Fundamentals of CRMGülser KöksalÖzge UncuMETUAnkara 2004-2010ObjectivesTo understand: basics of Customer Relationship Management value of CRM basic relevant marketing approaches andevolutions of them activities involved in CRM CRM for e-business1

Contents Definition of CRMCustomer retention and profitValue of CRMMarketing and its evolutionRelationship marketingCRM components and activitiesE-CRMWhat is CRM?‘Customer Relationship Management is an enterpriseapproach to understanding and influencing customerbehavior through meaningful communications in order toimprove customer acquisition, customer retention, customerloyalty and customer profitability.’Source: “Accelerating Customer Relationships”, Ronald S. Swift, Prentice Hall - 2001‘CRM integrates people, process and technology tomaximize relationships with all customers. CRM is acomprehensive approach that provides seamlesscoordination between all customer-facing functions. CRMincreasingly leverages the Internet.’Source: Barton Goldenberg, ISM Inc.2

TORFRANCHISEEINTERNALCUSTOMERSource :« accelerating customer relationships » , p 4Effects of Customer Retentionon Profit 80% of an enterprise’s profits come from 20% of itscustomers Retention of actual customers costs 5 times less thanacquisition of new customers By increasing the customer retention rate by 5%, profitscould increase by 85% A typical dissatisfied customer will tell 8-10 people 70% of the complaining customers will remain loyal ifproblem is solved3

Effects of Customer Retention onProfit (cont’d)“Some companies can boost profits by almost 100% by retaining just 5% more of theircustomers”Reicheld & Sasser, Harvard Business Review120Annual customer profit100801- Acquisition2- Base profit3- Revenue growth4- Cost savings5- Referrals6- Price premium026040200-20-40134567Years of relationshipCustomer Life Time Value (LTV) Base profit Revenue growth Cost savings referrals price premiumSource :CRM returns on investment over time, Accelerating Customer Relationships, p 43(adapted from Frederick Reicheld, The Loyalty effect)Value Created by CRM Increase sales revenues :10% for 3 years Increase win rates :5% for 3 years Increase margins :1% for 3 years Improve customer satisfaction :3% for 3 years Decrease sales/marketing costs : 10% for 3 yearsSource : Barton Goldenberg president of ISM in CRM : What is it all about4

What is Marketing?“The process of planning and executing the conception,pricing, promotion, and distribution of ideas, goods, andservices to create exchanges that satisfy individual andorganization goals.”American Marketing AssociationEvolutions of Marketing: SynthesisPrecise and evolutive data about customersIdentification of profitable customersLong-term relationshipsCollaboration and Interaction with customersServices, Interaction, hipmarketingUse of Information Technology, AutomationCRM5

Relationship Marketing“Consumer RM seeks to establish long-term, committed, trusting,and cooperative relationships with customers, characterised byopenness, genuine concern for the delivery of high-quality goodsand services, responsiveness to customer suggestions, fair dealingand (crucially) the willingness to sacrifice short-term advantagefor long-term gain. Suppliers attempt to create and strengthenlasting bonds with their customers, they shift from attempting tomaximise profits on each individual transaction towards theestablishment of solid, dependable, and above all, permanentrelationships with the people they serve.”Source : “Relationship marketing defined? An examination of current relationship marketingdefinitions”, Marketing intelligence and planning 17/1 (1999) pp 13-20.CRM ComponentsBusiness Processes%24Human%45Technology%31Source: CRM Institute of Turkey, Survey 20016

CRM Triggers in ation%23Technology%10Source: CRM Institute of Turkey, Survey 2001CRM Activities1. Customer Selection2. Customer Acquisition3. Customer Retention4. Customer on Peppers & Martha urce: CRM Institute of Turkey, Survey 20017

CRM ActivitiesCustomer Selection :––––SegmentationCampaign ModellingBrand ManagementNew ProductsCustomer Retention :– Pioneering– Requirement AnalysisCustomer Acquisition:––––Order ProcessingDemand AnalysisLogistics ManagementComplaint ManagementCustomer Extension:– Analytical CRM– Cross Sales CampaignsSuggestions for Increasing Value ofCustomer Base Acquiring profitable customers Retaining profitable customers longer Eliminating unprofitable customers Up-selling additional products Cross-selling other products Referral and word-of-mouth benefits Reducing the cost of services for customersSource : Peppers&Rogers Group, 20018

