MODULE I
UNDERSTANDING
CUSTOMERS AND
RELATIONSHIPS
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Understanding Customers
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Knowing Your Customer
Who is your customer?
What consumers buy?
Why they buy?
When they buy?
Where they buy?
How often they buy?
How often they use the product?
What are the service requirements ?
How customer interacts with the organization?
What are the modifications in the product / service
required by the customer?
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ROI Vs ROR
• Survival mantra today is not to concentrate on Return on
Investments (ROI), but on Return on Relationships (ROR).
• The real challenge with the organizations is not only to create
customer satisfaction, but to create high customer value
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Customer Care
Listening Responding Improving
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Listening
Organizations should have sufficiently equipped channels of
communication to listen to the customers.
Complaint Handling Mechanism is a passive and reactive
approach.
This should be converted into a pro-active system, where
organizations can find out innovative ways to get feedback from
the customers and respond on its own.
The method and procedures of listening to the customer should
be accessible, easy, simple and widely communicated to the
customers.
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Responding
• First of all any call from the customer must be
acknowledged.
• Customer expects a quick and appropriate response to
his call. The complaint or service request should be
handled appropriately.
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Improving
• Organizations need to learn from previous experiences of
complaints and grievances, so that recurrences of problems to
the customers are minimal.
• The customer care mechanism should provide inputs to product
improvement, new product development, improvement in service
delivery system, training of manpower, campaign planning,
brand building exercises etc.
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9
Segment,
Optimize
Analyze,
Engage,
Prof.NATARAJ, THIAGARAJAR SCHOOL OF MANAGEMENT
RFM Analysis
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TOP TIER, 11% OF THRESHOLD, NEXT
Customer CUSTOMERS 22%
Portfolio
Analysis
FENCE SITTERS, VALUE DESTROYERS,
NEXT 39% BOTTOM 28%.
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Customer Touch Points and Moments of
Truth
The organization and customer both
have to interact with each other.
All these interactions represent touch
points.
This experiences of ‘touching’ the
brand and getting associated with the
organization creates an impact in the
mind of customer. These touch points
generate ‘moments of truth’, wherein
the customer perceives the experience
of interaction with organization either
as good or bad, constructive or
destructive, positive or negative.
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• Brick and Mortar
• Channel Partners
• Interaction Centers (Kiosks)
• Employees
• Promotional Campaigns
Customer touch • Digital
points
• Web interface
• Mailers
• Mobile Communication
• Publicity- Youtube, Facebook, Instagram, Association,
Newspapers, TV,
• Intangibles
• Brand
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Customer Loyalty and Customer
Advocacy
The ultimate purpose of any customer care
system is to generate customer satisfaction.
A satisfied customer spreads the positive word
of mouth and gets emotionally attached to the
product/service/organization.
Customer advocacy is much more and beyond
customer satisfaction, as in this stage customer
becomes the ambassador of the product /
service, which adds to the credibility and image
of the organization.
Customer advocacy can be the ideal stage that
the organization can dream to achieve.
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Value of a Loyal Customer Base
• Seamlessness
• Trustworthiness
• Attentiveness
• Resourcefulness
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Value Creation
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Customer Life Cycle (CLC)
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CLC Marketing
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DATA GENERATED PER SECOND
"it’s estimated that 1.7 MB of data will be created every second for every
person on earth."
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• Net Promoter Score (NPS)
• Customer Acquisition Cost (CAC)
• Customer Lifetime Value (CLV)
• CAC-to-CLV
Decisions to • Customer Satisfaction Score (CSAT)
• Customer Effort Score (CES)
be Data Driven • Customer Retention Rate
• First Contact Resolution
• Average Ticket Time
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Net Promoter Score (NPS)
• NPS, short for net promoter score, is a metric that calculates how
likely a customer is to recommend your company or product.
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Net Promoter Score., Contd.,
• Count the number of
promoters, passives, and
detractors you have, and
enter those numbers
• The percentage of
detractors is subtracted
from the percentage
of promoters to give an
NPS.
