crm unit (operational issues in implementing crm)

1

By :

Prof. Amit Kumar

Relationship Officer:ABN AMRO Slide No : 02 ERP Functional Consultant

Customer Relationship Management Operational Issues in Implementing CRM

IILM Graduate School of Management


Course Contents

Process Overview of CRM Developing CRM Programmes

1. Customer Retention

2. Converting Good Customers into Loyal

3. Dealing with Unprofitable Customers

Implementing CRM Customer Loyalty Programs & Rewards Evaluating Loyalty Programs



Action

Learning

Developing CRMProgrammes

Implementing CRM Programmes

Analyzing customer data & identifying target customers

Collecting customer data

CRM Process Cycle




Collecting Customer Data

• Customer database

• Identifying information

• Privacy & CRM programmes




Customer Database

Ideally, database contain following information:

• Transactions

• Customer contacts

• Customer preferences

• Descriptive information

• Response to marketing activities




Identifying Information

1. Asking for identifying information

2. Offering frequent shoppers card

3. Linking checking account & credit cards to customer names




Privacy concerns….

THERE IS GROWING CONSENSUS THAT PERSONAL INFORMATION MUST BE FAIRLY COLLECTED, THE

COLLECTION MUST BE PURPOSEFUL, & DATA SHOULD BE RELEVANT, MAINTAINED AS

ACCURATE, ESSENTIAL TO THE BUSINESS, SUBJECT TO THE RIGHTS OF THE OWNING

INDIVIDUAL, KEPT REASONABLY SECURE, & TRANSFERRED ONLY WITH

THE PERMISSION OF THE CONSUMER.




Analyzing Customer Data & Identifying Target Customers

• Data mining

• Market Basket analysis

• Identifying market segments




Market basket analysis



• Market Basket Analysis is a modeling technique based upon the theory that if you buy a certain group of items, you are more (or less) likely to buy another group of items. For example, if you are in an English pub and you buy a pint of beer and don't buy a bar meal, you are more likely to buy crisps (US. chips) at the same time than somebody who didn't buy beer.

• The set of items a customer buys is referred to as an itemset, and market basket analysis seeks to find relationships between purchases. Typically the relationship will be in the form of a rule: IF {beer, no bar meal} THEN {crisps}

• The probability that a customer will buy beer without a bar meal (i.e. that the antecedent is true) is referred to as the support for the rule. The conditional probability that a customer will purchase crisps is referred to as the confidence.

One that precedes another IILM Graduate School of Management

Market basket analysis in RETAIL



Market basket analysis in the retail business .In this case retailers use it to understand the purchase behaviour of groups of customers, and use it for cross-selling, store design, discount plans and promotions.

A widely used example of cross selling on the internet with market basket analysis is Amazon.com's use of suggestions of the type:

"Customers who bought book A also bought book B“

e.g. "People who read History of Portugal were also interested in Naval History".


Market basket analysis in RETAIL



• In the case of retailers with stores, market basket information enables the retailer to understand the buyer's needs and rewrite the store's layout accordingly, develop cross-promotional programs, or even capture new buyers (much like the cross-selling concept).

• This even helps retailers avoid discounts, e.g. knowing that people who buy more than 12 cans of Pepsi also usually buy 12 cans of 7up during the same store trip, allows them not to discount both drinks at the same time, for the sale of one item usually leads to the sale of another.


Identifying Best Customers

• Lifetime value• Customer pyramid• RFM analysis




Lifetime value (LTV)

• Lifetime customer value (LTV) is the expected contribution from the customer to the retailer’s profits over his or her entire relationship with the retailer:• LTV is estimated by using past behaviors for forecasting:

– Purchases in future – gross margin from these purchases– costs associated with servicing the customers

• Some of the costs associated with customer: – advertising & promotions used to acquire the customer & – cost of processing merchandise & promotions that the customer has

returned• These assessments of LTV are based on the assumption that future

purchase behavior will be same as in the past




Best profitable

Customer

Least profitable

Customers





Relationship Officer:ABN AMRO Slide No : 16 ERP Functional ConsultantIILM Graduate School of Management

RFM Analysis



RFM analysis is a marketing technique used to determine quantitatively which customers are the best ones by examininghow recently a customer has purchased (recency), how oftenthey purchase (frequency), and how much the customer spends (monetary). RFM analysis is based on the marketing axiom that"80% of your business comes from 20% of your customers."

Recency - When was the last order?

Frequency - How many orders have they placed with us?

Monetary Value - What is the value of their orders?

RFM stands for:


RFM analysis for a Catalogue retailerRecency

Frequency Monetary 0-2 mths 3-4 mths 5-6mths Over 6mths

1 – 2 <$50 .050* .035 .010 .0011 – 2 Over $50 .050 .036 .011 .001

3 – 4 <$150O .080 .050 .015 .006

3 – 4 Over $150 .090 .050 .017 .008

5 – 6 <$300 .100 .060 .025 .010

5 – 6 Over $300 .120 .080 .027 .012

Over 6 <$450 .150 .100 .035 .018

Over 6 Over $450 .160 .110 . 040 .020 *% of customers in the cell who made a purchase from the last catalogue mailed to them .




