CUSTOMER RELATIONSHIP

MANAGEMENT

Prof. Swagato Chatterjee

Management
IIT Kharagpur
 INDEX

S.NO TOPICS PAGE.NO

Week 1
1 Lecture 01 : CMR: The Strategic Imperative 3
2 Lecture 02 : CMR: The Strategic Imperative (Contd.) 17
3 Lecture 03 : CMR: The Strategic Imperative (Contd.) 39
4 Lecture 04 : CMR: The Strategic Imperative (Contd.) 60
5 Lecture 05 : Co - Creation 90
6 Lecture 06: Co-creation (Contd.) 116
7 Lecture 07: Co-creation (Contd.) 157

Week 2
8 Lecture 08: Building Customer Relationships 175
9 Lecture 09: Building Customer Relationships (Contd.) 195
10 Lecture 10: Building Customer Relationships (Contd.) 209
11 Lecture 11: Building Customer Relationships (Contd.) 219
12 Lecture 12: Building Customer Relationships (Contd.) 244
13 Lecture 13: Building Customer Relationships (Contd.) 261

Week 3
14 Lecture 14: Economics of CRM 272
15 Lecture 15: Economics of CRM (Contd.) 285
16 Lecture 16: Economics of CRM (Contd.) 300
17 Lecture 17: Economics of CRM (Contd.) 317
18 Lecture 18: Economics of CRM (Contd.) 332
19 Lecture 19: Economics of CRM (Contd.) 350
20 Lecture 20: Economics of CRM (Contd.) 362

Week 4

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21 Lecture 21: Social CRM 374
22 Lecture 22: Social CRM (Contd.) 388
23 Lecture 23: Social CRM (Contd.) 401
24 Lecture 24: Tchibo Case Study 418
25 Lecture 25: Tchibo Case Study (Contd.) 432

Week 5
26 Lecture 26: Customer Equity in CRM 443
27 Lecture 27: Customer Equity in CRM (Contd.) 454
28 Lecture 28: CRM in B2C Markets 474
29 Lecture 29: CRM in B2C Markets (Contd.) 490
30 Lecture 30: CRM in B2C Markets (Contd.) 508
31 Lecture 31: CRM in B2C Markets (Contd.) 522

Week 6
32 Lecture 32: CRM in B2B Markets 535
33 Lecture 33: CRM in B2B Markets (Contd.) 549
34 Lecture 34: CRM in B2B Markets (Contd.) 563
35 Lecture 35: CRM in B2B Markets (Contd.) 583

Week 7
36 Lecture 36: eCRM: Components and Strategies 603
37 Lecture 37: eCRM: Components and Strategies (Contd.) 613
38 Lecture 38: eCRM: Components and Strategies (Contd.) 626

Week 8
39 Lecture 39: Contact Centres for CRM 635
40 Lecture 40: Contact Centres for CRM (Contd.) 649
41 Lecture 41: Global CRM 661
42 Lecture 42: Global CRM (Contd.) 680

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 01
CRM: The Strategic Imperative

Hello everybody. Welcome to the NPTEL course of Customer Relationship Management.

This is Dr. Swagato Chatterjee from the VGSOM, IIT Kharagpur who is taking this
course. We are in week 1 and session 1 and in this in this particular session; we will talk
about the Customer Relationship Management: The Strategic Imperative. So, we will
focus on how customer relationship management is related to the strategy of a business.

So, when we talk about customer relationship management the academic interest on
customer relationship management started sometime in 1990s. So, there were initially
generally what happens is, marketing theories generally evolve from industry practices
people do industry practices first and then all the academicians who work in the
management domain generally look at the best practices and try to create a theory out of
that.

So, it is more of an observational study that we academicians do in marketing that what

is the best practice and why that is a best practice and how that has a boundary condition
in which condition that can be applied, which condition that cannot be applied that kind
of knowledge gets created in an academia. But, this is one area where it started mainly
from the academics that academia suggested that this kind of customer relationship
management as a domain will be an important area of study. And though relationship
management practices were going on in the industry for quite some time, people were
not aware that relationship management was a big thing the whole industry was not
aware.

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(Refer Slide Time: 01:52)

At a personal level at a individual company level there that kind of focus was there. But
that was because see in 1990s who are the biggies of the industry. If you think carefully
the biggies were all the product companies and we will talk about the marketing concept
later, but you remember that initially in marketing we have four concepts. It started from
the basic I would say the product concept and then the production concept and then the
selling concept and then came the marketing concept.

So, in the product concept people actually created innovative products and then in the
production concept people actually tried to focus on how efficiently reducing the cost, I
can produce a lot within a say low resource available. When the resource availability is
low, how I can produce a lot how I can get the benefit of economies of scale the
competition was on that that whether you can make things cheaper, whether you can
make at a smaller cost large volume of products.

And then came the I would say the selling concept where major focus were on selling
how the already created lots of products will be sold. Now the 1990s and etcetera that
was that time when it was in a production and selling concept kind of things were going
on in the market that people who were majorly focusing on whatever they have
produced, how they can sell it. But then came the marketing concept where customer

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orientation came into play where people started that first of all you cannot sell whatever
you produce. Your whole journey of marketing will start from the customer.

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The first thing that you have to understand that what customer wants and then you
produce what customer wants. And then customer will automatically buy that; you do not
have to sell it. If you produce what customer wants and do not do any kind of pushing of
the products, customers will anyway buy because they know that you will be the person;
from whom they will buy it.

But later academicians started thinking that see purchasing is not a one single time frame
game because customers evolve customers change. I as a customer, whatever I liked 10
year back and whatever ah I will like 10 year later and whatever I like me, that those all
these three avatars of me are three different people. And if I these three avatars are three
different people, then you have to target; you have to see that what this how this avatars
are changing and you have to probably change yourself according to the change of this
particular person so, that you can make better profit.

So, in in 1990s from various conferences and various kind of visa centers, these kind of
discussions came in at the at the starting that there is something called customer
relationship like normal human relationships and that is something which is important to
study and that can probably lead to profitability.

So, there had been a special issue in academic journal in early 2000 on this and there was
a special interest group on American Marketing Association also in the similar time
period. Now, these academic interest and then the consultancy by these academicians led
to early adoption of B2C early adoption in the B2C market specifically. Because for a
very long time, this relationship management focused on B2C markets and probably the
early academicians also thought that B2C will be the B2C means business to customer
market where the where you are selling something to the customer directly.

So, they thought that that is where the applicability of customer relationship management
will be higher. Why did they think like that because you think that what kind of context
where you generally have multiple interactions with the customer?

For example, let us say if you are if you had a mobile phone company, then that your
customers use mobile phones of the same number probably 4 years, 5 years sometimes
10 years. Now depending on who the customer is, the longer the stay with you, the better
is the profitability and that is something where the B2 in the B2C, concept the
relationship management comes in.

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Another classic example can be let us say, health care. We generally like to we go to the
same doctor because we create a sense of I would say trust a sense of attachment, a sense
of belongingness with a particular doctor.

So, whatever happens with me or my friend, I will suggest this particular doctor if I am
happy with the doctor if I trust the doctor and etcetera. So, they are also the customer
relationship management comes in. It also comes in, in case of retail in case of
hospitality like hotels. So, majorly in the B2C, we very well see the application of
customer relationship management and that’s why the early adoption also happened into
the in the B2C sector.

But what happened later is that, see in B2B most of the most of the strong purchases or I
would say high value purchases that happens in B2B follow a different path than B2C.
The purchase decision making path for B2B and B2C, this is this comes from marketing

101. So, these are two different paths altogether. And often time B2B purchases are fixed
you know that I will be buying from this particular supplier only; because the number of
suppliers are sometimes low in a particular zone. Let say I want to buy I am a company who
is a mining company and I want to buy excavators means whichever excavates the land, then
probably I will have 3, 4 companies in the whole world who can actually cater to me. So, in
that kind of situation we oftentimes B2B companies do not have a choice.

Oftentimes B2B companies do not have multiple interactions with these suppliers just
because the purchase has been made of a capital good. Like for example, the excavator
that you buy, you will be buying that for the next 10 years. The only transaction that will
happen between you and the seller will be the maintenance. Other than the maintenance
probably, there will be very less chance that the purchasing process will come into the
picture after you have bought an excavator.

So, that’s why in B2B initial in the initial days in B2B this application of customer
relationship management where you try to create a relationship with your customer your
B2B customer was not very strong, but later it evolved. So, initially as I wrote, as I was
discussing financial services like banks or mutual funds or various kind of financial
companies, traders, then the retailing companies, telecommunication companies, travel
and hospitality companies. These were the major industries where the application of
customer relationship management came in.

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But later that evolved and later B2B companies also adopted CRM strategies. And in this
course as we go ahead slowly, we will be discussing that how both B2C companies and B2B
companies can adopt this customer relationship management strategy and how these two
things are different and what kind of mechanisms these particular two customer relationship
management policies follow in two different cases and what can be done.

And then at later point of time post, I would say 2005 or early 2010 in these kind of
frame 2005 to 2010, the IT boom happened and internet became available and there were
lots of platforms that came in the PHP and HTML-based web pages were being built.
And then people started creating various kind of platforms and various other kind of
using various other kind of technologies. ERP systems came in, SAP came in as a very
strong way and other kind of ERP systems which were homemade ERP systems or
probably custom made ERP systems also came in.

So, basically the IT development led to the adoption of CRM in the industry quite a bit.
So, it actually started in in also 1990s probably parallel to the academic interest. When
the CRM vendors were mainly Siebel and SAP, Oracle PeopleSoft; so, SAP is the ERP
system while Oracle is basically a database system and currently probably they these two
guys are together.

But at that time they were different and these were the major CRM vendors, but the
problem with these vendors were that they were very costly because at that time in
premises; you have whatever you have to do you have to do in the premises; you have to
have a server, where you have to put all these all the data that you collect.

So, selling server selling of databases, managing of data centers become a huge business
and not all B2B companies or B2C companies can actually have that kind of a I would
say deep pocket to invest so much of money on CRM strategy and CRM development,
The IT part of the CRM which only can be monetized in the long term; see I am talking
about customer relationship management. So, any monetization of this customer
relationship will only happen in the long term. It will not happen in the short term.

So, if it does not happen in the short term, then you have to have deep pocket. So, that
you can invest lot of money which can only be generating any kind of returns in a long
term and not many companies had that at that point of time.

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So, CRM software market was more than USD 100 billion right now and that change
happened because the IT development has become so much popular and I would say so
much easier than before that people have created their own CRM system. So, this is how
chronologically first the academic, then the industry adoption as a strategy, then industry
adoption as a practice through IT the advancement of CRM happened.

(Refer Slide Time: 12:51)

Now, growth of CRM has these four major drivers. The first major driver is called the
emergence of service economy. So, what is service economy, you have to understand
first. So, for a very as I was telling there are three four concept like product production
and then selling and then marketing concept and etcetera and then came the service
concept.

So, the service concept is the latest concept probably and where we think about service
dominant logic. The idea of that is that everything is a service. You cannot create a
product or create a create anything without taking the customer into your product in your
solution generating process. You cannot create any solution without taking the customer
into your solution generating process. If you create that then there will be always a gap
between what you have created and what the customers want whatever well you can
understand the customer.

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Let say you understand the customer very well, still there will be a gap that can be small
or large depending on how accurate you are, how efficient you are, but that gap will be

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there. The better way is to involve the customer in the solution making process that is
number 1.

And number 2 is you have to understand that everything is a solution everything is

actually a service that is trying to solve a problem of the customer. There is nothing
called a product. To give an idea let’s say what is the purpose of a mobile phone if I ask
you what is the purpose of a mobile phone? Just pause this particular video for at least 30
seconds at this point and then just think that what is the purpose of a mobile phone?.

So, if you have thought about that; now if you have not thought, please think. But if you
have thought about that, then you will understand that mobile phone is majorly the
purpose of mobile phone is to connect with somebody. So, any solution that can help you
easily connect with somebody will be required will be enough to be used as a mobile
phone or something like that.

So, mobile phone itself, its job is to connect with somebody. Now do you think mobile
phone is a product or mobile phone is a service because I can connect with somebody
else I can connect with somebody else without a mobile phone also probably I can
connect with my tab or with my laptop. If I can put a data connection internet connection
in it I can. So, then the next problem that it is solving is it should be mobile; means it
there should be some mobility component here. I can be I can be able to connect with
somebody on the go, but still laptop and other things can do that.

So, then the concept comes that ok; it should be carriable it should be easily carriable.
So, I do not need a bag or anything else or a cover to just carry it. I can just carry it in my
pocket, and then the product comes in. Now you have to understand this product; it is a
tangible thing altogether, but ultimately it is solving a problem. Tomorrow a new product
comes in which you do not have to even carry. Let us say tomorrow, I am just think
talking a futuristic thing loudly; let us say tomorrow something comes in where even if
you just say in the air the message goes to your recipient and you do not need a hardware
to do that then that, then that requirement of this particular mobile phone will go away.

For example, requirement of watches are not anymore there because there is somebody
else who gives you time and that is a software not even a hardware. It just catches it if
there is one particular probably clock located somewhere. It might be a digital clock or
something; it is connecting to that through internet in your mobile in your mobile phone

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the moment you connect with internet. It is connected to that server and you are getting
your time; it is not even doing any mechanical thing to give you time. So, all I am trying
to say here that ultimately it is trying to solve a solid problem that you have.

Now when people started thinking that everything is a service is ultimately a solution
providing that we are trying to do. For example, in case of mobile phone they think that
okay it is a it’s a connectivity that I am trying to give I am not giving this particular
product and the connectivity matters and that is why they tied up with telecom
companies sometimes. So, they are tying up with certain softwares where you have
internet even if you do not have the even if you do not have the mobile SIM, if you have
Wi-Fi or if you have Bluetooth, you can connect with somebody. So, that kind of features
are coming in. Because I do not because connectivity is the major issue other things are
not so important.

So, when you start thinking it as a service everything as a service, then generally for
product it is transaction oriented one transaction happened; you sold the product, it is
gone. But the moment you think it is a service there are multiple touch points that started
getting created.

For example, have you seen that if you have if you go to the go to a salon a beauty salon
or a barber shop, he gives you probably a better experience in the first visit or the second
visit. Why and then he in the third fourth fifth visit he starts giving you the regular
experience; his behavior is very good in the first or second visit.

Because in a service he knows that I am not making more money from this one time you
come here. One time you go to the beauty salon the profit that he makes is probably 200
rupees depending on what service you take. One time you go to a barber shop, the profit
is probably 30 rupees depending on what service you take. But the more you go every
month if you go or in this every, two weeks if you go to a barber shop then the profit
comes. It does not come in one single transaction because he does not have to do any
extra marketing. You are a you are a loyal customer you are a you are a set customer who
will always come to me. So, the moment that happens the profit comes.

So, the service focus actually needs multiple transactions multiple touch points between
one customer and you and the touch points are basically spread over time; not in a one
single time period there will be multiple touch points, but spread over time. So, when

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that happens you need a long term relationship and when that long term relationship is
required, you will go for customer relationship management.

For to give an, another example let us say this mobile company, I am coming back again
and again to this mobile example. This mobile companies sale the mobile phone many of
the mobile company sell the mobile phone through their franchises their own franchises.
I would say like Samsung will have their own shops or Nokia will might have their own
shops at some point of time they used to have.

Now, Samsung will have or Sony will have and etcetera. Now I have bought a Samsung
mobile phone from somewhere and after probably around 6 months or 1 year, this person
in that particular mobile phone store calls me and says that sir new versions of Samsung
mobile phone has come up; why do not you come and have a look. Or he says that okay
sir the New Year is coming up or why do not you gift somebody this Samsung phone for
for his birthday or some anniversary and etcetera.

So, how did he get these detail here? He has actually noted down when I was buying this
particular thing, he told that sir why do not you go for a loyalty card or something you
will get 100 rupees discount or 200 rupees discount. I said why not and then he collected
my date of birth, he collected probably my anniversary date if I am interested to give,
there is a form that they give even this was very popular in hospitality industry. Now it is
coming up in the mobile phone industry as well.

So, now after I fill up that form, they call me on the on this particular day or 1 week
ahead of that particular day and says that why do not you come and buy; same applies
with jewelry. So, jewelry companies call you and say that why do not you buy this
Dhanteras is coming or your anniversary is coming your wife’s birthday is coming and
these and that; so, why do not you come and buy.

Now, they know that we have the urge of buying, but when that poke will happen, then
probably through multiple interactions between them I will be interested to buy. They
also know that you generally we use a single mobile number for a long period of time,
but often times we change. Currently the people change mobile phones every 6 months
or 1 year.

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So, if that is the lifespan that one mobile phone will be used 6 months and or 1 year if I
do not touch this customer after 6 months there is a chance that he will switch from my
brand to another brand. So, while for barbershop or for a beauty salon, it is a monthly
transaction, for these guys, it is a 6 monthly or yearly transaction.

But still if that is a high value customer, you might probably buy a mobile phone of 5 to
10000 rupees or probably more 20000, 30000 rupees. So, he knows that I will make quite
a bit of money from that and even if I follow the customer relationship management
strategies and think it has a service business rather than a mobile phone selling is the
service business rather than a product business, there is a better chance.

So, all I am trying to say is this emergence of service economy as a majors provider to
our GDP actually also led to growth of CRM. Then emergence of market economy that
is also different important that market economy means everything starts from the market.
It is not like the product economy, I have already discussed about this. So, I will not
focus a lot on these particular point that we started our marketing concept from the
customer from the market itself.

So, when this when you start from the customer itself and when you give lot of
importance to the customer, you have to follow the customer relationship management
strategies so; obviously, this emergence will also lead to growth of CRM, then what
came? Then came the global orientation of business.

So, in 1990s, we opened up to the open market and there are lots of places where the
where the foreign companies can come and invest in Indian market. Now you have to
understand that if I considered about India or China or this kind of places, China might
be a closed market yet still in some of the zones or in some of the industries, but India is
fairly open.

Now India is a huge market also and when it is a huge market and there are lots of
consumers, there can be a variation in terms of their spending ability, but; obviously, the
size is big. So, when the size is big lots of foreign companies who have deep pocket who
can invest on customer relationship management gets interested to this huge customer
base.

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Because if I have a huge customer base and that customer base stays with me for let us
say 4 years or 5 years or 10 years, the money that I invest to on the technology part is
peanuts in that case. So, given that, this global orientation of business and when the FDI
s were open and lots of foreign investments were open, the customer relationship
management grew like anything.

And the last one and probably one of the most important one is aging population. So,
why do you think our population is aging? Aging population means the median value or
the mean value of our population in terms of age the mean age is increasing. So, if the
mean age is increasing, what is the reason for that? The health care is improving every
day. We are slowly moving from lower income category to middle income category.
More number of people have decent income if not so, so the poverty level is coming
down. More people are switching from BPL to middle range; even if it is a lower middle
class, but people are moving to that.

So, people have some amount of extra money in their hand to spend and their lifestyle is
improving if the lifestyle is improving. If the healthcare is improving if more amount of
vaccination is happening mass vaccination is happening or public health is improving;
people are living more. And when people are living more and they have some money in
their hand and another important thing that is happening in India probably is that we
people are moving from, I would say saving orientation to consumption orientation
because of westernization because of globalization as I just told discussed right now.

Globalization not only helps companies to invest here, globalization also help us to
understand what other people are doing. And sometimes there is a clash there is a
dilemma between our culture and western culture; our culture is conservative more
saving oriented more risk averse culture. Western culture is a little bit risk taking culture
and then there is when this amalgamation happens, there is a little bit of middle ground
we follow and in that middle ground we start consuming a little bit more.

So, my dad if I just think about my dad my dad actually saved a lot of money for me
whatever he did whatever small jobs he did, whatever money he got he generally tried to
save for the kid. But today we are actually investing; we are not saving, we are investing
to create wealth and part of that wealth can be created, given to the kid, but the other
wealth can be consumed can be enjoyed.

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So, our with the healthcare increase, the population is aging and with the change of our
mindset, we are consuming more as we are getting aged also. So, both together; that
means, the lifespan is increasing and the consumption over the lifespan is also
increasing. Both together it creates a importance of customer relationship strategy
because if I can be your service provider for a longer period of time, for multiple
different kind of services, then I as a business can make more money. So, that’s why
these are the major four factors that improve CRM. So, in the next video, we will
continue the strategic discussion about CRM as a strategy. I will see you in the next
session.’

Thank you.

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Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 02
CRM: The Strategic Imperative (Contd.)

Hello everybody, welcome to the NPTEL course on Customer Relationship

Management. This is Doctor Swagato Chatterjee from VGSOM IIT Kharagpur who is
taking this course. We are in week 1 and we are discussing Module 1 the Strategic
Imperative of Customer Relationship Management.

(Refer Slide Time: 00:27)

So, in the last video I was discussing about what are the growth factors of CRM and in
this particular session we will also focus on the challenges of CRM.

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(Refer Slide Time: 00:31)

So, what are the various things which impacts CRM in a negative way. So, one of the
major challenges of CRM as strategy is the nontraditional competition. So, often times
that there are new entrances from outside the industry which can change the industry like
anything. For example, for a classic example that we take is like the watch industry, the
HMT is of the world has changed or probably have washed out from the market or the
Kodak of the world has washed out from the market because there is an alternative
technology that comes up.

So, sometimes that becomes a huge challenge for adapting a CRM, because if let say you
have invested a lot in CRM and you in expect that this CRM strategy will give me some
money back over 10 years. Nobody knows whether you live for 10 years as a business,
nobody knows whether a technology change comes and you get washed off in 10 years.

So, the exit will be very painful in that case because you have already invested on
something which will only make money over a longer period of time and now you have
to exit. So, what happens to that already made investments? So, that is a challenge. Then
comes the substitute technology; obviously, again as I was telling that technological
development will actually change the market, similarly the new entrance will change the

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market. Often times new entrance come with a substitute technology where your
technology becomes obsolete.

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So, when that happens; obviously, that is a challenge because nontraditional competition
will always focus on whether your company will live for a longer period of time or not.
So, that becomes a challenge for your company’s life time. So, that is an issue. Then
often times we have seen that supplier becomes a competitor because supplier generally
create ─ a classic example will be the supplier of Apple.

So, iPhone supplier of iPhones for various parts, there were certain companies which
were supplying and then they started making their own mobile phones which were
absolutely similar to iPhone in terms of the quality and etcetera on. But they did not have
the brand name initially but over a period of time, they created their own brand names
also and now they are competing with iPhone probably even in the price range.

So, I will be giving you the similar product, but a little bit lesser price, 5,000 rupees less
price or 10,000 rupees less price, same product. So, that kind of a competition also is
coming in which also impact CRM and sometimes customer becomes a competitor also.
So, often times in this procreation market where I am saying that you have to deal with
the customer, you have to live with the customer for a longer period of time like you
know the customer also starts knowing you and then often time customer develop their
own product and which can be your competitor. There can be classic examples for that
also.

For example, for a quiet longer period of time the SAP ERPs were used by various
customers and then customers created their own ERP systems and now they are selling
those ERP systems which are competition to SAP systems. Because your customer
knows what you can do, what you cannot do and if that kind of knowledge customer
generates then the customer can create their own product.

So basically, in a CRM strategy you have to always keep your antenna high because you
have to think that I am making a huge investment. So, I have to be always risk averse or I
have to think that from which corner the risk will come and the risk can come from your
supplier, risk can come from your competitor, risk can come from your customer also.
So, all of these things are threats, are challenges for CRM.

Then another challenge is market maturity. So, as the customers becomes matured as the
as the markets becomes matured, the applicability of CRM becomes high, but if it has

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already matured, then probably that is the time period when you reap the benefits of
CRM. You generally, probably sow the seeds of CRM when the market is not matured.

So, you will generate customer base, you will generate ─ acquire customers and keep
them with you when the market is new and you will reap the benefits when the market
has already matured. If the market has already matured at that point of time you are
doing CRM activities, it does not work. Classic examples will be like, let say Uber or
Ola and etcetera.

So, Uber and Ola even known when the market was not matured, they were focusing on
your habit forming kind of a strategies, they were giving lots of coupons, lots of benefits,
so that you use this particular thing better. And for all types of travels whether you are
travelling 2 kilometers or 20 kilometers, whether you are travelling within your city or
outside your city, they created such an atmosphere that when you travel you have to
think about Ola or Uber. You have to search Ola and Uber check the prices then can only
you can go in somewhere else.

So, that is where they focus at the early periods. And now the market of shared cabs or
probably any kind of call cabs or mobile app-based cab services is matured and now they
are reaping it, now they are reaping the benefit of the customer base that they have
created. Now they are not giving any more discounts, but they are coming up with
discounts in newer markets when they are when they are spreading all over India in
smaller cities also, but in the metro cities they are not giving any such discounts
anymore.

Now, if another company comes, tries to come in, they cannot create customer base they
cannot do customer relationship management because the market is already matured and
settled. So, you in your mind always know that I prefer Ola over Uber or Uber over Ola.
So, that kind of maturity have already generated you have settled with your service
provider. So, penetrating in that market becomes very difficult because you cannot use
CRM strategies in a matured market.

So, you can only reap the benefits of CRM strategies in a matured market. So, that is also
a challenge and then the third challenge is a misalignment between the revenue and
profits. So, often time CRM strategy generates revenue a lot because you have kept lots

21
of customers for longer period of time, but keeping the customer for a longer period of
time often is associated with costs also.

So, you have to check that your cost is coming down over time. If the cost is not coming
down over time in a relationship, then that relationship, managing that relationship, or
keeping that relationship is very difficult. If the cost is going up over and over time in a
in any relationship even in human relationships then keeping that particular thing is
difficult. So, you have to think that even if your revenue is going up, your cost revenue
goes up goes down whatever happens your cost must come down if that does not happen
for a individual customer, the new CRM strategies is not working well.

So, basically these three things: the nontraditional competition, the market maturity and
the misalignment of the revenue and profits are the major drivers or I would say major
challenges of CRMs-so, major threats or challenges or barriers of CRM as a strategy.

(Refer Slide Time: 08:43)

So, when people talk about this. So, for example, let us say, this is a revenue profit
misalignment which I have taken from Sheth and Sisodia in 1999 paper which talks
about how the revenue and profit are misaligned.

22
So, you see that here the revenue, per customer revenue for the, non, initially there is a
nontraditional customer, you will see here at this phase. So, when the nontraditional
competition is coming up and you take customer relationship strategy this is the unit per

23
dollar, in the Y-Axis it is unit per dollar, and the X-Axis, it is basically the biggest
customer and the smallest customers.

So, as you do customer relationship management and when you do customer relationship
management more customers stay with you. So, if more customers stay with you the
per-customer cost will be higher. So, for smallest customers you will see that the
revenues are much lower and the biggest customers, when the customers are big the
revenues are much higher ─you make lots of profits. So, this is the profit unit per dollar.

So, here in this particular curve which is coming down very sharp is talking about the
profitability of the customers ─ how much they are, how much, sorry revenues of the
customers, how much revenues they are generating. This particular curve is saying that
the smaller customers are not giving you enough profit and the higher customers are
giving you, the bigger customers are giving you enough profit. And this is the cost and
the level in, through which, the economies of scale that you are, that you generally get
over a cost reduction over the increase of customers is not in that speed. I would say the
curve’s slope is low, here the slope is much high.

So, when the slope is low here, we have to decide that at what point,because after this
customer all the right side customers are basically less profitable. So, there has to be a
cut off of customer after which you will not apply your customer relationship
management strategy. So, in other words you do not apply CRM to all,use capitalize
CRM to only those kind of people for whom applying CRM corresponding cost will be
lower than the revenue.

So, a classic example is, have you, have you heard about Airtel increasing the minimum
recharge that is required from 0 rupees to 29 rupees if I am not wrong these values might
be different these values might be different, but something like that they did. So, when
you do something like that means, what? So, there are quite a few people who are not
recharging at all, who are let say, working in some place and there is a ─ in their home
they have kept a number and they just give that, give a miss call to the home and the
person in the home will call them or the other way, the home will give a miss call and
they will call them.

So, with that, so, now, you just imagine that if only one number recharges and another
number just gives miss call that is enough it has to be alive over a month and a single

24
number recharges as per the talk time and etcetera whatever discussion they do, but
another number just remains alive and the cost of remaining alive for a free sim was 0
rupees.

So, now they have shifted from 0 rupees to 29 rupees many customers who are not profit
making customers will go away. Now, why that is ethical probably because see these are
they have come for business. Now, in a place where there is a locality which is a village
let say which is a rural area the income is low probably or people is following this kind
of a strategy, but whether they follow this kind of strategy or not the connectivity has to
be there. You have to maintain a tower there also so, that the connection happens, you
cannot say that here the revenues low that is why I will not put.

So, if we have to maintain a connectivity if we have to maintain a, I would say a tower

there, at least that much revenue should happen, at least that much revenue should
happen that will ensure that your cost, this is your cost, your cost gets I would say
covered.

So, if the cost is not covered, then keeping those kinds of customers does not make
sense. So, often times this revenue and the cost is not aligned or I would say revenue and
profit is not aligned and that is something we have to take care.

(Refer Slide Time: 13:55)

25
So, in this dilemma of drivers and barriers of CRM, another key strategic question comes
up is why should a company adopt CRM strategy.

So, one is that, the major thing is that the customer expectations are rising. So, increasing
affluence in the emerging market, so, people are getting more money in their hand as I
was telling. So, people are getting more money because the industry is booming, now
there is some recession coming that’s why probably there will be some amount of effect
on poverty level, some amount of effect in generic economic structure, but for a quite
long time when last 20 years India’s economy was growing pretty well and that is true
for many other places.

So, in that case the affluence in the emerging market is coming up. So, people have
money in their hand, they have greater awareness also because they have internet, they
know which other companies are giving better services or they generally talk with other
customers also let say, I faced a bad experience, I will talk with my friends and then
probably my followers and my social connections that these particular thing ─ guy is not
doing a good job.

So, the moment you do that, your people get aware about the company, their good deeds
and the bad deeds and when people become aware about the good deeds and bad deeds,
that affects customer expectations and in turn that affects the CRM strategy. So, you have
to adopt CRM so that kind of things can be managed and also customer heterogeneity.

So, you cannot any anymore give one medicine-fits-all kind of strategy, you cannot adopt
because every customer is different. Now, if every customer is different then you have to
know every customer to cater to every customer. So, if we have to know every customer,
you have to adopt customer relationship management strategy because otherwise he will
not know the individual purchase pattern of every person.

Now, in today’s world Amazon and Google are fighting with each other over data, over
the how much data they have captured about you the. Facebook and Google and Amazon
are actually fighting because they know that what you are, who you are, what are your
likes and dislikes. That information is basically the strength. That information is power
because unless they know you, unless they capture the customer heterogeneity they will
create one single service or product and try to sell it to many people which is not

26
happening anymore. We are focusing on micro targeting or we are calling micro
segmentation so, that is also coming up. For that CRM data set is important.

The second thing is the price ─ the cost of CRM. So, at a certain point of time I am told
that the Siebel and Oracle and SAP were the main CRM vendors. Now, all these
companies were pretty costly and that’s why only the companies which has deep pocket
which could invest a lot for a long term relationship could only invest on CRM
strategies. But things have changed now.

Now, with I would say from with production distribution facilitation and consumption
basically they are four parts of affordable technology. Technologies become affordable,
there were more number of, I would say CRM companies that have come up and
probably people are also using pay as you go kind of pricing techniques, the pricing
techniques have changed,. It’s a such kind of pricing techniques have come up where
people can use as their need ─ means a small MSME company can probably use the
lower package and a person which is a huge company can buy a bigger package or
probably take a license take a license for the whole company itself.

So, those kind of affordability it has come into the picture in the CRM technology which
is obviously, I would say a big go ahead in terms of CRM adoption because this
particular affordability has come up, you should, there should be less barriers in CRM
adoption and that is why you as the company should adopt CRM.

What else? #The implementation ─ the third one is implementation. So, development in
IT and Big Data which has improved, choice of CRM has also improved and connects
multiple operations and processes. So, that is something also CRM is doing in today’s
world. So, CRM is not only customer management anymore. For a long time so, there is
something called customer orientation or customer centricity we call it. Customer
centricity which is a part of customer orientation, which says that to think about a
customer is not only the marketing department’s job, it is the job of everybody in your
company.

So, marketing, sales, production, IT, everybody, finance ─ everybody should think about
the end customer because until and unless the end customer is happy and you are making
enough money from them none of this particular industries make any sense, particular
departments make any sense. So, that is why this CRM strategy; CRM strategies, when

27
we implement we try to create a, so, for a long period of time this marketing and IT and
production did not use to talk with each other.

So, the offices were in different locations, the production houses were in factories which
are in remote locations, the marketing offices are in the central cities, and the person who
is working in production did not even know in a bigger company, did not even know who
is the person who is working in marketing. So, that has changed. Now, with the
implementation of CRM strategy a factory which is located in a remote location can
know that what kind of orders are coming up ─ even before the marketing guy calls him
or sends the order.

So, the marketing guy can just put that this kind of order is coming up or this kind of I
would say, enquiries are coming up in the CRM system and the production office which
is sitting in the remote location will have an idea that okay these are the probable orders
that will come. So, I can make this much of stock of product of 1, stock of product 2,
stock of product 3. I can make as per the anticipated orders that are coming up what still
not there. So, all these things are in CRM system. So, IT implementation is actually
connecting the marketing and the production offices together which makes the adoption
of CRM is almost an inevitable step in a strategic perspective.

Now, we have talked quite a bit about CRM, in the next a few slides I will discuss about
the conceptual foundation of CRM. I have talked about customer relationship
management, I told then this is relationship management you have to, you have to create
a relationship with your customer. So, everybody knows there has to be some conceptual
background of that also and I will be discussing about that.

28
(Refer Slide Time: 21:44)

So, as I was telling that for a quite long time, there was, in the pre industrial era when the
industrial revolution did not happen, all the business were personal business only. So,
that the personal-level creditworthiness. So, when the companies have not come down
before the industrial revolution, when the individual there is a pottery let us say or there
is a there is a mason let us say. So, who used to work and there was not many
organizations per say, they were all individual service providers or product developers,
they that economy was majorly I would say governed by personal relationships.

So, the grocery person and the mason and the and let’s say the carpenter within a
community had interrelationship with each other and those interrelationships lead to,
within a community-based relationship was there and that lead to─so, as I was told
relationship was centered and relationship-centric and small-scale industry was there in
majorly cases. But then the industry came in the industrial revolution came in and when
the industrial revolution when the steam engines and automation and this and that, there
were major focus on production, people started that how I can produce a lot rather than
focusing on how can leverage relationships a lot.

29
And then in the information era when production is okay high that is okay, but you, the
information became strength again, as I was telling that now the only difference between
pre industrial era and information era in both the cases this is high, the importance of

30
customer relationship management is high, but the difference is these relationship is in
large scale.

So, previously we use to keep relationship with 4-5 ─ just think about yourself before the
internet came in, you had let’s say 10 friends, out of them two were best friends or one
was best friend or two were best friends and there was always quarrel between who is the
best friend, but the number of friends were small ─10.

But now we have 5,000, 1,000 people in our Facebook profiles and none of them are best
friend probably or your best friend might also be there, but the level of interaction that
you used to have is not there. But the relationship is become large scale and, and though
the you do not remember exactly where these guys work exactly what these guys do, but
it’s a choice if you want you can find out you can just go to his profile you can skim
through the profile see what kind of posts he is making what kind of things he is liking or
disliking and you will know in one probably one hour time that how he is, whether his
life is good or bad and etcetera.

So, now we are creating relationship in a large scale previously relationship was there in
a small scale and in between there was no relationship at all. So, that is how the customer
relationship management has evolved over time.

(Refer Slide Time: 25:00)

31
And we discussed about this thing that the reemergence of the CRM. The reemergence of
the CRM over time has happened, one is because of advances of technology we discuss
about these, intensive marketing competition we have also discussed about this in the in
the last video probably.

And emergence of service economy is also, and another important thing that comes up is
adoption of total quality managements. People have started thinking that you have to
give me an end-to-end good quality and end-to-end good quality means not only the
product is good when the product selling is happening, but this is let us say the product
selling. But your presale experience should also be good and the post sales experience:
that means, your maintenance and other kind of experience should also be good.

So, pre sales during product selling and post sales every time there has to be, then the
persons will be different the faces can be different, but the quality issues will be there
quality issues should not be there in any of this part. So, that is the total quality
management and when you try to do that, you have to have an experience on CRM. So,
that’s why the CRM came in again when the total quality management became important
even in the production sector.

(Refer Slide Time: 26:30)

32
What are the benefits of CRM?

33
(Refer Slide Time: 26:32)

One major benefit of CRM and this is where I would probably try to discuss about some:
there are lots of, I would say CRM as a concept or CRM as a strategy it has lots of
similarity with human relationships. So, one of the major similarity with human
relationship is that, just thinks about if you were in a relationship for 10 years let’s say
you have, you have a college sweetheart or a school-level sweetheart whom, with whom
you have kept the relationship for long period of time.

And then you guys got married or if you if you are a college student, then you probably
not married, but if you have not a college student you have evolve from being a college
student and not now you are working then probably you got married and having a long
term relationship. Just think about that the relationship is pretty long you have sustained
the relationship for quite long time.

Now, just do you think that the effort that you use to give to this relationship in the early
days and the effort that you are giving today after 4 years, 5 years, 10 years the effort that
you have to put to sustain the relationship after 10 years of relationship which effort is
higher? So, at least from my personal experience I can say that I have a pretty long
relationship with my current wife, my wife actually.

34
So, I would say that the early days I had to give lot of effort and she also had to give lot
of effort because we don’t use to know each other, we have to know each other, we have
to adjust with our differences, we have to bring in a homogeneity and that kind of efforts

35
were pretty high and now after so, many years we are in a settled space and we are in the
maturity space and because we are in the maturity space we do not have to put a lot of
effort.

So, one important benefit of having a lot long term relationship is to sustain the
relationship for one more year you do not have to put in lot of effort. So, all I am trying
to say is your marketing expenditure comes down that is one of the major benefits of
customer relationship. So, if you just think about your customers, there were some
customers who are non-profitable, some customers are very profitable, and majority
customers are okay types of profitable customers and these are the customers with whom
you have to keep your and this is time you see that overtime these guys become
profitable and why this becomes profitable? Now, you have to think about these things
very carefully that profit is nothing but revenue minus cost.

So, if I say that over time the profit goes up, there I am saying that revenue as a function
of time goes up and cost as a function of time comes down and that is what I just told
that cost as a function of time comes down, because you do not have to put lots of effort
to keep this particular guy in your customer base.

(Refer Slide Time: 29:45)

36
So, that is one important thing. Another important thing is that over time the revenue also
goes up; revenue also goes up, why? Because revenue gets generated from multiple
channels if the ─ so for example, another example if I come back to the, to come back to

37
my relationship that I was talking about human relationship, one is to sustain you do not
have to put much effort.

Second is that if you want to be happy in a probably co-created environment, the chances
of being happy much higher because you know what I like my wife knows what I like, I
know what she likes, what kind of movies we will both enjoy, what kind of I would say
places where we will both enjoy if we visit. So, that kind of knowledge has been created
we both know each other well now.

So, if we know both know each other well now, if I want to satisfy my wife or my wife
wants to satisfy me it becomes very easier and the satisfaction levels probably, achieved
satisfaction level is probably much higher and that is applicable here as well. If you
know what the customer wants and customer knows what you can give, then the
expectation and whatever you are giving is matching and satisfaction is always a function
of what you perceive minus what you expect.

And if these two matches if these two things match with each other then obviously, the
satisfaction level will be high. The satisfaction level will be high means the revenue will
be high and this happens, this matching happens when customer and the company knows
each other well and that can only happen when they are there for a quite a bit of time. So,
that is how the customers become profitable in the long run. We will keep on discussing
on this particular topic in the next session also. Be with us and I will see with the next
video.

Thank you very much.

38
 Customer Relationship Management
Prof. Swagato Chatterjee

Vinod Gupta School of Management

Indian Institute of Technology, Kharagpur

Lecture - 03

CRM: The Strategic Imperative (Contd.)

Hello everybody, welcome to the NPTEL course of Customer Relationship Management.

This is Dr. Swagato Chatterjee from VGSOM from IIT, Kharagpur who is taking this
course. We are in week 1, this is Session 3 and we are discussing the Strategic Imperative
of Customer Relationship Management. So, in the last class if you were with me I was
discussing about profitability of customers.

(Refer Slide Time: 00:37)

And I discussed that how customers become profitable over a long run.

39
(Refer Slide Time: 00:40)

Now, there is a pyramid of profitability obviously and if you go from the lower to higher:
so, we named as Lead, Iron, Gold, and Platinum which is nothing, but the least profitable
customers to the most profitable customers. So, the least profitable customers are high in
size and the most profitable customers are low in size which is obvious.

And thus the least profitable customers are those kinds of customers which segment cost
us in time effort and money yet does not provide the return we want. So, in the lower
side they cost you a lot, but the returns are not high like the Airtel’s customer who does
give missed calls.

So, what segments is difficult to do business with. So, you have to ask yourself or you
have to find out who are those customers and you have to probably try to move them out
from your customer base. And the platinum customers are basically, one segment spends
more with us over time. So, these are the customers who over time will become more
profitable and cost less to maintain and spreads positive word of mouths. Spreads
positive word of mouth is another important factor about these customer: I would say the
Customer Relationship Management’s profitability issue. So, this is also one of the
important factors where the Customer Relationship Management creates some kind of
benefits.

40
(Refer Slide Time: 02:04)

So, to give an idea: so, if I want to give a marketing ─ monetary benefit of CRM, you see
that there are some costs of sending. So, when we do mass selling, mass emails what are
the costs of mass emails? So, let us say, I have to send 1, 00,000 mails. So, 1 cost of 1,
00,000 sending 1, 00,000 mails mass mails and if I am a Retail company - let’s say is to
get a database often times we buy the database from a various kind of vendors let us say
telecom companies or somebody else sometimes publicly available sometimes privately
available.

Sometimes, we create the Apps where you, have you seen that? Okay, how will you look
like 10 years later? That kind of App comes in Facebook and you click on the app that
have asked that—okay, I will get the information from your public profile and probably
your email address and your public profile and your photos that is something that they
ask access and you give that access. You just say yes, and the moment you give the
access the information goes ─ he gives you something, but that information gets created.

So, that is how the databases have been created and people are selling that database,
which is authenticated. I would say real people are there behind that particular email
address that kind of an accuracy that kind of credibility can be obtained from those
databases. So, you have to buy those databases and the cost is something like, let’s say,

41
the printing cost will be something like this, ok, so, it is not mass mailer I would say this
is this is an example of a mailer that you get at your home, but that applies for emails

42
also. If you just send emails instead of that, even that their Mailchimp and etcetera will
have some costs involved. So, that will also be considered and handling and mailing
charges.

So, this is something that you totally incur, this is your Total Cost. And you think that the
hit rate; that means, average response is only 3 percent. So, 3 percent of these people will
respond. And 25 percent of these respondents; respond means they will do some inquiry
and 25 percent of this people will make the actual purchase-- you just think about that.

So, then there are 750 sales, then the cost of direct marketing cost per sale is coming up
to be 3,000. So, you have to make sure that the prices that you are generating, revenue
that you are generating is higher than 3,000, but that is done when you are doing only for
the one time.

(Refer Slide Time: 04:49)

So, what are the benefits? 95 percent of the customers do not bother to complain. So,
another important benefit of CRM is that, --- people do not bother to complain, they just
take their business elsewhere. So, if you do not, if you are not adopting a CRM strategy,
then most of your customers who are not happy if they are there are customers who are

43
not happy will not even stay with you, will actually switch to another service provider
without even telling you. So, you will not even know that why they went away. So, only

44
if you have a CRM strategy you can track your dissatisfied customers properly. Most of
all customers take time to complain.

So, even the loyal customers take time they think whether they will complain or not. This
enables the product and service provider to improve and ensure that such mistakes do not
recur. So, generally the loyal customers are more , I would say forgiving in nature. So, if
I am loyal to you if there is some problem I will not complain on the first day. I will
complain only after third/fourth occasion.

So, disloyal customer will go away, but the loyal customer will stay back, but not
complain. Now, if you know by chance that you have done something wrong and this
guy is not complaining, you should also understand that this guy has it in his mind. So, if
you recur the, recur the same mistakes then probably this guy will complain and then go
away.

So, you have to make sure that within that time frame that you are getting, you have to
probably improve your services so that this kind of problem does not recur. So, that is
also can be done through CRM. A typical dissatisfied customer will tell in an average of
fourteen others. So, a dissatisfied customer, average dissatisfied customer, not loyal or
disloyal, normal customer will tell fourteen other people about her bad experience, while,
she will tell only six about a satisfying experience. So, in simple words what we are
trying to say that people talk about negative things more than positive things.

So, if you have a CRM strategy then you can, one thing is you can track whenever
people are saying bad you can track that and then you can probably try to mend that that
is number 1. Number 2 is you can encourage people to take positive ─ talk positively
with you. Have you seen that often times if you are using an App the one pop up comes
in in that app and says that will you will you rate us? How was your experience? Will
you rate us? Will you rate us in Google Play? This that. Now, that is an indication ─ that
is basically a CRM push that why don’t you talk good about us.

And if you talk good about us, because, in general you will not talk good about us: even
if you are satisfied you will not go and rate. But if you are dissatisfied you will obviously
go and rate negatively. So, positive ratings are not coming very commonly very
frequently unless you follow a CRM strategy. So, that is the benefit, and 70 percent of
customers who complain will do business with the company again.

45
So, why do customers complain? Customers complain only when there is a chance of
any kind of resolution. If the chances of resolution is not there, if the customers feel that
there is no chance of resolution, they will follow this path,they will just go away. So,
customers complain when there is a chance of resolution. So, you have to give them a
complaining platform. If you do not give a platform where they can complain then that
that will create lots of fly away.

So, 70 percent of customers who complain will do business with the company again if
you quickly take care of the service problem. So, that is also where this CRM will help.
But, you have to, importantly you have to think that generally loyalty and profitability is
not the same thing. Loyalty leads to profitability, but there can be people who are loyal,
but not profitable. So, you have to make sure, like we discussed here, that there can be
people who are loyal, but not profitable. We have to make sure that those kinds of people
are taken care of properly.

(Refer Slide Time: 09:06)

Now, in marketing there are two concepts we call it Transaction Orientation and
Relationship Orientation. So, Transaction Orientation’s major focus was one off
exchange and brand management when we focus on brand and you will think that the

46
brand will attract. It is the Samsung brand will attract people or iPhone brand will attract
people. I will not have to call them. So, the focus is majorly on the brand.

47
But in the Relationship Management the focus is mostly on the customer and it focus on
the ongoing experiences at that one single exchange. And the time perspective obviously
Transaction Oriented is short term and on the other hand Relationship Marketing is long
term relationship. You have to ─ you think about the profitability, you do your
calculations from the profitability in the long term not in the short term.

In the short term, you can make certain, I would say losses and we will show
mathematically how you will do that, but in the long term you can make profits. Primary
communication in obviously in case of these things ads work well. So, mass
communication works well and here probably emails work well or calls work well or
SMSs work well or push notifications work well.

So, the things I have changed slowly. So, here the mass ads in probably various kinds of
platforms like TV or radio or newspaper will work in case of Transaction Oriented
Marketing. Then the market size: so, here we think about the mass market or at least the
market segment. We do not think about, think about individual people, but in the other
one in this one, just 1 minute In this one, we will focus on only one person.

(Refer Slide Time: 11:05)

So, each person is different. My market is one single person and that is what we
generally try to focus on, and this is where the recommendation engine- if you have

48
heard about that it is coming in this kind of concept: Recommendation Engine or
basically Market Basket Analysis is coming in where people think about one person as

49
the Market Basket Analysis. This kind of things are coming in. What people think about
one particular person is what market says. I do not think about 10 people together, I think
about one person and then I think about millions of such one person differently.

Criterion of success is market share here, major focus is in market share, here major
focus is in mind share; that means, the share of customers. So, whether you think about
me and the critical metrics is basically profitability of transaction, and brand equity as
people focus on brand management. Here, customer lifetime value, not the profitability
of one transaction, but the customer lifetime value and what is that we will discuss about
that in the next thing and customer equity. These are the two major things that become
most important in a Relationship Management.

(Refer Slide Time: 12:21)

So, Payne 2000 has given 6 market frameworks which we use in Customer Markets.

50
(Refer Slide Time: 12:28)

One is the Internal Market, one is the Referral Market; one is the Influence in Market,
Recruitment Market and Supplier Market. So, Internal Market is basically your
employees ─ part time or full time employees. The Referral Market is basically your
customer referrals: so, who are not customers yet.

Influencer Market is basically, Influence Market is basically the market who influenced
you. So, the customers get influenced by this type of people, customers, these are
customers will change to this. And then Recruitment Market is basically future internal
Market and then Supply Market you understand that.

Now, Customer Market is basically governed by these 5 guys. So, altogether this 6 is
your market. So, often time this CRM strategies are trying to make sure that all of these
things were taken care of. We do not only think about customers alone. We will think
about all of them, for example, how Internal Market can play an important role. Lots of
product companies in today’s world are using their internal customers-that means, the
employees as the test bed.

Let us say I have created a new product. What will I do? I will ask my company’s people
to use it and then there is ERP system, a CRM system where I track the customer’s

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behavior, internal customer’s behavior and they can write their complaints. They can
write their service issues this that and based on that I improve my product. So, that is

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how the Internal Market helps the product development and thus Customer Relationship
Management Strategies. Then, Referral Influence I will talk about later.

Recruitment Market how ─ Recruitment Market means the customers, the future
customer future internal market; that means, future employees which are outside. Now,
future employees also create a brand image about a particular company and that brand
image is also something that you have to take care of and the brand image will come
from this Customer Relationship Management ─ the service strategy not a brand strategy
which is done in a transactional orientation.

So, that is also another important market we should focus on. Then comes: Supplier
Markets - obvious the supplier will have lots of information. Often times, this channel,
the sales channel we try to use the sales channel to get information about the market in a
B2B environment. Let us say I am selling a paint ─ I am Asian Paints or Berger and
etcetera and there is some supplier of me or there might be some distributor of me.

Now, I am not selling paints door to door. I have my own supply chain network. Now,
that supply chain network also gives me very crucial market information, the Customer
Market information which can be adopted. Now, if you do not have a CRM system, if
these guys do not have any platform, where they can post their problems they can give
their information, if it is just a human based information system, not a computerized
human information generation system, then you are, there is a chance that you will lose
lots of information. And those are crucial information and you think that this is a
competition between Berger Paints and Asian Paints.

If Berger Paints can collect the market information properly using this supply chain
having a CRM system and Asian Paints cannot do, then there will be a loss. So,
obviously, supplier market is also major information. And then what else: the Referral
Market who is your future customers what is being told to those guys and Influence
Market who influence. So, this is like this: Influence Market impact Customer Market
and Customer Market Impact your Referral Market. So, you have to know your future
customers and you have to know whoever influences your current customers. So both
knowledge have to be generated using your CRM system so that you can get enough
information which can be applied to improve your business.

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So, these are The Six Markets that framework is given by Payne in 2000, in the paper
which is a very crucial understanding that you do not only think about your customer
which are your existing customer when you do Customer Relationship Management.
There are lots of other people ─ other stakeholders which can also be treated as
customers when you are handling Customer Relationship Management. Today, I talked
lot about this term Customer Relationship Managements.

(Refer Slide Time: 17:22)

(Refer Slide Time: 17:28)

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Let us talk about the definition. So, the hard code definition is as a comprehensive
strategy - that is number 1 and a process. So, there is a strategy involved and there is a
process of acquiring, retaining and partnering with selective consumers. Not all
consumers but selective consumers that is number 1. It starts from acquiring, then goes to
retention means keeping them and then partnering. This is a very important factor which
we will discuss as we go ahead, but you have to make sure that he is your, not only your
customer, but he is a part of you. He also helps you in improving your or he thinks that
he is one member of your team.

So, that kind of an environment has to be created with the customer then only, that is the
ultimate goal. Then you can say that it is a successful Customer Relationship
Management and you will not do it for all customers, you will do it for selective
profitable customers to create superior value for the company and for the consumer. So,
both will be having a win-win situation by adopting this kind of a strategy. It has to be
comprehensive and so the major key terms in this particular definition is first of all- it
has to be comprehensive. Comprehensive means it has to cover everything as I told.

It has to be comprehensive, it has to be a strategy and process. It is, it cannot be just a

strategy it has to be implemented the process with an implementation. So, it’s not just
definitions it has to be actionable also. So, that is something acquiring, retaining and
partnering as I told. So, this is these are the 3 processes, major processes for selective
customers as I told and superior value for all. So, there it has to come up with a win-win
situation otherwise this CRM strategy will not work, you have to get a win-win situation
out of it.

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(Refer Slide Time: 19:29)

And what are the elements? The elements are basically, there are 4 elements and we will
discuss about all these elements separately. One is the knowledge ─ the information, then
the relationship, that you generate the long term relationship. The communication, that
means, what you, the information customer knowledge comes from the customer towards
you, communication is from you to the customer that happens and individual value
proposition, not a mass value proposition.

So, you have to create the elements, whatever CRM strategy you make, these 4 elements
should be there. How will I get the data about the customer? So, let’s say if to give an
idea of these elements: let us say if I discuss about the CRM strategy of these points that
you get. You generate points when you buy in Big Basket or Big Bazaar or somewhere.
So, let us say in Big Bazaar you are accumulating points.

So, the customer knowledge that gets accumulated from that CRM strategy is that what
you buy, because the moment you swipe I know, who is the customer. I know what is the
name of the customer, his customer ID and I also know what are the various products he
purchased, what was the price whether in discounts were going on the whole basket
information I get. Now, if I have been acquiring this basket information for quite some

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time because you have a long term relationship with me, then that creates customer
knowledge.

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I know what you like, what you dislike, what you purchase, at what price you purchase,
whether you are a price sensitive person, price insensitive person ─ all that details comes
in my head hand. When I get that, the next step is relationship strategy. I create a strategy
how to generate more benefits from this relationship and how to elongate the
relationship. So, I can probably in that after getting knowledge from you, after knowing
you properly, I create a strategy that okay now I know that this guy is price sensitive with
product X why do not I give product Y. I say that product Y will be giving you at this
price.

Let’s say you are for quite some time, I found out that you are price sensitive about a
certain food material which is let’s say noodles. I will try to sell you Atta noodles which
is a better version of noodles let’s say, and I will say that I will charge you the same
price, but why do not you try? You try it for once, twice, thrice after fourth or fifth
purchase I start increasing the price because we have already get habituated with a better
version you have improved your lifestyle a little bit. And now you know you think that
buying this particular product which is a little bit more costly is okay, not very luxury,
it’s a part of life.

The sense of luxury, the sense of what should be part of life and what should be luxury is
different for different people and that changes over time. So, that sense of luxury has to
be removed in certain cases and has to be brought in in certain other cases through CRM
strategy. So, we can take that in Relationship Management. Then I have to communicate
I have to come there is a strategy that I, that I have made.

Now, I have to implement the strategy and that implementation is communication. What
kind of information I give you, when I give you, through which channel I give you all of
these things come under CRM strategy. So, oftentimes CRM is used majorly for this and
this: that collecting data and then sending mails. But, CRM has another very important
information part which is individual level value proposition. Are you using any kind of
analytics techniques or any kind of strategic techniques to create micro segmentation?
Are you creating value propositions for each customer separately?

So, here I told that market is one and here the market is at least a mass market or market
segment. So, in case of us, the market is one only single person is the market. So, until
and unless you are creating that kind of a value proposition where every person is one

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market you are not using CRM properly. So, that has to be an element of CRM: not only
just creating knowledge and creating communication ─It’s not a good enough strategy
for CRM. So, that is where we will stop about CRM as a strategic concept, we will be
discussing about two small case studies in the next videos and I will continue on that in
the next video.

Thank you very much! See you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee

Vinod Gupta School of Management

Indian Institute of Technology, Kharagpur

Lecture – 04

CRM: The Strategic Imperative (Contd.)

Hello everybody. Welcome to the course of Customer Relationship Management. This is

Dr. Swagato Chatterjee from IIT Kharagpur, Vinod Gupta School of Management, who
is taking this course for you. Today’s discussions topic is a particular case on Customer
Relationship Management. The case’s name is Angels and Devils: Best Buy’s New
Customer Approach.

So, in this particular case I told you, why in the introduction video of this particular
course that this course will be filled up with lots of examples, which had been applied in
the real life situation. And, how those examples can also be applied in future or what
kind of learning can be generated from those kinds of real life situations is something
that is a crux of this particular course.

So, one such case that we are going to discuss today is something called Best Buy’s New
Customer Approach Angels and Devils.

(Refer Slide Time: 01:15)

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So, what is Best Buy? So, Best Buy is a leading provider of technology products. So,
mainly they sell technology products, services and solutions to the various companies.
And, the company offers expert services at an unbeatable price. So, one of the major
aspect of Best Buy is their price. So, that is where they play, they want to give you
certain products which are technology-heavy products. And, they are majorly, they do
lots of cost cutting and that is why they play on the price.

Now, who buys technology products, what do you think? Is it in the, in the people who
are in the lower income strata, or middle income strata, or upper income strata, who are
the major customers of a company, who will be selling technology products, what is your
thought? So, why do not you pause this particular video for 1 second and just think that,
who will be my customers?

So, my customers if you have thought a little bit, that it will be the middle income group
and the upper income group. Now, when I am playing in the low, I am offering
unbeatable price and, I am giving expert service at an unbeatable price. I am actually
targeting those kinds of people, who are middle income group, probably lower middle or
upper middle income group.

But, I will try to give them services or experiences which generally the upper income
group wants. So, that kind of a positioning they have that, I will give you something
which is affordable, but you will get, the quality will not be compromised. So, in the US
there were more than 70% of the population lives within the 15 minutes of Best Buy
store. So, one of the very major thing that they had is their locations. So, I do not know
whether you have seen companies like, let’s say Decathlon, have you seen Decathlon
stores?

So, Decathlon stores if in India if you see that they are not generally located within the
city. They are located a little bit let us say 10-15 kilometers outside the city. And, that is a
location that they choose, people that is the destination that becomes a destination people
actually come to Decathlon. And, then spend the whole day in Decathlon and try to buy
something.

So, that is something, which is Decathlon’s I would say offerings. Similarly, Best Buys
offerings were locations. So, they were located at very good places, they also had

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warehouse kind of stores, but they are located at very good places, such that 70%of US
population will be within 15 minutes time.

So, not exactly in the city centre, but probably in the probably a little bit away from the
city centre, but they have multiple locations and made sure that most of the people can
access it very easily. At that time when this particular case happened, when the incident
happened, which we are discussing today, at that time they had operations only in USA
and sorry Canada and Mexico along with USA.

So, these are the three countries that they have their operations. The CEO was Brad
Anderson and they had 1.5 million customers, daily customers. So, this is a brick and
mortar stores. So, daily customers in their store there was 1.5 million. The yearly sales
was 24.5 billion rupees, net income was 705 million and 16.33% year to year growth.

So, 16.33% year-to-year growth is a pretty good growth and also they were pretty much
growing and 1.5 million customers were coming every day. So, these are the some of the
basic details what they had. So, they were in a good stage.

(Refer Slide Time: 05:05)

But, where the problem came was there were Angels and Demons in their customers. So,
what are the Angels? Let us discuss about what are the demons first? So, out of that 1.5

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billion customers that we just told, 20% of the customer visits are undesirable. So, if I am
saying that 100 million out of 500 million customers were undesirable customers.

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So, undesirable customers means, they will come to your store, they will take lots of so,
let us see I am talking about Decathlon kind of store. If, I have gone that kind of a store,
it is a huge store there are lots of products there and somebody coming in that particular
store will do 2-3 things.

One is if there are lots of customers comes and do not buy anything, they will be
crowding. The more crowding happens the less is the experiential value for the people
who are actually buying the products, they will feel congested they will feel okay the lots
of people is there. They cannot move around as per their wish so, first of all that is a
major problem.

Second is that these kind of customers used to come and buy a small stuff. let’s say, Y
will buy something of 5 dollar or 10 dollar, but will take lots of services we will see this
see that, we will change the order of the products, we will try this product, try out that
product probably, this is electronic products so, technology products. So, they will
probably try out an Apple mobile phone or probably play some games which are there,
but then ultimately buy a small thing.

So, these kinds of customers were found out to be undesirable customers. Now,
undesirable customers are a big challenge for many companies. In the other day I was
telling that therefore, Airtel actually increased the minimum recharge that you do per
month to from 0 rupees I initially it was 0 rupees in one some at some point of time.
They increased it to 29 rupees and then 48 rupees or something like that, I made the
denominations might be a little bit wrong, but something like that. What they wanted to
do is, there were lots of migrant labors you know that there are lots of migrant labors in
this particulars country.

So, often times when people go to another city for their job, they have two mobile
phones; one in home, one in office, one in their job place and one is at home. And, they
any one of these mobile phones will have we will have full-fledged (Refer Time: 07:36)
recharge. The other one will, the only job of the other one was to keep alive.

So, that I can give a missed call to that other number you know that, the number whoever
has the recharge will actually call back; so, that kind of a facility. Now, when you will
give unlimited I would say validity, no validity issues ─ so, if we have unlimited validity
of a particular talk-time and, your SIM also is valid for unlimited period of time, then if

64
you recharge 10 rupees and then don’t recharge ever you can give miss calls. Because,
that 10 rupee will remain alive and you if you can give miss calls you can probably
connect. Because, the other person will call you back.

But, you have to understand that Airtel has to keep his services alive, his towers alive,
his all, has to employ/deploy certain resources, in those kinds of places also where
revenue is not generating. So, let us say from city X to village Y, village Y is where the
people is giving miss call to a person in city X. Airtel has to have his facilities both at
city X and village Y, then only this connection connectivity will happen.

So, everybody in that village Y who used to give miss calls was undesirable customers.
This kind of a, this is a bad example that I am going to say, but this kind of problem
IKEA faced in USA, that IKEA at one point of time gave this kind of a offer that I will
give you this particular IKEA is a furniture business.

So, you know IKEA we have in Hyderabad new IKEA store. So, this is a furniture
business and IKEA told that okay, in our store you can pick up anything and then you
have to obviously, pay for it, but you can return it after 1 month. And, if you do not like
it return it after 1 month, as long as no damage has happened and everything is okay, full
amount is, will be returned.

Now, this happened in USA. And, USA has lots of migrants, workers, students, who
come from outside. And, they settle at a home and they don’t buy lots of furniture,
because they are coming for 2 years, 3 years and then they will go away. So, they do not
buy lots of furniture’s, but within that 2 years 3 year sometimes their parents, relatives,
friends, come to their to their home.

Now, when these friends, relatives, parents are coming to their home, what these guys
used to do is go to IKEA store. Buy a new bed let us say, then the parents or relatives or
friends stay on that particular bed and etcetera. Use that bed for 2 weeks, 3 weeks,
whatever duration they stay. If, it is within 1 month duration, within 1 month if they
return back, then these guys also will go back and return all the items to the IKEA store.

And, when that happens, IKEA found out that there were lots of, lots of losses that they
are incurring, because people are actually buying it, but not using it ─within 1 month
they were returning it. So, these are their different types of undesirable customers. In a

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Uber kind of a platform let us say, you will see that people at one point of time were had
that offer that okay, you can complain about the route choice of that particular driver.

If, the route choice is higher, longer, then that money will be returned. Or, if you just
write that my driver has charged me 10 rupees extra, or 15 rupees extra, no questions
asked Uber used to give that back.

Now, this is something that not many people knew, that this is happening, but some
people knew. And, they started doing this thing, that they were every time they were in a
the right, they used to complain that the driver has charged 10 rupees or 15 rupees or
extra toll has been charged to me by cash and this and that.

And, Uber understood that this is actually a fallacy that is going to happening and they
actually stop that. So, these are all undesirable customers. So, every store will have
certain kind of undesirable customers. Another thing that was so, 20% undesirable
customer is a big number and you have to tackle them in some way or other.

What are the other problems that they were facing? So, WalMart and Dell are changing
from mass market focus to high definition products in electronics. So, this is something
that was also happening. So, WalMart if you remember, what I told here is this Best Buy.
So, if this was the structure: just let me open the market structure. So, this was the
structure.

(Refer Slide Time: 12:24)

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So, a market generally looks like: this is your mass, this is your probably upper class and
this is your middle class market. But, oftentimes in USA kind of setup it looks like this
the middle part is fat. So, this is middle class, this is mass, and this is upper class.

Now, WalMart Dell, Dell WalMart was here and probably Dell was here. So, Dell also
had their own stores and WalMart is a big retail company for various kinds of products.
So, WalMart gives you products at a lesser price, Dell gives you products at a higher
price, in between that probably this Best Buy used to stay. So, what happened is WalMart
also changed their focus from mass market to middle class and Dell also changed their
focus from upper class to middle class.

So, when more companies are pushing towards the middle class these things gets
shrinked. Whatever was here will now come up to be here, and whatever was here will
now come up to be here. So, the market will become shrinked. So, this is this becomes
middle class now, where Best Buy lies and this is where WalMart comes up. And, this is
where Dell comes up.

So, there was a shrinking activity that was going on because people are pushing
themselves towards this middle class. So, when that is happening, that is a competition,
increase of competition that happens, which were happening in case of Best Buy also.
And, they do not, they do not wanted to be, they did not wanted to be the unprofitable
middle class.

So, keeping these in mind, they find out, they wanted to find out, what can I do as a
marketing strategy ─ so, that these movements of price and positioning of my
competitors; and my, there is a huge amount of undesirable customers in my customer
base, this will not affect me, what can I do to that? So, that is where these angels versus
demons this practice came in.

So, they wanted to do something such that the angels of my company will not move out
to let’s say Dell or WalMart. At the same time the devils of my company ─that means,
the customer base devils of the customer base will move out from the customer base.
They will be discouraged to come to the store and make the store, I would say, crowded
or doing something else.

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So, how they can be discouraged to come to the store? So, that was the major consumer
problem.

(Refer Slide Time: 15:25)

So, to answer these, they approached a very classic way which is called Customer
Centricity. Now, customer centricity is a philosophy, where we are saying that being
customer centric means looking at an enterprise from the outside in rather than inside
out. So, you have to wear the spectacles of a customer and look at the look at the
company.

And, you cannot wear the spectacle of an employee and look at the company. So, from
the outside into inside out approach has to be taken, that is, through the lens of the
customer rather than the producer. So, you have to look at the lens of the customer, you
have to wear the spectacles of the customer.

So, what to wear the spectacle of the customer, you have to find out what the customer
wants to see? So, Best Buy took the time to understand who it is customers are, how I
can define my customers and what they need and then started selling solutions instead of
products? So, mostly common sense solutions were majorly focused on.

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So, this is something that I tell to my marketing students every time I start a class, that in
any marketing strategy. We will first start from that okay: it is a mission and vision of the
strategy probably what I want to do?

69
(Refer Slide Time: 16:39)

And, then the environmental analysis ─so, environmental analysis like, there can be
macro environmental analysis, there can be micro environmental analysis, in the macro
we do PESTLE. And, the micro we do Potter’s 5 Force model and then one part is
basically the customer. The exact ,we also do SWOT here and the customer, who is my
customer? And, while defining this customer who is this customer?

So, this is step 1, this is step 2, while defining this customer, we define a customer based
on 4Cs, what are the 4C? The 4C is my customer, the cost, the convenience, and the
communication. So, these are the 4Cs marketing 101, that is how we define the
customer? Now, often times this can be broken into 4-C 1, 4-C 2, 4-C 3 so, which is
basically the segments.

So, this breaking these 4C into 4-C 1, 4-C 2, 4-C 3, this is not combination; 4C 1 is not 4
combination 1 or 4 combination 2, I am not saying that. 4C 1 means, the first type of 4C,
the second type of 4C and the third type of 4C basically, segmentation, we do
segmentation.

So, while defining the customers, I have to find out what are the customer segments.
And, each segment, I will define them using these 4Cs, each segment separately. Then, I

70
have to target any one of the segment, I cannot target multiple segments, in some
situations we target multiple segments. Like in retail or in telecom, we can target more

71
than one segment but you have to create solutions for each of the segments separately;
that means, for each set of 4C, you have to create one set of 4P.

And, what are those 4Ps? The 4Ps are product or in this case service also, price, place,
and promotion. So, for each of these guys you can create 4P 1, 4P 2, 4P 3 and then you
can choose that which one I will go for. So, that is something that they also did. So, they
are here we only focused on the customer segmentation part.

So, I told that Best Buy took the time to understand its customer like I just told. And,
then they created solutions rather than products. They didn’t try to sell anything ─ they
tried to solve the problems of the customers, using certain kind of solutions.

(Refer Slide Time: 19:35)

So, they, what they did is there are 5 different kinds of segments that got created. So,
there is a Jill, there is a Buzz, there is a Ray, there is BB4B, and there is Barry. And, let
me give the meaning of what these things are.

So, Jill is probably a mother who is a, probably a working mother or middle class
mother, she is she has lots of probably 1 or 2 kids and she is also working; that means,
she is busy at the same time. So, he manages the, she in this sorry, she manages her

72
office and her home, both and the kids are dependent on her because the kids are still
small at this moment.

73
But, still she engages in, so, she wants to buy those kind of so, she wants to have those
kind of products and services, which will be helpful for her job to make the job more
productive. At the same time will be liked by the probably the home people by her
husband or her kids, which can help her in reducing the time, that is spent on food
making, or cleaning, or washing and this kind of stuff.

So, this is Jill if, I can, if I. So, whenever we talk about a segment, where I told that what
are the customers, what are the cost, what are the, these are the 4 things, that we will
discuss on right. So, who is Jill, if I just try to discuss that ? So, Jill comes of the 4C.

(Refer Slide Time: 21:16)

So, who is Jill? So, Jill is a working mother. What will be the age of a working mother?
Let’s say around 30 to 45 years something like that, in this range. And, you might have
one to two kids, and husband might also be working, and understand that it is USA. So,
they are staying, they are staying separately; not staying there with the parents or
something.

So, no support at home probably or probably partial support not always there is a support
system available at home.

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And, yeah so, what he wants, what this customer is looking for? He is looking for
products which will help in productivity. Productivity means: oftentimes it has been seen
that these moms are very, they find it very difficult to manage the house and the office.

So, they have to get something which will be majorly focusing on their productivity,
because they want to think, do things faster, that is number 1. Number 2 is, so that can be
both in the office and in the home. So, in the home probably a mixer grinder or a vacuum
cleaner can be something, which will be more productive or in the office probably, let’s
say some kind of electronic product can be more productive than whatever he is use, she
is using right now.

And, another important thing that she wants is something which is liked by family. So,
products which are liked by family; it can be movies, it can be games, because she has
some kids, she has some kids who likes to play, who like to play games: so, games or
movies, family movies or children movies. So, those kinds of things come into the
picture this is customer.

And, what is this cost? So, Jill is the middle class so, affordable price is something;
affordability is something that is important for her. Just check the ─ and what is this
convenience? She does not want to she does not want to travel much. And, also she
wants, she wants something which is in the office within her home to office that
particular destinations will fall.

So, she buys from places which are in between home and office. So, such kinds of things
are there. So, she buys those kinds of products which is in between home and office. So,
that is one thing. And, what about communication, what she wants to hear? So, now, this
is a lady who strives for let’s say, she wants appreciation from home.

So, she wants that. So, people will appreciate whatever she is doing this particular thing
that, she is doing for her family and also at the same time, managing the job this should,
she is sometimes is very struggling with this, and she wants appreciation for whatever
she is doing. So, that is number 1 thing.

Number second thing is probably, she is probably emotional because she is she has kids.
So, things which are related to kids or family, or that kind of emotions, when are,
togetherness: when those kinds, those kinds of emotions are communicated in any kind

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of ad or any kind of product, those things is something which is of high value to her. So,
that is Jill.

So, this is how if I can define Jill this is the person called Jill, this is one particular
segment. And, I would ask you, this is a homework small homework, that you can do
that how why don’t you try to define like this the whole other things? And, I will give
you the definition of other things. Buzz is a young person, let us say a college goer let’s
say one B.Tech student of our institute; who is coming from a well to do family not very
humble background from a well to do family.

And, he is very much probably well-known, well-accustomed (Refer Time: 26:00) with
the latest technology, he watches the latest movies or probably latest songs, that are
coming up or latest series that are coming up. Tech savvy young person, young college
going student or college going kid, a male in this case is Buzz.

On the other hand, Ray is a person who is absolutely probably a gender male version of
Jill. But, he is also a father of two kids, and a middle class family member, he is a family
person, practical buyer, while Jill sometimes probably might buy something based on her
emotions and etcetera,

Ray he generally does not do impulse buying, he is very practical in terms of his buying,
but which become which becomes sometimes a difficult thing, because the kids or the
family members sometimes wants to enjoy, which where the Ray, where there is a
problem with some kind of problem happens with Ray.

Because, Ray does not, sometimes does not become able to understand that, that
sometimes if buy is certain staff or does not by certain staff, which probably will be
appreciated by the family members. So, that kind of a mismatch sometimes happens
because he is a practical buyer, middle class person. So, at the end of the month he has to
take very calculated decisions and so on.

Now, BB4B is a person which is Best Buy for Business actually. So, Best Buy for
business is basically one group of customer which is small SME customers. They buy let
us say cartridges or they buy certain kinds of lots of 10/15, I would say the monitors or
computers, sometimes they hire computers from BB; Best Buy. Or certain other kind of
let us say storing devices like pen drives and etcetera in a bulk.

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So, all of this kind of thing which is office stationeries or office accessories, these are the
things which they buy in bulk again very practical, very production oriented, but these
are majorly SMEs. So, they have to take calculated decisions, more calculated decisions
than Ray, but they will buy in bulk. So, that is another customer base.

And, the fifth customer segment is Barry. Now, Barry is a very well to do person he is a
professional, he is a probably manager, or a lawyer, or a doctor, who wants pretty good
probably top 5% of the society. And, he has very good taste for technology products and
he actually expresses himself, his luxurious feeling, his feelings and his luxury, his
identity through buying these kinds of products.

So, that is Barry. Now, if these are the 5 customers, I would first suggest, it is a small
homework that why do not you go back and write down what are these 4Cs for this each
of this customer base. I wrote for Jill. You should be able to write it for Buzz, or Ray, or
BB4B, or Barry. So, that is how the first objective gets fulfilled and you understand what
your customer best are customer segments are.

(Refer Slide Time: 29:27)

Now, what next? So, what next, what they did next is they actually targeted any; so, they
found out that in a particular store which of these 5 segments are coming more.

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And, whoever is coming more, whoever is coming significantly more, not only more
significantly more, than the other groups, only they have chosen those stores initially.

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And, they turn the whole store altogether to target that particular customer. For example,
they made a Jill store. So, Jill store is a store, which is close by to the home, which is
situated in a locality, which is residential locality not a commercial locality.

And, you know that their family members stay there. So, that kind of a particular place
has been turned to a Jill store. Now, I have given the description of Jill’s, Jill. Now, what
is what will a Jill Store look like? She will come with kids. So, there will be very colorful
store it will be; so, pink, and red, and white balloons, festoons at the entrance of the store
because that is something that attracts the kids, sometime their moms also. So, that is
something that were there.

There were TV that is playing ‘The Incredibles' which is a show which goes on which
kids show. So, the kids will enjoy. It is a family show, as well so, the kids and family will
both enjoy. So, that kind of, that kind of TV ─ TVs were playing those kind of shows.
And, there is an expanded selection of home appliances, as I told that Jill focuses on
productivity.

So, expanded selection of home appliances as well as display stock, Hello Kitty, Barbie
SpongeBob Square Pants that kind of electronic equipment. So, all these equipments
were more targeted probably to towards the productivity of the mother and nooks are set
up.

Nooks means, small corners where which is, which looks like a certain thing that you
want to make. So, nooks are set up to look like dorms or recreation rooms. So, for kids
there will be dorms right. So, let us say if you have 2-3 kids. Sometimes for space crunch
you create probably 2-3 stories of beds or probably a dorm room, where many ─ your
kids stay and then play and do whatever at that particular room.

And, there is a recreation room also probably so, where the mom and children can play.
So, that kind of rooms, the setup of rooms, dummy rooms, which we are calling here as
nooks that were setup.

Where actually when the moms and the kids are visiting this particular place, they can sit
and play, and enjoy, and can think, that what would have happened if the same setup
were made at my home. So, that was created and with high tech gadgets. So, along with
these nooks, which looks like homely which gives you a homely feeling they also have

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given this high tech gadget. So, this particular line remember, this particular thing I will
come back later.

So, it is these nooks were created to give you a homely feeling, but at the same time you
have been given high tech gadgets. Because, then you will not be scared with these high
tech gadgets, you will think that these high tech gadgets are also very homely in nature
probably affordable, probably practical to buy. So, that kind of a feeling they were trying
to give in their mind and this is something that many other companies did later.

When I come back to the next videos I will discuss about that this thing again. Just keep
this in your mind. So, that is a Jill store. So, that does not mean that Barry’s and BB4Bs
and other guy’s Rays will not come in the store. So, they have done it very, in a very not
very much visible manner, something which is, which will play with your psychology,
but will not describe the other guys.

So, it will attract Jill, but not, it will not say that Ray, don’t come here or Barry don’t
come here. So, that kind of feeling was not there.

(Refer Slide Time: 33:37)

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So, again if you can, so if you go to this particular link you will get the description of
other stores as well, but I would ask you do not go to that this particular link. Why do not
you try to write down, how a Barry and Buzz store will look like on your own?

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So, a store which is focused trying to focus on Barry, a store which is trying to focus on
Buzz, how will it look like? Why do not you stop this particular video here and try to, I
will not stop. I will go on for another few minutes, but I am asking you to stop this video
here, write it down, check with this particular link that whether whatever you think that
how the Barry store will look like.

Or whatever you think, whatever the Buzz store should look like ─ whether that matches
or not. Because, that’s now how you will you can guess that whether you are thinking
like a marketer or not. I am not saying that whatever you are writing will be wrong, that
can be discussed, in a, in your discussion forum. And, or why do not you do one thing?
Why do not you put this in the discussion forum?

And, I am I suggesting every other viewers is to come to this discussion forum and,
probably try to, try to give a feedback on whatever other people are saying, whatever you
are saying other people will give peer review and you also give peer review to whatever
other guys have given a plan.

And, until and unless you post something you don’t see the discussion forum. So, that is
very important, because otherwise you will see the, what other people have written, you
will see whatever this guy had written and based on that. So, see this is a learning
environment that we are trying to create there is, no this particular exercise will give you
no points extra or no brownie points.

But, you will probably learn how to think like a marketer? So, please think like a
marketer, post it and then why do not you review, what other people are saying and, see
that whether that makes sense. And, I will also ask my TAs and probably me also to give
comments on the descriptions that were given.

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(Refer Slide Time: 35:47)

So, that is how they were targeting the angels? Now, how to target the devils, how to
handle the devils? So, to handle the devils; that means, the unprofitable customers, they,
what they did is they cutting, they cut down the sales and promotions approach. So, all
the sales, all the discounts and etcetera were reduced. So, that is a very major thing.

So, when you reduce that, as I was telling for Airtel that they increase the no unlimited
validity thing to at least 29 rupees per month kind of an approach. So, similar approach
these guys have taken. Identifying the less than desirable shoppers and remove them
from the mailing lists.

So, that was another job. So, they used AI best techniques and I will in a different class
really if you take my marketing analytics course, which has been given in the last
semester, you will know that how to find out the unprofitable customers, who have low
customer lifetime value.

So, we have taught there how to calculate customer lifetime value. Here also in this
course also we will discuss about that a little bit. So, based on that you can find out that,
who are the unprofitable customers and then remove them from the mailing list so, that
these customers are not attracted towards your store. And, put a more rigid policy in
place to deal with repeat returners.

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So, as I was telling for IKEA, what they did is they created a restocking price? So, here
also they created a restocking price. So, if you have bought it and you want to return it
15% will be charged. So, I will give you an example a classy example, it was a
government hospital in a particular organization, certain organizations run hospitals for
their employees, and in those kind of hospitals medicine is free.

So, what happens is for many organizations these patients go to that, actually they are not
patients always. They go to the store to the hospital. And, they go to the doctor and write
down lots of medicines. Many of the medicines probably they do not even need or they
have not checked with the doctors that whether I will need it. Sometimes it is routine,
some of the medicines are routine.

But, some of the medicines whether they are routine or not they have to be taken or not
they do not even check they create a major list of this medicines and go to and I know
there are certain people, who even buy those medicines and probably sell in some other
stores. So, what they do is they go to the doctor, create a huge list and then go to the
dispensary get those medicines and go away.

So, these are the customers which are also undesirable customer’s in this case
undesirable patients. So, what happens is, what how to deal with it, what this kind of,
some of the examples that I will give, they what they did is, that we will not charge
anything from you in terms of the in terms of the monthly deduction that happens in
terms of your medical thing, that deduction will be reduced.

But, whatever price, whatever you, whatever is the price of the particular medicine, you
have to pay 10% or 5% and I will pay 95%. So, the moment you give that that kind of a
thing that the employer will pay 95% and you have to pay 5%, but not free it cannot be
free, it can be as low as 5%, but cannot be free.

The moment you give that kind of thing a huge amount of people will not come, this is,
and this is psychology. So, because we give huge value to something which is free.
Similar things applied here. That, even if this 15% is talking free, as 5% is talking free
there were, quite a few people who would have not bought. Because you understand 5%
of a 1 lakh rupees TV is 5, 000 rupees.

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Question is will you buy a TV and then use it for 1 month and return it back and pay
5000 rupees for that usage many customers will not do that. And, who which type of
customers will not do that? Those kind of customers who are undesirable, who wants to
buy the TV will actually buy the TV by 1 lakh rupees and keep it in most of the cases,
but the guy who had returners are generally price sensitive as well. So, even if that cost is
5000 rupees or in this case 15000 rupees they will not do that. So, that is how you are
dealing with the devils in the customer base.

(Refer Slide Time: 40:20)

Now, what happens is this is also a classic question I am opening it to the to my students
that okay, I can use my techniques and etcetera to find out, who are my undesirable
customers and remove them from the mailing list. But, how will I know, when a new
walk in happen? How will I know when a customer comes in for the first time, that
whether he is a devil or he is an angel, he is a desirable customer?

Because, if he is an angel I will deal with him differently if it is a devil I will deal with
him differently.

So, this is a very crucial question, I am probably keeping it open for you I will not
answer it today. You probably want to put it in the discussion board and I will answer or

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I will discuss it in the discussion board of this particular course ─ that, what are the
possible ways to find out that from a walk in whether a customer is good or bad.

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(Refer Slide Time: 41:31)

So, that is where, when they did it the results were like this that initially they did it for 32
stores in Chicago, LA and WDC. The sales growth happened in general in the other
stores 10%. But, in these test stores it was 17%.

The gross margin was 0.5% higher than the average stores. So, even not only the sales
improved the profitability improved, but the profitability improved very less 0.5 %, that
is because the cost were 2.4% higher.

So, the cost went up because when you try to do the all this stuff which is when targeted
your marketing cost goes up. So, the marketing cost went up, but they also analyzed that
this cost difference will fall to 0.5%, rather than 2.4%, if 110 stores are added.

So, currently there are 32 stores, if another 110 stores were added. So, if you try to do the
same thing in 142 stores the cost difference for of these 142 stores and the other stores
will be 0.5%. As low as so, practically no cost difference at all, so, but the sales will
grow up by 17% instead of 10%.

So, the growth will be much higher. So, what Best Buy planned is to do a spin around
how much; this is 0.45 million dollars per store in labour training and, costs and in the
long run they actually did it for 600 stores out of their 750 stores. So, they actually

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applied this technique to majority of their stores. So, that is something that they did and
they succeeded and that is why it has become a case.

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(Refer Slide Time: 43:14)

So, the question is that how to tackle these and how to make it in a bigger scale, it is easy
to do it for 32 stores; how to do it for 600 stores is a very major I would say AI question.
So, basically I would, I am giving you 3 questions, 3 small jobs to do in your to put in
the discussion board whoever is interested to take this course seriously.

One is to answer this, how the Buzz and Barry’s store will look like. I will create a thread
for this. Second one is how to categorize new walk-ins? And, third one is if you want to
replicate the same operation, same modification of the stores, from 32 stores to 600
stores, what will be your steps, what kind of challenges will you face and how to tackle
those challenges.

So, these are some of the questions that I am keeping it open for you, I will not answer
that let us come to the discussion board to discuss about these things.

Thank you very much see, you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 05
Co-Creation

Hello, everybody. Welcome to the NPTEL course on Customer Relationship

Management. This is week 1 and we have been discussing about the strategic imperative
of customer relationship management. In this video, we will discuss about the special
topic on customer relationship management, and this is probably, this topic is probably
something which goes beyond customer relationship management, but also very
important part of CRM, it is called Co-Creation.

So, co-creation, a secret sauce to success, is something that we will be discussing today.

Dr. Swagato Chatterjee, VGSOM IIT, Kharagpur who is taking this course for you.

(Refer Slide Time: 00:53)

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So, the contents will be like this. So, first we will discuss what is co-creation; then we
will discuss why co-creation is important, what is the role of co-creation in the world,
then co-creation of value, we will talk about how you can co-create value; different types
of co-creation; certain case studies and how it impacts CRM, the benefits of that.

So, this will be the flow of today’s class.

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(Refer Slide Time: 01:23)

So, at first I like to thank Rahul Goswami, who is my research scholar who has made this
particular presentation and who has generated lots of contents from various parts, from
text books, from outside the text book, from case studies and etcetera. So, thank you for
him , thank you to him.

(Refer Slide Time: 01:42)

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So, what is what exactly is this co-creation? So, co-creation is a century old concept. It is
not something which is very new. Though the term has evolved in the recent time, the
term has evolved quite a bit in the recent time, it have been it had been there as a part of

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the part of general practices for quite some time. It is nothing which is new and how
much there is that sometime? That sometime is almost century old.

So, your dictionary needs you was the center of the appeal started in 1859. So, in 1859
when a new dictionary was getting created, there was an appeal that went like this as it is
shown in the picture: to the English speaking and English reading public, to read books
and make extracts from the philological society’s New English Dictionary. So, this is
something that they wanted to do, a dictionary and they created a campaign this
dictionary developers have created a campaign that your dictionary needs you.

A global appeal was issued in April 1879; that means 20 years after the first campaign
asking for volunteers from the British Isles, the Americans and the British colonies. So,
so basically these are the places where most of the people will speak English – the
original United Kingdom, the Americans, and various British colonies to donate their
time not money. So, you have to understand that I am asking people to donate their time
to create a solution which is a dictionary.

Now, who will use this dictionary? Common people only! So, common people are
donating their time, their expertise, their knowledge in creating a dictionary and the same
dictionary will again be used by common people.

So, thousands of volunteers offered their services in terms of reading books, noting
words and the context within that they are use. So, they were not only giving time, they
were giving quality time and how what kind of quality time? They were reading books
and various kind of corpus, we call text corpus.

They were reading various kinds of text corpus and they were finding out how a certain
what can be used in multiple meanings. So, in English we know that often different kind
of words are used in different meanings and those meanings are sometimes very
colloquial. You cannot say, you cannot even understand that certain words which is used
for a certain meaning, I actually watch cut certain kind of jokes comedy shows that
happens in USA there were stand-up comedies going on.

Now, in the stand-up comedies they were, there was a guy who says that there is a word
which is generally used as an abuse in common language. It is a-word rather than a

94
starting abusive word, but that particular word is used in different ways in American
English and all of this usage has different meaning.

So, sometimes it means that it is very good, sometimes it means it is very bad,
sometimes it means that you are doomed. So, the same word might have different
meaning. And, now a person who is coming from a different context, different culture
might have no idea exactly how this particular word is being used.

So, here, what I am trying to say here is until and unless somebody from that culture
comes forward and puts it down in English dictionary, I do not think abusive language is
still there in English dictionary, but anyway. So, I hope at one point of time this
colloquial usage will also come into the dictionary. So, when that happens, then people
will know that the same word has different meaning and that kind of activities were
going on at that time. I am talking about 1879.

So, even in 1879, they have given freedom to the users that you can put the meaning that
you find more contextual, the meaning that you find more relevant to your context; you
can put that in the dictionary. So, that led to the core of OEDs creation and till date it is
the grandest example of global collaboration and co-creation.

So, as I was telling that co-creation; co-creation means: many people coming together to
create something to co-create something; that means, you also create, I also create,
together we create. So, that together kind of creation is not something which is new it has
been happening for quite some time, also in case of business.

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(Refer Slide Time: 06:49)

You know what exactly is co-creation, what is the, I would say the definition of
co-creation? So, organizations attempt to collaborate with, in the context of business I
am saying, that organizations attempt to collaborate with customers, stakeholders, and
even sometimes with competitors to develop new solutions.

So, for example, I have seen this is a very common example that you see that let’s say
you want to create a designer t-shirt or a, or you want to design your card, the visiting
cards. Often sometimes they come to you and ask that this is the design whether you
approve it and this and that process happens.

See even in the online there is online tools that are available like print vista dot in India,
where if you go and you can probably go to that particular website and you can design
your own the visiting card and that they will just print it. They have created a platform
where you can co-create the design of visiting card.

There are companies like let us say Presto in Calcutta I know, I am not sure about other
places where they say that you give me a picture, I will co-create a t-shirt for you; that
means, that I will paste the picture or the paste or print the picture on the t-shirt or on the
coffee mug, so that you can have your customized coffee mug or customers t-shirt. So,

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all of these things are example of co-creation where the customers co-create with the
organization, you bring in the customer in the creation process.

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Now, you can bring in your stakeholders also. Stakeholders, in this case means your let
us say supplier or distributors. You can come together and make something with them.
So, often times it has been seen like let’s say for in the context of paints. Now, paint is
something where the person who is in the business, who is actually the reseller or your
dealer has better knowledge about the customers than you as a person who is just a
developer for or the producer. For example, let us say Berger Paints or Asian Paints.

So, what they do is that is why they come together with the with their channel partners
and they get information from those channel patterners and create new solutions, new
colors sometimes, new kind of product designs, new kind of, I would say new kind of
packaging. So, everything comes together when you ask the channel partners to do to
co-create and sometimes there often other kind of cases.

Well, let us say restaurants. Now, there are certain kind of multi, so, brand not multi
brand I would say single-brand franchises like let us say Pizza Hut or Dominos and
etcetera. They, there are certain kind of this Pizza Hut, Dominos kind of single-brand
multi-location retail chains, who food retail chains who allow their franchises so, most of
these things is a franchise right. So, they allow their franchises to create new solutions.

So, when you ask your franchises that you sell my products as well, but along with that
you can sell your own solution which has to use my product. So, the usage will be my
product, but you can customize that to cater to the needs of the customer at the at your
particular location because you understand your the customers better than me. I am just
producing various kinds of classic products, but you can probably contribute more in the
customization process.

So, you can bring in the stakeholders in the co-creation also, and even sometimes with
the competitors also. So, there I have seen people like, a classic example will be Red Hat
and I forgot probably Oracle came together and created solutions, and I think Red Hat
and Windows has come together and created solutions for them ─So, that kind of things,
co-creation processor also going on.

So, such collaborations are referred as co-creation as I told. So, researchers have given
various kinds of insights about this like Lusch et al. in 2007 focuses on collaborating
with customers whereas, Prahalad and Ramaswamy were more focused on developing
novel offering. So, when the collaboration was more important and for some other

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custom some other academicians, the outcome is more important not the process. So,
collaborationism, so there is a dilemma between I would say debate between the
academicians among the academicians that whether it is the process that is important or
the outcome that is important.

Like Roser et al. told that co-creation includes exchanging ideas, sharing knowledge and
working together. So, which this is basically the process. On the other hand, Piller et al.
has defined co-creation as an active, creative, and social collaboration process linking
procedures and consumers, aided by the organization. So, mostly people are focusing on
the process part of the co-creation which is more important.

So, you can see that this is a topic in the academia it has gained interest only in the last
one decade. Though the co-creation was there for quite some time it has not been used as
a marketing tool, it has not been used or probably has not been understood as a
marketing tool by the marketers and that is why also the academicians till the last
decade. So, in only in the last decade 2004 or 2003 that time this co-creation has become
an important factor in the current days.

(Refer Slide Time: 12:51)

So, the next important question that we are going to ask is that why co-creation is
important? So, what is the utility of co-creation? And when we talk about that we will

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find out three primary objectives. So, companies engage in co-creation projects because
they want to foster the discovery of customer interest and value which they can turn into

100
innovation and competitive advantage. So, this is very important that they want to foster
the discovery of customer in interest and value.

So, customer has some interest and value they have to discover that and they have to
ensure that the process of discovery of customer interests, the knowledge creation about
customer interest goes on. And, that process has to lead to certain kind of new innovation
which will give them competitive advantage.

So, ultimate goal is to create innovation. Actually that is not always true, not always
innovation is the only factor that impacts the, that is the only reason why people go for
co-creation. It might also happen that, for example, have you seen that this when you go
to CCD, they give, you get the coffee which is standardized, but they give you the sugar.
So, I do not know how much sugar you like. Why will I guess? The moment I involve or
let’s say in Subway. You go to Subway and Subway asks you about which sauce, how
much sauce, which they charge quite a lot of money, but after charging that how you will
prepare the Sub, is absolutely your choice.

I remember I do not know whether that is still there, but when I was let’s say around
18/19, when I was in my college, Dell used to do this, in there was a Dell website where
you can go and you can customize your Dell product; how many RAM, how much HD,
that means, how much hard disk, how much RAM, what processor blah blah blah.

You can create your own Dell and once you create an order, then only that Dell product
will be made somewhere and delivered at your doorstep. It will, Dell was not available,
this customization was not available in the offline stores; only in the online stores it was
available.

So, that is a co-creation because I, why will I as an organization will take the pain of
making a guess, rather than I can bring you in the production process and you can say
that what you ask, what you want I will create that for you.

If I can bring in that kind of a customization and I can bring you up in the production
process, then you also have certain kind of ownership to the production process. You
cannot say later point of time that I do not like it. I do not like HD ─ 1 terabyte HD
because you have ordered 1 terabyte HD, you were there in the production process.

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So, that was also a goal, probably that is not an innovation not always it will bring out to
be a innovation, but though there were lots of examples which actually said that how
co-creation helped in innovation, but that is not the only goal. Co creation is, the major
goal of co-creation is to create the ownership of the customers or the stakeholders or the
competitors whoever is co-creating with you to create an ownership for them so that they
take an ownership on the production process.

So, majorly there are three primary objectives that we will discuss. One is Generation:
so, generation means to solicit ideas, suggestions, or designs from customers and other
stakeholders, through contests for subsequent use in through contest generally for
subsequent use in design and development of products and services. So, this is basically
idea generation process.

