Chapter 3: Strategic CRM

Customer Relationship Management A Databased Approach V. Kumar Werner J. Reinartz Instructor’s Presentation Slides

Topics Discussed CRM Perspectives The Components of Strategic CRM Steps in developing a CRM strategy Case Study: CRM Implementation at International Business Machines, Inc. (IBM)

CRM Perspectives CRM at the Functional level Set of processes to execute marketing functions like sales force automation or mktg. campaign management CRM at the Customer-facing level Set of activities that provide a single-view of the customer across all contact channels Customer intelligence obtained is available across all customer-facing functions CRM at the Organizational level - Strategic CRM Knowledge about customers and their preferences have implications for the entire organization

Strategic CRM Successful strategic CRM is a complex set of activities that together form the basis for a sustainable and hard-to-imitate competitive advantage Shapes interactions between company and customers to allow maximization of lifetime value of customers Recognizes differences between customers with respect to their economic value to the firm as well as their expectations from the firm CRM

Components of CRM Strategy 4) CRM Strategy Implementation 2) Integration and alignment of organizational processes 1) Customer-Management Orientation 3) Information capture and alignment of technology

Customer Management Orientation Defined as the set of organizational values, beliefs, and strategic actions that enable the implementation of customer management principles Characterized by a top management belief and commitment that the customer is at the center of activity Recognizes that customers are heterogeneous in needs and value to the firm and reflects a readiness to treat different customers differently Considers the fact that a longer-term view of revenues from customers needs to be taken into account

Case Study: CRM Business Model - Capital One Capital One in Falls Church, Virginia, one of the fastest growing financial corporations in the U.S., was founded in 1988 and has witnessed phenomenal growth. How? Business model founded on the premise that Every customer carries a specific and unique credit risk and potential revenue profile, which determines his risk-return profile from the company’s point of view The better the company can understand and assess a customer’s specific risk, the better it can manage it

CRM Business Model - Capital One ( contd.) The better the company understands the customer, the more it can tailor its products to his needs Thus, low risk and high returns for the company on the one hand, and high satisfaction for the customer on the other hand can ideally go hand in hand Management and employee evaluation is, amongst others, tied to customer retention and customer profitability measures

Integration and Alignment of Organizational Processes Comprises organization wide creation and synchronization of processes, systems, and reward systems enabling implementation of customer management principles Strategic CRM works best for organizations that are organized around cross-functional processes rather than functional silos Firmly incorporates needs of the customer and goals of the firm into product and service delivery

Integration and Alignment of Organizational Processes (contd.) Characterized by an understanding that value provided to target customers should be what drives all processes Individual processes work in sync with common goal of attracting and retaining target customers Customer management compatible incentives drive employee and organizational goals simultaneously Processes are designed in such a manner that they automate a feedback

Inter-functional Alignment Example: Capital One Strong alignment of organizational process with the customer-focused strategy forms the backbone of its CRM success The Operations Department cooperates closely with Marketing and Analysis Department (M&A) in the new product introduction process Information on customers used to craft strategy is obtained from the front-end people Information from Operations is used to improve the NPV (Net Present Value) models that serve as decision-making aids

Information Capture and Alignment of Technology Comprises all the necessary technology and processes to collect, store, and process relevant and timely customer information Characterized by the capability of leveraging data to actionable information Makes customer management processes not only more efficient but also more effective Helps to create entirely new processes and channels based on online and mobile applications Firms that are able to generate intelligence and act on it will derive competitive advantage INFO

CRM Implementation Matrix Analytical CRM Operational CRM Management Dimension Decline and exit stage Growth and retention stage Acquisition stage Customer dimension Each cell in the matrix corresponds to a specific implementation activity or process Customer dimension: captures influence of changing phase of a customer-firm relationship Management dimension: constitutes analytical and operational aspects of CRM

