14-1

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14

Customer Relationship Management

14-3

Components of a Customer-Based Strategy

• Customer Acquisition (i.e., getting new customers).

• Customer Retention (ie., keeping current customers satisfied via enhancing brand loyalty or through superior service).

• Customer Expansion, getting customers to either buy more of what they are currently buying (increasing usage) or “cross-selling”other products.

• Customer Deletion, dropping customers that are not profitable (both now and potentially in the future) in such a way as to not generate legal problems or public relationsdisasters.

14-4

Buyer Seller Relationships

Buyer

Buyer

Buyer

Seller

Seller

Seller

A

B

C

Sales Department

14-5

Economics of Loyalty

• Acquisition Cost

• Base Profit

• Revenue Growth

• Operating Costs

• Referrals

• Price Premium

14-6

Impact of Five-Percentage-Point Increase in Retention Rate on Customer Net Present Value

14-7

Why Loyal Customers Are More Profitable

14-8

The Impact of Customer Retention on Profits

-100

0

100

200

300

400

500

0 1 2 3 4 5 10

Profit from referral

Profit from reducedoperating costsProfit from pricepremiumProfit fromincreased purchasesBase profit

Com

pany

pro

fit i

ndex

Acquisition cost

Average length of customer relationship (in years)

Resulting retention rate

0% 50% 67% 75% 80% 90%

14-9

CRM ModelCreate a DatabaseCreate a Database

AnalysisAnalysis

Customer SelectionCustomer Selection

Customer TargetingCustomer Targeting

Relationship MarketingRelationship Marketing

Privacy IssuesPrivacy Issues

MetricsMetrics

14-10

Customer Information File

14-11

Content Areas of the CIF

• Basic customer descriptors

• Purchase history

• Contact history

• Response information

• The value of the customer

14-12

Getting More Customer Interaction

Direct IndirectCustomer

Interaction

High

Low

Inte

racti

on

Fre

qu

en

cy

Banks

Telecom

Retail

AirlinesPackaged

GoodsDrugs

Personal Computers

Internet Infrastructure

Furniture

Autos

14-13

Margin Multiple

14-14

Customer Life Cycle Profit Pattern in the Credit-Card Industry

14-15

Customer Profit Ordering for Physicians: Highest to Lowest

14-16

Factors Associated with Good Perceived Service Quality

1. Professionalism and skills

2. Attitudes and behavior

3. Accessibility and flexibility to solve the customer’s problem

4. Reliability and trustworthiness

5. Recovery of negative service encounters

6. Reputation and credibility

14-17

Customer Satisfaction Model

-Market communications

- Image -Word of mouth-Past experience-Customer needs

Total perceived quality

Experienced quality

Expected quality

14-18

The Concept of Loss Aversion to Service Quality

“Gain”

“Loss”

Product utility or preference

(Delivered service quality) Minus

(Expected service quality)

14-19

Discrepancies between Expectations and Realizations

1. Gap between customers’ expectation and management perceptions

2. Gap between management’s perceptions and service quality specifications

3. Gap between service quality specifications and service delivery

4. Gap between service delivery and external communications

14-20

The Augmented Product

Core Core productproduct

Expected Expected productproduct

Augmented Augmented productproduct

14-21

Approaches to Mass Customization

1. Collaborative customization

2. Adaptive customization

3. Cosmetic customization

4. Transparent customization

14-22

Elements of Excellent Customer Service Programs

1. A marketing strategy2. Top management buy-in3. The right people4. Appropriate product design5. An infrastructure to handle customer

service6. A measurement system