Chapter 21 ♦ Customer Relationship Management (CRM) 21-1
CHAPTER 21 Customer Relationship Management (CRM)
CHAPTER FEATURES
Chapter Features
Key Points
✓ Marketing & You
Students are given a survey to determine their perceptions of
customer complaints.
✓ Customer Experience
Google analytics enables companies to measure online and offline
marketing effectiveness in visitor attraction, conversion rate, user
experiences, and a ROI for the Web site.
✓ Company Clips
Brand advocates, or Method’s most enthusiastic customers, are the
company’s most vocal proponents and take an almost evangelical
approach to sharing the benefits of green cleaning with the market.
USING THIS MANUAL
Chapter twenty-one includes seven learning outcomes that help students become more familiar with customer
relationship management. The chapter outline provides detailed analysis of these learning outcomes, listing PowerPoint
✓ Global Perspectives
A new type of nonprofit organization has emerged recently that takes
online technology to a completely new level.
✓ Application Exercise
Students collect direct mail for one month then analyze all items to
create a customer profile for the recipient.
product to your cart. Petco.com was one of the first mainstream
retailers to create a forum on its own Web site for criticism.
21-2 Chapter 21 ♦ Customer Relationship Management (CRM)
LEARNING OUTCOMES
1 Define customer relationship management
Customer relationship management (CRM) is a company-wide business strategy designed to optimize profitability,
2 Explain how to identify customer relationships within the organization
Companies that implement a CRM system adhere to a customer-centric focus or model. A customer-centric company
3 Understand interactions with the current customer base
The interaction between the customer and the organization is considered to be the foundation upon which a CRM system
4 Outline the process of capturing customer data
Based on the interaction between the organization and its customers, vast amounts of information can be obtained. In a
CRM system, the issue is not how much data can be obtained, but rather what type of data should be acquired and how
5 Describe the use of technology to store and integrate customer data
Customer data gathering is complicated because information needed by one unit of the organization (e.g. sales and
6 Describe how identify the best customers
Customer relationship management, as a process strategy, attempts to manage the interactions between a company and
its customers. To be successful, organizations must identify customers who yield high profitability or high potential
Chapter 21 ♦ Customer Relationship Management (CRM) 21-3
7 Explain the process of leveraging customer information throughout the organization
One of the benefits of a CRM system is the capacity to share information throughout the organization. This allows
CHAPTER OUTLINE
1 Define customer relationship management
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Review Questions 1.1, 1.3
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Customer Relationship
Management Cycle
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Implementing a CRM
System
I. What Is Customer Relationship Management?
Customer relationship management (CRM) is a company-wide business
While customer service is critical to CRM, it is only one of many components
of a CRM system.
A. The customer relationship management cycle:
o Identifies customer relationships with the organization
B. Implementing a Customer Relationship Management System
In a successful CRM system:
1. Customers take center stage in the organization.
2. The business must focus on the day-to-day management of the
the entire organization.
Customer Experience
Tracking Consumer Experiences with Google Analytics
Web analytics enables companies to measure online and offline marketing effectiveness
2 Explain how to identify customer relationships with the
organization
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Identify Customer
Relationships
Review Question 2.1
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Learning
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Knowledge Management
II. Identify Customer Relationships
A. Customer-Centric Focus
1. Companies that use a CRM system must adhere to a customer-centric
2. A customer-centric focus requires learning, knowledge management,
B. Learning
Learning in a CRM system is an informal process of collecting customer
information through customer comments and feedback on product or service
performance.
C. Knowledge Management
1. Knowledge management is a process by which learned information
D. Interaction
1. An interaction is a touch point at which a customer and a company
3 Understand interactions with the current customer base
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Interactions of the Current
Customer Base
III. Understand Interactions of the Current Customer Base
A. The interaction between the customer and the organization is the foundation
upon which a CRM system is built. Following a customer-centric approach,
interactions occur as follows:
Chapter 21 ♦ Customer Relationship Management (CRM) 21-5
within that business unit.
3. Web-based interactions are increasing because many customers prefer
to communicate on their own terms.
