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									Information Systems: the Foundation of E-Business (CIS 108)

Customer Relationship Management, (CRM)

Lecture SEVEN (28th February 2005) Amare Michael Desta
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What is CRM?
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“Customer relationship management is a business strategy to select and manage the most valuable customer relationships. CRM requires a customercentric business philosophy and culture to support effective marketing, sales, and service processes. CRM applications can enable effective customer relationship management, provided that an enterprise has the right leadership, strategy, and culture.” -The CRM Primer, www.crmguru.com
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Outline
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Benefits of a CRM program
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Cultural changes
Research & Best practices Casino case

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The four phases of implementation
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IT’s role in CRM CRM’s relation to the supply chain
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Benefits of CRM
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Improved customer retention
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Greater retention results in a larger future customer base

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The impact of a 5% increase in retention rates Industry Increase in profits Advertising Agency 95% life-insurance company 90% branck bank deposits 85% publishing 85% auto service 81% auto/home insurance 80% credit card 75% industrial distribution 45% industrial laundry 45% office-building management 40%

Benefits of CRM (cont’d)
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Improved customer retention Purchase amount increases over time
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Average of 8%/year in the insurance industry Order processing Short-term acquisition costs Customer referrals
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Reduction in costs
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Benefits of CRM (cont’d)
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2-way communications
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Improves customer satisfaction
Often harmful to profits Frequently used to level inventories

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Impact on the “grey markets”
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Cultural changes
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Top executives must drive the initiative
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Shift from product orientation to customer
Away from mass, towards personal “1:1” Compensation system must change to reinforce new behaviors

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Shift in marketing type
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Change in attitude at all levels
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New positions or teams should be formed
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Pre-implementation
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Classify customers based on diversity of value and needs Determine who the customers are

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Phase 1
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Consolidate customer information
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Existing computer and hard copy records into one large database

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Minimum information categories:
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Biographical information Total spent/year on that good/service Total sales/year from that customer Customer share ratio Allocatable costs Profit ROI of marketing and sales expenses
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Consumer categories
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Business categories
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Identification Customer Rating Background Presale Communication Purchase behavior Post-purchase behavior Predicted behavior Creditworthiness Attitudes and perceptions

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Source: Boyett & Boyett The guru’s guide to the knowledge economy

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Identification Customer Rating Background Presale Communication Decision makers Decision making Influences Post-purchase behavior Channels Pricing Predicted Behavior Creditworthiness Relevant information

Phase I: The Privacy policy
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Means to gather information
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Interviews Surveys “Loyalty” cards

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Casino CRM Program
Pre-Implementation
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1999 – Recognized need for CRM program, but unwilling to commit fully Began implementation of “Epic” program – requiring manual log-in and log-out of players
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Cost measured in thousands rather than millions Worked well with table games, but highly inconvenient to slot players No outside marketing to encourage participation

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Effectiveness of program dependent on employees
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Casino CRM Program
Pre-Implementation
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Spring 2001 – management convinced to fund automated players club program Pre-launch focus on previous card-holders
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Updating database and explaining new system to old customers

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Program launch complemented with marketing campaign, including incentives to register and to use card

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Casino CRM Program
Building a Database
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Upon sign-up:
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Win/Loss
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Name Contact Information “Interests”
Money spent (coinin)
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Per day Per trip

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Jackpots won Playing habits
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Over time:
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Per day Per trip

Rate of play Time of play Frequency of trips Machines played
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Denomination Type

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Phase II
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Classify the customers according to sales volume
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Focus on the top 20% of the customer base Community: shared needs/preferences for a grouping of individuals Individual: unique needs specific to a single person
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Two basic types of customer needs
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Phase II (cont’d)
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Information gathering
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Focused on top 20%: less effort required Interviews considered the best method
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Personal Additional information Evaluation of future potential Not as cost prohibitive as believed But they are often ignored. Cheapest method Convenient for the customer
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Surveys are functional…
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E-mail: a reasonable middle ground
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Phase II (cont’d)
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Suggested questions
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Satisfaction with products/services Cross-selling/up-selling opportunities Gaps in the value proposition-satisfaction Loyalty indicators: preferred supplier, future purchases, referrals Budgets for your product/service Identification of competitors Customer contact preferences

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Create a profile for distribution
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Source: The guru’s guide to the knowledge economy

Casino CRM Program
Customer Classification
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Casino customer classification generally dependent on coin-in and total losses
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These tend to coincide

