What is CRM?

changing businesscape
Traditional Philosophy Orientation Sell products Market orientation 21st century Serve customers Interaction orientation

Mgt. criteria
Strategy motivation

Portfolio of products
Increase customer satisfaction

Portfolio of customers
Increase customer profitability

Selling approach

How many customers can How many products can we we sell this product to sell to this customer
CLV maximization

Strategy outcome Sales maximization

narrow vs. broad view of CRM

Narrow View Data base marketing - emphasizes promotional aspects linked to database efforts. Customer retention use of after sales tactics for customer bonding and staying in touch. One to one marketing use of internet and other IT services to network with individual customers.

Broad View Attracting, maintaining, and - in multi-service organizations enhancing customer relationships (Berry). Establish, maintain and enhance relationships with customers and other partners at a profit, so that the objectives of the parties involved are met (Gronroos). All marketing activities directed toward establishing, developing & maintaining successful relationships (Morgan & Hunt).

.cont.

.cont.
The domain of RM be limited to only those marketing actions that focus on serving the customer (Sheth).

loyalty grid
HIGH

Relative Attitude
LOW

Latent Loyalty No Loyalty

LOW

True Loyalty Spurious Loyalty

HIGH

Relative Behavior

implications for marketers

All the quadrants except No Loyalty are profitable for marketers Marketers must therefore think of strategies that encourage true loyalty, latent loyalty and even spurious loyalty.

encouraging loyalty
Ensure functional relevance to the customer Reward the customer Create a strong emotional connect with the customer

functional relevance
The product/service must have a meaningful position in the life of the customers.
Pampers has relevance in the life of young parents IPL has relevance for cricket enthusiasts

Functional relevance is important for behavioral loyalty

reward
This includes - Frequent flyer points, special privileges, club memberships, loyalty cards, loyalty programs of all kinds.
Southwest offers 1 free round trip anywhere for every 8 round trips. For 50 round trips in a year it offers a free companion pass for the next year.

Rewards promote behavioral loyalty and strengthen attitudinal loyalty

emotional connect
Emotional connect can be created through shared history, goals, values, intentions, interests, beliefs, respect, trust, etc.
Harley Davidson has created the HOG and organizes destination and rolling rallies and Posse ride.

Emotional connect is important for attitudinal loyalty

Relationship Management

relationship formation
A relationship comes into being when Core benefits + relational benefits* > the cost of forming and maintaining a relationship *relational benefits assume greater important
when few differences exist between competitive offerings

When is a relationship preferred?

A relationship is preferred over others as long as Net benefits from the relationship are superior to the benefits available from other alternative relationships

types of relationships
Dedication based (highly beneficial, freedom to switch, monopolist does not exercise opportunistic behavior *) Constraint based (few benefits, lack of alternatives, no choice of switching)

Relationship benefits: Large

Dedication based relationship

Free Choice to Switch

Dedication based relationship*

No relationship at all

Constraint based relationship

No Choice to switch

Relationship benefits: Small

loyalty.used/misused??
Monopoly loyalty - where no choice is available Inertia loyalty - where customers do not seek alternatives Convenience loyalty - attributed to location, timing etc. Price loyalty - where customers seek out low prices Incentivized loyalty - based upon loyalty schemes Emotional loyalty - brand loyalty, most elusive and difficult to create

classifying: loyals
George Brown: Brand Loyalty fact or Fiction Hard Core Loyals (buy only one brand all the time) Split Loyals (loyal to 2 or 3 brands) Shifting Loyals (shift loyalty from one brand to another) Switchers (show no loyalty to any brand)

findings.
An analysis of more than 100 companies across 2 dozen industries showed that Profits improve by 25-85% when customer defection is reduced by 5%. 1% increase in sales to existing customers increases profits by 17% as compared to 3% from sales to new customers. It costs 6 to 8 times more to sell to new customers than old customers.

 Probability of selling a product to a prospect is 15% while it is 50% in case of an exiting customer. Loyal customers generate more revenue for more years. Buy more within the category and across categories. CLV. Cost of maintaining existing customers is less than that of acquiring new customers. Advertising, informing and assistance costs are reduced.

 Loyal customers give great suggestions for product and service improvement. 95% customers do not complain, they just shift their business. Loyal customers complain give suggestions. Loyal customers provide positive WOM. Loyal customers are willing to pay a price premium. Study done by McKinsey shows repeat customers generate over twice as much gross income as new customers.

Evolution of RM

evolution of RM
RM existed in the pre-industrial era: Direct interaction between the producers (agriculturists and other artisans) and their customers existed. Goods and services customized to suit individual customers. Buyers and sellers knew each other. Relational bonding developed.

..cont.
Industrial Era: Mass production Emergence of middlemen Less frequent interactions between producers and consumers Marketing function performed by middlemen Transaction oriented marketing emerged

cont.
Post Industrialization De-intermediation due to advancement of technology. Growth of data base and direct marketing tools. Reducing role of middlemen. Growth of services economy. Systems integration and new purchasing approaches Hyper-competition Increasing customer expectations.

Mutual interdependence Relationship Marketing

Competition & Conflict

Mutual Cooperation

Transactional Marketing

Independence & Choice

goals of RM

ENHANCING RETAINING

SATISFYING

GETTING

PARTNER ADVOCATE SUPPORTER CLIENT CUSTOMER PROSPECT

Loyalty Ladder

4 Rs of relationship marketing
Retention Relationship Referral Recovery

Tomorrow afternoon-CRM Class

Group work -Select one company that acquires customer database -Describe the database details -Outline the objectives with which database ahs been acquired -Showcase how do the track/ measure this Physical samples welcome Thursday will be group presentation on this- Part of internal evaluation