CRM versus E- CRMTraditional CRMTelemarketingDirect MailB.R.C. ResponsesTrade ShowsInbound CallsPress releasesMeetingsProduct Demo’sReferralseCRME-Mail BlastsWeb RegistrationOnline ReplyInstant MessagingOnline CustomerServiceWeb Demo’sVideo ConferenceOnline ProspectDatabaseeCRMCRM Project LifecycleDeliverCustomBuild retustrucInfra tegrateInandEvaluateResultsDevelop Strategy and LaunchProjecterOfferowKnndsaer ersmmsto stoCu CuetrgTa9

Delivering CRMObjectivesTo understand: the CRM approach requirements for successful CRMapplications, obstacles and enablers of CRM how CRM system works10

Contents CRM approachSuccess factorsMain facets of CRMOperational CRMAnalytical CRMCRM ApproachImplementation FocusStrategy Focus11BaseliningBaselining tandingof ganizationand systems Business Case forCRM/diagnostic Identification ofopportunityareas/gaps Customer icesCustomerrelationshipconcept andstrategicprioritiesSelect pilotCRM CRM Strategy BlueprintCustomer strategyPilot business caseBest practice ionProgram OfficeDevelop CRMprogramDesign Launchpilotprogramandconfirmand refineCRMstrategy Refined CRM ValueProposition and Strategy Tactical CRM program Pilot program plan lityBudgetChange & IssuesManagement CRM Programimplementationorganization andprocesses Fully functioning CRMprogram11

CRM Success Factors1) Sales process is well-defined2) Commitment from senior mgmt., sales mgmt., and sales reps./channelpartners3) Automate activities to close more sales and remove barriers4) Right vendor(s) or external services provider(s) selection5) Emphasize salespeople and customers, not management6) Extended support to handle all time zones, users and work styles7) Remote communication for field sales8) Keep it simple, not too data-intensive9) Train based on selling scenarios10) Technology is maintainable and extendableSource: Gartner GroupCRM: Obstacles and EnablersInternal FocusFunctionalOrganisation DesignBusiness StrategyCustomer StrategyOrganisationDesignCultural FitInadequateCustomer DataInformation and ENABLERS12

Main Facets of CRMOrder Mgmt.Order nteractionMobile Sales(Prod CFG)Voice(IVR,ACD)Analytical CRMLegacySystemsSalesAutomationField ServiceClosed-Loop Processing(EAI Toolkits, Embedded/Mobile Agents)BackOfficeSupply l CRMConferencingE-MailWeb ConfResp.Resp. Mgmt.DataWarehouseCustomerCustomer ProductActivityData Mart Data MartData tive CRMSource :“Beyond e: 12 Ways Technology Is Transforming Sales & Marketing Strategy”CRM Knowledge GenerationKnowledgeCommunitiesPoint ofSalesAutomationBest PracticesCollaborationOperationalCRM SystemsTVInformationWebAnalytical CRMThird Party DataCustomersRetailBranch Call CenterSales Force13

Operational CRMMARKETINGAUTOMATIONdesigned to get the right mix of thecompany’s products and services in front ofeach customer at the right timeSALES FORCEAUTOMATIONCollaborative tools that enable all parties tothe transaction to interact with one anotherCUSTOMERSERVICEANDSELF-SERVICEServing existing customer base throughproblem resolution systems, workflowautomation and field service dispatch systemsCapabilities that can be directly invoked bythe customer on the internet via PC andwireless devicesOperational CRM:Marketing Automation Processes Customer List Management– Generating and managing list of customers, usually byusing simple filtering criteria or filtering criteriadiscovered through the use of data-mining analytics. Campaign Management– Delivering personalized, relevant offers across anychannel phone, e-mail, web, service applications, ecommerce applications Event Monitoring– Based on prospect responses Prospect Selection– Finding the most promising customers or customergroups14

Operational CRM:Sales Force Automation ProcessesSales Management ProcessAccount information and geographical territoryContact ManagementIdentifying and facilitating contacts with new prospects for thesales forceLead CaptureIncludes collecting names of promising individuals and companiesfor future campaignsCustomer Information SharingAcross sales teams and geographical regionsOpportunity ManagementTargeting the likeliest opportunities for sales and the highestmargin sales when used with sales tracking and forecasting.Operational CRM:Sales Force Automation ProcessesSales AnalyticsEnables better customer targeting and cross product sellingGeneration of Customer Proposals and Quotestailored to specific requirements and needsProduct ConfigurationAllows alternatives of configuration to be exploredFlexible PricingAccommodates promotional pricing, bundling of deals.15

