©2006 Prentice Hall14-1 E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 14: Customer Relationship Management.

©2006 Prentice Hall 14-1

E-Marketing 4/EJudy Strauss, Adel I. El-Ansary, and Raymond Frost

Chapter 14: Customer Relationship Management


Chapter 14 Objectives

• After reading Chapter 14 you will be able to:• Define customer relationship management and

identify the major benefits to e-marketers.• Outline the three legs of CRM for e-marketing.• Discuss the eight major components needed for

effective and efficient CRM in e-marketing.• Differentiate between relationship intensity and

relationship levels.• Highlight some of the company-side and client-side

tools that e-marketers use to enhance their CRM processes.

©2006 Prentice Hall

"A business absolutely devoted to Customer Service Excellence will have only one worry about profits. They will be embarrassingly large."-Sir Henry Ford

"The cost of retention is $180 per customer," he says. "But most automotive dealerships are set up for customer acquisition - which is crazy when you consider the average cost of customer acquisition is $1,000 or more."-Arthur Hughes, author of several books on using databases to enhance CRM.

"70 to 90 percent of decisions not to repeat a purchase of anything are not about product or price. They are about some dimension of service."-Barry Gibbons, former CEO, Burger King

"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency."-Bill Gates


• Cisco provides Internet networking systems for corporate, government and education clients.

• The Internet plays a major role in acquiring, retaining and growing customer business.• 2.5 million users log onto the Cisco site each month.• 90% of orders come through the Internet• 82% of all customer questions handled online

• Cisco has become an expert at online customer relationship management (CRM).

The Cisco Story


• Cisco set a goal to migrate customers to the online channel.• In 1996, 5% of their customers placed orders on the

Web site.• In 2001, 90% of their orders came through the

Internet.

• Cisco saves $340 million a year in customer service costs due to automation.

• Can you think of other B2B marketers that utilize the Internet as successfully as Cisco?

The Cisco Story, cont.


Relationship Marketing Defined

• Relationship marketing (1:1 marketing) is about establishing, maintaining, enhancing, and commercializing customer relationships through promise fulfillment.

• Relationship capital may be the most important asset a firm can have.

• A firm using relationship marketing focuses more on wallet share than on market share.• More $ from each customer instead of more

customers


Continuum from Mass Marketing to Relationship Marketing

Mass marketing Relationship marketing

Discrete transactions Continuing transactions

Short-term emphasis Long-term emphasis

One-way communication

Two-way communication and collaboration

Acquisition focus Retention focus

Share of market Wallet share

Product differentiation Customer differentiation


Stakeholders

• Firms can establish and maintain relationships with different stakeholder groups through Internet technologies:• Employees who need training and access to data

and systems used for relationship management.• Business customers in the supply chain.• Lateral partners, such as other businesses, not-for-

profit organizations, or governments.• Consumers who are end users of products and

services.


Customer Relationship Management

• CRM is the process of acquiring, servicing, retaining and building long-term relationships with customers.

• The benefits of CRM include:• Increased revenue from better targeting.• Increased wallet share with current customers.• Retention of customers for longer time periods.

• The cost of acquiring a new customer is typically 5 times higher than the cost of retaining a current customer.


Acquisition Emphasis Retention Emphasis

Gain 6 new customers ($500 each)

$3,000 Gain 3 new customers ($500 each)

$1,500

Retain 5 current customers ($100 each)

$ 500 Retain 20 current customers ($100 each)

$2,000

Total cost $3,500 Total cost $3,500

Total number of customers 11 Total number of customers 23

Maximizing Number of CustomersSource: Adapted from Peppers and Rogers (1996)


Customer Relationship Management, cont.

• CRM has 3 facets:• Sales force automation (SFA).• Marketing automation.• Customer service.

• Used primarily in the B2B market, SFA helps salespeople to:• Build, maintain, and access customer records.• Manage leads and accounts.• Manage their schedules.


Customer Database

1) Customer orders 10 new computers.

2) Customer calls company

Where is the %@#& “on”

switch?

