MANAGING CUSTOMER LIFE CYCLE

CLC is a representation of the stages that customers go through

in their relationship with a company, as seen from the
company’s perspective.

CUSTOMER Companies develop

ACQUISITION strategies and
processes for moving
CUSTOMER customers through
RETENTION these three stages,
often but not always
CUSTOMER with the help of CRM.
DEVELOPMENT

1
 MANAGING CUSTOMER LIFE CYCLE

trying to keep the

customers and
trying to sell them
when customers have more
relationship with, but
decide to buy
something from us.
attracting and bringing
the reached person into
the influence sphere of
our organization.

trying to get the

attention of the people
we want to reach.

2
 SIGNIFICANCE OF CUSTOMER ACQUISITION
New customers have to Even in well-managed companies
be acquired to build there can be a significant level of
companies. customer attrition
The first task in managing Customer acquisition is always
the customer lifecycle is to the most important goal
acquire customers. during new product launches.

Customer acquisition is always the most important goal during

new product launches.

For small businesses with ambitions to grow, customer

acquisition is often as important as customer retention.

Acquiring profitable customers, as measured by customer

lifetime value (CLV), should be the goal of CRM strategy.
3
 SIGNIFICANCE OF CUSTOMER ACQUISITION
A number of important questions have to be answered when a company puts
together a customer acquisition plan.

1. Which prospects (potential new customers) will be targeted?

2. How will these prospects be approached?
3. What offer will be made?

iD Fresh Food has invested in a lean manufacturing and supply process and
designed a unique distribution model that ensures freshness all along the
value chain, thus, refusing to rely on preservatives or chemicals to increase
shelf life.
It is this value chain that competitors have failed to replicate.
Their marketing campaign has a strong brand value that resonates with
millions and relies primarily on word of mouth. They have made conscious
efforts to hire young talent from remote villages and small towns and trained
them in manufacturing and sales, ensuring social responsibility.
4
 WHO IS A NEW CUSTOMER ?
A customer can be new in one of two senses:
1. New to the product category
2. New to the company

NEW TO THE PRODUCT CATEGORY

New-to-category customers are customers who have either identified a new

need or have found a new category of solution for an existing need.

EXAMPLE
When a couple have their first child, they have a completely new set of needs
connected to the growth and nurturing of their child. This includes baby clothes,
food, toys, for example. As the child grows, the parents are faced with additional
new-to-category decisions, such as pre-school and elementary education.

Sometimes, customers also become new-to-category because they find a new

category to replace an existing solution.
Such as Organic Vegetables, Electric cars or for that matter iOS
5
 WHO IS A NEW CUSTOMER ?
Sometimes, customers surprise marketers by adopting established products for
new uses. Marketers then catch on and begin to promote that use.

Arm and Hammer baking soda was used by

customers to deodorize fridges and trash cans,
and as a mild abrasive for whitening teeth.
The manufacturer, Church and Dwight,
responded to this revelation and began
promoting a variety of different applications.
It is now an ingredient in toothpaste.
Their website ([Link]) provides
visitors with about 100 other tips for baking
soda applications including cleaning,
deodorizing, personal care and baking.

The website encourages visitors to write in

describing novel applications for the product.
6
On a lighter note...!!!

7
 NEW TO COMPANY
NEW TO COMPANY

New-to-company customers are won from competitors.

They might switch to your company because they feel you offer a better
solution or because they value variety.

EXAMPLE
In developed economies, new players in grocery retail can only succeed by winning
customers from established operators.

They would not expect to convert those customers completely but to win a share of
their spending by offering better customer-perceived value in one or more of
important categories.

Once the customer is in-store, the retailer will use merchandising techniques such
as point-of-sale signs and displays to increase spending.

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 NEW TO COMPANY
NEW TO COMPANY

EXAMPLE
New-to-category customers are sometimes expensive to recruit; sometimes they
are not. For example, when children leave home for university, banks compete
vigorously for their patronage.

They advertise heavily in media used by students, communicate direct-to-student,

offer free gifts and low-or zero-cost banking for the duration of the studentship.

On the other hand, supermarket retailers incur no direct costs in attracting these
same students to their local stores.
New-to-company customers can be very expensive to acquire, particularly if
they are strongly committed to their current supplier.
Commitment is reflected in a strong positive attitude to, or high levels of
investment in, the current supplier.
These both represent high switching costs.
9
 PORTFOLIO PURCHASING
New customers can be difficult to identify in markets where customers
exhibit portfolio purchasing behaviours.
Customers buy on a portfolio basis when they buy from a choice set of
several more or less equivalent alternatives.
A customer who has not bought from one of the portfolio suppliers for a
matter of months or even years, may still regard the unchosen supplier as
part of the portfolio.
The supplier, on the other hand, may have a business rule that says: ‘If a
customer has not bought for three months, mail out a special offer’.

EXAMPLE
In the UK, many grocery customers shop at both Tesco and Sainsbury’s, two of the
major supermarket chains. These retailers do not simply compete to acquire and
retain customers. Instead they compete for a larger share of the customer’s
spending; that is, to grow share-of-wallet (SOW).
10
 THE CONVERSION MODEL
Jan Hofmeyr has developed The Conversion Model.
This contains a series of questions designed to assess whether a customer is
likely to switch.
The basic premise of the model is that customers who are not committed are
more likely to be available to switch to another provider.
Commitment, in turn, is a function of satisfaction with the brand or offer, the
attractiveness of alternatives and involvement in the brand or offer.
Involvement is low if the product or its usage context is relatively
unimportant to customers.
The Conversion Model allows customers to be segmented into four subsets
according to their level of commitment.

COMMITTED CUSTOMERS UNCOMMITTED CUSTOMERS

Entrenched Shallow
Average Convertible 11
 THE CONVERSION MODEL
COMMITTED CUSTOMERS

Entrenched are unlikely to switch in the foreseeable future

Average are unlikely to change in the short term but may

switch in the medium term.

UNCOMMITTED CUSTOMERS

Shallow have a lower commitment than average customers,

and some of them are already considering alternatives.

