2. Questions from this chapter
What is customer relationship management?
Why do retailers engage in customer relationship
management?
What is customer lifetime value?
How do retailers determine who their best customers are?
What do retailers do to increase their share of wallet from
their best customers?
What can retailers do to alleviate the privacy concerns of
their customers
How can retailers get rid of unprofitable customers?
3. The CRM process
CRM philosophy states that retailers can
increase their profitability by building
relationships with their customers.
The main goal of this process is to develop
a base of LOYAL customers.
4. What exactly is customer loyalty?
CUSTOMER LOYALTY- means that customers
are committed to purchasing merchandise
and services from the retailer and will resist
the activities of competitors attempting to
attract their patronage.
5. The CRM process
1) collecting customer data
2) analyzing the customer data &
identifying target customers
3) developing CRM programs
4) implementing CRM programs
6. Collecting Consumer Data
First step is to construct a customer database.
CUSTOMER DATABASE: A database that contains
all the data the firm has collected about its
customers and is the foundation for subsequent
CRM activities.
7. Customer Database consists of 5
parts
1) TRANSACTIONS- A complete history of the purchases made by the
customer.
2) CUSTOMER CONTACTS- Record of the interactions that the
customer has had with the retailer.
3)CUSTOMER PREFERENCE- What the customer likes.
4) DESCRIPTIVE INFORMATION- Demographic and psychographic
data describing the customer.
5)RESPONSES TO MARKETING ACTIVITIES- Analyses of transaction &
contact data that provides info. About customers responsiveness.
8. Identifying Information
1) Asking Identifying information
2) Using Biometrics
3) Offering Frequent-Shopper Programs- Loyalty
Programs- Identify and provide rewards to customers who
patronize a retailer. Other retailers use pivate-label credit card- A
card with the store’s name on it.
4) Connecting Interner Purchasing Data with the
Stores
9. Privacy and CRM Programs
Privacy Concerns
1) Their control over their personal information when engaging in
marketplace transactions
2) Their knowledge about the collection and use of personal
information
Cookies- text files that identify visitors when they return to a Web site.
( because of these customers don’t have to identify themselves or use
passwords everytime.
10. Protecting Customer Privacy-European Union, Australia, New
Zealand, and Canada have stringent privacy laws.
Businesses can collect consumer info. Only if they have clearly
defined purpose.
The purpose must be disclosed to the consumer
The info. Can only be used for that specific purpose
They can keep info. For only the stated purpose.
Businesses operating in Europe can export info. For the 27 EU
countries and only to importing countries with similar privacy
policies.
11. EU perspective
Basically we own our info. So retailers must get consumers
to agree excplicitly to share personal info.
Opt In- The actual agreement of agreeing to share explicit info.
Opt out- when a consumer tells a retailer not to use their personal
info.
12. Federal Trade Commission-Developed
a set of principles for fair information practices.
1) Notice and Awareness- Covers the disclosure of info. Practices,
including a comprehensive statement of info. use.
2) Choice/ consent- includes both opt-out and opt-in which allows
consumers to have the opportunity to trado info. For benefits.
3) Access/participation- Allows for the confirmation of info.
Accuracy by consumers.
4) Integrity/security- Controls for the theft of and tampering with
personal info.
5) Enforcement/redress- Provides a mechanism to ensure
compliance by participating companies.
13. There is a growing consensus that personal
information must be fairly collected, that the
collection must be purposeful, and that the
data should be relevant, maintained as
accurate, essential to the business, subject
to the rights of the owning individual, kept
reasonably secure, and transferred only with
the permission of the consumer.
14. Analyzing Customer Data
The 2nd step in the CRM process is to analyze the customer
database and covert the data into info. That will help retailers
develop programs for increasing value they offer to the best
customers.
OBJECTIVES
1) identifying patterns that can improve effectiveness of retailing
decisions such as forecasting sales and allocating merchandise to
stores.
2) deciding wher to place merchandise categories in the store
15. Analytics
Retail Analytics- are the application of statistical
techniques and models to find patterns in customer
purchase data and make recommendations for improving
the effectiveness of retailers
Market Basket analysis- is a specific type of retail
analytics that focuses on examining the composition of the
basket, or bundle, of products purchased by a household
during a single shopping occasion.
EXAMPLE: TISSUES IN THE PAPER GOODS ISLE AND ALSO MIXED WITH THE
COLD MEDICINE.
16. Identifying the Best Customers
One of the objectives of CRM is to identify and cater to the
best, most profitable customers.
example- Home Depot relized that 70-80 percent of its kitchen
removation sales were coming from 20-30 percent of the departments
customers. It speculated that these heavy spenders might spend even
more if it organized the department around meeting their needs. So, it
added more assortment, better-trained associates and kitchen layouts
which were appealing to these target customers.
