Crm

4/17/2015

1

Customer Relationship Management

Assoc. Prof. Mihaela-Cornelia DAN, Ph.D.2014/2015

What is about?

Customer Service Relationship Satisfaction Loyalty Retention

4/17/2015

2

What is about?

Importance of the customer Relationship customer - organization The dynamics in relationships The relationship oriented organization Customer knowledge Communications and multi-channels Data management Call center management, internet, direct mailing

Previous knowledge

Business managementM k i Marketing

Research marketing Accounting Finance Mathematics

4/17/2015

3

Evaluation

30% Seminar activity, : active participation, case studies, exercises Q&A exercises, Q&A

10% Course activity: active participation, Q&A 60% Written Exam 3 open questions, a mini case study,

no multiple questions

Bibliography

Prejmerean, Mihaela-Cornelia (2009): Customer Relationship Management, Bucuresti: Editura ASE (ASE Library)

Peelen Ed (2007): C st mer Relati nshi Mana ement Pears n Ed cati n Peelen, Ed (2007): Customer Relationship Management, Pearson Education Bruhn, Manfred (2001): Orientarea spre clienti, Bucuresti: Editura Economica (ASE

Library)

Valarie A. Zeithaml, Mary Jo Bitner, Dwayne D. Gremler (2013): Services marketing : integrating customer focus across the firm, New York : McGraw-Hill (ASE Library)

Linoff, G.S., Berry, M.J.A. (2011): Data mining techniques : for marketing, sales, and customer relationship management, Indianapolis: Wiley (ASE Library)

Buttle F (2010): Customer relationship management : concepts and technologies Buttle, F. (2010): Customer relationship management : concepts and technologies, Elsevier (ASE Library)

Baron, S., Conway, T., Warnaby, G. (2010): Relationship marketing : a consumer experience approach, Los Angeles : Sage Publications (ASE Library)

Books from Editura Publica, Editura Brandbuilders

4/17/2015

4

Revision of core marketing concepts


Core Marketing Concepts

Needs, wants

Productsand services

Markets

Value, satisfaction, and quality

Exchange, transactions,

and relationships

4/17/2015

5

Self

Maslows Hierarchy of Needs

Social Needs (sense of belonging, love)

Esteem Needs(self-esteem)

Actualization(Self-development)

Physiological Needs(hunger, thirst)

Safety Needs(security, protection)

What are Consumers Needs, Wants and Demands?

Wants the form that a human need takes as shaped by culture and individual personality. i.e. I want a hamburger, French fries, and a soft drink.

Wants + Buying Power = Demand

People have unlimited wants. They choose products that provide the most satisfaction for their money.y

Demands - human wants backed by buying power. i.e. I have money to buy this meal.

4/17/2015

6

What are Consumers Needs, Wants and Demands?

C i N d WC i N d W Converting Needs to WantsConverting Needs to Wants The need for a vacation becomes a desire to take

Caribbean Holiday The need for fitness becomes a desire for exercise

classes

What Will Satisfy ConsumersNeeds and Wants?

ProductsAnything that can be Offered to a Market to Satisfy a Need or WantAnything that can be Offered to a Market to Satisfy a Need or Want

Experiences Persons Places

Organizations IdeasInformation

ServicesActivities or Benefits Offered for Sale That Are EssentiallyIntangible and Dont Result in the Ownership of Anything

4/17/2015

7

Value and satisfaction

Customer value is the difference between the values thecustomer gains from owning and using a product and thecustomer gains from owning and using a product and thecosts of obtaining the product.

For example, Mercedes-Benz customers gain a number ofbenefits. The most obvious is a well engineered andreliable car. However, customers may also receive some, ystatus and image values

Creating Customer Value

Customer value

Positive Negative

value

Perceived benefits

Perceived sacrifice

Product benefitsService benefitsRelational benefitsImage benefits

Monetary costsTime costsEnergy costsPsychological costs

4/17/2015

8

Determinants of Customer Delivered Value

E ti l b fitE ti l b fitEmotional benefitEmotional benefit

Functional benefitFunctional benefit

Totalcustomer

value

Totalcustomer

value

Monetary costMonetary costCustomerdelivered

value

Customerdelivered

valueTime costTime cost

Energy costEnergy cost

Psychic costPsychic cost

Totalcustomer

cost

Totalcustomer

cost

Exchange vs. Transaction Exchange:

Act of obtaining a desired object from someone by ff i thi i t

Transaction: A trade of values between

two partiesoffering something in return. Is the core concept in

marketing Several Conditions must be

satisfied such as : at least two parties must participate and each must have something to value to offer the other each party must

two parties. One party gives X (can

include cash, credit, or check) to another party and gets Y in return.

the other, each party must want to deal with the other party and each must be free to accept or reject the others offer.

4/17/2015

9

What is a Market?

The set of actual and potential buyers of a product.

These people share a need or want that can be satisfied (in general, by the same generic type of generic product/ marketing mix) through exchange relationships.

Who Purchases Products and Services?

People Who pExhibit Need

Resources to Exchange

Unexpected

Situational

Factors

Attit d

EthicalMarket

Buyers who share a

particular need or want that

can be satisfied

Actual Buyers

Willingness to Exchange

Attitudes of

OthersPotential Buyers

through exchange or relationships.

4/17/2015

10

Market DefinitionDefine the market

Segment the marketChoose attractive segments

Design a market mixAppeal to the targets

Position our offering

How to Create Customers? Identifying customer needs Designing goods and services that meet those needs Communicating information about those goods and

services to prospective buyers Making the goods or services available at times and places

that meet customers needs Pricing goods and services to reflect costs, competition,

and customers ability to buyy y Providing for the necessary service and follow-up to

ensure customer satisfaction after the purchase

4/17/2015

11

Selecting a Target Market

Before a marketing mix strategy can be implemented, the marketer must identify, evaluate, and select a t t k ttarget market.

MarketMarket:: consumer and organizations with sufficient purchasing power, authority, and willingness to buy

Target marketTarget market:: specific segment of consumers most likely to purchase a particular product

Types of Markets

Consumer markets:Consumer markets: purchasers or individuals in their households who personally consume or benefit from the purchased products and do not buy products primarily to purchased products and do not buy products primarily to make a profit

Business Business to business markets :to business markets : individuals or groups that purchase a specific kind of product to re-sell, use either directly or indirectly in the production of other goods and services for resale or use in general daily operations.The key to classification is to identify the purchaser and the reasons for buying the goods.

4/17/2015

12

No Market Segmentation

Market Segment: A Definition

A k t t i f i di id lA market segment is a group of individuals or organizations that share one or more similar characteristics which make them have relatively similar product needs.

(Kotler et al, 1997)

4/17/2015

13

The Role of Market Segmentation

Market SegmentationMarket SegmentationDividing a market into distinct smaller groups with different needs, characteristics, or behavior who might require separate products or marketing mixesmarketing mixes.

