Transcript Calculating Customer Value

University of Washington MBA Program ‘06
Managing Customer Relationships
through Direct Marketing
“Relationship Marketing & CRM Intro ”
Instructor: Elizabeth Stearns
Many choices
The answer ?
The Customer: Definition
Not just the end user!!
Firm
Manufacturer
or
Distributor
Dealer
or
Retailer
End User/Purchaser
Consumer
Customer:
Any person or organization in the
chain of distribution and decision
whose actions can affect the purchase
of your products and services
Influencers/Gatekeepers/Spoilers
Customer Definition includes the process of
identification, understanding their role, and then
determining how to reach them.
MegaCorp
- Decision Makers?
- Purchasers?
- Influencers of
- Policy?
- Purchase?
- Training?
- Referrals?
Remember, not all customers are worth the same!
Understand Your Customers
•
•
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•
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Their Demand for Your Product or Service
Their Changes over Time
Their Growth Needs
Their Technology/Personal Service Conundrum
Their Available Choices for Solutions
Their Value to You!
Determine/Understand the composition of
your best customers
Characteristic
Quantity
A B
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A B C
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A C E
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A D E
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X Y Z
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What is Relationship Marketing?
How do you define relationship marketing as you understand it?
Relationship Marketing
• Marketing on the Differences
• Marketing with a Memory
• Demassifying the Communications Process
• Customizing Communications and
Products/Services
Relationship Marketing
•
Evolutionary process, not an event
•
Experience-based, not transaction-based
•
Mutually beneficial, two way
•
Emotional and/or logical appeals
Relationship Process
Measurement
On-going Dialogue
Database Support
Communication Objectives
Customer Segmentation
Brand Equity / Promise
Relationship Marketing
• Relationship marketing recognizes that prospects and
customers can be at different points of awareness,
interest and intent-to-buy along the prospectivity
continuum
• Persuasion is a process: Dialogue precedes
purchase/engagement for most products and services
Model of Market Prospectivity
Unaware
Vague Awareness
Category Familiarity
Brand Familiarity
Passive Consideration
Active Interest
Purchase Usage
Brand Relevance to Customers
“To enhance customer loyalty, a company must strengthen
the relationship with the brand”
“A focus on loyalty segmentation provides strategic and
tactical insights that assist in building strong brands”
David Aaker, “Building Strong Brands”
Customer Loyalty
• Reduced or No Desire to Switch
• Increased Perception of Value / Quality
• Reduced Risk of Buying (More)
• Trial New Products or Services
Customer Loyalty
• Feels Recognized and Special
• Volunteers Information
• Positive Word of Mouth / Recommends to
Others
Satisfaction =
Performance minus Expectations
Make Surveys Count!
“One of my customers cornered me at a charity board meeting
and told me, “I got a call after I picked up my car asking if I
was satisfied with the sales experience. Then I got a call after
the car was serviced, asking if I was satisfied with the service
experience. Finally, another surveyor called several weeks later
to check if I was happy with the ownership experience. So when
am I going to get a call asking if I’m satisfied with the
satisfaction survey experience?””
Reichheld, The Loyalty Effect
Why Relationship Marketing?
Economic Value to Keeping Customers
2% Retention equals approximately 10% reduction in costs
Why Customers Are More Valuable Over Time
Company Profit
Price Premium
Referrals
Reduced Operating Costs
Increased Purchases & Higher
Balances
Base Profit
Customer
Acquisition
Cost
Time
• Profit Comes from Different Sources
Reichheld & Sasser, Jr.
Relationship Marketing Can Increase
Lifetime Value
•
Increase the retention rate
•
•
•
•
Increase the referral rate
Increase the spending rate
Decrease the direct costs
Decrease the marketing costs
Continuous revenue relationship marketers have an
expanded vocabulary with meanings unique to their world.
Retention
Churn
Defection
Active Enrollees
Cancel
Winback
Enrollments
Attrition
Marketing Allowables
Open
Lapsed Enrollment
Live
Add-on Services
But do not use common Single Order terms such as:
Average Order Size
Returns
Out-of-stock
Sales per thousand contacts
Circulation
Break-even
Source: Kestnbaum
There are two distinct ends to the marketing spectrum with
only a few relationships in the somewhat gray middle.
