13 Final Thoughts Spring 2011 part 1

Final Thoughts on Managing Customer Relationships :

Final Thoughts on Managing Customer Relationships MK161 Spring 2011

Slide 1:

Some specific goals of customer management 1 Create Profitable Customer Relationships Grow the Value of Customer Relationships Defend Profitable Relationships Reduce Unprofitable Relationships

Customer Management: Four Key Steps:

2 Customer Management: Four Key Steps Customer Experience Analysis Customer Value Analysis and Customer Selection Customer Strategy Development Monitor, Evaluate Link to Profit

Customer Management Step 1: Analyzing your Market:

3 Customer Management Step 1: Analyzing your Market Understand what drives your business: Brand Value Relationship Determine your performance Benchmark relative to competitors Begin to understand what actions will drive customer behavior Customer Experience Analysis

Customer Experience Process:

Customer Experience Process Pre-purchase Post-purchase Purchase

Slide 5:

Copyright Katherine N. Lemon 2009 5

Key Areas Where We Can Have Impact:

6 Key Areas Where We Can Have Impact Brand Equity Relationship Equity Customer Equity Value Equity 1

Slide 7:

7 Profile of the Customer Relationship Price Relationship

Key Cases for Step 1:

Key Cases for Step 1 Best Buy Customer Centricity Customer Equity Case (in class case) 8

Customer Management Step 2: Valuing and Selecting Customers:

9 Customer Management Step 2: Valuing and Selecting Customers Customer Equity Analysis CLV Analysis and Customer Selection Analyze your current customers: Current Value Potential Value CLV is Best Metric Determine on which customers to focus With most value Who value you the most

What is Customer Lifetime Value?:

Projected future contribution margin from customer Current contribution margin from customer Your organization ’ s discount rate Costs to serve and retain customer How likely it is that this customer will stick around--and for how long What is Customer Lifetime Value? 10

CLV: Three Methods:

CLV: Three Methods Customer Life Expectancy Method Determine # of years to calculate: Customer Life Expectancy = 1/(1-Customer Retention Rate) Calculate CLV over that time frame 11

Methods 2 and 3:

Methods 2 and 3 Generalized Method of CLV Generalized Method when nothing changes over time: 12

Segmenting Customers based on Commitment and Profitability:

13 Relationship Commitment (Attitudinal Loyalty) CLV (Behavioral Loyalty) Low High Low High Segmenting Customers based on Commitment and Profitability BUTTERFLIES Good fit of company offering and customer needs High profit potential Action: Aim to achieve transactional satisfaction, not attitudinal loyalty Milk the accounts as long as they are active Key challenge: cease investment once inflection point is reached STRANGERS Little fit of company offering and customer needs Lowest profit potential Action: No relationship investment Profitize every transaction BARNACLES Limited fit of company offering and customer needs Low profit potential Action: Measure size and share-of-wallet If share-of-wallet is low, specific up and cross-selling If size of wallet is small, strict cost control TRUE FRIENDS Good fit of company offering and customer needs Highest profit potential Actions: Consistent intermittently spaced communication Achieve attitudinal and behavioural loyalty Delight to nurture/defend/retain Source: Professor V Kumar, Georgia State University

Segmenting Customers based on Past and Future Profitability:

14 Rising Stars ACTION: Invest to deepen relationship Identify specific up-sell / cross-sell opportunities Cultivate attitudinal loyalty True Loyalists ACTION: Cultivate attitudinal loyalty Invest to nurture / defend / retain Reward proactively Total Misfits ACTION: No relationship investment Aim to extract profit from every transaction by migrating the customer to low cost channels Falling Angels ACTION: Identify specific up-sell / cross-sell opportunities Transact through low-cost channels Optimize (Minimize) Marketing costs Historical Profits (PCV) Future Profitability (CLV) Low High Low High Segmenting Customers based on Past and Future Profitability Source: Professor V Kumar, Georgia State University

Key Cases for Step 2:

Key Cases for Step 2 Slots, Tables, and All that Jazz (MGM Grand) Kansai Digital Phone CLV assignment (Verizon I-phone) 15

Customer Management Step 3: Developing the Customer Strategy:

16 Customer Management Step 3: Developing the Customer Strategy Customer Equity Analysis CLV Analysis and Customer Selection Customer Strategy Development

Customer Management Strategy Design & Development:

17 Always considering what is important to the customer Customer Management Strategy Design & Development Attract and Establish Broaden and Deepen Solidify, Protect & Defend Value, Brand, Relationship Stage 1 Stage 2 Stage 3

Balancing Acquisition and Retention Costs:

18 Balancing Acquisition and Retention Costs High-maintenance Customers 50% customers 20% profit Royal Customers 20% customers 40% profit Casual Customers 20% customers 10% profit Low-maintenance Customers 10% customers 30% profit Acquisition Cost Low High Retention Cost Low High

Types of Loyalty Programs:

