Chapter One

CRM, Database Marketing

and Customer Value
 Overview

Topics discussed:

• Marketing concept

• Link between CRM and Database Marketing

• CRM and Customer value

• Conceptualizations of CRM

• Relevance of CRM

• Data based Customer Value Management

 Marketing-definition

• “Marketing is an organizational function and a set of processes for

creating, communicating and delivering value to customers and for

managing customer relationships in ways that benefit the

organization and its stakeholders.”

American Marketing Association,2004

Link Between CRM and Database Marketing
Database Marketing

• Customer Databases
– Identify and analyze customer population

– Group based on similarities

– Recommend separate marketing campaigns for different groups

• CRM
– Applies database marketing techniques at customer level

– Develops strong company-to-customer relationships

 CRM

• Capture customer data and interact with the

customer simultaneously

• Develop specific strategies for interaction with each customer

– Better relationships with profitable customers

– Locating and enticing new customers that will be profitable

– Finding appropriate strategies to deal with unprofitable customers,

including termination of relationships
When to use Relationship Marketing
 Link Between CRM and Customer Value

• Customer Value: The economic value of the customer relationship to

the firm – expressed on the basis of contribution margin or net profit

• CRM is the practice of analyzing and utilizing marketing databases

and leveraging communication technologies to determine corporate
practices and methods that will maximize the lifetime value of each
individual customer to the firm
 Using Customer Value
for Marketing Decisions
• Benefits

 Maximization of Revenues

 Improvement in Profits and ROI

 Acquisition and Retention of Profitable Customers

 Reactivation of Dormant Customers

 Conceptualizations of CRM
• Functional level: focuses on technology

– Sales force automation in the sales function

– Campaign management in the marketing function

• Customer facing front-end level: focuses on total customer experience

– To build a single-view of customers across contact channels

– To distribute customer intelligence to all customer-facing functions

• Strategy level: focuses on customer satisfaction

– Frees CRM from technology underpinnings
– Describes CRM as a process to implement customer centricity in the
market and build shareholder value
– Knowledge about customers affects the entire organization
 Components of CRM from a Business
Strategy Perspective
• Strategic process
– Spans multiple organizational functions
– Continuous effort towards becoming customer-centric

• Selection
– Resource allocation based on economic value of customer

• Interactions
– Exchange of information and goods between customer and firm evolves
as a function of past exchanges
 Components of CRM from a
Business Strategy Perspective (contd.)

• Customers
– End-users and intermediaries such as distributors and retailers
– Greater fine-tuning of segmentation strategies to eventually target
individual customers with customized product offerings

• Optimizing current and future value of customer

– Maximizing customer equity by maximizing profits over a series of
transactions

Caution: Managing fairness in the exchange process is important to sustain

mutually profitable relationships
 Relevance of CRM

• Firms are facing changes with respect to:

– Consumers

– Marketplaces

– Technology

– Marketing functions

CRM is a response to these changes

 Changes with respect to Consumers
• Growing consumer diversity- due to demographic and behavioral trends

– Ageing of the population in developed countries- “de-youthing”

– Increased diversity in ethnicity of population
– Increasing individualization

• Time scarcity

– Activities compete for customers’ time

• Value consciousness and intolerance for low service levels

– Rise in customer expectations

– Decline in consumer satisfaction level
 Time Scarcity and Value Consciousness-
Example
Average waiting time (in seconds) after which calls are abandoned by customers
60
55
55
51.3

50
Seconds

45
45 42.5 1998
1999
40

35

30
UK Worldwide

Source: : Merchants International Call Center Report

Figure shows that customers are less and less satisfied with the treatment
they get from corporate call centers. The average time after which calls are
abandoned fell by about 19% in just one year.
 Declining Customer Satisfaction- Example

S c h e d u le d H o u s e h o ld C o m m e rc ia l P a rc e l D e liv e ry P e rs o n a l P u b lis h in g /
A irlin e s A p p lia n c e s B anks C o m p u te rs
90
90 90 90 90 N e w s p a p e rs
90