Convertible are most likely to defect.

Hofmeyr suggests that companies can measure customer commitment by

asking just four questions:
1. How happy are you with < whatever it is > ?
2. Is this relationship something that you care about?
3. Is there any other < whatever it is > that appeals to you?
12
4. If so, how different is the one < whatever > from the other?
 EXAMPLE

Salesforce helps Uber extract data from people engaging with its brand on
social media. With this system in place, Uber can reply to customer complaints,
and track all its interactions with the public from an intuitive dashboard.

And, it runs its own loyalty program. Uber Rewards lets you earn points every
time you ride or eat with Uber, and redeem them across its increasing range of
services. It’s a great example of how Uber is incentivising customers to keep
relying on its brand,

13
 PROSPECTING
In CRM, it means searching for opportunities that might generate additional
value for the company.

Prospecting is an outcome of the market segmentation and targeting process.

Prospecting is the process of initiating and developing new business by

searching for potential customers, clients, or buyers for products or services.

B2B B2C
PROSPECTING PROSPECTING

14
STAGES OF THE SALES PROSPECTING PROCESS

3
2

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 B2B PROSPECTING
In the B2B environment, it is very often the task of marketers to generate
leads, and for the salesperson to follow up allocated leads.

Leads are individuals or companies that might be worth approaching.

The lead needs to be qualified so that sales and other resources are used
wisely to nurture a relationship with higher value prospects.

Once leads are qualified, companies need to decide the best channels for
initiating contact.

Direct-to-Customer Indirect
Channel Channel

salespeople, direct mail, Using

email and telemarketing. partners/stakeholders or
using time and space in
media.
16
 Good to Know – The Buying Centre
people within the organization who first
see the need for the product

people who may or may not

use the product, but have people and groups within
experience or expertise that the organization that
can help improve the buying actually use the product.
decision.

People (personal assistants) who

the person who makes the final will decide if and when you get
purchasing decision. access to members of the buying
centre.

17
B2B PROSPECTING

Canvassing is a technique in sales where

you try to sell to potential customers who
have little or no experience with the
brand before you contact them.

It may be used to increase sales, improve

brand awareness and grow their customer
base

18
 B2C PROSPECTING
In B2C contexts, the distribution of customer acquisition effort is different.

More emphasis is put on advertising, sales promotion, buzz or word-of-mouth,

social media and merchandising.

Advertising
Advertising is the creation and delivery of messages to targeted audiences
through the purchase of time or space in media owned by others.

Advertising can also evoke powerful

Cognitive advertising emotional responses in audiences.
objectives include: raising The type of response that advertisers
awareness, developing seek in prospects is ‘I like the look of
understanding and that. I really must try it.’ This is an
generating knowledge. affective response linked to a buying
intention.
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 VIDEOS

[Link]

[Link]
 B2C PROSPECTING

Message Media
• Recall.
Print
How much of the ad can the sample recall?
Web
• Comprehension.
Electronic
Does the sample understand the ad?
• Credibility.
Is the message believable?
• Feelings evoked.
How does the sample feel about the ad?
• Intention-to-buy.
How likely is it that the sample will buy?

21
 SALES PROMOTION
A sales promotion is a marketing strategy in which a business uses a
temporary campaign or offer to increase interest or demand in its
product or service.

SAMPLING FREE TRIAL

DISCOUNTS COUPONS
CASH BACK BONUS PACK
BANDED PACKS FREE PREMIUMS
CROSS PROMOTIONS COMPETITIONS

BUZZ/WORD-OF-MOUTH
22
 USING SOCIAL MEDIA
It is in the B2C context that social media are more widely used.
Social media are Internet-based applications that allow the creation and
exchange of user-generated content.

Companies can develop a page or create a channel that prospective customers

can visit.

Engaging, interactive content may motivate visitors to spend time on the page,
eventually leading to trial purchase.

Companies can also use social media as an advertising medium.

Technology, in the form of social CRM applications, can be used to search social
media for references to competitors’ brands, and then join the conversation.

Established customers may become fans and benefit from receiving up-to-date
news feeds about the company and its products, passing on their enthusiasm
in ‘likes’ and ‘shares’ to friends in their social network, thereby generating new
customers for the brand. 23
USING SOCIAL MEDIA

24
 THE POWER OF INFLUENCERS
It is also suggested that encouraging influencers in social media to promote a
brand message into their social networks can be extremely powerful.

The objective is to identify & build relationships with influential people who
have a following of hundreds of thousands who in turn influence millions.
Influencer marketing is increasingly more popular among businesses these
days because traditional advertising has become less effective in attracting
leads and customers.

25
 BRAND INFLUENCERS/BRAND AMBASSADORS

A brand influencer is someone who has A brand ambassador is hired by a business to

a following within a specific segment work under contract to help them achieve
that they engage with regularly. specific goals:
increase brand awareness and boost
They have the power to impact their conversions and sales.
purchase decisions.
26
 MERCHANDISING
Merchandising is designed to influence behaviour in store or at other
points-of-sale such as restaurants, banks or retail outlets.

These include retail floor plans, shelf-space positioning, special displays,

window displays and point-of-sale print.

Eye-level positions on shelves are generally more productive than ‘reach’ or

‘stoop’ positions.

If merchandisers can position new products in these preferred positions sales

will be positively influenced.

A study by Deloitte has found that a growing

percentage of shoppers use their smart
phones in store, particularly for research,
product reviews and price comparisons of
big-ticket items 27
 OTHER TOOLS FOR B2C CUSTOMER ACQUISITION
Some companies believe that delighted customers will
always speak well of the company.
Eismann, the German frozen food manufacturer, estimates
that 30% of its new customers are recruited by referrals
from satisfied customers
Despite high levels of naturally occurring referral, companies may still choose
to develop a Customer Referral Scheme (CRS)/ Member-Get-Member (MGM)/
Recommend-A-Friend (RAF) schemes.
These work by inviting existing customers to recommend a friend and
rewarding the recommender with a gift.

