BGS Customer Relationship Management Chapter 11 CRM Program

CRM Program Measurement Surprising Findings • 90 percent of the fifty largest CRM users were unable to quantify a return on their CRM investment • Only 30 percent of companies measured benefits of CRM • Only 37 percent knew if they shared a customer with another division in their company • Only 20 percent knew if a customer had ever visited the company web site

Top Ten Mistakes Companies Make When Measuring Their CRM Effectiveness • • • Off in a corner Lack of leadership support Too much data No clearly defined strategy Knowing without acting Stale as seven-day old bread Death by 1, 000 dashboards Failure to benchmark Culture of inertia Failure to measure outcomes

Program Measurement

Measurement Background 1. Measuring satisfaction – – – Differentiate among first time, short-term, longterm, those about to defect, and desirable vs. undesirable customers Use direct measure of satisfaction and not “gap” measures Invest in moving customers to top score as opposed to middle-value scores

Measurement Background 2. Service quality • Customers use five dimensions to assess service quality • • • Tangibles Reliability Responsiveness Assurance Empathy

Measurement Background 3. Retention – Retention curves are one way to see how responsive profits are to changes in defection rates. One credit card company’s experience – – – Defection rate cut from 20 percent to 10 percent Average customer life doubled from five to ten years Customer value went from $134 to $300

Measurement Background 3. Retention rates – “As the defection rate dropped another 5% the average life span doubled again and profits rose 75% from $300 to $525. ” Reicheld and Sasser

CRM Effectiveness

CRM Effectiveness Measures Can be Grouped into Four Distinct Areas 1. CRM customer cycle measures − Acquisition/bonding/effecting behavior Change/retaining/preventing downward Migration/winback 2. Company 3 E measures − Efficiency, effectiveness, employee behavior 3. Customer and company worth measures 4. Customer knowledge measures

CRM Customer Cycle Measures: Acquisition • • Acquisition rate/yield rate/capture rate Conversion rate Acquisition cost or conversion efficiency Other acquisition effectiveness measures

CRM Customer Cycle Measures: Developing Closer Bonds • Maintenance ratio • Continuity of most profitable customers • Measures of overall customer satisfaction, loyalty, and commitment • Emotional affinity • Service/transaction satisfaction • Measures of service quality • Perceptions of value • Numbers of customer complains/referrals

CRM Customer Cycle Measures: Effecting Behavior Change by Cross-Selling and Up-Selling • • Size of wallet Share of category Other behavioral change effectiveness measures – Number of company products held per customer – Type of channel usage – RFM measures

CRM Customer Cycle Measures Retaining Customers • • Average retention rate Average defection rate Average lifetime duration Survival rate – Number from customer cohort remaining at point of time in the future

Survival Rate: Example Of the 2, 500 new customers acquired in 2001, how many will survive to 2004?

Defection Indicators Used To Prevent Defection and Downward Migration • Measures of downward migration – – – – Days since last purchase Buying cycle changes Share of wallet changes Change in number of product categories bought Change in purchase of ancillaries Changes in order size Changes in number of contacts and touch points

CRM Customer Cycle Measures: Winback • SCLV: second customer lifetime value • Average cost per customer reactivated • Percent of customer reactivated per campaign

Company 3 E Measures: Efficiency/Effectiveness/Employee Behavior • • • More effective marketing campaigns Better campaign management Report generation time efficiencies First contact resolution of problem Successful resolution and time to resolve Reduced customer attrition Revenue per CRM $ Improved customer response rates across TPs Time spent on developing promotions, reports, etc. Reduced campaign development cycle and product development Cost reduction measures – Reduced transaction costs – Staff efficiency gains – Cost savings through improved customer selection • Employee changes – General job satisfaction/satisfaction toward specific aspects of job/turnover/employee referrals/percent of calls leading to cross or up- sell

Measures of Customer and Company Worth • The importance of CLV and customer equity • In computing CLV, should costs be considered or simply revenue? • How is trading-up factored in? • How is the emergence of new competitors factored in?

Customer Equity Customer equity equals the profit from first-time customers minus the cost of acquiring the customers plus profits from future sales divided by the discount rate, summed across all customer segments. based on Blattberg and Thomas

Customer Equity (CE) “According to Rust, Lemon, and Narayandas” • CE is driven by three things: 1. Value Equity: customers’ objective evaluation of firm’s offering compared with others based on price/quality/convenience 2. Brand Equity: customers’ subjective view of firm and offerings based on affective components 3. Relationship Equity: feelings of loyalty often based on loyalty programs

Customer Knowledge

CRM Effectiveness Measures: How Well do You Know Your Customers? • • • Longitudinal behavior Ethnological data Human-based observational data Customer buying cycle data Customer experience cycle data Interaction scores Critical incident scores Acquisition/defection data Customer-brand relationship data RFM vs. event history model for predicting response rates

Customer Knowledge: Customer Behavior over Time— Longitudinal Data Formerly done through use of panels and diaries, it now can be done via the use of database analysis.

Customer Knowledge: Ethnological Data • Used by Hallmark Cards before entering England. • Used by Gillette to improve products. • Used by supermarkets to understand the mental state of customer segments before they go grocery shopping.

Customer Knowledge: Human-Based Observational Data • • • Used by Four Seasons Hotels Used by Mc. Donald’s Used by Harley-Davidson Used by Jeep Used by Apple Used by General Electric

Customer Knowledge: Customer Buying Cycle Analysis • Why does a customer first purchase your offering? • In what situation does a customer purchase your offering? • What is the progression of product/service orders for a typical customer? High-value customer? • How do customer lifestyle or life-stage changes affect their relationship with you?

Customer Knowledge: Customer Experience Cycle Data • Nycamp recommends that companies evaluate their performance in the following areas – – – – Field sales Point-of-sale service CCC Web Marketing and corporate communications Public relations Advertising

Customer Knowledge: Interaction Scores • These scores represent a customer’s assessment of the quality of interaction in each of the eight experience cycle areas. Analyze scores for inconsistencies.

Customer Knowledge: Critical Incident Analysis Have customers rate specifics—not global generalities. For example, have banking customers rate – – – – Wait time for a teller Errors/mistakes Parking Teller treatment Teller competence Hours of service Service environment

Customer Knowledge: Acquisition/Defection Matrix (Partially Completed) TO CINB Ist Harris La. Salle. 7. 25. 03. 02 FROM CINB Ist. 02 Harris. 2 La. Salle. 03

Customer Knowledge: Customer Brand Relationship Data • The hierarchy of effects model is useful – Awareness – Knowledge – Liking – Preference – Purchase intentions – Purchase behavior

Customer Knowledge • RFM scores vs. event-history models of customer response rates – RFM: Customer given points based on recency, frequency, and monetary value of purchases – Event-History Model: Takes purchase pacing into account n = number of purchases made in time period t = fraction of period between first and last purchase

Event-History Model • Used to predict the probability a customer will still be active at some future point in time –Fred made four purchases from L. L. Bean, the first in January 2006 and the last in July (month seven) –Jo. Anne made two purchases from L. L. Bean, the first in January 2006 and the last in July • Probability each will be active in January 2007? Fred: (7/12)4 =. 116 Jo. Anne: (7/12)2 nd =. 34 Jo. Anne is three times more likely to be an active customer vs. Fred

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