Chapter 5 - Types of CRM Systems: Analytical CRM

End of this chapter you will be able to:

• Design, manage, and optimize customer-related databases to ensure accurate and
comprehensive customer information is available for analytical purposes.
• Analyze and interpret customer-related data to derive actionable insights that enhance
customer understanding and inform business decisions.
• Implement analytical CRM solutions to improve customer relationships, increase
customer loyalty, and enhance overall business performance.
• Identify and integrate emerging trends and technologies in analytical CRM to stay
ahead of market changes and continuously improve customer relationship strategies.

In the dynamic field of Customer Relationship Management (CRM), leveraging analytical CRM is
crucial for gaining deep insights and enhancing customer interactions. To achieve this, it is essential to
develop clear and targeted learning outcomes for each key area within analytical CRM. These areas
include understanding and managing customer-related databases, effectively using customer data,
implementing analytical CRM strategies, and staying abreast of emerging trends. By establishing
specific learning outcomes for each of these components, students will be equipped with the knowledge
and skills necessary to drive successful CRM initiatives and adapt to the evolving landscape of customer
relationship management.

➢ Analytical CRM
Analytical Customer Relationship Management is a strategic approach that leverages data analysis
to gain insights into customer behaviors, preferences, and trends. This approach aims to enhance the
decision-making process and improve customer relationships. Analytical CRM focuses on collecting,
analyzing, and interpreting customer data to provide actionable insights that drive business growth and
customer satisfaction.

Key components of Analytical CRM include:

Data Collection: These databases store all relevant customer information, including personal details,
purchase history, communication records, and customer service interactions. Effective data collection
ensures that businesses have a comprehensive view of each customer. Data warehousing involves

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integrating data from multiple sources (sales, marketing, support, social media) into a central repository.
A data warehouse supports complex queries and analysis, providing a unified view of customer data.

Data Analysis: Descriptive analytics involves analyzing historical data to understand past customer
behaviors and trends. Descriptive analytics helps businesses identify patterns and summarize data using
reports and dashboards. Predictive analytics use statistical models and machine learning techniques to
forecast future customer behaviors and trends. Examples include predicting customer churn, future
sales, and customer lifetime value. Prescriptive analytics provides recommendations on actions to take
based on data insights. Prescriptive analytics help businesses optimize marketing campaigns, improve
customer service, and personalize customer interactions.

Data Mining: This process involves dividing customers into distinct groups based on specific criteria
such as demographics, buying behavior, and preferences. Segmentation helps in targeting specific
customer groups with tailored marketing strategies. Pattern recognition patterns and relationships in
large datasets to uncover hidden insights. This can include association rules, sequential patterns, and
clustering.

Customer Insights: Creating detailed profiles of customers to understand their needs, preferences, and
behaviors. Customer profiling helps businesses personalize their offerings and communication.
Analyzing the entire customer journey to identify key touchpoints and improve the overall customer
experience. This involves tracking customer interactions from initial contact to post-purchase follow-
up.

Here are the main principles of analytical CRM:

1. Data-Driven Decision Making: Analytical CRM relies on data to inform strategic decisions. By
leveraging accurate and comprehensive data, businesses can make informed decisions that enhance
customer satisfaction and drive growth.

2. Customer Centricity: The focus of analytical CRM is on understanding and meeting customer
needs. By analyzing customer data, businesses can tailor their products, services, and interactions to
create a customer-centric approach.

3. Integration: Effective analytical CRM requires integrating data from various sources to create a
unified view of the customer. This includes data from sales, marketing, customer service, and social
media.

4. Continuous Improvement: Analytical CRM is an ongoing process. Businesses must continuously

collect and analyze data to stay updated on customer trends and adapt their strategies accordingly.

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5. Privacy and Data Security: Ensuring customer data is handled with utmost security and privacy is
crucial. Businesses must comply with data protection regulations and implement robust security
measures to protect customer information.