Lexus invites up to 300 potential buyers to stylish events

such as dinner-and-concert performances. The Lexus
vehicles are on display. Also invited are current Lexus
owners who sit among the prospects and talk to them.
Lexus knows from customer satisfaction surveys which
customers to invite. 28
 Good to Know...!!!

Julian Villanueva and colleagues have researched the effects of

marketing-induced vs. word-of-mouth customer acquisition on firm
performance.

Using data from an Internet firm that provided free Web hosting to
registered users during a 70-week-long observation period, they found
that customers acquired through WOM were themselves productive
at generating new customers through their own WOM.

They also generated more word-of-mouth activity than those acquired

by marketing-induced channels.

Each customer acquired through marketing is expected to bring around

1.59 new customers throughout his or her lifetime, while a customer
acquired through WOM is expected to bring 3.23 customers.
29
 KPI’S OF CUSTOMER ACQUISITION PROGRAMMES
CRM practitioners are concerned with the following three key
performance indicators (KPIs) for customer acquisition activities:

1. How many customers are acquired?

2. What is the cost per acquired customer?
3. What is the value of the acquired customer over the longer term?

Companies can compare the relative costs of customer acquisition per channel
before deciding how to spend their acquisition budget.
For example, a motoring membership organization knows that its
member-get-member scheme has a direct cost per new customer of $22
compared to $100 for Direct Response TV and $70 for door drops. The
average is $35.

To acquire new customers through relatively

costly but fast-acting marketing investments or
through slower but low- or zero-cost WOM
processes....? 30
OPERATIONAL CRM TOOLS THAT HELP CUSTOMER
ACQUISITION

LEAD MANAGEMENT

CAMPAIGN MANAGEMENT

EVENT-BASED MARKETING

31
 OPERATIONAL CRM TOOLS THAT HELP CUSTOMER
ACQUISITION
LEAD MANAGEMENT
Lead Qualification Prioritize leads so that a company can invest its selling and
marketing resources where they generate the best returns.

Lead Allocation Processes ensure that leads are routed to the right
salesperson.

Lead Nurturing Ensure that leads receive levels of service & support that
help build trust and confidence prior to becoming buyers.

Lead Tracking Trace the conversion of prospects into customers

32
 OPERATIONAL CRM TOOLS THAT HELP CUSTOMER
ACQUISITION
CAMPAIGN MANAGEMENT
Campaign management software is widely deployed in B2C environments and
increasingly in B2B environments for new customer acquisition.

Campaign managers design, execute and measure marketing campaigns with the
support of CRM technologies.

33
 OPERATIONAL CRM TOOLS THAT HELP CUSTOMER
ACQUISITION
EVENT-BASED MARKETING

Event-based marketing (EBM/EDM) is also used to generate new customers.

EBM provides companies with opportunities to approach prospects at times that

have a higher probability of leading to a sale.

EXAMPLE – RETAIL BANKING

In retail banking, an event such as :
❑A large deposit into a savings account might trigger an approach from the
bank’s investment division.
❑A name-change might trigger an approach from a financial planner.
❑A call from a customer enquiring about rates of interest on a credit card
might trigger a call from a customer retention specialist.
34
 OPERATIONAL CRM TOOLS THAT HELP CUSTOMER
ACQUISITION
EVENT-BASED MARKETING
Many B2C companies can link purchasing to life-stage events.

Example : Finance companies target mortgages at newlyweds

Example : Clothing retailers target different offerings at customers as they age:

branded fashion clothing at single employed females, baby clothes for new
mothers

If we can associate purchasing with particular life-stage events we will be

well placed to target our customer acquisition efforts.

Turning Life Stages into

Products 35
 Turning Life Stages into Products

TEENS COLLEGE STUDENTS EARLY ADULTHOOD

CARE-GIVERS PARENTS SENIORS

The program is part of the bank’s broader effort to deepen its customer relationships.

Back in October, 2018, Bank of America launched an employee training curriculum called “Lifestage
Navigation” – a training program designed to focus on customers’ key life stages
(Source:
[Link] 36
customer-life-cycle-marketing-strategy/)
 Good to Know…!!!
Whether it’s friendship or even a relationship with a Brand, all relationship move in 3 Stages…
Can this Product or Service help me
Survive….?
Customer will KEEP or DISCARD AirPods can detect when they’re in your
Relationship Stages ear and not. Taking out one or both
AirPods from your ear pauses media
playback.

For two years, Apple's AirPods CURIOSITY They are smart enough to detect when
were a bizarre curiosity. They were you start talking & turns on beam-forming
clever, but they looked odd microphones. The BFM reduce actively
eliminate background noise and focus on
your speech.

Enlighten Customers…How the

Brand Works ?
COMMITMENT ELIGHTENMENT It invites Customers for a
Gradually enlightening customers Relationship
reduces risk With broad adoption, Apple has
managed to re-architect what is
Enlightenment leads to Commitment socially acceptable and desirable.
37
Source: Marketing Made Simple, Donald Miller, JJ Peterson
38

Caselet
 NEED FOR CUSTOMER RETENTION

Acquiring a new customer can be 5

to 25 times more expensive than
holding on to an existing one…

39
 CUSTOMER RETENTION
Customer retention refers to a company’s ability to turn customers
into repeat buyers & prevent them from switching to a competitor.

Customer retention strategies are the processes firm put in place

to build customer loyalty and improve customer lifetime value.

Retaining customers is about more than

just transactions, it’s about relationships.

Research shows that customers view

their relationships with brands
similarly to their relationships with
friends.

Customers like brands that are reliable,

authentic, and aware of what matters to them. 40
 BENEFITS OF CUSTOMER RETENTION

Cost Savings: Customer retention is generally more

cost-effective than acquiring first-time customers

Positive word of mouth marketing: Loyal customers

are more likely to tell their friends and family about
your brand

A better bottom line: Increasing retention rates by

just 5% can increase revenue by 25% to 95%

41
SIGNIFICANCE OF CUSTOMER RETENTION

42
 BENEFITS OF CUSTOMER RETENTION
A customer retention strategy aims to keep a high proportion of
valuable customers by reducing customer defections (CHURN).