Characteristics of Marketing-Driven CRM Implementation Activities and processes that constitute analytical CRM Activities and processes that constitute operational CRM A firm’s ability to understand the value of the customer to the firm and the variety of needs different customers have An acquisition and retention process that continuously aligns the offering with customer needs and values An ability to continuously improve what the company offers by learning about its customers marketing CRM

CRM at Work: Capital One Testing New Products Credit card business - uses “poking the bear” approach learns what customer characteristics might be a predictor of their risk profile adjusts its product offering to the customer’s risk Offering higher credit line might make customers with higher default risk respond more favorably thereby revealing their higher risk Hypotheses on customer characteristics are developed and used to run experiments to test what characteristics best correlate with utilization and risk profiles. Response rates and behavior during first months of using the card are carefully monitored - this data is used to determine the value of each mailing new products

CRM at Work: Capital One Testing New Products (contd.) As soon as the results of tests are clear, the viability of new products is assessed and the potentially successful ones are rolled out As product development is based on customer data and feedback, final products are mass customized Test results are integrated into the databases and used again to initiate the process of idea development and product design Result: This strategy led to an innovative product portfolio of more than 600 credit card products which are very well aligned with diverse customer needs

Steps in Developing a CRM Strategy Gain enterprise-wide commitment Build a CRM project team Analysis of business requirements Define the CRM strategy

Step One: Gain Enterprise-wide Commitment Top-down management commitment Bottom-up buy-in from system users Dedicated full-time project team Budget allocation for the total solution

Step Two: Build A CRM Project Team Obtain active representation from: Management - Provide leadership, motivation and supervision Information services/ technical personnel - Ensure CRM system compatible with existing software applications Sales, marketing and services groups - Evaluate usability of CRM system based on effectiveness, efficiency and satisfaction Financial staff - Provide critical analysis for assessment of increased sales productivity, evaluation of operating costs, estimated cost of system expansion and ROI projections External CRM expert - Provide a valuable source of objective information and feedback

Step Three-Analysis of Business Requirements Gathering information to: Identify the services and products that are being supported Map current workflows, interfaces, and inter-dependencies Review existing technologies, features and capabilities Discuss the vision for the business and the operational plan Define business requirements

Step Three (contd.) Develop enhanced business workflows and processes Identify gaps in technology functionality Map functionality to business processes Develop a new technology and functionality framework Develop a conceptual design and prototype plan

Step Four: Define the CRM Strategy a . Value Proposition b. Business case A Defined CRM Strategy ----- ----------> c. Customer strategy d. Enterprise transformation plan e. Other stakeholders

The Value Proposition Multi-faceted package of product, service, process, price, communication, and interaction that customers experience in their relationships with a company Areas to be addressed: What the customers value – what the company should focus on What the company says it offers the customers What the company actually offers the customers

Business Case Directly link delivery of customer value with creation of shareholder value Ensure acceptable ROI Addresses: Planned increase in economic value of customers over the duration of their relationship with the company Reference and referral effects-increased investment in customer satisfaction resulting in increased customer acquisition Impact of learning and innovation- reduce cost incurred through higher marketing effectiveness and improved products and services Business

Customer Strategy Defines how the company will build and manage a portfolio of customers Covers: Customer understanding - Customers benchmark expectations against past experience and best-in-class standards Customer competitive context - awareness of competitor’s services and how to increase customer share Customer affiliation - primary factor affecting ability to both retain and extract greater value from customer through cross-sell and up-sell efforts Customer management competencies - providing customized offers including customized products, services, communication, prices, etc

Enterprise Transformation Plan Covers: Business process Organization Location and facilities Data flows Application architecture Technology infrastructure

Key Stakeholders of Strategic CRM Customers Employees Partners Owners Suppliers Preferred Value Propositions Management Practice of Strategic CRM

Other Stakeholders Important stakeholders of a company : management, customers, suppliers, employees, and partners in addition to owners/stockholders Exceptions where the customer may not be the most important constituency: In industries where customers derive satisfaction mostly by interacting with employees, such as airline and hotel industry, the most important constituency may be the internal customer – the employee For a company just entering a new market, the most important constituency may be distribution partners