Benefits of Analytical CRM:

1. Enhanced Customer Understanding: By analyzing customer data, businesses gain deeper insights
into customer needs and behaviors, allowing for more effective targeting and personalization.

2. Improved Customer Retention: Identifying at-risk customers and proactively addressing their
concerns can reduce churn rates and increase customer loyalty.

3. Increased Sales and Revenue: Targeted marketing campaigns and personalized recommendations
can lead to higher conversion rates and increased sales.

4. Optimized Marketing Efforts: Analytical CRM helps measure the effectiveness of marketing
campaigns, enabling better resource allocation and campaign optimization.

5. Better Decision Making: Data-driven insights support informed decision-making across various
business functions, from product development to customer service.

In summary, Analytical CRM is a powerful tool for businesses seeking to leverage data to enhance
customer relationships, drive growth, and stay competitive in the market. By focusing on data
collection, analysis, and actionable insights, Analytical CRM enables businesses to make informed
decisions that improve customer satisfaction and business performance.

➢ Customer Related Database

A customer-related database is a centralized system that stores detailed information about a

company’s customers. This database is crucial for managing customer relationships and is an essential
component of Customer Relationship Management (CRM) strategies. It enables businesses to collect,
organize, and analyze customer data to better understand and meet their customers' needs.

Here’s a detailed explanation of the key components of a Customer-Related Database:

1. Personal Information: Names, addresses, phone numbers, email addresses, and other demographic
details such as age, gender, and occupation. Helps in identifying and communicating with customers,
personalizing interactions, and segmenting the customer base.

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2. Transaction History: Records of all purchases made by the customer, including dates, items bought,
quantities, prices, and payment methods. Provides insights into buying patterns and preferences,
enabling targeted marketing and inventory management.

3. Interaction Records: Logs of all communications between the customer and the business, including
phone calls, emails, live chats, social media interactions, and in-person visits. Helps in tracking
customer inquiries, complaints, and feedback to improve customer service and satisfaction.

4. Customer Preferences: Information on preferred products, services, communication channels, and

shopping times. Allows businesses to tailor offerings and communication strategies to individual
customer preferences, enhancing the customer experience.

5. Loyalty and Rewards: Information on participation in loyalty programs, points accrued, rewards
redeemed, and promotional activities engaged in. Helps in managing loyalty programs effectively,
rewarding loyal customers, and encouraging repeat purchases.

6. Customer Service Records: Details of customer service interactions, including the nature of issues,
resolutions provided, and follow-up actions taken. Aids in resolving issues efficiently, identifying
common problems, and improving product and service quality.

Benefits of a Customer-Related Database

1. Enhanced Customer Understanding: By consolidating and analyzing customer data, businesses

gain deep insights into customer behavior, preferences, and needs. This understanding enables more
personalized and relevant interactions.

2. Improved Customer Retention: Accurate and comprehensive records of customer interactions and
service issues allow businesses to address problems promptly and effectively, increasing customer
satisfaction and loyalty.

3. Targeted Marketing Campaigns: Detailed customer data enables businesses to create targeted
marketing campaigns based on specific customer segments, increasing the effectiveness of marketing
efforts and improving ROI.

4. Efficient Loyalty Programs: Managing loyalty programs through a centralized database ensures
accurate tracking of points and rewards, fostering customer loyalty and encouraging repeat business.

5. Data-Driven Decision-Making: Access to detailed customer data supports informed decision-

making across various business functions, from product development and marketing to customer service
and sales.

