CRM FINAL EXAM

allocating costs based on the cost of the activity spent on each customer -- tracking expenses on individual customers to understand CLV

gives full information on profitability of customer rather than just product prices and COGS -- need ABC for expenses to determine revenue -- revenues (products), expenses (product sales/marketing)

when combined with revenue figures -- tells you absolute and relative levels of profit generated by each customer, segment or cohort; guides toward actions that can be taken to return customers to profit; helps prioritize and direct customer acquisition, retention and development strategies; helps establish whether customizatino and other forms of value creation for customers pays off; look at cusotmer acquisition costs, terms of trade, cuomster service costs and working capital costs

segment by profitability of customers and manage your customer portfolio in terms of this

foward looking calculation but use the past to estimate; tool to help udnerstand customers; PV of future cash flows attributed to a customer relationship

upper limit on what we'll pay to acquire a customer; upper limit on what we'll pay to avoid losing a customer

discounted cash flow (NPV)
--sum of all: = profit for taht period/ (1 + discount rate) ^ period

profit this period + average profit fuiture periods x (retention rate % - retention rate %)
--retention rate is 1 minus the churn rate

insight into future buying behavior - foward looking measurement (probabilities); margins earned from expenses (product and marketing expenses -hard to get); periodic costs of customer management (retention) - sales and marketing expenses; retention rate; for new customers - customer acquisition; discount rate - relates to risk, how risky is the customer - good or bad, the riskier the discount rate,

allows us to focus on, retain more profitable customers (existing customers pay higher prices than new ones - not always true); increase the profit earned per customer by reducing cost to serve (lowers costs) or cross-selling or upselling additional products and services (increases revenue)

become better at customer acquisition by - using more cost effective recruitment channels, better qualification of prospects - customers who defect early perhaps should have not been recruited in teh first place; happy customers become advocates (and they buy more... increases revenues, decreases costs)

the customers to retain - before CLV we tried to keep everybody happy and on baord, but not the best way anynmore -- now we keep those who are most profitable to us because we don't have enough resrouces to keep everybody happy and we want to choose the highest margin customers

customers to acquire - segment on profiability, know demographics of current most profitable customers, and see how they're different
--customers to grow - make you buy more things, cross sell, upsell into more profitable products
--customers to harvest - if they go to a competitor I don't care (low value, low margin, if so, minimal effort and investment

present value formula: profit for that period / (1 + discount rate) ^ period
--must add all of these up, for profit use cash flow generated profit for period, NPV the sum of individual periods = CLV

firing customers is a risky business; you have to use your judgment
--Orbitel fired customers that it said were not worty of their resources, but these residents had the potential to drive other accounts for Orbitel
--very risky to fire accounts of people with a lot of followers on twitter/facebook

-customer acquisition: process of acquiring new customers for business or converting existing prospect into new customers
-customer retention: activity a company undertakes to prevent customesr from defecting to alternative companies
-customer development: design, creation, and delivery of the touch-points that your product buyers experience to help them find, perceive, try and pruchase your products and services -- and grow tese with products and company over time (upselling and cross selling)

do what Harrah's did - focus on customer retention instead; it costs more to acquire new customers than to keep the current 20% happy

new to category: definition for those who have either identified a new need or have found a new category of solution for an existing need; putting everything together in the same place

switching brands - those you won from competitors; when deciding who to steal - what is estimated value of the customers, customer lifetime value, probability that customer will switch?

acquisition and retention -- Hoff thinks customers who are not committed are more likely to be available to switch to another provider - loyalty is what people do, commitment si what people feel

commitment is a function of satisfaction with the brand of offer, the attractiveness of alternatives and involvement in brand or offer -- tracks previous research that profitability is correlated to attitudinal loyalty not behavioral

