SESSION SLIDE CRM - 3

8/7/2019 SESSION SLIDE CRM - 3

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Economics of BuildingCustomer Relationship


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Customer Lifetime Value

The present value of the stream of future profits

expected over the customers lifetime

purchases.

The company has to subtract the expected costs

(of attracting, selling & servicing the customers)from the expected revenues.


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An Example of Estimating CLV

Suppose a co. analyses its new-customer acquisition

cost:

Cost of an average sales call (including salary,

commission, benefits & expenses) Rs 300

Average no of sales calls to convert an average

prospect into a customer 4

Cost of attracting a new customer Rs 1,200


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Now suppose the co. estimates average CLV as follows

Annual customer revenue Rs 500

Average no. of loyal years X 20

Company profit margin .10

CLV Rs 1,000

This co. is spending more to attract new customersthan they are worth.

Therefore, the co. may become bankrupt unless it

signs up customers with fewer sales calls

spends less per sales call

stimulates higher new-customer annual spending

retains customers longer or

sells them higher-profit products.


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Customer Equity

Aim of CRM is to produce high customer equity.

CE is the total of the discounted lifetime values of all of

the firms customers.

So the more loyal the customers the higher the customer

equity.

3 drivers of customer equity

Value equity

Brand equity

Relationship equity


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1. Value equity: Customers objective assessment of the

utility of an offering. Sub-drivers are quality, price &

convenience.

2. Brand equity: Customers subjective & intangible

assessment of the brand. Sub-drivers are customer

brand awareness, customer attitude & perception

towards brand. Companies use advertising, PRs &

other communication tools to affect those subdrivers.

3. Relationship equity: Customers tendency to stick

with the brand. Sub-drivers are loyalty programs,

special recognition and treatment programs etc.


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Framework for CRM

Identify prospects and customers

Differentiate customers by needsand value to company

Interact to improve knowledge

Customize for each customer


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CRM Strategies

Reduce the rate of defection

Increase longevity

Enhance share of wallet

Terminate low-profitcustomers

Focus more effort on

high-profit customers


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Mass vs. One-to-One Marketing

Mass

Average customer

Customer anonymity

Standard product

Mass production

Mass distribution

Mass advertising

One-way message

Economies of scale Share of market

All customers

Customer attraction

One-to-One

Individual customer

Customer profile

Customized market offering

Customized production

Indivisualised distribution

Indivisualised message

Two-way message

Economies of scope Share of customer

Profitable customers

Customer retention


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Customer-Development Process

Prospects

Suspects

Disqualified

First-time

customersRepeat

customersClients Members

PartnersEx-customers


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Happy CRM

Documents

SESSION SLIDE CRM - 3