Because learning changes everything.

Customer Relationship
Management
CHAPTER 11

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 Learning Objectives
LO 11-1 Describe the customer relationship management process.
LO 11-2 Understand how customer shopping data are collected.
LO 11-3 Explain the methods used to analyze customer data and identify target
customers.
LO 11-4 Outline how retailers develop their frequent-shopper programs.
LO 11-5 Explain various ways to implement effective CRM programs.

© McGraw Hill LLC 2

 Customer Relationship Management
Customer Relationship Management
Set of strategies, programs, and systems that focus on identifying and building
relationships with valued customers.
Share of wallet.
• Percentage of customers’ purchases made from a particular retailer.

© McGraw Hill LLC 3

 The CRM Process 1

Learning Objective 11-1 Describe the customer relationship management process.

Goal of CRM
Customer loyalty.
• Committed to purchasing from the retailer.
• Resists competitors.
• Emotional connection.
• Personal attention and customer service best ways to develop loyalty.

© McGraw Hill LLC 4

 Personalized Service

The Ritz-Carlton
provides personalized
service for its preferred
customers.

© McGraw Hill LLC Jim Cummins/Taxi/Getty Images 5

 The CRM Process 2

Overview of the CRM Process

1. Collecting customer shopping data.
2. Analyzing customer data and identifying target customers.
3. Developing CRM programs.
4. Implementing CRM programs.

© McGraw Hill LLC 6

 EXHIBIT 11-1 The CRM Process Cycle

Access the text alternative for slide images.

© McGraw Hill LLC 7

 Collecting Customer Shopping Data 1

Learning Objective 11-2 Understand how customer shopping data are collected.

Data Warehouse
• Transactions.
• Customer contacts.
• Customer preferences.
• Descriptive information.

© McGraw Hill LLC 8

 Collecting Customer Shopping Data 2

Identifying Information
Ask For identifying information.
Connect internet and store purchasing data.
Offer frequent-shopper programs.
• Loyalty programs.
Place RFID chips on merchandise.

© McGraw Hill LLC 9

 Collecting Customer Shopping Data 3

Privacy and CRM Programs

Privacy concerns:
• Customer control over personal information.
• Customer knowledge about collection and use of information.
• Cookies.

© McGraw Hill LLC 10

 Collecting Customer Shopping Data 4

Privacy and CRM Programs continued

Protecting customer privacy:
• Privacy of most consumer data not protected in U.S.
• Retailers must instill customer confidence.
• Opt in.
• Opt out.

© McGraw Hill LLC 11

 Analyzing Customer Data and Identifying Target
Customers 1

Learning Objective 11-3 Explain the methods used to analyze customer data and identify target customers.

Identifying the Best Customers

Customer lifetime value (CLV).
• Past behaviors used to predict CLV.
• But use of sales to identify a retailer’s best customers can be misleading.

© McGraw Hill LLC 12

 Analyzing Customer Data and Identifying Target
Customers 2

Which customer has the highest CLV?

• Customer 1: purchased $400 in December and spent nothing else the rest of the
year for a total of $400.
• Customer 2: spent between $10 and $65 each month from December to
November for a total of $355.

© McGraw Hill LLC 13

 Analyzing Customer Data and Identifying Target
Customers 3

Retail Analytics
Applications of statistical techniques and models to improve retail decisions.
Data mining.
Market basket analysis.
• The number of times two products get purchased at the same time.
Targeting promotions.
Assortment planning.

© McGraw Hill LLC 14

 Market Basket Analysis

Market basket analysis is a

data mining tool that
determines which products
appear in the market basket
that a customer purchases
during a single shopping
trip. It is used to suggest
merchandise that should be
placed and promoted
together.

© McGraw Hill LLC Fuse/Getty Images 15

 Developing CRM Through Frequent-Shopper Programs 1
Learning Objective 11-4 Outline how retailers develop their frequent-shopper programs.

Effectiveness of Frequent-Shopper Programs

• Not useful for building long-term customer loyalty.
• Easily adapted by competitors.
• Expensive for retailer.
• Difficult to revise or correct – customers don’t like change.

© McGraw Hill LLC 16

 Developing CRM Through Frequent-Shopper Programs 2

Making Frequent-Shopper Programs More Effective

• Offer tiered rewards.
• Treat frequent shoppers as VIPs.
• Incorporate charitable activities.
• Offer choices.
• Reward all transactions.
• Make the program transparent and simple.

