Customer Relationship Management Dr Sherif Kamel The American University in Cairo
Outline • Overview • Why CRM? • CRM basics • Defining CRM • Managing the customer life cycle • 5 key drivers of the customer value • 4 stages of a customer relationship • Interactivity v individualization • Challenges to understanding customers • Remarks • Conclusions
Bits and bytes • CRM – the hottest buzz word in business today • Developing a personal and a professional profile about each customer • Basic and historical information • Personal preferences • Trends and habits • Demographical information • Building a CRM culture • The power of integration • Using emerging technology to get closer to the customer
Current facts… • Today customers are in charge – they make the rules • Putting technology at the center stage • Business intelligence is one of the most growing segment in the marketplace • Customer loyalty is very difficult to maintain due to competition • Customers want an excellent service and they want to feel special • Most companies think they are customer-focused however in reality they are product-centric • There is a need to formulate customer-focused firms which needs: • CRM strategy • Organizational change • Corporate culture
Economics of customer retention “Winning back a lost customer can cost up to 50-100 times as much as keeping a current one satisfied.” Rob Yanker, Partner, McKinsey & Company Understanding your customer is key to retention…..
Market size • CRM market grew 66% in 1999 • 34 Billion US dollars by 2003 and probably around 125 billion US dollars by 2004 • 60% of the CRM software license market is controlled by 3 vendors • Siebel • Trilogy • Baan/Aurum
Why CRM? • It costs 6 times more to sell to a new customer than to sell to an existing one • A typically dissatisfied customer will tell 8 to 10 people about his/her experience (mainly related to poor customer service) • The odds of selling to a new customer is 15% versus 50% to an existing customer • 70% of the customers complaining will do business again with the company if the complaints are quickly addressed • 90% of existing companies do not have integrated CRM tools and platforms
Customer Relationships Today Customer Relationships Branding Product Pricing Distribution Communication Community Building a customer-centric approach to Internet marketing by focusing on customers
CRM Basics • CRM is the timely delivery of excellent service “customer relationship management” • CRM is a combination of business process and technology that seeks to understand a company’s customers from a number of perspectives including: • Who they are? • What they do? • What do they like?
Age of the never-satisfied customer… • CRM becomes a support tool in a time characterized by: • Increased competition • Globalization • Growing cost of customer acquisition • High customer turnover • CRM is all about creating a better value proposition to customers • Information and communication technology is now acting as a catalyst for CRM • Extended enterprise • World wide web and the Internet
Defining CRM • CRM is an integrated sales, marketing and service strategy that is based on a timely and accurate information infrastructure and that depends on coordinated enterprise-wide activities • Example: tracking customers interactions with the firm • Customer tracking includes steps in the selling and customer service cycles • CRM steps include • Targeting • Acquisition • Retention • Expansion
Defining CRM • Targeting • Who do we target? • What segments are most profitable? • What segments match our value proposition? • What is the best segmentation strategy for us/our industry? • Acquisition • What is the best channel for each segment? • What is the acquisition cost for a channel/segment? • Do certain channels deliver certain types of customers? • Cost effective acquisition?
Defining CRM • Retention • How can we improve retention? • What is our average customer relationship length? • How can we hold customer for as long as possible? • What is the most cost effective method of retention? • Expansion • How many products does our average customer buy? • How can we induce our current base to buy more products? • Who are the prime targets for expansion? • What is the cost of expansion?
