CRM and Loyalty
2001017 Kim, Mi Young
eCommerce ICE720, 2002
Part 1. Customer Relationship
Part 2. Customer Loyalty
Part 3. Approach to Loyalty Program
Part 4. Loyalty Program case study
Part 5. Summary and Conclusions
Part 6. References
Part 1. Customer Relationship
2. Relationship Marketing
3. CRM and Behaviour Type
What is CRM?
What is CRM?
Simply stated, Customer Relationship Management (CRM) is about
finding, getting, and retaining customers.
CRM is at the core of any customer-focused business strategy and
includes the people, processes, and technology questions associated
with marketing, sales, and service. In today's hyper-competitive world,
organizations looking to implement successful CRM strategies need to
focus on a common view of the customer using integrated information
systems and contact center implementations that allow the customer to
communicate via any desired communication channel. Lastly, CRM is a
core element in any customer-centric eBusiness strategy.
Effect of CRM
Good word Creating new
of mouth customer
Brand switch Losing customer
Bad word losing potential
Of mouth customer
CS Guarantees Company’s Revenue?
CRM and Customer Loyalty
Acknowledgement about Relationship
Products Departure Customers
Control Communication CRM
Management) Result Route Continuity (Customer
Sales Volume Destination Loyalty
There is always the risk that a customer will defect when a competitor offers better
value or a wider range of value added options. -> Loyalty Programs must motivate loyal
buyers to repurchase.
Profit in business comes from repeat customers, customers that boast about your product and
service, and that bring friends with them ( cited in Lowernstein, 1995)
• Focuses on getting and keeping customers
• Concerned with customer loyalty
• Aimed at developing long-term, cost-effective links between an
organization and its customers
• All customer relationships are worth keeping
• Impact on profitability and past research has claimed that it can be 5 times
more expensive to obtain a new customer.
• The Pareto rule
Customer satisfaction and Behaviour type
Proliferation of Loyalists
Hostages Possibility of
Terrorists < experience)
Who’ve had Bad Experiences
with the Company (Expensive to Acquire,
& Quick to Depart)
The Company didn’t respond to them.
Defectors offering or benefits
1 2 3 4 5
Strong dissatisfaction so – so (10~50%) Strong satisfaction
Source :Keki R. Bhote, “Beyond Customer Satisfaction to Customer Loyalty”, 1996
Why customers leave even they are satisfied?
In US, survey of CS about Cars, Almost 90% of answers are satisfied.
Repurchase rate of same brand car company is below 30%.
•Hard for finding rule of relationship between CS
and customer break away.
•CS does not guarantee repurchase of
Customer loyalty is needed.
investigation/an Step #3
Customer Segmentation Customer’s needs
finding / customer
Part. 2 Customer Loyalty
1. What is Customer Loyalty?
2. Customer Satisfaction Strategy
3. Why Customer Loyalty?
4. Case Study (online and offline)
What is Loyalty?
The key to the successful adoption of relationship marketing lies in the building of
client loyalty in dynamic business environments. (Morris, 1999)
In a business context loyalty has come to describe a customer’s commitment to
do business with a particular organization, purchasing their goods and services
repeatedly, and recommending the services and products to friends and
Loyal Customer can mean a consistent source of revenue over a period
of many years. However, this loyalty cannot be taken for granted. It will
continue only as long as the customer feels they are receiving better
value than they would obtain from another supplier.
Why Customer Loyalty?
Relationship between CS and C Loyalty Relationship between Loyalty and Profitablity
Indexed Customer Satisfaction Rating (% )
Loyalty (Retention Rate (% )
90 X 100
70 X X X 95
60 X X X X X
X X X X
X X X
X 90 X
40 X X X X X
X X X X
30 X X X X X X
10 20 30 40 50 60 70 80 90 5 10 15 20 25 30
Customer Loyalty Rating (% )
Profitability (% )
Source : Keki R. Bhote. “Beyond customer satisfaction to customer loyalty”, 1996
How to build Loyalty?
Framework of building Loyalty
Drivers Phased Elements
Satisfaction not Action
Innovation of Channel Mgmt.
Reward Program Repurchase Action, not Affinity Customer
CRM /Continuing Campaign / Cross-selling (Artificial Loyalty)
(CR Strategy) of Relationship,
Case Study: Amazon.com (online case)
Customer Strategy Building customer loyalty
•Suggest and find what customers wants •Differentiated customer value
•Remind customers of relationship and be •Intensify reward program
concerned about customers continuously
•Never forget customers who visit before
Mi’s Gold Box
without any input
Case Study: ScrubaDub (offline case)
•Automotive carwash business: Differentiated strategy based on CRM
•Differentiated approach to Customers : focus on quality than customer quantities
Investigated all costs in terms of customers washing times and expenditure per
1. 75% of whole customers are below 6 times, low visit rate in a year.
