Chapter 11
Customer Relationship Development and Retention Marketing
Learning Objectives:
By the time students complete this chapter they should be able to:
• Explain the importance of customer retention.
• Describe the difference between relationship and transactional marketing.
• Discuss the concept of CRM and the marketing functions on which it is based.
Chapter Perspective
The activities and strategies that make up CRM, which we encourage you to translate as
“Customer Relationship Marketing,” constitute arguably the most important marketing
contribution to enterprise profitability. After two chapters that concentrate on essential Internet
marketing techniques this chapter is strategic in nature. It begins with a strong reminder about
the importance of CRM and the role of CLV, which is a follow-on to the material in Chapter 4
on direct-response foundations. CRM is one of the “journey without an end” aspects of strategy.
Like many of its quality management counterparts, it is also susceptible to failure from lack of
Introduction Slides 2-3
The introduction is a brief review of the research that demonstrates the importance of CRM to
the profitability of the firm. It emphasizes the fact that, although customer satisfaction is
The Importance of CLV Slide 4
In chapter 4 we looked at the mechanics of computing CLV using several examples. The chart
over time, creating the increase in CLV that marketers are trying to achieve.
Strategic CRM: Semantics Slide 5
This slide can spark discussion as to whether the CRM is customer relationship management or
customer relationship marketing. You can ask the students to think about their most important
The Elements of CRM Slide 6
CRM includes a strategic process, operations or tactics and analytical components. All three
aspects are discussed in the chapter. As always, we emphasize the importance of developing a
solid strategy before implementing tactics and analyzing the results.
The Transactional versus the Relationship Perspective Slides 7-8
Current basic marketing texts do a good job of pointing out the importance of relationship
marketing, but there is so much to do in the introductory course that the emphasis tends to get
lost. Consequently, it is worthwhile to emphasize the difference between the transactional
The B2B Foundations of CRM Slides 9-11
“The three–legged stool of CRM” is an activity-based approach to CRM that complements the
conceptual/strategic model of Peppers and Rogers. It may have come from the software
The fact that the authoritative article was published in 1989 (Moriarty and Schwartz,
“Automation to Boost Sales and Marketing,” HBR, January-February 1989) tells a great deal
Moriarty and Schwartz list the relevant tools, which include but are not limited to, software as:
• Sales force productivity tools such as call reporting and checking order and inventory
status (note: this is the area that derives most effectiveness from mobilization, especially
Once again, students should notice that some of this harkens back to the direct-response
foundations. Lead generation is one of the generic objectives that are relevant to direct
Developing CRM Strategy/The Customer Lifecycle Slides 12-15
Consultants Don Peppers and Martha Rogers have created a small industry around their
exceptional work in database marketing and CRM. The model presented in Figure 11.4, Slide 12
is the basis of their CRM approach and you might want to point out the similarity to the email
application in Figure 7.8). The four steps—identify, differentiate, interact, and customize—
The Customer Lifecycle shown in Figure 11.5 is one of many that could be used to illustrate the
principle of identifying your customers, learning about them and marketing to them in the way
they desire, or interactive marketing! There are lots of other examples of the customer lifecycle
and you might ask students to find one and compare.
as Nikeid, make a good lab exercise in mass customization.
• Land’s End’s history as a catalog (database) marketer seems to have a lot to do with its
strong CRM program as well as good customer service, which is an absolute necessity for
The Process of CRM—Operational and Analytical Slides 16-17
CRM is a process not a project, and that can’t be emphasized too strongly. It is hard to do
because it changes the whole approach to marketing in most firms, which tend to focus on
acquisition and programs, not ongoing dialog and a process of continuous improvement. It also
requires a long-term perspective, not a quarter-by-quarter view. Figure 11.7 is important, both in
setting forth the process and in pointing out that there is an operational aspect and an analytical
aspect. Analysis of the database is key to learning and better programs. Operational refers to
devising and executing those programs based on variables or analytical products housed in the
database. The chapter also describes the difficulties of integrating social media data into these
databases (social CRM).
Targeting, Personalization, and Customization Slides 14–23
Three concepts that are key to successful CRM are targeting, personalization, and customization.
