Crm unit (operational issues in implementing crm)

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 CRM
Programmes
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
1. Offering frequent shoppers card
1. 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

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 examining
how recently a customer has purchased (recency), how often
they 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 retailer
Recency
Frequency Monetary 0-2 mths 3-4 mths 5-6mths Over 6mths
1 – 2 <$50 .050* .035 .010 .001
1 – 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
RECENCY
Frequency 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 expensive
2. Difficult to make corrections in the programme when
problems arise
3. It is not clear whether these programmes increase customer
spending behavior & loyalty towards the retailer
4. 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

– 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

• 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)

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