Lecture 1


Published on

  • Be the first to comment

  • Be the first to like this

Lecture 1

  1. 1. CRM Overview Nihat Solakoglu
  2. 2. What is wrong with this message ? When did I receive this message? Was it an insert? What did I think?
  3. 3. Customer power <ul><li>In advanced economies, consumption has become a larger share of GDP than production. Hence, consumer choices gains importance in the decision making process of companies and they feel the need to think like a customer than a producer . </li></ul>
  4. 4. Customer power <ul><li>(1) Producers think they are making products. Customers think they are buying services. </li></ul>(2) Producers worry about visible mistakes. Customers are lost because of invisible mistakes. (3) Producers think their technologies create products. Customers think their desires create products. (4) Producers organize for managerial convenience. Customers want their convenience to come first. (5) Producers seek a high standard of performance. Customers care about a high standard of living. Producer-Customer Logic
  5. 5. CRM Overview <ul><li>Although CRM receieved considerable attention in the last decade, there is no clear (agreed upon) definitions in the industry or academia. </li></ul><ul><li>CRM Global Marketplace </li></ul>$200B 2002 $100B 1998 $64M 1996 Market Size Year
  6. 6. CRM Overview <ul><li>Zablah (2004) finds 4 5 distinct definitions in the literature. </li></ul><ul><li>So let’s a sk ourselves what CRM really is . </li></ul><ul><li>Class Discussion </li></ul>
  7. 7. What is CRM? <ul><li>Is it a technology solution? </li></ul>Technology: Data warehousing, User tools It can be an excel spreadsheet or a full infrastructure that supports data warehousing, data mining , MIS, reporting etc. E.piphany, SAP, Siebel’s CRM, Peoplesoft, Unica are examples of CRM architectures that can be used.
  8. 8. What is CRM? <ul><li>Is it business analytics/data mining? </li></ul>Analytics: Business analytics Financial analysis Customer analysis ...
  9. 9. What is CRM? <ul><li>Is it marketing? </li></ul>Marketing: Direct mail Outbound telemarketing Inbound telemarketing Internet Email
  10. 10. What is CRM? <ul><li>Well, it includes all. </li></ul>Analytics Technology Marketing: CRM
  11. 11. What is CRM? <ul><li>Zablah (2004) identifies 5 major perspectives among these 4 5 definitions. </li></ul><ul><li>These perspectives are: </li></ul><ul><li>(1) CRM as a business process. </li></ul><ul><li>A business process refers to a group of activities, that can be divided into sub-levels, that convert organizational inputs into desired outputs. </li></ul><ul><li>It can be defined at two levels: </li></ul><ul><li>(a) a higher level that includes all activities to build long-lasting, profitable and mutually-beneficial customer relationship </li></ul><ul><li>(b) Norrowly defined as managing customer interactions </li></ul>
  12. 12. What is CRM? <ul><li>(2) CRM as a strategy. </li></ul><ul><li>An overall plan for deploying resources to establish a favorable position. </li></ul><ul><li>Resources are meant for relationship building and maintenance efforts should be allocated based on customers’ lifetime value to the firm. </li></ul><ul><li>Building “right” type of relationship </li></ul>
  13. 13. What is CRM? <ul><li>(3) CRM as a philosophy. </li></ul><ul><li>There is a strong link between customer loyalty and corporate profitability. </li></ul><ul><li>Case : If you have 10 million customers, and each customer has a lifetime value of $1,000.00. What would be the lifetime gain of reducing attrition by 10% from its existing level of 9% at the customer level? </li></ul>
  14. 14. What is CRM? <ul><li>- 9% of 10 million customers  900,000 customers are attriting </li></ul><ul><li>- 10% of 900,000 is 90,000 customers. </li></ul><ul><li>- If we save 90,000 customers, the benefit on l i fetime value to the corporation will be </li></ul><ul><li>90,000*$1000 = $90 million </li></ul>