Market targetingMarket targetingEvaluating each market segments attractiveness and selecting one or Evaluating each market segments attractiveness and selecting one or more segments to entermore segments to enter

Market positioning Market positioning Arranging for a product to occupy a clear, distinctive and desirable place Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumersrelative to competing products in the minds of target consumersrelative to competing products in the minds of target consumers.relative to competing products in the minds of target consumers.

No single marketing mix can satisfy everyone. Therefore, separate marketing mixes should be used for different market segments.

The advantages of market segmentation

Target market selection

Market segmentation

Tailored marketing

mixDifferentiation

Opportunities and threats

4/17/2015

14

Six steps in market segmentation

1. Identify bases for segmenting the market2 Develop profiles of resulting segments

Market segmentation

2. Develop profiles of resulting segments

3. Develop measures of segment attractiveness 4. Select the target segments

Market targeting

5. Develop positioning for each target segment 6. Develop marketing mix for each target segment

Market positioning

The process of market segmentation and target marketing

The disaggregated market The segmented market The target market

c1c5c7

c2c6

c3c4c8

c1c5c7

c2c6

c3c4c8

c1

c5c7

c2c6

c3c4

c8

The disaggregated market The segmented market The target market

1 2 3 1 2 3

Marketing mix

targeted at segment 3

The characteristics of individual customers are understood

Customers are grouped into segments on the basis of having similar characteristics

Segment 3 is judged to be the most attractive and a marketing mix strategy is designed for that target market

4/17/2015

15

Levels of market segmentation

Mass Marketing : using almost the same product, promotion and distribution for all consumers

Segmenting markets : adapting a companys offering so they more closely match the needs of one or more segments.

Niche marketing : adapting a companys offering to more cl sel match the needs f ne r m re s bse ments closely match the needs of one or more subsegments where there is often little competition

Divides a population into groups that have similar

Psychographic Segmentation Variables

Divides a population into groups that have similar psychological characteristics, values, and lifestyles

Lifestyle: peoples decisions about how to live their daily lives, including family, job, social, and consumer activities

The most common method for developing psychographic p g p y g pprofiles of a population is to conduct a large-scale survey

4/17/2015

16

Market Targeting

Marketing segmentation reveals the firms market segmentMarketing segmentation reveals the firm s market segment opportunities. The firm no has to evaluate the various segments and decide how many and which one to target.

Target Marketing

Evaluating Market SegmentsS i d h Segment size and growth

Segment structural attractiveness (Porters 5 Forces) Level of competition Substitute products Power of buyers Powerful suppliers

C bj ti d Company objectives and resources

4/17/2015

17

Target marketing strategies

Undifferentiated marketing (mass) : when a firm produces only

one product or product line and promotes it to all customers with a

single marketing mix. The firm decides to ignore market segment

differences and go after the whole market.

Differentiated (segmented) marketing: when a firm produces

numerous products and promotes them with a different marketing mix

designed to satisfy smaller segments

Focused marketing

Concentrated (niche) marketing

Choosing a Target-Marketing Strategy Requires g g g gy qConsideration of: Company resources The degree of product variability Products life-cycle stage Market variability

C i k i i Competitors marketing strategies

4/17/2015

18


Differentiated marketing

Marketing mix 1 Segment 1

Segment 2

Segment 3

Marketing mix 2

Marketing mix 3


Focused marketing

Segment 1

Segment 2

Segment 3

Marketing mix

4/17/2015

19


Customized marketing

Marketing mix 1 Customer 1

Customer 2

Customer 3

Marketing mix 2

Marketing mix 3

Product Positioning

The way a product is defined by consumers on important attributes - the place the product occupies in consumers minds relative to competing products.

4/17/2015

20

Positioning:Positioning: a marketing strategy that emphasizes serving a specific market segment by achieving a certain position in buyers mindscertain position in buyers minds

Attributes Price/quality Competitors Application Product user Product user Product class

Choosing a Positioning Strategy: Identifying possible competitive advantagesy g p p g

Products, services, channels, people or image can be sources of differentiation.

Choosing the right competitive advantage How many differences to promote?

Unique selling proposition : the unique product benefit that a firm aggressively promotes in a consistent manner to its target market

Positioning errors to avoid Positioning errors to avoid

Which differences to promote?

4/17/2015

21

C it i fC it i f

Positioning

Criteria for Criteria for Meaningful DifferencesMeaningful Differences

Important Superior

Distinctive Communicable

Preemptive Affordable

Profitable

Product attributesProduct attributes

Product class Benefits

UsageUsageNot competitionAgainst

competition Users

Brands Activities

Origin Personalities

POSITIONING STRATEGIES

Origin Personalities

4/17/2015

22

Keys to successful positioning

Clarity ConsistencyClarity Consistency

Successful positioning

Credibility Competitiveness

Introduction inCustomer Relationship ManagementCustomer Relationship Management

Assoc. Prof. Mihaela-Cornelia DAN2014/2015

4/17/2015

23

Impact of marketing on people People are bombed daily with messages, offers,

promises, dreams, everything, in order to buy as many goods and services as possiblegoods and services as possible

In the battle for supremacy the companies develop products and services, they launch trendy messages, they adopt the language of the customers

All these on markets almost saturated, where innovations offer a competitive advantage only on a short run, and the danger of being pirated and copied is everywhere.

Solutions?

To invest further in quality?

To develop new services and to hope that the competition doesnt research the same concept?

Or to ask the customers before starting to think at new d t d i ? products and services?

4/17/2015

24

Answer: Customer orientation

Although customers are regarded as a central issue in all th ti l h hi h d i fi ll theoretical approaches, which made companies finally recognize their importance, the practical side of this symbiosis still lags behind

The major reasons are pretty obvious: either the management or the employees couldnt or didnt adopt management or the employees couldn t or didn t adopt the customer orientation or the decisions and actions of the company missed the target

Customer Relationship Management (CRM)

Given these difficulties, Customer Relationship Management (CRM) broadens and upgrades the classical perspective on customer orientation adding several aspects to it:orientation, adding several aspects to it:

1. the non-selective customer orientation is replaced by the selective one, with personalized consultancy;

2. customer orientation is not only a matter of front office anymore, marketing and sales are not the only responsible, it became a central matter of the entire company;

3. the development to multi channels requires a synchronization of the p q yvaried communications channels;

4. the information and communication technology gives a high potential for modernizing the dialogue and relation with the customers.