A customer development strategy aims to increase the value of

those retained customers to the company.

Customer acquisition focuses on particular prospects, retention

focuses on particular customers.

Focus is necessary because not all

customers are worth retaining and
not all customers have potential for
development. 43
 PRIOR TO CUSTOMER RETENTION
Which customers will be targeted for retention?

What customer retention strategies will be used?

How will the customer retention performance be measured?

43.6%

950 623 750

44
 HOW SILOS AFFECT RETENTION

Sometimes companies are not clear about whether

an individual customer has defected.

PRODUCT SILOS

CHANNEL SILOS

FUNCTIONAL SILOS

45
 Just a Thought…?
If you have 100 customers and lose 10 in the course
of a year, the defection rate is 10%.
What happens if the 10% of
But what if these customers
customers lost buy very little and/or
account for 25% of your company’s
have a high cost-to-serve?
sales? Is the true defection rate
25%?
It could be that the 10% contributes
less than 5% of sales and actually
Consideration of profit makes the
generates a negative profit; that is,
computation even more complex.
they cost more to serve than they
generate in margin.
If the 10% of customers that
defected produce 50% of your
The loss of some customers might
company’s profits, is the true
enhance the company’s profit
defection rate 50%?
performance.

46
 MEASURES OF RETENTION
RAW CUSTOMER RETENTION RATE
This is the number of customers doing business with a firm at
the end of a trading period expressed as a percentage of those
who were active customers at the beginning of the period.

SALES-ADJUSTED RETENTION RATE

This is the value of sales achieved from the retained customers,
expressed as a percentage of the sales achieved from all
customers who were active at the beginning of the period.

PROFIT-ADJUSTED RETENTION RATE

This is the profit earned from the retained customers,
expressed as a percentage of the profit earned from all customers
who were active at the beginning of the period.
47
 Examples
Consider a corporate customer purchasing office equipment. The
customer's business is expanding fast.

It purchased 30 personal computers (PCs) last year, 20 of which were

sourced from Apex Office Supplies. This year it bought 50 PCs, of which
30 were from Apex.

From Apex's point of view it has grown customer value by 50% (from
20 to 30 machines), which it might regard as an excellent achievement.

However, in a relative sense, Apex's share of customer has fallen from

67 % (20/30) to 60% (30/50).

How should Apex regard this customer?

The customer is clearly a retained customer in a “raw” sense, has grown

in absolute value, but has fallen in relative value. 48
 MANAGING CUSTOMER RETENTION
Companies should focus on retaining customers that contribute value
on as-well-as retention of share-of-wallet.

Many customers simply change their buying behaviour rather than

defect.

Changes in buying behaviour may be responsible for greater changes

in customer value than defection.

EXAMPLE
One bank, for example, lost 3% of its total balances when 5% of savings
account customers defected in a year.
But lost 24% of its total balances when 35% of customers reduced the
amounts deposited in their checking accounts.
The need to manage migration rather than defection is particularly
true when customers engage in portfolio purchasing by transacting
with more than one supplier. 49
MANAGING CUSTOMER RETENTION

How can we become the To turn the commercial strategy into a

destination bank for savings? winning customer proposition.

Rigorously analyzed the bank’s existing customer

RBS knew that its existing segments
customers held £50BN+ in savings
with other banks & the strategy Analyzed two profitable segments
was to secure £7.5BN of this.
Used in-depth qualitative research to uncover the
triggers and barriers to increasing their savings
Created a Proposition:
“Transforming Customer’s Lives
Through The Power Of Saving”
Double-digit % increase (average) in savings
balances held by two key target segments with
Created a pipeline of new
product ideas including a
RBS within 3 years.
coaching tool.

50
ECONOMICS OF CUSTOMER RETENTION

INCREASING PURCHASES AS TENURE GROWS

LOWER CUSTOMER MANAGEMENT COSTS OVER

TIME.

CUSTOMER REFERRALS.

PREMIUM PRICES

51
 WHICH CUSTOMERS TO RETAIN ?
Customers who have greatest strategic value to the company are
prime candidates for your retention efforts.

Customers who have high CLV

The level of commitment between the customer and the company will
figure in the decision about which customers to retain.

Some companies prefer to focus their retention efforts on their

recently acquired customers. They often have greater future
lifetime value potential than longer tenure customers.

There is some evidence that retention rates rise over time, so if

defections can be prevented in the early stages of a relationship, that
will enhance future revenue streams and profitability.

52
 MANAGING UNPROFITABLE CUSTOMERS
Sprint Nextel sent out letters to about 1,000 customers on June 29,
2007, to inform them that they had been summarily dismissed—but
the recipients were Sprint customers, not employees.

For about a year, the wireless-service provider had been tracking the
number and frequency of support calls made by a group of
high-maintenance end users.

As a Sprint spokeswoman told Reuters in July, “In some cases, they

were calling customer care hundreds of times a month…on the
same issues, even after we felt those issues had been resolved.”

Ultimately, the company determined it could not meet the

billing and service needs of this tiny subset of subscribers and,
therefore, waived their termination fees and cut off their
service.
53
 MANAGING UNPROFITABLE CUSTOMERS
TXU, a large power provider in Texas, in 2005 implemented a tough
marketing strategy in response to the competitive pressures.

It stopped services to late-paying customers then charged them

expensive reconnect fees, and it offered perks to those who paid on
time.

As a result, it reduced its “bad debt” from non-paying customers and

enjoyed productivity increases among employees who had
previously spent a lot of time fielding calls from scofflaws.

As one senior TXU financial executive says “A customer who calls

you every day is less profitable than one who pays on time and
never calls you.”

