Managing Customer Relationship 33

Unit 2: Managing Customer Relationship

Notes
Structure
2.1 Introduction
2.2 Understanding Principles of Customer Relationship
2.3 Relationship Building Strategies
2.4 Building Customer Relationship Management by Customer Retention
2.5 Stages of Retention
2.6 Understanding Strategies to Prevent Defection and Recover Customers
2.6.1 Recover Lost Customers
2.6.2 Invest to Prevent Customer Defections
2.7 Market Share vs. Share of Customers
2.8 Life Time Value of Customers
2.9 Summary
2.10 Check Your Progress
2.11 Questions and Exercises
2.12 Key Terms
2.13 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of Customer Relationship
z Discuss Building Customer Relationship Management by Customer Retention
z Explain the Stages of Retention
z Know about Sequences in Retention process

2.1 Introduction
CRM is a customer-oriented feature with service response based on customer input,
one-to-one solutions to customers' requirements, direct online communications with
customer and customer service centers that are intended to help customers solve their
issues. It includes the following functions:
z Sales force automation, which implements sales promotion analysis, automates the
tracking of a client's account history for repeated sales or future sales, and
сoordinates sales, marketing, call centers, and retail outlets.
z Data warehouse technology, used to aggregate transaction information, to merge
the information with CRM products, and to provide key performance indicators.
z Opportunity management which helps the company to manage unpredictable
growth and demand, and implement a good forecasting model to integrate sales
history with sales.
z CRM systems that track and measure marketing campaigns over multiple networks,
tracking customer analysis by customer clicks and sales.

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CRM is expanding outside of the core sales and marketing areas and systems are
available that incorporate support and finance data also into the CRM view that a user
Notes gets, enabling a wider holistic view of a customer from one screen for a user.

2.2 Understanding Principles of Customer Relationship

The principles behind building strong customer relationships are as important as ever in
today’s hyper-connected economy!
1. CRM is more than just software: CRM may in theory, be a piece of software, but
for businesses, it can be a crucial tool for helping them to improve. Using CRM
requires strategy and knowing what it is that you want to gain from using it, why is
why it isn’t just something you can install and hope it will do the hard work for you.
2. Effective Analysis is Crucial: CRM software will provide your business with a
whole host of data about your sales and your customers. Knowing how to analyse
these figures is crucial as well as working out what you will do with them. The data
collected from CRM can help you both in the present and in the future and help you
identify weak/strong points in your products in order to make changes or push what
sells the most.
3. Customer Focus is Important: The clue is in the title – ‘Customer Relationship
Management’. Whilst you are ultimately looking to improve your sales, you won’t be
able to do so without understanding your customers.
Businesses can benefit greatly from interacting with their customers. Use the data
gathered from CRM to give something back to your customers and in turn you’ll get
something back from them. By valuing and rewarding your customers you’ll
experience better customer loyalty which will continue to produce pleasing results
for your sales.
4. CRM is a Continuing Process: Whilst yes, some businesses use CRM in the short
term to promote specific products and services, CRM should be used continuously
in order to see continued results. The needs and wants of customers will continue
to change and so it is important that your business continues to change and grow
as well in order to keep them loyal to your business. Setting short term and long
term goals can help you to develop CRM strategies that will continue to produce
results.
5. Use it Across Your Entire Business: Let’s say for example, you owned a clothing
line. By implementing CRM right through from the design process (by taking not of
what your customers like, colours they prefer, which prices they’re most likely to buy
at and putting this thought into your designs), right through to customer service
(using CRM data to deal with queries quicker and more efficiently), you will have a
streamlined, customer focused business which works at all levels to improve their
experience and encourage them to continue to use your business.
6. Use CRM to Establish What Your Customers Need & How You Can Hive it to
them: Your customers will want you to be reliable, accessible, offer them security,
efficient, considerate, responsive and innovative. CRM data mining can help you to
improve on all of these points and most of all, improve the two way communication
between you both.
7. Involve all of Your Employers: Everyone from management right down to your
administrative team needs to be aware of your CRM activities and how it affects
their work. You could offer incentives based on data gathered from CRM in order to
motivate your staff, as well as identify key areas for training and development. The
better your staff know your customers, the better they can all work towards building
better relationships with them.
8. React to Your Findings: It’s all very well collecting data about your customers and
their views, but if you don’t react and respond to these finding you won’t see any
improvement in your business. A good way to get a deeper insight into your
customers’ feelings could be to engage them through social media, for example,
and actually ask them about how they use and what they would like to see from the
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brand. You can also push promotions, offers and giveaways and so on as rewards
for interacting with you via your Facebook or Twitter page for example, as many
online retailers do. Notes
9. Choose the Right Provider: Choosing the right CRM provider is crucial for
ensuring your success with this venture. Shopping around for the right provider as
well as speaking to friends, colleagues and observing your competitor’s techniques
can all help you in choosing the most suitable provider for your company. Mae sure
that you choose a provider who understands your unique needs and ‘gets’ your
business. Expert Market UK can also help you narrow down the choices.
10. Simplicity is Key: At the end of the day, customers want their shopping
experiences to be as simple as possible (take Amazon as an example). Customers
want to be able to see all of the information that they need as well as be able to
contact you easily when needed. You can identify how to do all of this using CRM in
order to make the customer experience even better than they expect.
By following the above principles, you’ll be sure to employ successful CRM strategies
for your business and hopefully develop better relationships with your customers as well
as strengthening your business practices.

2.3 Relationship Building Strategies

In every sales organization, repeat sales are the bread and butter. There’s no hard
selling needed for someone who has previously made a decision to buy from you. Small
business marketing involves keeping a closer and more personal interaction with the
customers in order to get them making repeat orders or repeat purchases. The lifetime
value of a loyal customer can be hard to come by especially in a highly competitive
market.
Repeat sales don’t happen automatically. Most customers become loyal to a
business or a product because a dedicated sales person invested time in building up a
trusting and productive business relationship over time. Small business marketing ideas
focused on making customers feel important and prioritized work a great deal in terms
of successful sales conversion.
There are many ways sales team can build relationship with the customers to
generate more repeat sales.
Customer Satisfaction: This is the first order of business for any organization
involved in sales. Keep the customers satisfied. Deliver service beyond your scope to
give the customers an unforgettable customer experience. If customers are satisfied
with your performance, they will value your service and will be happy to keep giving you
repeat sales.
Show and Express Appreciation: Always thank the customer. Most customers
are particular in gestures offered by sales personnel. From a company’s standpoint,
finding a way to show your company’s appreciation for the customer’s business may be
made through a letter or a short note or a little token, which will definitely go a long way.
Most successful businesses are not afraid to spend on something for a valued
customer.
Build Trust and Keep it: Building trust should start from the initial transaction all
the way to the after-sales stage. It’s a constant process of reinforcing the relationship
with the customer. If you are able to be honest with the customers about some of the
disadvantages of your products, you are likely to gain more credibility in the eyes of the
customers. Customers will trust you if they know you are not just after making a sale or
closing a deal.
Keep Constant Communication: Customers appreciate sales personnel who go
out of their way to inform them if there are price increases forthcoming for the products
or services that they are availing from you. Even a simple asking if the customers are
satisfied with the products will give the customers the feeling that you are genuinely

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concerned with how they find your product or service. Keeping them apprised of the
latest changes going on at the company like production delays, new models or changes
Notes to product specifications, and promotions will be valuable to them.
Be accommodating all the time: Customers love feeling special. Making every
customer feel special by instantaneously attending to their needs will trigger their
emotions and make them feel important which creates so much appreciation. Working
hand-in-hand with your customer will definitely create a happy and lasting relationship.
A successful business or sales organization makes sure that repeat sales are
achieved as these boost profits and generate more leads. By constantly building good
relationship with the customers, your business is inclined to benefit more from it
because the opportunities of making sales out of referrals made by the satisfied
customers can just make your sales volume increase and your business grow.
Creating repeat sales is easy if you are willing to go the extra mile in creating good
relationship with your clients. Superb service plus quality products are two secret
recipes of a successful business. Do remember that satisfied customers will bring in
more customers to your business and every individual is a potential client so give
quality treatment to people walking in your business.