RFM Target Strategies

RECENCYFrequency Monetary 0 -2 mths 3-4 mths 5-6mths Over 6mths

1 – 2

1 – 2

<$50

Over $50

First time customers Low value customers

3 – 4

3 – 4

<4150

Over $150

Early repeat customers

Defectors

5 – 6

5 – 6

Over 6

Over 6

<$300

Over $300

<$450

Over

High-value customers Core defectors




Developing CRM Programmes

1. Retaining Best customers

2. Converting good customers into high-LTV customers

3. Getting rid of unprofitable customers




Customer Retention

1. Frequent shopping programmes

2. Special customer service

3. Personalization

4. Community





• Used by retailers to:– Build customer base

– Encourage repeat purchase behavior & loyalty

• To encourage customers to enroll in the programme & use the card




1. Can be very expensive2. Difficult to make corrections in the programme when

problems arise3. It is not clear whether these programmes increase customer

spending behavior & loyalty towards the retailer4. Difficulty in gaining a competitive advantage:

– Can easily be duplicated by competitors, being so visible – Offer benefits on personalized basis to avoid this problem



Limitations: 4 factors



Special customer service:

– Unusually high quality service to Platinum customers

– Sometimes subtle


2. Special customer service


so slight as to be difficult to detect or describe; elusive: a subtle smile. Difficult to understand


Limitations:• Customers not identical, even within Platinum

• Fortunately, customization possible today


3. Personalization



Community:

– Develop a sense of community among customers, say, for example:

• Internet bulletin board


4. Community



http://www.tescoplc.com/plc/

– Silver & Gold to Platinum

– For example, Tesco


Converting good customers into best customers

Cross-selling & add-on selling:• Customer base reveals opportunities for these



Dealing with unprofitable customers

• In many cases bottom tier actually have negative LTV

Two approaches for getting the ‘lead’ out:

1. Offering less costly approaches for satisfying needs of lead customers

2. Charging the customers for the services they are abusing




Implementing CRM Programme

• Increasing sales & profits from the CRM programmes is a challenge

• This experience of CRM emphasizes that effective CRM requires more than:– appointing a manager of CRM

– installing a computer system to manage

– analyze a customer database

– making speeches about importance of customers




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portance of customers

• Effective implementation of CRM programmes requires the close coordination of activities by different functions in a retailers organization.


Scenario Analysis

Purpose & Objectives

Business planning

Process design

Technology & vendor selection

Solution development

Implementation

Measurement

STAGES





Scenario Analysis• What is the business of the firm and who are its customers?• Where is the firm placed with respect to its competitors? If the

firm has a monopoly then the firm may not need the CRM approaches.

• What is the present business scenario and how is it likely to evolve in the future in short, medium as well as long-terms?

Purpose Definition• After the analysis of the environment, the firm needs to define

its purpose for going in for a CRM exercise.• This may be to build more effective, efficient and long lasting

relationship with their customers.





Planning• Planning phase includes documentation of high-level CRM

business goals in the form of a business document that become the focal point for strategy development

• Planning also includes details on what needs to be done and the people who would be responsible for the same.

Process design• Process design is an important phase wherein the firms look at

their current processes and try to redesign the processes to male them more customer focused.





Solution Development• This stage consists of various activities such as customization

of features, development of new features that are not present in the product, process integration and testing by using the prototype and design the database.

Measurement• Final stage in the CRM implementation involves development

of metrics for measuring the performance of CRM solution and comparing it with desired performance.

• If CRM solution falls short of expectations, the firm might go back and redefine its CRM objectives.

• Sometimes, the improvement may be gradual as users become more familiar with new technology and business processes.



• Customer loyalty and reward programmes aim at capturing customers and reward them for their loyalty.– Examples, airlines frequent flier deals (‘Desh-Videsh program’

of Indian Airlines)

– Telecommunications firms lowering their fees on getting more volume from a customer

– Banks and credit card firms offer incentives up to 5 % of the total value of transactions conducted using their credit cards.


Customer Loyalty Programs & Rewards



From a customer’s perspective, five elements determine a

programme’s value. They are :

1. Cash Value

2. Choice of redemption options

3. Aspirational value

4. Relevance

5. Convenience


Reward Programmes



Cash Value• The cash value of a reward can be thought of as the value of a

reward that the customer would have to pay in cash to acquire it. As a percentage rebate on what the customer spending to earn the reward.

Choice of redemption• Sometimes, the redemption choice for a customer is limited.

For example, an airline that allows the customer redeem his/her frequent flyer points only when the seats are unsold makes it an unattractive proposition for the customer.

Convenience• If it is not convenient for a customer to redeem his rewards as

and when desired by him, then too, the attractiveness of a rewards programme will take a beating.


Reward Programmes



Aspirational value• Firms use aspirational value element by trying to appeal to the

psychology of the customer.• A discount on a telephone bill does not have the same

aspirational value as does a dinner with sachin Tendulkar.• The key is offering the right choice of aspirational redemption

options.

Relevance• Rewards programme lacks relevance if the customers are not

rewarded something in short run for their loyalty.• If they have to wait for years before becoming eligible for

some reward, most customers would probably not join such a programme.


Reward Programmes



Following points to be taken into consideration while evaluating

the retention:1. Targeting the Right customers- most valuable

customers should be targeted and rewarded.

2. Value Provided – The firm should also periodically review whether customers value the programme and consider their views about it. If it is seen that the customers are not valuing rewards provided by the firm then it is appropriate to change the reward structure.

3. Measuring Increase in Loyalty- a reward programme should generate an increase in loyalty, increase in the amount of purchases and repurchases made by customers.


Evaluating Loyalty Programs



crm unit (operational issues in implementing crm)

Documents

customer retention

abn amro slide

crm market basket analysis

following information

personal information

unprofitable customers

good customers

certain group of items