54
STRATEGIES FOR CUSTOMER RETENTION

NEGATIVE RETENTION POSITIVE RETENTION

STRATEGIES STRATEGIES

High switching costs Customer Delight

Exit penalties understand customer

requirements
Service related charges exceeding customer
expectations.
The danger for CRM
practitioners is that
negative customer CD = P > E
retention strategies CD = Customer Delight,
P = Perception of Performance
produce customers who
E = Expectation
feel trapped
55
KANO’S CUSTOMER DELIGHT MODEL

56
 KANO’S CUSOTMER DELIGHT MODEL
Some efforts to delight customers can go wrong.

A number of companies across industries have explicitly adopted ‘Customer

Delight’ as their mission.

It is in the interaction with customers that employees have the opportunity

to understand and exceed their expectations.

The service quality attributes of empathy and responsiveness successfully

delight customers.

The service quality attributes of empathy and responsiveness successfully

delight customers.

According to the KANO Model, what used to be an attractive attribute

becomes a linear or basic attribute. It no longer delights.
Delight decays into normal expectation, and companies have to look for new
ways to pleasantly surprise customers.
57
 DEALING WITH CUSTOMER EXPECTATION

Cross-industry benchmarking has the potential to provide “innovative” 58and

“adoptable” ideas from companies across the industries.
 ADDING CUSTOMER PERCEIVED VALUE
Companies can explore ways for customers to experience additional value
as they buy and use products and services.

The ideal is to enable additional value to be experienced by customers

without creating additional costs.

If costs are incurred then customers may be expected to contribute towards

cost recovery.

LOYALTY SCHEMES

CUSTOMER CLUBS

SALES
PROMOTION
59
 ADDING CUSTOMER PERCEOVED VALUE
LOYALTY SCHEMES
Loyalty schemes reward customers for their patronage/loyalty.

DEFINITION
A loyalty scheme is a customer management programme that offers delayed or
immediate incremental rewards to customers for their cumulative patronage.

A loyalty scheme provides It also demonstrates that the

psychological benefits to company appreciates its customers.
customers, such as a sense of
belonging and of being valued, and
an enjoyable anticipation of The reward acts to positively
desirable future events. reinforce purchase behaviour.

This sense of being recognized as

During loyalty redemption,
valued & important enhances
customers receive both
overall sense of well-being and
psychological and material benefits.
emotional attachment to the firm.
60
Total Relationship Loyalty – Citi’s “Thank You”

In 2010, it won the Master of Enterprise Loyalty Award by LoyaltyOne

Ideally, a Loyalty Program should be a competitive advantage & hard for competition61to
replicate
Banking - Exemplifying Total Relationship Loyalty

India’s Premier Loyalty and Consumer Engagement

Company

Best Loyalty Program in

Financial Sector 2019

62
[Link]
Caselet

63
 CUSTOMER CLUBS
A customer club is a company-run membership organization that offers a
range of value-adding benefits exclusively to members.

IKEA FAMILY, the home furnishing retailer’s club,

offers members discounts on selected IKEA products,
restaurant and service offers, a free home furnishing
magazine quarterly, free product insurance and news
updates via email.

There are over a million paid-up members of the

Harley Owners Group that was established in 1983.
They choose from four types of membership, and a
variable membership length from one year to lifetime.
Among the many benefits are roadside assistance, a
membership manual, a touring handbook, a dedicated
website and magazines.

[Link]
64
 SALES PROMOTION
In pack or On-pack Customers buy the product and receive a voucher entitling
Voucher them to a discount off one or more additional purchases.

Rebate or Cash-back Rebates are refunds that the customer receives after
purchase.

Patronage Awards Customers collect proofs of purchase, such as store

receipts or bar codes from packaging, that are surrendered
for cash or gifts. The greater the volume purchased, the
bigger the award.
Free premium for The customer collects several proofs of purchase and mails
continuous purchase. them or surrenders them at outlet to obtain a free gift.

Collection Schemes These are long-running schemes in which the customer

collects items with every purchase

Kellogg’s ran a promotion in which they inserted picture cards of

carefully chosen sports stars into packets of cereals. Customers
didn’t know what card they had until they bought and opened the
pack. These became collectible items 65
 SALES PROMOTION

“Collecting 300 Runs and 30

Wickets would get you a calendar
with cricketers photo and
autograph”

The brand has a strong recall

value, not because of the flavours,
[Link] but because of the collectables ...
66
BNgY
 SALES PROMOTION

[Link]
aWLC6BNgY
 BONDING
Researchers have identified many different forms of bond between
customers and suppliers.

FINANCIAL BONDS

SOCIAL BONDS

STRUCTURAL BONDS

CUSTOMISATION BONDS

[Link]
ategies/customer-retention-strategies-in-service-marketing-top-4-stages/17681
68
 BONDING
FINANCIAL BONDS
The customer is tied to the firm through financial incentives; lower prices for greater
volume purchases or lower prices for customers who have been with the firm long
time.

In Airlines, Frequent Flyer programs provide financial incentives and car rental
companies do the same.

Unfortunately, financial incentive does not generally provide long-term advantages to a

firm because, unless combined with another relationship strategy, they don’t
differentiate the firm from its competitors in the long run.

69
 BONDING
SOCIAL BONDS
In this stage, strategies bind customers to the firm through more than financial
incentives.
Although price is still assumed to be important, here marketers build long-term
relationship through social and interpersonal as well financial bonds.
Customers are viewed as “clients” or “partners” not nameless faces, and becomes
individuals whose needs and wants the firm seeks to understand.
Social, interpersonal bonds are common among professional service providers
(lawyers, accountants, and teachers) and their clients as well as among personal
care providers (hair-dressers, counsellors, healthcare providers) and their clients.

70
 BONDING
CUSTOMISATION BONDS
In this stage, strategies involve more than social ties and financial incentives.
Segment based customisation is the aim.
Two commonly used terms fit within the customisation bonds approach – mass
communication and customer intimacy.

Both of these strategies suggest that customer loyalty can be encouraged through
intimate knowledge of individual customers and through the development of
“one-to-one” solutions that fit the individual customers’ needs.

