Chapter 11

MGT300

CHAPTER 11

Building a Customer-centric Organization

‘Customer Relationship Management’

ZAYANAHUSNA BINTI IDRIS

2010265224

J3BM1114B

UiTM Kampus Bandaraya Johor Baharu

Session Nov-May (2011/2012)

CONTENT

1.0       Customer Relationship Management (CRM) ………………………………..3

2.0       The Major Application Clusters in Customer Relationship Management ...5

2.1       Contact and Account Management …………………………………..5

            2.2       Sales ……………………………………………………………….…….6

            2.3       Marketing and Fulfillment ……………………………………………...6

2.4         Customer Service and Support ………………………………….……7

2.5         Retention and Loyalty Programs ……………………………………...8

3.0       Recency, Frequency and Monetary Value (RFM) …………………………..9

4.0       The Evolution of CRM ………………………………………………………….9

4.1       The Three Phases of CRM ……………………..……………………10

5.0         The Ugly Side of CRM …………………………………………….………….11

5.1       From Tools to Systems ……………………………………………….11

5.2       CRM Failures ………………………………………………………….12

6.0       Customer Relationship Management’s Explosive Growth ………………..13

7.0       Using Analytical CRM to Enhance Decision ……………………………….14

8.0         Customer Relationship Success Factors …………………………………..15

Reference …………………………………………………………………...…………16

1.0          Customer Relationship Management (CRM)

Today, most competitors are simply a mouse-click away, and this intense competition is forcing firms to switch from sales –focused business strategies to customer-focused business strategies. Customers are one of a firm’s most valuable assets, and building strong loyal customer relationships is a key competitive advantage. Harley-Davidson offers an excellent example of a company that knows the value of customer loyalty, and it finds itself in the coveted position of demand outweighing its supply. No other motorcycle in the world has the look, feel and sound of a Harley-Davidson. Demand for Harley-Davidson motorcycles outweighs supply and some models have up to a two-year waiting list. Knowing the value of its customers, Harley-Davidson started the Harley’s Owners Group (HOG), which is the largest motorcycle club in the world with more than 600,000 members. HOG offers a wide array of events, rides and benefits to its members and is a key competitive advantage as it helps to build a strong sense of community among Harley-Davidson owners. Harley-Davidson has built a customer following that is extremely loyal, a difficult task to accomplish in any industry.

Customer relationship management (CRM) is a means of managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization’s profitability. CRM allows an organization to gain insights into customers’ shopping and buying behaviors. Every time a customer communicates with a company, the firm has a chance to build a trusting relationship with that particular customer. Harley-Davidson realizes that it takes more than just building and selling motorcycles to fulfill the dreams of its loyal customers. For this reason, the company strives to deliver unforgettable experiences along with its top-quality products. When the company began selling products online it found itself facing a dilemma-its online strategy for selling accessories directly to consumers would bypass Harley-Davidson’s dealers, who depend on the high-margin accessories for store revenues. The solution was to develop Harley-Davidso.com, which prompts customers to select a participating Haley-Davidson dealership before placing any online orders. The selected dealership is then responsible for fulfilling the order.  This strategy ensured that the dealers remained the focus point of each customer’s buying experiences. To guarantee that every customer ha s a highly satisfying online buying experience, the company asks the dealers to agree to a number of standards including:

·         Checking online orders twice daily.

·         Shipping online orders within 24 hours.

·         Responding to customer inquiries within 24 hours.

Harley-Davidson still monitors online customer metrics such as time taken to process orders, number of returned orders, and number of incorrect orders, guaranteeing that the company delivers on its critical success factor of providing prompt, excellent customer service consistently to all its loyal customers.

A primary component of managing a customer relationship knows when and why the customer is communicating with the company. Imagine an irate customer that has just spent an hour on the phone with your call center complaining about a defective product. While the customer is on the phone, your sales representative decides to drop by the customer’s office in an attempt to sell additional products. Obviously, this is not the ideal time to try to up-sell or cross-sell products to this particular customer. A customer relationship management system would inform the sales representative that the customers was on the  phone with customer  service and even provide details of the product issues, which might help restore the relationship with the customer and provide opportunities for future sales.

