Customer Relationship

Management
MANAGING BUSINESS RELATIONSHIPS
WEEK 7, LECTURE 1.

Lecture Overview
CRM and
d relationship
l ti
hi marketing
k ti
Definition of CRM
Benefits of CRM
Role of CRM
Direct marketing

CRM and Relationship

p Marketing
g
In
I th
the academic
d i community,
it th
the tterms relationship
l ti
hi

marketing and CRM are often used interchangeably

(Parvatiyar and Sheth 2001).
2001) However,
However CRM is more
commonly used in the context of technology
solutions and has been described as information
informationenabled relationship marketing (Ryals and Payne
2001 p.
2001,
p 3
3 Payne and Frow (2005,
(2005 P.167)
P 167)
Going
G i to concentrate on the
h technical
h i l elements
l
off

CRM in the second half of the lecture

Benefits of CRM
Acquiring new a customer can cost 5 times more than

retaining a customer (Kotler & Keller, 2006)

Churn
Ch
iin some iindustries
d
i very hi
high
h e.g., 40%
% per year iin mobile
bil

phone industry (Benjamin, 2008), UK average is 22% (The

Knowledge: Stat watch, 2008)
A 5% decrease in churn can cause profits to increase by 25

85% depending on industry sector (Kotler & Keller,

Keller
2006)
As relationship progresses
progresses, customers become more profitable

(Kotler & Keller, 2006)

Can
C aid
id cross selling
lli ((Tapp, 2005))

Defining
g CRM
Defining
D fi i CRM iis problematic,
bl
ti th
there iis no one

accepted definition
Big differences between definitions are
The association with technology
The timescale of the use of CRM
The objectives set for the CRM programme
Definitions impact on how CRM is applied or what is

expected of it
Payne and Frow (2005)

CRM Continuum
Payne
P
and
d Frow
F
(
(2005)
) identified
id tifi d a continuum
ti
off

definitions from tactical, technological definitions to more

strategic organisational definitions
strategic,

Payne and Frow (2005)

Perspective
p
1: Tactical CRM Definitions
Some d
S
definitions
fi iti
cited
it d b
by P
Payne and
d Frow
F
(
(2005)
)
CRM is an e-commerce application (Khanna, 2001)

I.e., only concerned with sales

CRM
CRM is data driven marketing
marketing (Kutner and Cripps,
Cripps

1997)

Concentration on the use of data

Concerned either with a short term objective or one

narrow part off the
h b
business
i

Payne and Frow (2005)

Perspective
p
2: Technical CRM Definitions
CRM iis a tterm ffor methodologies,
th d l i ttechnologies
h l i and
d

e-commerce capabilities used by companies to

manage customer relationships
relationships (Stone and
Woodcock, 2001)

I e CRM is about technology

I.e.,

Covers more than just e-commerce,

e commerce but still excludes

the people element of CRM

Payne and Frow (2005)

Perspective
p
3
3: Holistic CRM
CRM iis about
b t th
the d
development
l
t and
d maintenance
i t
off

long term mutually beneficial relationships with

strategically significant customers
customers (Buttle 2001)

Less about how CRM is carried out

Similar definition to relationship marketing

CRM is an enterprisewide initiative that belongs in

all areas of an organization

organization (Singh and Agrawal,
Agrawal
2003)

Emphasises need for whole organisation to be involved

Both definitions broad, but quite light on detail of how

this is done
Payne and Frow (2005)

Perspective
p
3
3: Holistic CRM
Slightly
Sli
htl more detailed
d t il d definition
d fi iti given
i
b
by Elmuti,
El ti Jia
Ji
and Gray (2009, citing Liu, 2007)
CRM
C
can

b
be d
defined
fi d as b
business
i
strategies,
i
processes and information technology which enable
a company tto optimize
ti i revenue and
d iincrease th
the
value through understanding and satisfying the
i di id l customers
individual
st
s needs
ds
Technology
gy still has a role,, but it is not the only,
y, or

even the most important, element

Note,
N
no mention
i off marketing
k i

Perspective
p
3
3: Holistic CRM
CRM iinvolves
l
th
the whole
h l organisation
i ti working
ki tto

develop and maintain the relationship with the

customer

CRM puts the customer into the central focus of

multiple organizational activities
activities Ernst,
Ernst et al (2011)

Recognises that everyone in the organisation

influences the quality of the customer experience and

relationship

What Gummesson (1991) calls part-time marketers

Definition of CRM
CRM i
is th
the process off managing
i d
detailed
t il d

information about individual customers and

carefully managing all customer touch
touch points
points to
maximise customer loyalty Kotler & Keller
(2006) p 252
A customer touch p
point refers to anyy occasion when

a customer interacts with the organisation, e.g.,

an inquiry, a sale, receiving a piece of mail.

