.

1- DIVESTMENT OF LISTED SOES
2- THE PROSPECTS FOR SAUDI INVESTMENT
3-
EXPANSION PLAN FOR PAKISTAN STEEL
4- TASK FORCE FOR REDUCTION IN POWER TARIFF
5-
INCREASING CUSTOMER RETENTION AND PROFITABILITY USING CRM

.

INCREASING CUSTOMER RETENTION AND PROFITABILITY USING CRM

 

"Understanding and identifying customer needs is where the war will be fought. Whoever has the most intimate knowledge of the customer and is able to best forecast what the customer will do, and take action preemptively will win."Bob Ingalls, Vice President Consumer Marketing, Bell Atlantic

 

By AZNAN HASSAN,
PS Consultant, Teradata, a division of NCR

June 23 - 29, 2003
.

 

 

In today's world of hustle and bustle, your customers want more than just courtesy when you're in contact with them. 'Relationship' is the name of the game. They want a business relationship where they're appreciated and respected. This relationship can either take the company to the apex of success or bring it down to a grinding stop. More and more companies are becoming aware of this and are going the extra mile to establish and sustain a strong and lasting relationship with their customers. When customers think of doing business with your company, they want to be able to say, "They know me," and that is the soul purpose of Customer Relationship Management (CRM).

The primary objective of Customer Relationship Management (CRM) or Relationship Marketing is to establish and build long-term relationships with customers from whom both repeat business will flow and the value of the relationship will increase. Relationship Marketing targets to unique, not the averages. It is a company-wide approach to understanding and influencing customer behavior through continuous, relevant communication to improve customer acquisition, customer retention, and customer profitability.

Companies that implement CRM solutions want to build a strong relationship with their existing customers. The reason for this is that companies do not want to lose their existing customers. There is a very basic reason for this — "Money". Every one wants to spend less and earn more. The reason companies give more importance to the existing customer is because it costs seven to ten times as much to acquire a new customer as it does to retain an existing customer. Also, long-term customers buy more, take less of a company's time, and are less sensitive to price fluctuations. They also bring in new customers by word-of-mouth. Improving continuously and maintaining customer satisfaction is the key to taking advantage of the profits resulting from customer retention and avoiding the costs associated with losing valuable customers.

With the explosion of information available on the Internet, customers have access to more information than ever before. Customers have also become much more savvy. These factors have enabled the customer to switch between competitors easily, making customer satisfaction even more crucial. Customers are learning more about specific companies and their competition. Companies want to be familiar with their customers and need to be able to answer the questions like:

* Are customers segmented by behavior/value?
* Which customers are more likely to leave?
* Which customer is more likely to buy?
* What is the impact on profit when prices change?
* What is the best product mix for each customer?
* What relationships exist between certain customers?
* Do these segments share common buying/defecting behavior?
* Which segments are likely to grow/decline?
* What do customers want in the future?
* Are they likely to buy again? If so, what are they likely to buy?

By answering these questions, companies can analyze their customer base and predict which customers are going to leave the company, which customer can give the company more profit, etc. Keep in mind that this does not mean that CRM cannot be used to acquire new customers.

 

 

There are three basic strategic drivers behind any CRM effort, which are:

* CUSTOMER ACQUISITION
* CUSTOMER RETENTION
* CUSTOMER PROFITABILITY

Each of these three strategic drivers presents a great challenge to most companies. However, the ability to meet these challenges offers great opportunity in the form of increased customer profitability, decreased costs, and quicker reaction to competition.

CUSTOMER ACQUISITION

The first strategic driver focuses on acquiring High Value Customers (HVC), and enables the company to realize increased profitability. The following steps are essential to cultivating HVCs:

* Identify the attributes of good prospects
* Identify customers most likely to purchase
* Identify customer touch-points (where customers interact with the company)
* Create "Look Alike" models based on the profile of the company's HVCs
* Focus limited Marketing Dollars per Customer

The given table compares three different telecommunication customers. Out of the three customers, Customer A is the HVC. Customer A does not produce a greater amount of revenue but costs the company far less, particularly with interconnect costs, market costs, and rebates.

