LEVEL 1 Introduction to CRM Dr V Kumar

LEVEL 1 Introduction to CRM ©Dr. V. Kumar 1 www. drvkumar. com

What you will learn in this section… What is CRM and its history? Why Manage Customer Relationships? What role do customer habits play in CRM? What is the role of the customer lifecycle in CRM? ©Dr. V. Kumar 2 www. drvkumar. com

LEVEL I, MODULE I Path to Profitability ©Dr. V. Kumar 3 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY In seeking to maximize profits, all companies follow an array of marketing strategies ©Dr. V. Kumar Operational Excellence Profitability Brand Equity Profitability Relationship Marketing Profitability 4 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY In this unit, we will be focusing on Customer Relationship Management Relationship Marketing ©Dr. V. Kumar 5 Profitability www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY Source: www. youtube. com/watch? v=Cor. V 2 cy 9 yp 0 ©Dr. V. Kumar 6 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY So, Why Should Firms Manage Customer Relationships? ©Dr. V. Kumar 7 www. drvkumar. com

PATH TO PROFITABILITY LEVEL I, MODULE I Why Manage Customer Relationships? To understand customer’s needs before they know themselves To decrease customer churn by increasing customer satisfaction To motivate customers to initiate revenuegenerating contracts To increase the likelihood of the ‘right response’ To use technology to improve customer service To enable greater customer differentiation To attract customers through more personalized communications ©Dr. V. Kumar 8 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY But CRM has not always been this dynamic… ©Dr. V. Kumar 9 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY In fact, it has changed a lot over the years Relationship. Based Transaction. Based ©Dr. V. Kumar Engagement. Based 10 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY Transaction-Based Management Transaction • Recency, Frequency, Monetary Value • Past Customer Value • Share of Wallet ©Dr. V. Kumar 11 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY Relationship-Based Management Relationship • Customer Satisfaction • Customer Loyalty • Customer Lifetime Value ©Dr. V. Kumar 12 www. drvkumar. com

LEVEL I, MODULE I PATH TO PROFITABILITY Engagement-Based Management (current) Engagement • Customer Engagement • Employee Engagement • Salesperson Lifetime Value • Salesperson Churns ©Dr. V. Kumar 13 www. drvkumar. com

Questions… Firms manage customer relationships in order to: a. Improve customer service b. Attract customers through personalized communications c. Increase customer differentiation d. All of the above Answer: (d) ©Dr. V. Kumar 14 www. drvkumar. com

Questions… CRM is currently… a. Relationship-based b. Engagement-based c. Transaction-based d. None of the Above Answer: (b) ©Dr. V. Kumar 15 www. drvkumar. com

Questions… True or False. “Customer churn can be decreased by increasing customer satisfaction. ” Answer: (True) ©Dr. V. Kumar 16 www. drvkumar. com

Questions… When managers focus on customer transactions, which of the following is their primary concern? a. Customer Loyalty b. Salesperson Churn c. Past Customer Value d. Size of Wallet Answer: (c) ©Dr. V. Kumar 17 www. drvkumar. com

Questions… True or False. “Understanding customer needs before they know themselves is not an advantage of managing relationships. ” Answer: (False) ©Dr. V. Kumar 18 www. drvkumar. com

