Transcript MARK 7397 Spring 2009 Customer Relationship Management: A Database Approach Class 1 James D. Hess C.T.

MARK 7397
Spring 2009
Customer Relationship Management:
A Database Approach
Class 1
James D. Hess
C.T. Bauer Professor of Marketing Science
375H Melcher Hall
[email protected]
713 743-4175
What is Marketing
• “Marketing is an organizational function and a set of processes for
creating, communicating and delivering value to customers and for
managing customer relationships in ways that benefit the
organization and its stakeholders.”
American Marketing Association,2004
What is Customer Relationship Management?
Customer relationship management (CRM) is a business strategy to identify,
attract, convert and reward the most profitable customers to induce recurring
exchanges with the business.
CRM in a nutshell: from your customers base, identify Angels
and do something special for them and identify Devils and
terminate the relationship.
American Customer Satisfaction Index
Declining Customer Satisfaction- Example
90
Scheduled
Airlines
90
Household
Appliances
90
Commercial
Banks
P arcel Delivery
90
90
P ersonal
Computers
90
85
85
85
85
85
85
80
80
80
80
80
80
75
75
75
75
75
75
70
70
70
70
70
70
65
65
65
65
65
65
60
-8.4%
1994 1996 1998 2000 2002
-3.5%
60
60
1994 1996 1998 2000 2002
-2.7%
1994 1996 1998 2000 2002
60
-2.5%
1994 1996 1998 2000 2002
60
-9.0%
1994 1996 1998 2000 2002
(American Customer Satisfaction Index) with products and services
Source: http://www.theacsi.org, University of Michigan
60
P ublishing/
Newspapers
-12.5%
1994 1996 1998 2000 2002
Customer Satisfaction
• Basic assumption:
– Satisfaction leads to loyalty
– Loyalty leads to higher $$ spending
– Higher $$ spending = greater profits
• Therefore: customer satisfaction is key!
• BUT: can satisfy customers right out of business
• Truth: “barely satisfied customers”
January 11, 2004
Reaping What They Sew
By Purva Patel
Staff Reporter of THE HOUSTON CHRONICLE
Hamilton Shirt Co. has
outfitted Texans for more than
120 years.
But the custom-shirt maker
has kept itself under wraps as
it caters to an elite clientele of
prominent businessmen,
national news anchors and the
well-heeled. The business
advertised for the first time
last November, by direct mail
to select customers.
"There's a certain mystique about it," said David Lynn, manager for custom sales at Richards of Greenwich, a high-end
luxury apparel store in Connecticut. "It's like a secret society."
Operating through both World Wars and numerous economic downturns, the company has survived by avoiding major
alterations to the business and relying on brand exclusivity for four generations. Owner Jim Hamilton says he runs the shop
the way his father and grandfather did. Shirts sell for $155 to $245 in Houston, and first-time buyers must purchase at least
four. Behind the storefront on Richmond, sewing machines turn out about 75 shirts a day.
Bolts of fabric imported from Italian and Swiss mills line one wall, ironing tables another in the 3,100-square-foot factory.
Some 20 pattern cutters and seamstresses snip, stitch and press the shirts, much like those who worked for Hamilton 's
grandfather. Patterns are still hand-cut, side seams are still stitched with a single-needle sewing machine, and customers still
talk to the owner as they did when the company opened, under the name Hamilton Bros.
Even the filing system is the same. Salesmen write out orders, tape on swatches of fabric and store them with patterns
in manila envelopes. Hamilton estimates he has 30,000 patterns on file, of which 5,000 are active.
Hamilton hopes to eventually pass the business on to his children, who each own 5 percent of the company. His
daughter, Kelly Hamilton , 28, handles marketing, helped develop the company's first brochure and hopes to set up a Web
site. David Hamilton recently prompted his father to start taking credit cards and is working on a database for direct-mail
efforts. When he looked at the company's alphabetical list of clients (more than 2,000 names long and predominantly male)
and saw Frank Abignail at the top, the wheels started turning. Abignail was the recent subject of the hit movie "Catch Me If
You Can" starring Leonardo DiCaprio as perhaps America's most famous check forger, who went on to become a famous FBI
consultant. Recalls David: "I said, 'Dad, do we still take his checks? Maybe we better switch to credit cards.'“
David Hamilton is looking into developing custom software to encapsulate the company's customer database.
