Customer Relationship Management

CRM and Customer Analytics 2020/2021

Prof. Marco Ieva

Trade e consumer marketing – UNIPR

Appunti di Michela Dalla Casa

What does CRM stand for?

It's an abbreviation that stands for Customer Relationship Management. Customers, not consumers! Who have made at least one purchase with us!

"CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments".

Strategic approach

CRM is not a software! Having software is not enough because first of all, you need a strategy.

Creating improved shareholder value

It means "making money".

Key customers and customer segments

This is the most important part because key customers generate high revenues and they are willing to do positive word of mouth for the company.

"CRM provides enhanced opportunities to use data and information to both understand customers and co-create value with them".

To use data and information

CRM is not based on opinion! We first extract data, analyze the data, develop our interpretation of those to obtain insights, and finally understand customers.

"CRM unites the potential of relationship marketing strategies and IT to create profitable and long-term relationships with customers and other key stakeholders".

IT

CRM cannot exist without Information Technology, and loyalty programs are very important for CRM because they generate a huge amount of data.

Long-term relationships with customers

It's important the concept of Customer Lifetime Value.

To sum up

CRM is a strategic approach and the goal is to maximize the lifetime value of customers.

Different forms of CRM

• Strategic CRM = It has to do with the highest level of CRM, so it has to make sure that the company is really customer-centric.
• Operational CRM = It has to do with all the world of marketing automation so it has to make sure that all the IT systems are ready to implement all CRM activities.

Marketing automation

All the automated actions, platforms, and tools that allow targeting your customers with personalized and automated messages, offers, and more that come up when a customer is doing (or not) something.

• Analytical CRM = It has to do with preparing data and transforming it into actionable insights that can be used to design the strategy or for operational CRM activities. If they are not actionable insights, they are not useful!

CRM main goals and processes (Van den Poel 2013)

The main CRM processes are built around the idea that customer churn (=who leave a certain company and go to another company) leads to customer turnover.

Acquisition

Try to attract, catch, target, and identify people that have never purchased with us (= customers). Companies can acquire new customers by using "member get member", by using online advertising and social media, by opening new stores, by offering free trials, etc. After the acquirement of customers, one of the big issues is keeping customers, converting "one-time shoppers" into "repeaters". A solution could be to employ a cross/up-selling strategy.

Cross/Up-Selling

It's a strategy also very important to increase the level of spending of customers. Cross-selling is offering a product that is correlated/complementary to the product that the customer has already bought (e.g., fries and burger). Up-selling is when the company tries to make you buy the bigger or higher price version of the same product (e.g., you reserve a room and suddenly the hotel is telling you that the superior room is on offer. So, if you add a small amount of money, you can get a superior room).

Retention

It has to do with keeping your customers, and loyalty programs are the main retention tools that companies have. If customers accumulate points, they are rewarded, so they don’t have any incentive to leave the company. Churner = customer who left the company. If we lose our customer, we could do what is called "Win Back Reactivation".

Win Back/Reactivation

Win Back is a term that is employed in contractual settings (services) and it has to do with retaking back customers that have left our company. If the company knows that the customer left the contract, it needs to win the customer back. Win back has two problems:

• The first is to choose wisely what you are going to offer because this could generate frustration both on the customers you lost but also on the customer that is still with you (they might want also to turn!).
• The second is to choose wisely which customers you want to win back because winning back everybody is a mistake. You might retake only customers who are really worth it. So, it’s also very important not to think that you should win back everybody but to think about who are the customers who are really worth: high spending customers, loyal customers, key customers.

Reactivation is a term that is used in a non-contractual setting when companies are not sure if the customer has let it permanently or if he has temporarily changed his supermarket. So, the company tries to persuade a customer to become active again with it. In CRM, it is very important to differentiate actions that could be done in:

• Contractual setting (there is a contract and the company knows when the customer expressed intention to resign from it),
• Non-contractual setting (e.g., Retail grocery companies in this type can define a time period that is used to understand if the customer is still active or not). If the customer is inactive, retailers might want to reactivate that customer.

Customer Termination

This is when the company lets a customer/distributor terminate the relationship. This is because that relationship is not profitable and absorbs energy from the company.