Often this idea generation process happens through contests and then that is later used in
the actual. So, whichever, whoever wins the contest is further used in the actual delivery
process ─ that is the generation. So, idea generation is one of the major objectives as was
told in the above thing that innovation is, the innovation has various steps right. So, one
of the important step is generation.

Then is Refinement: So, in the innovation there is so, refinement is also important like
collaborators work with company representatives to refine one or more features of a
target product or service to help improve its physical performance, leading to a better
customer experience. So, you have to understand that there are certain products which
are already there, you have made that.

Now, the one that I told the Dell; Dell product was already there. You know that this is
how it will look like, but you could bring in ─ Dell could bring in the customers in the
production process, so that customers can refine the product as per his needs or as per the
market’s need.

Now, in that Dell’s example it was very much customized for you. Now, if I cannot do
that much of customization I can create a little bit mass, but still I can bring in some
customers let us say 10/15 customers together and then they has to be the expert of their
own market as well.

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That is why I am saying stakeholders are a better choice because somebody who sells
this kind of products let us say who has a store, small PC store or laptops store in some
market, he will have a better idea of the needs of the markets: what the market is asking
for. And, if he has the better idea of the needs of the market he can come up with that
ideas and you can outsource it.

You can probably get 15/20 such people in a focus group kind of a discussion or you can
then do in-depth interview with them and ask them that this is my product, what different
kind of changes I can bring into this product, what can be increased, what can be reduced
so that I can get a better performance of the product also I can get better market value of
the product. So, this kind of refinement of multiple ideas can be done through
co-creation process as well.

I will come to the examples next and then the last one is Creation. Now, creation is the
last step. Here the idea generation has been done, the refinement of the ideas, the short
listing of the ideas, the changing is done, now you have to actually implement it. So,
creation is ─ collaborators and the company professionals work together to develop a
prototype of an entirely new product or service.

So, you have to create a new product and services prototype and that prototype: that
means, a working example of that particular product and service and for that you bring in
collaborators and company professionals together.

In almost all cases, the prototype needs additional refinement. So, I am saying that these
three steps like Generation, Refinement and Creation this is not a sequential step. It
might be sequential, but it is circular. So, after creation also you might not like it and
then it might go to refinement or if you absolutely not like it, it will go to the generation
stage again.

So, this circular movement will keep on going on as long as you get a new product or
new service. In almost all cases the prototype needs additional refinement and
improvement before it is ready for commercial commercialization. So, these are the three
major objective of co-creation that we see in the market.

Now, let me give some examples of each of them: how they have been used in the
market by various people.

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(Refer Slide Time: 21:29)

So, like Generation: a classic example is Electrolux Design Lab. So, this lab, Electrolux
is basically a company which creates home appliances ─ electrical home appliances. So,
this design lab is to stimulate and activate design students globally by inviting them to
present new ideas for future household environment.

So, there were lots of design students studying at various parts of the world. So, they this
particular lab gives them internship opportunities or sometimes competition
opportunities and etcetera to stimulate their idea.

So, those ideas which can be used, which are simple electric use of electrical and
electronics or something else, simple usage and has to be creating something which can
be used by household members so, which is a household daily usage kind of product. So,
this stimulation of design students so, if I say that why do not you try to create something
new. So, that creates ─ often creates very innovative solutions.

For one example is these are some of the examples that I am going to give which is 2015
finalist of Electrolux design lab the competition that they went on. So, one is this air
shield. Air shield is a basically a baby stroller that creates a pure and clean microclimate
by Dominykas Budinas of Luthiana. So, some person from Luthiana, Lithuania sorry has
created this particular stroller, the picture is giving there. It is a baby stroller that creates

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a clean environment; that means, baby stroller with a AC kind of thing where the baby
can reside inside and it is gives you a clean environment within that.

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Now, that is one of the finalists. Now, you, this is a basically a product idea which is not
generated by Electrolux, I am not saying that this is a very good product or this is
something which should be there. There will be flaws there are probably hazard issues
and blah blah blah, but still this kind of ideas come up.

(Refer Slide Time: 23:51)

Another one was Bloom. Bloom is described as the most efficient kettle in the world; one
of the most efficient kettles in the world that is how the designer has named it and it
utilized wasted steam and hot water.

So, whenever when you cook lots of steam happens and that gets wasted, that goes in the
atmosphere you do not collect that. Now, if you can collect that steam to carry out
multiple tasks, like probably let’s say that steam can be collected to heat something or
that steam can be collected to let’s say create water and that water can be used for some
other purpose ─ So, multiple tasks in the three surrounding pods.

So, you will see that there are three pods there is a kettle here. This is a kettle and the
surrounding pods is collecting that particular steam and probably boiling or steaming
various kinds of vegetables and this and that. So, this can be also used for ─now what I
am trying to say is that Electrolux has probably not created all these products. But,
Electrolux gets fresh design every year quite a lot and they can choose that which one I

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will use which one I will not use. So, that gives you, that give Electrolux or
innovativeness in its in handling with.

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Now, another huge advantage is that you have to understand and many of these designers
who are design students are actually representative of the customers. A design student is
basically a person who is coming from a household only. So, he is a representative of the
customer base.

He knows that what kind of problems customers face. Oftentimes companies who are
within an organizational setup, even the brand managers or the R&D guys and etcetera
forget to talk with the customer. So, this is one way to create customer relationship
management because you are getting connected with your customers through these kinds
of competitions.

(Refer Slide Time: 25:59)

The next example that I am going to give is called Refinement. So, as I told the
refinement is: there has to be an existing product and the collaborators and the company
professionals will come together to create something which is new which is better than
before ─ the product, I would say the performance of the product has to be better than
before.

So, DHL discovered that its customer wanted to help in rethinking the supply chains to
improve business performance ─ to tackle this challenge they used co-creation. So, DHL

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discovered that customers are willing to contribute to the supply chain problem solving.
So, what they did?

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So, they brought together customers at their DHL and their DHL service partners both.
So, DHL service partners means the franchises and the customers they brought in both
together in a specially built Germany and Singapore-based innovation center, so, two
major cities were they brought in these people for workshops to share best practices and
create value.

Now, now there, these guys, both the customers and the service partners are brought
from different corners of the world. Now, if you bring in the different corner of the world
and put them in a workshop, then they will give them ideas which are used in different
kind other kind of places. Then those ideas are shared with each other, the customer
viewpoints, their pain points were shared, the stakeholders pain points were shared. So,
that created better I would say supply-chain designs or better supply-chain solutions for
DHL.

So, over 6000 such engagements happened. So, not 1/2 times they have done that, 6000
times they have done that in DHL innovation center and other customers’ co-creation
formats lead to this. So, this is a, basically a, what is this? Let us define that.

(Refer Slide Time: 27:59)

It is a parcelcopter; helicopter which delivers a parcel. So, Parcel which is a drone-driven

research project, there is a drone-delivery research project which may in future enable

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companies to be more responsive agile and cost efficient. So, the package is DHL that
you are saying that is a parcel and you put this solution on that DHL which is a drone-

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like solution and then you can control from your setup and you can deliver it to the
actual place.

And, they have also done smart glasses and Augmented Reality co-created with DHL
customer Ricoh to improve inventory and warehouse picking efficiency by 25 percent.
So, smart glasses and augmented reality they created. So, that is another solution which
is co-created with DHL customer Ricoh. So, some customer ─ that improved the
inventory and warehouse picking efficiency.

So, all of these things: now Ricoh might be a person who is a computer scientist or
probably a developer of augmented reality. So, he knows what kind of things can be
applied or he might be working some augmented reality firm who or he is a consultant in
augmented reality, but he also uses DHL services.

Now, when you bring in this kind of customers and service partners in the design and
delivery process ─ that improves your idea generation idea refinement which can
ultimately create a close bonding between the customer and the company.

(Refer Slide Time: 29:45)

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The last example that I am going to give in this particular series where I am talking about
the objectives of major primary objectives of co-creation is called Creation. The last final
thing is creation where you have to create a prototype. So, Deutsche Bank is running an

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innovation challenge on Jovoto a platform for crowd-storming; crowd-storming means
lots of people comes together and think together in this particular platform.

What is the challenge? They invite you to share your vision on how AI, Artificial
Intelligence, can help Deutsche Bank reinvent its customer service experience. Now,
many there lots of customer, the lots of computer scientists available in the world and
there are lots of AI engineers available in the world.

And, there are oftentimes this happens is that this AI engineers or computer scientists
they are very good in technology, they don’t understand the business. And, then there are
lots of other people who understand the business and do not know how AI and computer
science can.

So, this gap is always there. The business guys and the technology guys, the gap is
always there. Now, to fill up this gap you need first for particularly AI storytellers, data
storytellers, business translators and blah blah blah. Now, these roles are not very
common. There are not many people who knows AI and business both and for various
kinds of business. So, you do not get that kind of people pretty easily in the market.

So, then what you do? You go to the customers. You ask the customers that just imagine
that what kind of AI solutions or what kind of automated intelligence, human decision
making solutions or human like decision making solutions can help you in day to day
business.

When you go to Deutsche Bank, do you want a robot sitting there, who can give you the
service rather than a human being? Do you need the ATM understand you without you
remembering the pin from your face, from your this and that? So, all of these kinds of
solutions can come up and they created a challenge.

So, Deutsche Bank challenges you develop innovative ideas with a digital twist for a
customer centered approach to home loan saving. So, major focus was home loan say
home loan accounts or saving account. So, the price was 18,500 Euro which is not a very
small amount.

The price pool, it does not go to one person many let us say top 10 guys will get that, but
it is a huge amount. So, people are investing in it, in creating a prototype and this

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prototype is being created by the customers and the AI engineers together and that kind
of challenges people are coming in.

So, these are the three major discussion points where today we discussed. I will stop this
video at this point. In the next video, we will discuss on these co-creation applications
and what are the different types of co-creation and etcetera in the next video.

Thank you for being with me. I will see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 06
Co-Creation (Contd.)

Hello everybody, welcome to the NPTEL course on Customer Relationship Management.

This is Doctor Swagato Chatterjee from IIT Kharagpur VGSOM, who is taking this
course for you. We are discussing Co-Creation, a secret sauce to success and till the last
video we have discussed about the different objectives of co-creation. Today I will talk
about the co-creation value. So, what is co-creation value?

(Refer Slide Time: 00:37)

So, according to Kotler, market value is based on owning the products as well as
providing services; so, both owning the product and getting the service, consumer service
creates value. But, services are perceived as a vital source of value creation and
co-creation is a fundamental element of this service dominant logic.

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So, in recent time’s people have started talking about that there is nothing called product
everything is solution. You are selling TV; TV is not a product. Only buying TV does not
help anything, until and unless there is a connection, there is a TV connection or cable
connection there. So, TV with a cable connection solves the problem. And, what is that
problem? The problem is entertainment.

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The lack of entertainment - that is the problem which is getting solved by the television
and the associated internet, probably the cable connection and in that cable connection
good quality of entertainment products. All these three things together create TV.

So, people have replaced TV in today’s world because they have Netflix, they have do
not have to buy a new TV, new screen probably. If the good content can be available in
your hand, and you can personally consume that, you do not have to share with
somebody else, then why will you require TV? So, TV is having huge kind of
competition with these guys and they are creating their own solutions.

So, the product market, all I am trying to say is the product market that kind of a view
that I have to create a very good product is not any more they are you have to create a
many more, very good solution for a problem for the customers. So, that was that has
become the major focus right now. And, that particular focus is called service dominant
logic. It says that the dominance is of service, the solution that you provide.

The product is the tool through which you provide the solution, but ultimately you have
to focus on the solution providing part and co-creation is one of the major role - has
major role in that. So, value creation takes place, when customer and organisation are
together involved. The created value is absolute to every customer and sustainable to
organisation. So, these are some of the back end thing where this particular co-creation
creates value.

(Refer Slide Time: 03:07)

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So, Gustafsson emphasises, another researcher emphasises on the importance of
organisations to work together with their customers during the development process,
because the value creation processes are difficult to understand. And, branding on the
value activities in an organisation depends on interactions between customer and
company.

So, all these researchers for quite some time were saying, that this co-creation whenever
you are trying to create a solution for the customer, the value is created from a solution
right? So, whenever you are trying to create a solution from the customer, you have to
involve the customer, you have to wear their shoes; you have to wear their spectacles.

So, that you walk their path you see what they see. And, if you are not able to do that,
often times it is very difficult for a marketing manager, a product development manager,
R&D engineer to understand what customers want, why don’t you bring the customer in
the production process or in the value co-creation process.

So, value creation process. If you can bring in the customers in the value creation
process, then that is co-creation.

(Refer Slide Time: 04:16)

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So, there are four terms given by Prahlad and Ramaswamy. Prahlad is a very well-known
researcher in the area of marketing in mostly in bottom of pyramid market. But, this is

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not specific to bottom of pyramid market this is specific to any
co-creating market where they have given a DART model.

So, DART model is a very classic model of co-creation there are four steps of involving a
customer in your co-creation process; one is Dialogue, then Access, Risk Assessment,
and Transparency. So, DART, D for Dialogue, A for Access, R for Risk assessment and
T for Transparency, let us talk about that. What is DART?

(Refer Slide Time: 04:58)

So, Dialogue is a dialogue between companies and consumers leads to knowledge

sharing and an increased understanding between the two. Multiple opportunities are
given to customers to introduce their ideas and views in the value creation process, this is
very straightforward.

So, the more you talk with the customers the better you understand the customers. And,
to talk with the customers it must be multiple communication and through multiple
channels also sometimes, because if you bring in the customer all every time…

So, for quite some time, what these product companies used to do is focus group
interviews or focus group discussions. Where they used to bring in 10-15 customers, they

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will sit in a single room and they will discuss with each other about the problems and
solutions. Now, some customers might be not very I would say habituated in terms of

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talking like this. Some customers might be a little bit shy; some customers might want to
give their opinion, but being dominated by other customers in that focus group.

So, every time you do focus group cannot give you the solution that is required. So,
sometimes what is better to do is to create a knowledge sharing platform, where
customers can come together.

Sometimes we have to create multiple such communication moments of truths, where

you can tap them through a website, you can call them, you can ask them to create
something for you. So, all of these things will create a communication between you and
your customer. So, dialogue is a very important factor that is why.

Next step is Access. So, what is access? Goal of a consumer is to access, sorry assess I
would say. So, the access are desirable experience not only ownership. So, access is very
important. So, they want, they not all always they want ownership of a particular thing;
they want access to a particular solution.

Companies can expand on their business opportunities by involving customers’ views

and multiple points of interaction. One of the classic examples is let us say, Uber. Like,
Uber and all these guys have given, not given you ownership of this particular car, they
have given you access to a taxi or access to a car.

So, oftentimes you can probably, if you want you can ask for a sedan, or if you can ask
for a very premier sedan, or very I would say a car which is a fancy car, that access is
there in your mobile phone and you can call, ask for it.

That also gives you certain kind of that not exactly co-creation, but gives you some kind
of customer empowerment. So, customer empowerment is a very key outcome of this
co-creation process.

The first one is also empowerment, but there some customers get empowered, but in the
access part many customers get empowered. Not all customers actually go and talk to
Uber that, Uber you should do this you should do that this is how you should improve
your products. So, dialogue is more, less common, what is more common is getting
access.

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So, that becomes very important part of co-creation process. So, you have to allow the
customers to change the product and offerings in the solution as per their need. The
platforms that bring this place to give where you can put your design and can print your
own Tshirts, or caps, or masks are probably the visiting cards is also they are giving you
access in the design making process.

You do not own it, you cannot say that Okay, I will be, you cannot say that you have to
make a 500 or 600 or whenever I give you order you have to make that, you do not own
their production process. But you have access to their production process, you can ask
for it and you can rent it out.

So, that kind of thing is called Access. The third one is Risks Assessment. So, involving
the customers to share the responsibility of value creation makes them more curious and
detail oriented.

So, they want to know, when you ask them that why do not you; why do not you put
your thoughts they will want to know that okay,what are the various things that I should
know when you were asking me to create a product? So, they ask for probable risk of
products and services, but they also want to share the responsibility to deal with those
risks.

So, often times there can be products which might be risky. For example, let us say you
are asking them to how to design a Barbie doll. Now, Barbie dolls ─various designing
products that you can put on Barbie doll might be risky.

There can be a small thing which can go to the kids’ nose and etcetera. But, if you allow
them to decide that whether they are ready to take that risk or not, whether they need that
kind of a customization on Barbie doll or not that, then they also share the responsibility
of taking that risks.

So, if you have risks become tell them about those risks. Let them assess the risk and
then let them take the decision. So, that it does not come back on to use. That is also a
major co-creation process. Like mutual funds too; mutual funds is ideal, they don’t
always do that, but they should do and that is a very important co-creation process. Then,
you tell them that this is the risk involved, this is what happened, become as transparent
as possible ─ ask them to take an informed decision.

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So, oftentimes the use for a short-term sales perspective this discusses mean can be
detrimental, but a long term customer relationship manage perspective, where you want
your customers to be with you for a longer period of time you cannot do a sales, you
cannot hide value. So, for this kind of misconception we have our marketing, that in
marketing people think that the only job of marketing is to sale.

So, whatever you have and sometimes I will just say this, that sometimes I have seen
people in Linkedin who are at the level of a Director Marketing of an organisation also
openly says that.

That their objective of marketing is to sell a product, irrespective of whatever it is and

that’s not true. That is absolutely not true, that, saying that is like saying that, the
objective of creating, a working on science research is to create something which will
create wealth. Whether by killing people or not killing people does not matter you have
to create wealth, that is not the objective of marketing.

So, the objective of marketing is to create the base solution, The Basic Marketing 101
Example, The Definition of Marketing says that you have to create value for the
customers, that is the value creation process is marketing. So, you have to communicate
create - communicate - deliver the value, which will be beneficial both for the customer
and for the company.

Now, if there is certain risk involved in the product in the short term, if you hide that
risks, do not involve the customers in the risk taking, hide the risk and customer has to
take the risk unwillingly in those kind of situation, because we have already hidden the
risk, that will create a short-term relationship.

And, in a short-term relationship the company gets benefited the company gets benefited
short-term. The customer does not get benefited at all, but when it is a long term
relationship, generally it is a win-win situation. So, you have to bring into that kind of a
situation and Risk Assessment is one step. Further biggest step is Transparency.

The consumers are becoming highly active and informed. So, Transparency plays an
important role in building trust between organisation and customers. So, you have to be
as transparent as possible with your customers so that, they know that okay I know, I can

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depend on this particular service provider; I can rely on them the trust is there. So, that
kind of a system you have to create.

So, Dialogue, Access, Risk Assessment, and Transparency are the four major steps in the
co-creation and learning process. So, this is this has been given by Prahlad and
Ramaswamy and also by KB Akhilesh.

(Refer Slide Time: 14:10)

Now, there are various types of co-creation, I will discuss about that a little bit. So,
co-creation as I told that customers comes together, and create certain solutions for
themselves only. Now, these this categorization of co-creation has been done based on
how much you allow customers to create information, and who decides, sorry who create
ideas on innovations, and who decides which idea and innovation will be ultimately
shortlisted.

So, idea creation and idea refinement ─ are not always refinement, I would say short
listing and prototyping. In that, in these two different processes how much the customers
are involved and how much it is controlled by the company and no customers are
involved, that degree decides this categorization.

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So, if you check this particular thing, the contribution activity and the selection activity:
In the contribution activity there is, when it is open; that means, more customers are
involved when it is fixed, then less number of customers are involved or probably they

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are not involved at all. On the other hand selection activity, when it is firm-led or
customer-led, when the selection is customer-led then selection activity is more open,
when it is firm-led it is more closed.

So, based on these things there are four, I would say quadrants gets created ─ 4 boxes
gets created. And, Collaborating is the top-most box, when it is absolutely
customer-driven, everything is customer-driven. Customers have the power to
collectively develop and improve a new product’s core components and underlying
structure.

So, they can ─ they contribute openly and they select openly as well. So, it is absolutely
open for the customers. Classic examples will be the developers, for example, Android
developers.

Android developers, there is a platform given you can develop on that and you can select
on that also, which one will be there, which one will not be there. You can put comments
on that, some people. some things are discontinued, some things are there, so that is
collaborating. What is Tinkering? Where customers make modifications to a
commercially available product and some of these modifications are incorporated into
subsequent product releases.

So, you allow the customers to do modifications as per their need. Now, that
modification is very personal to you, not other customers cannot see those or oftentimes
they do not have access to those modifications. Now, the company can see what
modifications all the customers have made.

So, company ─ what they will do is they will select some of the modifications from that
and then they will improve the product to a better form. That is called Tinkering. So, the
idea generation, the contribution is open for everybody, but that contribution is not
visible to everybody. Your contribution is not visible to another customer’s contribution,
another contribute customer’s contribution is not visible to you or other customers.

That is only visible to the firm and the firm can choose out of these many contributions
which one will be chosen. So, that is called Tinkering.

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(Refer Slide Time: 17:38)

On the other hand what is Co-Designing? Where some people, some designers, in most
of the cases some specific designers, hand chosen designers, fixed set of customers or
designers make the contributions, but the choices are made by open market. So, let’s say
a relatively smaller group of customers provides a firm with most of its new product
content or designs, while a larger group of customers helps select with content or designs
that should be adopted.

So, the contribution is done by small designers let us say 10-15 designers, but liking or
disliking those contributions is done by the open market. And, submitting is when both
are small, like it is firm-led customers directly communicate ideas with new product
offerings to the firm Its firm’s call whether to take that or not.

So, you call the customer firm and say that, these are the product idea there is nobody
else can listen to that and it is a firm’s call. So, let’s take some examples, how these
things are actually adopted in the real world.

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(Refer Slide Time: 18:45)

So, collaboration as I told is firm-led, sorry it is customer-led and it grants customers

almost unlimited freedom to alter the underlying product, thereby transforming
customers from passive user to active contributors.

Collaborating,as the form of co-creation that offers customers the greatest power to
contribute their own ideas and to select components that should be incorporated into the
new product offering. So, basically it is a customer-led, absolutely customer-led, most
freedom is given to the customer that kind of a context. Heavily used by all these
software companies. So, I have seen, I will show you one example I am giving in the
FMCG sector is Unilever.

So, Unilever has done this open innovation platform. So, “where we have a vision for, of
a better future for our world and our business, and we want partners to share it. If, you
have a new design and technology that could help us grow our business and solve the
challenges we have set, we would like to work with you through open innovation.”

This is the platform what people come up with new innovations and other people likes
and dislikes those innovations. And, based on the other peoples’ likes and dislikes and
Unilever’s ability to actually commercialize that, they choose innovations from this

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particular platform. So, that is a very classic example of how FMCG uses it, but this is
more commonly used in a software market.

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(Refer Slide Time: 20:10)

(Refer Slide Time: 20:16)

So, let me just open this particular forum. So, Power BI is basically a BI tool that provide

─ generally people create various kinds of charts and graphs and etcetera.

So, there this is, this is basically, this particular ─ these ideas of Power BI, where people
put ideas like customers refresh timings in schedule phrase somebody has told. And,

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somebody, many other people have given votes and you can also vote. You have to log
in, you have to log in and then you can also vote here, or like this one options to use
either light or dark interface.

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This is something which is heavily liked. So, people want that this kind of option has to
be there. And, there can be people who have said and some of these ideas, are actually
implemented, and some of the ideas are categorized as not implementable and etcetera.

(Refer Slide Time: 21:06)

So, if I can share, so for example, this person has shared this idea, I do not know, I can, I
have to go to his profile, her profile actually and to get an idea that whether this can be
done. See. admin has written this is on our road map, but we do not have a specific
timeline to share this product, we will update this when we have more details. This has
been written in August 2019 and if I am not wrong, they have probably implemented it.
So, please bring back dark mode or allow people to choose which mode to prefer.

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(Refer Slide Time: 21:48)

So, even now people are saying that that this is this is something that is required.
“Seriously there is - this is so ridiculous, I cannot fathom the decision making process
behind having an existing Dark UI and replacing it with a light one, without giving the
option to keep the old one ,I can also cannot fathom….”

So people, all I am trying to say is that people have given the idea; lots of people have
voted it, some people, the admin has told that we will take care of that. Now, there are
various people who have created their own comments on that and also voted it.

So, you have created an environment whether this idea was good or not that is a different
story, but you have created an environment where people can speak up. And if people
can speak out their problem ─ so, the contribution is coming from the users and the
voting the selection is also happening from the users and based on these two the admin is
trying to take a call, that whether they will do it or not.

So, that is a collaboration process as I was discussing. So, this kind of thing is very
common in all software tools, Power BI is one example, I am just giving Power BI,
because that is something that I have seen in recent times, but this is very common in
other examples as well.

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(Refer Slide Time: 23:15)

Now, Tinkering I told that again customers are open to share, but it will be chosen by
some people. So, Tinkering is firm-led, Tinkering is most visible in computer game
industry, where contributions in the form of modifications are not only widely tolerated,
but is actively encouraged.

So, they encourage that you change your design of the agent that is playing or you bring
in whatever kind of modifications you can do and this and that. And, then many game
manufacturers invite users to make alterations ranging from incremental changes, such as
edits to the physical characteristics of the person who is playing and to more radical
innovation, such as creation of a completely new computer game. A classic example is
SIMS. So, over 90% of the content of the widely successful computer game, the SIMS is
derived from the tinkerer-based modification.

So, the modes actually basically the parlance of gamers ─ so, for example, if you, if you,
if you have seen the various kinds of I would say, games which is agent-based games
where I would say killing is involved.

So, you have to have a, you have a gun and you shoot with that gun you have some
mission to accomplish and etcetera and then you have certain bots also. The bots are
your helpers in that particular ─ now the design of the bots are often times and the

136
performance of the bots, the capability of the bots, certain kind of movements of the bots
are obtained from existing players, other players.

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So, you can bring in those players’ characteristics ─ their modifications, their behaviors,
etcetera you can track that and create your bots like that. So that, they can also those bots
behave like human beings ─ As if, are actual human being if they have played, this is
how the game would have happened. So, that is where tinkering is heavily applied in
gaming industry.

(Refer Slide Time: 25:25)

Next is Co-Designing. So, Threadless is a T-shirt company. So, co-designing is

customer-led, it has a relatively fixed contribution approach, but a high degree of
customer autonomy over the selection. So, the ideas are generated by the designers, but
the selection is done by the customers. So, Threadless, contributions of Threadless must
be submitted using a company-issued template. Can contain only limited text and also
constrained to 8 sanctioned colors.

So, they all these designs and etcetera, the contribution is more controlled. You cannot
give lots of independence there. Co-designing contribute, contributions are considerably
more fixed and constrained as I told. Here co-designing provides customers considerable
autonomy in terms of the selection of the process.

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So, you can, while that design has to be in a certain form, the font is fix, the colors are
fixed, but within that platform, within that framework, when you submit the designs,
those designs are accepted by an open lot of customers.

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So, contributions that Threadless selects to print as a new T-shirt design are almost
exclusively determined by ratings provided by customers. So, like the one that I go to
Power BI; Power BI if they decide whether to achieve, whether to allow customers to
decide or not, and the product ideas or modification ideas are also open there. Here the
modification ideas are not very open, there are some constraint ─ fixed things that you
can do, but the selection procedure is open.

There is, one huge advantage of that is that if the customers are selecting, you do not
need a person in your product design team, who will focus on the selection process. You
are letting the customers to decide. So, if the customer decides, then the chances of they
will adopt their decision, they will buy their decisions are pretty high. So, that is the
co-designing part.

(Refer Slide Time: 27:32)

So, this is how it happens. So, each week a thousand or more designers submit graphics
to Threadless.com website and this Threadless checks them for copyright. So, you have
to ensure that the designs don’t have copyright issues or not.

And to assure a level of quality, narrows them down to around a 100. So, from a 1000 it
becomes to 100 and puts them to a selection up website. Now, out of these 100 people

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actually give in a 1 to 5 point scale whether I will buy it or not. And, the week’s top 6 to
8 vote getters go out for production.

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So, as simple as that you create get designs, shortlist them up to 100 based on only
quality issues and probably technical issues like copyright and etcetera and then you give
it to the market to choose. Designers whose ideas are selected get 2,500 dollars. So, that
is is a pretty good amount I would say.

So, that is, so you are involving the designers ─ you are encouraging the designers with
that price and a chance for more rewards as best T of the month-year. So, best T of the
month will get 25000 dollars. Threadless gets a license to print shirts on that particular
design. So, that is the process in which you are bringing in designers and oftentimes the
designers can be the users themselves.

So, I liked Threadless and I like to contribute to Threadless. So, that creates a co-creation
process where customer and the company starts talking with each other, and probably
some amount of customer relationships are getting generated.

(Refer Slide Time: 29:10)

And, the last one is Submitting. Submitting is majorly firm-led; it is a type of co-creation
that has a minimum amount of customer autonomy in terms of both new product
developments is given. One of the classic example is basically mystarbucksideas.com,

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where you can put your idea. And, Starbucks can actually choose from those ideas
nobody comes to know about somebody else’s idea.

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(Refer Slide Time: 29:35)

So, some of the examples are given here. There are the 277 ideas brought to life as of
now and the ideas launched per year is slowly moving. So, these are all data of 2012
from a case study, but it is still moving ahead.

(Refer Slide Time: 29:52)

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So, in the next part of this thing we will talk about four principles of co-creation
stakeholders will only participate. So, how you can engage people in the co-creation
process? So, people will co-create only when they think that this co-creation is giving
them value. So, you are doing co-creation. So, that you can create value, but how will

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you make sure that people will come to this co-creation process? You have to understand
the people also have to feel that this process will help them create some value.

So, what kind of value? One is psychological value ─ increased self-esteem. So, if I
know that my design is getting used, then that gives me an increased boost up about
myself. So, that is a psychological value that gets created, that is why those award
system, accolades, recognitions are important.

Economic value so, I can earn from these designs; I can earn from the license selling or
from any kind of royalties and etcetera. So, for example, these, classic examples are all
these publishing house. All the publishing house rely on the writers, because they give
royalty to those writers or in this case designers can also be thought about as a, as
somebody who is more focused on the higher earnings.

So, economic value of the customers also is important and economic value for
organizations, if organizations are coming up with these ideas. For example, that will
lower their costs, higher their productivity, increase their productivity, and increase their
revenue. If, stakeholders rather than the customer stakeholders come together and create
a solution for you.

So, for example, in a B2B environment, if the customer comes in and creates a solution
along with, let us say Caterpillar. Caterpillar produces lots of products. Now, they
produce the products and try to sell it off.

Now, if they can create a combination with a collaboration with their partners, where the
where the companies, the customers, who had B2B companies comes together with
caterpillar talks about their problems, caterpillar creates a customized solution for them,
charges them more, but create a customized solution for them and put them in the
production process also.

So, then the B2B customer will know that whatever is being built will lower my cost,
increase my productivity and increase my revenue. So, that kind of advantage ─ value
creation will happen for the B to B customer also. So, economic value creation for the
designer or for the B2B customer has to be there. And, opportunity to do a social good
that kind of a feeling you can bring in to this market.

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(Refer Slide Time: 32:39)

So, again some of the examples that I will give try to give quickly: La Poste the French
postal service is an example of multiple stakeholders’ co-creation.

So, what they do? They have three obstacles: unmotivated unionized tellers. Tellers mean
the people who are sitting in that post office. With tightly defined jobs dissatisfied
customers due to long wait time and agitated local managers.

So, the employers were not happy because they had nothing to do, they were very boring
job the customers were dissatisfied, because these guys are not very energetic. So, they
are not doing it faster. So, they had to wait for the longer period of time and local
managers were also agitated. So, that kind of so, basically it was a very bad situation.

So, how to solve that? What La Poste did, so, the La Poste leaders asked tellers and
managers of post office is to talk with local customers about how to reach those goals?
So, how to reach these four goals I would say? Tellers were given a, say, in their own
work schedules and they all jointly decide, when office should open and the space
arrangement.

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So, they have given the right to do the space arrangement, office timing, and etcetera in
the hand of the employees. So, those employees can work as per the markets need. So,
what happened is customer waiting time reduced by 50%. Because, now tellers know

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that this is the time period when I have to be very active and those the other time periods
I can go home.

So, rather than being bored at home, at the office when no footfall is happening, I will be
more productive at certain time period.

Less productive or we will do something else in some other time periods. So, we cut
down the customer waiting time by 50% that customer’s satisfaction and job satisfaction
both improved. So, here you actually enable the customers and the employees together to
create a solution. So, that is a co-creation process.

(Refer Slide Time: 34:45)

Another example is Harvard Business Review. So, focus on the experience of all
stakeholders for finest value creation so, that is the second important principle of
co-creation.

The first important co-creation was stakeholders will only participant genuinely if there
is a value for them. So, you have to create value for your co-creating stakeholders. The
second co-creation principle is, focus on the experience of all stakeholders for finest
value creation.

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So, experience becomes very important. Experience at a work is a function of our
interactions with our colleagues, our bosses, our subordinates. So, everybody should

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have a big very good experience while creating this co-creation What is a classic
example again?

(Refer Slide Time: 35:33)

So, 24/7 was a customer firm it is a BPO basically. So, there were lots of guys who
answer to phone calls and etcetera and they have very boring life sometimes in terms of
the job I would say. So, they sometimes become very dissatisfied, very, the long working
hours makes them very I would say; long working hours make them very tired or less
passionate about their work.

But, you have to also understand that they are the primary source of problems that the
customers are facing. So, whenever customers are facing some problem they call to 24/7
and they that call comes to these BPO Tele callers. Now, what they did is they put the,
there is a there is a room there 15/20 Tele callers are working, they put a board on that.

And, they asked the Tele callers that whenever you find something interesting you can go
and write that. And, then if you go and write that and there is a design team or AI team
which will be sitting in that particular room all day.

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Whenever some interesting idea comes up he will call you up and discuss with you. So,
in that process you are enabling the Tele callers to create solutions for the company and
that Tele caller are connected to the actual customer.

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So, you are actually enabling the customers also to create solutions for the company,
which create an experience both for the customer, and the Tele caller, and the designer,
this increase the productivity by 10% Turnover reduced and able to attract more college
talent in this process. So, that is also a classic example of co-creation.

(Refer Slide Time: 37:16)

The third principle is stakeholder must interact with one another directly. So, you have to
create a face-to-face conversation with them. Just a sequential and hierarchical so, the
more you bring in levels, the more you bring in hierarchy the major is a problem.

(Refer Slide Time: 37:37)

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So, we will talk about this particular problem in a different video in great detail, but
today I will just give you just tell you that that is one issue. And, the fourth one is
providing platforms to stakeholders to interact and share their experiences. Face-to- face
conversation is not possible. First of all, you have to remove hierarchy, but even after
removing hierarchy that face-to-face conversation is not possible try to give and they
platform where they can talk.

For example, IdClic an intranet site at Orange; Orange is a company and they are created
this intranet. Intranet means within the company they have created a website, which
cannot be accessed from outside. Motivates employees to submit ideas for improving
process and redesigning products, employees can promote ideas through a blog and gain
rewards through a point system by commenting on their idea. So, Orange actually
allowed their employees ─ now we have to understand, some of the employees of
Orange are probably the customers of orange as well.

So, they enabled their customers to share their ideas, share their feelings in an intranet.
So, that even if face to face communication with the design team is not possible, you
have a platform where you can talk. So, these are the basic four principles of co-creation
that is there.

(Refer Slide Time: 38:53)

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So, I will, so co-creation is a shift from IT mindset to product mindset and you have to
discuss on that.

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So, I will stop this particular video at this point, in the next video we will continue from
this point and we will complete co-creation. And, in the next week we will be extending
that how all these things that we have learnt will actually be used in a customer
relationship building process. You know that CRM is important, you know that
co-creation is important, but how to do it is something that we will discuss in the next
week.

Thank you very much for being with me I will see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 07
Co-Creation (Contd.)

Hello everybody. Welcome to the NPTEL course on Customer Relationship

Management. This is Dr. Swagato Chatterjee, from VGSOM, IIT, Kharagpur who is
taking this course for you. We are discussing Co-Creation and in this particular thing, I
will conclude co-creation topic as a part of CRM and we will come to that directly.

(Refer Slide Time: 00:40)

So, we have discussed quite a few things about co-creation here and the last thing that
we were discussing were that co-creation was shift from IT mindset to product mindset.

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(Refer Slide Time: 00:44)

So, what is exactly the product mind-set? So, co-creation is now more than a way to
involve customers in developing customer facing products. It is not exactly only
customer is not exactly producing a new product is only the important factor. Today
co-creation is about involving every player in the ecosystem. It is not only the customers,
your supply chain partners, your resellers, your employees, your retail partners;
everybody should come into this I would say product or experience making process.

One easy example we have is Apple watch. Apple Watch is one of the major products
that is coming up in the personal wellness category in a electronic sector. Apple
collaborates continuously with an entire ecosystem of develop, to develop features. So,
that ecosystem not only includes customers, but also physicians and many other
stakeholders like insurance companies and etcetera.

So, health care institutions are working with Apple to use the watch for their clinical
work. So, they know that how heart rate and you and probably the traveling or walking
or sedentary lifestyle, how these things are related with each other.

An example had been John Hopkins, where physicians provide epilepsy patients this
watch to track their seizures, possible triggers, medications, and side effects. So,

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sometimes continuous monitoring is needed and Apple Watch can do some amount of
continuous monitoring.

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Corporations and insurance companies are working with Apple to make Apple Watch an
effective choice as a way to offset skyrocketing cost of health care. So, healthcare costs
are increasing, the insurance companies are facing problems. So, why don’t - they are
actually offering this Apple Watch to their customers.

So, that if they start using Apple Watch, Apple Watch can track their lifestyle and
etcetera. So, if they are becoming they become more health conscious that will reduce
the costs of the insurance companies. So, they are encouraging customers to use Apple
watch, sometimes they offer them.

(Refer Slide Time: 02:48)

Another example of co-creation and CRM, when it is more focused on the customer
relationship management process. It’s another example for Apple, I would say that Apple
retail stores, if you go to a retail store they have a design aimed at customers to play with
that product.

So, often various other stores don’t let customers play with the play product; but here
they allow the customers to use it. So, that experience mind-set is very important; as they
would use them as if they owned ─ a step ahead for product mindset. So, they created

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very homely atmosphere, where you can go and see it and use this particular, you can
listen to music, you can probably see a video in the iPad and etcetera.

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Customers can try different products, while the employees are around to help you only
when you want them to help. So, they do not poke their nose always, they are there; but
if you only need them to help, then only they will come to help.

So, that kind of homely atmosphere, they are giving to the customers so that customers
can know that okay this is a product, this is a classically a product which has all these
product features and etcetera. But that experience matters and that also leads to a
co-creation. Where, they are creating the retail process collaboratively. So, the persons,
the helping persons are not creating the retail experiences.

The retail experience is created by the customers themselves; they can do whatever they
want; whatever reasonable they can, they want within the retail store.

(Refer Slide Time: 04:24)

Apple store associates are trained to walk customers through 5 distinct service steps. So,
this is something that has been told to them which beautifully spells out to the acronym
APPLE.

A for Approach Customers with a Personalized, Warm Welcome; P for Probe Politely to
Understand the Customer’s Needs; then, Present a Solution for Customer to Take Home
Today, on that day; Listen for and Resolve Issues or Concerns and E for End with a Fond

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Farewell and Invitation to Return. So, this is a setup, certain standardized steps that has
been told to the retail persons, how to handle the customers.

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Now, what is important here in the co-creation process is that the whole experience is not
laid by the, if you go to many other retails stores, though there is an open environment,
though you can choose and see and this and that. Often times you will see in other kind
of product stores, the product description ─ the demonstration of the product is often laid
by the seller. In let’s say, if you go to the mobile store or if you go to any other, any
normal mobile store companies rather than a big Apple store.

So, you will see that the product demonstration which are franchises or dealers of various
kind of retail stores. The product demonstration are laid by the shop owner or the
employees in the shop; but here the product demonstration and the experiential retaining
is being done, encouraged to be done by the customers themselves. So, that is also
important in the co-creation process.

(Refer Slide Time: 06:05)

Apple doesn’t want its customers to think its retail stores. They do not want that kind of a
setup, that kind of a psychology in your mind to be playing. So, it has removed the store,
what the word called store in all their stores. They have written Apple rather than Apple
Store Valley Fair.

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They have written Apple Valley Fair or Apple comma Koramangala rather than Apple
Store, Koramangala. So, Apple store, the store term they have removed now just to make
sure that customers don’t even think that is a store. This is not a store; you can come,

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you can use Apple, it is almost like its Apple that’s all. The whole experience is Apple,
not the product is Apple.

So, company’s new stores are more about enriching customers’ lives than simply selling
these items. The company call these stores as Town Squares. So, this is something that is
a very I would say, very much modern approach to co-creation in the context of CRM.

(Refer Slide Time: 07:08)

So, co-creation and CRM, there is you have to bring in the community aspect as Apple
was doing. So, what are the other things that they have done to bring in the community
aspect in it? So, one is that they have created board rooms, which visiting entrepreneurs
may use to meet up and discuss their idea.

So, we have created in the Apple store, a boardroom where entrepreneurs can come and
discuss. They don’t even own an Apple product, they do not even arrive there to buy an
Apple product, it doesn’t matter; still you can use my boardroom.

So, what happens is you ─ you have a community kind of feeling that Apple is doing
something good for the community. So, by using their resources, by using their products,
I also am doing something good for the community.

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So, when this, some of the budding entrepreneurs will become an influencer rather from
being an entrepreneur, he will actually promote or I would say, patronize Apple a lot. So,

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that’s why they have created boardrooms, open for everybody; you can come, do your
meeting and go away.

Hour of code workshops; so, for kids, teaching Apple’s programming language ─ Swift.
So, they teach the kids of the, of various colleges and schools, the language called Swift
which is used in Apple. For, So, they are doing coding workshops.

‘Teachers Tuesdays’ that is also they have done which are designed to help educated, to
help and educate working teachers on how they can better incorporate technology in
their classrooms. So, how Apple products can be used there in the classrooms ─ for that,
free ‘Teachers Tuesdays’ workshops are being arranged.

And the Creative Pros who are employed for the sole purpose of teaching customer
skills, such as, how to make better pictures with the iPhones camera ─ so, somebody is
using iPhone camera and etcetera, there they are having creative pros kind of workshops
which is basically, sorry creative professionals who you are basically employed so that
they can teach the customers how to take better pictures.

So, customers who is not coming to buy a product, he is owning an Apple product, he
can come to the Apple store and he can learn how to take better pictures.

Because, for quite some time if you have remembered, there were big hoardings in
Indian cities like Bangalore, Mumbai, big hoardings and at the bottom, it was written
that this picture has been taken by in an Apple phone and it is a very beautiful picture.
So, how that pictures can be taken in that. So, that is a campaign that they did to
encourage this creative pros so that people use rather than buying DSLR. They are
saying that you do not have to buy a DSLR, you can use an Apple phone.

Now, for many people buying an Apple iPad or Apple phone at a price of 75,000 or 100, 000
is very costly. They for the purpose of phone is not something that they value a lot; but they
might be professional or if not professional probably an amateur photographer and they are
ready to pay around 35-40,000 rupees or probably more for a DSLR camera.

Now 40,000 for DSLR camera and another 20,000 or 30,000 for a smartphone, good
quality smartphone; if you combine them together, you get an Apple product and if the
Apple product can actually serve both the purposes, then that’s a very good bundle. So,

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that kind of a motivation they had and they have created these creative pros for just to
teach people how to take good pictures using an Apple phone.

So, that is also very, very innovative customer relationship management idea, where
co-creation is involved? Why co-creation is involved? Because until and unless the
customers comes in and want to create experiences for them like learning codes or taking

─ how to take pictures, you cannot sell them the product.

So, that co-creation of experience is important and that they understood and that’s why
they have taken a product-specific focus to an experience-specific co-creation specific
focus which is a very nice step towards marketing their products.

(Refer Slide Time: 11:39)

Another example is Nestle. Nestle transformed its call centres to inside generator with
the use of co-creation. How? In 2005 they ─ CRM as Dialogue: there that is an initiative
that they have started. What they did is agents were allowed to be more relaxed and
happy. Agents ─ agents means the BPO agents actually were trained to active listening
and probing mindset. So, what kind of thing often agents will get up to the centre of the
room, write down insights.

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Someone from the product development group and interactive team will glean on the
insights and if something caught their attention, they will explore it further and
employees were rewarded with the “best co-created insights”. So, the same thing that

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they did for 24/7 and Nestle more or less similar that they allowed the customers to
create insights for them.

(Refer Slide Time: 12:29)

What are the benefits of co-creation? It has been seen for the last probably 1 decade. So,
Hitachi Europe has created a report recently that 58% of businesses have piloted
co-creation projects to help them innovate and 51% say that co-creation has improved
their financial performance.

So, that’s a big number and 54% say that it has helped improve their social impact. So, if
many people are getting the benefits of co-creation that is actually something that can be
used by various other companies, when they are handling customer relationships.

“Customers are looking for a different type of relationship with the suppliers,” says
Hitachi’s vice president. They want shared innovation, shared development, and
potentially even shared engagement and ownership of the outcome of the project. So,
they want their say and they want their ─ the development process, in the innovation
process, they want their say and also in the outcome, they want have ─ want to have their
say; That whatever is there, I want a shared ownership of that. So, that kind of
relationship is coming up to be very common in today’s world which is a part of CRM

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and co-creation which comes together and that is why it is a very important topic we
have to read.

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So, it is still in a developing stage, in terms of a knowledge creation process. We have to
read and understand and we have to study a lot, but this co-creation as the term is
becoming very important in today’s world.

So, that’s all. These are the references for various papers and links, that from, where this
resources have been taken.

(Refer Slide Time: 14:07)

(Refer Slide Time: 14:08)

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(Refer Slide Time: 14:09)

(Refer Slide Time: 14:10)

Thank you very much that is the end of Week 1. I will see you in Week 2 with a new
topic.

Thank you very much for being in this video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 08
Building Customer Relationships

Hello everybody, welcome to this course of Customer Relationship Management under

the NPTEL Swayam. This is Dr. Swagato Chatterjee from VGSOM IIT, Kharagpur who
is taking this course. We are in Week 2 and in this particular week we will discuss about:
Building Customer Relationship. So, there are various nuances about building customer
relationship.

Customer relationship, any relationship when we talk about ─ relationship is actually

about having a long-term attachment with the customer and when we try to have a long
term attachment with the customer we have to ensure two things. First of all I have to
acquire the customer.

Secondly, I have to retain the customer and thirdly I do, actually 3 things. So, thirdly it is
not only important to retain the customer what is more important is to keep him happy,
keep him engaged, keep him a revenue generating, profitable in the whole relationship
span that we are talking about. So, the how that is done?

There are various steps in which marketers actually do that. In this particular week, we
will go in detail about that. In the later part of the week, we will discuss about something
called social CRM. So, how social media tools or techniques or various kinds of
strategies can be used in the same process of this building customer relationship?

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(Refer Slide Time: 01:43)

So, in this particular first session what I will discuss about is Data. I will discuss about
data, data, and data. So, how data can be used, how consumer data can be used in
generating enough information which can be used for customer success stories and
which can be used to create customer success stories and which can be used to create
customer engagement is something that we will be discussing about. Now, why data is
important? Data is important because first of all at some period of time data was not that
much available.

Because data collection was difficult you have to go for survey or if you are doing
ethnographic study then you have to go for various kinds of I would say interviews or
sometimes focus group discussions were generally done. So, all of these market research
activities which ultimately resulted in data generation ─ which can further be analyzed
for information generation; this procedure was very difficult.

Now, when this procedure was very difficult and at the same time this procedure was
very costly also, because the consumer might always think that why will I share data? If I
share data will you give me some advantage, will I get something extra from you? Will I
have better solution from you or the idea that you are generating from me you will be

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serving some other customers, so, what is in for me? So, that kind of ideas generally used
to come in the customers mind.

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So, what happens for a customer in that case ─ for a company in that case is getting,
generating the data or getting the right data it becomes very difficult. So, when getting
the right data becomes very difficult you have to look for alternative medium of data. So,
that is why there was Nielsen and other companies which used to generate lots of data.

Now, you have to understand that these data is not personalized data. This kind of data is
something which is collected in a macro-level, in a broad level. Sometimes based on a
sampling sample survey sometimes by creating a panel and you cannot exactly target a
single customer based on this data.

You can make marketing strategies based on this data, but if you want to target a single
customer that becomes very difficult when you have data in a broad scale. So, then the
need has come up to create data which is minute level which is micro-level data. So, we
call, so, the in from that kind of idea this micro segmentation and etcetera came in.

Now, how that is possible? One easy way of getting that kind of data is to ─that we all
have these online channels right now, online retail stores, Facebook, social media
etcetera and you can have cookies in your websites. So, you can track what people are
doing what how people are using their internet and etcetera using that data, but that is
only one part of the information.

So, what people are searching for, what people are looking for is basically an impression
of the particular customer in the mirror called internet. But that does not mean that is
exactly what the person is. I might be very cautious when I am doing internet search. I
may not want my,

so, let us say I am using institutional internet resources I might not want my institution to
know that what kind of information I am searching for or you if when you are in a
company you do not want them to know that what you are browsing whether you are
looking for a job or doing these or that kind of thing you do not want to do.

So, often times people what they do is go in a incognito mode and so that there the
cookies are not there. So, that kind of data privacy is something that consumers are still
practicing and even if they do not practice, the data generated from internet is only half
data.

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Then if you are a retail store you have consumer footprints. Let’s say consumer footprints
in terms of if it is a e-commerce what they are searched in your platform, what he has
searched, how much time he has spent on that search page, whether he has gone for the
cart, whether he has put this particular product in the cart or not and if he has put this
product in the cart then how much time he has taken to ultimately decide that whether to
buy or not whether he removed something from the cart or not. All this minute step
by-step-data you generally have about the customer.

So, if you have the step-by-step data about the customer you can create a funnel to know
that from which page to which page how the data changed and how that impacts the
decision making of the consumers. So, that kind of idea that kind of data can also be
generated.

Now, all of this is possible today because there is internet, there is technology that is
available. Now, for very long time, that technology was not available in the market. So,
when that technology was not available in the market generating data itself was a
challenge which is not a case anymore or which is I would say a less problematic case
nowadays.

So, what other kind of data can be created which is important which can be easily
accessible. One is that nowadays everybody put their webcam. I would say the video
cameras which to check how consumers are moving. Now, those kind of data generate,
gets generated every day and the retailer does not even know that how to analyze that.

Now, those kind of data can be an important source of information to track that how
people are going, how much time they are spending in the retail store, whether the time
spend in the retail store and they are purchasing pattern has some relationship or not. If
that has then how much whether it is a quadratic relationship, whether it is a linear
relationship, what?

If I know that there is a let us say, U-curve that initially the more you spend the purchase
goes up. Then the more you spend you reach a saturation point, but further more you
spend in the retail store it gets crowded and you do not only buy, not buy yourselves, but
also reduce the consumer experiences of other guys. Now, this is something which is a
very classic information which in a retail set of many people do not know.

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They ask people to stay in the retail store. So, they create ─that’s how the retails are
designed that your products which are more required kind of products are all in the
boundaries of the retail store so that a customer has to round the whole circle in the retail
store and buy while circling the retail store he will buy this and that also. So, some cross
selling, some cross buying will happen.

So, we generally, retail stores try to keep the customers inside the retail store so that
more sales happen. But that is, that might be detrimental sometimes. You do not have the
data that whether the time spent inside the retail store by a consumer whether that has as
linear relationship, a quadratic relationship, what kind of relationship with his own
purchase pattern with the overall customers purchase pattern.

If you know that, then that is an important area of study and that data is already there.
That data is, and frankly speaking I am actually opening up a research idea. I do not
think that this particular thing has been checked.

You can actually collect if you have data from a retail store, you who collect this kind of
data and I am saying a little bit bigger retail store where cross crowding can be a
problem< Where, cross I would say, effect of one customer on another customer can be
seen for a little bit bigger retail store this can be an area of study. Now, this data is there
and that is they are generating every day and they are not utilizing it.

Some people are utilizing it, some people are using the artificial intelligence kind of
techniques they are using artificial intelligence ─ this kind of techniques to create AR or
VR tools which can give them the similar experience that whatever they do and there are
other customers who are brought let us say moving around inside the store you can see
those customers.

So, that kind of real life experience you can create for the customers for various kinds of
experiments, various kind of product experiments or retail design experiments if you
want to see that which retail design is better which retail design is not so much better that
kind of experience can be created.

So, why do not you stop this video at this point? So, I often tell that this particular
course, though it is, it becomes a little bit of monologue kind of thing we have to make it
engaging. So, why do not you stop this video at this point?

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Please stop this video and then write down that what kind of information source that you
have seen the retailers are generating and can be generated. Let us focus on retailers only
and those information can be used. One example I told that your scanner data your
whatever you are purchasing that data.

One is that how you are moving inside the retail store, your webcam data. What other
kind of data which is generally collected by this people, but not used or you have not
seen them being used or what extra can be collected with very little information, very
little cost I would say which can create lots of information. If you can note down 4/5 5
points and then share in the forum, that will be a great idea.

So, why don’t you, any one of you create this particular topic in the forum; that possible
topics, possible ideas of data generation. Any one of you can create that in the forum and
then if it is already there in the forum, other people I would suggest no do not put in
another one, you can reply on that. So, that will be a good exercise to see that what kind
of data can be generated to create an information. Now, I will go ahead and I will
actually reply to that forum this thing when it is created and then I will go ahead right
now.

(Refer Slide Time: 11:46)

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So, what are the steps of using data for the CRM? So, the first step is that you have to
acquire the data. You have to identify that what kind of data is needed and then you have
to acquire the data. And you have to acquire this data as much, I would say, non-

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invasively as possible so that the customer should not be able to know that this data is
getting generated.

Now, that has privacy concerns as well. You cannot do that unless you, you cannot do
that because then it will be have privacy concerns. It will be ─ it will be having certain
legal issues. You have to tell the customers we are doing that.

But still, a good idea is to make the customer not understand why this particular thing is
getting used. If you are not, if the customers do not understand properly they can know
that this will be used in the business. But, what exactly in the whole data set will be used
in your business if that is not understood, then the customers will not be able to hide
those kind of behaviour and that you can use.

Now, all customers are not consumer psychology specialist. Now, if you there are certain
consumers which are who are consumer psychology specialist. They will know that this
thing these are the thing that you are trying to do and they will be probably a based on
their interest, based on their willingness to give you information they can hide their
information or express themselves.

But, in a broad scale you do not want to poke your nose in the behaviour of the
consumers that is very important. Because the moment you poke your nose first of all
their data gets damaged that is number 1. Number 2 is you are motivating them to do
something that you want which might not be a correct thing.

So, you can do marketing, you can do, but you if you do behavioural changes through
not through nudging, but through very-very I would say controlled way then that
becomes sometimes a concern for many customers.

So, acquire data let the customers know, but do not make them feel that it is a very I
would say, privacy concern kind of a data. They have to be willing to share the data.
They have to actually frankly speaking forget about the seriousness of this particular data
sharing. They might think that this is okay, they are collecting my data.

My data is anyway lying may be what he knows, what I share, what I do, where I click,
where I search. So, that information should not be very, I would say the customer should
not get very jittery about that particular data for while you acquire that.

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The next step is obviously ─ analyse the data. So, there are lots of steps of analyzing this
data and we will talk about that as we go ahead, but obviously when you acquire a data
the next step is analyzing the data which is obvious. From that you learn, you create
information, from that you customize your offerings that’s also straightforward you have
to customise your offering and based on that you sell and serve; and when you sell and
serve again you collect data. So, it is like a relationship building that happens between a
human being to human beings.

Let’s say you know the other person we say that before marriage we do courtship or let’s
say before going for a long term relationship we do some dates. Because in those dates
what you do or during the courtship what you do is you gather information and by, you
gather information analyze those information and then try to create an offering from your
side for sometimes you want to change yourself sometimes you want to educate the
customer will talk about that.

So, change the other person in the dating context. So, sometimes you want to adapt
yourself, sometimes you want the others to adapt with you based on the data and the
analysis and then this cycle goes on goes on goes on. So, that is the steps of relationship
building which applies here also the crucial point is that you have to do the correct it
collect the correct data and do the correct analysis.

(Refer Slide Time: 15:51)

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So, some of the basic analysis techniques which we are there we will discuss about that,
but there has to be some analysis, I would say framework under which these techniques
will fall.

There are statistical techniques available and we can probably spend the whole day on
that, but we are not learning data science in this particular course. What we are learning
here is a manager’s idea. So, how this kind of, which kind of analysis, what will be the
philosophy behind those analysis is something that comes from this IDIC framework
which is Identify, Differentiate, Interact, and Customize.

So, the first thing is you have to the data or identify the customers their needs, their
─what they are what they not are and etcetera and then you have to differentiate between
themselves. You have to understand, so it is like segmentation you have to understand
that this customer and that customer is different.

You have to also differentiate yourselves: that I am different from the other service
providers and the third is to interact. So, all these positive of differentiation will depend
on how you interact with your customer. How more you talk with your customer that
becomes a very important factor and the last step is you have to customise your offerings
based on this.

So, where this data science will play? Obviously, identify the customer base and
differentiate them among each other. We do generally segmentation and then interacting
with each other is basically communication planning kind of marketing sometime
marketing mix analysis, sometimes campaign planning analysis.

In marketing analytics, you can know about those stuff and then how to customize your
offering sometimes comes under conjoint analysis, sometimes comes under product or
service design kind of thing. So, all of these things we do under various kind of analysis
techniques while analyzing the data, but the umbrella idea, the overall philosophical idea
is to create this framework.

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(Refer Slide Time: 17:58)

So, let me give an example: that how do you think CRM can help Swiggy? CRM
strategies the data that Swiggy can collect will be helping Swiggy as a business. So, this
is something that we will be discussing. Again, I will stop here and I will ask you please
stop the video at this point and why do not you write down 3/4 points that Swiggy can do
to use CRM data.

In the last one, you told about different kind of data that retailers can collect. At this
moment, I am asking you please stop this video and write down 3/4 different kinds of
data that Swiggy can collect and then use for their business. Can you please stop
listening to this video and start writing it?

So I assume that you have done that you have followed my procedure. So, please if you
have done that if you have wrote down something then let us discuss on that. So, just see
I will give some idea and you try to match and if that does not work as per whatever you
have thought put that in the forum.

So, what is Swiggy as a business? Now, Swiggy is an aggregator. So, what is an

aggregator business if you understand? Aggregator is a platform, where there is a set of
customers in this side, a set of service providers in this side, in this case, restaurants, who

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the customers have some demand, the service providers have some offerings to offer, but
they don’t know each other.

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They are not connected with each other and then don’t know at what point this demand is
generated and who can subside, who can actually cater to the demand. Same applies for
Uber. Uber there are some customers there are some drivers.

The drivers are running around in the market the customers are also scattered in the
market. There is some demand, there is some supply, but the joining of supply and
demand is not happening without Uber. So, taxis were always there. Taxis were there in
Mumbai, taxis were there in Calcutta, the kaali peeli taxi or yellow taxi kaali peeli taxi in
Mumbai, yellow taxi in Calcutta ─ they were always there.

So, taxis were there, customers were there, but where the matching was not happening is
the taxis did not know at what point of time, at which place the customers need this
particular cab. So, they used to wait in a taxi stand that is why and the customer might
not want to go and walk to just toward up to that taxi stand that is number 1.

Number 2 is that the demand price. So, how much is my willingness to pay as a customer
and how much is your willingness to, how much is your minimum price at which you are
willing to sell that matching, the basic economics, where it applies this was not there
until and unless Uber and Ola was there or in this case Swiggy was there in the market.

So, that matching that information asymmetry was removed through a platform called
Swiggy. So, Swiggy is basically a platform which creates a bridge between the suppliers
which is in this case restaurants and customers. That is the job of Swiggy. Now, then who
is Swiggy’s customers?

Both are Swiggy’s customers. Both the customers who actually eat it are Swiggy’s
customers and the clients which are basically the restaurants are also Swiggy’s
customers. So, if I have to create a CRM strategy I have to think about both these two
lines.

So, first thing that I am asking you just check your page whatever you have written. Just
make sure that whether you have created strategies in these two trees or not in these two
directions or not. If you have not created these two directions then you had done a little
bit less than whatever is required.

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Why do not you again stop this video at this point, again spend two minutes and try to
create a CRM strategy where data can be used to create some solutions, from ─ for profit
generation for what the data can be collected both from the customers and from the
restaurants. Again I would ask you to stop and if you have not; if you have not used only
one part if I have used both the part then you can continue.

So, the next thing that I will be discussing is what are the major problems that Swiggy
face. So, Swiggy which over recent month has set up a data science team is looking to
help restaurants expand their business.

Because that is the major goal then more restaurants will come into their network and the
more restaurants come into their network and more, so more that will lead to more I
would say consumers coming to their network; And when both of them are coming to
their network that will lead to further business.

So, in doing so, the online company hopes to increase supply and seal more lucrative
deals with restaurants which will boost it is own earnings. And margins have always
been an issue for Indian technology sector this is very important.

So, I cannot charge a lot because margin is an issue. I cannot charge a lot from the
restaurant businesses they sell at very probably very cut-throat margin. So, then if that is
the case then I have to come up with some strategy, where I can use technology. I can use
data to give something some new offerings for the restaurants, so that they pay me more.
It is not only the delivery.

How much are you willing to pay for the delivery as a customer? 10 rupees at ─ max for
the whole thing you are ready to pay 10 rupees. Because packaging charge and this and
that anyway you have you are willing to pay that goes to the restaurant. For the delivery
service you want to pay 10 rupees or 15 rupees at max. Is it enough money to make sure
that this kind of a platform stays?

So, Swiggy has to bring up with something else. So, what Swiggy can bring in up? So,
one possible solution can be like this the Swiggy can give a customized solution for
every restaurant to know that what is the demand in your locality.

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What kinds of products are being bought not only from you, but for also your
competitors or other restaurants in this locality? What is the demand of cake, what is the
demand of biryani, what is the demand of lachha paratha, what is the demand of paneer
butter masala?

And if you know that, if you get that data in that locality then you know what is your
market size ─ that itself is not known. Who, how many restaurants know what is, what’s
the market share? In that small market small 3 kilometre radius 5 kilometre radius that
they target how many of these customers know that.

So, a simple business ideation business I would say, business ideas or business
information they can share and they can charge for that. That I will give you monthly this
kind of a information sharing and you….

I can also ask Swiggy to collect data to do a matching with the customer needs. So, I can
create first of all I can ask the thing ask the restaurants that okay your products will be
pushed up like Amazon, do right now.

Amazon sales, because Amazon is a platform what now people can actually give
advertisements. And so if you are; if you are a restaurant and if you know that your
biryani is something which is, which is famous you can put that as an advertisement so
that more and more people come and buy it beyond the region that we generally cater to.
So, that also creates a solution.

So, Swiggy can do, I think that is right now they are doing that. They are doing creating
the ads and etcetera some professional offers they are bringing in. So, that is something
that Swiggy can do. Swiggy can also customize products for the restaurant. So, they can
say that you why do not you create a bundle.

I have the purchase data for every person. I can do all these recommendation in genie
this kind of techniques market basket analysis everything that information is in hand
with me. And not only ─ I will say that okay this restaurant information is there, all the
restaurant also if they want they can do then themselves.

First of all the restaurants does not have a data science team,so, it is a shared economy.
One data science team can cater to all the restaurants that is number 1. Number 2 is the

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restaurants do not have the information about what is being bought in the other customer
in the other restaurant.

For example, let us say I am a customer I am buying let us say the biriyani from one
place the deserts from other place and probably the next day a little bit light breakfast.
Because I after the heavy dinner in the next morning I want to do a little bit light
breakfast. I will ask from some other place now if there are 3 different places which are
doing that why do not we create a combo.

We will say that everything will be delivered to you fresh, but this is a combo when you
give the combo it is a multi-restaurant combo I am saying. So, when you create this
combo, then you will be, the product will be sold at a cheaper price or the customers may
be happy just by seeing that this kind of a combo exists.

So, that will be targeting towards the customer. So, you can use the data to create
innovative concepts that can be applied in the context of Swiggy. Again please create a
forum and I want to see that who creates the best innovative concept in the context of
Swiggy.

So, again no marks on that, but I will share that particular person’s name and etcetera in
my LinkedIn profile. As an accolade after one month of launching of this particular
course if you, whoever has put only those people will be considered in this particular
exercise.

And the person who I think gives better, best answer I will express that winner’s name
and etcetera in that particular forum and ask him to share his LinkedIn details and I will
post a small post in my LinkedIn profile I have quite a few followers so that this guy is
given the best innovative idea.

So, I don’t know whether that will be helpful for you are not I hope that will be. So, that
is the price in this context. So, why do not you write down the ideas that innovative ideas
that you have in mind what Swiggy can use data to create information for themselves.
Now, when I say Swiggy it’s not only Swiggy, it’s Zomato it’s Food Panda whatever
means all this food delivery apps that you have in your mind.

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(Refer Slide Time: 28:57)

The last thing that I will be discussing is how customer experience data improves your
business. So, obviously you have to connect the dots there are lots of patterns how to
connect those patterns becomes very important. Next is, you have to a better optics.
Better optics means the correct better means ─ what is the job of optics? Optics job is to
correct the right information and give it to you in terms of the visuals. So, I have to
create lots of optics so that I can have multiple touch points from which I can look at the
customer. So, that it becomes very important. Then predict the future obviously based on
whatever information you generate.

Benchmark against the rivals ─ check that what other guys are doing and what you are
doing. So, that is also something sometimes being very ahead of your rivals is not very, I
would say good thing. It is not a not a suggested thing.

So, you can check out that. And the last one, which is very important is one company
should have one language. So, oftentimes this customer experience data is trying, we you
can make sure that using that data that whatever channels you are coming up with that
will be targeted, that will be talking about the same experience.

So, for example, if let’s say I have let’s say, Titan and I have multiple products. I have
Tanishq I have let us say some Titan Watch I have some other right now they are coming

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up the experience part also. So, everything will talk about the core thing that this Titan is
going to give; I don’t know what that code thing is.

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I will not mention that, but the experience that Titan is giving through all these brands
and all these stores should have the same value proposition, the same message. Now,
whether that message is being delivered or not you have to collect data from multiple
such retail stores to know that whether the customers are talking or perceiving you in
multiple channels similarly or not. So, all of these things together create the customer
experiences.

Thank you very much for this for being in this particular video. I will see you in the next
video. Thank you.

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 Customer Relationship Management

Prof. Swagato Chatterjee

Vinod Gupta School of Management

Indian Institute of Technology, Kharagpur

Lecture - 09

Building Customer Relationships (Contd.)

Hello everybody, welcome to the course of Customer Relationship Management. This is

Dr. Swagato Chatterjee from VGSOM, IIT Kharagpur who is taking this course, we are
in Week-2 and in this particular week we will be discussing about Building Customer
Relationship.

So, in the last video I was discussing about how data can be used in customer relationship
management and I also discussed about various sources of data. I have asked you to put
some things into the forum. I will also ask you that I have given some reading materials
─ some articles that I have collected from the internet, you can read them also to get an
idea that how Swiggy is trying to help themselves and how data can be used and etcetera.

In this particular video, I will be focusing on the various stages of customer relationship
management and how marketers can take various decisions in these various steps or
various stages.

(Refer Slide Time: 01:22)

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So, this is something that we call as the Ladder of Loyalty. So, what is the ladder of
loyalty? So, the first step of a customer ─ o, you just think about, again every time when
I talk about customer relationship management, relationship is, the human relationship
becomes very important.

And you can see that exactly the same steps can be applied in the human relationship
also. Let’s try to see that: you are looking for your girlfriend or boyfriend or spouse or
somebody who are going, who are partner, a marriage partner or something.

So, how do you do that? How do you find out? So, the first thing generally, if it is not
something where the love is made in the heaven or something like that, the first step is
prospecting; you try to find out what are the prospects that are there.

So, again in the context of customer relationship management the first step is prospect.
You have to find out the prospects that are there, who are lying around in the market, who
might be your customer, who might be somebody else’s customer. So, then the next step
is to change from this prospecting to making them customer.

Now, majorly this part is something that the sales guy does. But what the sales guys don’t
do is, the sales guys are very ─ generally we train the sales people to be very transaction
oriented because you have this budget, you have this target, and you have to achieve that
target. So, when and your first year’s target has no relationship with your second year’s
target that is how the training goes.

But in B2B that does not happen there are some customers, who are stable customers
whom you have to keep the relationship even if you are a sales person, even if you have
to meet a target the relationship management is very important; and sometimes
relationship starts from the prospecting itself.

The how much effort ─ frankly speaking that how much effort you have given before I
gave you the business, sometimes becomes a very important factor that how much
business I will give you even if I become your customer. So, that has a lot to say, that has
that has I would say lot lots of contribution on the longevity of a relationship that how
much effort you do in the very first day.

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 The customer wants to help you, the customer wants to
give you data, the customer wants to talk good about
you in front of other customers ─ that is a person who
is an advocate. A supporter is when you seek he will
do, advocate is whether you seek or not he will do.
And then the partner is another customer who is not
So, prospecting to customer the sales guys also have different from your company.
certain kind of customer relationship management to
do. So, one of the classic thing is that data generation. So, as of now till the advocate part I will help you on

At the least they can do is to create information about my own, let’s say I am a customer you are the service

the prospective customer. Now, out of the 100 provider, I will help you on my own you do not have to

customers let’s say 90 go away and then 10 come, but ask me, I will help you on my own, but this I and you

for those 10 customers you have information before the is still there. I am a different person, you are a

purchasing context started also, which helps.

Then you make them customer. From customer a

customer becomes a client when multiple
conversations happen, multiple transaction happens
between one customer and a service provider or a
manufacturer, in that context we call them a client.

So, who is a client? I have a client; that means, that I

have multiple I am actually giving multiple services to
them, it’s not one time transaction that is happening
there are multiple transactions that are happening with
a client.

Then the next step is from the client you make a

supporter. So, who is the supporter? A supporter will
be trying to support in your steps that you take,
whatever decisions as that you take as a service
provider, as a company, he will actually support you.

He will not talk loud about you outside, but if you ask
him that (Refer Time: 05:26) please will you give me a
review yes he will give, you will ask him will you post
about me in LinkedIn he will post, but he will not do it
on his own. So, that is something that a supporter does.

A supporter will come for help only when the help is seeked.
Then comes the advocate; the advocate will give you ideas
he will help you on his own. So, from supporter to advocate,
the relationship is self-driven by the customer.

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Commented [A1]: Sought?

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different company and I am going to help you by talking good about you, by putting
good reviews by more purchasing from you, by not purchasing from your competitor and
blah blah blah. But when I became a partner I am you. So, I am a part of you. So, that
becomes ─ that is the level that we try to achieve.

So, it is like you get the Moksha. So, it means you make the customers to get the Moksha
something like that. So, these two persons the company and the organization merges with
each other that is something is there.

So, what happens when you when I can make a customer a partner, because up to this
level we have seen all of these things: we have seen a prospect, we have seen a customer,
we have seen a client, we have seen supporter ─ when you ask for review somebody
gives you recommendations, reviews we have seen that in a B2B context that is pretty
common.

The advocate is somebody who talks about you on his own. What does a partner do? A
partner co-creates, a partner is somebody who will drive you will hold your hand and
probably face all the goodness and badness along with you. So, his identity and the
company’s identity is very much related ─ it is a high overlap between them. So, that is
something that we call as partner.

(Refer Slide Time: 08:18)

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 you certain kind of offers like they have given me
Amazon Prime free for 1 year.

Now, if I want to switch from Vodafone to somebody

else within that 1 year, let’s say after 2 months, 3
months I want to switch the moment I switch that

So, when we talk about these relationships, the particular activity with let’s say Prime may go away,

partnerships, the bondings, there are different kinds of because they have given it for a free. I have not stayed

bondings that comes into this picture and all these for 1 year. So, that is a financial benefit that I am

bondings also acts as the barriers when we talk about getting which will only existing as long as the

customer relationship management ─so, barriers in relationship is there.

terms of switching, so, all these bonding. So, what is a

So, that is a financial bonding. Is it good? Is it strong
bonding?
enough? Does it stop people from switching?

A bonding is something which is a tie between two products Sometimes, sometimes not, not depends on how much
─ or let’s say, two objects if important, how much

they are binded; that means, there is a tie. What is the job of
this tie? What these two things do when I when I put this?
This thing this bending is making sure that these two objects
are not cannot go away with each other.

So, this is something which saves you from getting

detached that is something which is called a bonding.
A bonding is a tie whose goal is to stop you from
getting detached. Similarly, here the bonding us are
those kind of stuff whose job is to make sure that the
customer do not switch or customer stays with you. So,
the bondings are basically the barriers of customer
switching. And what kind of barriers are there? What
kind of bondings are there?

The bondings are: the first one is financial bonding or

financial barrier I would say. What is a financial
barrier? A financial barrier or financial bonding is that
your, I would say; so, when you get generate economic
advantage from a particular bonding that is called a
financial bonding. So, by being in that relationship you
are getting certain, the customers are getting certain
economic advantage.

For example, a classic way is, let’s say, we say that if

you renew this particular thing. oftentimes when in the
in the initial part the companies when whenever you
try to come into let’s say Vodafone; Vodafone gives

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Commented [A2]: Bound?

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strong this bond is and how much important this kind of bonding towards the customer
is. So, the strength and the weight of that strength in the eye of the customer: these two
things will lead to whether that is good enough or not.

Then the next one which is also sometimes becomes prohibitory, is something called the
structural bonding. So, what is the structural bonding? A structural bonding is basically a
bonding between a customer and a client which is on and a service provider which is
connected through some structure sometimes some legal laws or sometimes some I
would say contracts.

So, there is a structure of this relationship, this relationship will start from this year
prolong till this year, if you want to break this relationship in between that. So, for
example, marriage registration. So, there is a structure behind that.

So, if you, if you want to break it there is a procedure, there is some fees that you have to
pay, there is some damages that you have to pay whoever breaks, there are some other
conditions where are the breaking will not have any damage blah blah. So, all this details
are written ─ that relationship is structured.

So, have you seen Big Bang Theory? So, those who have seen Big Bang Theory will
obviously, remember Sheldon and Sheldon used to have his relationships which are
structured. So, everything has a rule, similarly, we have that kind of things in mainly B2B
relationships we have that kind of thing. Because they have to the B2B guys have to
protect their companies I would say goodwill or sometimes companies interests because
these relationships have huge value in them, they create huge monetary benefits for both
the companies.

Now if one company go away that will create a huge opportunity loss for the other
company for that this structural kind of bonding come up again whether that is a good
enough, strong enough depending on how strong the bonding is.

But what is more, now we are bringing in a little bit from the huge scale to a small scale.
Now I am calling something called social bonding and customization. Customization is
very personal towards the customer. So, where I have customized the services for you
over time; so, for example, why do I prefer Netflix over somebody else let’s say Prime
video or Zoom the Voot or somebody else?

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Because I have spent lots of time in Netflix and Netflix has understood my pattern and
then Netflix is finding out lots of videos that is, Netflix has huge repository of videos
also, they are finding out lots of videos from here and there and putting it in my front
page.

So, these recommendation engines that this particular guy is has created base is based on
the data that I have given him., But what why I want to still give Netflix some thumbs-up
is because now with that data he is creating such an experience for me that I do not want
to switch. Now, Netflix is just an example, it might be somebody some other company
for some other person.

So, when you get very much attached to that personalized experience that is being given
by these firms towards you which is only made for you, you do not want to switch. So,
that is also one kind of bonding which is very much personal and then there is another
called as social bonding. For example, let’s say at so, I was, means I am the person of
that time when Orkut was there. So, when we were college students in Btech times Orkut
was very very heavy.

And then in the last one year let’s say, third year we are we are in the third year or some
time like that or fourth year when Facebook was coming in the market. Now for a very
long time I thought that I will not go to the Facebook. What is there in Facebook why so
many accounts? All my friends are in Orkut we talk in Orkut we, chat in Orkut. I have so
much, so there were some recommendations at the time, if you know those who are of
my age or a little bit older will know that Orkut profiles has lots of recommendations
from your friend that this is this guy.

So, the how the friends perceive about you that grows kind of recommendations for
return and we wrote very fabulous which I actually got very fabulous recommendations
because I used to also give pretty good recommendations to my friends who can write
well. So, that was an asset, I thought that okay this is my image, this is me or at least this
is how I meant to pose me in the social media.

Now, if I move from Orkut to Facebook all of these things are lost all these assets that I
have generated which is basically a social asset, a social capital you can say though it
does not create money, but social. I don’t know social capital in the context of social
media which I have created will be lost if I move to Facebook. So, for very long time I

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didn’t want to move to Facebook and then at one point of time I thought there was I have
to try. So, that is the prospecting part, they were put poking me poking me and I was
getting stuck with this Orkut; Orkut because of this social bonding that I have created
with Orkut.

And then one point of time from being prospect I became a customer, I in this case a user
and from user I become a client and slowly I moved everything from Orkut to Facebook.
Because I found, So, I have, I personally if you go to my profile by chance I have some
albums which is Orkut albums. So, with the name of the albums is Orkut albums and the
good pictures of Orkut’s were downloaded and again put back in the Facebook.

So, they were transfer from there to here. So, all I am trying to say here is that social
bonding is a very important bonding. If I ask you those who use Snapchat why do you
use Snapchat? Those who use WhatsApp why do you use WhatsApp why not the other
one? Why the Snapchat guys do not use the WhatsApp and the WhatsApp guys do not
use the Snapchat?

You will know that your generation, the people who are, you want to talk with you are
there in the respective platforms. The younger generations are in Snapchat, the older
generations are in are in are in WhatsApp and because my social connections are there in
these platforms, I want to be also there in this platform. So, oftentimes we try to create
this social bonding within the network, within the within the platform so, that the
switching does not happen.

So, the idea is that, if you got a customer in with you, get his friends also the more
friends you get inside that particular network, the whole group will stay. So, that is
something that you can that companies can take an approach.

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(Refer Slide Time: 18:49)

So, it has been seen that the net profit value also goes up the net NPV also goes up. So,
profit from one customer also goes up as the customer and customer defection rate also
comes down you see the as the as the years goes from 2 year to 2.5 year to 3 year to 5
year to 10 year to 20 year this curve also goes up. It’s actually a linear curve because
your X-Axis is not linear.

So, that is why it is taking that kind of ─ so, it is a linear curve the NPV goes up and also
the defection rate comes down. So, that is something is very important to understand. So,
the defection rate comes down that is why the NPV goes up. Defection means switching
the changing. So, why ─ what are the various reasons for which people switch? I told
you till now that why people will not switch? What are the various strategies that you can
take to make sure that the customers will not switch?

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(Refer Slide Time: 19:41)

Now, I am asking that what are the various reasons for which they switch? So, one big
reason which is this black part, the huge black part 69 and 14% ─ it is taken from a book
and that colour difference is not being visible properly, but the 69% and 14% if I add up
83% is because of product dissatisfaction. So, you will know that 69% the majority
percentage because of the perceived indifference. Indifference of whom ─ Indifference of
the product seller or the service seller!

So, majorly people switch because you were indifferent about the customer, not because
they are dissatisfied, not because of competition, not because of others’ friendship or
moving away from that particular place to another place. But you, the customer the
company had been indifferent, so, when that indifference becomes very huge, customers
want to switch that is one of the biggest predictors.

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(Refer Slide Time: 20:58)

And what are the various kinds of other reasons like what are the different types of
defectors that I can say? One is Price Defectors, Product, Service, Market, Technology
and Organizational Defectors.

So, price difference is one of the major thing based on which people switch, next is the
product. So, if I get a better product from my customer in the same price from, my from
the, from the competitor, then I will switch to the competitor rather than the service
provider. So, that is also one thing then Services Defector service means the product is
good, but your service is very bad that might also lead to certain kind of switching from
one service provider to other. The market defector, sometimes we shift from the market
itself. So, I have not remained your customer classic applies in the life cycle stage.

So, let’s say I will not remain a customer of the restaurant in this particular place or let’s
say even I there is a canteen there is a canteen in IIT Kharagpur. I will not I am not
anymore a major customer of this particular IIT of the canteen because I have changed I
have, When I was a student I used to go to that canteen a lot, when I become a professor I
will not go to that go to that particular canteen anymore because my market, I have I am
in a different market right now, I am not in the student market.

I have hygiene concerns, I can pay little bit more than the students, I need very quick
service very personalized service, I do not want to wait and chitchat and do ─ spend lot
of time in that canteen while the students can ─ will be happy to do that. So, I am in a

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different market right now and that is why I switch probably. So, that is called market
defectors.

Then Technology Defectors, I can switch to a different technology altogether and

Organizational Defectors I can switch to a, the whole organization can switch to a
different organization. So, these are the major six types of defectors and we can create
strategies for each of them.

So, in the next video, I will discuss about what are the various kinds of retention
strategies that we can take, till now we were discussing about what are the various
reasons people go away and how you can keep them. How ─ what is the importance of
keeping them and why they go away. In the next video we will discuss about how you
can retain them, what are the various strategies that you can take to make sure that they
do not go away.

Thank you very much for being with me in this particular video, I will see you in the next
one.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 10
Building Customer Relationships (Contd.)

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship

Management. This is Dr. Swagoto Chatterjee from VGSOM IIT Kharagpur who is
taking this course. In this particular video which is Week-2 and Session-3 we will be
discussing about customer retention as a strategy.

So, till now we discussed about why customer relationship management is important,
how to build a relationship and what are the various stages of relationship and why
customer goes out of your relationship. So, let’s discuss about how to keep them in your
customer base. Now why to keep them in your customer base?

(Refer Slide Time: 00:53)

So, we have been seeing that ─ so this is the probability of selling to a new prospect. So,
we have been seeing that probability of selling to a new prospect with all the technology
and etcetera that you have adopted has improved from 5% to 20% in current period.

So, on the other hand the probability of selling to an existing customer who is already
there in the customer base. What percentage of them will again buy from you, that

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percentage has improved from 60 to 70. So, though the improvement is in comparison to
this has come down, but it still 70%; 70% is the probability that a customer who was
there with you in Year 1 will also buy from you in Year 2.

The repeat purchase probability is 70%. So, if that is the case then that is a huge amount
and we have to create some kind of seriousness, we have to create some kind of solutions
which targets this particular blue bar.

(Refer Slide Time: 02:03)

Also, we have to also understand that why customers leave a company. So, customers
majorly leave the company, the very less probability is probably the customer dies, if he
dies he will leave the company; obviously, will not be a customer anymore.

But then if you go from the top till the bottom then customer leaves the market, then
customer get us friends to provide service, customers persuade to go to a competitor, so
sometimes they switched to cause competitor, customers who is dissatisfied with your
service that is 14% and 68% as I told in the last thing is customer believes you do not
care about them, you are indifferent.

So, this is something that is very important that your indifference is something that will
drive the customers away; not your product quality, not your service quality, very less
amount of cases where the other competitors decision will move push them away it is
you who will push them away. So, we you have to take that in mind.

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(Refer Slide Time: 03:10)

And what are the significant revenue drivers? So, many ─ we have asked this kind of
question to many people. And they have answered that customer retention is 52% and
customer acquisition is 45%. So, 52% people told that customer retention is one of the
major drivers and that is the highest percentage.

Out of all those things; pricing, new, sales channel, entering new markets, customer
acquisition, all things are secondary. The primary way of revenue generation is: make
sure your customer stays back. So, that is why this customer retention is one of the major
things that we have to focus on.

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(Refer Slide Time: 03:56)

So, what are the steps of a retention program? So, when we think about a customer
retention, the first thing that we have to identify or understand that how do you define
retention? So, not in all the cases customer will actually leave it, is not like they will give
a resignation letter and put it and then go to other customer that does not happen. They
might in current today’s world customers often do not even tell you that they are
switching.

So, let’s say, I will give you some examples; let’s say, at one point of time if a customer
switched from one particular, from one particular SIM card provider; that means,
telecom company to another telecom company. They used to not use that particular SIM
for very long time probably break and then throw away and then used to buy a new SIM.
That’s how in India at least we used to switch from one service provider to other.

Then the next step was when mobile number portability came in we tried to port. So, that
was a major time period when you started creating information that customers are going
away. So, what kind of information you generally generate?

You generate, let’s say why they are going and used to call the customer who is willing
to switch used to call them. And tell them that you why sir what happened? Or why
ma’am what happened? Why do you want to switch? And some reasons we used to give.

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And based on those reasoning, based on the reasons that have we have given the service
provider will actually give certain counter offers or certain step they will take to make
sure that I do not switch. But they will know that I am trying to switch and which
competitor I am switching they will also know. But that also has, we have passed that
stage also.

Now we have mobile phones where two slots are there or more than one slots are there: it
can be two-three and we use multiple SIM’s for multiple purposes. So, we use one SIM
─ because the coverage are different because the offers are different, because I do not
want a certain group of people to know some numbers certain group of people to know
some other number.

So, when that kind of differences are getting created where I have the probability to use
multiple SIM’s. What we use is we keep one SIM as idle and other SIM is active. So,
you do not even know even if the SIM is there.

Let’s say it is being getting used, you do not even know that whether that SIM is actually
creating enough revenues or not or that particular SIM is, how/what shared of the
customers pocket is getting generated through that your SIM. So, that share of the pocket
if it is very low then practically you have lost that customer; so, which becomes an
important factor in telecom.

In, I know many people in certain organizations ─ when you join an organization what
happens is; they say that why do not you open a bank account here. So, at one point of
time government companies or government organizations or institutions used to say that
you should have a SBI account or a Nationalized Bank account ─ tell me - give me an
account.

So, now after various periods of time that kind of thing is not there, but at one point of
time we used to happen. Actually Nationalized bank accounts are majorly available in
very remote places remote places you will not have a private bank in many parts of India.

But we have seen that many private banks probably will give better services when you
try to buy stuff, when you try to create a, when you try to get a credit card better points
and etcetera than Nationalized Bank.

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So, many comp-people actually keep these two banks bank accounts alive. One is his
salary account where the salary comes and within the 10th there is a rule setup that on
the exact 10th day or 5th day of the month 50,000 rupees will shift from bank account A
to bank account B. So, whatever is his salary probably 95% of the salary will switch
from bank account A to bank account B.

Now, this guy who is who is this salary account guy will think that this particular bank
account has pretty good minimum monthly balance. Minimum monthly balance is
something or average monthly balance min monthly balance or something like that that
we have to keep.

That average monthly balance is pretty good above 10,000 because 10 days he is keeping
50,000 rupees, other 10 days 0 rupees. So, if I break it 50,000 by 3; that means, 16,000
will be the average balance. So, 16,000 average balance means his account is active it is
active account; it is okay, he might feel.

If the account is by chance is of a person who earns a little bit more. Let’s say; one and
half lakh rupees per month, then that minimum account balance the average account
balance that be will be shown is 50,000. And 50,000 means okay, this is a very profitable
customer. He will pick, give on sending lots of discounts and offers and these and that to
that particular email ID that is associated with that bank account or the phone number
probably.

Now, the problem is this particular customer is not your customer. He has a salary
account, but he is actually moving all the account all the money in a different account in
a. So, he will not do any transaction other than that one single transaction through your
account. So, will you say that this particular customer is alive or dead ─ your choice.

Another example I will give you another example is, let’s say how many of you have you
seen that if open your mobile phone and see there are certain Apps which can give you
idea that out of all the Apps that are installed in your phone which one you have used
and when. So, the time duration between today and the last time you used.

And you will find certain ads certain Apps which you have not used probably for 5
months, 6 months, 1 year also. Now what is that App? Are you for that and now you

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have not uninstalled that App. So, installing uninstalling the App provider will know and
based on that they might try to say that whether you are a customer or not.

But whether you are using or not that should be the measurement that also they will
know the moment you hit that App. But that should be the measurement rather than you
whether you have so whether you logged in should be the measurement or whether you
have uninstalled should be the measurement.

So, in all these things what I am trying to say is the first job is to identify that whether a
customer is going to go away or not. So, retention will be targeted to those kinds of
customers who wants to go away who has a chance of go away. So, to define going away
that is the first job.

So, if you can measure the going away you can also measure the retention also. So, the
first step as I told the measure retention, measure retention means also measure
switching. So, if you can measure switching properly you can also measure the retention
properly.

The next step is then: ask the customers why they are going away. So, exit interview or
interview of past customers, why they are going away. In this case why they are using
moving or moving all the money from one account to other account or why they have not
used this App for very long time. So, you have to talk with the customers. So, dialogue is
the obvious next step, identify and then have a dialogue with them that is the obvious
next step.

The thing, third is analyze the complaint and service data. So, analyze whatever they are
saying whether that matches with, whether that any identification on that whatever they
are saying the reasons is coming in the service log or not.

If it can be identified in the service log then you had the opportunity to tackle that at that
time, but somehow you didn’t do. So, you have to tackle that at the right time. So,
analyze the complaint and service data to find out the common problem areas or to very
personalized problem areas.

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If the customer has the still option to come back and then try to work on that and then
also identify the switching barriers. So, what you can do to stop the customers and I
already discussed about four types of switching barriers; what are they?

Student: (Refer Time: 13:10).

Yeah, they are financial or economic, structural, social, and personal ─ so

personalization you can say so the customization. So, these are the four different
switching barriers what you can adapt to ensure based on the service data or based on the
reasons that they have told about for the switching. Which kind of such switching barrier
can be used to reduce switching is something that the service providers should do. So,
that is the steps of customer retention program.

Now, that is different from loyalty program. Loyalty program is to make sure the
customer stays and retention program is to make sure the customer does not leave. There
is this minute difference between these two things, but practically, the usage part their
jobs are very different.

(Refer Slide Time: 14:03)

So, what are the techniques? the one major technique that we try to do is build
relationship. So, I will again share certain materials on this particular six points which
you can study on your own, but I will just give you the brief. So, build relationship and

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set reasonable expectation. So, you do not give such a high expectation that you cannot
meet and lead to a dissatisfaction.

So, or you should not also put an expectation which is very low that people will think
that you are nothing actually your service very bad. You have to put a reasonable
expectation some expectation which is good, high enough or which you can achieve also.
So, that becomes very important and you have to do market study to understand what is a
reasonable expectation.

Then deliver the right message that you want to give. Never falter customer service this
is something which is very important customer service is the key. Because customer
service gives you the sign that whether you care for the customer or not if you do not
care for the customer that sign comes up that is the major biggest reason people will go
away from you. So, never falter the customer service customer service is more important
than your product.

Seeking input from the customers: so make sure that they come to the come in the
problem solving come to in the experience generation or I would say product generation
process. And then educate the customers. Often times whatever you are trying to do for
the customers they are not ready to take it. So, they are not as of now educated to take it.

So, the major step also is to educate the customers. So, in the later part of this particular
course we will also give examples on how these things are done. How educating the
customer, seeking input ─ I have already gave a quite a bit of focus in the co creation
video.

So, there have a three videos and lots of examples on co-creation; how you can seek
input ─ how you can make sure that the customers become a part of your business
decisions. But educating customers is also very important factor will come to that.

But at this moment I want to give you a small exercise personal exercise you do not have
to write anywhere: why don’t you think that what kind of co-creation techniques can be
used. We talked about co-creation right in the previous part that you have to bring in
customers in the process of creating a solution or creating an experience for them.

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So, what kind of co-creation have you seen or can be used, it can be a live example or it
can an imaginary example, what kind of co-creation can be used in the context of service
failure. So, let’s say a service failure has happened and you want to create an experiential
service recovery. Service recovery means a failure happened, you trying to trying to take
various steps.

So, is customer service basically you are trying to take various steps so that failure can
be recovered; that means, whatever happened either you apology or you apologize or the
or you can give some discount coupons to them or you can say sorry or you can do this
that. But I am saying that how you can bring in customers themselves their decisions,
their inputs in this service recovery process.

So, why don’t you go and read about a little bit on service recovery. We will discuss at
some point of time in this course also, but I am asking you to go and read about service
recovery a little bit. And then try to brainstorm that of how you can use the customer
inputs the co-creation methods in service recovery. Why don’t you pen down. That will
be a great learning process. So, that is all about customer retention techniques.

Thank you very much, for being with me and I will see you in the next video. Thank you.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 11
Building Customer Relationships (Contd.)

Hello everybody, welcome to the NPTEL course on Customer Relationship

Management. This is Doctor Swagoto Chatterjee from VGSOM IIT Kharagpur who is
taking this course for you.

So, we are in Week-2 and this is Session-4 and I will be discussing about the various
kinds of problems of or reasons why customers actually switch. And I have come up
with an actual case data which we will be discussing in this particular class.

(Refer Slide Time: 00:51)

So, the data that I have collected here in this particular class is ─ has been collected from
a company which is, I would say, telecom company. And from a particular part of India
this data has been collected. So, the dates have been given, there is some unique porting
code which we have coded as let me just put it in a ─ [vocalized-noise] Yeah, so now,
you can see probably

So, the unique port code the so the codes that you get in your when you try to do mobile
number porting is something that is written here. And because of issues related to the, I

219
would say, privacy and etcetera we have changed the code numbers. And I have just
written 1, 2, 3, 4, 5, 6 and the quoting status was successful or not porting status was
successful or not are the state from which the data has been collected.

The gender of the people, the district whether they are urban customers or not urban
customers. And the segment: whether they are prepaid or postpaid customers which
provider they wanted to move and what are the reasons that they had for mobile number
porting.

(Refer Slide Time: 02:02)

And the last one is whether to, willing to continue with BSNL or not. So, the data has
been collected from BSNL and this is the basic data that that we have got. The customer
names have been hidden, the customer other details have been hidden so you will now
what you will know that who this particular customer is, but basic reasons of why
customer has switched can be generated from this kind of a data.

So, when we run customer relationship management and as I told there is a there has to
be an exit interview in the last session I told. The exit interview’s data which is as simple
as this ─ which is nothing very big.

So, during the exit you just ask him two-three questions you have his gender his or her
gender, you have the customers location, you sometimes also know in which service
provider he has ported or not. But you might not know why this guy is trying to leave.

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So, you have to ask in two three questions that why you are trying to leave? What are
the,what are your perceptions about the price? What are your perceptions about your
service quality? And etcetera. So, the moment you do that that will be enough to go
ahead with.

So, in this particular session I will take a small probably 15 minutes/20 minutes session.
In that we will do some analysis of this kind of a data to create certain input. Now you
have to understand that this is very basic analysis. In actual statistical analysis when we
try to do, we do much in-depth analysis; we do a very pretty big survey probably 10-15
questions. And we do sometimes structural equation modeling sometimes a casual
relationship, sometimes experiments to see that what kind of things will work, what type
of things will not work.

But, if you are a customer service manager or a customer relationship manager and it is
not needed that you have to be very technically heavy. Sometimes it’s also okay to have
a broad-level data to have ─ to take decisions then and there. So, that is something which
is important we will be doing that in this particular class.

