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CLASSIC MARKETING MODELS

 There are several classic marketing models


where the nature of customer management
is not specified explicitly, but where there is
a very strong implicit model of customer
management. These include:
 Retailing;

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 Sales force management-
especially in B2b
marketing

 Mail order

 Customer product and


company brand
management;

 Business product
management-closely
related to technical
innovation models. 3
MODELS OF CUSTOMER
MANAGEMENT

1. PARTNERSHIP CRM MODEL


2. SPOT SELLING/BUYING VIA AN AGENT
3. PURE SPOT MODEL
4. ONE TO ONE MODEL OF CRM GIVEN BY
D PEPPERS AND ROGGER’S

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1. PARTNERSHIP CRM MODEL
 What is it?

 Partnership CRM is a model which


seems to have a very good
pedigree, but which is quite
difficult to implement.
 It is suggested as a model where
both supplier and intermediary
have strong visibility of and to the
final customer, as in the
automotive industry or in financial
services.

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GENERAL IDEAS BEHIND THE MODEL
1. If both supplier and intermediary (the
‘partners’) use CRM techniques on the final
customer, then both will gain.
2. For them to work together in this way, a
true partnership approach is needed
3. This approach normally also requires
business-to-business CRM techniques to be
used between the supplier and
intermediary.
4. Partners need to accept that customers will
decide which relationships, if any, they want
to have with which partners, and it is up to
the partners to decide which relationships
they would like to have and how to motivate 6

customers to take them up.


5. If this approach is taken, it needs to work
strategically instead of tactically.
6 If supplier and intermediary are not working in
partnership, both sides need to determine
potential partnership objectives
7. Whether for existing or potential future
partnerships, rules and rights in managing the
relationship must be determined
8. The key to success is trust between
organizations involved
9. The overall success of a partnered CRM
program will be in the hands of final
customers, and they will chose to access and
compare an organization’s propositions
through different means 7
WHAT KIND OF PARTNERSHIP?

 both partners have choices about other


partners, channels and communications
media.

 A supplier at any level of the value chain


may sell products through agents, through
resellers and through retail outlets as well as
on the telephone and or Internet

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 It may have well-established parameters for
so doing, such as:
 Customer research
 Data requirements
 Customer management strategies – acquisition,
retention and development; campaign planning
and implementation; media usage etc.
 Success measures

 This is because direct channels cannot be run


successfully without such parameters.

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COMPLICATIONS OF THIS APPROACH
AT LATER STAGE

 The direct operation was set up as a deliberate


attempt to disinter mediate other channels

 The propositions developed for the direct


channel are very different to those offered by
intermediaries.

 The business model of direct is very different


from that required to work in partnership with
intermediaries.
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 In these situations, CRM program will tend to
focus on small parts of the Customer base, so
restricting the gains.

 In the worst case, they will look for other


companies who are prepared to partner with
them.

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HOW TO SUCCEED IN PARTNERSHIP
CRM

 Making intermediated
CRM work does seem to
depend on resolving a
number of issues, such
as:

 “Ownership” of
customers

 The implicit and legal


contract with customers
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 Branding/co-branding
promise

 Power of joint proposition

 Customer understanding

 Strategy – size Vs niche


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2. SPOT SELLING/BUYING VIA AN
AGENT

 Here agents make choices on behalf of suppliers and


customers.
 Agents are web based
 The aim for the supplier is to get on to the agent and
then deliver best value.
 The aim of the customer is to ensure that the agent has
all the information necessary to secure the most
appropriate supplier and deal.
 The main investment is the set-up cost for the system
to hold it (including security aspects), plus marketing.
 However, there is evidence that technological progress
has made spot buying easier, in ways that it may reduce
customer loyalty.
 E.g.-Auctioning of hotel or antiques.
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3. PURE SPOT MODEL

 Here,the customer rejects all relationships


and buys whether from an original
supplier or intermediary purely on the
basis of current perceived value.

 Thisis strongly influenced by classic


marketing mix variables- brand, perceived
product quality, price (including
promotional discounts), availability and so
on.

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 In these cases, classic marketing
mix variables become more
important – particularly brand
image and customer service.
 To avoid being drawn into this
situation, suppliers must seek to
differentiate their offer such that
the customer sees pure spot
buying as being risky.
Egs of Spot Selling via agent
and pure Spot selling
 Good examples of this are
• purchases made in the newly
deregulated energy market
• Like in UK consumers directly get gas
and electricity supply from supplier that’s
pure spot selling
• In Spot selling via agent consumers puts
his/her specifications as he wants which
source of energy and price specification
4. ONE TO ONE MODEL OF CRM
GIVEN BY D PEPPERS AND ROGGER’S
 According to this model, most aspects of
marketing mix are actively attuned to the
changing individuals based on information given
by them before or during contacts

 In one to one idea of one segment is rejected as


this is considered as static. Some (but not all)
customers are seen to be very receptive to this
i.e. customers have different propensities to
respond in terms o returning value.