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Consider a large retail chain in Sri Lanka, such as KGA Food City. Here's how they might use a
customer-related database to enhance their operations and customer engagement. During the
registration process for their loyalty card program, KGA Rewards, KGA Food City collects personal
information from customers, including their name, address, contact details, and date of birth. This
personal information helps KGA identify and communicate with customers effectively. Every purchase
made using the KGA Rewards card is recorded in the database, capturing details such as the date of
purchase, items bought, quantities, total amount spent, and the payment method used. This transaction
history provides valuable insights into customer buying patterns and preferences. When a customer
contacts KGA's customer service with a query or complaint, the details of the interaction, including the
customer’s query, the resolution provided, and any follow-up actions, are logged in the database. This
ensures that customer issues are tracked and resolved efficiently. By analyzing purchase history, KGA
can determine a customer's preferred product categories, such as fresh produce, dairy, or household
items, and track which communication channels the customer responds to best, like SMS, email, or in-
app notifications. The database also tracks loyalty points earned and redeemed by customers and their
participation in promotional activities and special offers. This helps KGA identify its most loyal
customers and tailor exclusive promotions to reward them. If a customer returns a product due to a
defect, the details of the return, including the reason and the action taken (e.g., refund or replacement),
are recorded in the database. This helps KGA identify patterns in product issues and improve quality
control. Overall, a customer-related database is a fundamental component of KGA Food City's CRM
strategy. By leveraging this database, KGA can enhance customer understanding, improve retention,
create targeted marketing campaigns, efficiently manage loyalty programs, and make data-driven
decisions that drive business success.

A customer-related database is an essential element of any CRM strategy, offering a holistic view of
each customer. Utilizing this database allows businesses to gain deeper insights into customer behavior,
boost retention rates, design targeted marketing campaigns, effectively manage loyalty programs, and
make informed decisions that propel business success.

➢ Using Customer-Related Data

Using customer-related data involves collecting, analyzing, and applying information gathered from
various customer interactions and transactions to enhance business operations and strategies. This data-
driven approach helps businesses understand their customers better, anticipate their needs, and deliver
personalized experiences that improve satisfaction and loyalty.

Key Aspects of Using Customer-Related Data includes:

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Data Collection: Customer-related data can be collected from multiple sources, including point-of-sale
systems, e-commerce platforms, social media, customer service interactions, loyalty programs, and
surveys. The data collected can include demographic information, purchase history, browsing behavior,
communication preferences, feedback, and social media activity.

Data Integration: Integrating data from different sources into a single, comprehensive database is
crucial. This unified view allows businesses to get a complete picture of each customer, combining their
online and offline interactions. Ensuring the accuracy, consistency, and completeness of the data is
essential for reliable analysis. Data cleansing and validation processes help maintain data quality.

Data Analysis: This involves analyzing historical data to understand past customer behaviors and
trends. Descriptive analytics help businesses identify patterns and gain insights into customer
preferences. Predictive analytics use statistical models and machine learning algorithms to forecast
future customer behaviors. This can include predicting purchase likelihood, customer churn, and
lifetime value. Prescriptive analytics provide actionable recommendations based on data analysis. This
helps businesses decide on the best course of action to achieve desired outcomes, such as optimizing
marketing campaigns or improving customer service.

Personalization: By analyzing customer data, businesses can create personalized experiences for their
customers. This can include personalized product recommendations, targeted marketing messages, and
customized offers. Segmenting customers based on their behaviors and preferences allows businesses
to target specific groups with relevant content and offers, enhancing the effectiveness of marketing
efforts.

Customer Engagement: Understanding customer preferences and behaviors enables businesses to

communicate more effectively. Personalized communication can be delivered through preferred
channels, such as email, SMS, or social media. Using customer data to track and analyze service
interactions helps businesses improve their customer support. This can lead to quicker issue resolution
and higher customer satisfaction.

Decision Making: Businesses can make informed decisions by leveraging insights from customer data.
This can include decisions related to product development, marketing strategies, inventory
management, and customer service improvements. Analyzing customer data helps businesses measure
the success of their initiatives. Key performance indicators (KPIs) such as customer satisfaction scores,
conversion rates, and retention rates can be tracked and analyzed.