Figure 11.10 lays out the concepts. Customer profiles, because they are made up of individual
data items, are a reasonable first step leading to targeting. Land’s End, for example, is good at
targeting people who purchase men’s or women’s apparel or both. ASPCA gets registration data
Cookies produce data on anonymous users. That simple statement is important; students tend to
believe that cookies may identify users. The fact is that they can, but only if the cookie is linked
to other data, which can happen without the knowledge of the visitor. Cookies, by themselves,
however, only identify the computer as the source of the visit. The duration varies by whether
they are session cookies, not stored for future use, or enduring, usually for a period of 12 months.
Most users seem to be more comfortable with site cookies than with third-party cookies, which
are set by services like ad serving. They are necessary for behavioral tracking and behaviorally-
targeted advertising, but they arouse suspicion.
All this feeds into a description of how individual websites can personalize pages for users and
how email can be personalized and used to update databases so critical to CRM (Figure 11.7).
The Cisco example should spark some conversation about personalization. Again you can
Customer Loyalty Programs at Tesco Slide 24
You can see a lot of what is described in the text by going live to the website. It’s not visually
stunning, but it is effective. The text has information on Tesco and additional articles that come
up in a search give more. There is even a book, Scoring Points: How Tesco is Winning
Customer Loyalty, by Clive Humby and Terry Hunt with Tim Phillips, published in the U.S. by
Kogan Page Ltd., Sterling, VA.
Tesco’s program demonstrates many of Arthur Hughes’s criteria for good loyalty programs:
• Be easy to use
The exception appears to be an exit strategy; Tesco seems to keep expanding its program, and as
long as their profitability appears to grow as a direct result, they will probably continue to do so.
In the U.S. Kroger is a DunnHumby client with a program that seems to mimic what Tesco does
although most U.S. grocers are not engaged with their customers at this level.
Emerging Issues—Apps and Social CRM Slides 25-27
Apps allow consumers to interact with companies and brands from anywhere and social
together to see the social media activity that leads to website traffic, leads, or sales conversions.
The Costs and Failure Rate of CRM Systems Projects Slides 28-30
• 2001 Gartner: 50%+ CRM software failure rate
• 2002 Butler Group: 70% CRM software failure rate
Just one look at the variety of touchpoints and technology facilitators in Figure 11.14 indicates
how difficult the process is to implement. It is also probably true that there is a great deal more
sub-optimization than there is outright failure and discontinuation these days. The main reasons
indicated over and over again from various sources are:
• Lack of strategy
• Technical project instead of a business initiative
The CRM Vision—Seamless Customer Experience Slide 31
That phrase seems to aptly summarize both the goal and the difficulty. Figure 11.14 shows the
many possible touchpoints (channels) and the technologies that can be used to communicate or
provide information to achieve customer satisfaction. The channels are well known, although
listing them in a single place reinforces just how many there are in this era of multichannel
marketing.
Some of the technologies may be unfamiliar. You may have pointed out the chat facility if you
visited the Land’s End site. VoIP is familiar; eBay’s purchase of Skype made easier to do “Click
to Call” to facilitate communication between sellers and prospective buyers. Push is fairly
The discussion should end on an upbeat note. CRM is difficult but possible, and successful
CRM can measurably contribute to enterprise profitability (or nonprofit success). Managers
should never forget that successful CRM programs require:
• Good customer data
There is, indeed, no “silver bullet.”
Summary Slide 32
Another trite but true commentary on CRM is that it is “a journey, not a destination”—a phrase
that is reminiscent of sayings about TQM. Students have been oriented to relational marketing
Discussion Questions
1. Explain, in your own words, the importance of customer-focused relationship
marketing and how it differs from transactional marketing.
Relationship marketing is the key to profitability for virtually all organizations—for-profit and
nonprofit alike. The cost of customer acquisition is high and it seems only to increase in
traditional channels, from television to direct mail. A continuing relationship with customers
The specific areas in which transactional and relationship marketing differ can be identified as:
• Focus—individual transactions versus ongoing exchanges
• Time perspective—short versus long
2. What is the role of CLV in relationship marketing?
CLV is a metric for measuring the success of a relationship marketing program. CLV
emphasizes the importance of caring for customers in a way that causes them to return, to
3. Customer Relationship Marketing is generally considered to have its foundations in
three B2B marketing functions. Explain what the functions are and what each
contributes to a CRM program.