Appreciation : giving customers more of a company ’ s product/service Rewards : Giving customers rewards unrelated to a company ’ s product/service Partnership : marketing to another company ’ s database and allowing loyal customers to choose their rewards from either company Rebate : Giving customers money back when they buy more Affinity : Building a lifetime value relationship with a customer based on mutual interests and not on the use of rewards Coalition : teaming up with different companies to share customer data to jointly target a specific customer demographic Source: DeWeaver and Partners from: www.cioinsight.com http://www.cioinsight.com/article2/0,1540,1438035,00.asp Types of Loyalty Programs 19

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Hilton Growth Strategies 20

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Slide 22:

22 Social Media and CRM Implementation Focus Channels

Why is Customer Service Important?:

23 Why is Customer Service Important? For Staples… We ’ re selling commodities One to one sales environment, high touch business Customer retention depends on it Establish trust to sell additional “ lines of business ” We ’ re building an ‘ institution ’ Service matters because it is a business imperative – it directly relates to buying decisions, frequency and AOS

Key Cases for Step 3:

Key Cases for Step 3 24 Nectar: Making Loyalty Pay Hilton Hotels: Brand Differentiation through CRM ScriptLogic Towngas The Customer ’ s Revenge What Serves the Customer Best?

Customer Management Step 4: Linking to Financial Performance:

25 Customer Management Step 4: Linking to Financial Performance Customer Equity Analysis CLV Analysis and Customer Selection Customer Strategy Development Monitor, Evaluate Link to Profit

Customer Management Step 4:

26 Customer Management Step 4 Analyze which actions are the most effective Consider how your competitors may act or react Invest in those actions with the highest return Monitor over time: Drivers of Customer Equity CLV of customer segments Effectiveness of strategies at each customer intimacy stage Monitor, Evaluate Link to Profit

The Customer Equity Model:

27 The Customer Equity Model Value Equity Brand Equity Relationship Equity Quality Price Convenience Loyalty Programs Sales Relat. Community Brand Awareness Brand Ethics Brand Perceptions Knowledge Building Sub-Drivers of Each of These Sub-Drivers of Each of These Sub-Drivers of Each of These Customer Equity Likelihood of Purchase

How to use NPS to improve loyalty:

How to use NPS to improve loyalty

Return on Salesperson Relationships:

29 Return on Salesperson Relationships Financial Services: Should a large global bank spend $180,000 to hire a new sales representative to focus on attracting additional wholesale banking business (and retaining existing business)? The Marketing Manager projects that the project will increase Relationship Equity by 10 percent.

Projected Return on Relationship for Salesperson Investment:

30 Improvement in Relationship Equity % Improvement in Acquisition/Retention Rate % Improvement in Customer Equity $ Improvement in Customer Equity Return on Relationship $180,000 10% 2. 91% 2.07% $234,846 30.5% Discounted Program Expenditure Projected Return on Relationship for Salesperson Investment

Linking Customer Value and Firm Value:

Linking Customer Value and Firm Value Customer Acquisition Customer Retention Customer Margin Firm Value Profits and Cash Flows Value of a Customer Domain of Finance Domain of Marketing

Key Cases for Step 4:

Key Cases for Step 4 32 TD Canada Trust Marketing at the Vanguard Group

Customer Management: Four Key Steps:

33 Customer Management: Four Key Steps Customer Experience Analysis Customer Value Analysis and Customer Selection Customer Strategy Development Monitor, Evaluate Link to Profit

Key Challenges for Customer Relationship Management:

34 Key Challenges for Customer Relationship Management Do customers want to “ be managed? ” Do customers want “ relationships? ” How do you overcome privacy concerns? Will self-regulation continue to be effective in the US? When we consider all the risks—are the benefits worth the costs?

Key Cases for These Challenges:

Key Cases for These Challenges 35 Dark Side of Customer Analytics None of Our Business Boss, Somebody Stole Our Customer Data

Privacy Concerns: the Power of Data:

Privacy Concerns: the Power of Data 36

Beyond Listening:

Beyond Listening Value-Added Information in Action

Three Levels of Customer Information:

Transactional Three Levels of Customer Information Retailer knows spend and product purchased, but little customer-level info. The customer ’ s involvement with company – that the company knows of – ends here.

Three Levels of Customer Information:

Behavioral Three Levels of Customer Information Market research data provides the “ why ” to the sales data “ what ” . The customer interacts with the company in multiple officially-sanctioned channels, but does the customer see the benefit?

Three Levels of Customer Information:

Value-Added Three Levels of Customer Information Thanks for the feedback on our VIP customer panel. We know you play indoor soccer and might need a new pair, so we thought you ’ d like these shoes. No, thank YOU Adidas! I ’ ll take them!

Three Levels of Customer Information:

Value-Added Three Levels of Customer Information Retailer knows customer purchase patterns, but is also engaged in a continuous conversation with the customer. The customers see the value of the information provided and remain engaged.

Remember…:

42 Remember… Minimize Harm Operate Consistently Offer Respect