LEVEL I, MODULE II CRM in the Real World ©Dr. V. Kumar 19 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM But How is CRM Used in the Real World? ©Dr. V. Kumar 20 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM Match. com is an example of a company with strong CRM Data… Match. com has a group of data scientists who are continuously improving a series of more than 15 matching algorithms. “The unique thing about Match. com is that we have billions of data points from the last 17 years to analyze. ” -- Match. com President, Mandy Ginsberg ©Dr. V. Kumar 21 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM …as well as high profitability According to surveys conducted in 2013 by Match. com, nearly 1/3 of singles reported dating someone they met online. The dating services industry has performed increasingly well since 2010. Revenue gains averaged 4. 8% per year reaching $2. 2 billion in 2014. Over the past three years, Match. com has seen more than a 50% increase in revenue, with more than 1. 8 million paid subscribers in its core business. ©Dr. V. Kumar 22 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM What is the link? Profitability CRM ©Dr. V. Kumar 23 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM Here’s an example In 2014, 3. 1 million new Match. com users listed “coffee & conversation” as an interest on their profile. Following popular demand, the company partnered with Starbucks “to create new, interactive ways for our members to meet and share their love for the almighty bean. ” C R M The “Meet at Starbucks” feature on the site allows members to instantly send another member a coffee date invite with a click. ©Dr. V. Kumar 24 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM The result? In celebration of love, Match. com and Starbucks invited people around the world to participate in the World’s Largest Starbucks Date. On February 13, 2015, participating Starbucks locations featured a special menu. “Be sure to grab a date and head over to Starbucks to take part in this record-breaking event!” blog. match. com/match-starbucks-the-perfect-blend ©Dr. V. Kumar 25 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM This is all thanks to the strong management of customer relationship data ©Dr. V. Kumar 26 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM The Importance of Data Science to the Marketing Field Cannot Be Overstated October 2012 Harvard Business Review ©Dr. V. Kumar 27 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM So we know from this example that CRM influences profitability… Relationship Marketing Profitability …But how exactly does it work? ©Dr. V. Kumar 28 www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM Well, it’s an involved process… CREATE RADICALLY INNOVATIVE PRODUCTS SELL TO MORE CUSTOMERS – Customer Acquisition VALUE TO THE CUSTOMER – Create Rich Experience HIGHER SATISFACTION STRONGER LOYALTY VALUE FROM THE CUSTOMER – Higher Profits ©Dr. V. Kumar SELL MORE TO EXISTING CUSTOMERS – Cross-Sell, Up. Sell ENHANCED REVENUES 29 RETAIN YOUR CUSTOMERS www. drvkumar. com

LEVEL I, MODULE II REAL-WORLD CRM …And we will learn more about it in classes to come ©Dr. V. Kumar 30 www. drvkumar. com

Questions… True or False: “Data is only marginally important to CRM. ” Answer: (False) ©Dr. V. Kumar 31 www. drvkumar. com

Questions… True or False: “Higher satisfaction and stronger customer loyalty leads to customer retention. ” Answer: (True) ©Dr. V. Kumar 32 www. drvkumar. com

Questions… Selling more to potential customers refers to which of the following? a. b. c. d. Cross-selling Up-selling Customer Acquisition All of the above Answer: (c) ©Dr. V. Kumar 33 www. drvkumar. com

Questions… True or False. “Firms with an objective of customer retention focus on cross-selling and up-selling to existing customers. ” Answer: (True) ©Dr. V. Kumar 34 www. drvkumar. com

Questions… True or False. “Effectively managing customer relationship data has a strong link to profitability. ” Answer: (True) ©Dr. V. Kumar 35 www. drvkumar. com