Sales rep

Customer service rep

Hmmm, 21% of customers can’t find “on” switch.

4) Redesign computer switch

3) database trends


• Marketing automation software aids marketers in effective targeting, marketing communication, and monitoring of customer and market trends.• Software solutions include e-mail campaign

management, database marketing, and market segmentation.

• Most customer service occurs post purchase when customers have questions or complaints.• E-mail and Web self-service are often used.

Customer Relationship Management, cont.


1. CRM Vision: Leadership, value proposition

2. CRM Strategy: Objectives, target markets

3. Valued Customer ExperienceUnderstand requirementsMonitor expectationsMaintain satisfactionCollaboration and feedbackCustomer interaction

4. Organizational CollaborationCulture and structure

Customer understanding People, skills, competencies

Incentives and compensationEmployee communication

Partners and suppliers

5. CRM Processes: Customer life cycle, knowledge management

6. CRM Information: Data, analysis, one view across channels

7. CRM Technology: Applications, architecture, infrastructure

8. CRM Metrics: Value, retention, satisfaction, loyalty, cost to serve

Exhibit 14 - 4 Eight Building Blocks for Successful CRMSource: Adapted from Gartner Group (www.gartner.com)

8 Building Blocks for Successful CRM


1. CRM Vision

• To be successful, the CRM vision must start at the top and filter throughout the company to keep the firm customer focused.

• One key aspect of CRM vision is how to guard customer privacy.

• The benefits of using customer data must be balanced by the need to satisfy customers and not anger them.

• TRUSTe provides its seal and logo to any Web site meeting its privacy philosophies.


TRUSTe Builds User Trust


• E-marketers must determine their objectives and strategies before buying CRM technology.

• Many CRM goals refer to customer loyalty.• An important CRM strategy is to move customers up the relationship

intensity pyramid

2. CRM Strategy

Advocacy

Community

Connection

Identity

Awareness

Tell others about the brand Communicate with each other

Communicate with company between purchases Display the brand proudly Is on the list of possibilities

Highest intensity


Three Levels of Relationship Marketing

Level Primary Bond Potential for Sustained

Competitive Advantage

Main Element of Marketing Mix

Web Example

One Financial Low Price www.southwest.com

Two Social Build 1:1

relationshipsBuild community

Medium Personal communications

www.palmpilot.com

Three Structural High Service delivery my.yahoo.com

• Another CRM goal involves building bonds with customers on 3 levels:• Financial• Social• Structural


3. Valued Customer Experience

• Consumers are constantly bombarded by marketing communications and unlimited product choices.• According to Jagdish Sheth (1995), the basic tenet

of CRM is choice reduction.• Many consumers are “loyalty prone,” and will stick

with the right product as long as its promises are fulfilled.

• Synchronous and asynchronous technologies can provide automated and human services that solve customer problems.


Relationships over Multiple Communication Channels

Automated Human

Synchronous Web 1:1 self-serviceOnline transactionsTelephone routing

TelephoneOnline chatCollaboration tools

Asynchronous Automated e-mailShort message services (SMS)Web formsFax on demand

E-mail responsePostal mail


• Marketers collaborate within and outside the organization to focus on customer satisfaction.

• CRM, or “front-end” operations, can be linked with the entire supply chain management system (SCM), or “back-end” operations.• Customer service reps have access to inventories.• Producers and wholesalers constantly receive data

that can be utilized for production and delivery.

• The use of extranets, two or more intranet networks that share information, allows CRM-SCM integration.

4. Organizational Collaboration


5. CRM Processes• Firms use specific processes to move

customers through the customer care life cycle.

Ta rge t

A cquire

Transac t

Se rvice

R e ta in

Grow

Inte rne t Extrane t

C ustomer

P a rtne rs


• CRM processes are used to:• Identify customers.• Differentiate customers.• Customize the marketing mix.• Interact with customers.

• Firms can identify high-value customers by mining customer databases and profiling customers in terms of: (RFM analysis)• Recency of purchases.• Frequency of purchases.• Monetary value of purchases.

