Customer Relationship

Management
A Databased Approach

V. Kumar
Werner J. Reinartz

Instructor’s Presentation Slides

Chapter Three

Strategic CRM
 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
 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
 Components of CRM Strategy

1) Customer-Management
Orientation

4) CRM
Strategy
Implementation

2) Integration and 3) Information capture

alignment of and alignment of
organizational processes 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
 CRM Implementation Matrix

Customer dimension
Acquisition Growth and Decline and
stage retention stage exit stage

Analytical
CRM

Management
Dimension Operational
CRM

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
 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
 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
 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
 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

Customer
s
Preferred Value
Propositions
Owners Partners
Practice
of
Strategi
c CRM

Employee Suppliers
s
Management
 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

Customers Partners

Employees
Suppliers

Practice of
Strategic
CRM
Managemen
Environment
t

Products Competitor
s
 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

 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)

2000 2001 2002 2003 2004

ibm.com Contact Centers

Service and Support
Business Partners
Field Sales

Marketing

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
 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