LEVEL I, MODULE III The Power of Customer Habits ©Dr. V. Kumar 36 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS One of the key principles of CRM: Humans are creatures of habit ©Dr. V. Kumar 37 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Habits are powerful drivers of recurring behavior and are known to override customers’ intentions to act otherwise About 45% of our daily activities are governed by habits. (Quinn & Wood 2005) ©Dr. V. Kumar 38 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Customer Habits and CRM Firms’ marketing policies are typically directed at influencing customer behavior. However, marketing policies can backfire if customers’ underlying habits (that eventually drive behaviors) are ignored. ©Dr. V. Kumar 39 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS For example…. JC Penney Co. eliminated its heavily advertised sales and discounts and shifted the marketing policy to everyday low pricing. By underestimating the strength of its customers’ promotion purchase habit, the company lost $985 Million in sales over one year (WSJ 2013). ©Dr. V. Kumar 40 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Can there be other consumption habits besides purchase habits? If so, what are they? And to what extent do these habits impact the firm’s bottom line? ©Dr. V. Kumar 41 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS But first, let’s look at the following data… • • In-store transactions, online purchases, email click-through data over 4 years 1500+ customer characteristics Qualitative survey data, 0. 46 million customers, 96 million rows x 1644 columns… ©Dr. V. Kumar 42 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS …from which we can derive three key findings Customers’ habits are Multidimensional The four habitual behaviors are relatively independent of one another and not correlated with the extent to which a customer is loyal to a firm. Customer habits have a significant impact on firm’s bottom line. ©Dr. V. Kumar 43 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Customers’ habits are Multidimensional Which means what, exactly? ©Dr. V. Kumar 44 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS …It means that habits are comprised of four behaviors: Return Habit Low Margin Purchase Habit Promotion Habit Measure of Habit Strength : A customer will have a relatively high level of habit strength when he/she exhibits a high frequency of recurring behavior that is temporally consistent ©Dr. V. Kumar 45 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS The four habitual behaviors are relatively independent of one another and not correlated with the extent to which a customer is loyal to a firm. Loyalty ©Dr. V. Kumar 46 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Inter-correlation of habitual behaviors Promotion Habits 0. 20*** 0. 12*** -0. 10*** Return Habits 0. 03*** Purchase Habits -0. 12*** Low Margin Purchase Habits -0. 01*** Correlation coefficients range from -0. 12 to 0. 20 between the four habitual behaviors indicating that the habits are not highly inter-correlated within the same individual. ©Dr. V. Kumar 47 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS And most importantly… ©Dr. V. Kumar 48 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Customer habits have a significant impact on firm’s bottom line. ©Dr. V. Kumar 49 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS The aggregate effect of habit on profit across 0. 46 million customers over 4 years shows that: Impact on Firm’s Bottom Line • • % Change Purchase Habit $ 54 Million + 10. 4% Return Habit $ 58 Million - 11. 5% Promotion Habit $ 4 Million + 0. 8% Low Margin Purchase Habit $ 61 Million - 12. 0% Purchase and Promotion habit positively impact the firm’s bottom line by $58 M Return and Low Margin Purchase habit negatively impact the firm’s bottom line by $119 M ©Dr. V. Kumar 50 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS So based on these three findings… Customers’ habits are Multidimensional The four habitual behaviors are relatively independent of one another and not correlated with the extent to which a customer is loyal to a firm. Customer habits have a significant impact on firm’s bottom line. ©Dr. V. Kumar 51 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS So, what can businesses do with this information? ©Dr. V. Kumar 52 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS This chart provides an idea… Measure the Habit Strength corresponding to different recurring behaviors of customers Customer-level Decisions Negative Habits Firm-level Decisions Strategic Marketing resource reallocation Positive Habits Return Habit Promotion Habit Low Margin Purchase Habit New or customers with limited transactions Infer habitual proneness Distribution of habit strength across all customers of the firm Marketing Policy Decisions Results of Profile Analyses MAXIMIZE CUSTOMER PROFITS & FIRM PERFORMANCE ©Dr. V. Kumar 53 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS But before making sense of this flowchart… ©Dr. V. Kumar 54 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS Let’s be sure to understand the Four Perils of Customer Relationship Marketing (CRM) ©Dr. V. Kumar 55 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS The Four Perils of CRM Implementing CRM before creating a customer strategy Installing CRM technology before creating a customer focused organization Assuming that more CRM technology is better Stalking, not wooing customers ©Dr. V. Kumar 56 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS So then, how should CRM be enacted? ©Dr. V. Kumar 57 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS It is, essentially, a four-step process Identify customers Differentiate customers in terms of a) their needs and b) value to the company Interact in ways to a) improve cost efficiency and b) increase the effectiveness of interaction Customize some aspects of the products or services being provided ©Dr. V. Kumar 58 www. drvkumar. com

LEVEL I, MODULE III CUSTOMER HABITS And it relies on the concept of The Customer Lifecycle ©Dr. V. Kumar 59 www. drvkumar. com

Questions… Which of the following is NOT one of the four customer habits? a. Purchase habit b. Return habit c. Retention habit d. Promotion habit Answer: (c) ©Dr. V. Kumar 60 www. drvkumar. com

Questions… True or False: “Customer habits are multi-dimensional. ” Answer: (True) ©Dr. V. Kumar 61 www. drvkumar. com

Questions… Which of the following is NOT one of the four steps of CRM? a. Identify customers b. Interact to improve cost efficiency c. Install CRM technology at the outset d. Customize aspects of the products or services being provided Answer: (c) ©Dr. V. Kumar 62 www. drvkumar. com

Questions… True or False: “Firms should first try implementing CRM before creating a customer strategy to see if it’s right for them. ” Answer: (False) ©Dr. V. Kumar 63 www. drvkumar. com

Questions… JCPenney took a significant loss due to underestimating their customer’s ______ habits when changing their pricing strategy to every day low prices. a. Return habits b. Promotion habits c. Pricing habits d. None of the above Answer: (b) ©Dr. V. Kumar 64 www. drvkumar. com