4/17/2015

25

The transition to relationship marketing

Emphasis on all

Relationship marketing

Transactional marketing

marketing domains and customer retention

Emphasis on t customer

acquisition

Functionally based-marketing

Cross-functionally based marketing

Transactional Marketing vs. Relationship Marketing

Transactional Marketing Relationship Marketing

Focus on customer acquisition Focus on customer retention

Market share Percentage from the customer wallet

Mass communication One-to-one dialogue

Undifferentiated marketing Personalized marketing

Market orientation Customer orientation

4/17/2015

26

The rise of CRM the shift in business focus from transactional marketing to

relationship marketing the realization that customers are a business asset and not

simply a commercial audience the transition in structuring organizations, on a strategic basis,

from functions to processes the recognition of the benefits of using information

proactively rather than solely reactively the greater utilization of technology in managing and

maximizing the value of information the acceptance of the need for trade-off between delivering

and extracting customer value the development of one-to-one marketing approaches

Short history of CRM The 50s the orientation towards production was predominant,

mainly due to the lack of goods and services following to the WWIIWWII

The 60s progress was made in the direction of quality investments.

The 70s bring to front the market orientation, as companies produce on demand, goods which are easily sold

In the 80s the offer explodes, and thus competition and titi t t i b th k i t competitive strategies become the key point

The 90s bring the first signs of saturation in almost all markets, which makes the companies decide to focus more on the customer and on his desires

4/17/2015

27

The systematic research of the customers needs and the acceptance of the fact that he is the one to directly influence the companys existence have brought the influence the company s existence have brought the relationship between the company and its customers to a never reached before level, in such a way that no company today can afford to ignore its customers opinion in taking decisions

Practically, the customer has turned into a partner for the company, and the interest of the later is that this relation lasts for as long as possible and is mutually profitable.

CRM Definition

CRM builds on the principles of relationship marketing and recognizes that customers are a business asset and and recognizes that customers are a business asset and not simply a commercial audience, implies the structuring of the company from functions to processes, information are used proactively rather than reactively and develops the one-to-one marketing approaches (Payne, 2006).

4/17/2015

28

Different views CRM defined narrowly and tactically: CRM is about

the implementation of a specific technology solution j tproject

CRM is the implementation of an integrated series of customer-oriented technology solutions

CRM d fi d broadl and strate icall CRM i CRM defined broadly and strategically: CRM is a holistic approach to managing customer relationships in order to create shareholder value

Types of CRM Operational CRM This is the area that is concerned with the

automation of business processes involving front-office customer contact points., e.g. sales automation, marketing automation and customer service automation customer service automation. Historically, operational CRM has been a major area of enterprise expenditure as companies develop call centres or adopt sales force automation systems.

Analytical CRM This involves the capture, storage, organization, analysis, interpretation and use of data created from the operational side of the business. Integration of analytical CRM solutions with operational CRM solutions is an important considerationoperational CRM solutions is an important consideration.

Collaborative CRM This involves the use of collaborative services and infrastructure to make interaction between a company and its multiple channels possible. This enables interaction between customers, the enterprise and its employees.

4/17/2015

29

The factors influencing customers acquisition

The factors influencing customer retention

4/17/2015

30

Main functions of CRM

Information collection and storage Customer selection Customer selection Determination of the customer value Determination of customer needs Customer orientation Customer satisfaction Customer loyalty Customer loyalty Customer retention Customer acquisition

We may state that CRM mainly allows thecompany to

understand who their customer is, isolate the best customer (those with whom you desire isolate the best customer (those with whom you desire

to have long-standing relationships), create relationships stretching over time and involving

multi-interactions, manage the relationship to mutual advantage, seek to acquire more of those best customers seek to acquire more of those best customers

4/17/2015

31

The process of CRM

Many times the CRM initiatives fail

The management has little customer understanding or i l tinvolvement

Staff culture does not have a focus on the customer and is rather driven by processes and procedures and hierarchical considerations

Limited or no input from the customers` perspective Poor quality customer data and information Poor quality customer data and information Little coordination of multiple projects in the company

4/17/2015

32

Stages of business success

Conclusion

Customer Relationship Management (CRM) requires the wide support of the company, alignment of all departments and people with the value proposition and activities, exploiting customer knowledge through upgraded database, an individualized service and a culture that is passionate to retain the customers

4/17/2015

33

Customer orientation


Stages of business success

4/17/2015

34

Top-down hierarchy (Kotler)

CustomerCustomer

Employees with direct contact to the

customer

Middle management

Top management

The dimensions of customer orientation

The informational dimension

The cultural dimension

The performance and interaction dimension

4/17/2015

35

Factors influencing performance

Service quality

PERFORMANCE

Processrelated to

thecustomer

Productquality

FlexibilitySales consultancy

Factors influencing interaction

Feed-back

INTERACTION DialogueSales consultancy

Staff

4/17/2015

36

Customer orientation and quality

Quality should accompany all client-related processesQ y p y p

The concept of quality is regarded, on the one hand, as a dimension of the product, which is specifically defined, objective and measurable, and, on the other hand, from the point of view of the customer

Quality triangle

Customer

Quality

Company Competition

4/17/2015

37

SWOT analysis for a bank

SWOT ANALYSIS STRENGTHS WEAKNESSES

Friendly staff Low security of the on

OPPORTUNITIES

Friendly staffConsultancy competence

Customers expectations regarding professional consultancy are increasing

Low security of the on-line data

Openness foron-line bankingIncreasing number of internet users

Quality management

No complaints

THREATS

managementLoyal customers

The competition introduces a new quality managementThe competition is aggressive in steeling customers

Customers expectationsregarding complaints are increasingCustomers tend to opena second account management

The introduction of quality is madeon three levels..

The staff, especially the employees which work directly with the customer and the techniques are focused more on improving the competencies especially the soft ones and toimproving the competencies especially the soft ones and to induce the desire to obtain a qualitative product and service

The organizational culture: the cultural barriers between the staff and the customers and within the staff can be overcome with the help and implication of the management

The company structure: usually the company builds a quality department with the goal to start a dialogue about quality with all departments and to monitor the entire process

4/17/2015

38

Customer orientation and services

Services bring competitive advantages to the company

We dont sell physical products, we sell ..solutions in form of packages

Product + Service = Solution!

Packages offer for sanitary-veterinary services

Degree of affinity between basic and supplementary

services Hi h fi it M di fi it L fi it

Customers expectations

High afinity Medium afinity Low afinity

Services needed

Post-treatment control, regularly obligatory control

Getting far from the company profile

Getting far from the company profile

Veterinary pharmacy Hotel for pets Cafeteria Probable services

y p y p

Possible services

Info corner with brochures, flyers for pets owners

Hair cuttingPet -sitting

Sales point for concert tickets

4/17/2015

39

Customer orientation and complaints

Companys openness towards dialogue STOP MIGRATION OF THE CLIENTSSTOP MIGRATION OF THE CLIENTS

You need:- A communication channel with the client- Stimulation of complaints

Nice personnel- Nice personnel - Rapid reaction- Solve correctly the problem

Advantages of complaints

IMPROVEMENT

COMPLAINT DEVELOPMENTBENEFITS

SUCCESS

4/17/2015

40

Complaints bring..

communication costs (stimulating complaints by announcements, internet, brochures), , , ),

personnel costs (receiving complaints requires training, preparation, info-center),

administrative costs (complaints processing), logistic costs (compensations, gifts, answering letters) internal costs (controlling complaints based on special analysis

)programmes)

Conclusion

To conclude with we can say that a company withcustomer orientation shows higher quality for itsproducts and services, has an active complaintmanagement, can react fast and uncomplicated on thespecial requests of the customers and its employees arevery motivatedy

4/17/2015

41

IMPLEMENTATION OF CUSTOMER ORIENTATION


Customer orientation

a higher quality for products and services, an active complaint management, a fast reaction and uncomplicated on the special requests

of the customers the employees are very motivated

4/17/2015

42

3 Stages for implementation

initiation whose purpose is arising acceptance and initiation, whose purpose is arising acceptance and knowledge;

imposing, whose purpose is setting measures and creating competencies;

implementation, whose purpose is adapting to the environment and development.