Caterpillar dealers are relied on not just to form strong personal commitments
to customers. They are also relied on to feed information back into the system
to help Caterpillar customise services to fit developing customer needs.
71
 BONDING
Structural Bonds
Legal Bonds
Equity bonds – both partners invest in order to develop an offer for customer eg franchise

Knowledge based bonds –investing in knowing/understanding each others processes ,structures

, strengths and weakness

Technological bonds –where technologies are aligned eg SAP

Process bonds eg JIT

Value based bonds eg body shop

Project bond - when partners are engaged in special activity outside their normal commercial
arrangements eg new product development eg Iridium

Multi product bond –when customer buys many products from one supplier , bond difficult to
break

72
 BUILDING CUSTOMER ENGAGEMENT
The final positive strategy for improving customer retention is to build customer
engagement.

Various studies have indicated that customer satisfaction is not enough to ensure
customer longevity.

Reports that 65 per cent to 85 per cent of recently

churned customers claimed to be satisfied with
their previous suppliers.
RESEARCH
STUDY Another study reports that one in ten customers
who said they were completely satisfied, scoring 10
out of 10 on a customer satisfaction scale, defected
to a rival brand the following year.

Having satisfied customers is increasingly no more than a basic requirement.

Today, many commentators are stressing the need for companies to lift levels of
customer engagement instead of just focusing on customer satisfaction. 73
 THE POWER OF ENGAGED CUSTOMER
Engaged consumers are generally thought to have a higher intensity of
participation in and connection to a brand or organization
Engaged Customers feel a strong sense of connection to the organization or brand
based on their experiences of the firm’s offerings, activities and reputation.

ELEMENTS OF CUSTOMER ENGAGEMENT

COGNITIVE
ENGAGEMENT The cognitive and affective elements reflect
the experiences and feelings of customers.
AFFECTIVE
ENGAGEMENT

BEHAVIOURAL The behavioural and social elements capture

ENGAGEMENT brand or organizational participation by
consumers, beyond merely buying the firms’
SOCIAL offerings.
ENGAGEMENT 74
 THE POWER OF ENGAGED CUSTOMER
Consumers who are engaged do more than just buy.
They may perform acts of ‘corporate citizenship’, such as being an unpaid
advocate by uttering positive word-of-mouth, providing frequent feedback on their
experiences, participating in company research, contributing to a new product or
service development.
Preliminary research indicates that engaged consumers can exhibit greater
loyalty to brands than unengaged consumers.
Engaged customers develop a close affinity to the brand and become highly
resistant to competitive influence.

CUSTOMER ENGAGEMENT IN BANKS

Relevant research indicates that the rate of account closure

at a bank was 37% lower for emotionally engaged
customers than for rationally satisfied customers.
75
 RELATIONAL ATTACHMENT
Customers can become highly attached to a company’s people.
An emotional tie may be formed with an individual person, a work group or the
generalized company as a whole
Customers who talk about ‘my banker’ or ‘my mechanic’ or ‘my builder’ are
expressing this attachment. They feel a sense of personal identification with that
individual.
Often, these are employees who ‘break the rules’ or ‘go the extra mile’.
They are reliable, competent, empathic and responsive.

American Express tells the story of a customer service

agent (CSA) who responded to a call from a customer who
had been robbed, by arranging to have replacement
travellers cheques delivered personally to the customer.
The CSA also confirmed the customer’s hotel reservation,
arranged for a car to collect the customer from the phone
booth and notified the police. All of this was above and
beyond the CSA’s call of duty. 76
 VALUE-BASED ATTACHMENT
Customers may develop a strong sense of emotional attachment when their
personal values are aligned with those of the company.

Values are core beliefs that transcend context and serve

to organize and direct attitudes and behaviours.

Customers have many and varied core beliefs such as sustainability, honesty, child
protection, independence, family-centredness and so on.
Where these values coincide with those of an organization, the customer may
develop a strong sense of emotional attachment to the organization.

77
Refer to Page 106, CRM, Francis Butle
THE POWER OF ENGAGED CUSTOMER

78
 KPI’s – CUSTOMER RETENTION PROGRAMME
CRM practitioners may focus on a number of key performance indicators (KPIs) as
they measure the impact of their customer retention strategies and tactics, among
them the following:

1. Raw customer retention rate in each customer segment.

2. Sales-adjusted retention rate in each customer segment.
3. Profit-adjusted retention rate in each customer segment.
4. Cost of customer retention.
5. Share-of-wallet of the retained customers.
6. Customer churn rate per product category, sales region or channel.
7. Cost-effectiveness of customer retention tactics.

79
 THE ROLE OF RESEARCH
Companies can reduce levels of customer churn by researching a
number of questions:
1. Why are customers churning? (REASONS)
2. Are there any lead indicators of impending defection?
(CLUES)
3. What can be done to address the root causes? (ACTIONS)

The first question can be answered by contacting and

investigating a sample of former customers to find out why
they took their business elsewhere.

Customers defect for different reasons, not all of which can be

foreseen, prevented or managed by a company.

80
 CUSTOMER DEFECTION SIGNALS
The second question attempts to find out if customers give any early
warning signals of impending defection. If these were identified the
company could take pre-emptive action.

Signals might include the following:

1. Reduced RFM Scores (Recency–frequency–monetary Value)

2. Non-response To A Carefully Targeted Offer
3. Reduced Levels Of Customer Satisfaction
4. Dissatisfaction With Complaint Handling
5. Reduced Share Of Customer Wallet
6. Inbound Calls For Technical Or Product-related Information
7. Late Payment Of An Invoice
8. Querying an invoice

81
 THE ROLE OF RESEARCH
Identified eight causes of switching behaviours in the service
industries :
PRICE INCONVENIENCE
CORE SERVICE
FAILURES
FAILED EMPLOYEE RESPONSE

ETHICAL PROBLEMS INVOLUNTARY FACTORS

COMPETITIVE ISSUES SERVICE ENCOUNTER FAILURES

Another industry-specific study found that between 20% and 25%

of supermarket shoppers changed their primary store in a
12-month period. 24% of switchers changed loyalty because a new
competitive store had opened, 14% because they had moved
house, 11% for better quality and 10% for better choice.
82
 STRATEGIES FOR CUSTOMER DEVELOPMENT
Customer development is the process of growing the value of
retained customers.

