CRM and Loyalty

2001017 Kim, Mi Young eCommerce ICE720, 2002

Contents

Part 1. Customer Relationship Part 2. Customer Loyalty Part 3. Approach to Loyalty Program Part 4. Loyalty Program case study Part 5. Summary and Conclusions Part 6. References

Part 1. Customer Relationship

1. 2. 3.

CRM Relationship Marketing CRM and Behaviour Type

What is CRM?
What is CRM? Simply stated, Customer Relationship Management (CRM) is about finding, getting, and retaining customers. CRM is at the core of any customer-focused business strategy and includes the people, processes, and technology questions associated with marketing, sales, and service. In today's hyper-competitive world, organizations looking to implement successful CRM strategies need to focus on a common view of the customer using integrated information systems and contact center implementations that allow the customer to communicate via any desired communication channel. Lastly, CRM is a core element in any customer-centric eBusiness strategy. From www.realmarket.com
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Effect of CRM
repurchase Satisfaction Good word of mouth Creating new customer Loyal customization

Increase revenue

Service/ Product
Brand switch dissatisfaction Bad word Of mouth losing potential customer Losing customer

Decrease Revenue

CS Guarantees Companys Revenue?

CRM and Customer Loyalty

Acknowledgement about Relationship

Products
CM (Customer Management)

Departure Route Destination

Customers Communication Continuity Public Loyalty

CRM
(Customer Relationship Management)

Control Result Secret Sales Volume

There is always the risk that a customer will defect when a competitor offers better value or a wider range of value added options. -> Loyalty Programs must motivate loyal buyers to repurchase.

Relationship Marketing
Profit in business comes from repeat customers, customers that boast about your product and service, and that bring friends with them ( cited in Lowernstein, 1995)

Relationship Marketing
Focuses on getting and keeping customers Concerned with customer loyalty Aimed at developing long-term, cost-effective links between an organization and its customers All customer relationships are worth keeping

Customer retention
Impact on profitability and past research has claimed that it can be 5 times more expensive to obtain a new customer. The Pareto rule

Customer satisfaction and Behaviour type

Proliferation of Loyalists

Hostages Terrorists
Whove had Bad Experiences with the Company & The Company didnt respond to them.

Possibility of Loyalist
(expectation < experience)

Mercenaries
(Expensive to Acquire, Quick to Depart)

Defectors 1
Strong dissatisfaction

Competitors discounts offering or benefits

3
so so

4
(10~50%)

5
Strong satisfaction

Source :Keki R. Bhote, Beyond Customer Satisfaction to Customer Loyalty, 1996

Why customers leave even they are satisfied?

In US, survey of CS about Cars, Almost 90% of answers are satisfied. Repurchase rate of same brand car company is below 30%. Hard for finding rule of relationship between CS and customer break away. CS does not guarantee repurchase of customers Customer loyalty is needed.

CS strategy
Step #1

Issue Discovery
Customer DB analysis/ Define marketing issues

Step #2

Value Identification
Customer investigation/an alysis

Step #3

Needs Differentiation
Customer Segmentation Customers needs finding / customer value segmentation

Step #4 Customization
Product/service, channel, reward strategy

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Part. 2 Customer Loyalty

1. 2. 3. 4.

What is Customer Loyalty? Customer Satisfaction Strategy Why Customer Loyalty? Case Study (online and offline)

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What is Loyalty?

The key to the successful adoption of relationship marketing lies in the building of client loyalty in dynamic business environments. (Morris, 1999)

In a business context loyalty has come to describe a customers commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates. (Barnett,2000)

Loyal Customer can mean a consistent source of revenue over a period of many years. However, this loyalty cannot be taken for granted. It will continue only as long as the customer feels they are receiving better value than they would obtain from another supplier.

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Why Customer Loyalty?

Indexed Customer Satisfaction Rating (%)

Relationship between CS and C Loyalty

100

Relationship between Loyalty and Profitablity

Loyalty (Retention Rate (%)

90 80 70 60 50 40 30 20
X XX X X X X X X X X X X X X X X X X X

100

X X X

95
X X X X X X X X X

90
X X X

X X X X

85

10 X 0 10

20

30

40

50

60

70

80

90

80

10

15

20

25

30

Customer Loyalty Rating (%)

Profitability (%)

Source : Keki R. Bhote. Beyond customer satisfaction to customer loyalty, 1996

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How to build Loyalty?

Framework of building Loyalty Phased Elements Degree of Relationship

Attitude, not Action

Drivers

Improving Core Products/Service Innovation of Channel Mgmt.

Customer Satisfaction

CRM

Reward Program /Continuing Campaign

Repurchase / Cross-selling

Action, not Affinity (Artificial Loyalty)

Customer Loyalty

(CR Strategy)

Trust/ Intimacy

Recognition of Relationship, Referral

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Case Study: Amazon.com (online case)

Customer Strategy
Suggest and find what customers wants positively Remind customers of relationship and be concerned about customers continuously Never forget customers who visit before

Building customer loyalty

Differentiated customer value suggestion Intensify reward program

Mis Gold Box without any input my information

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Case Study: ScrubaDub (offline case)

Automotive carwash business: Differentiated strategy based on CRM

Differentiated approach to Customers: focus on quality than customer quantities Investigated all costs in terms of customers washing times and expenditure per customers

Findings 1. 75% of whole customers are below 6 times, low visit rate in a year. Therefore, rest 25% are visit rate over 60% 2. Segmented 5 level in terms of annual visit rate (the lowest level /low level/average/high level/the highest level) Between visit rates and spending money, there is relationship something. 3. So, relationship marketing need to invest high on customers who has low revenues and invest low vice versa.