The three marketing disciplines that need to be brought together in order to develop a CRM
program are:
By this point in the course students should be getting a grasp on the concept of information-
driven marketing that is targeted and personalized. That is essential to the building and
maintenance of strong relationships. Customer service will be discussed in detail in Chapter 13.
4. Explain the steps in the Peppers and Rogers model of CRM and the importance of the
customer database in the process.
Figure 11.4 describes the IDIC model:
• Identify your customers by individual or household name and address and/or address.
This is the first step in developing the customer database.
5. Explain what is meant by the customer lifecycle, and how CRM strategies and messages
can be crafted for its various stages.
The customer lifecycle is used to establish the types of messages that will be most effective as
6. Discuss the differences between operational and analytical CRM and how they make
use of the customer database.
The customer database is the focal point of both operational and analytical CRM. The database
7. Explain the difference between a customer profile and a model.
The customer database may be used to develop broadly-based customer profiles (similar to the
personas used in Chapter 12) that describe the ideal customer or group of customers and drive
both outbound programs like email newsletters and inbound programs like display advertising.
8. True or False: It is easy to include customer data from social networks in the database.
Why or why not?
False. It is difficult to link consumer social network data to identified consumers without
violating privacy restrictions. Consumers may mask their identity on social media and/or not
9. Targeting and personalization are different but related CRM concepts. Be prepared to
define each, clearly explaining why they are different from one another and giving an
example of each.
Targeting and personalization are all possible because of the customer database and the resulting
ability to communicate with individuals or precisely defined segments. The concepts can be
defined as:
• Targeting is directing marketing communications to individuals or businesses that have
10. True or False: Personalization is a simple process of including the recipient’s name in
the subject line or body of the message. Why or why not?
False. Personalization should incorporate the customer’s preferences, i.e., dog or cat owner,
transaction history, responses to past offer and other data on the marketing database to be
11. Why have apps become an important part of CRM programs for many companies? Do
you believe that apps you use are helpful in building relationships with brands? Sales?
Figure 11.12b shows the types of apps used. Games, music, and entertainment are all popular.
12. Explain your understanding of “social CRM.”
Social CRM involves adding social media data to the data already in CRM databases to
understand the customer better. The attribution of sales to social media data is difficult, but it
13. What are some of the major reasons that the implementation of large CRM systems
may be prone to failure?
As stated in the text,” The simple answer is that CRM systems are not easy to implement. The
14. What do we mean by “seamless customer experience in multiple channels?”
Seamless service to customers means the customer has the same experience from channel to
15. Explain why CRM is a process, not a journey with a final destination.
The process as described in Figure 11.7 begins with strategy development based on segmentation
by CLV with value propositions crafted for each target segment. The center oval specifies the
Internet Exercises
1. Internet Career Builder Exercise.
CRM jobs might be harder for the students to relate to; certainly the entry level call center jobs
2. Visit one B2C, one B2B, and one nonprofit website. Examine each carefully, identifying
as many relationship building techniques as possible. Do you find extensive differences
between them? Be prepared to discuss your findings, and the similarities and
differences between programs on the two sites, in class.
Students should come up with a list of several techniques used by each site they visit. If they
have only one or two, they should be pushed to answer what other services the site offers, some
of which may be relational techniques. If few or no relational techniques are used, it is
3. By now you are probably receiving communications from at least one of the websites
you are tracking. Are they doing it well or not? How would you assess the effectiveness
of this part of their CRM program?
This should elicit a variety of responses in terms of both quality and quantity of communications.
What various sites are doing and how well the recipient feels they are doing it is interesting. See
4. If you are not already, become a fan of a Facebook brand page and study the types of
marketer-generated communications that appear there. What do you see in the way of
customer contribution to the content on the page? What do you make of customer
activity, or lack thereof, on the page?
This exercise is meant to turn the focus from a discussion of how customers react to the value
Key Terms
analytical CRM mining the customer database and developing programs or predictive models
based on the resulting insights and data discovery.
relational marketing focuses on developing long-term customer relationship and loyalty.
sales force automation business processes, and the software that supports them, that permit
salespeople to work more effectively both in and out of their offices by providing electronic
access to important documents, customer data, and support tools like calendars.