Lezioni Customer relationshipmanagement and customer analytics

CRM and customer analytics

What does CRM stand for?

Taking care of the customers means managing the relationship with the customers. CRM is complicated when we have millions of customers. 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. CRM is a strategy, it’s not at least a software or a system. Create value through appropriate relationship; relationship proportional to the potential value of our customers (key point). 80-20 Rule: the 20% of customers generate the 80% of profits. CRM provides enhanced opportunities to use data and information to both understand customers and co-create value with them. CRM unites the potential of relationship marketing strategies and IT to create profitable and long-term relationships with customers and other key stakeholders. CRM is a #strategy. Goal: to maximize lifetime value of customers → Loyalty programs are expensive and small companies may have problems in collecting data. If you are Philadelphia and you want to know if the same customer buys twice in a month, how you can do it? Buy data from retailer but in Italy there are many retailers, or you may create an App and give to customers incentives to know if they buy the product (complex). Having data is not easy and we don’t have to take it for granted. We want long-term relationships with customers because basically if the relationship is profitable, we would like to have it for a long time.

CRM main goals and processes

• Acquisition: (identifying & attracting customers) when you want to acquire new customers; techniques to get new people to buy your products. It’s a part of CRM. We can get customers especially online and try to find out what customers are becoming our customers. Looking to consumers similar to our customers.
• Cross/Up selling (profitable usage stimulation): cross selling (fries and burger) Amazon does a lot of cross selling (when you look for shoes they try to sell you products to clean shoes); Up selling (if you book a standard hotel room and the hotel is trying to promote their best room). When you up sell you try to sell the best version of the product; shift the customer to product with a higher price and value.
• Retention: identifying customers who intend to attrite/churn, and trying to keep profitable customers;
• Win back/Reactive: identifying profitable past customers to win back (telephone services like Vodafone).
• Termination: if a customer is not profitable, I give him an incentive to stop the relationship.

Sometimes you must prioritize some of these. We consider the budget. Acquisition has to do about acquiring new customers and some are not staying so long with you, but they come only for the incentive you give. With the same amount of money in acquisition and retention, we have much more profits in retention because, in acquisition, some customers will leave us. Customer termination: if you have a customer that calls to our customer service, but this customer is not profitable to us. He is also taking a lot of time with the service and it could be better to terminate the relationship with him. It’s a part of CRM but it’s not very common.

The requirements for CRM as a strategic approach

• Customer Management Orientation: how the company is oriented toward the relationship with customers.
• Integration and alignment of organizational process: how the technology in the company is aligned to the customer relationship.
• Information capture and the alignment of technology: how the organization is aligned with CRM goals.

CRM strategy implementation. When an employee asks for the loyalty card means that even in the store the touchpoints that is far from the top of the company are aligned with the CRM strategy. When a company gives you 2 loyalty cards: 2 different people use the same profile; I can pass the loyalty card to other people not registered; the retailer is not able to identify the customer.

Customer management orientation

• Top management belief and commitment that the customer is the center of all the activity (not the product, not the store…). If the CEO cares in this project the program will not fail.
• “My company is highly committed to building relationships with customers” - only 28% of the 163 interviewed Italian companies completely agree with this statement
• “In our company loyalty KPIs are employed from the bottom to the top of the organizational hierarchy” (KPIs are metrics employed to measure the value of customers) - only 2.6% out of the 163 interviewed Italian companies completely agree with this statement

Es: the CEO is involved in CRM activity is a good sign. Customer management orientation really means that the company recognizes the importance of CRM strategies.

Integration and alignment of organizational process

These concepts are important because if the information is not clean and the CEO doesn’t talk with the top manager, the CRM strategy will fail. The organization-wide creation and synchronization of processes, systems, and reward systems that enable the implementation of customer management objectives. Adoption of cross-functional processes that break barriers among functions. Managers should recognize that maximizing customer lifetime value is the main driver of the company business. Es: if you train your staff to ask the client to show their fidelity card, this is a good sign of organization and alignment.