 In general the returns for such enormous system,


data investment required to achieve this, are not
clear and reliable

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 In fact in many cases this approach applies
to relationship between large suppliers and
large intermediaries

 E.g.-Link between a grocery food company


such as Unilever, Procter and Gamble and
large retailers Wal-Mart, Tesco or Carrefour

 Although products are supplied are normally


standard, rest of the offer (payment terms,
delivery information so on) is heavily
customized
IMPACT OF WEB BASED MARKETING
ON THESE MODELS

 Serious analysis of the requirements for


translating practices developed in the era of
telephone and mail- based database marketing is
now being carried out not just for developed
economies, but also for the more hybrid situations

 The general conclusion from all this work is that


 the web has freed the consumer from the
constraints of physical channels of
communication and distribution.

 More informed consumers can construct their


own channels from a variety of offers.
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 They can decide to conduct some aspects
of their buying direct with suppliers, in
other cases via agents.

 Theymay get information from agents and


buy direct or vice-a-versa.
 Another conclusion is that

 the web can accelerate the processing of


business and

 The web put at risk those companies that are


slow to react to, or anticipate customers’
needs, new competitors or even new types of
competition.

 At the same time, companies that use the web


as an opportunity to give customers more
information can save costs and improve
customer service. 22
PARADOX OF TECHNOLOGICAL
PROGRESS

 MANY direct marketers are culling their


prospect mailing or phone lists with the goal
of reducing waste and improving profitability.
With the advent of computer database
marketing tools such as merge/purge and
regression analysis, direct response
advertisers can identify and target their
offers to a select group of potential
customers, thereby improving their response
rate. But as with any technology, an
application misused can sometimes be worse
than none at all.

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 Direct marketers often merge their response database
to the original database and with other public or private
databases (i.e., drivers' licenses, product warranty
cards, etc.). Then one or more target customer profiles
are developed by comparing the characteristics of those
who responded to those who did not respond to an offer.
Marketers subsequently use these profiles when
purchasing or renting prospect lists.

 Trouble can occur when the databases from several


different offerings are combined to develop a target
customer profile. Most direct marketers are cautious of
profiles created from dissimilar offers.

 For example, most would feel that a profile was invalid if


it was formed from a combination of auto insurance and
mutual fund response databases. However, more subtle
conditions can result in a completely distorted profile.
 For e.g.

 In its first year of business, Hong Kong Toy


Importers Ltd. (H.K. Toys) sent out its first
catalog in the spring to a 4 million household
mailing list with favorable results.

 Forty-two percent of the households purchased


one or more toys from the spring catalog.

 In comparing the characteristics of the


purchasers with the non-purchasers, H.K. Toys
discovered that addressees who were right-
handed were more likely to purchase toys from
their catalog than left-handed addressees.
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 Table One
Spring Toy Catalog -- Purchase Analysis
Addressee
Handedness
Total
Left Right
Purchase % 42.0%
30.0% 50.0%
No. Purchased (*) 1,680.
480. 1,200.
No. Mailed (*) 4,000.
1,600. 2,400.
(*) in thousands
 They showed these figures to a
marketing consultant

 He knew from prior experience that left-


handed adults were more likely to give
children books or clothes than toys. Only
60 percent of the addressees on the list
that H.K. Toys used were right-handed. To
improve their sales, the consultant
recommended that H.K. Toys mail to more
right-handed addressees.
 With Christmas coming, H.K. Toys ordered a new mailing list of
20 million households with an addressee mix of 95 percent
right-handed and 5 percent left-handed.

 The results were disappointing. Christmas sales were only 17


percent above spring sales, even though they mailed to five
times more households.

 H.K. Toys combined the results of their spring and Christmas


catalogues to ascertain what happened. Table Three shows
the results. More surprising was that the combined results
showed that the left-handed addressees were more likely to
purchase the company's toys than the right-handed
addressees -- the opposite finding from the spring catalogue.

 After reviewing the results, the second consultant concluded


that there had been a shift in the purchasing habits of right-
handed people. Had H.K. Toys mailed more Christmas
catalogues to left-handed addressees than right-handed
addressees, the sales would have been better.
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 Confused, H.K. Toys approached the first marketing
consultant again. He reviewed the results and
concluded that a delay in mailing the catalogues
affected the Christmas orders.

 Table Two
Christmas Toy Catalogue -- Purchase Analysis
Addressee Handedness
Total Left Right
Purchase % 9.8% 6.0%
10.0%
No. Purchased (*) 1,960. 60.
1,900.
No Mailed (*) 20,000. 1,000.
19,000. 
(*) in thousands 29
 Table Three
Spring and Christmas Toy Catalogue
Combined Purchase Analysis
Addressee Handedness
Total Left
Right
Purchase % 15.2%
20.8% 14.5%
No. Purchased (*) 3,640. 540.
3,100.
No. Mailed (*) 24,000.
2,600. 21,400.
(*) in thousands
 This case study demonstrated a well-known
statistical phenomenon called Simpson's paradox.
 Simpson's paradox seems counterintuitive. We
expect the characteristics of the whole to correspond
in general to the characteristics of segments. The
preceding case study has shown that this is not
always true. Several philosophers have explained
how it is possible for the relationship between two
variables to be distorted by a third variable. [1, 5]
 Simpson's paradox can occur in direct marketing
when the response databases from two or more
mailings or telephone campaigns are combined to
develop a target customer profile.