Single Order(s)
Continuous Revenue
Low
High
Recency, Frequency, Monetary
Tenure, Revenue, Cross-sell
On-going Marketing Decisions
Repromote: who, when, what
Dialog, reward, winback
Promote to expand relationship
Revenue Stream
Sporadic, but relatively large
payment(s)
Constant, but relatively
small payments
Whimper
Bang
Initial Marketing Investment
Key Factors Driving Value
How Relationship Ends
Source: Kestnbaum
“eLoyalty”
Thank you!!
CRM
The CRM Goal
Individual Permission – Based Interaction
The CRM Process
Acquire
& Retain
Interact
& Deliver
CRM
Develop &
Customize
Understand &
Differentiate
Customer Experience Cycle
Customer
Understanding
Customer Experience Cycle
Customer Purchase Cycle
Customer
Understanding
•Stages of the Purchase Cycle
•Length of each Stage
•Related Complexity of Each Stage
•Indicators of When a Customer Enters a Stage
•Frequency at Which a Customer Repeats the Cycle
•Level of Resources Directed at Each Stage
Customer Experience Cycle
Customer Needs
Customer
Understanding
•Information
•Convenience
•Efficiency
•Price
•Reputation
etc.
Customer Experience Cycle
Customer Interaction Opportunities
Customer
Understanding
•Tied to specific stages of the purchase cycle.
•Inbound and outbound.
•Cross-channel and cross-media.
•Situation-driven or driven by a deeper understanding of customer
needs and behaviors
Field Sales
Marketing
Communications
Corporate Comm./
Public Relations
Customer
Value
Customer
Satisfaction
Point of Sales/
Service
Customer
Understanding
Advertising
Call
Center
Web
Customer Care
Customer
Loyalty
“Customer Experience Management”
•
•
•
•
What is today’s experience?
Who is in control of the touchpoints?
What is the desired experience in customer terms?
How can you make that happen?
– Understand the gaps
– Understand resources to achieve the desired state
The Customer Experience
is not just about the sale:
Pre -Sale
Sale
Post -Sale
Questions
•
•
•
•
•
When would one buy?
Who would buy?
Where would one buy?
Roles: Influencer, Purchaser, and End user
Turn those insights into a Customer Interaction Map
Craft a Customer Interaction or Customer
Experience map for PFL…
Step One:
1)Identify the specific Customer and role-purchaser/end user/influencer
Step Two:
2)Consider 2 broad categories: PFL controls and
does not control
Customer Interaction Map
Purchasing Catalyst
= Company has direct control
EVENT:
EVENT:
ACTIVITY:
ACTIVITY:
REALIZATION:
REALIZATION:
IMPRESSION:
REFERRAL:
EMOTION:
Birthday,
Anniversary
Holiday
Promotion,
Interview,
New Job
Participation in
new activity or
sport
Travel (business or
pleasure)
Worn out, wrong sized,
soiled, or damaged clothes
Out-of-date or
unfashionable wardrobe
Observe idols, peers and
others wearing new
styles
Recommendation by
influencer to purchase
new clothing
Boredom or
frustration with
current wardrobe (selfconfidence)
Pre-Shopping
WISH LIST:
DISCUSS:
PERCEIVE:
IMPRESSION:
RECEIVE:
REQUEST:
OBSERVE:
RECEIVE:
Identify and prioritize
needs for particular
items
With peers, family, and
influencers
Quality of brands and
products, develop
preferences
First encounter with
catalog cover,
messages, & models
Catalog in a timely
manner
Addition to catalog
mailing list via reply
card or 800 number
Television and print
advertisement
Catalog information
card or direct marketing
Shopping
GATHER
INFO:
Read product
descriptions and
look at pictures
COMPARE:
SELECT:
ASSESS:
CHOOSE:
LEARN:
CONSIDER:
ESTIMATE:
ORDER:
SERVICE:
Products, features,
prices
Items for
purchase,
planned or
impulse
Size and fit.