The complicated piece of this puzzle is that customers have many communication channels the can use to contact a company including call centers, websites, email, faxes and telephones. To make matters even more complex, a single customer can communicate with a firm using all of the different communication channels multiple times. Keeping track of customers communications is important if the firm wants to continue to build and mange relationship. A CRM system can track every form of customer communication providing this information to all employees. The firm can then implement strategies for the best ways to communicate effectively with each and every customer. With a CRM system a firm can obtain an overview of the customer’s products, preferences, account information, communications, and purchasing history, allowing it to send customized product offers, expedite shipping, and ensure satisfaction and other marketing and sales techniques that can greatly add to sales and profits.¹   

2.0       The Major Application Clusters in Customer Relationship Management

2.1       Contact and Account Management

CRM software helps sales, marketing, and service professionals capture and track relevant data about every past and planned contact with prospects and customers, as well as other business and life cycle events of customers. Information is captured from all customer touchpoints, such as telephone, fax, e-mail, the company’s Web site, retail stores, kiosks and personal contact. CRM systems store the data in a common customer database that integrates all customer account information and makes it available throughout the company via internet, intranet or other network links for sales, marketing, service and other CRM applications.

            2.2       Sales

A CRM system provides sales reps with the software tools and company data sources they need to support and manage their sales activities and optimize cross-selling and up-selling. Cross-selling is an approach in which a customer of one product or service, say, auto insurance, might also be interested in purchasing a related product or service, say, homeowner’s insurance. By using a cross-selling technique, sales reps can better serve their better customers while simultaneously improving their sales. Up-selling refers to the process of finding ways to sell a new or existing customer a better product than they are currently seeking. Examples include sales prospect and product information, product configuration and sales quote generation capabilities. CRM also provides real-time access to a single common view of the customer, enabling sales reps to check on all aspects of a customer’s account status and history before scheduling their sales calls. For example, a CRM system would alert a bank sales rep to call customers who make large deposits to sell them premier credit or investment services. Or it would alert a salesperson of unresolved service, delivery, or payment problems that could be resolved through a personal contact with a customer.

            2.3       Marketing and Fulfillment

CRM systems help marketing professionals accomplish direct marketing campaigns by automating such takes as qualifying leads for targeted marketing and scheduling and tracking direct marketing mailings. Then the CRM software helps marketing professionals capture and manage prospect and customer and business value of a company’s direct marketing campaigns. CRM also assists in the fulfillment of prospect and customer responses and requests by quickly scheduling sales contacts and providing appropriate information about products and services to them, while capturing relevant information for the CRM database.

2.4       Customer Service and Support

A CRM system provides service reps with software tools and real-time access to the common customer database shared by sales and marketing professionals. CRM helps customer service managers create, assign and manage requests for service by customers. Call center software routes calls to customer support agents on the basis of their skills and authority to handle specific kinds of service requests. Help desk software provides relevant service data and suggestions for resolving problems for customer service reps that assists customers with problems with a product or service. Web-based self-service enables customers to easily access personalized support information at the company Web site, while giving them an option to receive further assistance online or by phone from customer service personnel.

2.5        Retention and Loyalty Programs

Consider the following:

      It costs six times more sell to a new customer than sell to an existing one.

      A typical dissatisfied customer will tell eight t to ten people about his or her experience.

      A company can boost its profits 85 percent by increasing its annual customer retention by only 5 percent.

      The odds of selling a product to a new customer are 15, whereas the odds of selling a product to an existing customer are 50 percent.

      Seventy percent of complaining customers will do business with the company again if it quickly takes care of a service problem.

Thus, enhancing and optimizing customer retention and loyalty is a major business strategy and primary objective of customer relationship management. CRM systems try to help a company identity, reward and market to their most loyal and profitable customers.²

3.0       Recency, Frequency and Monetary Value (RFM)

The Recency, Frequency, Monetary value (RFM) model works everywhere, in virtually every high activity business.  And it works for just about any kind of "action-oriented" behavior you are trying to get a customer to repeat, whether it’s purchases, visits, sign-ups, surveys, games or anything else.