• Anything above zero is
good, while anything below
zero suggests you need to
make improvements
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How to Get NPS Data
• To get the raw data, send out a survey to existing customers, asking
them to rate how likely they would be to recommend your product or
service to a friend or colleague.
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Customer Acquisition
Cost
• Customer acquisition cost, or CAC, is the amount of
money spent on sales and marketing required to
close a deal.
• It is calculated by summing a company's total sales
and marketing spend and dividing it by the number
of new customers.
• Companies can calculate CAC for a given time
period or all time, and is helpful to compare the
effectiveness of different marketing tactics and
strategies.
• A lower CAC is better, as it suggests your marketing
and sales teams are efficient and properly scaled.
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Customer Lifetime Value
(CLV)
• Customer lifetime value equates to revenue an
average customer will provide a company
before they discontinue their patronage.
• simple CLV formula
• multiply average annual revenue by the
average lifespan of a customer.
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CAC-to-CLV
• This metric compares the customer's acquisition
cost to the revenue that customer will provide
over time.
• It helps businesses know if customers churn
before they start contributing profit to the
company.
• Support leaders can use this information to
discover if they need to invest more in customer
support tools if this is the case.
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Customer Satisfaction
Score (CSAT)
• Similar to NPS, customer satisfaction score
(CSAT) measures how happy your customers
are.
• Enter how many responses each option
receives, and the CSAT will appear in the
labeled cell.
• If you run a survey from 1-5, 1-7, etc., leave
the cells outside the range of the scale blank
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Run a survey asking customers
how satisfied they are on a sale
from 1 to up to 10.
How to get Data
for CSAT?
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Customer Effort Score
(CES)
• Customer effort score (CES) is a metric to show
how much effort was required from customers
to solve a problem and/or find information
they're looking for.
• A high CES might suggest customers take a
long time to find the resources they need,
indicating your company may need a
knowledge base for easy problem-solving
documentation to be stored.
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How to Get Data?
• You can prompt CES surveys
on customer
training/documentation
pages, after support phone
calls, on chatbots, or in
customer support emails.
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Customer Retention
Rate
• Customer retention rate designates
the percentage of customers the company has
retained over a given time period
• High Retention Rate means you're keeping
most of your clients and customers happy.
• FORMULA
• Customers at the End of the Period- New
Customers Acquired in the Period)/ Customers
at the Start of the Period
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How to Get Data?
• Choose a specific period of time – one year, one month, all time, etc.
– and be consistent in entering the metrics from that time for
accuracy.
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Why Companies want relationship
with Customers?
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Retention Rate and Average Customer tenure
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Customer Churn Rate
• Customer Churn Rate is a metric
used to see how many customers
have stopped coming to your
business or have cancelled their
membership, subscription,
or patronage.
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B2B Marketing Metrics
Metric Name How to compute What it means if the Bench marks
number increases
CAC (Customer All sales and marketing You are spending more Highly dependent on
Acquisition Cost) costs (advertising, salary, for each new customer industry and price point
commission, bonus) in a and/ or your sales and
period divided by number marketing might be less
of new customers in that efficient.
period
Marketing % of CAC Take all the marketing 1. Your sales team
cost and divide by the underperformed 10 – 30% is desirable.
total sales and marketing 2. Your marketing team
costs you used to overspent
compute CAC 3. Your marketing team
is exaggerates the
forecast and sales
team could not meet
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Metric Name How to compute What it means if the Bench marks
number increases
LTV: CAC LTV/ CAC Higher the better 3:1 is a good target, for
Higher ratio means every 1 rupee you spent
higher ROI on sales and you are getting a life
marketing time value of 3 rupees
4:1 or higher indicates a
better model
Time to payback Take the CAC and divide A higher payback means Under 6 months means
by how much your it takes longer time to you are underinvesting
customers pay you on earn back the CAC. in sales and marketing
average each month.
9-18 months is ideal
More than 18 months is
problematic
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Metric Name How to compute What it means if the Bench marks
number increases
Marketing originated Identify the number of Marketing is driving 40 to 60 % is desirable
customer percentage customers acquired more new business
through marketing
activities and divide it by
total number of
customers acquired
through all activities
during a period.
