Welcome.

Week 2

Strategic Relationship Marketing (CRM): MARK 4014

Professor John Paulo Cardoso
[email protected]
 Delivering value and
managing a customer-experienced
Learning Objectives:

§ Define what is a CRM strategy

§ Identify customer value
§ Structure of a well articulated value proposition
§ Explain the importance of a CRM strategy
§ Define customer experience
What is CRM?

Customer Relationship Management is all aspects of interactions that

a company has with its customers, whether it is sales or service-
related. While the phrase customer relationship management is most
commonly used to describe a business-customer relationship (B2C),
CRM is also used to manage business to business (B2B) relationships.
Information tracked in a CRM system includes contacts, clients,
contract wins and sales leads and more.

CRM is a system(s) allowing you to manage all

customer/client data
Why Use CRM?

Understand Your Customers

Retain Customers Through Customer Experience
Attract New Customers
Win New Clients/Contracts
Efficient Customer Management
Three types of CRM

Type of CRM Dominant characteristic

Strategic CRM is a core customer-centric business

Strategic strategy that aims at winning and keeping profitable
customers.

Operational CRM focuses on the automation of customer-

Operational facing processes such as selling, marketing and
customer service.

Analytical CRM is the process through which organizations

Analytical transform customer-related data into actionable insight
for either strategic or tactical purposes.
What is a CRM strategy?
Think strategy. Think CRM strategy.
Think relationship.
Think impact.
Think value.
How do we define value?
Value definition

§ Value is the customer’s perception of the

balance between benefits received from a product
or service and the sacrifices made to experience
those benefits.
Value Equation

Value = Benefits
Sacrifices
Sacrifices

§ Money
§ Transaction costs
§ Psychic costs
Perceived risk

§ Perceived risk is an element of psychic cost.

§ Perceived risk takes a variety of forms – performance, physical,
financial, social and psychological.
How do customers reduce perceived risk?
How do customers reduce perceived risk?

1. Delay purchase 7. Transact with reputable supplier

2. Seek word-of-mouth endorsement 8. Seek performance guarantees
3. Negotiate service contracts 9. Buy with credit card (protection if product fails)
4. Seek additional information from 10. Negotiate discounts
advertising copy
11. Take out insurance
5. Buy established brands
12. Request pre-purchase trial
6. Build a relationship with a supplier
13. Read testimonials
Total Cost of Ownership (TCO)

§ TCO looks not only at the costs of acquiring products, but also the
full costs of using, and servicing the product throughout its life,
and ultimately disposing of the product.
§ What is thought of as ‘consumption’ can be broken down into a
number of activities or stages, including search, purchase,
ownership, use, consumption and disposal.
§ TCO is an attempt to come up with meaningful estimates of
lifetime costs across all these stages.
When do customers experience value?
When do customers experience value?
§ Value-in-exchange
– value is created by the firm, embedded in products, distributed to the
market, and realised when those products are exchanged for money.

§ Value-in-use
– value is realised only when customers possess, use, consume or interact
with the good or service
§ Value-in-experience
– customers can experience value as they interact with or are exposed to
any marketing, sales or service output of the firm throughout the
customer lifecycle
Zeithaml’s four forms of customer perceived value

1. value as low price;

2. value as whatever the customer wants in the product;
3. value as the quality obtained for the price paid;
4. value as what the customer gets for what the customer sacrifices
What is a customer’s perceived value?
Value Model
Value Model
Customer Perceived Value (CPV) is a conceptual
marketing model used to determine the difference
between a prospective customers evaluation of all
the costs and benefits of a company's offering and
the perceived alternatives.
Holbrook’s 3D model of customer perceived value
How do we build value as marketers?
Value through the marketing mix

Figure 6.2
What is a value proposition?
Think promise.
Sources of product-based value

1. Product innovation
2. Incremental benefits
3. Product-service bundling
4. Branding
Product-service bundling

§ Product-service bundling is the practice of offering customers a

package of goods and services at a single price.
– Tour operators routinely bundle several elements of a vacation together –
flights, transfers, accommodation and meal plan, for example.
§ For the customer, bundling can reduce money, transaction and
psychic costs.
§ For the company, there are economies in selling and marketing.
Two major perspectives on service quality

§ Conformance to specification.
– This is consistent with Philip Crosby’s view of quality. Conformance to
specification might mean producing error-free invoices, delivering on-time,
in-full as promised to customers, or acknowledging a customer complaint
within 24 hours.
§ Fitness for purpose.
– Joseph M. Juran advanced the point of view that quality means creating
products that are well suited to customer requirements, and which
therefore meet their expectations. It is the customer, not the company,
who decides whether quality is right.
Nordic model of service quality

