CUSTOMER RELATIONSHIP MANAGEMENT: CONCEPTS AND TOOLS

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CUSTOMER RELATIONSHIP MANAGEMENTCONCEPTS AND
TOOLS

• Chapter 8
• Managing The Customer Lifecycle Customer
  Acquisition

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3 stages of the customer lifecycle

• Customer acquisition
• Customer retention
• Customer development
• Developing value from existing customers

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B2B relationship lifecycle

• Pre-relationship stage
• Exploratory stage
• Developing stage
• Stable stage

Source Ford, 1982
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As B2B relationships mature.

• Uncertainties begin to disappear
• Mutual growth in knowledge and understanding
• One, perhaps both, parties begin to make
  investments in the other
• Commitment shown through adaptations
• If no evidence of commitment, relationship is
  unlikely to progress beyond the exploratory
  stage.
• If commitment is demonstrated, they will perhaps
  grow to trust each other and the relationship
  head towards stability

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When is customer acquisition important?

• New product launches
• New business start-ups
• Growth of small businesses
• Even with well-developed and implemented customer
  retention plans, customers still need replacing,
  sometimes at a rate of 25 or more a year
• B2C customers shift out of targeted demographic
  as they age and progress through the family
  life-cycle death
• B2B customer acquired by another company with
  other supplier preferences or, stopped
  producing the goods and services for which
  company provided input or, ceased trading.
• Marketing one-off purchases
• Heart transplants, funerals

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3 important questions in a customer acquisition
plan

• Which prospects (potential new customers) will be
  targeted?
• How will these prospects be approached?
• What offer will be made?

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Two types of new customer 1

• New-to-category customers
• Have identified a new need
• New parents buying baby clothes
• Have found a new category of solution for an
  existing need
• Mobile phones replacing card-operated public
  phones

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Customers can find new solutions for existing
needs too

• Arm Hammer Baking Soda
• Deodorising fridges and trash-cans
• Mild abrasive for whitening teeth
• Polishing metals

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Two types of new customer 2

• New-to-company customers
• Customers won from competitors
• switch for a better solution, or
• because they value variety.
• New-to-company customers are the only option for
  growing customer numbers in mature markets
• Can be very expensive to acquire, particularly if
  strongly committed to current supplier
• Commitment reflected in
• Strong positive attitude, or
• High levels of investment in, the current
  supplier.

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Portfolio purchasing

• New customers can be difficult to identify in
  markets where customers exhibit portfolio
  purchasing.
• Customers buy on a portfolio basis when they buy
  from a choice set of several more or less
  equivalent alternatives
• Where this behaviour occurs companies do not
  simply compete to acquire and retain customers.
  Instead they compete for a larger share of the
  customers spending, i.e. share of wallet

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Strategic switching

• Some customers buy strategically
• Banks promotional pricing stimulates hot money.
  This money moves from account to account across
  the banking industry in search of the best rate
  of interest.
• MCI discovered that about 70 of customers newly
  acquired from competitors stayed for 4 months or
  less.
• Switched for the welcome gift offered by MCI
• Switched back later to original supplier

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Using customer valuations to guide customer
acquisition

• What is the estimated value of the customer?
• This depends on the margins earned from the
  customers purchases over a given time period.
• If that customer switches, what proportion of
  that spending will your company earn?
• What is the probability that the customer will
  switch from current suppliers?

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Hofmeyrs conversion model

• Basic premise customers who are not committed
  are more likely to be available to switch to
  another provider.
• Commitment is a function of satisfaction with the
  brand or offer, the attractiveness of
  alternatives, and involvement in the brand or
  offer
• Hofmeyrs Conversion Model segments customers
  according to the level of commitment
• entrenched, average, shallow, convertible.
• Non-customers are also segmented according to
  commitment scores into 4 availability subsets
• available, ambivalent, weakly unavailable,
  strongly unavailable.
• Commitment scores can be used to guide customer
  acquisition strategies

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Prospecting

• First major decision to be made for a customer
  acquisition plan is the identification of
  prospects.
• Prospecting means searching for opportunities
  that might convert into strategically significant
  customers. 
• Prospecting is an outcome of the segmenting and
  targeting process.