Results: Higher sales and profit per square foot than departments
designed to satisfy all customers.
17. Customer Lifetime value (CLV)
The expected contribution from customers to the
retailer’s profits over their entire relationship with the
retailer
To estimate CLV, retailers use past behaviors to forecast future
purchases, the gross margin from these purchases, and the costs
including the cost of advertising, promotions used to acquire the
customers, and processend merchandise that the customers have
returned.
19. 80-20 Rule- where 80 percent of sales or profits come from 20
percent of ther customers.
Platinum segment- composed of the customers with the top 25%
CLV’s. These are the most profitable and loyal customers, are
typically not overly concerned about prices
Gold Segment- Next 25% of pyramid. they buy a significant amound
of merchandise but are not as loyal as platinum and patronixe
competitors.
Iron Segment-Following 25% of pyramid. Purchase modest amound
of merchandise, but spending levels & loyalty are not substantial
enough for special treatment.
Lead Segment- Bottom 25% of pyramid- Customers with the lowest
CLVs and can make a negative contribution to the firm’s income.
20. RFM analysis- a scheme, used often by most catalog
retailers and direct marketers, for identifying the retailer’s best
prospects based on recent purchases.
21. Developing CRM Programs
This is the next step in the CRM process is to develop CRM
program for different customer segments
The objectives of CRM are
To retain their best customers
To convert good customers into high- LTV customers
To get rid of the unprofitable customers
22. Customer Retention
4 approaches that retailers use to retain and increase
share of wallet from their best customers
1) Frequent-shopper programs
2) Special customer services
3) Personalization
4) community
23. Frequent Shopper Programs
These are used to build customer data base. Some most
common programs are:
Use Teirs-Rewards should be tiered according to the volume of
purchase to motivate customers to increase purchases.
Offer Choices-Offering different rewards for different customers
Reward all Transactions- rewarding all transactions to get entire
customer info. On all purchases.
Feature Transparency & Simplicity-so customers can
understand quickly and easily how to receive rewards.
24. Limitations of the Frequent-Shopper
Programs
3 Factors limit effectiveness of programs
1) Cost- the programs can be somewhat expensive to
retailers
2) It is difficult to make corrections when problems arise.
Negative reactions can reduce a customers trust and
loyalty.
3) It is difficult to gain a competitive advantage
because with the programs they are visible and can be
copied by competitors.
25. Special Customer Services
Some retailers provide unusually high-quality customer
service to build and maintain the loyalty of their best
customers.
Example: Nordstroms holds complementary private parties
for invitees to view new clothing lines.
Or
Saks Fifth Avenue offers free fur storage, complimentary
tailoring, and dinner at the captain’s table on a luxury
cruise.
26. Personalization
Building a relationship with customers on a more personal level
1-to-1 Retailing- Developing retail programs for small
groups or individual customers.
Many small, local retailers practice this method in order to build
personalization with customers.
27. Community
The last approach for building customer retention and
loyalty is to develop a sense of community among
customers.
Retail brand community- a group of customers who
are bound together by their loyalty to a retailer and the
activities in which the retailer engages.
Example: Nike stores create a sence of community by
hosting running groups that meet tow times a week, after
which the runners meet at the Nike store for refreshments.
28. Converting Good Customers into
Best Customers
Customer Alchemy- when a retailer increases sales to a
“good” customer.
The best way to achieve this goal is through:
Add-on Selling- offering and selling more productgs and
services to existing customer’s to increase the retailer’s
share of wallet with these customers.
Example: if a supermarket discovers that customers are buying cat
food and not kitty litter, it might distribute coupons for kitty litter to the
customer.
29. Dealing with Unprofitable
Customers
Bottom of the tier of customers and they have a negative
effect on CLV. Retailers lose money on every sale they
make to these customers.
“Getting the lead out”- the process of no longer selling to
these unprofitable customers.
1) offering less costly services to satisfy the needs of lead
customers.
2) charging customers for the services they are abusing.
30. Examples of a Lead Customer
Customers who make an excessive amount of
returns.
Someone who purchases a flat screen T.V. to
watch the superbowl then returns it days later.
Someone who purchases an expensive dress for
an occasion. Wheres it once, then returns it.
31. Implementing CRM Programs
The last step of the CRM process is to implement the
program they find suitable for their particular store and
target market.
Needs systems, databases put all together to build
program.
Close coordination between departments – marketing,
MIS, store operations, HR when implementing program
Shift in orientation from the product to the customer.
Focus on customers needs and wants