Companies generally attempt to cross-sell and up-sell products

into the customer base whilst still having regard for the
satisfaction of the customer.

CROSS-SELLING UP-SELLING

Cross-selling is selling Up-selling is selling higher

additional products and priced or higher margin
services to an existing products and services to an
customer. existing customer.
83
 STRATEGIES FOR CUSTOMER DEVELOPMENT

Campaign Management Event-based Marketing

Data Mining Customisation

Integrated Customer
Channel Integration
Communication

Marketing Optimisation

84
STRATEGIES FOR TERMINATING CUSTOMER RELATIONSHIPS
A review of customer value might identify customers that are candidates for
dismissal, including customers who will never be profitable or who serve no
other useful strategic purpose.

More specifically, these include fraudsters, persistent late payers, serial

complainants, those who change their minds with cost consequences for the
supplier, and switchers who are in constant search for a better deal.

Nypro, a plastic injection moulder, had 800 customers and sales of

$50 million when it decided to move out of low value-added
manufacturing. Many of these customers served no useful strategic
purpose.
Ten years later the company had only 65 customers, all of whom
were large, and required value-added solutions rather than cheap
moulded products. However, sales revenue had reached $450
million. 85
STRATEGIES FOR TERMINATING CUSTOMER RELATIONSHIPS
Sacking customers, sometimes called ‘de-marketing’, needs to be conducted
with sensitivity.

Customers may be well connected and spread negative word-of-mouth about

their treatment.

UK banks began a programme of branch closures in

geographic areas that were unprofitable.

Effectively, they were shedding low value customers in

working-class and rural areas.

There was considerable bad publicity, government

intervened and the closure strategy was reviewed.
86
Caselet

87
STRATEGIES FOR SHEDDING UNPROFITABLE CUSTOMERS

Make them profitable by raising prices or cutting

the cost-to-serve.

Un-bundle the offer.

Respecify the product.

Reorganize sales, marketing and service

departments.

Introduce ABC class service.

88
 STRATEGIES FOR SHEDDING UNPROFITABLE CUSTOMERS

HARDLINERS
Take an active & rigorous stance in terminating unprofitable
relationships, as they do a regular evaluation of their customer portfolio.
Factors such as a potential loss of trust in relationships or negative
word-of-mouth do not hinder their willingness to sack unprofitable
customers.
APPEASERS
Take a more cautious approach concerning the termination of unprofitable
relationships, due to strategic considerations such as not playing customers
into competitors’ hands.

UNDECIDED
Are reluctant to terminate unprofitable relationships, mainly because
they fear the costs of attracting new customers.
89
 STRATEGIC CRM

STRATEGIC CRM

90
 CUSTOMER PORTFOLIO
A customer portfolio is the collection of mutually exclusive customer groups
that comprise a business’s entire customer base.

In other words, the customer portfolio is made up of customers clustered on

the basis of one or more strategically important variables.

1. Price-Sensitive 2. Experience 3.
Shoppers Shoppers Ready-To-Purchase
Shoppers
4. Latest Product 5. Research
Shoppers Shoppers

At one end, all customers are assigned to a single cluster and offered the
same value proposition; at the other, each customer is a unique
‘cluster-of-one” and offered a unique value proposition.
[Link]
91
 CUSTOMER VALUE PROPOSITION

“Client Value Proposition is a PROMISE that

EXPLAINS what BENEFIT we provide for
whom and how we do it UNIQUELY well”

It describes our target client, the PAIN POINT we

SOLVE, and why we are DISTINCTLY BETTER than
the alternatives.”
92
 CUSTOMER VALUE PROPOSITION
A value proposition is a company’s promise that customers will experience a
specified bundle of benefits from their use or consumption of a company offering.

Strategic CRM’s principles is that not all customers can, or should, be

managed in the same way – unless it makes strategic sense to do so.

Customers not only have different needs, preferences and expectations,

but also different revenue and cost profiles, and therefore should be
managed in different ways.

In the B2B context, some customers might be offered customized

product and face-to-face account management; others might be
offered standardized product and web-based self-service.
If the second group were to be offered the same product options
and service levels as the first, they might end up being
unprofitable customers for the company. 93
Caselet

94
 BASIC DISCIPLINES FOR CPM
Market segmentation is the process of dividing up a market into more-or-less
homogenous subsets for which it is possible to create different value
propositions.

Market segmentation processes can be used during CPM for two main
purposes:

They can be used to segment To cluster current customers

potential markets to with a view to offering
identify which customers to differentiated value propositions
acquire. supported by different
relationship management
strategies.

95
 BASIC DISCIPLINES FOR CPM
The market segmentation process can be broken down into a
number of steps:
1. Identify the business you are in.
2. Identify relevant segmentation variables.
3. Analyze the market using these variables.
4. Assess the value of the market segments.
5. Select target market(s) to serve.

Before Haagen-Dazs, it was known that

ice-cream was a seasonally sold product aimed
primarily at children. Haagen-Dazs upset this
logic by targeting an adult consumer group with
a different, luxurious product, and all-year round
purchasing potential.
96
 ANALYSING CONSUMER MARKETS
Consumers can be clustered according to a number of shared
characteristics. These can be grouped into user attributes and
usage attributes.

97
 ANALYSING CONSUMER MARKETS
VARIABLES DEFINING CUSTOMER SEGMENTS

Occupational status is widely used to classify people into social

grades. Systems vary around the world.

In the UK, the Joint Industry Committee for National Readership

Surveys (JICNARS) social grading system is employed.

This allocates households to one of six categories (A, B, C1, C2, D and
E) depending upon the job of the head of household.

Higher managerial occupations are ranked A; casual, unskilled

workers are ranked E.

Media owners often use the JICNARS scale to profile their audiences.
98
 ANALYSING CONSUMER MARKETS
VARIABLES DEFINING CUSTOMER SEGMENTS
The two other usage attributes :
VOLUME CONSUMED and SHARE OF CATEGORY SPEND are also
useful from a CRM perspective. Many companies classify their
customers according to the volume of business they produce.