2.4 Building Customer Relationship Management by Customer

Retention
It is difficult to exactly define customer retention as it is a variable process. A basic
definition could be ‘customer retention is the process when customers continue to buy
products and services within a determine time period’. However this definition is not
applicable for most of the high end and low purchase frequency products as each and
every product is not purchased by the customer. For example in the stock brokerage
industry, a customer may not buy a particular scrip in the given period of time but is
tended to buy the same when the conditions to buy the scrip becomes favourable and
when the customer evaluates that now this scrip could be profitable to buy. In this case
the definition of customer retention could be ‘customer retention is the process when
customer is intended to buy the product and services at next favourable buy occasion’.
These products are called as long purchase cycle products.
In some scenarios customer’s buying intentions cannot be determined with respect
to financial aspects. For example, some magazines are available online for free and
there are no intended charges to read these magazines. A reader who is frequently
reading every edition of magazine online could be considered as retained customer as
through his intentional behaviour he shows the magazine company that he likes the
magazine content and he tends to maintain a valuable relationship with the company.
Hence this magnifies one more aspect in customer retention definition that revenue is
not the deciding criteria that indicates that the customer is retained or not.
Customer retention highly depends on attrition and silent attrition rates. Attrition is
the process when customers no longer want to use product and services provided by
the supplier and breaks the relationship bond by informing the supplier that he will be no
more a customer. Most of the defecting customers don’t even intimate the supplier that
they are defecting. This process is called silent attrition where the customer stops
purchasing the product and services and divert to other suppliers without even
informing them. During attrition, organization should prepare serious customer retaining
strategies to save the customer to defect. It is often seen that if these corrective
measures are implemented successfully to save defection then retention level increases
to a much higher level as compared to a normal retention process. Silent attrition
causes the real damage to the organizations because they do not even know when the
customer defected. They find no time to implement the corrective measures to try
retaining that particular customer or even determine if the customer can be retained or
not.

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Customer retention does not make sure that the customer is loyal. For example, a
brokerage firm has both traditional trading platform and online trading platform. A
customer has his trading account in traditional platform but after some time he feels to Notes
switch to online trading platform. Now in this situation, the customer is not considered to
be loyal to the given services, but the customer is said to be retained by the same
organization.
Customer retention is a strategic process to keep or retain the existing customers
and not letting them to diverge or defect to other suppliers or organization for business
and this is only possible when there is a quality relationship between customer and
supplier. Usually a customer is tended towards sticking to a particular brand or product
as far as his basic needs are continued to be properly fulfilled. He does not opt for
taking a risk in going for a new product. More is the possibility to retain customers the
more is the probability of net growth of business.

2.5 Stages of Retention

Each stage in the customer lifecycle — acquisition, service, growth, retention — has its
own unique customer needs, attitudes and behaviours. This creates the opportunity to
identify and measure competitive performance requirements and metrics for both a
particular stage and its relationship to the entire lifecycle. Acquire, the first paper in this
Acquire, Serve, Grow, and Retain series, examines factors driving customer acquisition
and outlines a systematic process to attract and build a profitable customer base. With
that information an organization can develop a targeted customer acquisition and
retention strategy and up-selling programs as well as leverage the desired
communications channels in order to improve lifetime value. Serve, our second paper,
discusses approaches to identify how well you meet customer needs with service that
meets or exceeds customer expectations and whether the targeted customers you have
secured will remain satisfied and loyal or will leave due to dissatisfaction with what you
are providing. Grow is the third paper in the series. It discusses tools and techniques
that can be used to create a practical process that focuses on improving the financial
results from all customer groups. Retain, the final paper in the series, discusses how to
retain the profitable customers your organization has created by following the steps
outlined in the three preceding papers. We suggest that the best way to accomplish that
is through a dual perspective—aligning the perceptions of employees with the
requirements of customers. The fight for loyalty, share of wallet, and customer retention
has reached a fever pitch. According to the Wall Street Journal, it is not enough for a
company to merely know the number of customers it has. Investors on Wall Street now
want to know the value those customers represent and what the organization is doing to
retain them, especially most profitable customers.

Figure 2.1: The Customer Lifecycle

Probably everyone working in the areas of customer satisfaction, loyalty, and
retention is all too familiar with the fact that it costs a lot more to gain a new customer
than it does to keep a current one, particularly if the current customer is profitable.

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Hundreds of studies and research reports have established beyond a doubt that it is far
easier, more cost-effective, and much more beneficial in the long run for companies to
Notes work toward preserving their customer base as well as attracting new customers.
By consistently applying the proven tools and techniques discussed in our papers
on the Acquire, Serve, and Grow phases of the Customer Lifecycle, a company should
now have a growing base of customers that are satisfied, loyal, and profitable. Now the
challenge is how to keep them.
Customer retention has a direct impact on profitability. Research by John Fleming
and Jim Asplund indicates that engaged customers generate 1.7 times more revenue
than normal customers do, while having engaged employees and engaged customers
returns a revenue gain of 3.4 times the norm.1 A company’s ability to attract and retain
new customers is not only related to its product or services, but strongly related to the
way it services its existing customers and the reputation it creates within and across the
marketplace.

Customer Retention Should Be a Process-Driven Strategy

Notwithstanding the significant impact customer retention has on business results,
many companies still approach the issue of customer retention on a reactive basis.
Unfortunately, many of these reactive responses address the symptoms, not the root
causes. Successful and enduring customer retention initiatives require functional
alignment throughout an organization. This alignment is driven by a senior
management-championed commitment to:
1. Establish customer retention as a major corporate objective
2. Achieve the objective by the development of an effective retention strategy
3. Develop implementation tactics to operationalize an enterprise-wide strategic
customer retention process
4. Link the outcomes of the retention process with other key processes to ensure that
internal process metrics are fully aligned with external customer requirements for
retention
5. Align employee perceptions with customer requirements beyond the usual Human
Resources employee satisfaction surveys
6. Manage the process to effectively balance internal process performance metrics
with external customer retention requirements
Two of the most critical parts of an organization are its customers and its
employees. The better aligned the perceptions of the two groups, the better the
company will perform. There is compelling research examining the benefits of
identifying and correcting disconnects between customer and employee perceptions of
importance and performance. Companies with a clear understanding of the views of
each group and what it takes to resolve those disconnects outperform their competitors
by substantial margins.
Creating a Successful Retention Process
An objective to improve customer retention needs to be quantified. Based on internal
data, what percent improvement is reasonable? The degree of improvement needs to
be achievable and should be determined in the context of available resources, market
conditions, and economic environment. And once a measurable outcome has been
defined, what is the appropriate strategy to achieve it? One of the first determinations
that need to be made is which customers you want to retain. Not all customers are
created equal, and the focus should be on retaining the most profitable. Acquire, the
first paper in this series, provides a detailed discussion of how to identify the most
profitable customers using a combination of predictive segmentation and lifetime
customer value.

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Notes

Figure 2.2: Successful Retention Process

Identify and Measure Drivers of Retention

Once the most profitable customers have been identified, strategy focus depends on
what will have the most powerful impact on attaining the desired improvement in the
behaviour of your most profitable customers. Based on reliable internal data or primary
research with customers, what is most important to them in terms of importance and
competitive performance? The voice of the customer, not the opinion of management,
needs to inform strategy development.

