“ Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.”
American Marketing Association,2004
What is Customer Relationship Management? Customer relationship management (CRM) is a business strategy to identify, attract, convert and reward the most profitable customers to induce recurring exchanges with the business. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. It is not a software package for keeping track of customers although that facilitates CRM.
January 11, 2004 Reaping What They Sew By Purva Patel Staff Reporter of THE HOUSTON CHRONICLE Hamilton Shirt Co. has outfitted Texans for more than 120 years. But the custom-shirt maker has kept itself under wraps as it caters to an elite clientele of prominent businessmen, national news anchors and the well-heeled. The business advertised for the first time last November, by direct mail to select customers.
"There's a certain mystique about it," said David Lynn, manager for custom sales at Richards of Greenwich, a high-end luxury apparel store in Connecticut. "It's like a secret society." Operating through both World Wars and numerous economic downturns, the company has survived by avoiding major alterations to the business and relying on brand exclusivity for four generations. Owner Jim Hamilton says he runs the shop the way his father and grandfather did. Shirts sell for $155 to $245 in Houston, and first-time buyers must purchase at least four. Behind the storefront on Richmond, sewing machines turn out about 75 shirts a day. Bolts of fabric imported from Italian and Swiss mills line one wall, ironing tables another in the 3,100-square-foot factory. Some 20 pattern cutters and seamstresses snip, stitch and press the shirts, much like those who worked for Hamilton 's grandfather. Patterns are still hand-cut, side seams are still stitched with a single-needle sewing machine, and customers still talk to the owner as they did when the company opened, under the name Hamilton Bros. Even the filing system is the same. Salesmen write out orders, tape on swatches of fabric and store them with patterns in manila envelopes. Hamilton estimates he has 30,000 patterns on file, of which 5,000 are active. Hamilton hopes to eventually pass the business on to his children, who each own 5 percent of the company. His daughter, Kelly Hamilton , 28, handles marketing, helped develop the company's first brochure and hopes to set up a Web site. David Hamilton recently prompted his father to start taking credit cards and is working on a database for direct-mail efforts. When he looked at the company's alphabetical list of clients (more than 2,000 names long and predominantly male) and saw Frank Abignail at the top, the wheels started turning. Abignail was the recent subject of the hit movie "Catch Me If You Can" starring Leonardo DiCaprio as perhaps America's most famous check forger, who went on to become a famous FBI consultant. Recalls David: "I said, 'Dad, do we still take his checks? Maybe we better switch to credit cards.'“ David Hamilton is looking into developing custom software to encapsulate the company's customer database.
Link Between CRM and Database Marketing
Identify and analyze customer population
Group based on similarities
Recommend separate marketing campaigns for different groups
Applies database marketing techniques at customer level
Develops strong company-to-customer relationships
Link Between CRM and Customer Value
Customer Value: The economic value of the customer relationship to the firm – expressed on the basis of contribution margin or net profit
CRM is the practice of analyzing and utilizing marketing databases and leveraging communication technologies to determine corporate practices and methods that will maximize the lifetime value of each individual customer to the firm
Changes with respect to Data Storage Technology
Better technology, cheaper and larger storage units
Huge increase in demand for data storage
Increased popularity of data warehouses
Better information about customer behavior and attitudes
Better prediction of customer buying behavior
Too much data can lead to misapplication and wrong analysis
What should be in a customer database?
Transactions – complete purchase history with details such as price paid, SKU, delivery date…
Customer Contacts – sales calls, service requests…
Descriptive Information – segmentation data
Response to Marketing Stimuli – responses to direct marketing initiative, sales contact…
What is a relational customer database? Microsoft ACCESS example
Declining Customer Satisfaction- Example (American Customer Satisfaction Index) with products and services Source : http://www.theacsi.org, University of Michigan
Satisfaction leads to loyalty
Loyalty leads to higher $$ spending
Higher $$ spending = greater profits
Therefore: customer satisfaction is key!
BUT: can satisfy customers right out of business
Truth: “barely satisfied customers”
Customer Valuation $/Call Number of Customers Call on Contribution Margin Service Cost per Call Angels Devils
How are products distinguished (benefits or attributes)?
What is in the consideration set?
How important are attributes?
Why People Use a Product POSITIONING Attribute 1 Attribute 2 PERCEPTUAL MAP Brand 1 Brand 3 Brand 4 Brand 2 Ideal Vectors Perceptions Preferences
Perceptual Maps Suppose that the electrical transformers made by ABB and GE are distinguished based upon their Ease of installation and Spare parts . Specifically, (E A ,S A ) = (2,3), (E G ,S G ) = (1,5). Ease of installation Spare parts GE ABB
• Land Rover Discovery • All SUV makes quality safety performance off-road capability aesthetics comfort/ convenience economics status/image Items and Facets Attribute Rating Score Perceptual Map Comparisons: Land Rover vs All SUVs
Attitudes toward brands based upon attributes U = w E E b + w S S b , for brand b, where w E and w S are the preference weights placed on Ease of installation and Spare parts . (w E ,w S ) is called the ideal vector* . * It is ideal in the sense that were the attributes increase in this proportion, utility would grow at its fastest rate. Ease of installation Spare parts Ws / Ws
Combining perceived benefits and importance weights provides explanation of buying behavior. Ease of installation Spare parts GE ABB AB
ABB Electric Case
Conceptualizations of CRM
Functional level: focuses on technology
Sales force automation in the sales function
Campaign management in the marketing function
Customer facing front-end level: focuses on total customer experience
To build a single-view of customers across contact channels
To distribute customer intelligence to all customer-facing functions
Strategy level: focuses on customer satisfaction
Frees CRM from technology underpinnings
Describes CRM as a process to implement customer centricity in the
market and build shareholder value
Knowledge about customers affects the entire organization
From a strategic perspective, CRM is the process of selecting the customers a firm can most profitably serve and shaping the interactions between a company and these individual customers
Assessing Customer Value is critical to CRM
Rapid changes are taking place in the environment in which firms operate with respect to customers, market places, technology, and marketing functions
These changes have driven the marketplace to become relationship-based and customer-centric
CRM’s goal is to optimize the current and future value of the customers for the company