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CRM Overview

Nihat Solakoglu

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What is wrong with this message? When did I receive this message?

Was it an insert?

What did I think?

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Customer powerIn advanced economies, consumption has become a larger share of GDP than production. Hence, consumer choices gains importance in the decision making process of companies and they feel the need to think like a customer than a producer.

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Customer power

(1) Producers think they are making products. Customers think they are buying services.

(2) Producers worry about visible mistakes. Customers are lost because of invisible mistakes.(3) Producers think their technologies create products. Customers think their desires create products.

(4) Producers organize for managerial convenience. Customers want their convenience to come first.

(5) Producers seek a high standard of performance. Customers care about a high standard of living.

Producer-Customer Logic

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CRM Overview

Although CRM receieved considerable attention in the last decade, there is no clear (agreed upon) definitions in the industry or academia.

CRM Global Marketplace

Year Market Size

1996 $64M

1998 $100B

2002 $200B

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CRM OverviewZablah (2004) finds 45 distinct definitions in the literature.

So let’s ask ourselves what CRM really is.

Class Discussion

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What is CRM? Is it a technology solution?

Technology: Data warehousing,User tools

It can be an excel spreadsheet or a full infrastructure that supports data warehousing, data mining, MIS, reporting etc.

E.piphany, SAP, Siebel’s CRM, Peoplesoft, Unica are examples of CRM architectures that can be used.

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What is CRM? Is it business analytics/data mining?

Analytics:Business analyticsFinancial analysisCustomer analysis...

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What is CRM? Is it marketing?

Marketing:Direct mailOutbound telemarketingInbound telemarketingInternetEmail

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What is CRM? Well, it includes all.

Analytics

Technology

Marketing:

CRM

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What is CRM?Zablah (2004) identifies 5 major perspectives among these 45 definitions.

These perspectives are:

(1) CRM as a business process.

A business process refers to a group of activities, that can be divided into sub-levels, that convert organizational inputs into desired outputs.

It can be defined at two levels:

(a) a higher level that includes all activities to build long-lasting, profitable and mutually-beneficial customer relationship

(b) Norrowly defined as managing customer interactions

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What is CRM?(2) CRM as a strategy.

An overall plan for deploying resources to establish a favorable position.

Resources are meant for relationship building and maintenance efforts should be allocated based on customers’ lifetime value to the firm.

Building “right” type of relationship

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What is CRM?(3) CRM as a philosophy.

There is a strong link between customer loyalty and corporate profitability.

Case: If you have 10 million customers, and each customer has a lifetime value of $1,000.00. What would be the lifetime gain of reducing attrition by 10% from its existing level of 9% at the customer level?

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What is CRM?- 9% of 10 million customers 900,000 customers are attriting

- 10% of 900,000 is 90,000 customers.

- If we save 90,000 customers, the benefit on lifetime value to the corporation will be

90,000*$1000 = $90 million

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What is CRM?

According to this view, most effective way to achieve such loyalty is by proactively seeking to build and maintain long term relationship with customers.

This view suggests that firms’ day-to-day activities be driven by an understanding of customers’ evolving needs.

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What is CRM?(4) CRM as a capability.

Firms must invest in developing and acquiring a mix of resources that enables them to modify their behaviour towards individual customers or groups of customers on a continual basis. Capabilities are knowledge based, complex, cannot be easily purchased, and requires hard to imitate skils.

CRM demand that a firm at a minimum should(a) Gather inteligence about its current and prospective customers, &

(b) Apply that intelligence to shape its subsequant interactions with customers.

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What is CRM?(5) CRM as a technology.

Technology plays a substantial role in CRM efforts, but it is now widely recognized that “CRM is more than a technology”

Technology enables data mining, collecting and storing large quantities of data (how large?), build knowledge from this data, and disseminate the knowledge across organizations.

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What is CRM?We can say:CRM is not just a technology solution that solves all customer related problems. It is a business philosophy/strategy that enables people, technology and processes to focus on customer related problems or opportunities.The essence of CRM is understanding customer needs and leveraging that knowledge to improve company profitability.

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What is CRM?CRM has two major subprocesses.

(a) Knowledge management: creation, storage, retrieval and application of knowledge.

CRM technology provides the tools to store the data, to derive and disseminate the information.

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What is CRM?A CRM system brings together

İnformation about customers Customer characteristics Sales transactions Marketing effectiveness/responsiveness Market trends What else?

With large number of customers, CRM approach relies on information technology.

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What is CRM?(b) Interaction management refers to any instance in which two active parties, which have the ability to exert influence upon each other, engage in the exchange of values.