Consider a large retail chain in Sri Lanka, such as KGA Food City. Here’s how they might use customer-
related data to enhance their operations and customer engagement. By analyzing the purchase history
of customers, KGA Food City can personalize recommendations and promotions to match individual
preferences. For example, if a customer frequently buys organic products, KGA can send personalized

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offers and promotions specifically for organic items. Additionally, KGA Food City can segment their
customer base into distinct groups based on buying behavior, such as frequent shoppers, occasional
buyers, and high-value customers. This segmentation allows KGA to tailor marketing campaigns to
each group, offering relevant promotions and incentives. Improved communication is another benefit
of using customer-related data. If the data indicates that a particular customer prefers receiving
communication via email rather than SMS, KGA can ensure that promotional messages and updates are
sent through the preferred channel, enhancing the customer’s experience. Enhanced service is achieved
by tracking and analyzing customer service interactions. KGA Food City can identify common issues
and areas for improvement. If data shows that many customers are experiencing difficulties with a
specific product, KGA can address the issue promptly, improving overall customer satisfaction. Lastly,
KGA Food City can use customer data to make strategic decisions, such as identifying the most popular
products and ensuring they are always in stock. Additionally, analyzing customer feedback can help
KGA improve its product offerings and store layouts. Using customer-related data allows KGA Food
City to personalize interactions, segment its customer base for targeted marketing, improve
communication, enhance service quality, and make data-driven decisions, ultimately driving business
success and customer satisfaction.

Using customer-related data is a powerful approach that enables businesses to understand their
customers better, personalize their interactions, and make informed decisions that drive business
success. By collecting, integrating, analyzing, and applying customer data, businesses can enhance
customer engagement, improve service quality, and create more effective marketing strategies.

➢ Implementing Analytical CRM

Implementing Analytical Customer Relationship Management (CRM) involves several key steps and
considerations to ensure the effective use of customer data for improved decision-making and enhanced
customer relationships. This process integrates data collection, analysis, and application to derive
actionable insights that drive business growth and customer satisfaction.

Key steps in implementing analytical CRM:

1. Define Objectives and Goals: A retail chain like KGA Food City may aim to increase customer
retention, enhance personalized marketing efforts, and improve overall customer satisfaction. Establish
clear, measurable goals such as reducing customer churn by 10%, increasing average purchase value by
15%, or enhancing customer satisfaction scores by 20%.
2. Data Collection and Integration: Identify and integrate data from various sources, including sales
transactions, customer service interactions, social media, website analytics, and loyalty programs.

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Ensure the data is accurate, complete, and up-to-date. Implement data cleaning and validation processes
to maintain data quality.
3. Technology and Tools: Choose a robust CRM platform that supports data integration, analytics, and
reporting. Examples include Salesforce, Microsoft Dynamics 365, and custom-built solutions. Utilize
analytical tools and software such as Tableau, Power BI, or SAS for data visualization, predictive
analytics, and reporting.
4. Data Analysis: Analyze historical data to understand past customer behaviors and trends. Create
reports and dashboards to visualize key metrics. Use statistical models and machine learning algorithms
to forecast future customer behaviors. This includes predicting customer churn, future sales, and
customer lifetime value. Provide actionable recommendations based on data analysis. For example,
suggest personalized marketing campaigns or identify the best products to promote to specific customer
segments.
5. Segmentation and Personalization: Divide customers into distinct groups based on characteristics
such as buying behavior, demographics, and preferences. This allows for targeted marketing and
personalized experiences. Develop and implement personalized marketing campaigns based on
customer segments. For example, send tailored promotions to frequent buyers of organic products or
offer exclusive discounts to high-value customers.
6. Customer Engagement: Use insights from customer data to enhance communication strategies.
Ensure messages are sent through preferred channels and are relevant to individual customer needs.
Track and analyze customer service interactions to identify common issues and areas for improvement.
Provide proactive solutions and improve overall service quality.
7. Monitoring and Optimization: Continuously monitor key performance indicators (KPIs) such as
customer retention rates, average purchase value, and customer satisfaction scores. Regularly review
and refine CRM strategies based on performance data. Implement changes to improve outcomes and
achieve business goals.

