Chapter 11Customer

Relationship Management

Learning Objectives1. Describe the customer

relationship management process

2. Understand how customer shopping data are collected

3. Explain the methods used to analyze customer data and identify target customers

4. Outline how retailers develop their frequent-shopper programs

5. Explain various ways to implement effective CRM programs

What is CRM?• A business philosophy and set of

strategies, programs, and systems that focuses on identifying and building relationships with a retailer’s valued customers.

• Increases its share of wallet– the percentage of the customers’

purchases made from the retailer

CRM Process• To develop loyalty and repeat-

purchase behavior among a retailer’s best customers.

• Customer Loyalty– Customers are committed to

purchasing merchandise and services from a certain retailer and will resist activities of competitors attempting to steal their patronage.

CRM Process Overview• Step 1:

– Collect customer data• Step 2:

– Analyze customer data and identify target customers

• Step 3:– Develop CRM through frequent-shopper

programs• Step 4:

– Implement CRM programs.

Step 1:Collecting Customer Shopping Data• Create customer database by

including the following:– Transactions – a complete history of

purchases made by the customer• Date, SKU, price, special promotion response

– Customer contacts – a record of interactions between the customer and the retailer• Website, kiosks, blogs or Facebook, returns,

phone calls, catalogs, emails– Customer preference – what the customer

likes• Colors, brands, fabrics, flavors, sizes

– Descriptive information – customer info used in developing market segments• Demographic, psychographic

Step 1:Collecting Customer Shopping Data• Identifying information for in-store

purchases can be more difficult than online shopping. Here’s how to overcome:– Ask for identifying information

• Phone number, email, name, address– Connect internet and store purchasing

data• Credit and debit can be linked to info provided

with online purchases– Offer frequent-shopper programs

• Also called loyalty programs – identify and provide rewards to customers who patronize a retailer

• Frequent-shopper cards are perfect for keeping track of this info

Step 1:Collecting Customer Shopping Data– Use biometrics

• Measurement of human characteristics such as hand geometry, fingerprints, voice or iris

• Helps ensure consistent data collected• Customers can receive personalized discounts

printed when entering store• Faster checkout , labor cost reduction, reduces

fraud and shoplifting – Place RFID chips on merchandise

• Can acquire a customers personal information as well as product interests

• Uses a global satellite tracking system– Track customers movement throughout the

store

Step 1:Collecting Customer Shopping Data

Step 1:Collecting Customer Shopping Data• A customer’s privacy is normally

measured by:– Control of information given– Knowledge about why information is

collected• Online information is collected by

cookies.– Small files of browsing and personal info

stored on a customer’s computer • Personal info, websites, passwords, money

spent, social networking, etc.

Step 1:Collecting Customer Shopping Data • Protecting customer privacy is guided

by three principles:– Privacy by design

• Business “default settling” • Responsibility of retailer, not customer• Provide security • Guidelines on how and when data is used and

deleted – Simplified consumer choice

• Do Not Track ability for consumers • Ability for consumers to view what the retailer

is tracking

Step 1:Collecting Customer Shopping Data • Protecting customer privacy (con’t)

– Greater transparency • Improving consumers understanding of data

collection

• EU (European Union) has more restrictions on consumer data.– Consumers own personal info

• Must opt in or opt out of data collection agreement

Step 2:Analyzing Customer DataIdentifying Target Customers• One objective for analyzing the customer database is:– Identifying the customers whose loyalty

and patronage will significantly add to the retailer’s bottom line• Customer lifetime value (CLV) – the

expected contribution from the customer to the retailer’s profits over their entire relationship with the retailer.

• RFM analysis – used to determine customer segments for promotion or catalog mailings

– (Recency, Frequency, Monetary) – How recently the customer made a purchase– How frequently purchases are made– How much money is spent

Step 2:Analyzing Customer DataIdentifying Target Customers • Second objective for analyzing the customer database:– Using analytical methods to improve

decisions made by managers• Retail analytics - Analyzing customer data

using statistical techniques and models• Data mining – an information processing

method that relies on search techniques to discover new insights into the buying patters of customers, using large databases

– Market basket analysis– Targeting promotions– Assortment planning

Step 2:Analyzing Customer DataIdentifying Target Customers – Market basket analysis

• Data mining tools determine which products appear in the market basket that a customer purchases during a single shopping trip.