In the first stage

we transmit relevant knowledge referring to customer we transmit relevant knowledge referring to customerorientation and to the implementation project;

we insure a thorough understanding of the process by thepersons from the company involved in it;

we create willingness at all levels of the hierarchy.

4/17/2015

43

In the second stage...

we present the previously introduced concepts in more we present the previously introduced concepts in moredetails;

we set the particular fields of activity of the companywhich are important for improving customer orientation;

the management things about improvement of thecompany activity.p y y

In the third stage

teamwork;

structure and processes adaptation;

nature and duration of costs.

4/17/2015

44

Barriers which may hinder the implementation

the structure and the systems of the organization; the culture and the management style; the defective collaboration; the market approach; the knowledge of the market; the leadership style; the resources;

h l l f i i the level of motivation; the skills; the mission and vision.

Progress can be made by applying the following steps

building of decentralized units;a stronger process orientation; a stronger process orientation;

promoting inter-departmental cooperation, in order to avoid functional chimneys, which lead to lengthy problem-solving processes, responsibility avoidance, quarrel over budget distribution;

enlarging decision competencies, that is, promoting g g p , , p gdelegation and empowerment in the organization, so that fast decisions are really taken fast.

4/17/2015

45

How can a company check if it is customer oriented or not ?

Poor customer orientation - examples

if management positions are held by people who are product focused, and not relationship oriented;p , p ;

if, from a certain hierarchical level upwards, the actual contact with clients is lost;

if vertical and horizontal exchange of customers related information is not working;

if the organization is rather tall, which hinders efficient information exchange and decision making;information exchange and decision making;

if the company is very bureaucratic, red tape; if the products or services of the company do not meet

clients expectations.

4/17/2015

46

An orientation A is the sum of positive and negative opinions and beliefs regarding an object, a situation etc.

b = the belief strength the belief strength shows the subjective probability of a

person which considers that the object or situation has the attribute i

i * iA = ei * bi e = evaluation b = belief strength (i=1...n, number of beliefs)

We are interested to find out:

- if an orientation is negative, neutral or positive - the intensitiy of the negative or positive orientation

The strength of an orientation

4/17/2015

47

According to the model above, the employee is bonding the customer to some characteristics, he evaluates them and based on this he forms an opinion regarding the and based on this he forms an opinion regarding the customer

If the employee links more positive characteristics to the customer, than he will show a more positive customer orientation

In order to adopt the customer orientation, an employee must be influenced must be influenced

The characteristics that link an employee to a customer are dependent from the industry

4/17/2015

48

What is important?

- Communication and observationOpinion leader - Opinion leader

- Customer orientation as a strategic goal - Permanent research- Publishing the results of customer satisfaction studies (e.g

Readers Digest Most Trusted Brands)Complaint statistics- Complaint statistics

A permanent information leads to a stability of the customer orientation customer orientation

If you activate often this orientation, it will become stable and resistant to change

4/17/2015

49

Customer orientation in different industries

Sales: long-term customer satisfaction is more important than short-term sales than short term sales, Focus: the relationship with the customer!!!!

Banking industry: appearence and behaviour of the personnel, know-how is also important, but without a package worthless; employees should be able to share p g ; p ythe technical knowledge; we expect trust, helpfulness, confidence, competence, politeness

Health sector

S i l t i t t Social aspects are very important A nurse/a doctor should be adaptable, empathic, helpful,

cooperative, idealistic, self-confident

Customer-oriented personnel flexibility, kindness, social competence willingness to follow the rules competence, willingness to follow the rules

4/17/2015

50

Customer orientation Characteristics

Customer orientation of a software company

Assistance in needs determination Knowledge about activity filed, empathy, coomunication, cooperation

Correct description of the product User friendly language, programmstructure, user interface

Wish for customer satisfaction Organizational culture, example of themanagementmanagement

Product development at the customerneeds

Limited focus on technical things, thinkingat the customer needs, contribution tothe customer

Measuring customer orientation by finding the gaps

1. Gap Customer satisfaction- the difference between customer expectations and offering2. Gap Market research illusion- missing or limited information about the customer needs3. Gap Unclear targets and objectives- the requirements are not correctly transformed and

developed in the product4. Gap - Ignorance of the company/employee- lack of flexibility and not listening to the demands of the

customer5. Gap Bad communication and information- education, consultancy, support

4/17/2015

51

CUSTOMER SATISFACTION

Assoc. Prof. Mihaela-Cornelia DAN2014/2015

Customer orientation andcustomer satisfaction

Customer orientation researches the complexity of the d customers needs

Customer satisfaction explains if the expectations where delivered

a higher customer orientation is a condition for the customer satisfaction condition for the customer satisfaction

4/17/2015

52

RECEIVED PERFORMANCE -EXPECTATIONS, DESIRES, NEEDCUSTOMER SATISFACTION

Customer satisfaction as a result of comparison

Target situationDesires, expectations based on the previous experiences, comparisons

Actual situation

Fulfillment or

FailureDegree of

satisfactionActual situationPerception about performance, previous experiences

4/17/2015

53

Expectations are influenced by the following factors:

personal recommendations from friends, family and colleagues colleagues

personal needs past experiences with the company and its products the promises of the company transmitted through

advertisinginformation about alternative offers (received or information about alternative offers (received or collected by the customer)

personal standards of the customer, formed in time

Performance is influenced by factors like:

subjective perception on the situation,j p p the company competences, the quality of the performance, price, safety etc.

4/17/2015

54

Consumer behaviour of

Individuals Companies

In the case of companies we distinguish initiators they ask for products or services; they can be direct end-

users or other participants in the company; end-users they use the products or services; in the most cases the

end-users initiate the buying process and take active part in the definition of the expected characteristics;

influencers they have a special instruction, especially technical, they are involved in the evaluation of quality and they influence directly the buying process;

decision makers they decide about the characteristics of products and services and suppliers;

approvals they authorize the actions proposed by the decision approvals they authorize the actions proposed by the decision makers and buyers;

buyers they negotiate with the supplier and have the authority to decide on the contract terms;

guardians - they control the information and guard on the conditions of the contract and buying process (Kotler, 2003)

4/17/2015

55

Advocate

Loyalty

Satisfaction

Transaction

Trust

Knowledge

Customers reactions to satisfaction and dissatisfaction

Performance

Satisfaction Insatisfaction

Repurchase Oral communication Inactivity Complaint Migration

4/17/2015

56

Because customer satisfaction depends on expectations,desires, experiences, perception we may say that it has a

i i idynamic dimension, evolving over time.