To effectively implement Analytical CRM, KGA Food City begins by defining clear objectives and
goals, aiming to increase customer loyalty and sales through personalized marketing. Specific goals
include reducing customer churn by 10%, increasing average purchase value by 15%, and enhancing
customer satisfaction scores by 20%. The next step involves comprehensive data collection and
integration from various sources such as in-store transactions, online purchases, loyalty program
interactions, and customer service records. Using a CRM platform like Salesforce, KGA integrates these
data sources to create a unified customer view. For data analysis, they implement Salesforce for
comprehensive CRM capabilities and use Tableau for data visualization and predictive analytics.
Through descriptive analytics, KGA analyzes purchase history to identify top-selling products and peak
shopping times. Predictive analytics are employed to forecast customer churn and identify at-risk

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customers, while prescriptive analytics recommend personalized offers based on purchase history and
preferences. Segmentation and personalization are critical components of this strategy. KGA segments
customers into groups such as frequent shoppers, occasional buyers, and high-value customers, and
sends targeted promotions to each segment—discounts on favorite products for frequent shoppers or
exclusive offers for high-value customers. Enhancing customer engagement involves improved
communication through personalized emails and SMS messages tailored to customer preferences and
past interactions. Additionally, KGA analyzes customer service data to identify common issues,
improving response times and resolution rates. Continuous monitoring and optimization are essential
for success. KGA tracks key performance indicators (KPIs) such as customer retention, average
purchase value, and satisfaction scores. Regularly reviewing campaign performance and adjusting
strategies based on this data ensures the effectiveness and achievement of business goals. Implementing
Analytical CRM at KGA Food City involves a systematic approach to collecting, analyzing, and
applying customer data, ultimately enhancing customer understanding, personalizing interactions, and
driving data-driven business decisions that lead to success.

➢ Emerging Trends in Analytical CRM

Analytical Customer Relationship Management (CRM) continues to evolve with advancements in

technology and changes in consumer behavior. Businesses are increasingly leveraging these trends to
enhance their CRM strategies, improve customer relationships, and drive business growth. Here are
some of the most significant emerging trends in Analytical CRM:
1. Artificial Intelligence (AI) and Machine Learning (ML): The integration of AI and ML into CRM
systems allows for more sophisticated data analysis, enabling predictive and prescriptive analytics.
These technologies can analyze vast amounts of data quickly and accurately to uncover patterns and
insights that would be difficult to detect manually. AI-powered chatbots and virtual assistants are
becoming common in customer service, providing instant responses to customer inquiries and
improving overall customer experience. AI and ML algorithms can create highly personalized customer
experiences by predicting customer needs and preferences based on past behaviors and interactions.
2. Big Data Analytics: The explosion of data from various sources (e.g., social media, IoT devices,
online transactions) has led to the need for big data analytics in CRM. Big data technologies can handle
and analyze large volumes of structured and unstructured data to derive valuable insights. Big data
analytics enables real-time analysis of customer data, allowing businesses to respond to customer
actions and behaviors as they happen, improving responsiveness and relevance.
3. Customer Experience (CX) Analytics: CX analytics involves mapping the entire customer journey
to identify key touchpoints and pain points. This helps businesses understand the customer experience
from start to finish and make improvements where necessary. By analyzing customer feedback and

