CRM: Strategies, Processes, and Key Concepts
Understanding Customer Relationship Management (CRM)
CRM is the combination of practices, strategies, and technologies that companies use to manage and analyze customer interactions and data throughout the customer lifecycle. It involves four categories of markets: consumer, business, government, and international.
Relationship Marketing and CRM
Relationship Marketing is a strategy of Customer Relationship Management (CRM) that emphasizes customer retention, satisfaction, and lifetime customer value. For example, Starbucks uses a reactive form of relationship marketing. They maintain communication with customers via email, share deals, and solicit ideas.
Lead Management and Sales Pipeline
Lead management is a systematic process in which incoming leads are qualified, analyzed, and nurtured so that they can be converted into new business opportunities.
Pipeline management is the process of managing incoming sales opportunities and tracking them across the different stages of the lead’s journey until they are finally closed as won or lost. Salespeople that sell SaaS tools will often have a sales presentation stage where they demonstrate their product to prospects. Car salespeople will have a test drive stage at some point in their pipeline.
A sales pipeline is a visual representation of sales prospects and where they are in the purchasing process.
Big Data and Social CRM
Big data CRM refers to the practice of integrating big data into a company’s CRM processes with the goals of improving customer service, calculating return on investment on various initiatives, and predicting clientele behavior.
Social CRM is the use of social media services, techniques, and technology to enable organizations to engage with their customers. For instance, a business or a customer might create a fan page for a company or product on Facebook.
Trust, Commitment, and Customer Loyalty
Three key aspects of trust are benevolence, honesty, and competence. Commitment involves a long-term desire to maintain a valued partnership.
- Customer retention is a metric that measures customer loyalty, or the ability of an organization to keep its customers over time.
- Customer churn is the percentage of customers that stopped using your company’s product or service during a certain time frame.
Customer Value and Acquisition
Customer Lifetime Value (CLV) is a measure of the average customer’s revenue generated over their entire relationship with a company.
Customer acquisition is the process of bringing new clients or customers to your business. A new customer is one who is likely to switch from a competitor to a business if the business offers variety in products or services, or a better deal.
B2B and B2C Lead Generation
- B2B prospecting is the process of looking for buyers, customers, or leads to turn them into clients.
- B2C lead generation is the technique of finding prospective buyers for consumer-facing businesses.
Lead generation encompasses all the efforts that go into capturing quality leads that can be converted into customers.
- Lead qualification is the process of evaluating potential customers based on their financial ability and willingness to purchase.
- Lead allocation is the process of assigning and managing leads once they enter your CRM.
- Lead nurturing is a set of integrated marketing strategies designed to turn a potential customer into a buyer.
- Lead tracking is the process of determining the source of leads, actively monitoring where leads are in the sales and marketing funnel, and pursuing the appropriate actions to move the lead to the next stage and close the sale.
Campaign and Event-Based Marketing
Campaign management is the planning, execution, tracking, and analysis of a marketing initiative.
Event-based marketing is a form of automated marketing that identifies key events in the customer/user lifecycle and builds communications around them.
A market segment is a group of consumers that can be segmented using a technology solution like a CRM tool.
Sales Forecasting and Costing
A sales forecasting CRM helps sales teams accurately predict future sales growth based on their pipeline of potential deals.
Activity-based costing is an accounting method meant for assigning overhead and indirect costs to related products and services.
There are three categories of sacrifices in customer transactions:
1. Money (the price of the product or service). 2. Transaction costs (costs incurred during searching, negotiations, and integration). 3. Psychic costs (cognitive effort that consumers often wish to avoid).
Customization and Mass Customization
Customization designates a process of adding new or altering existing CRM features to make it a better fit for the needs of each particular business.
Mass customization is a strategy that aims to fulfill customer requirements and achieve high efficiency and competitive advantage. Companies combine elements of mass and craft production. Example: Nike allows customers to personalize their own products, including clothing and footwear.
Disintermediation
Disintermediation is the process of removing the middleman or intermediary from future transactions. Example: Dell and Apple sell many of their systems directly to the consumer, bypassing traditional retail chains.
The Satisfaction Profit Chain (SPC)
The Satisfaction Profit Chain (SPC) is a theoretical framework that helps link attribute-level perceptions, overall customer satisfaction, customer intentions/behaviors, and financial outcomes.
Customer Retention Metrics
- Raw customer retention rate (RT): The number of customers doing business with a firm at the end of a trading period, expressed as a percentage of those who were active customers at the beginning of the period.
- Sales-adjusted RT: The value of sales achieved from the retained customers, expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.
- Profit-adjusted RT: The profit earned from the retained customers, expressed as a percentage of the profit earned from all customers who were active at the beginning of the period.
Retention Strategies
- Negative Retention Strategies: Company actions that penalize exit from a relationship (e.g., imposing high switching costs). These are risky because customers may feel trapped. Common in telecommunications and banking.
- Positive Retention Strategies: Company actions that reward a customer to remain in a relationship. Positive retention methods include creating customer delight and improving customer-perceived value (discounts, sales promotions, bonding).
Customer Delight and Value Formulas
Customer Delight Formula:
CD = P > E, where CD is Customer Delight, P is Performance, and E is Expectations.
To achieve customer delight, companies need to understand customer expectations well and surpass these expectations by providing better service and higher value.
Customer Value Formula:
(Total Customer Benefits – Total Customer Costs) = Customer Value, or (B – C = CV).
Customer value is a measure of all the costs and benefits associated with a product or service. Examples include the solution that a product or service provides. It’s related to the seven Ps of marketing: product, price, promotion, place, people, process, and physical evidence.
- Product: What you are selling, including all features, advantages, and benefits.
- Price: Your pricing strategy and how it will affect your customers.
- Promotion: Methods used to make customers aware of your products and services (advertising, sales tactics, promotions, direct marketing).
- Place: Where your products and services are seen, made, sold, or distributed.
- People: The staff and salespeople who work for your business, including yourself.
- Process: The processes involved in delivering your products and services to the customer.
- Physical evidence: Everything your customers see when interacting with your business (physical environment, layout, packaging, branding).