A customer may feel satisfied because, for the moment,there are no other alternatives to satisfy his need, but, ass n as these ssibilities a ear he ma s itch tsoon as these possibilities appear, he may switch toanother company.

A customer may have (Kano, 1984) expected requirements : their accomplishment is implicit, and the

customer does not express them when buying (for instance, the basic functions of a product); these are mandatory conditions, and their b ki hi h l l f di i f ibreaking generates a high level of dissatisfaction;

normal requirements : they are explicitly asked for when buying (for instance, a lower gas consumption for a car, a longer life for a battery), and their fulfilment leads to increased satisfaction and loyalty:

delightful requirements : they are neither demanded, nor expected by the customer, and their absence does not lead to dissatisfaction; however if they are fulfilled the customer will be enthusiastic very however, if they are fulfilled, the customer will be enthusiastic, very satisfied (for instance, refreshments for free in the train). Delightful requirements turn into essentials as soon as the competition is copying the offer or when the customer gets used to it and doesnt want to miss them.

4/17/2015

57

Objective indicators

turnover,fi profit,

market share, repurchase ratio, number of new customers, number of loyal customers, frequency of the problems with the guarantee, the frequency of complaints, etc.

Subjective estimation

b d h f ll d d l f h based on the information collected directly from the customers (the dialogue with the customer, the relationship, the existing complaints)

4/17/2015

58

Gap analysis 1. Gap - appears when the customer has other expectations than

supposed by the company. In many cases, the customers expectations are given and self-evident, and thus he is not asked about them

2. Gap - appears when the customers expectations are known, but the company has other standards of fulfilling expectations. Internal processes and standards are not set once for ever, they should be transformed, depending on the customers expectations

3. Gap - appears when performance standards are not met. For instance, repeated flaws in production, on the long term, influence customer satisfaction. Customers should be regarded as an external quality control departmentq y p

4. Gap - refers to a very good performance which still doesnt meet customers expectations. This happens whenever a company promises too much, or steers false expectations from the part of its clients.

Conclusion

C f h d b l f Customer satisfaction is a term that describes a result of a complex process of data processing and a critical factor for obtaining customer loyalty.

4/17/2015

59

CUSTOMER KNOWLEDGE


Data vs. Information vs. Knowledge

4/17/2015

60

Data

Details E g the date on which a prospect became a customer; the E.g. the date on which a prospect became a customer; the

value of the last purchase; the term within a payment was made and the customers address

Information

Data become information as soon as a user assigns a meaning to them

E.g. the data say something about the identity and profile of the customer; as a result it becomes possible to create an image of who the customer isan image of who the customer is

4/17/2015

61

Knowledge

I f b k l d k Information becomes knowledge as soon as action is taken on the basis of this information; because the customers profile is known, we know when we should offer him which products or services

Pitfall of focusing on the collection, maintenance and analysis of the data

4/17/2015

62

The ultimate goal: knowledge This involves using the information in developing a

relationship with the customers and this requires people to utilise sources of information creatively

The challenge today is to combine information on customers which originates from different sources;

M k t h d t b d i f f t Market research, databases and experiences from front-office personnel must be compiled in order to create an accurate, up-to-date and consistent image of the customer

4/17/2015

63

1. The value of customer knowledge

Customer knowledge relies on the quality of the customer data

Incomplete, inaccurate, outdated data will not help us to understand the customer

The customer database is of good quality if

it corresponds to current reality; p y no data are missing they are complete; the data have been stored correctly; every customer appears only once each customer is

unique

4/17/2015

64

Q li d b Quality customer database = Current x Complete x Correct x Unique

Current: to what extent does the database depict a representation of the customer reality?

Complete: when the customer database is designed, each item of data must be examined to determine to what extent it is necessary, strongly desired or just nice to have

Correct: the data are correct and, if applicable meet the standard or are valid within a collection of possible values p(not making keying errors)

Unique: in principle, each customer should only appear once in the customer database

4/17/2015

65

Poor quality of data Identification errors (e.g. incorrect mail, telephone etc)

outcomes t d il it returned mail items Double mail items which have been sent to the same address

because certain customers are registered more than once in the database

e-mail is returned or sent twice Errors in invoicing Errors in invoicing Profile errors: the communication will be less focused; the

message will be less powerful or will ultimately reach people and businesses which do not belong to the central target group

2. The utilisation of data as an asset

Companies invest in dataData are assets which must be exploited Data are assets which must be exploited

a) It is important to record the proper datab) The value of the data becomes apparent at the

moment they are put in use (data are converted in information and knowledge)information and knowledge)

4/17/2015

66

The organization of data management

1. The pioneering phase a marketer creates address filesin the computer (hobby)p ( y )

2. The specialization phase the result of the first phasejustifies further investments; a separate staff is created; people begin to focus specifically on file management; more information is gathered and registered

3. The multifunctional teams the specialized departmentf l d f l l h failes and after a review process people realise that a close teamwork must exist between the marketers; multifunctional teams are built

4. System integration the multichannel environment demands that data are recorded real time and are accessible, not only for the benefit of front-office yemployees; integration of the databese in the system

5. one-to-one communication communication is facilitated between customers and the company

4/17/2015

67

3. From data to customer knowledge

What data would we ultimately want from the customer?

How do we want to profile the customer and use this information in marketing?

A possible answer: combine the data from different sources

Sources of information

Database domain: identification; transaction history; media yuse

Market research domain: customer profile, users profile, human profile

4/17/2015

68

Identification of the customer or prospect: name, address, city, telephone number, e-mail address

Segment: to which segment does the customer belong? (sub-groups with differentiated offerings)

Communication channels preferences: what is his/her opinion on certain channels?

Transaction history and customer value: which products or services has the customer purchased from the company in the past?in the past?

Communication history: recording communication which has taken place is important in order to be able to conduct an ongoing dialogue in which repetition can be avoided

Events in the life of the customer: a birth, a marriage, greaching a certain age, the purchase of a car, a pay rise, termination of employment, moving house etc.