A Customer Service Strategy Example

For example, the key differentiator in a competitive world is more often than not the
delivery of a consistently high standard of customer service, and there is near-universal
agreement that customer service is a major driver of satisfaction, loyalty, and retention.
However, in developing quantifiable service performance levels, it is necessary for the
research to identify and measure the various components of the service experience.
Identification of what specific elements comprise service delivery for a given
company needs to be identified qualitatively. A good general example is the 5 main
factors of customer service excellence which directly impact and determine customer
satisfaction, loyalty, and retention as identified by Philip Forest of The International
Customer Service Institute.
1. Policies ‒ the guide of action. It is the overall enabler and conditioner of the other 4
P's and parameter for the allocation of resources (time, money, and effort, etc.) to
the achievement of the organization's service excellence goals.
2. Processes ‒ one of the most crucial elements in the delivery of service excellence
and customer satisfaction and retention. Customers expect a satisfactory outcome=
after completing a transaction with the organization, and it is the efficiency and
effectiveness of the processes that contribute greatly to the expected outcome.
3. People ‒ the main resource of an organization. Their knowledge, competence, and
skills can positively influence the service quality performance and the success of
the company.
4. Products/Services ‒ the key reason why customers engage with the organization,
build loyalty, or leave to the competitors.
5. Premises ‒ major contributory factors to the customers’ overall impression of the
business and can act as major attractors to new customers.

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Align Employee Perceptions with Customer Requirements

Notes Two of the most critical parts of an organization are its customers and its employees.
The better aligned the perceptions of the two groups, the better the company will
perform.
There is compelling research examining the benefits of identifying and correcting
disconnects between customer and employee perceptions of importance and
performance. Companies with a clear understanding of the views of each group and
what it takes to resolve those disconnects outperform their competitors by substantial
margins.
A study published by The Forum for People Performance Management &
Measurement at Northwestern University2 found that:
“There is a direct link between employee satisfaction and customer satisfaction, and
between customer satisfaction and improved financial performance.”

Get Multiple Benefits

This study looked at the impact of organizational culture, organizational climate, human
resource systems, and market characteristics on employee satisfaction and employee
engagement (which they define as the degree of employee motivation and sense of
inspiration, personal involvement, and supportiveness). They then gauged the
downstream effects of these employee attitudes on companies’ market performance
including such measures as customer retention.
Other interesting conclusions from this work include the following:
z Organizational culture is another significant driver of employee engagement, where
employees must be expected to cooperate and work together, but also to take
charge and provide a voice for the customer within the organization (italics added).
z Organizations with engaged employees have customers who use their products
more, and increased customer usage leads to higher levels of customer
satisfaction.
z It is an organization’s employees who influence the behaviour and attitudes of
customers, and it is customers who drive an organization’s profitability through the
purchase and use of its products.
z In the end, customers who are more satisfied with an organization’s products are
less expensive to serve, use the product more, and, therefore, are more profitable
customers.
Similarly, Wiley and Brooks3 reviewed the relationship between financial success
and customer and employee variables (e.g., customer satisfaction, employee
satisfaction, etc.) and found that, depending on market segment and industry, between
40 and 80 percent of customer satisfaction and customer loyalty was accounted for by
the relationship between employee attitudes and customer-related variables.

Why Is There a Disconnect?

With a body of convincing information demonstrating the benefits of aligning what the
customer is saying with what the employee is saying and doing, why does there
continue to exist a significant disconnect between these two important drivers of a
company’s marketplace performance and financial success?
It is accepted wisdom and common practice among a great many companies to
survey both customers and employees regularly to define what matters most to them in
their relationships with a company. This helps build better equity in the organization for
each group. Unfortunately, these two activities usually reside in different functions such
as marketing and human resources. Consequently, there is often little or no connection
or coordination between design of the respective surveys, access to the findings or
integrated deployment of results.

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1. How to Connect the Voices: However, there is a relatively simple and
straightforward way to get better use of the results of such surveys and eliminate
disconnects between the two groups. A well-designed and executed customer Notes
satisfaction survey will identify and measure the relative importance of various
aspects of the customer experience as well as performance of a company on key
drivers of customer satisfaction and loyalty.
Typically, a small number of these drivers account for the most significant attributes
of importance and performance.
These critical few questions on importance and performance can be incorporated
into the employee survey as a useful mirror. Simply ask the employees to rate how
important they think these attributes are and how well they think the company
performs on them. Comparison of the ratings between the two groups can provide
some eye-opening insights on major disconnects and where to focus
improvements.
In this example, the employees attach much more importance to product features
than do customers, and they also feel the company is performing well in this area.
Customer ratings are much lower. Understanding these differences provides the
basis for reassessing the emphasis on features and investing in areas more
important to the customer. The same is true to some extent for technical support.
Also, the company is doing well on customer training, but possibly overinvesting in
an area of relatively low importance to the customer.
A major disconnect exists customer and employee ratings on sales support. It is
much more important to the customer than perceived by the employee, but
customers rate performance much lower than employees perceive it to be. This is a
major problem in a critical area of customer loyalty and retention. Prompt delivery is
another important disconnect.
2. Profit from the Connection: These examples simply demonstrate the improved
customer focus and alignment of priorities for training and process improvements
made possible by a quantitative understanding of the perceptual differences
between customers and employees. Common understanding between customers
and employees can help a company improve critical performance areas that drive
the customer experience, customer loyalty, employee engagement, and a
company’s business success.
3. Development of Tactics: Effective tactics transform strategy into action. Tactical
action planning identifies the whats, hows, whens, whos, and resources required to
execute on strategy.
4. Link Outcomes of the Retention Process with Other Key Processes: As
discussed in Grow*, our third paper in the Get Better Business Results series,
failure to effectively use results of satisfaction, loyalty, and retention research to
improve day-to-day management and operations is the single most common failure
in loyalty research initiatives. Management and key functional managers need to
ensure that the strategy development action plan outcomes are linked to key
business processes and outputs. Requirements for who, what, how, and when are
agreed upon, with clear linkage to day-to-day management and operations
activities. Ongoing performance metrics are also established. This is accomplished
during sessions with the following goals: Identify those processes that require
improvement efforts Gain commitment from process owners to utilize the customer
data Translate customer needs and expectations into product and/or service
requirements Develop priorities for action Assign ownership and timing for action
items Develop data-based action plans Establish performance metrics Implement
customer-focused improvements Define specific measures of progress Your
research has identified and measured the drivers of retention. Don’t waste your
research investment by failing to implement a systematic and structured way to
translate those research findings into significantly improved customer retention and
better business results.

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5. Manage Process to Balance Internal Performance Metrics and External

Customer Requirements: The results of the research and action planning will
Notes have identified specific performance requirements for high levels of customer
retention in the profitable segment you have targeted. Equally, your key internal
operating processes also have specific performance requirements. These two sets
of requirements and associated metrics need to be kept in balance to ensure
effective overall operation of the company. Since both the retention process
outcomes and the operating process outcomes have measurable performance
metrics, it is possible to monitor the linked processes and manage them for optimal
performance.

2.6 Understanding Strategies to Prevent Defection and Recover

Customers
Competition eating into the market share has always been a challenge for companies
and service providers. No company can ever rest on its oars or feel it has arrived;
companies keep looking over their shoulders to stem the tide of competition.
Only the paranoid survive on the international scene. Companies like Amazon,
Google and Facebook seem to leave in paranoia and buy over or take positions in
companies where they smell a threat in the future. This could be a strategy, but it is
expensive to undertake.
In the banking industry, the rate of account dormancy is high, likewise for the
telecommunications sector with high levels of number portability coupled with increasing
cost of operations due to infrastructural challenges, stagnating revenues, difficult
business environment and sanctions imposed by the regulators for below par service;
customer defection is an addition to the nightmare.
The Nigerian Communications Commission said in September 2013, there were
13,072 defections between networks, with a particular telecoms provider accounting for
half of those defections.
Retention and reducing customer defection is now topping the agenda of most
companies, because they understand that high turnover of customers will seriously
affects their bottom lines. However, they keep on hitting the wrong target.
They have not fully woken up to the fact that customers now have more choice;
they aggressively focus on sales and advertising to bring in more customers into a
leaking basket, which could have been blocked by superior customer experience.
The roots of customer defections are what can be seen and acted upon, but ignored
or traded off due to seemingly competing demands by companies.
According to one of the wisest men who ever lived, it is wise to quickly catch the
little foxes that ruin the vineyard.
The issue of customer defection can be tackled with the points below.

