Customer Relationship ManagementCourse Handout- Week 3

Shainesh GProfessor of Marketing Indian Institute of Management Bangalore

© Shainesh G

Evolution of Marketing Practices

Marketing practice and theory have continuously evolved over the last decades. These can be classified into :

Product centric

Segment centric

Customer centric

2

© Shainesh G

Evolution of Marketing Practices- Product Centric

Product centric marketing focused on mass marketing, involving mass production, mass communication and mass distribution.

USP or unique selling proposition and brand image were two concepts that emerged during this phase

3

© Shainesh G

Evolution of Marketing Practices- Segment centric

As markets turned competitive, the product variety and the number of variants increased. Mass marketing was no longer effective anymore. So slowly firms started paying more attention to customer segments instead of just focusing on their products.

In this phase, organizations tried to gain competitive advantage through-Segmentation, Targeting and Positioning to emerge as the preferred choice of their target customers.

4

© Shainesh G

Evolution of Marketing Practices- Customer centric

Customer centric marketing involved developing strategies centered around customers.

Customer centricity focuses on a micro or a niche segment of one customer.

5

© Shainesh G

Market Share

All firms aim to increase revenues, market share and grow profitably. Market share has always been one of the key measures of firm performance. Companies typically aim to gain market share

During the product introduction stage when the industry witnesses rapid growth,

During the product maturity stage, when a new entrant tries to grow rapidly by

carving out a share from incumbents

6

Sales (volume or value)

Industry sales (volume or value)Market Share =

© Shainesh G

Customer Share Orientation

Customer share orientation is also known as the share of customer's wallet. In this approach, firms focus on meeting a set of related needs of customers. Sometimes firms even enter into businesses that they are currently not operating in.

7

© Shainesh G

Customer Lifetime Value

Customer lifetime value is a key metric when firms aim to build long term relationship with customers. The focus of lifetime value of customer is the net profit of an individual customers' lifetime with the firm.

8

© Shainesh G

Activity Based Costing

Activity based costing (ABC) is a budgeting and analysis process, which evaluates overhead and operating expenses by linking costs to customers, services and products. ABC is used by managers to determine the actual cost of serving a customer and hence assess customer profitability.

9

© Shainesh G

High Cost to Serve Vs Low Cost to Serve Customers 10

© Shainesh G

High Cost to Serve Vs Low Cost to Serve Customers 11

© Shainesh G

Customer Equity

Customer equity is an important determinant of the long term value of a firm. It is the sum total of discounted lifetime values of a firm's customers. It includes both present and future customers.

According to Rust, Zeithaml and Lemon, customer equity has three drivers

Value Equity

Brand Equity

Relationship Equity

12

© Shainesh G

Customer Equity

Value equity represents the value for money. Value equity helps assess the trade offs by comparing benefits vs sacrifices

Brand equity is the customers’ perception of a brand

Relationship Equity refers to the affinity towards the company or the brand.

13