4 Outline the process of capturing customer data
Review Question 4.1
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Capture Customer Data
IV. Capture Customer Data
A. Vast amounts of data can be obtained from the interactions between an
organization and its customers. CRM deals with determining the types of
data to be acquired and how the data can be used for relationship
enhancement.
1. The channel is the traditional approach for acquiring data from
customers. It includes store visits, conversations with salespeople,
PC interaction on the Web, traditional phone conversations, or
wireless communication.
5 Describe the use of technology to store and integrate
customer data
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Customer Data
Review Questions 5.1, 5.2
V. Store and Integrate Customer Data
A. What Is Data Warehousing?
1. A data warehouse is a central repository of customer data collected
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2. The core of the data warehouse is the database, which is a collection
of data that can be manipulated by computer software.
3. Companies use two types of lists to populate their databases:
a. Response lists are especially valuable because they include
6 Describe how to identify the best customers
Review Question 6.1
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Data Mining
VI. Identifying the Best Customers
Given the 80/20 principle (20 percent of customers represent 80 percent of the
revenue), companies following CRM must determine who the profitable and
unprofitable customers are. The 20 percent is identified through data mining.
A. Data mining is the process of finding hidden patterns and relationships
among variables and characteristics from customer data stored in the data
warehouse.
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Recency-Frequency-
Monetary Analysis
2. Recency-frequency-monetary analysis (RFM) is most commonly used to
define a firm’s best customers. Many marketers take RFM analysis one
step further by introducing profitability into the equation.
3. Lifetime value analysis (LTV) projects the future value of the customer
7 Explain the process of leveraging customer information
throughout the organization
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CRM Marketing Database
VII. Leveraging and Disseminating Customer Information Throughout the
Organization
Chapter 21 ♦ Customer Relationship Management (CRM) 21-7
Applications
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Campaign Management
Retaining Loyal
Customers
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Cross-Selling Other
Products and Services
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Targeted Marketing
Reinforcing Consumer
Purchase Decisions
Data mining identifies the most profitable customers and prospects. Managers
can then tailor marketing strategies to best penetrate the identified segments. In
CRM, this is commonly referred to as leveraging.
A. Campaign Management
Campaign management involves developing product or service offerings
If a company has identified its best customers, then it should make every
effort to maintain and increase their loyalty. Loyalty programs reward loyal
consumers for making multiple purchases.
C. Cross-Selling Other Products and Services
CRM provides many opportunities to cross-sell related products. A
Global Perspectives
Online Charities Use CRM Tools
A new type of nonprofit organization has emerged recently that takes online technology
to a completely new level. Based on theories of customer relationship management in
the for-profit world, nonprofit organizations such as Globalgiving.org and Kiva.org
are enabling ordinary people to make extraordinary differences in the lives of people
across the globe.
D. Designing Targeted Marketing Communications
E. Reinforcing Consumer Purchase Decisions
CRM offers marketers an opportunity to reach out to customers to reinforce
the purchase decision.
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of Distribution Channel
Marketing
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Improving Customer
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Privacy Concerns
Marketing databases enable manufacturers to advise retailers how to better
meet customer needs, and make it possible to serve customers using direct
channels instead of the traditional indirect channels.
G. Improving Customer Service
H. Privacy concerns and CRM
1. Since CRM systems warehouse a tremendous amount of personal
information, privacy concerns are a natural response.
KEY TERMS
Suggested Homework:
REVIEW AND APPLICATIONS
1.1 Identify the six components of the CRM process.
The CRM process consists of these components: 1) the establishment of customer relationships within the
1.2 Form a team and identify several local businesses that would benefit from a CRM strategy. Select one
business and outline a plan on how that business would implement a CRM strategy. You may want to
Chapter 21 ♦ Customer Relationship Management (CRM) 21-9
visit the company and interview managers about their current initiatives. When you have completed
your CRM plan, share it with the class – and the company.
1.3 General Motors recently began installing the “OnStar” system in many of its vehicles. OnStar is a
location system, information system, and communication system available to those drivers who wish to
subscribe to the service. Go to the OnStar Web site, www.onstar.com, and read over some of the
services that are offered to consumers. Based on your discovery, write a short report describing the
various ways that OnStar can be used as a CRM tool, specifically in the context of creating interactions,
gathering customer data, and customizing service offerings to customers.
