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Customer Relationship Management Building Customer Relationship Management

Customer Relationship Management Building Customer Relationship Management

Course Contents

 Loyalty Building as a Process (CRM Cycle)

 Ladder of Loyalty
Case-Study: BMW Turns Prospects into Customers
 Bonding for Customer Relationship
 CRM Framework
 Zero Customer Defection
 Customer Retention Program
Customer Relationship Management Building Customer Relationship Management

Loyalty Building as a Process (CRM Cycle)

• The foundation of effective CRM is built on an iterative

process of learning & customization.
• IDIC framework explain the process of converting existing
customer into loyal customer.(IDIC represents four key
steps in relationship building process)-
1. Identity
2. Differentiate
3. Interact
4. Customize
Customer Relationship Management Building Customer Relationship Management

Loyalty Building as a Process (CRM Cycle)

Identity:
• This step requires the company to locate & contact a large
number of its customers directly and know as much detail
about them as possible.
• Every interaction with the customer through any channel
should be seen as an opportunity to learn about them & this
knowledge has to be used to serve them better.
Differentiate:
• Differentiate on the basis of the value they represent
and also on their needs.
• Differentiation should help the company tailor its offerings
to each customer to reflect their value’s & needs.
Customer Relationship Management Building Customer Relationship Management

Loyalty Building as a Process (CRM Cycle)

Interact:
• The purpose of interaction is to learn more
about the customers starting with more valuable
customers.
• These interactions can happen when the customer……
Customize:
• Step is most critical as it builds upon all the learning about
the customers to offer real value to them by tailoring P & S.
• It helps customer enjoy a high level of convenience, which
can not be easily duplicated by a competitor.
Conclusion
• The IDIC framework is useful in understanding the process
to be adopted for building relationship with existing
Customer Relationship Management Building Customer Relationship Management

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CRM Business Cycle at

Relationship Officer:ABN AMRO Slide No : 06 ERP Functional Consultant

Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty
• It is equally important to know the stages through which a
prospect becomes a customer and a loyal customer.
• Use the concept of ladder of loyalty to explore the complete
relationship building process.

Partner
Advocate
Supporter
Client
Customer
Prospect
Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty

Prospect:
• An individual, which fulfils requirements of
the marketer’s definition of target. the

Customer:
•A prospect who gets attracted by a company’s
marketing programme may try out its product
& services offerings and becomes a customer.

BMW Turns Prospects into Customers

Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty
Client:
• Customer purchases the product/services more than once.
• In several buying situations, customers become clients due
to nature of the product or services.
• Cross-sell multiple products to an existing customer. e.g.
Wells Fargo a leading financial services firm in US sells
more than four of its services to each customer.
Supporter:
• A client becomes a supporter when he is satisfied with the
offerings and recommends it to his friends, relatives.
• This positive word-of-mouth(WOM) has
tremendous positive impact as it helps the company get new
customers.
Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty
Advocate:

• An advocate is a supporter who, in addition to referrals (WOM

), proactively works with the company to improve its P & S.

• While developing new products software company regularly

depend on the feedback from the lead users of their clients
during the Beta test phase.
Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty

Partner:
• An advocate becomes a partner when they become
actively involved in the decisions of the company.
• e.g. kind of Relationship exists between P&G and
Wal- Mart.

Relationship between FedEx and IBM

07/05/15 12
Customer Relationship Management Building Customer Relationship Management

Ladder of Loyalty

Partner:
• Relationship exists between P&G and Wal-Mart. Wal-Mart
shares the scanner data from its check out counters in its over
4500 stores through the satellite. It helps P&G plan its
production, better management of its production runs and keep
its inventories low as it no longer depends on sales forecast but
actual sales data. Wal-Mart gains as it does not have to keep
inventories, get faster replenishments.
• Relationship between FedEx and IBM where FedEx stocks
IBM’s spare parts in its own warehouses and delivers them
across the world on instructions from IBM’s service personnel.

