Chapter 11
Customer Relationship Management
McGraw-Hill/Irwin
Retailing Management, 6/e Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
11-2
Retailing Strategy
Retail Market Strategy
Financial Strategy Site Location
Customer Relationship
Management
Retail Locations Organizational Structure and
HR Management
Information Systems
11-3
Customer Relationship Management
• A business philosophy and set of strategies,
programs, and systems that focus on identifying
and building loyalty with a retailer’s most
valuable customers.
• What is loyalty? Is it the same thing as liking a
retailer or frequently patronizing a retailer?
11-4
Customer Loyalty
• Committed to purchasing merchandise
and services from a retailer
• Resist efforts of competitors to attract the
loyal customer
• Emotional attachment to retailer
– Personal attention
– Memorable positive experiences
– Brand building communications programs
11-5
Can Offering Discounts Achieve
Customer Loyalty?
No!
Retail strategies like these can
be copied by competitors
These strategies encourage
customers to be always
looking for the best deal McGraw-Hill Companies, Inc./Gary He, photographer
rather than developing a
relationship with a retailer
11-6
CRM Process
11-7
Information About Each Customer in the Database
• History of purchases
• Purchase date, price paid, SKUs bought, whether or not
the purchase was stimulated by a promotion
• Customer contacts by retailer (touch points) --visits to
web site, inquires to call center, direct mail sent to
customer
• Customer preferences
• Descriptive information about customer
• Customer’s responses to marketing activities
11-8
Approaches for Collecting
Customer Information
• Need to connection contacts with a specific
customer identifier
• Ask for identifying information
– Telephone number, name and address
• Encourage use of frequent shopper cards
• Link checking account number and/or third
party credit cards to customer
11-9
Privacy Concerns
• Control over Collection
• Do customers know what
information is being collected?
• Do customers feel they can
decide on the amount and type of
information collected by retailers?
• Control over Use
• Do customers know how the
information will be used by the
retailer? Steve Cole/Getty Images
• Will the retailer share the
information with third parties?
11-10
Frequent Shopper Cards
Card is often squeezed out of wallet
Customers forget to bring it to the store
Might not even show it if in a hurry
(c) image100/PunchStock
11-11
Heighten Concerns When Using
Electronic Channel
Information collected without
the awareness of customers
Collecting click stream data
using cookies
Similar to an invisible person Stockbyte/Punchstock Images
videotaping a customer as they
walk through a store
11-12
Customer’s Decision to
Offer Information
Disclosure of Information
Unwanted Sales Contacts
Discounts
Special Treatment
Personal Attention
Balance benefits and risks
11-13
Consumer Protection Differences
• United States European Union
• Limited protection in • Information only can only
be collected for specific
specific areas purposes
– Credit reporting • Purpose must be
– Video rentals disclosed to customer
– Banking • Information can only be
used for specific purpose
– Medical records
• Information can not be
exported to countries
with less stringent
regulations
11-14
FTC Guideline for Fair Information Practices
Notice and awareness
– comprehensive statement about information storage,
manipulation, and dissemination
Choice/consent
– Opt-in and opt-out options
Access/participation
– Customer able to confirm accuracy
Integrity/security
– Controls for theft and tampering
Enforcement/redress
– Mechanism to insure compliance
11-15
[Link] Security and Privacy Policy
11-16
Analyzing Customer Data
Data Mining – technique used
to identify patterns in data.
Market Basket Analysis
Identifying Market Segments
Identifying Best Customers
Ryan McVay/Getty Images
11-17
Market Basket Analysis
Data analysis focusing on
the composition of the
customer’s market basket
– what items are bought
during a single shopping
occasion
Uses: Burke/Triolo Productions/Getty Images
-Adjacencies for displaying merchandise
-Joint promotions
11-18
Market Basket Analysis Taught Wal-Mart to Change!
Product Placed Near
Bananas cornflakes, produce
Kleenex paper goods, cold medicine
Measuring spoons housewares, Crisco shortening
Flashlights hardware, Halloween costumes
Little Debbie snack cakes coffee
Bug spray hunting gear
11-19
Identifying Best Customers
• Estimating Lifetime Value
• Based on assumptions that the
customer’s future purchase behaviors
will be the same as they have been in
the past
• Classifying Customers by recency,
frequency, and monetary value of
purchases (RFM Analysis)
(c) Brand X Pictures/PunchStock
11-20
Which Customer Probably Has the
Greatest Lifetime Value
Purchases Over Last 10 Weeks
1 2 3 4 5 6 7 8 9 10
Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20
Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0
11-21
Customer Pyramid
Platinum
Best
Most loyal
Least price sensitive
11-22
Customer Pyramid
Gold
Next best
Not as loyal
11-23
Customer Pyramid
Iron
Doesn’t deserve
much attention
11-24
Customer Pyramid
Lead
Demands attention
May have
negative value
11-25
RFM Analysis
11-26
RFM Target Strategies
11-27
Illustration of RFM Application
• A catalog retailer is deciding which group of
customers to send a catalog.. Based on
experience and an RFM analysis of
customer database:
• Average order size for customers in cell -
$40
• Contribution margin – 50%
• Response rate – 5%
• Cost of catalog and mailing -$.75
11-28
Illustration of RFM Application
• A catalog retailer is deciding which group of customers
to send a catalog.. Based on experience and an RFM
analysis of customer database:
• Average order size for customers in cell - $40
• Contribution margin – 50%
• Response rate – 5%
• Cost of catalog and mailing -$.75
Will the retailer make a profit mailing to this RFM
segment?
$20.00 contribution x .05 response rate - $.75 cost
= $.25 profit per catalog mailed
11-29
CRM Programs
Retailing Best Customers
Converting Good
Customers to Best
Customers
Getting Rid of
Unprofitable
Customers
11-30
Customer Retention Programs
• Frequent Shopper Programs
• Special Customer Services
• Personalization
1-to1 Retailing
• Community
Royalty-Free/CORBIS
11-31
Elements in Effective
Frequent Shopper Programs
• Tier Based on Customer Value
• Offer Choices of Rewards
– Non-monetary incentives
• Reward all Transactions
• Transparent and Simple
11-32
Issues with Effective
Frequent Shopper Programs
• Expense
• Difficulty in Making Changes
• Impact on Loyalty Questionable
• Easily Duplicated – Difficult to Gain
Competitive Advantage
– Need to offer “invisible” benefits
11-33
Personalization
Hello, Barton Weitz
11-34
Dealing with Unprofitable Customers
Offer less approaches
for dealing with these
customers
Charge customers for
extra services
demanded Don Farrall/Getty Images
11-35
Implementing CRM Programs
Need systems, databases
Close coordination between departments –
marketing, MIS, store operations, HR
Shift in orientation
Product Centric Customer Centric