LEVEL I, MODULE IV The Customer Lifecycle ©Dr. V. Kumar 65 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE As businesses shift from a product-centric focus to a customer -centric focus, the customer lifecycle has emerged as a framework to describe the stages – over time – of the relationship between a customer and a business. ©Dr. V. Kumar 66 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE The Customer Lifecycle – Where should we be looking? Value Today Acquisition • Measurement/ Forecasting • ROI • Shopping Basket ©Dr. V. Kumar Time Retention • Measurement • Prediction • Purchase Sequence • Enrichment • Customer Loyalty Programs 67 Attrition • Forecasting • Prevention • Win back www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Let’s take a look at the Lifecycle Stages ©Dr. V. Kumar 68 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE This is how customers progress through the lifecycle stages Universe of Customers Prospects. Responders New Customers Retained or Repeat Customers High Potential High Value Low Value Former Customers Winback ©Dr. V. Kumar 69 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE But how do you determine when a customer becomes a ‘former’ customer? Universe of Customers Prospects. Responders New Customers Retained or Repeat Customers High Potential High Value Low Value Former Customers Winback ©Dr. V. Kumar 70 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE For instance…. When the regular catalog customer doesn’t make a purchase for several years. ©Dr. V. Kumar 71 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Or… When the credit card customer stops using the card, but doesn’t close the account. ©Dr. V. Kumar 72 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Are they still customers? or are they former customers? And how do firms hold on to their customers? ©Dr. V. Kumar 73 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE To really hold on to your customers, you need to build loyalty ©Dr. V. Kumar 74 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Does winning loyalty lead to greater profits for a firm? Can this romance last? ©Dr. V. Kumar 75 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Remember this flowchart? CREATE RADICALLY INNOVATIVE PRODUCTS SELL TO MORE CUSTOMERS – Customer Acquisition VALUE TO THE CUSTOMER – Create Rich Experience HIGHER SATISFACTION STRONGER LOYALTY VALUE FROM THE CUSTOMER – Higher Profits ©Dr. V. Kumar SELL MORE TO EXISTING CUSTOMERS – Cross-Sell, Up. Sell ENHANCED REVENUES 76 RETAIN YOUR CUSTOMERS www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Perhaps we can streamline this a bit… ©Dr. V. Kumar 77 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Into the Satisfaction-Loyalty-Profit Chain Product Performance Service Performance Customer Satisfaction Retention /Loyalty Revenue /Profit Employee Performance Source: Strengthening the satisfaction-profit chain”, Eugene W Anderson, Vikas Mittal. Journal of Service Research, Nov 2000. Vol 3, Iss. 2, p 107 ©Dr. V. Kumar 78 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE As you can see, customer satisfaction anticipates customer loyalty ©Dr. V. Kumar 79 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE And customer satisfaction is prone to fluctuation 72 85 84 70 84 83 Food Manufacturing Airline Automobile 83 68 82 82 66 81 81 64 80 80 79 62 78 79 60 78 58 76 75 77 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 15 19 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 15 56 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 77 (American Customer Satisfaction Index) with products and services Source: www. theacsi. org, University of Michigan ©Dr. V. Kumar 80 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE The Customer Satisfaction Industry Benchmark Scores for Select U. S. Industries Industry Airlines Automobiles Cell Phone Manufacturers Fixed Line Phones Food Manufacturing Hospitals Hotels Limited Service Restaurants Subscription Television Service U. S. Postal Service Wireless Telephone Service ©Dr. V. Kumar 2010 66 82 76 75 81 73 75 75 2011 65 83 75 73 81 77 77 79 2012 67 84 74 70 83 76 77 80 2013 69 83 76 74 81 78 77 80 2014 69 82 78 73 79 76 75 80 2015 71 79 78 69 n/a 74 75 77 66 66 66 68 65 63 71 72 74 71 75 70 77 72 72 72 69 70 81 www. drvkumar. com

LEVEL I, MODULE IV CUSTOMER LIFECYCLE Before we can proceed, we need to understand how customer loyalty and customer satisfaction are measured and defined, and what antecedents drive these concepts ©Dr. V. Kumar 82 www. drvkumar. com

Questions… Which of the following is a stage of the customer lifecycle? a. Prospects b. Retained customers c. Former customers d. All of the above Answer: (d) ©Dr. V. Kumar 83 www. drvkumar. com

Questions… True or False: “Customer satisfaction anticipates customer loyalty. ” Answer: (True) ©Dr. V. Kumar 84 www. drvkumar. com

Questions… True or False: “As businesses shift from a customer-centric focus to a product-centric focus, the customer lifecycle can be used to describe the relationship between a customer and a business. ” Answer: (False) ©Dr. V. Kumar 85 www. drvkumar. com

Questions… If a firm’s main focus is on forecasting, prevention, and winning back customers, this describes which of following concerns? a. Acquisition b. Attrition c. Retention d. All of the above Answer: (b) ©Dr. V. Kumar 86 www. drvkumar. com

Questions… True or False: “Customer satisfaction is known to remain stagnant once a customer’s expectations are met. ” Answer: (False) ©Dr. V. Kumar 87 www. drvkumar. com

Level 1 Completed! ©Dr. V. Kumar 88 www. drvkumar. com