CRM and Loyalty

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					CRM and Loyalty



 2001017 Kim, Mi Young

eCommerce ICE720, 2002
Contents



  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




   2
Part 1. Customer Relationship



  1.       CRM

  2.       Relationship Marketing

  3.       CRM and Behaviour Type




       3
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.

                                                    From www.realmarket.com
   4
Effect of CRM

                                     repurchase          Loyal
                                                     customization
                     Satisfaction
                                                                       Increase
                                                                       revenue
                                      Good word      Creating new
                                      of mouth         customer

        Service/
        Product

                                     Brand switch   Losing customer
                                                                       Decrease
                   dissatisfaction
                                                                       Revenue
                                      Bad word      losing potential
                                      Of mouth         customer




              CS Guarantees Company’s Revenue?



    5
CRM and Customer Loyalty


   Acknowledgement about Relationship




                        Products               Departure            Customers
    CM
 (Customer
                         Control                                 Communication                 CRM
Management)              Result                   Route            Continuity             (Customer

                         Secret                                                          Relationship
                                                                    Public
                                                                                        Management)
                      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.


    6
Relationship Marketing

                         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)
  Relationship Marketing

  •       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

  Customer retention

  •       Impact on profitability and past research has claimed that it can be 5 times
          more expensive to obtain a new customer.

  •       The Pareto rule




      7
Customer satisfaction and Behaviour type

Proliferation of Loyalists

                                                               Hostages                      Possibility of
                                                                                               Loyalist
                                                                                                (expectation
                                          Terrorists                                           < experience)


                       Who’ve had Bad Experiences
                                                                            Mercenaries
                           with the Company                              (Expensive to Acquire,
                                    &                                       Quick to Depart)
                    The Company didn’t respond to them.


                                                               Competitors’ discounts
                                          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
     8
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
                     customers
                              Customer loyalty is needed.




    9
CS strategy

 Step #1
 Issue Discovery

   Customer DB
     analysis/
                        Step #2
      Define
    marketing
                       Value Identification
      issues
                                  Customer
                               investigation/an    Step #3
                                    alysis
                                                  Needs Differentiation

           Customer Segmentation                      Customer’s needs
                                                                           Step #4
                                                      finding / customer
                                                             value           Customization
                                                         segmentation
                                                                             Product/service,
                                                                             channel, reward
                                                                                strategy

    10
Part. 2 Customer Loyalty


 1.    What is Customer Loyalty?
 2.    Customer Satisfaction Strategy
 3.    Why Customer Loyalty?
 4.    Case Study (online and offline)




      11
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
        associates. (Barnett,2000)




        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.




   12
        Why Customer Loyalty?




                                                       Relationship between CS and C Loyalty                                                            Relationship between Loyalty and Profitablity
Indexed Customer Satisfaction Rating (% )




                                            100




                                                                                                                        Loyalty (Retention Rate (% )
                                             90                                                  X                                                     100
                                             80
                                                                                        X
                                             70                         X           X                 X                                                95
                                                               X
                                             60            X                X                X        X                                                                                                       X
                                                                        X       X                                                                                                                     X X
                                             50                X
                                                                                             X                                                                                              X
                                                                                                                                                                                                   X
                                                                                                                                                                                                    X     X   X
                                                                   X                                                                                   90                      X
                                             40        X                                                                                                                  X        X               X X
                                                           X                                     X                                                                   X                      X
                                                                                                                                                                 X
                                             30                    X        X X                                                                                      X        X    X
                                                      XX                                                                                                         X
                                                                                                                                                       85
                                             20            X

                                             10   X
                                              0                                                                                                        80
                                                  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


                                                  13
How to build Loyalty?



                            Framework of building Loyalty

                                                              Degree of
                  Drivers               Phased Elements
                                                             Relationship

                    Improving
                                           Customer              Attitude,
             Core Products/Service
                                          Satisfaction          not Action
          Innovation of Channel Mgmt.



              Reward Program               Repurchase       Action, not Affinity   Customer
  CRM       /Continuing Campaign         / Cross-selling    (Artificial Loyalty)
                                                                                    Loyalty

                                                              Recognition
                                              Trust/
                (CR Strategy)                                of Relationship,
                                            Intimacy
                                                                 Referral




   14
Case Study: Amazon.com (online case)



             Customer Strategy                 Building customer loyalty

  •Suggest and find what customers wants     •Differentiated customer value
  positively                                 suggestion
  •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
                                                                   my information




   15
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
   customers




   •Findings

   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.


    16
ScrubaDub Strategy


 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




 Relationship marketing


      •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%)



     17
Part 3. Approach Customer Loyalty Programs


  1.    Loyalty programs
  2.    Strategic reward programs
  3.    Core strategies building reward programs




   18
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
     contribution

5.   Enhance the Company’s ability to meet or exceed its target goals.



                                                            Campaign and Reward


                                            •Discrete Communication            •Continuous Communication
                                                      Model                               Model
                                                                       Loyalty
                                               • individual Approach                • Mass Approach


     19
Reward types



                                                                                          Continuity
                            Directly                                                       Reward
        Type of reward



                           Supports         Promotion                  Airline Mileage,
                               Value                                       Coupon
                         Proposition
                                              (Price)



                               Other                                     Multi-product
                            indirect         Lotteries
                               Types   (Instant Scratchies)             Frequent-buyer
                           of reward
                                         Immediate                            Delayed

                                                          Timing of Reward

                                              “ Dowling.,Mark Uncles, 1997”




   20
4 characters to differentiate



                                                    4 Attributes


   ( 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




    21
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)
                                   Access to
                         Rewards
   point




                                               Accumulated
           # of $Spent
                                                Spending



   (GM Auto Card)




   22
Part 4. Case Study: One of International Hotel in NZ
                                        Background: in Palmerston North, NZ
 1. Location

       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

 2. Objective

       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.

 3. Marketing

       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.
       Follow-up letters.

       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
       customers.
      23
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
     health club.

•     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.


     24
Part 5. Summary & Conclusion

 Summary
 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.


Conclusion
  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.




    25
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-
 Bass Inc.




    26
     Q&A
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