So, how I will analyze the data? If you have this data set with you please open the data
set and then go to insert and click on this pivot table. So, click on this pivot table.

(Refer Slide Time: 04:37)

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So, whenever you click on this pivot table this will select the whole sales the all sales
together and you press OK.

(Refer Slide Time: 04:47)

So, that will create a view like this. This is the pivot chart’s view in which in the right
side you will see that all the items all the table headers are there. And in the in the left
side the basic charts and plots is something that you are going to create.

So, you I hope that many of you already know pivot chart. So, what I will do is, I will
just drag this customer reasons for porting out in my rows.

(Refer Slide Time: 05:18)

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And this is for porting out in the values also. So, this gives me the counts what are the
various this is why customers ported out.

(Refer Slide Time: 05:29)

And what I will do is I will sort based on ─ sort in the descending order of count of
primary reason for port out.

(Refer Slide Time: 05:42)

So, basically in this Axis I am creating a descending order. So, you will see that if I just
focus on this one why people wanted to port out ─ the reasons of people being ported
out. So, the most ─ the biggest reason is basically the network problem.

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So, why BSNL will have a network problem? When BSNL will have a network
problem? BSNL will have a network problem when? So how network problems can be
solved? By putting more towers as simple as that. Why don’t BSNL put more towers or
any company is putting ─ not putting more towers in the locality from where this
particular data has been generated?

Because this person felt that, he will not attribute the problem to his phone. If he has
attributed the problem to his phone he would have bought a new phone, but he will not
attribute the problem to his phone ─ he will attribute the problem to the service provider.
And when he attributes the problem towards the service provider he thinks that this guy
is ─ I am having network problem; that means, what?

That means, this particular guy is not putting enough tower in my area. Why he is not
putting enough towers in my area? Because this particular company might think that this
particular locality is not profit generating: or not valuable for them.

So, in and out as I told in the last class that the major thing that you will be, this is the
major reason why you will be switching is that you will have a feeling that this particular
service provider or the company doesn’t care about you; network problem talks about
that.

If the product was bad they would not have bought BSNL at all initially. They found
BSNL to be suitable that is why they have bought and now they are switching because
they feel that enough care has not been taken about them. So, that is something that we
can see here.

And if I try to just see that what are the next problem. So, next problem is better prepaid
plans ─ which is related to price. Poor network coverage; which network problem and
poor network coverage should be similar so this number will be 141 in that case. High
call rates is again related to price, wrong balance deduction this is the service issue,
network congestion, this is again a network issue.

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(Refer Slide Time: 08:23)

(Refer Slide Time: 08:36)

So, you can say if I just do a little bit of maths. So, network issue is as of now 110. So, so
let us plus 31 plus 14: this is network issue as of now.

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(Refer Slide Time: 08:46)

And then price, price is basically 56 plus 23 as of now. Then wrong balance deduction is
a service issue. So service, service is as of now 14. The next is ─ then comes network
congestion which we have already included here. So, so this should be 13, I would say,
not 14 okay.

Then call drop call drop is still a quality issue. It is, it might be a network issue, but it is
also a quality issue. So, I would say quality which is 9 and then VAS-Value Added
Services is 8 which is a service issue so this becomes 22 now.

(Refer Slide Time: 09:27)

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Then GPRS is 7 which is again probably a service issue I don’t know 29.

(Refer Slide Time: 09:33)

(Refer Slide Time: 09:40)

And recharge top up not easily available definitely a service issue - 34. And then,
frequent network down, network down again so another 5, 159.

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(Refer Slide Time: 09:48)

Then comes affordability another 3, so 82 this becomes recharge denomination not

available certain denomination means smaller denomination is not available. So, that is
probably a little bit related to price 84.

Postpaid bill issue is again a service so this is 36. And VAS activation VAS activation is
also service 38.

(Refer Slide Time: 10:16)

So, often times you activate the VAS on your own, value added service.

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(Refer Slide Time: 10:25)

PRBT activation is again another 40. And relocation and roaming issue roaming is still
probably a quality issue and relocation is only 1. So, moving out of market the one that I
was talking about is only 1. So, this is what you get ultimately.

(Refer Slide Time: 10:42)

And if I just insert a pie chart, does this pie chart look similar to the one that we have
created we have seen in that box? That one major chunk will go for the network issue
which is related to you don’t care.

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And then some people go for the price issue and some people go for the service issue that
whatever kind of service you are providing. So, this is what I tried to say that whatever
you thought what the reasons major reasons were also there in this particular part of the
world. So, the major reason is still that the services are not good.

Now, the next part I will see that whether this particular things vary depending on the
nature of the customers or not. Let’s see whether the thing that we told is how much that
is generalizable.

(Refer Slide Time: 11:38)

So, it will be generalizable only when ─ that is true for all types of customers. Let’s put
gender: so male and female I have created this data set the same data set based on male
and female.

So, do you see that for female for male gender network coverage is probably 69 plus 25
plus majorly this 8? So, 33 plus 69 comes out to be 102 right? 69 plus 30 yes 99 plus so,
102.

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(Refer Slide Time: 12:14)

(Refer Slide Time: 12:19)

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(Refer Slide Time: 12:41)

So, 102 out of 190 that comes up to around 53%. I think that is similar was the case for
the total one. So, 110 plus 31 plus 13: if I leave the other one.

So, 141 and plus 13 154. So, 154 divided by 294 is still similar right? And for the female
also 41 plus 6 plus 5 so 41 plus 11 which is 52, 52 divided by 104 is almost 50%. So,
you will see the pattern is same.

(Refer Slide Time: 12:51)

So, if we do a simple the Chi Squared test between the reasons and gender and not
gender you might say find that there is no significant difference. So, that gives me an

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idea that the reasons that we have found out which are the major possible reasons for
which people switched is consistent over gender.

Gender has little impact on, gender might have some impact on the pricing part you can
say that whether the price. So, we can so not caring is a major problem for both of the
case. The next biggest reason that we found was the pricing right. So, we can check you
can check that whether the price is also coming up to be the major reason for both male
or female or not. So, that is how we try to check. Now gender I will leave.

(Refer Slide Time: 13:45)

The next thing is let’s say, whether he is an urban customer or rural customer. So, that is
also are the important factor. So, we can see that 132 customers are urban 162 customers
are rural.

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(Refer Slide Time: 13:59)

And in that case if I just see ─ see how much is 49 plus 13 plus 1 so 49 plus 14 which is
63 divided by 132.

(Refer Slide Time: 14:09)

And in this case 61 plus 18 plus 12 so 30, 91 divided 162.

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(Refer Slide Time: 14:17)

Now these two maul numbers are pretty different. So, 47% and 56% probably if you
run a Chi Squared test you might get a different result. Which trying to say, which I am
by saying that I am trying to say that the reason that network problem will be will be the
reason for moving out if you are an urban customer it is higher; that means, what if it is
an urban customer it is their expectation that there will be not be network problem.

If even if it is an urban location even if being in an urban location you are facing network
problem then that is not because the profitability issue, that is because the company is
not taking care of you, they are not bothered about you then only you will face network
problem in an urban zone, because, urban zones are generally more profitable than rural
zones. So, that’s why network problem is more major issue for people who are switching
from BSNL to other service providers.

I am staying in Mathura’s ─ Mathura district’s urban area and probably not so much of
problem for rural areas is still a problem 47% is doing that, but 47% and 56% if I take
the proportion that is quite a bit of difference. So, if I, if we do T-test over proportions or
if you do a Chi Squared test about all these things you might find out a significant
difference between these two samples.

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(Refer Slide Time: 16:02)

So, that is one thing, then what extra that we will get? Let’s say, whether the prepaid or
postpaid. So, customer segment I will try to see. So, we do not have postpaid customers
mainly, so we cannot actually. So, there are only 6 postpaid customers and 288 prepaid
customers. So, this is probably not that much comparable.

(Refer Slide Time: 16:17)

Anything else that becomes important let’s, let me just check, okay. So, another
important thing that becomes important here is that why they are trying to move? One is
the moving one is the reasons for movement another is to which operator you are trying

236
to move. So, which operator you are trying to move if I try to do the same thing and then
if I sort it up.

(Refer Slide Time: 16:32)

(Refer Slide Time: 16:39)

So, most are going to Vodafone, Airtel and then Idea and TATA DOCOMO. So, the idea
that we I am trying to say here is that when customer switch ─ customer tries to find out
that whatever you do not have which other company might have that. And you also will
come to, come to get an idea that who are your major competitors in the market.

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So obviously, Vodafone and Airtel are your major competitors because not only they
have higher market share the switching also happens from BSNL to at that point of time
─ the data is of 2011 quite an old data. So, switching is also happening from BSNL to
Vodafone and Airtel. So, which are pretty big numbers 79, 73, so these are the major
players.

And does that change over gender? Does that change over gender? I think no so see 104,
23 and 190, 56 probably this percentage is not that different.

(Refer Slide Time: 17:54)

So, why do not we put this in the percentage of the row total? So, no calculation
percentage of column total percentage of column total. You will see that 30% people are
going to Airtel female and 22% is going to Vodafone. While here 30% is coming to
Vodafone and 22% is coming to Airtel.

So, that’s a very important observation that females are going to Airtel majorly and
males are going to and even Airtel and even Idea also and male are going to mainly
Vodafone and then other things: question is why? Why that kind of a differences? Is it
that they are given certain kind of offers which is related to gender?

Is it because certain reasons are more focused towards gender? Who is going to
Vodafone? Whether there is a relationship between various reasons and various service

238
providers? You can check all of these things. Then, I would try to see that sorry, so, sorry
just one minute.

(Refer Slide Time: 19:09)

(Refer Slide Time: 19:11)

Yeah, this is what we have. Then, I will say that whether urban customer rural customer
also has the difference. I do not think the difference is there. So mostly, if you check that
urban customers or rural customer whether this numbers are same. So, though gender
wise there is a difference in urban rural wise there is not much difference.

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(Refer Slide Time: 19:34)

Now, the last one that I am going to see is that whether there is a difference in terms of
the reasons why you are planning to port out. Now, this is a big table let me help you
understand why ─ what this mean. So, just check the table carefully.

(Refer Slide Time: 19:52)

So, if I check affordability then better prepaid plans, call-drop. What is the highest?

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(Refer Slide Time: 20:02)

Which one is the highest? So, you will see the bigger problems were the network issues,
network problem.

So, when people are having network problem this was the major one network problem if
you remember. People who are having network problem 35% are going to Vodafone and
22 and 25% will go to Airtel and Idea.

So, majorly when you have a network problem you will switch to Vodafone. Network
coverage ─ the same thing applies so that might be very much localized decision. That
means, that is probably Mathura’s decision because in Mathura probably the network
coverage of Vodafone was better at that time.

But whatever I am saying that you can get an idea that that if network problem is the
major issue where people are going? So, if network problem are major issue people are
going to Vodafone.

On the other hand if affordability price call rates are major issue. For example, high call
rates you will see that people are going to Airtel and UNINOR, very less percentage they
are going to Airtel mainly. Or let’s say, if I talk about better prepaid plans if they are
going to TATA DOCOMO, Idea, Airtel. So, Airtel is coming up to be, affordability
again TATA DOCOMO, Aircel sometimes, UNINOR.

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(Refer Slide Time: 21:37)

Those who are talking about let’s say, roaming issue, wrong balance deduction, which
was the major ones? The major ones were recharge or top-up availability again they are
going to this one which is Airtel and then this one which is Idea. So, all the non-
monetary related reasons, all the monetary related reasons they are going to all other
places.

But the only problem which is network problem which is the majority chunk they are
coming to Vodafone’s. Vodafone in this context I would say that Vodafone had been
able to capture the problem of its competitor quite well because network problem,
coverage is the major problem in this context.

On the other hand price and affordability and call rates and all of these things which are
related to price, this is where Vodafone does not have an advantage many other people
have an advantage and they are playing with each other. So, they are fighting with each
other, they are not creating a major market share because they are cannibalizing each
other.

On the other hand Vodafone had a pretty good market share in this particular zone
because they could differentiate and they could say that network coverage is the major
thing that we are going to provide.

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This an old data old case study in 2011. You have to collect newer data the situations
have changed quite a bit. But this is how from the exit interview from basic creating
certain charts and graphs you can get an idea of what are the possible reasons people are
leaving. Whether there is a difference between different segments in terms of the reasons
of leaving or not; whether people are happy to stay with you, where if they live where
they are going all details can be analyzed using this kind of a data analysis.

So, that is all for this particular class on retention planning. In the next session we will
discuss, in the next video we will discuss about in detail about relationship management,
strategies and co-option and customer engagement experience strategies. And in the later
part of this particular week we will discuss about social CRM.

Thank you very much for being with me I will see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 12
Building Customer Relationships (Contd.)

Hello, everybody. Welcome to the NPTEL course on Customer Relationship

Management. This is Doctor Swagato Chatterjee from VGSOM IIT, Kharagpur who is
taking this course. We are in Week-2 and in this particular class we will be discussing
Building Customer Relationship and specific concept on customer relationship which is
Customer Co-Option. In this particular class we will discuss about that.

So, before I start with this particular video I will give a brief about what we have
discussed before. We have discussed the strategic imperative of customer relationship
management, why it is important, how it impacts.

The nitty-gritties, the minute nitty-gritties, probably the mathematical part we will come
later in the class, but in the course, but currently we will be discussing about that. In this
particular week we are discussing about how to build customer relationship. So, that also
we have discussed quite a lot of thing. In this particular class I will discuss about
customer co-option as a concept.

(Refer Slide Time: 01:09)

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So, what is customer co-option, when we think about customer co-option what does that
mean? So, customer co-option is a strategy which comes ─ which is the umbrella
strategy and under which many things come. One of the major things that come in
basically, is that how to use customer as a source of competence.

So, if you are competing in the market, oftentimes this competence is something that
gives you a competitive advantage with your, for example, if I just think about IIT
Kharagpur. IIT Kharagpurs rich alumni base, very strong professor base, probably ─ the
faculty base, the huge infrastructure ─ these are the core competency. So, another
institute if they want to compete with IIT Kharagpur, they have to build that ─ that big
an infrastructure which we have got for quite some time.

Now, that is the competence that we have or let’s say, you can still build a very good
infrastructure or you can still build very good faculty members. But the alumni base you
cannot generate in one year. You can invest and you can get faculty members, you can
invest and you can get a very good infrastructure.

But, still the alumni base becomes a competitive advantage factor for IIT Kharagpur or
any old institution and that is where we compete with other institutes probably along
with many other things. These alumni become a very huge competitive advantage.

Now, competitive advantage that means what ─ any characteristics any anything that
helps you to compete and beat your customer ─ beat your competitor or give an added
advantage to you. So, in the run in the race you start a little bit ahead.

Now, oftentimes these ─ all the companies try to search for competitive advantage
within the organization. For example, I told the three things are probably within the
organization, though alumni base is not exactly within the organization, but other
organizations when they come into the market they try to find competence, then they try
to build competency inside the, inside the organization. They give training to their
resources, they bring in new resources; sometimes they create new patents because
patents become an internal competence then.

Sometimes it is also related to the culture of the companies. They create an innovation
kind of culture or entrepreneurship kind of culture which creates revenue generation
streams within the organization. All of these things they do. But, what we are suggesting

245
here in customer relationship management is you can also see your customer as your ─
as a source of competence. How?

For example, Microsoft, whenever Microsoft generally starts their products they go for
Beta testing. Now, they have a rich base of customers who are users, who are, because
Microsoft is heavily used in the industry so, their customers are also probably one of the
stalwarts in the industry or sometimes very in very good positions who takes purchase
decisions.

Now, if you pick up these people and put them in your beta testing panel who will be
testing the bugs or testing for the usefulness of the product that you have developed, then
your product that you developed will be in competition higher than the other products,
other people, than other companies whoever is creating some products which is
competing with Microsoft.

So, that beta testing part, you do not probably want to do it in house, beta testing is
anyway is done with the customers, but you have to have good customers for that. If you
do not have good customers, very strong customers, people who are actually the
influencer in the market then or of people who know about these things quite a lot then
there is a problem. So, keeping that in mind, Microsoft does beta testing with its
customer and that is how they bring in the customers competence in the product
development process.

Same applies for CISCO. CISCO does not do beta testing probably or they do, but that is
the strong point of CISCO. CISCO has a customer forum. What does this forum do? The
forum has two three objectives. First of all any forum creates, so we call it in a marketing
term if you know the Post Purchase Behavior becomes very important in marketing
market.

That is why when I say that how a B2C or how a customer decides what are the stages of
their purchase decision making, we say that it is need recognition, then evaluation of
alternatives, sorry then information gathering and then evaluation of alternatives then,
making a choice or making the purchase and at the end there is this post purchase
behavior.

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So, one of the major post purchase behavior is called Customer Dissonance. What is
Customer Dissonance? Let’s say you have made already a purchase you have made
something. Now, and just after that purchase after just after you made the purchase,
purchase is complete, it cannot be reversed anymore; after you made the purchase you
start feeling that I might have made a wrong decision, that would have might be better
than this one that I have bought.

So, this kind of feeling that you have just after. We will see that the moment I bought a
TV, brought in opened the TV and connected it and this that and then one week later one
of my friend buys another TV I start feeling [FL] that TV is better probably. So, that kind
of a feeling is called Dissonance.

So, then what customers try to do is basically find information gathered information
which will support their decision, which will reduce this dissonance feeling. Customers
always were in all individual decision making that happens that we will start gathering
information that supports my decision ─ that makes me feel good about my decision that
reduces the dissonance of the decision. So, that is something that we all do in any
decision.

Now, why that is important in case of customer forums? This customer forums or clubs
or groups are made to actually reduce that dissonance. Now, if you see that you not only
you, but there are 10000 or 15000 other people who are in the forum or probably more
than that who are in the forum has also bought the same product or also endorsing the
same product, then you might feel less dissonance. So, that is a very important factor in a
customer relationship management.

Now, but that is, that is one part. Now, you might feel there are, there are issues and
customers, one of the major part of customer relationship management is customer
service. Now, customer service becomes much more easier when there is a forum
because other customers become ─ starts giving information.

The person who is sitting in the BPO ─ who is the customer service guy might not be a
technical guy. So, he might pass the information ─ if any technical problem happens he
might pass the information to the technical guy and the technical guy might take and
there is a process involved and that process might take some time.

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Now, what we can do and they try to create core competence to reduce that particular
time period taken in answering the questions, but what better can be done is if I can
connect you with another person who is ─ who has equal know how or pretty good know
how or who has faced the similar kind of problem before, then he can help you in solving
the problem that you are facing and that’s what CISCO does in this customer forum. So,
they keep all the problems open.

So, you have a bug, you have an issue, you have some difficulty, you put it there not
only the customer service person can answer, but also another customers can also
answer. So, if another customer can also answer, then you the chances that you will be
answered quickly and in a better way in a proactive or effective way that probability goes
up. So, that, then customer becomes your source of competence in terms of customer
services.

What else? Obviously, when you create a forum then people actually you can gather. So,
we call it Lead Users. This term is very important in the context of innovation where we
make the users ─

So, the lead users are which kind of users? Lead users are such kind of users of a
software or any product, who can give you futuristic innovation ideas; the ideas which
will become a success in future. So, these, that people identifying those people becomes
a very crucial challenge. It is a still a research challenge that how can you identify in a
forum who are the lead users.

But, you at least you get the ideas of the future from your forum whether you can pick it
up correctly or not that is an internal competence, but the idea generation is an external
competence where the source of that competence is your customers. So, customer forums
also walk in this way idea generation which you can apply in at a later point of time to
improve your product and to make it more suitable, more futuristic more so, which will
give a….So, if you can bring in an innovation in your product which is, which is one step
ahead of your competitor, then that gives you competitive advantage. Because you bring
in the product first, if you bring in the product first people who are willing to a pay lot
for that particular feature will pay you, you can capture that market ahead of your
competitor. And, if you can capture that market ahead of your competitor then you

248
probably generate a little bit more market share. So, these are all parts of how customers
can be a source of competence.

(Refer Slide Time: 11:13)

So, there are huge numbers of so, you cannot actually deny that that people are using
health one of the one of the other area where this becomes very important where
customers becomes your competence also.

So, I have seen many doctors say that the patients comes and patient is I know all kind of
a patient; he has searched in Google and come up and tell me that sir whether this can be
done, whether that can be done and blah blah blah and I become very pissed off because
I am not very….So, so I have studied for so many years medical science cannot be learnt
over Google.

You have to understand that you have to rely on the doctor and this and that. But, you
have to understand these and that is where I personally have seen that customer-oriented
─ you have to, customer-oriented doctor and a medically trained doctor is a different
type of doctor.

These are, it does not go always hand in hand and it does not go always with the, I would
say, with the empathy also it is not only empathy that is important for a doctor when you
are handling the customer.

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You have to understand that a customer’s ─ that knowledge that that particular
information whether good, bad ugly that information is there in the market that is
available in information and there is some purpose for that information why that is
available in the market.

And, people, today’s world people actually go to the internet while they search for health
care services. They have probably come to you because they have seen, got certain good
reviews from you either internet bar or through is social network which is also connected
through internet.

So, if you are getting the benefits of foot fall of patients in your clinic, in your chamber
because there is a word of mouth which has been done for you ─ in favor of you where
internet has helped in spreading that word of mouth. Then a doctor cannot deny that
there will be certain things which not ─ which is not something which will be pleasant
they have to deal with that.

So, health care services, any health care services will deal with that because patients,
everyday they are becoming more aware at least they have getting information and many
patients probably if not all, many patients are getting credible information also.

So, oftentimes we see that there can be there are situations where the patient suggests
that can we do this, can we do that patients ask for options. So, if the customers are
aware if they have read something and they have they have studied something and then
come to you have to take them in confidence. You cannot brush them off by saying that
this is written in Google and that that if you do that the chance of losing that customer
grows.

And, you have to understand that patients are also customers; if it is a business
establishment, if you are making money out of it, it is not your salary, if you are not
doing an government job, then you have to understand that patients are your customers
and you have to deal with them as you deal with your customers.

You have to make sure that they are happy; they are satisfied in terms of their
informational need also. It is not a doctors or health care for service provider’s job to
only make the patients physically okay. Giving mental strength, giving mental
satisfaction and etcetera is also a part of this game and that is something that comes.

250
Now, where it becomes a competence that the customers coming up with the service, lots
of service information and coming up to the health care service provider why, how that
can be used as a competence? And, customers coming up ─coming up with a lots of
information and coming to your chamber how that’s a pain that I understand, but still
how that can be used as a competence?

You can actually co-create probably solutions with the customer you can tell, you can
you can, you can understand what are the pain points of this patient, what are the
information that he has got, what are the insecurities that he has generated through that
information or whatever other ways he is okay with, how much informed he is in terms
of his probability of success in terms of being good, being bad etcetera all of these
information if you have in your hand, then you can give a service which is more targeted
towards this particular patient.

If you do not know their service, if you do not, if you do not I would say the cultivate the
patient properly even in his informational background, then the probability that you
might be having a happy customer comes down; how much that depends on customer to
customer patient to patient, but it comes down.

So, obviously, even in the health care the customer’s knowledge becomes a competence
and you have to, you have to consider that, you have to ─ you have to take into account
while giving service provider.

(Refer Slide Time: 16:17)

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The next step that we say, so, there could will quite a bit of steps. So, the next step is
basically encouraging active dialogues. So, what is active dialogue? Active dialogue is
basically… dialogue is what? Dialogue is talking with communication between one
person and another person.

So, you say something and then I say something, then again you say something then I
say, I say something that is the dialogue it is like a, basically it is like a table tennis
where I put the ball and then you also give me the ball back and then I put the ball once
more.

But, what is an active dialogue? An active dialogue is: that a communication a

conversation which gets generated through the dialogue process, it is not a question
answer kind of thing that I want to ─ I want to cancel that air bus ticket.

Okay sir, what is your name? This what is your mobile number this which I can see that
with this name and this mobile number X, Y, Z bookings have been done. Which one do
you want to cancel? X one. Do you want to change it to some other date or do you want
to totally cancel it? Totally cancel it and then would want the refund at your bank
account or in our digital money ─ bank account.

So, all this is basically a Tik Tok kind of a kind of a conversation where it is a dialogue,
it is not a active dialogue, it is a normal conversation where you say something and I
answer and again you say something back and I answer.

But, what happens in an active dialogue is the conversation develops from the dialogue.
So, often time we allow we in the in the customer which we allow the service provider to
generate.

So, that kind of empowerment you have to give to generate a dialogue on its own and
who can create a dialogue who can create a interesting dialogue becomes a significant
important factor to divide a probably a good BPO agent and a not so good BPO agent or
a good customer service person and not so good customer service person.

Dialogue is important and in a dialogue it’s just there will be a in the middle there will be
a shared conversational space we call it the Transformational Conversation, where both
of the persons in the left side and the right side can contribute towards this conversation

252
space and also can take it from the conversation space. So, they can give and share and
take back from that particular conversation space. So, that is something that becomes
important.

Now, this is very easy said than done. So, how to create a good conversation? So, that
itself is a very important factor and I would ─ I would actually stop here and we in
management studies actually in the B-schools we do not give lot of importance to this
particular topic, particular area of study, but I would say at this point because I got this
opportunity, I would say that one of the most important topic, one of the most important
subject that can be taught, one of the most important skill that can be taught in a
B-school is ‘communication’.

Your finance, your marketing, your this-that can be ─ these are technical probably, but
communication is something which has to be slowly developed. It’s not something that
you teach in maths, you teach, write some equations and it gets solved.

It is a slow, even never ending learning process and that should start as soon as possible
and probably one of the most important factor that might contribute towards your success
or failure in any part of management studies or management profession is
communication.

So, how you can generate a communication, how you can extend the communication,
how you can probably make the conversation more intelligent, more I would say
interesting, all of these things comes from the space of communication and which
becomes very important factor when you when you try to do. So, I will in the next part
what I will do is I will give a small example of a better communication strategy.

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(Refer Slide Time: 20:32)

So, this medium.com this particular link ─ if you go to this link you will get a small
conversation strategy that how a good conversation with a customer can help a person
who is developing a new App or new product can help him in generating some ideas. So,
this is free, this particular link is free and you can go to this link and have the
conversation.

(Refer Slide Time: 21:03)

And, I will just I have just open this link and let me come to the conversation directly.

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(Refer Slide Time: 21:08)

So, somebody starts with: Good afternoon. My name is Andrew and I am building an
App that analyzes the day’s weather and provides you with a perfect outfit to wear. So,
you ─ he is developing an App which will be, which will be generating ideas of apparel
which is matching with that particular day’s weather conditions, whether it is raining
whether is sunny, whether it is...

Now, probably that might not be very, very much important for a, for a Indian context,
but main many developed countries or even in the metro cities in India people want ─
people actually take fashion as an important thing. And, oftentimes those who take
fashion as an important thing do not know in the morning every day, morning they are so
fashion conscious, they have to create a new look probably every day; they cannot carry
the same look for some time. So, that becomes a important factor that how they can
create new ideas of dresses every day.

And, that becomes a challenge and of and the weather condition also changes every day.
And, some particular dress might not suit with the, with the weather condition of that
particular day which becomes a challenge for customers.

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(Refer Slide Time: 22:26)

Now, first thing that you have understand that whether that is a pain point of the
customer. So, he asks that: “do have any problems in choosing to wear?” The customer
answers: “Yeah, actually, I never know what to wear.

Some days I even read the weather myself and still fail to put together the right outfit.
You don’t know the frustration.” So, the moment the customer answers that in a
conversation you know that okay the customer has some problem. Whatever he, you are,
whatever ideas that you have is not so much bad of an idea you can probably cultivate
more.

So, besides being unable to choose the perfect outfit, are there any other problems you
experience? So, you want to know more so that you can create a whole round solution
and he says: “yes, in fact, compared to average person, I feel very cold in environments
where others feel fine, even warm.”

So, I am a special type of person. So, you know that there now there are heterogeneity in
the customer base also. There are some people who feel more cold, some people who
feel more warm depending on the...for example, if I can give an example because of my
physical physic probably I feel more hot; there might be some other people who might be
feeling more cold even in the current situation. So, you will see that we and this is a very
classic thing that I have seen, I have read somewhere when women, most women feel
cold in the ─ when they when they go to the office because you will see that women are

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having a small cardigan or something like that or wearing a sweats shirt more commonly
when other men are actually wearing a T-shirt probably.

What happens is that men are generally having higher so, higher I would say the men are
more warm in that sense that they do not feel that much cold when they are outside and
that is why when our offices are there are more men in that those offices, the average
temperature that will be feeling soothing for men, will be lower than average temperature
that will be feeling soothing for a women.

But, now the offices there are more men fortunately or unfortunately there are more
number of men in that particular office and then the temperature remains probably 2
degrees lower than what a women will feel comfortable with. Now, that becomes a
challenge again. So, the women have to choose an outfit that does not only go with the
external weather condition, but also will go good with the office.

(Refer Slide Time: 24:56)

So, you can create an App for that and that comes from this conversation: “Interesting, I
never had, never thought of that. What you are telling me is that you feel that you have
unique needs from day-to-day clothing choices and thus have difficulty in choosing the
right outfit.” The customer says: “yes, exactly.”

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(Refer Slide Time: 25:14)

“Great! In terms of dressing yourself every day, if you could wave a magic wand and
change anything about that process, what would that be?” Customer’s answers: Wow,
that is a tough question, I would made it freakishly easy and quick to know exactly what
to wear, at anytime of the day, at the press of a button. So, now, the App the need of the
App is settled.

So, all I am trying to say is that these kind of conversation oftentimes sometimes with
your friends, with your family members can create ideas, but in this context he is talking
with the customer. Let’s say if I am I am an App developer and I have lots of
installations, I might want to talk with the customers of my app to understand what kind
of new information, new ideas that can be generated and that can be generated only when
you give a space to create information by this customer.

So, you have to create a conversation, you cannot put words on their face ─ on their
mouth. You cannot ask close ended questions, you have to have open ended questions.
You have to let the customer talk quite a bit, so that you can take whatever is important
from that quite a bit of information and then you can develop.

So, conversation dialogue is and one of the important factors in this. We will go back to
the PPT that we were discussing about.

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(Refer Slide Time: 26:34)

And, then the next step is, that okay, we created a forum, we created we are getting
competence from the customers and we also have created a platform where they can talk.
Now, what? Is it enough?

So, there are certain strategies which many cases have done and we will be discussing
some of these case studies in this context. So, one of the example is this Hollywood
stock exchange. Hollywood stock exchange is a consumer community.

What is a consumer community? It is not run by Hollywood, it is basically endorsed by

Hollywood; Hollywood actually in the backend, they backed it, but it is basically a
consumer community which is run the consumers themselves.

And, here they talk about new launches, here they talk about new products, and they
even probably sometimes predict the box office performance of the new movies that are
coming up. Now, this creates buzz in the market. This creates ─ this is the customer-
created buzz; this is not the organization-created buzz.

This is the customer created buzz. It sometimes makes a particular person a hero or
villain or the ups and downs of the brands; the brands means the movie brands or the
actor-actress brands or probably the movie production house brands, everybody gets
influenced, impacted by this people, this group.. This is customer community.

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Now, if you can create the community in your industry space that helps, but that has a
boomerang effect also. Sometimes if you do something bad, say any massacre happens
there is a chance that you will be hit back. So, if you are well established in the market, if
you are probably one of the leaders of the market it is better if you mobilize your
customer community which creates lots of…But, it is more applicable to such kind of
such kind of industries where industries very volatile in nature. For example, the one
music industry you can say.

Music industry or any creative industry in that way is very volatile in nature a person or
artist who is one of the favorites probably singer in today’s ─ this decade might not be a
very good singer or not be a most preferred singer in the next decade. The singing faces
change.

If you know in our Bollywood ─ if you just see that there was let’s say Udit Narayan and
then there were Sonu Nigam, probably Shaan and we have some other singers now. The
most prominent singer faces have changed. If you write down the top 10 singers in this
year the faces will change the. The popularity, if that is volatile in nature it becomes very
handy if one person can basically mobilize the customer community.

Then he can probably tweak the consumers, so, over all consumers mindset also, he can
probably advertize in these things, he can probably create a buzz in this kind of
communities, so that he can extend his lifetime, extend his benefits for some more period
of time.

So, there are lots other things that we will be discussing in this particular context. I will
stop with this a few examples and I will come back with the new set of examples in the
next video.

Thank you very much for being with me.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 13
Building Customer Relationships (Contd.)

Hello everybody, welcome to Customer Relationship Management course on NPTEL

Swayam platform. This is Dr. Swagato Chatterjee from VGSOM, IIT Kharagpur who is
taking this course for you. We are in Week-2 and we are discussing Building Customer
Relationships in this particular video; we are discussing certain strategies related to
customer co-option.

So, I have discussed some of the strategies like Dialogue and Customer Community,
Customer Forum, Beta Testing, making customers your competence, source of
competence in the last video. In this particular video, I am going to discuss about how
you can create experiences which is very much targeted, very much personalized towards
one customer.

(Refer Slide Time: 00:54)

So, if I come to the specific slide of the video; you can see that co-creating ─ we have
discussed about co-creation, but co-creating and managing personalized experiences is
something that becomes a very important factor when you try to drive a customer co-
option. So, what is, what some of the examples I will give that there are you can; one of

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the example that I can give is there is a museum, there are some museums in India and
outside India which gives you Apps.

So, earlier days what happens, what used to happen in the in museum or any historical
place? When you go to the historical place, lots of guides are there; these guides will
come to you and they will say that okay; I want to be your guide and you generally used
to pay some money, you have to deal with them and then once the deal is cracked, this
particular guide will show Commented [A1]: Could not make out the word properly after
‘will.
Time: 1.47 mic
Now, you are dependent on the guide. Whatever the guide says, you generally tend to
believe because you think that this guide and often times it happens that we do not know
who is the legitimate guy. You often times even a person who shows you the see this is I
am certified by blah blah blah that certify where the how to check whether this certified
by blah blah blah is actually authentic or not that also you do not know.

So, if you do not know they show you an ID card, they you show you a certificate, but
you have no idea how to check that certificate, then there is no point on having that
certificate. And you go ahead with this guy and after seeing lots of stuff you find try to
feel, you start feeling that probably I have made a bad choice. And then again the old
game comes up that dissonance then you try to find out that what information he has told
which is correct. What information was there, I have seen in that Wiki page also so; that
means that this guy is correct; so, you try to reduce your dissonance again.

So, this kind of circular kind of situations keeps on happening. Now, to tackle with those
kinds of situations what museums and museums also have museums and these heritage
spots, have limited I would say limited source of revenue. They have to maintain quite a
lot of staff, they have to maintain their employees the buildings, the artifacts and these
and that, but the problem is the revenue that did generate generally is not very high.

So, in India if I say how much money will you pay for to see a monument? Probably, 10
rupees, 20 rupees, 50 rupees at max; so the entry fee is something like that and let us say
a footfall happens and then that footfall is required to maintain the garden, maintain the
people and this that. But what happens is the alternative source of information goes away
that is number 1, number 2 is its all often times it is a onetime visit, you once you visit
and that is over.

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So, there has to be a customer relationship management strategy that you can take where
you can, which you can use to create certain solutions. So, that is what this solutions
which are museum solutions comes into the picture. What are the advantages of museum
solutions? Let us say XYZ app; this XYZ app what it will do? It will first create a whole
information about a museum.

So, whenever you come to this you can download the app and whenever you come to this
thing, you buy a ticket. The ticket is a little bit higher price than whatever you generally
do. Because now the information is there in that app and that gets a, that generates a code
number, you code that code number you put in your app.

The moment you put in your app it will track where you are, probably it will ask you to
show the picture in the scanner board or it will ask you to show you me your GPS
location or whatever artifacts you are seeing, there will be a QR code in front of their
artifact. Scan that QR code and you will get information about that particular artifact.

The whole history sometimes it is recorded, prerecorded voice you can listen through
your headphones or sometimes it can be just text which and there will be historical facts,
pictures. So, when you do that and you go around the museum, you get a better
experience. Better and probably credible experience from this particular app.

So, this is very personalized in nature also. You do not want to see this you want to see
that, you can see that, it is not driven by that app. It is up to you what you want to see at
what level of depth you want to get the knowledge, how much time you want to spend
with that particular artifact. It is up to you. So, that is a very good example of
personalized experience managing in the museum sector.

Now, another important thing that becomes an added advantage of this kind of apps ─
you have to understand, that the museum has not developed the app. Oftentimes, this app
is developed by a app developer outside, like Zomato, who has multiple restaurants in
registered with there is something like that. There is an app developer, there is a XYZ
app which has multiple museums with them.

Now, if as the app developer; if I know that I have seen you spending time with this
particular artifact, in this particular museum what are the various things that I can do for
the customer? I can send suggestions to the customer that okay, you have gone to this

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museum, you know within 2 kilometer away or within 5 kilometer from your location;
XYZ museum and this what we call the heritage places are there. So, why do not you go
through those places? So, I can give this kind of an information towards to these
customers.

What else I can do? I can also tell them that why don’t you ─ there are certain items:
there are certain artifacts within this museum or within some other museum, some other
floor. So, based on how much time you have spent with an artifact, I can also give you
examples or I can give you recommendations about other artifacts.

So, all of these things become an important factor; when you use this particular kind
particular app for management of the customer experiences inside a museum or inside a
heritage place. What else can be done for the museums?

Now, this is a basically a cross selling kind of, recommendations and cross selling kind
of approach and that helps the museum in increasing the footfalls. Because footfall
become some major factor of ─ for museums, for heritage places; many people do not
want to visit those places and footfall become some important problem.

So, majorly for not so well known heritage places or not so well known museums; so
then this kind of apps, if they go for this kind of apps; they will get better people, they
will get quality people. It is not like, people who just come to Rome okay; I have come
to this place, this why before coming to Delhi I knew that okay, I have to go to 10,-15
different places in Delhi.

So, these guy is become, it becomes a challenge in 1 day, how many places I will go?
That becomes a challenge rather than spending time in one particular place, learning
about that particular place quite a bit, learning about his history and blah blah blah, it
becomes a challenge that how to cover every place, how to cover go there, take a peek,
take a superficial view of that particular place and go and to go to the next place.

When you get that kind of travelers in your, in a heritage place; obviously, that creates a
footfall. So, that’s why that kind of travelers are important, but that is not a quality
traveler. They will create nuisances, they will probably sometimes later also because
they do not have appreciation for that particular heritage place.

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So, always museum guy or a heritage place guy would want those kinds of travelers who
will appreciate that particular place and this kind of apps can help. So, that is how you
can co-create and manage personalized experiences.

(Refer Slide Time: 09:09)

What next? Another important thing that becomes an issue of customer relationship
management is shaping the customers experiences. So, one good example I will give you
is Mr. Bill Gates.

So, he writes books which is futuristic in nature, which says ─ which talks about how the
technology industry will move. You can search for his some of the very well known
books. All these books gives you an idea that how the technology industry, how the user
experience will move in the digital world will move in the future.

Now, that is something that creates: so we do not know as a user, we have certain needs
which are not fulfilled oftentimes technology products are so innovative and we do not
have an idea that innovation is even possible that we become ─ we come up with that
this has been developed. So, this shaping of our expectations that what I can expect in
the future, what kind of products are coming that becomes a important factor for and Bill
Gates one of the way of Bill Gates doing that is writing books.

Nowadays, I have seen examples where Google is doing and Google is using this
translator and these and that. Alexa is even so, or Google help basically: the Google

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personal assistant is even making joke with you. So, Sundar Pichai is doing a press
conference kind of stuff in a ─ or probably doing a technological, I would say showcase
while he is showcasing the futuristic products that are coming up.

So, that is shaping customer expectations we all do that. And that was not done properly
for Apple Newton. Apple Newton, the expectation was not set. Apple Newton was much
more ahead of the of: so the expectation was so high, it was so futuristic that the product
that ultimately came out of that particulars Apple Newton was not so good, not up to the
mark in terms of the expectations that were set. So, you have to set expectations correct,
but you have to set realistic expectation, you cannot set absolutely dreamy expectation
and then not fulfill that.

So, Newton was pulled back just because that expectation was not being fulfilled. And
often times you allow your customers to set the expectation, rather than you I told
previously that you can use your customers as your core competence.

One way of doing it is that: make the customer setting the expectations rather than you
setting the expectations. So, Amway is one of the example where the customers go out
and talk about their experiences with the Amway products to their friends, family
members, this that.

So, the customers themselves set the expectations for the other customers and your job is
to just make sure that happen. So, that also becomes an important factor when we try to
create a customer experience in the context of customer relationship management.

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(Refer Slide Time: 12:20)

Now, all these things are called customer co-option together. So, one of the papers that
we have studied from customer to competitor; how the consumer co-option in the service
sector can create.

So, what they have done is: they have this ─ in this paper the Professors Fodness et al;
what they have done is, they have divided the whole service sector into common
facilitating good and unique facilitating goods in one axis and simple behavior and make
more complex behavior in other axis. So, the things which are very complex and where
customer co-option is not possible is probably this air travels, medical services,
telephone services, banking; is not possible.

But tanning salons or copying services which is basically simple wear and unique
facilitating goods; probably that is still possible. What is more possible, why it is more
possible is probably beautician or accounting services or appliance repair. So this is how
you can develop. So, service from processes as the interaction of behavioral complexity
and uniqueness of facilitating goods; this is something that is how they have developed
the services.

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(Refer Slide Time: 13:35)

Now, how do you decide when customers can become your competitor? So, does the
service record facilitating goods? I have known from the previous chart what is
facilitating goods. If it is yes, then you come here. If it is no, you come down. So, if it is
facilitating goods, are they really accessible?

If it is not necessarily accessible, then service will be less vulnerable to co-option. Co-
option means the customer becomes your competitor probably that might not happen
because the facilitating goods are not so much accessible towards the, in the market.

But if that does not require facilitating good or if the facilitating good is accessible, then
the next question comes is does the performance of the service require training? So, you
know the goods, but do you have the training how to use the goods? Again, if you have
the training: how to ─ if it requires training and if you have ─ if the training is
accessible. Then again you can go back to this: it can be vulnerable to co-option.

But if it does not require training then do time and convenience costs outweigh the
benefits of co-option? So, rather than I as a customer, if I want to do it on my own:
because I can learn from my own no? If you and I talk with each other and if you get
information from me and create something, then I might feel as a customer that why I am
giving information to you for free? I can do it myself. If I can give you information idea,
then I can implement the idea also.

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Now, question is that whether to implement the idea? Whether from customer co-
creation to customer co-option means customer becomes your competitor. What is
required? Do you require facilitating goods? No, there is no problem. Yes, whether that
good is available: No. Then facilitating goods is no; then probably I will not go for
competition.

If it is yes, available, then the question is, do I know how to use it, if the training is
required. ‘No’, then the chances of co-option is high. ’Yes’, training is required; training
is accessible also. If training is also accessible, again my chances of co-option is high. If
training is not accessible or training is not required, then the question comes is that
whether the time and convenience that I will be losing by creating those particular app
which is absolutely for me. Will it be okay, will it be higher than the pain of or the
benefits of co-option.

So, benefits of co-option ─ how much money I will generate or how much benefit I will
get and how much convenience and cost issues I will face for that, what is the balance
between that and that might lead to whether you will go for co-option or not co-option.

So, the same Professors Fodness and et al have given these particular directions. And
you can know that from where customer co-creation makes sense, in which situation it
does not make sense and you should go for not involving customer in your co-creation
process. And that might give you an idea that whether you were in a threat or not and
that is very important factor while deciding.

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(Refer Slide Time: 17:00)

So, one easy example is, I will mean: with the one that I am trying to tell. So let us say,
you are a taxi service provider and you know that okay I can create a taxi experience, ─
I can create a taxi experience by understanding what the customer needs, when they need
and etcetera.

Now, question is that, if I can do that, then any other customer who can drive and has a
little bit of knowledge about technology also, you can create an App. There might be
many customers who have an app and who can drive also they can create their own cars,
taxi services.

For strategies, Uber can take or taxi services can take to make sure that even if they bring
in customers in their co-creation process, in the service idea generation process, in the
service experience generation process; still there will not be any problem.

So, this is my question for you from this particular week. Put it in your ─ put this
particular question in your forum, that forum that we have created. As I told again and
again that I am talking about so much about co-creation, you have to also justify. Why I
am asking to put all these things in the forum? Because you will get better experience
rather than this monologue that we are having.

You will get as a student better experience, if you participate in that forum that will be
the co-creation strategy of this particular course. While, I will generate information, you

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can share with each other the information and that will create a better learning process
than I giving lecture towards you.

So, then giving that is the background context I will ask you that what should Uber do to
make sure that they can avoid co-option. Co-option means in the process of co-creation,
in the process of customers and companies to coming together and creating something;
customer becomes so knowledgeable that he starts competing with the company. That is
co-option. How I can stop that?

What kind of strategies I can take such that this particular thing does not happen. That is
where I will stop this particular week’s video, I will see you in the next week; in Week-3.

Thank you very much for being with me, I will see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 14
Economics of CRM

Hello everybody, welcome to Customer Relationship Management course in NPTEL

Swayam platform. This is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur, who is
taking this course for you. In this week we will discuss about economics of CRM and
what is the monitory part of CRM, how we can use CRM as a strategy or customer
relationship management as a strategy to make money.

So, we have talked about quite a bit, quite a lot and we told that customer relationship
management is like any relationship that you try to build. And, in earlier days of the
relationship, when you try to build a relationship, you have to invest a lot on the
relationship. And, we you generally do not get returns a lot. But, later part of time in a
human to human relationship I will say you have to in so, some times in the earlier days
of your relationship, you may not you may not feel good about certain factors.

For example, let me give an give an example, let’s say when me and my wife, who was
at that point my girlfriend would have been, in the earlier days of our relationship what
happened let’s say, she liked a certain kind of movies. And, now I am probably might
have a different kind of preferences.

But, because I want to build this relationship for quite some time, I might probably go
with her to watch that particular movie. And, even if I probably will not enjoy the movie
as much as she does. And that same applies for some other kind of TV serials, some
other kind of entertainments probably games, and some kind of sports, luckily we both
used to like football and cricket matches and etcetera. But, this is very common that in
many places you might want to hang out with your friends.

And, some of the friends in that group is somebody whom your spouse or your girlfriend
or boyfriend might not like and for that you have to probably, not go to that particular
friends meeting even if you might have enjoyed there.

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So, that is because that we generally want to build a relationship and to make a
relationship strong, and long lasting, and benefit generating, in the initial times you
might not have certain good output from that. You have to make more input and get
better not get better output in the earlier days.

But, what happens is once the relationship goes stronger and longer, the two or multiple
agents in that relationship, in this context let us say me and my wife’s context we are the
two agents. So, we come to know better about each other. We come to under we have a
better understanding our strengths and weaknesses our likes and dislikes; we have a
better understanding about all those factors now.

And, now that we have a better understanding, probably we will choose such kind of
products or even our weightages: the amount of weightage that we give to various
aspects of our value systems or the amount of amusement entertainment that we get from
various sources of entertainment. Even all these things go through a Bayesian process.
Bayesian process means, it gets updated slowly. So, that they almost match or becomes
very close.

So, when that happens, when that kind of a preference matching and understanding get
generated, then you have to do very, you have to actually do incur very less cost to make
the other agent in that particular relationship satisfied. For example, let us say now I
know that what kind of movies she likes and I also have grown my preferences towards
those kinds of movies. So, we both enjoy the movie.

So, while enjoying the movie I am giving her companionship, at the same time I am
enjoying the movie. So, the cost of companionship, the cost that I have to incur to give
her companionship is coming down because I am enjoying I am getting benefit, I am
getting benefit from the companionship one and I am getting benefit from the movie
also, earlier which used to not happen.

So, over the longer period of time, because the multiple agents in the relationship comes
closer in terms of their behavior, their preferences and etcetera, the cost that they incur
comes down. That is number one. The chances of getting a better output goes up,
because for example, let’s say, I want to give ─ I want to make her happy; I want to
make her, make her satisfied. So, I am planning to get her some gift in our anniversary
or in her birthday or something like that.

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Now, earlier also I wanted to give that gift. So, the cost in terms of the physical, mental
information search cost blah blah blah is more or less same let us say. In both the
conditions, I want to make her happy.

So, I want to incur the cost, but will even if the wanting to in that the cost is same. Will
the output be same in the earlier part of my relationship? I might not even know that
what will make her happy, what will be the output of a gift called XYZ.

Now, I know what is the output of the gift called XYZ and ABC and DEF and GHI, and
I find out that gift which optimizes maximizes the happiness. So, in other words I know
that which I right now, I know that which gift will make him most happy as simple as
that.

So, because that knowledge also get ─ got created over this long period of relationship,
the chances of getting a better outcome in the context of marketing, the chances of
getting a better revenue, or the chances of a successful closer of a purchase deal is
higher.

And, that is an outcome of customer relationship management. So, it will show you, we
will all show you that in the initial part there will be some losses, but that losses will be
very well broke even and we will get much more profit. As the relationship stretch ─
relationship period goes longer.

So, one of the major goals that’s why, is you have to optimally increase the customer
relationship life, the customer life-cycle you have to improve that. So, these ideas came
from 1960s.

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(Refer Slide Time: 06:59)

So, it is actually have dependent on the marketing concept or basic marketing concept,
that in 1960s we had product-centric marketing concept. What is product-centric
marketing concept? Product-centric marketing concept says that you create a very unique
product, which will be required by these people. You create a very unique product and
try to sell that particular product.

So, that is the product-centric marketing concept. The whole marketing with the first
important step in that whole marketing procedure is to create a very unique
high-quality product, but later came a segment-centric marketing concept.

So, now also we were creating products, but first, what we did is we created the
customer. Sorry, we studied the customer and then we have broken the customer into
multiple segments. And, for each of these segments we try to or depending on which
segment we want, to target to ─ we try to create a product, which will be a useful in that
particular market.

But, then in 1990s, ten years later came the customer centric marketing. Where it is the
customers who will tell you what to produce, rather than you finding out what to
produce, what to make, how to make them happy, it is the customers who will tell you
what to produce?

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So, all the customer-centric marketing is the whole customer company is looking
towards the customer, everybody is there to help the customer, whether it is the HR of
the company, whether it is the finance of the company, whether it is the IT IT team of the
of the organization. All of this guys HR, Finance, IT, might not have a direct face to face
contact with the customer.

For example, let’s say, it is a production company ─ it is a chemical organization. So,

will the, will the IT team will deal with customers? No. Will the finance team will deal
with the customers: no, HR team: no but still if you can create that philosophy in that
particular organization, that, everybody is trying to help the customer, you are HR or you
are finance your job is ultimately related to helping the customers.

So, you have to make sure that your employees are in a right stage, or your projects are
rightly funded, or your economic condition, the cash flow and etcetera is in the right
space so that your customer gets happy. So, that is something that we called is this
customer-centric marketing from where this philosophy of CRM came in.

(Refer Slide Time: 09:39)

And, it had been seen that when you adopt that customer-centric marketing, the
profitability and market share has a very strong relationship.

So, the higher is the market share, the higher is the profitability: why? Because, you
generally go for economies of scale; if, you can produce a lot, you can probably create

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more; you can probably reduce your price a lot. And, because your cost is also low and
you can probably make higher market share at the same time higher revenue.

(Refer Slide Time: 10:15)

So, that kind of relationship we have got. Now, this is a classic example that I will talk
about in this particular ─ so, just check about this particular thing.

So, let’s say, if we are, I am giving an example of a car purchase. Let’s say, you have
purchased a car. So, it is a Maruti Alto. If, it is a Maruti Alto, then you will purchase the
car at probably the cost of the car is around 2.5 lakhs.

The question is, here that whether this 2.5 lakhs is the only money that you generate for
the car company. You have to understand that here, what is the purpose of car? A service
dominant logic says that, there is nothing called a product.

Every product is trying to create a solution for the customer; it is there is the problem
that the customer faces. And, the product or service or whatever is trying to create a
solution for the problem. So, the question is, why do a customer want to buy a car? So,
why will they want to buy a car? What is the problem that they face?

They might want to buy a car, because of problems that they face is that they want a
private transport. They ─ why they want a private transport, what is the problem with the
other one that is public transport? Public transport can be crowded, public transport

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might not give you convenience, because you might want this particular, you might have
a particular time, when you want to reach.

And, you might want to have a, you might have a particular time, when you want to start.
And, you want, you might want this particular transport absolutely available whenever
you want.

So, all these things create a problem, which public transport cannot solve and that is why
you might need a private transport. You might also want something which will give you
some amount status in the society. Whatever society you live in, it will give you some
amount of status in the society, which is also a problem, which you try to solve using
your car. So, all of these things ─ these kind of problems you try to solve by buying a
car.

Now, the question is that whether buying a car only, you have bought a car that is in your
garage solves the purpose: no, because the car cannot drive on it is own. So, the first
thing that the car needs is fuel.

Now generally, when we buy a car what is the life cycle of the car, product life cycle of
the car, how much time period you have in your mind? You keep in your mind when you
purchase the car let us say 5 years, 10 years. So, here we take an average 7 years.

So, what these 7 years you will be paying ─ 7 years means around 84 months. And, if I
say that in 84 months you will be paying 3000 rupees on fuel per month. So, that comes
up to be around 2.5 lakhs. So, another 2.5 lakhs rupees that you will spend on fuel was 7
years. When you buy a car in loan, probably the interest rate here it is written as 17
percent interest rate.

So, then you will pay around 1 lakh, close to 1 lakh over 5 years in interest. So, that is
also something that you pay. Now, over the 7 years that you are keeping this car, the car
will need maintenance and the maintenance you have to go to the so, sometimes there is
extended warranty, sometimes 1 year warranty or whatever will be the case you want to
spend some money on the maintenance also.

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So, if we assume that every month it is, every year it is 15,000 rupees then total
maintenance is around 1 lakh. And, then you have to also pay for insurance so, was 17 Commented [A1]: 17% for 7 years?
Time: 14.7
for 7 year 3000 rupees or 4000 rupees every year. So, it is around 0.25.

So, if we just add these things up properly, you will see that around 7.2 lakhs is the total
expenditure that you are doing on the car. And, out of which only 30 percent at max,
30% is basically the 30% is basically your cost, the initial price of that thing.

The rest is basically coming from some external sources. Now, how I can tap these
external sources? Let’s say insurance company, I can have a tie up with the insurance
company. That whenever a purchase happens in my store or for my car, XYZ insurance
company is the only insurance company will come.

So, that is one way; so, that is one way. Next is, I can also have my own service centers,
if I have to tap this 1 lakh. What will I will do, I will create my own service centers, like
Maruti Suzuki has it is own service centers.

What else if there is a fuel cost, then, I will actually have a tie-up I can have a card, that
whenever you buy fuel from this particular service provider, then you will get some
points or I can say that only these xyz lubricants can be used in my car.

So, the lubricants: if you have a tie up with the particular brand of lubricant, then you are
actually pushing the customers to buy that particular brand’s lubricant and you are
making a cut out of that because you are creating leads ─ creating customers for the fuel
company.

So, you can make a profit out of that and also probably the interest again the banks you
consider that you can only bank loans has to be taken from this particular place. You can
arrange for the bank loans and you can create leads and you can make money out of that.

There are many other things from which you can make money. You have to understand
we missed some of the things. For example, even if your car is there you have managed
all the finances, insurances, fuels, repairs, somebody is there to drive the car. Now you
have to at least, either you need a driver or you have to learn the driving. So, for that the
car companies like Maruti Suzuki comes up with driving school, or certified drivers.

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So, you can money out of that, make money out of this. So, whenever we buy car, either
we need a driver, or we learn to drive. So, that is something which is also one avenue
from where, I can make money right? Where else I can make money? Now, let us say I
have used it for 7 years, now I want to sell the car and I want to buy a new one.

So, there is a huge used car market. And, you can create that used car market for your
customers. You can say, that you don’t have to go somewhere else, you can come here
we will arrange for your sale, and I will give you ─ I will take small commission, Again
you are making money out of it.

So, there are many ways in which you are making money from a car and only very less
percentage of that making money is basically the purchase. The rest, so you do lots of
branding and marketing blah to make sure that the purchase happens, but it is actually
the money making happens after you made the purchase. For the customer the Maruti
Suzuki they start making money, through the services and solutions that they provide
rather than the car.

So, then I actually sometimes wonder that, what is the business of Maruti? Is Maruti’s
business is to make cars, sell cars or to sell something else? Sell car accessory service is
something that is an important factor to understand. So, that is what customer lifetime
value is or economics of CRM is that you do not make money from these, you make
money from all of these.

(Refer Slide Time: 18:18)

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So, you can see that, it has been told that based on the calculations on before, the product
cost is 34% and actually low because if you consider driver and the other things. The fuel
cost is 35%, and the financial costs are 17%, and a spares and services is 14%. You have
to focus on all these other things also along with the product.

(Refer Slide Time: 18:46)

And, we have also seen, that customer lifetime value: then it depends on what if you, if I
just talk about this customer lifetime value. One of the major drivers of customer lifetime
value is the life time. So, let us talk about what is customer life time value first.

Customer lifetime value is the total amount of money that you can generate from one
customer, over his life time. The total amount of not revenue: the total amount of profit
─ the total amount of net income that you can generate from the customer over his life
time. What is the current day value of that? That is the customer lifetime value.

In the today’s price what will be the today’s money’s worth, what be the total income
that you can generate from a customer. Now, if the customer life time is long, lifetime
means not 70 years 80 years life of that person it might be, but not. Here, we are talking
about a significant amount of time till which you expect that customer to be in your
customer base that is customer life time.

So, it varies depending on ─ for example, for IIT Kharagpur, if it is a B. Tech student the
customer lifetime is four years. If, it is engineering students, the sorry, MBA student’s

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life time is two years, but the alumni lifetime can be very long, but the customer ─ the
student lifetime probably is 4 years, 2 years. In other context probably lifetime is of 5
years.

So, that is customer lifetime, within that lifetime how much money you can make
basically…So, life: the first important factor that contributes to CLV is the lifetime, as
this increases the customer lifetime value increases.

Now, average revenue per year; so, basically, if the total revenue that you make from me
is lifetime multiplied by average revenue per year. So, both increases I am good, if this
increases also I am good, if this increases also I am good. So, I have to make sure I can
give certain kind of services and etcetera to a solution to the customer, such that his
average revenue per year goes on increasing.

So, he starts purchasing more, he starts adopting more and more services. How by
making sure that he tries additional services? If, he tries additional sales and services
then he will actually ─ the average revenue per year will slowly keep on going up.

So, it will not be a constant it will be an increasing curve. So, by making sure that you
can do lots of cross sell and upsell to this customer, but what we left aside is the
referrals, he will not only make, he will not only make money from the customer, which
we have discussed in the previous one. If, the guy is happy with the car, he will talk
about the car to many other people. And, those many other people some percentage of
that will come and buy your car.

So, your existing market share contributes towards your upcoming market share through
referrals. So that referrals become important and you have to make you have to
encourage customers to increase the referrals. There are multiple strategies that people
adopt to induce the referral creating strategies in the in the customer relationship
management, but referrals is a important factor.

So, all of these things together create the customer lifetime value and you have to
monitoringly calculate this customer lifetime value. Why you have to monitoringly Commented [A2]: Not sure about this word.
Time:20.19 – 20.20
calculate? Because you have to know that who are your profitable customers, who are
your non profitable customers, we have discussed about based (Refer Time: 22:44) case.

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So, it is important to identify your profitable and not so, profitable customers one.
Second is you have to understand that, whether there is a way to make your not so,
profitable customer to more profitable customer, or is there a way to make your
profitable customer to further profitable customer. What is the back log; what is the
blockage, what is the, what is the thing that you can do so, that that blockage goes away?

So, is it that the referrals are not happening or upsell or cross sell is not happening or the
lifetime is small, and within that small life time lots of purchase happening. So, which
one is the major reason for your customer lifetime value to be small is something that as
a company that you have to find out.

(Refer Slide Time: 23:34)

So, all of these thing details when you do it properly then you can see something like this
curve. That initial in year 0 there will be a loss. In the year 0 the acquisition cost is there
and that is why the base profit is negative. But, next there is a base profit and then there
is a revenue growth, which is additional sales and services and then there is referrals.

So, slowly from 2nd year, 3rd year, 4th year onwards, your total profit keeps on
increasing slowly. So, the base profit remains same, but if you start selling lots of other
stuff and then you starts charging for some additional upskill product or upsell product or
you can make money from the referrals also. So, this is something that we try to see.

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(Refer Slide Time: 24:24)

So, in the next video what I will do is: I will show you certain examples of how to
calculate customer lifetime value with some data. So, thank you very much for being
with me in this particular video. In the next video I will back with some excel hands on.

Thank you.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 15
Economics of CRM (Contd.)

Hello everybody welcome to the course on Customer Relationship Management in the

NPTEL Swayam platform, this is Doctor Swagato Chatterjee from VGSOM IIT
Kharagpur who is taking this course for you, we are in Week-3 and in this particular
week we are discussing about customer lifetime value and how to calculate that. So,
basically we are discussing about the economic part, the mathematical part the maths ─
the maths and money part of customer relationship management.

(Refer Slide Time: 00:45)

So, here I will solve some small hands on and under the domain of this is also is common
between customer marketing analytics program and also customer relationship program.
Some of the aspects are common and, but still it is important. So many people who are
doing this particular course alone will need this particular understanding which is very
easy and, but very important as well.

So, there is a company called Buford Electronics a company that sales around 350
million electronic products in USA. So, this company is a B2B kind of company and in
the B2B company there are two types of customer base that they generally target. One is

285
small companies and one is large companies. So, electronics they are selling let’s say,
they are selling some projector some CPUs, some this and that. So, even the small
companies might need that and the bigger organizations will also need that.

So, how do you how do they define small companies and large companies? According to
them: all those companies which has revenue less than 3000 dollars per year smaller
companies and companies which has 25000 to 100000 dollar per year are larger
company. So, this is something that they themselves have created the division.

Now they are not sure, the case is like this that they are not sure that which of these two
types of companies they should target. So, when there is a targeting problem that they are
facing that whom they should focus on.

So, what they did is, they went back and talked with their sales team and they found out
some basic figures to based on which they want to take a call. So, one of the basic
figures that they got is called Conversion Ratio. What is conversion ratio? That means
how many leads, that what percentage of your leads that you generate ultimately gets
converted.

So, it has been seen that small companies has higher conversion plan 15% conversion
ratio, but the large companies have lower conversion plan only 5% percent conversion
ratio and small companies ─ the cost per sales visit is also low only 20 dollars. So, sales
visit is let’s say, if you want to if you go for a small company or if you go for a B2B
sales you sometimes have to go to that particular company’s premises and give
presentations stay there understand their problem and blah blah blah.

Now, these you have to do on at your own cost. You do not do it at the cost of the
company who is your potential client. So, that cost of per sales visit is 20 dollars and the
cost of sales visit from the side of the large companies is around 100 dollars; and number
of sales visit per prospect that is required for small companies in general you need less
number of visits 2, probably 2 days ─ 2 visits only and in the large companies case it is 9
visits.

The turnover per customer during first year is 1200 dollars here and 44000 dollars in that
case obviously in the large companies and margin of sales is 360 dollar in case of this
guy and 8500 dollars in case of large companies and because they have less number of

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large companies you have approached 8000 large companies in a particular year and
40000 small companies in a particular year.

So, this is the last one year’s figures. Now based on this they have to decide that which
of this group is more profitable in the long run, whom I should majorly focus in the next
year also so that I can make lot more money in the long run.

So, what is the sales expense per prospect? So, per prospect ─ that means, they have not
become the customer yet, the expenditure is basically the number of sales visit into the
cost of sales visit right. And I drag it from here to here so, I drag it then I get 900 here
and 40 here.

So, the conversion ratio is 15% and 5%. So, what is the cost to acquire a customer?The
cost to acquire a customer is this divided by 0.15. Why this is divided by 0.15? Because
if you know that, that if you ─ 15% is the conversion rate right?

(Refer Slide Time: 05:47)

That means, out of 100 prospects you will generate 15 customers and out of 100
prospects, what will be the cost? 100 into 40 plus 40 dollars is the cost for each prospect.
So, 100 into 40 so, 100 into 40 dollar will get 15 customers.

So, cost for 1 customer is 100 into 40 divided by 15, in other words, 40 divided by
0.15.So, that’s what I am doing here. So, 40 divided by ─ 40 divided by this into 100. So,
that will be the cost and if I just drag it this is 900 divided by 0.05 comes up to be 18000.

287
So, now this is you understand that your cost to acquire a customer is pretty high here
and that is this is the benefit that you get. So, net contribution, what is the net
contribution for the acquired customer, how much money that you generate in the first
year, you only generate 93 because 360 is your margin first year and 267 is your cost. So,
93 is your margin and here it is negative margin minus 9500.

How many customers do we acquired? 15% of this and how many customers you have
acquired here? 5% of this so 400, what is the initial investment in expansion of customer
database? So, there is an ─ there is an investment that you have to do.

So, I will not focus on this let’s keep this aside and the net contribution for newly
acquired customer what is the net contribution we have already calculated that. So, this
one is, if I am not wrong: to buy this thing there was some cost. So, let’s forget about
these two. I forgot what was written in the case okay. So, let’s forget about these two. So,
this is the situation that I have got.

Now the question is, that which one should I go for, Out of these two small companies
and large companies whom should I focus on? This is the next big question that we are
trying to answer. So, now, here I can see that here I am making 93 profit, but here I am
making 9500 loss.

So, why will I even think about them, I will think about large class of companies because
in the first year I might make a loss, but as I have shown in the previous video that in the
next year onward, in the second year or third year or fourth year onward I can make
some profit and that profit can be very high for the large companies. So, what to do then?

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(Refer Slide Time: 09:29)

So, then we will calculate a customer lifetime value in the next stage. So, what I do here
is I take certain assumptions. So, in the first year the sells is 1200, 30% was the margin.

So, 360 is the margin and the marketing expense is 267 this has been told to us, the sales
I assumed to be increasing, increasing and slowly it will be probably let’s say, saturate at
2700. At one point it will saturate will not further increase and the margin also slowly
increases let say 45, 45 and then 50, 50, 50, that is the margin let us.

And the marketing expense slowly comes down. So, 50, 50 let’s say, 30, 30, 30.
Marketing expenses why it comes down, because as I told before that you know your
customer mode. So, even that 30 small customer expenditure marketing expenditure can
also lead to a closer.

So, and also another important thing is the retention rate slowly goes up. So, whoever
joined in 1998 only 75% stays in 1999, but whoever stayed in 1999 80% of them stays in
19. Also just think about this situation one easy example and you will answer will be Commented [A1]: ?2000?
Time: 10.41
able to answer.

That at what year of your marriage after marriage at what year the chances of divorce is
highest, in the 1st year or in the 2nd year or in the 5th year or in the 10th year or after 25
years or 30 year? So, after 25-30 year the chances of divorce is almost 0, it is much

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higher in the initial year, So that means, the retention rate is much higher as the age of
the relationship goes away, goes up.

So, I let’s say, that it will come up to 90% when I reach here fair enough, now based on
these assumptions now these some values you got from the figures and some values are
assumptions.

Based on these assumptions, you should not make the assumptions always this exact
trend you should get it from your database. That data should be there in the database.
What is the retention percentage you can get it from Markov Chain Models.

I will not go to that, but you can try to find out what is the exact probability to change
from 10 years of relationship, 9 years of relationship to 10th year of relationship how I
can get that probability. So, you should be able to find out that from the database.

So, you can ask as a marketing manager to your data science team that: give me these
values. But once we have these values what is the contribution? This is, this minus the
marketing expense that is a contribution per account that I got, what is the discounted
value of the contribution per account.

So, what is the discounted, discounting rate that I have taken 20% is the cost of money.
So, this divided by 1.2 to the power 1998 minus this year. So, just assume what I have
written, G point 2 divided by 1.2 to the power 0 for the first one.

If I now drag it, this is 520 divided by 1.2 to the power 1 because 1999 minus A3 which
is basically or it is actually the other way sorry. So, it is A2 minus 1998, otherwise it is
A2 minus 1998.

So, now, that is the discounted price it is a little bit lower than 520 and so on. So, this is
the discounted contribution; and what are the number of accounts in a year, how many
accounts are there? So, the initial year I have acquired 6000 customers, first year, 75%of
them stays in the second year, 80% of that stays in the next year, and so on.

So, these are the number of accounts that stay in respective years out of these 6000 guys
who I have acquired on 1998. So, then what is the net yearly discounted contribution:
this into this.

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(Refer Slide Time: 14:36)

So, here if I see I get the average also. So, I get the total contribution is basically a sum
of all this first year I make this much money, for the next years I make this much money.
So, these if I just add I get a total segments’ customer value and customer lifetime value
and average customer lifetime value is nothing, but this divided by 6000 because I have
acquired 6000 customers. So, N6 by N3 gives me 1790.

(Refer Slide Time: 15:18)

So, from each client over the time period I will make 1790. So, now, question is what
happens for large customers? For large customers I will try to see the same thing. So,

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let’s say, it starts with 44000 and I assume that it will be saturating at 95000 let’s say:
90,000 90,000 and then 95,000 and the margin let’s say, saturates to be 24, 26, 27 let’s
say, 29, 28 for twice and then 29, 29, and 30 let’s say, that is how the gross margin
works.

So, then what is the margin? The margin is basically, I would remove this, the margin is
basically, this into this by 100 that is the margin, here do the same calculation here, just
one minute I did no sorry yes I did the calculations.

So, the margin is nothing, but B2*C2 divided by 100 and that is the margin fair enough.
Now what is the marketing expenditure? I think that the marketing expenditure will
come to 300 and then saturate and the retention percentage will go up to 70, 70, 70, and
then 75, something like that and that is how it will be let say this is also 70.

Then, what is the contribution? So, what I will do is the equations are more or less same,
but still what is the contribution. The contribution is the margin minus the marketing
expenditure as you know the first year it will be a loss, but the second year onward it will
be a benefit.

And what is the discounted price? Discounted price is this divided by 1.2 to the power
this one minus 1998 ─ as we did for the previous chart also, previous excels. So, this is
the discounted contribution I got. How many in the first year they did, they acquire?
They acquired 400 customers in the first year so, 400 and then this multiplied by 100 so,
these many customers stays back. What is the net money then? This into 400 and so on.

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(Refer Slide Time: 18:08)

So see, we can see here that here after the calculation and etcetera I can see that it is
1081 and this is 1790 if I am not wrong. So, this is much higher in an overall sense and
why it is much higher, you can see that if ─ there are lots of assumptions, but this is a
very big assumption that first year 40 and then 55, 65, 70. Why if I just make this one as
let’s say, 50 this values becomes very high 3761.

(Refer Slide Time: 18:45)

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So, it is important that how many you retain from first year to second year that’s because
the most amount of money that is getting generated is in the second year here. So, how
many you can retain for one single year for the large customers can make a change.

(Refer Slide Time: 19:03)

If you make it 45 this becomes higher from 40.

(Refer Slide Time: 19:08)

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(Refer Slide Time: 19:10)

If you make it 42 or 43 this becomes higher than before. So, how many you can retain,
for one single year ─ large customer is sometimes define your whether you will be able
to get lots of money from the large customers or not.

(Refer Slide Time: 19:19)

So, that is how we can do in a B2B sectors the calculation of customer lifetime value.
Now customer lifetime value is also an important factor for a B2C sector, now in a B2C
sector there are referrals involved in B2B there is generally less number of referrals but

295
into B2C sector there is up selling, there is cross selling, there is B2B. So, there is B2C
referrals. So, all of these things becomes handy in the context of B2C.

(Refer Slide Time: 20:03)

So, I will give you a idea about how to calculate the lifetime value for a resort. So, let’s
say, a resort is making…So, so it is a year 2 to year 5 they have decided 5 years of life
cycle.

And there are certain assumptions. The first assumption is: that to incur you have, to get
a customer you have to incur 2000 rupees of acquisition cost in the first year and then
you first year acquisition cost is one time and then for the next of the time, the first year
the cost is 9600 and that cost increases by 8% per year.

And after doing acquisition by paying 2000 rupees in the first year 0, year 1 when the
customer comes as a customer they do generate revenue of 12000 in that particular resort
by staying in that resort. So, 2000 rupees is your cost, to catch the customer, after the
customer comes to your customer base you have to they give you 12000 rupees revenue
and out of this 12000 revenue 9600 is your cost.

Now the revenue slowly goes up and the costs slowly comes down over year, cost come
down at a, cost also goes up, but not at a similar rate revenue goes up at a 10% per year
rate and cost goes up at 8% per year rate. So, how much is the revenue here then, into 1.1

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and here it is into 1.1 so, I can drag it and this is the revenue for the next 4 years; and
what is the cost, cost increase at 8% per year rate. So, this is the cost for next 4 years.

So, now, we will be calculating the profits. So, what is the profit? The profit is basically,
revenue minus cost. So, first year there is a loss and second year onwards you are
making some money. Now you also make money from other things one is, see four
things I have written here: one is, profit from increased purchase for rooms; that means,
increased revenue I told you in the fourth. So, increased revenue upsell and cross sell
referrals so, increased revenue. Profit from other service which is cross sell, reduced
overhead the cost of serving you comes down and referrals.

So, there are four source of money that is there, what is the increased purchase upsell? In
the first year no upsell happens because there is the first time you were purchasing
anything in the second year onwards upsell happens. So, upsell happens of 800 rupees
and it increases at a rate of 20% per year.

How does this assumption come from? Where does it the assumptions comes from? The
assumptions come from the database that you already have. The customer database you
have to join that customer database, you have to; you have to; you have to analyze the
customer database and create these assumptions which are meaningful so, 1.2 and so on.

And the profit from other services that also increases at rate of 1.2 rate. So, this into 1.2;
20% increase every year next year, it will be 1440 and then it is 1728. The referrals
increase at a 10% rate so, this into 1.1 and so on. And overheads reduce from revenue,
10% of the revenue from year 2. What is the 10% of revenue? This is 10% of revenue:
this much is the reduction in the overheads that also contributes towards your profit.

So, all of these 4 things contributes towards your profit. So, what is your total profit then?
There is nothing, but a sum of these five things. The profit from sells, the profit from up
sells, the profit from cross sells, the profit from reduction of overheads and the profit
from referrals. All of these things contribute towards your ultimate profit overall.

Now, you have to see carefully that the first year you are making a money of 2400, the
second year it is 7900 which is huge, next year it is which is a huge jump because all
these cross sell upsell all of these things comes in.

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Third year it is 9500 significant jump, but not very huge and then 10000 and then 12000.
So, how do you decide it is 5 years you can go up to more so, whether it will be 5 year
life cycle or 7 year life cycle or 10 year life cycle it also a critical decision I told that
CLV calculation starts from lifetime calculation.

What is the lifetime? Here we have taken 10 years as lifetime I would have taken for 5
years and then did the calculation. So, that is also crucial decision and that comes from
the transition probability, that what is the transition probability that from one year to
another year how much will be the change in terms of the percentage.

So, keeping that in your background we have to take whether it is 5 years, or 7 years, or
9 years, or something like that. Now I have taken a discounting factor of 15%. So, what I
will do is I will just write 0, 1, 2, 3, 4, 5. So, first year the discounting factor is basically
these divided by 1.15 to the power 0 sorry 1.15 to the power D 0 value and if I drag next
year it becomes 2400 divided by 1.15 to the power D 13 which is 1 and so on. If I just
drag these things up to this point then I know that see the values have come down and
the net present value is then how much: the sum of all of these things.

So, the net present value for this customer is 2400, now what contributes in this 2400
you will see that this jump is basically contributing to this. So, the major contributor is
these values and these values are coming not from the increase here, the increase here is
not much, but these values are coming from the increase here ─ this cross sell upsell and
reduction is something that is contributing the most, and out of them also the highest
contributing factor is the referrals you can see there are lots almost 2000 to 2500 rupees
every year is coming from referrals.

For a resort context its lifetime value for a resort, for a resort context that is why the
referrals becomes a very important factor while you are calculating customer lifetime
value. So, I will stop here in terms of customer lifetime value calculation we have done
two types of customer lifetime value calculation one in B2B, one in B2C both has huge
applications in the economies of customer relationship management.

And in the next video we will be discussing about certain cases where these concepts of
customer lifetime value management and customer relationship management will be
used to take business decisions that how I can take strategic decisions by making

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informed choice based on the based on hardcore monetary values rather than very
softcore, very-very abstract marketing strategies.

We have to take marketing decisions which are hardcore quantitative decisions and how
that can be taken using this CLV calculation is something that we will be discussing in
the next video.

Thank you for being with me in this particular video, I will see you in the next class.

Thank you.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 16
Economics of CRM (Contd.)

Hello everybody, welcome to the NPTEL swayam course on Customer Relationship

Management. This is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur, who is
taking this course for you.

We are in Week-3 and we are discussing the Economics of CRM and basically, in the
last class we have discussed about customer lifetime value calculation. And, we have
discussed about customer lifetime value calculation both in the context of B2B and
B2C. B2B means business to business market and B2C means business to consumer
market.

So, in the business to business market, one company actually tries to sell the products to
another company which product or services is generally again re-used to create another
solution which will be further sold to somebody else. So, that kind of a relationship is
basically B2B relationship where let’s say, a company trying to sell computers to another
company, one bulk set of computers to another company. So, in the last example we
have talked about Buford Electronics.

So, Buford Electronics is a electronics selling company, which majorly focuses on

B2Belectronics sales. And, they had both large companies and small companies and they
wanted to decide that which one they will choose. So, some strategic decision about the
selling behavior or targeting behavior was found out using the customer lifetime value.
On the other hand, in the B2C sector: when we talk about B2Csector, we have given a
sample example of a resort.

Basically, B2C is what? When a business is trying to target a customer and its an end
customer, their customer does not consume anything and then again try to sell it sell that
particular product to anybody. Generally that does not happen. It happens in case of
durable products where the products after a certain period of time the customer might

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want to sell it to a used market, resell market. But, in most of the context in a B2C the
ultimate consumption consumer is somebody whom the products are sold.

So, resort is such kind of a situation where you are selling the, you are renting out
basically not selling, renting out the rooms and selling certain kind of foods and
beverages and other services to the customers. And customers actually upsell; so, you
can you have an opportunity to upsell with the customers, you have opportunity to cross
sell with the customers and you can also generate new customers from a existing
customer base using referrals.

So, these are some of the basic thing that we are saying. Now, see at the end of the day
we are trying to talk about customer loyalty in case of, in case of customer relationship
management. One of the major driver of long customer relationship management, long
customer relationship is customer loyalty. Now, that loyalty has three parts: we call it
attitudinal loyalty or I will just write it down.

(Refer Slide Time: 03:28)

So basically, loyalty majorly can be divided into two groups: one is called Attitudinal
Loyalty and another is called Behavioral Loyalty. So, what is attitudinal loyalty? When
the customers attitude is towards, has a positive attitude towards this particular service
provider or a product seller then that is called attitudinal loyalty.

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On the other hand, when the customer has, when that particular attitude ─ attitude in this
case we are saying that whether it is positive attitude or negative attitude. Positive
attitude means the customer likes the product or service of the particular seller and
negative attitude means he does not like it.

So, when you have that kind of a thing which, only that kind of a thing, that is called
attitudinal loyalty.When that translates to a behavior that is called behavioral loyalty. So,
behavioral loyalty has again three types.

So, there can be loyalty which is non-attitudinal also, for example, let’s say, if you have
a switching barrier; you do not have any other persons selling this particular product that
is why you are going to this person. So, then you do not have an attitudinal loyalty. You
have a loyalty, but you do not, that loyalty is not attitudinal, that loyalty is behavioral
because you do not have any other option other than going to him.

You are you are not showing loyalty to this guy just because, his quality of product and
etcetera is good. You are showing you are showing loyalty to this guy because the
products and services are not available in the market or the cost of getting the product
and services from another service provider is very high which creates a problem.

So, when that gets a problem then that is that kind of loyalty is not an attitudinal loyalty,
but still you are showing, behaviorally connected to this particular service provider or
products seller, that is why it is a behavioral loyalty.

Now, behavioral loyalty are of three types: one is repeat purchase. So, you are doing
repeat purchase that’swhy, repeat purchase, that is first one. The second one is basically
patronization. So, you patronize this particular, what is patronize means and then its a
positive word of mouth.

So, let me tell them what this what is patronize? Patronize means that even if ─ repeat
purchase is straight forward; so, you repeatedly purchase from this particular service
provider or the seller. So, you go you generally do up ─ so, all the upsell and cross-sell
and repeat purchase comes into this thing.

So, remember in the resort case we told that consecutively 5 years this guy will buy from
you and his purchase will go up at a 10% level, each year it will be increase in a 10

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percentage way. So, that is something called repeat purchase which is also one factor.
Then what comes? You can also do cross-sell or upsell, increased purchase if you
remember in the third, fourth column there was a ─ third fourth row there was increased
purchase which is basically coming from cross-sell or upsell.

So, this cross-sell and upsell is also one type of behavior that we try to show. Now, in
case of when attitudinal loyalty is not there generally, only behavioral loyalty is there
just because there is no other service provided this upsell and cross-sell does not happen.
Repeat purchases happen because you have don’t have any choice for upsells and cross
sells does not happen, but when do not happen. So, but when attitudinal loyalty is there
all this different kind of purchase happens.

The second is patronize, this is something that comes that in the last class again we
talked about that there will be a reduction of overheads or reduction of marketing costs.
So, what is patronize? If you would understand these see, you have, you so that ─ so, it
has been seen that you have you are let’s say, connected with service provider 1. And,
there is another service provider 2 whom you are you are connected with this and you are
not connected with this.

(Refer Slide Time: 08:07)

But what happens is this service provider 2 is going on giving me various kinds of
promotions, promotions, promotions and, trying to poke you and after a time ─ so, first

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promotion you don’t take care of you don’t, don’t react to this promotion, second
promotion you again don’t react to the promotion.

After multiple rounds of promotions and you are non-reacting, there will be one time
when you will be going on reacting to that particular promotion. So, we call it our, I
would say, we try to constraint ourself and this constrainting ourselves from promotional
campaigns actually is costly, its it creates a mental cost.

It you become so, it is like let’s say, if I put every day in front of you, every day if I put a
very good looking cake, very, very attractive cake and then you I say you don’t eat. You
are diabetic, don’t eat, don’t eat, don’t eat, but I still keep you in it, keep it in front of you.

So, after multiple rounds, slowly in the first day you become restrained, in the second
day you still show restrain. But, we all there is a psychological theory which says that we
all has a upper limit of constraint. This much is my mental cognitive load, the limit of the
cognitive load that I can manage.

And, every time you give some amount of that, every time you show the amount of this
cognitive load that I reach slowly goes up; the load in my mind goes on increasing,
increasing, increasing. And, after one level there it will be crossing this limit and when I
cross this limit at this point I will actually snap and I will go for eating that particular
cake. And, often times what we have is that I have gone and two things: one is this eating
behavior and another is probably the cognitive, what can reduce this cognitive load.

Let’s say, you do something good, you go and do some philanthropy or you do and go
and do something good for somebody else. That actually reduces your cognitive load in
your mind. So, then you feel that I have done good job today then I don’t have to keep
this constraint.

So, these two things are basically a psychological thing. Similar thing happened here
since service 1 and service provider 2 also. So, if service provider 2 keeps on giving you
that kind of attractive campaigns, you can constraint your yourself for some time. And,
how much will be that limit depends on how much loyal you are, depends on how much
loyal you are.

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But when you, so, after a certain limit irrespective of your loyalty it will actually break.
So, then what happens is: then the strategy of S1 is: if S2 is giving certain campaign, if it
is giving campaign and in the time period 1 this guy is not given campaign, the decision
comes here is what should I do? So, should I give no campaign? So, what should I do?
Basically, that kind of a decision comes in. Then if S1; so, I will just draw this is actually
the wrong this thing, I will draw once more.

(Refer Slide Time: 11:48)

So, the decision comes up like this: and if S1 gives campaign versus no campaign and
S2 gives campaign versus no campaign who becomes the winner? When both of them
does not give campaign, market share remains M1 and M2 whatever be the case. And
one of them given campaign again M1 and M2, but here the M2 goes up and here when
sorry when S1 M1 goes up when S1 is giving the campaign and S2 is not giving the
campaign and here M2 goes up. So, by chance if this guy is giving certain campaigns
you have to give campaign.

So, that kind of a game theory ─ game theoretic playing always goes on. Now, why I am
bringing in this kind of concepts here is: that patronization is a behavior of customer
loyalty where we try to not react to this campaign of S2; that means, this is very high. So,
customer loyalty is some one of the outcome of customer loyalty is a very high limit of
reaction to the constraint ─ reaction to the campaigns of the alternative service providers
or alternative products sellers.

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So, you do not ─ even if you get very lucrative offers from the your competitor, you do
not take that lucrative offers and you stick back to your old service provider or old
product seller that is called patronization, that is called loyalty.

So, that is a behavioral loyalty and the third type of behavioral loyalty and this comes
when, that happens when this thing happens when you are highly patronizing. What
happens is that as I told that you have to give campaign. If S2 has also given campaign,
if S2 is giving campaign then to fight with him you have to give campaign here, right
that I told.

But, if the patronization is pretty high, the cost that you will incur in this campaigning
will be much lower. That is the reduction of overhead cost or reduction of marketing
costs. The costs that you incur in these campaigns to counter the alternative ─ to counter
the campaigns that are provided by the competitors, that cost of that campaign will be
coming down. So, that is why your marketing expenditure and your overheads
expenditure will be coming down; so, that is something that is also we did.

And, then there was another factor that we have introduced in that column which was in
the rows, if you remember. There was something called referrals. Now what is referrals?
Referrals is basically an output of positive word of mouth that I have written there which
is also one type of behavioral loyalty. Where you not only stick to this customer ─ stick
to the service provider, you not only buy more from this service provider, but you also
talk good about this service provider.

So, you want other people also to come and buy from this particular service provider or a
product seller. When you do that lots of other people comes in and some of them let’s,
100 people coming in and 80 people out of them becomes loyal and that increases the
customer base.

So, obviously, all of these things attitudinal loyalty basically leads to behavioral loyalty
that is true. But or sometimes there can situations where behavioral loyalty is there
without attitudinal loyalty also the one that I have given example. Let’s say, in a very
remote place of India you went and went and working.

And, in that particular place there is no other mobile connection or no other bank other
than SBI bank or no other mobile connection other than BSNL. So, then even if the

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service of BSNL or the service of SBI is not so much good in that particular zone, you
still stick back to SBI, you still stick back to BSNL.

So, for very long time most of the people who are doing their job in IIT Kharagpur, IIT
Kharagpur is a very big campus and there, so the mobile network connectivity inside the
campus was not so good. And, the only one only service provider who was allowed to
have a tower inside the campus was BSNL.

So, that is why BSNL is the only one who could reach give you certain tower in various
corners of the campus. Now, the problem is that, if that happens even if you do not like
BSNL many many professors and other residents in this particular campus for quite some
time were using BSNL.

Even now they use BSNL, but now situations have changed. But, I am talking about
sometime around 2009, 2010 and at that time, around at least 10 years back if I can
remember properly that these people, the BSNL was the only seller only service
provided in this particular place.

And, then at that time Vodafone and Airtel was slowly coming into the market and
because lots of students were getting their mobile phone. So, that is the time period when
students were having their mobile phones, before that generally students did not use to
have their own mobile phones. So, that is the first time period when students were having
their mobile phone. And many companies try to lure this particular students, because in
the long run the customer lifetime value of this particular students will be very good.

Because they are all IIT students and when they become professionals and etcetera, the
consumption of telephonic, I would say tele products will be much higher for this group
of people than other group of people.

So, keeping that in mind they wanted to lure these student groups and I think that they
did for many other good technology schools. And, and that is how all this other service
provider like Vodafone, at that time it was Hutch and then Airtel came into this market
of IIT Kharagpur.

So, all I am trying to say is that in those kind of days before those kind of days, before
2009 it was not an attitudinal loyalty towards BSNL or SBI or somebody, it was a

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behavioral loyalty because I did not have a choice. So, but their current situations when
attitudinal loyalty also leads to behavioral loyalty and the examples that I have given.
Now, in this particular: in the next the with this video and in the next video I will be
discussing about a particular case called Redwoods and how Redwoods have taken into
accountthis loyalty.

(Refer Slide Time: 18:32)

And how that also is related to branding is something that I am going to discuss in this
particular video. So, first thing that I want to discuss before I go into the maths part is
what is branding?

So, this is basic classic branding problem and I want to give a brief about what is
branding. So, branding is basically, a brand is a logo and name, jingle, a picture, even a
face of somebody, anything any object that helps ─ that has multiple objectives that
helps the customers to remember.

So, brand so that they recall at the right time the recall goes up. So, it helps the customers
to remember about a particular product or a particular solution that is number 1. Number
2 is it reduces the information search cost; that means, if I know that this particular
product is good and that comes in my mind very quickly then I will not search for a lot.
Let’s say, if I know that which airline should I go for when I want to go to Bangalore to
Calcutta to Bangalore.

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And, let’s say, I have in my mind so, there is Indigo, there is SpiceJet, let’s say, there is
Vistara and Air India. So forth four are there in my mind. So, then even if there is
AirAsia, even if there is somebody else I might not think about them because these 3-4
names are coming very prominently in my mind.

So, I will not go for search, I will go for searching for this particular things only. So, that
or let’s say, if I forget about this brand names atleast I know that Make My Trip is there,
I go to Make My Trip and I can book or I can go to Goibibo I can book.

Then if I do if I have Make My Trip, Yatra, Goibibo in my mind, there might be a

Trivago, there might be a Travelxp or somebody else whose brand name is not as strong
as these three guys. I will not even think of them.

So, this is something, the brand recall also leads to reduction of information search
which is a important factor when you talk about branding. So, information search
reduction and another third thing that becomes important is basically risk perception
reduction. So, any purchase that we do has certain kind of risks involved.

When consumer make a purchases, there are certain kind of risk involved and they are
probably if you have heard there are 6 major types of risks when we make purchase.

(Refer Slide Time: 21:14)

One is physical risk, social risk, economic risk, performance risk, and then psychological
risk and time risk. If I am not wrong I have covered all the 6. So, all these are different

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kind of purchase risks that mainly applicable to B2C, but also applicable to B2B in some
of the cases.

For example, let’s say, what is physical risk? Physical risk is if it’s a, let’s say, cream, if I
put the cream on my face whether there will be some damage or if I have a medicine
what will be the side effects. If I go consume certain products what will be the
repercussion of this products.

So, that kind of risk is physical risk and we try to mitigate that by let’s say, certain
certifications that whether it is ISO certified or like whether it is properly tested for
whether FSSAI is certified the particular or FDI is certified the medicine or FSSAI has
certified the, F-S-S-A-I has certified the food product or not.

So, that comes with the physical risk whether the expiry date is written properly and
whether it is within the expiry date. So, that is physical risk. Then what is social risk?
Some products might you don’t want to, want other people to know that you are using
those kind of products.

For example often times for women probably let’s say, even today in Indian country the
sanitary napkins or products which are related to personal hygiene are generally has
certain kind of social risk. People do not want to buy them from the medicine shop
openly. So, those kind of products are having social risk.

Then what is economic risk? Economic risk is that you bought something, but then later
you found out that particular product is available at a cheaper price in somewhere else.
So, how will I know that the product that I am buying is not cheating me in terms of the
money part? Probably the product is same, but he is not cheating me in the monetary part
how will I know that.

So, that is that comes with economic risk. How will I know that there is a government
subsidy is there, but the provider is not giving me that government subsidy. So, those
kind of risks are economic risk. Performance risk is basically whether the product will
work or not.

So, let’s say, we bought a laptop, what is the probability that the laptop will get damaged
within some time? So, often times we do not want to go for, so far for furnitures I have

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personally experienced. For furniture there are products which are let’s say, made of
compressed wood or made of engineered wood.

So, there is a performance risk of those particular products and that performance risk was
also associated with the economic risk. But whether this particular thing will be durable.
I am buying a durable product it should remain for some time whether that will stay for
sometime or not. And then, there will be associated economic risk for that as well. Then
psychological risk, certain products that you when you buy them that gives you
psychological boost up or sometimes it gives you psychological remaining factor.

For example let’s say, if you buy ─ what kind of psychological boost up will you get if
you have to buy Fair and Lovely or I would say any product which claims that it will
make you fairer, that kind of products; will you it be a positive psychological boost or
negative psychological boost? Depends on customer, it might have different impact on
the customers mind.

So, those kind of risks are psychological risk and then the last one is time risk ─ that
whether you will lose time. So, should I buy it from Amazon or should I buy it from
Flipkart or should I buy it from my from the store, from our grocery store in the in the
which is close by, which one should I buy?

Is also related to time risk that how much time I will spend and whether that will be in
line or not. So, all these six different kinds of risks are, gets mitigated when you have a
brand.

So, a brand’s third job is to basically mitigate these risks and make sure that this risk
does not become a very prominent a bigger factor. So, majorly service providers use this
brand to do two things. One is reduction of risk, reduction of information search cost and
reduction of the and the increase of brand recall in the correct permit.

Now, if that is something that brands try to do, any brand is trying to do then the next
question is that what are the different strategies of branding that I can do? And, in this
particular class I will be discussing about a specific type of branding strategy, we call it
umbrella branding or brand extension strategy. So, and that is where this rose Rosewood
case will also come up and how they have used the umbrella branding strategy to do
something good for the market we will be discussing.

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Now, what is umbrella branding? I will just define this umbrella branding and that is
where I will leave in this particular video. So, what is umbrella branding? Umbrella
branding is basically a branding strategy. First of all, there is something called brand
extension where you have a same brand and you come up with multiple products with
that particular brand.

(Refer Slide Time: 27:05)

For example, you have Saffola Gold which is a oil and then you come up with Saffola
Oats. So, Saffola Gold is a old oil which is known for its ─ for the quality, the health
consciousness and etcetera it is known for that.

Saffola Heart was another product which is also an oil which were majorly focused on
that this particular Saffola brand is related to healthiness, healthy lifestyle, pro-active
lifestyle and etcetera. So, when that kind of a brand name is created, you know whenever
you think about something which is proactive which is a food which will make you keep
you healthy and which will not impact on your weight and blah blah blah, you would
remember Saffola.

So, that is why you have to buy Saffola product, you if you have cholesterol or if you
have diabetes or even if you do not have diabetes, if you want to be active and etcetera
Saffola wants that you focus on Saffola. Now, what happens is when that kind of a brand
name gets created, Saffola can come up with new brands like Saffola Oats. Saffola Oats

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is exactly a brand extension which also talks about that whatever this oats is also
something which is related to goodness greater to it is a good.

Many people consider it is a good option in terms of breakfast which can be consumed
and you can, you will be still remain healthy rather than having paratha or puri which are
full of oil and etcetera; you can have oats which is light. And, you can have it with milk,
if it is a plain oats; if it is a masala oats you can make masala oats like Maggi or
something. So, all are those kind of options are there and the Saffola brand name got
extended.