Therefore, rest 25% are visit rate over 60%
2. Segmented 5 level in terms of annual visit rate
(the lowest level /low level/average/high level/the highest level)
Between visit rates and spending money, there is relationship something.
3. So, relationship marketing need to invest high on customers who has low revenues
and invest low vice versa.
Who is the highest value customer? ★ high income customers
-> high visit rates customer
★ Jeep or compact car owners
Not a customer who owns a large car ★ A driver who has a car below 3 year
•New display design Offer resting place with free coffee, snacks
•Building Personal relationship
•Increasing staffs at peak time for saving customer waiting time
•Discount scheme(Offering free washing coupon)
•Car washing guarantee
(free car washing if there is rainy or snowy within 3 days after car washing)
Effects: average growth rate 12.5% (cf. others: 7%)
Part 3. Approach Customer Loyalty Programs
1. Loyalty programs
2. Strategic reward programs
3. Core strategies building reward programs
Loyalty program: Reward
The plan objectives for this program are:
1. Effectiveness, cost savings, profitability, etc.
2. Develop a greater sense of concern and loyalty about the company or brand
3. Strengthen communications between customers and companies.
4. Provide financial rewards to customers who have demonstrated performance or
5. Enhance the Company’s ability to meet or exceed its target goals.
Campaign and Reward
•Discrete Communication •Continuous Communication
• individual Approach • Mass Approach
Type of reward
Supports Promotion Airline Mileage,
Types (Instant Scratchies) Frequent-buyer
Timing of Reward
“ Dowling.,Mark Uncles, 1997”
4 characters to differentiate
( Accomplishment) (Continuity) (Attraction) (Acquisition)
• Points acquisition • Not for short term events • Based on customer needs • For acquiring
• Reward offering cycle and • Induce repurchase for offering rewards new customer
Getting Reward gifts • Offering diverse • For acquiring customers
Reward options from competitors
Loyalty Program Reward Schedules
(A) Typical Response Functions (B) An Alternativ e Response Function
(Airlines Mileage Card) (Citibank)
Airlines often use a variation of this Citigold banking, Citibanking , General
scheme where an economy class airfare DB According to Household ( offspring
attracts 1 point per kilometer or dollar spent get same level with parents)
# of $Spent
(GM Auto Card)
Part 4. Case Study: One of International Hotel in NZ
Background: in Palmerston North, NZ
A provincial city, with approximately 75,000 people
It is not a major destination for international visitors to NZ. But it does host a large number of conferences each year
The one of an international larger chain of hotels.
The business manager believes that if it were not for the revenue from the other facilities, the hotel would struggle to
remain open on accommodation revenue alone.
Corporate marketing programs initiated by head office have not always worked in the hotel, so local marketing
initiatives have been launched in Palmerston North.
Some specific events marketing to improve its weekend occupancy rates and this seems to have been successful.
The latest marketing push= a Gold Card to increase new customers and entice past customers to return.$39.50,
provides various discounts and special occasion offers
4. Methodology: A mail survey was sent to all customers on the hotel Gold Card DB. A 4 page questionnaire to 700
Data Analysis and discussion
Card purchase and features
1. For personal use
2. Because good range of benefits offered
3. Because good value for money
• The data show that 2/3 purchasers were new customers of the hotel.1/3 said they purchased the card
because of persuasive sellers.
• Purchasers of card were more interested in the local facilities like the, bar, family restaurant and
• Percent of respondents using the services was fairly low, except for the family restaurant to cheap
deals. As a customer retention strategy its success is therefore doubtful.
• There were a number of comments from respondents that referred to their dissatisfaction. Customers
are unlikely to return or become loyal if they are dissatisfied with the service provided. (Dube, 1994)
This highlights the point that satisfaction is not an accurate indicator of customer loyalty.
Part 5. Summary & Conclusion
The customers of the hotel who purchased a card and responded to the questionnaire, exhibit the
characteristics of Morgans “mercenaries” (1996 ).
High satisfaction, low to medium loyalty and low commitment to the company. In order to succeed,
loyalty programs need to develop “loyalists” (Morgan, 1996)- customers who have high
satisfaction, high loyalty and who will stay and be supportive of the company.
The hotel case study: to build customer loyalty and therefore retention by selling a discount card
in Palmerton North.
Discount card does not appear to increase customer loyalty and that many customers buy the
card because they perceive it to be good value for money.
Part 6. References
•Dowling, Uncles 1997, “ Do customer loyalty programs really work?”,
Sloan Management Review, Vol. 38
•McIlroy, Barnett 2000, “ Building customer relationships: do discount cards work? ”
Managing Service Quality Journal Vol. 10 2000
•Gustafsson 2000, “ Improving Customer Satisfaction, Loyalty, and Profit” Jossey-