Strategic CRM Framework Environment Customers Employees Management Products Competitors Partners Suppliers Practice of Strategic CRM

Suppliers All those who contribute to a company’s value chain, including suppliers of Raw material Components Technologies Money People Knowledge For total quality management, often strategic, long-term, and more interactive relationships with fewer suppliers

Suppliers (contd.) Benefits of relationship-oriented supply chain management Improved communication, quicker problem resolution and closer cooperation, suppliers more responsive to purchasing companies’ special needs Reduced purchase costs due to elimination of cost for search of new suppliers Reduced cost per transaction because of aligned information management system and simplified transaction process with strategic and long-term suppliers More cooperation between companies and suppliers in terms of information sharing and development of new products

Owners/investors Options to increase long-term oriented investors: Educate current investors Shift investor mix toward institutions that avoid investment churn Attract the right kind of core owner Take the company into private ownership

Employees CRM Strategy is increasing employee satisfaction to increase customer satisfaction Internal Marketing (IM)-treating employees as if they were customers- involves: Improving management style Improving recruitment practices Integrating all employees into the planning cycle Refocusing training on interactive and service skills Open communication lines and empowerment of front-line staff

CRM Implementation at IBM Objectives: Share information and collaborate easily internally and across the entire value chain Focus on core capabilities while shedding less profitable or non-strategic business activities Build a fully integrated IT infrastructure to support the business vision and reduce the total cost of operations Streamline and integrate customer facing operations - sales, marketing and customer service Strengthen the brand image across all lines of business Offer full-scale solutions for the client, instead of multiple products

Implementation Stages Initial Stages – Opportunity management (1993-2000) Development of in-house application Starting point- Opportunity management in customer acquisition phase of a sales cycle Company developed ‘Virtual Machine’-a host-driven IBM application Identification of opportunities, ways of tracking them and storing information of winning conditions Storage of data, such as pricing, inventory, and customer master record, provided by the Marketing department Customer segmentation based on size of the company and industry, and customer needs and geography Collected information used to drive marketing campaigns Motivation of employees : E.g.: Training programs

Implementation Stages (contd.) Siebel Implementation (2000 – Today) The modules of Siebel CRM software that IBM has implemented and is planning to implement are Sales, Call Center, Marketing, Field Service, Service, e-Channel, e-Marketing, e-Service, and General e-Business

IBM Case Summary Creation of On-Demand Operating Environment: competitive advantage facilitated by CRM Integrated process management through CRM: allows instant updates about inventory levels, customer complaints and latest recommendations Pricing and revenue data are integrated in Siebel: assesses each customer’s revenue generation potential

IBM Case Summary (contd.) IBM estimates that its internal CRM implementation has delivered benefits of $2 billion cost reductions, 22% productivity improvement, significant IT cost avoidance, reduced sales staff requirements, and improved management reporting In 2004, IBM has implemented the worlds’ largest CRM application with 60,000 users linked with Siebel In 2005, it is expected that more than 80,000 employees, thousands of business partners and millions of IBM customers, will use the system

Key Lessons From IBM Genuine top-level support within the organization is essential Without the cooperation of each business unit, an enterprise-wide implementation like CRM is not possible Data cleansing at the initial stages of an implementation is crucial CRM training time should be planned well in advance, and managed carefully CRM implementations come with extensive business process reengineering and change management initiatives IBM

Summary Strategic CRM focuses on shaping the interactions between the firm and its customers in a way that facilitates maximizing the lifetime value of the customer to the firm Business case for CRM determines whether an investment in CRM meets its expectations by linking the delivery of customer value with the creation of shareholder value, or ROI CRM strategy calls for a transformation in business process, organization, location and facilities, data flows, application architecture and technology infrastructure

Chapter 3: Strategic CRM

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Chapter 3: Strategic CRM