We do similar kind of thing for other products also let’s say, Kahaani and Kahaani 2,
Kahaani is a movie, we the moment we remember Kahaani. Kahaani is a movie which is
known for its for Vidya Balan and very good script and very I would say, very (Refer
Time: 29:20), very good thriller movie and etcetera. So, and the climax is always at the
end and some something like that, it is known for its thing.

Now, when you come up with Kahaani Kahaani 2, the customers will, whoever is the
viewers will also go to that particular thing to buy; with having this in mind that I will be
seeing a similar kind of…

So, you are basically setting a expectation by using the name Kahaani, same applies to
here. We are setting an expectation by naming. Now, when these kind of things is done
in a broad scale, we call it umbrella branding. So, what is umbrella branding? There are
two types of umbrella banding that I will be focusing on.

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(Refer Slide Time: 30:04)

So, umbrella branding means this is and umbrella let’s say, an under which this is a big
brand and under which there are lots of small small people who lives under this big
brand. One classic example can be Nestle is the umbrella and Maggi is there, Nescafe is
there, Nestle KitKat is there, Nestle Milkmaid is there and there are so many names are
there, so, many other names are there.

So, what happens is that when we think about Nestle, when we think about Nestle this
particular things are coming up. All of these things and brands which are individually
well known, but they comes under the umbrella branding of Nestle.

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(Refer Slide Time: 31:01)

Another example of umbrella branding can be let’s say, Virgin, you do not know about
them in India; or let’s say, Tata. if I just talk about Tata. And, then there is Tata Motors,
there is TCS, there is let’s say, Tata Steel, there is let’s say, Titan and Tanishq probably.

Now, understand the difference between the previous one and this one; both are umbrella
branding, both of these things are umbrella branding. Both want them to be connected
with each other, but there in the previous one; Nestle, Maggi, Nescafe probably the, so,
what there is a Cadbury of Nestle I forgot the name. So, all of them, Milkybar if I am not
wrong.

So, KitKat, Milkybar, Milkmaid, Maggi, Nescafe each of them are separately themselves
a brand. They don’t actually, though it is written Nestle Maggi or Nestle Milkmaid, or
Nestle KitKat, but they don’t actually depend on Nestle. They depend on their own brand
name.

KitKat has their own brand name, Maggi has its own brand name and it is known as
Maggi. On the other hand, in this case other than Tanishq and Titan which are basically
consumer products; other than them Tata Motors, Tata Steel, Tata Consultancy Services;
everybody is taking help of the big name called Tata.

So, the there they both are umbrella branding, but both have certain strategic differences.
And, when to apply what and how CLV can help you in decide that whether I will go for

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this strategy or the below strategy is something that we will be going to discuss in the
upcoming case. So, I am giving all the theoretical background that is required for the
coming case. go to the case now.

Thank you very much, I will see you in the next video with the case discussion.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 17
Economics of CRM (Contd.)

Hello everybody welcome to the Swayam NPTEL course on Customer Relationship

Management. This is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur who is
discussing this course. And in this particular video we will be discussing about Umbrella
Branding Strategy and how customer loyalty umbrella branding and customer lifetime
value calculation all comes together in a strategic decision making.

The case that we are going to discuss is on Redwood. It is a hotel channel ─ a hotel
chainand how they have used customer lifetime value calculation in their decision
making is something that we will be discussing.

(Refer Slide Time: 00:56)

So, what is so, actually it should be Rosewood sorry. So, what is Rosewood? Rosewood
is an international hotel and resort management company which is there in the market for
last 25 years. It is privately held and the number of key executives, so, there will be lots
of CEOs and CFOs key executives are there who are handling in multiple part of the
company. Small numbers of properties are there. So only 12 properties are there and
1513 rooms are there.

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So, this is a company if you have gone to a place called let’s say, Taj Palaces if you have
gone to any one of the Taj Palaces or let’s say, in Bangalore if you have seen Leela
Palace, so this particular company is something like that. What they generally do is to
acquire old and heritage sites, heritage buildings. They acquire those buildings even
Great Eastern in Calcutta if you have known that, that will be an example of like this. So,
these guys acquire heritage buildings, transform them to hotels and then they actually try
to attract the customers.

Now, the difference is that the hotels are very, very much ─ if you have acquired let’s
say, Great Eastern if I am talking about Great Eastern in Calcutta. Great Eastern is very
much associated with the colonial history of Calcutta. So, how British came in and how
they have established, what kind of the food in that thing is: Bengali or colonial or
western or the all the architecture is English architecture, the interior design is English
interior design.

So, it has their colonial, I would say a colonial shadow on it. On the other hand if I talk
about let’s say, Taj Palace which is based out of, based out of Rajasthan which might
have a Rajput history. So, or every there will be lots of swords probably spears and
shields and then there will be big big pictures of some Rajput kings. And there will be
pictures of wars going on between Rajputs and Mughals and Rajputs and somebody else.

So, all of this grandeur will be there, grandeur which is related to the kingliness rather
than related to the colonial history. So, when you go in Great Eastern and when you go
in Taj Palace which is based out of ─ any Taj Palace which is based out of Rajasthan.
The expectation that you will have in your mind will be very different. Now, when this
particular company has acquired such 12 properties, each property will have around 100
odd rooms. So, that gives around 100-120 rooms. So, that gives around 515-113 rooms,
but majorly these properties were focusing on the luxury segment.

So, luxury segment means people who are willing to pay a lot for this kind of an
experience. And the properties were heterogeneous. That is the thing that we are going to
discuss together. Every property were different the history were different, the service
expectation in that particular property were different, the employees were also trained
differently.

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Because if I have an employee who is well known about the Rajput Gharana and he
comes to Calcutta and gives a, and I he is put in this great eastern and I ask him that you
have to serve English food or you have to serve this food that food. And you have or you
have to treat the guests as if they are in the colonial time and they are having that kind of
an experience.

Then there will be a clash in the mind because this person is trained in a different way.
There can be some people who are trained in hotel management, but not every people
will be trained in hotel management in such a depth that they will have the cultural
flavours also. Certain cultural flavours are very much specific towards that particular
place and you cannot pick up a person who is culturally associated with that place and
put in another place and then ask him that even here you have to be culturally associated
that is not possible always.

So, that heterogeneity of the properties were there and because the properties were
heterogeneous; their management was also different; the management also were dealing
with this properties differently. They did not want to come together and bring in a similar
kind of procedure in all the properties that they did not want.

(Refer Slide Time: 05:41)

So, if I just talk about hotels there are corporate chains and there are individually
branded hotels. So, what are corporate chains? For example, one classic example will be
like, individually branded hotels is like Leela Palace. You will not get Leela Palace in

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multiple places Leela Palace is there in Bangalore. So, like great eastern is also there in
Calcutta. So, these are basically individually branded hotels. But you will get, let’s say,
Taj Vivanta or let’s say, some park hotel that these kinds of hotels you will get in
multiple cities.

So, the now Marriott let’s say, Marriott is something that will get in multiple cities. So,
Marriott, Taj, Vivanta these cities were hotel chains where the average daily rate is low,
low means it is lower than individually branded hotels.

So, the individually branded hotel will be around let’s say, 15,000, 20,000 rupees per
night, these guys will be around 10,000 rupees per night. And the occupancy rate is, that
is why because the rates were lower the occupancy rates were also higher. There are
multiple reasons of this high occupancy rate of corporate chain and relatively low
occupancy rate of individually branded hotels.

And as we come slowly I will be discussing about why this was happening, why the two
different kind of hotel chains or hotel and resorts industries ─ two different kind of
business models have different occupancy rate.

(Refer Slide Time: 07:08)

So, to give a picture about what was the case: If you see carefully that the blue line, this
one is Rosewood whose ADR was highest; so up to a rate of around 350 up around 370

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dollar per night. So, 370 dollar per night means in India’s currency it will be around
25K something like that. So, that was something that was Rosewood’s case.

On the other hand if I check the Ritz Caltron. Ritz Caltron is around how much ─ 220,
220, 225. So, 220 will be around 15 k in India’s price so that was a difference if you can
understand. That was a difference between two; so obviously, that will impact the
occupancy rate.

And if I just talk about the occupancy rate, Rosewood’s occupancy rate was lower, but
still it was growing. So, in 2001 when this particular, so in 2004 onwards this particular
case was written. 2001 it was around 55% it went up to 62% and then probably 63%
something like that.

On the other hand Orient hotels; Orient Express hotel occupancy came down from here
to here to here it came down slowly. Though this particular this Orient hotel actually it
came down because they have increased the price. So, if you see here it was around 220
to they have increased it to or two from 250 or they have increased it to around 350.

So, that’s what they did actually and that is why the occupancy rate also went down. And
the other middle one more or less remains same. So, these did not change much this two
probably a little drop for four seasons, but it did not change much.

So, there is this is the current situation that you can see that though they were keeping
out the similar kind of price. Though this Rosewood has not changed the price the
average daily rate was more or less same their occupancy rate was going up. So, then
where is the problem then if your occupancy rate is going up then it is happy, we should
be happy where is the problem.

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(Refer Slide Time: 09:31)

This is the revenue per arrival I think. So, you can have a look, but let us come up to the
problem.

(Refer Slide Time: 09:37)

So, what was the problem? So, before I come into the problem let us talk about the
Rosewood’s branding strategy. So, as I told that each of these it has 15 properties or 12
properties and each property were individually branded. Individually branded means that
is where I was talking about, what I was talking about in the last class. So, in the last
class if you remember I talked about umbrella branding here.

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(Refer Slide Time: 10:06)

And I told that there are certain brands which are under umbrella brand. But which does
not require the help of the mother brand and these are, this is the Nestle is the mother
brand and these are the sub brand. And sub brands itself are very strong enough they
don’t need the help of the mother brand.

(Refer Slide Time: 10:26)

But here in case of Tata this is the mother brand this is the sub brands, but other than
Titan and Tanishq probably all other guys like TCS and Tata motors and Tata steel will
require the help of the mother brand while or let’s say, Tata Power or let’s say, any Tata

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Projects all of them will require the help of the mother brand when they are doing
branding. Now what kind of branding strategy is right for which kind of company is
something that we will be going trying to discuss now.

(Refer Slide Time: 11:06)

So, just think about this thing that if you have checked in Nestle Maggi’s case: this is
how it is written Nestle and then Maggi this is how the packet looks like or even in
KITKAT you will say Nestle and then KitKat something like that will be written. So,
here this is called this kind of branding strategy is called individual branding strategy
where the mother brand is not giving getting prominence and the individual brands are
getting prominence

On the other hand if I say that, if I show a Tata’s this thing or Tata’s logo something like
that I forgot and then if I write Tata Steel that is I am trying to focusing on this Tata part
not the steel part or Tata Power I am focusing on the Tata part on the power part Tata
Metallic’s I am focusing on the Tata Power Tata part not the metallic part.

So, all of these branding strategies when we do this kind of a thing is basically a strategy
where we are not doing individual branding we are doing umbrella branding. We are
actually focusing on the umbrella we are giving importance to the umbrella we are not
giving importance to the….

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So, initially what this company had this Rosewood had had was something like this.
Let’s say, I have if I write Taj Palace Rajputana and let’s say, Taj Palace let’s say,
Shivalika or something like that let’s say, anything related to Shivaji I am not….

So, this will be this will related to Maharashtra, this will be related to the Rajput history
and the historical facts based on these two groups will be different. And the prominence,
the things that you will give more importance to are different because the cultures are
different.

And if the cultures are different then you want them to be different brands. So, that a
person goes to the Taj Palace Rajputana will get the flavour of Rajput history, a person
goes to Shivalika or I could not create a name, but you can create a name like that there
we will get a Marathi history or Shivaji’s history we will come to know and those kind of
a experience you will get.

So, similar thing were done by this Rosewood it used an individual branding strategy for
unique properties. So, each property had it is own personnel branding strategy that’s why
the ads were also property-specific. That is why there was no countrywide ad very
localized ads were there.

Soft branding of Rosewood name, that the soft branding means the one that I have just
showed the Rajputana or the Nestle name is small and the other name is big so that is
soft branding.

So, the Rosewood name was soft branded there was a sense of place. Sense of place
means whatever this place is talking about you can go in and actually feel that particular
thing that you can feel that this place is talking about everything about Rajput history or
this place is talking about everything about colonial history of Calcutta so that sense of
place was there.

Flexible service and product standards: so each and each any each hotel was given
flexibility in terms of what kind of service and products will be given and at what
standard what price and margin was pretty high. So, they were actually targeting only
those customers who will love that experience.

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So, if they love that historical heritage experience only then they will be coming to these
things. So, that’s why, the margin that they could keep was pretty high and still they
were getting pretty good occupancy rate.

(Refer Slide Time: 15:22)

What was the result? The result was they had a very small niche market. So, small
means, the total customer size was 115000, and these were majorly wealthy section, they
could spend 750 dollars average daily means ADR is 350 dollar if you remember 350
was average daily rate of the room. Outside the room also they can spend another 400
dollars every day that was the condition. And average revenue per guest that is why they
used to stay 2 days at least when they in an average when they used to visit.

So, the average daily rate is 1500, but the problem here was that the customers were not
very loyal. So, how many times will you go to, go to this Taj Palace Raputana? If I
already have that experience once you might not want to go back to that experience
again. Because often times we want to just have, we are let’s say, if I am a history lover I
will go here and a wealthy history lover then I will go here and then next time I will go
to some other place where the history is there. So, it becomes like a tick in my travel
folder that I have gone to Rajasthan.

So, that’s why that retention rate or the repeat customer was very low only 17 %. And
multi property customers were further low 5%; that means, a person who is who likes the
Rajputana history might not be interested in the Shivalika history or the Colonial history.

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There will be very few people who is actually history lover and might go to multiple
properties to have the sense of history in the multiple properties. So, that was a major
problem.

So, if your repeat customers are low, if your multi property customers are low then every
time you have to do new acquisition there is no customer lifetime. Because every,
nobody stays nobody gets connected with your overall chain and practically frankly
speaking. If you come to know unaware of Rosewood brand nobody even know your
name they know the properties name, but they don’t know your name they don’t know
that Taj Palace Rajputana and Taj Palace Shivalika is both are Taj Palace.

If you soft brand Taj Palace in this case if you soft brand Rosewood very low and
majorly focus on the ─ which actually Taj Palace is not doing they are focusing on Taj
Palace and not on the; not on the Rajputana or Shivalika part which is good. But
Rosewood did wrong, is that if you focus on the individual brands too much and if you
don’t focus on the mother brand then nobody will know that these two properties are
coming under the same property managing or same resort chain.

And I can actually expect certain kind of historical thing here also and if that is not
known customers becomes very much loyal to the individual brands and that loyalty also
is 17 %.

But multi-property customers becomes much, much lower only 5% and Rosewood brand
awareness was only post through travel agent nobody nowhere else because the ads were
property specific as it was told in the second line. The majorly the ads were focusing on
each property rather than the Rosewood brand. So, there was no, for example, let’s say,
what is let’s say,; let’s say, have you seen that the Kerala tourism gives an ad which is
like Gods Own Country.

So, when they give an ad on ‘Gods Own Country’ or Gujarat gives an ad on ‘Kabhi to
Aao, Padharo Mere Desh’ [FL]. These kinds of as I am not talking about a particular
location like Munnar or Alleppey or somewhere else they are not focusing on a particular
location they are working on a overall brand called Gujarat or overall brand called
Kerala.

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So, rather than that, if people only focus on small, small brands which are individual
brands like in West Bengal we focus on Darjeeling. So, we do not focus on West Bengal
as a brand that which becomes, oftentimes detrimental. People think that okay, what to,
if you ask somebody from outside majority will do a survey majority will say that in
Bengal, we will go to Darjeeling. So, Darjeeling is the only place which is known for
Bengal for it is travel which attracts lots of people and obviously, the Calcutta because
that is the central.

But outside Calcutta and Darjeeling there are so many travel places people from outside
will not know because that umbrella branding has not been done which Kerala and
Gujarat has done pretty well. So, that kind of a thing was also happening here that the
umbrella branding was not available. So, that was the business problem.

(Refer Slide Time: 20:17)

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(Refer Slide Time: 20:22)

Now, question comes is how to solve it with how to solve it. So, one way of solving it is
to do the umbrella branding to do this corporate branding. Somewhat there are certain
pros and cons of this individual and corporate branding also.

The pros of individual branding is obviously, you can differentiate from luxury brands,
you can differentiate from Ritz-Carlton, Orient express and say that we are a special kind
of brand. And individual branding provides higher ADR you can charge more as you told
the margin is high.

So, you can charge high price still occupancy rate will be high and the brands are already
well established you don’t want to kill the brands. But what are the cons? Obviously, as
just told deter multi-property cross selling ─ cross selling does not happen. And brand
positioning is very narrow you don’t create an overall brand positioning your brand
positioning is too much focused on that particular location.

On the other hand, if you do corporate branding whatever is the cons of individual
branding goes to the pros of corporate branding and whatever is the pros to the individual
branding comes to the cons of the corporate branding.

Just see that encourage cross sell operation economies of scale can be achieved because
lots of people come you can get multi property customers now and marketing cost will

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reduce. So, you don’t have to acquire customer every day one customer will stay for your
multiple properties.

But the problem is it needs consistency which is a nightmare if each of your hotels are
different hav,e different culture, different kind of organizational culture also. So, to break
them everything and bring into a same standardized way becomes very difficult. So, it
needs consistency. Dilemma with uniqueness and individuality there is always there will
be a fight between the uniqueness of one property and individuality of that property and
with the corporate branding.

Corporate branding may deter some customers and managers because those customers
were majorly focused on that particular history or the managers were majorly focused on
that particular organizational culture. While it was more focused on the history of that
particular or unique aspects of that particular property those people will not be happy and
there will require significant investments.

So, this is the last point, which is most important point ─ that what is the cost if I want to
still bring in the consistency if I want to still bring in uniqueness and individuality and
blah blah blah. What will be the cost of this corporate branding and whether after doing
that whether it will be worth to do that or not. So, that kind of a problem was coming in.

(Refer Slide Time: 22:58)

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So, this problem that I was I am discussing till now can be solved using something called
CLV calculation which we have done in the last class. And in the next video I will be
coming up with the CLV calculation of this particular problem.

Thank you very much for being with me and I will see you in the next video.

Thank you.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 18
Economics of CRM (Contd.)

Hello everybody. Welcome to this NPTEL Swayam course on Customer Relationship

Management. This is Doctor Swagato Chatterjee from VGSOM IIT Kharagpur, who is
teaching this course. In the last two-three videos we were discussing about branding,
customer loyalty, customer lifetime value and I have given an idea about a case which is
Rosewood; and in this particular class we will be doing a little bit of hands-on on
Rosewood case to find out that whether they should go for individual branding or
corporate branding.

(Refer Slide Time: 00:43)

So, this particular thing has been taken from a case where different ─ the information’s
were collected from the different exhibits of the case. And the information were like that,
if you have without branding, if you do not do branding this much was; this much was
the number of unique guests and if you do branding by then this is the number of unique
guest also.

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But what happens is, the average daily spend is 750, it was there and it is growing at a
pace of 6% ; the number of days average the stay is 2, average gross margin per room is
32, because that’s what it has been told there.

But what happens is that average number of visits per year per guest goes up slowly
when you do corporate branding. Because they come back, there is a repeat customer
that comes up that is something, so which is not very high 1.2 to 1.3.

(Refer Slide Time: 01:52)

And average marketing expense per guest here is 130 and here is you can see the
calculation; it is basically, basically this extra 1000000 will be the cost of corporate
branding.

So, 1000000, if it is the total cost of corporate branding and I have 115000 customers; so
the extra cost on marketing is 8.7 rupees or dollars per customer. So, that gets added and
that is growing at a 3% rate; because you have to keep on doing, as I told in a corporate
branding strategy; if you have to keep on doing the branding, the marketing expenditure
will go on and happening.

An average new visit is same, total number of repeat customer these goes up. So, the
repeat customer ─ so not only the stay of the customer goes up, average number of visits
of one customer goes up,but the number of repeat customers also goes up; how much?
5750 additional multi-property guests from corporate branding adds up to this.

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So, that is how it changes. So, what is the total number of multi-property guests? In this
case, it was 5750, these becomes 10% . So additional is how much, another 5750. And
discounting rate we have assumed to be 8% and average retention rate also goes up by
5%.

So, in initially, it was 16.67, it was 21.267. So, this is a con that your marketing
expenditure is going up. But the pros, is the average visit is going up, the multi-property
guests are going up and your retention rate is going up. Let’s see after doing this whether
we will be in a positive position or in the negative position.

(Refer Slide Time: 03:38)

So, the first thing is we will calculate the customer lifetime value for when there is no
corporate branding. So, when I take these things as my result. So, how many number of
stays? So, in the first year you acquired the customer ─ in year 0 you acquire the
customer and you don’t do anything. So, what is the cost of acquisition? The cost of new
guest acquisition is 150, so I will write 150.

Next year onwards you do not acquire the customer anymore, because it is already there
with you and I assume that the customers lifetime is 6 years; this is an assumption that I
am making based on my idea, you can reduce or increase as a the customer lifetime.
Then what is the annual marketing cost? The annual marketing cost if you see here, it is
written 130 and growing at a pace of 3%.

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So, here the first year there is no marketing cost, in year 1 there is 130 is the marketing
cost and that goes on increasing at a rate of 1.03, okay. So, this is the cost. Now, come
let’s come on the benefit part, how much? So, first year I am acquiring the customer, so
it is 0, no nothing here.

The second year, the number of stays number of nights per stay is 1.2 and number of
stays per guest ─ no actually 2. This is 2 and this is 1.2. And what is the revenue per
night? It is 750. So, what is the revenue per customer? That is basically this into this into
this that’s the revenue.

(Refer Slide Time: 05:44)

And what is the gross profit then? The gross profit is basically 32% margin is there; so,
this comma 0.32 that is my gross profit. Now, the nights, number of nights per stay is it
going up? No, it is not going up, nothing is written here; so I will keep it 2 for
everybody.

Next question is, guests visit is also remaining same; this 750 is growing up at a rate of 6
% , so that becomes 1.06. And I get this revenue; so what? So, these things will be same,
this is basically the multiplication of these three terms; this is basically the multiplication
of these three terms and so on and each will have a 32% margin, I don’t think the
margin also changes, it is remain same, so 32% margin.

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So, this is the, so this is the net money that I generate from his stay and this is the
acquisition cost and I am at this moment I think that the referral and up sell and down
sell will be same for both the third type of customers. So, what will be the cash flow if
retained? So, first year you are making a loss, second year onward you are making some
profit, right?

(Refer Slide Time: 07:22)

So, what is the probability of getting retained, retention rate? So, first year I in, I actually
incurred these acquisition costs; so this is 1. And then I second year 1 actually, year 0 I
incurred the acquisition cost, year 1 they all stay with me, because that is how I will
calculate, the second year is also 1. But then third year onwards only 16.67 customers
stays with me, yes.

(Refer Slide Time: 08:13)

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So, this multiplied by 1667 and then I drag it. So, then what is the expected cash flow?
Expectation is the number of cash flow into the probability.

(Refer Slide Time: 08:27)

So, this is the expected cash flow; this becomes 0, because the probability that this guy
will stay after 5th or 6th year is very low. So, practically, I can remove these two
columns, anyways, I will keep it for now. So, what is the discount factor? The
discounting factor means, what will its 8 % . So, what I will do is? I will do this is 1.08.

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(Refer Slide Time: 09:01)

No this year it is 1, second year it is this into 1.08 and so on; and this value 1.08, 1.082 ,
1.083 and so on, this value will be divided.

(Refer Slide Time: 09:15)

So, this divided by this that is my net score.

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(Refer Slide Time: 09:25)

So, the net NPV is basically a sum of all these NPV. So, net present value for one
customer, when we do not do this calculation is 345 dollars. So, that’s how we get it in
this condition.

Now, I have to do the same comparison. Now, if you remember, we are not talking about
multi-property guests; this multi-property guest is going up because of this thing, this 1.3
is coming from there actually. Because, there this multi-property guest initially is how
much? 5750 was the number of multi-property guests, these has gone up by 10 % .

So, total number of repeat customers is this, but these two values are not being taken into
account currently in the calculation purpose. See there was never I took this 5750; but
and 169 ─ 19169, these two is not taken into account. Even after that, even not taken into
account whether that helps is something that I will be trying to check.

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(Refer Slide Time: 10:28)

So, here how much is the acquisition cost? Same 150 and what will be the marketing
cost? Okay. So, I will put it here, the marketing cost is, if I am not wrong it is 138.7
growing at 3% , so 138.7 and that grows at a 3% rate.

(Refer Slide Time: 10:59)

And what will be the cost here? First nine nothing, second nine onwards 2 comma 1.3 so,
I will just copy this, let’s. So, copy and paste.

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(Refer Slide Time: 11:18)

And this will be 1.3, instead of 1.2 and 750 is the expenditure; yes 750 is the
expenditure.

So, the rest of the things will remain same; that is, from the things will remain same. So,
this is my expenditure, this is my gross income and this is my marketing expenditure. So,
what is the retention? So, if I just copy this values and paste it here; just to, so that this is
─ these are the values, basically, this is nothing but 6204 minus 0 minus 139, this is
nothing but 661 minus 0 minus 143.

(Refer Slide Time: 11:52)

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These values are here rounded up and this is not rounded up; that is why it is coming like
this, but actually the values are I got. And what is the probability of getting retained?
Instead of 61.67, this should be 21.67 % . So, that improved.

(Refer Slide Time: 12:12)

So, this is 21.672, this is 21.673 and so on. So, that gave me these values. So, which is
nothing, but cash flow into the probability, cash flow into the probability and so on and
the discounting factor remains same. So, this is my total NPV and if I just calculate it; if
I calculate the sum, yes sum comes up to be 422.

(Refer Slide Time: 12:43)

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So, previously it was 345, now it is 422; the extra money that I generate is 77. So, in case
in total profit is around how much? ─ 819 into these customers.

(Refer Slide Time: 12:57)

So, that is the increase and I have not taken into account ─ till now I have not taken into
account the repeat customers. So, I have only taken into account the average customers
so all of these, about the multi-property customers, probably that contributes towards that
1.3 calculation or this 21.67 calculation that multi-property customers. But we have not
taken into account that thing.

So ideally, if you understand that, the corporate branding cost per year is 100000 and
what I am getting in return is 900000 from one side of customers. So, even after 6 years
onwards I can, I keep on doing this corporate branding; still I am in a good shape.

So, that is something that suggests that they should go for cooperate branding, not for
individual branding; though that there will be lots of barriers from their company that I
do not want to change, I will leave the job, if you go for major depending.

If my boss dictates from Delhi that great eastern has to be run like that and Leela Palace
has to be run like that; a person who is centrally located and is giving suggestions that
how I will run my show here, then that is not right, that kind of feeling might come. But
still even after that kind of feeling comes, it is better for them monetarily to go for a
global branding strategy.

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(Refer Slide Time: 14:28)

Now, they did that actually and these were their situation. If I just plot the occupancy
rate and the ADR.

(Refer Slide Time: 14:44)

Just two things I will plot: the occupancy rate and ADR, just one minute.

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(Refer Slide Time: 14:53)

So, okay─ so, occupancy ADR we had in a ─ ADR I will put a line chart and occupancy
rate I will put a bar chart, and ADR is a secondary axis, okay.

(Refer Slide Time: 15:02)

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(Refer Slide Time: 15:04)

(Refer Slide Time: 15:07)

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(Refer Slide Time: 15:10)

So, you see that this is I am doing only for Rosewood; you see that even after doing that.
So, this is these are what ─ these are basically and if I just one minute.

(Refer Slide Time: 15:22)

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(Refer Slide Time: 15:23)

So, what I will do is: I will edit the axis ranges like this. Oaky, it did not come properly
probably some reason. But this is 2001, this is 2002, 2003, 4, 5, 6. If you see that 2001,
2, 3 we have plotted till this point, after that their ADR also went up. But still the
occupancy rate went up, occupancy rate went up to 70 % , probably sometime higher the
70% , 72%.

So, though they after adopting corporate branding, still they could increase the price and
still their occupancy rate went up; because now the Rosewood brand become well known
for the heritage sites and etcetera rather than individual brand.

So, they could keep their high rate, high rate of the rooms, because people were willing
to pay. But at the same time their occupancy rate went up and their probably the ─ what
happened on the other hand that, their number of rooms slowly came down. So, 1859 to
1704 to 1512; so it is slowly came down and at the late of the time it is stay again went
on increasing the little bit, but this was the good scenario.

So, in and ultimately what I wanted to show you is that, corporate branding they did and
corporate branding what; even with higher ADR rate, they could have higher occupancy
rate in this Rosewood and cross multi-company multi-property visits went up, cross-
property sales went up, the overall Rosewood branding went up.

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So, that is how you can use CLV calculation in your strategic decision making also. It’s a
very long term decision; it’s not a short term decision. So, though you may make some
losses in the short term, you should look for long term advantages, long term benefits
and you should focus on that.

So, keeping that as the background, I will stop this video today here. And I will come
back with another case and social CRM in this particular week before we go ahead for
B2B and B2C customer relationship management in the next weeks.

Thank you very much for being with me. I will see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 19
Economics of CRM (Contd.)

Hello everybody. Welcome to the NPTEL Swayam course on Customer Relationship

Management. We are in Week-3 and we are discussing customer lifetime value. In this
today’s class we will discuss about the mathematics part of Customer Lifetime Value. So,
we have discussed till now about the excel part of customer lifetime value how excel
modeling can be done with customer lifetime value.

But sometimes these problems are much simpler sometimes these problems are not
cumbersome or lots of assumptions that you can generate from the data. That kind of
assumptions you do not have in your hand sometimes because not always marketing
manager will have an access of data in a minute level.

Now, if you do not have the access of a data in the minute level the question comes up is
that how I can have few basic information from which I can calculate customer lifetime
value of a customer. Now, if I can calculate that, if I have the ability to calculate that ─
individual level or a group level then I can take multiple marketing decisions based on that.

For example, I can find out that who are my more profitable customers, who are my less
profitable customers, how what are the patterns that these more profitable customers are
showing, what kind of purchase ─ products or services that they like, what kind of prices
that they like and then I can make my product or service design according to that.

And at the same time, I can also find out that who are my not so profitable customers; and
if I can find out who are my not so profitable customers, I can also find out that how to
tackle them, how to make sure that they do not clog my resources because if they can clog
my resources then there is a problem. Otherwise what I can do is I can attract them, I can
give coupons, I can give certain kind of incentives.

So, that they can come in such kind of positions they ask for service or they come for
product purchasing some kind of time when my system my resources are less I would say
less engaged. For an example, if you know that there are various retail companies.

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 Let’s say grocery companyBig Bazaar for example, gives a Wednesday where it is a it is
a everyday like Walmart goes for everyday low cost Big bazaar low gives certain kind of
discounts on Wednesdays. Now why Wednesday?

So, first of all they wanted to pick up a date day where it will be known for that particular
day that, in that this particular day Big Bazaar is giving certain kind of discounts that is
number 1. Number 2 is for Big Bazaar, they know the people who are coming in the
probably weekdays and in the afternoons of the weekdays are generally those people who
don’t work, because in weekdays if you have work you will go for job.

So, those who don’t work probably are not so profitable customers for them. Now, if these
groups of people come on the weekends, then my shop floors will be very I would say
congested. And if my shop floors are congested I my actual profitable customers might not
prefer to come to me they might go to somewhere else, because shopping is also an
experience.

Now, if that is the situation then the Big Bazaar has to do something so, that they can
attract this group of customer, who are not as profitable as the actual weekend buyers. Also
they don’t want to lose this particular customer. So, they don’t want to push the price high
such that they lose these customers who are not working.

But they also want to keep them but at the same time they don’t want them to clog in a
certain days or certain dates when other kind of profitable customers’ foot fall is expected.
So, they give this kind of discounts in the weekdays.

So, everybody will come on the, on Wednesday, then not Thursday not Tuesday, Monday
or Friday, Wednesday, which is absolutely the middle of the week. So, you come in the
middle of the week and you purchase and you get discounts.

So, these kind of things comes from customer lifetime value unless and until you can
calculate customer lifetime value at a personal individual level this becomes a problem. So,
in this particular video we will talk about the CLV formula, how the CLV formula was
created. So, let me come to this. So, CLV formula comes from the lifetime.

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(Refer Slide Time: 04:49)

Now, here I am assuming that the lifetime is basically infinite. So, it’s a as long as possible
lifetime and let’s say the revenue that you make is R, the cost of goods sold is a cost of
service ─ cost of goods sold or service is C let’s say.

Let’s say, along with that the customer also gives you, the company also gives you certain
marketing and that marketing cost. So, some kind of advertisement cost, and when we I
calculate that marketing cost, at a per customer basis individual customer’s marketing cost
I can calculate, that comes up to be let’s say, let’s say something I will write that m or
small m okay. And the margin from each purchase then is basically revenue minus cost or
this gives me basically: M is equal to R minus C [M = R - C.]

Now, these are some simple values that you can get from the, from my past data very
easily like per customer revenue, I if I have 5 customer. Let’s say in my database I have 5
customers; customer 1, customer 2, customer 3, customer 4, customer 5.

I then take the average of these 5 customers to say that, this is my average revenue which is
capital R. Similarly let’s say each customer has certain kind of cost like some customer in
a, in case of cost of goods sold the cost is fixed, but if it is a service for some customer the
cost will be a little bit higher. For some customer the cost will be a little bit lower. So, I can
take an average of that also and that becomes my C.

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So, then average margin minus average cost becomes my basically sorry average revenue
minus average cost becomes my margin. So, that is M is equal to R minus C. And also let’s
say if I have 100 customers in total and my total marketing cost is something that by 100,
that divided by 100 will be my marketing cost per customer. Each customer gets that
marketing cost that is his share. So, that is small m and this is the recurring cost every year
I do this marketing cost. So, I send certain emails I arrange certain kind of I certain kind of
events for the customers. I do some marketing promotion activities. Now, whatever I do
it’s a bulk cost that bulk capital cost is actually shared by multiple customers. So, that is
something that I have right now.

So, then, for each time period; each time period how much is my total net profit per
customer? Net profit per customer is capital M by small m [M/m], which is also, can be
written as R minus C minus m [R-C-m]. So, we will use this capital M minus small m, the
margin that you generate minus the marketing cost the per unit marketing cost that you
generate. So, this is the money that I gain if the customer stays for 1 year.

(Refer Slide Time: 08:41)

So, let’s calculate this year 0, year 1, year 2, year 3, year 4 and so on ok. So, if I if the
customer stays with me in year 0, how much is the money that I generate? This is capital M
minus small m [M-m]. I will just delete this, capital M minus small m, fair enough. Now, if
he stays in the next year also then what is the amount that I gain?

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So, let’s say, the retention rate is r. Retention rate is r means that this is the number of
people if 1 customer stays, 1 customer stays with me in year 0. Then in year 1 basically r
customers will stay, in year 2 r square [r2]customers will stay, in year 3 r cube [r3]
customer will stay.

So, the probability the net money that I can generate here is basically M minus m into r for
year 1[r(M-m)]. Let’s make it a little bit, for year 1 this is like this. For year 2 out of this r
another r will stay. So, M minus m r square [r2(M-m)]. In year 3 r cube into M minus m
[r3(M-m)], in year 4 r to the power 4 into M minus m [r4(M-m)], and so on.

So, that is how the money that I will I that I will gain will be calculated. So, if let’s say 100
customer stays in the first, then r 100 into r that many customers will stay in year 1, 100
into r into r further another multiplication of r will stay in year 2.

And r cube into M minus m will stay in year 3 and r to the power 4 into M minus m will
stay in year 4 and. So, on now this is the money that I will gain over time. So, the
summation of all of these things will be the money that I gain over time.But what happens
is there is something called discount rate an interest rate or a discount rate these two things
are generally which is which is also called sometimes the time value of money.

How much is the value of money 100 rupees, which you can gain 1 year later what is the
today’s value of that? So, let’s say it is like if you put 100 rupees in the bank and the
interest rate is let’s say a 10% then in the 1 year later you will get 110 rupees right. Then
that means, what that if you whatever you get after 1 year, 110 rupees the current days
value of that money is 100 rupees.

Because if I, if you forego 100 rupees now you will get a 110 rupees later. So, then current
day is value is 100, 100 rupees then. So, that 10 rupees that you are getting in percentage is
basically the time value of money. So, then what then if you get 110 how I will convert that
to 100?

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(Refer Slide Time: 12:39)

You will say that the time value of money will be today’s value, today’s value into 1 plus i,
where i is the interest rate let’s say today’s value into 1 plus i is equal to tomorrows value
or 1 year later value not tomorrow basically 1 year.

Because i is always defined in a so value 1 year later, where i is the yearly interest rate
where i is the yearly rate. So, this is I can say today’s value will be, then what will be that
today’s value of something that I get later today’s value of something that I get later: value
1 year later divided by 1 plus i, that will be today’s value. Similarly today’s value you can
do a little bit of calculation.

And you can say that today’s value is equal to value let’s say 5 years later divided by 1 plus
i to the power 5 [1 + i5] or in other words if it is t years later, then 1 plus i to the power t [1
+ it]. So, that is what I get. So, if I use this particular formula; if I use this particular
formula, then how much is today’s value?

Today’s value for this 1 is by 1 plus i to the power 0 because that is something that I am
getting in this year only. This is by 1 plus i to the power 1, this is 1 plus i square, this is 1
plus i cube and this is 1 plus i to the power 4 and so on. That is what I am getting here. Just
check carefully that the 1st year it is 1 plus i to the power 0, in the 2nd year it is 1 plus i to
the power of 1, 3rd year.

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It is 1 plus i to i square 4th year means corresponding value that of in terms of today’s
money is this much. So, if I get r squared M minus m in year 2; if I get r square M minus m
in year 2 corresponding thing’s value in today’s market will be this much the denominator
divided by 1 plus i square. So, this is what I have got till now, see.

(Refer Slide Time: 15:31)

Now what will be the CLV then, what will be the customer lifetime value, then? Customer
lifetime value is M minus m plus M minus m to the power r by 1 plus i plus M minus m to
the power r square by 1 plus, basically the summation of all of those values plus M minus
m r cube by 1 plus i cube and so on.

And if that is the case I can take M minus m as common 1 by r plus 1 by i plus r square by
1 plus i squared plus r cube by 1 plus i cube and so on. Now, just think r by 1 plus i, what is
this value? Is this smaller than 1? See r is the retention rate, the maximum value retention
rate can take is 1 everybody is retained right.

So, that numerator can take the maximum value of 1, the minimum value denominator can
take is also 1, the minimum value 1 plus i, when the interest rate is 0 the denominator
becomes 1. When the interest rest is anything positive, anything positive the denominator
becomes higher 1. So, r by 1 plus i that is why this ratio, r divided by 1 plus i, this ratio will
be always smaller than 1.

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And if it is a infinite series ─ infinite GP series. With the value of the GP the multiplication
factor is smaller than 1, then we know the formula. So, if it is 1 plus a plus a square plus a
cube plus a to the power 4 plus dot-dot-dot upto infinite times. The formula is basically 1
by 1 minus a, that is the formula for this one if you remember that is from GP series basic
GP series. So, I just write that particular thing as my formula. So, I will just increase.

(Refer Slide Time: 17:59)

So, correspondingly if you just check the maths the formula that I got is CLV is equal to
capital M minus m divided 1 minus r by 1 plus i. So, if we simplify it we get. So, this is the
basic formula that I get now that is that is the basic formula that you will get in any book
the i can be written as d discount factor i write interest rate you can write discount factor.

But the other values probably the margin will be named by the notations can be different
the nomenclatures can be different, but ultimately this will be the formula. So, where this
applies? Let’s say Netflix I am giving you an example let’s say there is a company called
Netflix.

Let’s say Netflix, says that our average. So, Netflix has a fixed amount that they charge
every month. So, let’s say their yearly revenue is around 20 dollars, no they charge how
much 500 rupees per month, if I am not wrong. So that means 10 dollars.

So, 120 dollars let’s say Netflix is 120 dollars that is their revenue. And they say that our
margin basically is 30% or a little bit higher 60% . So, 60% of 120; that means, around

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72 dollars is their margin and they do some marketing costs and at this moment of
marketing cost is probably higher.

So, they say that our marketing expenditure per customer is 5 dollars; this is what they
have told us this information. Now, these are very basic information you can get now they
are us, they are trying to find out that, what is their customer lifetime value?

Now, the customer lifetime value i they are getting at this moment market is not good. So,
let’s say i is equal to 5% and the retention rate is around let’s say 60% .

(Refer Slide Time: 20:19)

So, then their CLV calculation will be CLV will be basically, 72 minus 5 into 1 plus 0.05
divided by 1 plus 0.05 minus 0.6. So, this comes 67 into 1.05 and this is 0.54 whatever is
the value that you get. So, that is the calculation of CLV the basic calculation. Now, where
it applies? This is not that simple that it will be applied nowhere?

So, where it will apply further let’s say. So, the values in general remain same that is a they
are thinking about giving a small discount. They are thinking that if I change this 10
dollars per month to 8 dollars per month, two things happens; one is my customer base
goes up; that means, the marketing cost comes down, but, per customer comes down, but
at the same time I am not making revenue. So, that is something we have to take into
account. So, 8 dollars per month; that means, my monthly revenue is 19, the yearly
revenue is 96 dollars; revenue is 96 dollars.

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(Refer Slide Time: 21:39)

The margin is now a little bit lower because 30% if I say, see the cost has not changed. So,
72 minus 120 the cost was, basically how much? The cost was 8 ─ 48 dollars was the cost.
So, the cost did not change I am giving a price discount, but the cost did not change. So, if
I give a price discount of 2 dollar per month the cost does not change.

So, the cost still remains 48 dollars per year. So, the cost is 48 dollars per year and that is
why the margin is also 48 dollars. This is what they have generated right now. But what
else, their marketing cost has come down because the customer base goes up and they do a
little bit of maths.

And they find out their marketing cost per customer is now 4 dollars because my customer
base went up, because I have given a discount more customer came in customer is going
up. So, whatever was 5 dollars previously now it has become 4 dollars. What happens with
the customers?

But they have also seen here that not only the customer base went up. The retention rate
also went up the more customers stayed back. So, what is the new retention rate now?
They find out that around 75% people stays back. Now, see in the blind eye, in the blind
eye if I see in the first year they are making loss you see here they are making a gain of as
172 dollars were there margin minus 5.

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So, 67 dollar was they are making in the 1st year, in the previous condition 67 dollar was
the profit, in the 1st year in this condition 44 dollars is the profit in the 1st year. So, ideally
in common sense it is getting dropped. So, I should not do this because it will increase my
price probably I do not increase my customer base probably, but the net money that I am
generating per customer is going down.

So, you can suggest me that you will only do this if previously it was how much,
previously it was as I told 67 dollars 67 dollars with demand at 67 dollars. If this is higher
than 48 dollars into demand at demand at the or d1 or d2, just I will write d1 and d2, d1, d2;
obviously, here the margin came down the amount of profit that I am making came down,
but d1 and d 2, d2 went up than d1.

Now, common ─ in normal common sense what I will do that if my net income is going up
in comparison to the previous income then I will go ahead and do this. That is a myopic
view. A myopic view is that if the 1st year’s total income is higher than the 1st year’s total
income in the situation 2, I will go ahead and do this.

But what we have to also take into account that not always it is only the 1st years decision;
that whatever you take decision the retention rate also gets affected. And if retention rate
gets affected the overall CLV for 1st one customer changes how let’s say i is still 5 %. So,
here CLV if you remember: it is 48 minus 4 into 1.05 divided by how much? 1 minus
0.06which is 0.04, in this case, 0.25 1 plus, 0.05 minus 0.75.

So, just do the calculation 44 into 1.05 divided by 0.3. And check this value whatever it is
coming and then you will not compare 67 into d1, you will compare the CLV1 into d1
means the CLV at situation 1 into demand at situation 1, whether that is greater than or
smaller equal to CLV2 into d2. So, this is CLV2 the previous case was CLV1, you will
calculate these.

You will not consider 1 years, whatever sales is happening and etcetera whatever profit
you are generating, but you will check for in the lifetime how much profit is generating.
That will give you a choice that whether you will go for this discount or this promotion
strategy or this strategy or that strategy.

So, when we compare multiple strategies also this comes to, comes in handy. So, thank
you very much for being with me in this particular video I will continue with the

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discussion of the maths part of CLV in the coming videos also. Be with me, I will see you
in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 20
Economics of CRM (Contd.)

Hello everybody. Welcome to Customer Relationship Management course in Swayam

NPTEL platform this is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur, who is
taking this course for you. We are in Week-3 and we are discussing about Customer
Lifetime Value.

(Refer Slide Time: 00:44)

And in this particular video, in the last video also and in this particular video we will be
discussing about the math’s part of customer lifetime value. And how that can be used in
various kinds of decision makings? So, if you remember in the last in this particular class
we have discussed about the CLV formula basic CLV formula.

I have done the math’s part, how to calculate CLV, how that formula came ─ the
derivation of the formula basically. And then how that can be used in two simple
problems are whether you should give a discount or not a simple basic problem.

Now, what happens is, you have to think here there that there are two things that effects
the CLV, one is that retention rate which is r and another is the discount rate which is i.

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Now often times customers or the managers thinks that customers will not stay for
lifetime. We are doing the calculation for infinite time period. Customers will not stay
for lifetime and they will stay for a let’s say 5 year, 6 year, 10 years time.

So, should we do this calculation for infinite time period or should we do ─ be practical
and do it for next 5 years. Now 5 year is a very important point often times because this
is not too long not too short, 5 years is a timeframe often time you will see that when you
go to a interview the interview person in the front ask you that, where do you want to see
yourself in 5 years? So, that is a question basically that they are asking that.

Be realistic don’t be too much dreamy that what I will become something xyz in 10 years
and don’t be very short very myopic that, I will just join this job in 1 year be realistic and
at the same time not myopic. And that is why you tell me that up to 5 years you can
probably be able to visualize yourself. So, visualize and tell me where what will what do
you want to be in 5 years same thing applies here that I will do this calculation not being
very dreamy about.

What happens in this 10, 20 years 5 years is a realistic assumption. And now when 5
years is a realistic assumption the question comes is that I want to make maximum
amount of money in this 5 years. Now here if you see in this particular table that I am
showing here.

(Refer Slide Time: 02:48)

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There are discount rates and there are retention rates. Now discount rates are basically
the 2 %, 4 %, 6 %, 8 % these are basically your how much is the interest rate that this
particular market has, while retention rate is given. Now, you cannot handle the discount
rate, you have no control on the discount rate, but you have pretty good control on the
retention rate.

You can do various things, various kinds of marketing strategies you can take up, to
ensure that your retention rate goes up. Now if discount rate is, if I come down discount
rate is like this and here this is basically a very I would say volatile market. So, when the
discount rate is high ─ the interest rate is high then anything can happen. It is it is very
fluctuating very volatile.

And in that kind of a market even a small retention rate can make maximum amount of
money in the 5 years because you do not expect much of the money at the later point of
time. Whatever happens now, whatever money get generated, gets generated now
because later nobody stays with you or-or even if they don’t stay with you that does not
matter because of most of all the money generate now, at this moment. The money that
you generate later point of time they might have ah, I would say, if the volatility is very
high then you want to make money as quickly as possible. So, this is something that we
can see that you will see that even with a very…..When the retention it is 40% and if I
increase from discount rate to 2% to 20%; so, 99 is the case in this particular situation.
On the other hand, if the retention rate is ─ if your market is very stable: so, this is a
volatile market and this is a, stable market. In a volatile market even with 40% retention
rate you make lots of money.

When the retention rate is 90% most of the people stays back, you make less amount of
money in 5 years. So, in a volatile market if the retention rate is high anywhere (Refer
Time: 05:10) with in general the retention rate is high this drops. Basically from this side
to this side the 5 year interest rate drops, but in a volatile market within a 5 year, even
with a smaller retention rate you can make lots of money. Now I will focus on this 47%
if the retention rate is high.

And the market is stable, 2% is the discount rate market is stable market is not moving
much. So, whatever money you make today tomorrow and today they have similar value
to you then you want to make your customers stay. You want to get the money slowly

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over time. So, at that time the retention rate higher is basically better because you make
more money through retention rate. If the retention rate is smaller the most amount of
money you make in the 1st year itself later point of time you don’t make money.

So, in this kind of a situation you might want to focus on: when your discount rate is
high - low you want, might want to focus on your retention rate much higher much,
much more importance you will give on the retention rate. But when it is discount rate is
high, you might say that I will not give so much importance on the retention rate.

Because you see 40% retention rate you get 100% , 60% retention rate event if you
increase the retention rate by 20% still most of the money is getting generated by 1st
years, 1 st 5 years only. So, I don’t think that you have to focus on the retention rate
much when the volatility is very high. So, this is a basic time horizon kind of a
discussion that you have to keep in mind when you discuss about customer lifetime
value.

(Refer Slide Time: 06:56)

Now, I have given a simple formula for Netflix. I have given you some problems. The
formula for Netflix and it is formula for credit cards. Credit cards also, you, the more you
use credit card the more value you generate for the customer right. So, the credit cards
will also calculate the customer life time value and based on that they will say that.

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You have a preapproved offerr of let’s say a credit card with 1, 00,000 or 50,000 or
2, 00,000 of this thing depending on how much is your credit-worthiness. And they will
say that you have a preapproved card why don’t you sir come and pay the membership
fee or whatever and then get the card for you. So, these kinds these kind of offers
discounts blah blah blah are also there.

So, you will get ─ you get that kind of calls from banks. Now they are also focusing on
your ─ they give multiple offers in the 1 st
year, why will you, why will they give
multiple offers in the 1st year? You will make lots of loss in the 1st year if they give
multiple offers, because they are not making money in the 1st year.

They are making money over your usage as you go on using for multiple times they get a
little bit of I would say commission from where? Whenever you use the credit card that
is number 1 and by chance if you forget to pay you pay back then they will make money
from that. So, your un-credit worthy behavior and your multiple purchases this is the two
basic streams of pay and also tie ups and etcetera.

So, these are the streams of revenue. That revenue does not get generated in one
transaction over a lifetime it gets us profitable. Now; that means, that they also have to
calculate customer lifetime value. But the calculation will be different for them and for
Netflix and that is what I am going to show you now.

(Refer Slide Time: 08:57)

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So, if you remember in the previous one I told that customer lifetime value is M minus m
1 plus i divided by 1 plus i minus r. This is the basic formula. Now, what happens in case
of credit cards, how credit cards make money? So, credit card in the 1st year they don’t
make any margin.

They make, start making margin from the 2nd year the 1st year basically they do all the…
So, it is a credit card right. So, you pay later. You purchase initially and you pay later.
So, basically you, we are focus and it is a monthly, in this condition it is a monthly
purchase. So, if you make monthly purchases in the, at the end of the month you pay for
the last months purchases.

So, if I do this calculation for the monthly perspective, then customer lifetime value
calculation will be, that M minus m 1 plus i by 1 plus i minus r minus M, because for 1
month, for exactly 1 month the Customer Lifetime Value will be generated later. The
margin will be generated later. For the 1st month you will make a loss and then you will
start gaining. For on the 1st month you will do lots of marketing expenditure which will
be a loss and the 2nd month onward you will….

Or I will make a purchase 1st and then I will pay you back. So, in the 1st month you pay
for my purchase. So, that margin or whatever we are denoting that margin will be not
there in the 1st month. That is the simple difference between a Netflix. This is Netflix and
this is basically a credit card company, any credit card company their calculation is like
this. And if that is the case you can check, what is the formula then? So, M minus m just
1 minute. I think this will be the formula.

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(Refer Slide Time: 11:51)

So, M minus m by i plus i minus 1 plus i minus r divided by 1 plus i minus r; yes and
that gives me ─ that gives me CLV is equal to if I just check this formula this is M minus
m, just check this formula r by 1 plus i minus r. So, this is what I get as the net formula r
into M minus m divided by 1 plus i minus r.

So, instead of instead of 1 plus i here which is the general case I am getting r, that is the
difference between these two cases. So, it applies to which kind of cases? In any come,
any condition where you make the purchase 1st and you make the payments later ─ 1
month later, you make the payments of the last month in this month is something what
you will do. It applies for other cases also for example, room rentals. Room rentals you
do all the services first and you pay later.

So, anywhere in any cases where the payment is later and the services the, so let’s say,
let’s say, you have gone to a serviced apartment and sometimes you pay in the serviced
apartment at the end of the month in the 1st full month they give you service. And then in
the end of the month you are paying. if that kind of a condition is there then the 2nd
formula will apply, not the 1st formula will apply. So, if you have to pre pay or then or
then and there whenever you are consuming you have to pay then the 1st formula will
apply.But if the consumption and the payment happens after a after a time period there is
a time gap, then the 2nd formula will apply because the marketing cost will be initially

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given. And in the 2nd time period onwards the money that will be getting generated in the
year 0 there will be no money getting generated.

So, that is a basic difference between the Netflix’s case and a credit card company’s
case.

(Refer Slide Time: 14:03)

Now CLV for Cohort or Contract: now if you have to, if you check carefully that we
have assumed one single thing.

(Refer Slide Time: 14:13)

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We have assumed that the retention rate is r. What is the retention rate r means Retention
rate r means that in the 1st year r number of customer stays back in the 2nd year r squared,
3 rd year r3 and so on 4th year r4 and so on.

So, if I just try to plot that, okay this is time and this is retention how many customers
stayed back in the 1st year 1? Because everybody stayed back in year 0, in year 1 this
many customers stayed back. In year 2 this is r let’s say year 2 r squared customers
stayed back in year 3 r3 customer stayed back and so on.

And r cube, r4 will be slowly coming down because you know that these are r is smaller
than 1. So, r2 and r3will be slowly coming down. Now if I plot it if I plot it will look like
a curve like this. So, this is a basically a retention curve.

(Refer Slide Time: 15:28)

And I can create 2 cohorts, cohort 1 and cohort 2 based on this retention curve. So, I
should not calculate. So, cohort 1 is like this: and let’s say, cohort 2 is like this, which
comes down very fast, whose retention rate is very low and it comes down very fast. And
I should deal these 2 groups of customers differently.

What I am trying to say this? What I am trying to say this is that, let’s say, when we do
customer lifetime value, customer lifetime value if you carefully check this formula it
depends on i, is fixed for everybody. Nobody can handle i, but it depends on capital M

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minus small m and it depends on small r retention rate and the margin the net profit that
you generate.

Now, you are saying a customer is highly profitable. A customer can be highly profitable
for two reasons: one is that he spends a lot of money; that means this numerator the
capital M minus small m is very high or he stays for a longer period of time. Thus r is
very high; the retention rate is very high. Now if you just say that okay these are my
profitable customers or these are my not profitable customers and within the profitable
customers you do not break them further.

Then the high retention person and high immediate expenditure person you will treat
themsimilarly. Let me give an example, let’s say, I am a ─ me and my father okay. My
father is very loyal to a particular mobile company I on the other hand is always looking
for that particular mobile company which makes, which gives me good value. On the
other hand I am a huge spender. I watch movies, I do I play online games, I do this, I do
that I download lots of stuff.

So, I use the technical facilities given by this technology company which is a telecom
company quite a lot and my father just watches a few YouTube videos. Probably some
TV serials here and there, makes call uses WhatsApp and that is all. So, probably very
basic things, and I am an avid user. So, even if I stay for 3 months, I will expend, I will
do lots of expenditure for that 3 months, but I will not stay.

Because the moment the new technology comes, new offer comes new something comes,
I switch back. On the other end my father is a long time stayer but he has fixed revenue.
He does not create, make, give lots of money to this telecom company in a small period
of time. Now when we calculate the CLV for both of them I will be profitable customer
because of my capital M minus small m, that means the net money that I am generating
over each month.

And my father will not be profitable for that my father would be profitable for my r ─ for
the retention rate. Now if you, me and my father, if you treat them similarly when you
are dealing when creating an offer and dealing with them then you are making a mistake.
So, within the profitable customers you have to check for retention rate based cohort and
retention rate based cohort is basically looks like this that in one case the curve will be
very sharp in other case the curve will be...

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So, let’s this is the average the average: so, if I draw this carefully let’s say, this is, this
black line is the average line and this is one customer group and this is another customer
group. So, we do this using survival analysis that how what is the probability that
customer will stay and not always you see, not always I have drawn that average
retention rate.

I have drawn this curve like this, but not always, this will be r r square and so on the
retention rate can also be a function of time sometimes the retention rate of r t here we
have say that the retention rate…

(Refer Slide Time: 20:10)

The retention rate at time period t period, t we have taken as r to the power t (rt). That is
the formula that we have taken, but that is an assumption, it might be some other
function of t, some other functions it is a decreasing function of t.

But it might not be exactly a I would say, logarithm function kind of the not logarithm,
means r to the power t that kind of function it might not be that. It might be something
else now that functional formula can also be different. And if these things are different
basically, if these things are different then the retention pattern creates cohorts.

And you have to focus on this cohorts separately there are survival analysis we have
done in marketing analytics course, which is given in the other term. You can go there
and see that there are survival analysis, which you can see to find out that what are the

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patterns of retention for two different cohorts. And if I can find out that I have to be able,
I can be able to target them differently.

So, just blindly saying that these are high CLV these are low CLV does not solve your
purpose. You have to also further focus on this retention rate and this also comes under
customer relationship management. Because, if you have different kind of retention rate
how to change that retention rate and etcetera will come under customer relationship
management.

So, these are very basic maths part I, this is the highest maths that we will be doing in
this particular CLV calculation. I will stop here in terms of the maths and I will see that
how this CLV can be applied in different. In the next week we will talk about some of
the cases where it is actually applied. So, thank you very much for being with me in this
particular video in the next video we will be talking about a specific topic called social
CRM.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 21
Social CRM

Hello everybody, welcome to the Swayam NPTEL course on Customer Relationship

management. This is Dr. Swagato Chatterjee from VGSOM from IIT Kharagpur who is taking
this course. And, in this particular video, we will talk about Social CRM which is a specific type
of CRM strategy.

(Refer Slide Time: 00:28)

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(Refer Slide Time: 00:31)

So, what is social CRM? So, when we talk about CRM, CRM is about managing the customer.
So, that is the first thing that we have to understand, that in this particular context we are trying
to manage the customer, manage their likes, their dislikes, their complaints, their good and bad
feelings about us and when we all when we try to do all of these things, we try to make sure that
customers are happy. That is the primary objective of any CRM. Now a satisfied customer leads
to loyal customers. Whenever a customer is happy that leads to loyalty.
A loyalty in the marketing context has three things, three basic contexts, one is attitudinal and
behavioral loyalty, in the attitudinal loyalty the customer as we discussed about this in the
previous videos, but I will quickly recap that attitudinal loyalty is that I like this, but not always
liking is required for behavioral loyalty.
Behavioral loyalty has three parts one is that repeat purchase that I will keep on purchasing from
this particular company, the second is that patronization; that means, I will probably defend some
other companies marketing initiatives like they are giving me some offers and etcetera. So, I will
close my eyes towards them and I will not buy them.
So, that is the second one. And third is that positive word of mouth that I will speak good, about
things in the market. Now if you have to think about social CRM, the major part that social CRM
has, is the third part which is the word of mouth, what customers are saying about you in social

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media. Because what is social media? Social media is a platform where everybody is connected
with each other and you as a company have no control on how one customer of yours is
connected with another customer or your competitors' customers. You have no control over that.
So, they are connected. Connected means they are sharing information, they are sharing ideas,
they are sharing their own experiences and that information sharing, the idea sharing is
happening sometimes that is good for you, sometimes that is bad for you. Now, as a company in
the social, and why social things become very important because the internet is right now at a
certain point of time internet was there only in the urban area.
So, for social CRM and etcetera was the concern for only those companies who were providing
services in the urban areas. Now at this correct time period internet has become very cheap. In
many places, for middle class people and even lower middle-class people can have access to the
internet.
So, if they have access of the internet they can also have access of social media websites because
lots of people are coming in the social media website, they are talking about each other, they are
sharing videos, pictures, and etcetera.
So, and with that, the problem that is whatever being told about you can be shared very quickly,
becomes a very important issue. So, in that context, the social CRM becomes a very important
factor. That is number one. One is word of mouth. The second one is repeat purchase and
countering the competing brand's marketing initiatives.
Now, in the social platform because information sharing is happening very easily these social
platforms have also become a marketing platform. So, it is not only a communication platform, it
is also a marketing platform. Marketing platform means you can give ads, very targeted ads to
your customers also, for repeat purchase, to your alternative customers also to reduce their
loyalty and etcetera and image formation and attitude image formation.
So, there is something called ‘halo-effect’ that we sometimes say, what is halo effect? Halo
effect is that when some other image of yours is impacting your customers or somebody's
perception about you. For example, to give an example, let us say I am a very good researcher.
Let us assume that I am a very good researcher and there are lots of people who know that, okay,
Dr. Swagato Chatterjee is a very good researcher.
Now, probably that Swagato Chatterjee is not so good a teacher, but they are in awe with my
research work and blah blah blah. So, when they come to the class before they come to the class,

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they have that awe that okay the class that I am going in is Dr. Swagato Chatterjees and he is a
very good researcher. So, I will go and learn various things and then even before he, the persons
the students actually get the teaching, they feel and awe they are very satisfied they are
predisposed towards satisfaction. So, this is a halo effect.
Now brands also do that. Let us say there is a brand who does lots of customer...CSR activities,
Corporate Social Responsibility kind of activities. Or there is a company who has given lots of
money in this Covid. Or lots of them spend lots of money on certain aspects or they have banned
in the current environment, there is a problem with a neighboring country that is going on with
India and they have banned certain imports from that neighboring country.
So, this can, there are lots of these different kinds of things they have done now all of these
things are not directly related to the product that they sell. Probably the product that they sell is
not so good quality, but because they did this and because they have used social media to tell you
that they have done this and you have been informed you create a halo effect that is getting
created on your mind and you have a positive predisposition over this particular company.
So, whenever you go and buy this company, irrespective of whatever call you. So, your
benchmark comes down, your threshold comes down, you are easier, you get satisfied, not easily
you get satisfied. So, this is something which also happens to social CRM. So, it is not only my
current customer, my prospective customers can also be managed using social CRM. So, social
CRM is about engaging with the customer.
So, our major job is to engage with the customer. Social CRM is a business strategy design to
engage the customer in a collaborative conservation. Collaborative conversation means normally
it's a monologue, it's not a monologue, you have to also talk with me in order to provide mutually
beneficial value. Mutually beneficial value means, you are also getting benefited as the customer,
I am also getting benefited as a service provider in a trusted and transparent business
environment, is the company's response to customers ownership of the conversation.
So, that is blah blah blah basically. So, that is basically what social CRM is as a concept.

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(Refer Slide Time: 08:13)

Now, how it evolved over normal CRM activities is something that we will be interested to
discuss. Normally, in normal CRM, ideally, was basically a customer call point. Basically, you
can say the call center. The call center was handling CRM for quite a long time in the technology
world and we will talk about call center as a part of CRM overall strategy very deeply because
call centers even today are one of the major biggest parts of CRM.
Now, what are; so, there are some assigned departments in case of CRM, the normal CRM, but
in case of social CRM everybody in this company is a face of the company. Everybody is
responsible for example, I have seen this kind of situation. Let us say, the Airtel is not giving a
good service, let us say, or Vodafone or some telecom company Jio or whoever is not giving the
good service, somehow they are not giving the good service.
What happens is that by chance that particular person who is the customer manager in the call
center and etcetera does not know that the customer to whom they are not giving a good service
is probably a CEO of some company or some head of the strategy or even if not head of strategy
some would say is a well to do person and he ─ there is a LinkedIn platform and in LinkedIn,
everybody is connected with everybody and probably his boss is also connected with this
particular person or his boss's boss is also connected with this person.

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So, what happens is that let us say I am from top notch-B school and my friend was also or my
senior was also from a top notch-B school and I know that senior is right now heading a certain
department in the telecom company. I tag him when I say that this particular xyz company is
giving me very bad service. I don’t like it, blah blah blah, they did this, they did that, I called the
call center, call center did this.
And then I have to send a mail, I spent four months and still no resolution. They put their
everything out in LinkedIn; LinkedIn! Not in Facebook, in LinkedIn and then they tag the,
probably head of finance.
Head of finance has nothing to do with customer relationship management, but he tags him still,
expecting that that head of finance will push it to the head of marketing or head of services or
head of something else and that is how his things will be resolved. If not the whole community
knows that this is not a very professional company.
So, this becomes a boomerang and if that is the condition then the head of finance cannot say
that, okay I am not CRM, why will I handle customer complaints. I am not a person who is...he
cannot say that. He or she cannot say that. Why cannot say that? Because it's an open thing,
everybody is seeing this. So, that is why everyone is responsible in social CRM, everyone in the
organization. So, we are moving towards that direction.
There are certain company defined processes like the company says that, okay, when you call a
call center, they say that, okay, if you have a problem related to cancellation of tickets press 1, if
you have a problem related to knowledge, if you want information about flights press 2 if you
want to book certain seats press 3, book food, press 4.
So, when you call a call center that was a company defined process you have to follow that
process to reach that. But even social CRM, it's open, it's a customer driven process. Customers
can write a small text and just want that can you give me the customer care number I will call
him. Or customers can say whatever they want and other customers can reply in that particular
thing wherever they want.
So, that becomes a huge issue at certain points of time. I will give you a live example. For
example, let us say Decathlon. Decathlon is a company which sells retail products and recently
there is a problem is going on with the neighboring country, with India and people who started
saying, Decathlon was giving some ad and people started saying that Decathlon imports lots of
products from that particular this thing, that particulars country.

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So, we should not buy from Decathlon. Now it is a public opinion. All of a sudden Decathlon is
at a loss because this public and some of them are not even customers of Decathlon. So, what
will say Decathlon? Decathlon cannot ignore them because there are genuine customers are also
there, not so genuine customers are also there. So, what should be the retail strategy? So,
Decathlon initially had a ready-made, this thing, answer that they did not focus on how much
they buy from that particular country, they focused on how much they source from India.
So, initially they are told that more than 40 percent we source from India and we are increasing it
to make it up to 60 percent or 70 percent or something. And they give that we are very much
promised to ‘Atma Nirbhar’ and ‘Made in India’ kind of initiatives that the Government of India
is taking and this and that, so they give a very nice strong reply to that. Now more than 40
percent is not more than 50 percent.
So, they have to do something. So, the moment they said more than 40 percent people are further
curious and how much of the rest 60 percent you source from there. So that, there is in
customers' minds, there is always a competition going on. So, how many of our soldiers are
killed, how many their soldiers are killed kind of stuff. So, if that is a situation, you have to take
a call.
So, they then actually did a little bit of digging of their ERP systems and etcetera and they found
out, no no, not 40 percent, it’s higher than 50 percent. When the moment they got that, they put
that higher than 50 percent.
And, now in the same platform what happens is that in the same thread there are some post
where they are saying higher than 40 percent, in some posts where they are saying higher than 50
percent. Both are commented by Decathlon social media handle and probably within a difference
of one day or or 12 hours or something like that. Now further people are starting questioning
that, why are you are making these kinds of claims? Sometimes 40 percent, sometimes 50
percent? Stick to something.
So, all so whatever you say at the end of the day. Whatever you say leads to credibility and it is a
customer-defined process. Customers, if they are happy, they will anyway go with you. If they
are not happy or they want to-and they want to troll, at least they will troll, you cannot do
anything.
So, you have to always be at the top of your position. You at least be ready to get trolled and to
handle troll and to handle positive and negative customer vibes. So, that can happen.

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Probably Decathlon has not done anything, but still faced all of this stuff.
So, all I am trying to say is that, if you cannot control the customer any more, they are
empowered by these social systems and you have to deal with that.
The third one is business hours. So, you all know we wake up, which means it is a 24-7 thing.
You cannot say that okay, our working hour is 9 to 5, that is why I will handle the customer
complaints only at 9 to 5, that is not the scenario anymore. So, social media is alive the whole
day, even at the end of late night also, somebody is doing something and they can post.
And, an early morning post, if you do not tackle an early morning post in the correct period of
time within a correct frame by 9 AM in the next morning it can be already viral. If it is a negative
post, it's already viral and you have lost control, on that particular virality. So, you cannot say
that it is a predefined business hour, 9 to 5, within that I will handle anything. It's like an
emergency counter in a hospital.
You cannot say that okay, 9 to 5, beyond that I will not see patients because beyond that it can be
devastation.
Next is there are defined channels, now in this case you give okay, this is my mobile number,
this is my email id, customer care at the rate blah blah blah dot com or you can say that okay,
this is the toll-free number 1800 xyz xyz, you can call here.
So, these are predefined numbers only where you can get information in a classic CRM system.
In a social CRM, there is no predefined. People can post in Instagram, they can post in
Facebook, they can post in Facebook's group, Facebook page, Facebook their own post, they can
even post in something else.
So, let us say you, their means their friends are talking, some random people are talking, even
there people go and post and say good or bad things about brands. So, there is no control. You
cannot say that okay, if you have a complaint you have to only write here. They will write on
their own page and tag you and you have to keep your tags. Keep checking your tags as a brand
manager, you have to keep checking wherever my brand is getting tagged. And not everybody is
good in tagging. Somebody might tag Airtel and they can write ‘a i r t l’ and you got to find out
that. So, there are processes to do that, but these are also problems.
Now a very let us say well known person who is followed by many people but he is not very
tech-savvy, let us say. If he posts something and he gets and he tags you and the tag is not right
and you could not find out that is why the post and the post has already become viral, but you

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could not find out because the tagging was not good. You cannot say that okay, you did not do
the tagging correctly that is why I could not solve the problem at the right time. You cannot say
that because by that time, whatever damage has to be done is already done.
So, customer-driven dynamic channels, they are conversations, Okay, so, everything is
transaction-oriented, in this case, interaction oriented and this is an inside out approach. The
other one is outside-in approach, meaning it comes from outside and it gets resolved. So, that is
the very basic difference, the who, what, when, where, why, how the basic 6 WH questions of
social CRM.
It's very nicely put by Chess Media Group, we have taken this particular picture from there and
we are indebted to them, but it's a very nicely put concept on the four, 6 WH questions of social
CRM. How normal CRM and social CRM are different?

(Refer Slide Time: 19:48)

So, what are your targets in this particular context? So, anyone who takes that interest in your
organization should be a target. So, ideally told that it's not only your company, your consumers
whom you should target in social CRM, who are already existing consumers, no.
Anybody who has any interest about your company doesn’t matter, they can be any stakeholder.
It can be a follower like a Facebook page member, how many reads that you have in your blog or

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how many sign-ups for your newsletter. So, any kind of follower will be your target. Your
supporters are your target, so the donors, the volunteers, the advocate, the event-goers.
So, those who just go to the events or those, in general, have a positive vibe about you and talk
good about you. They are also your supporters, they are also your target. The organizers like who
are more involved in plans, meetups, and events for your company under the brand name and the
leaders, basically the cream of the crop and may actually become a part of the organization.
These are all of your targets when you try to do a social CRM.

(Refer Slide Time: 21:03)

So, this is basically the; so this is when you do an outreach activity. When you do an outreach
activity in social media, what is your target? Your target is attitude building. You try to create an
attitudinal loyalty. This is what you are trying to brief.
So, you do lots of outreach programs and there are some followers who like your pages or sign
ups with your newsletters and etcetera. Now the most important, so these are followers that does
not mean that they have a positive attitude to them. So, from here to here is a basically a shift
who are your volunteers, advocates who try to do something good with you.
So, these are the people; this is the most important shift when you create attitudinal loyalty. Now
after that, that attitude will turn up to be a behavior. So, here to here is basically a behavioral

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loyalty, the first-hand behavioral shift is here to here. Where, a chosen few become the organizer
or more involved with you and then,if you become so involved that they almost become your
partners, your brand ambassadors probably.
So, this is the target that you are trying to achieve using your social media platform. You might
have lots of followers and little, few supporters for that fewer organization and probably one or
two leaders who will create a new solution with you, probably. So, this is the target pyramid that
we generally create.

(Refer Slide Time: 23:02)

The advocacy, what is advocacy? So, there are advocates, are created through continuous
engagement, transparency, and authenticity. So, we talk about influencer marketing a lot in the
context of CRM or social CRM to be precise. So, who is an influencer to be or advocate in this
case? Advocate when he is highly connected, he becomes an influencer. So, who is an influencer
in the context of CRM?
So, influencers are a kind of people who have lots of followers. People actually look up to them
and whatever they do they say can influence the decision making of multiple people. They can
be political leaders, they can be movie stars, they can be some celebrities, some writers, directors

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probably sometimes in case of technology there is, they can be scientists. So, these are basically
influencers.
Now, influencers have various kinds of things, one, various kinds of factors makes an influencer
important.
One is the number of followers. That is how much is the reach basically. The reach of the
influencer.
The second is how much is the credibility, now there are influencers who are credibility is very
contextual. Let us say, I am very credible in the context of management studies. I am not so
credible if I give an opinion about politics or if I give an opinion about something else. Let us
say geography or geological science then I am not so credible an influencer because...now
regarding, let us say, something about economic condition, who will be the credible influencers?
Probably our finance minister or probably some normal audits or probably some past finance
minister or some people who are associated with IMF or World Bank. So, these are the people
who will be incredible in those kinds of context. So, reach and credibility, how many people you
can reach and how they will be taking you. Whether they will consider that whatever you are
saying is credible or not, that can be believed or not.
This third is expertise, so the difference between expertise and credibility can be something
which is, expertise is that okay, you are an expert in this area, but credibility means I can believe
you. I can believe you means whatever you are saying, if you are an expert, let us say a doctor
who is an expert doctor, he might not be credible because sometimes we know that they can be
differing, it it applies in all professions. In all professions, probably an expert person, might be a
good person, might be a bad person and through our personal experience to somebody else's
word of mouth and etcetera we come to know or we create this kind of judgments that whether
this person is credible or not so credible. So, similar things apply for influencers also.
So, one influencer can be very expertise, they, he has lots of expertise but whether he has
credibility or not depends on multiple factors and you have to find out what are the drivers of the
credibility of an influencer and how you can choose an influencer who is more credible, how you
can choose an influencer who is less credible.
So, reach, credibility and expertise are the very basic three information and the fourth
information which becomes very important in the case of social CRM is the communication

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capability. That whether this person can connect with lots of people. Whether he can talk with
lots of people. Now, these four things together create a good influencer.
So, an influencer can be converted to an advocate. An advocate means that they will talk good
about you. The influencer is generic, he will be, so a company can take marketing initiatives to
turn an influencer to an advocate. Sometimes this influencer can be bought like advertisements.
For advertisements when you do celebrity endorsements you are buying an influencer. The
moment you are buying an influencer, you will, that influencer is losing credibility. He can have
expertise. Let us say, even with beauty products or a personal health product he can have
expertise.
Let us say, a sportsman doing promotion for a health drink, he can have expertise in health drink
because he consumes lots of health drinks. He can have reach, he can have communication
ability also, but because he is putting you in, putting him in the ad probably a little bit of
credibility is lost. So, can there be any other way because it's a social CRM you see everybody
talks about with everybody?
So, even if there is a small information we try to hide now, people are like so much well
connected that they get all of your information, all of your well-hidden information, comes out.
So, in that kind of situation, you cannot lose your credibility as an influencer, and if you are a
company who wants to turn an influencer to an advocate you have to take that also seriously.
So, advocates are created through continuous engagement. So, you try to engage with these
influencers, not celebrities, sometimes probably with, so for example, for to give an example I
am a professor in IIT Kharagpur and I have some analytics background, I teach analytics.
So, various analytics related companies and etcetera come and or let us say, books, book sellers
who say that okay, comes to us and say that okay, why don’t you see this book or why don’t you
use this platform or why don’t you use this group or ask your students to join this group for
analytics related mentorship, internships, this that is going on.
So, they are trying to use me or trying to make me from an influencer to an advocate through
what? Through continuous engagement. Transparency, they want to be as transparent in front of
me as possible and authenticity. So, what is the approach to advocacy strategy?
So, first of all, you have to give a value proposition. What you are giving? So, creation of
experiences and tools with products and services designed to appeal to a commonwealth of
interest-based on unique insights. Then you have to create a customer strategy. So, what should

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be your outreach strategy? What kind of communication you will do? What kind of promotions
you will do?
So, like property development for customers like communities, tools, product, services available
by the company. These are some of the things that you try to do and then you have to go on for
doing this continuously. You have to, you going to stop. It has to be a continuous effort and what
are the metrics? The metrics that we generally use in this context, that, would you recommend
my company to someone you know. So, this is something that is a very common question. You
will see that this is something that is a very common question that we ask.
And that is basically, so CLV calculation we have already talked about how this helps. This
particular question is a measure of Net Promoter Score, NPS Net Promoter Score.
Net Promoter Score means that, what is the probability that this particular person will
recommend my company to somebody else. So, that NPS score or Net Promoter Score is
something which is very important for many businesses. As important as CLV calculation.
So, CLV is one measurement, but in this context of advocacy, NPS leads to CLV. If you
remember, we have talked about that purchase from cross-sales, not cross-sales. Basically,
increase revenue from positive word of mouth, that you are creating positive word of mouth.
Listening to a positive word of mouth, other people are coming up.
So, that positive word of mouth is actually an outcome of NPS the Net Promoter Score and
positive word of mouth leads to further increases in CLV.
So, the relationship is NPS leads to positive WOM and that leads to an increase in CLV.
So, this is the basic thing, Net Promoter Score means, would you recommend my company to
someone you know? So, that questions answer collectively for your customers, the score that you
get is on NPS, that leads to positive word of mouth because when they think if 80 percent people
think that they will recommend you, out of that 80 percent 40 percent will probably recommend
other 40 percent will keep on thinking but they will not.
So, that 40 percent is that positive word of mouth. That out of that positive word of mouth some
increase of CLV happens because some other people come and buy the products. So, that is how
the advocacy works in social CRM. There are lots of other concepts under social CRM. We will
come one by one and I will discuss that in the next video.
Thank you for being with me. See you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture - 22
Social CRM (Contd.)

(Refer Slide Time: 00:12)

Hello everybody. Welcome to the NPTEL, Swayam course on Customer Relationship

Management. In this particular video, we are talking about Social CRM. And this is Dr. Swagato
Chatterjee from VGSoM from IIT, Kharagpur who is taking this course for you.
So, when we were discussing about social CRM in the last video, we were discussing how the
social media, which is like the Facebook, Twitter, Instagram, and other social media platforms,
can be used to create custom relationship management strategies. That can be both strategy
perspective and that can be also in the context of operational perspective.
You can do your ─ all of your customer relationship management in the social media or you can
at least use social media as a part of your overall strategy. Now the problem with social media
usage in social media is that it is open, everybody can see this means. If it is only in the chatbox
then that is a different story, probably people will not be able to see this.

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But often when we try to mention social CRM, things are open. For example, Twitter people, it
is open. I can see that what people are answering and what other people, how other people's
problems are being addressed by the organization. So, all of these details are generally open.
So, when things are open, it becomes furthermore problematic, challenging for a for a service
provider. In this context; a customer relationship management company or a brand who because
whatever actions he is doing he cannot do any unethical actions, he cannot do any bad things
because whatever misunderstanding, whatever, I would say, mishappenings that ultimately come
out of this particular interaction, that becomes open to everybody and everybody comes to know
and everybody makes a judgment on that.
So, often our, as a customer, my satisfaction with a particular company will also depend, how
moral this particular company is, how ethical this particular company is. Now if I find that this
particular company is not so moral or not so ethical with some other customer who is probably
not powerful and I am probably relative, in terms of relative term I am more powerful than that
particular consumer who is being, who is the victim.
Then it becomes sometimes my, I would say responsibility. It is my perceived responsibility that
I want justice. I will bring justice for the other customer that becomes my responsibility. Why?
Because we try to perceive that the customer is a part of me. I and that victim customer are in the
same group, we are in the same group, we are part of the same cohort I would say, that we are
both customers, both in the receiving end.
So, if I am more powerful in a certain context, I might not be such powerful in some other
context. Tomorrow something else can happen and I can, I might not be that powerful anymore.
So, it becomes my responsibility by being powerful in this current context to bring justice for the
victim customer.
So, this kind of psychology comes, brings in and when I talk about consumer power it is not like
how powerful you are. It can be a political power, it can be an economic power. For example, let
us say for a particular company I know that this brand, I or my organization buys lots of products
from this particular brand. So, the amount of revenue that me or my organization generate for
this particular organization is quite a lot.
So, that gives me a little bit of economic power, that okay, if I sometimes get angry, if I get
angry and if I take up that particular business and put it somewhere else. Give it to some other
competitor of this particular brand, then this brand will be affected. So, lots of times you will see

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that this kind of backfire happen. For example, if we can give a classic example of Snapdeal;
where Amir Khan and Snapdeal; Amir Khan was the brand ambassador of Snapdeal and because
of certain reasons, because of certain problems with the brand ambassador, Amir Khan brand as
a brand ambassador. Lots of people became very angry with Snapdeal and they started switching
from Snapdeal to some other, I would say e-commerce firms, and that actually affected Snapdeal
quite a lot and that is a case study that we actually read.
Now, this has happened, this viral output has happened all the more because, it has happened in
the social sector, it has happened in the, not social sector, in the social media. And when I say
social media people are connected people, anything gets viral, it is very difficult to subdue, to
actually control that virality.
So, you have to, as a brand manager as a customer relationship manager, you have to probably
predict that virality even when it is a small, probably small flicker. You have to predict that this
can become a huge fire. So, that kind of a prediction if you can do it at the right time, at the right
moment and control the negative virality very quickly that gives a positive benefit, towards the
organization.
At the same time, if you can also predict that, which kind of posts can bring in positive virality
for your organization. You can probably put money in the social media, put advertisement
money to create a little bit of inorganic growth also such that at a later point of time further, more
organic growth happens for that particular post and you create a positive virality for a particular
post. So, that kind of things are there in CRM and we have discussed quite a lot of thing.

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(Refer Slide Time: 06:14)

And I will go to ‘engage across multiple functions’. There are multiple functions in which this
CRM can engage. For example, there is marketing, there is sales, there is service support,
innovation, collaboration, and customer experience. So, these are all, comes under the broad
umbrella of marketing. So, if I say how social CRM can be used. Social CRM can be used for
sales, we know marketing; how it can be used in sales.

So, it can probably, first of all, again there are certain case studies where you can find out that
people generally post about their posts, about their visits, about their travels in social media. Let
us say I am currently traveling in Goa, let us assume. So, what I will do is, I will post that okay, I
have, this is how I am enjoying in Goa.
So, two-three pictures of Goa. Sometimes; in fact, in the real life situation, people do not even
wait. People do not even wait till they come back. The urgency of sharing their positive
experiences is so high. It becomes, we call it FOMO fear of missing out. People have so high
FOMO, fear of missing out that; whatever something good happens with them they share in the
social media.

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And similarly, when people go for travel that is why they also share, they do not even wait. So, I
have seen the people checking in have you also have learned about checking in, right?
So, you go to a restaurant with your friends and you check-in, in that restaurant. And I am
checking-in in Inox movies, I am checking- in some restaurant or I am checking- in Goa beach.
So, the moment you check-in, you are saying that I am at this particular place right now.
And if I, as a person, let us say, I am a social CRM manager of, or I am a sales manager, let us
say, and I have very good connection with the CRM manager of my organization and basically, I
am at spa. Let us say, I am at spa in Goa.
So, what I do is, I know that these are the big big hotels and these are the big big beaches and
these are the big big travel places in Goa. What I will do is; I will keep tracking, all the
checkings that are happening with that thing.
So I, there are social media tools, social media tracking tools or even if you do not have tracking
tools, you can go in Google, go in Facebook and just search with that particular name and go
click on content and all the posts which are open posts.
So, you cannot do anything which is not shared openly, which is only shared with friends if there
is some privacy issues, some security issues, you cannot actually track those kind of information.
But at least, those information which are open, which are or let us say posted in a particular
Facebook page of this particular company or a particular beach or a particular restaurant, that
you can track.
Now, if I can track that, okay, I am at spa in Goa and there are four other places which is nearby
hotels and these are the people who are saying that they are enjoying in this kind of hotels or this
kind of beaches which are close by to me; I can send certain discount offers, certain kind of
messages to these people to their social media post to their Facebook; probably Facebook
messages. I can put certain Facebook messages to their inbox to say that okay; there is some
discount going on in my spa, why do not you come.
So, this is a lead generation that is happening automatically from the social media. And if you
can let us say, you say I am saying that the conversion will not be very high because many
people might not even see their Facebook inbox which not the main inbox, which is probably the
side inbox, but whatever be the case even if, see there is no cost in doing this. There is only
manual cost, human cost, probably if you have a certain tool to track this then that kind of tools
cost, but ideally there is no cost in it.

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Now, if you can track and if you can send certain information, certain offers to these guys and
some footfall happens more than what used to happen before without this then that extra footfall
is your advantage. That extra footfall is the increased revenue that you are getting. So, why not
do that?
So, that is how social CRM helps quite a bit in the sales procedure. So, like social sales insights,
rapid social sales response, you can also use, for example, chatbots. So, we use this Facebook
chat. So, let us say if you have a Facebook page then you will also have a Facebook messenger
for that particular page. So, you can response as the page also.
So, when you response as the page or as the business lots of sales, I would say queries, enquiries
come in Facebook and you have to have a person in the Facebook to answer those sales queries
very quickly and we have seen. I am not sure whether you have seen or not, like if you go to
Airbnb dot com. We were doing a study on this actually. So, in Airbnb: what is Airbnb? Airbnb
is basically a; it is not a social media, but it is e-commerce basically.
It is an e-commerce where lots of people who are basically peer to peer room sharing. So, while
a particular person who has a house and in a house two-three rooms are open vacant, he is not
using, that rooms he is basically posted in Airbnb and you can come and stay and this person
becomes the host.
Now, oftentimes, how much sales you will get also depends on how responsive in this particular
host is. The response rate, so you will see that in Airbnb it is written that this guy answers in 2
hours, this guy answered is 1 day. In Messenger also it is there that this page answers in the
moment you go to a new page and the chatbox opens up. It says that this particular page answers
in 6 hours or 2 hours or immediately or very fast or very responsive.
So, all of these things the responsiveness of a particular page or a particular business in the social
media platform becomes a driver of sales. So, we can use that as a sales also.
Proactive social lead generation as I told direct and distributed social commerce and dynamic
social supply reallocation. So, you can also make sure that you can actually use this particular
platform to reallocate your supply chain when you are doing. When you are doing various kinds
of marketing, some amount of money can also go to this particular platform.
Now service and support I have already discussed that it can be used for the same particular
chatbox where or Twitter platforms or Instagram platforms where you are doing marketing or

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where we are answering the problems of the sales queries, you can also answer the problems of
the customers.
And sometimes it becomes a very important issue because, if you can show in the social media
that okay, I could answer lots of, I could solve lots of problems positively. The ultimate result is
a positive outcome of this particular problem that creates very high customer satisfaction to the
potential customers.
Not only that customer who was ultimately satisfied, but also the potential customers who can
see and see that okay, this guy was not happy initially and then he was answered by this person
and some conversation happened. So, at the end of the day, he became happy.
When I as a potential customer see this conversation track and see the ultimate result, even
before I go and have the service I become very assured that okay, even if I am not satisfied in the
first go this kind of conversation might also happen for me and I will be satisfied. So, this
becomes, this conversation of unhappiness to happiness for another customer becomes a signal
of quality towards me.
So, that can be also be, that is how we can also use this. So, social CRM for service and support.
So, rapid social response and peer to peer unpaid armies. So, this is also very important. So, in
the last classes, we were discussing co-creation a lot. Do you remember what is co-creation? Co-
creation was where you bring in the customer with you and both the customer and the company
together create a solution.
Now, here what I am talking about is one type of co-creation where peer to peer problem solving
is happening. I was talking about customer forums; where customers ask a problem and other
customers answer. Even in my particular course, we were trying to create peer-to-peer solution if
you know that we, I have told you in last of the videos that why don't you post a problem, post an
answer to a problem and other people will answer to your solution that you have given .
Similarly, this peer to peer unpaid armies is basically that if you have certain customers who
know about your product. Let us say, if it is a software product and I as a, I am an avid user of
this particular, I am an advocate of this particular software or probably I am an avid user of this
software and I know what are the integrities what are the problems I have faced.
Now, the moment I see that another person faces the same problem I reply even before you
reply. Even before the customer care replies, I reply and solve the problem for this. So, this kind
of customer forums works pretty well in the social media.

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So, it is important to you to create a social group. Let us say, a group of Microsoft Excel users or
Microsoft PPT users or let us say Zoom users and the moment the Zoom has any kind of problem
in terms of online teaching and etcetera. Somebody else who has been using Zoom or Microsoft
Excel or any other brand very very prominently will probably answer to this kind of problem.
So, you have an unpaid army in the social media; obviously, innovation you can also ─ the
unpaid army can also give you ideas and that idea you can pick it up and create your new
products, new product features, new changes in the product feature and etcetera.
So, that is also another track collaboration is also another track where you can ask them to, why
don’t you come together, three-four guys come together and create a problem-solution for you.
That kind of features can also be created in social media. And the last one is customer
experiences where, there is a seamless customer experience, VIP experience and mobile on-
location.
So, you have to understand that this is something which is 24 into 7 and no location involved.
So, you do not have to open a customer's care center anywhere to handle this kind of a problem.
You, it can be anywhere. You can give services to anywhere at any location. So, all of these
together, all of these advantages together comes under the social CRM and that is why social
CRM is becoming very very important in today's world. A new, new techniques, new. new
strategies are coming up like chatbots are coming up.
Where some amount of automation is there like application of AI is coming up where from the
complaints itself, I can categorize the complaint. So, rather than reading the complaint and
understanding the what problem it is.
I can use AI and text mining techniques to categorize the problem a little bit even before
somebody actually handles that. Or there are chatbots which try to let us say, if it is a complaint,
I would probably in some of the cases I would not want the complaint to be, the complainer to be
very very angry, very creating lots of negative sentiment in the social media.
So, we use chatbots and etcetera to reply quickly and then remove the conversation from the
social media and ask them then why don’t you call this number or why don’t you email to this
number.
So, we try to move faster. So that, that particular conversation goes off social media. So, that
kind of lots of moves are, people are trying to take, but this as an overall strategy you have to
think. You cannot remove social CRM outside your strategy box.

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(Refer Slide Time: 18:56)

What are the tools that are available? Okay,so, now there are certain brand names that I will talk
about, but these are not the prominent brand names. These are not the only brand names, but
these are probably the prominent ones.
Like one of the very important tool is the blog where you talk about customer success stories.
Where you talk about your good goodness of your brand, what you did, what you not did, what
your customers did and then they were happy with this, how your brand has helped or your
company has helped in the social sector. Let us say some COVID 19 happened or Amphan
happened or some kind of distress happened in the nearby locality where your brand is actually
performing.
Then how that brand is helping there. So, like Grofers or all these BigBasket these, kinds of
companies have created lots of I would say positive vibes during the lockdown period. Because
they could send the products to the house and they actually changed the mindset of many people
from the local market to this kind of online grocery markets.
So, they use this kind of blogging techniques, sometimes micro-blogging techniques also to
tackle these particular customers. And then you can do podcast; podcast means you can do
probably certain kinds of videos, you can create where the usage of this particular products are

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shown and those particular podcasts are shared freely. So, this will help a lot of customer
relationship management efforts.
Because oftentimes customer comes and calls you and say that I cannot open this what I have to
do; there is a technical difficulty. Now there if there are lots of technical difficulties and if you
have a technical product and there are lots of technical difficulties that are happening. And there
you need a person who will solve those kinds of problems rather than doing that, you can ask
them that, why don’t you go and see these videos, these podcasts.
And when these podcasts are happening they the customers can go and see and understand that
okay this, this is where I have to click, this is where I have to click, this is where I have to write
and then I will get my result, the coveted result. So, that kind of podcast also helps in terms of
more usage.
Then social network services like Facebook. Facebook we all know how it can be used. I have
been discussing for the last couple of times. Wiki page is another important use, place where you
can use Wiki pages to give as much information about your products in, because, Wiki pages,
one important advantage of Wiki pages is; as I was telling that oftentimes, you need customers as
unpaid armies to help you.
So, Wiki page is such kind of a page, Wiki pages are generally collaborative pages means; lots of
writers can come together and in which one post, if it is an open thing then that there can be lots
of contributors. Now if you encourage your customers to become contributors in a Wiki page for
your brand. Let us say, you can give certain prize money or something for them.
Now they can contribute in a very better way to this particular Wiki page, they can maintain the
Wiki page. Sometimes when the first probably first draft of the Wiki page is made after that you
do not have to do anything, you can leave it to the customers and customers, the positive good
customers can themselves manage the Wiki page.
So, this is a repository of information which is handled by an army who are unpaid and happy
about you. So, that sometimes it backfires, but very rarely because you can keep tracking this
particular Wiki page whether positive information are being shared or by chance a negative
information are coming up here.
But, overall sense you can think that this is also one particular source of information which is
managed in an unpaid way. Twitter; so, I can, I will at a later point of time, I will share certain

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certain data sets which have been, which are there in Kaggle dot com. You can go and search in
Kaggle.com.
Kaggle dot com is a website where lots of data sets are there. Big, small, different size of data
set, different types of data sets are there. You can go in Kaggle and you can search for Twitter
customer support and you will see that there are data sets which actually has millions of
customer conversations for multiple brands.
So, one data set, therefore, we are working on has probably around 15-20 brands, big brands like
Apple or Microsoft on this and that. Who are giving services through Twitter; customer
relationship management services through Twitter.
YouTube videos are also like a podcast and YouTube videos generally come hand in hand and
oftentimes there are YouTube live also. You can also run YouTube live webinars kind of stuff
through YouTube with which you can give services to the customers.
Then there are discussion forums which I told already that ah like Salesforce dot com or power
bi dot com, power bi or lots of software companies have their own discussion forums where
somebody posts their problem, some other customers answer to those problems, somebody gives
certain suggestions in terms of feature improvement, some other customer vote or like or dislike
those the feature improvements.
And based on multiple customers' overall reaction to this feature improvements or multiple
customers' reaction to these complaints you can give a better service or better product design to
these particular customers.
So, forums are also very important. Yelp or in India's context you know Zomato, for Zomato for
food, and then Tripadvisor or MakeMyTrip also has their own review channels. Tripadvisor also
is a very important review channel for travel and let us say there is Google reviews for basic any
kind of products; there is IMDB for movies, the Amazon has their own review platform. So,
reviews online reviews and ratings become another important factor.
Now online reviews and ratings are is itself is a very, I would say very prominent literature, it is
very prominent area where you have to focus on and in a different class, we will probably spend
around, probably 1 hour or so, on this online ratings management. How you can manage online
reviews and ratings? What kind of things are important? How you can know that? Who are the
influencers? Which type of reviews actually get lots of hype? Which types of reviews are
generally not liked by the people?