Technical The quality of the outcome of a service performance

Functional The quality of the performance of a service

Reputational The quality of the service organisation’s image

SERVQUAL model of service quality

Reliability Ability to perform the promised service

dependably and accurately

Assurance Knowledge and courtesy of employees and their

ability to convey trust and confidence
Tangibles Appearance of physical facilities, equipment,
personnel and communication materials
Empathy Provision of caring, individualised attention to
customers
Responsiveness Willingness to help customers and to provide
prompt service
SERVQUAL gaps model

Figure 6.3
SAS airline’s understanding of
customers’ expectations

Figure 6.4
Service guarantee definition

§ A service guarantee is an explicit promise to the customer that a

prescribed level of service will be delivered
Sample service guarantee
Service level agreement definition

§ A service level agreement is a contractual commitment between a

service provider and customer that specifies the mutual
responsibilities of both parties with respect to the services that will
be provided and the standards at which they will be performed.
A variety of SLA metrics
§ Availability
– The percentage of time that the service is available
§ Usage
– The number of service users that can be served simultaneously.
§ Reliability
– The percentage of time that the service is withdrawn or fails in the time period
§ Responsiveness
– The speed with which a demand for service is fulfilled.
§ User satisfaction.
– This can be measured at the time the service is delivered or periodically
throughout the agreed service period.
SLA scorecard

Figure 6.5
Service recovery definition

§ Service recovery includes all the actions taken by a company to

resolve a service failure.
Service recovery and justice seeking

§ Distributive justice
– what the firm offers by way of recovery and whether this output offsets the
costs incurred by the customer from service failure
– distributive outcomes include compensation, re-performance, apologies

§ Procedural justice
– customers’ perception of the process experienced to obtain recovery
– some procedures offer prompt recovery, others delayed; some require
complaints to be legitimised

§ Interactional justice
– the customer’s perception of the performance of service recovery people
– empathy, politeness, courtesy, effort
Xerox’s 14 key business processes

1. Customer engagement 8. Supplier management

2. Inventory management and logistics 9. Information management
3. Product design and engineering 10. Business management
4. Product maintenance 11. Human resource management
5. Technology management 12. Leased and capital asset management
6. Production and operations management 13. Legal
7. Market management 14. Financial management
Complaints-handling process

§ A successful complaints handling process enables companies to

capture customer complaints before customers start spreading
negative word-of-mouth or take their business elsewhere.
§ Research suggests that negative word-of-mouth can be very
influential. Up to two-thirds of customers who are dissatisfied do
not complain to the organisation. They may, however, complain
to their social networks.
§ Unhappy customers are likely to tell twice as many people about
their experience than customers with a positive experience.
Why don’t unhappy customers complain?

§ They feel the company doesn’t care. Perhaps the company or the
industry has a reputation for treating customers poorly
§ It takes too much time and effort
§ They fear retribution. Many people are reluctant to complain about
the police, for example
§ They don’t know how to complain.
Complaint-handling tips

§ A well-designed complaints-handling process will capture complaints

from various touch-points, then aggregate and analyse them to
identify root causes.
§ This should enable the company to achieve a higher level of first-time
reliability, reduce the amount of rework, and lift levels of customer
satisfaction and retention.
§ An international standard – ISO 10002 – has been released to help
companies identify and implement best practices in complaints policy
and process.
§ Software is available to help companies improve their complaints-
handling expertise
Improving the complaints management process 1

1. Make the complaints-handling policy and processes visible and

accessible to customers and employees
2. Design your complaints-handling policy and processes to ISO
10002 standards
3. Enable web-based complaints capture
4. Empower employees to resolve complaints
5. Install a dedicated free-phone line to receive complaints
6. Link complaints to customer satisfaction and retention goals
Improving the complaints management process 2

7. Appoint a complaints management executive

8. Teach customers how to complain; publish your process
9. Ensure all employees understand the complaints management
process
10.Reward customers who complain
11.Collect complaints data and analyse root causes
12.Use technology to support complaints-handling and deliver
useful management reports
Physical evidence definition

§ Physical evidence consists of the tangible facilities, equipment

and materials that companies use to communicate value to
customers
Forms of physical evidence

§ company premises
§ internal and external environments
§ print materials
§ websites
§ corporate uniforms
§ vehicle livery
Web portal definition