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 Simpson's paradox can turn up in target customer profiling
when both of the following conditions are met:
 The mailings or telemarketing campaigns have different
response characteristics (e.g., one with a 2 percent response
rate merged with one with a 10 percent response rate).
 The lists have a different mix of descriptor characteristics
(e.g., mix of males to females or mix of New Yorkers to
Californians).
 Different response characteristics can be a result of many
things. For example, a change in the cover letter or envelope
can change the percent who inquire about an offer. The
change in response rate does not have to be the result of a
change in the customer profile but the effects of Simpson's
paradox can make it appear that way.

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 To avoid obtaining a distorted target customer profiles
look at the results of each offer separately, especially if
the above conditions are met. If more sophisticated
statistical analyses are used, add an "offer" variable into
the model. For example, in regression analysis, add a
dummy variable into the database identifying the offer
and include it among the independent variables. If a
third party processes the databases, make sure that
they are correcting for Simpson's paradox.

 Using a target customer profile is a key element in


profitable direct marketing. By identifying and correcting
the profile distortion from merged response databases,
the direct marketer can be more confident of the
profile's accuracy and achieve a higher response rate.

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CUSTOMER REQUIREMENTS OF
CRM
 Customer relationship management (CRM) consists
of the processes a company uses to track and
organize its contacts with its current and
prospective customers.

 CRM is used to support these processes;


 information about customers and customer
interactions can be entered, stored and accessed
by employees in different company departments.

 Typical CRM goals are to improve services provided


to customers, and to use customer contact
information for targeted marketing.
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 A major benefit can be the development of better
relations with your existing customers, which can
lead to:
 increased sales through better timing due to
anticipating needs based on historic trends
 identifying needs more effectively by
understanding specific customer requirements
 cross-selling of other products by highlighting
and suggesting alternatives or enhancements
 identifying which of your customers are profitable
and which are not
 This can lead to better marketing of your products
or services by focusing on:
 effective targeted marketing communications
aimed specifically at customer needs
 a more personal approach and the development
of new or improved products and services in
order to win more business in the future
 Ultimately this could lead to:

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 increased value from your existing
customers and reduced cost associated
with supporting and servicing them,
increasing your overall efficiency and
reducing total cost of sales

 enhanced customer satisfaction and


retention, ensuring that your good
reputation in the marketplace continues to
grow

 improved profitability by focusing on the


most profitable customers and dealing
with the unprofitable in more cost effective
ways
WHAT DO CUSTOMERS WANT?

 Customers want cost-effective products or


services that deliver required benefits to
them.

 More significantly, customers want to have


their needs satisfied.

 Modern CRM theory refers to the idea of


'integrating the customer'. This implies a
relationship that is deeper and wider than
the traditional 'arms-length' supplier-
customer relationship.
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 The traditional approach to customer
relationships was based on a simple transaction
or trade, and little more. All communication and
dealings would be between these two people,
even if the customers' organization contained
many staff, departments, and functional
requirements (distribution, sales, quality,
finance, etc).

 The modern approach to customer relationship


management is based on satisfying all of the
needs - people, systems, processes, etc - across
the customer's organization

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COMPANY'S PERSPECTIVE OF
CRM

 A complete CRM solution includes a number of hardware 39


elements and software applications. Unfortunately these alone
are not able to guarantee the expected return on investment.
 In fact, CRM is mainly organizational
initiative, which should,
 on the one hand, consider the
environmental peculiarities the
system has to face and
 on the other hand, provide for a
complete review of organizational
variables and the selling
processes consequent structural
changes required strong support
from the bank's management,
aiming to optimize change related
actions and sustain them over
time

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 The deep "organizational gap” caused by the
introduction of CRM, if not properly supported
by relevant change management interventions,
could potentially neutralize the system's
efficiency or worse irreversibly jeopardize the
relationship with not yet loyal customers.

 Hence "CRM is a combination of organizational


and technological mechanism aiming to buffer
market knowledge of environmental variables,
particularly market variables, in order to
anticipate customer's needs and make
production activities more stable and
programmable.“
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 In this way CRM can be considered an
"organizational buffer” able to preserve the
efficiency of the technical care through
elimination of instabilities typical of the banking
market and environment without giving up the
flexibility the operational environment requires.

 increased value from your existing customers


and reduced cost associated with supporting and
servicing them, increasing your overall efficiency
and reducing total cost of sales
 enhanced customer satisfaction and
retention, ensuring that your good
reputation in the marketplace continues to
grow

 improved profitability by focusing on the


most profitable customers and dealing
with the unprofitable in more cost effective
ways

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