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So, those kind of discussions will come up, but online reviews is also one of the very major
source of information when you go for customer relationship management.
And then widgets. So, you can also put in your website all these social media widgets.
So, that people can directly go to your social media customer relation. So, rather than giving an
email id or giving a phone number.
This widgets plays a better role. Because people often times are more, that means the newer
individuals, the younger individuals are more probably happy or more I would say, they are more
comfortable to go to the social media platforms and post something rather than calling to your
call.
So, one to one conversations are slowly coming down and machine to human conversations are
going up. Whether that is right, whether that is wrong I will not discuss on that, but I am saying
that this is the change happening.
Now, you as a brand also have to embrace the change. So, why do not you put all of, to the social
media widgets on your website? So, that people can go to the social media platform, the right
platform and write about and express about their problems or their good feelings at the right
place. So, when you can do that ─ that creates a better operational strategy. So, this is how I will,
I am saying that how different tools can be used in an operational way to handle the social CRM.

(Refer Slide Time: 27:26)

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Now, next thing is the touchpoint management. So, there are multiple touchpoints that which you
can use like mail, email, SMS, web, call center, the branch, the IVR, the ATM in the context of a
bank let us say. So, there are multiple touchpoints. All these touch points create either, all these
touchpoints are basically handled by Marketing Campaign Management and Inbound Interaction
Management.
So, these are the two broad tools under which this. So, mail, email, SMS, web, they are basically
marketing campaign management. You do your campaign through this. Even web, web self-
service also you do your campaign and then call center branch IVR, ATM is basically inbound
interaction you do.
So, generally, people come to these places; you do not go out. People come to this places and
then inbound interaction happens. So, mail is generally outbound; mail, email SMS, these IVR
things are inbound and the web self-service, the middle part, the social CRM part is basically
both inbound and upward, both kind of conversation happens.
Now what you do is you collect information from this, all of this kind of different kind of
conversations and you do customer analytics. You have various kinds of custom analytics tools
you use to try to create information from this kind of touchpoint management system that you
have created. So, that you can give a better service to your customer.
So, this is where I will stop today in this particular video. And I will continue the next video
from this point and how customer analytics can be used along with social CRM. So, that you can
create lots of information for your company.
Thank you very much, see you in the next video.

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 Cu Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 23
Social CRM (Contd.)

(Refer Slide Time: 00:12)

Hello everybody. Welcome to the Swayam NPTEL course on Customer Relationship

Management this is Doctor Swagato Chatterjee from VGSOM, IIT Kharagpur, who is taking this
course for you.
We are discussing Social CRM. Until now we have discussed, why social CRM? What are the
benefits? What are the challenges? What are the overall strategies that you can do? You can do
marketing, sales, customer management, probably innovation management, customer experience
management and lots of stuff using social CRM.
And I have also talked about multiple tools, how you can use Facebook, Twitter, YouTube and
various other social media tools to create customers ─ to do the operational strategies of this
particular customer relationship management and the last part we were discussing about
customer analytics. So, I will come to that.

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(Refer Slide Time: 01:01)

(Refer Slide Time: 01:03)

So, when I talk about analytics, you have to understand that there are lots of things that you have
to understand in customer analytics. First of all, there are lots of data sources in customer

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analytics, the first is like email data and then branch teller data if it is a bank, then there is email
data, there is branch teller data means somebody is doing the transactions in the bank that create
certain kinds of data.
Online banking data which is another source of data, the store platform data, let's say, store
vision platform data is probably if you have a store and there are lots of I would say video
cameras are there. So, that kind of video camera also creates a data set for those e-commerce
firms or retail firms.
Then there is call center data, customer profile data, whatever customer has shared before and
then customer survey data; sometimes you do surveys with the customers about their satisfaction,
their problems and etcetera so that kind of data comes up . So, if you can see the data source,
some data sources are customer generated by themselves they respond to that. Some they do not
respond, but their behavior is something from which you can trace the data.
So, some are behavioral, some are responsive, some are basic demographics like; customer
profile data is basic demographic, customer has no control on that. So, all of this kind of data is
created and when you get this data through various data tools, data mining tools I would say,
big data mining tools basically Teradata Aster is a big data mining tool based on that, what you
can do is you can create multiple types of tools.
First of all you can create a database, the basic thing is database. Database means where lots of
data is stored in a particular format in such a format which can be easily, from where data can be
easily retrieved.
So, that database is the first thing, the second thing is the monitoring tool where you can monitor
that, whether the, your based on the data your performance is going up or going down for what
kind of problems are happening and those BI tools are basically backed by this.
So, their monitoring tools are basically backed by BI tools, which does the same thing
monitoring only, but creates lots of very beautiful charts and graphs and etcetera which is from
where, it is the objective of BI tool is that you can see the particular outcome of the BI tool and
very easily understand the problem, where the problem is.
So, it is a graphical or non-graphical textual representation. Any kind of representation of the
data, it can be graphical or non-graphical, where by seeing the data it becomes very easy for a
naive person also. For a person who is not very good in terms of data science and etcetera. He
can also see, who has domain knowledge, he can also see and understand that this kind of

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problem is there. So, oftentimes BI tools are used for report generation BI tools are also used for
real-time monitoring purposes.
So, oftentimes the monitoring tools are backed by BI tools, but all I am trying to say is that
customer behavior, when I am talking about customer behavior analysis and when I am talking
about data sets. Data sets may come from multiple sources and that sources are sometimes not
even in control of the customer and you can take advantage of those things.

(Refer Slide Time: 04:27)

Now, what kind of analysis that you can do in the context of social analytics?So, one important
social analytics that you can do is path analysis. Path analysis is to discover patterns in rows of
sequential data. So, Let's say certain data sets are sequential, to give an example.
Let’s say in a website, if you have ever handled Google analytics you will know that Google
analytics gives you a path that most of the traffic comes in the home page. Let’s say for a
particular website ─ and then from the home page, 90 percent goes in this particular page 1, 80
percent goes to page 2, sorry 90 percent goes to page 1, and 8 percent goes to page 2, 2 percent
goes to page 3 . And then from page 1 another 30 percent goes to page x, page y, page z, so that
kind of tree gets created, that’s a path.
Now, you know that this is the right path. That home page, then page a and then page I will lead
to maximum sales. In the last historical data, you have analyzed historical data and you found out

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that this particular path, that home page then page x, then page a, then page x and then ultimately
the transaction. This leads to maximum closure.
Now, if you have this kind of data in your hand, what you can do is in the social media page that
you have created you can create certain kinds of pop-ups or certain kinds of links. The moment
somebody, instead of coming to page a from home page, he goes to page b, you will populate a
hyperlink towards page a in that particular page.
So, that you are bringing in, the moment he is moving out of the track of the coveted path. You
are pulling him back or you are probably inspiring him to come or influencing him at least to
come to the path and again follow the path.
Now that kind of creations, that kind of strategies can be taken only when you know which path,
which sequence, which customer journey results in the most positive result. Not all customer
journeys will come up and end in a purchase. In context of all customer journeys, if it is a normal
website, if it is not an e-commerce then purchase is out of the story.
But not all customer journeys will also come to a positive outcome. Let's say positive brand
image or whatever way you try to measure that. So, you have to find out the best possible path
and all other paths that are happening. It might not be one single path.
There can be four different paths which all of this force results in some amount of purchase. Let's
say there are four paths instead of one path like, home page, page a, page x and result. Instead of
happening, there are let's say four paths ─ Home page, page a, page x, result, home page, page
a, page y, page z and then result and home page, page b, page x, page y and result Let's say
there are three paths.
Now, somebody has come to the home page and then page y ─ so, from page y- so, page b, from
page b the next best option is page x and then page y, but somehow after page b, he goes to page
x page something else m. Let’s us say, when after page b goes to page m you have to create some
strategy in your design. So, that it will not be for all, only those guys who have come to page m
and before coming to page m they were in page b for them this will be populated.
So, you will see oftentimes you have been seen, you will be seeing on their website that ─let's
say that I will track your cookies. They say that please accept all cookies that I will track your
cookies to give you a better experience. How I will give you a better experience if I can track
your path, not only in my website, probably sometimes in other websites also what kind of
websites you generally see and etcetera.

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If I get this kind of information, I can create a responsive website which includes this
information and redesign your page, whatever page you are seeing, that gives you a better result.
So, this is something, which is a strategy, which comes under social analytics also.
Not many companies have the power to do that, but often many organizations who have a very
strong tech team can do that. Now you have to understand that this is not only the tech team's
job, it is also a marketing manager's job to identify those paths and to give a reasoning why this
path is the best path.
So, until and unless you can do that, the tech team is a blind team, he knows that this is a path a,
path b, path c, these three paths are the best result, he does not know why. That ‘why?’ answer
will actually help you to answer much more lucrative offerings or much more much different
kinds of strategies such that you can use this path analysis in your advantage.
The next is text analytics. So, again I was telling that in a different video I will talk about how
reviews and peoples conversations are used to do text analytics, but let me give an example. So,
one thing that we do and I will share some papers on that.
This probably exactly my own research area, is that what makes a particular review helpful or if I
say that; if you see certain reviews. How will I know that in this particular text, what are the
factors people are talking about, what are the key issues people are having problem, or what are
the key issues people are complaining about?
So, there are text mining techniques which can do that to find out the key extract from a text and
then you can also find out the sentiment associated with that topic. Let's say one particular text
might have 4 topics; you have gone to a hotel, you have written a review and you are saying that
okay, in this hotel the stay was pleasant, but the people's behavior was not so good, the food was
okay, but the hot water was not running. So, something is positive, something is negative.
So, first of all I have to find out the things, what things you are talking about, and then I have to
find out whether you are talking about positive in those, about those things and negative about
what things. So, certain parties you will be focusing on giving me positive vibes, certain parties
will be giving me negative vibes. So, I have to find that out. I can also find out what kind of
emotions that are associated with this conversation.
The thing that you are saying; are you angry, are you anxious, are you disgusted, are you very, I
would say very, very I would say, fearful about this incident, what is your emotion, because
those things all each of this information the sentiment, the emotion, the key aspects, all of these

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leads to better service design or better product design. If I know that this kind of features you
will want, this kind of features, needs, improvement this kind of features are where you are
happy, I can track your text and based on that I can create lots of information out of it.
So, that is that is how text analytics is also one major area. So, I will not talk about how exactly
to do it, the operational part to do it, because this this not an analytics class, but this is a customer
relationship management class and as a marketing manager or a customer relationship manager
you have to know what are the various tools I have in my hand. What are the various things that I
can do, after that who can do that, how to do that, can be found out later using a data science
team or using some data analytics courses. But here I am at least giving you this idea that what
are the various things you can do, you can think of doing.
Then path analysis or text analytics, whatever you do you can do statistical analysis for that.
When I say statistical analytics you can do high performance like machine learning or you can do
econometric analysis to find out statistically whether some effects are significant or not. What
affects more, what affects less; you can do some predictions about the future. So, all of these
things can be done. So, if you have done basic statistics you know what kind of statistical
analysis can be done.
Then you can also do some unsupervised learning techniques. So, things which were nowhere
previously it was not told that okay, these are in group a, these are in group b or this kind of
observations are a, this kind of observations are b, that pre level data is not there. When those pre
level data is not there you have to create your own level, you can use segmentation.
Segmentation is basically a way of grouping customers in such a way that customers who have
similar characteristics come in the same group and customers who are offering dissimilar
characteristics go in different groups. Two groups should be away from each other in terms of
their characteristics and the group members within the same group have to be very close to each
other.
When this kind of algorithm we try to create we create groups of customers. Why do we create
groups of customers? Why is customer segmentation needed?
Customer segmentation is needed because customers are heterogeneous, some people like hot
tea, some people like ice tea, Let's say in a class 50% people like hot tea, 50% people like ice tea
. To make everybody happy; you cannot make one cup of hot tea, one cup of ice tea and mix it
up and then serve.

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You cannot serve lukewarm tea to everybody, nobody will be happy, if you serve lukewarm tea
to everybody, the hot tea guys will say this is not hot enough, the ice tea guys will say that this is
not even cold, forget about not even normal temperature forget about ice tea. So, nobody will be
happy.
Then you have to select whom I will serve and if you have the ability to serve both of them then
you have to come up with two different products for two different people. Oftentimes, companies
do not have the capability to serve both of the both of the segments or multiple segments.
So, then what they do, then they generally go for that particular segment which is most profitable
for them. So, they do a targeting mechanism. So, all of these things will only be possible, only
when you have enough data with you and you do some amount of cluster analysis or
segmentation analysis to solve your problem.
Next is ─ you can do marketing analytics. So, there is a whole course on marketing analytics in
NPTEL you can go and attend that course also which is given in the other semester not in this
semester.
So, there you will get more details about whatever I am saying here, that what kind of basic
things that you can use to be based on basic Excel type of analysis and if you have a little bit of
coding idea we have taught from the very basic, probably from very starting of coding we have
done the coding in R programming.
So, with Excel and with the help of R programming I have shown, that course also has been
taken by me. So, I have shown how all of these things can be done using real time data. So, this
particular course on marketing analytics is offered in the other term by NPTEL Swayam which is
also a similar kind of course, what you are doing right now probably is a little bit longer, you can
do that course.
And you can get a better idea about what these things are operationally in hands on basis, you
can get a better idea. So, even if you are a marketing manager, if you have a little basic statistics
background or basic business analytics background you can do this particular course.
And then the last one is data transformation, which is transforming data for more advanced
analysis generally done by these BI guys or data engineers, which can also be one part of social
analytics portfolio.
So, these are all the things that you can do under social analytics and when we say statistical
analysis there are lots of things that come under statistical analysis. Again, do a business

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analytics or marketing analytics course to get an idea about what they are, but overall these are
some of the things that as a customer relationship manager you should be using.
You might not be doing it on your own, but somebody else is doing it. You should be able to use
the results that the other guys are producing for you by doing this kind of analysis.

(Refer Slide Time: 18:03)

Then big data social analysis, you can also do big data social analysis in terms of the, so when I
say social analysis, this is the social network analysis that we are talking about. Again in the
marketing analytics course we have discussed, what social network analysis is? This is about,
there are multiple nodes, multiple people in a social media are basically one-one nodes and I and
their connections between each other is basically this, I would say these straight lines which we
call the relationships.
Now, the relationship can be bi-directional. Bi-directional can be unidirectional. For example,
my relationship with a celebrity whom I am following is unidirectional, whatever he says I listen,
whatever I say, and probably he or she does not listen.
So, it is a unidirectional relationship, but I am liking his page. So, there is some relationship
between that particular person with me, but it is a unidirectional relationship. Whether it is a
strong relationship? No, probably I follow him, but I do not get persuaded by him, my day to day
decisions are not taken by him.

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On the other hand, let's say my other colleague is also there on Facebook. They are the
relationship bi-directional, both of us talk with each other on social media and that relationship is
probably closer than my relationship with the celebrity. So, that is a bi-directional relationship
and probably a stronger relationship.
Now depending on how many relationships you have in a social media, depending on how many
strong and how many weak connections do you have, how many unidirectional and how many
bi-directional connections you have, based on all these things I can create a social network which
might look like the picture that is given in this particular slide .
And in this social network you can see that there are some nodes, some points who are more
important, more strong, in terms of data sharing, in terms of influencing people than others. You
will find out your potential influencers here and if you can find out the potential influences in the
social network then that will help you to understand that; whom I should influence such that I
can pass the information in the whole social network.
Whom I should put money on or whom I should persuade, whom I should bring in in my
advocacy team by doing lots of efforts, such that this particular person who is an influencer
himself or herself can actually spread good things about me, positive news about me in the
whole network.
So, identifying that influencers, identifying the network structure all of these things can be done
using social network analysis. One small case study has been discussed in the marketing
analytics course also, you can go and see that, but these kinds of things are also there.
You can ask a data scientist in your team, if you have a data science team, ask them that, why do
not you create a social network and social network for a group, for a closed group and try to find
out that who is the major important person in this group and try to influence him, if you can
influence him that might ─ For example, brand ambassadors, oftentimes these events and various
kinds of competitions or various kinds of brands, create campus brand ambassadors. They hire
campus brand ambassadors.
Now, should it be hired, using what should be the policy when you try to hire the campus brand
ambassador. One important policy can be that; whether this person is a, probably a person who is
well connected.
Now, if you can create a social network for a group of people within a campus; or if campus is
very large ( probably a significant amount of people in the campus.) Let's say if you say that,

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okay I cannot track in IIT Kharagpur that 12,000 students I cannot get data for everybody , but if
you can get data for 5,000 that gives you enough big network representative network.
From there if you can find out that, okay I have 100 applicants and these 100 applicants are here,
here, here, here, this is their position, these many people they are connected with, I can get an
idea of who should be my campus ambassador.
So, now I am talking about campus ambassadors in a closed context. The same thing is done in
social media in a much larger context, how many friends do I have? So, you will see that
oftentimes, when you go and click on, let's say certain kinds of links or certain kinds of apps in
Facebook, which says that how will you look after 30 years or what is, what was your profession
in your last birth.
So, what they do is, you go and click an app they collect some information about your profile
and give you a funny message, some funny outcome of this and you share, many people laugh.
Right now the avatar thing is going on, what is my avatar? So, you share your picture and now
by doing that you remember that you are sharing your public information, you are sharing your
pictures, you are sharing your friend list ─ you are sharing your name and many things you are
sharing.
Now, if many people actually access this then I know which people are connected with which
people and by doing that I can create a social network and from that social network I can find out
which are the people who are more connected with each other in terms of strong connections,
weak connections blah, blah, blah.
And if I can get that kind of information I know that whom to target, whom not to target. It is a
tough exercise, cannot be done by a common person. You have to spend lots of money, but if
you can spend that kind of money, you get resources you get information from Facebook or
social media. So, strong that that can give lots of marketing benefits to you.

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(Refer Slide Time: 24:13)

You can also find out what shoppers are searching for, for example, "serious shoppers" who
browse 5 plus products in a session. So, you find them and after browsing, they perform 2 plus
fruitless searches within 10 pages of each other. And then within 5 pages of the last fruitless
search, they abandon the site, perhaps frustrated.
So, the one that I was saying that there is a path which is the best path, some searches that this
particular customer is doing is good, some things are bad, some things are fruitless and fruitless
search will lead to frustration and then leaving. So, you have to bring it into the fruitful search
again. So, that kind of analysis you can do.

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(Refer Slide Time: 24:56)

What is the marketing strategy for success using social media? Where should I increase my
marketing spend to drive ROI? That is the major decision. So, you will see that, okay I have so
many tools I have, I am discussing so many tools, so many ways blah, blah, blah, everything will
require money.
Now the next basic question comes up is, where to spend the money? Will I spend the money on
Facebook? Will I spend the money on Instagram? Whether, will I spend the money on Twitter?
Or what, how to spend the money, how to decide where I will put my money in?
So, that also becomes a very classic example of marketing budget allocation and we try to, what
we try to generally do here in this context is that in the last couple of years if you have historical
data. For the last couple of years, in multiple channels, how much amount you have spent and
what were your ultimate sales you try to find out. And you try to find out the relationship
between these investments with sales and when you are able to find out the relationship of these
investments with sales that particular functional form you can use to further optimize your
investments.
Again one case study on exactly this particular topic has been given in marketing analytics
course. I am coming back and back to that course because these two courses are very interrelated

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with each other, many things that could have been theoretically discussed here actually have
been practically done there, so Multi-Touch Attribution.
So, you go beyond the last click and identify which ads and channels perform the best. Because
not always, I have bought from Amazon just by clicking on Amazon and putting the product
name and I got to that product and then bought this product, doesn’t mean that Amazon alone has
actually created my sales.
Probably somebody has shared this particular thing in Facebook or Amazon was giving my ads
in Facebook or some other platforms. I have seen it there, I have checked there, probably I have
also checked in Flipkart and then after multiple customer journeys, I ultimately bought it here.
So, if it is very important to trace back, it is not only the "last click" that matters, what actually
matters is the lots of paths that I have travelled before that last click. And which multiple touch
points between me and the company, in my journey which touch point has actually contributed
towards my sales is something is very important to find out. Very difficult to attribute, very
important to find out still, it is a research problem, we are in the marketing analytics course we
have given some probable solutions, but it is still a research problem, we are still struggling and
how to find out the correct attribution.
Quantify which ads lead to conversion as I was telling, which is the correct touch point which
one actually resulted in good result and bad result. Calculate the true ROI, in a per ad basis and
run time-sensitive promotions by knowing which ads convert the fastest. So, all of these kinds of
decisions can be taken. It requires data analytics skills, but you as a customer manager at least
ask these questions to the data science team so that they can try to help you in strategizing.

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(Refer Slide Time: 28:30)

Some of the traditional data that we use in social CRM is the profile data, customer profile data,
customer contact history that, whom they are friends with blah, blah, blah, and their transactions
and their models. For example, the risk propensity model, the attrition model, the profit dividend
trial, when we create all of these things that gives you the reporting analytics. In case of banking
that leads to the risking and risk and finance profile of this particular company.

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(Refer Slide Time: 29:01)

And in the new data, in the new context, this was the traditional data. In the new context what we
also got is their behavior in the...So, other than profile history and contact history we also have
integrated web intelligence. I know which kind of websites he is looking for? Which kinds of
social media friends he has? Whether he is connected with the political person or not? Whether
he supports a certain political group or not?
I can have the social media, verbatim social media post like; whether they are talking good
about us or not, talking bad about me or not. I can also have the internal text data, if this
particular customer is talking with my customer service agency, then what kind of conversation
is happening with my customer service team and this particular customer.
And then I can also have their usage data, I can also have their QOS data. All of these things
together create a customer profile. So, the alone customer profile data and customer contact
history data which was classically used before the traditional data points have absolutely
changed in the context of social CRM and social CRM as a strategy of marketing very good, but
it becomes handicapped unless you have a very strong data science team.
So, use social CRM; obviously, to start with, create the data fast, but then; obviously, employ a
data science team who can help you in creating much more information from the data that is
generated from social CRM.

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(Refer Slide Time: 30:35)

That is probably all. These are the various kinds of insights that can be generated, that can be all
about social CRM. We have discussed quite a lot of things about social CRM, we have to think
about some of these things and I will be giving certain assignments on this particular social CRM
aspect. You can go and see in the discussion forum also and I will see you with certain case
studies on social CRM and etcetera in the next videos.
Thank you very much for being with me, see you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 24
Tchibo Case Study

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship

Management. This is Dr. Swagato Chatterjee from VGSOM, IIT Kharagpur who is taking this
course for you. We are in week-4. And in this particular session, we will discuss a case study on
Tchibo ideas. So, the case study's name is Tchibo ideas, leveraging the creativity of customers.
So, I would want to say that I have taken help from a case study from Harvard Business Review
and from multiple sources of information that has been, that can be obtained about this particular
business in multiple places like the internet and etcetera. And those are there in the references of
this particular presentation.
And we will be discussing about Tchibo ideas in the context of B2B in the customer space, and
later point of time we will CRM in the customer space.
And in the later point of time, we will be discuss in detail, what exactly CRM means when it is in
the context of B2C businesses, and how that affects customer decisions, customers welfare,
customers satisfaction, and etcetera in the context of both products and services.
So, here in this particular context, Tchibo is actually a combination of product and services. And
here we are talking about the creativity of the customers, how you can leverage that and how you
can make your customers innovate for you is something that we will be discussing. It is a classic
case study of co-creation that we were discussing till now.
So, what is co-creation? Co-creation is where you and your customer come together to build a
service and experience or an offering. And that might be very much particular to that particular
customer that whatever he gets, he designs, he only gets, but sometimes that particular design
can be also adopted in a mass scale production or can be given to other people also. So, both
ways, it is co-creation.
And this is an example of the second one, where the customer comes up with the ideas and
Tchibo basically uses those ideas to create different kinds of experiences. So, let’s go ahead with
this case.

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(Refer Slide Time: 02:35)

So, what is Tchibo? Tchibo is basically a company which is a coffee company based out of
Germany. So, in 1949, Tchibo was founded. And it was a coffee subscription company. Once it
will go to your house and it will deliver coffee to your house that kind of a company it was.
So, initially coffee subscription was a business that was going pretty well for Tchibo, there were
lots of subscribers all over Germany, and they were actually having different kinds of
subscription plans, and those plans have different kinds of takers as well.
Depending on what kind of plans you are taking and what, whether you are renewing the plan
and etcetera, the customer lifetime value calculations and etcetera were going on.
Now, in 1955, 6 year later, German coffee shop, they started a German coffee shop to both buy
and drink coffee, so it is like something like Cafe Coffee Day in our, but probably an older
version of that.
Where somebody can buy coffee, buy raw coffee powder or coffee beans, and they can also
have coffee in that particular place. So, slowly from a product based model ─subscription is
primarily a product based model, obviously, there are some service components in it.
We always say, all businesses there is nothing called a product business or there is a service
business; it is always a continuum. And in this continuum you will say that one end is service,
another end is product. The services are more intangible products or more tangible; services are

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more customizable, products are less customizable than services, and so on. So, there is always a
continuum and you have to position yourself in between that.
So, when they were in the subscription mode, they were more towards the product continuum,
product side of the continuum that means that they were more related, they were more
associated with the product ideation or let us say the ideology of product or product selling.
Now, in 1955 they removed themselves, they moved themselves a little bit from product to
service in the continuum, and they opened a retail shop. So, they still have their own products,
but they are opening a retail shop which is basically a Cafe Coffee Day kind of shop which is
German, German coffee shop. And where you can probably have coffee and you can also buy
coffee beans and coffee powders.
In 1958, 3 years from then more than 77 stores; all of a sudden they found out that these stores
are doing better business than the subscription models. So, they started expanding and expansion
also requires a little bit of investment.
So, invest they invested on the expansion plans and they were not only in the bigger cities of
Germany, but also in the smaller cities or tag two cities they went up and they had 77 stores,
which is a big number for, in 3 years at and that too at that point of time when when the economy
is not as strong as now probably post Second World War kind of a situation.
From 1955 to 58, they opened 77 stores, and they became the number 1 coffee brand in
Germany. So, slowly on the national level they were a pretty
well-known German brand.
And now from the, in the continuum that I was talking about from the product to service
continuum, they have moved further from product to being service, because they were they now
their major business is the retail business rather than the subscription business.
Then in 1964, they started offering small products as complementary items. So, this is where all
of a sudden again they are coming back to the product mode. So, they have retail stores, but what
does this retail store sell? The retail store sells coffee.
Now, they started thinking that I have a retail store. How can I actually leverage this existence of
this retail store in multiple places all over Germany better, easy I have a space and or not always
the customers can only buy up to a level of coffee.
Let’s say, I will consume let's say around 100 grams or 200 grams of coffee in a month or in a
fortnight. So, I cannot probably go and buy huge amount of coffee, but the fact that I am going to

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your retail store is an opportunity for you; you have to if you are this German bakery, German
the coffee shop, you have to make sure that how much you can take advantage of me visiting
your retail store.
Remember at that point, there was no internet; business was going on; so it was all food fall in
the brick and mortar retail store. So, if somebody is coming inside your retail store, you have to
take that opportunity as much as possible. So, they started thinking that other than the normal
coffee, what else could they sell? And what else they can sell? They can sell various kinds of
coffee related products.
So, they started offering small products initially they started offering as complimentary items,
why complementary items? Because they were just measuring the depth of the water, they were
checking how much people will actually buy this stuff, how much people were interested to buy
something beyond coffee in a coffee store.
And later, they sold them at symbolic prices due to loss. So, initially when so, German law at
that point of time was very strict they were not allowed to give complimentary items, because
there was competition involved.
So, if you give a complimentary item, then that particular item will not be sold in an open
market, because people will think that okay; this price of this item is very low in comparison to
what is being charged in the open market, not as complementary.
So, then what? So, then what they did is instead of giving complimentary, they were charging
very small prices provided that you had drinks, coffee or whatever in that particular retail store
or you bought something. So, ideally they were again moving back from the service model to a
little bit of product model.
And in 1972, they actually, this thing went on till 1972 pretty well. And then they were having
in 1987, they came up with Tchibo Depots, and in 1996 Tchibo Direct.
Tchibo Depots are basically bigger shops, where not only products, not only this kind of ─ I
would say complementary products or coffees were sold, but also various other kind of products
related to grocery, related to other interesting items ─ apparel and etcetera were also being sold
in Tchibo Depots.
Which is basically a medium scale mall, where you can go to a mall or a medium scale shop;
where you can go and buy multiple products at the same time you can enjoy your coffee while
doing the shopping.

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And in 1996, they opened up a Tchibo Direct. Tchibo Direct basically an internet shop of at the
same time you can buy all the products that were there in the Tchibo or selected products that
were there in the Tchibo, can be bought through Tchibo direct also.
Tchibo Direct is basically both an online store which sells both this coffee and at the same time it
also sells products, which were more popular, which were more accepted by the customers that
were also being told.
So, this is the history of Tchibo, that is how they have developed over time.
So, they were very I would say very fluctuating in nature in terms of their exact positioning, but
they actually whatever positioning that they decided at a certain point of time. They generally
could manage it well and that is why they were successful both in the product type, product side
of the continuum and also in the service side of the continuum.

(Refer Slide Time: 11:15)

Now, later they came up with something called the Tchibo Experience. So, Tchibo Experience
has 3 major models; one is the coffee experience, the second is the coffee shop experience, and
third is the nonfood experience.
So, these are the three major things that created the coffee, the overall Tchibo. So, it is something
like what we do in the case of what we see in the case of Tchibo also. For example, for a CCD

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also or if you, Barista or this kind of coffee shop that you see, there the similar experiences they
used to give much, much before.
So, if I talk about the coffee experience, it is like the good of rich coffee, it can be espresso, it
can be Americano, it can be cappuccino; different kinds of coffee they had to they were
producing.
And also they had coffee in the bin form in the powder form or in the survivable form which
you can directly consume at that particular place, so that was one of the major things. So, I
would say, the variety of coffee and instant consumption of coffee, this was the major thing out
of the coffee experience.
Then came the coffee shop experience, it is like when you go to CCD or Barista, what do you
experience? You experience a very good ambience, you experience the music, you experience
the laid back kind of service.
So, laid back service means the service people are also very laid back, very relaxed; and they
engage they encourage you to actually relax, so big sofas and comfortable sitting and etcetera.
So, they actually encourage you to spend time and discuss and talk and enjoy the coffee shop
experience rather than only coffee.
So, it is not only I am selling you the coffee, I am selling you the ambiance, I am selling you
nostalgia. Sometimes nostalgia of having a good time with your friends or I am giving the
experience of having a good talk. So, all of these things come under the coffee shop experience.
And the third one is nonfood experience. So, it can be anything, it can be some, let’s say, coffee
machine, mugs or other innovative items.
So, all of these three things together became the overall Tchibo’s ideation, overall Tchibo brand
value. So, Tchibo experience had these three prominent components and each of these
components had their own importance in the overall service, service design that they were doing.

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(Refer Slide Time: 14:35)

So, their major product why, when we are talking about this particular non food experience, what
exactly is the nonfood experience that this Tchibo Experience shops or Tchibo Depots or Tchibo
retail store were giving is something that we have to discuss.
So, what they were doing here is they had a new product every week; every week they were
coming up with a new product. And oftentimes that was associated with the seasonal theme, at
that particular season whatever theme was going on. So, then what happens is that there is a
repeated theme annually.
So, whatever was last monsoon, whatever theme was there, again the same theme and same
products repeats itself, but every week there is a new item and that is why, because there was
every week there is a new item involved and which will be shown in the racks of the retail store
and which will be pushed by the retail shop employees and etcetera, that is why one of the major
challenge that they were facing was innovation.
And people were actually liking the innovative products that are coming up in the retail store, but
keeping up with that expectation that every week, there will be innovation, there will be

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innovative products that will be not something boring which can be seen there, was becoming
slowly a challenge.
What are the places? So, this was about the product the 4 P's we were discussing . So, what are
the places? They are in 800 Tchibo shops, where this nonfood experience was being provided.
Tchibo Depot in 9,000 supermarkets, so basically it is the big, big retail stores as was telling;
majorly selling was more important than coffee experience.
So, here I would say in Tchibo shops, coffee experiences were more important, coffee and coffee
shop experiences were more important, but here basically nonfood experiences were further
more important and Tchibo Direct was basically internet.
So, in all of these places where also coffee not coffee shop; coffee and nonfood experience were
more important. So, in all of these three channels majorly in these two, the nonfood was a thing
that was very important and nonfood means innovative products FB.
So, they were trying to actually attack the market from multiple fronts, one is the retail store
where somebody can come and buy various products, which is which they call Tchibo Depot.
And then there were also food retail stores in terms of Tchibo shops, where people can consume
coffee also and also buy products and then internet marketing also which is like internet, e-
commerce or mobile commerce; mobile was not there, e-commerce was from where they were
selling.
The price was affordable and the promotions that were done were majorly through Tchibo
Direct. Now, see it is an innovative product every week if the product changes, you cannot run to
an advertising company every week.
So, because the internet marketing is relatively cheaper and you can do more targeted advertising
in an internet environment that is why they have chosen this Tchibo Direct through which they
were doing their advertisements.
And if I talk about the customers, what are the majorly customers that they were getting? 82.5
million target group in Germany, 82.5 million in the context of Germany is not a small number.
And the average age was 50 years, so these guys were all middle aged. So, this is something
which is important. Middle aged or probably slowly going towards old age. So, after 60 if we
consider old age, so they were middle age, 40 to 50.
And then 80 percent were females, this is further more important observation that majorly they
were female and that is why the products that you have to make are majorly probably household

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oriented or female needs oriented products, where majorly being you have to create those kind of
products.
And mothers generally buy the innovative small, small, very interesting things mothers used to
buy for their kids; and convert consumer life cycle of the kids was also something that we are
focusing on.
See ultimately the kids will someday will become the elder generation. And so by attracting the
kids to the shop by the innovative toys let’s say at an early age, they were making sure that okay,
this guy will feel nostalgic; once he becomes older once he becomes, let say 25, 30, 35 or even
50, he will think that okay, in the childhood I used to go with my mom to this particular store, so
I will also go with my kid to this particular store, so that kind of cycle they were trying to track.
And if you check, they were therefore quite some time. They were they they have started this
business of innovative products in 1964; and we are talking about 19-2000 something, so that is
a very long time they have stayed with this particular kind of products, so that helped them a lot.
And good brand awareness and overall customer satisfaction was their basic USP based on
which they were doing the business.

(Refer Slide Time: 20:18)

Now, till now everything is so goody, goody, goody, goody. We have to discuss what was the
challenge? So, Tchibo Ideas is something that they launched in 2008, which has a different kind

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of business model, what they were having the problem was as I said that generating innovation
was becoming a very important problem.
How can I generate innovative ideas every week? How can I get new products every week? That
was becoming a specific challenge. So, what they did is they created a platform which is a
crowdsourcing platform, where idea generation. As I was telling that co-creation is the basic
background of this case.
So, crowdsourcing platforms for idea generation and there were a few crowd sourcing at that
time, there were not many crowdsourcing platforms and no large scale country level player was
there. So, they made Tchibo Ideas to be one of the first crowdsourcing platforms and that is why
it is a case study, so they launched in 2008.
What had, what it had? It had some customers and some designers. So, what designers used to do
is to give various kinds of plans. So, these designers may also be some customers, these are not
employees of Tchibo; they are outsiders, they used to post their ideas.
And customers used to like or dislike or vote for those ideas, and only the one which are more
prominent ideas, more successful ideas will be converted towards a product. And if you, it is
converted to a, at the product, there will be a contract you will get money, the designer will get
money from the loyalties of the product; and if, even if it is not converted, every week there will
be a winner and that winner will get some prize money.
So, by doing this, they were encouraging their designers to submit certain designs and they were
encouraging the customers to vote for this particular design, so that money can be generated out
of it. So, by 2010, they had 8,000 members and who posted 1,000 problems and 600 solutions.
So, there were so, the customers will come up with the problems obviously, problems will come
from the customers and the solutions will come from the designers, and the voting will be done
by the customers again, so that was it.
And by 2010, they had 8,000; so this was a very huge success. In 2 years, you had 8,000
members, ,1000 problems and 600 solutions were there in that particular platform. So that is how
they actually challenge the problem. So, they actually accepted the problem and then focused on
the problem, and tried to solve the problem of innovation generation.

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(Refer Slide Time: 23:06)

So, what was the consequence? Again it is a very good step and the problem is solved now. So,
there were 2000 different products every year that were getting created.
And it was a very fast paced innovation, so generally innovation takes time for market ideation;
whether the market will accept it or not, the testing in the market and etcetera, but because
everything was done in the in a online platform and anyway the market itself was talking about
the problem and the design was giving solutions.
And the market was readily giving acknowledgement that whether this particular solution is
good or bad, the innovation pace was very fast; very fast you can create a problem, first
corresponding solution and the viability of the solution, all of these things were very fast.
So, slowly Tchibo’s image which was there from the 1950s which is still there in the 2000’s right
now. So, generally if a particular brand is there for the last 60 years, you will know that it is a
traditional brand, like Tata Tea or ITC. In our case, we know that okay these are traditional very
well established names we will always believe in them, and blah, blah, blah. This kind of image
creates in the customers mind similar things that happen with Tchibo.
But from being a traditional blend all of a sudden this Tchibo Ideas changed their image and
made an innovative company, because no other crowd sourcing company was there at that point
of time, and because Tchibo was doing this Tchibo had become all of a sudden very..

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So, it is like coming up with the new avatar. We you change your face and you change your
looks and etcetera, come up with a new avatar which is very young, very energetic, very
innovative, sharp in mind not a person who is he, it is the trustworthy and etcetera all of these
things are there; but the old traditional thing that you will get a traditional feeling or a nostalgic
feeling that is gone.
So, by doing this they could reduce 20 to 30 percent marketing cost. That is the, one of the major
things through customer involvement, because customers are involved in the product.
You do not have to sell it, you do not have to push the innovations, customers themselves were
liking the innovations and that is why they are involved with the innovation making process and
that is why the marketing costs will come down, they will anyway buy.
There were lots of positive reviews from the bloggers you know, people were actually tracking
this thing and people were writing good things about doing, so this is called owned media. Sorry,
this is not owned media; this is called acquired media or something like that. So, which is
basically you, it is not owned, sorry, its acquired media that you acquire based on, it is acquired
based on your own skills.
So you, this is basically unpaid; you do not pay anything for them and they do a word of mouth,
positive word of mouth for you, so that kind of things were going on, because bloggers were in a
gaga; because bloggers got a very good idea generating platform, bloggers also need their own
ideas.
So, if somebody is generating ideas very very frequently, and you can go to this platform and see
that okay, this product has come up which is very good. And 10 products that you can see which
can change your keychain, that kind of blog you can write, and that creates a positive image for
Tchibo.
But the problem that happened through this was with these designers, who are giving the
solutions. They started thinking that okay I am getting some royalties out of it, but that royalties
were not so good.
So, for a very strong time, they very long time they started feeling that they are getting cheated,
they are not getting the amount of money or recognition that they should have got and they had
mixed feelings. So that was a major problem for, or slowly it was becoming a problem for
Tchibo, but otherwise everything was fine.

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(Refer Slide Time: 27:25)

Now, the question that I would want to discuss in this particular context is, will increasing focus
on Tchibo Ideas and consumer power will be helpful for Tchibo, which will be more
advantageous? Should Tchibo use the platform only for learning from the customer or should
they use it for mass production?
So, is it only a crowdsourcing platform, where I will source ideas or I will make it a mass
platform the Tchibo Ideas itself will be a platform or should it only be an add-on to its
technological product development process. So, these are the key ideas that I want to say.
You can read about Tchibo ideas on your own on the website, on the internet and etcetera. And
in the next video, we will try to discuss these particular three points. Why don't you stop, take
probably a 1 day break? Don't come back to this next video before 1 day.
If you are listening in the morning, use your evening time; if you are listening in the evening, use
your next morning time to search about Tchibo and Tchibo Ideas a little bit. Get all the
information, then you can get about Tchibo Ideas in detail, it is a pretty good case and then come
back with this analysis of these questions on your own, some 3, 4 pointers. And the next video
we will discuss about that.
Thank you very much. I will see you in the next video.

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431
 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur
Lecture – 25
Tchibo Case Study (Contd.)

(Refer Slide Time: 00:12)

Hello everybody, welcome to the Customer Relationship Managements course in the Swayam NPTEL
platform. This is Dr. Swagato Chatterjee from VGSOM IIT, Kharagpur who is taking this course for
you. We are in Week 4 and we are discussing the case on Tchibo Ideas.

So, in the last class, in the last video basically I have asked you to read about Tchibo ideas I have
given some, some basic uh presentation about Tchibo and I also told what Tchibo Idea is. It is
basically an outsourcing platform where ideas are generated where the customers put their
problems, the designers give solutions to those problems and then again the customers vote or like
or dislike the solutions.

And, the solutions which get very large number of votes are generally converted to a product and
then sold as innovative products in the in the in Tchibo direct and in Tchibo depots and Tchibo shops
and even if it is not converted to a product ah designer will get some money as prize money. So, that
was the overall concept.

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(Refer Slide Time: 01:18)

And, the questions that I asked you is will increased focus on Tchibo Ideas and consumer power will
be helpful? So, rather than becoming a company which sells coffee then sells products and then sells
experience, now sells I do not know what they do with idea generation. The question is whether this
should be major focus or the previous thing, selling will be the major focus.

Then should Tchibo] use the platform only to create only to source ideas, only to learn from the
customers or they will use it as a mass production platform. So, what is the mass production
platform we will try to discuss later and should it be only an add on to its technological product
development process? So, these are the overall question that we are trying to go to.

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(Refer Slide Time: 02:04)

So, what is this goal of this platform? I told the goal of the platform is: one is to create customer
involvement, it is a customer co-creation. So, you try to involve the customers in the idea innovation
generation process and you make this particular I would say, you, you try to make the customers
more involved in the product generation process─ you try to help them in designing the solutions.

The designers and the customers come together, see how well the customers explain their problem
is the is also related to how well the designers will actually be able to answer the problems and then
that will ultimately lead to the ultimate results of the particular thing. So, all of these things
comestogether and the platforms major goal is to bring all these people together in one single place.

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(Refer Slide Time: 02:56)

So, make customers feel accepted and needed by the company that is one of the major goals.
Develop new products obviously, increase assortment, replace internal product development
process. Rather than a product development process which is in-house they are doing it out-house.
Develop new ideas. Start on internet venture. So, this is also one of the important things because
Tchibo direct if you remember Tchibo direct is a retail store, but retail store was just coming in at
that time point of time.

Now, Tchibo Idea is also probably will compliment Tchibo direct in terms of new product
innovations. Fit pigging in or going inside Tchibo direct at every point of time. So, it will start a new
internet venture. It will also obviously, grab attention and will be used as a marketing strategy, and
it can also create knowledge about the customer. So, all of these things were the major overall goal
of this particular platform.

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(Refer Slide Time: 03:54)

Now, how my question is that, how will Tchibo Idea impact Tchibo?

(Refer Slide Time: 04:02)

So, will increase focus on Tchibo Ideas will be helpful. So, there are obviously, certain pros and cons
for for, for these things. So, first of all you have to understand that Tchibo was a traditional
company. We started this case and we discussed about the customers and who are the customers of
Tchibo?

Tchibo's customers ─ average customer was 50 years old and Tchibo's 80%customers were women
majorly─ customers who were moms buying products for the kids that was a separate segment and

436
kids becoming elders in the life cycle kids becoming elders and then they are buying the similar kind
of innovative products for their own kids.

So, if this is my target customer, on the other hand if I talk about Tchibo Idea, in Tchibo Idea the
customer base changes because now I am looking about looking ─ focusing on those kind of
customers who are primarily tech savvy that has to be the primary objective because if you are not
tech savvy you will not even go to the internet and you can write your problem, describe your
problem probably vote for a solution that kind of thing will go away.

So, primarily I am focusing on tech savviness and tech savviness is often times correlated with low
age and low age is not something ─probably young and and and probably 20s, 30s, 40s are not
something which is Tchibo's major customer base. So, they there is some pros and cons of having a
new customer base. One is, the cons are very specific you are delving in a new, new place, so you are
not focusing on your old already established customer which is a problem.

But, these are the customers who are also getting higher willingness to pay or who have from fresh
money in their hand not 20s, but at least in 30s or 40s they have fresh money in their hand. They
have some amount of money to spend on their on-on-on luxurious consumption or in innovative
products also. So, and these people will be in the customer base for the next 20 - 30 years.

So, that is also and internet is changing the overall game, the overall market environment. So, you
have to embrace internet. So, giving all of these things there are some pros and cons of this decision,
but probably there will be a slight I would say bend towards the pros rather than the cons.

Now, Tchibo brand image and Tchibo Idea’s brand image were also different. Tchibo brand image
was more related to tradition, more related to I would say, more related to something that you
can believe on. On the other hand Tchibo Idea is more innovative ─ more young. So, if you, if I just
write the Tchibo person and the Tchibo Idea person, the Tchibo Idea Tchibo person will be
somebody who is again middle-aged.

So, if I do the personification accomplished, pro-society you can believe him something like that. On
the other hand, Tchibo Idea if I try to personify this particular people he will be in his 30s probably
and, and also well connected and sharp in terms IQ and etcetera and very artistic. So, these kind of
so, this person who is a traditional person and this person this to idea and the people who will
associate see the often time brand association with a particular brand actually leads to more sales
and more brand loyalty and etcetera.

So, that the people who will associate with the first one and people who will associate with the
second one are also different. And, why will consumers join Tchibo Idea? What is the current
number? You can go and check that what is the current number of Tchibo Idea. So, this is something
that is also an important question. So, initially the, the consumers were getting solutions and and
they were they were giving problems and somebody were giving the solutions.

But, you remember that customers have to pay for those solutions. They were getting the solution
which is more fitting their problem, but ultimately they have to pay. So, the customers might start
thinking that what is in it for me? What will I get if I go on and do this thing? So, that kind of a
problem was also coming up.

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(Refer Slide Time: 09:05)

Now, Tchibo Idea the next question is that whether it should be use as a marketing platform or this
will be used as a production platform.

(Refer Slide Time: 09:14)

So, the question is that can Tchibo Idea replace the product development process of Tchibo. Now,
you have to understand that 40 out of 2000 products per week come from Tchibo Ideas. This is a
thing that we found from the, from various cases and etcetera that, okay.

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(Refer Slide Time: 09:37)

Every week there were 2000 new ideas were getting generated2000 various products every year;
that means, what 2000 by 50 or that means, around 40 products every week. that was the case.
There were only 40 products every week.

(Refer Slide Time: 09:56)

And, every, if I─ this is not written anywhere. So, you have to understand that 40 out of 2000
products every week were from Tchibo Ideas. So, that is not a very huge number. So, if it is not a

439
very huge number, then then I cannot say that these, with this 40 products I can go for a mass scale
production. So, that was a challenge and the original Tchibo products were repetitive in nature.

So, the same products which were more common were repetitive because the same products were
being used, so that that was actually affecting the, the, the innovative idea. So, that is, but, but these
kind of products are also mass scale product. So, this is something that they have to take care of that
whether I will go ahead with this mass scale production of repetitive products because repetitive
products make me boring, but gives me money.

So, what they did or what makes better sense is basically a combination of Tchibo original products
which is boring, but good quality and good price with Tchibo Idea products which is young crazy
innovative kind of a kind of products. But, they are more pricey, means they you have to pay a lot
and probably they are not very popular, as popular as the original Tchibo products.

So, you have to create a combination of that. So, I cannot say that Tchibo Idea will absolutely replace
the Tchibo's normal product generation process because normal product generation process
contributes to the rest 1960 products out of 2000 and they also make money for the Tchibo Ideas is
like a marketing platform. It cannot be a product development platform, unless ─ unless they make it
an open kind of market place.

But, it is a, if we they make it an innovation market place where they anybody without the Tchibo
brand anybody can sell innovative products in this Tchibo platform and Tchibo will only take some
royalty or some cut some margin out of that particular thing.

Obviously, there will be some checks and balances of what kind of product, what is the quality and
etcetera. Then, this same platform can be used as a product development process, but that that
product development will be done by somebody else, selling will be done by somebody else, but the
same platform can become overall a different, different kind of business model altogether. It has
that potential, but they have not done that at that point of time.

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(Refer Slide Time: 12:37)

What are the pros and cons of coming up with a new product idea or new customer? So, the pros
are the customer engagement, is good in case of Tchibo Ideas. The innovation is good. You are
targeting a very niche market. So, you can probably charge more; the price can be charged more. It
reduces costs as it was told in the 20 to 30 percent marketing costs has been reduced.

So, if you can charge more and your price has come down so, that will improve your profitability.
Obviously, it also gives media attention less, chance of imitation because every day new products
are coming up and your future ready. So, there are lots of pros as I was telling that you will have
more inclination towards the pros.

The cons are that they are not mass products. So, you cannot these are not cash cows these are
stars, but you have to have your cash cows, cash cows alive. So, you have to have the original Tchibo
products alive. This can be only used for newer, newer products which will keep you ahead of your
competition in the business. Obviously, the cons are if you do not do these you will be a late follower
because ultimately you have to embrace technology, you have to embrace internet. So, the faster
you do the better.

And, consumers and designers scepticism - this is something that has to be tackled by giving them
more opportunities, by sharing more money with them or by giving discounted prices to consumers
in the initial days. So, those see if you have to understand that those customers who are giving the
solutions they are more prone to buy the product in the initial days.

So, rather than a classy market skimming kind of an approach where this is the demand, this is the
price and you skim it you take each of the each of this the small, small pies one by one, you skim
through the cake one layer by one layer, instead of doing that you should give─so, skimming means
that when an innovation comes into the market you will see that initially the price is very high and
slowly it comes down. Slowly it comes down why?

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Because, in the high price you want to capture only the first few customers who want ─ who are
willing to pay that much high. And then in the next time period you reduce the price a little bit and
again capture a few more customers and this is how you go on. So, rather than, rather than ah
putting one single price if this is the demand curve, this is price this is demand, if you put one single
price you get this much money this is the price, this is the demand. So, the area is the revenue.

But, if you can put small, small prices and if you can change the prices over time in the first time
period you get this much, in the second time period you get this much, in the third time period you
get this much and so on. And, you can understand by doing this if you continue going on you can get
the whole area; and this whole area is obviously, higher than this area. So, this is called market
skimming strategy.

And, that is what generally the companies do when, when they are trying to come up with an
innovation, but what they come─ in this particular case what this the customers might feel that see I
am there in the innovation generation process. So, what I am getting out of it? So, instead of doing
this kind of market skimming, if you do something like this; so, instead of doing this, let’s say, for the
first few days you keep the price not this high, but somewhere here. So, you give the price here so,
you get this much money and after that you start the skimming.

So, see the initial guys who are who are there in the innovation generation process will also have the
highest willingness to pay. Now, they have willingness to pay this much and you are charging them
this much. So, this dotted area is basically the consumer surplus that they take away. So they get
benefited, they are happy. The customer surplus means whatever the customers are getting extra
over and above whatever they wanted.

So, that customer surplus is something that they are happy with and then this scepticism will come
down; and obviously, for the for the designers you have to create more margin, for them better if
not margin at least better recognition for them so that they get recognized and, and people outside
your platform also starts appreciating this particular people. So, that kind of opportunities has to be
created. Tchibo Ideas obviously, in the future has done that.

So, that is probably all for this particular, particular case that we discussed and it was a nice case on
Tchibo Ideas. We will keep on going and discussing this kind of cases in the coming videos. Thank
you very much. In the next video we will discuss about customer equity and how that can be
analysed in the context of CRM.

Thank you very much. See you in the next video.

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 Customer Relationship Management
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 26
Customer Equity and CRM

Hello everybody. Welcome to the Customer Relationship Management course ah in the

Swayam, NPTEL platform. This is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur, who
is taking this course. We are in Week 4 and in this particular video we will be discussing about
Customer Equity─ consumer equity and CRM. So, how the CRM ideas and techniques can be
used to explain customer equity?

So, what is customer equity? So, that is something that we have to discuss first. So, customer
equity, equity is what equity is something that you can make money out of it. So, customer
equity is the total amount of money that you can make out of a not one single customer, but
from your all customers over the period of time.

So, I have let’s say X amount of customers. If I if I sell my company towards you and I can I
can I can also sell all my customers base, the customer database and etcetera and corresponding
my relationship with the customer to you, then you pay me for the amount of money that money
is basically customer equity. And how do you decide that money? You decide that with how
much money you can make out of these existing relationship with this particular person or
particular company with its customers.

For example, if I, if I give try to give an example let’s say at one point of time in the market of
ah call cab basically taxi market ah mobile taxi market, there was somebody called
TaxiForSure. So, TaxiForSure was mainly operating in the Southern India ah Bangalore
Chennai ah even, even I think they were there in ah Mumbai also. I am not sure that you can
check probably, but then what the what happened is Ola bought them up.

Now, Ola what did Ola buy when the Ola buys it is competitor which is TaxiForSure, what
exactly is Ola buying? Ola buying two things; one is that, it is removing the it is its
competition from the market that is number one. So, it is becoming monopoly. So, it is buying
the rights of not letting you do the business, but Ola also actually uses their right to slowly
probably reduce their support for TaxiForSure after they buy.

So, they they wanted they did not want the, but all the contacts to go away. The customer equity
they did not want to leave it. So, what they did is they from Ola and TaxiForSure both remain
for in the market for some point of time. But slowly the benefits that were giving in
TaxiForSure platform both to the drivers and the customers came down. So, all these customers
slowly switch from from TaxiForSure to Ola.

So, this customer base they did not want to the the already created customer base Ola did not
want to lose that and that is why they did this strategy. So, that these guys will come and join

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Ola. And there were some kind of provision some kind of benefits that they were giving to the
TaxiForSure customers if they want to join Ola. So, that was their strategy.

Now, how much they were paying TaxiForSure I am not I was not there while the deal was
going on, but if I were there I would have thought that the deal was majorly based on this
customer base. How strong this customer base is, how much money Ola perceives to make
from this customer base; that is what they are buying from taxiforsure. So, that is the customer
equity that they are buying from TaxiForSure and that much money they have they would
want to pay.

So, that is what customer equity is basically ─ the total amount of money, money means profit
that you are expected to make from customers the whole customer base not one customer over
the time period of time .

(Refer Slide Time: 04:24)

So, in other words if I can write it your customer equity , I can write is the summation of
customer lifetime value of ‘’' is customer for all i ; that can be told as your customer equity
something like that it is a summation of customer lifetime value of all the customers okay.

So, now we were talking about two specific things in the customer lifetime value calculations;
one is acquisition. So, acquiring new customer and another is another is retaining more
customer. So, you have to acquire more customer and you have to also retain more customer.

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(Refer Slide Time: 05:20)

So, this is a curve that has been taken from a Harvard case study, not case study Harvard ah
article which talks about that how ah this particular acquisition cost the expenditure that you
do to acquire customer that is related to customer lifetime value.

Now, you see generally, if you spend 0 to acquire customer, if you do not do any marketing,
any kind of expenditure in acquiring and etcetera then you will not acquire anybody. So, the
idea is that, when your acquisition spent is 0, your acquisition is also 0 . And there will always
be an upper limit of acquisition. You cannot probably acquire as many customers as possible
because, often times in the in the market share and etcetera some customers are not accessible
at all. So, even if you do infinite or very large amount of advertisement still there will be an
upper limit of this acquisition. So, we call it the ceiling rate.

So, basically at one point it will saturate and if you one point if you saturate, then if I try to
plot the acquisition and dollar acquired here basically, it will start from 0, 0 this point and at
some point it will go and saturate itself something like this.

So, that kind of a curve we are expecting. Now there are lots of equations that can actually
explain this kind of a curve. An equation that was given in the, the, I forgot to put the references
I will put that in the file when it is shared. So, in your files you will get in the Harvard case
study was basically an exponential curve exponential curve with a negative I would say power.

So, you see the equation that has been given is a is equal to ceiling rate into. So, if I write
ceiling rate is CR , CR into 1 minus e to the power minus k 1 capital A; capital A is the
expenditure. So, this is the equation that has been written here.

So, if I just follow that if I just follow that─ you check whether whatever claims I made earlier
were making sense or not.

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(Refer Slide Time: 08:01)

So, if capital A is 0, then what happens? This partthen, it becomes A is equal to CR 1 minus
e to the power minus 0, this is what I get.

So, which is CR 1 minus e to the power 0 which is CR 1 minus 1 in other words this is 0 . So,
when you do not do any expenditure you do not get any new customer. So, that is what is
settled.

(Refer Slide Time: 08:49)

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Then what; then I will check that what happens if this is infinite. So, if I do lots of expenditure,
if I do lots of expenditure then what do I get? Then this is also infinite; and if this is infinite
then this becomes.

(Refer Slide Time: 09:14)

So, if the expenditure is infinite, then what happens? Then it is A into 1 minus e to the power
minus infinite. Because minus infinite into k1 whatever is the value of k1 if it isfinite then this
will be minus infinite; that means, is equal to A into 1 minus e to the power minus infinite
means this. And that means; this 1 minus this and; that means, 1 minus 0 which is A.

So, the two things that I we started with, the two assumptions that we started with that when
the advertisement expenditure will be, when the when the . So, this is CR sorry, that the
advertisement expenditure if 0 then a is equal to 0 and advertisement expenditure is infinite
then a, that is acquisition is equal to the ceiling rate CR. These two is solved based on the write
up that I have done.

So, this particular equation ensures that this particular thing happens and that is why if you see
this particular curve that has been drawn, it is drawn in the opposite direction. So, acquisition
actually has a limit, if you go on increasing the, the, the, expenditure of acquisition; the
ultimately it gets saturated at a point in this particular case it is saturating at 40. And then there
will be it might not be the optimal to keep on increasing there will be a certain point where it
optimizes and we have to find out at what point.

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(Refer Slide Time: 11:26)

The same thing applies for retention also. So, even for retention there will be a ceiling rate. If
you go on doing the expenditure; the retention will go up, but after all you cannot retain
100%customers.

There will be some customers that irrespective of whatever money you do, in terms of retention
expenditure whatever money you spend; still these customers will go out of your guys. So, that
is the ceiling rate and basically k1 and k2 in the previous class it was k1 and this is the k2.
These are two constants and then no meaning of these two coefficients and you can ah there is
no name of this coefficients like coefficient of this, coefficient of that this is some constant and
if you understand carefully that these constants will probably make the curve becoming sharper
or making the curve becoming weaker.

So, how it will do? So, just tell let me get an idea: if r is equal to CR 1 minus e to the power k
(ek) R if I just write this, what is del r del k? del r del k is basically, CR will become constant.
So, if you know C minus CR e to the power minus k R (ek-R) this part will not be changed
because, ddx of ex is ex itself. And then del delk of minus k r that will be my this thing. So,
minus CR e to the power minus kR into minus R, that will be the ultimate problem. So, which
is basically, CR into R into e to the power minus kR.

Now, see CR is the ceiling rate which is between 0 to100 positive, retention expenditure is also
positive, e to the power minus C k R is also positive. So, basically I am trying to say that this
is positive and if that is positive; that means, that k increases the retention rate increases.

So, for the same expenditure; if you do have different kinds of k's values the curve will be
slowly going up as the k increases. So, that kind of a job of this particular k and both for k1 and
k two the maths is simple. Now, based on this particular thing we can do the calculations of
customer equity.

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(Refer Slide Time: 14:13)

How we can do the calculation of customer equity? Let’s say, I have done a little bit of
expenditure.

(Refer Slide Time: 14:27)

Let’s say, I have decided that I will do expenditure capital A and R. By expenditure capital
A, I got small a which is capital rate of acquisition into 1 minus e to the power minus k1,A
based on the formula. Similarly, by retention expenditure I got some people to be retaining. So,
CR of r retention minus e1 k2 into R; this is what I know. So, every first time I have done the

449
acquisition and then every year I am retaining this customer by doing that expenditure of small
r. I have to decide that how much money I will make.

So, if you see that let’s say another assumption is; m dollar m is the money that each customer
gives you in each time period okay. So, a is the money that each customer. So, in the first
time period how much money do I get the first time period I get a into m minus capital A in
because in the first time period acquisition happens and a into m is the money that you generate.
a number of people are acquired and they spend m number of money m amount of money.

So, a into m minus A is the first years net profit. In the second year how much do I make in the
second year? I make you have to understand that I in I make basically out of this a into r
number of customers stays back okay, a into r number of customer stays back by capital R is
the expenditure right.

If you are if you are with me, a into r number of customers stays back and capital R is the
expenditure and then that many customers pays me m amount of money. So, basically no ─ so,
all these guys pays me m amount of money ar m minus capital R this much money this many
people spend me m amount of money.

And how much will be the cost that divided by 1 plus d. If d is the discounted discounting rate
this much money in the current value; if it is year 0, this is year 1, this much money is the
current value or if I write like this a m minus A I take r common then it becomes a m divided
by capital R by small r into r by 1 plus d . I just take r common from the numerator, this is in
year 1. Fair enough this is in year 1.

Now, what do I do in year 2? I make the same amount of money in year 2 this only, but into
another r plus one by d. So, in the second year onwards in the second year onwards I make I
make a m divided by capital r by small r into r by 1 plus d square of that .

(Refer Slide Time: 18:18)

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And in the third year I do a m into capital R minus small r into r by 1 plus d cube of that. And
then am into capital R by small r by r plus 1 plus d this and so on. I go on doing this, go on
doing this.

So, if I write it carefully if you write just check that total customer equity just check is equal
to just check whatever I am writing, I will take this part as common then the first one will be
─ then this and so on, am I okay?

(Refer Slide Time: 19:31)

So, then, you have to understand that this is small. So, this is smaller than 1. So, this formula
will be 1 by 1 minus a that is the formula 1 by 1 minus a.

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(Refer Slide Time: 19:57)

But, that is the formula only when it is 1 plus a plus a square plus a cube this formula is 1 by
1 minus a; probably, a is smaller than 1 . Fair enough; a is, a, a is between 0 and 1. It is an
infinite series of a fraction.

But, in our case it was a plus a square plus a cube something like this. It did not start with 1, it
started with the fraction. So, this is nothing, but this minus 1 which is basically a by 1 minus a
. So, in our case it will be r by 1 plus d divided by 1 minus r by 1 plus d . Are you with me?
Using this formula just check the maths.

(Refer Slide Time: 21:02)

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And if that is true if that part of the maths is true then I can just write r by one plus d as r
dashed and then CE is equal to in that case; a m minus A plus a m minus capital R by small r
into r dash divided by 1 minus r dashed . So, that’s the formula that has been written here,
there is the same formula that has been written here, you check.

So, a has been taken common and then m minus capital R by small r and okay. So, this is
actually a little bit. So, this will be like this, this will be like something like this you have to
check it here.

(Refer Slide Time: 21:50)

I think I have done some mistake here. It should be a into m by R minus r something like that
at this point. So, that is the formula for customer equity when you do both expenditure in
terms of ah acquisition and expenditure in terms of retention and you do the calculation for
the lifetime.

But again the problem is the real life situation, if we do not do this particular calculation for
the lifetime. We do this calculation for a certain period of time and that certain period of time
will require a little bit of calculation for k1 and k2. We will do that in the next video with the
data set.

So, thank you for being with me in this particular video and I will see you in the next video
with calculation when in a limited time span, you have acquisition spend and retention spend,
how you can optimally choose the acquisition spend and retention spend. So, that you want to
improve your customer lifetime value or customer equity.

Thank you very much. See you in the next video

453
 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 27
Customer Equity in CRM (Contd.)

Hello everybody. Welcome to the course NPTEL Swayam course on Customer Relationship
Management. This is Dr. Swagato Chatterjee from the VGSOM IIT, Kharagpur who is taking
this course, we are discussing about Customer Equity and the relationship with that with the
acquisition and retention spent.

So, how do you decide how much money you will spend on acquisition and how much money
we will spend in retention? And this is a pretty important problem because we all know that
retention is more important in the context of CRM than acquisition. Now if it is more important,
how much more? What is the ratio exactly in the monetary terms that you want to spend on
each customer or each potential customer in case of acquisition ─ that we will be discussing
here in this particular case.

(Refer Slide Time: 01:06)

So, there is a excel file that has been given. There is lots of calculations given here and I would
probably, the first thing that I will do is: I will delete this whole table. So, that you remain with
me at the same page. I have deleted the table.

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(Refer Slide Time: 01:21)

So, let me tell you the problem first. So, the problem so, let us delete this and delete this also,
the problem is like this that okay.

So, the problem is like this; whatever is been written here right now. Let me zoom a little bit.
So, there are a company which has 500 customers and the total market size is 10000. So, 500
customers it has and 9500 customers are outside the market. They are the potential customers
they have not been acquired yet. 500 customers have been acquired already.

So, this is the two values that has been given to me. . Now what? This customer, this company
generally spends 2 dollars per potential customer, 2 dollars per potential customer for
acquisition spend, and 8 dollars per existing customers for retention spend. 2 dollars per
potential customer; that means; if I have 9500, then 9500 into 2 19000 dollars part time period,
let us per month.

I do acquisitions expenditure and retention expenditure is 500 customers, I am spending 8

dollars fair enough. So, 4000 dollar is the retention expenditure. And while it does that, by
spending 2 dollars it gets 6% conversion rate, acquisition rate and by spending 8 dollars it gets
60 % retention rate.

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(Refer Slide Time: 03:24)

So, what do I have basically? I am saying that when A is equal to 2, when A is equal to 2 ; my
small a is equal to 6% and when retention is equal to 8; my r is equal to 60 %. These are the
two things that have been told to me, fair enough. Or it has been also told that the maximum
possible conversion rate, the ceiling rate and the maximum possible retention rate is 10% and
80 % through the ceiling of acquisition is 10% and ceiling of retention is 80% .

Now, it is asking me, what should be the optimal acquisition and retention spend. So, let us do
this thing. So, what do I know? I know that a is equal to CR a 1 minus e to the power minus k
1 into A do I know that or can I write a by CR a is equal to 1 minus e to the power minus k 1
A . I can write that or I can also write this then just changing the side.

Or I can also write this then, fair enough then I can write this. So, by using this formula I can
calculate the value of k1 similarly k2s formula will be nothing but, something like this; these
are the formula. So, based on these two formula; first thing that I will do is, I will calculate k1
and k2. Let us calculate k1 and k2 first. So, what is k1? Let me just put it here, what is k 1 and
what is k 2, what is k 1 and what is k 2.

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(Refer Slide Time: 06:01)

The k1 is basically 1 by a a is 2. So, minus 0.5 then write 1 by 2 is 0.5 into log of 1 minus
something and what is that something? Into 1 minus this is 6% and CR a is 10 %. So, 6 by 10
─ 0.6 .

That is my k1 fair enough . And what is my k2 then in this particular maths? Just 1 minute
minus 0.5 just let me okay. So, this might be wrong. So, I will I will come to this and what is
what is k2? k2 is minus 1 by 8 minus 1 by 8 into LN1 minus small r by CR, small r is 60%
this is 80%.

(Refer Slide Time: 08:05)

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So, 0.6 by 0.8, these are the two values. So, this value is correct this 0.17329, I have written it
here.

(Refer Slide Time: 08:17)

(Refer Slide Time: 08:27)

This value will be basically not LN, this will be 1 minus and here it will be 0.5 into right; that
will be the value, k1 and k2. So, k1 and k2 I have got these two values fair enough.

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(Refer Slide Time: 08:44)

So, 1 is for, first one K1 is for retention and K2 okay. So, I have done it wrong. So, K1 and
K2; the first one this K1 is for acquisition and second one is for retention. These are the two
values that I have got. Then what is my acquisition spent initially? If it is 2, if I spent 2 dollars
initially.

(Refer Slide Time: 09:10)

Then what will be my conversion ratio my conversion ratio is the maximum acquisition rate
which is M2. The maximum acquisition rate which is M2 minus 1 minus E2 which is the k1
basically into G2 which is the acquisition spent, that is what I get.

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(Refer Slide Time: 09:31)

Similarly, my retention is the maximum thing which is M3 into 1 minus exponential of minus
E3; E3 is this one into G3 which is the K2 into retention retention expenditure. So, this is the
retention rate that I got, fair enough. Along with this, it has been also told to me that each guy
whom I acquire pays 50 dollars each customer pays 50 dollars per time period or in this case
per month. This has been told.

So, I spend 8 dollar for retention, but they spend 50 dollar in the business. So, now, what is my
total CLV? So, first time period I have 500 customers. None are retain, none are acquired. So,
basically this minus 500 and I will put a F4 here, this is my total number of potential customers.
How much is the retentions spent? This into my retention spent and I put a ‘F4 ‘here.

(Refer Slide Time: 10:37)

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(Refer Slide Time: 10:44)

How much is the acquisition spent? This is my potential customers, each customer I paid 2
dollar.

(Refer Slide Time: 10:53)

So, that is my, this two are randomly taken this two I randomly taken total is 10. This two are
randomly taken. So, this is my acquisition spent that this thing is this plus this this is my total
expenditure.

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(Refer Slide Time: 11:05)

(Refer Slide Time: 11:11)

What is my revenue? My revenue is 500 customers into 50; that is my revenue. So, what is my
profit? My profit is: revenue minus the total expenditure and what is the time value of money?

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(Refer Slide Time: 11:19)

This time value of money is Let’s say, if I 10% time value of money. This is this divided by
1.1 to the power; in the first case it is 0 and second case onwards it will go on. So, I will just
write this minus 1 . So, the first case it will be the same value.

(Refer Slide Time: 11:43)

So, just check what I, did I did it quickly you should pause the video and slowly do it. Now
what happens in the next time period? In the next time periodout of this 500 people, how many
gets retained? This many people get retained. So, I put a F4 sign here.

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(Refer Slide Time: 12:05)

So, 300 get retained out of this 500 people and how many do I acquire more? This into the
conversion ratio, these many customers I acquired new in this particular thing.

(Refer Slide Time: 12:21)

So, these are the new acquired customer, this is the retained customer. So, the new customer in
the next time period is this plus this and basically the potential customer left after time period
two is these many fair enough.

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(Refer Slide Time: 12:30)

So, this many is my customers who I am got from the potential customer base these many is
the customer whom I could retain. So, put a new customer plus old customer get the total
customer. All, all potential market size minus the total customer creates my next period’s
potential customer. So, that is how thus things change. How much is the retention spent? The
retention spent in this time period is I spend on this 870 people 8 dollars.

(Refer Slide Time: 13:11)

So, retention spend is this into 8 and on these 9130 people I spend 2 dollars. So, this my total
spent, this is my total expenditure, revenue and time value of money. And specifically, I
decided that I will do it for 30 years your choice after some period it is a, it is basically mark
of chain if you do well marketing analysis you will understand.

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(Refer Slide Time: 13:49)

So, so after one point of time it will basically saturate. So, I will go on after 30 years you will
see last values are all same, all rows are same almost.

(Refer Slide Time: 13:55)

So, it saturates at some point of time and that gives me the total CLV it’s nothing but the
summation of the time value of money and I get this 318214.5.

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(Refer Slide Time: 14:03)

(Refer Slide Time: 14:11)

Now this value is not the fixed value, if I just change these to 1 and 5, this value changes if I
change it to 20 and 30, this value changes.

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(Refer Slide Time: 14:15)

I start making losses because I spend a lot than making money, but anyway this value changes.
So, let’s what I will do next is how I can change these two expenditure by making sure that this
particular let’s say total CLV this total CLV maximizes. So, what I will do is, I will go to the
solver, oh I do not have solver here. So, just one minute. So, if I do not have solver do not
worry I will go to options.

(Refer Slide Time: 14:55)

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(Refer Slide Time: 14:57)

(Refer Slide Time: 14:59)

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(Refer Slide Time: 15:01)

Add-Ins excel Add-Ins and I will just check the solver ok.

(Refer Slide Time: 15:09)

So, in the solver what I am doing you carefully check it is written that the objective function
here it is written is C4. So, C4 is this basically this is total CLV. I am maximizing this by
changing G2 and G3 which is these two: 2 and 8 these two things. And I am making sure that
every year I7 to I36, every year I do not spend more than 70000 dollar. So, that is something
that I am putting myself in a constraint.

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(Refer Slide Time: 14:55)

(Refer Slide Time: 14:57)

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(Refer Slide Time: 14:59)

(Refer Slide Time: 15:01)

Add-Ins excel Add-Ins and I will just check the solver ok.

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(Refer Slide Time: 15:09)

Now use GRG Nonlinear and try to solve and it found a solution for me and the solution is
spend this much money. And you will see that it is asking me to spend more on retention though
the retention customers are low. It is saying that spend more on your existing customer than
your potential customer. The chances of they coming back is much lower that. So, how much
more? 5 times more; you spend 5 times more to on your existing customer than 3 than
something to your potential customer.

That will ultimately give you better total CLV or basically customer equity. So, this is how if
the life is limited, if I am doing it for 30 years rather than 100 years using excel we can easily
find out how much should be our optimal acquisition spend and optimal retention spend in the
context of customer relationship management. Thank you very much for being with me. It was
a nice discussion and I will see you in the next video.

Thank you.

473
 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 28
CRM in B2C Markets

Hello everybody. Welcome to the NPTEL Swayam course on Customer Relationship

Management. This is Dr. Swagato Chatterjee from Vinod Gupta School of Management, IIT,
Kharagpur who is taking this course for you.
We are in Week 5 and we are discussing, in this particular session in the and in the upcoming two
three sessions we will discuss about CRM in B2C Markets. Customer relationship management in
business to customer markets will be our focus.
So, we have discussed quite a lot of things in the context of customer relationship management,
what it is, why it is used, how co-creation can be used, what are the strategies that you can take,
here we will be majorly discussing in this particular session CRM. In the context of B2C and not
in B2B. In a later point of time we will probably discuss B2B, but here major focus will be in the
B2C market .
So, before I go ahead to discuss CRM in the context of the B2C market, we have to understand the
B2C market a little bit and then we will have an idea of where this CRM will come up in it’s
applications.

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(Refer Slide Time: 01:24)

So, one of the important factors that comes up where CRM comes up in B2C is loyalty generation.
So, if you remember, in customer relationship management when we talk about loyalty; I said that
loyalty is majorly of multiple types and some of the loyalty are attitudinal loyalty and some of the
loyalty are behavioural loyalty. And behavioural loyalty, we see repeat purchase is one kind of
behavioural loyalty.
And then positive, word of mouth is one kind of behavioural loyalty and patronage of your brands;
that means, whenever another brand is giving a lucrative offer, still I am not going to that particular
brand and I am sticking back to your brand is also one example of behavioural loyalty.

On the other hand attitudinal loyalty is like, I like you, I like your brand. It might not always result
in behaviour because behaviour does not only preceded by a positive attitude towards the brand,
but behaviour also requires the control to do what you want.

For example, let's say I may want Vodafone or I may want Jio at a particular situation, but probably
in a; I am going to a very remote place where the access of these private networks are not there
and I might have to go with BSNL.

475
Now, in that kind of situation for a very long time, probably in the last 10, around 5 years back or
10 years back we face this kind of situation because these private networks were not available in
multiple remote places in India.
Now if that is the situation then even if some person is fond of Vodafone or even if some person
is fond of that and Jio was not there; some other private network. They will not be able to buy that
particular network service because that particular network service is not available where he is
staying .So, that kind of loyalty where I have an attitude in loyalty, but which will not convert into
a behavioural loyalty that kind of situations are seen. Now, why is it more important in the B2C
context? Now B2C is a specific kind of context where people take decisions based on value.

(Refer Slide Time: 03:47)

So, people take decisions based on customers perceived value. Perceived value is what? The
difference between the prospective customer's evaluation of all the benefits and costs of the
offering and at the alternatives perceived.
So, basically it is a combination of the costs and the benefit that you get. And so, what I decide
let’s say when I talk about this mobile phone, what I generally go ahead and do is, let’s say I am
discussing that okay there is a brand 1 and there is a brand 2. And I want to decide which one I
will buy.

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So, I will buy based on certain benefits and certain costs. So, I will be doing it based on certain
benefits and certain costs. And those benefits when I chalk it out. So, benefit number 1, benefit
number 2, benefit number 3, benefit number 4, similarly cost 1, cost 2, cost 3, cost 4. And then
what I do is, I do a comparative analysis. I write what is the benefit number 1, if I get from brand
1, how much will be the money for that.
So, I will write it in a context of, okay benefit 1-1. So, benefit then 2-1, benefit 3-1, benefit 4-1,
exact monetary terms, we write it down. Similarly benefit 1-2, benefit 2-2, benefit 3-2, benefit 4-
2, we write down. Similarly C 1-1, C 2-1, C 3-1, C 4-1 and corresponding things we write it down.
Once we write it down in our mind, this is a mental accounting that we do in our mind; we create
the benefits to create the cost might not be always correctly predicted.
The prediction, the perceptions might be wrong, but still I create the perceptions and based on that
we decide which brand to buy. So, this man's net benefit is summation of all the B's minus
summation of all the C's for brand 1 and similarly these guys is summation of all the B's minus
summation of all the C's for brand 2 . So, if I can do that. If I can do this calculation, I will buy
brand 1 over brand 2 only when this is higher than this.
So, that is the perceived value. So, basically total customer benefit versus total customer cost, the
analysis of that is called. So, this is something that we do in our mind and whenever we find out
that 1brand’s overall benefit is higher than other brand’s overall benefit, we buy that brand. Now
this is a very personal activity. I as a customer, whatever benefits I get and whatever costs I
incurred and you as a customer whatever benefits you get and whatever cost you incurred might
be very different.
For example, let’s say I have gone to a retail shop. In a retail shop standing, in the queue while
checking out; let’s say it is a big Big Bazar kind of it. So, you are checking out and there is a queue.
Standing in a queue is not a big problem for you in comparison to going there let's say. So, you
don't have a car let’s say, and that is why you have to take up auto rickshaw or something like that
and you have to carry all your luggage and whatever you buy.
So, that will be heavy. So, that commute between your house to that particular place might be more
costly than standing in a queue if you are a young person.
On the other hand let's say there is a person who lives very close by. Who probably has a car, but
probably he or she is an old person. So, for that person standing in a queue will be a much more
bigger problem than commuting from home to this particular retail shop.

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So, the same commute cost and the cost of standing in the queue will be different for these two
people, you and the old person. And with the weightage that you give to this cost will also be
different. So, you might give more weightage to certain types of benefits, another person can give
more weightage to certain other kinds of benefits. So, this is a very personal activity.
Now, as a marketer, how will I handle that if every customer is different? How will I handle that?
I have to do a survey or I have to do an analysis to find out what is the majority of the people, how
much is the importance level for various benefits? Or if I can cluster them out. So, one group of
customers gives more importance to B 1 and B 3, another group of customers gives more
importance to B 2 and B 4.
So, if I can cluster them out or if I can generalize some other findings then, that is something that
will be useful for my further research. So, this is how people do mental accounting while they
decide to buy.

(Refer Slide Time: 09:17)

And, what is customer benefit when we talk about it? There are product benefit, there are service
benefit, there is personal benefit. Personal benefit means the person who is the employees who are
behaving with you, what kind of benefit that you are getting self-esteem or feel good factor,
whether those kinds of things are giving you any kind of benefit or not and image benefit whether
it is improving your image or not .

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It might not be giving you any service or anything, but your image in the eyes of your peer groups
or people through whose eyes you have to want to have a higher image, that image is going up.
So, that will give you certain kinds of benefits. So, product is basically utilitarian benefit, services
is also sometimes utilitarian, sometimes hedonic, but personal and image are basically hedonic
benefits.
On the other hand, total task customer cost is not only the price that you pay. So, monetary cost is
one thing, but time cost. So, how much time I have to spend to get this product or services. So,
that is a time cost which also is an important factor. How much energy do I have to actually use to
buy this product or to use this product?
So, that becomes the energy cost heavily applicable for new technology adoption, kind of thing.
In new technology adoption, we say that the perceived usefulness and perceived ease of use.

Perceived usefulness, so when we talk about technology adoption, we say that perceived usefulness
and perceived ease of use. These two things create your attitude and that leads to adoption of a
new technology, when a new technology comes in. And these are the relationships. This is a TAM
model; Technology Adoption Model. So, this is the relationship.
So, here you see this is the benefit and perceived ease of use is not a monetary cost, it is not a time
cost, it is an energy cost and probably psychological cost also. So, how much, how difficult it is to
learn. It is probably psychological cost that you have to incur and that will probably impact on
your sense of benefit also and both of them together lead to attitude .
So, these are some of the kinds of models that we use generally in the B2C context also. This is
used in new technology adoption, TAM stands for technology adoption model.
So, for new technology context, when you are deciding whether I will adopt this thing or not, this
particular thing applies. Similarly, so basically here also you are doing mental accounting. This is
where also you are doing a mental accounting to check what the perceived benefits perceived cost
and doing a comparison between them. So, that is about the perceived benefit.

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(Refer Slide Time: 12:25)

Other than that what kind of things that we do? So, we identify the major attributes and benefits
that customer value as a marketer. Assess the quantitative importance of the different attributes
and benefits. So, this is important. We have to assess the quantitative importance, not qualitative.
We have to exactly measure it. Assess the companies and competitors performance on the different
customer values against their rated importance.
So, like the one that I just said here, there are various brands and brands corresponding importance,
brands corresponding benefits or performance we measure and examine how customers in a
specific segment rate the company's performance against a specific major competitor on an
individual attribute .
Sometimes those measurements are benchmarked in comparison to another brand. Sometimes it is
not an absolute measurement, sometimes this measurement is a benchmark measurement, a
relative measurement in comparison to somebody and monitor customer value over time.
So, these are some of the basic things that we can do to handle the customer perceived value or to
get an idea about what customer values. So, we did this kind of analysis in a quantitative term in
marketing analytics course, which is another course under NPTEL, but here we will be just
discussing the strategy part.

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You can, if you want, you can do that particular course to have an idea,that what kind of benefits
you can get from knowing what customers want.

(Refer Slide Time: 13:58)

So, the next important thing is customer satisfaction. Now the previous one that I was telling about,
the customer perceived value, the cost and benefit; that leads to satisfaction. So, what is customer
satisfaction? A person's feeling of pleasure or disappointment. Can be either happy or dis-happy
(unhappy) that results from a company or a comparing a product or service, perceived performance
to expectations is called satisfaction.
So satisfaction ─ to generate satisfaction what you have to do? You have to have an expectation
first, like this is something that I will get. And then you have to get something out of it; it is an
outcome or performance or something that you ultimately get. This is what you expect, this is what
you get . A comparison between these two will give you satisfaction.
Now, people say, often people say that there is a continuum like this and if this is my expectation,
I will be dissatisfied here. If this is my performance, I will be dissatisfied here. I will be satisfied
here or I will be delighted here basically and this is where exactly I will be satisfied.
These kinds of models are there. For people say that you will be delighted, it will result in customer
delight, if you exceed the customers’ expectation. And if you are below the customer's expectation

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then they will be dissatisfied. So, you have to be absolutely at the expectation level then only
customers will be satisfied.
Now, this is also a very, very difficult thing because, how can I exactly point the customer's
expectation and only give whatever he expects. It might happen sometimes because of my
performance issues, my product performance issues and etcetera. I might give a little bit less there
is always a chance of giving a little bit less than whatever I actually try to give.
So, then people say that why don't you give a little bit higher than the expectation. Something here;
what happens is the moment you give a little bit higher than the expectation, a little bit above the
expectation. Customer gets delighted; that is number one, but the customer also changes his
expectation in the next time period . So, he shifts it and in the next time period his expectations
become here.
Now, you have to give this much. So, this is a classic problem that marketers face that they have
to keep on improving. You cannot sit idle, you have to keep on improving your performance
because customers' expectations along with your performance goes up, goes up, goes up.

It is like your dad. let's say you have done pretty good in maths for two-three consecutive sessions
or two-three consecutive classes your fathers expectation goes up and he says that okay now my
son gets 90 out of 100 that something that he is expected.
So now if you get 85, earlier 3 years back probably he would have questioned a lot now he will
not. So, he will not have questioned a lot if you have got 85, now he will question. He will say the
last 3 years you got 90 out of 100, how come you are getting 85 out of 100 now, I am very
dissatisfied exactly the same thing happens here.
So, we are human beings, whatever we do in the other context we also do in some of the context
which is applicable to marketing like it becomes a habit of getting on time delivery, better
performance, good product quality and when that becomes a habit for a customer you cannot
default on those key factors.
So, that is always a challenge for a marketer to keep on improving their services one by one, one
by one and that is why customer satisfaction becomes a important factor. But, there are certain
other people who have told you know that this can be handled in a different way.

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(Refer Slide Time: 18:29)

Why don’t you, in place of find, instead of finding out the exact expectation of the customer why
don’t you find out the tolerance zone.
So, this is the expectation of the customer and what is the tolerance zone? The tolerance zones will
be plus minus something, some plus minus some tolerance. So, this is what I expect, but this and
this is also something that I will be not. Now, if I have a continuum which is a little bit, a little bit
larger than a single point I can put anywhere here.
One year I can put here, second year I can put here, third year I can put here and I can say that a
little bit of variability is something which is inherent. I cannot do anything about that and you have
to deal with it. We can say that previously and then if that happens this expectation does not get
updated or increased.
So, then you keep on satisfying the customer with the same cost. So, satisfying and delight,
expected delight becomes very tough, but satisfying an expectation zone is okay, we can handle.
So, you have to make sure as a marketer, marketer often tries to do that but, this is very susceptible
to competition. By chance your competition comes up here, all of these things goes for a toss. So,
in a non-comparative, non-competitive environment where you are the, your customer is pretty
loyal with you and nobody will switch right, now you can do that.

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And because it is very much susceptible to competition I have to ensure somehow. the loyalty. So,
how this customer perceived value and customer satisfaction will lead to loyalty is something we
will be discussing as we go ahead.

(Refer Slide Time: 20:27)

The next important factor other than the value, the satisfaction, another important factor that comes
into B2C context is the product or service quality. The quality is not exactly proportional to value.
So, one there is if you remember in the value there is a benefit called performance benefit.
Now, performance benefit is something which often comes from this service quality. Now if you
have to remember that there are products where service quality or product quality might be very
good, but I as a customer don’t get performance benefit from that.
Because let’s say, I have to do a normal Word, normal browsing, normal computer is okay for me.
Browsing, writing in Word, creating some PowerPoints and watching some movies; this is what I
do with my laptop.
Now, you give me a laptop which has 32 GB RAM which has a graphics card, which has SSD,
this-that, blah, blah, blah. It is a very good laptop you give me, which costs around 75,000 you
give it to me. Now that will be very good for gaming; that laptop will be very good for gaming, I
can play, I can do this, I can do that with that particular laptop.

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But I am not a person who does that. So, if that is the case then even if the product quality of that
particular product is very high I might not get any performance benefit, any extra performance
benefit from that.
But what will happen then? Even if I don't get the extra performance benefit from that, will my
perception about that particular company or the product will go down? No, the product quality is
very good, I will accept the product quality, but that will not give me value.
So, product quality creates a halo effect. It creates a halo effect irrespective of what kind of benefit
you generate from that. Tt creates a halo effect and that halo effect also impacts the satisfaction.
And this kind of situation happens in many other cases, I will give you an idea. So, there are certain
situations when various people come to IIT Kharagpur or various other IIT's to do certain courses.
Some people come to learn and they actually have the capability to learn and they learn and get
benefit out of it. How much whatever for the continuing education programs and etcetera whatever
they pay they get the required benefit out of that and they are happy.
So, the perceived value is pretty high. Now there are some other groups of people who want that
experience, the experience of sitting in the IIT classroom, the experience of talking with the person
who is an academician. Sometimes this kind of experience also gives me value or also gives a halo
effect. You, it might not, you might not get something which has an immediate benefit or
immediate perceived value from that.
But that halo effect, that okay I am talking with somebody who is so accomplished or who has so
many patents or who has done so many these things or that things or this is a place where the best
brains of India studies and I am also studying here. That halo effect is something that sometimes
gives satisfaction which might not be driven by the service valve, the exact value that you generate
from it .
It is a halo effect. Halo effect means an effect which is not exactly generating any value from you,
but creating an aww; that aww feelings will give you a certain kind of satisfaction and that comes
from service quality.
So, sometimes service quality, which is the quality in the totality of features and characteristics of
a product or service that we are on, is the ability to satisfy stated and implied needs. And there are
conformance and performance quality and there is.

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So, perceived quality we all know what quality is and there are various ways to measure that, that
quality sometimes gives performance benefit and that performance benefit will give you perceived
value that will lead to satisfaction.
But sometimes this might not give you any perceived benefit, but it might give you a halo effect
and through that halo effect it might impact your customer satisfaction.

(Refer Slide Time: 25:04)

So, that is what we see. So, there might be an impact like this also, quality to perceive value and
that leads to satisfaction or quality leads to satisfaction directly. These are the three things that can
happen.
Now, satisfaction; when customers are continuously satisfied with a particular company that leads
to loyalty not delighted if you remember. Delight might not lead to loyalty because delight
increases your expectation.
And the next time period you might not reach the expectation and you might fail and the loyalty
might not remain and the satisfaction will also might not remain , but if there is a if you can find
out a zone a tolerance zone and if you can keep on hitting that tolerance zone with your
performance then you will be keeping on this customer satisfied and the continuous two-three
times, if the customer remains satisfied with you, that leads to loyalty and then loyalty in general,
we all know that loyalty leads to profitability in the long run.

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So, this is a relationship that we have to remember that we have to increase your quality obviously,
but rather than increasing the quality, we have to also focus on the perceived value. Both of them
together will lead to customer satisfaction and the customer satisfaction will lead to customer
loyalty that leads to profitability. This is a triad that we generally try to create in the cost context
of B2C customers in case of loyalty.

(Refer Slide Time: 26:41)

Now, here I majorly talked about products. There are also situations where CRM can be used,
customer relationship management can be used in the services market.

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(Refer Slide Time: 26:57)

So, what are services, that is something that we have to discuss first. How services are different
from products. Services are different in terms of intangibility.
So, services you cannot hold, it is not visible, it is not, it does not have a form, there is simultaneity;
that means, the production of the service and the consumption of the service generally happens
together. It is simultaneous the moment the person is giving the service at that same moment you
are receiving the service.
So, it is not like you prepare the service beforehand, keep it stored somewhere and then you give
it later that does not happen. So, even if let's say in the food, in the restaurants, your is the service
the restaurant is providing is serving you the food, the restaurant is not providing the service of
cooking. You are not seeing how the cooking is happening in the kitchen. The service that the case
student is giving is the ambience, that ambience is not pre-made.
The ambience, the feelings of the ambience probably he has taken preparations, he has taken lots
of preparations, but you will not give a value to the preparations if you will give value to the
experience that you get. It is like if you go to a theatre where somebody is doing a drama and who
is acting in a drama. He is, how good was the run through? How good was the preparations, is not
something that you value on.
You get value from the exact acting he is doing on the stage, on that day when you are sitting there;
that is what gives you service value. Similarly, the preparation that this particular restaurant did to

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achieve the moment of truth, to achieve that very very beautiful service at that particular time when
you arrive. The preparations have no value in the context of the customer.
The customer will only value those things which he perceives which he gets at that time when he
or she goes into the restaurant. So, that is something which talks about simultaneity. That there is
a, the production of the services and the consumption of the services happens together.
Perishability; it cannot be stored. So, if you have not taken the service at some period of time, that
particular service is lost . For example, a hotel room; if the hotel room is not being consumed, now
somebody is not staying at a particular day at a particular time. That time, that day, that service is
lost.
If we have not gone to a, if the seat is empty on a particular day in a movie theatre; the probable
service that can be given to the person who is sitting on that particular chair or the seat in that
movie theatre, on that particular show, that service is lost. It cannot be stored and it is perishable.
And then the last is heterogeneity. Heterogeneity means; if for the same service that you provide
many people will have different kinds of experience. So, let’s say you are creating a movie, you
are giving the movie, and you are creating an ambience and etcetera. And there are 100 people
who are sitting in the movie theatre. Each of them will have a different experience. There is a huge
heterogeneity.
You will see why it is also there in the products, products also you create the same product, but
people will have different kinds of experiences.
True, but the heterogeneity is generally, it has been seen that because service is not tangible
because it cannot be stored because it is perishable and it is simultaneous for all these three reasons
majorly; the heterogeneity in case of services these three reasons leads to this. The heterogeneity
in case of services is generally high.
So, all of this creates a different kind of situation where CRM has to be handled in a different way.
I will stop here this particular video and in the next session I will start from this particular point
and I will discuss that; how CRM can be used in a context of service where intangibility,
simultaneity, permissibility and heterogeneity are the key factors.
Thank you very much for being with me. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 29
CRM in B2C Markets (Contd.)

(Refer Slide Time: 00:13)

Hello everybody, welcome to the Swayam NPTEL course on Customer Relationship Management.
In this, we are in week 5 and this is Dr. Swagato Chatterjee from VGSOM, IIT Kharagpur who is
taking this course and we are discussing CRM in Services Market.

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(Refer Slide Time: 00:29)

And in the last class, last session or last video, I was discussing about the heterogeneity,
intangibility, simultaneity and perishability. These are the four factors that lead to, that which are
characteristics, characteristics of services.

(Refer Slide Time: 00:45)

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Now, in this particular thing, we will talk about the service situations where relationship marketing
has crucial roles. Some of the situations were in the service context where the relationship
management will have a role. So, one is ongoing on or periodic desire of service by customers.
So, sometimes, some kinds of services are ongoing kinds of services and some kinds of services
are required periodically. For example, a haircut, a very basic thing. A haircut is a periodic service
that you require. On the other hand, the ongoing services like your TV, TV connection that you
have or internet connection that you have at home, it is an ongoing service.
Now, these two things in two different contexts, service contexts you have to remember that every
time if you want to do a haircut, the decision that you take for an ongoing thing you generally take
a decision and you generally stick to that decision for quite some time.
You do not switch from one service provider of your mobile phone to another service provider of
your mobile phone, phone connection or the TV connection or the internet connection very easily.
But you take quite a lot of time to decide which one will you go. So, the decision is before the
consumption starts, but once the consumption starts, you generally do not switch, the loyalty is
generally higher.
On the other hand, while it's a periodic service for example, haircut you might today go to this
particular barber, tomorrow you might go to that barber, tomorrow the latter day you can go to a
spa or a salon or something like that. So, your choices change and let's say it might be another
thing which is let's say a doctor, sometimes we change doctor.
So, we do not go to the same doctor. Some if there is a reliability issue, we generally go to the
same doctor, but we also switch doctors probably more frequently than you switch your mobile
phone connection. So, that is another issue where you generally think that the decision is taken
multiple times. It is not a single decision then you stick for a longer period of time.
So, a customer decides which service provider he or she wants to choose in this kind of situation
and there are alternative service supplies and switching from one service provider to another
service provider is pretty common in case of periodic service. So, these are the situations basically
where, the customer loyalty or customer CRM management which leads to customer loyalty will
become an important factor.
So, for an ongoing service generally, customer loyalty happens if you do not renew, if the renewal
is there. So, for example, often times we keep on having the the same bank account or the same
mobile phone, but we keep adding a another bank account or I keep adding a another mobile SIM
from a different provider and I might stay back with this some particular service provider, I might
have my account active, but my overall consumption will come down in this particular account
which will shift to another account. That is also a loyalty issue and that is something. So, it is not
always 1, 0.
In a product context, it is always 1, 0. In the service context, it might not be always 1, 0. There
might be 1, 0 and then 0.3 and 0.7 like whatever you are consuming in the last week, last month,
now we are consuming only 30% of that and the rest of the 70% you are giving to somebody else.