4/17/2015

69

4. Privacy

Protection of personal data Protection of personal data The natural persons right of protection of those specific

features which lead to his/her identification Explicit permission for processing data about race,

philosophy of life, political persuasion, health

Very important role: the state (the obligation of adopting adequate measures to ensure an efficient protection)

Th E D t P t ti D 28th f J The European Data Protection Day: 28th of January -Convention 108 for the protection of individuals with regard to automatic processing of personal data was adopted

4/17/2015

70

Rules of data protection

The data controllers from the public or private sectorhave the obligation to respect the rules for theprotection of personal data in particular:protection of personal data, in particular:

the obligation to inform the natural persons concerningthe personal data collected and used;

the obligation to observe the right of access, interventionand to object of each natural person towards theprocessing of his/her personal data;

h bli i h fid i li d h the obligation to ensure the confidentiality and thesecurity of the personal data used;

the obligation to notify the national supervisoryauthority

Conclusion

Customer data which are developed into customer information are an important block of CRMinformation are an important block of CRM

Whithout customer knowledge the relationship policy will lack of substance and focused communication

Developing customer information requires professional organization

Database management should be organised through the g g guse of a multifunctional team

4/17/2015

71

CUSTOMER LOYALTY


Customer acquisition

vs.

Customer retention

4/17/2015

72

Customer retention (1)

the company seeks the positive orientation of the the company seeks the positive orientation of thebehavioral intentions of existing and future clientstowards a supplier and/or its supply in order to obtain astabilization, and a development, respectively, of therelationships with these customers

Customer retention (2)

The customer retention process is based on customerorientation of all company levels, on a long termvision and on future orientation;

Very important: the willingness of the company for a longrelationship with the customer

A management process, because customer orientedmeasures are systematically analyzed, planned andcontrolled with a view to maintain and develop futurecontrolled, with a view to maintain and develop futurebusiness relationships between them and the company(Bruhn, 2007).

4/17/2015

73

Loyalty is a deeply held commitment to re-buy or re-patronise a preferred product/service consistently in thepatronise a preferred product/service consistently in thefuture, thereby causing repetitive same-brand or samebrand-set purchasing, despite situational influences andmarketing efforts having the potential to cause switchingbehaviour.

4/17/2015

74

The strategic dimension of customer loyalty

What? Reference

object

Who?Target

customers

How often andwhen?

Intensity andtiming

With whom? Cooperationsfor customer

loyalty

How? Types of

customerloyalty

With what? Customer

loyaltyinstruments

Reasons of loyalty

situational loyalty contractual loyalty economic loyalty technical-functional loyalty psychological loyalty

4/17/2015

75

Situational loyalty

The situational loyalty is influenced by external factors, for instance the manner of acquisition on a certain market, or a good accessibility of the company, which makes the customer come frequently to buy (out of commodity).

Contractual loyalty

Contractual loyalty appears when the customer is tied to the company by contractual terms, and is not allowed to break the contract

Examples: client clubs or the contracts for public services

4/17/2015

76

Economic loyalty

Economic loyalty exists in a contract which is tooexpensive to break, although one of the parties would liketo (Plinke, 1989).

Technical-functional loyalty

Th d d h l d There is a dependency on a certain technology, andchange brings compatibility problems

E.g.: the company develops together with the customer apersonalized solution; it is the case of machines,processes, spare parts that the customer can find only atthe companyp y

4/17/2015

77

Psychological loyalty

Psychological loyalty is given by customer satisfaction,personal relationships, customer habits.

Regardless of the nature of loyalty, is good for thecompany to pursue voluntary loyalty (Dick, Basu,1994)1994);

This may be obtained by a higher customersatisfaction, which is the dominant generator ofcustomer loyalty;

Increased customer satisfaction creates an emotionaltie so, in case of a change, the client will take decisionstie so, in case of a change, the client will take decisionsbased on preferences

4/17/2015

78

Main instruments of customer loyaltyBasic effect Focus on

interaction Focus satisfaction Focus foster

brand loyaltyField of Instruments

Product policy

- common product development

- internalization

- personalized offers

- quality standards- service

standards

- individual technical standards

- value-added services

- extra service- special product

design- warranty

Main instruments of customer loyalty

Basic ff F F F f t effect

Field of Instruments

Focus on interaction

Focus satisfaction

Focus foster brand loyalty

Price policy - customer cards

- price warranty- pricing

depending on

- discount- and bonus system

- price satisfaction differentiation

- price bundling- incentives- customer cards

(discounts)

4/17/2015

79

Main instruments of customer loyaltyBasic effect

Fi ld f


Focus satisfaction Focus foster brand loyalty

Field of InstrumentsCommunication policy - direct-mail

- event-marketing- online-marketing- proactive

customer contacts

- service phone

- customer clubs- customer magazines- telephone-marketing- complaint management- personal

communication

- mailings (personal information)

- communication channels specific for one type of customers

numbers- customer forum- customer

advisory board

Main instruments of customer loyalty

B i Basic effect

Field of Instruments


Focus satisfaction

Focus foster brand loyalty

Distribution policy

- Internetgames

- product

- on-line order- catalogue sale- direct delivery

- subscription- ubiquity- customer product

sampling- company

visits

direct delivery customer orientated site selection

4/17/2015

80

Evaluation of the loyal customers

Behavior: link accesses, topics, day and time of reading, timed ff f hspent on different news or information, purchase reaction

Duration of the relationship: how often does he/she buy, readsthe e-mails etc. an active person in the last 6months/1 year is aloyal customer

Transactions: invoices, value, quantities, frequency Time spent with reading the newsletter a sign for the utilityp g g y

of the information sent Recommendations to other persons reward in form of a

discount

The Romanian Market of Customer Loyalty Programms

Th f h l l There is no connection of the customer loyalty programmswith a CRM platform (software); this platform enables thecompanies to use the data in the future;

The collected and deposited data are very rare analysed andused (exception: mobile phone companies, banks)

The frequency of the customer visits is disregarded The frequency of the customer visits is disregarded

4/17/2015

81

The Romanian Market of Customer Loyalty Programms(2)

The segmentation of the market is based on The segmentation of the market is based ondemographical and geographical data (age, gender, income,occupation); the psychographical data and the buyingbehaviour are not identified

The personal data are still not secured and safe Databases build within a promotion arent later used Databases are seldom updated

Evolution of the CLP

2000 2003: copy of the Western trends; best examples Connex Land, Winston, Sensiblu Gima Hollywood Multiplex ; some Sensiblu, Gima, Hollywood Multiplex ; some are still present on the market (e.g. Sensiblu, Garanti), some dont

4/17/2015

82


2004-2005: the first local initiatives; big retailers(Altex, Flanco, Media Galaxy), furniture (Mobexpert),publishing houses (Rao, Polirom), pharmacies (Dona,HelpNet), restaurants (Pub 18, Les Oliviades, Onix),hotels (Continental, Marriott); in the same time we( )notice the first imitations because of the competitionpressure; model: the competitor copies the leader andoffers more attractive conditions


2005- present: market maturity? Integration ofcustomer loyalty programs with CRM systems, efficiencyof customer orientation (call centers, improvement ofmerchandising switch from direct mailling to newslettersmerchandising, switch from direct mailling to newsletters,sms marketing), extension of customer value, co-brandedcards in cooperation with banks and other financialinstitutions

4/17/2015

83

Market data

Volume of the market? European average 170 cards/100 inhabitants European average 170 cards/100 inhabitants USA: 86% of households UK: 85% of households Netherlands: 80% of households Germany: 60% of households

Costs of customer cards

Example for 5000 cards for a local networkpwith 8 stores

Print, consumables, other materials: 3490 Promotion costs: formulars, posters, radio spots,

advertising in newspapers, outdoor, ads at POS: 2600 g p p Distribution of the cards by mail: 750

Total: 6840

4/17/2015

84

How is functioning?

