Chapter 11 Customer Relationship Management

McGraw-Hill/Irwin Retailing Management, 6/e Copyright © 2007 by The McGraw-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 11-2

Customer Relationship Management

11-3 • 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?

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 11-4

Can Offering Discounts Achieve Customer Loyalty?

No!

Retail strategies like these can be copied by competitors 11-5 These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer

McGraw-Hill Companies, Inc./Gary He, photographer

CRM Process

11-6

11-7 Information About Each Customer in the Database • 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 marketing activities

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 11-8

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?

Steve Cole/Getty Images

Frequent Shopper Cards

Card is often squeezed out of wallet Customers forget to bring it to the store Might not even show it if in a hurry 11-10

(c) image100/PunchStock

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

Stockbyte/Punchstock Images

11-11

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

Consumer Protection Differences

11-13 •

United States

• Limited protection in specific areas – Credit reporting – Video rentals – Banking – Medical records

European Union

• Information only can only be collected for specific purposes • Purpose must be disclosed to customer • Information can only be used for specific purpose • Information can not be exported to countries with less stringent regulations

11-14 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

J.Crew Security and Privacy Policy

11-15

Analyzing Customer Data

Data Mining – technique used to identify patterns in data.

Market Basket Analysis Identifying Market Segments Identifying Best Customers

Ryan McVay/Getty Images

11-16

Market Basket Analysis

Data analysis focusing on the composition of the customer’s market basket – what items are bought during a single shopping occasion Uses:

Burke/Triolo Productions/Getty Images

-Adjacencies for displaying merchandise -Joint promotions 11-17

11-18 Market Basket Analysis Taught Wal-Mart to Change!

Product Placed Near Bananas cornflakes, produce Kleenex paper goods, cold medicine Measuring spoons housewares, Crisco shortening Flashlights hardware, Halloween costumes Little Debbie snack cakes coffee Bug spray hunting gear

Identifying Best Customers

• Estimating Lifetime Value • Based on assumptions that the customer’s future purchase behaviors will be the same as they have been in the past • Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis)

(c) Brand X Pictures/PunchStock

11-19

Which Customer Probably Has the

11-20

Greatest Lifetime Value

Purchases Over Last 10 Weeks 1 2 3 4 5 6 7 8 9 10 Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0

Customer Pyramid

Platinum Best Most loyal Least price sensitive 11-21

Customer Pyramid

Gold Next best Not as loyal 11-22

Customer Pyramid

11-23 Iron Doesn’t deserve much attention

Customer Pyramid

11-24 Lead Demands attention May have negative value

RFM Analysis

11-25

RFM Target Strategies

11-26

Illustration of RFM Application

11-27 • 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

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 = $.25 profit per catalog mailed 11-28

Converting Good Customers to Best Customers 11-29

CRM Programs

Retailing Best Customers Getting Rid of Unprofitable Customers

Customer Retention Programs

11-30 • Frequent Shopper Programs • Special Customer Services • Personalization 1-to1 Retailing • Community

Royalty-Free/CORBIS

Elements in Effective Frequent Shopper Programs

11-31 • Tier Based on Customer Value • Offer Choices of Rewards – Non-monetary incentives • Reward all Transactions • Transparent and Simple

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 11-32

Personalization

Hello, Barton Weitz 11-33

Dealing with Unprofitable Customers 11-34 Offer less approaches for dealing with these customers Charge customers for extra services demanded

Don Farrall/Getty Images

Implementing CRM Programs

Need systems, databases Close coordination between departments – marketing, MIS, store operations, HR 11-35 Shift in orientation Product Centric Customer Centric