© McGraw Hill LLC 17

 Charitable Donations

Pampers’ Rewards
program allows
customers to redeem
their points by offering
them as charitable
donations to a charity
devoted to children’s
health.

Access the text alternative for slide images.

© McGraw Hill LLC Source: Procter and Gamble 18

 Implementing CRM Programs 1

Learning Objective 11-5 Explain various ways to implement effective CRM programs.

Customer Pyramid
80-20 rule: small number of customers account for majority of profits.
Customer pyramid divides into four segments.
• Allows retailers to develop more effective strategies.

© McGraw Hill LLC 19

 EXHIBIT 11-2 The Customer Pyramid

Access the text alternative for slide images.

© McGraw Hill LLC 20

 Implementing CRM Programs 2

Customer Pyramid continued

Platinum segment.
• Top 25 percent CLVs.
Gold segment.
• Patronize some of competitors.
Iron segment.
• Spending levels not substantial enough.

Lead segment.
• Lowest CLVs.
• Demand attention, don’t buy much.

© McGraw Hill LLC 21

 Implementing CRM Programs 3

Customer Retention
Personalization.
• 1-to-1 retailing.
• Involve best customers in business decisions.
Community.
• Retail brand community.

© McGraw Hill LLC 22

 Reaching the Best Customers

Upscale retailers like Saks Fifth

Avenue provide unique personalized
benefits and targeted messages to its
best customers.

© McGraw Hill LLC Todd Williamson/WireImage/Getty Images 23

 Implementing CRM Programs 4

Customer Conversion: Making Good Customers into Best Customers

Add-on selling.
• Offer and sell more products to existing customers.
• Data warehouse can pinpoint opportunities.
• Amazon.com recommends other products.

© McGraw Hill LLC 24

 Implementing CRM Programs 5

Dealing with Unprofitable Customers

Catalog retailers pay more on returned items.
Some companies flag unreasonable return patterns.
Ways to “get the lead out”:
• Offer less costly services to satisfy needs of lead customers.
• Charge customers for services they are abusing.

© McGraw Hill LLC 25

 Key Terms 1

add-on selling – selling additional new products and services to existing customers, such as a bank
encouraging a customer with a checking account to apply for a home improvement loan from the bank.
cookies – computer text files that identify visitors when they return to a website.
customer lifetime value (CLV) – the expected contribution from the customer to the retailer’s profits
over his or her entire relationship with the retailer.
customer loyalty – customers’ commitment to shopping at a store.
customer relationship management (CRM) – a business philosophy and set of strategies, programs,
and systems that focuses on identifying and building loyalty with a retailer’s most valued customers.
data mining – technique used to identify patterns in data found in data warehouses, typically patterns
that the analyst is unaware of prior to searching through the data.

© McGraw Hill LLC 26

 Key Terms 2

80-20 rule – a general management principle where 80 percent of the sales or profits come from 20
percent of the customers.
frequent-shopper program – the set of activities designed to identify and build the loyalty of the
retailer’s most valuable customers. Also called loyalty program.
loyalty program – the set of activities designed to identify and build the loyalty of the retailer’s most
valuable customers. Also called frequent-shopper program.
market basket analysis – specific type of data analysis that focuses on the composition of the basket
(or bundle) of products purchased by a household during a single shopping occasion.
1-to-1 retailing – developing retail programs for small groups or individual customers.

© McGraw Hill LLC 27

 Key Terms 3

opt in – a customer privacy issue prevalent in the European Union. Takes the perspective that
consumers “own” their personal information. Retailers must get consumers to explicitly agree to share
this personal information.
opt out – a customer privacy issue prevalent in the United States. Takes the perspective that personal
information is generally viewed as being in the public domain and retailers can use it in any way they
desire. Consumers must explicitly tell retailers not to use their personal information.
retail analytics – the application of statistical data analysis techniques to improve retail decision
making.
retail brand community – a group of customers who are bound together by their loyalty to a retailer
and the activities in which the retailer engages.
share of wallet – the percentage of total purchases made by a customer in a store.

© McGraw Hill LLC 28

 End of Main Content

Because learning changes everything. ®

www.mheducation.com

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.