Chapter 10

CUSTOMER
RELATIONSHIP
MANAGEMENT

Prepared by Mark A. Jacobs, PhD

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES
You should be able to:
Discuss the strategic importance of CRM
Describe the components of a CRM initiative
Calculate customer lifetime value
Discuss the implementation procedures used for CRM
programs
Describe how information is used to create customer
satisfaction & greater profits for the firm
Describe importance of data security
Describe how social media and cloud computing have
impacted CRM

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER OUTLINE

Introduction
Customer Relationship Management Defined
CRMs Role in Supply Chain Management
Key Tools & Components of CRM
Designing & Implementing a Successful CRM Program
Trends in CRM

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction
Finding a new customer costs five times
as much as keeping an old customer
CRM means focusing on customer requirements, then
delivering products and services in a manner resulting in
high levels of customer satisfaction
Also refers to automated transaction and communication
applications, however this can cause problems for some
firms
CRM must still include talking to customers,
understanding their behavior and their requirements, and
then building a system to satisfy those requirements

Customer Relationship
Management (CRM)
Defined
The infrastructure
that enables the delineation of and increase in

customer value, and the correct means by which to motivate

valuable customers to remain loyalindeed to buy again.
managing the relationships among people within an
organization and between customers and the companys
customer service representatives in order to improve the
bottom line.
to keep track of customers, learning about each ones likes
and dislikes from various sources like transaction records, callcenter logs, web site clicks, and search engine queries.

More simply Building & maintaining profitable long-term

customer relationships

CRMs Role in Supply

Chain Management
The firm seeks position as a value-enhancing
supplier to its customers.
Firms must create methods for finding &
developing good suppliers
Firms must create methods for becoming &
staying good suppliers themselves.
It may be necessary for a firm to certify its
intermediate customers as to their ability to
adequately represent their firms products.

Key Tools &

Components of CRM
Segmenting Customers - Grouping customers to create
specialized communications about products
Target marketing efforts - e-mail or direct mail saves labor
& postage, reduces chances of being a nuisance
Relationship marketing or permission marketing customers select the type & time of communication.
Requires software & customer participation
Cross selling - Additional products are sold as the result of
an initial purchase (e.g., e-mails from Amazon.com
describing other books bought by people)

Key Tools & Components

of CRM
(Continued)

Predicting Customer Behaviors - firms forecast

likelihood of customers purchases
Customer Defection Analysis - finding methods to retain
customers
Churn reduction - reducing customer defections

Customer Value Determination - verify the customer

lifetime value for individuals or segments
Personalizing Customer Communications Understanding customer behaviors & preferences, firms
customize communications
Clickstream, how a customer navigates a Web site

Event based Marketing - offer the right products &

services to customers at the right time

Key Tools &

Components of CRM
(Continued)

Automated Sales Force Tools

Sales Force Automation (SFA)- Used for documenting field
activities, communications with the home office, & retrieving
sales history
Sales Activity Management- Tool offering sales reps a
guided sequence of sales activities
Sales Territory Management- Sales managers obtain
information of each sales reps activities (e.g., total sales
per sales rep.)
Lead Management- Sales reps can follow prescribed tactics
when dealing with prospects to aid closing the deal.
Knowledge Management- Enables quick decision making,
better customer service, & a better-equipped & happy

sales staff.

Key Tools &

Components of CRM
(Continued)

Managing Customer Service Capabilities

What does customer service actually mean?
Seven Rs Rule having the right product, in the right
quantity, in the right condition, at the right place, at the
right time, for the right customer, at the right costs.
Performance measures are often designed around
satisfying the seven Rs. These kinds of services can
come at a cost.

Key Tools &

Components of CRM
(Continued)

Customer Service Elements

Pre-transaction elements - precede the sale (e.g.,
customer service policies, the mission statement, org.
structure, & system flexibility)
Transaction elements - occur during the sale &
include the order lead time, the order processing
capabilities & the distribution system accuracy
Post-transaction elements - occur after the sale &
include warranty repair capabilities, complaint resolution,
product returns, & operating information

Key Tools &

Components of CRM
(Continued)

Call Centers
Can categorize calls, determine average resolution
time, forecast future demand, improve the overall
productivity of the staff, increasing customer
satisfaction levels

Key Tools &

Components of CRM
(Continued)

Website Self-Service
Web sites act as support mechanisms for call centers. Customers
can access their account information & operating hours, contact
information, etc.

Field Service Management

Customers can communicate directly with product specialists
using wireless devices & the right diagnosis can be made quickly

Measuring Customer Satisfaction

Customers are frequently given opportunities to provide feedback
about a product, service, or organization

Customer Privacy Capabilities

Two important issues are ability to assure privacy & ability to
minimize customer harassment

Designing &
Implementing a
Successful
CRM
Step 1. Creating
the CRM Plan:
Objectives
of the CRM program
Program

CRMs fit with corporate strategy

New applications to be purchased or developed
Integration or replacement of existing legacy
systems
Personnel Requirements- personnel, training,
policies, Upgrades, & maintenance &
The costs & time frame for implementation

Designing &
Implementing a
Step 2 - Successful
Involve CRM usersCRM
from Outset Employees should understand how it affects their jobs
Program
Create a project team with members from all affected
(Continued)

organizational areas.
Test with a pilot application

Step 3 - Select the Right Application &

Provider - Find an appropriate application & determine

the extent of customization

Visit trade show, read trade literature, hire
consultant, etc.
Compare based on performance, security, reporting
capabilities, system availability, etc.

Designing &
Implementing a
CRM
Step 4 -Successful
Integrate Existing CRM
Applications CRM is aProgram
collection of various applications
implemented over time.

(Continued)

Customer contact mechanisms need to be

coordinated so that every CRM user in the firm
knows about all of the activity associated with each
customer.
Centralized database or data warehouse containing
all customer information.

Designing &
Implementing a
CRM
Step 5 -Successful
Establish Performance
Measures This
allows theProgram
firm to

(Continued)

Determine if objectives have been met

Compare actual to planned variance

Designing &
Implementing a
CRM
Step 6 - Successful
Providing CRM Training
for All
Users - Program
(Continued)

Provide & require training for all of the initial users

& then provide training on an ongoing basis as
applications are added
Training can also help convince key users like
sales, call center, & marketing personnel of the
benefits & uses of CRM applications

Trends in CRM
Customer data privacy
Rules & laws regarding invasion of privacy include Patriot
Act in the US and Internet Privacy Law in the EU

Social Media
Creating and cultivating virtual communities around
product or brand is a powerful way to engage consumers

Cloud Computing (Software as a Service)

Ala carte & on demand offerings accessed via web
browser
Changing the cost structure of CRM applications