Pay Attention to the Entire Customer Journey

Developing a deep understanding of the customer requires a detailed map of their
journey and awareness of where the battlegrounds are for your organisation.
Depending on the particular industry, customers go through different journeys with a
company to get service. A bank customer’s journey may start from listening to the
bank’s advert, to opening an account, to using the bank’s channels for transactions, to
complaint resolution.
A wireless Internet service provider’s customer journey may start from buying the
product, to installation, actual use, subscription payment and troubleshooting. A lot can
actually go wrong through these phases and a lot of potential areas of frustration arise
from the stages.

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Defections do not just occur; they have their roots in particular unresolved issues,
which companies have not paid attention to. According to experts, creating excellent
customer journeys not only increases customer satisfaction, but also boosts revenue up Notes
to 20 per cent and reduces service costs by an equal amount.
Companies can take a critical look at the entire customer journey and remove the
irritants. Some companies have invested in event-triggered service escalations,
whereby customers who have called the call centres persistently are reassigned to a
“swat team” for instant resolution of their complaints so as to prevent any ill feelings,
and offer compensation for poor services.

Empower and Educate the Customer

In a bid to quickly make a sale or convert a prospect, some sales people inadvertently
fail to make full disclosure and educate the customer about the terms, conditions and
offers of a product. In the banking sector, customers are surprised to see some
unexplainable charges on their accounts; telecoms subscribers are quick to lament how
their service providers “steal their credit” upon loading or top up.
It is better to give full disclosure to the customer before purchase and educate them
fully about a product or service; also, providing customers with cheap or free alternative
means of communication manned by competent staff will help clients for issues
resolution.
Verizon, an international wireless service provider, upon installation of its service in
a customer’s residence uses well-trained, well-spoken member of staff who spend four
to six hours with the customer running through how the system works and ensuring all
applications are working, which makes the experience memorable for the customer and
reduces the hassles of future technical problems, customer dissatisfaction and the
associated costs. This can be replicated in different sectors and modified to suit
business needs.

Empower Employees with Necessary Tools

In Nigeria, one of the biggest failings of call centres is the inability to provide First Call
Resolution for queries, which causes repeated calls. Respectful agents turn to apology
dispensing machines for the company, while the nonchalant ones tell the customer off
and do not care if the customer takes a walk.
The root of this malaise is empowerment; if employees are not equipped with the
right tools for service delivery, they will turn to helpless gatekeepers unable to help
themselves or the customers.
A silo mentality created by a company’s internal structure can also severely destroy
service delivery. There should be cross collaboration between departments, such that
customer feedback can be shared between departments for quick fixes. Feedback from
front line operations should be incorporated into daily operations such that the
information gotten will form the raw material for root cause diagnosis of problems that
may cause customer defections in future.

2.6.1 Recover Lost Customers

A satisfied customer will tell four or five others about a pleasant brand experience.
Deliver a poor experience, and seven to 13 others will hear about it. Another study's
scary statistic: Unhappy customers will continue to voice their dissatisfaction for up to
23 years.
No company can afford to have its brand dissed in the marketplace for two
decades. No company can also afford to lose half its customers every five years, yet
that's the average across most industries. Yet despite the unprofitable implications of
customer dissatisfaction, surprisingly little attention is paid to customer retention. About
80% of marketing budgets are devoted to customer acquisition, even though it costs
three to five times more to replace than to keep a customer.
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"That's unfortunate. Customer recovery - the effort to satisfy unhappy customers to

reduce defection - must be a core element of customer equity strategies," believes Nick
Notes Wreden, author of Fusion Branding: How To Forge Your Brand for the Future.
Customer recover can substantially impact profitability. Studies indicate that
customer recovery investments yield returns of 30%-150%. British Airways calculates
that customer retention efforts return $2 for every dollar invested. In fact, British Airways
finds that "recovered" customers give the airline more of their business. Hampton Inn
Hotels estimates that its service guarantee increased revenue $11 million and earned it
the industry's highest customer retention rate.
An effective customer recovery program occurs on two levels. The first is a three-
step process that must be incorporated into customer service operations.
The first step consists of both apology and accountability. Say, "I'm sorry," and take
ownership of a mistake, even if it's because of supplier or other problems. Next, work
with the customer to determine an appropriate remedy. This involves the customer in
the resolution and sometimes uncovers less costly solutions. Resolution should not only
address a customer's direct loss but also compensate "pain and suffering." Some refer
to such compensation as "atonement." Manage expectations with resolution schedules.
In one Citibank experiment, specifying time frames for next steps increased customer
satisfaction by 40%. Finally, follow-up. Determine whether the customer has received
the promised treatment, and, more important, how they feel about it. One study
indicated that a follow-up call to a once-unhappy customer can boost satisfaction by
5%-7%, and intentions to repurchase by 8%-12%.
The second level is building integrated customer recovery capabilities in the
following four areas:
Companies must do more to upgrade the skills, training and pay of customer
service representatives, especially since they handle an estimated 65% of all
complaints. Other employees must also understand the importance of customer
retention. Ford trains new hires in such recovery skills as interpersonal
communications. Others regularly rotate employees into customer service to
underscore the impact of departmental processes on customers.
How much authority do employees have to recover customers? Employees at
Marriott International, for example, can spend up to $2,500 without authorization to
compensate customers. What are the timetables for resolution? British Airways
research showed that 40%-50% of customers defected if it took the company longer
than five days to respond. What level of complaints trigger corrective action? Can any
employee handle recovery, or should you depend on special representatives trained for
customer recovery?
Customers should be easily able to complain via email, letter or even well-
publicized hot lines. Systems should streamline complaint acceptance, and generate
complaint-based reports. Insurance giant USAA scans every complaint letter into its
database. Causes for the complaint are analysed, and processes examined to avoid
similar complaints in the future. To institutionalize improvements, systems should be
developed to hold other departments accountable for their actions. Complaint data
should also be used to determine investment priorities and service improvements.
Such systems must incorporate integrated customer and product databases. A
Harrah's database identifies customers who haven't visited a casino within a certain
period. Knowing this may be a sign of dissatisfaction, the casino calls to find out why,
and sends a personal invitation to return along with a coupon. This approach helped
drive a 6.5% sales growth in same-store sales growth in just two quarters.
No one likes to hear complaints, but they're actually opportunities for positive
change, not reasons for defensiveness. Carefully track the number of complaints and
resolution. More important, complaints must be relayed to the appropriate
organizational areas to minimize re-occurrences. Remember that a rising number of

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complaints is usually a sign of success, not failure. Often, complaining customers are
the ones most committed to a brand. British Airways found that 87% of customers who
complained did not defect. Notes
2.6.2 Invest to Prevent Customer Defections
Every customer that you keep represents at least three that you don’t have to
attract. Numerous research studies indicate that the cost of acquiring a new customer
usually runs from two to four times the annual cost of keeping an existing customer.
Obviously, an effective customer retention strategy translates into profits.
It has been estimated that most companies spend about 98 percent of their time
reacting to problems and less than 2 percent preventing them. The first, most important,
way to prevent customer defections is to identify and define each problem from the
customer’s vantage point. This blog suggests several ways to retain customers once
you understand the problems and their ramifications.
Superior service and database management provide your best defense
against customer defections. Service provides the opportunity to solve customer
problems and build partnerships; the database serves as a vehicle to personalize
customer communication and enhance your relationships.

Establish a Customer Baseline

In order to develop a successful retention program, you must have accurate and
complete information about your customers. In my experience, at least 5 percent of the
information in a typical customer database is inaccurate. Errors translate into wasted
money, customer aggravation and loss of credibility.
You should know the following basic information about your customer base:
z Number of current customers
z Average number of new customers you expect to acquire within the next
month/quarter/year
z Average number of existing customers you expect to lose within the next
month/quarter/year
™ Where will those customers go?
™ Why will they leave you?
™ How will you know they’ve left?
™ What will you do to retrieve them?
™ Customer Service as a Retention Strategy
A successful service strategy serves two vital functions: defense and opportunity.
z Defense: Quality service provides a powerful barrier against competitive threats
because it gives you the chance to:
™ Ensure your customer’s successful experience with your products;
™ Demonstrate your competence, expertise and reliability;
™ Discover customer needs, problems and desires; and
™ Earn credibility and respect.
z Opportunity: Quality service also provides the opportunity to:
™ Build a meaningful, interactive relationship with each customer;
™ Earn their good will and trust; and
™ Motivate purchase/re-purchase decisions.
Both ingredients are critical to developing and sustaining a genuine interactive
partnership.