§ A web portal is a website that serves as a gateway to a range of

subject-related resources.
§ Two types
– Public
– Enterprise
Nuts about Southwest

Figure 6.8
Think experience.
Customer experience defined

§ Customer experience is the cognitive and affective outcome of the

customer’s exposure to, or interaction with, a company’s people,
processes, technologies, products, services and other outputs
Think influence.
Importance of CX

§ “It is the ‘total customer experience’ (TCE) that influences

customers’ perceptions of value and service quality, and which
consequently affects customer loyalty.”
The Experience Economy

Figure 7.1
Attributes of services

§ Intangible-dominant
§ Inseparable
§ Heterogenous
§ Perishable
Classifying customer experiences 1

§ Planned vs. unplanned

– The planned customer experience differs from the unplanned because
management tries to engage the customer in a positive and memorable
way
– The experience may become the ‘brand’

§ Positive vs. normative

– The positive customer experience describes customer experience as it is.
Normative customer experience describes customer experience as
management or customers believe it ought to be.
Classifying customer experiences 2

§ Commodity vs. unique

– One experience of travelling to work on London Underground is much like
another, but co-piloting a jet fighter to celebrate an important birthday
would be, for most of us, a unique experience
§ Core product vs. value-add
– Customer experience as the core product: white water rafting, swimming
with dolphins, feeding elephants, paragliding, bungee-jumping. Customer
experience as value-add: charter flight vs. scheduled flight
Service quality influences CX

§ Customers experience quality, or lack of it, in their interactions

with service providers.
§ CX has been conceptualized as ‘SERVQUAL plus’.
Layered model of Customer Experience

Figure 7.4
Customer experience concepts
§ Touch point
– Touch points exist wherever customers come into virtual or concrete
contact with a company’s products, services, communications, places,
people, processes or technologies
§ Moment-of-truth
– Moments of truth occur during customer interactions at touch-points.
These are the moments when customers form evaluative judgements,
positive or negative, about their experience.

§ Customer engagement
– Engaged customers are more committed to the brand or firm than
customers who are just satisfied
Four forms of customer engagement 1

§ Cognitive
– does the customer know our brand values? Does the customer know
about our sustainability awards? Does the customer know the name
of our local sales rep?
§ Emotional
– does the customer like the experience offered by our firm? Does the
customer prefer our offerings to our major competitors? Is the
customer excited about our new product launch? Customers who are
engaged might express a sense of confidence, integrity, pride, delight
or passion in the brand.
Four forms of customer engagement 2

§ Behavioural
– how often does the customer visit our website? How long does
the customer dwell on the website? Does the customer click
through to our newsletter?
§ Social
– has the customer used our Recommend-a-Friend program? Does
the customer ‘like’ our Facebook page? Does the customer join
our Twitter conversation?
4I’s engagement measures

Metric category Examples of measures

Involvement Unique site visitors, advertising impressions, web-site page views,
time spent per session, time spent per page, in-store visits,
newsletter subscriptions
Interaction First-time purchases, videos played, community contributions,
warranty registrations, loyalty card registrations, requests for free
samples, comments in social media, click-throughs on banner ads,
photos uploaded
Intimacy Satisfaction scores, sentiment in blog and social media posts, call
centre feedback, focus group contributions.
Influence Content forwarded, friends invited to join online communities, word-
of-mouth, creation of user-generated content, invitations to join
member-get-member program, content embedded in blogs
Think outcomes.
Desired customer experience outcomes

§ Companies that consciously design customer experience

want to evoke strong, positive engagement.
§ Such engagement might be expressed in a sense of
confidence, integrity, pride, delight or passion.
How to understand customer experience

§ Mystery shopping
§ Experience mapping
§ Ethnographic methods
§ Participant observation
§ Non-participant observation
Key questions for customer experience managers

1. What sort of outcomes do our customers want to experience?

2. What is the current customer experience?
3. What tools and strategies are available to close any gap between
current and desired experience?
4. How can we measure whether we have succeeded?
CRM’s connection to CX

§ The way CRM tools are used influences CX at moments of truth.

§ Not every CX program used CRM tools.
§ Appropriate, well-deployed CRM tools can enhance CX
Features of CRM applications that improve CX

§ Usability
§ Flexibility
§ High performance
§ Scalability
Typical CRM architecture

Figure 7.5
This Week & Next Week
• TODAY: hand in the in-class assignment
before midnight tonight. (2% final mark)
• Next Week:

• Personalization and Automation

• Marketing, Sales & Service Automation

• Work on your modules for week 3