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Computing Cohort value
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INSIGHTS In year 1 the company lost 40 per cent of
these new customers,
but the remaining 60 per cent each
generated $50 contribution to profit.
FROM
ANALYSIS
If this is discounted at 15 per cent, in In year 2, the retention rate rises from 60
year 0’s currency each retained to 70 per cent, and each of the remaining
customer’s profit contribution is $43.48. customers contributes $70 ($52.93 at
discounted rate) to profit.
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You can see from the right
hand column in Figure 2.5 that it takes
nearly five years to recover the
investment of acquiring this cohort.
INSIGHTS The data demonstrate two well-
FROM established phenomena. First, profit
per customer rises over time,
ANALYSIS
Secondly, customer retention rate rises
over time. It is feasible to use data
such as these to manage a business for
improved profitability.
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Strategies
This will produce a larger number of
1. Improve customer retention rate in customers to generate higher
the early years of the relationship. profits in the later years.
reducing cost-to-serve
2. Increase the profit earned per
cross-selling or up-selling additional products
customer by: and services.
using more cost effective recruitment
3. Become better at customer channels
acquisition by: better qualification of prospects.
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BREAK OUT ROOM
• CRM Done Right
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Discussion Questions CRM Done Right
• What do you understand from CRM Cycle?
• Do the organization need perfect data for CRM?
• Write short notes on Routine Aches Vs Strategic Pain Points
• How to calculate the Cost of CRM?
• What is the meaning behind business before technology?
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Understanding
Relationships
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how to recognize a relationship
By the end attributes of successful relationships
You will
understand the importance of trust and commitment within a
relationship
why companies and customers are sometimes
motivated to establish and maintain relationships
with each other, and sometimes not
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Put Relationship Back in to CRM
• Read the Article and submit your responses
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• A relationship is composed of a series of
interactive episodes between dyadic parties over
time.
• Let’s be clear about what is meant by ‘ interactive
episode ’ . Episodes are time bound (they have a
beginning and an end) and are nameable.
• Within a sales representative–customer
What is relationship it is often possible to identify a few
discrete episodes, such as
relationship? • making a purchase,
• Enquiring about a product,
• making a sales call, negotiating terms, dealing
with a complaint,
• resolving dispute
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Dwyer has identified five general phases through
which customer– Firm relationships can evolve
01 02 03 04 05
Awareness Exploration Expansion Commitment Dissolution.
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Contd.,
• Awareness is when each
party comes to the attention
of the other as a possible
exchange partner.
• Exploration is the period of
investigation and testing
during which the parties
explore each other's- trial
purchases
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Attraction,
Development of
Communication
expectations.
The
exploration phase
has five
subprocesses:
Development
Bargaining,
of norms,
Development
and exercise of
power,
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• Expansion is the phase in which there increasing interdependence.
• More transactions take place and trust begins to develop.
• The commitment phase is characterized by
• increased adaptation and mutually understood roles and goals.
• Purchasing processes that have become automated are a sure sign
of commitment.
• Not all relationships reach the commitment phase.
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• Customers may exit relationships for many reasons, such as
• Repeated service failures or
• changed product requirements.
• Relationship development highlights two attributes of highly
developed relationships:
• Trust and Commitment.
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Trust
• Trust is focused. That is, although there
may be a generalized sense
of confidence and security, these feelings
are directed. One party may trust the
other party’s
• benevolence : a belief that one party
acts in the interests of the other
• honesty : a belief that the other party’s
word is reliable or credible
• competence : a belief that the other
party has the necessary expertise to
perform as required.
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The development of trust is
an investment in relationship
building which has a long-
term payoff.
Trust emerges as parties
Trust share experiences,
and interpret and assess each
other’s motives.