Interactions should remain consistent, relevant and appropriate.

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What is CRM?

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What is CRM?An effective CRM system describes customer relationship in sufficient detail so that all aspects of the organization can access information, match customer needs with satisfying product offerings, remind customers of service requirements, know what other products a customer has purchased and so forth.

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What is CRM?So for effective CRM1. Understand the customer and understand them in a

timely manner2. Have two-way conversations with customers3. Access to customer information across sales,

service, management, ... across all relevant units of organization

4. Coordinate messages across all contact points5. Incentive plans based on customer value6. Organization structured around customers7. Customer needs anticipated and proactive actions

are taken

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What is CRM?Class discussion: How can an effective CRM help to a service representative at a bank?

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CRM process as a hub of learningCRM is another step in concept of marketing. It is a philosopy that tries to satisfy customer needs in return for higher profits.

Acquiring information before, during and after a sale is made becomes a necessity to satisfy customer needs

Exhibit 1.1 shows that information technology within a CRM system is a continuous process.

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CRM process as a hub of learning

Cultivate and develop interest, trust

Acquire customer & establish a relationship

Customize promotion, information, interactions

Customize offers, products & services

Customize channel outlets, locations

Recognize needs/wants of defined segment Collect,

warehouse & analyze data

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What is CRM?

Lets try to define CRM

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CRM Defined

At its simplest, it can be defined as the systematic use of customer information to attract and retain customers for a long-lasting mutually-beneficial relationship through an on-going dialogue.

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CRM Defined

Systemetic use of information

• Data warehouse

• Data mining

• Reporting

Attract and Retain customers

• cross-sell/up-sell

• Retention focused strategies

• Contact strategy

• Cost-efficient acquisition

Continious dialogue

• Real-time response

• Customer voice in decisions

• Personalized/timely/customized contacts through multiple channels

Long-lasting mutually beneficial releationship

• Customer based metrics

• Customer evaluation/satisfaction

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Costs & Benefits of CRMCustomers are different and different segment of customers represent different level of profit (revenue and cost) to the corporation. At the same time, they require different level of service and different products.

There are potential benefits and costs to - organization- customers

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Costs & Benefits of CRM

Benefits

Customer Focus

Customer retention

Share of customer

Long-term profitability

Costs

Infrastructure investments

Process change

Costs

Privacy

Opportunity

Benefits

Continuity

Contact touch points

Personalized service

Enhanced satisfaction, safety

Organization

Customer

Lifetime value of the relationship

Exhibit 1.2 Zikmund

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CRM System

Lets look at a CRM system

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CRM integrates marketing, analysis & technology...Source Systems

Internal &

extrenal data

Data Warehouse

Extract – transform

- load

Business

Intelligence & Data

Mining

Planning/reporting

Analysis &

Segmentation

Modeling &

Data mining

Tracking

Execution,

Personalization

& Automation

Customer lists

Offer, message

customization

Business rules

& real-time

differentiation

Message delivery

Call center

Email/fax server

Web server

Production shop

Sales force

Customer

Experiences

Satisfaction metrics

Customer feedbacks

surveys

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CRM ProcessBased on our discussion and several CRM processes, lets try to generalize CRM process that will help us understand why CRM can fail or be succesful.

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CRM Process

CRM

Customer Strategy

Cu

stom

er d

ata

Data Mining

CustomerContact

(Personalization)

Track & Learn

- Market Basket Analysis- Clustering/Segmentation- Testing- Descriptive Statistics- Prediction/classification

Business Organization

Business Case

Components of CRM process as a continuous loop

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Business CaseDo you need CRM? What questions you should ask?Does your company serve to multiple customers?Do customer service, sales, marketing and management need customer data and do they have access to the same customer data?Does your marketing department segment and do targeted campaigns?Is the customer needs and wants a priority for your company?Does your company have a high customer “churn” rate. Is employee compensation linked to customer satisfaction?

DiscussionDiscussion

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Business CaseAre you ready for CRM as an organization?

Is there a champion? Who is the champion? What is the information intensity of the

organization? Organizational dynamics

Organization structure Incentives Interaction between sales, marketing, service, IT,

information management departments IT level in the organization

Excel…

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Business CaseWhat is the best approach for your company to implement a CRM system? A Big Bang approach

High-level executive sponsorship is required Organization with a customer focus Sophisticated IT level

Small increments Do not require high-level executive

sponsorship. Divisional/channel leadership.