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social media interactions, businesses can gauge customer sentiment and adjust their strategies
accordingly to enhance satisfaction and loyalty.
4. Internet of Things (IoT): IoT devices generate vast amounts of data that can be used in CRM to
gain deeper insights into customer behavior and preferences. For example, smart home devices,
wearable technology, and connected cars provide data on how customers use products and services. In
industries like manufacturing and utilities, IoT data can be used to predict equipment failures and
schedule maintenance, thereby improving customer service and satisfaction.
5. Advanced Customer Segmentation: Instead of broad customer segments, businesses are now
focusing on micro-segmentation, creating highly specific groups based on detailed customer data. This
allows for more precise targeting and personalization. Segmenting customers based on their behaviors
and interactions with the brand, rather than just demographics, leads to more effective marketing and
engagement strategies.
6. Data Privacy and Security: With increasing concerns about data privacy, regulations like the
General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) are
shaping how businesses collect, store, and use customer data. Ensuring data privacy and security is
paramount. Businesses are investing in secure data handling practices and technologies to protect
customer information and build trust.
7. Voice of the Customer (VoC) Programs: VoC programs focus on systematically collecting and
analyzing customer feedback to understand their needs and expectations. This feedback can be gathered
through surveys, social media, reviews, and direct interactions. VoC analytics help businesses translate
customer feedback into actionable insights, leading to improved products, services, and customer
experiences.
8. Omnichannel CRM: Customers interact with businesses through multiple channels (e.g., in-store,
online, mobile, social media). Omnichannel CRM ensures that these interactions are seamlessly
integrated, providing a consistent and cohesive customer experience. By integrating data from all
customer touchpoints, businesses can create a unified view of the customer, allowing for more
personalized and relevant interactions.
9. Cloud-Based CRM Solutions: Cloud-based CRM solutions offer scalability and flexibility, allowing
businesses to easily adjust their CRM capabilities based on changing needs and growth. Cloud solutions
enable access to CRM data and tools from anywhere, supporting remote work and mobile access for
sales and customer service teams.
10. Blockchain Technology: Blockchain provides a secure and transparent way to store and share
customer data, enhancing data security and trust. Blockchain can improve transparency in transactions
and interactions, fostering greater trust between businesses and customers.

Emerging trends in Analytical CRM are driven by technological advancements and changing customer
expectations. By embracing these trends, businesses can enhance their CRM strategies, deliver

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personalized customer experiences, and make data-driven decisions that drive growth and customer
satisfaction. Staying abreast of these trends ensures that businesses remain competitive in an
increasingly data-centric and customer-focused landscape.

➢ Conclusion
In conclusion, Analytical CRM is a powerful approach that leverages customer-related databases and
data analytics to gain deep insights into customer behavior, preferences, and trends. By effectively
implementing Analytical CRM, businesses can personalize customer interactions, improve retention
rates, and drive strategic decision-making. Staying abreast of emerging trends such as AI, big data
analytics, and IoT ensures that CRM strategies remain cutting-edge and effective. Ultimately, a robust
Analytical CRM framework enables businesses to foster stronger customer relationships, enhance
customer satisfaction, and achieve sustainable growth.

Review Questions

1. What are the key components of a customer-related database?

2. How does integrating data from various sources improve the effectiveness of a customer-related
database?
3. Why is data quality important in maintaining a customer-related database?
4. Describe how a retail business like KGA Food City might use customer-related databases to
enhance customer engagement.
5. What types of data are typically collected in a customer-related database?
6. 2. How can businesses use customer-related data to personalize marketing efforts?
7. Explain the importance of data analysis in deriving actionable insights from customer-related
data.
8. Provide an example of how customer segmentation can improve marketing effectiveness.
9. What are the initial steps in implementing an Analytical CRM strategy?
10. How do predictive and prescriptive analytics differ, and what roles do they play in Analytical
CRM?
11. What are some key technological tools and platforms used in implementing Analytical CRM?
12. Describe the benefits of customer segmentation and personalization in Analytical CRM.
13. How are AI and machine learning transforming Analytical CRM?
14. What is the role of big data analytics in CRM, and how does it differ from traditional data
analysis?

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 15. Explain the significance of customer experience (CX) analytics and how it improves customer
relationships.
16. Discuss how IoT data can be used to enhance CRM strategies.
17. What are the challenges and benefits associated with implementing cloud-based CRM
solutions?
18. How does blockchain technology contribute to data security and transparency in CRM?

By answering these questions, students will reinforce their understanding of Analytical CRM and its
various components, applications, and emerging trends.

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