Our mission is to earn and grow the lifetime loyalty of our customers.

— SIR TERRY LEAHY, Chief Executive Officer (Tesco),

quoted in Tesco's 1998 Annual Report.

Learning Objectives

After studying this chapter, you should be able to:

1.Obtain information about the latest concepts emerging in the area of CRM.

2.Evaluate cost-benefit analysis of CRM and to deal, in details, with the modern customer-centric business organisation.

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Introduction

Customer Relationship Management has various dimensions. For a comprehensive understanding of the concept, it is necessary to know the various dimensions of the subject. This chapter discusses the latest and important dimensions that have emerged in the area of CRM. The study of these concepts is so more important that it helps the implementation of the concept better.

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CRM: A COST BENEFIT ANALYSIS

CRM Benefits: To The Organisation: Increased Revenue and Reduced

cost To The Customer: Simplified buying process and

friendly services leading to superior satisfaction.

CRM Cost: To The Organisation: Requires greater investment To The Customer: Opportunity cost

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Customer Value

Value creation is a strategic process to manage a product, service or a business unit's growth and competitive share. It is built on a core foundation of market research applying advanced techniques, called customer value analysis (CVA).

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Delivery of Value consists of following phases: choose the value; provide the value; and communicate the value.

The value-creation process includes: value-defining; value-developing; and value-delivering.

The relationship value involves: value determination; value creation; value delivery; and value assessment.

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Customer Lifetime Value

Customer lifetime value (CLV) is the net present value of the total profits that a company could realise with the average new customer within a given customer segment during a given number of years. It is the true value of a customer that can be considered as the most appropriate measurement of how much an organisation would or should be willing to invest to acquire/ retain him.

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Issues in Calculating CLV:

Customer lifetime value has an intuitive appeal as a marketing concept because, in theory, it represents exactly how much each customer is worth in monetary terms and therefore, exactly how much a marketing department should be willing to spend to acquire each customer.

The precise calculation depends on the nature of the customer relationship programme. It calls for accounting of following issues:

1.Lack of data:2.Lost customers:3.Newer company:4.Choosing a formula: There is difficulty in choosing a formula. Do

you include the value of referrals in your calculation? Do you stop at revenue or go all the way to profit? Do you segment customer groups or calculate one overall number for the company?

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Customer Profitability

While providing value to the customer, companies also need to be realistic and keep in mind the customer profitability.

Customer Classification Based on Customer Profitability:

1. The first category customer receives high value from a firm's products and services and provides high value in the form of high margins, loyalty and retention.

2. The second category customer is the "lost cause" who do not get much value from the firm's products and services.

3. The third category of customers is the one who provides high value to the firm but does not get lots of value from the firm's services.

4. The fourth category of customers is one who gets superior value from a firm's products and services but provides little value, maybe because of their large size or intensity of competition.

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Customer-centric Organisational Structure A customer-centric organisation has to fulfil the

four essential steps:Communal coordination: A central, enterprise

wide database is the key. It is a 2-way process – the first involving standardization and the second part involves retrieving the information from all customer touch points.

Serial coordination: This step consists of creating business analytical capabilities that leverage the customer information repository. The business analysts then pass the analyses to the appropriate unit.

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Symbiotic coordination: After analyzing past customer data comes predicting future customer behavior. It requires two way flow of info among the analysts and multiple business units. They collaboratively participate in four activities:

Creating models to predict customer behavior; Experimenting with various interventions designed to alter

customer behavior; Measuring the results of these interventions; and Using feedback from the front line to improve the models

and subsequent campaigns. Integral coordination: in this stage, the organization

can use customer information in daily interactions with customers, aided by employees who do more than pay-lip service to customer service

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Enterprise Marketing Management

An important emerging dimensions of Customer Relationship Management is Enterprise Marketing Management (EMM). It has now been realized that companies need to build stronger customer relationship and thus need to make a positive impact on the marketing productivity of the organization. EMM, which is pioneered by UNICA, has been introduced with this premise. It is designed to help the enterprise drive the sales growth with proper utilization of available resources, thus turning the relationship marketing process into a disciplined and scientific approach.

EMM involves everything right from the vision building and customer modeling analysis to the detailed workflow planning of the manager, thus making it robust and more effective. An EMM solution consists of three major functions which will be necessary to perform in order to become a world class marketing company:

i. Brand building and management,ii. Customer acquisition and building long-term relationship, iii.Strategic planning and effective optimized resource management.

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Conclusion Today's customers are becoming harder to please. They are

smarter, more price-conscious, more demanding, less forgiving and are approached by many more competitors with equal or better offers. The challenge is not to produce satisfied customers, which several competitors can do, but to produce delighted and loyal customers. If these customers are retained with the organisation, it becomes really profitable by way of increase in purchasing, reduced operating costs, price premiums and through referrals. Too many companies suffer from customer churn, i.e. high customer defection. It is like adding water into a leaking bucket. Various strategies such as measuring customer life-time value, efficient complaint management system and service recovery can be really helpful in retaining customers.

Customer value is an interesting and emerging concept in the area of marketing. This also holds an important position in Customer Relationship Management, as relationship needs to be designed and sustained when one party offers some value to the other. So, understanding customer's value to the company and then designing the offer to him would be the most appropriate strategy for companies practising CRM.

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PROJECT ASSIGNMENT

Design an insurance company from a customer-centric perspective. Also, take into account the costs incurred in the direction of customer centricism and evaluate the benefits the company would incur.

REVIEW QUESTIONS:

1. "Customer Relationship Management is also called as customer retention management." Illucidate.

2. Discuss various strategies of customer retention management. How would you design retention strategy for an airline company which till now has been ruling Indian skies?

3. "Recalling customers is another important dimension of marketing of modern businesses, but requires a thoughtful process by the marketers". Critically analyse the statement.

4. "A successful CRM programme is not just confined to the marketing department of the organisation. It is an enterprise wide activity.“ Comment.

5. "CRM programmes are a costly affair, but the long-term reward it generates is much more beneficial than the revenue it generates". How far do you agree with the statement and why?

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