prof dr Veljko Milutinovic Mina Mićanović minica 82 EUnet

prof dr Veljko Milutinovic Mina Mićanović 1

Remember This!!! CEO – Chief Executive Officer CFO – Chief Financial Officer CIO – Chief Information Officer CMO – Chief Marketing Officer CPO – Chief Privacy Officer CRO – Chief Relationship Officer Mina Mićanović 2

Managing Customer Relationship Don Peppers Martha Rogers Mina Mićanović 3

Contents Part One Principles of Managing Customer Relationships Part Two IDIC Implementation Process: A Model for Managing Customer Relationships Part Three Measuring and Managing to Build Customer Value Mina Mićanović 4

Part One Principles of Managing Customer Relationships Mina Mićanović 5

Evolution of Relationships with Customers Mina Mićanović 6

Evolution of Relationships with Customers We have only two sources of competitive advantage: 1. The ability to learn more about our customers faster than the competition. 2. The ability to turn that learning into action faster than the competition - Jack Welch, former CEO, General Electric Bloomberg News Service, 2000 Mina Mićanović 7

Evolution of Relationships with Customers Mina Mićanović 8

Roots of Customer Relationship Management The goal of every enterprise is simply to • Acquire profitable customers. • Retain profitable customers longer. • Win back profitable customers. • Eliminate unprofitable customers. • • Upsell additional products in a solution. Cross-sell other products to customers. Referral and word-of-mouth benefits. Reduce service and operational costs. Mina Mićanović 9

Process of Becoming an Enterprise Focus: Building its value by building customer value Begins with: Mina Mićanović 10

Process of Becoming an Enterprise Focus: Building its value by building customer value Begins with: Mina Mićanović 11

What is CRM? CRM is not a software package. It is not a database. It is not a call center or a Web site. It is not a loyalty program or a win-back program. CRM is entire philosophy. Steve Silver Mina Mićanović 12

What is CRM? It can’t be assigned to marketing if it is to have any hope of success It is an enetrprisewide business strategy for achieving customer-specific actions. The goal is to increase the value of each customer Mina Mićanović 13

What is CRM? Mina Mićanović 14

In Essence… CRM involves treating different customers differently. Mina Mićanović 15

A Good Example - PC Banking Services Consumer spends several hours, usually spread over several session… … setting up an online account and inputting payee addresses and account numbers… Mina Mićanović 16

A Good Example - PC Banking Services … in order to be able to pay his bills electronically each month. Mina Mićanović 17

A Good Example - PC Banking Services If a competitor opens a branch in town… … offering lower checking fees or higher saving rates… unlikely … this consumer is ____ to switch banks. Mina Mićanović 18

A Good Example - PC Banking Services He has invested time and energy in a relationship with the first bank, and it is simply more convenient to remain loyal to the first bank than to teach the second bank how to serve him in the same way. Mina Mićanović 19

CRM Synonyms Integrated marketing communications (Don Schultz) One-to-one relationship management (Don Peppers and Martha Rogers) Real-time marketing (Regis Mc. Kenna) Customer intimacy (Michael Treacy and Fred Wiersema) … and a variety of other terms Mina Mićanović 20

Operational and Analytical Process affecting the focuses on the Mina Mićanović 21

Operational and Analytical Process needed to build focuses on the Mina Mićanović 22

Computer Technologies New computer technologies and applications have spawned enterprisewide information systems that help to harness information about customers, analyze the information, and use the data to serve customers better. Mina Mićanović 23

Computer Technologies Enterprise resource planning (ERP) systems Supply chain management software (SCM) Enterprise application integration software (EAI) Data warehousing Sales force automation (SFA) and other enterprise software Mina Mićanović 24

The Four Ps • Traditional marketing efforts have centered on the “four Ps”. • In essence, the four Ps are all about the “get” part of “get, keep and grow customers”. • The customers needed to believe that the enterprise’s offerings would be superior in delivering the “four Cs”: customer value, lower costs, better convenience, and better communication. Mina Mićanović 25

The Four Ps Mina Mićanović 26

The Four Ps Product is defined in terms of the average customer – what most members of the aggregate market want to need. Mina Mićanović 27

The Four Ps Promotion has also worked in a fundamentally nonaddressable, noninteractive way. The various customers in a market are all passive recipients of the promotional message, whether it is delivered through mass media or interpersonally, through salespeople. Mina Mićanović 28