  15. 15. What is CRM? <ul><li>According to this view, most effective way to achieve such loyalty is by proactively seeking to build and maintain long term relationship with customers. </li></ul><ul><li>This view suggests that firms’ day-to-day activities be driven by an understanding of customers’ evolving needs. </li></ul>
  16. 16. What is CRM? <ul><li>(4) CRM as a capability. </li></ul><ul><li>Firms must invest in developing and acquiring a mix of resources that enables them to modify their behaviour towards individual customers or groups of customers on a continual basis. Capabilities are knowledge based, complex, cannot be e asily purchased, and requires hard to imitate skils. </li></ul><ul><li>CRM demand that a firm at a minimum should </li></ul><ul><li>(a) Gather inteligence about its current and prospective customers, & </li></ul><ul><li>(b) Apply that intelligence to shape its subsequant interactions with customers. </li></ul>
  17. 17. What is CRM? <ul><li>(5) CRM as a technology. </li></ul><ul><li>Technology plays a substantial role in CRM efforts, but it is now widely recognized that “CRM is more than a technology” </li></ul><ul><li>Technology enables data mining, collecting and storing large quantities of data (how large?), build knowledge from this data, and disseminate the knowledge across organizations. </li></ul>
  18. 18. What is CRM? <ul><li>We can say: </li></ul><ul><li>CRM is not just a technology solution that solves all customer related problems. It is a business philosophy /strategy that enables people, technology and processes to focus on customer related problems or opportunities. </li></ul><ul><li>The essence of CRM is understanding customer needs and leveraging that knowledge to improve company profitability. </li></ul>
  19. 19. What is CRM? <ul><li>CRM has two major subprocesses . </li></ul><ul><li>(a) Knowledge management: creation, storage, retrieval and application of knowledge. </li></ul><ul><li>CRM technology provides the tools to store the data, to derive and disseminate the information. </li></ul>
  20. 20. What is CRM? <ul><li>A CRM system brings together </li></ul><ul><ul><li>İnformation about customers </li></ul></ul><ul><ul><li>Customer characteristics </li></ul></ul><ul><ul><li>Sales transactions </li></ul></ul><ul><ul><li>Marketing effectiveness/responsiveness </li></ul></ul><ul><ul><li>Market trends </li></ul></ul><ul><ul><li>What else? </li></ul></ul><ul><li>With large number of customers, CRM approach relies on information technology. </li></ul>
  21. 21. What is CRM? <ul><li>(b) Interaction management refers to any instance in which two active parties, which have the ability to exert influence upon each other, engage in the exchange of values. </li></ul><ul><li>Interactions should remain consistent, relevant and appropriate. </li></ul>
  22. 22. What is CRM?
  23. 23. What is CRM? <ul><li>An effective CRM system describes customer relationship in sufficient detail so that all aspects of the organization can access information , match customer needs with satisfying product offerings , remind customers of service requirements, know what other products a customer has purchased and so forth. </li></ul>
  24. 24. What is CRM? <ul><li>So for effective CRM </li></ul><ul><li>Understand the customer and understand them in a timely manner </li></ul><ul><li>Have two-way convers a tions with customers </li></ul><ul><li>Access to customer information across sales, service, management, ... across all relevant units of organization </li></ul><ul><li>Coordinate messages across all contact points </li></ul><ul><li>Incentive plans based on customer value </li></ul><ul><li>Organization structured around customers </li></ul><ul><li>Customer needs anticipated and proactive actions are taken </li></ul>
  25. 25. What is CRM? <ul><li>Class discussion : How can an effective CRM help to a service representative at a bank? </li></ul>
  26. 26. What is CRM? <ul><li>Lets try to define CRM </li></ul>
  27. 27. CRM Defined <ul><li>At its simplest, it can be defined as the systematic use of customer information to attract and retain customers for a long-lasting mutually-beneficial relationship through an on-going dialogue . </li></ul>
