Customer Relationship Management (CRM)

1. Customer Relationship Management (CRM) Rev: Feb, 2012 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management EngineeringPOSTECH

2. Contents

3. Discussion Questions Define CRM by your own words What benefits do you think are there of CRM? Give your own opinion How does CRM help sales and marketing? Develop your own strategy for retaining existing customers

4. 1. Introductions of CRM 1) Fundamental Introductions of CRM Evolution of Marketing Marketing Age Techniques Technology The Dark Ages Artistry and Alchemy None Craftsmanship The Renaissance Focus groups, interviews The Industrial Revolution Mass Marketing Computers store mailing lists The Information Age Database Marketing Flat File MCIFs The Age of Optimization Customer Relationship Management Data Warehousing, Data Mining, Analysis Tools (OLAP)

5. 1. Introductions of CRM 1) Fundamental Introductions of CRM What is CRM? (1/3) Managing the full range of the customer relationship involves two related objectives (1) Providing customer-facing employees with a single, complete view of every customer,at every touch point, across all channels (2) Providing the customer with a single, complete view of the company and its extended channels CRM uses IT to create a cross functional enterprise system that integrates and automates customer-serving processes

6. 1. Introductions of CRM 1) Fundamental Introductions of CRM Definitions by various authors • Couldwell,1998 • CRM is a combination of business process and technology that seeks to understand a company’s customers from the perspective of who they are, what they do, and what they’re like • Kutner& Cripps, 1997 • CRM is founded on four relationship-based tenets: • Customers should be managed as important assets • Customer profitability varies; not all customers are equally desirable • Customers vary in their needs, preferences, buying behavior and price sensitivity • By understanding customer drivers and customer profitability, companies can tailor their offerings to maximize the overall value of their customer portfolio • Merlin Stone et al., 1996 • Relationship marketing • The use of a wide range of marketing, sales, communication, service and customer care approaches to: • Identify a company’s named individual customers • Create a relationship between the company and its customers that stretches over many transactions • Manage that relationships to the benefit of the customers and the company

7. 1. Introductions of CRM 1) Fundamental Introductions of CRM Characteristics of CRM • Key Characteristics of CRM (Lynette Ryals & Simon Knox, 2001) • A customer relationship perspective aimed at the long-term retention of selected customers • Gathering and integrating information on customers • Use of dedicated software to analyze this information (often in real time) • Segmentation by expected customer lifetime value • Micro-segmentation of markets according to customers’ needs and wants • Customer value creation through process management (Hammer & Champy, 1993; Hamel & Prahalad,1994) • Customer value delivery through service tailored to micro-segments, facilitated by detailed, integrated customer profiles • A shift in emphasis from managing product portfolios to managing portfolios of customers, necessitating changes to working practices and sometimes to organizational structure

8. 1. Introductions of CRM 1) Fundamental Introductions of CRM Why CRM? • It is easier to retain a customer than to gain a new customer • It is 6-7 times more expensive to gain a new customer than retain an existing customer (Harvard Business Review) • It is far more expensive to win back a customer after they left than it is to keep them satisfied in the first place. • It is far easier to sell a new product to an existing customer than it is to a new customer • Customers become more precarious • A 5% increase in customer retention can increase profits 60-100% proved customer retention Source: The Loyalty Effect (Harvard Business School Press) By Frederick Reichhek

9. 1. Introductions of CRM 1) Fundamental Introductions of CRM Explanation of CRM Origin of CRM Create a Database DBM  DW  OLAP  Call Center  Service Center  CRM Analysis Various Types of CRM Customer Selection • Direct e-mails • Call Center • Mass customization or developing products that fit individual customer’s needs Operational CRM Customer Targeting Relationship Marketing Key Point to Succeed Main concept of CRM: managing valuable customer in a long-term view  Company should focuses on value of customer, instead of short-term profit Privacy Issues Metrics CRM Framework

10. 1. Introductions of CRM 1) Fundamental Introductions of CRM Benefits of CRM Benefits of CRM Identify and target the best customers Real-time customization and personalization of products and services Track when and how a customer contacts the company Provide a consistent customer experience Provide superior service and supportacross all customer contact points

11. 1. Introductions of CRM 1) Fundamental Introductions of CRM Three Phases of CRM

12. 1. Introductions of CRM 1) Fundamental Introductions of CRM Entire CRM Framework • Operational CRM • The automation of horizontally integrated business processes, including customer touch-points, channels, and front-back office integration • Analytical CRM • The analysis of data created by the Operational CRM • Collaborative CRM • Application of collaborative services including e-mail, personalized publishing, e-communities, and similar vehicles designed to facilitate interactions between customers and organizations

13. Business Rules and Metadata Management Data Source Communication Channels Marketing Data Source Decision Support Applications Contact History Campaign management Direct Mail Contact Management Campaign management Transaction History Marketing Data mart Call Centers ETL Tools Data Mining/ Analytics Analytics Data Mart Sales Force Customer Profile and Account Data Warehouse Customer Service Centers Reporting Data Mart Ad Hoc Query and Reporting Internet External data E-Mail Other Workflow Management 1. Introductions of CRM 2) CRM Architecture CRM Architecture (1/2)

14. 1. Introductions of CRM 2) CRM Architecture CRM Architecture (2/2) Web applications are the capstone Data mining is the architectural blueprint Customer profitability is the cornerstone Data warehousing is the foundation The customer touch points are the bedrock CRM system that can execute closed loop marketing to display continuous improvement over time

15. 1. Introductions of CRM 3) Application Cluster in CRM Application Clusters in CRM

16. 1. Introductions of CRM 3) Application Cluster in CRM Contact and Account Management • CRM helps sales, marketing, and service professionals capture and track relevant data about • Every past and planned contact with prospects and customers • Other customer business & life-cycle events • Data are captured through touch points • Telephone, fax, e-mail, Websites • Retail stores, kiosks, personal contact