The company can turn Customer B and Customer C into HVCs by ensuring that they take advantage of company services that would help decrease costs. Once the companies know the profiles for their HVCs, they can use this data to acquire new customers.

INCREASE CUSTOMER RETENTION

In addition to acquiring new HVCs, companies strive to increase existing HVC retention. To accomplish that, it is important to understand customer channel preferences, identify customers who are most likely to leave and understand buying behavior/life event changes.

As the chart below illustrates, the more years a customer stays with a company, the more profitable the customer is to the company.

In order to retain customers, a company must react to and combat competitive threat. To do this a company needs to identify customer purchasing patterns, test new products with strategic segments, modify merchandise mix, ensure adequate knowledge of customer segments and use analysis to drive campaigns and specific media. To do all this in an efficient manner it is essential that the company has a CRM solution.

INCREASE CUSTOMER PROFITABILITY

Companies can increase profits by turning existing customers into HVCs. Customers with the greatest potential to become HVCs are referred to as Most Growable Customers (MGC). These are the customers who have the most potential for growth. This growth can be realized through cross selling, retaining the customer for a longer period, or changing a customer's behavior in order to lower associated operating costs. Some successful methods for increasing customer profitability include—

* Identify and focus on HVCs and MGCs
* Identify products that these customers are not purchasing
* Up-sell/Cross-Sell
* Move these customers up the value chain

Companies can also increase profits by decreasing costs associated with customer targeting and communication. The company concentrates its marketing communication to those customers where it will have the most relevance, while reducing ineffective communication. Companies allocate their marketing funds to increase number of dialogs with the most profitable customers (Cross-sell to these HVCs). They reduce overall cost of communicating to less profitable segments and up-sell to the most growable customers MGCs and utilize small targeted marketing campaigns vs. large mass mailings.

By cutting down on unnecessary mailings and properly targeting mailings to the right customers, the company can decrease the cost associated with printing and mailing materials. This can also decrease the ill will among those not likely to respond, while increasing the response rate of the mailing campaign.

 

 

Thus it is safe to say that CRM facilitates a company in reducing operating costs while maintaining profitability by targeting existing customers in its campaigns and communications more efficiently. But this does not mean that companies do not strive to acquire new customers. Knowing your customer is the key to a company's increased growth and profitability in today's 'dog eat dog' world and the best way to do this is Customer Relationship Management.

THREE DIFFERENT TELECOMMUNICATION CUSTOMERS

 

Customer A

Customer B

Customer C

Revenue

$ 596.06

$ 599.29

$ 595.73

Use Minutes/Year

1953

1720

Unknown

Connect Cost

$ 102.99

$ 102.21

$ 24.87

Billing

$ 11.14

$ 8.16

$ 5.85

Commission

$ 0.86

$ —

$ 0.34

Differential Costs

$ 4.23

$ —

$ 2.29

Network Costs

$ 9.40

$ 10.26

$ 8.71

Interconnect

$ 10.69

$ 243.83

$ 363.05

Uncollectibles

$ 9.36

$ 18.96

$ 23.27

Sum of Costs/Yr

$ 154.91

$ 389.66

$ 441.62

Margin Before

$ 440.15

$ 209.63

$ 154.11

Internal Costs

$ 2.32

$ 39.04

$ 12.99

Fulfillment

$ 6.80

$ 26.82

$ 13.16

Response

$ 2.84

$ 12.78

$ 11.80

Sum of Market

$ 11.96

$ 78.64

$ 37.95

Rebate Check(s)

$ —

$ —

$ 100.00

Channel Collection

$ 9.95

$ —

$ —

Current Margin

$ 418.24

$ 130.99

$ 6.51