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So, that kind of situation can also arrive and customer relationship managers have to carefully
identify which of these, which type of service situation it is and what kind of loyalty my customer
is showing to me .

(Refer Slide Time: 04:45)

So, in this also like I talked about product quality, here also another important thing that leads to
loyalty and satisfaction one important thing is service quality which is, which becomes an
important factor.
Now, if you remember in a service-dominant logic, we say that everything is a service. There is a
continuum between product and service, but we actually try to say that in the continuum, this is
tangible and this is intangible and less customizable or more customizable, that was the classic
view.
So, ideally initially, it was like, there were products and there was service, but later point of time,
people started to believe that there is a continuum and there are some kinds of things that are
products, some kinds of things are service. Services are intangible, products are tangible, and
services are more customizable, and products are less customizable.

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(Refer Slide Time: 06:14)

But later point of time, people started saying based on the service-dominant logic, people started
saying that no there is no difference between product and service, we do not give any product and
service specifically.
We practically give solutions and solutions to some customer problems and solutions might have
a mixture of customer product and service together and that will also have a price. So, these two
together create the solution and there will be a certain price, of that which will together create
customer satisfaction. So, this is something which comes from customer dominant logic.
Now, in that mixture of products and services, services will also be discussed in the context of
loyalty with service quality. Now, Parasuraman et al, some researchers or some early thinkers in
the context of service quality or in the context of services marketing has given a particular gap
theory.
Though, they said that there are different kinds of gaps that are there between what customers want
and what customers get and these differences between this gap will actually lead to satisfaction.
Which is basic expectancy disconfirmation theory that we were talking about beforehand that you
have an expectation, you have something you get something, the distance between that will create
satisfaction.
Now, how that distance can be reduced if you can improve your service quality, that distance can
be reduced. Now, service quality is a very vague term. Product quality can be measured based on
product specifications. You can say that okay the product should be this much wide, this much
height, this much will be the durability, this much should be its corrosion will be low, the pressure
that it can handle will be high and this and that. So, those kinds of things can be measured in a
laboratory experiment. So, you can know that what is exactly the product quality. If you remember,
so there are, there are damage testing of cars.

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So, when the cars are built, the cars are actually smashed against the wall like in a full force to
check that, whether this and with the robot inside and with a remote control way. But it is, they try
to check that, whether the car has the durability, whether it can withstand a collision, a head-on
collision, or something like that. So, those kinds of tests can be done in kinds of products.
Now, services are a very peculiar thing. Service has simultaneity, service has heterogeneity,
service has perishability. Service situation not only depends on you, it also depends on the receiver.
Let's say you try to give a very good service in terms of food and etcetera.
But the receiver's mood is anyway not good on that day. He might have fired on that day or he
might not have got a promotion on that day which he expected, he is anyway he or she is anyway
very angry or very frustrated in his mind and he has come to the restaurant to get some food and
you are giving a very good service. Now, even if you give a very good service, that person is not
on the receiving end, he is not in a receiving mood. So, if he is not in a receiving mood, he might
not enjoy the service as you want to give.
So, these are lots of different things which will ultimately impact the outcome of a service, not
something that you cannot control and that is why the measurement of service quality is very
difficult. So, this is a context that many thinkers identified beforehand .
Now, if we still have to do a measurement of the service quality, what are the key factors based on
which people try to measure or people try to say that a service is good, service is bad that is
something that these researchers try to find out. So, some of them are: reliability.
Reliability means how much I can rely on this person; that means, how much whatever I expect
from him, he will be able to give that, what is the probability of that or how much whatever he is
saying that he will be able to give, he will be able to deliver that. So, the probability of that is
reliability basically. So, it comes from the commitment of the person towards you and also the
potential, the ability of the person to, to give, to fulfill that commitment that is reliability.
Then is assurance. Assurance means that how much assurance his image, his brand, his services
provide gives me that that okay that I whatever I will get from him, whatever I wanted to get from
him is secured, is safe, it is assured.
So, this particular part, the reliability, and assurance often times these things are inter-correlated
with each other, these are not exactly 90-degree angles; that means, these are not exactly
orthogonal to each other. They are all almost sometimes the same things which leads to reliability
might be also the same thing which may lead to assurance.
For example, the brand name. The brand name gives you what? The brand name gives you
assurance that okay this guy will be truthful and this guy will whatever he is saying, he will deliver
and whatever he and he will only deliver good stuff because he has a good brand name. So,
sometimes brand name gives you reliability and assurance like the certification. If you, if this
particular guy has some quality certification that also gives you reliability and assurance. So, these
are the terms which you try to see.
Then tangibles. So, though we say that service is intangible, there are lots of things when you
provide the service which are tangible, which are not exactly related to the service outcome, but
gives you signals that my service outcome is good.

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For example, when you go to the restaurant, the the the view of the restaurant, the the types of
decorations in the restaurant might not be related to the food quality, ultimately the food might not
taste as, as good as possible, but that view also gives you a little bit of service quality, a signal that
my service will be good.
So, that is why people give so much importance on ambience, the so much importance on the; on
the decorations, exactly how the setup will look like, the tables will look like, the plates will look
like. So, all of these things matter.
So, the next important thing is empathy. Empathy is whether the service provider understands you.
So, that is another factor which becomes important. The empathy means whether the feelings that
I have, whether the person in the; in the front, the problems that I have, the needs that I have,
whether the person is able to understand that.
So, if he, only if he is able to understand that he will be able to provide a good service and the last
one is responsiveness. Responsiveness stands to how accurately and how quickly not only quick
is important. So, time is one factor, but accuracy is another factor of responsiveness. So, how
timely and how accurately one particular service provider gives me services.

(Refer Slide Time: 13:50)

So, empathy leads to understanding . He understands my problem that may lead to responsiveness
. If he understands, he will quickly and accurately give me service and responsiveness and
reliability and assurance basically along with that, these tangibles also. These all will lead to
service quality. So, something like that.
So, something like that is given by. So, this is called the SERQUAL dimensions, a way of
measuring that was created by Parasuraman et al. Parasuraman, Professor Parasuraman and

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Zeithmal. I might be wrong in the spellings and etcetera, you have to check. Parasuraman and
Zeithamal have given this particular thing.
Now, we have to understand that the service quality and product quality as I was telling will
together lead to satisfaction and that satisfaction will lead to loyalty. So, that is something that
even, even in the product context, we see that satisfaction leads to loyalty and that is and the
antecedence of that is product quality and the perceived value, here also similar things happen. But
service quality is measured in a different way.

(Refer Slide Time: 15:32)

What are the examples of CRM in the services market? Let's talk about that.

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(Refer Slide Time: 15:35)

So, I have seen this particular brand Lemon Tree while I was teaching in an institute called IFMR
in Chennai. So, this particular restaurant has a hotel, it is a three-star, I think, hotel and I have seen
about it in Chennai. So, they have various kinds of brands of hotels.
So, one is Lemon Tree. So, the major brand is Lemon Tree Premier Upscale so, then Lemon Tree
Resorts which are leisure brands, and Lemon Tree Hotels normal hotels which are mid-scale brand.
So, these are probably four stars or something and this is three stars.
So, within the same brand name Lemon Tree, they had given different kind of services because
the services will be perceived differently by different groups of customers and they have also came
up with a separate lemon leisure resorts which is focusing on not the scale, not the whether you
are going for luxury or you do know convenience, but this is majorly focused on neither luxury
nor convenience.
But your interest, for what you are coming to this particular hotel. You are coming to this particular
hotel to enjoy the holidays. So, or enjoy your leisure time. So, that is why this Lemon Tree hotel
starts.
But along with these three classic hotels, they also came up with another hotel which is Redfox
brand. So, see the brand name is different here. They want to create a differentiation because the
moment I keep a Lemon Tree brand here also, that will reduce the brand name of Lemon Tree, the
brand value of Lemon Tree.
So, they created another brand called Redfox which is a Lemon Tree hotel. So, this Redfox brand
is majorly focused here and the Lemon Tree hotel is shortly written, smally written. So, it is a; it
is a different kind of branding strategy and this is an economy brand.
So, this is something that we have seen in the context of Rosewood also, but Rosewood's context
was different. Here also, I am saying the umbrella branding strategy, the whether I will go for

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umbrella branding or whether I will go for a different branding like premier, resorts and hotels are
basically three products lines, three service lines, but Redfox is a different brand all together. So,
they have created that understanding that the customer needs are different.
But they did not stop here, these are very classic, they did not stop here. They have come up with
a rewards program. What is a rewards program? This is where the customer loyalty comes in, the
customer relationship management comes in. So, what are the rewards programs that this guide
had at some point of time?
So, one is Lemon Tree Smiles. Join our guest rewards program to avail exciting benefits every
time you book to stay with us and get member exclusive offers. So, this is a classic. So, it is a
multiple purchase or cross-selling kind of a reward program where if you purchase from their
brand or if you; if you; if you purchase from any one of the hotels, you can use the points, benefits
generated to another hotel or in another purchase context.
So, this is like any other reward program that this particular retailer or service company does. So,
this is something which service companies do generally. Product companies do not have this kind
of benefits, generally do not have. Because the repeat purchase context is not there in products.
The repeat purchase context is more common in case of services.
And then Lemon Tree Engage. Exclusive reward programs of our corporate partners. So, this is
B2C, but this is majorly B2B. Now, our partners get rewarded for bookings at any hotel. Now, you
have to remember though it is B2B, it can be constituted B2C also because let's say this kind of
benefits we also sometimes get.
Let's say you are working in a particular company and you this particular company has a tie-up
with them. Now, what kind of customer are you to this Lemon Tree?
Are you a corporate customer or a personal customer? Because when you go for a travel also, when
you go for a leisure also, you might accumulate some points which you have accumulate through
your; through your corporate travels and those points you can; you can use or you can get certain
kind of benefits in terms of certain off, certain this, certain that just because you are working in a
certain organization which has a tie-up with Lemon Tree.
So, the corporate partners can give both B2B and B2C kind of services, you can give both B2B
and B2C kind of services to the corporate partner. So, you have to think that there are two different
kinds of customers even in the B2C context for hotels.
One is who are individual customers, who are not attached with any corporate, who has a tie-up
with you. Another is another group of customers who are also individual customers, but have a tie-
up but working with the company who has tie-up with your hotel or that kind of two different
customers we have to create two different kinds of loyalty programs for them.

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(Refer Slide Time: 20:51)

Then what? So, in the Lemon Tree Smiles, what kind of benefits do they give? They give redeem
shopping vouchers because they know that whenever you go to travel somewhere, you generally
do shopping. They give complimentary hotel room upgrades which are obviously detailed,
dedicated customer service lines that are also very good, stay, free stay for the second guest.
So, stay free for the second guest means oftentimes people can come with a family member or
further spouse, with their fiancee. So, if that kind of situation stays the room is basically the cost
of the room they actually include both the people’s cost and if you are; if you are a Lemon Tree
Smile member, you do not have to pay for the second member. So, that kind of benefit is something
that they are getting.
Obviously, 10% extra discount which is obvious and redeems free room nights. So, you get room
nights free which you can redeem later. So, these kinds of benefits that they get in the Smiles.

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(Refer Slide Time: 21:56)

What are the extra other things that they gave? They give day rooms. Day rooms mean in the
context of a business customers, business travelers they know that many customers will come on
the day probably in the morning they will come, they will give certain services and they might
have a flight at late night and in the afternoon, they might want to just lay down somewhere. So,
that is the day room. They will not spend the night at your hotel by probably 10 PM or something
they will leave the hotel.
So, that kind of customers they generally hotels get quite a lot. Now, these are day customers and
more specifically you get this kind of customers in the metro city where people are busy. They
come in the morning and leave in the evening, but they have 2-3 hours in between and they want
to lie down somewhere.
So, or have a bath, good bath, have a good lunch somewhere. So, here also attracting these kinds
of customer base and they are attracting from their existing customers who are from, who are
coming from the corporate sector, they are targeting this particular bunch and asking them to, why
do not you come and get the benefits of our programs.
Then, what ‘Stay more, save more’ which is the obvious one. The longer you stay there, you will
get volume discounts or revenue discounts, so which is obvious. Then, you also get weekend
vacations.
Weekend vacations means 50% off on the weekends because generally we will see again this
customer, the major focus is corporates. The corporates get weekends off. Weekends. On the
weekends, the hotel footfall comes down and you probably want to attract not in the resource
probably. In the resource, they will not get this kind of a benefit.

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But in the upscale or in the midscale situations, they will get this kind of cases when in the weekend
the footfall comes down because the customers generally do not come in the weekends because
these are the hotels in the metro cities which do not work in the weekend.
So, that is why, you will give destination discounts on the weekends and also advance purchase,
advance purchase means you can buy much ahead, and you can get a lesser price. So, these kinds
of benefits Lemon Tree was giving. So, these are all associated with some kind of; some kind of
thought process in the services that you can handle .

(Refer Slide Time: 24:13)

Another important example that I love to give is this Only Vegas. Now, Vegas, Las Vegas I am
talking about is a city where the whole city itself is a brand and the whole city itself is a service.
The city municipality knows that our major source of revenue is tourism. So, the whole city has
opened its platter to attract tourists.
Now, they might have heard about certain campaigns. They have actually Las Vegas city
municipality has run a campaign that whatever happens in Vegas, stays in Vegas. Now, I will
actually show you how this Vegas city has evolved over time in the; in the context of CRM in the
B2C context or in the services context.
So, what I will do in the next 5-10 minutes, what we have to do is I will tell you a video, we cannot
run a YouTube video in this particular thing, but the link is given, I will stop. you,... you should
stop my video here, open that link in a in a different browser and watch the video first.
So, stop the presentation, stop the YouTube video that I am talking about. So, talking in that
particular lecture video you should stop, copy this particular link, paste it in another browser, it
might be a 2-3 minutes video, just see the video and then, again come back to this particular lecture
that I am giving.

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So, the first thing that I want you to see is this. This particular video, go and see and then come
back. So, I hope that you have seen the video now. So, this is a particular ad where if you have
seen this ad, you will know that this particular lady has gone to Las Vegas with her friends and her
husband was at home and she has enjoyed lots of things in Las Vegas and she is coming back and
showing the pictures.
Now, she is showing hand drawing pictures to her husband because she cannot show the real
pictures. So, saying that okay we are in the pool, we are in the restaurant, we are in the pub, we
are dancing. All pictures are hand-drawn and the actual real picture which is clicked is such that
she cannot show that to her husband and then, it says that whatever happens in Vegas stays in
Vegas.
So, this is a particular group of people that figures initially started to target for that it is a sin city,
they started saying that it is a sin city. Anything you can do here; nobody will know outside and
all kinds of sins you can do. You can enjoy, you can have drinks, you can dance, you can go to the
pub, you can do this-that, blah blah blah. So nobody will know outside and that attracted lots of
American customers and customers from other places as well who wanted this kind of place.
But all of a sudden, it did not become a place which is; which is well perceived by family persons
or which is well perceived by many other people who are basically ethical and etcetera. So, there
is a huge chunk whom you could not attract by this kind of a view. If you have a view that okay
this is a place where only bad things happen, only immoral things happen, then that is the problem.
So, they slowly change their identity.

(Refer Slide Time: 28:22)

And this is another video that they have launched next. Please stop this particular video that I am
lecturing in and go to this video, copy this particular link and watch the video.

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So, hope you have seen this video. This is a different video altogether. It has a different view from
the previous one. So, the previous one has lots of campaigns. I have given only one campaign,
there are lots of similar kinds of campaigns which happen, where people are saying that what
happens in Vegas stays in Vegas.
Though at the end of the video, this one also says that, but basically this is focusing on ‘Be
yourself.’. What is ‘Be yourself.’? ‘Be yourself.’ says that you can be anybody in this place. In
this place you can be a movie star, in this place you can be a rock star who sings songs, you can
be a person who you know, you can live your dream here.
This is a; this is where you, you do not have a baggage of your identity and etcetera, you can live
your life whatever you cannot do in a real-life situation, whatever you generally dreamt of doing,
but was there were lots of bindings around you, you can have all of those stuff in here.
So, their focus has shifted from being; being a sin city to being a place where you get freedom and
how did this particular idea come? How, from where they did they do this kind of a campaign is
something that we have to think about.

(Refer Slide Time: 29:57)

What they did is they opened up a Vegas sweepstakes. Sweepstakes means where you can play
games and you get lots of prizes for those games. So, they have created an online gaming where
you can go and register and you can build your own avatar, own alter ego.
So, whatever you want to be, you can create that. So, here you can name yourself as Thor and you
select origin as some particular city which is not known, which is a fantasy land and you can build
your character, your character has this much smoothness, this much style, this much bravery,
attitude and smartness.

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So, this is how and there are points there. You have to customize your avatar and once you
customize your avatar, that avatar goes to a pub which is a; which is a Las Vegas kind of a, if you
have played the game where I forgot the name of the game where people, where there is a
particular. It is a single agent game where a person goes and drives lots of cars and kills this person
and that person. I think that the name of that particular game was also sin city or something like
that or call for duty or something like that if I am not not wrong.
So, this is something like that particular game. If I know what I, what I mean. So, these avatars
will then go to pubs, go to clubs, do partying, have some booze somewhere and= he will enjoy that
particular avatar whatever you have created he or she will enjoy.
Now, what is the benefit of that? What is the point of creating this? There are lots of people, lots
of users actually registered to this and by seeing the alter ego, how they are their alter ego is playing
in this game, I as a person, I as a as Las Vegas municipality person, we can analyze the behavior,
I know that what kind of services I have to give, I know that how many pubs I have to create, how
many clubs I have to create, how much food fall they have.
I can change the situations inside the game, designs inside the game to all of a sudden know that
what my customers want, what kind of things my customers actually are enjoying, whether this
song they are enjoying or that song they are enjoying, whether they want to go to the beach or they
want go to the pub, how much? How many people are going to the pub, what kind of drinks they
are ordering?
Whatever their alter ego is behaving is actually what they will behave when they come to Las
Vegas. Because in the Las Vegas, you want to be yourself, you want to be your alter ego.
So, from this particular game, they get an idea. They selected some people, the prize money was
you will spend some 7 days or some so, 7 days holidays free of cost in Las Vegas. Some people
actually won that and went to Las Vegas. But by doing this exercise, by spending the holiday
money for those 7 people, they got data for a huge amount of people and from that data, they
understand what kind of varieties people want and based on that variety they have created this
campaign.
And they have also further understood that they are not targeting a specific group of people who
also want to enjoy in Las Vegas. These are the people who are marginalized in American
community slowly moving ahead. These are basically the LGBTQ community.
So, they found out that this kind of community who also makes quite a bit of money, who also
wants to spend on their own enjoyment and etcetera, but probably for various social reasons, they
are not able to come out, how can I focus on them?

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(Refer Slide Time: 33:54)

And that led to, that kind of idea which gets originated from this kind of data will lead to this ad.
Again, I will ask you to stop this video. This might be a little bit longer ad. 3 minutes, 3 and half
minutes ad, you go and see this ad.
And if you have seen this ad now, you will now understand that they are shifted. So, first, they
focused on sin ; first, they focused on sin, then they focused on liberating yourself, and then, they
focused on liberation from any social stigma or something.
So, the major goal of Las Vegas has changed over time. It from, from being a city where, where
people only go to enjoy things which they cannot enjoy in the real-life situation which is probably
immoral to do or probably not accepted in the society. From there you, they have changed their
view and they become a place where you can spread your wings, you can be free and not only free,
you can not only free from your own internal inhibitions, you are free from the external inhibitions
also.
So, this is something, that is how the Las Vegas has moved and all of these things actually are
targeted towards the customer relationship management. Now, imagine a person, if somebody sees
that ad and he belongs to this community who gets a psychological attachment with this kind of a
community, will have a huge affiliation towards Las Vegas because Las Vegas could give him this
kind of a feeling that okay you are safe here, you can come here and can enjoy and nobody will
judge you.
Similarly, here nobody will judge you. When this was around some years back, but a person who
wants live his dream, who wants a very luxurious life, grandeur life and etcetera, but he does not
get that, will actually love this particular ad, this campaign because here he gets the opportunity
probably for 2 days, 3 days, a weekend, but live a dream of his life or her life. So, that kind of a

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feeling Las Vegas could give and all of these things ultimately comes under the CRM in the
services context.
Thank you very much. If you have enjoyed the videos, I will be happy. Thank you very much for
being with me in this particular lecture session . In the next session, we will talk about CRM into
the product context.
Thank you very much, see you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 30
CRM in B2C Markets (Contd.)

Hello everybody, welcome to the NPTEL course on Customer Relationship Management, we are
in week 5 and we are discussing CRM in B2C Markets. And, in this particular video we will
continue on that. So, I will just go to the corresponding slide.

(Refer Slide Time: 00:32)

So, in the last class, we were discussing about a situation that how the, how various kinds of B2C
CRM strategy have been taken sometimes by even certain cities like Las Vegas and how Las Vegas
has evolved over time using this CRM strategy. In this particular video, we will be talking about
other aspects of a customer relationship management in the B2C context.
So, one of the things that is majorly important in customer relationship management is not to lose
customers. So, retention of the customers becomes one of the major challenges. And what is the
cost of losing a customer? When you lose a customer what do you actually lose? So, one of the
major costs is that your future cash flow reduces. So, that is one of the major things that happens,

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that your future cash flow reduces; that means, whatever money that you can expect in the future
will not come.
So, money comes down, that is number 1. Then ROI of the new consumer is much lower because
why? Because, we have discussed about that, that the cost of acquiring is generally higher than the
cost of retention. So, if the cost of acquiring is generally higher than the cost of retention it becomes
difficult for a company to ensure that if all my customers are leaving after a certain period of time.
For example, likes apps. Life of an app, lifespan of a customer in an app is probably sometimes
depending on which app it is.
It may be probably 2 months, 3 months, it can be let's say it is a gaming app, people generally lose
interest after a certain period of time. So, 2 months, 3 months, 4 months is the average lifespan in
an app.
So, they have to keep on innovating and this keeping on innovation is very costly for various kinds
of app providers. And, that is where this ROI of new consumers is much lower, that kind of
problem comes in. So, your future cash flow is getting cut and the ROI of the new customers that
you can deal with is also something that is creating a problem, because ROI is much lower.
The cost that you incurred to acquire and attract the attention of the new customers is much higher
than the money that you will generate. People will not put out their pocket on the first day itself or
in the first month itself, they will even in an app they are purchasing in an app will start happening
or the advertisement revenue will start generating, when I repeatedly visit one particular app.
Otherwise, I will not buy from that particular app or if my profit is low. For me advertisements
revenue which can be attributed to me as a customer will not be that high, but acquisition cost will
be high. So, ROI will come down.
Then another becomes, another problem of cost of losing a customer is basically servicing becomes
cost effective, when you keep the customers for a longer period of time. If you lose the customer
then servicing of a new customer becomes difficult.
So, older customers you can actually handle them for a long time without any problem because
you have known what are the likes and dislikes of this customer, what he is looking for, what are
the exact service quality performance that he or she is looking for. So, that kind of issue is there
when you can keep the customer for a longer period of time. Now, if you lose the customer at a
certain period of time then the servicing cost goes up.

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So, that is also; so, not only the acquisition cost, but also the service cost which is basically
providing a value to this particular customer becomes more costly. Now, if you lose the customer.
Generally, for loyal customers, you can charge a premium which is not also a case when it is a
case for not so loyal customers or new customers. You cannot charge a premium to new customers
on the very first day. So, oftentimes if I have been there with you for a long period of time, you
can customize the service or you can customize the product which is required to me and then you
can charge a premium.
And, I might be happy to pay the premium. You will see that many times on Netflix and say other
kinds of subscription-based apps or even your mobile phone, Vodafone numbers and let's say Jio
numbers and etcetera, keeps on sending you emails after a certain period of time you are there in
a particular package. You then know that okay you are in this package, you are using this package,
then they try to cross-sell or upsell.
Then now, up-selling is something that is pushing, but sometimes, they can also charge a little bit
of premium on the whatever services they are giving to you. They can increase the price a little bit
and you will be still okay to paying this price because you are getting value out of it. Now long
term relationships give that value, short term relationships generally do not ensure values because;
the company is not able to understand your needs and demands till now.
So, in that kind of a situation it is better to charge lower. So, that the customer stays back, but if
the customer, you lose the customer, then probability or the capacity of charging this premium
price becomes lower. So, that is also something that is actually this also related to the revenue loss
that I was discussing a little bit back. But, together these are two important aspects that we have
to understand. So, one is revenue loss which is the regular revenue loss which is the customer
lifetime value that you are losing out, because he is not purchasing anything from you.
Another is that he is not purchasing the top-up things also, he could have purchased the extra things
also which is something that you had also losing. So, both of these two things have to be kept into
your consideration. The fifth aspect is losing referrals. So, losing referrals is also a another
important factor because see in a service context or even in a digital context in today's world
everything, everybody is connected with each other.
So, what I do, what I say, what I consume actually does not only impact me, it impacts my social
network also. One of the classic examples that we generally watch so, if there was a time when we
used to watch this Game of Thrones. So, another important problem is losing referrals. So, today

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we are living in a connected world and in this connected world what is very common is that
whatever I consume, I say in the social media or what I believe in and what I post, that impacts
my social network also.
There was one time when we all used to see this Game of Thrones together, right now in the age
of Netflix and etcetera, we’re watching certain series; let's say there is a series called Bandish
Bandits which we’re watching and we are discussing. And, this discussion between the audience
actually improves the TRP or whatever is the popularity index in a digital world, that increases
when people discuss with each other.
So, that kind of positive word of mouth and etcetera is something which is very important. Now,
that is something that you will lose, if your customers do not even get the enough time to create a
positive attitude towards you. So that they go back to the online media like so, Facebook or Twitter
or Instagram and talk about you. If they are not talking about you, if they are not referring to others,
why do not you watch this.
For example: one of my students has actually referred certain series to me other before unless they
have referred those series to me, I would have not gone and watched those series on Netflix. But,
now that they have referred to me and I know that okay this is something that has been, that that
has been I would say tasted by my students and I actually believe in his taste. T-a-s-t-e. In that
kind of situation I would probably go and watch the series; based on the recommendation of
somebody whom I believe. Whose interests and etcetera matches with me.
So, then if I go and watch that particular series, that series gets some revenue generated from the
platform. Similarly, if you lose this customer then the reference start stops happening and if the
referral stops happening then further revenue generation is also cut off. So, they are three streams
of revenue that are basically stopping if you lose customers. One is whatever the customer would
have been bought in the, on a regular basis, whatever premium products you would have bought.
And whatever other customers you would have referred to and revenues from those customers;
these three streams of revenues you are losing if you are losing one customer. So, you have to be
very careful, a company has to be very careful when they are losing customers. Unless likely to
get attracted by competitors, generally loyal customers are less likely the moment some customers
are losing. You are not only losing, you are losing the customer does not mean that the customer
is not watching any more serieses.

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If Netflix is losing customers or Hotstar is losing customers that does not mean that this particular
person is not any more interested in digital entertainment. It might be a case that he is moving to
Prime Video. So, your competitor might be actually attracting those customers, if your customer
is loyal to you then this kind of situation does not happen.
But, if he is not loyal to you, if he is moving out then not only you are losing money your
competitor is gaining money. So, it is probably, its cutting in both sides and that is why losing
customers is one of the major things that we have to be aware about [noise]. Now what are the,
what are the ways to manage defection? One is the major way to manage defection is probably
defining what is defection and mechanism to identify the customers. This is one of the major things
that happens.
For example, I have given this example quite a few times and again I am repeating that in a service
context a customer might not just leave you by not paying the money to you. For example, this
Netflix. I might have bought the subscription for 1 month, in the next month if I do not buy the
subscription you can say that okay, this guy is probably leaving; I have to try to catch him. On the
other hand, in case of Hotstar or in case of Prime Video, the amount is I think currently the amount
is 1000 rupees per year, I can pay that 1000 rupees then I can get a yearly subscription.
In Netflix it is 500 rupees per month, if I am not wrong. So, 500 rupees per month then some
people actually pay monthly basis, some people probably paying the yearly basis also. But, if I am
going for a monthly subscription you have an option to check that, whether this customer is there
with you or not every month. But, if I am going for a yearly subscription you might only be aware
that whether I left you only at the end of the year.
So, only focusing on my monetary behavior, my purchase behavior is not the right way. Then what
to do, I would have done? If my competition is Hotstar and I am Prime Video, I would have
checked that okay this guy is not watching Prime Video for the last couple of months. It is not only
that, he is now, he has paid probably in March and then he will pay in next March. But, in between,
this March 2020 and March 2021, in between that for a period of 3 months he has not watched
anything.
And, if for a period of 3 months he has not watched anything, I might think that okay this guy must
have been watching somewhere else. And, I will see that, what are the products, what are the series,
what are the videos that this guy has watched on my platform. And, what is the competing videos

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that are coming or similar kinds of videos which are going on in another platform. And, probably
this guy has switched from here to there.
So, his profile might be active, but still, he might be an inactive customer and he has a potential to
leave in the next year, we have to identify them. Similarly we, so let's say many people have salary
accounts under separate accounts in a bank. Salary account is the account where their company,
their organization even even today, even in the age of this internet banking and etcetera; oftentimes
companies say that okay you why do not you open this particular bank account in this bank only
because, we have a tie-up.
So, you have a salary account and you have a separate account. And, then the second account is
where you get all the services and the salary account is an account in a nationalized bank.
Sometimes you are not so happy with services provided by the nationalized banks that is why. But,
your organization has said that okay, we are in the government organization we can only pay you
in nationalized banks probably at some point of time it has been told.
So, if you have opened this account, you do not want to close the account in this nationalized bank
because there are certain kinds of services which are easily available, less costly in a nationalized
bank. But, there are certain kinds of services which are not even available at a basic level or at a
level where you will be satisfied in a national bank, nationalized bank.
So, you have another bank account and every month in the starting the money comes to this bank
account and every 10th of a month, 10th August, 10th September, 10th October; you have made a
rule that a chunk of money will go from this account to that account.
So, then are you a customer of this nationalized bank? Because, it is like, let's say 50000 rupees
comes every month, let's assume 50000 rupees comes every month . So, the 50000 rupees comes
in every month and stays for 10 days. So, for 10 days your account balance is 50000, for the rest
20 days your account balance is let's say 0, you move out all the money.
So, then what is your average account balance? The average account balance over the month is 50
by 3, because first, first is 50 for 10 days and then 0, you just do the calculation 50 into 10 plus 0
into 20 by 30. So, that becomes 50 by 3, 16000. So, 16 point-something thousand is your Main
Account Balance: MAB that is what they say, which is good enough. Your account will not be
closed, they will think that okay this guy is an active customer, but every month there is a
transaction happening.

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So, still, there are 1, 2 transactions happening practically; one is one money is coming to your bank
account and then one chunk of money is going out of your bank account. So, 2 transactions every
month this guy is active, there is not an ideal customer. But, actually you are an ideal customer,
you are not a customer who is doing all this banking services with this nationalized bank.
You are actually putting all your money in the second bank account and that is where you were
doing your FD, that is where you are doing your mutual fund purchases, investments, this-that, e-
commerce purchases blah, blah, blah from where the bank is actually generating money.
So, this guy is only getting 10 days interest that is the only income that he is getting from you. So,
basically you are not a customer and this is something that has to be detected carefully. So, defining
a defection is one of the major criteria. How do I define that this guy is not my customer anymore
that becomes a major criteria .
Then the third step is trying to stop defection. First it is, you have to find a mechanism to identify
and define the defection and third is trying to stop defection. So, you try to stop defection using
multiple strategies. Neither can certain loyalty generating strategies.
There can be certain strategies where at the exit, you do an exit interview and you try to find out
what are the causes. And, you try to probably fulfill the gap of whatever your service level is and
your customers' expectation is.
For example when you try to do mobile number porting, they respond that the representative from
the mobile company will probably the SIM company, the connection company will call you and
say that, why are you leaving? We will give you this kind of offer, that kind of offer. If you pay
400 rupee per month, you will get 5 GB free, this calls free blah, blah blah.
So, he will try to do something to make sure that you stay back, because by giving you that offer
for one time period he is trying to ensure that you will stay for another 12 months. We do not think
of switching mobile phones every day, no? We think after we get dissatisfied up to a certain level
we generally think of. So, if I can push you a little bit higher of that satisfaction level, then I am
okay for the next 6 months and next 6 month, I will be making some money out of you.
So, that is something that the companies know and that is why they try to stop defection by luring
you. Sometimes, it is a sustained process like sending you certain kinds of offers, benefits,
information. Pantaloons and etcetera let's say send you the new arrivals, you get the information
of the new arrivals, if you are a loyal customer. Why? Because, they know that okay this guy
values these new arrivals, they will actually come and buy the new arrivals.

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And, they want to jostle in a crowd, they want to have a peaceful environment when they come
and do the purchasing. So, whenever the new arrivals come you get the message. So, all of these
kinds of strategies are basically trying to stop defection. Then you have to also know the outside
view of the defectors. So, you have to go and talk with the defectors who have already left your
company. One major focus we had been talking about till now is, till this customer is with you.
But, even there will be some customers who will be leaving you silently. There are in fact, most
customers who leave you, leave you silently. You do not even come to know that this guy will be
leaving. And then all of a sudden you will say that okay he is not coming to your store or your e-
commerce platform any more. So, these are the outsiders who are already defected and gone to
somewhere else.
You have to go and talk with them, you have to find information about them that why did they
leave you? It is not, it is your job to find out that. So, some customers will be telling you a fraud
and some other customers will not be telling a fraud. And, it is very important to find out why
customers have left you. Early defection is an early warning. So, somebody who is leaving your
company very soon is an early warning that is good for you practically.
It is better that you can track them and you can find information for them if you can change them,
this particular customer in your, in their attitude and etcetera positive towards you. The probability
that you can retain this customer goes up. Then you have to chalk out the reasons for the customer,
you have to do the service investment, service quality investment correction and let some, some
of them go.
Some of the customers are not so good customers actually. We are talking about in a B2C
environment, remember in the, there was a based by case and there were some angels and there
were some devils. So, one important thing out of all this thing that I am trying to say is there will
be still whatever you do, there will be some customers which are not profitable enough, it is better
to let them go.
Sometimes, it is better to identify these customers that okay, whatever I do I will not be able to
satisfy him; either because its willingness to pay is very low or his service expectations are very
high, not applicable in our context. So, I have to probably let them go. So, this balance of whom I
will let go, whom I will not let go and which kind of customers we have already left, I will try to
push to pull them back. These strategies together create your retention plan, we have to deal with
that accordingly.

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(Refer Slide Time: 21:27)

Next is, what is managing of defection and leaving okay. So, we discussed about this.

(Refer Slide Time: 21:30)

The next is the service recovery part. So, one of the major reasons why customers leave in a
different class we were talking about is that we customers feel that you are not giving enough

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importance to this to the customer, that is one of the major reasons why customers leave. So, that
is where this service failure and service recovery comes in. Service failure is what? Service failure
is something where there is a service expectation.
So, this is my expectation, expected service quality. If you this is my satisfaction zone and this is
my dissatisfaction zone or basically service failure zone. So, this is the place where service failure
happens. And when I do service failure I have to do something, some strategies to improve the
customer's attitude towards me, and those kind of corrective measures are called service recovery
measures.
There are various service recoveries for example, let's say you have gone to an airport and you
reach the airport and you found that your plane is delayed. And, your plane is delayed for probably
2, 3, 4 hours. Now, if the train is sorry, the flight is delayed, the plane is delayed for 4 hours, the
flight is delayed for 4 hours; it becomes, you become very, very annoyed, very pissed off with this
particular airline agency or something.
So, what this airline agency is to do, should do, if you are a valued customer they will try to know
what are the reasons they have, what kind of annoyance you are having, what kind of
dissatisfaction you are having. And, they will try to do something to make sure that dissatisfaction
can be removed. In hotels, let's say you will get sometimes, they give you free upgrades, if you are
annoyed or let's say they give you certain kinds of discounts.
Sometimes a simple apology is enough, sometimes they also do, they send a note to you;
sometimes they give you some gifts. So, there are various ways to handle a service failure situation.
When a service fails, there are different kinds of ways that you can do, to ensure the service
recovery happens. So, this is where one of the, this is one of the very major parts of customer
relationship management in B2C, that. how I can do various kinds of service recovery.
Now, what we have studied is that generally there are various kinds of customers that are there.
There are two different types of customers are there, one is, we call the complaining customer and
another is non-complaining customer.

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(Refer Slide Time: 24:30)

So, complaining customers are the customers who expect something from you, only then a
customer will verbally complain, when they expect a resolution, when they expect a service
recovery will happen. There are other customers which are non-complaining, there can be two
reasons for non-complaining . One reason is the failure is not high enough
according to this customer, these customers are shy or the customers are shy or they are silent.
So, as long as the failure is not high enough you are fine, if somebody is not complaining for a
minute reasons you are fine. But, if you think and this is very, very critical that you as service
manager know that this service failure is not high, not small, it is not a trivial issue, but still this
customer is not complaining. If that customer is not complaining, you should not take that as a
granted.
We often have a, we often have a strategy that, okay as long as the customer is not complaining, I
will not do anything. You should not do that because the customer might be shy, the customers
might not be vocal. There are various cultural aspects that come in where customers will be vocal
or not. In Indian kind of context we are generally shy, we generally do not complain, but in an
individualistic society people complain a lot.
Now, the fact that if I am generally do not complain does not mean that I will not, I will still will
stay with you, I will silently leave. And, it has been seen that most customers silently leave, you

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will not even know and that is a very huge harm to the company; because the company has no
scope to improve. If you silently leave, if you keep on if your customers keep on sacrificing, keep
on probably handling your service failures, keep on forgiving your service failures.
So, forgiving is another thing, somebody is shy and remaining silent does not mean that he is
forgiving. And he might forgive once, he might forgive twice, he might forgive thrice, but after a
certain period of time you will not forgive, but still, you will remain silent. What he will do
actually, he or she will do is, will he or she will silently leave and that is a situation where you
have no scope of service recovery.
So, this is very important. People are not complaining, does not mean that your service quality is
good or you are doing a good job; you have to think about that carefully. We often times we,
various companies or, or the managers service managers or customer care managers actually post
this information, that how many calls are coming, how many complaints are coming. Complaints
are coming less does not always mean that you are doing better.
Complaints are coming less along with your higher purchase situations or higher customer rating
or positive word of mouth, both together gives you an idea that ok; you are doing good. If the
second one is not happening the first one alone is not a signal of good quality. That is number 1.
Now, some people are complainers, they actually ask for some resolution. They complain because
they want some resolution and there are customer relationship management strategies, where
people, the researchers, where they say that, what kind of channel they will choose when they
want.
So, when they have when people are complaining they have different kinds of motivations of
complaining. So, for example, one complaining is resolution, if, I if I look for a resolution from
you I will private message you, I will email the company, something like that. Sometimes, I will
do a phone call also, if I want to vent. Let's say resolution was not given and I want to vent out my
frustration or I do not expect any resolution from you. But, I am very pissed off and I want to vent
out of my frustration.
So, if I want to vent out my frustration, I will go for a second channel which is basically, let's say
social media; social media, or even phone call.

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(Refer Slide Time: 29:11)

The advantage of a phone call is that I. So even in the resolution we will go for a chat, but in, in
the advantage of a phone call is I can shout towards this; obviously, that is not an expected behavior
from a customer. But, oftentimes customers think that okay, if I phone call, if I do a phone call, I
can shout that depends on the power, perceive-power situation of this person also.
If we think that he is very good in communication, he can speak loudly, he can, he can, he does
not feel shy to behave badly with some persons; he will vent out in a phone call, other people will
use social media. Then, the third one is vengeance. So, when I am trying to take any steps against
you, I want the harm of the company. Again that is a place where I will go for social media. And
in a social media. I will probably go for social networks rather my own, rather than my own
channel; I will go for as many channels as possible .
So, the choice of the complaining customers’ channel is also sometimes to say that what he is
wanting is either, whether he is looking for a resolution or whether he is looking for venting out
or whether he is looking for vengeance. And, now given that what many companies are doing right
now is because these two are potentially harmful, these two are potentially harmful. They are
creating their CRM strategies here.
And, that is where these social CRM that we have been discussing about comes in, that because
these are potentially harmful; if I put my CRM managers in the social media. Then I can make

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sure that this vengeance happens less, the venting out happens less, and less harmful effects come
on my brand name.
So, social CRM is one strategy to ensure this kind of complaining, complainers can be managed.
In the next video, I will talk about service recovery strategy in furthermore detail. One is
complaining the; managing the complainers. Now if they have, what kind of resolution can be
given, I will probably discuss in this next video.
Thank you very much for being with me. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 31
CRM in B2C Markets (Contd.)

Hello everybody. Welcome to the NPTEL course on Customer Relationship Management, we are
in week 5 and we are discussing CRM in B2C markets. So, in this particular class, we were ─ in
the last video we were discussing about service failures and service recovery strategy campaigning
behavior. We will continue on that.

(Refer Slide Time: 00:34)

And here I am trying to, next part I will be trying to say is that, what are the various kinds of
service recovery strategy that customers, the companies can take.
Now, service recovery, the resolution of a complaint or resolution of a problem can happen in three
ways, we have to think that, what the customers are losing, and keeping that in mind we have to
give them what I can do. So, that, that loss is mended. So, what customers are losing?

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So, there are three times of fairness issues that customers face, when service failure happens. So,
a service failure generally leads to three types of fairness issues. So, one is Distributive Justice.
we call it. One is Interactional Justice and last one is Procedural Justice.
So, these are the three major justice issues that a service failure creates for example, let’s say, you
have gone to a, you have bought something, you have bought a service. And you have gone to a
spa, you paid the money and the quality of the spa services was not so good. Or let’s say, at least
the AC was not working or let’s say certain oil that they have used was not smelling bad.
Now, these are basically distributive justice. You paid money, but you did not get that much
quality. So, that distributive justice can be mended by a distributive recovery. What kind of
distributive recoveries are there? Distributive recoveries are like let's say I am giving a free coupon
or I am giving you some money back or I am giving you a discount. So, something which is giving
me monetary advantage; distributive justice is often related to monetary.
Another example is one example of distributive justice; distributive justice means that every agent
in a social context will have the same equity. So, they will have the same level of benefits. So, if
I am paying money and if I am not getting the service that I require, then the company which is an
agent in the social context is getting more advantage and I as a customer is getting less advantage.
Now, there are other kinds of social situations that happen. For example, let’s say, there are three
agents: me, customer number ONE, another customer, customer number TWO, and there is a
service person. I am paying 10 rupees. This customer is paying 5 rupees. So, I will expect that by
paying 10 rupees, I will get 10 rupees worth of products or services and he will get 5 rupees worth
of products or services.
If I get 10 and he gets 10 also or let's say 7 or 8, I might be dissatisfied. If he gets 5 and I get 6 and
7 or 8 still I might get dissatisfied, which one will create more dissatisfaction ─ if my fellow
customer gets better service than he has paid for, or I get lower service than I paid for which one
will create higher dissatisfaction is a different situation, is a different question.
That is a research question, probably I do not know whether any paper actually looked at it and it
might be a research question for all the academicians who are listening to me. But, for other people
I am just telling you that both of them create a sense of injustice. For example, let's say, we see
this kind of situation in queues a lot, recently I have done a paper on that and I will be discussing
that paper. Then let's say you are standing in a queue.

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And you have to wait for quite some time. Let's say, it's a long queue and when you came and
joined this queue, there were 5 people in front of you. And you have to buy a very small product,
but still you have to wait for a very long time. 5 people were there and then after around let's say
15 minutes, 20 minutes of waiting, when the 5 people checking out was happening in the retail
store, then only your checkout happened.
Now, let's say, when you were in the retail checkout counter, you had already reached the counter
at that moment another person comes in and joins behind you. And you have only one or two
products; you took 1 minute and this guy within 1 minute he is in the billing counter; because he
joined at that moment when the queue size was very low. Now, this is the situation where the
service manager cannot do anything, it is a luck factor.
But, he will still feel dissatisfied because you had to wait a long period of time, but a person who
is coming later, than you probably have to wait one minute. So, this is all different kinds of
distributive injustice that happens in the world. Only those injustices will matter for service from
where the injustice will be attributed towards this, towards this particular.
Now, in the social situation I might as a customer might feel that this service retail store could
have opened another counter for people who have smaller numbers of ─ some retail stores do that.
There are some retail stores who do that. He could have opened another counter where people who
have a smaller number of products can go and join.
They do not have to wait for two products only in that basket; they do not have to wait 15-20
minutes behind 4-5 people. That kind of situation could have been created. So till now, till I think
that the service situation is something, where the distributive injustice I will attribute to god. But
the moment I start feeling that this retail store could have opened another channel, another billing
counter.
I will start thinking that okay this failure is attributed, it can be attributed towards this retail store
and I will feel dissatisfied. So, we have to be very careful which kind of injustice is being attributed
towards this. So, in often there are situations where the service failure you do not have control of
his distributive justice, but still that happens and it is number 1.
Number 2 is Interactional Justice what is interactional justice. An interactional justice often comes
from a service, I would say power situation. Let's say, the 30 minutes delivery that this guy was
doing, this Pizza Hut was doing I think or Domino’s I forgot. So, Domino’s, Pizza Hut said that
30 minutes or otherwise no pay.

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Now there are for many people they have used to take this as an advantage, many customers will
actually order from a certain area, where it is not able to, or a certain retail store which is a little
bit away they know the retail store nearby.
But they will not order from there; they will order from a retail store of Domino’s pizza or Pizza
Hut which is a little bit away, they know that it will take a little bit more time. And then the 30
minutes will go away and they will take the advantage; so, this kind of thing was happening.
Whatever be the case that is different, they are devil customers whatever be the case. This kind of
situation, if I am a person who earns lots of money and I think that I am powerful; I am in a power
position, I might not be interested in making the person's life who is the delivery manager, his life
hell.
Because, if this delivery manager misses multiple deliveries within this 30 minute service level
agreement or service level promises, then probably he will not be penalized for every late delivery,
but he will be penalized a little bit. His performance rating will come down because for him this
particular retail store is getting a little bit of disadvantage.
So, if I am in a power position as a customer I might not always want to make this particular
customer, particular delivery person, being punished. But, in certain situations I might want an
apology. Sometimes an apology is; becomes enough. Now, an apology at what level? Let's say if
I am Sachin Tendulkar, I will ask for an apology at a certain level. .
If I am Swagato Chatterjee, I will ask for an apology for a certain level. I will probably be okay
with the apology of the store manager. Sachin Tendulkar probably will seek an apology from the
Pizza Hut owner, something like that. So, different people depending on their power position might
have different kinds of interactional justice expectation. And that you have to give that you have
to identify what is his level and according to that level you have to give you the interactional
justice.
So, interactional recovery is the second one, which comes like apology, apology letter, apology
card, certain kind of behavioral benefits etcetera, etcetera. That last one is procedural justice. This
is what this punishment and etcetera comes in, let's say and we tell the the delivery guy, the
executive is becoming late. And he is becoming late or he calls me and says that I will not go to
that place, often Amazon and Flipkart guys the delivery agencies in a local area sometimes do that.
store again the one that I told the delivery manager,

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They say that okay I will not go to this place you have to come to this place and collect. It might
be very well, I have seen I have personally had this kind of an experience, where it is very much
probably accessible, my home which is in a tier two town let's say. The delivery is very much
possible at my home, but certain delivery manage- executives at certain periods of time used to
say. Now, they don’t do. At a certain period of time, they used to say that, okay sir I will not go to
this particular place, I do not know this place, why do not you come to this x y z place. And he
will go on, keep on doing this repetitively. Now, I want, I as a customer will want, a procedural
justice, because it is a procedural failure. He is not giving me a distributive justice or interactional
justice failure. He is giving a procedural justice failure; it is his job to come to my doorstep.
But, he is not doing that and even if I am probably complaining to certain people, no steps were
being taken, because this guy is doing this delivery agents agent or delivery executives is doing
this repeatedly. So, then I want a procedural justice from it, I want a procedural recovery and what
kind of procedural recovery can be done. I will not be happy with an apology. I will not look for
money. I will look for this guy's punishment.
Some kind of corrective actions should be taken against this person. So, looking for punishment
and looking for this kind of justice is called the procedural recovery. So, depending on what
customers are expecting you have to decide which kind of recovery you will give and sometimes
a combination of these three things works better rather than a single thing.
So, when we, now for a service manager, who is sitting in the headquarters designing this service
recovery mechanism becomes very difficult, because he is not in constant touch with the
customers. So, sometimes to have a very, I would say, efficient service recovery strategy it is better
to train or empower your employees.

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(Refer Slide Time: 12:54)

So, first of all it is cost effective service recovery. You have to encourage consumer inputs, why?
You have to know what kind of injustice they are feeling, then only you can. You have to also
sometimes anticipate needs of recovery as I was telling and you have to do fast and prompt action.
So, justice delayed is justice denied we call we say that. And that applies for service recovery also,
it's not only applied for law and is applied for our management perspectives as well.
And sometimes you have to train or empower your employees to take the right call. It is not always
possible to take a policy decision of service recovery sitting from your headquarter. Sometimes
you have to empower the customers there to take the right call and that helps and you have to close
the loop and you have to ensure that by doing the recovery. These customers are actually recovered,
they are actually happy.
You did something and you did not check back and the customer did not even expect those kinds
of recovery situations and he is still not happy is probably a money lost. So, you have to close the
loop, you have to ultimately see whether these customers are, and it has been seen that and─ and
that is a service recovery paradox.
We call this Service Recovery Paradox. I will write it here. That sometimes it has been seen and
this is heavily debated by academicians and sometimes managers also.

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So, let's say, this is no service failure, this is service failure and this is a service recovery situation
after service recovery okay. These three situations, this is the satisfaction level. It has been checked
that out of 5, if it is 4.2 in a 1 to 5 point scale, average ─ average satisfaction in a no service failure
situation. In a service failure situation, in something like, let's say 2.3, which is much lower.
But, if you can recover properly sometimes it is higher than 4.2 to probably 4.7. So, often service
managers become very much I would say, but no service recovery, the problem is there is a catch.
No service failure and a failed service recovery will be far lower. So, probably 1.5 let's say so,
there is a catch here.
Often the service managers are tempted to do the service failure. Because, if they don’t do the
service failure they reach 4.2, but if they do the service failure and do a successful recovery they
reach 4.7. So, this is a paradox. We will say that sometimes service managers want to fail. They
fail, and then they recover rather than only failure.
But, the catch is that if you cannot recover if you fail to recover after service failure, you reach at
a much lower stage 1.5. So, that is something that becomes a challenge. So, often various service
managers become. So, I would say habituated with this kind of challenge. It is a gamble, right? It
is a gamble. So, when they are habituated with this gamble, they actually take this gamble multiple
times.
And which impacts the overall service. It is not something that at an organizational level people
take this strategy. They don’t take this strategy. Because in an organization level we are always
discovered, but some of the service managers at a personal level can be deceiving and they want
to do this gamble and which sometimes becomes detrimental.
So, it is important from an organizational culture’s perspective to train these service managers that
you do not do this gamble. The service recovery paradox is something which is very dangerous to
play with. So, we have to keep that in mind.

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(Refer Slide Time: 17:07)

So, one of the case studies that I will be giving you in this context; I will not go and discuss this.
I have shared this file and you will find the files in week 5. So, here the professor, there are two
professors and they are prominent professors in the context of service business, Roland Rust and
Ming Huang.

(Refer Slide Time: 17:27)

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So they have written many ─ many papers and Roland Rust is one of the, I would say one of the
top five probably top five researchers in the area of services marketing. So, they were going to a
conference, the Frontiers in Service Conference. So, Frontiers in Service Conference is a
conference where all the global leaders. Let's say, if you talk about the top 100-200 institutes or
universities, B-schools. In those B-schools, whichever service marketing professors actually teach
in this B-schools will come to this particular conference.
And they were going to this conference and there was a service failure that happened by United
Airlines and these guys are loyal customers of United Airlines. She/he has lots of points in it, when
he has, he is an avid traveler for conferences, for professional purposes, for personal purposes he
travels a lot and he has collected lots of miles.
Now, once this guy has collected lots of miles, if there is a service failure happens. And if you give
me miles, miles is what kind of justice, distributive interactional or procedural. Free miles is what
kind of? It’s a distributive justice right. Now, this guy is a power guy, powerful guy, he is not
looking for distributive justice. He is looking for, not looking for his money's worth.
He is looking for his status, whether his status is being maintained, whether his interactional
injustice is fulfilled or not, whether it's mended or not, that is something that he is more concerned
about. You know, you see that he can ─ this particular person Roland Rust probably not known in
the, not so much known in the public domain. But, he has a huge influence on people who will
teach services marketing.
So, future service managers will read this United Airlines case year after year, if they can convince
them and that is what is happening. So, he has written a case based on his personal experience,
you can read the case and try to answer certain questions that have been written.
And you can put it down in the forum that we have put up. What are the various kinds of issues or
what service recovery strategies that United Airlines could have taken in the case of Roland Rust,
in this particular situation.
Where both, Roland Rust and his wife Professor Huang both are basically service marketing
managers, service marketing professors very prominent ─ very well-known professors in the
domain of services marketing. Where, when I am saying well-known the top hundred universities
will the professors from those universities will be affected by whatever.
So, he is probably an influencer in the group of service marketing professors, who will be teaching
the future leaders in the top 100 B-schools. So, you can read the case and get an idea.

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The key questions that he has asked after the case are, were the compensation sufficient or whether
the compensation offer, I would ask the second question that whether the compensation offer is at
all needed or something else was needed.
And there are several other questions which level of apology was something that could have been
prominent in this particular service context, or failure context you can discuss about that in the
forum.

(Refer Slide Time: 21:00)

I have given another link. This link is practically a paper written by me on general services, a
strategic marketing. And probably another paper on the same domain is coming out. Then there is
one kind of business, which we call as aggregated business. What is an aggregated business? An
aggregated business is an Aggregater, is a person, who joins a customer and a service provider,
there is an actual service provider. Let's say, in this case the drivers.
And there is let's say, Uber. In Uber's case, the drivers and the car owners are the actual service
providers and you are the customers. And Uber’s job is just to connect you guys. Swiggy, the
restaurant is this actual service provider, you are the customer. Swiggy’s job is to collect the food
and give it to you. So, connect the now, there are certain situations where the actual service
provider is the reason for the fall.

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For example, the restaurant's food quality is not good. Delivery has happened, if the delivery guys
are delayed, I will say that it is a problem. If Uber’s app is not working properly or not enough
cars are there, I will say its Ubers fault. But the food quality is not good or the driver is
misbehaving, it is basically the fault of the actual service provider.
Now, the question is that, can the aggregator say that okay, I am not responsible? Can he say that
the no this is not my domain I am not legally responsible or legally liable to answer you when the
problem is done by this actual service provider? It might not be, he can be legally not obligated.
Because, there are some terms and conditions, where they write some things you cannot probably
sue the company for a food quality, for the behavioral quality, of the restaurant or the driver. But,
still sometimes the customers think that they attribute the failure towards this aggregated business.
Now, why I am talking about this particular paper; because, aggregated business is very common
in the current digital world.
Now, this responsibility of the responsibility of the ‘R’─ ‘R’ stands for the responsibility of the
aggregator firm. This comes from two things; one is the control whether their aggregator firm
would have controlled it. So, they could have punished it, they could have checked the quality, did
the quality checking before doing a tie up with the restaurant and etcetera. And whether this
problem is stable, let's say okay I could. I could not have checked it, but for many of my restaurants,
this problem is happening.
Now, or if I have a control that will have a higher impact on my responsibility of the aggregator
form and if it is stable also, if the problem is stable also if it is a repetitive problem. Then also I
will think that this aggregator firm is responsible because he is not taking enough measures to
make sure this problem can be reduced. So, one time I might not make him responsible.
But, if we can be controllable and if it can be stable, then stable means it is repetitive the same
problem is happening again and again with multiple different restaurants or multiple different
drivers. If that happens, then I will know that okay there is no policy. If multiple different drivers
behave badly and I complain and nothing happens still, they keep on behaving badly. At one point
of time I remember, we used to, Ola and Uber were fighting with each other a lot and that is why,
because Ola and Uber were competing with each other a lot, there was less control on the drivers.
Drivers could have chosen Ola today and tomorrow Uber. And in an evening if I am booking a
particular trip, the driver will call me and the driver will call and ask me that, where, where will
you want to go sir.

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And based on my answer he will accept the trip or reject the trip or he will not even come. He will
stop taking calls, if the trip is long he will or distant from whatever he wants to go he will stop
taking calls.
Now, at this current period of time Uber understands or Ola understands that there is a problem.
And now they are doing the matching better, but at that point of time they were not doing the
matching better. Now, I as a customer will be feeling very annoyed!
So, whom I will attribute this failure to one time, two times, three times, I will attribute to this
driver. I will say that this driver is bad. But, if it keeps on happening I will say that no, no it's not
the drivers problem, it's only Uber’s and Ola’s problem, they are not taking the right measures,
strict measures or better matching to give a better solution to me. So, it's Uber's problem.
So, if it is a stable problem, it's a Uber's problem, if I think Uber can control it. It’s a Uber's
problem. Let's say service delay happens for heavy rains, I will not say that it is a Uber’s problem,
it's not controllable, but delay happening because a driver is not responding, its Uber's problem.
Because it's Ubers responsibility to make the driver respond to my call.
So, depending on whether I think Uber can control or the aggregator can control or if the problem
is stable I will think. Now, if the responsibility of the aggregator firm is high, I will expect
monetary compensation; if it is low then I would expect punishment, procedural justice. So, if I
think the company itself, the Uber company itself which is a capitalist organization, if that
capitalist organization is at fault I will not expect it.
Now, who travels in Uber, those kinds of people travel in Uber who have value for money, who
do not need huge luxury who need decent kinds of travel! So, they are basically people who will
look for monetary compensation distributive justice. So, I will look for distributive justice if Uber
is creating, if Uber is responsible.
And, if Uber is not responsible if the Uber is less responsible, then I will seek punishment to
whoever is responsible, in this case the actual service provider. Other than the attribution if I am
powerful, I will ask for more punishment and less distributive justice. I will my, want my ego to
be boosted up my ego will be boosted up when the defaulting person will get punished.
And my ego will be less boosted up, if I get monetary compensation monetary compensation often
customers think then it is a bribe. So, I might not want to have that bribe. I want to have an ego
boost up more so, when my power is high. Sense of power, perceived power is high. And if the, it

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is severe if the problem is a severe problem. Let's say it’s a sexual assault. Then I will want both
monetary compensation and punishment; if it is let's say an accident I will want both.
So, depending on what kind of problem it is depending on which kind of person I am and
depending on whom I can attribute the failure, what kind of compensation I am asking for will
change. And then what kind of compensation I am asking for and what I got, we will together, will
create my satisfaction.
So, that is some of the models that we proposed, we collected data, we analyzed the data; and we
got support for this thing for various kinds of services. Also we got support. You can go and read
the paper in this link that is given.
So, that is all about service recovery we will continue on service guarantee in the next week
probably. Thank you very much for being with me. This B2C in services will go on for another
one video in the next week. And then we will slowly move to B2B-CRM and certain case studies.
Thank you very much for being with me. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 32
CRM in B2B Markets

Hello everybody. Welcome to the NPTEL Swayam Course on Customer Relationship

Management. This is Dr. Swagato Chatterjee, from VGSOM, IIT Kharagpur, who is taking this
course for you.
We will start week 6 from this video and in this video, we will discuss research papers that I have
worked on in the context of customer relationship management. First, we will discuss about B2C
context and then, we will discuss CRM as a whole in B2B context and then some research on that
particular area also, CRM in B2B. So, that will be the whole week.
So, in this particular class, I will be discussing about some research papers that we have done in
the B2C context. So, there is a paper which you can find in the Journal of Strategic Marketing in
my name. If you go to my Google scholar profile also you will find, where we have discussed
about what kind of situation happens when a service failure happens in an aggregated business
context.
So, to understand this first we have to understand that, what is an aggregated business context?
When I say aggregated business context, what does that mean?

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(Refer Slide Time: 01:34)

So, in an aggregated business context, there is an aggregator like for example, let's say Uber or
Ola or Zomato or let's say some-somebody like that and then, there is somebody who is the actual
service provider.
So, he-this person actually provides the service and he is not connected before this aggregator was
there, this person was not connected to the customer and because he was not connected to the
customer, the business was not happening. So, this connection was not very strong. So, what did
this ‘aggregated’ do in this particular business context?
For example, before Ola and Uber came, there were always taxis and autos were there in Indian
cities or in abroad other cities also. But these taxi providers, taxi service providers, taxi drivers and
etcetera did not know that at what point this particular service will be asked for.
So, all they did is that they went ahead and waited in a stand, taxi stand or auto stand and a customer
has to come by walking or whatever to the taxi stand and then, fly on that taxi; and by any chance,
if the customer is not probably, let's say he has some mobility issues or this person has some very
huge luggage, which ─ all of these thing has to be carried till this point, till this taxi stand or
otherwise somebody has to come and take this taxi and go to the home of that person.
So, there were lots of problems happening. Let's say in some city, there is an aged person living
alone, nobody to help him. Now, how will I? Nobody to help him physically ─ let's say for
example, I am standing in Bangalore and my parents are at the time in Calcutta and let's say this

536
taxi stand is a little bit away from my home in Calcutta and I am not physically present there. I am
working in Bangalore.
Now, what will I do if the taxi is needed even in the let's say in the summer season, at 2 p.m., 3
p.m. somewhere my mom or dad has to go? Where will I get a taxi? Somebody has to go till that
taxi stand, sometimes they have to probably take a rickshaw to till the taxi stand.
And then, ask the taxi why don't you please come to my doorstep and then, put all the luggages
and go to somewhere. So, that was a problem. Similar things happen in the context of let's say
food. When we were, when the Zomato and or or let's say Swiggy were not there, first of all to
order food from a certain distance, you have to order a certain amount of food, that is number one.
Number two is that you didn't even know that, whether this particular restaurant was there at all,
the existence of the restaurants was not known. Because you have not probably traveled in that
particular area or you have not noted down what are the restaurants available and you probably
didn't even know that this guy can deliver to your house also.
On the other hand, the restaurant's people did not know that from what place where I can create a
customer base, they were only dependent on whichever people would call them or come to their
doorstep, come to their restaurant doorstep.
So, if that is the situation, then the problem is that neither the business has enough information
about the customer demand and neither the customer has enough information about these
businesses and there is an information gap. This information gap is where these aggregators come
in. They have actually filled up this information gap. What do they have? They have huge servers,
they have good I would say platform; in that platform, customers can register, service providers
can register and all this guy will do is to find out the correct, at a correct period of time.
What is a customer demand; what is his willingness to pay and what is the supply available and
what is the money that the supplier is willing to give the service at. And if this, these two matches,
if the supply curves and demand curve matches wherever it cuts, it creates a opportunity there and
that is what they say that okay.
It sends a notification to the driver that there is a customer waiting; 5 drivers get that notification,
whoever swipes first will get this particular order. So, he sends it to 5 drivers. Similarly, he shows
that okay, there are Uber and then Uber Go and Uber Prime and this and that offerings are available
which one do you want to go for?

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And if you go for Uber Go, 5 minutes; if we go for Uber Prime, 2 minutes; if you go for something
else, 10 minutes, that much of waiting time is also shown to the customers. So, this kind of an
information asymmetry, you try to reduce by using these apps. So, that is what the aggregator does.
Now, the problem is that when I go and take a Uber cab, I don’t see that okay this cab is actually
these XYZ persons cab. I don't even know that person's name. All I think that this cab is Uber's
cab because the Uber brand is there, Uber is giving me all the information. This person does not
even probably often times does not even share his mobile number sometimes.
They call from the Uber customer care number or I do not know exactly from where this person
is or, or I cannot again come back to this person in the next day because the order keeps on coming;
for the driver, the order keeps on coming from multiple corners of the city.
So, my connection is with the Uber Company. The relationship that I generate is with Uber
company and not with the driver and if the relationship gets generated with Uber company and not
with the driver and practically, Uber is making money out of that relationship, then he has to, then
it has to be responsible for anything that happens in that relationship as well.
Now, how can Uber handle this kind of a situation? Let's say a driver behaves badly with me or a
driver, let's say, an order comes and he cancels. At one point of time, it was happening like anything
that in the evening after 7 pm or after 8 pm or even nowadays, even in the daytime, it calls and
says that sir where will you go? What is the destination of this particular trip?
And by chance, if you say the destination, the destination is not liked by this person, he will cancel.
And he has up to a certain limit, he can cancel without fine and etcetera. Because you see Uber is
also competing with Ola and, and, and he has to also keep these drivers within this network. So,
you cannot indefinitely fine or penalize these drivers.
So, the driver has some opportunity to swipe and cancel. So, if this kind of situation occurs,
whether if this guy behaves badly with you or he cancels the order repeatedly, what will you do;
whom will you hold responsible? Now, understand the aggregated business model, if you, when
you click.
So, aggregated basically is as I said it, it joins through these channels, when these channels are not
working properly through these channels it joins; but you have to understand that ultimately in the
service situation, this is the connectivity that happens. This connectivity when the actual service
happens, this connectivity is lost and this connectivity is what matters.

538
So, if the actual service provider is behaving badly with you, in that agreement that you signed
that you accept while you actually take these offerings of these, of an aggregator firm, in that
particular thing you say that okay I understand that aggregator works only as an intermediary of
information not the service.
The service is provided by the actual service provider; any criminal offence, any other kind of
offense happens with the actual service provider legally you cannot penalize Uber; some kind of
Uber or Ola or Zomato or this kind of aggregators. So, sometimes these kinds of clauses are there.
But does that mean that with that clause, Ola, Uber and Zomato and other aggregator firms can
actually wash up their hands? They cannot. Because as a customer, I actually sometimes feel that
these guys are responsible. I am talking with this guy. My relationship with you Uber, whatever
you do Uber or Ola or Zomato whatever you do, I will hold you responsible.

(Refer Slide Time: 11:28)

So, there are certain times when we hold these particular guys responsible. So, when will I find, R
stands for responsible, just check this thing. When will I find that R means responsibility or let’s
say aggregator responsibility; aggregator is responsible. Perceived aggregator is responsible.

So, I perceive that the aggregator is responsible. When will I hold them responsible; when will I
hold the aggregator responsible? I will hold the aggregator responsible, when this particular

539
problem is something that aggregator could have controlled. So, the control of this particular
situation is very high for the aggregator.
For example, a driver behaving badly with me, probably the aggregator does not have that much
control. But a driver cancelling the trip probably has a control; aggregator can actually not let the
driver cancel or otherwise can penalize them heavily.
So, aggregators can control this situation very easily than a driver's behaviour. So, then whenever
the control is high, my perception about aggregator control in this situation is high.
If I think that the aggregator has the highest control on this situation, but still the problem is
happening; then, I will hold the aggregator responsible for this thing. That means you have control,
but still it is happening means it is your failure, not the systems; not the person's failure, it is a
systems failure and whenever the failure, the problem is systemic which can be handled.
Now, there is another kind of problem when I will hold the, this aggregator less responsible. When
I see that this problem is very common, whether Uber ─ whether you go to Uber or Ola or taxi,
taxi for sure or somebody else, everybody has the same problem.
If you think that everybody has the same problem, then you cannot hold the aggregator responsible
because everybody is facing the same problem; nobody can actually have this situation under their
control. So, basically these two are interrelated, but when this particular problem is consistent over
multiple aggregator firms or multiple firms.
Then, we actually held them less responsible. We think that this is attributed to this failure and can
be attributed to some situation which is beyond the control of the aggregator, something bigger
than that.
For example, let's say these guys are rejecting their offers, rejecting their offers probably because
they have created a cartel, the drivers have created a cartel and they will say that okay I will only
take those kind of trips which we want; we will not take any trip which is below the power of our
cut off level, whatever is the cut off level of profitability or whatever we think and that bar is very
high let's say.
Now, if that kind of situation happens, if the drivers take lots of, the drivers become very picky
and irrespective of which aggregator it is, then that is a stable problem and whenever stability is
there, so S stands for perceived stability.

540
So, whenever stability of a problem is there, we generally have a less, we hold this particular, this
thing less responsible. So, as stability increases, the perceived responsibility of the aggregator firm
means how much I can say that the aggregator firm you are responsible, will come down.
Now, if the aggregator firm is responsible by any chance whatever be the cause, wherever be the
cause. Whether control or stability or blah blah blah or whatever is the problem, if I by chance
think that Uber is responsible, what kind of recovery expectation I will have?
What should I expect Uber to do for me? If I am in an aggregator situation; obviously, the first
basic thing is apology, any service situation apology is the hygiene fact. It is the basic requirement
that you have. But after that, if recovery is, if the responsibility of the aggregator is high, I think
that blatant apology will not work.
I, they have to give you monetary compensation, why? Because we have a thinking in our mind
that this is an aggregator, it is making money from these information asymmetries. So, if they are
making money and still they’re not able to give me proper services, then they should compensate
me.

(Refer Slide Time: 16:37)

So, they ask for compensation; compensation expected, compensation will be higher, when I hold
this aggregator responsible. Now, if I do not hold the aggregator responsible for this problem in
an aggregator business service failure, then if I do not hold the aggregator responsible; then, whom

541
do I hold responsible? ─ the actual service provider, the driver. If I do not hold Uber responsible,
then the driver is responsible; any one of them is responsible for this problem. So, by chance, if
Uber is not responsible ─ so, my perceived responsibility, for my perception about Uber’s
responsibility towards this problem is lower, then that will increase the expected punishment.
So, as this goes down, the expected punishment of the actual service provider; that means, the
driver goes up. So, basically there is a negative relationship. As R goes down, this goes up or as R
goes up, this goes down. If I think Uber is responsible, I will not ask any punishment for the driver,
I will ask compensation from Uber’s pocket; not something that will be deducted from the driver's
pocket and then given to me.
No, I want Uber to pay me without touching the driver because Uber is not creating a good system
which can if the problem is controllable and still it happens, then Uber is responsible. And if Uber
is responsible, Uber should give me the compensation; the driver should not get punished.
So, even if let's say the drivers cancels this thing and I think that Uber can control this. I want them
to create a system, not punish the driver for this particular mistake. But to create a system such
that drivers gets encouraged to take the trips.
So, why does an Uber driver cancel a trip when it comes to him? Probably whatever he wants,
wherever he wants to go probably, he wants to go his home or was to be close by to his home or
within a perimeter of his home or whatever. That is not being maintained by Uber.
So, Uber is not creating a situation, where the driver can express his interest. If a driver can express
his interest that okay, I want to move around in this zone only. Then, Uber can give in that zone
and if the competition; if everybody wants in a certain zone, competition will go up for the drivers,
anyway drivers will come out of that place.
So, let the driver choose, you give choice to the drivers. If you are giving, now they are doing
probably; if you are giving choices to the drivers that okay, you can tell that okay now I want to
go home this is my last trip of the day. They do that in the last 2-3 years that whenever the driver
wants to go home, they say that okay this is my home then give me a trip towards my home
destination and they try to allocate that.
Similarly, that kind of thing happened because there were lots of driver cancellations especially at
night. So, that system was created. Now, that was a Uber case. It can be applicable in other cases
as well. For example, if I am a delivery person, I want to deliver at a certain place which is close
by to my home and then go to home.

542
I do not want to deliver somewhere which is ten kilometres from my home as my last delivery and
then, go home by travelling 10 kilometres that will cost me half a litre of oil and probably, more
in a city context. So, that kind of a situation has to be created.
So, the system is at failure and if the system is at failure, you cannot punish this actual service
provider. You have to give compensation from your own pocket. That is my expectation. Now,
another two/three factors that impact in this expectation for compensation and expectation for
punishment.
One is the severity. If the problem is very severe, then irrespective of whether that can be controlled
or not, I will ask for both compensation and punishment. If the problem is severe; for example,
somebody actually molested somebody. So, he will want compensation from Uber and he will also
want punishment of the person, or both sometimes. On the other hand, if you are a powerful person
─ so, this is a situational factor and there are certain factors which are personal factors. For
example, if you are a powerful person, you think you are a powerful person .So, oftentimes
powerful persons want to teach the actual service provider, teach a lesson. They do not want
money.
So, let's say somebody behaves badly with Sachin Tendulkar. Sachin Tendulkar, will not ask for
money. I do not think Sachin Tendulkar will take an aggregator service, but even if by chance if
he takes. So, by chance if he takes, Sachin Tendulkar will not ask for compensation.
He is a powerful person, he is a rich person, powerful person; he will not ask for compensation.
So, powered with compensation expectations is low, but he, any powerful person will want his ego
to be boosted, his or her ego to be maintained. And ego maintenance can happen if the punishment
of the actual service provider can be done and that intimation can come to this particular person.
So, this goes up.
So, there are different situations which create the expectation of compensation and expectation of
punishment. Understanding this is very important, why? Because based on this expectation and
your actual compensation ─ whatever you give as the money. Finally, you give the money or actual
punishment, how much punishment you expected and how much punishment you actually gave to
the ASP, this gap will ultimately create post recovery satisfaction. So, post recovery satisfaction,
post service recovery satisfaction.
We were talking about service recovery paradox, if you remember that sometimes these service
providers actually fail in the initial service because they know that post service recovery the

543
satisfaction will be much higher, even higher than if they have done good things at the very first
place.
Sometimes, the recovery satisfaction over shoots the actual satisfaction. So, that is why post
recovery satisfaction is a very important component and that is what we are testing here. That is
what happens when I give different kinds of compensation, different kinds of punishment to create
a post recovery satisfaction? Now, this is the overall model that we have created.
So, basically these two will have a positive impact and these two will have a negative impact. So,
if their difference has an impact; that means, this actual punishment and etcetera will have a
positive impact and the expected punishment and etcetera will have a negative impact. So, this is
a model that we developed in that paper. So, you can read the paper carefully.

(Refer Slide Time: 24:26)

And this is how the model looks like. I will just. So, this is how the model looks like, whatever I
told till now and there was a direct effect from the responsibility to satisfaction as well. So, that.
This is how the model looks like.

544
(Refer Slide Time: 24:46)

And we tested this model and we tested this model; more or less whatever we told came significant,
only one thing did not come significant which is this expected monetary compensation to
satisfaction this relationship. So, this did not come significant, but all others came significant. And
you have to understand, there are certain other situations which you have to understand carefully.
So, first of all stability and control ─ so, if a problem is controllable 0.53, high responsibility. If
the stability is high actually, this is and this should be negative. If the stability is high, if the control
is stable okay. Okay, so, here we talked about stable, within the aggregator context.
So, repeatedly this problem is happening within the aggregator context
─ so, within Ola, not in the industry. So, if it is in the industry it will have a negative effect, but
by chance if it is happening only for Ola repeatedly, then I will hold Ola responsible.
So, this will be a positive relationship then. When I say perceived stability, I mean to say that this
problem is repeatedly happening for this aggregator, not for other aggregators. So, that will have;
so, stability we will see that more impact on responsibility than control.
So, even if you have less control to a situation, if the problem keeps on happening, I will be very
less apologetic. Then, I will be less, I would say forgiving in that kind of situation, I will hold Uber
or Ola responsible. Even if they have no control on this situation, but the situation keeps on arising;
that is number one─ so, 0.757 and 0.53.

545
The second thing is that this responsibility has positive impact on expected monetary compensation
0.172 is the beta parameter and less impact negative impact on EP which is expected punishment
minus 0.208 and then, other things as I told power will have a negative impact; power will have a
positive impact on punishment.
Similarly, severity will have a positive impact here, positive impact here and negative impact on
satisfaction. So, these are all fair enough. Now, another important thing that you have to one, you
will be interested to see that out of the actual monetary compensation or out of the punishment,
which one affects post recovery satisfaction?
You will see that I might have created an expectation about the monetary compensation EMC, but
that expectation has no effect on satisfaction now; the only thing that affects it is actual monetary
compensation. What does this mean? This means that whatever monetary compensation you will
give, you should give something. It should, it might not be related to my expectation.
Let's say I expected 50, you gave me 30; even that will have a positive impact. So, you have to
give monetary compensation in case of an aggregator firm. So, this is what it is trying to say that
it is not related to EMC; it is related to AMC. So, my expectation does not matter, you have to
give some compensation.
On the other hand, the effect of compensation will be lower than the effect of punishment;
punishment gives you a different kind of. Punishment of the actual service provider gives you a
different kind of booster ─ 0.419 and that impact from MC is 0.384. Now, this is a careful situation.
You have to understand also that though punishment is something that gives satisfaction, it is a
triad relationship that we are trying to handle here.

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(Refer Slide Time: 28:18)

These three guys are interrelated with each other. If I keep on punishing these people, then this
triad will break. So, I have to also keep a balance between how much I can make the customers
happy and how much I can make the actual service providers happy and this is an area which is
still not in the research world at least, those who have academic background and doing this course
with me might want to explore that how I can keep this balance.
How I can keep the customers happy and at the same time, I get to keep this actual service provider
happy and maintain a balance of service failure and service recovery. In such situations, when the
service failure is happening due to this ASP. Means this guy is creating a problem, this guy is
creating a problem, I have to make this person happy; one way of making this person happy is to
make this person sad, but I cannot make this person sad a lot.
So, how will I manage this dilemma? So, till now the whole paper or whatever I discussed is
focusing on these, but focusing on these has not happened and how to make a balance of these two
things have not happened, we might want to or you might want to focus on that in an upcoming
research probably.
So, that is all for this particular video. I will come up with B2B, CRMs application into B2B in
the next videos and then, we will discuss about some, what is that I have done in this same area.
Thank you very much for being with me. See you in the next video.

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548
 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 33
CRM in B2B Markets (Contd.)

Hello everybody. Welcome to the NPTEL Swayam Course on Customer Relationship

Management. We are in week 6 and this is Dr. Swagato Chatterjee, from VGSOM, IIT Kharagpur,
who is taking this course. In week 6, we in the first video, we have discussed about CRM into B2C
context, specifically aggregated business context.
Now, we have to understand initially, we have to talk about B2C, business to customer. Then, we
came up with aggregators, where there are two kinds of relationship; B2C and B2B. B2C
relationship is between the aggregator and the customer and B2B relationship is with the
aggregator and the actual service provider.
And in the last video, I told that there has to be some way to join this, we have to understand that.
How can I handle this actual service provider as well? And that is where this, today's classes topic
comes up: CRM in B2B markets.
So, before we understand CRM Customer Relationship Management in B2B markets, we have to
understand what is B2B? What is the characteristic difference between a business to customer
market and business to business market? When I say business to business; so, we will discuss about
the characteristics. What is a business market?

(Refer Slide Time: 01:35)

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So, business market consists of all organizations that acquire goods and services used in the
production of other products or services that are sold, rented or supplied to others. So, ideally you
are creating you are buying goods and services from one company, creating a product or service
and then giving it to some other end customer, end user, or consumer. So, that is basically a B2B
market. Now, B2B market can also be divided in multiple ways; one is the private businesses,
second is the government, and third is NGOs.
So, private businesses are basically profit-making businesses; government agencies are basically
public services companies or public service kind of agencies which are where the government has
majority stake. So, their profit is not the major goal.
The major goal is the service of the people and third is the NGOs, why these NGOs are sometimes
serving whatever government cannot serve. So, wherever there is a gap in the government's policy
implementation and etcetera that is where the NGO comes up. NGOs are also some people who
are actually implementing the CSR activities of various organizations. And they can also be your
customers.
Now, all these three, when I am talking about the private company or I am talking about the
government or I am talking about the NGOs, all these three can be local setup and in international
setup; in the local setup and the global setup. Now, customer relationship management has to be
handled in all of these aspects.
So, in a different class, we will discuss about the global set up of customer relationship
management, the internationalization or international marketing component of CRM; but in this
particular class only, we will focus on the B2B part in the local market situation where CRM can
be applied.

(Refer Slide Time: 03:51)

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Now, what are the unique characteristics of a B2B market? So, if you just pause this and check
this video carefully, there are certain unique characteristics. One is the market structure and
demand. So, that is what is in here, market structure and demand.
So, what is the market structure? The market structure is there are very few numbers of buyers and
the market size, the purchasing size is very high and it is generally very much regionally
concentrated. So, that is something that we can expect in a B2B market, less number of buyers,
huge ticket size and geographically concentrated.
So, why that happens because oftentimes the factories which are known for their particular
business, those factories will have the raw materials or environment or business friendly
atmosphere at a certain place. For example, if I am going for petroleum.
So, petroleum will be, all these petroleum businesses or all the iron ore mining businesses will be
in the similar area. Because that is the land where iron ore can be excavated, that is the place where
probably the government has given lots of facilities or road connectivity and railway connectivity
and these and that is there.
So, the moment one particular zone becomes good for business, lots of people comes up and sets
up their business in that particular place. So, that is why it is very geographically localized. On the
other hand, the ticket size is big because they do bulk purchases to get economies of scale, to get
lesser costs.
So, the price that becomes an important factor and the number of people whom you can sell is
limited. That is the first characteristic. What is the second? ─ the nature of the buying unit. So, the
nature of the buying unit as I just told you is, you get a high ticket size that is one thing and there
are different types of purchase that you do and we will talk about this nature in the next step, that
is what are the different kinds of purchases that are done.
Then, third is the decision making process in a B2B─so, buying. Business buying process or
decision making process ─these two are related. In a B2B context, in a B2C context what is the
purchase decision making process if you remember? In a B2C context, it is need recognition. Then
the information gathering ─let’s say information search. Then evaluation of alternatives; Then
ultimate purchase and then, the post purchase behaviour.
And in each of these stages, you can actually attack with your CRM strategies. But the problem
with B2B is that there is not a single person who is trying to make a decision. There are multiple
people who are trying. So, participants in buying that is why, the multiple people who are actually
poking their nose in the decision making process and the decision making process are strategic
decision making, there is no impulse purchase involved here.
So, in that situation, there is no impulse purchase is situated, the impact of consumer behaviour
kind of behavioural aspects on B2B purchases is generally low. Things are changing now as we
come with my research, some of the research papers that I am working on, I will show that how
behavioural aspects are also coming into the situation.
But classically, we know that behavioural aspects have less impact on purchases and decision
making process of a B2B and there are certain steps involved and there is certain strategic decisions
long term thinking, cognitive decisions are taken and when thought processes are there, cognitive

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decision making is there, the way that you are doing marketing for a B2B and for a B2C will be
very different.
So, that is something that we have to understand very particularly first before we can create any
CRM strategy for B2B markets. So, I will stop here and then, there are certain buying situations
which might also affect. So, I will stop here and ask you to think about it a little bit. That; what
kind of buying situation can be created?
Let us say you are studying in a college okay, you are teaching in a college. Let's say there is a
projector in the college and you have to buy a new projector. Can you tell me what are the situations
when you have to buy a new projector? Just think a little bit, what are the situations, when you
might want to buy a new projector?
So, I can think about these three, three places; one is when you are expanding and you are coming
up with new classrooms and a new projector has to be bought that is number one. Number two is
that your old projector has gone bad and you have to buy a new projector or whatever projector
you are working with is not working anymore or is or it is working, but it is not giving the features
that you want for. So, you have to upgrade your old one.
So, upgrading your old one, buying a new one, replacing the old one or third is buying a new thing,
these are the three business situations when you can buy the projector. Now, let;s say you have
decided that okay this projector is required, what will be your buying process? Let’s say for IIT,
Kharagpur; if there is a projector that has to be bought, what is the buying process?
So, what do I do? I am from VGSOM. So, I go to my Dean and I ask the Dean of VGSOM with
some consent of other professors, I get consent from other professors and I go to the Dean of
VGSOM and ask sir, professor P.K. Ray is now the dean and I ask that sir, this particular projector
has to be bought, can you tell me that can you can you please send a requisition or can you help
me buy this projector?
Now, there are two things; if by chance the budget is such that that is within the Dean of VGSOM
per view, within the limit within the I would say official limit that has been given to the Dean of
VGSOM and VGSOM can approve that okay purchase can be made from the departmental budget.
If it is outside of his domain, then he will say that okay write a proposal and I will write a comment
and I will send it to the approval of the higher competent authority. So, that is what will happen.
So, if he has the authority to give permission, he will give permission; if he or she does not have
the authority to give permission, he will send it to somebody else who has the authority.
So, I will create a requisition document, a technical document which says that this is why it is
required; this kind of staff is required blah blah blah. And he approves, gives me approval or the
competent authority approves. Once it is approved, it will go in the purchase process.
So, I created a tender document. A tender document means if it is limited, there are different kinds
of tenders; the limited tender what we, a certain party or it is an open tender where we can ask any
people, who is coming or if it is within 25000 limits or within a certain limit. Then, we can have a
purchase committee which is an invited tender we can do. So, there are different ways of doing it
and we will come to that, but before we do that, we have to create a tender document.

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A tender document means a request for proposal kind of a document, where I write every detail
that what I am trying to purchase, when it will be delivered, what are the features should be there,
what are the post purchase services we are requiring, what are the guarantees we are warranty
blah blah blah.
Everything will be dotted down properly. Now, this particular document will be sent to either the
tendering platform, if it is an open tender or if it is a limited tender to certain people of certain
parties, who are registered vendors of IIT Kharagpur, this will be sent to them.
Now, once it is sent to them, they will send us the. So, they will send us their proposals and all
proposals will get submitted and in a certain day, the proposals will be opened. When the proposals
will be opened, first we will check for probably the technical specifications and only keep those
short listing will happen the two stage shortlisting generally happens. So, first we will keep all the
ones which meet our technical requirements and then, we will open the price tender and then, we
will see that whichever has the lowest quotation, we will go for that.
Now, in other situations, it is a government situation. In other situations, the procedure is more or
less same; probably less number of steps less number of approvals and blah blah blah, but the
procedure is more or less same and then, in the technical specification they when they go about
the technical specification, lots of different aspects comes in like your relationship with this
particular brand; whether you know this particular brand; whether the authority who makes the
decision has any kind of strategic relationship with the firm or not, all these kind of things comes
up. For example, so I will come to that example a little bit later.
So, this is the procedure and then, the order is given based on L1, the lowest bid the order is given,
the purchase order is made and the purchase order is provided or the work order is provided.
And when the work order is provided, or a purchase order is provided, then after a certain point of
time evaluation happens of the work, of the product or the service evaluation happens. That is the
post purchase situation and when the evaluation happens, whether the contract will be renewed,
whether the penalties will be charged, whether this earnest money deposit will be released these
kind of decisions are taken after that evolutions happen.
So, this is the overall decision making procedure for a B2B situation, which is very different. There
are lots of steps involved and people are very, very I would say because of their job, their livelihood
is involved in this purchase decision, they are very much risk averse. So, what happens is in a
business market as I told, there are fewer larger buyers. There are close suppliers to customer
relationships. There is professional purchasing and there is: multiple buying influences.

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(Refer Slide Time: 15:30)

So, this is something that we have to think about that, fewer and larger buyers. The numbers of
buyers are small and the buyer size, the ticket size is high and a very close relationship. So, once
you create a relationship, generally neither the supplier nor the customer wants to break this
relationship; because there are lots of headaches for both of them.
Not only the supplier, for the customer also to find the new supplier, legitimate supplier, transport
the supplier, it is a very active procedure and that is why once the relationship is built, generally
they don’t want to switch. That is something that generally is seen in a B2B relationship. And the
purchasing process is a professional purchasing process, it is not an impulse purchase kind of
process and there are multiple buying influencers. So, lots of people actually have their say when
a purchase is made.

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(Refer Slide Time: 16:23)

Then, what? Then, there are multiple sales calls involved. So, oftentimes the sales people have to
go and visit once, twice, thrice, five times before a sale is made. So, this is something that is the
characteristics of a business market because the ticket size is big; it is okay even if a salesperson
has to go for five, five times because the amount of revenue that will be generated out of those five
visits is much higher than the cost of those five visits. So, multiple sales calls or sales visits have
to be made.
There is a derived demand. Derived demand means it comes from somewhere else ─ the demand
comes. And say, inelastic demand. So, demand is generally not dependent on price. It is not like
that the price goes up, my demand will go down which happens in case of B2C, but in B2B it is
very low. The demand is fluctuating.
So, there is a seasonal fluctuation, there is fluctuation based on the GDP, the economic condition
of the country, there is fluctuation; so, there are fluctuations in demand. You cannot assure that
the demand will be absolutely stable. But that fluctuation will not happen based on the price that
much is saying, based on inelastic demand.
Then, there are geographically concentrated buyers as I just told and there is direct purchasing.
Direct purchasing means there are situations, when this guy will call you and say that okay we will
not go for tendering and etcetera, send this thing and that happens when the trade relationship
between the supplier and the customer is very strong; when this relationship between the supplier
and the customer is very strong, the direct purchasing happens we do not go for many tendering
procedures and these and that we go for direct purchases.

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(Refer Slide Time: 18:16)

This is something which is a business market condition. What are the various buying situations?
As I told straight rebuy. Straight rebuy means whatever is being purchased you again order that.
So, for example, we buy let’s say certain accessories or, or certain office supplies. So, office supply
is straight rebuy okay.
Last month, I have ordered this much stationery; just repeat that order because this month also
nothing will change you know. Month to month, every month the situation does not change. My
demand for stationery products, papers, cleaves, paints will change. Generally, this does not
happen. So, every month, I will give or every 3 months or every 6 months, I will give the same
order. So, just repeat the order.
Then there is modified rebuy. Modified Rebuy is a little bit of a change in the order. So, okay. So,
for example, if the one that I just told that I have bought 6 I will say projectors and then another
three rooms are open and I go for a straight rebuy. So, I have recently bought six projectors for
me. Why don't you repeat that?
Modified rebuy is that okay when you give me the next three projectors, give me the upgraded
version, the better version. A new task is when an absolutely new tendering procedure will happen;
an absolutely new product is being purchased. So, these are the three business buying situations
that we will see and what are the buying center? As we told buying influencers, there is an initiator.

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(Refer Slide Time: 19:48)

So, for example, in the example of a projector that I am giving, I am the initiator and I and other
professors are the users and probably students also are the major users.
Who is the influencer? So, probably, you can see that students are also the influencer or the
purchase manager, who can give his comments that okay, you buy this product or this supplier is
better than that supplier and blah blah blah and probably, some other people who are outsiders as
well. So, I will come to that. Who is the decider? The ultimate decider is probably the purchase
committee.
And who is the approver? The approver is the competent authority. It can be the Dean. Sorry,
competent authority; it can be the Dean; it can be the Deputy Director in IIT, Kharagpur; it can be
the Deputy Registrar, somebody is the approver, ultimate approver. Who is the buyer? The IIT,
KGP is the buyer or probably the, this person, who is VGSOM or probably the purchase manager
in the, in VGSOM will be the buyer ultimately, who will ultimately go and buy the product?
And there are some people who are the gatekeepers. In this case, the audit team, let us say there is
the gatekeeper. So, there are various people who will influence my purchase decision process, that
is what happens and you as if you are a B2B supplier, you have to keep assured that see, I have to
please everybody.
And different people will have different things to be pleased. The audit team will not focus on the
technical technicality. Audit team will only focus on the financial technicality, that whether the
procedures are followed properly or not; whether a document submitted is proper or not; this kind
of you might be a very big brand, you might be the only biggest brand who produces projector.
But your projectors quality, the electronics related quality and blah blah blah, the users, the
initiators, the influencers will be interested in that. The audit team will not be interested in that.
So, other than the product quality, other aspects has to be also taken care of or let’s say the deciders,
approvers, buyers are more related towards what kind of service that you provide because they are

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more focused on this product, their longevity of the product, the post purchase if something
happens whether you will be coming and giving the service or not.
If the. So, they are not only focused on only the quality or the brand name of the product, they are
also focused on that what kind of monetary repercussions will happen after the purchase because
they are signing this particular thing. So, they will be interested in those things.
So, the product, the users will be interested. Service, this decider, approver, buyers will be
interested. The formalities, audit team will be interested. So, you have to be good in everything to
make a purchase successful, to have a successful deal. So, as a B2B supplier, as a B2B company
you have to understand that these are the three different people or there are multiple different
people who will be pleased in.
So, in in in Hinduism, we will say that we have different gods and different gods have different
kinds of I would say prasad, offerings actually to the god that can please that god. So, the offerings
that you give to please the god are different for different kinds of god and when all the gods are
happy with you, then only you actually become successful or happy and blah blah blah.
Similar kind of stuff you can find out here that you will have a successful deal when multiple
influencers are happy with you and multiple influencers are happy with you based on multiple
different characteristics of your offerings that you are coming up in the marketing context.
So, that is what I want the B2B people to be very, very carefully think. Now, what are the stages
as I said? The first stage is already discussed, so I will quickly skip this part.

(Refer Slide Time: 24:15)

The first stage is the problem recognition. Someone in the company recognizes a problem and, and
or need that can be made by acquiring goods or services. Then comes a general need description
and product specification, where I create the technical report or tendering document. Business

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analyst roles are also like this. So, there are two types of people, who will be involved here. So, if
you know in a context of software sales, let’s say talk, many people work in the software industry.