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Business OrganizationBusiness organization is critical as there is a positive correlation between organization, CRM success and overall performance. For a successful CRM implementation, organization needs to:

Align objectives and incentives throughout the organization as consistent with a customer centric approach

Provide customer managers with authority Recruit and develop the right people with the right skill

set Make sure the relationship between employee

satisfaction, customer satisfaction, company performance and incentive plan is clearly defined.

Have customer-centric metrics

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Business OrganizationProduct-centric, channel-centric or other metrics needs to be converted to customer-centric metrics.

Traditional Metrics Customer-centric metrics

Call duration

Product P&L Response rate

Retention Average waiting time

Customer P&L Customer NPV/Revenue/Profit

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Business OrganizationWith a CRM focus, there needs to be a process and culture change within the organization. Training

On the use of customer metrics/scorecard to make decisions

Rotations to expose different departments to different methods that deals with the customer

Metrics and reporting Customer scorecards linked to business financials and

budget Performance assesment

Compensation/incentives linked to customer specific metrics

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CRM (customer) StrategyDefine business strategy and align CRM strategy with business strategyUnderstand the customer and define customer segment

A company or A household or an individual A telephone number A cookie Or maybe all...

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CRM (customer) Strategy Establish resource requirements Propose methods for learning about customers Creates a starting point for a customer information strategy

What information do I need? What information do we currently have? How can I turn information into action? How can we capture information?

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CRM (customer) Strategy Calculate Customer value

Identify ways to measure the value of the relationship Revenue: sum of annual revenue per customer Gross profit: revenue-variable cost Customer value score: weighted key performance

indicators (such as RFM score) Net present value (NPV): lifetime revenues-lifetime

costs discounted to present financial value Use the calculated value to determine

customer strategy

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Customer DataNeed: Consistently clean, reliable customer level data Continuously accessible by all units within the organization Can efficiently manage large amounts of data.

And... Can do all these in a short time period

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Data MiningData mining/knowledge discovery is defined as the

non-trivial process of identifying valid Novel (previously unknown) potentially useful and ultimately understandable patterns in

data.

Source: Advances in Knowledge Discovery and Data Mining, Fayyad, Piatetsky-Shapiro, Smyth, and Uthurusamy, (Chapter 1), AAAI/MIT Press 1996

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Data MiningIn this course, we will use data mining broadly and define it as any activity in which data is prepared, analyzed and turned into actionable information to support decision making.

Hence, we will combine statistics (predictive modeling) and strictly defined data mining.

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Data Mining

Low utility

High utility

Data

Information

Knowledge

Decisions

& Actions

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Data MiningMany techniques can be used depending on the objective.

Market basket analysis Patterns in transactional data Rules based on products purchased together

Clustering/segmentation Define customer groups. Within groups, customers are similar to each

other, between groups, they are not. Clickstream analysis

Optimize web content. Which pages are visited most often, and who visits them

Randomized experiment Test/control Experimental design

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Data Mining Descriptive Statistics

Mean/median/mode Variance/standard deviation

Classification/Prediction Regression Logistic regression Decision trees (CART/CHAID) Neural Networks

Data reduction methods Principal components Factor analysis

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Data MiningKnowledge obtained from the data needs to be improved continuously.

Measure

An

alyze

Learn

Test ContinuousLearning Cycle

• Stage 1: Test (design & execute)• Stage 2: Measure (outcome)• Stage 3: Analyze (success?)• Stage 4: Learn (adjust strategy)

Discussion: Why is it important to learn and refine our knowledge?

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Customer ContactCustomer contact is the process of

designing Channel Personalize the message

“Hey Nihat, have you seen our commercial on…” “Dear Mr. Solakoglu, …”

executing, and measuring

the customer contacts for any activity that requires an interaction between the customer and the company (i.e. marketing campaigns for a new product).

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Customer ContactCampaign execution is an example of customer contact.

Objective

Targeting

Segmentation

Optimization

Personalization

Fulfillment

High level campaign implementation process

Channel

Offer

Time

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Track and LearnTracking customer interactions and learning and adjusting customer strategy is an integral part of CRM process.

How did we contact the customer? Was it a success (e.g., a marketing campaign)? Was the outcome of the contact different than what

we expected or the previous ones? Can we leverage the result for future contacts?

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Track and LearnIn tracking the contact results, we should be careful

not to compare apples and oranges not to confuse cause versus correlation To look for the right definition of success for the

relevant audience

Remember tracking and analyzing results are linked to data mining efforts and can leverage a common infrastructure.

Results tracking and customer data should be accessible at the same data.