This document provides an overview of customer relationship management (CRM) in retail. It discusses how CRM focuses on identifying and building loyalty with valuable customers. The goal is to develop a base of loyal customers who shop frequently. It then outlines the typical CRM process: [1] collecting customer data to build a database; [2] analyzing that data to identify target customer segments; [3] developing programs tailored to each segment, such as loyalty programs, personalized offers, and community building; [4] implementing those programs. Key aspects of CRM programs include incentivizing enrollment in loyalty programs, analyzing purchase patterns to determine customer lifetime value, and using data to convert less profitable customers or get rid of unprofitable ones.

1. Customer Relationship
management

2. Overview
• CRM is a business philosophy and a set of
strategies, programs, and systems that focuses
on identifying, and building loyalty with a
retailers most valued customers
• Retailers can use CRM programs for
increasing profitability by building
relationships with their better customers
• Goal- develop a base of loyal customers who
patronize the retailer frequently

3. Overview
• From using mass advertising retailers are
shifting their focus to provide more value for
their customers by using targeted products
and services to increase the “share of
wallet”(% age of customers purchases made
from the retailer) from thee customers
• This perspective is supported by research that
it costs 3-6 times more to sell products to new
customers than to existing customers

4. Customer loyalty- objective of CRM
• It is having the customers to make repeat visits to the
retailer and being satisfied with their experiences
• Customer loyalty to a retailer means that customers are
committed to purchasing merchandise and services from
the retailer and will resist the activities of competitors
attempting to attract their patronage
• They have a bond with the retailer which goes beyond
positive feelings for the retailer
• Have an emotional connect
• Their reasons for loyalty go beyond the normal retail
attributes
• Emotional connections develop when customers receive
personal attention

5. Overview of the CRM process
Collecting customer
data
Analyzing customer
data and identifying
target customers
Developing CRM
programs
Implementing CRM
programs
Learning
Action

6. Step 1: Collecting Customer data-
constructing a customer database
•Shd contain transactions, customer contacts, customer preferences
descriptive information
• Response to marketing activities
Customer
database
• Customer identification is difficult
• Ask customers for identifying information, offer frequent purchase
cards, connect internet purchase data with stores
Identifying
information
• Consumers are concerned about retailers violating their privacy
when they collect information: depends upon control over personal
info and knowledge about collection and personal information
• place cookies which identify the info the next time consumer visits
the website
Privacy
& CRM

7. Frequent shopper programs- loyalty programs
• Are programs which identify and provide rewards to
customers who patronize the retailer
• When customer enroll for such programs they provide
detailed info about themselves and their household-
issued a card with an identifying number
• Customers are offered an incentive to use the card
when they make purchases from the retailer
• offer 2 benefits- provide demographic and other info
when they sign up and are motivated to identify
themselves at each transaction. Motivated by the
rewards offered at each visits and amount purchased
at each visit

8. Frequent shopper programs- loyalty programs
• Drawbacks: customer might forget to bring it
or decide not to show it- use of phone no
• Use of ILC- interactive loyalty cards- optical
scanner- use of kiosks
• Fingerprint scans

9. Step 2: Analyzing data and identifying
target customers
• The next step- to analyze the customer database
and convert the data into information that will
help retailers develop programs for building
customer loyalty
• Data mining – used to identify the patterns of
data.
• Market basket analysis: specific type of data
analysis that focuses on the composition of the
basket, bundle of products purchased by a
household during a single shopping occasion. Eg
Tissues near cold medicines

10. Identifying market segments
• Identifying segments- group of customers
who have similar needs, purchase similar
merchandise and respond in a similar manner
to marketing activities
• Identifying best customers: retailers can
develop a score or a number indicating how
valuable customers are to the firm. This score
can be used to target the customers