The Four Ps Place is a distribution systems or sales channel. Mina Mićanović 29

The Four Ps Price refers not only to the ultimate retail price a product brings, but also to intermediate prices, beginning with wholesale; and it takes account of the availability of credit to a customer and the prevailing interest rate. Mina Mićanović 30

Direction of Success For a traditional aggregate-market enterprise is to acquire more customers. For the customer-driven enterprise is to keep customers longer and grow them bigger. Mina Mićanović 31

Example – Kellogg’s can either sell as many boxes of cornflakes as possible to whomever will buy them, even though sometimes cornflakes will cannibalize raisin brain sales, Mina Mićanović 32

Example – Kellogg’s can concentrate on making sure its product are on Mrs. Smith’s breakfast table every day for the rest of her life, and thus represent a steady or growing percentage of that breakfast table’s offerings. Mina Mićanović 33

Example – Ford can try to sell as many Tauruses as possible, for any price, to anyone who will buy, Mina Mićanović 34

Example – Ford It can, by knowing Mrs. Smith better, make sure that all cars in Mrs. Smith’s garage are Ford brands, including the used car she buys for her teenaged son, and that Mrs. Smith uses Ford financing and credit cards, and gets her service, maintenance and repairs at Ford dealerships – throughout her driving lifetime. Mina Mićanović 35

Tasks… • … for growing market share different from • … for building share of customer but the two strategies are not antithetical • A company can simultaneously focus on getting new customers as well as growing the value of and keeping the customers it already has. Mina Mićanović 36

Overview Customer-strategy enterprises are required to interact with a customer and use that customer’s feedback from this interaction to deliver a customized product or service. Mina Mićanović 37

Overview Mina Mićanović 38

Overview Market-driven efforts can be strategically effective and even more efficient at meeting individual customer needs when a customer-specific philosophy is conducted on top of it. Mina Mićanović 39

Overview The customer-driven process is time-dependant and evolutionary, as the product or service is continuously fine-tuned and the customer is increasingly differentiated from other customers. Mina Mićanović 40

Overview The aggregate-market enterprise competes by differentiating products, whereas the customer driven enterprise competes by differentiating customers. Mina Mićanović 41

The Traditional Marketing • The traditional marketing company, no matter how friendly, ultimately sees customers as adversaries, and vice versa. • The company and the customer play a zero-sum game: If the customer gets a discount, the company loses profit margin. Mina Mićanović 42

The Traditional Marketing Interests… • The customer wants to buy as much product as possible for the lowest price. • The company wants to sell the least product possible for the highest price. Mina Mićanović 43

The Customer-based Enterprise • Aligns customer collaboration with profitability. • For starters, a one-to-one enterprise would likely be willing to fix a problem raised by a single transaction at a loss if the relationship with the customer was profitable long term. Mina Mićanović 44

The Central Purpose… • … of managing customer relationships is for the enterprise to focus on increasing the overall value of its customer base and customer retention is critical to its success. • Increasing the value of the customer base through: – Cross-selling – Upselling – Customer refferals Mina Mićanović 45

Market Share versus Share of Customer MARKET-SHARE STRATEGY SHARE-OF-CUSTOMER STRATEGY Product (or brand) managers sell one product at a time to as many customers as possible. Customer manager sells as many products as possible to one customer at a time. Differentiate products from competitors. Differentiate customers from each other. Sell to customers. Collaborative with customers. Find a constant stream of new business from established customers. Use mass media to build brand announce products. Use interactive communication to determine individual needs and communicate with each individual. Mina Mićanović 46

Technology Accelerates • To effectuate customer-focused business relationships, an enterprise must integrate: – – – The disparate information systems Databases Business units Customer touch points And many other facets to ensure that all employees who interact with customers have real-time access to current customer information. Mina Mićanović 47

Technology Accelerates • The objective is to optimize each customer interaction and ensure that the dialogue is seamless – that each conversation picks up from where the last one ended. Mina Mićanović 48

Technology Accelerates • Technology has made possible the mass customization of products and services, enabling business to treat different customers differently, in a cost-efficient way. • Implementing an effective customer strategy can be challenging and costly because of the sophisticated technology and skill set needed by relationship managers to execute the customer-driven business model. Mina Mićanović 49