You present the card before paying, you receive 5% reduction. For every 10 lei spent, the client receives 5 points, one point values 0,1 lei; these points may be usedfor paying integral or partial other products;

A new form: the gift card; you buy in advance products and services for someone and give them as a gift; plus you bring a new customer in the store (database gift; plus you bring a new customer in the store (database development)

E.g. Gift Card from H&M, charge different amounts

Customer cards types

Discount cards (retailers SensiBlu, coalition Lyoness), Point cards (MOL, LukOil, Sephora) Co-Branded cards (BRD- Carrefour the points are

administrated by the bank) Multipartner-credit card (CreditEurope, Garantie, BRD

the points are administrated by the bank)

4/17/2015

85

CardAvantaj from Credit Europe Bank Since July 2005, credit card with 0% interest rate for a time of period,

partner stores March 2010: 330.000 active cards, 9500 partner stores in different

sectors 0% interest rate for 1-12 months, variable interest rate up to 6 p

months 0.3% of the purchase will be refunded as bonus

www.cardavantaj.ro or www.crediteurope.ro

BonusCard from Garanti Bank Since November 2007 similar to Card Avantaj March 2010: 80.000 cards, 1700 partner stores (the majority are the

f C d A t j)same of Card Avantaj) 0% interest rate up to 18 months 1-10% Bonus dependent from partner

www.bonuscard.ro or www.garantibank.ro

4/17/2015

86

PunctCard from BRD Since May 2008 Around 570 partner stores (the majority are SMEs) Objective: 60.000 cards in one year for 1 RON you receive 0,5-2,5 points dependent from the store and

value of purchase; 1 point = 0.005 RON

Raiffeisen Multishop Raiffeisen Multishop You are already a customer of the bank and you may receive up to

15% bonus back 19 partnerss

www raiffeisen ro www.raiffeisen.ro

4/17/2015

87

Lyoness Cashback programme, Since July 2003 in 16 European countries, 650.000 customers and 16.000 partners 1% of the purchase will be refunded (min. purchase 10) Romania: 1364 partners Romania: 1364 partners

www.lyoness.ro

Actual and future trends

Market increase, higher demand (China, India)C d i h hi i d d d i i Cards with chip increased data and transaction security

New industries: transportation, telecommunications (smart phones), health and retail

Gift cards celebrations, anniversary In Romania: the most attractive sector is retail

2014 ti t d 3 5 illi d f l lt i 2014 estimated 3,5 million cards for loyalty programs in retail

4/17/2015

88

CLP in the Romanian retail

BILLA : collecting loyalty points, price reductions for different products (gardening, kitchen, travel), 4 campaigns per year

CARREFOUR: the lowest prices, private label brands, lottery, coupons, sampling sessions, instant prices; credit card in cooperation with MasterCard

SELGROS: Club Gastro, Club Retail special discounts for the club clients, preorders, on-line shop for special clients (contract clauses)

Conclusion

Loyalty programs can be a huge plus to the business or a stone if you dont carry it through

Can help you differentiate Loyalty programs are long-term programs and part of the

strategic thinking High investments at the beginning Special department/team for loyalty programs Loyalty programs are a tool, and not an objective

4/17/2015

89

CUSTOMER METRICS

Assoc.Prof. Mihaela-Cornelia Dan, Ph.D.2014/2015

CRM rests on the idea of allocating resources differently to different customers!

Th b i f thi diff ti l ll ti i th The basis of this differential resource allocation is the economic value of the customer to the firm.

Thus, before one can start to manage customers, one must have a thorough understanding of how to compute the value contribution each customer makes to a firm.

4/17/2015

90

Traditional marketing metrics: market share, sales growth- geographical dimension- only general data, no customer insight- no data about the individual customer or impossible to

obtain Customer activity metrics Customer acquisition metrics

Traditional marketing metrics

Traditional marketing metrics have been used by marketing professionals for years and are helpful in marketing professionals for years and are helpful in measuring performance of brands, products, and firms in a given geographical region.

Traditional marketing metrics provide information about how products or brands perform in a market neglecting the individual customer-level.

Historically, managerial rewards and incentives have been based on how well a manager is able to deliver on these metrics

4/17/2015

91

Market share

Market Share (MS) is one of the most common metrics for measuring marketing performancefor measuring marketing performance.

It is defined as the share of a firms sales relative to the sales of all firmsacross all customers in the given market.

MS is an aggregate measure across customers. It can be calculated either on a monetary or a volumetric basis.

M k Sh (P i l C ' S l R i Market Share = (Particular Company's Sales Revenue in Time Period X) / (Relevant Market's Total Sales Revenue in Time Period X)

it does not provide any information about how the sales are distributed across customersit only gives an

i f f aggregate notion of category performance. For example, a given MS can be caused by selling large

amounts to a small percentage of the customer base or by making small sales to a large proportion of the market

4/17/2015

92

Sales Growth

Sales growth of a brand, product, or a firm is a simple h h i d i measure that compares the increase or decrease in

sales volume or sales value in a given period to sales volume or value in the previous period. Hence, it is measured in percent.

It indicates the degree of improvement in the sales performance between two or more time periods and acts p pas a flag for the management.

A negative sales growth or sales growth lower than the rest of the market is normally a cause for concern.

Sales growth=[Sjt/Sjt-1]*100Where: j - focal firm, t - time period DSjt - change in sales in period t from period t-1 Sjt1 - sales of firm j in period t-1

4/17/2015

93

Sales growth is a quick indicator of the current health of a firm.

If d ith th l th f th th l i If compared with the sales growth of the other players in the market, it also provides a relative measure of performance.

However, it does not tell us which customers have grown and which ones have not.

This information is necessary if we are to take customer This information is necessary if we are to take customer level marketing initiatives.

Customer Acquisition Metrics

Customer acquisition metrics have been receiving increased attention recently.

Managers have become more sensitive toward balancing customer acquisition and customer retention activities.

In order to evaluate customer acquisition activities, we use two simple conceptsacquisition rate and acquisition cost

4/17/2015

94

Acquisition rate (AR)

When firms attempt to acquire customers, they are t icall tar etin a s ecific r f r s ectstypically targeting a specific group of prospects.

For example, a European credit card issuer might target the student market in Italy.In order to describe the success of the acquisition campaign, a key performance indicator is the acquisition rate, i.e., the proportion of prospects converted to , , p p p pcustomers.

It is calculated by dividing the fraction of prospects acquired by the total number of prospects targeted.