– Computer program counts how many times two products get purchased together

• Determines where to place products and which to pair together for promotions

– Targeting promotions• Can help provide insight into assortment

decisions and promotions – Ex: specific brand of conditioner and shampoo

will be purchases at same time

– Assortment planning • High CLV customers’ brand preferences will

dominate shelves even if it’s not the highest gross profit item

Step 3:Developing CRM Programs• Two objectives of CRM programs are:

– To build a customer database that connects customers and their purchases

– To encourage repeat purchase behavior and loyalty

• Great for building databases but not at building customer relationship.– Similar at different retailers– Costly to maintain– Difficult to change

Step 3:Developing CRM Programs• Ways to make frequent-shopper programs more effective:– Offer tiered rewards

• Gives incentive• Must create attainable tiers

– Treat high CLVs as VIPs• Consumers love to feel special• Must be promoted in advance

– Incorporate charitable contributions• Will contribute to effectiveness but should not

be the main focus of the program

Step 3:Developing CRM Programs

• More ways to make frequent-shopper programs more effective:– Offer choices

• Better prices, coupons, points store, presale items

– Reward all transactions• Even when joining

– Make the program transparent and simple

Step 4:Implementing CRM Programs• Customer pyramid

– 80-20 rule• 80% of sales come from 20% of the customers• CLVs

– Four segments most retailers use are:• Platinum• Gold• Iron• Lead

Step 4:Implementing CRM Programs• Customer pyramid

– Platinum• Top 25% CLVs• Most profitable and loyal• Place more value on customer service than

price– Gold

• Bottom CLVs• Less loyal and profitable• Place more value on price• Should give incentive to move up to platinum

Step 4:Implementing CRM Programs• Customer pyramid

– Iron• Modest purchases

– Ex: low income, price sensitive, competition loyalty

• Not profitable enough for special treatment– Lead

• Negative contribution• Require high attention• Often return items• Give retailer bad name• Retailer must pay no attention to these

customers

Step 4:Implementing CRM Programs• For retailers to retain their customers, two approaches must be made.– Personalization

• 1-to-1 retailing – developing retail programs for small groups or individual customers

• Focus groups– Community

• Retail brand community - a group of customers who are bound together by their loyalty to a retailer and the activities the retailer sponsors and undertakes.

• Attract new customers to retailer• More reluctant to leave the “family”

Step 4:Implementing CRM Programs

• Making good customers into best customers is called customer alchemy.

• Ex. Converting iron to gold..– This is done by add-on selling – offering

and selling more products and services to existing customers to increase the retailer's share of wallet with these customers.• Customer database comes in handy here

Step 4:Implementing CRM Programs

• Dealing with unprofitable customers – Lead segment – “Getting the lead out” is done by:

• Offering less costly services to satisfy their needs

• Charging customers for the services they are abusing

– Ex: returning items excessively • Exclude them from the retail offerings

altogether

Collect customer

dataAnalyze data and identify

target customers

Develop CRM programs

Implement CRM

programs

Summary1. CRM is implemented by retailers to

gain and retain loyal customers. 1. Collect data, Analyze data and Identify

customers, Develop CRM, Implement CRM

2. Customer info is gathered and stored in databases.

1. Privacy must always be taken into consideration.

3. Data can be analyzed by CLV or RFM.1. Market basket, targeting promotions,

assortment planning

4. Frequent-shopper programs build databases and ensure repeat business

1. Tiers, VIP, Charity, Choices, Rewards, Simple

5. Unprofitable customers need to be identified and dealt with separately.

Key Terms• Add-on

selling• Biometrics• Cookies• Customer

database• Customer

lifetime value (CLV)

• Customer loyalty

• Customer

relationship management (CRM)

• Data mining• 80-20 Rule• Frequent-

shopper program

• Loyalty program

• Market basket analysis

• 1-to-1 retailing

• Opt in• Opt out• Retail

analytics• Retail brand

community• RFM analysis• Share of

wallet