5 th Edition PPT 11 1 Chapter 11

5 th Edition PPT 11 -1

Chapter 11 Customer Relationship Management Mc. Graw-Hill/Irwin PPT 11 -2 Retailing Management, 5/e Levy/Weitz: Copyright © 2004 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Retailing Strategy Retail Market Strategy Financial Strategy Site Location Customer Relationship Management Retail Locations Organizational Structure and HR Management Information Systems PPT 11 -3

Customer Relationship Management A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers. What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer? PPT 11 -4

Customer Loyalty • Committed to purchasing merchandise and services from a retailer • Resist efforts of competitors to attract the loyal customer • Emotional attachment to retailer – Personal attention – Memorable positive experiences – Brand building communications programs PPT 11 -5

CRM Process PPT 11 -6

Collecting Customer Data • Types of Information in the Customer Database • Approaches for Collecting Information • Privacy Concerns PPT 11 -7

Information About Each Customer in the Data Base • History of purchases – Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion • Customer contacts by retailer (touch points) – Visits to web site, inquires to call center, direct mail sent to customer • Customer preferences • Descriptive information about customer • Customer’s responses to promotions PPT 11 -8

Approaches for Collecting Customer Information Need to connection contacts with a specific customer identifier • Ask for identifying information – Telephone number, name and address • Encourage use of frequent shopper cards • Link checking account number and/or third party credit cards to customer PPT 11 -9

Privacy Concerns Control over Collection • Do customers know what information is being collected? • Do customers feel they can decide on the amount and type of information collected by retailers? Control over Use • Do customers know how the information will be used by the retailer? • Will the retailer share the information with third parties? PPT 11 -10

Heighten Concerns When Using Electronic Channel • Information collected without the awareness of customers • Collecting click stream data using cookies – Similar to an invisible person videotaping a customer as they walk through a store PPT 11 -11

Customer’s Decision to Offer Information Balance benefits and risks Discounts Special Treatment Personal Attention PPT 11 -12 Disclosure of Information Unwanted Sales Contacts

Consumer Protection Differences United States European Union • Limited protection in specific areas • Information only can only be collected for specific purposes – Credit reporting • Purpose must be disclosed to customer – Video rentals • Information can only be used for specific purpose – Banking – Medical records PPT 11 -13 • Information can not be exported to countries with less stringent regulations

FTC Guideline for Fair Information Practices • Notice and awareness – comprehensive statement about information storage, manipulation, and dissemination • Choice/consent – Opt-in and opt-out options • Access/participation – Customer able to confirm accuracy • Integrity/security – Controls for theft and tampering • Enforcement/redress – Mechanism to insure compliance PPT 11 -14

GAP Security and Privacy Policy PPT 11 -15

Analyzing Customer Data Mining – technique used to identify patterns in data. Expl : DVD Player Market Basket Analysis Identifying Market Segments Identifying Best Customers PPT 11 -16

Market Basket Analysis Data analysis focusing on the composition of the customer’s market basket – what items are bought at the same time. Uses: -Adjacencies for displaying merchandise -Joint promotions PPT 11 -17

Identifying Best Customers • Estimating Lifetime Value • Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis) PPT 11 -18

Which Customer Probably Has the Greatest Lifetime Value Purchases Over Last 10 Weeks PPT 11 -19

Customer Pyramid Platinum Best Most loyal Least price sensitive PPT 11 -20

Customer Pyramid Gold Next best Not as loyal PPT 11 -21

Customer Pyramid Iron Doesn’t deserve much attention PPT 11 -22

Customer Pyramid Lead Demands attention May have negative value PPT 11 -23

RFM Analysis PPT 11 -24

RFM Target Strategies PPT 11 -25

Illustration of RFM Application A catalog retailer is deciding which group of customers to send a catalog. . Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$. 75 Will the retailer make a profit mailing to this RFM segment? PPT 11 -26

Illustration of RFM Application A catalog retailer is deciding which group of customers to send a catalog. . Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$. 75 Will the retailer make a profit mailing to this RFM segment? $20. 00 contribution x. 05 response rate - $. 75 cost PPT 11 -27 = $. 25 profit per catalog mailed

CRM Programs Retailing Best Customers Converting Good Customers to Best Customers Getting Rid of Unprofitable Customers PPT 11 -28

Customer Retention Programs • Frequent Shopper Programs • Special Customer Services • Personalization – 1 -to 1 Retailing • Community PPT 11 -29

Even Small Retailers Use Frequent Shopper Programs PPT 11 -30

Elements in Effective Frequent Shopper Programs • Tier Based on Customer Value • Offer Choices of Rewards – Non-monetary incentives • Reward all Transactions • Transparent and Simple PPT 11 -31

Issues with Effective Frequent Shopper Programs • Expense • Difficulty in Making Changes • Impact on Loyalty Questionable • Easily Duplicated – Difficult to Gain Competitive Advantage – Need to offer “invisible” benefits PPT 11 -32

Personalization Hello, Barton Weitz PPT 11 -33

Converting Good Customers to Best Customers • Cross-selling • Add-on selling PPT 11 -34

Dealing with Unprofitable Customers • Offer less approaches for dealing with these customers • Charge customers for extra services demanded PPT 11 -35

Implementing CRM Programs • Need systems, databases + • Close coordination between departments – marketing, MIS, store operations, HR • Shift in orientation Product Centric PPT 11 -36 Customer Centric