Ch. 14 - Customer Relationship Management

Customer Relationship Management

The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

• Executing CRM may involve technology, business rules, and operational processes, as well as the cooperation of key stakeholders within the organization.

• This involves many aspects within an organization, including how consumers become customers, how they are retained as customers, and how well a company manages information on customers.

CRM Three Interactions

CRM considers the purchase decision from the point of view of the business. To be executed effectively, CRM requires support from the company’s top management.

It engages three interactions with customers, including:

1. Customer Acquisition: Attracting people who have never bought from you before.

2. Customer Retention: Focuses on making existing customers stay and keep buying.

3. Customer Reacquisition: Bringing back customers who stopped buying from you.

Customer Experience Management

Managing customer interactions to increase satisfaction and loyalty. Involves managing customer interactions to build brand equity and improve long-term profitability.

• Requires strategy to manage all points of the customer experience, as keeping customers satisfied will be more important than simply making a sale.

CRM Databases

CRM databases allow companies to get closer to their customers to establish a mutually beneficial relationship through gathering information. Collecting and managing data is just one component of CRM. A more important component is the organizational culture and support from top management.

• Technology is an enabler of CRM, but a successful CRM strategy is executed by high-performing employees

• CRM requires a top-down long-run commitment and attitude change by management.

  • Organizational culture plays a role in how data can be used, interpreted and improved on.

Examples of CRM

• Four Seasons Hotels / Resorts: Involves tracking guest information and preferences, such as extra pillows, via a database. This information should be used by employees the next time the guest returns to the hotel.

• WestJet: Employees are shareholders, which increases their commitment to customer satisfaction. Launched a series of ads focused on WestJet’s ownership.

• TD Canada Trust: Involves building and maintaining profitable customer relationships, through treating customers well and building relationships.

Social Media & CRM

A growing number of companies are keeping track of what’s said about their brands on social media platforms such as Facebook and X.

• This activity falls in line with the process of CRM because it’s an excellent way to build and maintain a relationship with customers.

• Dell, General Motors, H&R Block, Kodak, and Whole Foods Market are among the companies monitoring X to see what people are saying about their brands as well as to provide solutions to customers’ concerns.

• Companies are trying to listen in on every mention of their brands for a real-time gauge of what people think of their offerings, competitors, and industry trends.

CRM Effects on Increasing Profitability through Customer Retention

Why CRM can help increase profitability through customer retention is explained by the following factors:

• The cost of acquiring a customer occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.

• Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive.

• Long-term customers may initiate word-of-mouth activity and referrals.

Loyalty Programs

Programs specifically designed for customer retention. Loyalty programs have become a way for one company to differentiate itself from another, but these differentiations come with high expectations from Canadians.

Pareto’s Rule

Most of your results come from a small number of causes. A small group of loyal customers buys a lot and keeps coming back, while most other customers only buy occasionally. The concept that 80 percent of a brand’s sales come from 20 percent of its customers.

Businesses focus on keeping those top 20% happy, because they drive most of the profit.

• Example: If a store has 100 customers:

  • About 20 customers will generate most of the money.

  • The other 80 customers contribute much less overall.

Database Marketing

The use of databases to customize communications to customers and potential customers for the purpose of promoting a product or service.

• Useful practice for enhancing a company’s success in identifying its customers and customizing its service offerings.

• Over time, companies collect, process, and analyze information on their customers, potential customers, and competitors.

• Through careful analysis, companies can better recognize customer needs and adjust accordingly to meet and exceed expectations.

Data mining

It is a process of analyzing customer patterns and insights to make better marketing decisions. By spotting trends and relationships among the reams of information, data mining can help specifically target customer segments to meet their needs.

• An efficient way to sort through large amounts of data to find relationships between variables.

Data Warehouse

A data warehouse can be thought of as an electronics library where all the information is indexed. Once the data warehouse brings the data together, the company uses data mining techniques to find insights about customers.

Customer Lifetime Value

In customer relationship management, a company focuses on its relationship with customers with the ultimate goal of creating an unbreakable bond with its customers. Companies are starting to focus on the value of a customer when that customer remains loyal to the firm over the customer’s lifetime.

Share of Wallet

How much of a customer’s total spending in a category goes to one business. Out of all the money a person spends on something, what percentage do you get? Even if you don’t get new customers, you can grow by getting existing customers to spend more with you instead of competitors.