The higher the computed score, the more profitable the customer is likely to be, in the future. There was an exchange taking place, and the data was speaking.  There are 3 things in the data:

1.  Customers who purchased recently were more likely to buy again versus customers who had not purchased in a while

2.  Customers who purchased frequently were more likely to buy again versus customers who had made just one or two purchases

3.  Customers who had spent the most money in total were more likely to buy again.  The most valuable customers tended to continue to become even more valuable.³

4.0       The Evolution of CRM

CRM analytical software includes data mining tools and other analytical marketing software, and CRM database may consist of customer data warehouse and CRM data marts. These tools are used to identify profitable and loyal customers and to direct and evaluate a company’s targeted marketing and relationship marketing programs toward them. Figure 11.3 is an example of part of a proposed Web-based report format for evaluating Charles Schwab & Co.’s customer retention performance.²

FIGURE 11.3 A proposed report format for evaluating the customer retention performance of Charles Schwab & Co.

	Navigation	Performance	Operations	Environment
Customer Retention	Customer retention rate Household retention rate Average customer tenure	Retention rate by customer cohort Retention rate by customer segment Customer loyalty rating	Percentage of customers who are active Web users Percentage of customers who interact via e-mail Decline in customer activity Propensity to defect	Competitors’ offers Share of portfolio Comparative retention Comparative customer tenure
Customer Experience	Satisfaction by customer segment Satisfaction by cohort Satisfaction by customer scenario	Customer satisfaction by: v  Task v  Touchpoint v  Channel partner End-to-end performance by scenario Customer satisfaction with quality of information provided	Elapsed time for commonly performed tasks Accuracy of Web search results Percentage of trades executed with price improvement Percentage of e-mails answered accurately in one hour	Comparative satisfaction: Competitors: v  Other online brokers v  Other financial service firms v  All products and services
Customer Spending	Average revenue per customer Average profitability per customer Growth in customer assets Customer lifetime value	Revenues per customer segment Profits per customer segment Growth in customer assets per segment	Daily log-ins at market opening Revenue trades per day Percentage increase in customer assets Costs to serve by touchpoint	Total brokerage assets Growth in brokerage assets

4.1          The Three Phases of CRM

Figure 11.4 another way to think about the software and business value and components of customer relationship management. We can view CRM as an integrated system of Web-enabled software tools and database that accomplish a variety of customer-focused business processes that support the three phases of the relationship between a business and its customers.

v  Acquire. A business relies on CRM software tools and database to help it acquire new customers by doing a superior job of contact management, sales prospecting, selling, direct marketing and fulfillment. The goal of these CRM functions is to help customers perceive the value of a superior product offered by an outstanding company.

v  Enhance. Web-enabled CRM account management and customer service and support tools help keep customers happy by supporting superior service from a responsive, networked team of sales and service specialists and business partners. And CRM sales force automation and direct marketing and fulfillment tools help company’s cross-sell and up-sell to their customers, thus increasing their profitability to the business. The value perceived by customers is the convenience of one-stop shopping at attractive prices.

v  Retain. CRM analytical software and database help a company proactively identify and reward its most loyal and profitable customers to retain and expand their business via targeted marketing and relationship marketing programs. The value perceived by customers is of a rewarding personalized business relationship with “their company.” ²

FIGURE 11.4 How CRM supports the three phases of the relationship between a business and its customers.

5.0        The Ugly Side of CRM

If there's a bright side to the economic doldrums and the current dot-compression, it might just be the renewed urgency to understand what it is that customers want and when they need it. Clearly, what passed for customer relationship management (CRM) among entrepreneurs panning for gold in the new economy usually turned out to be particularly expensive particles of iron pyrite.