Relationship
p Development
p
Remember
R
b this?
thi ?
Each act is a customer touch point

Holmlund, 1997, cited by Fill, 2009

Role of CRM
To
T id
identify
tif th
those customers
t
th
thatt are mostt

valuable to the organisation

To segment the organisations customers in the most

useful way, e.g., by demographics, needs, value

To retain the customers that are most valuable to the

organisation
g

Involves thinking about the economic indicators of

relationship intensity

Relationship
p Intensityy

Economic indicators identify best customers

Fill (2011, p. 569 citing Bruhn)

Identifying
y g Customer Value
R
Recency, frequency
f
and
d value
l (RFV)
Based on historical data
Customer lifetime value
Net p
present value of the future p
profits expected
p
from the
customer
Based on predictions of future activity
Remember not all customers are worth having a

relationship with, e.g., Egg

Egg acts on 'risky

risky customers
customers

Equally not all customers will want a relationship

with
i h the
h organisation
i i

Leakyy Bucket
Customers
C t
are constantly
t tl lleaving
i

relationships, for various reasons

Try to limit leaks, but
there needs to be a constant

flow of new customers entering

relationships

Therefore acquisition activity

needs to continue
However, wont be
b the
h only,
l or the
h
main, focus of the organisations
activities

Virgin
g Media
Customer
C t
churn
h
now att 1
1.5%
5% year on year tto November
N
b

2009 ( The Week, 2009)

Added
Added 17,800
17 800 new customers in the third quarter
quarter
of 2009 ( The Week, 2009)
Average revenue per user up 5
5.3%
3% to 44
44.24
24 ( The Week
Week,
2009)
Has database
b
of customers of different p
products
Make use of a number of tools and media

TV,, press
p
and outdoor ads
Website, email and text

Nature of p
product range
g suggests
gg
CRM suitabilityy

How CRM is Carried Out

Relationships
R l ti
hi are based
b d on ((among other
th thi
things))

knowledge of the other party, in this case the

customer
For organisation this means building and applying a
picture of yyour customers
p
Generally this means using direct marketing

CRM is not just direct market, but direct marketing does play a big role

Also known as;

Database marketing
Direct and database marketing
Data driven marketing

Direct Marketing
g
Direct
Di t marketing
k ti iis a way off acquiring
i i and
d keeping
k
i

customers by providing a framework for three

activities: analysis of individual customer
information, strategy formation and
implementation such that customers respond
directly (Tapp, 2005, P. 9)
Central point is information

What Data is Needed

Organisations
O
i ti
collect
ll t and
d use a wide
id variety
i t off d
data
t

on consumers
Personal / contact data
Name
Address
Telephone number
Email address

What Data is Needed

D
Demographic
hi iinformation
f
ti
Gender
Age
A
Marital status
Location
B
Behavioural
h i
l data
d t
Purchase patterns
Usage
U
d
data
Loyalty

What Data is Needed

M
Marketing
k ti related
l t d iinformation
f
ti
Product(s) purchased
Repurchase
R
h
rate
t
Method of payment
Preferred contact method
Discounts due (if any)
Total spend

Sources of Customer Data

Internal
I t
l sources

Product registration docs

W
Warranty
t cards
d
Credit card details
Subscription details
In-store offers
Requests for product information
Records from events or promotions

Sources of Customer Data

Specialised research companies e.g. Neilsen
Life style houses e
e.g.
g Consumer Surveys
Competitions / on pack promotions
Web site

Storing
g and Using
g Data
Data
D t iis stored
t d iin a d
database
t b
Used both as a way of understanding and contacting

individual customers and detecting trends in the

marketplace

Next Time.
How
H
CRM is
i carried
i d outt