Transcript loyalty… - dbmanagement.info

CB602 E-Marketing: Week 20
Loyalty, CRM and Data
Mining
Paul Haiselden
© Paul Haiselden 2010
Learning Objectives
In this session:

Define loyalty, CRM and data mining

To explain their importance and use

Expand the idea of e-CRM


Consider the threats and opportunities of
aggregators/comparison sites
To explain the methods of achieving consumer
lock-in
© Paul Haiselden 2010
The Click Chain
Revision from Last week:
•
Today we will exploring Marketing and Sales
element of Primary activities
USER
© Paul Haiselden 2010
FILTER
TO SERVICE
PROVIDER
SERVICE
PROVIDER
Promotions
and
CRM
'Click Chain': Laffey (2009)
Loyalty
Some Facts:
Fundamental principle: Keeping existing customers is cheaper than
acquiring new ones

In 1991 Xerox used a 5 point Likert scale to poll its customers. It
found that 'very satisfied' customers were six times more likely to
re-purchase than those who were simply 'satisfied'. These
customers they termed 'apostles' as they were likely to convert
uninitiated consumers to their product. Conversely at the other
extreme the 'very dissatisfied' were termed 'terrorists' as they would
vent their unhappiness publicly damaging Xerox (Heskett et al,
2008)
Why is this Important?

