Marketing Chapter 10 Homework CRM is based on the philosophy that retailers can increase profitability by building relationships with their better customers

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.

•

• CRM is based on the philosophy that retailers can

increase profitability by building relationships with their

better customers.

•

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

Discuss the costs of attracting

new customers versus the

costs of retaining current

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.

products from different

emotional bond is a personal connection.

• Programs that encourage repeat buying by simply

offering price discounts can be easily copied by

competitors. However, when a retailer develops an

emotional connection with a customer, it is difficult for a

competitor to attract the customer.

retailers?

See PPT 10–5

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

the CRM Process Cycle

II. Collecting Customer Shopping Data

• The first step in the CRM process is to construct a data

warehouse. It contains all of the data the firm has

collected about its customers and is the foundation for

subsequent CRM activities.

LO 10-2 Understand how

customer shopping data are

collected.

A. Data Warehouse

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,

comments made on blogs and Facebook pages,

merchandise returns, and telephone calls made to the

3. Customer Preferences – what the customer likes, such as

favorite colors, brands, fabrics, and flavors, as well as

apparel sizes.

4. Descriptive Information – Demographic and psychographic

data describing the customer that can be used in

developing market segments.

name, products and quantities

purchased, price paid, etc. If a

whole year’s records were

collected, what types of

information could be obtained?

their family shops. What do the

parents buy? What do they buy?

What do other family members

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

customers patronizing warehouse clubs because they

need to present their membership cards when they make

a purchase.

See PPT 10–10

1. Ask for Identifying Information

• Some retailers ask customers for identifying information

such as their phone number or name and address when

they ring up a sale. The information is then used to link

all transactions to the customer.

• Some customers may be reluctant to provide the

information and feel that the sales associates are

violating their privacy.

Ask students for their reactions

when a cashier asks them for

their name, address, and phone

number before ringing up a sale.

How could the store minimize

consumer concerns and still

obtain customer identity

information?

2. Connect Internet and Store Purchasing Data

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

customer information is automatically captured when the

card is scanned at the point of sale terminal.

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

to purchase.

• Using a global satellite tracking system, the store reader

could also collect information about where the customer

has been in the store.

retailers collect shopping

information while students shop

online? Why or why not?

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

are concerned about retailers violating their privacy

when they collect this information.

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.

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

2. Protecting Customer Privacy

• In the United States, legal protection for privacy is

limited. Existing legislation is limited to the protection of

information in a few specific contexts, including

See PPT 10–11

the point of view of the

• 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.

• Appointing privacy advocates to communicate privacy

concerns throughout the organization and ensure the

firm is adhering to its privacy policies.

• 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.

• The EU perspective is that consumers own their personal

information. Retailers must get consumers to explicitly

agree to share this personal information. This is referred

to as opt in.

individual consumer, which

one is more comprehensive

and better ensures privacy

protection? From the point of

view of the retailer, which one

Ask students which one is better

from the point of view of

customers – opt-in or opt-out?

See PPT 10–12

III. Analyzing Customer Data and Identifying Target Customers

• The next step in the CRM process is analyzing the

LO 10-3 Explain the methods

used to analyze customer data

and identify target

customer data and converting them into information that

will help retailers develop programs for building

customer loyalty and repatronage that will add

significantly to the retailer’s bottom line.

customers.See PPT 10–15

Ask students what questions

they could answer if they had

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

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

1. Market basket analysis is a specific type of data analysis

that focuses on the composition of the basket, or bundle,

of products purchased by a household during a single

shopping occasion.

See PPT 10–18 for an illustration

of the Market Basket Analysis

approach

Discuss with students examples

2. Targeting Promotions

• Beyond aiding decisions about where to place products in

a store, market basket analysis can help provide insights

into assortment decisions and promotions.

3. Assortment Planning

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

for building long-term customer loyalty.

See PPT 10–31

Ask students why customer

retention is important,

especially since CRM programs

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

consumers, as well as a sense of commitment from

See PPT 10–21 and PPT 10–22

Should a college bookstore use a

frequent shopper card? Why or

Why not?

1. Offer Tiered Rewards

• Many frequent-shopper programs contain cascading tier

levels, such as silver, gold, and platinum. The higher the

tier, the better the rewards.

Ask students to discuss loyalty

programs they currently use

and what levels their

programs offer. Discuss if

2. Treat High CLVs as VIPs

• Consumers respond to being treated as if they are

someone special.

3. Incorporate Charitable Contributions

4. Offer Choices

• Not all customers value the same rewards, so the most

effective frequent-shopper programs provide choices.

5. Reward All Transactions

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

rule- 80 percent of the sales or profits come from 20

percent of the customers.

A retailer is developing a

program whereby it would have a

special one-day sales event every

month. Which segment(s) of the

customer pyramid should it

1. Platinum Segment

• This segment is composed of the retailer’s customers

with the top 25 percent CLVs. These are the most loyal

customers who are not overly concerned about

merchandise price and place more value on customer

service.

2. Gold Segment

• The next 25 percent of customers in terms of CLV still

shop a significant amount at the retailer but are more

price-sensitive and are not as loyal as the platinum

customers.

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

money. They often demand a lot of attention but do not

buy much from the retailer or they buy a lot of sale

merchandise and abuse return privileges.

B. Customer Retention

1. Personalization

• With the availability of customer-level data and analysis

tools, retailers can now economically offer unique

benefits and target messages to individual customers.

They now have the ability to develop programs for small

groups of customers and even specific individuals.

See PPT 10–28

Most retail store associates

wear a name tag. Should