It's not that e-business lacks the tools to collect data on customer preferences. From simple and free on-site polling to sophisticated survey techniques, call centers, live chat, live interactive talk, and full-blown CRM multi channel systems -- so many resources have never been available to entrepreneurs for tapping into the hearts and wallets of their customers.

E-marketers find themselves with satchels full of high-priced data only to see their customers defect to competitors. Getting fresh, hot data from the Web visitor is a lot less important than relating to that customer or prospect in Internet time.⁷

5.1       From Tools to Systems

Today's full-blown e-CRM systems go way beyond communicating and monitoring. They initiate a series of customer-service actions automatically.

Burlington, Massachusetts-based Revenio Inc., for example, fields an e-CRM product that depends on events to acquire customer data and trigger actions. The Revenio Dialog system is heavily skewed toward email. "We do support cross-channel dialogs using email, Web site, call centers, and wireless, but demand for email is primary," says Jay Campbell, VP of product management. "Each dialog is triggered by an event."

For example, a typical sales dialog would be kicked off when an order is placed on the company Web site. That event automatically queues up a confirmation email soliciting information about the customer's job function. The system then generates an automatic order-status email while cross-selling other relevant services based on the customer's job-function information entered into the CRM database.

Once the product is shipped, an email notifies the customer and asks when installation is planned. The installation date is folded into the system, automatically, generating another follow-up email down the road.⁴

5.2          CRM Failures

The business benefits of customer relationship management are not guaranteed but instead have proven elusive for many companies. Surveys by industry research groups include a report that over 50 percent of CRM projects did not produce the results that were promised. In another research report, 20 percent of business surveyed reported that CRM implementations had actually damaged long-standing customer relationship. And in a survey of senior management satisfaction with 25 management tools, CRM ranked near the bottom in satisfaction, even though 72 percent expected to have CRM systems implemented shortly.

            What is the reason for such a high rate a failure or dissatisfaction with CRM initiatives? Research shows that the major reason is a familiar one: lack of understanding and preparation. That is, too often business managers rely on a major new application of information technology (like CRM) to solve a business problem without first developing business process changes and change management programs that are required. For example, in many cases, failed CRM projects were implemented without the participation of the business stakeholders involved. Therefore, employees and customers were not prepared for the new processes or challenges that were part of the new CRM implementation.²

FIGURE 11.5 Customer Management Software Implementation Failures

6.0       Customer Relationship Management’s Explosive Growth

Industry analyst firm AMR Research has released "The Customer Management Market Sizing Report, 2007-2012," its assessment of the current and future state of the CRM market -- and things are looking good. The report estimates that customer management software revenues in 2007 topped $14 billion, a 12 percent jump over 2006 revenues; the growth rate among the top 20 vendors in the space was even higher, at 28 percent. Long-term prospects are just as rosy: AMR projects a market size of more than $22 billion in 2012.

The report also clarifies the level of dominance over the CRM market of the five largest firms:

v  SAP;

v  Oracle;

v  Salesforce.com;

v  Cegedim Dendrite; and 

v  Amdocs.

Those five now account for 46 percent of worldwide market share, up from 40 percent in 2006 and 30 percent in 2005. The report states that the ongoing consolidation, which restrained growth, has reached a plateau, and predicts the current growth trend will become the state of the industry. "Clearly, the heavyweights set the pace for the market, and with economic uncertainty entering the picture in 2008, the trend will only accelerate," writes Rob Bois, AMR research director and author of the report.

"It turns out that the growth engine for most of the big enterprise suite vendors is CRM," Bois says in a follow-up interview. "It’s a bit tricky -- the big vendors don’t break out their revenue that way, but we do get guidance: SAP, Oracle, and Microsoft all are looking to CRM for business growth."

For the first time in the history of AMR's annual reports, software-as-a-service (SaaS) vendors such as Salesforce.com and RightNow Technologies are ranked alongside traditional software vendors. "In fact, SaaS has become so much a part of the fabric of the customer management market, this year we combined delivery models in ranking vendors by license revenue," the report states. "Looking purely at software revenue, Salesforce.com jumps to the third spot on the list because the company attributes a much higher percentage of revenue to software sales. It is important to recognize that while this is not a true apples-to-apples comparison, it does offer reasonable insight into the revenue generated from the software applications themselves."