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The delivery of consistent quality service requires an unmitigated commitment to

delighting customers. A superior customer service attitude must permeate an
Notes organization, where all persons take responsibility for participating and contributing fully
to the enterprise.
Everyone within the organization must follow the guideline that, when a
problem does arise, “fix the customer first,” then solve the customer’s
problem. This sequence supports the goal of building customer partnerships that will
endure over time, rather than reacting to a series of isolated problems.
The best ideas and plans are useless without people to implement them. In order to
achieve an attitude of respect and concern toward customers, your organization must
invest in each employee over time. Customer service is a multifaceted process that
occurs inside and outside the boundaries of an organization. When employees have the
training, tools, support, and appreciation of their company, they are eager to act in the
mutual best interest of the company and the customer.

Understanding Customer Defections

Usually, customers defect because they are disappointed, they feel let down, and their
expectations are not met. If you don’t really know what customers value, how can you
possibly succeed in delighting them?
Customer expectations derive from wishes and wants as much as actual
needs. This explains why customer satisfaction does not guarantee customer loyalty.
You may respond adequately to a customer’s specific service need but fail to
understand their expectations and their desires.
For example, the real issue may be that a customer wants to feel appreciated for
giving you their service business when any number of other competitors could comply.
Unless you ferret out their expectations, you may miss opportunities to delight your
customers. Or you may realize the customer’s wish to be appreciated but not know
what “appreciation” means to the customer.
The key to pre-empting defections is to focus on the root causes.
Customers defect for two primary reasons:
1. The need for your product or service has ceased, or
2. Your offering has failed to satisfy their needs in some way.
Some of the less obvious barriers to customer retention may be understood by
answering the following questions:
z Are defections seasonal?
z Are there price differentials during the product/service lifecycle?
z Do defections have a pattern: location, person, lifecycle phase?
z Is there a correlation between retention rates and price changes?
z What is the industry norm for customer longevity?
z Which company has the best retention rate? Why?
z In what specific ways do your customers feel valued and appreciated?
z In what ways do your customers feel your complacency or indifference?
z In what ways do your customers feel intimidated and/or ignored?
Defections of good customers cost you dearly. You lose base profit as well as profit
from incremental purchases, profit from reduced operating expenses, profit from
referrals and profit from price premiums.

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Christine S. Filip, president of marketing, design, and public relations firm, The
Success Group, wrote in the CPA Journal that when a good customer leaves, you will
need at least three new ones to replace the revenue stream. Notes
It is estimated that defecting customers will tell eight to 10 people about their
negative experience with your company. One in five will tell 20 people.
Conversely, a referral from a loyal customer has a 92 percent retention rate vs. 68
percent for a customer acquired from advertising.
This is just one measure that indicates the value of word-of-mouth impact.

Database Marketing
An accurate, comprehensive database enables one-on-one marketing to your best
customers. When you communicate individually with your customer, that
communication tells them that you know them, remember them and care about their
needs.
Personal attention, empathy and extra effort will work to:
z Increase response rates,
z Provide direction for product and service development efforts,
z Improve sales forecasting,
z Provide opportunities to test your marketing mix, and
z Support your marketing decision making process.
In order to function as a viable resource, a company must have an effective
marketing database that includes:
z ID of customers and prospects by name and address,
z Individual account numbers for each customer,
z Relevant demographic information,
z Purchase information such as transactions, payment records, records of inquiries
and interactions with the company, product preferences and interests, competitive
usage, and information about corporate culture.
Obviously, this data is virtually worthless unless you can manipulate and manage it
to discern trends, patterns, and histories. Only then can you capitalize on successes,
identify concerns and use the information as the basis for decision-making.
Customers want to feel like individuals, not prospects, consumers or targets. A
good customer database can provide a foundation upon which to build authentic
customer partnerships through welcoming new customers, thanking existing customers
and inviting new prospects to begin a relationship with you.
The database can be used further to:
z Examine purchase behaviour information to forecast incremental sales and profit
potential;
z Correlate, cross-reference, and analyse data to understand customer
preferences and trends;
z Personalize messages, identify and contact new customers, enhance cross-
selling opportunities and sell more (and more often) to existing customers;
z Provide special benefits and services not available to the general public; and
z Speak with one congruent, consistent voice (image and vision) through
collateral material, letters, press releases, signs, graphics and departmental
communications.

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Survey Data as Intelligence

Notes Building and maintaining a current, accurate, comprehensive customer data base is
much more easily said than done. Compilation, management, and maintenance
requires a significant allocation of resources (people, time, money), along with a total
commitment to customer service and retention throughout your company.
The goal is to increase your ability to offer each of your best customers the products
and services they need and want, as well as to identify and communicate with potential
customers who have similar characteristics.
Proprietary customer information can be collected through:
z Customer interaction records (purchase transactions, service calls, payment
history);
z Customer surveys (written and verbal) that measure satisfaction, loyalty, intent to
purchase, perception of quality, expectations and outcomes; and
z Focus groups (targeted population segments).
Secondary data, such as industry statistics and census data, provides a general
context and reference for comparisons, market share calculations, trend analysis, and
other strategic marketing functions.
Of course, the most difficult task is to gather accurate competitive information and
substantive new customer information. I suggest creative ethical sleuthing and
discerning investment in well-chosen targeted research.
A few important things to remember about customer surveys:
z Define clearly what you intend to measure (satisfaction, dissatisfaction, loyalty,
retention, quality, service), and why you want to know it.
z Experience your company from your customer’s perspective.
z Understand the following:
™ The relative scale of loyalty within your customer base;
™ The strength of your relationship relative to your competition;
™ The relevant antecedents to loyalty;
™ The relative effect of various interactions, activities and consequences.
Because profitability depends on what customers actually do, not what they say
they will do, you should include a process for reconciling customers’ intentions with their
actions.
Building customer loyalty and improving retention have significant implications for
profitability.
According to Filip’s article, a 5 percent improvement in retention rates can raise
profits from 15 percent to 50 percent.
The most profitable firms enjoy retention rates of 93 to 95 percent; the average firm
has a 78 percent to 85 percent retention rate. The cost of finding a new customer is five
to six times more expensive than keeping a current one, so it behooves you to manage
your customer retention rates proactively.
z Pay close attention to your best customers. Act quickly (within 24 hours) on their
requests and dissents.
z Stay in touch with your customers. Be willing to hear accurately and integrate
their feedback throughout your company.
z Find out exactly why a customer defected. Act immediately to determine the
possibility of rectifying the situation.

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People seek relationships (personal and business) that are caring, honest and
respectful. Superb service provides the foundation from which to develop and maintain
genuine partnerships with your customers. In many companies, the customer service Notes
personnel have more contact with customers than the sales people.
Another point that is often overlooked is that customer service personnel get inside
the customer organization much easier than the sales people who most often have to
get in through the front door. The customer service personnel usually bypass the front
door and go directly to the area with a problem. Once inside, it is not uncommon for the
customer service personnel to understand what is going on inside the customer
organization.
Build your customer database right. Record everything that your customers do, say
or buy, then use the information to fine-tune future communications. As you develop
trust and credibility with your customers, they will reward you with their business and
their referrals.
The bottom line is that companies need to understand the value of keeping a
customer. Secondly, companies should spend more time and energy to preventing
problems. Finally, companies should keep an accurate data base of their customers.

