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

Product

Pricing

Community

Distribution

Communication

Branding

Customer Relationships

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

Acquiringnew customers

Enhancingprofitability of existing

customers

Retainingprofitable 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

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

Enhancing profitability of existing customers

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

Integrated CRM Applications

Sales Force Automation Customer Support

Direct Marketing Cross-sell and Up-sell Proactive Service

Acquire Enhance RetainCustomerLife cycle

PartialFunctionalSolutions

CompleteIntegratedSolutions

Core CRM process competenciesMarketing and

Fulfillment

SalesCross-sell

Up-sellTelesales

Field Salesand Service

Loyalty and Retention

Programs

CustomerService and

BillingProspect

OrCustomer

Fax

eMail

WWWPhone

Content Management

Technical Infrastructure

How to build a CRM infrastructure1. Involve top management2. Decide on a vision of an integrated CRM3. Establish a CRM strategy and specify its objectives4. Understand the customer5. Review cultural changes that will need to occur6. Develop a business case7. Evaluate current readiness8. Evaluate appropriate applications to do a better business9. Identify and target quick wins10. Have one manager to own the end-to-end project11. Implement in stages12. Be sure to create a close-loop CRM environment13. Create concrete measurement goals

Relationship depth and profitability

Magnitude of Purchases

$

$$

$$$

Frequency of Purchases

Long-Term Profitability

Evaluating Relationship Depth

Relationship depth, as measured by the frequency and magnitude of purchases, is a critical component of customer profitability

Length of customer tenure and profitability

Short LongLifetime

Low

High

Lifetime Profit

5 key drivers of the customer value Cost of Targeting Cost of Acquisition Service and Usage Revenue Cost of service Duration of relationship

4 stages of a customer relationship

CommitmentCommitment DissolutionDissolutionExploration / Expansion

Exploration / ExpansionAwarenessAwareness

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