Chapter 10 – Customer Relationship Management
10-1
CHAPTER 10
CUSTOMER RELATIONSHIP MANAGEMENT
ANNOTATED OUTLINE
INSTRUCTOR NOTES
• Customer relationship management (CRM) is the set of
activities designed to identify and build the loyalty of the
retailer’s most valuable customers. Also called loyalty
program or frequent-shopper program.
• With CRM, retailers can develop a base of loyal
customers and increase their share of wallet—the
See PPT 10–3
Ask students to give examples
of retailers in the area who
seem to have a loyal customer
base. What are the reasons
why customers (including
themselves) frequent this
I. The CRM Process
• The objective of the CRM process is to develop
loyalty and repeat purchase behavior among a
retailer’s best customers.
LO 10-1 Describe the customer
relationship management
process.
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emotional bond is a personal connection.
• While all elements in the retail mix contribute to the
development of customer loyalty and repeat purchase
behavior, customer service (and personal attention) are
the two most effective methods to build loyalty.
retailers?
A. Overview of the CRM Process
• CRM is an iterative process that turns customer data into
customer loyalty and repeat purchase behavior through
See PPT 10–7 for an overview
of CRM
See PPT 10–8 for an illustration of
II. Collecting Customer Shopping Data
• The first step in the CRM process is to construct a data
LO 10-2 Understand how
customer shopping data are
collected.
A. Data Warehouse
• Ideally, the data warehouse should contain the following
information:
1. Transactions – a complete history of the purchases made
See PPT 10–09
To demonstrate how a data
warehouse could have very
simple beginnings, ask students
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2. Customer Contacts – a record of the interactions that the
customer has had with the retailer, including visits to the
retailer’s website, inquiries made through in-store kiosks,
4. Descriptive Information – Demographic and psychographic
data describing the customer that can be used in
developing market segments.
• To get a complete view of the customers, the retailer
needs to be able to combine the individual customer data
name, products and quantities
purchased, price paid, etc. If a
whole year’s records were
purchase at the same retailer?
B.. Identifying Information
• Constructing the database is relatively easy for nonstore
channels because customers buying from nonstore
channels must provide their contact information, their
name and address, so that the purchases can be sent to
them. It is also easy to keep track of purchases made by
See PPT 10–10
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1. Ask for Identifying Information
• Some retailers ask customers for identifying information
such as their phone number or name and address when
Ask students for their reactions
when a cashier asks them for
their name, address, and phone
number before ringing up a sale.
2. Connect Internet and Store Purchasing Data
• When customers use third-party credit cards such as Visa
or MasterCard to make a purchase in a store, the retailer
cannot identify the purchase by the customer. However,
What are the various privacy
issues when a retailer
3. Offer Frequent-Shopper Programs
• Frequent-shopper programs, also called loyalty
programs, are programs that identify and provide
rewards for customers who patronize a retailer.
• Retailers issue customers a frequent shopper card and
Ask students if they use a
frequent-shopper card. What are
the advantages and
disadvantages from a customer’s
perspective in using such cards?
4. Place RFID Chips on Merchandise
• An RFID reader in the store can acquire the customer’s
personal information from small devices carried by
customers and RFID tags on the merchandise they want
Ask students how they would feel
if retailers were tracking their
shopping behavior in a store and
collecting information about
them via small devices. Is this any
different than how online
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C. Privacy and CRM Programs
• While detailed information about individual customers
enables retailers to target information and promotions
and provide greater value to their customers, consumers
1. Privacy Concerns
• The degree to which consumers feel their privacy has
been violated depends on: (1) their control over their
personal information when engaging in marketplace
transactions and (2) their knowledge of the collection and
use of personal information.
• Cookies are small files stored on a customer’s computer
See PPT 10–12, 10–13
Ask students if they have bought
or buy regularly from Internet
retailers. If they have bought
from Internet retailers, how do
they feel about privacy issues? If
they have never bought from
Internet retailers, is it due to
2. Protecting Customer Privacy
• In the United States, legal protection for privacy is
See PPT 10–11
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• Adopting a strategic “privacy by design” approach that
requires input from various departments, including
marketing, legal, human resources, and IT, before making
any choices that might affect customers’ privacy.
• The European Union (EU) is more aggressive in protecting
consumer privacy and its provisions include:
a. Businesses can collect consumer information only if they
have clearly defined the purpose such as completing the
transaction.
b. The purpose must be disclosed to the consumer from
whom the information is being collected.
• In contrast, personal information in the United States is
generally viewed as being in the public domain, and
retailers can use it in any way they desire. U.S. consumers
must explicitly tell retailers not to use their personal
information – they must opt out.
individual consumer, which
one is more comprehensive
and better ensures privacy
protection? From the point of
Ask students which one is better
from the point of view of
customers – opt-in or opt-out?