• In financial services, American Express did customer termination sometimes because you might find customers who are not really good at paying their financial obligations with the company. For customers who make a lot of complaints, the company gave $300 to customers to leave the contract.
• In B2B settings: when the efforts that a company makes to satisfy the requests of its distributor are so heavy and time-consuming, the company can decide to terminate the relationship with this customer.

This concept is clearer if we watch this picture. This is the customer turnover of a perfume industry base from 2016 to 2019. In 2016, it had 3,000 active customers who made at least one purchase in the year. From 2017 to 2019, the company acquired fifteen thousand (+50,000) customers overall and lost ten thousand (-10,000) customers (churners). In 2019, the company had 8,000 active customers.

So, the company during this period has increased its customer base by 5,000 customers, however, it lost a lot of customers. The importance of tracking what customers are doing with the company is very important in order to have full control of the actual situation. Does the company have a problem in this case? The main problem is that this company was not able to retain the customers.

Acquisition

"Acquisition" means that the company wants to make new customers. There aren't correct definitions of "acquired consumer" because it is important to try to understand the situation. This means trying to understand if we consider "a person who signed in for the first time as a new customer in FB" or "a person who subscribed to a contract but has not been charged anything" or "a person who subscribed to a contract and charged". Depending on which definition we consider, the meaning of the new buyer changes.

Acquisition vs. Retention

When a company does acquisition:

• It has data limitations and less information than retention. This means that the company hasn’t the same information between its current customer base and the base of potential new customers. This is why the company has all the purchase history about how much each customer has spent or which products each customer has bought, but the company hasn’t any information on what is the purchase history of its no customers.
• It has information where the quality might not be accurate. Many companies (especially in the B2B setting) buy lists of potential customers from an external provider, and the quality of these lists is unlikely very accurate compared to all the information that the company collects internally in its current customer base. This way of operation is also the source of a lot of spam communications.
• Acquisition is very difficult because potential customers do not know the product, the company/services.
• It has higher costs. The investment that the company has to make to acquire new customers is indeed higher than the efforts it has to put in to retain its current customers.

Why you need to do acquisition?

There are some cases where acquisition is really very important:

• Considering that customers will always churn, the company has to acquire new customers to replace customers that left the company.
• A startup has to do acquisition because it doesn’t have customers when entering a new market.
• If the company enters a new segment because current customers might not be interested in this new segment.
• When retention is not desirable. There are businesses where the product is sold only one time, which means retention is not possible. For example, on wedding services or when a company sells very costly and specialized machines.

Sales funnel

The whole idea of the "funnel concept" is that the company can have different levels depending on its interaction with potential customers depending on their interests in its products and services. The levels are:

• 1°: Suspects Level - All potential customers of the company. The company cannot target all the suspects because it might not have information or because they are beyond their range.
• 2°: Prospects Level - Potential customers who are reachable from the company (with e-mail, online advertising, acquisition action, buy a list of them on an external provider).
• 3°: Leads Level - People who have shown some interest and entered into contact with the company (downloaded a coupon, wrote an e-mail, visited the website).
• 4°: Customers - The target of the company is to convert leads into customers!!!!

So, potential customers come from being suspects to become customers. Usually, if the company starts with 100 prospects, it might end up with 10% of these that become leads and from 10% to 50% of these leads become customers. This percentage depends on the industry, product that the company has, the reputation of the company, if the company operates in a B2B or B2C setting. This means that if a company wants to acquire new customers, it should start from a very big list of prospects.

Acquisition might differ in

Contractual vs. non-contractual setting: In a non-contractual setting, we don’t have a contract to sign, so usually, we define a customer acquired when he buys for the first time with the company (and this is the definition of an acquired customer = customer who makes his first purchase).

B2C vs. B2B: For example, in a B2C setting, you might want to do more online acquisition because you might have thousands and thousands of prospects. In a B2B setting, you might have hundreds of prospects, so you might want to use other channels and ways to acquire these prospects.

Techniques that could be useful to acquire new customers

Lookalike acquisition strategy

The whole idea is that "company finding potential customers that have a similar profile to its current average customers or to its current customer segments of the company".