17. 1. Introductions of CRM 3) Application Cluster in CRM Sales • A CRM system provides sales reps with the tools and data resources they need to • Support and manage sales activities • Optimize cross- and up-selling Up-selling & Cross-selling • CRM also provides the means to check on a customer’s account status and history before scheduling sales calls

18. 1. Introductions of CRM 3) Application Cluster in CRM Marketing and Fulfillment CRM systems help with direct marketingcampaigns by automating tasks Qualifying leads for targeted marketing Scheduling and tracking mailings Capturing and managing responses Analyzing the business value of a campaign Fulfilling responses & requests

19. 1. Introductions of CRM 3) Application Cluster in CRM Customer Service and Support • CRM helps customer service managers create, assign and manage customers’ requests for service • Call center software • Help desk software • Web-based self-service

20. 1. Introductions of CRM 3) Application Cluster in CRM Retention and Loyalty Programs (1/2) The odds of selling to an existing customer are 50%; a new one 15% 70% of complaining customers will do business with the company again if it quickly fixes a problem It costs 6 times more to sell to a new customer An unhappy customer will tell 8-10 others Boosting customer retention 5% can boost profits 85%

21. 1. Introductions of CRM 3) Application Cluster in CRM Retention and Loyalty Programs (2/2) • Enhancing and optimizing customer retention and loyalty is a primary objective of CRM • Identify, reward, and market to the most loyal and profitable customers • Evaluate targeted marketing and relationship programs

22. Customer Life Cycle Engage Service Transact Cust. Pattern Fulfill CRM Technology “Ecosystem” Collaborative Analytical Operational 1. Introductions of CRM 4) Strategy of CRM Develop a CRM Strategy Customer Life Cycle Management (CLCM) as a Three-Domain Business System Best-Practice CRM Principles • Derive customer patterns by • applying “ETFS” as a lens to drive • sales, service, marketing and • commerce chain process • Anchoroffer, channel, and business processes around customer patterns • Technology-enable customer relationship with CRM eco -system Customer-RelatedBusiness Processes Channels & “POIs” Sales Mktg. Service “Offer” CRM is not an IT project — it is an iterative and continual transformation of people, process and technology

23. 1. Introductions of CRM 4) Strategy of CRM CRM Implementation Point

24. 1. Introductions of CRM 5) Executions of CRM Managing Campaigns • Campaign management systems • To help marketing professionals manage and execute campaigns • To require as complete a view of the customer as possible • To manage interactions between the company and the customer • Required functions in campaign management systems • Marketing insights from data mining about what new promotions to create • Accommodation of many new touch points besides direct mail • Focus on profitability • Optimization of the sequence of promotion delivery • Tools for constructing experiments that allow the marketing professional to test out the effectiveness of new promotions and new segmentation techniques • Accommodation by the system of predictive modeling • The transition from just defining and deploying a direct mail campaign to supporting all customer touch points • Customer profitability across all touch points

25. 1. Introductions of CRM 5) Executions of CRM Closed Loop Marketing • “Close the Loop” • CRM systems can also execute “close the loop” and measure the results of the campaigns • Once marketing’s effectiveness can be measured, it can be improved the next time around • Three basic steps of closed loop marketing • Measure • Measure the results of the marketing effort, based on customer profitability • Use Web-based tools to access the customer data warehouse and perform enterprise-level ROI analysis • Predict • Use data mining technology to predict consumer behavior and learn from past experiments • Use the results of the data mining system to focus and refine future campaign • Act • Use campaign management systems to be sure that the campaigns are executed in an understandable and measurable customer data warehouse or data mart

26. Limitation of CRM 1. Introductions of CRM 6) Limitation and Future of CRM CRM Failure Domestic CRM Market Transition(license) • 75% of CRM projects that do not deliver measurable ROI will have failed because of poor business executive decision-making • ½ of the companies got worse performance tasks, ¼ of companies which implement CRM system didn’t get improvement of tasks • 20% damaged customer relationships unit: billion won CAGR:13.5% Source: Gartner Group, Insight Technology Group report CRM Failure Reasons Source :http://www.krgweb.com Sin One : Failing to Plan Sin Two : Failing To Establish Outcomes Sin Three : Excluding the Human Factor Sin Four : Automating Flawed Processes Sin Five : Ignoring Constraints Sin Six : Disregarding Politics Sin Seven : Choosing the Wrong Vendor  CRM Market is getting bigger but, companies should pay too much cost and time to implement CRM. Also, the CRM system does not guarantee higher performance Source: interview of Gartner Research’s Beth Eisenfeld with CRMDaily

27. 1. Introductions of CRM 6) Limitation and Future of CRM Future CRM [Business structure innovation] [Improvement in reception of customer] customer customer customer customer customer customer customer customer customer customer Future CRM develop-ment manu -facture delivery sales marketing purchase service service purchase develop-ment manu -facture delivery sales marketing enterprise infrastructure enterprise infrastructure enterprise customer enterprise customer Future CRM CRM Step of introducing Future CRM design implementation / introduction investigation settlement set up strategy Consulting through investigation and innovation of cultural features is important

28. 1. Introductions of CRM 6) Limitation and Future of CRM Next Generation CRM • Continuously expanding in functionality and in scope across the enterprise • Sales Force Automation (SFA) • Enterprise Resource Planning (ERP) • The force opposing the fusing of information and technology • Internal difficulties in getting various customer information form different customer touch points • External difficulties in keeping customer privacy

29. Case Study

30. References EuihoSuh, “CRM (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) EuihoSuh, “CRM II (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 265~271 EuihoSuh, “Customer Relationship Management (CRM) in Financial Services”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)