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B2B prospecting lead qualification
Prospecting produces leads

• Does the lead have a need for my companys
  products?
• Does the lead have the ability to pay?
• Is the lead authorised to buy?
• Some CRM software allows for automated lead
  qualification

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Contact strategies

• Direct-to-customer (DTC) channels
• salespeople, direct mail, and tele-marketing
• Indirect channels
• use partners or other intermediaries, or
• use bought time and space in media.
• The improved quality of databases has meant that
  direct channels allow access to specific named
  leads in target businesses.

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Sources of business-to-business leads

• Satisfied customers
• Referrals from satisfied customers
• Networking
• Personal contacts with well-connected and
  co-operative people
• Promotional activities
• Exhibitions, seminars, tradeshows and conferences
• Delegate and attendee lists
• Advertising response inquiries
• Publicity
• Web-sites
• Lists and directories
• SIC listings, telephone directories
• Canvassing
• Tele-marketing
• E-mail

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Networking

• Networking can be defined as
• the process of establishing and maintaining
  business-related personal relationships
•  A network might include
• members of a business association
• friends from university
• professional colleagues in other companies.
• In some countries it is essential to build and
  maintain personal networks.
• In China, for example, the practice of guanxi, is
  well established

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Important B2B promotional activities

• Exhibitions
• Seminars
• Trade shows
• Conferences

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Publicity

• Publicity can be defined as
• free editorial coverage of a story relevant to a
  companys interests.
• Successful PR generates publicity in appropriate
  media
• Many magazines, trade papers and on-line
  communities are run on a shoestring. They rely
  heavily on stories submitted by companies and
  their PR staff to generate editorial matter.
• Editors want newsworthy stories about product
  innovation, original customer applications or
  human-interest stories about inventors and
  entrepreneurs.
• Editorial staff generally will edit copy to
  eliminate deceptive or brazen claims.

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Four ways to access company websites

• Keying in a pages URL
• Using search engines
• Google, Infoseek, Netscape, Webcrawler, Alta
  Vista, Lycos
• Exploring directories, web catalogues or portals
• Yahoo!, www.ceoexpress.com
• Surfing

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Lists

• Lists of prospects can be developed from
• telephone directories, business lists, chamber of
  commerce memberships, professional and trade
  association memberships, and magazine circulation
  data.
• Lists can be bought from list compilers and
  brokers.
• Poor quality lists contain
• out-of-date information, duplications, omissions,
  and other errors
• High quality lists with full contact details,
  including phone and email address tend to be more
  expensive.

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Canvassing

• Canvassing involves making unsolicited calls,
  sometimes known as cold calls.
• Can be a very wasteful use of an expensive asset
  the salesperson.
• Some companies have banned their salespeople from
  cold calling.
• Others outsource this activity to third parties.
• Some hotel chains for example, use hospitality
  students to conduct telephone-based cold calling
  campaigns

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Tele-marketing

• Tele-marketing is a systematic approach to
  prospecting using the telephone, and, sometimes,
  other electronic media such as fax and email.
• Usually performed by staff of customer contact
  centres.
• Outbound tele-marketers make outgoing calls to
  identify and qualify leads.
• Inbound tele-marketers receive calls from
  prospective customers.

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Email

• Advantages of email for customer acquisition
• Many (most?) business decision makers have email,
  although this does vary by country and industry.
• Costs about the same to send one thousand emails
  as it does to send one single email.
• Quick and simple for recipients to respond.
• Content can be personalised.
• Production values can be matched to audience
  preferences
• Email is asynchronous. It is not tied to a
  particular time frame like a sales call. Email
  messages sit in mailboxes until they are read or
  deleted.
• Flexibility. Can be linked to tele-sales
  follow-up, call-me buttons or click-throughs
• Permission adds power

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Business-to-consumer prospecting

• Primary prospecting tools include
• Advertising
• Sales promotion
• Merchandising
• Other prospecting tools
• Referral schemes
• Consumer exhibitions
• Publicity
• Tele-marketing
• SMS campaigns
• Email
• Canvassing

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Advertising defined

• Advertising is the creation of messages that are
  communicated to targeted audiences through the
  purchase of time or space in media owned by
  others

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Advertising objectives

• Cognitive objectives
• raising awareness, developing understanding, and
  generating knowledge
• Affective objectives
• developing a liking for the product, and
  generating preference
• Behavioral objectives
• Advertising alone is often insufficient to
  generate behavioural outcomes such as trial
  purchasing.
• Advertising can predispose audiences to make an
  intention-to-buy based on what they learned about
  and felt towards the advertised product.

