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Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
CUSTOMER RELATIONSHIP MANAGEMENT:CONCEPTS AND TOOLS
Chapter 9Managing The Customer Lifecycle:
Customer Retention And Development
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
3 stages of the customer lifecycle
1. Customer acquisition2. Customer retention
aims to keep a high proportion of current customers by reducing customer defections
3. Customer developmentaims to increase the value of those retained customers to the company
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Contents of a customer retention plan
1. Which customers should be targeted for retention?
2. What customer retention objectives should be set?
3. What customer retention strategies will be used?
4. How will the performance of the retention plan be measured?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Measuring customer retention
The number of customers doing business with a firm at the end of a financial year expressed as percentage of those who were active customers at the beginning of the year
However What is an active customer? Is a year always the appropriate time frame?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
The appropriate time frame
Depends on re-purchase cycle found in the industry. Insurance policies are renewed annually If the normal car replacement cycle is four years,
then retention rate is more meaningful if it is measured over four years instead of twelve months
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Three measures of customer retention
Raw customer retention rate. the number of customers doing business with a firm at the
end of a trading period expressed as percentage of those who were active customers at the beginning of the period.
Sales-adjusted retention rate. the value of sales achieved from the retained customers
expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.
Profit-adjusted retention rate. the profit earned from the retained customers expressed
as a percentage of the profit earned from all customers who were active at the beginning of the period.
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Retention issues
Retention measures should be made with an understanding of customer profitability issues
The fundamental purpose of focussing CRM efforts on customer retention is to ensure that the company maintains relationships with strategically significant customers.
It may not be beneficial to maintain relationships with all customers. Some are too costly to serve strategic switchers constantly in search of a better deal not strategically significant in roles such as benchmark,
door opener, inspiration or technology partner
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
The economic argument for customer retention
Purchases grow as tenure grows Customer management costs fall over time Customer referrals grow Premium prices
Customers who are satisfied in their relationship may reward their suppliers by paying higher prices.
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Which customers to retain?
Strategically significant customers High life-time value customers High volume customers Benchmarks Inspirations Door openers Technology partners
But… these may also be attractive to your competitors
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Commitment and retention
The level of commitment between your customer and you will figure in the decision about which customers to retain. If the customer is highly committed, i.e.
impervious to the appeals of competitors, you do not need to invest so much in retention.
If strategically significant customers are not committed to you, you may want to invest considerable sums in their retention
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Why focus on newly acquired customers?
New customers may have greater future life-time value potential than longer tenure customers. evidence suggests that retention rates rise over
time, so if defections can be prevented in the early stages of a relationship, there will be a pay-off in future revenue streams
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Two basic strategies for customer retention
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and ToolsNegative and positive
customer retention strategies
Create exit barriers Enforce the contract Extract switching
penalties
Delight them Create added value Use sales promotions Create social and
structural bonds Earn the customer’s
trust
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Positive customer retention strategy 1
‘Wow’ your customers by meeting and exceeding their expectations Create customer delight
Satisfaction plus one Do you understand customer expectations? Do you know which expectations are important? Do you know where the gaps are?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Positive customer retention strategies 2-5
2. Find ways to create additional value for customers Reward (loyalty) programs Customise the offer Customer clubs
3. Sales promotions4. Bonds
Social and Structural
5. Commitment
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Reward programs
Co-op dividend > Green Shield Stamps > American Airlines AAdvantage Card >
Nectar
Card-based schemes have changed over time No identification – member’s name Magnetic strip – chip-embedded Solus – networked Company-operated – third-party operated Trivial reward – major reward (5%)
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
The Tesco Clubcard
Tesco introduced its first loyalty program in 1995, called the ‘Clubcard’ Enabled customers to accumulate points with each purchase that
could be used to obtain discounts off future purchases. The ‘Clubcard’ proved to be very successful.
