When to Use CRM and When to Forget It!

Philip Kotler, Ph.D.

Kellogg School of Management

Northwestern University

Presentation to the

Academy of Marketing Science

Sanibel Harbour Resort and Spa

May 30, 2002

for a copy of the PowerPoint file click here

Hypercompetition

•      Overcapacity -> Hypercompetition -> Price Erosion

•      Best marketing defenses:

–   Segmentation

–   Brand building

–   Customer-centricity through CRM and loyalty programs

–   Holistic marketing

Traditional Marketing Skills

•      Marketing research

•      Advertising

•      Sales promotion

•      Sales force management

Competency Skills Needed
by Today’s Marketers

•      Customer relationship management (CRM).

•      Database marketing and data-mining.

•      Partner relationship management (PRM).

•      Telemarketing.

•      Public relations marketing (including event and sponsorship marketing).

•      Brand building.

•      Experiential marketing.

•      Integrated marketing communications.

•      Profitability analysis by segment, customer, channel (financial marketing).

Winning With Information

•      Marketing planning dashboards

–    P&G is setting up a dashboard for its marketing managers that allows them to access templated processes, best practices, testing tools, scripts, industry news, project dates, etc.

•      Real time information systems

–    Seven-Eleven’s 5th generation information system connects stores, headquarters, and suppliers.

–    Companies are setting up separate extranets and web portals for customers, partners, and employees.

–    Cisco knows its income statement and balance sheet to the minute.

Customer Loyalty is Slipping

•      Kraft’s measure: a loyal customer is one who  bought over 70% of the same brand over the last three years.

–    1970s:  40% loyal customers

–    2000s:  15% loyal customers

•      Why President’s Choice changed the marketing game.

•      A national brand’s main defense: offer to manage the category for the retailer (including private brand development) and show how the retailer will make more money.

Defining the Role of CRM

•      CRM is concerned with creating improved shareholder value through the development of appropriate relationships with customers. This requires an integration of people, operations and marketing capabilities.

•      CRM is information-enabled customer management.  It requires superior employee attitudes plus:
.information,
.technology,
.applications.

The Essence of
One-to-One Marketing

•      Identify your target customers.

•      Differentiate your customers by their needs and their value to your company.

•      Interact with your customers to form a learning relationship.

•      Customize your products, services, and messages.

•       Source:  Peppers and Rogers The One-to-One Future

What Makes CRM
Possible Today?

•      The idea of CRM has been around for a long time.  But three technological developments have given it a great boost:

–   Database technology: computers, data warehousing and data mining.

–   Interactivity: web sites, call centers, email, phones, fax, etc.

–   Mass customization technology: modular production.

Is New Technology Enough?

•      NT + OO = EOO

•      New Technology + Old Organization = Expensive Old Organization

Stages of CRM

 

•      Stage 1: No customer database. 

•      Stage 2: Building a customer database.

•      Stage 3: Using the customer database effectively.

–    Designing the supply chain from the market backwards.

–    Building a customer-wide employee orientation.

–    Integrating information from all customer touch points.

–    Developing a loyalty scheme.

–    Personalized treatment of the most valuable customers.

Market Share Marketing vs. Customer Share Marketing

•       Market share marketing mostly focuses on acquiring new customers using mass marketing. A short-term horizon.

•       Customer share marketing focuses on gaining more business from current customers with their permission. A long-term horizon.

•       Both types of marketing are needed; however, there is a need to shift more to customer share marketing.

•       A new campaign might start with marketing to current customers one-to-one, then go niche by niche, and finally go mass market, rather than the reverse order.

Customer Share Marketing:
 An Example

•       Wells Fargo Bank (WFB) redefined its business from being a bank to being a financial services company.

•       WFB realized that while it might have a 30 share of banking deposits in some areas, it might only have a 3% share of its customers’ financial assets.

•       WFB set the goal of selling one more financial product to each customer each year.

•       They encourage their customers to use Wellsfargo.com and to give permission for mailing new offers customers may be interested in.

Customer Share Marketing: Additional Examples

•      In the past, gas stations sold gas and a few other products and services.  Now the same customers can also buy food and other convenient products.

•      P&G should not only sell Crest toothpaste to its loyal users but electronically send coupons for other P&G products such as Tide, Bounty, Cascade, Comet, Mr. Clean, Head & Shoulders, Pringles, Pampers, and so on.