CRM Processes, cont.


6. CRM Information• The more information a firm has, the better

value it can provide to each current or prospective customer.

• Firms gain much information by tracking behavior electronically.• Bar code scanner data.• Software that tracks online movement, time spent

per page, and purchase behavior.


7. CRM Technology• Technology greatly enhances CRM processes.

• Firms use company-side tools to push customized information to users.

• Client-side tools allow the customer to pull information that initiates the customized response from the firm.


Company-side ToolsCompany-Side Tools(push) Description

Cookies Cookies are small files written to the user’s hard drive after visiting a Web site. When the user returns to the site, the company’s server looks for the cookie file and uses it to personalize the site.

Web log analysis Every time a user accesses a Web site, the visit is recorded in the Web server’s log file. This file keeps track of which pages the user visits, how long he stays, and whether he purchases or not.

Data mining Data mining involves the extraction of hidden predictive information in large databases through statistical analysis.

Real-time profiling Real-time profiling occurs when special software tracks a user’s movements through a Web site, then compiles and reports on the data at a moment’s notice.

Collaborative filtering Collaborative filtering software gathers opinions of like-minded users and returns those opinions to the individual in real time.

Outgoing e-mail Distributed e-mail

Marketers use e-mail databases to build relationships by keeping in touch with useful and timely information. E-mail can be sent to individuals or sent en masse using a distributed e-mail list.

ChatsBulletin boards

A firm may listen to users and build community by providing a space for user conversation on the Web site.

iPOS terminals Interactive point-of-sale terminals are located on a retailer’s counter and used to capture data and present targeted communication.


Client-side ToolsClient-Side Tools(pull) Description

Agents Agents are programs that perform functions on behalf of the user, such as search engines and shopping agents.

Individualized Web portals

Personalized Web pages users easily configure at Web sites such as MyYahoo! and many others.

Wireless data services Wireless Web portals send data to customer cell phones, pagers, and PDAs, such as the PalmPilot.

Web forms Web form (or HTML form) is the technical term for a form on a Web page that has designated places for the user to type information for submission.

Fax-on-demand With fax-on-demand, customers telephone a firm, listen to an automated voice menu, and select options to request a fax be sent on a particular topic.

Incoming e-mail E-mail queries, complaints, or compliments initiated by customers or prospects comprise incoming e-mail, and is the fodder for customer service.


8. CRM Metrics• E-marketers use numerous metrics to assess

the Internet’s value in delivering CRM performance.• ROI• Cost savings• Revenues• Customer satisfaction

• One study named customer retention, ROI and customer lift (increased response or transaction rates) as the most important metrics.


CRM Metrics, cont.

• One very important CRM metric is customer lifetime value (LTV).• The LTV calculation demonstrates the benefits of

retaining customers over time and the need for building wallet share.

• LTV also illustrates that no matter how good customer retention is, the firm must still focus on customer acquisition activities.

• Exhibit 14.21 illustrates Customer LTV.


Total Retention Total Net NPV at 10-Year

Year Customers Rate Revenue Profit 15% LTV

1 1,000 60% $35,900 $ 5,900 $ 5,900 $ 66.94

2 600 65% 45,540 27,540 23,948 118.12

3 390 70% 29,601 17,901 13,536 129.15

4 273 75% 20,721 12,531 8,239 138.35

5 205 78% 15,541 9,398 5,373 143.45

6 160 79% 12,122 7,330 3,645 145.55

7 126 80% 9,576 5,791 2,504 146.81

8 101 80% 7,661 4,633 1,742 146.81

9 81 80% 6,129 3,706 1,212 146.81

10 65 80% 4,903 2,965 843 146.81

Customer Lifetime Value (LTV)Source: Adapted from Peppers and Rogers Group at www.1to1.com

©2006 Prentice Hall14-1 E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 14: Customer Relationship Management.

Documents

prentice hall14

customer questions

cisco story slide

relationship capital

relationship intensity

relationship levels

online cisco

growing customer business