Customer Relationship Management: A Database Approach Class 1

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Customer Relationship ManagementA Database
ApproachClass 1
MARK 7397 Spring 2009
James D. Hess C.T. Bauer Professor of Marketing
Science 375H Melcher Hall jhess_at_uh.edu 713
743-4175
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What is Marketing

• Marketing is an organizational function and a
  set of processes for creating, communicating and
  delivering value to customers and for managing
  customer relationships in ways that benefit the
  organization and its stakeholders.
• American Marketing Association,2004

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What is Customer Relationship Management?
Customer relationship management (CRM) is a
business strategy to identify, attract, convert
and reward the most profitable customers to
induce recurring exchanges with the business.
CRM in a nutshell from your customers base,
identify Angels and do something special for them
and identify Devils and terminate the
relationship.
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American Customer Satisfaction Index
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Declining Customer Satisfaction- Example
(American Customer Satisfaction Index) with
products and services Source http//www.theacsi.
org, University of Michigan
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Customer Satisfaction

• Basic assumption
• Satisfaction leads to loyalty
• Loyalty leads to higher spending
• Higher spending greater profits
• Therefore customer satisfaction is key!
• BUT can satisfy customers right out of business
• Truth barely satisfied customers

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January 11, 2004 Reaping What They Sew By Purva
Patel Staff Reporter of THE HOUSTON CHRONICLE
Hamilton Shirt Co. has outfitted Texans for more
than 120 years. But the custom-shirt maker has
kept itself under wraps as it caters to an elite
clientele of prominent businessmen, national news
anchors and the well-heeled. The business
advertised for the first time last November, by
direct mail to select customers.
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"There's a certain mystique about it," said David
Lynn, manager for custom sales at Richards of
Greenwich, a high-end luxury apparel store in
Connecticut. "It's like a secret society."
Operating through both World Wars and numerous
economic downturns, the company has survived by
avoiding major alterations to the business and
relying on brand exclusivity for four
generations. Owner Jim Hamilton says he runs the
shop the way his father and grandfather did.
Shirts sell for 155 to 245 in Houston, and
first-time buyers must purchase at least four.
Behind the storefront on Richmond, sewing
machines turn out about 75 shirts a day.
Bolts of fabric imported from Italian and Swiss
mills line one wall, ironing tables another in
the 3,100-square-foot factory. Some 20 pattern
cutters and seamstresses snip, stitch and press
the shirts, much like those who worked for
Hamilton 's grandfather. Patterns are still
hand-cut, side seams are still stitched with a
single-needle sewing machine, and customers still
talk to the owner as they did when the company
opened, under the name Hamilton Bros. Even
the filing system is the same. Salesmen write out
orders, tape on swatches of fabric and store them
with patterns in manila envelopes. Hamilton
estimates he has 30,000 patterns on file, of
which 5,000 are active. Hamilton hopes
to eventually pass the business on to his
children, who each own 5 percent of the company.
His daughter, Kelly Hamilton , 28, handles
marketing, helped develop the company's first
brochure and hopes to set up a Web site. David
Hamilton recently prompted his father to start
taking credit cards and is working on a database
for direct-mail efforts. When he looked at the
company's alphabetical list of clients (more than
2,000 names long and predominantly male) and saw
Frank Abignail at the top, the wheels started
turning. Abignail was the recent subject of the
hit movie "Catch Me If You Can" starring Leonardo
DiCaprio as perhaps America's most famous check
forger, who went on to become a famous FBI
consultant. Recalls David "I said, 'Dad, do we
still take his checks? Maybe we better switch to
credit cards.' David Hamilton is looking into
developing custom software to encapsulate the
company's customer database.
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Link Between CRM and Customer Value

• Customer Value The economic value of the
  customer relationship to the firm expressed on
  the basis of contribution margin or net profit
• CRM is the practice of analyzing and utilizing
  marketing databases and leveraging communication
  technologies to determine corporate practices and
  methods that will maximize the lifetime value of
  each individual customer to the firm

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Link Between CRM and Database Marketing

• Database Marketing
• Customer Databases
• Identify and analyze customer population
• Group based on similarities
• Recommend separate marketing campaigns for
  different groups
• CRM
• Applies database marketing techniques at customer
  level
• Develops strong company-to-customer relationships

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What should be in a customer database?

• Transactions complete purchase history with
  details such as price paid, SKU, delivery date
• Customer Contacts sales calls, service
  requests
• Descriptive Information segmentation data
• Response to Marketing Stimuli responses to
  direct marketing initiative, sales contact

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Customer Histories (gross contributions)
Monthly sales calls were made at cost of 10/call.
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Customer Valuation
Service Cost per Call
/Call
Contribution Margin
Number of Customers Call on
Angels
Devils
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Customer Behaviors
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The Mismanagement of Customer Loyalty
Win loyalty, therefore, and profits will follow
as night follows day.
The top 16 retailers in Europe collectively spent
more than 1 billion in 2000 on loyalty programs.
Half of U.S. high-tech corporate service
providers customers who made regular purchases
for at least two years-- and were therefore
designated as "loyal"-- barely generated a
profit. Conversely, about half of the most
profitable customers were blow-ins, buying a
great deal of high-margin products in a short
time before completely disappearing. Studied
high-tech corporate service provider, a large
U.S. mall-order company, a French retail food
business, and a German direct brokerage house
16,000 individual and corporate customers over a
four-year period. Correlation coefficients
between loyalty and profits
0.45 grocery retailer 0.30
corporate service provider 0.29 direct brokerage
firm 0.20 mail-order company.
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Myths of Customer Loyalty
Myth 1 It costs less to serve loyal customers.
Myth 2 Loyal customers pay higher prices for the
same bundle of goods.
Myth 3 Loyal customers market the company
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Knowing When to Lose a Customer
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Which Customers Are Really Profitable?
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Choosing a Loyalty Strategy
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(A)
(B)
(C)
Firing customers
Acquiring customers
Retaining and growing customer base
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CRM (A)
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CRM (B)
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CRM (C)
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Summary

• From a strategic perspective, CRM is the process
  of selecting the customers a firm can most
  profitably serve and shaping the interactions
  between a company and these individual customers
• Assessing Customer Value is critical to CRM
• Rapid changes are taking place in the environment
  in which firms operate with respect to customers,
  market places, technology, and marketing
  functions
• These changes have driven the marketplace to
  become relationship-based and customer-centric
• CRMs goal is to optimize the current and future
  value of the customers for the company