The outlays for acquiring a new customer for 'pure play' e-commerce
firms are 20% - 40% more than traditional retailers (Reichheld and
Schefter, 2000)
© Paul Haiselden 2010
Benefits of Loyalty
Mainspring and Bain & Company (Rigby et al, 2000):
• e-tailers could not break even on 'one time' shoppers, 18
months retention required for B/E in grocery industry
• Repeat purchasers spend more and generate larger
transactions over longer time period. Grocery purchasers
spent 26% more in month 31-36 than in first 6 months
Therefore:
• Increase share of wallet
• Opportunities to cross sell
• Loyal customers are less price sensitive, less likely to be
lured away
© Paul Haiselden 2010
Acquisition Costs
Acquisition costs are those incurred by the
business in the gaining of a new customer:
These Include:
• Advertising, Promotions, Introductory/Special
Offers, Gifts etc
• These acquisition costs can be very high...
© Paul Haiselden 2010
Acquisition Costs
Examples of Advertising Costs:
24hr banner on Yahoo.co.uk
£100-250k
Sunday Times full page (B&W)
£56,150
Carlton 30s weekday peak time slot
£30,500
TV Times full page (colour)
£18,500
Virgin Radio (AM/National)
30s slot, Thursday (1600hrs - 1900)
£850
BRMB (Birmingham Radio)
30s slot, weekday peak time
£200
Lancaster Regal Cinema
30s slot (each day, one week)
£192
(UK Advertising Association and Business Week, 2006)
Acquisition Costs
© Paul Haiselden 2010
Acquisition Costs
• Acquisition costs depend on price of product,
potential profits and strategy of organisation
These acquisition costs need to be recovered
and reduced over time for profitability How?
• Switching costs….positive and negative
• Word of mouth
• Brand recognition
• Linked to these LOYALTY… trying to develop ongoing
relationships with customers
© Paul Haiselden 2010
Loyalty: The Reality...
In many industries acquisition costs are high and customer
loyalty is generally seen as low or worsening
Reasons:
• Competitive pressure has led organisations to focus on
customer acquisition not on retention
• Increasing levels of churn
• Impact of comparison sites/aggregators and general
awareness of price/product information (reduced search
costs)
Example:
• In UK 20% of credit card customers are serial
switchers…. continuously move balances to 0% cards
© Paul Haiselden 2010
Comparison Sites...The Challenge to Loyalty
• Imperfect competition: Why can some firms charge
more for a commodity service? e.g. utilities, financial
services etc
Reasons why customers stay put:
Negative factors
Information overload
Lack of knowledge
Confusion/Laziness
Apathy
Fear of change/Time
Contractual factors
Switching costs (e.g. penalties)
Positive factors
Effective service
Brand
Loyalty?
• The above allows differentiated and premium prices to be charged
for a commodity good/service
© Paul Haiselden 2010
Comparison Sites...The Challenge to Loyalty
Reasons why customers stay put:
Negative factors
Information overload
Lack of knowledge
Confusion/Laziness
Apathy
Fear of change/Time
Contractual factors
Switching costs (e.g. penalties)
Positive factors
Effective service
Brand
Loyalty?
Double Edged Sword: (Revision from last week)
• Retailers desire long-term relationships with consumers, however
Comparison Sites promote switching (encourage 'churn')...
• Reduction of Information Asymmetry, price is there for all to see with
the potential of competitive pressure driving prices down
© Paul Haiselden 2010
E-Loyalty?
• With ‘a competitor..a click away’ within the world of the
Internet we would expect loyalty to be even worse
• However...Reichheld and Schefter (2000) found that most
on-line customers exhibit a clear proclivity towards loyalty
• Other studies have supported this. e.g Mercer
• Non price factors were seen as more important such as
convenience, delivery and TRUST
• Reichheld and Schefter (2000) show when trust is
established the customer is more likely to share personal
information with the seller, and as such a detailed
customer orientated offering can be tailored to suit their
needs...CRM
© Paul Haiselden 2010
The unrecognised loyalty of on-line customers
%of on-line customers shopping with
competitors
Relative Utility for shoppers
90
In their
stores
Price
In their
catalogues
Delivery
100
80
70
75
On-line
Payment
55
7
14
Source: Mercer Management Consulting (2001)
21%
50
On-line
Off-line
100%
CRM and Data Mining
• Customer Relationship Management - Creating and
maintaining strong relationships with profitable
customers
• Crucially, for CRM need to able to identify customers
through Data Mining
• Takes a long term view of the customer relationship
building data which can be attributed to different
profile patterns
• Offers specifically tailored communications and
promotions
• e.g. Amazon collaborative filtering (e.g. Customers
with similar searches purchased...)
© Paul Haiselden 2010
CRM: Data
Personal and profile data
•
Contact details
•
Preferences
•
Page (route) tracking
Transaction data
•
Sales history
Communications data
•
Campaign history
•
Research / Feedback / Support queries
•
Contact reports (B2B)
© Paul Haiselden 2010
Permission Marketing via E-mail
Key concepts:
•
Not SPAM
•
Requires opt-in & Can Opt-out
•
Learning about the customer
•
Initial and continued relationship is based on relevancy
Central tension: CRM and loyalty programmes
require the customer to give up some privacy
in exchange for better service
© Paul Haiselden 2010
Tailored Offerings
Websites can be personalised and customer specific e.g.
Tesco ClubCard customers can view shopping basket
online; Amazon 'Your Page' recommendations based
upon search/purchase data
For content:
• Automated login, customised options and pages
For price
• Differential pricing….charge different prices for the same
product, accepted practice in travel/insurance
• But...Amazon in 2000 experimented with differential
pricing...public outcry...!
• Industry Dependant
© Paul Haiselden 2010
e-CRM
Lee-Kelley et al (2003:241)
“...refers to the marketing activities, tools and
techniques, delivered over the Internet (using
technologies such as websites and e-mail,
data-capture, warehousing and mining) with
a specific aim to locate, build and improve
long-term customer relationships to enhance
their individual potential.”
© Paul Haiselden 2010
Service Quality and Loyalty
Service element of transaction process (see 'Click Chain'
slide 2)
Beware the technology solution:
• Goods suppliers rely on efficient delivery
• Service – delivering what is offered is the crucial
element
• Companies are no longer “...shielded..from the penalties
of providing anything less than the best product and
service quality” (Reichheld and Schefter (2000:113)).
© Paul Haiselden 2010
An Example:
• Founded in 1994; Online 'pure play' book store offering
larger choice than 'bricks and mortar' competitors as not
constrained by premises size
• Listed on Nasdaq stock exchange in 1997
• Finally reached profitability in last quarter of 2001: $5m on
revenues of over $1bn
• Why is this important?
• These losses were whilst Amazon rapidly expanded its
customer base through the acquisition of new customers,
i.e. during this period the losses incurred through
acquisition outweighed the profits secured from 'early
joiners'
© Paul Haiselden 2010
An Example:
However...
•
Despite not turning a profit for over 6 years Amazon
experienced sales turnovers of nearly $3bn pa
•
During this time it was developing and growing a loyal
customer base of returning customers
•
Ensuring long term profitability
© Paul Haiselden 2010
Summary
We have considered:
• The importance of loyalty
• Concepts of loyalty to the e-commerce
environment
• The solution of CRM: what it is, components
and the one-to-one dream (tailored offerings)
© Paul Haiselden 2010
Further References
Heskett, J. Jones, T. Loveman, G. Earl Sasser Jnr, W. Schlesinger, L. (2008) 'Putting
the Service Profit Chain to Work'. Harvard Business Review, July – August 2008
Lee-Kelley, L. Gilbert, D. Mannicom, R. (2003) ‘How e-CRM Can Enhance Customer
Loyalty’ Marketing Intelligence and Planning, Vol. 24 No. 4. pp.239-248
Laffey (2009) 'The Click Chain' British Academy of Management Conference 2009
Submission, 2009
Reichheld, F Schefter, P (2000) 'E Loyalty: Your Secret Weapon on the Web'. Harvard
Business Review, July – August 2000
Rigby, D. Bavega, S. Rastoi, S. Zook, C. Hancock, S. (2000) 'The value of customer
loyalty and how you can capture it' Bain & Company/Mainspring Whitepaper, 17
March. Published at www.mainspring.com
© Paul Haiselden 2010