•      Sony develops a loyal customer base and they buy Sony Walkman, Camcorder, TV, computer, etc.

Uses of the Customer Database

•      To identify the best prospects.

•      To encourage more product use.

•      To cross-sell more products.

•      To sell upgrades.

•      To customize offerings and messages.

•      To deepen customer relationships.

Data Warehouse: the Foundation

•       Most companies’ data are found in different divisions with lots of redundancies.  A customer analysis would take considerable time.

•       The aim of a web-centric approach is to synchronize customer relationships across all communication channels, all business functions, and all business users, based on complete and common information shared by all.  (“The single data base” of Oracle.)

•       The data warehouse is used in market planning, merchandising, product development, customer rewards, channel management, sales analysis, cross-selling, and promotion analysis,

Recommendation Systems:
From Worst to Best

•      Push a product.

•      Recommend top items in a category of interest.

•      Recommend on basis of past purchases.

•      Recommend on basis of “collaborative filtering.”

–    LikeMinds asks that you rate movies.  It will then recommend others that you will like based on what others liked that you liked.

–    Amazon suggests books that were bought by others who bought your book.

•       Source: Alok Choudhary

Recommendation Systems:
Different Bases

•      Based on rules specified by customer (e.g., “inform me when fare between home and New York <$400”)

•      Based on profile learned from customer (e.g., “during spring break in the customer’s home area offer beach vacation package for family.”)

•      Based on customer’s browsing profile (e.g., recently looked at pages containing a country in Europe)…offer personalized packages.

•       Source: Alok Choudhary

But Database Marketing is Expensive!

•       Requires a tremendous investment in information gathering about individual customers and prospects.

•       Requires constant updating of information.

•       Some critical information may not be available.

•       Requires a high investment in hardware and software.

•       Requires integrating individual customer information from a variety of sources.

•       Requires people skilled at data mining.

•       Requires managing and training employees, dealers, and suppliers.

Royal Bank of Canada

•       In the mid-1990s, the Bank decided to restructure into a customer-centric enterprise. The Bank asked Siebel:

–    How long would it take for the system to be operational?

–    How much will it cost?

–    How much will the incremental revenue be per year?

•       The bank invested and developed a centralized customer database that could project:

–    customer lifetime values

–    customer “growability” to offers

–    customer vulnerability in order to take preventive action

Scorecard on CRM

•      Data Warehousing Institute surveyed 1,200 business executives and IT managers:

–   41% considered the effort “a potential flop”

–   43% said that CRM “met expectations”

–   16% said that CRM “exceeded their expectations”

•      Main problems:

–   Delays and bugs in the software program

–   Failure to realign the organization

–   Failure to make its use a high priority item

–   Can’t get good data at all touchpoints

–   Difficult to measure incremental impact

Does Every Business Need CRM?

•       No.  The following businesses may not benefit from CRM:

–    Businesses with multi-millions of customers buying minor items.

–    Businesses where the CLV is low.

–    Businesses with high churn.

–    Businesses where there is no direct contact between the seller and ultimate buyer.

•       Companies that are in the best position to invest in CRM.

–    Companies that collect a lot of data (banks, insurance companies, credit card companies, telephone companies).

–    Companies that can do a lot of cross-selling and up-selling (GE, Amazon, etc.).

–    Companies whose customers have highly differentiated needs and are of highly differentiated value to the company.

The Inherent Conflict between Customers and Companies

•       Customer Preferences

–     I would not want a company to have personal information about me.

–     I am willing to tell a company what I might like to be informed of.

–     I would want them to reach me only with relevant messages and media at proper times.

–     I would want to be able to reach a company easily by phone or email and get a quick response.

•       Company Preferences

–     We would like to know as much as possible about each customer and prospect.

–     We would like to tempt them with offers including those that they might not have had an awareness of or interest in.

–     We would like to reach them in the most cost-effective way and can’t pay attention to their media preferences.

–     We would want to reduce the cost of talking with them live on the phone.

New Marketing Rules
for the New Economy

•      Partner with your employees, customers, suppliers, and distributors for co-prosperity.

•      Manage your customer relationships through integrated database marketing.

•      Treat customers differently and appropriately.

•      Build your brands through performance, not promotion.

•      Go electronic and win through building  superior information and communication systems.