Exploiting IT for business benefit EITBB 5. Customer relationship management benefit. BCS 1
Transactions versus relationships Transactions are usually: One-off purchases or uses of services With no automatic expectation of repeat business With no need for linking to records of previous transactions Example: hiring a taxi in a strange town Relationships are where transactions are part of a series between customer and supplier benefit. BCS 2
Activity: transactions versus relationships To what extent are the following likely to be relationship-based? What circumstances might make them more or less like a relationship? buying a daily newspaper going to the dentist buying a new car booking a holiday abroad. benefit. BCS 3
Relationship-oriented marketing Developing relationships tends to be advantageous to supplier Retaining a customer is cheaper than attracting new ones e.g. costs of advertising reduced Greater knowledge about customer can generate further opportunities to do business Customer loyalty can be a barrier against new entrant to market benefit. BCS 4
The relationship ladder Partner Advocate Supporter Client Prospect benefit. BCS 5
Customer relationships and the internet Internet tends to encourage transactions rather than relationships: An impersonal medium Focus on identifying lowest price e.g. price comparison websites The Internet adjusts information asymmetry (balance of knowledge) in favour of the buyer and tends to drive down prices benefit. BCS 6
Customer relationships and the internet - continued However some features of internet transactions provide more customer information e.g. when buying a product online you often have to provide: An email address Delivery address Card details Repeat business transactions can then be detected benefit. BCS 7
Customer relationships and large organizations A large business may have different departments dealing with different aspects of its business A customer wanting more than one service may have to be transferred between staff A different employee (who may not know about previous contacts) may deal with the customer each time they call This could cause customer frustration and defection benefit. BCS 8
Customer relationships and large organizations solutions? Customer satisfaction may be increased by: Allocating staff to groups of customers rather than specialist functions Record details of all contacts with a customer on a central system accessible to all front line staff But does these solutions have their own problems? benefit. BCS 9
The four pillars of customer relationship management (CRM) CRM Customer acquisition Customer retention Customer extension Customer selection benefit. BCS 10
Customer acquisition: on-line versus off-line promotion and purchasing Purchasing Off-line On-line Promotion Off-line e.g. traditional retail operation e.g. promotion of new e-commerce site in traditional media On-line e.g. web used as just one channel used to promote a brand e.g. BMW A pure play internet-based business benefit. BCS 11
Customer segmentation Separating customers into groups with common characteristics likely to be attracted to similar products and services Becomes the basis for marketing campaigns Ways of segmenting customers: Geographic location Demographic distribution Psychographic distribution Behavioural segmentation benefit. BCS 12
Marketing mix the 4 P s Place Product Price Promotion Some have added: people, process and physical evidence benefit. BCS 13
Place How service or product is to be delivered to customer, e.g. Digital down-load Home delivery Call at retail outlet The last is most likely where product is either a casual purchase as needed e.g. soft drinks or a very large valuable item e.g. a BMW Consideration of the issues involved here will affect the design of the business model of a website benefit. BCS 14
Product A product/service should be seen as delivering some customer benefit rather than just a technical product Example: customer basically wants 8 mm holes in some material rather than an 8 mm drill bit Technical specialists should keep this in mind when presenting proposals to clients and potential customers This consideration would affect way products are presented on websites benefit. BCS 15
Price We ve already noted the tendency of the internet to focus customer attention on price Some websites offer discounts to new customers Attempts to reduce direct price comparison by bundling goods and services in different ways Pricing indifference band a range of prices within which price variation have little impact on customers try to set prices at high end of the band benefit. BCS 16
Promotion Need to co-ordinate use of channels e.g. putting URLs on press adverts Need to identify the particular channels that a particular market segment is likely to see Physical evidence Effective websites often present some form of evidence of quality of products: e.g. customer testimonials, endorsements, news of awards etc benefit. BCS 17
Search engine optimisation (SEO) Designing website so that it gets a prominent position in search engine listings for search terms relevant to your product/service White hat versus black hat SEO Black hat SEO trying to game search engine to give prominence to a website in a way deemed unacceptable Some measures are straight-forward e.g. making sure text on website clearly and accurately describes offering Desirable to arrange for reciprocal links between websites that have common interests benefit. BCS 18