Similarly, which one is less costly
from the perspective of the
retailer?
10–
III. Analyzing Customer Data and Identifying Target Customers
LO 10-3 Explain the methods
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customer data and converting them into information that
will help retailers develop programs for building
customers.See PPT 10–15
A. Identifying the Best Customers
• One of the goals of CRM is to identify and cater to the
retailer’s most valuable customers. Retailers often use
information in their customer databases to determine
how valuable each customer is to their firm.
See PPT 10–16
See PPT 10–17 for a CLV
comparison of two different
shoppers
What can small retailers do to
B. Retail Analytics
• Retail analytics are applications of statistical techniques
and models that seek to improve retail decisions through
analyses of customer data.
See PPT 10–19, 10–20
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1. Market basket analysis is a specific type of data analysis
that focuses on the composition of the basket, or bundle,
See PPT 10–18 for an illustration
of the Market Basket Analysis
2. Targeting Promotions
• Beyond aiding decisions about where to place products in
3. Assortment Planning
• By analyzing which products the retailer’s most valued
IV. Developing CRM Through Frequent-Shopper Programs
• Two objectives of these programs are to (1) build a data
warehouse that links customer data to their transactions
and (2) encourage repeat purchase behavior and loyalty.
LO 10-4 Outline how retailers
develop their frequent-shopper
programs.
See PPT 10–21
A. Effectiveness of Frequent-Shopper Programs
• Although frequent-shopper programs are useful for
building data warehouses, they are not particularly useful
See PPT 10–31
Ask students why customer
retention is important,
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B. Making Frequent-Shopper Programs More Effective
• Frequent-shopper programs seek to encourage repeated
purchases and develop customer loyalty. To build true
loyalty, retailers need an emotional connection with
and (6) make the program transparent and simple.
See PPT 10–21 and PPT 10–22
Should a college bookstore use a
1. Offer Tiered Rewards
• Many frequent-shopper programs contain cascading tier
levels, such as silver, gold, and platinum. The higher the
Ask students to discuss loyalty
programs they currently use
and what levels their
2. Treat High CLVs as VIPs
• Consumers respond to being treated as if they are
someone special.
3. Incorporate Charitable Contributions
• Altruistic rewards can be an effective element of a
4. Offer Choices
• Not all customers value the same rewards, so the most
5. Reward All Transactions
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• To ensure that the retailer collects all customer
6. Make the Program Transparent and Simple
• Effective programs are transparent in that they make it
easy for customers to keep track of their spending and
available rewards.
V. Implementing CRM Programs
• Having developed CRM through frequent-shopper
programs, the last step in the CRM process is to
implement those programs.
LO 10-5 Explain various ways
to implement effective CRM
programs.
See PPT 10–25
A. Customer Pyramid
• Most retailers realize that their customers differ in terms
of their profitability or CLV. They believe in the 80-20
A retailer is developing a
program whereby it would have a
1. Platinum Segment
• This segment is composed of the retailer’s customers
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2. Gold Segment
• The next 25 percent of customers in terms of CLV still
3. Iron Segment
• Customers in this third tier probably do not deserve much
special attention from the retailer due to their modest
CLV.
4. Lead Segment
• Customers in the lowest segment cost the company
B. Customer Retention
• Two approaches that retailers use to retain customers
and increase the share of wallet are personalization and
community.
1. Personalization
• With the availability of customer-level data and analysis
tools, retailers can now economically offer unique
See PPT 10–28
Most retail store associates
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2. Community
• Retailers can also develop a sense of community among
customers. A retail brand community is a group of
C. Customer Conversion: Making Good Customers into Best
Customers
• Increasing the sales made to good customers is referred
to as customer alchemy – converting iron and gold
customers in to platinum customers. Customer alchemy
See PPT 10–29
D. Dealing with Unprofitable Customers
• In many cases, the bottom tier of customers actually has
negative CLV. Retailers actually lose money on every sale
See PPT 10–30
When dealing with
VI. Summary
• A customer relationship management program is the set
of activities designed to identify and build the loyalty of
Chapter 10 – Customer Relationship Management
the retailer’s most valuable customers
• Retailers collect extensive data about customers, which
they store in their data warehouses.
• Retailers can develop programs to build loyalty in
their best customers, increase their share of wallet
with better customers.
ANSWERS TO SELECT “GET OUT AND DO ITS”
2. INTERNET EXERCISE Go to the home page of a retailer that you frequent and review their
privacy policy. How is this retailer protecting its customers’ information? Which policies, or
lack of policies, raise your concern? Why? Which policies give you comfort that your private
information is being protected? Why?