(Refer Slide Time: 24:59)

So, let’s talk a little bit about the software sales procedure. In the software sales procedure, there
are users. Okay? There are users and there are software company, software developers.
So, users will create a user document and that will go to that technical team of this particular
company and there will be business analysts and then, there is a strategic team or management
team and there will be, probably a management team also. This is the - this part is the client and
this where the software company and there can be multiple software companies.
So, the users initiate it and give the documents and this technical team will convert the user
document to a technical document; that this kind of technology I will need. So, you need a business
analyst here, who understands the user needs and how that can be solved.
Now, this guy will talk with multiple business analysts and which business analysts they will talk
to will decide at this level whether these two are in sync or not. So, if these two are in sync by
chance, then they will send RFP to these people. Let’s say management team 1, management team
2, management team 3, three different companies management team. This guy is connected with,
he sends the request for proposal.
Now, before tendering happens the business analysts start talking with each other. So, business,
this business analyst, this guy says that okay, why do not you talk with the strategic team; strategic
team says that why do not you talk with my technical team. So, then these two guys start talking
with each other.
Now, this person and this person are both the same person; they are basically MBA with technical
background something like that, they will understand the user details also and these guys are also

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somewhere something like that tech background. So, they will understand user details also and
they will understand the technical details also. But these people will talk with the users and this
means these people have to be stronger in the user part. And this has to be the major criteria for
them and this has to be low less important criteria for them.
On the other hand, here this has to be less important and this has to be more important. So, you
will see the team lead and etcetera generally become the technical person. We can have multiple
levels here also there can be some people who are strong in MBA and not. So, strong in tech that
can happen here also. Both can happen. So, these two people start talking.
So, it is called consultative selling though these two peoples started consultation. Based on this
consultation and understanding, they will create their technical document and sometimes these
people actually say that why don’t you change your technical document. Based on the suggestions
and often, what technical document should be there, that itself is a separate order rather than the
user, this thing?
Let’s say I do not have this team, I have a user team and a strategic team; I do not have a very
strong technical team. So, then I can hire a software company, who will create the technical
document for me. Not they will not provide the software ultimately. They will just create a
technical document.
Then, another company will probably after the technical document and many people send their
proposals, another company will actually shortlist the proposal or help me in short listing the
proposal that kind of assignments can also be created. So, where I was there. So general need
description and product specification, this has to be sorted out. Then, proposals solicitation.

(Refer Slide Time: 29:12)

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Solicitation that there are various types of proposals solicitation and then supplier selection. You
select a supplier based on technical specification and the monetary specification and then you order
routine specification.

(Refer Slide Time: 29:29)

So, after selecting suppliers, the buyer negotiates the final order. Lists the technical specifications
quantity needed, expected time of delivery return. So, whatever is the RFP that can be changed a
little bit when ultimate decisions are made. And then, the performance review, the post purchase
as I said that after a certain period of time evaluation will happen.

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(Refer Slide Time: 29:49)

So, this is where I will stop. In the next video, I will discuss about the developments in the B2B
market and then, how CRM will be applied in the B2B market.
Thank you for being with me. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 34
CRM in B2B Markets (Contd.)

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship Management.
This is Dr. Swagato Chatterjee from VGSOM, IIT Kharagpur, who is taking this course. We are
in week 6, and this is the 3rd video in week 6.

(Refer Slide Time: 00:31)

And here, we will be discussing B2B in CRM. The first topic we will discuss is developments in
the B2B market and then B2B in CRM. So, till now, in this particular week we have discussed that
how,, what is B2B as B2B marketing; what are the characteristics of a B2B market; what are the
various purchase decision making process in the B2B market; what are the various people who are
influencers in B2B and what are the buying situations.
So, these are some of the things that we have discussed till now. In this, let’s discuss about the
developments in the B2B market, how the B2B market has changed over time.

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(Refer Slide Time: 01:12)

So, one of the importance that CRM is important in the B2B market is the rapid rise of e-commerce
and electronic markets which lead to better availability of demand and supply information.
So, I have a friend who used to study with me in IIT Kharagpur in my B.Tech days. He started a
company called Blackbuck. Blackbuck is a company which creates the; which is an aggregator
firm and it is a B2B aggregator firm, an aggregator firm of let’s say, the trucks. The logistic
services, the trucks, the mini trucks and etcetera.
So, this kind of business was not there at least around, let’s say 5 years, 10 years back. This is the
business or let’s, Alibaba; Alibaba is a business which has come up, which is specifically focusing
on B2B market; bulk wholesale purchases of various products and all over the world. And, you
can export products from China to somewhere else or your this thing to somewhere else, your
country to somewhere else and you can buy from other countries also.
So, that is what Alibaba this Alibaba is doing. So, both Blackbuck Alibaba I think moglix.com
you can search for that, if I am not wrong. The names might be a little bit here and there. Moglix
dot com, these are all companies who are doing this and why these kinds of companies are booming
now?
Because of information availability, because of internet ─Internet has absolutely broken, at certain
point of time, this particular B2B business was very much personal relationship oriented. How

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much I know you? You will get order if you are in that particular social zone. So that is why caste-
based, religion-based, probably locality-based cartels or social networks were very strong, it is still
very strong in India when we come to B2B marketing.
So, certain caste will give only orders to that caste only, that kind of or not only caste I am saying
you know certain ethnic group will give orders to that ethnic group only. So that kind of idea was
there, where there was lots of cohesiveness within those ethnic groups which were probably seen
in the B2B context as well.
But things are shattering with the, with this ecommerce and electronic market coming up, because
you are seeing that okay; obviously, there will be some kind of give and take kind of benefits that
I get with a close knit network, but if, when I open the network with the internet accessibility and
etcetera, I can actually cater to the huge market.
So, when the supplier, there was a let’s say I buy from a certain supplier who is within my social
network. If I get a hugely lesser price and better quality from some other supplier and that supplier
is easily available, here I was more focusing on somebody who was my in my social network
because there are certain reasons, because B2B is more relationship oriented.
I do not want to, as I told that the supplier and customer relationship is very strong and generally
do not want to break. So, I do not want to switch from one supplier to another supplier, unless and
until there is a huge need.
Now, if the price difference is very high or the quality difference is very high, though I might get
certain post purchase service benefits from this person, I might still go for outside market.
Similarly, these people see that okay, within my social network whoever is buying from me is my
strategic customer. Because, whatever happens in my world this person has commitment towards
me. So, I should also show commitment towards him.
But when internet comes up it is a huge market and the requirement of commitment is much lesser.
So that is something that is coming up today. And exactly this is the situation, this ecommerce and
electronic market is a situation which recently our government is trying to tap in the context of the
farmers.
If it is regulated properly, if it is properly, if enough information is given both to the supplier and
to the, and to the buyer, if both have information strength then this kind of mechanism will succeed
a lot.

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But what happens is, for farmers or let us say in a B2 -e-commerce context if you remember for,
let us say drivers of Uber, Ola or let us say the delivery persons, sometimes they are not very tech
savvy, they are not very educated, for in case of farmers let us say, they are not very, they do not
have lots of bargaining power.
And when that happens, initial days they will get lots of benefits. Like, Uber drivers got, the
delivery people got, but later if they do not have technical ability to understand the business
properly then they face a problem. So, the so the learning the teaching of this people of this in case
of B2C context, integrated business context, this restaurants or the delivery persons or the drivers.
Or in this context where lots of debates are going on nowadays on this farmer bill, educating the
farmers that how to do business in this kind of a situation is very crucial for success of this
particular model. And that is why the CRM when you were, and who will take this responsibility.
We always say that government will take this responsibility, but you have to understand that it is
CRM context even the companies have to take the responsibility, who is buying from these guys.
Let me give an example to you. So, Amazon is a, Amazon is a B2B market right, the relationship
of Amazon with its a its a marketplace and its relationship with the people who are selling through
the Amazon platform is B2B relationship right.
So, they are not buying sometimes, they are giving the platform services and they are getting a
margin out of it or sometimes they are buying from them according from them and selling in the
Amazons name only. So, there can be two kinds of models that can be created.
Now in the first model where they are only giving the platform, they are also coming up with
advertisements benefits. They know that ─ that your sales will go up as you go up in the search
order. If I search for let us say, N95 mask, if you come at the top of N95 mask in the search order
then the chances that I will buy from you goes up.
So, now how will I come up in the search order? I am a N95 mask producer, I do not know how
to create my platform, how to create my offerings, what kind of words has to be written, what kind
of pictures has to be given, so that I come up at the top of the order.
So that learning is important. So, who will give that learning? Somebody has to give that learning.
Now Amazon knows that if these people make better business, I will make better business because
Amazon's margin consumes this people's better business. It is like you are good, I will take a
certain part of that goodness . So, then Amazon will take initiative to actually connect to these
people.

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So, that is what Amazon is doing. Amazon is teaching them how to do SEO; search engine
optimization in their search engine. Amazon is also teaching them how you can there are ads, like
Google gives Google ads and etcetera where you can pay Google to get your sponsored positions
in the Google search. Similarly, sponsored ads are coming up in Amazon context as well.
Now, Amazon is teaching these people that how you will be, what kind of ads has to be provided,
when it has to be provided. So practically teaching a small firm how to do digital marketing in
Amazon platform. Because if you do digital marketing the chances of you going up is higher.
So obviously, the more these people compete, the sellers compete with each other the prices come
down and it gets a market which is more inclusive market availability goes up and blah blah blah,
but you have to also understand that you have to educate these people. If you educate these people
then only they can take advantage of the platform.
So, that is something that is Amazon is trying to do. And in a B2B e-commerce context in the new
world development context, I think that all other B2B companies also should do that, they should
educate their counterpart.
Because, if it is a B2B relationship that when I am buying from you and I have higher purchasing
bargaining power and you have lower bargaining power and I only extract from you, keeping on
keep on extracting from you, at some point of time I will lose you because you will not be in the
business.
So, I have to help you sustain in the business. Your sustenance is important for me, to run my
business, because then I will take the produce from you and then sell to somebody else right by
modifying it and blah blah blah. So your, the sustenance of the supplier is important and that is
why even in the e-commerce context, even if we are going outside of our social networks our
commitment is less and blah blah blah blah.
CRM is important and one way of doing CRM is educating this, the suppliers, that is number 1.
Number 2 is that a vendor comparison reports that are coming up, like Gartner. Gartner is a
company which creates reports of vendors in BI, in data analytics and BI context. So, there are lots
of BI tools that are available. Tableau is one BI tool. BI means business intelligence tools,
dashboard tools.
So, Tableau is there, QlikView is there, power BI is there, some other companies will be there.
SAP has their own dashboard; some other companies will have their own dashboard. So these are
all the dashboards. And what Gartner does is actually rate these dashboards, position these

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dashboards, say that which is good which is bad, that is being coming up then lots of companies I
will. I am not sure whether that has come up, auction websites okay.
So, before I go to that, lots of companies which are also talking about situations where reviews are
being posted; B2B reviews are being posted for software specifically.
You can go out and search, I forgot the name of the websites, but you can go for software reviews
and you will see that you can see, normal users are putting their reviews.
Now, let’s say I am a user of Microsoft Word or I am user of Power BI let us say so, I will go and
write a review about Power BI, but Power BI I am not bought in a B2C context, I bought in a B2B
context only, but I am putting review. So, B2B reviews are coming up, we have done. So, again
for the academicians I would want to say, lots of research we have done in B2C review context
you will go and see if you go and search in Google Scholar you will get lots of papers in B2C.
Currently in 2020, 23rd September, till now B2B review context research is pretty less, so you
cannot probably focus on that. On the other hand, as I am trying to say that this is a new
development that led to lots of reviews are coming up.
So, if customer reviews are coming up in the B2B context and you can compare softwares, you
can compare tools, then that is also something which is important that creates, reduces the
information asymmetry.
Auction websites are coming up, where you can do auctions like B2B purchases are happening in
an auction based where you can actually put your products and anybody from the world can
actually buy the product. Day to day trading is happening, every day trading kind of happening
and different approaches while buying low value and high value products.
So, this is something is also happening; for low value products lots of space purchase decision
making process is much simpler, for high value products is very much cumbersome and that
difference is also very prominent in a, and that is why, because of all these things CRM becomes
more important. You have to understand the business situation. You have to understand the threats,
the opportunities in this business situation. And one way to get benefit out of that is to do CRM.
Lower vendor switching costs, that is also what makes CRM very much important-able. And CRM
integration to reduce lead time and long contracts, that also makes CRM important.

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(Refer Slide Time: 14:49)

What are the successful CRM strategies? What kind of strategies that you can take? One is strong
relationship that is the basic thing you have to create a strong relationship with your company.
There is nothing to say here.
Proactively generate satisfaction, so it is not the ultimate satisfaction, it is a normal purchase
decision making process and every step you have to keep them satisfied . So, it has to be a
continuing satisfaction generating process, rather than the in satisfaction generating process.
So, you are behaving very snobbishly and are you saying that okay my quality of product is very
good so I will not go and contemplate with you I will not send my salesperson. Salesperson will
show lots of attitude that will not work. Every stage you have to generate satisfaction and dissipate
customers' needs. Integrate systems and this is where the IT part of CRM comes in.
We will discuss about that. The salesforce and etcetera comes in here. You have to integrate
systems, you have to create a value proposition. And all of these things, all the 5 things that I am
you I am saying you to prioritize, you have to find out. Because there will be less number of
customers and high value customers.
These two are the basic strategies we have to specifically strategize, whom I should sell? Now,
whom I should sell is a very difficult thing. Not always you sell to those people who give you lots
of products. The strategic customer is not only those people who give you lots of orders. Also

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those people who have a strategic relationship with you and I will come to an example regarding
this.

(Refer Slide Time: 16:40)

Who is my as, I was telling who is my key customer? One is my lifetime value customers who are
in a longer period of time who will be profitable, and another is my I might have a strategic
relationship with this customer. These are the two basic kinds of customer whom I should focus
on.
I have to calculate B2B lifetime value. We have done that before, and other is I have to also think
about the strategic customers. On the other hand, I will give an example that there is something
called strategic supplier also in a B2B context. So, I know I have consulted with one printing
agency, printing company; media company basically, which actually orders the paper rolls for
printing.
So, they print lots of products in the paper and the paper quality has to be good. Now the paper
that is available nearby, nearby to the factory where this printing happens; the local supplier, the
paper quality is not that good. When you do the same thing, when you order the same thing from
an international service provider, international supplier the quality is good, price is also high, but
the quality is better.

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So majorly, 70% of their thing they actually get it from the outside and 30% thing they get it from
the local. Now, we ask that why do you buy it from local, because lots of tearing happens and
etcetera. Why do you buy it from the local, why don’t you just buy the international?
One, the price is more or less same, it is a little bit higher but more or less same. And your quality
is much better if you see the print final print. One is much better than the other. Then why are you
not buying everything from this?
So, they say that production costs and etcetera is not the major issue, major issue is the strategic
decision, that tomorrow if tax goes up for paper importing paper or something happens with this
particular country and there are lots of uncertainty in in getting paper from international market.
Anything can happen and that particular supply will stop, because this paper roll comes through
port and from port through trucks and etcetera it reaches to this factory.
So, there can be a strike, there can be some some strike of the truck drivers, there can be some kind
of problems in the importing, the import costs can go up, the company with which we have
relationship can stop, the the country with which from which this particular papers are coming
they might have a problem, they might start having a problem with India.
So there can be lots of problems which can happen, but if the paper supply stops the whole business
of this particular company stops. So, paper supply is very crucial for them and it has to be, it has
to be continuous. There should be no gap, so that is why we need a local supplier alive. Sustenance
of a local supplier becomes important for this kind of a company to run their business.
And that is why by giving 30 % of their order to a local company which does not produce that
quality of product they are just sustaining them, so that in a bad time these guys can help.
So, these are called strategic suppliers and that is also part of this business. You have to understand,
that whether you are a strategic supplier or not. If you are a strategic supplier of some company,
you have to try to become the primary supplier rather than a strategic supplier by improving your
quality. Because you know, now if I improve my quality, they are ready to pay for that quality.
They are not getting the quality measure quality from me, that is why they have made me a strategic
supplier not the major supplier, but if I can improve my quality they are ready to pay, sometimes
pay more than the international supplier. Because, I give two things; not only the quality then, I
also give assurance. I also give that okay I will be there to support you. So, that is something that
this in the B2B relationship we can see.

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(Refer Slide Time: 21:21)

Then comes a term called key account management. This key account management is a very
important term in a B2B CRM context, where we think that one particular business in an account.
And, there can be multiple accounts with the same business.
And there will be a manager who will handle the relationships related to that account. That account
means it is a strategic business unit you can say what transaction happens.

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(Refer Slide Time: 21:51)

So, what is a key account? Why these accounts with strategic importance, strategy importance
might include monetary, long term monetary, short term monetary and other kinds of non-
monetary important factors, all these things can come.
Like the one, that I just told is a strategy importance kind of a relationship. It can be large or small
and can be maybe a national account and major account. So all these things are possible, but we
define a key account.
Key account is basically an account which is a strategically important account. And, what are the
factors to consider? So, you have to check that, whether growth in profits and not growth in sales.
Growth in sales is not something that we are focusing on, growth in profit is something which we
are focusing on to define somebody as a key account. So that is important.
Next is characteristics of the key account is something that you have to define . Characteristics of
the key account is closed relationships, sometimes more forgiveness.
Let us say, you do something bad still they will say that okay okay. More participation in your
business process, the customer can come in the supplier's business and say that okay you do these
improvements, that improvement and then your process will be better.
So, they because they have to keep this particular supplier alive sometimes they will come and
poke their nose and make the improvements and vice versa. Sometimes if I want my customer to

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get benefit from my services, I will give consultative selling; means, I will come to them, I will
co-create the product with them, co-create the solutions with them which will benefit my customer.
If it benefits my customer, which is a company then it will also benefit me. So that kind of case
comes up. Cost versus contribution of a company; these two things have to be checked and impact
of losing one key customer on bottom line, this becomes another important factor.
One customer might not be very profitable, but he is getting a huge number of orders and that is
why because of economies of scale you are getting some profit, good amount of profit. If you lose
them that profit goes. So, the impact of losing one customer on your bottom line because we are
focusing on profits is something that you have to understand.
Key account management is basically the retention strategy to keep these key accounts. So, rather
than focusing on the transactional model we are focusing on the relational model here.

(Refer Slide Time: 24:21)

What are the steps? The first step is to identify who is my key account. Pre KAM identification;
means, much earlier than it becoming the KAM key account management you have to identify
that, what is the key, who are my key accounts. And then you have to evaluate what your
management strategy is till now.
Then what is, what you do? You create the relationship and in the middle part of the relationship
you again do a mid evaluation and then ultimately you create a partnership KAM, then a synergistic

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KAM and then an uncoupling means, you just leave aside. Means, you do a partnership you create
a synergy and slowly come out of that later point of time when you lose this business, you have to
you have to slowly come out of this business.

(Refer Slide Time: 25:19)

So, that is the growth strategy for KAM that we generally adopt. Next part that I want to discuss
is called value management in B2B.

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(Refer Slide Time: 25:29)

So, we have discussed what is value before, but in the B2B context values are of different types.
There are tangible benefits, there are intangible benefits and then there are financial and non
financial benefits. So, based on that tangible, financial tangible, non financial, intangible, financial
and intangible, non financial, all gets created.
Now, let me give an example of how these kinds of benefits are important. So, we did a study for
a major beverage company in India, where we wanted to find out that there are lots of retailers
who will be selling; retailers are B2B relationships. From the, let’s say if I Paper Boat. Let’s say
and Paper Boat is getting sold in various retail shops. So, retail shops are basically have a B2B
relationship with Paper Boat.
So, the example that I am taking is not with Paper Boat, but I am using Paper Boat as a name just
that. This example is not about Paper Boat, but let’s say Paper Boat has a relationship and Paper
Boat wants to find out that, what are the various aspects based on which my retailers will sell my
product rather than my competitors product. The retailer can sell both products, no? Retailers have
retail space, they can put Paper Boats competitors products.
Let’s say, Real Juice and these and that at the front and Paper Boat, at the back they can do that
they can probably put Real Juice and Tropicana or put Tropicana and not Real Juice or something
else or they can say that, whenever a juice comes somebody ask and say that we do you have fruit
juice?

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They can say okay, I have fruit juice and show a packet and that packet can be either Real Juice or
Tropicana or Paper Boat, or if it is a bigger retail store then at a certain strategic position where
more people actually go and pick up or more people can see in the eye level of the people you can
put the brands of Tropicana versus Paper Boat versus Real Juice and whichever is not favored can
be put downwards all of these things retailer can do.
So, you have to create a good relationship with the retailer. So, that they actually have a key
account relationship or value they get value from you. So, what kind of things? One is margin.
One thing, one basic thing that you give is a tangible financial benefit and how much monetary
benefit that you give.
Another intangible monetary benefit that you can give is let’s say some kind of let’s say quick
replacement or let’s say some kind of credit facility. These are intangible you do not get it, this
you cannot touch it. Let’s say a longer credit period. It's a financial benefit but intangible. The hard
money that you get is a tangible financial benefit.
Credit facilities, certain investments on their marketing facilities and etcetera are intangible
financial benefits. Then there can be tangible and intangible non financial benefits as well. For
example, what is a tangible non financial benefit? You can give, rather than giving them money
rather than giving them the exact hardcore money, you can do let us say certain kind of put ads
there. Put ads in the retail store, let’s say. Or you can give discounts to the customer which
increases the footfall.
So, for this particular person it is not a financial benefit. It is a non financial benefit, but tangible.
On the other end, intangible non financial benefits is like let’s say, you have given a free trip to
somewhere or you can give lots of services, better services, quick calls in any product failure,
product problems happen, you quickly change that. So all of these kinds of benefits can be created.
All of these kinds of benefits together creates the value

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(Refer Slide Time: 29:35)

And the value minus cost is ultimately what creates the benefit, and based on these benefits the
retailer will choose or the B2B customer will choose whom they will have a close relationship
with and whom they will not have a close relationship.

(Refer Slide Time: 29:51)

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And what are the different kinds of decision maker stack in this value based? For example, higher
competitive price and quality you generally connect with supply chain heads; COO, CEO. On the
other hand, just in time delivery you try to connect with the logistic officer, the CFO, the supply
chain head and the CEO.
So, for various problems, various kinds of people will be the connecting people. And that these
guys should be in sync and there should be they should be ordered in a less important to high
important stack, and based on that various people should be connecting with various problems in
the B2B context.

(Refer Slide Time: 30:33)

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(Refer Slide Time: 30:36)

And then what kind of loyalty management strategies can you take? There is something called a
loyalty ladder. Loyalty ladder means, the first step is wanting to grow the relationship, second is
this guy endorses your product.
They resist competitors, blind dispense means competitive strategies, willing to pay a premium to
you, they are ready to pay more to you. Seeks to collaborate and create a product with you and
then may invest in you. That is the last highest amount of relationships. So this is the loyalty ladder
and you want to put your customer as high as possible in that ladder. You have to push them high.

580
(Refer Slide Time: 31:14)

And there are various kinds of buyers that we see. So, one is based on the seller's cost on serving
customers low and high. And there are buyers positions on loyalty ladder, so low and high.
So, if the buyer is high in loyalty, and the cost of serving that buyer is low, they are the most
valuable customers. But if the cost of serving that customer is high, but they are loyal to us they
are basically meant partners. They will take the profit share also with us.
But on the other hand, if the loyalty is low and the serving cost is low, there are commodity buyers,
they will buy it as a commodity. And if the loyalty is low and the serving cost is high, we will
probably not focus on this kind of customer. We want to move this kind of customers either to
here or to here, any one of them.
So, that is the four different kinds of customers that we can define based on cost to serve them and
their loyalty towards us. So, we have to try to do the shift from underperformers to any of these
other three quadrants.
So, that is all from my side based on the B2B customer relationship management. And in the next
two videos, we will discuss about two studies; one is a published paper, another will be published
in some time, how CRM strategies can be taken in B2B.

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And as I said that how certain customer behavior, I mean B2C kind of aspects some behavioral
aspects can also be brought in in the B2B customer situations. So, we will discuss about that in the
next videos.
Thank you for being with me. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 35
CRM in B2B Markets (Contd.)

(Refer Slide Time: 00:18)

Hello everybody, welcome to the NPTEL SWAYAM course on customer relationship

management. This is Doctor Swagato Chatterjee from VG Som, IIT Kharagpur, who is taking this
course for you. We are in week 6 and we will be discussing basically B2B-CRM applications, in
B2B context or business to business context.
In this particular video, we will discuss a paper called goods and service related band image and
B2B customer loyalty effects of construal level. So, this is an application of CRM in the B2B
context and this work has been done jointly with my PHD student Prathamesh V Kittur. He is
currently in his third year and this particular paper has already been published in the Journal of
Business and Industrial Marketing in 2020.
So, I am going to present this paper and I have and how that, how this paper can bring the
contextual discussion in the context of CRM in B2B ─ we will come to that. So, this presentation
will follow the contents. This introduction then I will discuss about the research objectives.

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(Refer Slide Time: 01:29)

A little bit about the extant literature, then what is construal level? This term is something which
is new. We have not used it till now in our course. So, we will discuss about that. The results,
discussions, and references and appendices are there.

(Refer Slide Time: 01:42)

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So, relationship management is a key aspect of B2B marketing and satisfaction, trust, perceived
risk, and brand image are important aspects in B2B purchase decision making. This is something
that we discuss that the supplier and the customer, the relationship has to be very strong in B2B
context, because the switching cost is high, because probably it is difficult to find out a supplier
who is good enough.
So, generally customers want to create a strong relationship and once that relationship is built, they
want to sustain that relationship and that is probably true from the suppliers’ point of view also,
because the numbers of customers are very low. So, if you miss one customer, you are going to
miss a huge chunk of money, because the ticket size is high.
So, that is why the satisfaction, trust, perceived risk, brand image these are some of the important
factors that come up and all these important constructs. All these important constructs behind
purchase decision making are basically ultimately linked with brand loyalty.
So, satisfaction leads to brand loyalty; trust leads to some way, some way or other it leads to brand
loyalty; risk perceptions leads to brand loyalty; If you think that this purchase will be very risky
you want to be very brand loyal, you want to be only buy from only those kind of suppliers who
can give you trust enough trust and then there is brand image.
So; obviously brand image also, actually reduces a little bit of perceived risk and that is how it is
related to trust. So, all of these components are related to trust which becomes a very important
factor in case of brand loyalty in a B2B context.
Hence, brand loyalty plays an important role. So, that is why we have to in this particular paper,
we are trying to focus that, what drives brand loyalty? What are the various things that might
impact brand loyalty?
So, what is brand loyalty? What is the definition? It is defined as a deeply held commitment to
rebuy or re-patronize preferred product/services consistently in the future, means first of all you
have to buy it and patronize it and re-patronization has two things; one is I will talk good about
these to others and somebody if somebody says bad about this product, I will defend this product.
That is patronization. You say good about a certain product and you defend bad words by other
people when that is made about this product.
So, a deeply held commitment to re-buy or re-patronize preferred product or service consistently
in the future, thereby causing repetitive same brand or same brand set purchasing, either you
bought the, buy the same band or same band set and despite situational influences; even if there
are situational influence means let’s say offer going on for the competing brand, still you will be
sticking to this brand and marketing efforts despite situational influence and marketing efforts
having the potential to cause switching over.
So, there can be certain kinds of influences that might ask you that, why do not you switch over,
why do not you switch over, switch to some other brand, switch to us, there can be competing
brands who can keep on telling you, but you still stay back with the original brand. So, that is
called brand loyalty. It becomes a very important construct in the context of B2B marketing.

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(Refer Slide Time: 05:19)

Now, what is the importance of brand loyalty? Why is brand loyalty important? Why am I spending
so much time? One is, it results in a steady and consistent revenue stream. So, it will keep on
giving you revenue from multiple sources, because you, because the customer will keep on
purchasing from you. It is a repeat purchase that will happen. It reduces customer acquisition cost
and services which improves profit.
So, this is something very important. As we told in the earlier classes of CRM that when, as the
company knows a customer better, the companies know that, what small things that I have to do
to make my customer happy. If you do not know your customer, you have to try out multiple things
and one of, some of them might make your customer happy, some of them might not make your
customer happy.
So, this lack of information about your customer, lack of knowledge of your customer, your
customers preconceived bias towards you, all of this thing, if it is not there then then you, it
becomes very difficult to satisfy the customer. On the other hand if the customer is biased towards
you and you also know what customers are biased towards, you can easily tweak your offering and
make customer happy.
So, the cost involved in making acquiring a customer:so the cost of customer acquisition, reduce
cost of customer acquisition, so you do not have to acquire new customer, you can keep your new
existing customer and you can also give better services or products to this customer which
increases profit at the end of the day.And it also has a positive effect in your word of mouth. What
happens when word of mouth happens many people listen about your brand and they come and
buy your brand! So, some kind of referrals get generated that again creates further revenue which
is the first point.

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So, basically in various ways brand loyalty can help you means; finding drivers of brand loyalty
in B2B purchase decision making context is very important to gain competitive advantage. So, you
have to know what you have to do to get a brand loyalty in the B2B purchase decision making
process.
So, what is the B2B purchase decision making process? In the last video we discussed; the first
they will actually, there will be a need that will be understood.
So, then the a technical report has been will be created based on that need, then based on the
technical report RFP will be generated and that RFP will be sent to the limited suppliers or to the
open people and you will solicit bids and people will bid or offered their propose their offerings
and consistent price, you will evaluate them and then after you evaluate them you choose
somebody based on your technical and financial criteria, you choose somebody and then you create
further negotiate with that person to finalize the bid, deal.
Now, once you finalize the deal you send a purchase order, once the purchase order is sent this
guy gives you the product or services and after a certain period of time you go and do an evaluation
of that product and services.
Now, in this process B2B plays multiple roles, because whom to send? Whom will you send this
limited bid or how much importance will you give to the brand name? Or in the post purchase
situation if it is a credence kind of good, if you have limited idea about the quality of the good,
then how will you judge that whether the services provided is good enough or not?
So, these kinds of decisions can be taken if brand loyalty is strong. It becomes very easy to make
these decisions if brand loyalty is strong, because brand loyalty will play an important role. So,
that is why what drives brand loyalty is important for the supplier to know.

(Refer Slide Time: 09:23)

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So, one of the classic drivers of brand loyalty as I was telling in the previous video, the previous
slide is called brand image. Now, what is brand image? One of this is one of the major drivers of
brand loyalty as told, high brand image leads to increased trust, lower perceived risk, and higher
perceived quality, the three things that creates.
So one is brand image. Brand image leads to trust, brand image leads to perceived quality
perceptions, and brand image reduces risk perceptions. These are the three ways that it does and
that is why these, all of these things ultimately lead to the perceived competence of the vendors
both products and services.
This is what brand image does and in B2B marketing brand image is related to both product
performance as well as service. So, many people actually have broken this brand image, the image
brand has in a B2B context into two parts. For example, let’s say you try to buy, you are buying.
Let’s say, lots of systems for your office. Let’s say, 50 systems, 50 computer systems for your
office.
So, what do you do? You give an order to somebody and let’s say, HP has given one bid. Now,
HP, when you give this order to HP you will not only look at the product quality of HP or Dell,
you will also check how much, how good is the service they are giving.
So, whether HP or Dell or Lenovo or Compaq, whoever is giving better service and whoever
product quality is good enough, both of these two things might have an effect on your decision
whether to buy a product or not from a particular vendor.
So, both of the brand images will be a brand so, so there can be companies which have very good
brand image about their product. For example, Ford has a very good brand image about the
product, but there are certain other companies which have very good brand image about the service
than the product.
For example Maruti, their service centers are all over India and they boast on that they never say
that our products are absolutely better than other companies, they don’t boast on that. They boast
on their service center; obviously, their product is some of the products are probably better or at
par with many other companies, but the primary selling point is it is a India ‘ka gaadi hai’. This is
something that you should buy, because it is an Indian car and we are our service center.
Everywhere you go there will be somebody to help you. So, that is something that they boast on.
So, the brand image can be of both product types and service type.
So, when it is product types we call it goods-based brand image and when it is service types we
say it is a service-based brand image and brand image creates a halo effect of customer satisfaction.
See, loyalty comes from satisfaction this match is created, but what is the brand image's job? Brand
images job is creating a halo effect.
Sometimes, even before you purchase the product, you might be satisfied with the product or
satisfied with the services not, because of the product quality, but because of the halo effect. For
example, somebody comes. Let’s us say some XYZ person who is very famous comes and gives
you a lecture.
Oftentimes, it happens that the lecture content is not very strong that probably the judgment, the,
the arguments that this person is putting is not very strong, but this person is very well known and

588
you are in an awe kind of a thing that okay this this XYZ person who is a celebrity he is coming
and speaking in front of him.
So, even if your, his judgment is weak, sometimes the you are very much satisfied with the lecture,
because the lecture, is the satisfaction of the lecture is coming from the halo effect, the halo effect
is coming from is the brand image of this person rather than the actual quality of the content.
So, that also sometimes and you might want to repeat the listening to that lecture, you might want
to go to multiple places to listen to this guy's lecture and that creates a brand loyalty. So, oftentimes
the brand image to brand loyalty relationship is not through customer satisfaction. In some of the
cases it is through customer satisfaction, in some of the cases it is beyond customer satisfaction as
well. So, that kind of relationship is possible.

(Refer Slide Time: 14:01)

Now, here what we are trying to check is that basically whether these goods-based brand image
and service-based brand image have separate impacts on brand loyalty or not, whether these two
guys have different kinds of impact on brand loyalty or not.
So, and to find the role of satisfaction in the driver; so, last in a previous study there was a model
which said that GBBI; good-based brand image and service-based brand image, these two brand
image leads to customer satisfaction through this halo effect. You become happy without the brand
image itself makes you happy without the quality or irrespective of the quality.
I am not saying the quality is bad, but irrespective of the quality, it might have there can be other
things which might affect customer satisfaction. I am not saying that quality will not affect quality
can also affect, this can very much occur. But I am saying that even after controlling for quality
that this image, brand image will also affect your perception about satisfaction, because you might
have a bias and that will lead to loyalty.

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So, this is a model that was established and then there were another person, another researcher
who told that this GBBI to loyalty, this will be, there might be a direct effect on; that means, even
when this or GBBI to loyalty or SBBI loyalty, these two might have a direct effect without
customer satisfaction. There can be situations when you are not happy, but you are still loyal to
these customers.
So, in what kind of situation; this is something that is more prominent and not this, because in
some of the situations that if the product quality you might not be happy with, but still you might
be loyal and in other situations SBBI might affect loyalty directly without customer satisfaction.
So, there can be certain judgment, certain─certain arguments for that. What are the arguments?
Let us talk about SBBI to loyalty. This one was given by the past researcher who was telling that
see, service-based brand image comes from something called a service dominant logic. Service
dominant logic says what? It says that everything is, you have to see everything as a solution rather
than a product kind of a thing, you are trying to give a solution to customers’ problems.
For example if somebody is driving an Uber, Uber is not giving the rental services of a cab; it is
actually giving you a transportation solution. Some tomorrow a new transportation solution can
come up and make this Uber service absolutely irrelevant.
So, it is a transportation solution that it is giving you. As long as the need for transportation solution
is there, Uber will be there. If some transportations needs go away or let’s say you can give
something else which will solve the transportation problem, you might not need Uber or cabs at
all.
So, basically we are trying to provide certain solution which is, solution to a need or want, rather
than product or service we are providing a solution which can be a combination of product and
service and there is nothing called, this is absolutely product and absolutely service. For example
Uber, Uber what does it give? Does it give a service?
If it gives a service, if only service is important why do we feel bad when the Uber driver, Uber
cars exterior is not good looking? Let’s say the Uber car's exterior which has nothing to do with
the service, you will sit inside. Let us say the exterior is a little bit broken, some dent is there in
the car, some scratches are there in the car, sometimes we do not feel good or at least we feel extra
better when the car that has arrived is absolutely clean.
Why do you absolutely in outside, forget about inside, absolutely clean outside, why will you feel
like that? That is not your service, but that is the goods part, the tangible part, which is visible part.
So, even when what is giving you the trust service of transportation and let’s say everything is
fine, the car arrived at time, you had no hassle in getting the cab, you got no hassle in reaching the
space, still if the cabs exterior is not good looking, it is muddy or dirty or something like that you
might not feel good.
So, they have to take care about that part also. So, everything, even if you, every service you can
think about has some product component, every product that you think about has some service
component and it is basically a continuum.
So, at a certain site when tangible things are more important, it becomes more productive and when
intangible things are more important, it becomes more servicing. Now, in this particular context

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what I am trying to say is that, that there are certain kinds of services in B2B, where services are
heavily human-oriented. You, it cannot be. It is not like that you made something and you sell it.
In the service delivery process both the provider and the taker has to participate. For example, in
the Uber process, if you are a person who delays or you are not tech savvy enough or you do not
know how to behave properly with a driver then your own service experience can deteriorate.
So, it is something where both the service provider and the service taker together has to participate
in the service delivery process; and, because together they have to participate in the service
delivery process more so in B2B context the there is some part where the quality might not be
good, but still you will be loyal, because you have invested on that service you have spent time on
that service, you have done something for the service as a customer.
So, even if the customer satisfaction does not come, even if the thing that quality, service quality
is not so good, this service-based brand image can lead to loyalty, because you have contributed
to that image. So, you have created that image in your mind by contributing to the service delivery
process.
So, when we contribute, we do something, even if that does not come out to be, at best we have a
little bit of bias towards that side, because you feel that it is something where I have done
something, I have contributed. So, that kind of thing will lead to loyalty which is called
co-creation. When customers and the companies come together and co-create which is a very much
part of service-based brand image, that co-create, co-creation leads to loyalty irrespective of
satisfaction.
When I and another person create something let’s say, I cooked, even if I do not feel good about
the food, even if the food quality everybody is saying that this happens in my house actually. Let’s
say, I cooked and my family members are saying that this is not so good and we do not like it blah
blah blah, I think that why are they not liking it; I am liking it like anything.
So, because that is, because even if the service quality or the product quality in that context is not
so good, because I have spent my effort, I have given my effort on that food making process I
might feel good about that food. So, that is what happens.
Now, we actually told that in Indian context this might not be very true, because in Indian context
this is something which is expected. Generally, the purchaser has more purchasing power than in
a B2B context majorly.
The person who is purchasing has higher bargaining power and if by chance he has a higher
bargaining power they always poke nose and they always they generally the B2B customers do
not self-attribute a failure, if the product quality is not good even if he pokes nose, even the product
quality is not good he will always attribute the failure towards the person who is the driver.
So, this SBBI to loyalty impact which you can see in other countries might not be very much
visible in India. On the other hand, GBBI to loyalty effect, the previous research has told that
always goes through satisfaction I we argued that it might not go always through satisfaction.
There are situations─ that is why I was giving the example of a printing machine in the last class
that there are certain things where you have to create a strategic relationship.

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You might not be happy with this service product quality of this particular supplier, but because
of strategic reasons you are loyal to this person. What kind of strategic reasons? The strategic
reasons are related to whether this person can be relied on or not, whether this product can be
obtained or not.
So, I might not be satisfied, but this product quality is good enough to be considered. If it is good
enough to be considered, we will consider this particular person and we will be loyal to this
particular person more so when the, when it is a resource constrained environment, the one that
we are giving. Why this particular company, the printing company was more loyal, very much
loyal to a local paper producer, because paper is not something which is produced in large scale in
India.
So, if paper is not something which is produced on a large scale in India, even if the quality is not
so good you might rely on the major paper creators of India, because that is that is something that
creates a hindrance. We are in a resource constrained environment in terms of paper, if the papers
imported from the external world. Let’s say some other countries get stopped, I have to rely on
these people only. Otherwise my whole business will go for a toss.
So, there, even with this satisfaction line is not there, still there will be a direct effect. So, basically
we try to test this particular model that we have that GBBI will affect loyalty with customer
satisfaction as a mediator. So, there can be partial mediation, there can be full mediation. So, those
who have a little bit of academic background will understand this part.
What is mediation? Mediation means let us say X affects Y, X affects A, A affects Y, all these
three conditions have to be fulfilled and then when X and A both affect Y together, this strength
whatever is the strength of this relationship that goes down. Either that becomes insignificant at
all, it becomes insignificant then that is called full mediation, if it is reduced, only the strength is
reduced it is called partial mediation.
So, we tried to test that. So, that is why our hypothesis where GBBI has a positive relationship
with customer loyalty which is mediated through satisfaction and same is the case for SBBI.

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(Refer Slide Time: 25:58)

Now, we are bringing in a new concept here, which is called construal level and I told in the last
class that I will discuss something about the application of, application of cost consumer behavior,
the behavioral theories in the context of B2B.

(Refer Slide Time: 26:08)

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So, in the recent years this kind of research is being accepted, what people are saying is that when
people make decisions, people are not robots; we are human beings who make decisions. We can
think a little bit more, but still the overall decision is taken by human beings.
So, some of the effective part which is not cognitive, not I would say very much analytical part, it
still comes up in the decision making process and there are other cases where decision making is
done by a small number of people. We call them the purchase champions, in B2B marketing this
purchase champions are coming up.
So, let’s say, I have been given all the responsibility for certain kinds of purchases for my
department, they know that okay Swagato knows these XYZ things. So, Swagato will actually buy
this product and whatever he says we will rely on him.
So, in that kind of a situation when and mainly small purchases are like that other than the big
huge strategic purchase decision makings, smaller level purchase decision making are left aside
with the person who is the champion of that purchase.
For example let’s say if I am pretty sure many of you are academicians who are doing my course,
you will know that if your purchase let’s say there is a budget for, for academicians in institutes,
government institutes we are given a budget we call that is called CPDA, Cumulative Professional
Development Allowance.
That allowance is something that is given by government of India, 1 lakh rupees per year
something like that to do, buy something, to do my professional development, I can buy books, I
can buy the let’s say cartridges, some stationery, I can go for a conference, I can probably get
memberships, blah blah blah.
Now, what I will do with that 1 lakh rupees is my decision and I am the champion of the purchase,
I will decide that okay I will buy from this particular guy as long as it is within a limit. I am
following the procedure of B2B purchase, I can decide from whom I purchase, how much to
purchase, what product to purchase.
So, I am the decision champion and these decisions are left on to me and if this decision is left on
to me then my psychological factors also impact the customer decision making even. This is not
very uncommon; this is common in multiple places where these decisions are taken at an individual
level.
So, if individual level decision making matters, then what will come, what kind of theories will
come into the picture we will be discussing? There is one theory called construal level theory given
by Trope and Liberman. Trope and Liberman told construal level theory; in construal level theory
he told that our mind has different kinds of thinking frames. One thinking frame is an abstract
thinking frame and another thinking frame is concrete thinking frame.
So, sometimes we think very abstractly and something we think very concretely. For example
today, I asked one of my students what do you want to be in next 5 years or next 3 years or if I ask
I asked this PHD student who was doing the work on the first day I have asked him when we were
discussing construal level theory, I asked him that what do you want to be in next 1 year.
So, how do you see yourself? So, he says that sir one of my papers should go out, my PHD's
registration should be complete, I should be completing two three courses, additional courses. So,

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he gave me a plan that these are some of the things that I want now. I said that what do you want
to be in the next 10 years?
So, he said that sir I want to be in a good place in a good, as a professor I want to teach in a good
place, I want to be well published, I want to be a good teacher. Now, well published, good teacher,
teaching in a good academy, these are very abstract terms. What is good? For certain people,
probably IITs, IIMS are only good places, for certain other people probably abroad is a good place,
Ivy League Universities are good a place, for certain other people even universities will be a good
place.
How do you define Good? I don’t know. How do you define well published? I don’t know. How
do you define, you to be a good teacher? How good is a good teacher? You don’t know. So, these
are abstract thinking and on the other hand, I want a paper published. This particular part of this
paper published in this particular journal or my registration is over or I want to do three courses,
these are very concrete. You know which three courses ─you know which paper you want to get
published. And in which journal you would know which exam you want to pass.
So, these are concrete thinking. So, you will see the only questions. The questions only difference
was I, in one case I asked him for 10 years and in another case I asked him for 2 months or 3
months. So, the only difference here is that this is short term and this is long term.
So, there are different kinds of things which can induce concrete thinking and abstract thinking in
your mind; one of them is distance. So, distance leads to concrete smaller distance leads to concrete
distance, larger distance leads to abstract thinking.
So, it is saying that; it is the, if the psychological distance from the object is high, the person, thinks
more stable and abstract which is considered to be high construal level. If psychological distance
from the object is less, a person thinks more contextual, concrete and detailed and it is called low
construal level. So, in high construal level, in high psychological distance you will think abstractly,
in low psychological distance you will think concretely.

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(Refer Slide Time: 32:32)

(Refer Slide Time: 32:36)

Now, this is something that I just told. Now, there are three types of distances: when we say
psychological distance majorly, there are other types of distance also, but majorly these are the
three types, one what that we taught. And the one that I just told is an example of temporal distance.
Two life conditions; one 2 months later, one 10 years later, how will you see yourself is a classic
example of temporal distance construal level. What is social distance? For example, what do I?
What, what will I─if I have to buy a gift, what will I buy for my wife and what will I buy for

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somebody else? Who? Who is my colleague? Let’s say, for my wife I know what she needs exactly
what is required for her.
So, I will be going and buying exactly the thing that she wants. I will not focus on the brand image,
I will not focus on the how I will look like while buying this or whether this is something that is
worthy of my income, higher expectations, blah blah blah, I will not think about that. I will do
exactly whatever she needs. I will work by that.
On the other hand, for a person who is socially distant from me, I will focus on abstract things
rather than concrete things. What kind of abstract things? I will focus on brand image, brand image
of that particular product, whether the product has I will focus on the price, I will try to buy
something which is high price.
So that this guy does not say that okay this is a cheap person, he has bought a cheap product. So,
I don’t know what this person needs, he is socially distant from me. So, if he is socially, he or she
is socially distant from me I will try to create and buy stuff which are ‘risk averse’. So, I will focus
on abstract stuff rather than concrete stuff.
So, a classic example of that is social distance and the third one is physical distance. For example,
somebody who is away from you and somebody who is close by to you or let’s say if I ask you
that how will you? If you are planning for a trip let us say, you are planning for a trip from
Kharagpur to Calcutta versus you are planning for a trip from Kharagpur to Mumbai.
Kharagpur to Calcutta is physically less distant. You know that place very well, you know what
you can expect there. So, you will, your packing of your bag will be very concrete okay. On day
1, I will need this, day 2, I will need that, day 3, I will need this, you will be only packing up those
stuff and go, but when we go for a long term trip or for an away trip, there is lots of these
components, there are lots of things which you do not know and that’s why you do abstract thinking
and you probably pack up a lots of stuff.
So, those are the examples of temporal distance construal level which can be analyzed as temporal
distance, social distance, physical distance. Now, how does that apply in B2B context? It applies
in B2B context in this way; we say that even in a B2B purchase context there can be these three
kinds of distances.
So, for example, if you are buying it for a longer period of time, buying or usage time is longer in
future that is a high temporal distance. So, whenever you are buying, if you are buying it for 10
years versus if you are buying it for 10 days, 10 years is a high temporal distance. For example,
let’s say, many products we buy when we are buying a product stationary for a month versus you
are buying a laptop for a longer period of time, per unit time usage probably same, but the
stationary we will think at a different way and for a laptop we will think in a different way okay.
High social distance, social distance means what you are buying from a person, from a supplier,
who is new, you don’t know, that is high social distance and high physical distance buying from a
supplier, buying from a supplier who stays away, means whose office is away the example of high
physical distance.
So, these are the some of the stuff and we are trying to say, does these stuff are actually impacting
your decision. How is it impacting your decision? As I just said that in a high construal level you

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will focus on abstract stuff and in a low construal level you will focus on concrete thinking, you
will do concrete thinking.
Now, GBBI and SBBI, good-based brand image and service-based brand image which one is
concrete, probably goods, the performance and the quality of the product is more concrete and the
service concepts are more abstract.

(Refer Slide Time: 37:51)

So, that is why the relationship that I have just drawn before all the relationship will be moderated
means; they, they in the relationship construal level will have an impact and whenever the high
construal level here is there, whenever this is high, these two relationships will get stronger. These
two relationships will get stronger and whenever it is low these two relationships will get stronger.
So, that is what we proposed and then we went ahead and collected data and we actually found
support for that.

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(Refer Slide Time: 38:23)

So, what did we do? We collected from 135 respondents, 23% response rate was around 23% and
we have done data collection in 5 point, 5 point scale and the industries from where we collected
data is hospitality, IT, retailers. So, different types of transporters, manufacturers, suppliers,
different kinds of industries we focused on and then we collected data and checked the model.

(Refer Slide Time: 38:52)

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So, first we check the effect of SBBI and GBBI loyalty. It becomes significant, on customer
satisfaction is also significant, loyalty is also significant, but with customer satisfaction inside this
SBBI changes, its sign changes; that means, it is a full mediation absolutely happening through
customer satisfaction. On the other hand GBBI comes down, that is why it is partial mediation.
So, that is what we have told and then here also if you check the figures carefully.
Here, also you will find that GBBI SBBI and they are, these terms the multiplication terms of
longest GBBI, SBBI and PA and SBBI.

(Refer Slide Time: 39:21)

These are also something which is basically significant. Significant means that moderating effect
is present; And that moderating effect, mediating effect is further moderated means whenever this
point 0.89 is included; that means, customer satisfaction is included, this minus 0.31 becomes
minus 0.16.
So, the moderation effect comes down. So, it is a moderated mediation that we have tried to focus
on in this particular result. So, you can go and read about this paper with the same name. You can
find out in my ResearchGate profile and I can share the proof version you can read the paper
thoroughly and that is what we have done.

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(Refer Slide Time: 40:26)

So, this is what we wanted to ultimately say that in high construal level this relationship becomes
stronger this becomes weaker, in low this becomes stronger and this becomes weaker something
like that.

(Refer Slide Time: 40:37)

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So, what are the managerial implications? Managerial implication means a person who is a
supplier, he can decide by while discussions are going on that whether these purchases are being
made for longer term or shorter term, he can know.
He can also know that whether I have a very long relationship with this customer or not. He can
also know that whether this particular product that I am going to sell whether I will be close to my
customer or not. He knows the situation, he knows the physical distance, he knows the
psychological, the social distance, and he knows the temporal distance also.
Now, if he knows the temporal distance and all these things. He well might know that if I have a
marketing budget of 100 rupees how much I post on the product quality improvement, how much
I will invest on the service quality improvement.
So, in what condition service becomes more important, in what conditions the product becomes
more important relative to the other conditions is something that this particular paper is focusing
on. So, you can future scope is probably trying to check this in a real-life situation rather than a
survey or try to see other kinds of effects which can also come into this GBBI SBBI relationship
with the customer loyalty.
So, if there are some academicians in this, in this audience who would want to collaborate in this
kind of work in this context after reading this paper. You can write to me. So, that’s all for this
particular session.
Thank you for, very much for being with me. I will see you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 36
eCRM : Components and Strategies

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship Management.
This is Dr. Swagato Chatterjee from VGSoM IIT Kharagpur who is taking this course for you. We
are in week 7 and in this week, in the first few videos we will discuss about eCRM, which is
electronic CRM the components and strategies.
So, when we talk about CRM; CRM is a strategy which can be applied both in the online world
and in the offline world. I am trying to say that customer relationship management can be taken
care of in an offline environment as well, but with the advent of internet and internet being
available in everybody's mobile phones and are in every corner of the country if not the world. I
would say the adoption of electronic CRM or I will say internet based CRM has grown up.
Why did it? Why did it grow up? It has grown up, because people now actually are spending more
amount of time in their internet world, they are spending they are the surfing something, they are
doing something in the internet, they are watching videos, watching movies; they are spending lots
of time on the internet. And, if people are spending lots of time on the internet then connecting at
a micro level, connecting one single individual on the internet becomes very easy.
Because, then you can probably do a micro segmentation, you can probably focus on 1 single
person and see that what are the problems that this person is facing, what are the various kinds of
facilities or services these particular people will be needing. And, you can then give those kinds of
services and facilities to them.
You can solve their problems at a personal-level, you can give certain kinds of I would say certain,
the loyalty programs or certain kinds of benefits, or certain kinds of service recovery aspects all of
these things can be done at a personal level.
So, if this personal vey directed very, very sniper ways means we there is an AK 47 and there is a
sniper. AK 47 sprays your bullets. So, whatever you do, whatever when you push; pull the gun of
AK 47, then it will spray the bullets and if and if there is certain probability. If you actually spread
a lot of bullets there is a certain probability that it will hit the target.
On the other hand, the sniper will not spray the bullet, the sniper is very targeted, but it will
obviously, obviously hit the target if you can’t put it in in the correct line. So, and it will definitely
kill the target.
So, similarly here also the classical mass kind of marketing strategies are basically AK 47. It is a
spraying bullet strategy. This higher chance if you spray a lot of bullets, if you do lots of mass
marketing, there is a higher chance that people whom you want to target, people whom you want

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to actually communicate with will be reached. But, there is also lots of wastage like, in AK 47
does if you spray the lots of bullets gets wasted.
But, if you get the provision to stand still and put a sniper and then hit somebody, then you will
be, but that will require a place where you can hide, that will require a place, where you can put
your sniper, because it is very heavy much heavier than this thing it is it is a little bit of stability
and etcetera.
So, if that kind of situation can be created here also in the internet world wide. Internet gives you
the provision to target a person at individual level, then you would probably want to do that, then
the wastages will be much lower and you can spend all those money which is getting wasted in a
mass merchant, mass marketing kind of situation in a very targeted way. So, that is why this
internet based CRM, eCRM came up to be more prominent in the real world situation.

(Refer Slide Time: 04:16)

So, when we talk about CRM or eCRM as a strategy. So, there are two interfaces, the customers
come at the top, the picture is taken from the book that has been referred. So, that is why the
picture is a little bit I would say hazy, but still you can understand that, the customers are at the
top. And, the customer is connected with the operational CRM and the collaborative CRM. And,
in both of these things in the operational CRM and collaborative CRM, the firm comes up.
What is operational CRM? Operational CRM is the basic CRM that is provided to you like
customer service, like probably certain kinds of loyalty programs, loyalty points, repurchase
points, certain kinds of discounts, benefits, these are all operational. And, on the other hand there
are certain parts which are collaborative. We talked about co-creation fighters for a long period of
time.

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And, in co-creation you bring the customers from that side of the table, to this side of the table.
And, then ask him that, why don’t you create something with me? I have certain expertise, you
have certain ideas, you know yourself better, why don’t we together create something which will
be beneficial for you? So, that is the collaborative CRM.
So, operational CRM and collaborative CRM both come in on the company side. Basically, you
bring the customer in the company side and then do collaborative CRM, but both are basically
company controlled aspects. And, in the backend of this is where the major strength is your
analytical CRM. What is analytical CRM?
So, it is application of all kinds of analytics tools, technology tools and etcetera, which will back
up, which will give support to your operational CRM and collaborative CRM. Let me give an
example of this thing. So, let’s say I am, a retail store Big Bazaar and Big Bazaar has customers.
Big Bazaar has customers. And, Big Bazaar…what kind of services Big Bazaar gives to the
customers? It gives the loyalty points.
It also gives the customer the let’s say certain kinds of very targeted ads or it gives you the early
arrival information, it also gives you certain services, very very personalized services. So, this is
something that a Big Bazaar can give it to you.
Now, it can also give you certain kind of these are all operational CRM; it can also give you certain
kind of collaborative CRM. So, in the collaborative CRM it can give you that why don’t you come
together and you do your own packing. So, if you remember in the grocery store of Big Bazaar,
you or many other big super markets, you can go up ─ you can check the quality of the products.
Sometimes they ask you that, okay there are four types of dals.
So, there is toor dal, there is this dal, that dal and it is your choice how will you mix. I will not
poke my nose there. There is a packet you can put them, mix them up and then measure them,
measure the weight and based on the weight I will give you the price.
So, there are four types of dals are given. There are let’s say in a Naturals ice cream shop, you can
tell you can go and ask him ice cream shop you can go and tell that okay, give me this one that one
and that one this three flavors you put in one scoop and then give it to me. So, there is, that is that
part of the thing is collaborative CRM, where you are using collaborations .
It can also be the other way, where the customers are helping other customers like the forums.
Online forums that where one customer helps another customer. So, all of these things can be
adapted. So, for example, co-creation, co-consumption, etcetera, etcetera this kind of facilities can
be created. Now to ensure this co-creation facilities and to ensure this operational field the
analytical CRM is needed.
And, analytical CRM will require data analytic skills, huge cloud or huge backend storage, storage
means I am saying I am trying to say that it is data storage. You can have a huge amount of data
storage, you can have data analytics people, data analytics infrastructure, you can have technology
infrastructure, you have to have a very strong ERP. So, all of these things ERP means Enterprise
Resource Planning software basically or a system.
So, you have to have all of these things and all of these things together create your eCRM which
is an internet based CRM. So, operational, collaborative and analytical these three together, which

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comes in the customer space, company space, and in the customer space there is a customer. And,
the firm is basically handling all of these things.

(Refer Slide Time: 09:56)

Now, when I am talking about data analytic I talked about analytical skill set, you need an
analytical CRM. And, one of the major parts of that CRM is probably one of the major components
is the data warehouse. So, what is exactly a data warehouse? Data warehouse is a place where you
can keep lots of data.
For example, if I ask you that have you go to your kitchen. So, when you cook something, when
you cook some food. That food is your, that to cook certain food you have to first get the
ingredients of the food. So, what do you do? You generally, let’s you want to make certain biryani,
let’s say. So, you want garam masala, you want rice, you want certain if it is non-veg, then let’s
say chicken, you need certain ‘dahi, curd I mean to say and you need certain other products. So,
let’s say some salt, some little bit of sugar probably and this and that water blah blah blah. And,
you will also need an utensil. You will also need a pressure cooker probably or a certain utensil to
make the ‘dum’ and then you need the stove. So, all of these things are required.
So, what you go, what you do? You go to the market and get the ingredients. Now, for the salt let’s
say salt or the rice or let’s say the garam masala, that you will buy, you will not buy for only that
day's preparation you generally buy in a little bit more. Generally, salt will be required 1 pinch or
1 spoon let’s say, but you will not go and get a 1 spoonful of salt, you will get at least one 1 kg
salt, 1 packet of salt.
So, what will you do with the rest of the salt, or rest of the materials which were not used in today's
cooking? You will store them, you will store them in jars and then when there are lots of jars so,
that those jars do not get haphazard you put them in a cupboard, this cupboard is a warehouse.

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So, when I use data analytics my raw ingredients data analytics is cooking with data. And, the raw
ingredient is the data, the raw data. Now the raw data is obtained at a very ample amount of in a
huge amount and in an unprocessed amount. So, you have to put it somewhere. So, you put it, put
the raw data in a jar. That jar is called databases.
Now, once those, there are lots of such databases, you have to put those jars also in a cupboard,
that cupboard is called a data warehouse. So, similarly for the first thing that you need is a data
warehouse where lots of data counts from external sources. You generally get data and get stored
in external sources. And, then what do you do? You generally from this data warehouse when you
have lots of raw data you are or let’s say food materials sometimes for cooking purpose, what you
have to do is you have to do preprocessing of the food.
Let’s say lots of people will come and your mom is cooking. So, she starts the cooking one day
earlier. And, sometimes she may make a little bit of food and then keep it aside. So, that at the
right moment at the right time she will just fry it and cook it quickly and give it to you.
So, that preprocessed food has also, it has to be also kept somewhere and that is also kept in the in
some jar either in fridge, or in the cupboard and that is also. So, if it is let’s say ‘achar’, pickle, I
mean to say then it will be kept in a cupboard, but if it is let’s say certain material which will get
bad, if it is not stored in a cold place, then it is placed in a fridge. Then these, both of these things
are data warehouses, you can think about.
Now, to preprocess what you have to do? You have to open the data warehouse, open the database
which is the jar, and then bring out the raw food process it a little bit and put it in another jar. So,
this process is called extract, which is opening the jars, opening the cupboard, opening the jar,
taking out the raw data, that is raw food, that is called extract. Then transform. Then process a little
bit and again load it back, so that you can use it further.
So, this process called ETL, Extract Transform and Load basically ETL, that is one procedure
that we try to apply. Then with this process we can either, with this kind of a preprocessed food,
either we can directly bring them out and serve them, which is analysis query and reporting tools,
which directly bring out the raw data or a little bit of preprocessed data and serve them, or we can
further cook them, which the data mining tools does.
So, which brings out this food and then you cook it. So, when you cook the raw or preprocessed
food and then you serve to this, to the audience in this case the user, that iscalled a data mining
tool. And, when you just bring out the raw data and show the current condition, what is the current
condition? That is used by analysis query and reporting tool basically, all the BI tools like, Tableau,
QlikView, does this. Tableau, QlikView, Power BI, these kinds of guys will do this.
And, data mining tools can be, probably let’s say if I am talking about language, it can be R or
Python, it can also be let’s say IBM Watson, or some other tools, I do not know ─ SAS, SPSS
something like that, you can do that. And, then there are monitoring tools and administration tools
which take care of the health of the data warehouse.
So, let’s say everyday your mom cleans it or or or checks that whether any dust is there, whether
the data warehouse, the whole cupboard is working properly or not. So, that is the monitoring and

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administration tools work. And, then there is an OLAP server which is when lots of data
warehouses are there, you need a server to keep that, which is somebody else's.
So, your store room there is, that can be a, there can be a cupboard in your kitchen and there can
be a separate store room. So, that separate store room is called a server. So, this is a typical data
warehouse architecture that I can show you here. And, this kind of architecture you don’t have to
be a data scientist or data analyst or anybody who is a technical person to understand this.
This is a very basic understanding that for, think about your kitchen, whatever is your kitchen
exactly that thing is represented here, but this is must for this particular facility is absolutely must
for a electro, the for a internet based CRM system. You have to have a strong backend data system,
which can give you data, which can give you record data at the right moment at the right time.
And, for that sometimes we have to preprocess the data and keep it in and store it somewhere.

(Refer Slide Time: 17:37)

So, that is the second aspect so one major aspect of analytical CRM. What is the importance of
this data warehouse in CRM? It can integrate information from multiple channels. So, you can buy
food from the market, you can put the groceries, you can put the vegetables, you can bring in the
different kinds of probably products and then you can put them, all of them in the cupboard. So,
you can get the data from multiple sources, process them and create a database and put it in the
data warehouse.
So, in integrate information from multiple channel is possible. Then there is a click stream data.
Click stream data means, basically in a in a E-commerce setup. E-commerce means, electronic
commerce, when you are doing internet based purchases or it it can be any website setup.
You might want to know then from which page to, which page to, which page my customers have,
why that is important sometimes there is an optimal path way. We say in a customer context in a

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B2C context, that people have a optimal, people have a purchase decision making path. First they
will do a need-recognition, then, they will do information search, then they will do evaluation of
alternatives, then they will actually purchase something and then they will be post purchase
behavior.
All these five steps are if you can track a particular person's behavior by his cookies, by something
else, then you will know that this particular track, this particular traffic can be tracked over time.
Let’s say, you login in Amazon, okay? And, I know that okay, whatever, whatever this thing is
coming up, your Amazon account is already logged in, so I can track your purchase patterns.
So, in the app or on the internet you first go to page 1, then you go to page 3, then you go to page
7, page 8, page 5, page 6, and then 7. So, if I know that oftentimes, most oftentimes you choose 1,
6, 7, 10, this 4 pages and then you have more purchase. Then all my interest will be to push you
towards that path, there can be one strategy, I am not saying that is the only strategy that you can
apply.
Now, if I have your click stream data, if I know that which page then which type of page, if not
exactly the page number or page exact page, but at least the page type. For example, let’s say if
you go first to the product page, then the competing product page, then the review page, then this
page, that page and then you will buy.
If, I know this path, by chance let’s say by chance in a in the next session, when you are actually
logged in and you are checking something you for a particular product you went to product page
and then it is competitors page, and then you went to some recommendation page, instead of
coming to the review page, I might push the review or pop up the review or do something in the
website so, that I can bring in back, you towards this path.
So, these kinds of facilities can be created when you can track the click stream data and that is
important click stream data is a huge amount of data, your every step in the website is being
tracked. And, when you track every step for one 30 minutes session, forget about 30 minutes one
5-10 minutes session in Amazon that you can. You will search this page, that page, then 5-10
minutes you probably in Amazon you probably go through around 50 pages.
And, in those 50 pages, when you came in when you went back, in what part of the page you
waited, you read a lot, how quickly you scrolled down, what is the bounce rate, what is the arrival
rate? Everything will be tracked. And, that creates a huge amount of data. And, if you can do that
─ create that kind of data for every customer you need huge data spaces. And, you can. You have
to store that data for some time so that it becomes usable.
So, that requires a data warehouse. Unless you have a data warehouse, unless you have a huge
warehouse, where you can put all this data you will not be able to take care of this kind of
advantage. So, you need huge data storage. You can also do campaign management. Let’s say, you
are running a very targeted campaign as I was telling ─ the sniper, if you want to do a sniper, if
you want to. Now, you understand that you are not killing one single person who is using a sniper,
you are killing thousands of millions of people.
So, by killing I am saying targeting. So, let’s say, every person will have a different marketing
campaign that you are trying to target with. So, that also requires lots of data trenching and a very

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personnel level and that requires a huge amount of data warehouse. And, then real time
personalization, now all of these things that I told just the one that that you can collect data from
multiple channels, you can target a person at a personal level, or you can collect data at every step
whatever he is doing.
All of these things are required to create. Sometimes to create information at a, then and there
type, means it has to be done real-time basis. Now, let’s say you want to give me a recommendation
of a food, ok? I am in Swiggy, I am scrolling down and you want to give me some
recommendations.
Now, if you want to give me some recommendations, you have to give me recommendations at
that moment when I am actually in this session. If I book, if I give second order or if I move from
Swiggy to Zomato and then give some order for Zomato the Swiggy is losing.
So, if you want to track me, you have to track me. You have probably, you have 2 minutes, 3
minutes time, sometimes not even that. In Amazon it takes you, have to come up with a
recommendation as I was telling, let’s say in the product when we see the product, there are
recommendations that come in the bottom or on the right side. This recommendation has to be
launched in millisecond, because this particular website will launched in 1 second, 2 second in
certain other countries, where the internet speed is much higher, less than a second.
So, if you have to come up with recommendations for a real-time basis and to have that real time
basis information, lots of data crunching has to be done in a preprocessed way, you cannot do at
that time and you have to save those data. So, that is why you need a data warehouse. So, there are
lots of applications of data warehouse, I can spend probably another 10 minutes on that part but I
will stop here.

(Refer Slide Time: 24:34)

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Then comes the data mining, as I was telling that data warehouse has multiple parts: one is second
part is called data mining. What is data mining? Data mining is the technique used to carry out
knowledge discovery. So, you have to create information, data mining turns data into information
and then to knowledge.
So, you have raw data, which is very unstructured, you have no idea how to process them. You
use data warehousing procedures like, ETA, land free processing and etcetera. And, make certain
information out of it; and then you mine those information to create knowledge.
So, that is the basic process of data mining. So, first from the raw data you so, it is like as I was
again, again and again talking about this preprocessing and etcetera, the cooking of the data part.
Let’s assume, that in the in you have been given certain bottle gourd. Now, bottle gourd or let’s
say potato, raw potato or let us say raw onion they are food, but you cannot eat them like this.
You have to cut the, peel the skin and you have to cut, chop them, onion you can eat probably
without cooking, but potatoes we have to boil it or do something, bottle gourd you have to boil it
or do something, do some kind of preparation has to be done. So, that part that peeling and etcetera.
When you peel and make it ready for the cooking part that, from from the raw food, it become
preprocessed food.
So, from data it becomes information. Now, I can do something with this food ─ then you cook
the food. And, when you cook the food it becomes actually eatable something. So, when you cook
that information it becomes actually implementable with a certain kind of knowledge, which you
can consume. Information you cannot consume information is just there, when that information
can be transferred to be a knowledge, you can consume that knowledge, you can use that
knowledge. So, that is the part that is the job of data mining.

(Refer Slide Time: 26:51)

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There are, in the knowledge discovery in databases process, there are various steps, from the data
you have to do selection it is like from lots of raw food that you have in your house, you have to
select certain food with which you will do biryani. For biryani you will not bring out brinjal
probably, you will not bring out certain let’s say the certain other vegetables. Let’s say beetroot or
let us say carrot, probably you will not give in the biryani. You will select certain data.
So that, the first step is selection. so to target the data. With that targeted data with that with the
materials that you need to make biryani you will preprocess. So, that preprocess will create a
preprocessed data and sometimes you transform it a little bit to create transformed data.
Preprocessed data is like let’s say, let’s say the chillies, you have to break the head of chillies, you
have to peel the potato, you have to remove the skin of onion that is preprocessing. Further,
preprocessing means if the major shape of the product remains same. You have not transformed
the whole nature of the product, but you have made a little bit of change in the dataset.
Now, you change the product. For example, let us say the garam masala, if you had a certain garam
masala which is full you break them you, you actually break them and make a dust out of it. So,
that is called transformation, you transform the product probably let’s say, before you create the
biryani in in West Bengal we generally use the potato in biryani.
So, what we will do is we will break and probably fry the potato a little bit, we will make it half
and half fry it or for biryani we will require rice semi cooked rice to make the ‘dum’. So, you will
make the semi cooked rice. So, these are the part of transformation. Then, you will do data mining,
where you will put all the materials and then cook the data as I was telling till nowas . And that,
from that cooking of the data you will basically bring out certain kinds of patterns out of it. And,
then you interpret and interpret and evaluate and that will create information. I would say, different
people use this term information term, is very basically being used in a different way, I would say
this is knowledge, not information this is probably knowledge.
So, that is the 5 steps 4, 5 steps that you use in the knowledge discovery process. I told that data
mining is used in the knowledge discovery process; this is exactly what knowledge discovery
means. Now, what exactly is data mining? What are the various data mining tools that we have,
what can I do to do data mining? I will be discussing it in detail in the next video ─ but, only in
the broader way
. This particular understanding of this particular thing will require, let’s say, an introduction to
business analytics kind of a course. And, in a marketing context it will be heavily beneficial to
you. If you, after doing an introduction to business analytics course, you do another course called
marketing analytics which applies all of these things in the knowledge discovery process of
marketing context. So, that might probably be helpful for you people.
Thank you very much for being with me in this video. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 37
eCRM : Components and Strategies (Contd.)

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship Management.
This is Dr. Swagato Chatterjee from VGsOM, IIT Kharagpur, who is taking this course for you.
We are in week 7 and we are discussing internet based CRM or eCRM Components and Strategies.
So, in the last class we were discussing about the basic parts and we were discussing about the
various data mining, what is the requirement. And now, in this class we will discuss about what
are the data mining tasks that are available.

(Refer Slide Time: 00:46)

So, data mining tasks majorly can be classified into these five tasks, classification, regression, link
analysis, segmentation, and deviation detection. So, these are the five classes. What is
classification? For classification we can use decision trees, logistic regression, discriminant,
analysis, certain techniques name I am providing, these probably will be used to create that. These
kinds of answers can be provided, that which parts, which particular customer will stay with me
and which customer will leave.
Or what is the probability of this particular customer to leaving or what is the probability that this
particular customer will provide a positive word of mouth for me? Or positive feedback about me,
or recommend my product to somebody else? These kinds of questions, it is a 1/0 kind of answer

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which where the output variable is categorical. Whether you will recommend me or not 1 or 0,
whether you will give a positive rating to me or notwhether you will stay with me or not. These
kinds of questions can be solved using a classification problem.
In a regression problem your y variable the one that you are trying to predict is generally
continuous. And again decision tree linear regression neural networks can be used; some of the
classic examples can be that how much you will give rating.
Whether you will give a positive rating or not is not the question. But how much you will give
rating is probably can be answered here. Or how much money you are willing to pay for my
services, or how satisfied you are on a 1 to 5 point scale. These kinds of questions can be probably
answered using regression. Or what drives your satisfaction? What is the major probably a
satisfaction driver or what is the major service quality driver? These kinds of things can be
answered using regression.
Then comes link analysis, where factor analysis and association rules comes up one of the classic
examples of link analysis is basically this market basket analysis. In a market basket analysis, we
try to analyze that how a particular purchase, particular product is in your cart and how other
products can be related to that.
For example if you buy butter in the cart if there is butter in that what is the probability that bread
will also be there. Or if you buy milk what is the probability that sugar will also be there. So, this
kind of association of multiple products for example, quite often if we buy a dish washing gel or a
dish washing bar, then a scrub will be there with it quite often.
So, these products or quite often if you go and buy meat, eggs will also be there. So, this kind of
association where one product and another product or let’s say wine and cheese, we say bread and
butter. These associations are not something which has come and which has come from something
which is somebody told that okay these two have to be bought together. No. People have for a long
period of time people have seen that this kind of product goes together.
So, now, there can be other products which are not very commonly seen, which is not known, but
still you can find out from the analysis. So, again as I told in a marketing analytic course, which
has, which is probably will be given in the next term, next semester, you can probably get an idea
what association rules are and how that can be applied.
In this course we are not going into the data analytics part of it. So, we will not focus on that, but
I am just telling that this can be done. Then comes segmentation for which we will use cluster
analysis segmentation is a technique, where we can create multiple segments. So, we cannot target
one, all the customers, it is not possible. So, why it is not possible because making everybody
happy is very costly.
So, you might want to only make those people happy, who which were profitable for you.
Profitable means, not only that they will pay their lot of money to you, profitable also is associated
with whether you are able to make them happy or not. So, let’s say there is a very rich customer
or who is willing to pay a lot, but you cannot provide a service which is as per his request, then
that person is not a profitable customer.

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So, you have to check both and you have to check how much they are willing to pay and how much
is your cost to make them happy? So, both of them create a profitable customer; and you can find
out that in the whole database ─ who are your profitable customers who are your not so, profitable
customers. We did customer lifetime value base calculation before and based on that you can create
clusters.
Clusters can be created in multiple other ways again, you can go and do this marketing analytics
course that might help you to understand that what kind of different segmentation strategies are
there. But, this is something that you have to do if you want to implement CRM in e-commerce.
And then outlier analysis for example, fraud detection in a bank, or let’s say you want to detect
that when a particular customer is behaving not which is very common. So, if that kind of behavior
is being shown by the customer, you might know that okay something is wrong with this customer.
He might have switched to somebody else or he is not interested with me. Some behavioral pattern
change is happening.
And if that pattern change is happening that should trigger that should create a trigger. So, that you
can call him or her and ask him what kind of problem you are facing, and what is the, what is what
is that is if you are not liking us and etcetera etcetera. So, all of these things this classification,
regression link analysis, segmentation, deviation detection together creates your data mining task
which can be applied to knowledge discovery.

(Refer Slide Time: 07:05)

However, what are some of the applications? The applications are there in banks, the applications
are there in telecom, the applications are there in retail all the five-four-five examples that I told. I
will stop here probably, not stop. I will ask you that this is an exercise that I am giving to you guys.

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You should go, you should stop the video here, go to the forum and write down that for the bank.
Let's say I have told you five kinds of analysis just now. So, classification,. Classification,
regression, link analysis, segmentation and deviation detection, and write down here bank and then
telecom and then let’s say retail. And all are online let’s assume.
Now, give me some examples, how these techniques can be applied in each of these aspects in
bank, in telecom and in retail. For example let me give an example for link analysis which is factor
analysis and association rules, I can find out as I told that which product goes with which product
that market basket analysis I can go and do it in retailing.
In telecom I can know that which, which kind of services should be put in the same package. If
let’s say 100 data, 100 SMSs goes with let’s say 10 GB data it has been often seen in that people
buying those kinds of things together, you can join them and create a package. So, in a package
decision that which product goes in can go in a similar kind of package you can do a link analysis.
Similarly, in the bank's perspective which kind of insurance goes together, which kind of services
or products of the bank goes together, you can do a link analysis. So, you can try to find out that
what other examples you can find out for classification problems and regression problems. In this
particular three industries and write down how those can be solved. How, which kind of problems
can be solved using these techniques?
So, just examples I am just asking in this, in the sales, why don’t you write down. Write that down
and I will ask you that, you don’t just don't write on your own. Somebody else is writing you can
go and see what the other person is writing and you can comment on that. It is not that you will
put your own and you will wait for my comment only, you can probably collaborate with each
other. All we are trying to say is co-creation, right?
So, you guys can co-create and probably come up with the solution. You can discuss with your
fellow mates in the, who are also taking this course and discuss with them. So, that is a suggestion
that you can come up with. I will not give examples about that let’s get the examples from the
forum.

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(Refer Slide Time: 10:21)

Then, what are the important modules of CRM? This particular question comes up very commonly,
and it has been asked to me by various people that why don’t you are teaching certain particular
CRM software; I cannot teach a certain CRM software. But, I can give you that for some
components of CRM is common in all software whatever software you use.
So, one campaign management is basically where one major thing is campaign management; major
module campaign management means, where you are running a campaign. If you are a marketing
firm you are running a campaign and you have to manage the campaign.
For example in LinkedIn or Facebook if you are ever given an advertisement, they have their own
campaign management tool. Where you can put your campaigns and in this campaign management
tool, there are certain aspects for example, you want to plan and execute your decision and you
can also analyze and track; track and analyze basically. So, it starts from first planning, executing,
tracking and analysis these are the four steps that you can do in a campaign management.
So, you can plan for a campaign then, you can give the ads, you can say that these are my target,
target audience, this much margin I can give this is my bidding strategy. You can set that up and
then the bids happen and etcetera and you track it, whatever is the behavior of these campaigns
analyze it and change. So, the first week you have done something and you thought out away, this
is not right.
So, you change in the next week. So, that kind of decision can be taken in a simple software. And
there are lots of softwares which does that and you will see this kind of product. And what are the
objectives of a campaign, what are the different objectives that you can have?
The different objectives are product launch. You can launch a new product and for that you can do
a campaign. You can test market test market means sometimes before product launch, we give

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samples of the products to various people. And we ask them that why you don’t give us the
feedback of those products!
So, that can be done using the campaign management tool also, where there will be a specific
section, where they will come and probably give their feedback about whatever product samples
that you have sent to their house. So, test marketing is something that can be done here.
Campaign can also be used in classical marketing setup. For example, increasing visibility; more
awareness generation,; relaunching another product so, which has been launched before, but failed
you want to re-launch it, or probably the interest came down and you want to again increase the
interest of this product, that campaign can also do that.
Campaigns for specific targeted segments, let’s say you have a huge customer base, but a particular
segment you want to target them and do something special for them ─because, they are more
profitable and/or you are seeing better opportunity in that particular segment. So that can be also
done. Campaigns for occasions this is very common you will generally have you will see that
separate kinds of posts are coming up only on Independence day or Republic day, everybody.
So, what they do is they have set those kinds of posts and they keep repeating every year. So, that
is something that can be done campaigns for occasions and campaigns to build brand image. So,
there are various kinds of objectives that can be adopted and which we use to do campaigns and
each of them will require a campaign management tool. So, that is one of the important model,
module of CRM, which is campaign management.

(Refer Slide Time: 14:01)

So, what are the features that are required in a campaign management module in CRM? In the
first feature is probably the workflow, you want to know that what you do and then what you do.

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You have to first in the workflow, you have to first set up your objective. Then you have to set
up your audience, whom you want to target?
Then you have to set up your, probably the budget, the bidding strategy. And at last when all of
these things are decided the graphics or creatives. So, this workflow management and then once
it is done probably approval is there, approval is required. Because, you cannot use nudity, you
cannot use violence, you cannot use abusive words in your this thing.
So, somebody has to check that and then approve. So, that before it goes into the online world
because, once it goes in the online world, you have actually realize that or it cannot be tracked
back. So, that kind of thing can have to be ensured first.
So, workflow management is the primary most important part module of CRM. Then, when we
discuss about audience, there has to be a way to segment the audience. If you do a LinkedIn ad
ever, you will see that or even in Facebook ads, you have to break you can break them based on
gender, you can break them based on location. This is called geographic segmentation or
demographic segmentation.
Then, you can break them based on age group that is also demographic segmentation; you can
break them based on their interest, which kind of pages they have liked, which kind of skill sets
that they have written in their profiles, if it is LinkedIn. So, these are interests and etcetera which
comes as the attitudinal or probably psychographic segmentation.
And then the behavioral segmentation, that which movies, they have seen, how many times they
have interacted likes, how many likes, how many dislikes, whether they follow your page or
somebody else's page. So, these are some of the ways through which you can segment the
customers. Why that tool is important? Because, when I am deciding my audience, I want to
segment the customers and choose a certain customer segment, target a certain customer segment
I do not want to spread by campaign to everybody.
So, that kind of a setup has to be there and every tool, where the databases are there at the backend,
this kind of segmentation strategies ─ modules are there. So, that is the second module. The third
module is personalization, for example, I do not know whether you have used Mailchimp or any
mailers like this, they also have their workflow they also. If mailers, they only do email campaigns,
this Mailchimp and etcetera that I am talking about they do email campaigns.
But, in email campaigns they have your database from where you can do segmentation and target
a certain group and send mails to them. And there is also a workflow, you have to first name your
campaign, name write the objective, then decide your audience, then create your, give your budget
or budget comes later in this particular case. First you make your creative. And then you set up a
budget and then you set up the time at what time and what day it will be sent.
Now, during this creative part when you are doing creatives that creatives is personalized, within
this particular database there are lots of people, their name will be populated in the Email ID. So,
for the same Email if they are targeting me and you for me it will be written dear, Swagato
Chatterjee for you it will be written dear, XYZ ABCD whatever is your name.
So, that kind of personalization can be created. Further, more personalization can be created, I can
send that okay if this customer is a person who is of this kind of age group, you populate these

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pictures. Let’s say if he is a, I am an electronics company and if I see that okay this his age group
is small young unmarried, then send him pictures about iPods, iPads, mobile phones, etcetera.
If he is a married woman, don’t take me wrong way, but if it is a married woman probably, they
will send household items. If he is a married woman who is working probably certain laptops
certain, iPads etcetera anybody married women or man who is working laptops iPads and etcetera.
If they can understand that okay this guy is a housewife, then probably something which is a
household item. So, the same campaign which is they say new arrival kind of a campaign or
seasons bonanza kind of a campaign, or let’s say certain festival ‘dhamaka’ kind of campaigns.
The same campaign can target different audience or different segments differently.
And that can be very much personalized towards your individual level rather than a group level.
So, that is called personalization that features are also sometimes there. Then execution, you have
to execute it. Response management, so, how people are responding? How many people are
clicking in the your in your these things? How many people are viewing after clicking whether
they are filling it up? All these things are traced back in a campaign, in an online campaign that I
am trying to say.
So, that response how people will respond to your campaign, managing that is also important. And
then the last one is response modeling. Can you do a market; can you do data mining with that?
Can you say that okay if I do design x the probability of response is going up, if I do design y the
probability of response is going down.
This itself is a huge, this thing for advertising research, that how people are reacting to your
campaigns? It is a huge initiative of advertising research. And this can be applied and to do this
kind of research, you have to map the campaigns and their responses.
So, that response modeling insight, basically the tracking as I was told, tracking and analysis, these
two things, will also be part of this response modeling insights, which has to be featured in your
campaign management.
So, these are various features which have to be there. Some of the features are there, in LinkedIn,
some of the features are there in Facebook, some of the features are there in Salesforce, Zoho
CRM, this-that. There are lots of different CRM tools. And each of them if there is a campaign
management module there, there this feature are some of these features are always there in those
kinds of tools. So, campaign management is one of the major module.

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(Refer Slide Time: 21:18)

Well other important modules are there, there is lead management. So, campaign creates leads.
You have to create leads and those leads you have to take care of the leads to get their information.
From their leads, further nurturing of the leads creates opportunity, you have to create opportunity.
And within a lead and within an opportunity you can get associated contacts.
For example, you got a lead about a company. That company expresses interest that becomes an
opportunity. Now, there can be multiple contacts as I told in B2B contacts, there are multiple
contacts. So, multiple contacts, multiple influences within a company. So, you have to manage
those contacts. So, that becomes the contact management then, once they become your client once
they actually buy your product or subscribe to your product and etcetera, you have to do client
management. Then those clients give different kinds of tasks, task management and those tasks
are done by certain teams.
So, all of different kind of, all these things are basically tools or features that are very common in
them, probably the design will be a little bit different. You have to click, in one one module you
have to click here in another module you have to click there. So, every software will have their
own training tools, training videos, training tools, training manuals you can learn yourself learn all
those stuff from them. But, if you want to be an expert for example, sometimes people want to hire
experts, who have worked with their tool. For example, let us say there is a ERP tool called
Microsoft Dynamics.
I want to hire Microsoft Dynamics experts for my client; then you have to get trained for that kind
of a tool for a manager, who is taking a management job. If you are a MBA student or if you are,
would be manager, you may have a little bit of idea about a certain tool which is used in your
industry. But, you have to have a broader idea about what this tool does. So, rather than how it
does, you have to know what and why.

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So, that those questions are more important how to do is a 3 days, 4 days, 1 month training
program. But, how why to do it is a more understanding level, more deep level understanding that
is what I am focusing on. So, here the first thing is a funnel, it is like a funnel. And then a reverse
funnel. The first thing is it is a lead. Lots of leads get generated, from that lead comes up the
opportunities, out of these opportunities some are your client not everybody is your client. So,
these clients will have their own contacts. Each of these clients might have an opportunities, might
have multiple contacts.
Now, when they, there is one client they can give you lots of tasks. So, number of client, number
of tasks is higher than the number of clients. Because, each client will give you at least one task
more than one that is why the number of tasks is higher than the number of clients and each task
will be done by at least one member. But probably more than one member, that’s why team, which
is more than the number of tasks. So, it is a funnel and then it again spreads out.
So, those features have to be there in a CRM, then what then what are the different kinds of
customer expectations are there timely and accurate information about products and product
features. Information about sales orders, prompt. So, these are the things that a customer, a client
and opportunity person, a contact want for me.
So, timely and accurate information,information about sales orders, prompt and dependable
answers to their questions. Follow through on their, on the commitments, whatever commitment,
you have made whether you are following through that. Regular contact and follow up all of these
things are needed. And to do that these modules, integration of these modules is very important.

(Refer Slide Time: 25:34)

Now, in a sales process as I was just telling you the funneling in the sales process, the first part is
prospective, we call it lead generation sometimes we also call it prospect in the first step. And then

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you initiate your context. So, you lead generate and for example, I am telling you one of the
examples that I have adapted.
So, I also teach an introduction to business analytics course or data analytics with R programming
kind of course, as a part of IIT Kharagpur. And there what I do is that I have created certain
databases of email IDs. And I have also created a webpage, where all the data details of this
particular program are there and there is a form at the bottom. And when people actually come to
this page, they, if they want to get the brochure I ask them to fill up this form in that form they
leave their name email ID mobile number, the moment they click submit, the link towards the
brochure comes up.
And this email ID phone number is mailed to a database which I keep and that now through this
process the leads get generated. So, what I do? I do prospecting. What is prospecting? I share the
link of this page that I have developed, in all the social media channels and my whatever friends
and students and etcetera or whatever database I have created, I sent. I have a primary database, I
sent to them.
So, first I started from let’s say my closed contacts. Let’s say I have 100, 200 email IDs I sent to
them they shared, they, I also share in my LinkedIn profile, I also share in my Facebook profile
and etcetera. Now, there are certain other people who actually track IIT Kharagpur's programs and
post about them, some news channels and etcetera, they also posted them the same thing.
Now, people came to this page, read this page and left their email ID. Now, this email ID I collected
and stored in a database as I told, now these are my; this procedure is my prospecting or lead
generation. These new email IDs that I am getting is my lead. And in the first year I got 200 such
leads and out of that out of these 200 people, I sent the initiate contacts.
So, I sent them a personal email to everybody, told that this program is being launched; this is the
purpose of this program blah blah blah. I sent them an email. And then I, some of them called
back, called back to me and told that sir, whether this will be covered, whether that will be covered,
this is my need, what, how this particular program will help me.
If this is my profile, how,what kind of benefits I will get? What should be the take away? Will you
give a certificate or not? What is the acceptance of this certificate in the real world situation or
not? So, I discuss with them and identify their needs and try to present my offer, okay?
And this procedure, this initiate a contact, identify needs, present offer…it goes on, it is a circular
procedure. Another 7 days, 10 days back, again I sent another email. Another 15 days later again
I sent another mail. Now, in the first mail I send them just the information. In the second mail I
sent this is the sales process this is not particularly CRM.
But, the exact CRM should have this in the second mail I send them some more information, in
the third mail I send them a video which gives lots of clarifications. Let’s say out of these 200
people 2-3 people ask certain questions that doesn’t mean that other people do not have that
question in their mind. Other people might have that question in their mind, but they are shy
enough to not ask me.
So, I created a video which will have lots of FAQs and such to FAQs and then share that video
with those 200 people. And now over this time, that 200 becomes 300, let’s say. Now, through this

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process and there will be less. In my case, I didn’t face objections, in some of the cases some of
the people might face objections and you have to manage them. And then out of these 200 people
or 300 people for 50 people was my cutoff. So, 50 people actually bought this product.
Then, there are lots of guys who have actually registered, but didn’t pay. So, they have shown
interest they were very interested, but at the last moment due to time, due to dates, due to some
other commitments they could not. So, I have collected those data also and put that back in the
database. Now, out, I had 300 contacts, 50 went away that rest 250 is there.
Now out of this rest, 250 you have to understand, they were either shown primary level of interest,
but then didn’t get interested anymore. Or shown a little bit of more interest, but could not do
because of certain time constraints and etcetera or somebody had a budget constant at the end of
the day. So, there are different reasons out of these 250 people, who could not do.
Now, it would have been much better, if I could find out the individual level reason why they
could, didn’t adopt this particular program. Although showing interest initially, but okay I didn’t
do in that level I would probably do as I go ahead. Now, in the next time when I launch this
program once more, along with sharing on the Facebook and Twitter and LinkedIn, the first thing
that I do is targeting these 250 people. Because, all of these 250 people were my prospects, they
have not given in the last time.
What? Whose says that this time they will not come? Now, these 250 people also share with
another some people also, who were who were there in their close by. Now, this time this particular
database becomes 750, let’s say. Now, and then another 50 or 100 will come out of these 150 who
will close the sale. So, this is a process which keeps on going. It is a funnel.
So, you will see that 250 was the initial one and out through multiple this initiating contact,
identifying needs and blah, blah, blah procedure, I got 50 customers. So, 250 customers were left,
300 was the initial customer, 50 I got, so 250 are left.
Now, in the next time these 250 are the starting point, and together with my prospecting process
and etcetera, I together I created let’s say around 500 leads. So, the total leads or total prospect
keeps on going, first year it is this, second year this is this, third year this is this, and it will keep
on growing.
And if you can do an individual level analysis, you can break this into three different types of
funnels. And can make three different types of strategies for these three different kinds of funnels.
So, if you can do that that is the correct CRM strategy. That is the correct prospecting sales process.
So, CRM tools should also have this kind of strategies or you when you are adopting eCRM, we
should implement those strategies. So, sales processes can vary greatly among organizations,
products and services.
And ultimately every sales manager must ensure that their sales process and its corresponding
phases are as short as possible. So, they have to reduce these procedures as small as possible. So,
that the sale cycle can reduce and that can be done using a better CRM implementation. So, I will
stop here for this particular video, I will come back with the next video with further eCRM aspects
and other parts of the modules see you in the next video.
Thank you for being with me.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 38
eCRM : Components and Strategies (Contd.)

Hello everybody welcome to the NPTEL Swayam course on Customer Relationship Management. We
are in week 7 and we are discussing internet based CRM and this is Dr. Swagato Chatterjee who is
discussing and taking this class for you.

So, in the last two videos, we discussed about the ECRM components. And we discussed about two
modules mainly one is the campaign management module and one is the sales management module
and how those are applied.

(Refer Slide Time: 00:47)

So, we will keep on the discussion and here I am discussing about the features of a sales process. SPA
stands for Sales Process Automation. So, what are the various things? So, you have to integrate with
campaign management because campaign management leads that ─ gives you the leads.

So, you have to first indicate that kind of facilities should be there. You have to integrate with customer
feedback because that’s where people actually will talk about their needs that’s where the
complaints. as I told that manage objections.

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(Refer Slide Time: 01:14)

So, this objection management can be happening. So, you have to integrate with their post purchase
also integrate with customer feedback. Then in a sales process one of the major things is to calculate
target people based on their profitability CLV.

So, if you had to target people based on their profitability and CLV, I have to know that how much is
the revenue generated, how much is my cost. So, integrations with financial management also
becomes an important aspect that should be there

Contact and account management and territory management these are all three comes in the same
domain while I am trying to do initiate contact identify needs, present, offers and it is a iterative
process.

And that is why these three things come together. Contact is from one organization account is,account
is a larger part means from one organization there can be multiple contacts. Overall let’s say let’s say
I am a, I am a person who gives lots of a printing services to IIT, Kharagpur; let’s assume.

So, if I am a printing service provider to IIT Kharagpur because IIT Kharagpur has lots of program is
going on, lots of this brochure printing probably banners printing, flex printing; this printing that
printing goes on. Now in IIT Kharagpur, there are various business units, strategic business units. For
example, VGSoM Vinod Gupta School of Management is one business unit one department. It has its
own account own purchase process own ─own influencers who takes the call.

Competitions department will have different electrical department, electronics department, law
department. Each of these guys will have their own people who take the decisions for the purchases
of that department. Then there will be a squeak office which is let’s say that sponsored research office,
there will be a outreach office, there will be a deans office, directors office.

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These offices will also have their own purchase patterns procedure of purchase might be same, but
they are independent in terms of the decision making of the purchases ah subject to certain approvals.
Now, if these kind of a setup is there, there are lots of small-small business units are there . I in a single
account which is IIT Kharagpur, I might have multiple contacts.

So, if I have I am a CRM manager, I have to have a account management and I also have to have a
contact management. The way I will deal a professor from Vinod Gupta School of Management and
the way I have to deal a professor from a law school or from a computer science school will be very
different depending on what kind of things that I am trying to sell. So, that a CRM manager should
know and if he knows that, then this kind of feature should be there separately.

And then territory management; Territory management is, let’s say, other than IIT Kharagpur there is
probably Tata Metaliks in IIT. There will be let say some other Hitachi firm in IIT. Now these guys Tata
Metaliks and Hitachi and etcetera probably their purchases very much centralized not as decentralized
as IIT.

So, if they have a centralized procedure, their contact management and account management will be
different than IIT Kharagpur. But a territory person who manages the whole Kharagpur zone have to
have a look of whatever is the sales process is being adopted, whatever is the sale situation for the
whole territory. So, for them for that kind of a higher role in the in the organization, our territory
management look will also be important which is also a part of sales.

Now, territory can be Khargpur territory can be the whole zone territory can be India; to be precise
or APAC market to be precise. So, how you define territory, it is up to you, but that kind of views
should be there in the dashboard in the software tool that you have developed. So, those features
are needed in CRM software. You should see when you try to decide that whether you will buy CRM
software A or CRM software B, you should know that whether these features are available or not.

(Refer Slide Time: 05:32)

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What are the other important modules? One important module is customer feedback as I told that
campaign management and sales process should be connected and sales process should also be
connected with customer feedback management. So, customer feedback is one single important tool
which has to be there; and then there are other CRM modules.

For example, billing, lodging initial service request these are basic steps. So, initial service request and
then verifying the contractual coverage whether it is covered in the contract or not if it is outside the
contract, assign a service executive support service, executive with internal data about that person.
So, that before he arrives to the service space he knows that what kind of things are there, then the
service happens and the billing happens.

So, this is the cycle of customer service. So, that that should be customer service modules and these
particular aspects should be there in the modules. So, that is also an important module. So, three
important modules in the marketing context I told: campaign, sales and customer service. So, these
are the three important modules that.