  28. 28. CRM Defined <ul><li>Systemetic use of information </li></ul><ul><li>Data warehouse </li></ul><ul><li>Data mining </li></ul><ul><li>Reporting </li></ul><ul><li>Attract and Retain customers </li></ul><ul><li>cross-sell/up-sell </li></ul><ul><li>Retention focused strategies </li></ul><ul><li>Contact strategy </li></ul><ul><li>Cost-efficient acquisition </li></ul><ul><li>Continious dialogue </li></ul><ul><li>Real-time response </li></ul><ul><li>Customer voice in decisions </li></ul><ul><li>Personalized/timely/customized contacts through multiple channels </li></ul><ul><li>Long-lasting mutually beneficial releationship </li></ul><ul><li>Customer based metrics </li></ul><ul><li>Customer evaluation/satisfaction </li></ul>
  29. 29. Costs & Benefits of CRM <ul><li>Customers are different and different segment of customers represent different level of profit (revenue and cost) to the corporation. At the same time, they req u ire different level of service and dif f erent products. </li></ul><ul><li>There are potential benefits and costs to </li></ul><ul><li>- organization </li></ul><ul><li>- customers </li></ul>
  30. 30. Costs & Benefits of CRM Benefits Customer Focus Customer retention Share of customer Long-term profitability Costs Infrastructure investments Process change Costs Privacy Opportunity Benefits Continuity Contact touch points Personalized service Enhanced satisfaction, safety Organization Customer Lifetime value of the relationship Exhibit 1.2 Zikmund
  31. 31. CRM System Lets look at a CRM system
  32. 32. CRM integrates marketing, analysis & technology... Source Systems Internal & extrenal data Data Warehouse Extract – transform - load Business Intelligence & Data Mining Planning/reporting Analysis & Segmentation Modeling & Data mining Tracking Execution, Personalization & Automation Customer lists Offer, message customization Business rules & real-time differentiation Message delivery Call center Email/fax server Web server Production shop Sales force Customer Experiences Satisfaction metrics Customer feedbacks surveys
  33. 33. CRM Process <ul><li>Based on our discussion and several CRM processes, lets try to generalize CRM process that will help us understand why CRM can fail or be succesful. </li></ul>
  34. 34. CRM Process Business Organization Business Case Components of CRM process as a contin u ous loop
  35. 35. Business Case <ul><li>Do you need CRM? What questions you should ask? </li></ul><ul><li>Does your company serve to multiple customers? </li></ul><ul><li>Do customer service, sales, marketing and management need customer data and do they have access to the same customer data? </li></ul><ul><li>Does your marketing department segment and do targeted campaigns? </li></ul><ul><li>Is the customer needs and wants a priority for your company? </li></ul><ul><li>Does your company have a high customer “churn” rate. </li></ul><ul><li>Is employee compensation linked to customer satisfaction? </li></ul>Discussion
  36. 36. Business Case <ul><li>Are you ready for CRM as an organization? </li></ul><ul><ul><li>Is there a champion? Who is the champion? </li></ul></ul><ul><ul><li>What is the information intensity of the organization? </li></ul></ul><ul><ul><li>Organizational dynamics </li></ul></ul><ul><ul><ul><li>Organization structure </li></ul></ul></ul><ul><ul><ul><li>Incentives </li></ul></ul></ul><ul><ul><ul><li>Interaction between sales, marketing, service, IT, information management departments </li></ul></ul></ul><ul><ul><li>IT level in the organization </li></ul></ul><ul><ul><ul><li>Excel… </li></ul></ul></ul>
  37. 37. Business Case <ul><li>What is the best approach for your company to implement a CRM system? </li></ul><ul><li>A Big Bang approach </li></ul><ul><ul><li>High-level executive sponsorship is required </li></ul></ul><ul><ul><li>Organization with a customer focus </li></ul></ul><ul><ul><li>Sophisticated IT level </li></ul></ul><ul><li>Small increments </li></ul><ul><ul><li>Do not require high-level executive sponsorship. Divisional/channel leadership. </li></ul></ul>