Trust has been described as
the glue that holds a
relationship together across
time and experience
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this is present in
the early stages
of a
relationship and
is quite
calculative.
calculus-
based trust :
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knowledge-based trust
• this relies on the individual
parties ’ interactive history
and knowledge of each other,
allowing each to make
accurate predictions about how
the other will act
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this happens when mutual
understanding
is so deep that each can act as
Identification-
substitute for the other in
based trust interpersonal
interaction. This is found in the later
stages of relationship development
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Commitment is shown by ‘ an
exchange partner believing that an
ongoing relationship with another is
so important as to warrant maximum
effort to maintain it;
that is, the committed party
believes the relationship is worth
Commitment working on to ensure that it
endures indefinitely ’
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Relationship quality
• Mutual goals are present when
the parties share objectives that
can only be achieved through
joint action and relationship
continuity.
• Cooperative norms are seen
when relational parties work
together constructively and
interdependently to
resolve problems.
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Why Companies want relationship with
Customers?
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CASE: Consequences of customer churn at
Sprint Nextel
• Sprint Nextel, the third largest wireless telecommunications fi rm in the USA, is
downsizing its workforce by 4000 jobs and closing 125 stores in the first half of 2008.
• The moves are part of cost-saving measures prompted by anticipated decreases in the
firm’s subscriber base, revenues and profitability in the fourth quarter of 2007. The firm
expects to save $700 to $800 million annually by cutting the jobs.
• Sprint Nextel lost 190 000 subscribers and 683 000 ‘ post-paid ’ customers during the
fourth quarter of 2007.
• The subscriber losses are being attributed to a slowdown in the growth of wireless
subscriptions in the USA, and continuing customer defection to larger rivals AT &
T Mobile and Verizon Wireless since Sprint bought Nextel Communications for $36
billion in 2005.
• The firm is also struggling with service quality problems. On this news, shares of Sprint
Nextel fell to their lowest price since October 2002.
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CUSTOMER
INSIGHT
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Consequences of CRM
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Customer Satisfaction Vs Repeat Purchase
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Why companies Want relationship with
Customers?
• Reduced Marketing Cost
• Better Customer Insight
• Revenues Grow
• Cost to serve is low
• Referrals are generated
• Higher prices are paid
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Profit Grow Over time
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Why Customers want relationship with suppliers?
B2B Context.
PRODUCT PRODUCT SERVICE FINANCIAL RISK RECIPROCITY
COMPLEXITY STRATEGIC REQUIREMENTS
SIGNIFICANCE
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B2C Context
Recognition Personalization Power
Risk Reduction Status Affiliation
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CRM RE
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• Fear of dependency
• Lack of perceived value in
relationship
Why customers • Lack of confidence in supplier
do not want • Customer lacks relational
relationship orientation
• Rapid technological changes
with suppliers?
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Why companies do not want relationship
with customers?
•B2B Context
• Loss of control
• Cost
• Resource Commitment
• Opportunity cost
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Customer Loyalty
• Behavioral Loyalty
• Attitudinal Loyalty
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Behavioural Loyalty
• Many direct marketing companies use RFM measures of
behavioural loyalty.
• The most loyal are those who have high scores on the
three behavioural variables:
• recency of purchases (R),
• frequency of purchases (F) and
• monetary value of purchases (M).
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The variables are measured as follows:
• R time elapsed since last purchase
• F number of purchases in a given time period
• M monetary value of purchases in a given time period.
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Attitudinal Loyalty
• Attitudinal loyalty is measured
by reference to components of
attitude such as beliefs, feelings
and purchasing intention.
• Those customers who have a
stronger preference for,
involvement in, or commitment
to a supplier are the more loyal
in attitudinal terms.
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Dick Basu's Model
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• The best known is Dick and Basu’s model,
• as shown in four forms of loyalty, according to relative attitudinal
strength and repeat purchase behaviour.
• ‘ Loyals ’
• are those who have high levels of repeat buying and a
strong relative attitude. ‘
• 'Spurious loyals ’
• have high levels of repeat purchase but weak relative attitude. Their
repeat purchasing can be explained by inertia, high switching costs
or indifference.
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• Exists when a strong relative
attitude is not accompanied
by repeat buying.
• This might be evidence of
weakness in the
Latent loyalty company’s distribution
strategy, the product or service
not being available when and
where customers want.
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