11. Life time Value (LTV)
• A measure to score each customer is called lifetime
customer value. LTV is the expected contribution from
the customer to the retailers profits over his or her
entire relationship with the retailer.
• To estimate LTV retailers use past behavior, gross
margins, costs of service. Eg a customer who buys
apparel only when it is on sale will have low LTV than a
customer who typically pays the full price and buys the
same amount
• Customer pyramid: most customers differ in their LTV.
Follow the 80-20 rule, 80% of sales come from 20% of
customers

12. The Customer Pyramid
Platinum
Gold
Iron
Lead
Least profitable
Most profitable

13. The Customer Pyramid
• top 25% of LTVs
• Not concerned about price but place more value on
customer service
Platinum
• The next 25% after platinum segment
• More price sensitive, buy significant amount from retailer,
not as loyal as platinum, may buy from competitors
Gold
• Modest LTV- Iron – not much deserved attention by the
retailer
• Lead: Cost company money, often demand attention, but
don’t buy much
Iron & Lead

14. RFM Analysis
• An RFM (Recency, Frequency ,Monetary) analysis is often used by catalog
retailers and direct marketers is a scheme for segmenting customers
according to how recently they have made a purchase, how frequently
they make a purchase, and how much they have bought
• Use this type of analysis to determine which customer group should be
sent catalogs. From each RFM group they will determine the % age of
customers in each group who made a purchase from the last catalog sent
to them
• Customers who have made a small infrequent purchases – first time
customers
• Objective of such CRM program is to convert them into early repeat
customers and eventually into high value customers
• CRM programs directed towards high RFM value- look for maintaining
loyalty, increase retention and increase the share of wallet

15. Step 3: Developing CRM programs
• After segmentation – next step is to develop
programs for different customer segments
• Programs retailers use for
- Retaining the best customers
- Converting good customers into high LTV
customers
- Getting rid of unprofitable customers

16. Customer retention
• To retain the best customers retailers use the
foll programs
- Frequent shopper programs
- Special customer services
- Personalization
- Community

17. Frequent shopper programs
• Used to build a customer database by identifying customers by their transactions
and encourage repeat purchases and customer loyalty
• Retailers provide incentives to encourage customers to enroll and use the card
• Incentives- in form of discounts on purchases or points on every rupee spent
• Nature of rewards can be
- tiered: according to volume of purchase to motivate the customers to increase the
level of purchases
- offer choices: other than points for all customers who don’t value the same
rewards. Eg Tesco- offers discounts on entertainment, vacations etc
- Link frequent shopper programs to charitable causes
- Disadvantages:
1. Expensive
2. Difficult to make corrections in program system
3. Not clear if such programs increase customer spend
4. Difficult to gain competitive advantage as it can be easily replicated by
competitors

18. • Special customer services : provide high
quality customer service to build and maintain
loyalty

19. Personalization
• Different customers in each segment will require different
strategies
• Availability of various data analysis tools, retailers offer
unique benefits and different target messages to individual
customers
• 1 to 1 retailing: developing retail programs for small groups
or individuals. Usually practiced by local retailers.
• Internet allows personalization Eg Amazon
• Rewards and benefits are based on information obtained
by the retailers
• Positive feedback cycle for CRM program : Increasing
repeat purchases- increases data- personalized benefits-
increases purchases

20. Community
• To develop a sense of community amongst
customers
• Internet allows opportunity for customers to
exchange information using bulletin boards
• Eg sporting goods retailer posts info on local
sporting website

21. Converting good customers into best
customers
• Increase the sales made to customers is
referred to as customer alchemy- converting
iron and lead to platinum customers
• Alchemy involves offering and selling more
products and services to existing customers
and increasing the share of wallet
• Use database analysis for cross selling and
add on selling
• Add on selling: Oprah Winfrey – books movies

22. Dealing with unprofitable customers
• At bottom tier – customers have negative LTV
• Retailers lose money when they make sale to
them
• Catalog retailers- customers buy 2-4 items and
keep only one of them
• Cost of processing is more than profit
• Charge customers for services they are abusing
• need to develop a lower cost approach

23. Step 4: Implementing CRM programs
• Needs appointing a CRM manager
• Computer and technology for data analysis
• Close coordination by different functions