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Also looking at place of residence and frequency of visits Marketing department uses CRM program to distinguish customer groups - find “highrollers” and target them for special events Special “Top 1%” segment
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Casino CRM Program
Customer Classification
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The program can be used to find undesirable customers as well as desirable ones People who abused Epic system easily spotted Customers who present a net loss to casino discouraged from returning Machines that show lack of profitability removed or altered Middle-range customers encouraged but within reasonable expense level
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Phase III
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Maintain communications with current customers
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Should be through the medium desired by the customer Make contact at the “appropriate time” Excessive attempts will annoy the customer

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Rules of engagement for customer interactions (Contd..)
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Don’t initiate an interaction with a customer without a clear objective Don’t ask a customer the same thing more than once Interact in the medium of the customer’s choice When engaging in an interaction, start with the customer, not the product Make the interactions personal and personalized Ensure that your interactions with customers are always welcomed Ensure that they are immediately identified and treated appropriately
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Rules of engagement for customer interactions (Contd..)
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Protect the customer’s privacy Invite dialogue by printing toll-free numbers and web-site URLs on everything Ensure that the customer can see the value from each interaction. Deliver information or value that reflects what has been learned Be sensitive to the customer’s time. Don’t try to learn everything about a customer at once.

Source: The Guru’s guide to the knowledge economy, p. 216
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Casino CRM Program
Maintaining Communication
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Mailers sent to certain customer groups on regular basis
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Invitations to special events or for free gifts Customer chooses which ones to respond to

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Non-intrusive communication
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Toll-free phone number and email address included on all correspondence

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Phase IV
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Adjusting the firm to fit customer needs Four types of customization
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Collaborative (mass) customization
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Devise a metric to determine customer needs Match needs with products/services Not very personal, but relatively inexpensive Allow customer to specify certain characteristics Very personal, but often expensive May not be possible in all industries, or cost efficient
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Adaptive customization
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Phase IV (cont’d)
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Customization:
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Cosmetic customization
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Inexpensive, easy to implement in virtually any industry Easy to replicate No actual change to the product/service may not justify charging a substantial premium

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Transparent customization
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The “nice little details” Very personal, but oftentimes invisible Frequently inexpensive relative to others Difficult for competitors to replicate

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Phase IV (cont’d)
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Combinations can be used Beware of TOO much satisfaction

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Phase IV (cont’d)
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Change call center operations to service top customers Eliminate discounts and promotions
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“My loyalty cannot be bought!”

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Casino CRM Program
Customization
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As previously stated, special promotions and events aimed at “preferred” players
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Invitation-only events Segmented mailers, with increased bonuses for better customers More personalized customer service Improved access to casino comps (including non-gaming comps)
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Casino CRM Program
Customization
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In a casino, very little product customization is possible – a slot machine is a slot machine Focus is on cosmetics
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Customer service tends to distinguish one casino from another Gift baskets, wine, and champagne for hotel/restaurant guests
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IT’s role in CRM
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Three general types of eCRM packages
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Marketing Automation Systems (MAS)
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Customer database creation Analysis of customer attributes Automate several marketing functions Intended to automate many functions performed by salespeople If completely successful, it will eliminate the “personal touch”
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Sales Force Automation (SFA)
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IT’s role in CRM (cont’d)
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eCRM package types:
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Customer Service Automation systems
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Augments call center personnel Some can respond to e-mails on their own Ties-in to existing company software, including other eCRM packages (generally…)

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IT’s role in CRM (cont’d)
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Selecting the right CRM packages
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Step 1: size the package to your firm Step 2: gather as much information on every package sized appropriately Step 3: using a standard formula, evaluate the packages and make a choice

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IT’s role in CRM (cont’d)

34 Source: The CRM Solutions guide. 2001. www.crmguru.com

IT’s role in CRM (cont’d)
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CRM and ERP
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Determine if a package can be tied-in to the enterprise’s ERP system before making a purchase decision Inventory, order processing, and accounts receivable features can be used to augment the CRM program Goal: establish a closed-loop eCRM solution
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IT’s role in CRM (cont’d)
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Data mining tools
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Market basket analysis and automatic cluster generation Decision trees and memory-based reasoning Neural net systems

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CRM in the Supply Chain
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Goals of Supply Chain Management:
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Reduce uncertainty and risks in supply chain Positively affect inventory levels, cycle time, processes, and end-customer service levels
Useful for forecasting and planning Improves customer service levels
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Customer Relationship Management
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CRM across Company Functions
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Marketing – Account management expertise Research & Development – Specifications that define requirements Logistics – Knowledge of customer service requirements Production – Manufacturing strategy Purchasing – Sourcing strategy Finance – Customer Profitability Reports
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Customer Relationship Management
Wrap-Up

Knowing your customers improves profits
Focus on the best, treat midrange as group, and discourage bottomfeeders Customize product and service to retain good customers Give CRM time to pay off; a good CRM program will be worth the investment

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