Concept of customer value
Limitations of CRM
Role of Technology in CRM
Importance of Retaining customers
Difference between Transaction & Relation
Transaction – a one time activity
Relation – several transactions lead to a relation
Transactional marketing – acquiring new customers
Relationship marketing – retaining existing customers
Retaining customer relationships
Creation of customers who enjoy service, feel valued and who
will be loyal.
Create win-win situations.
BENEFITS OF CRM > COST INVOLVED (money + time + effort
Revenue for Supplier > Financial cost of attracting the customer
+ establishing relationships + executing each transaction.
Relationship – Long Term
Value Proposition to Customer
Short term – benefits, discounts, preferred booking
Long term – benefits in the long run example –
Technology Enablers ( ATM, Phone banking, Online booking, Account
balances on mobiles).
For a customer, Value = (Perceived benefits in dealing with you –
Perceived costs in dealing with you.)
Success of CRM is not dependent on technology alone.
Lack of personal touch in services that are backed by
technology (Phone banking vis-à-vis a personal visit to the
Customer Loyalty defines CRM.
For a new firm, customer acquisition is important
For established companies, customer retention is
Customers who go to competitors
Price as a reason for defection – Cell Phone, Airlines
Product as a reason – Aspiration to have a superior product (may be
a perception) examples – Internet connection of BSNL, Airtel, MTS.
Service is bad – Hotels, Couriers, Restaurants
Market Defectors – Customers may move from one city to another
or one locality to another so they will prefer the nearest available
Technology defectors – Mobile Phone, Computers, Laptop, MP3
Players, IPOD players.
Social defectors – under peer pressure, family influence causes
Solutions to handle defectors
• Talk to customers – exit interview
• Find out reasons for defection
• Use a survey to identify strong points
• Benchmark against competition –intelligence gathering,
• Dealing with change (Change management) is important.
• Predicting customer value is complex –
• Credit has to be given for customer
• Generally customer value is computed
over a period of time (5 to 7 years)
• Loyalty demands a value
Ladder of Loyalty
Objectives of CRM
• Turn prospects to advocates
• Minimize defection rates by corrective and preventive
• Build a large number of loyal customers over time.
• Maintain balance in the relationship – neither too close nor
• Cross selling : banks selling insurance policies under the
Bank assurance scheme.
Front line staff , performance important.
Provide customers with “moments of truth” during the service
Employees must feel part of the CRM process
Staff empowerment – To take decisions
Understand the variable and intangible nature of service
Product(Service) Innovations to augment service e.g. Surprise
Gifts at Planet M, On-board auctions within a flight
Implementing CRM (cont’d)
• Regular communication with customers
• Tangible benefits to reward loyalty
– Loyalty cards, Membership cards : Max,
Pantaloon(Green Card), Reliance Retail
– Treating unsolicited customer feedback with
respect and responding to it.
Success of CRM
Setting tough standards
Make the customer feel important
Communicate reasons for failure instead of not
communicating at all
Giving importance to every encounter as though the entire
business depended on it
Constructive approach/ response even to the most
aggressive customer complaints
Why are some companies better at
CRM as compared to others
• Market driven approach
• Customer focus
• Deliver better value to customer
• Microsoft was the first international company to
exploit CRM – selling office suite and further
upgrades to an individual : they also had
differential pricing for corporate and individual
An effective CRM strategy starts with segmentation based
on what different groups value and what will make them
Develop a blueprint to understand what a particular
segment seeks from a relationship with your company
Measure and monitor the goal
Research by Coyles & Gokey
• Emotional loyalists are important
• Deliberators if influenced can yield rich
• Communicating benefits to customers
• Dealing with even a small level of
dissatisfaction is vital
Lifetime value in a CRM
Lifetime value = value of all future
revenues from a customer, based on their
current and future product holding.
Value is difference between revenue and
LTV – Life time Value
LTV= Total Revenues – Fixed Cost –
Revenue = total of all orders placed
Costing – activity based costing/
• Retain existing customers
• Find more customers who match the
profile of the most profitable customers
• Calculate which products/ product-service
combinations contribute most to profit
• LTV based on assumptions, Review
• Profile the customer behavior to model the future
• Gives an indication of the propensity to buy for any given
• Examples – HDFC Phone banking, Customer ID – data
warehousing solution – all transactions of customer can be
viewed at the click of a button
• Warehouse pulls information from different transaction
systems and customer interface channels and centralises it in
a single database. This helps the bank in finding out the
profitability of a customer.
• Segmentation of customers in CRM
relates to what dimensions of customers.
• Neither practical nor profitable to meet all
• Companies try to identify segments (tiers
of customers) – that differ in current and/or
a future profitability of a firm.
• This approach tracks costs and revenues
for segments of customers.
• Thus segmentation in CRM refers to
profitability of customers.