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Customer Relationship Management

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1. There is a lifetime-profitability correlation. 2. Profits increase over time ... 4. Long-life customers pay higher prices. Andr s Bauer. Marketing Management ... – PowerPoint PPT presentation

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Title: Customer Relationship Management


1
Customer Relationship Management
  • Basic Assumptions for this paradigm
  • 1. There is a lifetime-profitability correlation
  • 2. Profits increase over time
  • 3. Serving long-term customers is less costly
  • 4. Long-life customers pay higher prices

2
Graphical representation of consumer/profit
development
Price Premium Referrals Cost Savings Revenue
Growth Base Profit Acquisition
Cost
PROFIT
1 2 3 4 5 6
7
Years
3
Some explanations
  • Acquisition costs depending on the category, it
    could be quite substantial. In fast growing
    businesses, firms are willing to spend upfront in
    hope of future recovery. Cellphones are prime
    examples. Average acquisition cost in the US
    300. However high churn rates may not justify
    this. (There is a market segmentation reason)

4
Further explanations
  • Base profit the average margin
  • Revenue growth retained customers might buy more
    from the company (partly because of cross-selling
    partly, because of they are happy)
  • Operating costs it is less costly to serve loyal
    customers

5
More explanations
  • Referrals satisfied customers make
    recommendations (however if you force them they
    become suspicious)
  • Price premium loyalty makes blind and customers
    are willing to pay higher prices (though it could
    just be inertia)

6
Discussion
  • If the basic assumptions hold, firms should
    pursue loyalty building strategies
  • Loyalty strongly depends on customer satisfaction
  • However, if the basic assumptions do not hold,
    caution is advised

7
The Customer Satisfaction Branch
  • Customer Satisfaction is usually approached based
    on the expectancy-disconfirmation theory
  • Looking at the match of expectations and
    experience

8
Customer satisfaction
  • Is a multidimensional construct based and
    measured on many dimensions.
  • Usual dimensions
  • response, info exchange personal
    service, price, availability, attributes
  • Need for own measures customersat.com

9
Customer satisfaction measures
  • Behaviour (based on data)
  • Surveys
  • Lost customer analysis
  • Mystery shopping
  • Benchmarking for competitors

10
The impact of market segmentation
  • Not all customers are equal, therefore pursuing
    loyalty in general, is not a good strategy
  • Even highly satisfied customers switch
  • There could be some free-riding
  • Membership (contract) and non-membership business
    can be different

11
Low Lifetime Revenue High
Long Lifetime
Length Short
Lifetime Profit 289 Mailing Cost .063
Ave.Price 58.4
Lifetime Profit 51 Mailing cost .128
Ave.Price 47.7
Lifetime Profit 51 Mailing Cost .142 Ave
Price 47.8
Lifetime Profit 258 Mailing Cost .065 Ave.
Price 63.5
SourceReinartz Kumar
12
Interpretation
  • This is a non-contractual business
  • In this business (direct marketing) rewarding
    long lifetime with the company is
    counterproductive
  • It might be different in contractual relations

13
Industry approaches
  • Industries might follow different approaches to
    customization such as one-to-one, mass
    customization etc.
  • Measurement is more and more possible, though
    industry specific
  • Could be very important in B2B

14
Some examples
  • High-value customers receive better treatment
  • Can use more services
  • Receive more rewards
  • Low value customers are treated badly
  •  Customer apartheid ? 

15
Customer relationship management as an application
  • CRM is about identifying, winning, retaining and
    expanding customer relationships in the most
    profitable way, across the complete spectrum of
    point to contact with the customer. It includes,
    sales force, call-center, the Internet
  • A technology enabled dialogue

16
The Dell model
  • Dell captures more customer value in its model
    than its competitors through differentiation in
    customer knowledge and therefore better problem
    solving
  • This leads to higher selling prices

17
When is CRM a good tool ?
  • In businesses with complexity and high value.
    This is where the customer value can be driven by
    differentiation and tailorability to the customer

18
Beyond CRM...
  • Consumers are co-producers, not just users
  • We can manage consumer by marketing and HR tools
    Customer Efficiency Management

19
Simple profit model satisfied employees
Satisfied employees make customers happy
Satisfied employees
Customer
Employees
Firm
Satisfied customers increase company profit
20
A more rational profit model based on a process
view
Company systems allow employees to provide
consistently better services
Well supported employees provide consistently
better services
Customers
Employees
Firm
Satisfied customers improve their relationship
with the firm

21
The efficient customer profit model
Company systems support employees and customers
to become more efficient
Employees
Well supported employees provide better services
Firm
Efficient customers use company systems better
and create better serv ices
Customer
Satisfied customers have better relationship with
the company and with other customers, as well.
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