Utilize sizing charts &
staff recommendation
Appropriate size
& desired color or
style
Ordering
procedure,
shipping
methods, &
return policy
Product promotions
and purchase
incentives
Shipping costs &
delivery dates
Fill out & send
order form or
call 800
number
Call center staff
recommends related
products
or promotions
Receipt/Gift/Try-On
REFLECT:
IMPRESSION:
EXAMINE:
TRY-ON:
THANK:
Expectations,
Performance,
Satisfaction
In accordance with
desired appearance
( by self & others)
Fabric, features,
overall quality
Assess fit, style
& comfort
Express
appreciation
for gift
OPEN
GIFT:
Immediate
reaction to
product
GIFT:
INSPECT:
REVIEW:
OPEN:
RECEIVE:
Wrap and give
gift (already
wrapped?)
Right product,
right size, right
color
Packing list,
return form &
print insert offers
Package
remove
contents
Package from
carrier at home
Use Experience
DECIDE:
COMPLAINT:
RETURN:
ALTERATIONS:
STORAGE:
WEAR:
OBSERVE:
DEVELOP:
MAINTAIN:
Keep or return
product
Contact customer service
about problems with
order or product
Product if not
satisfied, possibly
“re-gift”
Hem cuffs or otherwise
modify the item
Place item in a location,
reflecting anticipated use
Develop usage
pattern,/ frequency
Other people’s
reactions to wearing
the item
Preference based on
comfort, confidence &
versatility
Keep item clean and
in good condition
Long-Term Perceptions
EXPERIENCE:
RELATIONSHIP:
REFERRAL:
LOYALTY:
INTENTIONS :
COMPANY:
Overall impression of
the transaction
Continued desire to receive
catalog in future (actually
read it not trash)
Recommend company
or products to peers
Develop a preference for
channel & brands
Purchase again in future:
similar items & different
Convenience, customer
service & value
PRODUCT:
Quality, durability &
brand perception
= identify direct control or indicate
whose control
CATALYST
EVENT:
EVENT:
EMOTIONAL:
NEED:
REALISATION:
REWARD:
PRE-SHOPPING
DISCUSS:
REFERRAL:
OBSERVE:
RECEIVE:
RESEARCH:
WISH LIST:
SHOPPING
CHANNEL SELECT:
COMPARE:
IMPULSE PURCHASE:
ORDER:
SERVICE:
POST SHOPPING
INSPECT:
OPEN:
REFLECT:
RECEIVE:
GIFT GIVING
DELIVERY OF GIFT:
IMPRESSION:
THANKS:
STORAGE:
SAFETY:
CLEANLINESS
OBSERVE / FEEDBACK:
ONGOING USAGE / PERCEPTION
DISPOSAL:
PERCEPTIONS:
LOYALTY:
COMPLAINT:
EXPERIENCE:
PRODUCT:
CRM Implementation
1. Situation Assessment
– Internal evaluation of your capabilities
– External evaluation of the customer’s experience with your org.
2. CRM Gap Analysis
–
Comparison between an organization's current state and the desired
state. It is essential to define the desired customer experience.
3. CRM Action Plan
–
–
–
–
Cost to implement
Benefit
Feasibility (organizational readiness, senior management
acceptance, etc.)
Time
CRM Transformation Map
Business Focus
Products
Sales
Channels
Marketing
Services
Customers
Promotion
Management
Channel
Management
Contact
Management
Customer
Management
Program
Performance
Customer
Revenues
Customer
Satisfaction
Customer
Lifetime Value
and Loyalty
Targeted
Campaigns
Segment-Specific
Communication
Customer-Contact
Integration
Individual
Permission-Based
Interaction
Data
Access
Data
Warehouse
Data
Marts
Customer
Touchpoint
Systems
Organizational Structure
Product
Management
Place
Management
Business Metrics
Product
Performance
Place
Performance
Customer Interaction
Mass
Transaction
Opportunistic
Promotion
Technology
Transaction
Processing
Data
Maintenance
The Strategy Development and Implementation Process
Contention
Differing
Perspectives
Consensus
Marketing
Finance
Human Resources
R&D
Operations
Sales
Project Planning
Execution
Strategy
Formulation
Program
Formulation
Creativity
Coordination
Designing Offers for Customers
Product
Delivery
Technical
Innovation
Services
Sales
Relationship
Brand
Equity
Value
Price
Time
Effort
Risk
Cost
Offer
A Business Focus on Customers Means:
• The organization's primary focus is on acquiring,
deepening, and retaining customer relationships.