So,it is associated with customer purchase decision making process. The first one is awareness
generation that is related with the campaign management tool and next is evaluation of alternatives
and information search and evaluation of alternatives. This is where both sales process automation
tool and campaign management tool comes into the picture. Then probably purchase happens which
is sales automation tool and post purchase which is the feedback management tool. So, all these tools
of CRM software is basically connecting with sudden purchase decision making process that customers
have in their mind.

(Refer Slide Time: 07:16)

Now when I talk about feedback ─ I asked you in a different class probably that how consumers choose
complaining channels. And, I would probably ask you again and ask you to write it down based on
your thought processes that what are the various, various things that you have in your mind when

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you try to write something some complaint in Facebook or Twitter; when you probably do a phone
call to the customer service or email to customer service or let’s say give a review, give a rating and
review , what do you have in your mind?

And I want to just ask you to map these channels with certain things that you have in your mind. One
is let’s say, redressal. When you actually want that the customer will the company will solve your
problem or let’s say vent out; when you want to vent out, just show your anger that is all. When you
want to take revenge that okay; you have done a wrong with me, I will also do a wrong with you or
when you want to make others aware that okay, you have you have cheated me that is fine, but you
should not be able to cheat anybody else.

Now that you have cheated me, it is my right to stop other people from getting cheated. So, can you
map this four objectives? Redressal seeking when you are seeking redressal, venting out when you
have anger and you want to just vent out, you want to take a revenge. It is not just venting out, you
want to harm the person harm the company and make others aware means make other consumers
safe. If these are the four objectives, can you map the channels in which you will complain?

So, again I would want to you to give a small exercise go to the forum and write about how we can
map these things. And I will give feedback there and you can also discuss with your fellow fellow batch
mates who are taking this course that whether whatever you think that these things are related to
this thing are making sense or not . Probably you can search in internet and search in some websites
also that whether you can get a mapping of this.

Now, why how consumers choose their complaining channels? Often times, I am just giving you that
oftentimes, they, they are dependent on what kind of motivations; they have and this motivation and
channel charges mapped and why do not you try to find out now how this information will help. I
might have a different kind of complain management situation. If I know this information properly as
a company, then I might have different kind of complaint management services or complaint
management situations in each of these different kinds of complaints.

When different kinds of complaints happens or different kinds of channels where the complaints
comes, I might be preconceived that okay this channel is coming up. So, this is something that this
customer is asking for. He is either wanting to vent out or want to take revenge.

So, if he is trying to revenge I have to be very proactive. If I he is venting out let him vent out and then
we will take a decision. So, whether he will be proactive or reactive, whether will be let him vent out
or stop him. All of these decisions depend on the motivation, if you can correctly find out the
motivation of the customer. And sometimes that is why this mapping is important. Why do not you
try to do that.

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(Refer Slide Time: 11:21)

What are the features of customer service kind of a setup in CRM? First of all you have to give multiple
channel access. There is a first step first feature that you have to give.

So, they can they can complain in Twitter, they can connect with you in Twitter, in Facebook, in in ah
WhatsApp, in the email, in phone number. The more is your more number of channels, you provide
the better; then you have to give a solutions’ knowledge base there whoever is the customer service
agent if there is an agent.

He or she should have a knowledge base with his hands so, that they can answer certain basic
questions very quickly. They can also, there has to be also a set of, or you can also have an effective
kind of a set of what people can find out their own answers on their own. For example, you will see in
Amazon, there are consumer questions and consumer answers that are there; above the reviews
those kind of things are there.

So, if you are going to buy something, you can ask questions and somebody else will probably ask and
give answers to those questions. And some of the questions are common frequently asked and you
might find out those questions already written on their answers are already written there. So, that
knowledge base has to be created.

First managing request, you have to have a very strong request management kind of a platform.
Contract and warranty status; so, each person the moment they are giving some request as I told that
in a service request kind of a setup they, the service person whoever is assigning a service agent and
etcetera, they have to tell the service agent what whether the service is under contract or not because
based on that the billing will be different.

So, there has to be a system which is integrated with your original sales process automation system
and work contract and warranty status can be collected very easily. The field service support, the
original team, the HR people so, the hr where, where the team management is done, where the

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allocation is done that should also be connected with customer service. Because if you say that okay
you, you have to give them that time the service time you know that on this day that time it will be
assigned.

Now, this assignment has to be done very quickly. You note down the request and very quickly this
assignment has to be done probably within 1 hour-2 hour. Now to do it within 1 hour and 2 hour, this
system has to be integrated with the manual with the human manpower management system until
and unless it is integrated you cannot ensure that manpower will be probably allocated to this
particular service request.

So, these two has to be integrated. So, field service support has to be integrated; the inventory support
has to be integrated. Sometimes the, you are asking for certain products or features or certain aspects
which for which inventory is required which let’s of spare parts or certain, certain ah services which
require certain kinds of products. So, for that inventory management and also the billing support.

So, all these three things is basically related to the job the service related and this one is basically the
getting the problem, understanding the problem, managing the problem that related.

So, this these three are work related, this is management related and this one is whether this work
will be build or not what should be the what is the I would say contract or warranty status about that
that is another way. So, that is how I can break the features into three groups and these features are
important in a customer service kind of a module.

So, again as I go ahead, I will say that the three modules are there. Primarily three modules: one is
Campaign, one is Sales Process, one is Customer Service.

(Refer Slide Time: 15:15)

So, when you ask for feedback, I just told that you should have multiple channels to do the feedback.
So, when you ask for feedback, is there a correct time for feedback solicitation? So, when should you
ask for feedback? Just after the service? 1 day after the service? 1 week after the service? 1 month
after the service? Can you tell me?

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So, often we ask for the service then and there, but it has been seen, there are research which says
that if you do the, as, as you asked for the service as close as possible, the memory is high. So, if the
service is good if the person you know that you have given a good service. The memory and time has
a decay effect it looks like this that is fine. But there is something called time and let’s say the
satisfaction.

So, satisfaction and time with the same experience goes up over time. With the same positive
experience as time goes up the satisfaction with that particular thing goes up, why? Because there is
a theory called construal-level theory which says that when ─when we are in a time distance when,
when the psychological distant about from an event and my mind is high, we generally do not focus
on nitty gritty.

So, we do focus on the overall abstract output. So, in a good service how you give the service whether
you should give good service or not how much I paid you whether, whether I deserve it or not these
kind of questions does not come up.

In a high time distance, the only thing comes about that at the end of the day whether I was happy
or not and that happiness increases as the time distance increases. Now then there is a dilemma and
these two together gives an idea that there is an optimal time of, of feedback solicitation.

So, you will see that below there is an optimal time . I am sorry the curve does not look like this, the
curve basically look like these two together; this into this basically will create a curve this is not, not
the below one plus the above one, but below one multiplied by the above one will create a curve like
this.

And there is an optimal time when you get highest feedback for the same rating; for the same
experience. So, this is very important to find out at what point this becomes the highest. And the
point that it becomes highest is the optimal time correct time for feedback solicitation.

Generally it is let’s say probably 2-3 days after the service not exactly after the service 2-3 days after
the service is sometime. So, that is something that you have to find out in your context. When did I
ask service? it it might be asked for feedback; it might be different for different service situation.

If you have database, if you have a huge amount of database; you can see that, let’s say, you have
asked people to rates rate the service and give certain feedback. So, the feedback sentiment is, is
basically a cognitive sentiment; cognitive output because when you write feedback you little think a
little bit, but when you just put a rating it is a very impulsive thing. You just quickly give the rating, you
do not think a lot. So, the cognitive part is actually your service experience under rating part is the
impulsive one.

Now, as I was telling that impulse will depend on the impulsive rating will depend on the memory that
you have and the overall good feeling that you have. Now you might want to know that after I
removed the cognitive experience part how much is coming from this impulsive thing.

And you might to try to find out whether that varies depending on time at what time I have solicited
the ─ you might have your campaign management system or your sorry you your customer service
request management system and based on that systems data you can probably try to find out that,
what is the optimal time.

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We have done a research on that and I will I will share this particular paper on this which we have
worked on and you might find it interesting. So, you might want to read it. When does other
consumers’ reviews impact your review comments? This is also a classic problem and that also comes
up from this construal-level theory. Sometimes if a customer is close enough if it’s a close customer,
you, you believe your friend more than somebody else depending on what you are buying.

If it is a product which is which is, which is a very important product, you might give more important
importance to an opinion of a person who is an expert than your friend. But if it is not so important
product; if it is a low construal product, then you might give more focus on your friends request than
somebody else.

So, these are some of the classic questions that I am asking you and you try to find out the answers
from your own experience also, from searching internet also. Try to put these answers in the forum
and try to engage that whether customer service can be done in a better way if you follow one time ─
follow certain basic strategies like when you will ask your service or whether you will say that okay
many people have given rating, whether reviews should be shown before it just before this person
have given, given his feedback or not.

So, whether you want to, how you can influence the feedback that person is providing you, whether
that can be done or not. These are some classic questions that we can think about when we are
adopting the internet-based CRM systems.

So, that is all for me the three system that I have talked about. Thank you very much. I will see you
with a new topic in the next video.

Thank you.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 39
Contact Centres for CRM

Hello, everybody. Welcome to the NPTEL Swayam course on Customer Relationship

Management. This is Dr. Swagato Chatterjee from VGSoM IIT Kharagpur who is taking this
course for you. We are in W
eek 8, the last week and in this particular week we will discuss about CRM implementation and a
little bit on the global CRM, the CRM in the international market.
Now, when I talk about CRM implementation there are certain aspects, certain strategies and
certain operational aspects that come into this picture. Today's this current video we will talk
about Contact Centres for CRM .

(Refer Slide Time: 01:00)

So, what is a contact centre? So, basically contact centres are basically call centres that is how we
know them. The and what are call centres? There are lots of agents who sits in the call centres and
there are certain computers and there will be a system which will give data about the customer the
where customer can raise their requests and etcetera, put their complaints and sometimes asks for
suggestions these are call centres basically and we have all known what these call centres are .

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There is also something called customer interaction centre. So, which is a good name for a call
centre where there are multiple aspects that, multiple aspects that are there. One is basically the
multimedia routing.
So, what is multimedia routing? In the last class, I was discussing when I was discussing about
CRM modules, I told that one of the important modules in CRM is the customer contact module.
The module where you give customer services. And you have to connect with the customer in
multiple channels.
Now, when we are talking about multiple channels through which you will connect with the
customers,, what are the possible channels are there? Telephone will be one channel, webcam
based discussions can be one channel, chat can be one channel, e-mail can be one channel,
probably social media can be one channel. So, these are all multimedia channels.
Now, you have to have a system where all these different kinds of channels are integrated and
communication. Communication can come from multiple such channels. And one can probably
connect, based on the phone number provided or the name provided or the e-mail ID provided,
that whether this communication is from customer A or customer B.
So, this multimedia routing is one of the major components of a call centre and there are priority
queues also. So, in this particular context queue management comes to be a very important factor.
So, how will I decide; because we have a limited number of servers and sometimes a number of
inflows of customer requests are much higher and forget about customer requests. The inflow of
communication requests is much higher .
So, when you have that then obviously, you have to create a queue which is first come, first serve
kind of basis that whoever comes first will be served first. But, the question comes is that how will
I prioritise? Should I not give priority to those kinds of customers who are loyal to me? Should I
not give priority to those kinds of customers who are high in need.
For example, in emergency counters in a hospital their patients' gets priority over and above a OPD
customer. So, all these kinds of things will play an important role while you are deciding your
queue management system also which is a very important part of this multimedia routing system
in the context of call centres.
What other things are there? There is an agent workspace. So, what the agents will sit, what will
be there in the workstation, whether how they will be able to connect, whether they’re tech savvy
enough, what kind of technology are there, whether they are trained on those technology or not,
what kind of agents are there, whether they are Bengali speaking or Hindi speaking or English
speaking, whether they are technically strong or communication wise strong, all these decisions
comes under the CRM .
Now, not probably a CRM marketing manager will take all these calls, but he should know that
this is something for which he is responsible he will be asked for because the customer service
team is actually working under the broad domain of marketing team. And, then there is something
called workforce optimization.
Workforce optimization is basically more of a cost management or a revenue management kind of
an aspect where you have to decide that how many agents I will put, how many workstations will

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work at this current point of time, how many routers will work at this current point of time? All
of these things has to be decided by somebody and that varies based on the demand.
So, within the day the demand might fluctuate depending on which time of the day over a week
demand might fluctuate depending on what day of the week and also over a year or over a month
the demand of customer request might fluctuate depending on what time of the year or what time
of the month it is.
So, basically demand fluctuates and if demand fluctuates similarly, we have to put servicesagents
accordingly so that all the service waits are within a permissible limit. You cannot ensure that okay
everybody has 0 waiting time okay, no, that is not possible.
But, even if you want a reasonable waiting time let’s say 1 minute or 2 minute you have to ensure
that enough agents are there or proper routing is being done such that the availability of the agent
is proportional to the patience of the customers. And, patience of the customers is sometimes
inversely proportional to how much money they are paying to you or how much they, how much
loyal they are with you.
So, these decisions have to be taken very carefully in a call centre set up.

(Refer Slide Time: 06:08)

Next comes these 3Cs of contact centres. One is CONVENIENCE, one is CONSISTENCY and
third is CORDIALITY. So, in the contact centre aspect the first thing that you have to focus on is
providing convenience to the customers. You have to be as much focused on giving that because
that is where people are coming.
So, convenience might be related to multiple routing as I just told. You can, you want to connect
with the customer in the channel that they are most habituated with. You want to use the language

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in which they are most habituated to speak. Now, this is where there are very classic, classic
question comes up in this kind of context .
So, do you think that just as I wanted to write down the answer to the question that I am asking
right now. You should write down the answer and check back whatever I am saying 1 minute later.
So, let’s say you are a, you are giving a service to somebody and generally you speak in English.
Let’s say, in a hotel context or in office context and etcetera you speak in English and a person
comes up in front of you .
And, you can understand that okay this guy will understand Hindi, his mother language is Hindi.
So, will you switch to Hindi language? Because you also know Hindi, he also knows Hindi, both
of you talk in Hindi. That will probably reduce the mental gap or probably will make you more or
make you feel that you are more empathetic to this person.
So, research says that this does not happen always. So, in some of the situations it does happen,
but we have a hierarchy of language. For example, there is a hierarchy of native language Indian
languages and an American language or English language. Or even in an American setup there
will be a hierarchy of language for example, English speaking or Spanish speaking and even in
countrywide cases my native country.
So, generally, when this hierarchy is not present, when this kind of hierarchical thinking is not
present then a colloquial language ─ if you speak in a colloquial language with somebody who is
in front of you, he will feel more comfortable, the customers will feel more comfortable .
But, if there is a hierarchy involved and if you can, if you speak in the colloquial language and the
person knows the hierarchically higher language, he might feel offended that okay this guy is
thinking that I can’t speak English. I can speak in English I will answer in English. So, that
hierarchy often comes into the play.
We, I have seen in my childhood days. There were some uncles who used to, when they used to
shout at somebody, let’s say a shopkeeper or some person, auto driver, a taxi driver they were very
angry and they were shouting at them. All of a sudden they start speaking in English and this
person who is standing in front of him and getting this venting out, he might probably not even
understand what this guy is saying.
So, this English language is somewhere it is related to in our case the powerfulness and etcetera.
You know, we know why it is like that and that hierarchy of language is there because of our
colonial history, because of our probably post-colonial history as well. In our day-to-day work life
and etcetera, English gets lots of prominence. People who are educated, it is the educated peoples’
language. That kind of signal comes up.
So, that is somewhere the ─ this convenience plays a different kind of role. Like, if you want to
vent out, if you want to struggle with somebody, if you want to probably, you lost your power
position let’s say. Power position losses happen when there is some service failure and you want
to regain back, your power position as a customer, you might probably want to speak in English.
So, that kind of a thing is very common and you as a, let’s say if the person is speaking in English
and venting out. If you know that, okay this guy knows English you probably want to tell, talk
with him in English very softly and let him vent out of whatever his problem is and etcetera. So

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that, these are some of the things that a contact centre person has to do and they probably have to
do day-to-day they know that, but even as a marketing manager, you have to know that.
Now, that creates a certain kind of problem for this contact centre person also because he loses, he
has to lose his power position at a certain point of time which might affect this person mentally.
So, there is an HR issue.
Oftentimes sales and services are basically HR issues, but you have to also handle as a marketing
manager, these HR issues as well. Because, unless your employees are happy, unless your internal
customers are happy, the services will not be as good as you think .
So, probably you have to talk with the HR person. You have to discuss with the psychology of
these people and try to make sure that, how even, when this kind of venting out is happening how
these guys will remain happy or remain satisfied or be motivated to work on !
Then second is consistency. Consistency means whatever language you want to say, you have to
be consistent in all the things that you are trying to say. It is a classic case. I will give one example.
So, all these Chinese, the various Chinese apps which had certain security issues. That, those were
getting banned in the last couple of months.
So, this is, and, and I am talking about 2020, this current year is 2020 so, COVID is going on.
Certain problems in the LAC were going on in the ─ between India and China and after that there
was and I do not, I should not say after that, but in proportion to that sometime later there were
certain checks which have been done by this department of IT.
And, they have found out or Ministry of IT, I am not sure which particular Ministry IT is and they
have found out certain Chinese apps which have security issues, customer breach issues and
etcetera they have discontinued that. You cannot run this particular thing in India.
Now, there are certain brands, who actually source from this China a lot. So, they are Indian brands
actually. Originally, they are Indian brands, Indian retail stores; big retail stores, they have
warehouse kind of stores for sports products.
So, they majorly sell sports products, they have online presence and warehouse-like big retail
stores in Bangalore, they have in Calcutta, they have a store. In different cities, they have these
stores, big retail stores in sports.
Now, these guys were promoting in social media that the, we do celebrate Indianness make in
India, we have increased our make in India purchase and blah, blah, blah. So, then lots of social
media people, who trolls actually, have started asking them what percentage of your raw materials
or of your products comes from China. Can you tell us where you are focusing on Make In India?
What percentage comes from China? .
Now, they initially, they told that very high percentage, probably almost more than 40 % comes
from I think they have told, I cannot say how much comes from China, but more than 40 % comes
from India. So, then they, all of the people again started saying that okay more than 40 % means
not majorities here and this and that. Then they went back and social.
See these probably the social media management of this particular company might be hand, being
handled by people who are not in a higher, in a hierarchy not at a very high level. Probably the
marketing manager who is a CMO does not directly talk with this person who has posted this thing.

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So, all of a sudden this social media problems is coming up. So, they have to handle this problem
very soon. So, within probably one hour they told that, no, we have checked back and actually this
year, this particular sourcing from Indian sources has increased from more than 40 % to more than
50 %.
Now, again all of a sudden people started trolling to these guys that within one hour your
resourcing went up so high because of this, this, this, that, that, that. So, basically all I am trying
to say is that this is a particular example where social media is very ruthless and you have to be
consistent on whatever you are saying.
One hour before you are saying more than 40% sourcing happens from Indian market and less,
another one hour later when you got trolled you are saying that no, no more than 50 % is happening
from Indian market. You cannot do this thing this is basically, a face loss for a brand like; so, so,
so, such a big brand.
So, these kinds of things have to be avoided and consistency is very, very mandatory when you
are talking about a contact centre or when you are talking about customer relationship
management. You are different agents, why cannot consistency is important because you have
seen this kind of thing.
Let’s say, you are talking with an agent. Then all of a sudden, probably due to your, some network
issues or due to your mobile phone getting discharged, the phone connection got cut. Next time
you call you practically get connected with a different agent, not the same agent.
Now, if that happens there is a problem for you because you have to again
convince this guy about your problems blah, blah, blah. So, that creates a problem.
Now, if these two guys are not consistent, if the guys have the, do not have the same procedure,
then that might impact the customer experience a lot because he will say that no, no other agent
was saying that this is a genuine problem, how are you can say that it is not a genuine problem? I
should get the refund; I should get this-that kind of a favour from you. Why?Why you are saying
and he will be very much angry with this particular guy.
So, until and unless this consistency is there there will always be problems and consistency should
not be there between two agents. Consistency should also be there between two or multiple
channels as well. Because customers connect to from multiple channels. So, that is something that
also some, the marketing managers has to take care of.
And, the last one is Cordiality. I do not think I have to speak a lot about cordiality. This is
something which is a hygiene factor. You have to maintain cordiality until and unless you maintain
that, you will not make your customers happy enough.
So, another thing that, another some of the other factors that a company should focus on is
communicating with customers, they should discuss with customers a lot.
They should reduce their expenses and they have to standardise the services and improve service
quality, but these are very obvious things. Any product or any service you have to follow, some of
these things. And that’s why they are also important in the contact centre setup as well.

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(Refer Slide Time: 17:31)

So, how the, what are the components of a contact centre? So, contact centre you will see that there
is a IT set-up as I was telling that a multimedia kind of thing. Where multiple channels connect
with each other and then there are customer agents.
And, these two contact centres basically, connect between these two. Contact centre basically, is
this connection. There is where contact centre happens and both are connected with the
communication technology customers connects to his communication technology.
So, there is an internal IT, there is an external IT. Customers connect with this external IT and
this external IT connects with internal IT and the human beings. And then, sometimes they have
to get information about the customer. Let’s say the moment you put the ID. Let’s say, your
customer ID or your phone number. I have to check back your purchase history, your what kind
of agreements I have with you and etcetera, etcetera.
So, there were, that is why there has to be a backend system which will connects with the customer
centre agents with the information available. And, information technology will also connect with
this system through other CRM system. So, this is basically, these are all technology. All this is
technology and this is one human being and these are the customer agents which together creates
the contact centre.
Now, there are lots of softwares available. Fot of this the, this is a different technology, different
area altogether. What kind of softwares are available, whether, which software is better than which
software, what kind of features there that that can be brought in.
So, these are different story and you have to do a very consultative kind of analysis when you are
trying to check that what fits for your brand or for your marketing objectives. But, I will, that is
not within the domain of whatever we are doing in CRM, what kind of technology is required. So,
I will not go into that, but yeah this is something that we should understand.

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Now, for any technology, you have to make sure that these are some of the factors which are there
like they have to be easy to use. Any technology adoption model says that ease of use and perceived
usefulness, these are the two major things which leads to the consumer attitude and then behaviour.
So, perceived ease of use and perceived usefulness these are the two things that you have to
promote. So, easy to use is that is why for something which is the primary criteria to have a good
contact centre that you, it will not be technically very, very difficult to connect with an agent.
Then there has to be a consolidated view of the customer that should be there. 360 0 view has to be
there within the technology that is used in the contact centre. Multichannel support should be there.
That means I can at the same time, I can chat on Twitter or Facebook and this and that and also
connect with the customer over phone, if it is required over video conferencing and etcetera. So,
multi-channel support is there.
There has to be workflow automation; workflow automation means there has to be a certain this,
certain preset kind of a workflow which has to be followed. For example, first, you will see that
this happens in a chatbot. The moment you say hi in the chatbot, ask you about your phone number,
about your problem, about certain basic details about the problem and based on that they will set
up an agent. That is one workflow which is a pre-agent routing workflow.
Then after the agent talks, the agent also has a workflow and a hierarchy that okay if this kind of
a problem first I will greet, then I will ask about his problem. Based on his problem I will check
what are the possible solutions are available. If solutions are not available I will turn him to the
technical team. If it is only a service request, I will check what are the dates are available.
So, basically, a manual, which talks about the flowchart of what kind of works are there, has to be
there. So that, that workflow should be maintained and that workflow sometimes should be
automated as well. Handle other services such as sales and marketing this kind of benefit should
also be given to these contact centre people. Because they are in direct connection with the
customer, whether the customer got happy or not they can sometimes guess based on the
conversation.
So, if they think that customers are happy enough and got satisfied. They can push certain other
products or they can sell certain other products to the customer so that the overall revenue goes
up. And, proper routing or service request, as I just told that you have to have a routing procedure
of the service requests that are coming up.
So, all of these things together create a service centre and it can not. A contact centre can also
become a revenue-generating centre depending on how you train, how you give service, how you
make customers satisfied. So, I was talking about something called a service recovery paradox
where I was telling that the service failure if, if there was, not service failure you might have got a
satisfaction rating of 4 out of 5.
Then service failure happens the satisfaction dropped from 4 to 2, then if you can do a proper
service recovery because service recovery has higher recency effect it is more recent in comparison
to my feedback generation. I will focus on, the, how you have done the service recovery more
rather than focusing on how you have given the service.

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And, because service recovery was exemplary, it was very good. Sometimes I might be more
satisfied, sometimes I might be satisfied at a level of 4.5, 4.7 which is higher than the original
satisfaction level. If I would have satisfied it in the very first place I would have reached up to 4,
sometimes I reach higher than that post-recovery.
So, this is the service recovery paradox we say. Why it is paradox? Then this kind of behaviour of
consumers actually, encourages the companies to fail and then succeed. So, if you fail and then
succeed, it is like movies. In the movies a hero gets beaten by the villain first and then he
overcomes the villain, right and we enjoy that overcoming part. We do not enjoy the initial level
hero is so powerful and etcetera, etcetera.
Bahubali gets beaten by, I forgot the name, gets beaten by the villain and then once he gets beaten
by the villain then he overcomes the villain and comes up at the top that is why Baubali is so
celebrated. I do not know when you will see this video whether Baubali will be a very popular
movie at that time or not. But, in our time in 2020, Bahubali is a very popular movie.
And, any other fighting kind of movie, all the things that you have seen. For example, let’s say,
Harry Potter. Harry Potter gets devastated b, at least in the movie, you can see that Harry Potter
gets devastated by Voldemort and then he overcomes Voldemort. That is why Harry Potter is so
much celebrated not because he was winning the Quidditch game or he was doing this and that in
his childhood.
So, everywhere you go, those things are more celebrated where people actually break certain
negative things. So, in the context of service failure also that is why, that, if the failure happens
and if you can break that failure and become a success story, then that success story is more
celebrated even in the consumer's mind.
So, very basic consumer psychology and that is why probably if you get satisfied at the very first
time you will say that it is expected, but the moment you get dissatisfied your expectation level
comes down and now that he satisfies you get a huge kind of a benefit from that particular person.
And, that creates a very high level of satisfaction and loyalty and etcetera.
So, this creates a service paradox and that is why I am saying that how you handle your customer
request, customer complaints and many of those tasks are done by these contact centre people. So,
how well you are handling the contact centres, basically can be a revenue driver as well, because
that can lead to satisfaction, that can lead to loyalty. So, that is something that I wanted to discuss
about the contact centres.

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(Refer Slide Time: 26:03)

Now, call centres strategies that matter. I would discuss about five strategies that will matter. One
is you have to mimic product and service promises. Try to check that what kind of promises you
have done and make sure that your product and service, whatever promise is doing your contact
centre should also follow those promises.
For example, let’s say, Apple. Apple has a huge product promise that this product will be very
good and very etcetera, etcetera. Now, in the call centre the contact centre does not work and does
not keep up that promise, does not keep up that high tech experience that it is giving high tech very
smooth experience that it ─ that the product provides if the contact centre does not provide that
same thing then that creates a dissatisfaction.
So, you have to mimic your service promises or product promises unless the contact centre can
mimic that, the bad experience about the contact centre will impact the brand image of the overall
product as well or service as well. So, that is something that is very important. So, you have to be
consistent, not only in multiple channels, but also in your product promises or service promises .
Second is threat of self service technology. There are lots of, so, contact centres as a business
probably might be affected by self-service technologies that are coming up, but customers can do
it on their own without the help of service centre which is sometimes good for a brand, but
sometimes bad for this contact centre business that is number 1.
Number 2 is that, if there is lots of self-service technology available in the market customers might
not come to you to explain or express their concerns. And, if they do not express their concerns
you might sometimes not be able to know what exactly their concerns are and you cannot do the
product improvements.
So, that is another problem that might come up. So, you have to think self-service technology has
pros and cons that is why. There are pros: self for example, I have not gone to my bank. I have an

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account in State Bank of India and I have not stepped in in State Bank of India for the last probably
4-5 years, if I can I cannot remember at least.
Now, that is because there is self-service technology that is there ATMs are there, internet banking
is there, I can open FD accounts, I can do PPF accounts, etcetera all online. I do not have to go to
the bank. Now, banks might think that this is good, but is it always good? I have certain grudges
for the bank. This bank is not given this XYZ service properly. Their cards are not working in
various places. Their this thing not working in various.
I might require XYZ different kinds of services that they have not even thought about. Now, they
might have created lots of very good self-service technology, but their contact centres are not so
good. So, I cannot. I cannot express my concern which will reach to the right people, probably
their contact management system is not so good.
So, if that is the situation. Then whether less footfall is good for the brand, you have to think about
it. You, there were pros as I told there are cons, you cannot always say that no, no reducing footfall
is always good. It is good in it is probably 95 % cases it is good, but there are 5 % cases, which
where it is bad and you have to find out that. That cases and how to mitigate that problem you
have to think about it.
Then you have to contact high contact, high means you have to ─ So, any contact gives you a high;
that means, some people are very, want to get contacted. So, you want to have that kind of an
experience for them.
Speech analytics and video sharing. Speech analytics and video sharing talks about certain
strategies where the tone of the person or the language that they have talked about or the, I would
say terms that they are using from there you can find out how frustrated they are.
See call centre conversations, we say that your conversation might be recorded for training and
quality purposes. Now, do they actually analyse it, down there are huge levels of data. Analysing
them every day becomes very difficult. Some of the softwares technologies are there which
analyses it actually and finds out information from them.
Now, if the call centre person, the agent is not able to give the correct information or turn the
current information you can analyse the text, analyses the tone, analyse the language that has been
talked about the transcriptions of the discussions and from there you can find out what kind of
problems are more common and you can handle those problems outside the, the customer care
environment.
So, this is also one of the area, one of the strategies which will improve your service and people
are focusing on that research papers are being written on this particular factor and this is an area
where people can do something.
And, the last one is demand management. You can also do a demand management strategy to find
out that when call centres are in high in demand when call centres are low in demand and based
on that you can strategize.

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(Refer Slide Time: 31:24)

So, what is the demand management in call centres? The first thing is demand forecast and capacity
plan. What is demand forecast and capacity plan? As I told at various times of the day, the demand
might vary. It might fluctuate. Even on different days of a week, the demand might fluctuate. So,
you have to first do a demand forecast and accordingly, you have to plan your capacity, that how
many agents are required.
Then you have to plan for source through demand management. So, sorry it should be hours. So,
for certain hours, plan for hours to demand management. You have to be certain, there will be
certain hours when you know that there is a huge peak is coming up.
So, you sometimes, we know this beforehand and we have to plan for that. You cannot just, it
should not come and then you decide that okay, okay huge demand is coming, we have to plan for
a way much ahead. So, that kind of a decision you have to take.
Engage frontline employees in transformation. Sometimes you have to engage the frontline
employees in the transformative process, such that the customers go and take service technologies,
such that the customers express their problem in certain other channels which will be easy to
handle. So, you can use your frontline employees for any kind of customer transformation,
customer learning, customer teaching that you want to do.
And, then you have to measure correctly the last and primary problem.
One of the most important things is you have to, for any strategy, measuring is very important. So,
until and unless you measure you do not, you cannot control, you cannot say that what kind of
improvement can be done. So, you have to measure in the correct way, correct matrices have to be
identified and you have to measure the demand. So, that will be it.

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(Refer Slide Time: 33:18)

I will probably stop this particular presentation by asking this question and, I will start the next
presentation from this question itself. That is number of persons ahead or expected wait enough to
make customer patient? That means when you call in a service centre and call centre it says that
you are fourth in the queue or you are sixth in the queue or you in another 2 minutes an agent will
connect with you, in another 4 minutes the agent will connect with you.
Unless they say that, that creates a huge amount of uncertainty and consumers generally do not
like uncertainty. So, if there is a huge amount of uncertainty and customers don’t like uncertainty,
they will put back the call. Call centres are also coming up with strategies like I will call you back,
you can put down the call I will call you back. But sometimes when you call them back the
customer is not available. Many customers are very busy. You cannot call them and and and and
this has happened with me.
For example, today I will tell you today's example. I have given a this thing to Tata Sky and Tata
Sky told that okay your service request has been raised and I will call you and I have given a time
and Tata Sky come at a slightly different time.
Now, it is very expected that if you come, if I have given 10 to 12 time and if you come a slightly
different time it is expected you can come, no issue. But, there are, there can be people who are
very busy, who will not be able to take calls in a slightly different time. I frankly speaking I am
such a person who cannot take a call in a slightly different time.
Now, that creates a huge problem for me that you are saying that okay you will not be able to take
my call or handle the problem right now and you will call me back and whenever you call me back
I am not available. So, then again I have to call you back to reschedule something. So, that creates
a problem.

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So, then if that kind of situation has to be avoided you might probably ask the customer or make
the customer more patient; what kind of strategies you can take to make the customers more
patient? One strategy is to give the basic information that if you, they stay now how much time
they have to stay in the call after which they will reach.
For example, if I call a call centre and if somebody was that okay you have to wait for 2 minutes,
I might be happy to wait for 2 minutes rather than calling back sometime else. Because at that
some time I will not be available, but right now I have 10 minutes time; so, I can have 2 minutes
of waiting, if it is 2 minutes particularly and then 8 minutes I can talk with this person.
So, sometimes that 2 minutes of waiting is okay enough rather than somebody trying to connect
with me later and I am not in a position to take the call. Now, the question is that, whether this
kind of information, that how much we have to wait, which is very common practice in call centres.
Is it enough? Can you do anything extra? That is where I will stop this particular video.
I will come back in the next video with this, with my answer to this question and you can write in
the forum if you have some views.
Thank you very much. See you in the next video .

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 40
Contact Centres for CRM (Contd.)

Hello everybody, welcome to the NPTEL, Swayam course on Customer Relationship

Management. This is Dr.Swagato Chatterjee from VGSoM, IIT Kharagpur, who is taking this
course for you. We were discussing Contact Centres for CRM and basically under the umbrella of
CRM implementation.

(Refer Slide Time: 00:36)

And I asked a question is the number of persons ahead of an expected wait enough to make
customer patient? So, what does an information about this number of persons ahead give you? If I
give this information to you let’s say this is a server, you were standing here and I am saying that
there are basically three number of people are standing or let’s say, n number of people are standing
in front of you.
What does this information gives you, tells you? It tells you, what is your expected wait? And if
your expected wait, the cost of the expected wait is higher than the benefit, you will renege. Renege
means you will move out from the, you will drop the call. So, in this basically gives you an
expected wait.

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And if I give this particular information periodically, let’s say if I give this information periodically
means after 1 minute, again I told you what is the update; again another 1 minute, again I tell you
what is the update.

(Refer Slide Time: 01:49)

When I give you this information periodically basically I am giving you this dm/dt. dm/dt means
rate of drop of number of persons ahead. Which is minus dm/dt, I would say which is nothing but
gives a which is which signals, what is the service rate. Now, service rate has a different story
altogether. Service rate whether it is good or bad? Let’s say you have gone to a doctor, engineering
service, it is good, the faster it will be some the better.
But let us say you have gone to a doctor, an OPD doctor okay, the two doctors ─ doctor 1 and
doctor 2. Doctor 1 actually, you come in he checks your body parts, let’s say basic details of your
body, he asks you the question, he understands the problem and gives you certain prescriptions or
tests and etcetera, and he takes around 10 minutes time with you.
Doctor 2 sees you, asks you some basic details and writes a prescription, and he takes 2 minutes
time. Question is that, which doctor is better, whom do you like better? So, in general, service rate
is better. In general, you go to a restaurant, a fast-food stall, a fast food stall which quickly makes
the food is better. You go to an ATM, the ATM which quickly gives out the money is better.
All the standardized products where the product service is standardized, high service rate is better.
But if it is customised, if it has to be customised according to your need like the doctor's
consultation which is very customised, you want or let’s say even, not even not only that. Let’s it
is, which are experiential as well not only customise, some of these things can be experiential.

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For example, you might want a massage. A massage parlour, if you go to a massage parlour and if
they give massage, they handle a customer every 5 minutes, quickly they give massage and goes
away, I mean they gives once again, goes away.
On the other hand, there is another massage parlour which takes time, which creates the experience
for certain period of time, so that or everything which is experiential or if anything which is
hedonic or anything which is some I would say why, why things are like doctor service which are
very customised to your problem, lawyer service which is also very customised to your problem.
The higher the time you give the better is the customer satisfaction. So, service rate does not always
signal quality in that kind of situation. But this all I am trying to say that this minus dn/dt, this
information number of persons ahead or expected wait only gives you two information: what is
your expected wait. And based on that, you decide whether the cost is higher than the benefit that
will get while waiting; and based on that, you decide whether you should stay or not.
And the service rate actually signals whether the quality of the good or the benefit that you will
get will be good or not. So, these are the two information where this particular guy has any effect.
But you have to understand that this contacts centre can see if they can see how many people are
ahead of you, they can also see how many people are behind of you. They are basically calculating
this though.
How can they give this extra information? I will give an example, a real-life example that I faced
in my life. So, I was doing Ph.D. at time that point of time. We were staying in Bangalore, just
outside IIM Bangalore campus. And opposite to IIM Bangalore campus, there was this Fortis
hospital, and no sorry Apollo hospital both Apollo and Fortis are there. I used to go to Apollo
hospital. The gynaecologist was there.
My wife was pregnant, and I called in the morning to get an appointment. So, I called in the
morning and I asked that, so it connected with the call centre. And the call centre told you your
call is very important as with for us, you are in the fourth person in the queue, the expected waiting
time is around 8 minutes or 10 minutes, please be with us and etcetera, etcetera.
So, early morning, I thought that I rather I would call half an hour later. So, I just disconnected the
call rather than waiting for 10 minutes. I thought that I will call them back 10, half an hour later.
So, I disconnected the call and again called back half an hour later. Now, this call centre is telling
me that your call is very important to us. You are a very important person. You are in 8th person
in the queue, and you are expected waiting time is around 16 minutes or 18 minutes.
Now, then I realized that there the demand is much higher than the amount of agents that are
available there. So, if I have to ─ now I have to book an appointment, I cannot take my wife there
and there I will book an appointment, then I will go and see the doctor because she is already
pregnant, I cannot make her travel unnecessarily.
So, either I have to physically go and put a put, I would say appointment for the next day or I have
to wait for 18-20 minutes to get that appointment, so because I need an appointment on that day
itself. And I am not some, somebody who needs an appointment a little bit later and Apollo is a
very I would say well-known hospital lots of people come used to come and there getting an
appointment on the same day, sometimes gets difficult because of the rush.

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Now, the question is that is it a right strategy there? If in the first call itself, they have told me that
okay you are in the 4th person in the queue, but there are another 5 persons standing behind of you
in the queue. What would have that told me that information, that information would have told me
that you stay in the queue, you do not leave the queue, because you leave the queue you will regret.
You will come back after 10 people and you have to wait for 20 minutes, so that information that
certain signal can be given if you can give the number of persons behind. And actually, there are
papers which say that number of persons behind gives you multiple things. First of all, the number
of persons behind gives you an assurance, regret, and a chance of regret that if you leave you might
have to come back after so many people.
Even other than that number of persons behind effects in another different way another interesting
story I would want to say here. There was a Durga Puja going on in Bangalore. So, in Bangalore
generally, many Durga Pujas are done by Bengali communities in various places of Bangalore.
And this when Durga Puja was going on and we went and saw this particular Puja, Puja is going
on.
And on the day of Durga, Durga Ashtami if I am not wrong, there was Bhog Prasadam, Prasadam
was basically Khichdi was getting distributed, which this particular khichdi was actually devoted
to the god, and the prasad of the goddess was actually given to us.
Now, there was a long queue to collect that prasadam. And we are somewhere we joined the queue.
And after around 10 minutes of waiting, we reached at a certain level. And we could see that 50
persons were in front of the queue.
And at that point of time, I had also had a kid that at that point of time whom I was carrying means
whom I was carrying in my hand and it was getting painful and etcetera.
So, we were contemplating that should we stay or should we leave because it is a very long queue.
It might take very another 1 hour because everybody is collecting this prasad, it takes around 1
minute. So, 50 persons is 50 minutes. So, should we wait?
Now, then we thought we saw one for just once we saw back and meant the back we saw that there
are 200 people at least standing behind us. Now, these 200, when we are deciding of leaving the
queue, we are not deciding to coming back again.
So, the concept of regret is not there other than the religious reason that gods line, we will leave
this queue and etcetera, etcetera. Other than the religious reason, this religious belief related reason,
there is no other reason of regret because if I leave, I will never come back.
But what happened is by seeing those 200 people, I thought that I am better off. I am in a better
off position than these people, so that gives us sadistic pleasure that okay I am a, I am actually
better off than that person. I am thinking about 50 minutes. Think about that person who is standing
near 200 people even wait for 3 hours, and still, he will get the prasad.
So, this thing actually gives you a signal that this particular, the sadistic pleasure, social pleasure
I would say and that social pleasure sometimes increases the benefit that you will get not the
utilitarian benefit, but a social benefit that will get.

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Also the number of persons ahead and number of persons behind if I if if this information is
obtained totally, for example, I know that 50 people were in front of me and 200 people are behind
of me, that means, 250 people are at this current moment are interested to have this prasadam.
So, I can guess what is the demand of the product, how important the product is. For example, 4
people in front of me in the phone call and 10 people in front of in the backside of me, that means,
14 people at a certain period of time is trying to call Apollo, one single number I will guess that
how much important to be in this line is.
So, all of these things will make me more patient to stay back in the line. And if I stay back in the
line if I wait for certain time and then I served well, the chances of satisfaction is much higher than
calling me back and not getting me or getting me in the wrong time, and etcetera. Oftentimes we
cannot exactly say that, what time of the day I will be very much free. So, if that kind of situation
happens then probably it is better to make the customers more patient.
And this is a very simple costless strategy, is costless. You were already given the information of
number of persons ahead adding up another information putting another figure in the message that
is coming up or whatever message is coming up in the call in the IVR system adding a single more
line will not cost you anything, it will cost you 0 rupees. But if by costing you 0 rupees, if the
strategy can reduce your reneging, dropping off calls by 1% even that gives you huge amount of
benefit because the ROI is infinite.
So, basically that is what I am trying to say that there is a very simple strategy we have written.
My thesis, my own thesis is on this particular topic and we are trying to write a paper on that. But
there are certain other papers which has talked about similar things and you can find out in Google
scholar if you are interested.

(Refer Slide Time: 13:34)

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Next is that, what is the increasing value addition and return. So, there are back end operations and
there are front end operations. And as you go from in, this side to this side, the skill set,
personalization and customer contact increases. So, in the back end, there is transliteration, data
entry, and transcription done.
Then accounting and reconsolidation is done, then claims processing is done. Then inbound calls
are in the front end, outbound marketing calls are in the front end and expert advisory service.
These are more of front end work, and these are more of back end work. So, that is how contact
centres actually divide their walk into front end and back end.

(Refer Slide Time: 14:19)

Now, I will talk about a little bit on CRM implementation. Let’s say, you decided to implement
CRM in your organization, what will be the roadmap for that?

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(Refer Slide Time: 14:29)

So, the first step is you have to analyze the scenario. What is the current situation, and what is the
purpose and objective of implementing CRM strategies?
Then you have to do a business planning that with what kind of things are required, you have to
design the process means first I will implement the software. Then this software will be
implemented in department A, then slowly in department B, and then in the third-place department
C.
This first in department A, first these people will be trained, then from these people, another bigger
group of people will be trained and so on, so slowly one by one. So, this is a technology adoption
right. It is not very easy. People will say that okay this is not required, it is very difficult.
So, there will always be any technology adoption, there will be some early adopters, there will be
some laggards, and there will be some people who are late adopters. So, you have to identify who
are the influencers, who are the early adopters, whom you can train so that they can train another
10 people, and then another 10 or the 100 people. So, slowly the diffusion of the technologic will
happen within the organization.
So, any organizational change if you want to bring CRM implementation is something like that,
you have to first do the scenario analysis, you have to design the purpose and objective of this
work, and you have to plan. And plan will start with the process design, and then your technology
and vendor selection who will be doing it. And this is what the MCDM techniques you can go and
study about MCDM techniques that how vendor selection is done.
Vendor selection is done by multiple things you have to see. You have to see the product of the
vendor, the long, how long they are associated with you, how good is the services, how good is
their availability, there can be multiple factors that are there. And then you sometimes do pairwise

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or sometimes an overall importance analysis that, how these particular factors are important over
each other.
And then if there are 4-5 persons, 4-5 vendors, you rate them based on all these factors. And then
there are multiple MCDM techniques, Multi-Criteria Decision Making techniques which you use
to find out who is your best vendor.
So, again outside the purview of customer relationship management as a course, but you can go
and just search in YouTube Multi-Criteria Decision Making in vendor selection. Let’s say and you
will find out lots of videos are available by various professors.
Go and read some legitimate, listen to some legitimate professors who are from better universities
or institutes, and you will be getting information. Even NPTEL has lots of courses on this, you can
get an idea that how vendor selection is done.
Then the solution development you have to decide you have to sit with the vendor because the
CRM requirement of your organization and the CRM requirement of some other organizations are
very different. And that is very often times people actually, CRM selling if you are a CRM
producer, and CRM selling is a consultative selling.
It is not like you have made at this particular thing, there are lots of modules, and now you fit with
these modules, that becomes sometimes difficult. Sometimes the models that you have developed
as a CRM software developer has to change a little bit depending on the company.
So, company has also to ask you if you are in the client space, the client has to also ask the software
developer that why don’t you change this particular module as per our requirement. Some new
fields, some new processes, new action buttons, new pages has to be created. But oftentimes this
is a one time job. And once it is implemented it is used for 2-3 years, and then any further changes
required by handholding is always there, so that solution development
Then implementation, ultimately implementing that. And again and again, I am telling the most
important part is measurement, so that you can come back here again. So, how you can measure
that, whether your objectives and purposes are actually being met or not, so you have to follow
that path.

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(Refer Slide Time: 18:42)

Now, some important decision here in the multi-criteria before you go for vendor selection is
whether you will buy or whether you will make. Because you see that as I was telling you again
and again that this particular thing is very much related to your company whatever your company
needs that is what you have to focus on.
Now, if it is related to your company, the vendors might not understand or might not appreciate
the needs, specific needs of your organization. So, sometimes it is important to make it. So,
depending on what size of your company is. you might want to make it or buy it.
Also, there are data security issues, because this CRM software will be probably hosted in a cloud.
Now, if it is hosted in the cloud and if you have a security trust issue with the cloud service provider
that creates a problem.
So, certain solutions is that if your organization is big enough, if they can invest on the
infrastructure and etcetera, on also the manpower who will handle this they can make it or
otherwise they can buy it. This is also a very strategic decision. Not very easily it can be answered
it depends on many various things, but this is something where the CMO of a company will poke
his nose as well, his or her nose as well, so that is something it is an important decision that I want
to just say.
And another things in the implementation plan is the three things: one is the organizational culture,
one is the consumer centricity, and one is internal marketing. These are three aspects that I will
discuss. The organizational culture, why it becomes important, because with this transformation
process.
So, in a transformation process, you have to decide that, whether you have to, you have to actually
plan according to the organizational culture. If the organization is very hierarchical organization,

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then the change has to be top, top-down the management has to force the change, but often that
does not work.
If it is a flat structure, then the change has to be driven by the users themselves. But then whatever
the technology you are adopting has to be pre-tested, pileup tested, before you implemented it.
Organization culture also defines that how ─ in what speed the change will happen. Whether the
change will happen in a very high speed. Let’s say it is a huge organization, what, let’s say and
very disconnected organization, then change does not happen very well.
If it is very cohesive organization, generally changes does not happen, but if it happens it will
happen very quickly. So, the organizations social network structures sometimes play an important
role in CRM landscape. Social network analysis is a different kind of technique which is applied
in the social science in terms of implementation of diffusion of information, adoption of
technology, and that is where this also comes and fits with organizational culture perspective. This
is something that is important to study when you come up with CRM.
Then is consumer centricity whether the organizational culture believes that everybody is serving
the customer or not. If everybody is serving the customer, if that kind of belief can be injected in,
the into people's mind, then everybody will be interested to implement CRM, because CRM is the
way to go ahead.
But you have to make them believe that by doing this you are doing good for the customer, whether
you are in marketing, whether in sales, whether you are in finance, whether in production, whatever
department you are ultimately you are doing good for the customers.
So, if that is something out of the society, if that is something that what you want to you can make
them believe that might have a huge impact on the transformation process And to do that, to have
this customer-centricity intact you have to do internal marketing. What is internal marketing?
Marketing to your own insider employees. You have to make them believe.
You have to create your brand image. You have to create the belief system such that the belief that
this particular organization is trying to do good for the companies, for the customers. And I being
a part of this organization, it is my duty and responsibility irrespective of my job role to do good
for the customers. That is why I should be customer-centric, and that is why I should adopt CRM.
So, oftentimes various organizations actually try to imbibe that culture, imbibe that feelings in the
customers mind that they are doing good for companies employees mind that they are doing good
for the customers. Now, these are very strategic issues that I talked about. There are certain
operational implementation issues, very crude hardcore implementation issues that has to be taken
care of as well.

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(Refer Slide Time: 23:31)

So, when I talk about operational implementation issues, there are three parts of it; one is
formation, one is management and governance and performance. So, basically management or
governance comes in the middle. First is Purpose, why you want to do this? Your purpose is to
increase effectiveness and efficiency. For that, you can create certain programmes when you
implement CRM.
So, you can have account management programme which is which. You can have retention
marketing like giving loyalty programmes and etcetera. You can have cooperative programmes
like co-creation, they can come together and co-create together something. And you can also have
strategic partnerships.
Now, all of these programmes, when you try to do a programme whether it is an account
management programme or a co-creation programme or a retention loyalty retention programme
that you are running, you have to define a team, their role, what kind of processes they will do,
what kind of metrics will be monitored, what kind of communication they can do, and why they
will, what kind of training they will get and what kind of rewards the employees will get. So, these
are the HR issues, but HR is not in a CRM context in a consumer centricity concept HRM
marketing are not very different.
So, these are marketing teams, their role, their process, their metrics, their rewards, their training,
everything has to be discussed in every reading you have to define. So, that your employees gets
everything is clear in front of your employees that what they have to do.
And then when I talk about employee motivation or monitoring, there has to be some performance
metrics. And these metrics has to be strategy, financial, and marketing, all these three things has
to be there when you evaluate the performance of any programme that you are launching. Now,

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based on these measurements you do your evolution, evolution means enhancement and
improvement.
And this comes to your programme. Now, sometimes these problems are driven by your partners
as well. Let us say you are doing this particular programme with certain card providers or certain
pay payback points providers who have their own systems, own criteria, own process also. So, you
have to create an amalgamation of your requirements and their requirements and create something
which is good for everybody.
So, this is very easy to say this is the structure I am just giving you the structure. Now, depending
on the structure the variations things will vary that how you will define your own customer
relationship management plan. In a normal class, what I generally do is after doing this I will, I
give them ─ students a project. The project is to create the wholesale plan, that plan will be
probably a ten group project 4-5 people will come together, and create a wholesale plan to do it.
So, even in your case if you know another 4-5 students who are actually doing this you can join
together, pick up any company and create a wholesale CRM plan and email it to me I will check
and give my feedback. So, in the forum, you can communicate you can create your own team,
4-5 people can come together.
They can be from different backgrounds, different age groups, because there are around more than
6000 students are there, who are from different age group, different background, they can all come
together and create, create groups, and then probably send me certain CRM plan based on this
thing ─ that what kind of improvements can be done.
You can choose any company. Let’s say you can choose Reliance Smart or you can choose let’s
say Big Basket, or in the telecom sector you can choose Airtel or Jio or anything and why don’t
you create for an upcoming 1 year what kind of CRM plan, they can do.
You know that what kind of CRM strategies they are now taking you can ─ based on that, you can
probably try to define that what kind of CRM plan they can do, what will be the metrics they will
measure, what will be the team, what will be their roles and etcetera. You can create a report or
you can create a PPT, and send it to me, and I will give feedback on that.
Thank you very much for listening to this video. I will come up with the next video in where we
will cover globalization and international marketing in the context of CRM, actually CRM in the
context of globalization and international marketing. So, we will discuss that and that will be the
last topic that we will cover in Week-8.
Thank you very much. See you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 41
Global CRM

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship Management;
this is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur who is taking this course for you. We
are in week 8 and these are the last 2 videos that we will discuss and the topic is basically Global
CRM.
This presentation is also made by Mr. Rahul Goswami, my PhD student and that is why I have
mentioned his name ; he is a very, the presentation is pretty well made and we will discuss that.
Some topics that we have not covered in CRM, but which will also be important in the context of
customer relationship management is the customer CRM analytics, the customer relationship
management analytics .
Now, CRM analytics the major topics other than the CLV, calculation customer lifetime value
calculation; other than that whatever topics comes into, it comes to be interesting is basically the
RFM analysis which is called recency, frequency, and monetary customer analysis .
Second is like marketing mix model that, how you can decide that, how much money you will
spend on acquisition of the customer and how much money you will spend on the retention of the
customer; if you are the person who is budgeting, marketing expenditures. And the third one is
basically recommendation engine and market basket analysis.
So, these 3 things I have, along with many other things I have already covered in marketing
analytics course, which is given in the spring semester from January onward. Or otherwise you
will find the videos; if you search in our NPTEL website, you will find the videos from the first
run.
So, you can, you should, means the audience should go and listen to those videos; because I did
not want to repeat those videos again, because that will probably curtail the valuable time that we
get only 20 hours in this particular case. So, I would strongly suggest that you go and listen to that
videos, because those are also important topics under the CRM umbrella .
Now, today because we are not discussing the analytics part ─ today in a very interesting thing
that we are going to discuss is CRM in the global context. Now this is something that we will
probably not find in normal CRM books.
This is something which is very specific to organization who has that global footprint, either they
are exporting to the global world or they have multiple offices in multiple cities and multiple
countries and they are collaborating with each other. For example, let’s IIT firms, like IBM or TCS
who has multiple different kinds of customers.
Now, a customer, a client in Germany and a client in Japan or in the client in USA will have
different kinds of preference; because the people are different, their value systems are different.

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So, if people are different, their value systems are different; then the customer relationship
management has to be different as well. And that is something that we have to embrace, we have
to understand carefully and that, in that context this global CRM becomes an important topic of
discussion.

(Refer Slide Time: 03:22)

So, today we will be covering this, CRM and global CRM the concept and then CRM across
cultures, what is the conceptual framework, certain case studies, and how to manage a global
account, how to what is the what are the situations where CRM was done right or wrong. So,
mainly case study based discussion with certain conceptuals; this is will be the this thing for the
next 2 videos.

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(Refer Slide Time: 03:47)

So, what is CRM? CRM is a strategic process of selecting the customers a firm can most profitably
serve and of shaping interactions between a company and these customers with a goal of
optimising the current and future value. So, current and future value of the customers for the
company is something that you want to maximize.
And the process of achieving that is continuing dialogue with customers, we would also discuss
this; ensuring all touch points are active and differentially tailored treatment. So, every person is
different or as much micro-segmentation possible, you have to do that and based on that you have
to take a decision. So, this is basically overall operational CRM is.

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(Refer Slide Time: 04:33)

Now, what is global CRM? Global CRM is the strategic application of the processes and practices
of CRM by firms operating in multiple countries. So, if the firm is operating in multiple countries,
this comes into the picture; or by firms serving customers who span multiple countries. So, either
the firm itself is in multiple countries or the customers will be in multiple countries, which
incorporates relevant differences.
So, what are the various things that are different? Either the business practices are different or the
competition is different or regulatory characteristics are different, country characteristics are
different or consumer characteristics. So, these are the basic things which are different, and we
have to slowly think about how these things are different and what can be done.
Ultimate objective is same, you will again want to maximize customer value; but customer value,
the definition of customer value will be very different if the customer is located in one place or
customer is located in multiple places.
Or versus you as an organization is located in one place or you as an organization is located in
multiple places. In both these cases, the definition, how you define what will be the customer value
generation process. That will be very different. How? Let’s take some examples.

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(Refer Slide Time: 05:53)

So, before we talk about these differences; like business practices, competition, regulatory blah,
blah, blah. Let’s talk about how culture affects. So, culture is something that is different in different
places.
So, when we discuss about culture, you have to discuss about 2 cultures; one is the individual
culture and one is organizational culture. So, customer-level culture is individual culture and
organizational culture. Now you have to also understand; in a service context, not only customer
level culture becomes important, but also the employee level culture also is important which is
different from the organizational culture.
For example, let’s say, I am coming from a background where let’s say, there is a non-veg food is
not considered to be something bad. Let’s assume, there are various people in our country who
consume non-veg food and let’s say non-veg food is not considered to be anti-environment, anti
this, anti that, the thing this is part of the ecosystem.
On the other hand, there is an organization let’s say and that organization is run by people, it is a
family-owned organization. And in that family-owned organization, the owner of the organization
believes that food habits are basically related to whether you are pro-environmental or non pro-
environmental . And definition of pro-environment is whether you are having veg food or non-veg
food.
Let’s say that, he believes that; he or she believes that. And because he is, it is a family-run
organization; he thinks that okay these organizations should have this particular culture in it. So,
now, if these two people, I as an employee of this organization is trying to serve somebody who is
from Germany or USA , where probably non-veg consumption is pretty common.
I will, I as an employee will treat my people, my clients in a different way and the organization
will treat the clients as a different way. Because the organization, the whole organization in at

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large, has a different belief and I probably do not fit in in this organization might have a different
belief.
Now, this is very contradictory beliefs, not always the beliefs are so much contradictory. So,
recently we were discussing, we were researching on something called spirituality; that, whether
a person, a person is spiritual or a person is religious; a religious person goes to the temple, goes
to the, goes to the let’s say mosque or church.
And he has certain routine, every day five times he probably go for namaz or every day at a certain
period of time he goes to the temple or in his own house does certain pooja etcetera, etcetera. So,
this is a religious person; for him the decorum the process is very important.
Let's say, there is another person who is a spiritual person; it can be also a person who is both
spiritual and religious, there can be people who can be both spiritual and religious. There can be
also people who are either spiritual not religious and either religious not spiritual. All these
combinations are possible.
Where a spiritual person is somebody who thinks that there is a God or a superpower that exists
outside and we are connected to that and whatever we do, by doing good things, we are trying to
basically getting connected with that God or the superpower that is there.
Or whether there is one God or multiple Gods or whatever there is a different story altogether; but
he thinks or she thinks that there is somebody outside and we can connect with that somebody
outside through our good deeds.
Now, finally, this person probably the behaviour is not so important in terms of the decorum, in
terms of the rituals; for him normal prosocial behaviour is something that is enough. Now, if these
two, these kinds of people are there in an organization that is an individual employee's cultural or
probably personality-related aspects.
Now, the organization itself can have an overall cultural aspect; for example, let’s say if it is
Ramakrishna mission. Let's say, Ramakrishna mission is a spiritual organization; they allow
different kinds of, for our, for ours students, when we were students, we were allowed to have our
own religious practice, but it preaches spirituality.
Then there can be another organization which can preach religiousness; now the organization itself
might have a culture. So, for example, there are, there might be different kinds of Madrasas. Let's
say, where reading the Quran is very important.
So, they believe that through the procedure, through the procedure you can bring discipline in the
life and these disciplines in the life will actually, probably will through that you will be able to
connect with the God. So, that particular institutions will have a different viewpoint and these
particular institutions have will have a different viewpoint; within a religion also there can be
different organizations who have different viewpoints.
So, now an individual can have a different viewpoint. Now, all these when comes together; because
service is a human-intensive behaviour. Let's say you and I, I am giving, serving you; I am a doctor,
you are a patient, oftentimes what kind of cultural belief you have, what kind of cultural belief I
have will impact our decision, how I will give you the service.

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Whether how much free I will be, how much, what kind of information I will disclose in front of
you; how much information I will not disclose, many things will come into this picture. And if that
is the case, then we have to study the cultural aspect both at the customer level and at the
organizational level.
Customer level is every aspect of CRM from IT and supply chain to marketing and strategy, must
be reassessed in global corporations. IT has to model customers differently across borders and
figure out how to align reporting. Marketers have to know the laws about sharing data. Sales people
need to communicate sensitively.So, there are various places where the customer culture will come
into the picture.

(Refer Slide Time: 12:10)

And firm level culture, it is a difference in competitive environment, technological infrastructure,

political systems and regulatory variations and differences in the challenges faced by global firms.
So, these are all actually impact the organizational culture.

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(Refer Slide Time: 12:25)

Now, let me give some examples; the one that I gave just now these two definitions are very broad,
let me give some examples. For example, we have a hop state scale five, four scale; there is
collectivism or individualism, there is long term orientation, there is masculinity, femininity and
there are two other aspects we will come to that.
I think there is indulgence and restraint; whether you do lots of indulge, lots of consumption or not
and then fifth point I forgot. So, collectivism individualism I already told.
So, collectivism individualism, let's say this is a cultural definition; oftentimes it has been seen
that a western countries are individualistic countries that human, your own need, your own belief,
your own comfort matters a lot. And in a collectivist society; you sometimes sacrifice your own
comfort, your own belief for the global belief.
Now, whether there is right or wrong, it is a different story; because in some certain cases it has
been seen to be right, like individualistic societies can adapt to change, collectivist societies are
very cohesive, they do not let themselves change very frequently.
So, for example, in a designing web site context ; Japanese web users trusted a local website least,
were least satisfied and were least loyal as compared to US, Canada and Germany Web users. So,
because they, the Japanese are basically a collectivist society, in the case of repeat purchases, a
stronger link exists between the human elements of service and sales representative on repeat
purchase intentions for collectivist culture compared to individualistic culture.
So, in collectivist culture, the human interaction matters more, rather than the performance of the
particular product. So, we will see that in our, this thing also, in our India also; when we try to sell
something, how good you are communicating, how good you are connected with the person, what
kind of personal level of attachment you have that plays a major role.

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Along with product quality and service quality, but this thing also plays a very important role and
that is something which is very different in an individualistic society.
Within individualistic society what happens? Investment in customer relationships. So, how to do
that? You send direct mail does not affect perceived relationship investment. So, you direct mails
do not work basically. Preferential treatment is not effective. This is very different from Indian
context.
In Indian context or in collectivist context, preferential treatment is something that we love; but
here preferential treatment is not effective, but interpersonal communications and tangible reverts
are effective in these three countries USA, Belgium and Netherlands.
So, which is very different; here we somebody, somebody gives a preferential treatment in a day
to day life that gives you better satisfaction than somebody is giving you certain discounts, certain
offers. If everybody gets offered you do not feel good; if you get offered and somebody does not
get offered or if you get preferential treatment and somebody does not get preferential treatment
that gives you more pleasure. Now, that is very different and which is not the case in the case of
individualistic countries.

(Refer Slide Time: 15:53)

Now, in the firm level, how it is different? Let’s say IBM global service explains, explained drivers
of successful CRM in 3 global geographic areas. Just check that how the drivers of, successful
CRM is different in these 3 places. In the Americas, businesses in Americans found CRM value
proposition development the greatest challenge. So, CRM value proposition is one of the major
problems here.

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In the EMEA; that means Europe, Middle East kind of a situation and Africa I think, capabilities
and risk assessment, customer data integration, data ownership and process change are the greatest
challenges in implementing CRM.
So, here the process becomes very more important; here what should be the outcome, the value
proposition becomes more important when you are trying to implement CRM. Let's say it is a new
organization, let's say it is a retail organization and you are IBM and you are asking them to adopt
CRM strategies.
IBM has their own tools and etcetera. So, they went ahead and showed them these tools and then
showed why don’t you adopt it.
Now, IT part is different; another part which is more important than developing the tool is to make
people use the tool. Now, these people who are habituated with same kind of probably book
keeping and these and that will be not interested to adopt CRM very easily.
Now, how to make them adopt? In an American context, you can make them adopt by giving a
good value proposition. You can say that okay, this CRM will give you this-that, the outcome if
you focus on the outcome that makes more important. In a European context or Middle East
context, they are very much risk averse.
So, risk assessment becomes more important, the process becomes more important, the data
security becomes more important. So, these are the things which are more important. Under the
Asia pacific context which is farther east, stakeholder assessment and CRM value proposition
developments, most challenging.
So, outcome is more challenging and it, what not how you define outcome, how the stakeholders
collectively define the outcome that becomes important.
So, these are very different cultural aspects that can be that, you can see in different CRM contexts.
So, process change was very important for successful CRM in all these three areas; an
organizational alignment of CRM priority, EMEA gave the highest priority to organization
alignment, then Americas and then Asia pacific. Why? Because Asia pacific people are more
accustomed; so there is this collectivist thing, collectivist organization. So, they can say that okay
if it is organizational alignment is there, then I have no issues.

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(Refer Slide Time: 18:53)

Now, what is the conceptual framework? So, the various people have given various conceptual
frameworks; we have picked up one. Where we are saying that customer perceived relationship
investment will actually lead to customer firm relationship quality; and internal factors and
external factors which are macro factors.
Internal factors and external factors, which are macro factors, that is the, that is something that
ultimately impacts your micro factors. And the micro factors for what do you do? You do targeted
marketing like targeted offers, loyalty, programme; then you perceived relationship investment
you try to create and you also try to that leads to perceived relationship investment.
So, this is the relationship basically. And other marketing activities; not only the targeted
marketing and it is ads and let’s say certain, certain other promotions, these also impacts the
effectiveness of this targeted marketing activity.
What it leads to? It leads to perceived relationship investment. And then, the your risk assessment
and etcetera will lead to firm customer and firm’s relationship quality. So, as you do marketing
initiatives and very targeted markets and initiatives also, that will lead to the quality improvement.
Now, quality improvement, relationship quality will create two types of loyalty; we talked about
this, loyalty can be defined in attitudinal loyalty and behavioural loyalty if you remember. So,
attitudinal loyalty and behavioural loyalty gets created. And when that gets created custom, up
selling and cross selling happens, customer retention happens and new customer acquisition also
happens.
So, this comes from word of mouth, this comes from probably repurchase and this comes from
patronization. So, that’s what I am trying to say that, even in a B2, in a global context also, this
particular thing applies.Now, companies that strive to create value for customers across cultures,
face challenges in terms of both micro and macro factors.

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(Refer Slide Time: 21:19)

So, these macro factors are very different in different countries. How to define macro factors? If
you remember this is basic marketing first years context, which is what we do is PESTLE; political,
economical, social, technological, legal. and environmental factors.
We also do SWOT for internal factors, SWOT analysis or Porter's 5 forces; these are the two
analyses, just go and search about them, I will not cover this year, because these are a marketing
strategy basic courses, basic topics. Just go and read about what these things are, but these are
suffering internal factors and external factors and they are very different.
The legal or environmental laws in India and the legal environmental laws in Europe will be very
different; the sociocultural issues in India, the sociocultural issues in other countries will be very
different. So, you being the same company; if you try to serve in multiple countries, you can face
different kinds of situations.
Macro factors involve differences that affect the entire country or region. Internal factors are
management objectives, corporate culture and country-specific strategies of the company. And
external factors are trade barriers, like the one just I told PESTLE, these are certain external factors.
One easy example is McDonalds. So, McDonalds when they came to India, McDonalds is a burger
company, okay. So, burgers, first of all they generally sell beef burgers. Now, beef burger is
something which is not at all accepted in India. So, what they did is, they came up with some
chicken burger or some mutton burger something like that.
Now, they also found that in India there is a huge proportion of people who are non-veg ─ who
are veg and who do not even touch non-veg food. Now, for that there was Maharaja Tikki, Tikki
burger and etcetera came in. So, Maharaja Tikki burger is Maharaja term is associated with the
India; by telling this particular line you are specifically saying that this particular market is made
for India and then it is a veg burger basically.

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So, McDonalds have adapted their menus and their positioning of various elements of marketing;
means this is the only product, the price, the promotion and etcetera to largely vegetarian
population of in India they focused on. And that is a very, now, McDonalds is present in many
countries; in other countries they don’t do that.
But India is a big country, they know there is a huge customer base possible and if they can enter
here; they have to adapt to India's cultural background. So, that is what they did, which is a classic
case of how external factors impact your marketing decisions.

(Refer Slide Time: 24:13)

What are the micro factors that can impact? Micro factors involve individual consumers within
those countries or regions that I just told. For example, let's say, in India I am talking about one
single customer rather than so many customers. And how to tackle one single customer? You can
do targeted marketing ads. So, targeted marketing activities of the firms directly affect the
perceived relationship investment with the customer.
Traditional marketing activities such as advertisement and distribution are designed for a
segmentation paradigm not a customization paradigm. So, this is something that you can also do.
These affect the customer's familiarity with the firm's brand and should thus moderate the effect
of targeted marketing activities on perceived relationship value.
And customer relationship orientation moderate the effect of CRO as I told, relationship affect,
moderate the effect of perceived relationship investment on quality of the customer relationship.
So, this is what I just told that, you can do targeted marketing activity, you can do other marketing
activity; this will moderate the effect here and this will further impact here, which will be
moderated by the relationship CRO, which is the effect, the customer relationship orientation.

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So, these are some of the broad customer framework, conceptual framework of these particular
concepts.

(Refer Slide Time: 25:51)

And then higher quality of customer firm relationships will lead to higher levels of both
behavioural and attitudinal loyalty as I just told. Those higher levels of behavioural and attitudinal
loyalty would lead to greater profits through effective customer retention, increased customer
value through cross selling.
So, these are some of the things that will happen. And profiling based on behavioural and
attitudinal loyalty; profiling means segmentation will lead to more effective customer acquisition.
How? Let's take the example of Haagen Dazs. So, Haagen Dazs positioning strategy in China as
the luxury brand of ice cream for adults is an example of utilising micro factors to position
effectively the brand for its target segments in the country. So, ice cream is generally sold to kids,
that is a target segment; because kids or youngsters like it.
But here we are creating a luxury brand of ice cream which is targeted towards the adults and not
the kids and that is and they utilize the micro factors like; like customers own preference to this
particular thing, how much, what kind of benefits I give, what kind of advertisements I do which
will ultimately lead to.

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(Refer Slide Time: 27:08)

So, what are the challenges of Haagen Dazs in China? China is emerging middle class were being
exposed to western based dairy based foods in 1980. So, from 1980s onwards China was slowly
opening up, which happened 10 years later in our country and we were also slowly opening up to
the global world. So, most, so that is why the middle class was beginning exposed to western based
dairy food products.
Most of the Chinese are lactose intolerant and few consumers dairy. So, this is something which
is a very challenging, huge challenge; that if the individual, it is not related to the culture, it is the
individual's problem. It is if they are lactose intolerant; then what will you do?
American annual per capita consumption of ice cream around 1980s was 9 kg; whereas consumer,
Chinese consume fruit as dessert, rather than ice cream. So, there was a huge scope, but there was
a very huge barrier as well.
Compared to western countries, Chinese have a relatively low per capita income during 1990. So,
that is also a challenge and the Chinese population was known to be extremely price sensitive;
now this is a cultural aspect. This is this might be an internal factor, but this is a cultural factor.
Despite of this challenge, Haagen Dazs decided to take a huge societal and cultural risk and set up
operations in mainland China.

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(Refer Slide Time: 28:34)

So, what did they do? Consumer characteristics of Chinese consumers; they give a lot of
importance on how they, how they are perceived by peers.
So, here in this kind of a situation, what the other people tell about you, the social norm or I would
not say, only the social norm; the social viewpoint, because very important to you, you would
rather want to be looked good by other people than whatever you want to do on your own. .
So, that is a very important thing which is very different in individualistic culture, where you give
your value systems, your own, I would say opinion, huge importance ─ in Chinese context, other
peoples’ opinion become more important. So, your social identity is bigger identity than your self-
identity.
So, if that is the case, the central cultural principle of saving face governs many of their daily
actions. So, they want to show that they are saving, they are saving money. So, face acts as a driver,
this face acts as a driver for the growth of luxury goods in China.
And Chinese used luxury products to demonstrate their status, so, and economic success. So, they
want to show that okay I am a person who is successful and etcetera. So, this is something that
actually tried slowly opening up and creating an opportunity for the luxury products.
So, Chinese consumers have a deep appetite for luxury brands, especially for people with newly
created wealth. And why newly created wealth was getting created? You see from 1980s onward
as China was liberalising a little bit, the income inequality was also going on; if we check the curve
of Chinese economics, though it was it says that okay everything we do in the in the domain of
consumerism and in the domain of capitalism and then what is the communism and etcetera.
But what happened is that, the income inequality went up; obviously the poor, poverty went down,
because poor people got shifted up, but income inequality was still there. And the more the income

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inequality and the more this kind of cultural background is there, that I want to be shown to be
wealthy or highly praised by other people; I want to show off by buying luxury products.
And that is, this is, this kind of behaviour is not only common in China, many other countries in
and around China will probably show this kind of behaviour.
Chinese consumption of luxury brands will account for 60 percent of global demand by 2020. So,
this is something which becomes an external factor, which makes it an interesting point for Haagen
Dazs to focus on this particular country.

(Refer Slide Time: 31:27)

So, what how did the position? Say decided to direct the brand to satisfy Chinese demand for
luxury goods that act as obvious markers of economic status. So, McKinsey pointed out, pointed
to growth of luxury services is greater than low growth of luxury products. So, China will focus
on services more. So, Haagen Dazs entered as a luxury product brand, but repositioned itself as a
service brand. That is what they did. So, they came up initially as a product; when like you sell ice
cream, but then they repositioned as a service brand.
So, what other Chinese meant was positioned themselves as ice cream brands; whereas Haagen
Dazs positioned itself as Western Icons of Luxury. Other ice ice-cream brands positioned
themselves as ice cream brands only; what these guys positioned themselves as a Western Icons
of Luxury, they didn’t focus on the ice cream part, but the luxury part they focused on.
So, Vice President of the company's Asia Pacific operations, told reporters in 1998 that “What
Rolls Royce is to cars, Haagen Dazs is to ice cream.”. That is how they positioned themselves not
as a utilitarian product or an idyllic product, but a luxury product, so which is a very different
positioning.

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(Refer Slide Time: 32:43)

So, what kind of marketing mix they took? First of all, the product is high quality ice cream,
Chinese food culture was based on guys' food culture ─ the green tea flavour was very common.
And based on Chinese cultural traditional foods, moon cakes as gifts they came up, ice cream hot
pots as a traditional Chinese meal was also being encouraged. So, this was their product. And in
the service part what they do? They came up with a high end cafe. So, this is the convenience part
I would say.
Product, price, place ─ so, the place part is this. So, ice cream cafes. So, Chinese consumers prefer
ice cream as a dining experience in a well decorated shop. So, they went to a very fancy kind of a
cafe. And focus on high end real estate, all imported products and local cafe managers; the cafe
manager will be local, but everything else will be very, very posh.
What kind of promotional strategy they take? They focus on indulgence, affordable luxury, ─
affordable luxury; so this is something that is important. You will show luxury, but that has to be
also accustomed with affordability; because Chinese people's only people who will like this, is the
people who have just now got wealth.
So, that kind of people if you are targeting, you cannot be very luxurious; affordable luxury is
something that you have to focus on and intense sensuality in a manner appropriate to Chinese
culture. On the other hand company investment heavily to create brand awareness as a premium
brand image. So, they did lots of ads, lots of I would say positioning initiatives have been taken to
improve the brand image.
And what was the pricing strategy? Customer's Chinese consumers crave exclusivity, image and
prestige. So, a higher price with an established brand name delivers all that. So, that is what they
give, not a very high price; because affordability was an issue, but much higher than the existing
brands and that helped Haagen Dazs a lot.

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So, I will stop here in this particular video and in the next part, we will come up with other case
studies, in which we will discuss about how various companies have focused, repositioned and
marketed themselves in that global CRM context .
Thank you very much for being with me in the video, see you in the next video.

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 Customer Relationship Managemen
Prof. Swagato Chatterjee
Vinod Gupta School of Management
Indian Institute of Technology, Kharagpur

Lecture – 42
Global CRM (Contd.)

Hello everybody, welcome to the NPTEL Swayam course on Customer Relationship Management.
This is Dr. Swagato Chatterjee from VGSOM IIT Kharagpur who is taking this course for you.
We are in Week 8 probably this one will be your last video, where we are discussing about Global
CRM.
Global CRM is the application of CRM concepts in the global marketing or international marketing
situation and we have been discussing in the last video what are the ─ how the cultural aspects
impact CRM and how the macro and micro factors can impact the CRM strategies that the
companies can take. We will continue with this discussion in this video as well.

(Refer Slide Time: 00:56)

So, we have discussed about Haagen Dazs; we have discussed about McDonalds; Here I am talking
about customers' lifetime value and culture and how culture impacts the customer lifetime value
context.
So, to maximise customer lifetime value around the world global managers need to understand the
difference in cultural and economic dimensions across countries. So, the social socio-cultural
backgrounds are different, and also the economic backgrounds are different both have to be
considered.

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So, what are the drivers of CLV? The CLV drivers are repeat purchase or purchase frequency,
gross contribution of margin means how much profit you can generate, and the marketing cost.
So, these are, marketing cost is? It’s not the net, it is a, I would say the fixed cost that you incurred
and gross contribution of margin is probably price minus the variable cost that is your margin and
the purchase frequency.
So, individualistic countries have strengthened relationships between multi-channel buying, cross
buying, product returns, and purchase frequency and contribution of margin, because there the
focus is very much on the transaction not on the relationship. So, the people will focus on that,
what benefit I will get from having a long-term relationship with you or repeat purchases from
you.
So, they have done whatever they have done is very, whatever relationship strategy they take is
very much tangible, it is related to multi-channel buying cross, buying and product returns,
purchase frequency, and contribution. These are all measurable.
However, the effect of loyalty programme enrolment on purchase frequency and contribution
margin, it is weak in countries with high in individualism. So, what you are doing? What kind of
loyalty programme enrolment you are doing, that will not lead to purchase frequency.
What will lead to purchase frequency of contribution towards margin is what kind of benefit that
you are giving, just having a relationship is not enough. In the context of collectivistic countries
just having a relationship is not enough even if you are not getting any monetary benefit.
Therefore, firms in individualistic countries should focus on promoting multi-channel buying and
buying across departments and implement a lenient return policy with minimal focus on loyalty
cards. So, rather than a loyalty card you focus on what benefits what kind of convenience you can
provide.
Most importantly the study suggests managers evaluate the net effect of cultural dimensions on
the drivers of purchase frequency and contribution margin and focus on the drivers, whose net
effect is highest after accounting for the relevant cultural dimensions. So, this is how the culture
impacts in an individualistic context.

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(Refer Slide Time: 03:49)

Next, we will talk about something called a Global account management. Now, this is a topic
which is in our previous study we told in a B2B context. Till now whatever we discussed mostly
Haagen Dazs or McDonalds or let’s say before to that we have discussed about, I think these two
we have discussed. So, these are all basically in a B2C context.
But in a B2B and IBM also we have discussed that is also B2B context. Now in a B2B context,
there is something called a key account management, key account management is what? You have
to find out which of your clients are your key clients or most important clients and try to manage
them separately; try to have a very focused association with them often you want to do co-creation
with them and etcetera.
Now, if by chance this particular key account is situated globally; that means, either the customer
is situated in a different location than the company or the customer is located in multiple locations,
or the company is actually located in multiple locations and giving service from multiple locations.
All of these things can be considered as a global context or an international marketing context.
Now, in this kind of a situation when the global account management becomes important. So, it is
crucial for companies with multinational customers, global account management is of uttermost
importance for suppliers’ initial adopters of GAM were IBM, Xerox and, HP.
So, according to HBR, only HBR means Harvard Business Review. A third of hundreds of
suppliers that have adopted GAM are happy. So, if you are adopting this strategy you are happy.
For example Honeywell, Honeywell provides GAM to multinational customers that want to
specify centrally what sorts of process control equipment are installed in their factories worldwide,
in order to ensure common quality standard and minimise variations in operating and training
procedure.

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So, you have to understand that there are certain companies who have multiple presences in
multiple places. There have different kinds of factories. Now if their factories are not having
similar kinds of, I would say machines or similar kinds of tools, then the product quality that will
be generated in multiple places are very different.
Similarly, if their life of the tools or the life of the systems or the quality of the systems are not of
the similar mark, that will create a problem.
So, what Honeywell did is, Honeywell provided a global account management kind of a tool,
where all of the, all these things will be monitored, discussed, consulted, and will be in sync. Now
all the people who have this kind of a GAM strategy will do these actually pretty well, so they
were happy.
The fuelling service of BP’s Castrol division that also offers GAM to key multinational customers
in the transportation industries for obvious reasons , because international routes and their activity
on those routes are constantly changing. Let’s say the flight, they are constantly changing and
global coordination is essential to ensure that planes and ships don’t run dry.
So, if you are not, so ideally BP is basically selling petrol or whatever, some fuel. But they are also
coming up with a IT tool, global account management kind of tool, where that client can coordinate
with each other that at what point, how much has to be source, how much fuel has to be bought,
how much fuel has to be stored, how much time will be required to filling the planes or some,
some other transportation products ─ this service transportation services and etcetera.
So, by saying that all I am trying to say is that though Honeywell is selling automation products
or BP Castrol is saying fuel, by giving this kind of service which is a global account management
kind of a service. They are ensuring that the overall management in a multinational environment
gets smoothened, because if it is smooth then the customer will be more loyal towards these
suppliers.

(Refer Slide Time: 08:11)

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How to know if GAM is required? So, whether your products and services need global
coordination under profitable enough to justify that is the first one. So, if it is global in nature and
if you spend money on that: whether that will be profitable enough or not ; whether your
multinational customers want GAM that is the second step.
So, the first part is the utility second thing is whether your customers want GAM or not. Ff they
have their own GAM or if the ─ think that no, you will not be able to give us that kind of a
management strategy, then you might not be in a position to impose that.
So, whether your customers want it is an important factor. Whether your multinational customers
are important to your business, whether you want them to be your business and whether you can
gain competitive advantage from GAM.
So, whether your competitor is giving it, your competitors giving it you have to give it. If they are
not giving it you can do analysis and see that if by giving it you can do better than them. So, these
are some of the drivers.
What are the benefits? You can improve customer satisfaction by 20%. This is something that
came from Harvard Business Review, that you can improve customer satisfaction by 20% or more
within a few years of introduction of GAM, Global Account Management strategy. Raise both
profits and revenues by 15 % or more. And you can have a match your programme match your
programme those at least of 5 years old can generate increases twice as large as or more.
So, they can actually create profits twice as large or more than what is not so established GAM
strategy. So, as GAM strategy also gets implemented well and as time passes you get benefits more
and more. So, this is something that we have to also take into account.

(Refer Slide Time: 10:04)

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Let’s discuss some of the CRM done right in what kind of situation CRM was done right or wrong
is discussed some of the case studies. Today companies are not using CRM systems to transform
an entire business, but to solve clearly defined problems within the customer relationship cycle.
So, rather than changing everything, rather than changing everything they are focusing on certain
aspects.
For example, all companies before launching CRM initiatives should ask these 4 questions: is it
strategy? For example, before spending a single penny of CRM, identify the processes that most
support your company's strategy and improve those processes found for improvement through
CRM.
So, you don’t change everything overnight, you find out all the processes that are there. And find
out which of the processes are more related to a top line and bottom line. These are your most
crucial factors. Then once you have identified that you try to tackle them, rather than tackling the
whole thing.
For example, aircrafts parts distributor Aviall Inc, what they do needed a well-trained sales force
to achieve it is strategic objective. What was its strategy objective? Becoming the premier industry
provider of supply chain management services.
So, the company installed only those CRM elements required to enhance sales force and order
entry productivity, not anything else, because they are focusing on the supply chain management.
Where, the demand and supply becomes a more important factor rather than any other part.
So, they implemented CRM but not all the modules. They will not require the customer service
module, they will not require probably the problem generating module, they will more majorly
focus on a complaint handling model, they will majorly focus on the demand and sales force and
order entry kind of a model; that module they have already implemented.

(Refer Slide Time: 12:02)

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Then where does it hurt? Next question consumer goods giant Kimberly Clark's pain point lay in
their retailer promotions; they were not being able to do the retailer promotion, not the customer
promotion. So, running thousands of promotions annually, it could not discern which promotions
strengthened their retailer loyalty and sales.
They were running, they were giving more retailer margin, they were giving free. You as free
people, if you can sell this much or a free ticket to the world cup soccer match if you can probably
take so many customers in our network. So, that kind of various kinds of benefits we give.
Sometimes the benefits that we give to the retailers are related to tangible, sometimes intangible,
sometimes monetary; sometimes non-monetary.
Now, the question is that, which kind of promotion is working? So, they were not able to track that
because they are on generally B2C companies will focus on the customers more, retailers less, but
here in this particular context retailers are also important.
So, it installed a modern CRM system that enables managers to track the return of investments in
individual promotions, they try to track individual promotions. I run this, how much benefit I get.
And sometimes these activities become, some, a little bit of analytics activity also, if again if you
do a marketing analytics course you will have an idea what I am trying to say.
Do we need perfect data? That is also another question. For example, Japanese equipment maker
Brother International's U.S firm faced high product return rates stemming from customer
dissatisfaction and call-centre-service.
So, the company launched a new CRM system that enabled service representatives to identify
customers when they called quickly locate their purchase record and provide codified responses to
common questions. So, there were lots of product returns, why? Because customers were
dissatisfied and they were not getting satisfaction with the customer calls; also the service centre
they used to call but there also the service was not good.
So, they implemented a CRM which we used where I told in a previous class if we remember, that
your call centre service has to be integrated with your backend purchase databases. So, these CRM
systems can quickly fetch that and check what kind of problems are there and what kind of these
things are there when we will give some automated suggestions to the service step.
Now, based on the question you can see the automated suggestions and give certain suggestions
which might make this particular. So, they help customers be happy. So, they are help, taking the
help of AI or data science to make the representatives or customer representatives more powerful,
more enabled, more empowered to take calls for the customers.
Call times shrank by 43 seconds which is of huge savings and that savings is actually almost 1
million dollar in annually. So, that is something that you can do.

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(Refer Slide Time: 15:14)

Then where do we go from here what is the next result? For example, Molex, an Illinois-based
global manufacturer of electronic and fibre optic interconnection systems has a large customer
base and a vast pipeline of potential orders.
At any given point the company is pursuing close to 15,000 different sales opportunities
worldwide. For a number of years Molex used email and spreadsheet to keep track of this pipeline
because the pipeline is so large it becomes very difficult. But that resulting, the resulting data were
often weeks out of date. So, if you do it in Excel systems, you have to do manually, put the data,
and etcetera it becomes out of date.
What was the result? Difficult to consistently set sales priorities so, the company could pursue the
leads which are highly potential. So, prioritisation was not happening and the lack of updated
information also made it hard to synchronise Molex global efforts.

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(Refer Slide Time: 16:16)

So, what did they do? CRM system to manage its order pipeline. So, executives can see the full
range of sales opportunities in real-time and measure the real value of those opportunities and get
updated information about them 24 hours a day rather than a few times a year.
So, this is something that they can do for the benefits it gains were immediately improved order
management, more precise sales, better global coordination of inventory and pricing between
regions. So, that thing helped.
Both the number and the value of potential sales in the pipeline have climbed significantly, because
now you can see that, which customers have a higher probability to get turned in, that means get I
would say converted and who will give more money. So, probability of conversion multiplied by
the expected money that you will get, that will create the customer lifetime value.
So, you can very quickly calculate each of your potential clients customer lifetime value, and based
on that you can prioritise. You, if you have a CRM system. Before that if you do it in Excel, 15,000
data in Excel, that too manually updating them becomes very difficult.
End goal was a 5% increase in revenues. 5% increase in revenue is a huge increase. It is not a
child's play by only adopting a simple system. It is a very huge increase.

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(Refer Slide Time: 17:42)

McDonald’s Tech Turnaround. In January 2001, fast-food giant McDonald’s launched a 5 year, 1
billion dollar initiative to overhaul its information systems to enhance customer service at its more
than 30000 restaurants around the world.
Now, what did they do? McDonalds installed a new internet-based data management infrastructure
for the company. What this particular infrastructure will do? It will cover everything from
electronic links with suppliers to software for tracking customer purchasing.
Means how suppliers give, how customers are purchasing, every the whole supply chain process
will be tracked in an electronic system. To sensors for remotely monitoring the temperature of fat
in the french fry vats. So, even not there. Wherever you store your french fry vats and etcetera,
exactly how much temperature is there that is also being tracked. So, the whole system of this
McDonalds was being tracked.
After 2 years the CEO wrote off the initiative for 170 million due to financial pressure and eroding
stock price. In simple words, the massive IT programme of McDonalds failed. Now I will stop
here and ask you to think based on whatever we discussed the 4, 5 questions. Why do you think
this thing has failed? You just think about it before you go to the next slide. Stop this video for
one minute. Think about, it that why this thing failed.

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(Refer Slide Time: 19:16)

So, McDonald’s changes its focus after that. So, McDonald's now figures out it is topmost
priorities. I told that you have to find out which processes are your priority, you cannot probably
measure everything and store everything that will be a huge data IT investment and that might not
work which McDonald’s did and that is the answer of why they failed. So, they first found out the
priority. Their priority was customers and existing restaurants. To improve the customer
experiences and solve customer relationship problems worldwide.
The company focused on simple CRM efforts. What? Installing touch screen ordering systems, in
the thing you can have a touch screen, you can click there and you can order there and improve
customer service hotline.
So, where you call and give an order that we improved. This highly targeted efforts contributed to
resurgence in sales and profits. So, rather than creating a huge system which is useless and focuses
on not-so-important processes. Try to focus on important processes that will help you. So, that is
what these people have done.

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(Refer Slide Time: 20:22)

So, these are some of the references that we have from, where the, most of the concepts have been
brought in and you can probably listen to the CRM videos that we have CRM, RFM kind of videos
that we have covered in the marketing analytics class.
And I would also want to discuss here one single point is that CRM is a strategic concept, it is not
something which can be done overnight it is a very slow process of change and you have to take a
strategic call. And sometimes small, small, I would say experimental initiatives might work better
than taking an overall change in the whole world.
But when you try to apply CRM in your customer situation you have to think about that, what is
the most important aspect in the all the processes that are there in my organisation and try to target
those aspects which are most important.
And then you have to also find out that how customer-centricity that we discussed before,
customer, customer-focused decision makings can be used to handle these kinds of situations. This
is the second thing that is most important.
Then obviously, certain calculations become more important like prioritisation. Just now I told
that you can prioritise which customers to focus on and which customers to not focus on. Who are
your angels and who are your devils? This is a classic takeaway of the whole course, that focuses
on your important topics, try to be customer-oriented, try to decide that who are your, who are
important customers.
Important customers come from both probability of retention, the monetary money that you have
to expend, expansion to ensure that retention, and how much value you will get out of that
retention.
All of these things together create your most profitable customers . You have to identify those
customers very, very, very targeted way and then you have to know that what kind of cultural

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problems they cultural differences they have, what kind of needs and wants they have, and based
on that you have to target these particular customers very very focused way.
So, if you can do that in a very focused way then the CRM will apply, and then obviously whenever
you implement something you have to first analyse then design, analyse, measure. So, implement
and measure so, implement measure and then again you have to change your CRM strategy.
What are the classic CRM strategies that we took which we have discussed till now? We have
discussed about certain monetary CRM strategies like the loyalty programmes that we give ; in the
loyalty programmes you can have multiple kinds of I would say levels; and in multiple levels, you
can give multiple different kinds of discounts. And probably this discount should be non-linear, so
as it goes up the benefits that you get also get increased in a non-linear way. So, that, you have to
ensure that is the monetary part.
There are so many non-monetary benefits that you can give also, like certain hedonic benefits,
certain informational benefits. For example, in a retail setup, you will sometimes. we get early
arrivals, early arrivals of dresses, the apparels that is an informational benefit that we are giving.
In the gaming setup let us say you are trying to play a game and certain features are open for only
loyal customers and certain features certain levels of the game certain features of the game are not
even open for the loyal customers.
So, if you are a paid customer you will get certain specific guns, let’s say if you are playing
something and those guns will not be available if you are not a paid customer. So, that kind of
difference which is not basically a feature-related difference, that kind of thing can also be given
a loyalty programme. Obviously, monetary benefits related to the purchase related to positive word
of mouth can be given in case of loyalty programmes.
So, all of these things come under the loyalty programme perspective. Now there are certain
aspects, these are majorly focused on the repurchase intention. What kind of strategies? You can
take for the second one which is positive word of mouth, you can encourage people to write
reviews, you can solicit reviews at the correct point of time, you can probably engage them in the
reviews you can.
So, there is a leader board. In Amazon, if you go and see. In Amazon there is a leader board, leader
board comes from how many reviews you have written, how many likes and dislikes in the reviews
you have got, and how important, means how many people have viewed your review.
Based on that they create a leaderboard and that leaderboard gets updated. The leaderboard gets
updated, means the good reviewers, the more prominent reviewers get certain gets up in the
leaderboard, and not so prominent reviewers come down.
So, reviewing itself or spreading positive word of mouth itself they have done a gamification of
that, by doing that they give certain prizes, certain discounts, certain I would say that even identity,
they give you an identity that you are a good reviewer.
So, that many people can many brands can come and ask you that why don’t you write a review
for us and they pay you sometimes for writing reviews for them. The students ask people, food
bloggers and etcetera to come and write reviews for them or write a blog for them. So, travel blog

692
would these hotels and etcetera to ask the travel bloggers or travel vloggers video bloggers also to
come and create a video or create a blog for them.
All of these things are actually encouraging the positive word of mouth and you if you are, if you
are actually engaging in that kind of a loyalty programme, that might also increase the lifetime
value. And the last one is re-patronization; re-patronization is trying to engage the customers with
your brand rather than other brands.
So, you can take lots of post-purchase behaviour for that as I told that you can create a Harley
Davidson club or you can create forums or you can create various other strategies. So, these are
the operational sites and then we have discussed about the IT part of the CRM. What kind of IT
initiatives have to be taken? Database, probably call centres, and how this can be interconnected.
And then we have discussed about the operational, about the strategic part, how to implement it,
what is the change management issue. The moment you want to change, implement a CRM even
if you only implement it for the crucial factor in a very simple way you will face change
management problems.
So, that comes into a picture and the last one that we discussed is this Global CRM. So, this was
the whole story of CRM. Now, it has marketing in it, it has HR in it, it has an international strategy
or international marketing in it.
So, many other things come together to create the CRM strategy. You have to think from a CRM
strategy perspective, for a very operational perspective like, if you only want to learn how CRM
decisions are taken or CRM mathematics are done some of these videos actually covered that,
some of the videos as I told in the CRM analytics part that you will find in the marketing analytics
course you will find that.
So, that is all from me, thank you very much for being in this particular course with me. Hope you
have enjoyed it. If you have any query you can directly write to me and see you in a different
course. Thank you very much.

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