2.7 Market Share vs. Share of Customers

If you are guilty of focusing more effort on getting new customers than selling to your
existing customers, rise up to the following challenge. Pledge that, starting today, for
one month, you will stop thinking about market share. Instead start thinking about
customer share.
Think of the products or services that your customers need and are buying from
other businesses right now that are related to your products and services. Identify the
ones from that list that they could buy from you — if you offered them to your existing
customers.
Some of these related products and services you can offer and deliver yourself.
Those are the ones that hold the most potential to dramatically grow your revenue and
even more importantly — your profit and cash flow. For these products, your marketing
costs are much lower than selling to a new customer. Your business has already
incurred the high expense and borne the effort of identifying and attracting them the first
time.
The natural resistance and barriers to change are largely eliminated when you are
approaching and talking to your existing customers. By focusing your marketing efforts
on your existing client base, and prospects you already know, you will dramatically
increase the effectiveness of your marketing efforts.
There are Several Advantages to this Approach:
z You already know who, specifically, these people are (you DO capture customer
contact details, don’t you?)
z You know what they purchased previously so you have insight into their needs.
z You know how profitable they are for your business.
z They are already familiar with your business, its personality and style, its products
and services, and the benefits of dealing with you compared to another competitor
of yours.
z And, as a result of a, you will be able to close more sales and select customers who
are most likely to be highly profitable.
z You will also find you need to spend far less time and money than you might have
thought.
z When it comes to marketing and increasing the profits of your business, remember
share of customer trumps market share.

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The truth is that, depending on your goals for growing your business, you might just
have all the customers you need.
Notes
2.8 Life Time Value of Customers
In marketing, customer lifetime value (CLV) (or often CLTV), lifetime customer
value (LCV), or life-time value (LTV) is a prediction of the net profit attributed to the
entire future relationship with a customer. The prediction model can have varying levels
of sophistication and accuracy, ranging from a crude heuristic to the use of
complex predictive analytics techniques.
Customer lifetime value can also be defined as the dollar value of a customer
relationship, based on the present value of the projected future cash flows from the
customer relationship. Customer lifetime value is an important concept in that it
encourages firms to shift their focus from quarterly profits to the long-term health of their
customer relationships. Customer lifetime value is an important number because it
represents an upper limit on spending to acquire new customers. For this reason it is an
important element in calculating payback of advertising spent in marketing mix
modelling.
One of the first accounts of the term Customer Lifetime Value is in the 1988
book Database Marketing, which includes detailed worked examples. Early adopters of
Customer Lifetime Value models in the 1990s include Edge Consulting and Brand
Science.

Purpose
The purpose of the customer lifetime value metric is to assess the financial value of
each customer. Don Peppers and Martha Rogers are quoted as saying, “some
customers are more equal than others.” Customer lifetime value differs from customer
profitability or CP (the difference between the revenues and the costs associated with
the customer relationship during a specified period) in that CP measures the past and
CLV looks forward. As such, CLV can be more useful in shaping managers’ decisions
but is much more difficult to quantify. While quantifying CP is a matter of carefully
reporting and summarizing the results of past activity, quantifying CLV involves
forecasting future activity.

Customer Lifetime Value

The present value of the future cash flows attributed to the customer during his/her
entire relationship with the company.
Present value is the discounted sum of future cash flows: each future cash flow is
multiplied by a carefully selected number less than one, before being added together.
The multiplication factor accounts for the way the value of money is discounted over
time. The time-based value of money captures the intuition that everyone would prefer
to get paid sooner rather than later but would prefer to pay later rather than sooner. The
multiplication factors depend on the discount rate chosen (10% per year as an example)
and the length of time before each cash flow occurs. For example, money received ten
years from now must be discounted more than dollars received five years in the future.
CLV applies the concept of present value to cash flows attributed to the customer
relationship. Because the present value of any stream of future cash flows is designed
to measure the single lump sum value today of the future stream of cash flows, CLV will
represent the single lump sum value today of the customer relationship. Even more
simply, CLV is the dollar value of the customer relationship to the firm. It is an upper
limit on what the firm would be willing to pay to acquire the customer relationship as well
as an upper limit on the amount the firm would be willing to pay to avoid losing the
customer relationship. If we view a customer relationship as an asset of the firm, CLV
would present the dollar value of that asset.

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One of the major uses of CLV is customer segmentation, which starts with the
understanding that not all customers are equally important. CLV-based segmentation
model allows the company to predict the most profitable group of customers, Notes
understand those customers' common characteristics, and focus more on them rather
than on less profitable customers. CLV-based segmentation can be combined with
a Share of Wallet (SOW) model to identify "high CLV but low SOW" customers with the
assumption that the company's profit could be maximized by investing marketing
resources in those customers.
Customer Lifetime Value metrics are used mainly in relationship-focused
businesses, especially those with customer contracts. Examples include banking and
insurance services, telecommunications and most of the business-to-business sector.
However, the CLV principles may be extended to transactions-focused categories such
as consumer packaged goods by incorporating stochastic purchase models of individual
or aggregate behaviour.

Construction
When margins and retention rates are constant, the following formula can be used to
calculate the lifetime value of a customer relationship:
Customer lifetime value ($) = Margin ($) * (Retention Rate (%) ÷ [1 + Discount Rate
(%) - Retention Rate (%)])
The model for customer cash flows treats the firm’s customer relationships as
something of a leaky bucket. Each period, a fraction (1 less the retention rate) of the
firm’s customers leave and are lost for good.
The CLV model has only three parameters: (1) constant margin (contribution after
deducting variable costs including retention spending) per period, (2) constant retention
probability per period, and (3) discount rate. Furthermore, the model assumes that in
the event that the customer is not retained, they are lost for good. Finally, the model
assumes that the first margin will be received (with probability equal to the retention
rate) at the end of the first period.
The one other assumption of the model is that the firm uses an infinite horizon when
it calculates the present value of future cash flows. Although no firm actually has an
infinite horizon, the consequences of assuming one are discussed in the following.
Under the assumptions of the model, CLV is a multiple of the margin. The
multiplicative factor represents the present value of the expected length (number of
periods) of the customer relationship. When retention equals 0, the customer will never
be retained, and the multiplicative factor is zero. When retention equals 1, the customer
is always retained, and the firm receives the margin in perpetuity. The present value of
the margin in perpetuity turns out to be the Margin divided by the Discount Rate. For
retention values in between, the CLV formula tells us the appropriate multiplier.

Methodology

Simple Commerce Example

(Avg Monthly Revenue per Customer * Gross Margin per Customer) ÷ Monthly Churn
Rate
The numerator represents the average monthly profit per customer, and dividing by
the churn rate sums the geometric series representing the chance the customer will still
be around in future months.
For example: $100 avg monthly spend * 25% margin ÷ 5% monthly churn = $500
LTV

A Retention Example
CLV (customer lifetime value) calculation process consists of four steps:

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1. forecasting of remaining customer lifetime (most often in years)

2. forecasting of future revenues (most often year-by-year), based on estimation about
Notes future products purchased and price paid
3. estimation of costs for delivering those products
4. calculation of the net present value of these future amounts
Forecasting accuracy and difficulty in tracking customers over time may affect CLV
calculation process.
Retention models make several simplifying assumptions and often involve the
following inputs:
z Churn rate, the percentage of customers who end their relationship with a
company in a given period. One minus the churn rate is the retention rate. Most
models can be written using either churn rate or retention rate. If the model uses
only one churn rate, the assumption is that the churn rate is constant across the life
of the customer relationship.
z Discount rate, the cost of capital used to discount future revenue from a customer.
Discounting is an advanced topic that is frequently ignored in customer lifetime
value calculations. The current interest rate is sometimes used as a simple (but
incorrect) proxy for discount rate.