One trend to watch in CRM technology is Web 2.0, as software vendors continue to strive for more value and usability in their products. "User adoption remains a major challenge to customer management success, particularly in sales force automation (SFA)," the report states. "Combined with the fact that most knowledge workers complain they get better information from the Web than [from] their own internal tools, we are seeing a rapid adoption of Web 2.0 capabilities in customer management applications." Collaboration and the power of online communities are also major influencers in the growth of CRM 2.0.⁵

7.0       Using Analytical CRM to Enhance Decision

Analytical CRM supports organizational back-office operations and analysis. It deals with all the operations and processes that do not directly deal with customers. Hence, there is a key difference between operational CRM and Analytical CRM. Unlike from operational CRM, where automation of marketing, sales-force and services are done by direct interaction with customers and determining customer’s needs, analytical CRM is designed to analyze deeply the customer’s information and data and unwrap or disclose the essential convention and intension of behavior of customers on which capitalization can be done by the organization.

Primary goal of analytical CRM is to develop, support and enhance the work and decision making capability of an organization by determining strong patterns and predictions in customer data and information which are gathered from different operational CRM systems.

The following are the key features of analytical CRM:

v  Seizing all the relevant and essential information of customers from various channels and sources and collaboratively integrating and inheriting all this data into a central repository knowledge base with a overall organization view.

v  Determining, developing and analyzing inclusive set of rules and analytical methods to scale and optimize relationship with customers by analyzing and resolving all the questions which are suitable for business.

v  Implementing or deploying the results to enhance the efficiency of CRM system and processes, improve relationship and interaction with customers and the actual business planning with customers.

v  Combine and integrate the values of customers with strategic business management of organization and value of stakeholders.

Analytical CRM is a solid and consistent platform which provides analytical applications to help predict, scale and optimize customer relations. Advantages of implementing and using an analytical CRM are described below:

§  Leads in making more profitable customer base by providing high value services.

§  Helps in retaining profitable customers through sophisticated analysis and making new customers that are clones of best of the customers.

§  Helps in addressing individual customer’s needs and efficiently improving the relationships with new and existing customers.

§  Improves customer satisfaction and loyalty.⁶

8.0        Customer Relationship Success Factors

The potential business benefits of customer relationship management are many. For example, CRM allows a business to identify and target its best customers-those who are the most profitable to the business-so they can be retained as lifelong customers for greater and more profitable services. It makes possible real-time customization and personalization of products and services based on customer wants, needs, buying habits and life cycles. CRM can also keep track of customer contacts the company, regardless of the contact point. And CRM systems can enable a company to provide a consistent customer experience and superior service and support across all the contact points a customer chooses. All of these benefits would provide strategic business value to a company and major customer value to its customers.²

REFERENCES

‘Analytical CRM’, Management Study Guide, 2008, Retrieved on 23 January 2012 from http://www.managementstudyguide.com/analytical-crm.htm

Andriole, S. J., Best Practices in Business Technology Management, Auerbach Publications, 2009, Broken Sound Parkway (New York).

Baltzan, Business Driven Information Systems, The McGraw-Hill Companies, 2009, New York.

‘Customer Response, Retention & Valuation Concepts (RFM Model)’ Drilling Down, 2000, Retrieved on 23 January 2012 from http://www.jimnovo.com/RFM.htm

Lager, M., Growth Trend Continues for CRM, Destination CRM.com, 2008, Retrieved 23 January 2012 from http://www.destinationcrm.com/Articles/CRM-News/Daily-News/Growth-Trend-Continues-for-CRM-49755.aspx

O’Brien, J. & Marakas, G., Introduction to Information Systems, The McGraw-Hill Companies, 2008, New York.

Senyak, Z. G., The Short Ugly About CRM, ClickZ, 2001, Retrieved on 23 January 2012 from http://www.clickz.com/clickz/column/1706086/the-short-ugly-truth-about-crm