Online advertising Key advantages of the internet for advertisers are: Potential customers can be pin-pointed by the websites they access, the items on a website they access, the words they search on in a search engine etc. Immediacy of purchase once a potential customer has seen persuasive advertising material they can make an immediate purchase (no physical journey to a shop etc) benefit. BCS 19
Online advertising some options Sponsored placement in search engines e.g. Google Adwords Advertising material in the form of engaging games or puzzles Viral marketing on-line word of mouth Nurturing on-line communities Effective use of a product often enhanced by improved knowledge (which user community can supply) of how to get best from product benefit. BCS 20
Customer retention Making efforts to keep existing customers may be cheaper than identifying new ones It will be worth making a bigger effort with the most valuable ones if you know who they are! Brands help make customers identify a consistent and reliable experience that can be repeated; When moving to new channels such as on-line delivery, businesses want to preserve value of the brand in the new context benefit. BCS 21
Customer retention: identifying your customers Use of loyalty cards identify customers making a transaction Cookies can identify returning customers Data mining analysing sales to extract useful information about customers Personalization tailoring web content to the interests of the customer e.g. purchase suggestions Customization the users themselves can tailor the website e.g. to display information for their locality, favourite teams, etc. benefit. BCS 22
Customer selection Monetary decile analysis can be used to identify most valuable clients 1. Add up value of purchases for each customer 2. Sort customers into purchase value order 3. Take top 10% (i.e. decile) of customers and sum value of purchases for that group 4. Repeat of next 10% and then next and so on 5. Convert the total value for each group into a percentage of total sales benefit. BCS 23
Monetary decile analysis: example decile x 1000 % purchase value accumulated value 1 46 32.39% 32.39% 2 32 22.54% 54.93% 3 20 14.08% 69.01% 4 10 7.04% 76.06% 5 9 6.34% 82.39% 6 8 5.63% 88.03% 7 7 4.93% 92.96% 8 6 4.23% 97.18% 9 2 1.41% 98.59% 10 2 1.41% 100.00% benefit. BCS 24
Possible strategies for different groups of customers The most profitable (say top 10%) focus on customer retention: probably getting most of their business anyway The remainder of top 40-50% - focus on customer extension try to get customers to buy more The rest no special efforts NOTE: the above is only one example of a strategy for example does not take account of lifetime customer value benefit. BCS 25
Customer extension Encouraging existing customers to purchase more goods and services One approach is cross-selling e.g. selling travel insurance alongside air flight tickets Data mining triggers: particular changes to CRM data might trigger selling initiatives e.g. change of address benefit. BCS 26
Data mining Data mining (DM) refers to processes by which data, for example relating to customer transactions, held by businesses can analysed to produce actionable information Actionable refers to ability to decide on future actions on the basis of the information Three main modes of DM: (i) hypothesis testing (ii) directed knowledge discovery (iii) undirected knowledge discovery benefit. BCS 27
Data mining: hypothesis testing A decision to be made by the managers of a business may depend on certain assumptions being true DM could be used to test that the assumptions are true For example, an assumption might be customers who have bought product X will want to buy product Y as well Could analyse past sales to see whether this is true benefit. BCS 28
Directed and undirected knowledge discovery Directed knowledge discovery No preconceived assumptions Statistical analysis to see what factors seem to influence a particular outcome Undirected knowledge discovery Aim is to get a better understanding of the data Example: identifying clusters of customers who seem to share common characteristics This might translate into a number of distinct customer segments benefit. BCS 29
Data warehousing While this is not absolutely necessary, DM works best if an organization has a central repository of data available for analysis Often an organization has several different databases, each relating to a different application Data warehouse can be set up where data from the separate systems are merged for DM and other analyses A particular function may be given access to a subset of the data a data mart benefit. BCS 30
Some conclusions Remember that in the end all income that feeds into a value chain originates from the end customers/consumers Data mining to support CRM must be a multidisciplinary activity if it is to be successful, involving, among others: Database experts to retrieve data from operational systems Statisticians and AI experts to analyse data Marketing experts to set questions and evaluate analyses Managers to agree to actions based on the recommendations resulting from analysis and evaluation benefit. BCS 31