Goals of CRM • Using existing relationship to grow revenue • Using integrated information for excellent service • Introducing consistent, replicable channel processes and procedures
CRM… • CRM is a business strategy and not a product • Putting CRM into practice requires developing a set of integrated applications to address all aspects related to the front-office needs • CRM could be a major support platform for small and medium-sized enterprises • Cost of the information and communication technology applications and infrastructure should be calculated as opposed to the return-on-investment
Evolution of information requirements • Materials requirements planning (MRP) • Manufacturing resource planning (MRP II) • Enterprise resource planning (ERP) • Supply chain management (SCM) • Customer relationship management (CRM)
Managing the customer life cycle Acquiring new customers Enhancing profitability of existing customers Retaining profitable customers for life
Acquiring new customers • Promoting the company’s product and service leadership • Redefine the companies competitive edge and innovations • Offer a superior product backed by an excellent service • Example: Browsing on the net, submitting a request, receiving a phone call • Model for a sales and service strategy
Enhancing profitability of existing customers • Encouraging cross-selling and up-selling • Cross selling is used by suggesting alternative products or up-selling by rendering the customer more informed with the new products and services. • Broadening the relationship between the company and the customers • Providing a value proposition represented by offering a greater convenience at low cost (one-stop-shopping) • Example: “Best Buy” an electronic retailer with more than 300 stores capitalizes on committed relationships with customers • 3000 calls a day with more than 50% having computer-based answers and solutions
Retaining profitable customers for life • Retention focused on service adaptability • Delivering not what the market wants but what the customer wants • Providing a value proposition that offers a proactive relationship that works on the best interest of the customer • Example: customer retention is becoming a key competitive strategy for many companies
Integrated CRM Acquire Enhance Retain Customer Life cycle Direct Marketing Cross-sell and Up-sell Proactive Service Partial Functional Solutions Sales Force Automation Customer Support Integrated CRM Applications Complete Integrated Solutions
Core CRM process competencies Marketing and Fulfillment Customer Service and Billing Fax Sales Cross-sell Up-sell Telesales eMail Prospect Or Customer WWW Loyalty and Retention Programs Phone Field Sales and Service Content Management Technical Infrastructure
How to build a CRM infrastructure • Involve top management • Decide on a vision of an integrated CRM • Establish a CRM strategy and specify its objectives • Understand the customer • Review cultural changes that will need to occur • Develop a business case • Evaluate current readiness • Evaluate appropriate applications to do a better business • Identify and target quick wins • Have one manager to own the end-to-end project • Implement in stages • Be sure to create a close-loop CRM environment • Create concrete measurement goals
Evaluating Relationship Depth Long-Term Profitability $$$ Magnitude of Purchases $$ $ Frequency of Purchases Relationship depth and profitability Relationship depth, as measured by the frequency and magnitude of purchases, is a critical component of customer profitability
Length of customer tenure and profitability High Lifetime Profit Low Short Long Lifetime
5 key drivers of the customer value • Cost of Targeting • Cost of Acquisition • Service and Usage Revenue • Cost of service • Duration of relationship
Awareness Exploration / Expansion Commitment Dissolution 4 stages of a customer relationship • Customer recognizes the firm but has not initiated any transactions • Customer gathers information about the firm which determines whether repeated transactions will occur • Customer and firm feel a sense of obligation or responsibility to one another • Total loss of commitment and relationship
Interactivity v individualization • Interactivity is the occurrence of two-way communication between the firm and the customer • Retail store personnel handle Internet customer service • Chat rooms are set up to discuss product-related issues • Customers subscribe to customized versions of firm newsletters • Technology has made it possible to customize each interaction to the individual user • Consumers have privacy concerns about sharing too much information • For individualization to be attractive, consumers must have unmet needs • Costs and complexity for the firm increase with greater personalization while service speeds often decline
Challenges to understanding customers • Identify the customer • Learn from customers • Know the customers’ value • Determine best resources • Access complete customer profile and history
Remarks • World is moving rapidly to a customer centric business model • It is a prerequisite for survival and growth in the marketplace • Integration of disparate customer data sources is a primary technical challenge • CRM is becoming invaluable as a differentiation tool • The world is becoming extremely customer centric, even cultures that have been customer-averse • Technology is just a platform – an enabler
Conclusions • A firm is better able to serve customers needs if they understand them well • Provision of the products customers want, at the right time through a consistent service leads to their retention • CRM gives the complete and rich view of the customer, enabling tactical and strategic actions to be taken to meet customer needs • CRM enables consistent customer communication regardless of channel, location, time