Operational CRM:Interactive Selling SystemsApplications that allow customers and businesses to utilize selfservice capabilities to make purchases without a sales personISS usage modes includeCustomer self-service e-commerce – customers navigate theISS on the Web, requesting product information and completingtransaction without assistance from the sellerMediated customer service – sales representatives andcustomers share control of the ISS over a shared browser session.CRM and e-CRM: Operational TOMATIONSALES FORCEAUTOMATIONSELF SALESCUSTOMERSERVICEANDSELF-SERVICESELF SERVICES16

Analytical CRMObjectivesTo understand: Motivation for employing analytical CRM What Data Mining (DM) is The basics of DM project lifecycle and DMprocess The basics of DM tasks and methods How DM can be used in CRM17

Contents Motivation of analytical CRMDefinition of Data MiningData Mining Project LifecycleBasic Data Mining TasksApplications of DM in CRMData Mining TechniquesCase Study: Propensity-to-buy modelFacts&Figures on DataExplosion World’s population in 1900’s 1.6 billionToday: 6 billion Library of Congress collected 17 millionbooks up to today. Assume size of a book is1MB. 17 terabytes Size of DB of big Corps in 1950’s 10 MBToday: UPS’s package level DB 17 terabytei.e., DB of a company Books collected in5000 years DATA EXPLOSION18

Data Mining Project Cycle1. Identify businessopportunity2. Use data miningMine the datatechniques totransform data intoactionableIdentify business problem Act on informationknowledge3. Act on knowledge4. Analyze and measureAnalyze and measure the resultsthe resultsData Mining Process1. the data (data)Preprocess the dataSelect Data(Information [when, where,who ])Preprocess dataTransform the data(Information [when, where,Transform Datawho ])Extract patterns & rulesExtract the model(Knowledge [how?])Analyze and Interpret theknowledgeAnalyze and Interpret(Understanding[why?] andWisdom)19

Basic tasks performed in DM Classification: examines thefeatures of new object andassign it to a predefined classEstimation: examines thefeatures of new object andassign it to a value of continuousvariablePrediction: Close toclassification&estimation. Waitand see!! (note:I don’t agree)Clustering:segments a diversegroup into similar subgroupsAffinity Grouping: identifywhich things go togetherVisualization: Visually displaypatterns in a complicated DBLOW RISKRisk Score:20How manycustomers willaccept theoffer?Applications of Data Mining Banking: predictive and risk assessment models for the financial servicesindustry, including credit and insurance scoring algorithmsBiotechnology and pharmaceutical industry: building special data miningand visualization tools for pharmaceutical and biotech companies, focused ongenomics/functional genomics and drug discovery, tools for the analysis ofgenetic sequence dataFraud detection: detecting fraud and predicting typical card usage atmerchant location, internet credit card fraud detection and risk managementservice for online merchants, uncovering network intrusions, detecting baddebt and application fraudHuman resources: matching employers needs and job applicant's references.Allows employers to select job applicants who are best suited to the company'sneeds.Stock and investment analysis and prediction: predicting stocks changes,optimizing trading strategies .20

Future Trends in CRMCRM and eBusiness eBiz original goal was to acquire customerat any cost (Questionable goal – has to becustomer-centric) eBiz create a new channel for CRM (thischannel can work with existing channels)– Buy online, return at store Tons and tons of data– Not only buy, return transactions, but alsobehavioral patterns21

CRM and ERP ERP is the point of real data integrationOperational CRM Activity stomer Support,etc.ERP Output of CRMactivitiesNon CRM data:SCM, Financials,HR, etc.Analytical CRM Marketingsegmentation,SatisfactionReportsetc.Goal of ERP – CRM perspective Integrateoperational andanalytical CRM22

Technology and CRM Technology greatly enhances CRM processes. Incoming toll-free numbers, electronic kiosks, FAX-on-demand, voice mail,and automated telephone routing examples of technology that assist inmoving customers through the life cycle. The Internet is the first fully interactive individually addressable low costmultimedia channel. Cookies, Web site logs, bar code scanners help to collect information aboutconsumer behavior and characteristics. Databases and data warehouses store and distribute these data from online andoffline touch points. These information allow to develop marketing mixes that better meetindividual needs. Important tools that aid firms in customizing products to groups of customersor individuals include “push” strategies that reside on the company’s Web ande-mail servers, and “pull” strategies that are initiated by Internet users.*taken from e-Marketing, J. Strauss, A.I. El-Ansary, R.Frost,3ed, 200323

E-CRM What is CRM? 'CRM integrates people, process and technology to maximize relationships with all customers. CRM is a comprehensive approach that provides seamless coordination between all customer-facing functions. CRM increasingly leverages the Internet.' Source: Barton Goldenberg, ISM Inc. 'Customer Relationship Management is an .