Chapter 14: Impact of CRM on Marketing Channels


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Chapter 14: Impact of CRM on Marketing Channels

  1. 1. Customer Relationship Management A Databased Approach V. Kumar Werner J. Reinartz Instructor’s Presentation Slides Copyright Dr. V. Kumar,
  2. 2. Chapter Fourteen Impact of CRM on Marketing Channels Copyright Dr. V. Kumar,
  3. 3. Topics Discussed • Role of traditional channels in customer relationships • Emerging channel trends that impact CRM • Recent opportunities and challenges for CRM with respect to distribution channels • Implications for CRM • CRM through direct channel • Drivers and Behavioral Characteristics of multi-channel buying Copyright Dr. V. Kumar,
  4. 4. Channels • “Flow” of the organization’s offerings, e.g. physical goods or information, to the ultimate end users (“end customer”), as well as that of sales proceeds or realizations from the customer back to the marketing firm • “Marketing or distribution channels”: – All entities (e.g. distributors, wholesalers, retailers, broker, agents, etc.) that perform certain functions for the marketing firm • “Communication or contact channels”: – Convey information to the customers to raise their awareness about the firm’s products and services and persuade them to make purchases Copyright Dr. V. Kumar,
  5. 5. Channel Management Distribution Channels: Managing the flow of goods and services from manufacturer to end-user Channel Management of: Contact Channels: Managing the flow of information between any two parties, using one or more contact modes Copyright Dr. V. Kumar,
  6. 6. Customer Relationships: Direct, Upstream & Downstream DIRECT RELATIONSHIP Goods Information Manufacturer End Customer Dollars Goods Goods Information Channel Information Dollars Intermediaries Dollars UPSTREAM DOWNSTREAM RELATIONSHIP RELATIONSHIP (from channel perspective) (from Channel perspective) Copyright Dr. V. Kumar,
  7. 7. Role of Traditional Channels in Customer Relationships • Indirect Customer relationship – Building a good working relationship with the channel member (Upstream Relationship) – Providing the channel member incentives to build a strong customer relationship (Downstream Relationship) • Direct Customer relationship – Firm communicates product information to consumer through contact channels – Point of purchase advertising and promotions at the channel outlet (e.g. retail point) persuades consumer to make the purchase – Consumer information flows indirectly to the firm through the channel’s sales data – By building brand equity helps firms often try to build a “pseudo-relationship” with all prospective consumers Copyright Dr. V. Kumar,
  8. 8. Key Factors Affecting CRM through Traditional Channels • Incentives for coordinating information exchange – Eg: Procter & Gamble and Wal-Mart invested in EDI (Electronic Data Interchange) technology – Allowed Procter & Gamble access to real time customer data to forge customer relationships as well as reduce distribution costs • Protecting the Interests of the Channels – Toyota Motor Corporation’s Lexus division required dealers to invest in facilities, systems and personnel required to deliver extraordinary customer service – Result: Lexus enabled its dealers to make several thousand dollars on the sale of each new car Copyright Dr. V. Kumar,
  9. 9. Challenges Facing CRM through Traditional Channels • Prevent Dilution of CRM strategies – Traditional intermediary entities make continual and direct interaction with end customer difficult – Private label promotions by retailers often go diametrically against customer relationship programs of the national brands • Indirect Control of CRM through Channels – Vertical integration and strategic alliances by firms to control or align interests of their channels to their customer relationship strategy • Eliciting Customer Information from all Channels for Central Processing – Lack of precise information about individual customers complicates CRM implementation – Since retailers often compete against one another, it is difficult for many firms to convince them to part with critical sales information that will be centrally processed by the firm Copyright Dr. V. Kumar,
  10. 10. Emerging Channel Trends that Impact CRM • Proliferation of Direct Channels – Firms have direct access to the end-customers – Firms can recognize at every instance of interaction a prior customer – Interaction through a technology enabled channel, enables firm to record and store all relevant information about the customer – Avoids trouble of negotiating with, providing incentives to, and training a third- party channel member, such as a retailer • Media channel proliferation and emergence of multi-channel shoppers – People change their channel habits and different consumers derive differing benefits from different channels – New channels allow agents other than the firm and its dedicated marketing channels to transmit or even broadcast information related to the firm or product Copyright Dr. V. Kumar,
  11. 11. Recent Opportunities and Challenges for CRM • Opportunities for increasing returns for CRM – Widening Coverage of the Consumer Population – Improved Customer Information for the Firm – Lower dependency on Specific Channel Partners – Customer Self-selection across Channels and Individualization • New challenges for the firm to benefit from CRM – Media Planning becoming increasingly difficult – Consistency in service level and the need for IT systems – Channel Conflict and Channel Differentiation Copyright Dr. V. Kumar,
  12. 12. Impact of Emerging Channel Environment on CRM OPPORTUNITIES CHALLENGES Access to a larger number of consumers Re-engineering IT systems and physical logistics each time a new channel emerges and captures the customer’s imagination Multi-channel habits of consumers Media dilution and message dissonance across different channels Direct and customized interaction with customers Multi-channel conversation with the consumers – over different channels nurturing differentiated Inter-channel coordination problems: problems in customer relationships managing integrated marketing communications Customer self-selection into channels – Channel conflict– multi channel interaction with individualization and segmentation consumers can lead to conflict of interest among competing channels for the same share of customer contact or service Channel specialization – each performing a Possible rise in consumer expectation of product or different channel function can mitigate channel service quality conflict Copyright Dr. V. Kumar,
