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MANAGEMENT
Customer Differentiation
vs. Product Differentiation
Research by Professors Cooper and Kaplan at the
What is CRM?
Customer Relationship Management (CRM) is an
Individual
interaction
Database
Marketing
1 to 1
learning
relationship
Mass
Marketing
Mass
Customization
Interacting
Interaction through
Mass Media
Standard
products
Tailoring
Tailored
products
Customer Relationship
Management (CRM)
Traditional Marketing
CRM
Standardization of customer
needs
Customer-supplier relationship
Transactional relationship
Relational approach
Needs Satisfied
Needs Satisfied
Customers Reached
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Customers Reached
Differentiate
Interact
Customize
Identify
Relationships are individualistic, not with
markets or groups of people
Must be able to identify your customers individually
and recognize them when interacting with them
You need to know how much customer
identification does a company already have (what
info do you need.
Difficult to do, can be almost impossible if channels
of communication involve intermediaries
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Differentiate
Some customers are worth more than others
80/20 rule
Interact
Goal of interaction is to get more information directly
Customize
Use knowledge of customer to figure out what he/she
needs
Key term is mass customization
Can be product based
Or service based on standard products
Use of information technologies key
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CRM Technologies
CRM systems are integrated with other enterprise information
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CRM Market
Gartner predicts CRM will be a $ 36.5 Bn by the end of
2017.
CRM also leads all enterprise software categories in
projected growth, showing a 15.1% CAGR from 2012 to
2017
Gartner forecasts shows CRM eclipsing ERP in worldwide
market size in 2017.
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CRM in India
In Gartner's view, the Indian CRM market size is about 15% of the
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CRM Software
Customer Relationship Management Software provide tools
for:
1. Sales Force Automation
2. Customer Service
3. Marketing
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Marketing Module
CRM systems support direct marketing campaigns by
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Analytical CRM
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RFM Method
(Recency, Frequency, Monetary Value )
Marketing Problem:
A firm has sent e-mail to 30,000 of its existing customers,
announcing a promotion of $100. 458 of them responded
(1.52% of the customers)
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RFM Method
(Recency, Frequency, Monetary Value )
Recency
When was the last customer interaction?
Frequency
How frequent was the customer in
interactions with the business?
Monetary value of the interactions
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its
RFM Method:
Recency Coding
30,000 customers are sorted in descending order with
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Response %
RFM Method:
Recency Coding
Recency Results
According to analysis based on customer
4.00
3.1
3.00
Remark:
2.00
1.5
1.00
0.62
0.38
0.00
5
Recency code R
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RFM Method:
Frequency Coding
Sort the 30,000 customers with respect to frequency metrics.
Frequency metrics: Average number of purchases made by
group.
Assign frequency codes such that the top group has code 5 and
the bottom group has code 1.
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RFM Method:
Frequency Coding
Frequency Results
3
2.8
Response %
2.5
2.1
2
1.5
1.3
0.8
0.9
0.5
0
5
Frequency code F
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RFM Method:
Monetary Value Coding
The same process as recency and frequency coding
a time period t
At the end of the monetary value coding, assign monetary
value codes M = 1,...,5 to groups according to their groups.
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RFM Method:
Monetary Value Coding
Frequency Results
2.5
Response %
2.1
It
1.8
1.4
1.5
1.2
1.1
1
0.5
is observed that
highest response rate is
from the customers
having
highest
monetary value
0
5
RFM Method:
Putting the Codes Together
At the end of the monetary coding firm obtain R F M
Database
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231
232
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RFM Method:
STEPS
Create 3 digits RFM codes cells
RFM values are used to define group of customers that
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CRM Benefits
Lower costs of acquiring new customers
No need to acquire so many customers to maintain a steady
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business volume
Reduced sales costs. Existing customers are generally more
responsive
Higher customer profitability through segmentation and targeting
products and services
Increased customer retention and loyalty. Customers stay longer,
buy more, and contact you more
Improved customer service
Evaluation of customer profitability leads to identifying the most
profitable classes of customers
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issues.
One third of all CRM projects generate great results, one third
create minor improvements, and the final third produces nothing
CRM experts believe that 80 percent of the benefits of CRM
come from new business processes, while only 20 percent
are due to the technology.
According to an InfoWorld-CTO Network Survey CRM problems
are due to
Difficult integration (39%)
Others (5%)
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