There are companies that sell these services (e.g., Segment). The process of this strategy is:

• Take a sample of current customers if the company has a LP and a dataset that includes all its customers, it can take a random sample of its customer base, in order to be more efficient in the analysis of the main characteristics of customers.
• Analyze the data company obtain and append to the customer record relevant demographic or customer characteristic information about these customers included in the database;
• Doing a profiling or a customer-persona in terms of the characteristics company wants to describe (or "profiling" or build a "customer personas") its current customers with crosstab or use clustering of demographics.
• Target customers with identical or similar profiles as the current customers. This means that the company starts looking for customers who look similar or identical to the same profile it had identified.

Example FB: Facebook adv is providing a tool that helps companies do lookalike acquisition:

1. The first step is "select your lookalike source" (all the people who like your page or the people who interacted with the content or upload your email list into the platform). Companies with FB can create a source audience (seed audience) using data from different inputs:
   • Customer information file list = This is the better choice because this is a list created by the company where people that have already bought the product’s company are indicated;
   • Engagement = all the users who are engaged with your content on Facebook or Instagram.
   • Website Visitors = people who have visited the company’s website;
   • App Activity = app administrators can collect data on the people who have installed your app;
   • Offline activity = the company can create a list of people who interacted with its business in person, by phone, or another offline channel.
2. Then the company has to indicate to FB "where to find potential customers" who are similar to those customers that you have just uploaded: so tell Facebook to search them in other regions or countries.
3. Finally, there is a bar "Select audience size", in which the company tells FB what is the size of the prospect that it wants to target, giving you a range from 1% to 10% of the prospects that you have selected. If the company selects range=1% FB will try to reach all the prospects that are more similar to its customer base.

Be careful! There is a trade-off between the prospects that the company wants to acquire and its current customer base because the higher the range, the higher is potential audience, but the degree of similarity of lookalike customers source and prospects that the company is targeting will reduce.

Two-step acquisition strategy

This is a very much employed strategy, especially in B2B settings. This strategy consists of "At the beginning, the company tries to attract its prospects with a non-purchase communication by offering them free content (like webinars, workshops, or white papers). Once the prospect starts to get to know the company business, the company tries to persuade them to buy its products/services, with a second communication which is an offer to purchase".

An example could be Netflix, that uses a free trial period and allows acquired users to cancel the subscription if it’s something that the users don’t like, and after this free trial period, the company tried to acquire these customers with a commercial offer. Now Netflix started to change its requirements introducing your credit card when you subscribe to your free trial period, in order to attract only people who have at least the means to buy (intenzione di acquistare) the service, because otherwise, you could have people who make up (inventarsi) emails to keep using the free service again and again this is the risk of using this kind of two-step acquisition strategy.

There is a quite important two-step acquisition strategy, the one which drives a self-selection mechanism = with this strategy are prospects who start to show an interest and to become users, so, companies don’t need to choose customers who might be interested in its products or services. This is very important because thanks to the self-selection, if a company has a certain budget, it can invest it only on those who have actually shown an interest in what it does.

Cross/Up Selling

Cross-Selling = means "company try to sell additional items that are different from what your customers have already bought. The whole idea is to find the most appropriate item that could be associated with the items that have been previously bought by that customer. On e-commerce platforms, the cross-selling engine is able to automatically propose the products that are sold mostly together with other products. Very often, these platforms also offer the opportunity for CRM managers to pre-set bundle offers = setting manually a couple of products that should be proposed together if a customer is going to buy a certain product, it will also see the advertisement or an offer for the additional product.

Cross-selling is not only something very operational at low levels, but you can also do cross-selling at a very high level. For example, Bain & Company's (consulting company) have run an analysis on the US telecommunications industry and they have found that if one telecommunication company is able to persuade its customers to switch/add one service, this move might be worth a lot of money. The whole idea is to start offering additional services and start to target your current customer base to these additional services that are complementary. This is done by many other providers, like Tim that launched Tim Vision or Sky that launched Sky Wi-fi, or financial services like Telecom that acquires MTS Bank only to offer banking services to their customer base.

Up-Selling = "company try to sell an upgraded, improved, or superior version of the product/service that our customer has already bought. Company try to shift its customers from basic products to premium products that represent higher profits for the company".

There are different methods to do Up-Selling:

• Use product comparator = it compares the items that users are looking for with other items less expensive or more expensive (e.g., Amazon).
• Use car configurator = with this tool, you can configure your ideal car with upper-level accessories (e.g., BMW).