• The business model is based on optimizing value
delivered to customers to maximize value
received from them.
• Customers are at the core of the organization's
value system, and the unifying force across
business units and functions.
Business Focus
Products
Sales
Channels
Marketing
Services
Customers
Organizing around CRM
• Appoint segment managers, each responsible for
acquisition, development, and retention of their customer
segment.
• Create a cross-functional Customer Relationship
department, which will ensure that CRM strategies are
successfully implemented across the organization
• Implement staff training, performance measurement and
compensation based on CRM
Organizational Structure
Product
Management
Place
Management
Promotion
Management
Channel
Management
Contact
Management
Customer
Management
Customer Metrics
• Customer Revenues
– Who are the top customers in terms of revenue?
– Are revenues from any customer segment increasing or decreasing?
• Customer Satisfaction
– For which customer segments has satisfaction increased or decreased?
– How do satisfied customers differ from dissatisfied customers?
• Customer Loyalty and Value
– How can we increase customer profitability?
– What drives loyalty for our most profitable customers? How can we increase customer loyal
– Which prospects should our organization focus on in order to “clone” our best customers?
Business Metrics
Product
Performance
Place
Performance
Program
Performance
Customer
Revenues
Customer
Satisfaction
Customer
Lifetime Value
and Loyalty
Developing Customer-Focused Metrics and Analyses
• Collect the Right Customer Data
• Increase Your Customer I.Q.
– Customer Profiling
– Customer Segmentation
– Customer Valuation
• Profitability
• Lifetime Value
• Share of Wallet
– Customer Lifecycle
– Customer Attitudes
– Customer Changes
• Create and Track a Customer Scorecard
Two Kinds of Database People
• Constructors
People who build databases
Merge/Purge, Hardware, Software
• Creators
People who understand strategy
Build loyalty and repeat sales
• You need both kinds!
Right Side
Quality First
Customer Focus
Customer First
Service Quality
Customer Satisfaction
CEO’s Brain
Left Side
Costs
Revenues
Market Share
Budgets
Incentives
Compensation
Strategic Plans
Profits
Market Value
A CRM System is:
• Any application that supports the collection, cleansing, and
maintenance of, and/or access to, customer information, and that
provides this information to appropriate entities in support of CRM
applications.
Including…
• Customer databases
• Marketing applications
• Data mining applications
• Sales force automation systems
• Customer care applications
• Online applications
Technology
Transaction
Processing
Data
Maintenance
Data
Access
Data
Maintenance
Data
Marts
Customer
Touchpoint
Systems
CRM Systems Issues
• It is important to develop a customer information plan,
including:
– Where and how to efficiently collect customer data
– How to transform data into meaningful, practical information
– How to distribute customer information throughout the
organization
• Build a business case for your system
• Determine whether your system should be in-house or
outsourced, based on:
–
–
–
–
Solution scope
Core competencies
Time horizons
IT resources
CRM Systems Issues
• Monitor the quality of your data, including:
–
–
–
–
Data coverage
Data accuracy
Data precision
Data relevance
• Make the data accessible to people who can put it to use
• Gain the acceptance of employees who will be using the
system
Aspects of Measuring CRM Success:
• Internal CRM Capabilities
• Customer Interactions
– Create a customer interaction scorecard
• Customer Dynamics
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–
–
–
Customer acquisition
Customer growth & development (cross-sell, upsell)
Customer retention
Customer reactivation
• Operational Efficiencies
• Bottom-Line Business Metrics
– Increased revenues
– Decreased costs
– Increased competitive differentiation
Think like a Customer: 10 rules for
Building Customer Relationships
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The “average customer” does not exist – get to know us
Make our experience special: Give us something to talk about.
If something is wrong, fix it quickly.
Guarantee our satisfaction.
Trust us, and we’ll trust you. (respect)
Don’t take us for granted.
Our time is as important as your time.
The details are important to us – they should be to you, too
Employ people who are ready, willing, and able to serve us
We care whether you’re a responsible corporate citizen.
Thank you!