  38. 38. Business Organization <ul><li>Business organization is critical as there is a positive correlation between organization, CRM success and overall performance. For a successful CRM implementation, organization needs to: </li></ul><ul><ul><li>Align objectives and incentives throughout the organization as consistent with a customer centric approach </li></ul></ul><ul><ul><li>Provide customer managers with authority </li></ul></ul><ul><ul><li>Recruit and develop the right people with the right skill set </li></ul></ul><ul><ul><li>Make sure the relationship between employee satisfaction, customer satisfaction, company performance and incentive plan is clearly defined. </li></ul></ul><ul><ul><li>Have customer-centric metrics </li></ul></ul>
  39. 39. Business Organization <ul><li>Product-centric, channel-centric or other metrics needs to be converted to customer-centric metrics. </li></ul>Traditional Metrics Customer-centric metrics <ul><li>Call duration </li></ul><ul><li>Product P&L </li></ul><ul><li>Response rate </li></ul><ul><li>Retention </li></ul><ul><li>Average waiting time </li></ul><ul><li>Customer P&L </li></ul><ul><li>Customer NPV/Revenue/Profit </li></ul>
  40. 40. Business Organization <ul><li>With a CRM focus, there needs to be a process and culture change within the organization. </li></ul><ul><li>Training </li></ul><ul><ul><li>On the use of customer metrics/scorecard to make decisions </li></ul></ul><ul><ul><li>Rotations to expose different departments to different methods that deals with the customer </li></ul></ul><ul><li>Metrics and reporting </li></ul><ul><ul><li>Customer scorecards linked to business financials and budget </li></ul></ul><ul><li>Performance assesment </li></ul><ul><ul><li>Compensation/incentives linked to customer specific metrics </li></ul></ul>
  41. 41. CRM (customer) Strategy <ul><li>Define business strategy and align CRM strategy with business strategy </li></ul><ul><li>Understand the customer and define customer segment </li></ul><ul><ul><li>A company or </li></ul></ul><ul><ul><li>A household or an individual </li></ul></ul><ul><ul><li>A telephone number </li></ul></ul><ul><ul><li>A cookie </li></ul></ul><ul><ul><li>Or maybe all... </li></ul></ul>
  42. 42. CRM (customer) Strategy <ul><li>Establish resource requirements </li></ul><ul><li>Propose methods for learning about customers </li></ul><ul><li>Creates a starting point for a customer information strategy </li></ul><ul><ul><li>What information do I need? </li></ul></ul><ul><ul><li>What information do we currently have? </li></ul></ul><ul><ul><li>How can I turn information into action? </li></ul></ul><ul><ul><li>How can we capture information? </li></ul></ul>
  43. 43. CRM (customer) Strategy <ul><li>Calculate Customer value </li></ul><ul><ul><li>Identify ways to measure the value of the relationship </li></ul></ul><ul><ul><ul><li>Revenue: sum of annual revenue per customer </li></ul></ul></ul><ul><ul><ul><li>Gross profit: revenue-variable cost </li></ul></ul></ul><ul><ul><ul><li>Customer value score: weighted key performance indicators (such as RFM score) </li></ul></ul></ul><ul><ul><ul><li>Net present value (NPV): lifetime revenues-lifetime costs discounted to present financial value </li></ul></ul></ul><ul><ul><li>Use the calculated value to determine customer strategy </li></ul></ul>
  44. 44. Customer Data <ul><li>Need: </li></ul><ul><li>Consistently clean, reliable customer level data </li></ul><ul><li>Contin u ously accessible by all units within the organization </li></ul><ul><li>Can efficiently manage large amounts of data. </li></ul>And... Can do all these in a short time period
  45. 45. Data Mining <ul><li>Data mining/knowledge discovery is defined as the </li></ul><ul><li>non-trivial process of identifying </li></ul><ul><ul><li>valid </li></ul></ul><ul><ul><li>Novel (previously unknown) </li></ul></ul><ul><ul><li>potentially useful </li></ul></ul><ul><ul><li>and ultimately understandable patterns in data. </li></ul></ul><ul><li>Source: Advances in Knowledge Discovery and Data Mining, Fayyad, Piatetsky-Shapiro, Smyth, and Uthurusamy, (Chapter 1), AAAI/MIT Press 1996 </li></ul>
