length Short Lifetime Profit 289 Mailing Cost: .063 Ave.Price: $ 58.4 Lifetime Profit: 51 Mailing cost: .128 Ave.Price: 47.7 Lifetime Profit: 51 Mailing Cost: .142 Ave Price: 47.8 Lifetime Profit 258 Mailing Cost .065 Ave. Price: $ 63.5 Source:Reinartz & Kumar Marketing Management

12. Interpretation • This is a non-contractual business • In this business (direct marketing) rewarding long lifetime with the company is counterproductive • It might be different in contractual relations Marketing Management

13. Industry approaches • Industries might follow different approaches to customization such as one-to-one, mass customization etc. • Measurement is more and more possible, though industry specific • Could be very important in B2B Marketing Management

14. Some examples • High-value customers receive better treatment • Can use more services • Receive more rewards • Low value customers are treated badly • « Customer apartheid ? » Marketing Management

15. Customer relationship management as an application • CRM is about identifying, winning, retaining and expanding customer relationships; in the most profitable way, across the complete spectrum of point to contact with the customer. It includes, sales force, call-center, the Internet • A technology enabled dialogue Marketing Management

16. The Dell model • Dell captures more customer value in its model than its competitors through differentiation in customer knowledge and therefore better problem solving • This leads to higher selling prices Marketing Management

17. When is CRM a good tool ? • In businesses with complexity and high value. This is where the customer value can be driven by differentiation and tailorability to the customer Marketing Management

18. Beyond CRM... • Consumers are co-producers, not just users • We can manage consumer by marketing and HR tools Customer Efficiency Management Marketing Management

19. Simple profit model: satisfied employees Satisfied employees make customers happy Satisfied employees Customer Employees Firm Satisfied customers increase company profit Marketing Management

20. A more rational profit model: based on a process view Company systems allow employees to provide consistently better services Well supported employees provide consistently better services Customers Employees Firm Satisfied customers improve their relationship with the firm Marketing Management

21. The efficient customer profit model Company systems support employees and customers to become more efficient Employees Well supported employees provide better services Firm Efficient customers use company systems better and create better serv ices Customer Satisfied customers have better relationship with the company and with other customers, as well. Marketing Management