First, in attracting more customers to Tesco stores. Second, in capturing valuable information from customers with
every swipe of the card, which led to the creation of a powerful database
As a result of this initial success, 108 customer segments were identified and specific offers were made to each high-value customers receive valet parking when they come to
shop and other special privileges. In 1996 Tesco introduced two further loyalty cards, a student card and
a card for mothers, with offers specifically targeted to each group’s needs.
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Five types of value from loyalty programs
1. cash value. How much is the reward worth in cash compared to what is spent to obtain it?
2. redemption value. How wide a range of rewards is offered?
3. aspirational value. How much does the customer want the reward?
4. relevance value. How achievable are the rewards?
5. convenience value. How easy is it to collect the credits and redeem them for the reward?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Customize the offer: anything goes
People
Process
Product/brand
Price
Service
Location
Logistics
Communication
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Customer Clubs
Swatch the Club The Rolling Stones Fan Club Pampers Parenting Institute Casa Buitoni The Harley Owners Group Sainsbury’s Littleones Club The Volkswagen Club
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Sales promotions to promote repeat purchasing
In-pack or on-pack voucher Rebate or cash-back Free premium for continuous purchase Self-liquidating premium Collection schemes
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Bonds
Social Positive relationships
between individuals Empathy Responsiveness Reliability
Leads to development of trust and commitment
Structural Investments linking
customer and supplier Financial Legal Equity Technological Process Project Multi-product
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Build customer commitment
Create emotional attachment to your product, brand or company
Committed customers are Highly satisfied Believe in the superiority of your product, brand or
company Involved in your product, brand or company Resistant to competitive offers and have a strong
intention to re-buy
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Three forms of commitment
Instrumental customers are convinced that no other offer or
company could do a better job of meeting their needs.
Relational customer develops an emotional tie may be with an
individual person, a work group or the generalised company as a whole
Values-based customers’ values are aligned with those of the
company
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Commitment to a low involvement product?
1. Product modification add some feature that is highly involving because it
connects to needs, values or interests detergents reformulated to become ‘green’
2. Product association associate the product with some involving issue or
context Buy Mobil and support our Olympians
3. Product repositioning Lucozade became a sports drink Häagen Dazs reinvented the ice cream market by
being adult and sexy
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Values-based commitment
Body Shop International John Lewis Partnership Harley Davidson Co-operative Bank Cochlear Virgin Group Holden
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
…. and then there’s negative commitment too
Nestlé Infant formula in Africa
Shell Brent Spar oil platform to be dumped in the North
sea
Nike Employment practices have been criticised
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Good corporate citizenship
1. Giving positive word-of-mouth2. Offering advice on product design3. Reporting dated or tired point of sale4. Wearing your branded clothing5. Taking part in corporate events6. Participating in research7. Policing other customers8. Becoming a shareholder9. Taking role in corporate governance10.Recommending you as an employer
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Context makes a difference to retention practices
Number of competitors Corporate culture Channel configuration Purchasing practices Ownership expectations Ethical concerns
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
KPIs for customer retention programs
1. What is the raw customer retention rate?2. What is the raw customer retention rate in each
customer segment? 3. What is the sales-adjusted retention rate?4. What is the profit-adjusted retention rate? 5. What are the sales and profit adjusted retention rates
in each customer segment? 6. What is the cost of customer retention?7. What is the share of wallet of the retained customers?8. What is the customer churn rate per channel?9. What is the cost-effectiveness of customer retention
tactics?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
The role of research
1. Why are customers defecting?2. Are there any lead indicators of impending
defection?3. What can be done to address the root causes?
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Lead indicators of defection
Reduced RFM scores Non-response to a carefully targeted offer Reduced satisfaction levels Dissatisfaction with complaint handling Reduced share of customer Inbound calls for technical information Late payment Querying an invoice Changed customer touch points
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and Tools
Core customer development strategies
Up-sell Cross-sell Down-sell Reduce cost-to-serve
Customer Relationship Management: Customer Relationship Management: Concepts and ToolsConcepts and ToolsAttributes of CRM-enabled
customer development
1. Use of data-mining to identify opportunities2. Customization3. Channel integration4. Integrated customer communication5. Campaign management6. Event-based marketing