McDonald’s in the USA have found that 77% of their sales

are to males aged 18 to 34 who eat at McDonald’s three to
five times per week, this despite the company’s mission to
be the world’s favourite family restaurant.
Assuming that they contribute in equal proportion to the
bottom line, these are customers that the company must
not lose. The volume they provide allows the company to
operate very cost-effectively, keeping unit costs low

99
 ANALYSING CONSUMER MARKETS

Bivariate segmentation of the chocolate market (Source: Mintel 1998) 100

Caselet

101
 DATA MINING FOR CLUSTERING
It is valuable when you are trying to find patterns or relationships
in large volumes of data, as found in B2C contexts such as retailing,
mobile telephony, financial services and Internet-based activities.

WHY ?
Customer portfolio management needs intelligent answers to questions such
as these:
1. How can we segment the market to identify potential customers?
2. How can we cluster our current customers?
3. Which customers offer the greatest potential for the future?

The company has 16 million “Clubcard” members in the UK. Not only does the
company have the demographic data that the customer provided on becoming
a club member, but also the customer’s transactional data. If ten million club
members use Tesco in a week and buy an average basket of 30 items, Tesco’s
database grows by 300 million pieces of data per week. This is certainly a huge
cost, but potentially a major benefit.
102
Caselet

103
 BIVARIATE MODELS
Benson Shapiro and his colleagues developed a customer portfolio model that
incorporated the idea of cost-to-serve into the assessment of customer value.

In this model, customers are classified according to the price they pay and
the costs incurred by the company to acquire and serve them. Four classes
of customer are identified: carriage trade (often newly acquired customers
who are costly to serve but pay a relatively high price), passive customers,
aggressive customers and bargain basement customers. 104
 Shapiro’s Matrix

• Important constribution is that it recognizes

that costs are not evenly distributed across the
customer base.
• Some customers are more costly to win/serve
and if this is followed by a relatively low price
– it may make the customer not profitable
• Costs may vary across pre-sales, production
costs, Distribution costs, Pre-sales costs
 Renato Fiocca’s approach

• Bettered this approach by introducing a two

step approach
• At the first step, customers are classified
according to
– Strategic importance of the customer
– Difficulty of managing the relationship with the
customer
 First Step: Renato Fiocca’s approach

• Strategic Importance of the customer is determined by:

– Value or volume of customer’s purchases
– Customers market leadership
– General desirability in terms of diversification of the suppliers
market – providing access to new markets, improving
technological expertise and the impact on other relationships
• Difficulty in managing customer relationships is related to
– Product characteristics such as novelty and complexity
– Account characteristics such as customer’s needs and
requirements, customer’s buying behaviour, customers powers,
customer’s preference to do business with multiple suppliers
– Competition for the account is assessed by the number of
competitors and the SW of those competitors
Difficulty of managing the relationship
First Step: Fiocca’s Model

High

KEY DIFFICULT NON KEY DIFFICULT

KEY EASY NON KEY EASY

Low

High Low
Strategic Importance of the customer
 Second Step: Fiocca’s Model

• Further analysis of the key customers. Classified on the basis of:

• Customer’s business attractiveness
– Depends very strongly on the conditions in the customer’s served
market – market factors, competition, financial and economic
conditions
• Relative strength of the customer’s relationship
– Length of the relationship
– Volumes/dollar price of purchases
– Importance of the customer
– Personal friendships
– Cooperation in product development
– Management distance
– Geographical distance
 Second Step: Fiocca’s Model

HOLD THE IMPROVE IMPROVE

Customer’s business attractiveness

POSITION RELATIONSHIP RELATIONSHIP

High STRENGTH STRENGTH

IMPROVE IMPROVE
HOLD THE RELATIONSHIP RELATIONSHIP
POSITION STRENGTH STRENGTH

Low
HOLD THE WITHDRAW WITHDRAW
POSITION

High Medium Low

Relationship Strength
 Criticism of Fiocca Model

• Criticized for
– Not considering Profitability of the customer
– And leaving out non key customers in Step 1
 TRIVARIATE CPM MODEL
Peter Turnbull and Judy Zolkiewski have developed the three-dimensional CPM
framework. The dimensions they propose are cost-to-serve, net price and
relationship value.

Relationship value is ‘softer’ or more judgemental than the other two

dimensions. Among the questions considered when forming a judgement on
relationship value are the following:

• Are the goods or services critical to the customer?

• Is the customer a major generator of volume for the company?
• Would the customer be hard to replace if they switched to competitor?
• Does the customer generate cost savings for the supplier?

112
Trivariate Analysis
 Turnbull & Zoelkiewski’s 3D Model

• The net price and cost to serve have been adapted

from Shapiro’s model
• Relationship value – allows for other “strategic”
decisions to be taken into account for e.g.
– Are the goods and services critical to the customer
– Is the customer a major generator of volume supplied
– Would the customer be hard to replace if they switch
to another supplier
• Relationship value is softer and more judgmental
than the other 2 dimensions.
 Strategically significant customers
(SSC)
• Goal of entire analytical process: cluster customers into groups
so that the differentiated value propositions can be applied.
Outcome will be the identification of SSC such as :
– High Future Life time value : will contribute significantly to the
company’s profitability in the future
– High Volume customers : might not generate too much profit but
are strategically signifcant because they absorb fixed costs and the
economies of scale
– Benchmark Customers : These are customers that other customers
follow
– Inspirations: Customers who bring about improvement in your
busienss, identify new applications, product innovations. May
complain loudly but force change for the better
– Door Openers: Customers that allow the supplier to gain access to a
new market. They may be done for no initial profit – but with a
view to provide credentials for further business
Customer portfolio
 What next?
• Profit laggards – Identify cause of
nonprofitability and control costs
• Revenue laggards – Valuable opportunity to
readjust packaging and positioning of products
• Unprofitable customers
– What makes them unprofitable?
– Any Plan of Action to make them profitable