-instrumental: customers are convinced that no other offer or company could do a btter job of meeting their needs
-relational: emotional tie, may be with an individual, a work group, or teh generalized comapny as a whole
-values-based: customers' values are aligned with those of the company

entrenched: across one or more of the 3 levels of commitment, very unlikely to leave you
average: unlikely to change in short term and may switch in the medium term

shallow: lower commitment and some already considering alternatives
convertible: most likely to defect

available: non customers prefer the alternative to their current offer - haven't switched yet, but plan on it
ambivalent: attractd to the alternative the same as the brand they use now

weakly unavailable: customers prefer their brands
strongly unavailable: strong preference for current brand

survey competitor's customers, general survey of the customer base
--allows us to segment our and competitors customers by commitment and allows us to spend marketing dollars wisely - help manage customer base and steal from other customer bases

mean the same thing -- those who are committed feel strongly about the brand they currently use, these are users who will advocate for your brand and increase profits -- you will go to any store to find it

adresses the retention stage of the customer life cycle -- company already has these customers so this means they can't be under the acquisition stage -- you can't really develop customers that aren't committed

-how can I increase the number of people in a market who are committed to my brand?
-what do I need to do to create a lasting foundation for loyalty?
-how many people are committed to each brand in a market?
-how many are at risk of defecting from each brand?

-focus customer development efforts towards committed customers such as upselling and cross selling
-focus on making uncommitted customers committed

this is customer acquisition stage --
-questions you ask?:
-how many non-users are available for conversion to each brand
-exactly who are those people?
-what motivates them?
-what are teh switching patterns across brands
--segment by aquirability and spend money on only those customers you think that you can win over -- reduced expenses and allow for profit maximization

addresses acquisition -- faced with a market where customers were not buying anything and they were forced to steal customers in order to stay competitive
--6 - 40% customer share
--performed research with objective to steal competitors

-allowed them to be very focused
-increased market share
-helped them steal competitors customers because they wentafter accouts they could win
-we want to spend money in places where we know we'll get a return

opposite of churn is retention
--focus on increasing share of wallet instead of share of market
--we want to reduce it because it is too expensive to acquire new customers to replace those who have churned

it isn't beneficial to maintain relationships with all customers because some are
--too costly to serve, strategic switches constantly in search of a better ddeal, not strategically significant (profitable) in roles such as benchmark, door opener, inspiration or technology

if they fire bottom tier customers, not necessarily good for the company - creates unhappy customers which leads to bad feedback

number of customers doing business with a firm at the end of a period expressed as % of those who were active customers at the beginning of the period

value of sales acheived from the retained customers expressed as a % of the sales achieved from all customers who were active at the beginning of the period

profit earned from the retained csutomers expressed as % of the profit earned from all customers who were active at teh beginning of the period
--this is the most accurate because a customer could be buying a lot from you but could be costing you more

-purchases grow as tenure grow
-customer management costs fall over time
-customer referrals grow
-new customers may have greater future life time value potential than longer tenure customers
-premium prices: customers who are satisfied in their relationship may reward their suppliers by paying higher prices

cheaper to keep existing customers than find new ones
-happy customers advocate for you because you don't have to spend as much money on advertising
-puts apple in a better position to launch other products - like its complements which add value to its products allowing them to charge higher prices

-delight customers: make sure that perception is greater than expecttation (set low ones to beat them)
-create customer perceived added value
-create social and structural bonds (branding and brand loaylty, social CRM, emotional bond)
-create customer engagement (customize products for customers)

-create exit barriers
-enforce the contract
-extract switching penalties

making someone outrageously happy about things taht are important to them (in a meaningful way) that no one else can do
--based on insights about customers' reactions to features, functions and/or attributes of a product or service

"I like this"
--a delighter: competitive advantage, delighting in a way like no other company
--an expectation: need it to stay in teh game

-i like it
-i expect it to be that way
-i am neutral
-i dislike it but i can live with it
-i dislike it

give a survey with questions about features of a product and respondents would answer
--find out what features are important to customers so she can delight them when they see something they responded to with "i like it" -- allows them to spend R & D on features taht people actually care about
--set expectation and try to exceed it - meet expectations = table stakes

program taht offers delayed or immediate incremental rewards to customers for their cumulative patronage
--gives customers 1 more reason to stick around
--reward cards mean data mining and customer discounts --c reates retention because it tries to get customers to continuously spend more money at your company instead of competitors