  13. 13. Implications for CRM • Electronic channels and availability of precise customer information – Possible to individualize the marketing mix offering including products and services more precisely to each customer – Opportunities to sell complementary products – Sophisticated customer databases may also allow firms to conceive and test market new products to meet needs of the customers • Seamless Customer Information Systems – Marketing proposition and initiatives remain consistent to a particular end customer across channels • Co-opetition among Channels – Co-operation in terms of exchange and availability of customer information across channels Copyright Dr. V. Kumar,
  14. 14. Customer Relationships through Differentiated Channels Channel Function Customer Decision Stage Preferred Channel Facilitate search Awareness Channel 1 Learning Inventory Control Channel 2 Trial Channel 3 Transaction Evaluation Repeat Channel 4 Purchase Point of Purchase Channel 5 Mass media and the internet can perform efficiently as Channel 1 A well-trained sales force can be more effective as channels 2 & 3. Word-of-mouth plays a greater role as Channel 4 Copyright Dr. V. Kumar,
  15. 15. CRM through a Direct Channel – the Internet • Communication and Sales – Broadcasted as well as customized marketing communication – Low cost (direct) channel for transacting business • Auto-Segmentation – Automatically targets a certain segment of consumers - younger, more educated, with a higher than average income, and probably with a lower base rate loyalty Copyright Dr. V. Kumar,
  16. 16. CRM through a Direct Channel – the Internet (contd.) • Channel Specialization and Differentiation on the Internet: – Advertisers – Incentive providers – Bargain discounters – Infomediaries – Free offerer – Recommendation systems – Track user navigation and habits for targeted advertising Copyright Dr. V. Kumar,
  17. 17. Drivers and Characteristics of Multi-channel Buying Customer Characteristics •Cross-buying •Returns Behavioral •Customer Initiated Contacts Characteristics •Number of Web Based Contacts •Tenure •Revenues •Purchase Frequency •Share of Wallet •Past Customer Supplier Specific Factors Multi-channel Value •Number of different contact channels Buying •Likelihood to Stay Active •Type of Contact Channel •Contact Channel Mix Customer Demographics •Number of Employees •Annual Sales •Industry Category Copyright Dr. V. Kumar,
  18. 18. Customer Characteristics • Cross Buying: – Defined as the number of different product categories that a customer has bought – Familiarity with a brand or firm is expected to reduce the perceived risk in customer purchases leading to a higher degree of multi-channel buying • Returns: – Returns are expected to be positively associated with multi-channel buying until a certain threshold, beyond which an increase in the number of returns can lead to a decrease in the motivation to shop across multiple channels – Therefore an inverted “U”-shaped relationship is expected between returns and multi-channel buying • Customer-Initiated Contacts: – Higher degree of customer- initiated contacts are associated with multi-channel to higher degree of familiarity with the firm and the various channels of buying due Copyright Dr. V. Kumar,
  19. 19. Customer Characteristics (contd.) • Purchase Frequency: – We can expect that the higher the purchase frequency of a customer the higher the likelihood of multi-channel buying • Frequency of Web-Based Contacts: – Awareness of a supplier’s Website indicates customer willingness to utilize new technology, hence we can expect that the higher the frequency of web-based contacts, the higher the likelihood of multi-channel buying • Customer tenure: – The longer the tenure of a customer with a firm, the higher is the likelihood of their buying from multiple channels Copyright Dr. V. Kumar,
  20. 20. Supplier Factors • Number of Channels used for Contact: – Supplier contacts through multiple channels can inform a customer about the multitude of options available for purchasing products – Suppliers can use their contact strategy in one channel to migrate customers to other channels – The higher the number of different communication channels a supplier uses to contact a customer, the higher the likelihood of multi-channel buying Copyright Dr. V. Kumar,
  21. 21. Supplier Factors (contd.) • Type of Contact Channel: – One-way communication: E.g. direct mail : unidirectional, limited in content, and non-personal – Two-way communications: • Firms can gain greater understanding of customer needs and/or preferences • Educate customers on the various channels available for making transactions • Respond to customer predilections – Contacts via more interpersonal channels can be expected to have a greater positive impact on multi-channel buying • Contact Mix Interactions – Positive synergistic effect on multi-channel buying can be expected by contacting through more than one channel due to the mutual reinforcement of the message delivered through different contact channels at the same time Copyright Dr. V. Kumar,
  22. 22. Behavioral Characteristics • Sample of customers divided into two segments: – Customers who have shopped in more than one channel (Segment A) – Customers who have shopped in only one channel (Segment B) • Findings: – The difference between the two segments in likelihood to stay active is significantly different and higher for the multi-channel buyer – The mean revenue of multi-channel buyers is significantly higher than the mean revenue of customers who shop in a single channel – The mean share of wallet for multi-channel customers is higher than the single channel customer Copyright Dr. V. Kumar,
  23. 23. Synopsis of Empirical Findings • Customers more likely to shop in multiple channels are those: – Who buy across multiple product categories – Initiate more contacts with the firm – Have past experience with the supplier through the online channel – Have longer tenure – Purchase more frequently – Are larger – Have been communicated to by the supplier through multiple communication channels, especially through highly interpersonal channels • Evidence for a nonlinear relationship between returns and multi- Copyright Dr. V. Kumar,
  24. 24. Summary • Customer relationships are created and sustained through marketing channels • For a successful CRM strategy directed at the final customer, conventional channels structure has to provide incentives for coordinating information exchange while integrating their downstream channel partners’ interests • CRM demands that customer information from different contact channels be centrally processed by the firm and forms a critical input to the planning and execution of the physical distribution of the goods • Multi-channel buyers are likely to provide higher revenues, higher share of wallet, have higher past customer value, and have a higher likelihood of being active than single channel shoppers Copyright Dr. V. Kumar,