Link Between CRM and Customer Value
• Customer Value: The economic value of the customer relationship to
the firm – expressed on the basis of contribution margin or net profit
• CRM is the practice of analyzing and utilizing marketing databases
and leveraging communication technologies to determine corporate
practices and methods that will maximize the lifetime value of each
individual customer to the firm
Link Between CRM and Database Marketing
Database Marketing
• Customer Databases
– Identify and analyze customer population
– Group based on similarities
– Recommend separate marketing campaigns for different groups
• CRM
– Applies database marketing techniques at customer level
– Develops strong company-to-customer relationships
What should be in a customer database?
•Transactions – complete purchase history with details such as price
paid, SKU, delivery date…
•Customer Contacts – sales calls, service requests…
•Descriptive Information – segmentation data
•Response to Marketing Stimuli – responses to direct marketing
initiative, sales contact…
Customer Histories
(gross contributions)
$50
Customer A
Year 1
Year 2
$50
Customer B
$75
Customer C
$50
Customer D
$50
Customer E
Monthly sales calls were made at cost of $10/call.
Customer Valuation
Service
Cost per Call
$/Call
Contribution
Margin
Number of
Customers
Call on
Angels
Devils
Customer Behaviors
The Mismanagement of Customer Loyalty
Win loyalty, therefore, and profits will follow as night follows day.
The top 16 retailers in Europe collectively spent more than $1 billion in 2000 on loyalty programs.
Half of U.S. high-tech corporate service provider’s customers who made regular
purchases for at least two years-- and were therefore designated as "loyal"-- barely
generated a profit. Conversely, about half of the most profitable customers were blow-ins,
buying a great deal of high-margin products in a short time before completely
disappearing.
Studied high-tech corporate service provider, a large U.S. mall-order company, a French
retail food business, and a German direct brokerage house: 16,000 individual and
corporate customers over a four-year period.
Correlation coefficients between loyalty and profits
0.45 grocery retailer
0.30 corporate service provider
0.29 direct brokerage firm
0.20 mail-order company.
Myths of Customer Loyalty
Myth 1: It costs less to serve loyal customers.
Myth 2: Loyal customers pay higher prices for the same bundle of goods.
Myth 3: Loyal customers market the company
Knowing When to Lose a Customer
Which Customers Are Really Profitable?
percent of
customer
s
percent of
customer
s
corpora
High profitability
te service provider
20%
retail
15%
corpora
te service provider
30%
retail
36%
grocery
grocery
mailorder
19%
mailorder
31%
direct
brokerage
18%
direct
brokerage
32%
percent of
customer
s
percent of
customer
s
corpora
Low profitability
te service provider
29%
retail
34%
corpora
te service provider
21%
retail
15%
grocery
grocery
mailorder
29%
mailorder
21%
direct
brokerage
33%
Short-Term
Customers
direct
brokerage
17%
Long-Term
Customers
Choosing a Loyalty Strategy
High profitability
Low profitability
Butterflies
True Friends
• good fit between company's offerings and
customers' needs
• high profit potential
Actions:
• aim to achieve transactional satisfaction, not
attitudinal loyalty
• milk the accounts only as long as they are
active
• key challenge is to cease investing soon
enough
• good fit between company's offerings and
customers' needs
• highest profit potential
Actions:
• communicate consistently but not too often
• build both attitudinal and behavioral loyalty
• delight these customers to nurture, defend,
and retain them
Strangers
• little fit between company's offerings and
customers' needs
• lowest profit potential
Actions:
• make no investment in these relationships
• make profit on every transaction
Barnacles
• limited fit between company's offerings and
customers' needs
• low profit potential
Actions:
• measure both the size and share of wallet
• if share of wallet is low, focus on up- and
cross-selling
• if size of wallet is small, impose strict cost
controls
Short-Term
Customers
Long-Term
Customers
CRM
Relationship
Initiation
(A)
Acquiring
customers
Relationship
Maintenance
(B)
Retaining
and
growing
customer base
Relationship
Termination
(C)
“Firing”
customers
CRM (A)
Relationship
Initiation
Prospect
Evaluation
Acquisition
Management
Recovery
Management
CRM (B)
Relationship
Maintenance
Customer
Evaluation
Up-Cross
Retention
Referral
Selling
Management
Management
Management
CRM (C)
Relationship
Termination
Customer
Evaluation
Exit
Management
Summary
• From a strategic perspective, CRM is the process of selecting the
customers a firm can most profitably serve and shaping the
interactions between a company and these individual customers
• Assessing Customer Value is critical to CRM
• Rapid changes are taking place in the environment in which firms
operate with respect to customers, market places, technology, and
marketing functions
• These changes have driven the marketplace to become relationshipbased and customer-centric
• CRM’s goal is to optimize the current and future value of the
customers for the company