Organizational alignment (scores from 1 to 7)

• "We have systematic training procedures for helping employees to deal differently with high- and low-value customers" Mean=3
• "We reward employees for building and deepening relationships with high-value customers" Mean=3.2
• "Our SBU is organized in a way to optimally respond to customer groups with different profitability" Mean=3.5
• "Organizing people to deliver differential treatment and products to different customer segments is a strength for our SBU" Mean=3

Information capture and the alignment of technology

Ability to collect, store, and process relevant and timely customer information to leverage this data into actionable information. IT systems should be built as a function of the CRM strategy, not the other way around. Es: technology is aligned with CRM when you integrate the customer information with the loyalty program.

Does CRM pay off for companies?

Is it worth implementing CRM? We can look at CRM ROI (return on investment)

ROI= PROFITS / INVESTMENT * 100%

If the ROI is positive, we can say that the CRM is useful. CRM is a long-term strategy; it is something that you do minimum 6 months. Strategically speaking, computing the ROI of CRM is complex and difficult. The effects of CRM activity are long-term. This is the first reason that makes the calculation of CRM very difficult. There are a lot of investments related to CRM, and it can be complex to determine them. The market continuously changes, and this thing makes it more difficult to calculate CRM ROI. Control groups are made by similar customers that are reached by a specific coupon. In this way, the calculation becomes easier.

Why is computing CRM ROI so difficult?

Computing the gain (aumento, crescita) associated with a CRM initiative requires that all other variables impacting profit are held constant. Some CRM investments are necessary costs which enable the functionality of CRM. Although measuring the return on CRM investment becomes easier with small-scale projects, without appropriate controls in place, the management cannot be sure that the cause of the change is the CRM investment.

Steps for CRM implementation

• Gaining a consensus across all the organizational levels
• Building a team devoted to the CRM project involving staff from multiple functions and backgrounds (marketing, sales, IT, finance, external experts) (you need to understand the priorities in the company)
• Analyzing business needs
• Defining the CRM strategy

Costs of implementing CRM

• Organizational requirements (time, costs to acquire information)
• Human resources
• Technological needs
• DB maintenance related costs
• Organizational change management (design a new office because of the introduction of a new area)

CRM ROI

Key decision questions to compute ROI for CRM activities

• Consulting services - what will be the consulting cost for the project?
• Business processes - to what degree is business process redesign necessary?
• Information technology - what new IT software and hardware must be purchased to accommodate the new system?
• Vendor management - how much customization is required and at what cost?
• Procurement & maintenance - can the system be easily configured and maintained by internal IT staff or is continuous external assistance required?
• Staffing and training - what is the cost of training the company’s staff to use the CRM strategy?
• Implementation - what is the timeframe for implementation and what will happen to the current system processes during that time?
• Costing - what are recurrent costs in the implementation?

Benefits of implementing CRM

• Acquisition costs are lower (if you have information you can use it to reach your customers and target them. With information I can choose the customer that I want to target).
• Higher margins for average transaction (with CRM you can have higher margins).
• Higher average customer value (with CRM you increase the value of your customer).
• Improvement of customer satisfaction, improvement share of wallet, and defection rate (with CRM you make your customer more satisfied because you have tools that develop the relationships with your customers. You increase also their share of wallet. The defection rate decreases thanks to CRM).
• Improvement of long-term customer profitability

CRM processes

Everyday customers change their companies. CRM goals and processes: acquisition, cross/up-selling, retention, win back/reactivation.

Acquisition

• Acquiring new customers - i.e.; subjects that never been customers
• Industries and companies might have different definitions of “acquiring a customer”

When you think about the definition of acquiring, you can think about a funnel with different levels in order to define acquisition. Definition changes from industry to industry. In the online environment, you can consider a customer as acquired with other points of view.

Acquisition vs retention

• Data limitation (customer history) – basically new customers don’t have a history, instead, the other customers (existing customers) have a history so you can have more information. Prospect customers are people that didn’t purchase with you, but you already have information about them.
• Data quality (external vs internal) – basically with retention the information is collected by your own system. Usually, when you do retention you can collect information that is better than the information that you have if you do acquisition. The quality of information that you acquire with your CRM system is higher.
• Higher costs - more difficult (customers don’t know the company, so you have to spend more money in order to acquire them)

Why you need to do acquisition?