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Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Financial Bonds:
• Volume and Frequency Rewards.
• Bundle and Cross-Selling
• Stable Pricing
- Companies also offer the assurance of stable prices or lower price
increase than those paid by new customers to retain their old customer.

One of the biggest disadvantage of the financial bonds is that they can
be easily imitated. Also, it attracts a lot of price sensitive customers
who switch to a cheaper option at the first available opportunity.
Hence this is a weakest bonds. Unfortunately they the most commonly
used bonds across industries.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Social Bonds:
• Personal Relationships
• Continuous Relationships
• Social bond among customers
▪ Harley Davidson ‘Owners Club’, Hero Honda ‘Passport Program
’, Saturn Performance Club, Various by Volkswagen.
▪ Airtel’s ‘Friends and Family rewards program’ creates a social
bonding in addition to financial reward received by the customer.

Social events create opportunities for sharing common interests and

activities that bring the customers together and keep them from
switching. Hence, social bonds are relatively more difficult to break.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Customization Bonds:
• Customer intimacy
▪ Marriott Hotels knows likes, dislikes & special habits of ‘C’,
Information are shared across its hotels worldwide

• Mass Customization
- Providing tailored P/S with little additional effort & cost-
effective production and using communication technologies.
- At its special outlets, Levis gives customers the option to
buy jeans made to their own specifications.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Customization Bonds:
• Mass Customization
▪ National Bicycle Corporation, Japan, can potentially make
over eleven million varieties of bicycle using flexible
manufacturing systems and make delivery in two weeks.
▪ MyCNN.com or MyBBC.com or MyDELL.com are examples of
information services provided over the internet which help the
surfers customize the services to meet their specific requirements.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Customization Bonds:
• Mass Customization
▪ Reflect.com markets customized skincare, hair
fragrances
care,and color cosmetics over the internet.
▪ ‘One-of-a-kind products for One-of-a-kind YOU’
▪ ‘We will recustomize your product until it is right or we will
refund your money’.

Customization bond is difficult to break as the customer would need

to start from scratch and teach the new potential provider even if the
provider has the capability to meet the customer’s requirements.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Structural Bonds:
• Integrated information system Partnership
• Shared Processes and Equipments
• Joint Investments
• AMEX’s Structural Bond formation through TRS

• FedEx’s Structural Bond formation through PowerShips

Structural bond is the strongest bond and hence the most

difficult to break.
Customer Relationship Management Building Customer Relationship Management

Bonding for Customer Relationship

Conclusion:

• As the organization moves from level 1 to 4, they observe:

- The bonds become stronger.
- Customer loyalty increases and the opportunities and scope
of reaping the benefits of relationship marketing increases.

• In B2B contexts, we also see the presence of other kinds

of bonds such as legal, planning and technical bonds.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
In competitive markets even satisfied customer switch or
defect to competitive offers. Since loyal customers are
more profitable for any organization, there is a need to
identify better predictors of loyalty. Indicators of
relationship strength like trust, satisfaction & commitment
are better predictors of loyalty and by including these in
customer satisfaction surveys, managers can modify
service delivery with a focus on customer loyalty.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Relationship
Prospect Customer Client Supporter Advocate Partner
Stages
Psychological
Steps Initiation Development

Maintenance/

Enhancement

Switching

Satisfaction

Trust
Major Role Minor role
Commitment

Loyalty Psychological Steps Across Relationship stages

Customer Relationship Management Building Customer Relationship Management

CRM Framework
Switching:
• Switching is very common in the initial stages of a
relationship process.
• Initial interactions & experiences determine whether the
customer is willing to continue or not.
• In cellular service industry,the first two weeks were more
crucial.
• In health fitness industry,clubs provide personal trainer
when the customer signs up. This is to encourage the
customer to start using the service. Subsequently the
customer is signed up for an extended period of time.
• This prevents switching at least in the short term.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Satisfaction:
• Satisfaction is a complex emotion, which depends on the
offer characteristics,expectations and usage situations.
• Customer are satisfied when the performance of P/S
matches or exceed their expectations.
• Satisfaction is an important intermediate step in
relationship building process and many of the
satisfied customers will become clients.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Satisfaction:
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Trust:
• Satisfaction over multiple interactions lead to a stage where
the customer begins to have faith in the offerings and its
consistency in performance.
• Trust is defined as the willingness to rely on an exchange
partner in whom one has confidence.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Trust:
• The concept of trust is common among marketers in the
packaged goods industry which depends on trust to build
brand loyalty. Naill Fitzgerald, Chairman-Unilever,
suggested that:

“ In order to function at all human societies rely on the

existence of trust. Good brand invites trust, earn trust,
honor trust and reward trust. Good brands guard
their reputation with their lives, and if by accident
they transgress, they apologize with grace and true
humanity,-quickly”.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Trust:
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Commitment:
• Commitment to a relationship is defined as an enduring
desire to maintain a valued relationship.Therefore
commitment exists only when the relationship is considered
important.
• Trust & commitments are key variables because they encourage
marketers to work at preserving the relationship investments
with partners/clients.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Commitment:
It can be operational using the two dimensions of:
1. Attitude towards interacting with each other, and
2. The formation of bonds. The bonds may be legal, planning,
knowledge, social, technical and structural in nature.
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Loyalty:
• Loyalty is not simply repeat buying.
• Loyalty includes future purchase intentions,
complaining and referral behavior (WOM).
• In terms of measurement of loyalty, typical questions would
refer to:
▪ Intention regarding next purchase
▪ The number and intensity of complaints
▪ Tendency to talk about suppliers to other clients
▪ Degree of desire to share positive experience
Customer Relationship Management Building Customer Relationship Management

CRM Framework
Loyalty:
Conclusion: It must be kept in mind that all buyer-seller
relationship do not necessarily go through sequentially. In
some cases, clients may exhibit a lot of loyalty related
behavior when they are satisfied with the performance over
multiple interactions.
Customer Relationship Management Building Customer Relationship Management

Zero Customer Defection

The concern for reducing and eliminating customer attrition
emerged from studies that indicate the following:

– Customers are profitable over a period of time.

– Across industries, profits can increase by 35 to 85 % by
increasing customer retention by only 5 %.
– About 70 % of customers switch to competitive offerings due
to perceived indifference of the current provider.
Customer Relationship Management Building Customer Relationship Management

Customer Defection
Why Customers Defect ?
Move Away
‘Other’ 3%
Friendships
4%

Competition
9% Perceived
Indifference
69 %
Product
Dissatisfaction
14 %
Customer Relationship Management Building Customer Relationship Management

Zero Customer Defection

Customer who defect can be broadly categorized as :

1. Price Defectors – Who are bargain hunters.
2. Product Defectors – Who not satisfied with existing product.
3. Service Defectors – Dissatisfied with the quality of services.
4. Market Defectors - As they moved away from their
previous business.
1. Technology Defect– Shifted to another superior technology.
2. Organizational Def– Individual users who belong to a group may
shift to an alternate supplier/service
provider because group has switched.
Customer Relationship Management Building Customer Relationship Management

Zero Customer Defection

Service Defectors
Findings from PIMS (Profit Impact of Marketing Strategy)
• Perceived good service provider charge an average 9-10 % more.
• They grow two times faster than their competitors.
• They improve their market share at an average of 6 % per year.
Studied by TRAP (Technical Assistance for Research Programme)
• 96 % of unhappy customers never bother to complain.
• 71 % of the customers feel their complaint has been
handled satisfactorily if they only need to deal with one individual.
• If a customer complaint was handled well, 95 % of customers will
return to do business with the organization.
Customer Relationship Management Building Customer Relationship Management

Customer Retention Program

Every organization should have a customer retention program to
reduce customer defection. The steps include-
1. Measure customer retention – most customers defect slowly,
be careful in defining customer retention - a dead account with
minimal balance has to be treated as a lost customer.
2. Interview former customer – helps in defining why customers
defect
3. Analyze complaint and service data – might be due to systemic
errors and would need a review of service and complaint
handling process
4. Identify switching barriers – through multiple offerings,
convenient operating hours or speed of transactions