Example: If a customer spends $100 a month on coffee:

• $70 at your café

• $30 at other places

Your share of wallet = 70%

Why is customer relationship management so important to businesses?

CRM is important because it helps businesses build strong relationships with customers, which leads to more success. This means more loyal customers, and more profit.

• Keeps customers coming back (retention): It’s cheaper to keep existing customers than find new ones.

• Increases sales: Happy customers buy more often and spend more (higher share of wallet).

• Better understanding of customers: Businesses learn what customers like, need, and expect.

• Improves customer satisfaction: Personalized service makes customers feel valued.

• Boosts loyalty and trust: Strong relationships make customers less likely to switch to competitors.

How Companies Use Social Media in Relationships with Customers

Companies use social media (like Instagram, TikTok, Facebook, etc.) to connect and interact directly with customers. Social media helps businesses talk with customers, not just to them.

• Communication & customer service: Replying to messages, comments, and complaints quickly.

• Engagement: Posting polls, stories, and content to interact with customers.

• Personalization: Targeting ads and content based on customer interests.

• Building community: Creating a sense of belonging (followers feel connected to the brand).

• Feedback & insights: Reading comments and reviews to improve products/services.

• Promotions & updates: Sharing deals, new products, and announcements instantly.

Pareto’s Rule When Considering Managing Relationships with 1,000 customers of a Coffee Shop

Focus on those 200 loyal customers. Give them special treatment (rewards, discounts, personalized offers). Keep them happy so they keep coming back. A small group of customers brings in most of the money, so they should be a priority.

Using the 80/20 rule:

• 20% of customers = 200 people.

• These 200 customers generate about 80% of sales.

Three Example of Loyalty Programs (Why they Work)

Loyalty programs work overall because they reward repeat behavior and build habits.

• Points or rewards system: Earn points for every purchase and redeem for free drinks. Encourages customers to return more often to earn rewards.

• Punch card (Buy 9, get 1 free): After 9 coffees, the 10th is free.Creates a habit and motivates repeat visits.

• Tiered membership program: Bronze, Silver, Gold levels with better rewards at higher levels. Encourages customers to spend more to reach higher status.

How Data Mining Improves Marketing

Data mining means analyzing customer data to find patterns. It helps businesses make smarter decisions and market for effectively.

• Personalized marketing: Businesses can send offers based on what customers actually buy.

• Better targeting: Focus on the right customers (like the top 20%).

• Predicting behavior: Anticipate what customers will want next.

• Improving products/services: Learn what’s popular and what isn’t.

Why is Customer Lifetime Value Important for Companies to Calculate?

Customer Lifetime Value (CLV) = the total amount of money a customer is expected to spend with a business over time. CLV helps businesses focus on long-term, profitable relationships.

• Shows which customers are most valuable: Not all customers are equal, some bring in much more money over time.

• Helps decide how much to spend on marketing: If a customer is worth a lot, it makes sense to spend more to attract and keep them.

• Focus on long-term profit, not just one sale: Encourages businesses to build relationships instead of just making quick sales.

• Improves customer retention strategies: Companies invest more in keeping high-value customers happy.

Why do Companies Want to Increase Share of Wallet?

Share of wallet = How much of a customer’s total spending a business gets. An increasing share of wallet means getting a bigger slice of each customer’s spending.

• More revenue without needing new customers: It’s easier and cheaper to sell more to existing customers.

• Stronger customer loyalty: If customers spend more with one business, they’re less likely to go to competitors.

• Better use of existing relationships: Companies already know these customers, so marketing is more effective.

• Higher profits: Loyal customers often buy more and more frequently.

Two Steps in Customer Recovery

Customers may come back and become even more loyal because they feel valued if done correctly.

Step 1: Identify lost (or at-risk) customers:

• Use data (purchase history) to find customers who stopped buying.

• Look for changes in normal buying patterns.

Step 2: Contact and understand why:

• Reach out to ask what went wrong.

• Fix the issue and offer an incentive (discount, apology, etc.).

• This shows interest in the customer.

When is it Appropriate to Fire a Customer?

Fire customers only when they are consistently unprofitable or harmful to the business. However, there is a risk if a company only keeps high-value customers, competitors may target them, making the business vulnerable.

It can make sense to drop a customer when:

• They cost more than they bring in (e.g., constant complaints, returns, or excessive service use).

• They abuse services or staff (rude behavior, unreasonable demands).

• They use too many resources (like calling support far more than normal customers).

• They hurt the business or other customers (negative impact on employees or experience).