Ch. 10 Customer Relationship Man-agement

(CRM)Rev: Apr., 2015

Euiho (David) Suh, Ph.D.

POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)

Dept. of Industrial & Management EngineeringPOSTECH

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Evolution of Marketing

The Dark Ages

The Renaissance

The Industrial Revolu-tion

The Information AgeThe Age of Optimization

Artistry and AlchemyCraftsmanship

Mass Marketing

Database Market-ingCustomer Rela-tionship Manage-ment

Cross-talk , Mass-talk

Focus groups, interviews

Files/Computer mailing lists

Databases/Segmentation

Data Warehousing, Data Mining, Analysis Tools (OLAP)

Marketing Age

Techniques Technology

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What is CRM? (1/2)

Managing the customers Managing the customers

Customer relationship management (CRM) is a system for

managing a company’s interactions with current and future customers. It often involves using technology to organize,

automate, and synchronize sales, marketing, customer service, and 

technical support.[1]

What is CRM? (2/2)

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Why CRM?

■ It is easier to retain a customer than to gain a new customer

– It is 6-7 times more expensive to gain a new customer than retain an existing customer (Harvard Business Review)

– 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

– Customers become more precarious

– A 5% increase in customer retention can increase profits 60-100% proved customer retention

The impact of a 5% increase in retention rates

Industry Increase in profitsAdvertising Agency 95%life-insurance company 90%branck bank deposits 85%publishing 85%auto service 81%auto/home insurance 80%credit card 75%industrial brokerage 50%industrial distribution 45%industrial laundry 45%office-building management 40%

Source: The Loyalty Effect (Harvard Business School Press)By Frederick Reichhek

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Database Marketing

■ A form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or ser-vice for marketing purposes. The method of communication can be any address-able medium, as in direct marketing.

■ Distinction between direct and database marketing: Attention level paid to the analysis of data.

■ Database marketing emphasizes the use of statistical techniques to develop models of customer behavior, which are then used to select customers for com-munications. As a consequence, database marketers also tend to be heavy users of data warehouses, because having a greater amount of data about customers increases the likelihood that a more accurate model can be built.

■ Two Types of Marketing databases, ■ 1) Consumer Databases: primarily geared towards companies that sell to con-

sumers, often abbreviated as [business-to-consumer] (B2C) or BtoC. ■ 2) Business Databases: Much more advanced in the information that they can

provide. This is mainly because business databases aren't restricted by the same privacy laws as consumer databases.

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Explanation of CRM

Create a Database

Analysis

Customer Selection

Customer Targeting

Relationship Marketing

Privacy Issues

Metrics

Direct e-mails Call Center Mass customization or developing

products that fit individual customer’s needs

CRM Framework

Main concept of CRM: managing valuable customer in a long-term view Company should focuses on value of customer, instead of short-term profit

Operational CRM

DBM DW OLAP Call Center Service Center CRM

Various Types of CRM

Origin of CRM

Key Point to Succeed

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Benefits of CRM

Real-time customization and personalization of products and services

Track when and how a customer contacts the company

Identify and target the best customers

Provide a consistent customer experience

Provide superior service and supportacross all customer contact points

Benefits of CRM

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Three Phases of CRM

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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 cus-tomers and organizations

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CRM Architecture

Business Rules and Metadata Management

Workflow Management

Marketing Data mart

Campaignmanagement

Analytics DataMart

Reporting DataMart

Campaign management

Data Mining/Analytics

Ad Hoc Query andReporting

Direct Mail

ContactManagement

Call Centers

Sales Force

Customer Service Centers

Internet

E-Mail

Other

ContactHistory

TransactionHistory

CustomerProfile and

AccountData

Warehouse

External data

ETL Tools

Data Source

Marketing Data Source

Decision Sup-port Applica-tions

Communication Channels

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Application Clusters in CRM

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Contact and Account Management

■ CRM helps sales, marketing, and service professionals capture and track relevant data about

– Every past and planned contact with prospects and customers

– Other customer business & life-cycle events

■ Data are captured through touch points– Telephone, fax, e-mail, Websites

– Retail stores, kiosks, personal contact

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Sales

■ A CRM system provides sales reps with the tools and data resources they need to

– Support and manage sales activities

– Optimize cross- and up-selling

Up-selling & Cross-selling

■ CRM also provides the means to check on a customer’s account status and history before scheduling sales calls

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Marketing and Fulfillment

CRM systems help with direct marketingcampaigns by automating tasks

Qualifying leads for targeted marketing

Scheduling and tracking mailings

Capturing and managing responses

Analyzing the business value of a campaign

Fulfilling responses & requests

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Customer Service and Support

■ CRM helps customer service managers create, assign and manage cus-tomers’ requests for service

– Call center software

– Help desk software

– Web-based self-service

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Retention and Loyalty Programs (1/2)

Boosting customer

retention 5% can boost

profits 85%

It costs 6 times more to sell to

a new customer

An unhappy customer will

tell 8-10 others

The odds of selling to an

existing customer are

50%; a new one 15%

70% of complaining

customers will do business with the

company again if it quickly fixes a

problem

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Retention and Loyalty Programs (2/2)

■ Enhancing and optimizing customer retention and loyalty is a primary ob-jective of CRM

– Identify, reward, and market to the most loyal and profitable customers

– Evaluate targeted marketing and relationship programs

Limitation of CRM

35.3 34.9 36.439.9

45.7

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2002 2003 2004 2005 2006 2007

Domestic CRM Market Transition (license)

Source :http://www.krgweb.com

CAGR:13.5% unit: billion won

Sin One : Failing to Plan Sin Two : Failing To Establish Outcomes Sin Three : Excluding the Human Factor Sin Four : Automating Flawed Processes Sin Five : Ignoring Constraints Sin Six : Disregarding Politics Sin Seven : Choosing the Wrong Vendor

Source: interview of Gartner Research’s Beth Eisenfeld with CRMDaily

CRM Failure

• 75% of CRM projects that do not deliver measurable ROI will have failed because of poor business executive decision-making

• ½ of the companies got worse performance tasks, ¼ of companies which implement CRM system didn’t get improvement of tasks

• 20% damaged customer relationshipsSource: Gartner Group, Insight Technology Group report

CRM Market is getting bigger but, companies should pay too much cost

and time to implement CRM. Also, the CRM system does not guarantee higher performance

CRM Failure Reasons

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Market Leaders

Vendor2013

Revenue2013

Share (%)2012

Revenue2012

Share (%)2008

Revenue2008

Share (%)2007

Revenue2007

Share (%)2006

Revenue2006

Share (%)

Salesforce.com CRM

3,292 16.1 2,525.6 14.0 965 10.6 676.5 8.3 451.7 6.9

SAP AG 2,622 12.8 2,327.1 12.9 2,055 22.5 2,050.8 25.3 1,681.7 25.6

Oracle 2,097 10.2 2,015.2 11.1 1,475 16.1 1,319.8 16.3 1,016.8 15.5

Microsoft Dynamics CRM

1,392 6.8 1,135.3 6.3 581 6.4 332.1 4.1 176.1 2.7

Others 11,076 54.1 10,086.8 55.7 3,620 39.6 3,289.1 40.6 2,881.6 43.8

Total 20,476 100 18,090 100 9,147 100 7,674 100 6,214 100

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■Trends■ Cloud Computing Issue

■ Social Media Customer /SNS Customer

■ VRM (Vendor Relationship Management)

■ ERM(Extended Relationship Management)

■ Customer Transparency

■ Sales Effectiveness