Contribution Margin
z Retention cost, the amount of money a company has to spend in a given period to
retain an existing customer. Retention costs include customer support, billing,
promotional incentives, etc.
z Period, the unit of time into which a customer relationship is divided for analysis. A
year is the most commonly used period. Customer lifetime value is a multi-period
calculation, usually stretching 3–7 years into the future. In practice, analysis beyond
this point is viewed as too speculative to be reliable. The number of periods used in
the calculation is sometimes referred to as the model horizon.
Thus, one of the ways to calculate CLV, where period is a year, is as follows:
n
ri n
r i −1
CLV = GC.∑ − M.∑ i − 0.5
i =1 (1 + d ) i =1 (1 + d )
i

where GC is yearly gross contribution per customer, M is the (relevant) retention

costs per customer per year (this formula assumes the retention activities are paid for
each mid-year and they only affect those who were retained in the previous year), is
the horizon (in years), is the yearly retention rate, d is the yearly discount rate. In
addition to retention costs, firms are likely to invest in cross-selling activities which are
designed to increase the yearly profit of a customer over time.

Simplified Models
It is often helpful to estimate customer lifetime value with a simple model to make initial
assessments of customer segments and targeting. Possibly the simplest way to
estimate CLV is to assume constant and long-lasting values for contribution margin,
retention rate, and discount rates, as follows:

⎛ r ⎞
CLV = GC. ⎜ ⎟
⎝ 1 + d − r ⎠
Note: No CLV methodology has been independently audited by the Marketing
Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit
Protocol).

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Uses and Advantages

Customer lifetime value has intuitive appeal as a marketing concept, because in theory
Notes
it represents exactly how much each customer is worth in monetary terms, and
therefore exactly how much a marketing department should be willing to spend to
acquire each customer, especially in direct response marketing.
Lifetime value is typically used to judge the appropriateness of the costs of
acquisition of a customer. For example, if a new customer costs $50 to acquire (COCA,
or cost of customer acquisition), and their lifetime value is $60, then the customer is
judged to be profitable, and acquisition of additional similar customers is acceptable.
Additionally, CLV is used to calculate customer equity.

Advantages of CLV
z management of customer relationship as an asset
z monitoring the impact of management strategies and marketing investments on the
value of customer assets, e.g.: Marketing Mix Modelling simulators can use a multi-
year CLV model to show the true value (versus acquisition cost) of an additional
customer, reduced churn rate, product up-sell
z determination of the optimal level of investments in marketing and sales activities
z encourages marketers to focus on the long-term value of customers instead of
investing resources in acquiring "cheap" customers with low total revenue value
z implementation of sensitivity analysis in order to determinate getting impact by
spending extra money on each customer
z optimal allocation of limited resources for ongoing marketing activities in order to
achieve a maximum return
z a good basis for selecting customers and for decision making regarding customer
specific communication strategies
z a natural decision criterion to use in automation of customer relationship
management systems
z measurement of customer loyalty (proportion of purchase, probability of purchase
and repurchase, purchase frequency and sequence etc.)
The Disadvantages of CLV do not generally stem from CLV modelling per se, but
from its incorrect application.

2.9 Summary
Any business benefits from good customer relations, whether a large corporation or a
mom and pop shop. Customer relations, or customer service, refers to the way a
business communicates and interacts with the public to gain and retain customers. It is
necessary for a business to cultivate good customer relations to attract and keep a loyal
base of customers. Some companies hire consultants to advise them how to develop
stellar customer relations.

2.10 Check Your Progress

Multiple Choice Questions
1. .................. is the present value of the future cash flows attributed to the customer
during his/her entire relationship with the company.
(a) A critical retail function
(b) business intelligence
(c) critical management function
(d) Customer lifetime value

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2. The purpose of the customer lifetime value metric is to assess the .................. of
each customer.
Notes (a) Spam
(b) Brick and Mortar
(c) Employee Morale
(d) financial value
3. .................. can also be defined as the dollar value of a customer relationship,
based on the present value of the projected future cash flows from the customer
relationship.
(a) Customer lifetime value
(b) Supply chain
(c) critical management function
(d) Contribution margin
4. .................., the unit of time into which a customer relationship is divided for
analysis.
(a) Period
(b) Supply chain
(c) Contribution margin
(d) Churn rate
5. .................., the amount of money a company has to spend in a given period to
retain an existing customer.
(a) Retention cost
(b) Merchandise storage
(c) Investment
(d) business intelligence software
6. .................., is the cost of capital used to discount future revenue from a customer.
(a) Inventory
(b) Churn rate
(c) Discount rate
(d) Contribution margin
7. .................., the percentage of customers who end their relationship with a company
in a given period.
(a) Sales force automation
(b) Data warehouse technology
(c) Opportunity management
(d) Churn rate
8. .................., used to aggregate transaction information, to merge the information
with CRM products, and to provide key performance indicators.
(a) CRM systems
(b) Opportunity management
(c) Sales force automation
(d) Data warehouse technology
9. ................... which helps the company to manage unpredictable growth and
demand, and implement a good forecasting model to integrate sales history with
sales.
(a) Opportunity management
(b) Sales Promotion

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(c) Integrated Multi-channel Retailing (IMCR)
(d) Multiple software programs
Notes
10. .................. that track and measure marketing campaigns over multiple networks,
tracking customer analysis by customer clicks and sales.
(a) CRM systems
(b) Cataloguing
(c) Data warehouse technology
(d) business intelligence software

2.11 Questions and Exercises

1. List principles of Customer Relationship
2. What do you understand by CRM?
3. Discuss the various relationship building strategies.
4. Explain Customer Relationship Management by Customer Retention.
5. Explain the various stages of Retention.
6. Explain sequences in retention process.
7. Discuss Sequences in Retention process.
8. Discuss market share vs. Share of customers.
9. What the various strategies to prevent defection and recover customers.

2.12 Key Terms

z Brand: Brand is defined as a name, term, sign, symbol, design or some
combination that identifies the products of the firm.
z Retail: Retail is the sale of goods and services from individuals or businesses
z Merchandise planning: A systematic approach. It is aimed at maximizing return on
investment, through planning sales and inventory in order to increase profitability. It
does this by maximizing sales potential and minimizing losses from mark - downs
and stock - outs.”
z Category management: Category Management is the distributor/supplier process
of managing categories as strategic business units, producing enhanced business
results by focusing on delivering customer value.
z Merchandise buying: A step by step process which includes, merchandising
planning, and product.

Check Your Progress: Answers

1. (d) Customer lifetime value
2. (d) financial value
3. (a) Customer lifetime value
4. (a) Period
5. (a) Retention cost
6. (c) Discount rate
7. (d) Churn rate
8. (d) Data warehouse technology
9. (a) Opportunity management
10. (a) CRM systems

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56 Customer Relationship Management

2.13 Further Readings

Notes
z Mohammed H. Peeru and A Sagadevan, Customer Relationship Management,
Vikas Publishing House, 2004, Delhi.
z Paul Greenberge, CRM-Essential Customer Strategies for the 21st Century, Tata
McGraw Hill, 2005.
z William, G. Zikmund, Raymund McLeod Jr., Faye W. Gilbert, Customer
Relationships Management, Wiley, 2003.
z Alex Berson, Stephen Smith, Kurt Thearling, Building Data Mining Applications,
2004.
z CGI Group Inc. White Paper, Building Competitive Advantages through Customer
Relationship Management, January 2001.

