McGraw-Hill/IrwinRetailing Management, 6/e

Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11

Customer Relationship Management

11-2

Information Systems

Retailing Strategy

Retail Market Strategy

Financial Strategy Site Location

Retail Locations

Customer RelationshipManagement

Organizational Structure and HR Management

11-3

Customer Relationship Management

• A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers.

• What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer?

11-4

Customer Loyalty

• Committed to purchasing merchandise and services from a retailer

• Resist efforts of competitors to attract the loyal customer

• Emotional attachment to retailer– Personal attention– Memorable positive experiences– Brand building communications programs

11-5

Can Offering Discounts Achieve Customer Loyalty?

No! Retail strategies like these can

be copied by competitors

These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer

McGraw-Hill Companies, Inc./Gary He, photographer

11-6

CRM Process

11-7

Information About Each Customer in the Database

• History of purchases• Purchase date, price paid, SKUs bought, whether or not

the purchase was stimulated by a promotion• Customer contacts by retailer (touch points) --visits to

web site, inquires to call center, direct mail sent to customer

• Customer preferences• Descriptive information about customer• Customer’s responses to marketing activities

11-8

Approaches for Collecting Customer Information

• Need to connection contacts with a specific customer identifier

• Ask for identifying information– Telephone number, name and address

• Encourage use of frequent shopper cards• Link checking account number and/or third

party credit cards to customer

11-9

Privacy Concerns• Control over Collection• Do customers know what

information is being collected?• Do customers feel they can

decide on the amount and type of information collected by retailers?

• Control over Use• Do customers know how the

information will be used by the retailer?

• Will the retailer share the information with third parties?

Steve Cole/Getty Images

11-10

Frequent Shopper Cards

Card is often squeezed out of wallet

Customers forget to bring it to the store

Might not even show it if in a hurry

(c) image100/PunchStock

11-11

Heighten Concerns When Using Electronic Channel

Information collected without the awareness of customers

Collecting click stream data using cookies Similar to an invisible person

videotaping a customer as theywalk through a store

Stockbyte/Punchstock Images

11-12

Customer’s Decision to Offer Information

Balance benefits and risks

DiscountsSpecial TreatmentPersonal Attention

Disclosure of InformationUnwanted Sales Contacts

11-13

Consumer Protection Differences

• United States• Limited protection in

specific areas– Credit reporting– Video rentals– Banking– Medical records

European Union• Information only can only

be collected for specific purposes

• Purpose must be disclosed to customer

• Information can only be used for specific purpose

• Information can not be exported to countries with less stringent regulations

11-14

FTC Guideline for Fair Information Practices

Notice and awareness– comprehensive statement about information storage,

manipulation, and disseminationChoice/consent

– Opt-in and opt-out optionsAccess/participation

– Customer able to confirm accuracyIntegrity/security

– Controls for theft and tamperingEnforcement/redress

– Mechanism to insure compliance

11-15

J.Crew Security and Privacy Policy

11-16

Analyzing Customer Data

Data Mining – technique used to identify patterns in data.

Market Basket Analysis

Identifying Market Segments

Identifying Best CustomersRyan McVay/Getty Images

11-17

Market Basket Analysis

Data analysis focusing on the composition of the customer’s market basket – what items are bought during a single shopping occasion

Uses:

-Adjacencies for displaying merchandise

-Joint promotions

Burke/Triolo Productions/Getty Images

11-18

Market Basket Analysis Taught Wal-Mart to Change!

Product Placed NearBananas cornflakes, produceKleenex paper goods, cold medicineMeasuring spoons housewares, Crisco shorteningFlashlights hardware, Halloween costumesLittle Debbie snack cakes coffeeBug spray hunting gear

11-19

Identifying Best Customers

• Estimating Lifetime Value

• Based on assumptions that the customer’s future purchase behaviors will be the same as they have been in the past

• Classifying Customers by recency, frequency, and monetary value of purchases (RFM Analysis)

(c) Brand X Pictures/PunchStock

11-20

Which Customer Probably Has the Greatest Lifetime Value

Purchases Over Last 10 Weeks

1 2 3 4 5 6 7 8 9 10Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0

11-21

Customer Pyramid

PlatinumBestMost loyalLeast price sensitive

11-22

Customer Pyramid

Gold

Next bestNot as loyal

11-23

Customer Pyramid

IronDoesn’t deservemuch attention

11-24

Customer Pyramid

LeadDemands attentionMay havenegative value

11-25

RFM Analysis

11-26

RFM Target Strategies

11-27

Illustration of RFM Application

• A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:

• Average order size for customers in cell - $40• Contribution margin – 50%• Response rate – 5%• Cost of catalog and mailing -$.75

• Will the retailer make a profit mailing to this RFM segment?

11-28

Illustration of RFM Application

• A catalog retailer is deciding which group of customers to send a catalog.. Based on experience and an RFM analysis of customer database:

• Average order size for customers in cell - $40• Contribution margin – 50%• Response rate – 5%• Cost of catalog and mailing -$.75

Will the retailer make a profit mailing to this RFM segment?

$20.00 contribution x .05 response rate - $.75 cost = $.25 profit per catalog mailed

11-29

CRM Programs

Retailing Best Customers

Converting Good Customers to Best Customers

Getting Rid of Unprofitable Customers

11-30

Customer Retention Programs

• Frequent Shopper Programs• Special Customer Services• Personalization

1-to1 Retailing• Community

Royalty-Free/CORBIS

11-31Elements in EffectiveFrequent Shopper Programs

• Tier Based on Customer Value• Offer Choices of Rewards

– Non-monetary incentives• Reward all Transactions• Transparent and Simple

11-32Issues with Effective Frequent Shopper Programs

• Expense• Difficulty in Making Changes• Impact on Loyalty Questionable• Easily Duplicated – Difficult to Gain

Competitive Advantage– Need to offer “invisible” benefits

11-33

Personalization

Hello, Barton Weitz

11-34

Dealing with Unprofitable Customers

Offer less approaches for dealing with these customers

Charge customers for extra services demanded Don Farrall/Getty Images

11-35

Implementing CRM Programs

Need systems, databases

Close coordination between departments – marketing, MIS, store operations, HR

Shift in orientation

Product Centric

Customer Centric