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Advertising objectives for new customers

• For high involvement products
• Raise awareness
• Understand the benefits the product can deliver
• Know availability and price
• Develop intention-to-buy
• For low involvement products
• Raise awareness
• Brand recognition

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Important message attributes for customer
acquisition

• Visibility against background clutter
• Black and white ads in color magazines
• Image-based ads in text-dominated media
• Loud ads in quiet media
• Creative executions
• Command attention
• Call to action

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Pre-testing metrics

• Recall
• Comprehension
• Credibility
• Feelings evoked
• Intentions-to-buy

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Important media attributes for customer
acquisition

• Are there any dedicated new customer media?
• What Digital Camera?
• Which Mortgage?
• Reach and frequency
• Frequency more important for low involvement
  products

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Reach and frequency

• Reach
• the total number of a targeted audience that is
  exposed at least once to a particular ad or
  campaign

• Frequency
• the average number of times that a targeted
  audience member is exposed to a particular ad or
  campaign

total number of exposures is computed by
multiplying reach by frequency
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Metrics for customer acquisition from advertising

• Response rates
• Calls received into contact centre
• Coupons returned
• Conversion rates
• Sales as a percentage of coupons returned
• Proposals submitted as a percentage of requests
  for information (RFI).

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Campaign management software

• Campaign management software can help CRM
  practitioners construct, conduct and evaluate
  advertising campaigns
• Such software becomes increasingly important as
  marketing campaigns become more selective in
  their audience, and more tailored in their
  message.

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Sales promotion defined

• Sales promotion is any behaviour-triggering
  temporary incentive aimed at prospects,
  customers, channel members or salespeople

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Types of consumer sales promotion

• Sampling
• Free trial
• Coupons
• Discounts
• Rebates or cash-back
• Bonus packs
• Banded packs
• Free premiums
• Lotteries
• Competitions

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Merchandising defined

• Merchandising is any behaviour-triggering
  stimulus or pattern of stimuli, other than
  personal selling, that takes place at retail or
  other points-of-sale
• Tools
• retail floor plans
• shelf-space positioning
• special displays
• window displays
• point-of-sale print
• related item displays

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Customer referral schemes

• Delighted, or even completely satisfied customers
  may offer positive word-of mouth
• Eismann, a German frozen food manufacturer,
  estimates that 30 of its new customers recruited
  by referrals from satisfied customers.
• Companies can develop a Customer Referral Schemes
  (CRS).
• Also known as Member-Get-Member (MGM) and
  Recommend-A Friend (RAF) schemes.
• Invite existing customers to recommend a friend.
• recommender often rewarded with a gift.
• Schemes more effective when carefully targeted

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KPIs for customer acquisition programs

• How many customers are acquired?
• What is the cost per acquired customer?
• Any capital expenditure required?
• Marketing expense?
• Costs vary per channel
• What is the value of the acquired customer?    

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One-off costs of customer acquisition

• prospecting costs
• List development or rental
• advertising costs
• Production and media costs
• commissions and incentives to salespeople
• collateral materials
• sales promotion costs
• credit checks
• supplying tangibles (e.g. credit cards)
• database costs

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Data mining for customer acquisition

• Data mining can be used to identify which
  customers show the greatest potential
• Queries might include the following
• which customers (or segments) have the greatest
  life-time value?
• how were these customer originally acquired?
• what products did these customer originally buy?
• Experimentation
• RFM matrix

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Making the right offer

• Entry-level products for customer acquisition
• Banks use
• Relatively high interest rates on deposit account
• Relatively low charges on credit cards
• Insurance companies use
• Car insurance

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Acquiring customers with the Egg Credit Card

• This has been Eggs most successful six months
  in terms of customer acquisition with a total of
  370,000 net new customers joining Egg, leading to
  a total customer base of 1.72 million. Growth in
  customer numbers for the first six months of 2001
  has increased by 19 compared to the same period
  last year. In addition the unit marketing cost
  on Egg Card, our lead acquisition product, has
  been reduced to 22 (30 June 2000 37).
• Source Egg Interim report 2001