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Chapter 11 details approaches that retailers take to manage relationships with their customers. This chapter presents the following content: Customer relationship management, customer loyalty, can offering discounts achieve customer loyalty?...
Chapter 11 Customer Relationship Management McGraw-Hill/Irwin Retailing Management, 6/e Copyright © 2007 by The McGraw-Hill Companies, Inc All rights reserved 11-2 Retailing Strategy Retail Market Strategy Financial Strategy Site Location Customer Relationship Management Retail Locations Organizational Structure and HR Management Information Systems 11-3 Customer Relationship Management • A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer’s most valuable customers • What is loyalty? Is it the same thing as liking a retailer or frequently patronizing a retailer? 11-4 Customer Loyalty • Committed to purchasing merchandise and services from a retailer • Resist efforts of competitors to attract the loyal customer • Emotional attachment to retailer – Personal attention – Memorable positive experiences – Brand building communications programs Can Offering Discounts Achieve Customer Loyalty? 11-5 No! Retail strategies like these can be copied by competitors These strategies encourage customers to be always looking for the best deal rather than developing a relationship with a retailer McGraw-Hill Companies, Inc./Gary He, photographer 11-6 CRM Process 11-7 Information About Each Customer in the Database • History of purchases • Purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion • Customer contacts by retailer (touch points) visits to web site, inquires to call center, direct mail sent to customer • Customer preferences • Descriptive information about customer • Customer’s responses to marketing activities Approaches for Collecting Customer Information • Need to connection contacts with a specific customer identifier • Ask for identifying information – Telephone number, name and address • Encourage use of frequent shopper cards • Link checking account number and/or third party credit cards to customer 11-8 11-9 Privacy Concerns • Control over Collection • Do customers know what information is being collected? • Do customers feel they can decide on the amount and type of information collected by retailers? • Control over Use • Do customers know how the information will be used by the retailer? • Will the retailer share the information with third parties? Steve Cole/Getty Images 11-10 Frequent Shopper Cards Card is often squeezed out of wallet Customers forget to bring it to the store Might not even show it if in a hurry (c) image100/PunchStock 11-21 Customer Pyramid Platinum Best Most loyal Least price sensitive 11-22 Customer Pyramid Gold Next best Not as loyal 11-23 Customer Pyramid Iron Doesn’t deserve much attention 11-24 Customer Pyramid Lead Demands attention May have negative value 11-25 RFM Analysis 11-26 RFM Target Strategies 11-27 Illustration of RFM Application • A catalog retailer is deciding which group of customers to send a catalog Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$.75 • Will the retailer make a profit mailing to this RFM segment? 11-28 Illustration of RFM Application • A catalog retailer is deciding which group of customers to send a catalog Based on experience and an RFM analysis of customer database: • Average order size for customers in cell - $40 • Contribution margin – 50% • Response rate – 5% • Cost of catalog and mailing -$.75 Will the retailer make a profit mailing to this RFM segment? $20.00 contribution x 05 response rate - $.75 cost = $.25 profit per catalog mailed 11-29 CRM Programs Retailing Best Customers Converting Good Customers to Best Customers Getting Rid of Unprofitable Customers 11-30 Customer Retention Programs • Frequent Shopper Programs • Special Customer Services • Personalization 1-to1 Retailing • Community Royalty-Free/CORBIS Elements in Effective Frequent Shopper Programs • Tier Based on Customer Value • Offer Choices of Rewards – Non-monetary incentives • Reward all Transactions • Transparent and Simple 11-31 Issues with Effective Frequent Shopper Programs • • • • Expense Difficulty in Making Changes Impact on Loyalty Questionable Easily Duplicated – Difficult to Gain Competitive Advantage – Need to offer “invisible” benefits 11-32 11-33 Personalization Hello, Barton Weitz 11-34 Dealing with Unprofitable Customers Offer less approaches for dealing with these customers Charge customers for extra services demanded Don Farrall/Getty Images 11-35 Implementing CRM Programs Need systems, databases Close coordination between departments – marketing, MIS, store operations, HR Shift in orientation Product Centric Customer Centric ... sensitive 1 1- 22 Customer Pyramid Gold Next best Not as loyal 1 1- 23 Customer Pyramid Iron Doesn’t deserve much attention 1 1- 24 Customer Pyramid Lead Demands attention May have negative value 1 1- 25 RFM... response rate - $.75 cost = $.25 profit per catalog mailed 1 1- 29 CRM Programs Retailing Best Customers Converting Good Customers to Best Customers Getting Rid of Unprofitable Customers 1 1- 30 Customer... Cole/Getty Images 1 1- 10 Frequent Shopper Cards Card is often squeezed out of wallet Customers forget to bring it to the store Might not even show it if in a hurry (c) image100/PunchStock 1 1- 11 Heighten