  46. 46. Data Mining <ul><li>In this course, we will use data mining broadly and define it as any activity in which data is prepared , analyzed and turned into actionable information to support decision making. </li></ul><ul><li>Hence, we will combine statistics (predictive modeling) and strictly defined data mining. </li></ul>
  47. 47. Data Mining Low utility High utility Data Information Knowledge Decisions & Actions
  48. 48. Data Mining <ul><li>Many techniques can be used depending on the objective . </li></ul><ul><ul><li>Market basket analysis </li></ul></ul><ul><ul><ul><li>Patterns in transactional data </li></ul></ul></ul><ul><ul><ul><li>Rules based on products purchased together </li></ul></ul></ul><ul><ul><li>Clustering/segmentation </li></ul></ul><ul><ul><ul><li>Define customer groups. Within groups, customers are similar to each other, between groups, they are not. </li></ul></ul></ul><ul><ul><li>Clickstream analysis </li></ul></ul><ul><ul><ul><li>Optimize web content. Which pages are visited most often, and who visits them </li></ul></ul></ul><ul><ul><li>Randomized experiment </li></ul></ul><ul><ul><ul><li>Test/control </li></ul></ul></ul><ul><ul><ul><li>Experimental design </li></ul></ul></ul>
  49. 49. Data Mining <ul><ul><li>Descriptive Statistics </li></ul></ul><ul><ul><ul><li>Mean/median/mode </li></ul></ul></ul><ul><ul><ul><li>Variance/standard deviation </li></ul></ul></ul><ul><ul><li>Classification/Prediction </li></ul></ul><ul><ul><ul><li>Regression </li></ul></ul></ul><ul><ul><ul><li>Logistic regression </li></ul></ul></ul><ul><ul><ul><li>Decision trees (CART/CHAID) </li></ul></ul></ul><ul><ul><ul><li>Neural Networks </li></ul></ul></ul><ul><ul><li>Data reduction methods </li></ul></ul><ul><ul><ul><li>Principal components </li></ul></ul></ul><ul><ul><ul><li>Factor analysis </li></ul></ul></ul>
  50. 50. Data Mining <ul><li>Knowledge obtained from the data needs to be improved continuously. </li></ul><ul><li>Stage 1: Test (design & execute) </li></ul><ul><li>Stage 2: Measure (outcome) </li></ul><ul><li>Stage 3: Analyze (success?) </li></ul><ul><li>Stage 4: Learn (adjust strategy) </li></ul><ul><li>Discussion: Why is it important to learn and refine our knowledge? </li></ul>
  51. 51. Customer Contact <ul><li>Customer contact is the process of </li></ul><ul><ul><li>designing </li></ul></ul><ul><ul><ul><li>Channel </li></ul></ul></ul><ul><ul><ul><li>Personalize the message </li></ul></ul></ul><ul><ul><ul><ul><li>“ Hey Nihat, have you seen our commercial on…” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>“ Dear Mr. Solakoglu, …” </li></ul></ul></ul></ul><ul><ul><li>executing , and </li></ul></ul><ul><ul><li>measuring </li></ul></ul><ul><li>the customer contacts for any activity that requires an interaction between the customer and the company (i.e. marketing campaigns for a new product). </li></ul>
  52. 52. Customer Contact Campaign execution is an example of customer contact. Objective Targeting Segmentation Optimization Personalization Fulfillment High level campaign implementation process Channel Offer Time
  53. 53. Track and Learn <ul><li>Tracking customer interactions and learning and adjusting customer strategy is an integral part of CRM process. </li></ul><ul><ul><li>How did we contact the customer? </li></ul></ul><ul><ul><li>Was it a success (e.g., a marketing campaign)? </li></ul></ul><ul><ul><li>Was the outcome of the contact different than what we expected or the previous ones? </li></ul></ul><ul><ul><li>Can we leverage the result for future contacts? </li></ul></ul>
  54. 54. Track and Learn <ul><li>In tracking the contact results, we should be careful </li></ul><ul><ul><li>not to compare apples and oranges </li></ul></ul><ul><ul><li>not to confuse cause versus correlation </li></ul></ul><ul><ul><li>To look for the right definition of success for the relevant audience </li></ul></ul><ul><li>Remember tracking and analyzing results are linked to data mining efforts and can leverage a common infrastructure. </li></ul><ul><ul><li>Results tracking and customer data should be accessible at the same data. </li></ul></ul>