Acquisition rate (%) = (#of prospects acquired/# of prospects targeted)*100

For example, the target market of the credit card issuer might have been two million students in Italy. Acquisition was measured in terms of new credit cards issued. The bank issued a total of 60,000 new credit cards. Thus, the acquisition rate was q(60,000/2,000,000)*100= 3%.

4/17/2015

95

The acquisition rate denotes an average probability of acquiring a customer from a population.

Th th i iti t i l l l t d f Thus, the acquisition rate is always calculated for a group of customers (e.g., a segment), not for an individual customer.

The equivalent measure for an individual is the acquisition probability. An acquisition rate for an individual customer does not exist.

Firms have different definitions for the term acquisition!!!!

In the credit card example, an acquisition was recorded when a new credit card was issued to the prospect. However, it is possible that the prospect signed up for the card only because she was interested in the promotional incentive and that she will never use the card.

As a solution, the bank could define two different levels of acquisitionfor issuing the credit card and issuing a statement (which depends on credit card activity). For example although 60 000 credit cards have been issued to For example, although 60,000 credit cards have been issued to new customers, only 55,000 of them have received a statement, indicating activity on the card account. Thus, the level 1 acquisition rate is 3% and the level 2 acquisition rate is 2.75%.

4/17/2015

96

It is important to note that acquisition rates are typically computed on a campaign-by-campaign basis. Since acquisition rates can vary tremendously within the same firm, acqu s t o ates ca va y t e e ous y w t t e sa e , an average (firm wide)acquisition rate is mostly of limited value.

Acquisition rate gives a first indication of the success of a marketing campaign by setting the number of new customers in relation to the number of targeted customers.

However it cannot be regarded in isolation For example it However, it cannot be regarded in isolation. For example, it does not account for the costs of acquiring the customers.

Other important factors that have an impact on the acquisition rate are the marketing strategy and the selection of target customers.

Acquisition cost (AC)

The acquisition rate measures responsiveness to a i b i d hi b h campaign, but it does not say anything about the cost

efficiency of a campaign. AC is defined as the acquisition campaign spending

divided by the number of acquired prospects. AC is measured in monetary terms

4/17/2015

97

Acquisition cost () per prospect acquired

= Acquisition spending ()/number of prospects acquired

For example, the cost of the acquisition campaign of the Italian credit card issuer was 3 million. Thus, the average cost of acquiring a single new customer for this campaign cost of acquiring a single new customer for this campaign was 3,000,000/60,000 = 50.

Depending on the exact definition of what constitutes acquisition, the cost can be calculated for different acquisition levels.q

4/17/2015

98

AC measurement

Is precise when you organize a direct mail campaign Is precise when you organize a direct mail campaign Is less precise when you target the prospects on

broadcasted communication (e.g. advertising through television or print media)

For example, prospects can be persuaded by advertising that was originally not targeted at them but toward g y gexisting customers.

Customer Activity Metrics

Once a prospect has been converted into a customer, the main phase of the customer-firm relationship begins.

The concept of measuring the activity status of this relationship deals with a very fundamental issuewhether a customer is a customer.

On first sight, this might appear to be obvious. If a customer buys, then the customer is, in fact a customerotherwise, she is not.

It is not at all clear what constitutes a living relationship. The meaning of an active relationship differs across

industries

4/17/2015

99

Objective of Customer Activity Measurement

Knowing the status of a customers (or a segments)activity is important for managing marketing interventions activity is important for managing marketing interventions. A customer-oriented organization tries to align resource allocation with actual customer behavior

Instead of mass advertising or mass marketing, managerial action can gain tremendous efficiency byadjusting its interventions to the actual customeradjusting its interventions to the actual customerneeds or activity status.

It is a key input in customer valuation models The marketing function has come under increasing

t d t t h it dd t h h ld pressure to demonstrate how it adds to shareholder value.

This demonstration typically involves the estimation of the evolving customer value over time. Thus, measuring customer activity is a critical intermediary step in this valuation process.p

4/17/2015

100

Average Inter-Purchase Time (AIT)

is the average time elapsing between purchases. It is meas red in terms f s ecific time eri ds (da s It is measured in terms of specific time periods (days,

weeks, months, etc.). It is computed by taking the inverse of the number of

purchase incidences per time period.

AIT of a customer = 1/Number of purchases during a pre-specified period

If a Mega Image supermarket customer buys, on average, six times at Mega Image during a month, then the AIT for that customer will be 1/6=0.1667 months, or that customer will be 1/6 0.1667 months, or approximately 5 days (0.1667 * 30).

AIT is an easy-to-calculate indicator which can be an important statistic of the customers activity status, especially for those industries where customers buy on a frequent basis.

4/17/2015

101

Retention and Defection Rate

Retention rate in period t (Rrt) is defined as the l k l h d h h f h average likelihood that a customer purchases from the

focal firm in a period (t), given that this customer has also purchased in the period before (t1).

The defection rate is defined as the average likelihood that a customer defects from the focal firm in a period (t) that a customer defects from the focal firm in a period (t), given that the customer was purchasing up to period (t1).

The retention rate refers to the average retention rate of a segment of customers.

Theoretically the retention rate differs for each individual Theoretically, the retention rate differs for each individual customer but is approximated by the average retention rate of a (homogeneous) customer group or segment.

Most of the time, no distinction is made between the (individual level) retention rate and the average retention rate.

Avg: defection rate in t (%) = 100-Rrt(%)

4/17/2015

102

How Is Retention Different from Loyalty?

Retention is not the same as customer loyalty. Although retention is measured on a period-by period

basis and indicates whether customers are coming back, the loyalty construct has a much stronger theoretical meaning.

If somebody is loyal toward a store or a brand, this person has a positive emotional or psychological disposition toward this brand.

People might continue to purchase a particular brand or might patronize a particular store, but this may be purely out of convenience or inertia. In this case, someone might be retained, but the person is not loyal

Size of Wallet

Size of wallet is the amount of a buyers total spending in a given categoryor, stated differently, the category sales g g y , y, g yof all firms to that customer.

The size of wallet is measured in monetary terms.

4/17/2015

103

A consumer might spend an average of $400 every month on groceries, across several supermarkets. Thus, her size of wallet is 400.

Information about the size of wallet can be gathered in many ways.

For existing customers, the information can be collected through primary market research (e.g., surveys).

A typical question a firm might ask is, On average, how much do you spend every month on category A?

For prospects, it is quite difficult to obtain the size of wallet information on an individual level.

Instead, segment-level information is often used.

Size of wallet is a critical measure of the customer centric organization.

When firms attempt to establish and maintain profitable relationships, the customers buying potential (i.e., size of wallet) is a critical piece of information.

Firms are particularly interested in acquiring and retaining customers with large wallet sizes. The assumption firms make here is that large wallet customers will bring in make here is that large wallet customers will bring in more revenues and profits.

Documents

Crm