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ScrubaDub Strategy

Who is the highest value customer? -> high visit rates customer

high income customers Jeep or compact car owners

Not a customer who owns a large car

A driver who has a car below 3 year

Relationship marketing
New display design Offer resting place with free coffee, snacks Building Personal relationship Increasing staffs at peak time for saving customer waiting time Discount scheme(Offering free washing coupon)

Car washing guarantee (free car washing if there is rainy or snowy within 3 days after car washing) Effects: average growth rate 12.5% (cf. others: 7%)

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Part 3. Approach Customer Loyalty Programs

1. 2. 3.

Loyalty programs Strategic reward programs Core strategies building reward programs

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Loyalty program: Reward

The plan objectives for this program are:
1. 2. 3. 4. Effectiveness, cost savings, profitability, etc. Develop a greater sense of concern and loyalty about the company or brand Strengthen communications between customers and companies. Provide financial rewards to customers who have demonstrated performance or contribution 5. Enhance the Companys ability to meet or exceed its target goals.

Campaign and Reward

Discrete Communication Model individual Approach

Continuous Communication Model Loyalty Mass Approach

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Reward types

Directly Supports Value Proposition

Promotion (Price)

Airline Mileage, Coupon

Continuity Reward

Type of reward Type of reward 20

Other indirect Types of reward

Lotteries (Instant Scratchies)

Immediate

Multi-product Frequent-buyer
Delayed

Timing of Reward
Dowling.,Mark Uncles, 1997

4 characters to differentiate

4 Attributes

(Accomplishment)

(Continuity)

(Attraction)

(Acquisition)

Points acquisition Reward offering cycle and Getting Reward gifts

Not for short term events Induce repurchase

Based on customer needs for offering rewards Offering diverse Reward options

For acquiring new customer For acquiring customers from competitors

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Loyalty Program Reward Schedules

(A) Typical Response Functions

(B) An Alternative Response Function

(Airlines Mileage Card) y Airlines often use a variation of this scheme where an economy class airfare attracts 1 point per kilometer or dollar spent
Access to Rewards

(Citibank) y Citigold banking, Citibanking , General y DB According to Household ( offspring get same level with parents)

(GM Auto Card)

point #of $Spent

Accumulated Spending

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Part 4. Case Study: One of International Hotel in NZ

Background: in Palmerston North, NZ
1. Location A provincial city, with approximately 75,000 people It is not a major destination for international visitors to NZ. But it does host a large number of conferences each year 2. Objective The one of an international larger chain of hotels. The business manager believes that if it were not for the revenue from the other facilities, the hotel would struggle to remain open on accommodation revenue alone. 3. Marketing Corporate marketing programs initiated by head office have not always worked in the hotel, so local marketing initiatives have been launched in Palmerston North. Some specific events marketing to improve its weekend occupancy rates and this seems to have been successful. Follow-up letters. The latest marketing push= a Gold Card to increase new customers and entice past customers to return.$39.50, provides various discounts and special occasion offers 4. Methodology: A mail survey was sent to all customers on the hotel Gold Card DB. A 4 page questionnaire to 700 customers.

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Data Analysis and discussion

Card purchase and features 1. 2. 3. For personal use Because good range of benefits offered Because good value for money The data show that 2/3 purchasers were new customers of the hotel.1/3 said they purchased the card because of persuasive sellers. Purchasers of card were more interested in the local facilities like the, bar, family restaurant and health club. Percent of respondents using the services was fairly low, except for the family restaurant to cheap deals. As a customer retention strategy its success is therefore doubtful. There were a number of comments from respondents that referred to their dissatisfaction. Customers are unlikely to return or become loyal if they are dissatisfied with the service provided. (Dube, 1994) This highlights the point that satisfaction is not an accurate indicator of customer loyalty.

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Part 5. Summary & Conclusion

Summary
The customers of the hotel who purchased a card and responded to the questionnaire, exhibit the characteristics of Morgans mercenaries (1996 ). High satisfaction, low to medium loyalty and low commitment to the company. In order to succeed, loyalty programs need to develop loyalists (Morgan, 1996)- customers who have high satisfaction, high loyalty and who will stay and be supportive of the company.

Conclusion
The hotel case study: to build customer loyalty and therefore retention by selling a discount card in Palmerton North. Discount card does not appear to increase customer loyalty and that many customers buy the card because they perceive it to be good value for money.

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Part 6. References

Dowling, Uncles 1997, Do customer loyalty programs really work?, Sloan Management Review, Vol. 38 McIlroy, Barnett 2000, Building customer relationships: do discount cards work? Managing Service Quality Journal Vol. 10 2000 Gustafsson 2000, Improving Customer Satisfaction, Loyalty, and Profit JosseyBass Inc.

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Q&A
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