Chapter 10 3rd_ed

Supply Chain Management:

CUSTOMER CUSTOMER RELATIONSHIP RELATIONSHIP MANAGEMENTMANAGEMENT

Chapter 10Chapter 10

Prepared by Mark A. Jacobs, PhD

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

LEARNING OBJECTIVESLEARNING OBJECTIVES

You should be able to: Discuss the strategic importance of CRM Describe the components of a CRM initiative Calculate customer lifetime value Discuss the implementation procedures used for CRM

programs Describe how information is used to create customer

satisfaction & greater profits for the firm Describe importance of data security Describe how social media and cloud computing have

impacted CRM


CHAPTER OUTLINECHAPTER OUTLINE

• Introduction • Customer Relationship Management Defined• CRM’s Role in Supply Chain Management• Key Tools & Components of CRM• Designing & Implementing a Successful CRM Program• Trends in CRM

Introduction

CRM means focusing on customer requirements, then delivering products and services in a manner resulting in high levels of customer satisfaction

Also refers to automated transaction and communication applications, however this can cause problems for some firms

CRM must still include talking to customers, understanding their behavior and their requirements, and then building a system to satisfy those requirements

“Finding a new customer costs five times as much as keeping an old customer”


Customer Relationship Management (CRM) Defined

“The infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal—indeed to buy again.”

“…managing the relationships among people within an organization and between customers and the company’s customer service representatives in order to improve the bottom line.”

“… to keep track of customers, learning about each one’s likes and dislikes from various sources like transaction records, call-center logs, web site clicks, and search engine queries.”

More simply – Building & maintaining profitable long-term customer relationships


CRM’s Role in Supply Chain Management

The firm seeks position as a value-enhancing supplier to its customers.

Firms must create methods for finding & developing good suppliers

Firms must create methods for becoming & staying good suppliers themselves.

It may be necessary for a firm to certify its intermediate customers as to their ability to adequately represent their firm’s products.


Key Tools & Components of CRM

Segmenting Customers - Grouping customers to create specialized communications about products

Target marketing efforts - e-mail or direct mail saves labor & postage, reduces chances of being a nuisance

Relationship marketing or permission marketing - customers select the type & time of communication. Requires software & customer participation

Cross selling - Additional products are sold as the result of an initial purchase (e.g., e-mails from Amazon.com describing other books bought by people)


Key Tools & Components of CRM (Continued)

Predicting Customer Behaviors - firms forecast likelihood of customers’ purchases

Customer Defection Analysis - finding methods to retain customers

Churn reduction - reducing customer defections

Customer Value Determination - verify the customer lifetime value for individuals or segments

Personalizing Customer Communications - Understanding customer behaviors & preferences, firms customize communications

Clickstream, how a customer navigates a Web site

Event based Marketing - offer the right products & services to customers at the right time


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Avg. Annual Sales Avg. Profit Margin Expected Lifetime Nursery A: $22,000 20 % 5 yearsNursery B: $16,000 15 % 15 yearsUsing a discount rate of 8 percent, and treating the average sales figures as annuities, the present value of the two nursery lifetime values is:

= $22,000(.2) = $4,400 = $17,488

= $16,000(.15) = $2,400

Where: a = average annual profit, or the (annual sales)×(profit margin)i = annual discount raten = expected lifetime in years.

Based on these lifetime value calculations, Nursery B is the more important customer

NPVB = a = $20,522

NPVA = a

(Example. 10.1)


Calculating Lifetime Customer Value


Automated Sales Force ToolsSales Force Automation (SFA)- Used for documenting field activities, communications with the home office, & retrieving sales history

Sales Activity Management- Tool offering sales reps a guided sequence of sales activities

Sales Territory Management- Sales managers obtain information of each sales rep’s activities (e.g., total sales per sales rep.)

Lead Management- Sales reps can follow prescribed tactics when dealing with prospects to aid closing the deal.

Knowledge Management- Enables quick decision making, better customer service, & a better-equipped & happy sales staff.



Managing Customer Service Capabilities What does customer service actually mean?

“Seven Rs Rule” having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer, at the right costs.

Performance measures are often designed around satisfying the seven Rs. These kinds of services can come at a cost.



Customer Service ElementsPre-transaction elements - precede the sale (e.g., customer service policies, the mission statement, org.

structure, & system flexibility)Transaction elements - occur during the sale & include the order lead time, the order processing capabilities & the distribution system accuracyPost-transaction elements - occur after the sale & include warranty repair capabilities, complaint resolution, product returns, & operating information



Call CentersCan categorize calls, determine average resolution time, forecast future demand, improve the overall productivity of the staff, increasing customer

satisfaction levels



Website Self-Service Web sites act as support mechanisms for call centers.

Customers can access their account information & operating hours, contact information, etc.

Field Service Management Customers can communicate directly with product specialists

using wireless devices & the right diagnosis can be made quickly

Measuring Customer Satisfaction Customers are frequently given opportunities to provide

feedback about a product, service, or organization

Customer Privacy Capabilities Two important issues are ability to assure privacy & ability to

minimize customer harassment



Designing & Implementing a Successful CRM Program

Step 1. Creating the CRM Plan: Objectives of the CRM program CRM’s fit with corporate strategy New applications to be purchased or developed Integration or replacement of existing legacy

systems Personnel Requirements- personnel, training,

policies, Upgrades, & maintenance & The costs & time frame for implementation


Designing & Implementing a Successful CRM Program (Continued)Step 2 - Involve CRM users from Outset -

Employees should understand how it affects their jobs Create a project team with members from all affected

organizational areas. Test with a pilot application

Step 3 - Select the Right Application & Provider - Find an appropriate application & determine the extent of customization

Visit trade show, read trade literature, hire consultant, etc.

Compare based on performance, security, reporting capabilities, system availability, etc.


Step 4 - Integrate Existing CRM Applications - CRM is a collection of various applications implemented over time.

Customer contact mechanisms need to be coordinated so that every CRM user in the firm knows about all of the activity associated with each customer.

Centralized database or data warehouse containing all customer information.

Designing & Implementing a Successful CRM Program (Continued)


Step 5 - Establish Performance Measures – This allows the firm to –

Determine if objectives have been met Compare actual to planned variance



Step 6 - Providing CRM Training for All Users -

Provide & require training for all of the initial users & then provide training on an ongoing basis as applications are added

Training can also help convince key users like sales, call center, & marketing personnel of the benefits & uses of CRM applications



Trends in CRM

Customer data privacy Rules & laws regarding invasion of privacy include

Patriot Act in the US and Internet Privacy Law in the EU

Social Media Creating and cultivating virtual communities around

product or brand is a powerful way to engage consumers

Cloud Computing (Software as a Service) Ala carte & on demand offerings accessed via web

browser Changing the cost structure of CRM applications




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Chapter 10 3rd_ed

Business