UK drug store
-launched an advantage card
-increased retention, in store spending and profitability
-extensive market research on customers to target - targeted it at card owners

implemented tiered cards with different rewards targeted to each level of customer
-made rewards visible so people would aspire to higher levels
-wanted to increase share of wallet not share of market
-wanted to retain current customesr

selling higher priced or higher margin products to an existing customer
--want to sell products taht will fatten the bottom line (higher margin)

selling additional products and services to an existing customer
--introduce customers to more of your products to increase brand loyalty and increase switching costs (apple)
-getting more revenue out of your customesr

measures important of different customers, treat different customers differently based on profitability
R and F make this differently from CLV

-which customers/segments to try to retail
-which customers/segments to try to acquire
-which customers/segments to fire
-how to reduce customer service expenses
-which customers to target marketing offers to

-use CRM customer database to gather/calculate R, F & M data points per customer or segment
-decide on a point scale
-develop a weighting scheme (R = 50%, F= 30%, etc)
-distribute points per customer segment for R, F, M
-use a spreadsheet to calculate weighted RFM score per customer/segment
-use spreadsheet to sort customers/segments by weighted RFM score

-swipe loyalty card for each machine - data mining, treat customers differently
-customer loyalty tracked 4 categories to evaluate recency of customers
--developed marketing strategy based on this, treat different customers diefferently based on loyalty and profitabiliey -- middle customer is a big target

aspirational programs: made it obvious to customers who were not in the program by not treating them with great customer service -- made treatement of customers obvious, only way to increase status and customer service was to spend more money

tied program to objective, loyalty card made going to casinos more appealing, give customers what they want
--customer retention and developtment game - new customers are too expensive, retain the current customers-- didn't invest in a super fancy place adn entertainment but instead on a loyalty card

suppliers: wal mart
customers
owners/investors
partners
employees: Tata and christiancare
--gives companies a competitive advantage - doesn't always have to be because of products/services, nurtuing relationships

demands low prices, has specific requirements with suppliers, electronic data interchange - business communication

benefit the business and possibly the customer - creating value with suppliers and other business partners can strengthen the business's foundation - getting close with a suppliers will incentivize them to help you when you're in a pinch - business might receive discounts for being a good partner

joint venture or alliance partners, category teams, benchmarking partners, regulators/government, customer advocacy groups, sponsors

agents, brokers, management contractors, consortia, franchisees, licenses

offering new customer insight, - may be able to improve the focal company's understanding to its customers
-creating value adds - by better cost performance at meeting specifications, improved product quality or identifying new opportunities

sold off tea company and sold it to local employees, also kept LT healthcare funding, education program and infrastructure
--realized that company presence is important to region and people, LT oriented, relationship with govt and local entities is important, expand globally out of india and establish relationhsips with other govt

company may not have best products and prices, but how it deals with employees is important
--competitive becasue good employee relationship, poswer compnay for flagship model, relationships with government and employees

-other relationships not typical market ways like 4 p's
-we dont' ahve to have the best advertisements or channels, we could win by being really good at our relationships
-wal-mart relationship with suppliers because it gives the competitve advantage
-tata and zappo's employee-employer relationship gives them the comptetitive advantage

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feel the users pain
--like evergreen, walk with investors to get to know daily struggles
--design a system to minimize the pain or make it go away; e.g. move from post it notes to a sytem that is mobile and easy to update
--biggest lesson we can learn from any of the examples we've talked about

start out simple
--roll it out in a very small office; if there are problems fix them here and then roll it out to the rest of the company; have those people talk about how great it is; roll out only part of the capabilities at a time and try it out

train them
--start early with power users these will be advocates later; make it real; spend time with users in real work environments, not just classrooms (service automation and sales force automation)
--you're asking employees to change the way they do their job so understand what it is that they like and don't

clearly define and communiate the objective, the reason for going through the change; from sales product driven to customer driven
--change from posted notes to computer CRM system

build the support structure to sustain the change
--means making sure your organizational culture will sustain and support CRM/social CRM initiatives