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Managing Customer Relationship 57

CASE STUDY: IRON MOUNTAIN

Notes

I nformation management and storage company, Iron Mountain Europe, is a large B2B
company that places a great deal of emphasis on driving leads (e.g. capturing a
person’s name and contact details) to generate sales activity. Iron Mountain Europe
looks to bring its message of information management and storage to those people in
businesses that are responsible for data security, management and compliance. Often
these responsibilities are spread across a variety of roles within a business so Iron
Mountain’s target audience includes people who are in finance, compliance, legal and
facilities management roles.
The Challenge: Quality
Although Iron Mountain was benefiting from an increased conversion rate, the information
management company was seeing a decrease in the quality of the leads generated
through its websites.
Visitors to Iron Mountain sites were completing forms not only to register their interest in
the company’s services, but to enquire about career opportunities. Furthermore, phone
numbers provided through the form were often delivered in a format incompatible with
Salesforce, the platform used by the Iron Mountain sales team to capture and measure
online sales-related activity.
Iron Mountain brought in iProspect, a performance marketing specialist. iProspect meets
the needs of Iron Mountain Europe as it provides a range of services that supports its
online marketing goals in a single vendor relationship. In addition, Iron Mountain Europe
works across eight major European markets, iProspect also matches these needs with
coverage in all of these markets.
The solution: Optimising form validation to improve lead quality
Working closely with Nimesh Parmar, online marketing manager for Iron Mountain Europe,
iProspect undertook an audit of the form process to identify the problems. iProspect and
Iron Mountain then took the decision to implement a new validation script and design using
Optimizely – iProspect’, testing platform of choice.
This involved a number of important changes:
z A more visual form validation ensuring that visitors are aware of which fields are
completed incorrectly.
z A modified phone number field validation to ensure that phone numbers are collected
in a format compatible with Sales force.
z The addition of a new set of links to the page so visitors seeking career information
are steered to the relevant page.
z New messaging on the form page that ensured visitors were aware of what details
were required and that it was a quote process, not a general enquiry form.
Results
The changes resulted in a 140 per cent improvement in lead quality, demonstrating clearly
that conversion-optimisation technologies can be used for more than driving conversion
uplift.
Iron Mountain continues to take an innovative approach to its web development process.
The company is working with iProspect to test an entirely new design on their main
corporate website using Optimizely.
Regarding the activity, Parmar commented: “Ensuring sales teams have solid leads to
follow is fundamental in the B2B marketplace. We wanted to improve form validation to
deliver better leads to sales without burdening our busy internal IT team. The impressive
and immediate jump in quality has more than re-paid the resource we have invested to get
this right.”
Going forward, Iron Mountain are moving away from the last click model and exploring the
world of attribution and will be working with iProspect in helping to understand the impact
each channel has in delivering a lead for Iron Mountain Europe.

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58 Customer Relationship Management

CASE STUDY: PHILIPS LIGHTING SALES TEAM SAVES 2,500 HOURS PER
Notes MONTH

T
he Philips7 Lighting sales force saved 2,500 hours per month by integrating digital
voice technology and cloud storage into its CRM system data entry workflow.
Philips Lighting is dedicated to introducing innovative end-user-driven and energy-
efficient solutions and applications for lighting, based on a thorough understanding of
customer needs. Its sales team in the US is a highly mobile force of between 100 to 150
account representatives who serve at both a regional and national level and make an
average of three to four customer calls each day. As required by their sales leaders, for
each call a sales rep makes, they must either create or update information in Philips
Lighting’s customer relations management (CRM) system.
Challenge
Historically, following each sales call the account representative was expected to login to
the system to type client information and important notes from the meeting. This posed a
significant challenge to quick and accurate data entry. Since the sales team was often
traveling, unpacking their laptop and finding an Internet connection was a hassle. As a
result, the reps spent a significant amount of time doing administrative work instead of
negotiating an order or preparing for their next presentation.
To improve the situation, the Lighting team began using a CRM system with an integrated
transcription service. While a step in the right direction, the solution was only accessible by
telephone. Field reps dictated the required information over the phone using a dedicated
call-in number, and then the recorded dictation was retrieved by transcriptionists who
entered the information into the CRM system.
Although the process was relatively simple, it often took days for finished reports to be
entered into the CRM. Occasionally, bad phone reception would make portions of the
dictation inaudible, and any data not entered correctly had the potential to prevent the file
from being saved for later entry or completion. Sometimes typos or duplicate entries
appeared in the CRM without the account representative’s knowledge. In turn, the CRM
system contained lower quality data to leverage for sales analytics and reporting.
Solution
To resolve these challenges, the sales team chose to switch to the latest voice technology
from Philips Speech Processing Solutions. They were asked to develop a process sales
reps could use with different recording devices at any time to enter information into their
CRM systems. They also wanted the solution to help reduce the time spent on data entry
— while helping them increase the quality of the reports.
The solution: a flexible approach. Now, after an appointment, sales reps record important
information either through the dial-in number, through a Philips digital handheld voice
recorder with editing functionality or with the Philips dictation recorder smartphone app.
Once the notes are recorded, the file is transmitted securely to a professional
transcriptionist who accesses the recording and enters it into the CRM system.
An automated email confirmation alerts the sales rep when the audio file is received, and
they also receive an email with their transcribed notes attached within a day —and often
within only a few hours. If required, the typist can also perform the time-consuming task of
appropriately linking client contact information within the CRM system.
The only challenge that emerged after implementing the new CRM data entry process was
that some account representatives were resistant to the change, so they continued to
access the dial-in dictation number. The smartphone dictation recorder apps, however,
have emerged as a popular alternative. Through the smartphone app — available on all
major device platforms — representatives can create and save recordings on their
smartphone or email them. That means notes about the meeting can be recorded at their
convenience, not just when phone reception is ideal. What’s more, dictations recorded
immediately after a client meeting result in more comprehensive reports.
Results
After conducting a pilot project when Philips adopted its new CRM system, the lighting
sales team discovered that each account representative on average saved an hour per
day — between five and 15 minutes per report — using voice technology instead of typing.
That translates to 2,500 hours saved per month for just the U.S. Lighting sales team. In
Contd…

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Managing Customer Relationship 59

addition, up to 600 records per day — or up to 13,200 per month — could be more rapidly
updated with timely data that could be utilised to better serve clients and generate new Notes
sales opportunities.
Matt Hisle, account representative at Philips Lighting, explained: “We wanted to make it
simple for our highly mobile field representatives to capture accurate and detailed
customer data.
“As we discovered, digital dictation with cloud-based recording storage and transcription,
was ideal because it is not only faster than typing, but it also helps us generate higher
quality, more actionable sales data.”

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60 Customer Relationship Management

Notes CASE STUDY: BARCO INTERNATIONAL ENTERS THE CLOUD TO BOOST

CUSTOMER CARE

B
arco International, a global technology company, designs and develops
visualisation solutions for a variety of selected professional markets, including
medical imaging, media and entertainment, and transport.
Barco was struggling to deliver responsive, reliable, and consistent customer support in
the Netherlands and elsewhere, owing to a reliance on disparate, fragmented systems.
More specifically, there were problems around complaint handling that was not
categorised, which resulted in poor customer support being one of the customers' most
common complaints.
Another problem was the lack of integration with the back-office ERP system, which led to
double entries.
The Barco team needed to adhere to rigorous service agreements for customer support,
despite the fact web and email-based enquiry functionality was very limited.
Solution
Following a highly successful Salesforce CRM SFA deployment to 75 professionals within
its medical sales division, Barco implemented Salesforce CRM Service & Support
worldwide to 270 staff to support globally unified service request management.
Barco chose [Link] following a competitive evaluation, which included
Siebel/Oracle and Microsoft. Salesforce CRM was selected based on functionality, user-
friendliness, and straightforward integration with the back-office ERP platform.
The Salesforce Customer Portal is helping Barco turn the 'web' into the 'self-service web' -
allowing the technology company to exploit Web 2.0 as the ideal channel to provide
superior self-service.
Customers can manage their own cases via the Salesforce Customer Portal: they can log,
view, edit, and close cases entirely online. They can also search through the Barco
knowledge base and previously resolved cases, for comprehensive customer self-service.
Results
According to Barco, the implementation time for Salesforce CRM was ‘many times faster'
than it was for traditional on-premise CRM systems, providing significantly improved lead
management, opportunity tracking, and reporting.
By using the Salesforce Customer Portal, the Barco team can quickly change the look and
feel of the self-service portal with an easy-to-use style editor. Barco can also deliver
relevant customer information based on data from any source, share any application built
on [Link]'s on-demand platform, and get other departments - including sales and
operations to engage with customers online.
Barco now has extensive reporting tools at its disposal that provide a comprehensive
overview of service quality and Salesforce CRM supports automated upgrades every
quarter, helping to ensure business continuity.

Amity Directorate of Distance & Online Education