What is a Relationship? • What does it mean for an enterprise and a customer to have a relationship with each other? • Do customers have relationships with enterprises that do not know them? • Can the enterprise be said to have a relationship with a customer it does not know? • Is it possible for a customer to have a relationship with a brand? Mina Mićanović 50

What is a Relationship? • The critical business objective can no longer be limited to acquiring the most customers and gaining the greatest market share for a product or service. Mina Mićanović 51

What is a Relationship? • Instead, to be successful in the era of interactivity, when it is possible to deal individually with separate customers, the business objective must include establishing meaningful and profitable relationships at least with the most valuable customers, and making the overall customer base more valuable. Mina Mićanović 52

“Connecting” Mina Mićanović 53

In Short… • The enterprise strives to get a customer, keep that customer for a lifetime, and grow the value of the customer to the enterprise. • Relationships are the crux of the customer-strategy enterprise. • Relationships between customers and enterprises provide the framework for everything else connected to the customer-value business model. Mina Mićanović 54

Learning Relationship • The exchange between a customer and the enterprise becomes mutually beneficial, as customers give information in return for personalized service that meets their individual needs. • This interaction forms the basis of the Learning Relationship, an intimate, collaborative dialogue between the enterprise and the customer that grows smarter and smarter with each successive interaction. Mina Mićanović 55

Learning Relationships: The crux of managing customer relationships • The basic strategy behind Learning Relationships is that the enterprise give a customer the opportunity to teach the company what he wants, remember it, give it back to him, and keep his business. • The more the customer teaches the company, the better the company can provide exactly what the customer wants and the more the customer has invested in the relationship. Mina Mićanović 56

How Does the Learning Relationship Work? If you are my customer, and I get you to talk to me, I remember what you tell me, and I get smarter and smarter about you. Mina Mićanović 57

How Does the Learning Relationship Work? I know something about you that my competitors don’t know Mina Mićanović 58

How Does the Learning Relationship Work? So I can do things for you my competitors can’t do, because they don‘t know you as well as I do. Mina Mićanović 59

How Does the Learning Relationship Work? • Before long, you can get something from me you can get anywhere else, for any price. Mina Mićanović 60

How Does the Learning Relationship Work? At the very least, you’d have to start all over somewhere else, but starting over is more costly than staying with me. Mina Mićanović 61

How Does the Learning Relationship Work? • This creates a significant switching cost for the customer, as the value of what the enterprise is providing continues to increase, partly as the result of the customer’s own time and effort. • The result is that the customer becomes more loyal to the enterprise, because it is simply in the customer’s own interest to do so. Mina Mićanović 62

Benefits • The customer learns more about his own preferences from each experience and from the firm’s feedback. • The enterprise learns more about its own strengths and weaknesses from each interaction and from the customer’s feedback. Mina Mićanović 63

Not all customers are equal Some are not worth the time or financial investment of establishing Learning Relationship Nor are all customers willing to devote the effort required to sustain such a relationship. Mina Mićanović 64

Not all customers are equal • Enterprises need to decide early – on which customers they want to have relationship with, – which they do not, – and what type of relationship to nurture. Mina Mićanović 65

Teaching • When a customer teaches an enterprise what he wants or how he wants it, the customer and the enterprise are collaborating on the scale of the product. The more the customer teaches the enterprise, the less likely the customer will want to leave. Mina Mićanović 66

Enterprise Strategy Map Ability to interact with customers individually Interacting Customers addressed only in mass media III IV Database Marketing I 1 to 1 Learning Relationship II Mass Marketing Standard products Mina Mićanović Niche Marketing Tailored products 67

Quadrant I: Traditional Mass Marketing Companies that compete primarily on cost efficiencies based on economies of scale and low price. Companies in this quadrant are doomed to commoditization and price competition. Mina Mićanović 68

Quadrant II: Niche Marketing • Companies that focus on target markets, or niches, and produce goods and services designed for those defined customer groups. Mina Mićanović 69

Quadrant II: Database Marketing Companies utilize database management to get better. Mina Mićanović 70

Quadrant IV: One-to-one Learning Relationship • Companies use data about customers to predict what each one needs next, and then is able to treat different customers differently and increase mutual value with the customer. Mina Mićanović 71

CRM Structure Mina Mićanović 72

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Part Two IDIC Implementation Process: A Model for Managing Customer Relationships Mina Mićanović 77

Part Three Measuring and Managing to Build Customer Value Mina Mićanović 78