• Customers will always churn (customer turnover)
• Start-ups (when you enter a new market – example ITALO)
• Entering new segments (for example if you sell expensive goods and the purchase is rare)
• Retention not desirable/an option

Sales funnel

There are different levels. The main idea is that at the top of the funnel you have suspects, so the people who never purchased. Then you have prospects, people that never purchased but you have the possibility to reach and contact them because you have some information about these people. Prospects are a specific segment of suspects. Leads are prospects that subscribe to your newsletter, ask for information, they do some actions and they interact with you in some ways, even if they never purchase. If a lead purchases for the first time, he/she becomes a customer. If you start with a huge number of prospects, you start big and you try to acquire a high number of them.

Acquisition: Look-a-like acquisition strategy

Finding customers that are similar to the current average customer or to the current customer segments.

1. Take a sample of current customers
2. Obtain and append to the customer record relevant demographic or customer characteristic information about these customers
3. Cross-tab or use clustering of demographics to describe or “profile” current customers in terms of these characteristics
4. Target customers with identical or similar profiles as the current customers.

Problems with that?

Two-step acquisition strategy

The use of “self-selection” of prospective customers who respond to an initial, non-purchase communication and then receive a second communication which is an offer to purchase. Example: free webinars, free workshops with the subsequent offer of additional services that imply a payment. Companies give you the free trial for one month and then you pay (example: Netflix).

Acquisition and industries

• B2C vs B2B: importance of risk, turnover, and relationship are completely different. B2C the number of customers is huge. Losing a customer in B2B is more painful than losing a customer in B2C. the acquisition techniques are really different. In B2B, the events are very important to acquire business customers.
• Contractual vs non-contractual setting: different levels and definitions.

Cross/Up-selling

“Cross-selling” means selling additional items that differ from those a customer has purchased or has expressed an interest in buying previously (Schmitz et al. 2014). “Up-selling” focuses on upgrading or improving the conditions of previously acquired products to keep customers consuming (e.g., migrating a customer from a standard room to a superior room) (Salazar et al. 2007).

Cross-selling example: Bain & Company’s recent analysis of the U.S. telecommunications industry found that up to 60% of customers split their services across multiple providers for mobile phone, landline, TV, and internet services. For one telecom provider, convincing just 10% of those customers to switch one service from a competitor was worth up to $480 million in incremental annual revenue.

Up-selling example: The BMW site enables users to configure their cars before purchasing. Not only is this a good piece of user experience design, but it is also an opportunity for some upselling. Users have the option of upgrading anything from the seats to the wheels for an additional cost, and they can see in real-time what those upgrades would look like.

Retention

I want to keep my customers. Making sure that a customer continues to purchase goods or services from the company. Retention could also be related to service usage if the service is not paid (e.g., email case). Retaining a customer does not necessarily mean making him loyal! e.g. loyalty has different stages. If you go always in the same supermarket, it doesn’t mean that you are a loyal customer.

Churn

(means when a customer leaves the company): the other side of the coin → Customer churn is when a customer leaves. Subscription versus non-subscription based. e.g. In non-contractual setting, you define a temporal window, and you say that if the customer doesn’t purchase for a specific period of time, the customer is a churner, while if he purchases something, he can be considered a customer. (In Italo this time of window is 12 months, in a supermarket this window is 3-6 months). In contractual setting, you can easily define if a customer is a churner or not, thanks to the subscription.

Retention example

There are many companies that are launching loyalty programs that are based on a payment monthly or annually. Alibaba has developed a loyalty program similar to Amazon Prime. Amazon Prime: you pay a fee. Another trend is launching new loyalty programs. H&M in May launched a new loyalty program only online (you gain points and specific promotions). New players (such as Airbnb, Uber) are also considering and launching loyalty programs. Loyalty programs are a tool interesting for new companies because they feel the need to do retention.

Retention with a predictive approach (churn prevention strategy): there is a study done in Belgium for pay-TV. This pay-TV company has developed a model in order to predict the probability that a customer is going to churn or stay. With this probability, which uses the information of the past, you can do some actions to avoid that a given customer leaves the company. They decided to develop some tools in order to avoid churn (movie ticket, satisfaction survey, unique event, control group).