85 85 85 85 85 85

80 80 80 80 80 80

75 75 75 75 75 75

70 70 70 70 70 70

65 65 65 65 65 65

- 8 .4 % - 3 .5 % - 2 .7 % - 2 .5 % - 9 .0 % 60 - 1 2 .5 %
60 60 60 60
60
19 9 149 9 19
6 9280 0200 0 2 19 9 419 9 619 9 82 0 0 02 0 0 2 19 9 419 9 619 9 28 0 0 02 0 0 2 19 9 149 9 61 9 9 28 0 0200 0 2 1 9 9 41 9 9 16 9 9 28 0 0 20 0 0 2 1 9 9 149 9 169 9 28 0 02 00 0 2

(American Customer Satisfaction Index) with products and

services
Source: http://www.theacsi.org, University of Michigan
 Changes with respect to Consumers
(contd.)
• Information availability and technological aptitude
– Customers more knowledgeable in making purchase decisions
– More comparisons across providers and transactions

• Decrease in loyalty
– Diversification of holdings across service providers even within same
household

Consequences
– Marketers should be wary of placing heavy time demands on consumers
– The major challenge facing companies has become meeting consumer
demands rather than cost reduction
 Decreasing Customer Loyalty- Example

Number of different financial service providers that respondents are associated with
35
30.2 30.7
30
% of consumers

25
21.1
20
14.1 1996
15

10
5

0
1 2 3 4+

Number of financial service providers

Source: Unidex Report
 Changes with respect to the Marketplace

• More intense competition between firms for customers

• Fragmentation of markets

• Diminishing product-quality
differentiation

Consequences

− Value added to customers by offering customized product and service propositions

– To maintain market share, need to realign business strategy to become customer-

centric
 Changes with respect to
Data Storage Technology

• Better technology, cheaper and larger storage units

• Huge increase in demand for data storage

• Increased popularity of data warehouses

Consequences
– Better information about customer behavior and attitudes
– Better prediction of customer buying behavior
– Too much data can lead to misapplication and wrong analysis
Changes with respect to Marketing Function

• Media dilution and multiplication of channels

– Proliferation of communication media focused on the customer
• Direct-to-consumer channels - email, telephone

• Interactive media - internet, interactive TV etc

– Reduced need for techniques focused on price alone due to

• Availability of new data collection and communication tools
• Marketing processes such as loyalty programs
 Changes with respect to
Marketing Function (contd.)
• Decreasing market efficiency and effectiveness due to
– Focus on acquisition, price and short-term transactions
– Proliferation of new contact channels
– Increased or flat cost of contact
– Decreased customer response
– Reduced value for advertising in any medium

Consequences
– Pressure on the marketing function
– Marketing in danger of being restricted to advertising and media planning
 Implications of Changes
in Business Environment

• Greater demand for learning about

– Customer preferences
– Product and service customization

• Focus on customer-centric instead of product-centric strategies

 Data Based Customer Value Management

• To satisfy increasing customer heterogeneity

• To address concerns of marketing accountability

• To put available data to use

• To use customer profitability as the key objective function

 Benefits of Data Based Customer Value
Management Approach

• Integrate and consolidate customer information

• Provide consolidated information across all channels to assist in timely and

relevant communication with customers

• Manage customer cases

• Personalize the service and products offered to each customer to meet
expectations

• Automatically and manually generate new sales opportunities

• Provide flexibility to adapt campaigns to take changes in customer behavior
or information into account
 Benefits of Data Based Customer Value
Management approach (contd.)

• Yield faster and more accurate follow-up on sales leads, referrals and
customer enquiries

• Manage all business processes by introducing a central point of control

ensuring all business processes are executed in accordance with correct
and effective business rules

• Give top managers a detailed and accurate picture of all sales and
marketing activities

• Instantly react to a changing business environment

 Summary

• From a strategic perspective, CRM is the process of selecting the

customers a firm can most profitably serve and shaping the
interactions between a company and these individual customers

• Assessing Customer Value is critical to CRM

• Rapid changes are taking place in the environment in which firms
operate with respect to customers, market places, technology, and
marketing functions
• These changes have driven the marketplace to become relationship-
based and customer-centric
• CRM’s goal is to optimize the current and future value of the
customers for the company