2.1 Briefly explain the concept of a customer-centric focus. Why is this so important in a customer
relationship management process?
A customer-centric focus is a philosophy that an organization adopts that puts the customer at the center of all
2.2 What is meant by knowledge management? Why is it so important in a CRM system?
3.1 Develop a plan for establishing and managing interactions with a business’s customers. In this plan,
identify the key touch points for customers, how the knowledge center would be designed, and the main
interaction methods that would be promoted to the customer.
Students should include both external and internal touch points in this plan. External touch points would
4.1 Assume you are the manager for a Hard Rock Café. Your boss has asked you to evaluate how the
company is using its Web site to gather customer data. Go to the Web site for the Hard Rock
(www.hardrock.com) and provide a detailed critique on how the Web site is used for capturing customer
data. Comment on the types of customer data that the Web site is designed to capture, and how that
data would benefit your local Hard Rock operation.
5.1 Briefly explain the concept of a data warehouse. In the context of a CRM framework, why is a data
warehouse such an important tool?
A data warehouse is a central repository of customer data collected by an organization. The data warehouse
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5.2 What is being written about customer data in today’s periodicals? Search your favorite database of
articles using keywords like “customer data” and “data warehousing.” Are certain industries better
represented in the citation list generated by your search? Are certain issues more prevalent? Read a
selection of at least three to four articles and write a brief analysis of what is being discussed in the press
regarding these CRM topics.
6.1 Explain the concept of data mining. Providing five examples of companies that are currently using data
mining, and explain why each is using it.
Data mining is the process of finding hidden patterns and relationships among variables and characteristics from
customer data stored in the data warehouse. Data mining is used to recognize significant patterns of variables and
7.1 Campaign management is a benefit derived by an organizations ability to leverage and disseminate
information throughout the company. Briefly define campaign management and explain how a business
may be applying it to its daily operations. In your answer, select a particular business as an example of
effective campaign management.
Campaign management occurs when all functional areas in an organization participate in the development of
7.2 What kind of product testing is currently going on at the Procter & Gamble Web site (www.pg.com).
Sign up to participate and find out how the company implements its one–to-one marketing plan through
its Web site.
Supplemental Exercise: Group Work
Review and Applications
Review and Application Question 1.2 and the Application Exercises are well suited for group work. For Question
1.2, divide the class into small groups of 4-5 people. Students from each group should read the question and then use
Chapter 21 ♦ Customer Relationship Management (CRM) 21–11
APPLICATION EXERCISE
Purpose: To allow students to analyze marketing materials and determine the kind of consumer they were intended to
reach. Students will also build a reverse profile based on the materials.
Kenneth Radig
Medaille College
DIRECT MAIL ASSIGNMENT
The purpose of this assignment is to make students aware of the direct mail that comes into their own homes
and to allow them the opportunity to see what the kind of mail a household receives tells about the consumers in that
household.
Students are then to remove all customers identifying information from each piece. Remove the information
from the mailing label and the order blank. Put all of mail in a box or bag on which you have put a fictitious name.
Bring this material to class on an assigned date.
Each student then chooses a package for someone else in the class that they do not know. Each student then
analyzes their “mystery package” as follows:
1. List all of the material in the package.
ETHICS EXERCISE
1. What do you think? Should Maxwell use one–to-one marketing tools to communicate with children?
If Maxwell uses its one-to-one marketing tools to communicate with children, it will be on extremely unstable
six to nine without violating FTC regulations.
2. Does the AMA Statement of Ethics address marketing to children in its Statement of Ethics? Go to
www.marketingpower.com and review the statement. Then, write a brief paragraph on how the AMA
Statement of Ethics relates to Maxwell’s dilemma.
The AMA Statement of Ethics does not address marketing to children as a distinct market segment. There are no
• All parties intend to discharge their obligations, financial and otherwise, in good faith;
MARKETING PLAN EXERCISE
Before reviewing your marketing plan in chapter 22, you must identify the ways in which your company will leverage
the capabilities of database technology for implementation, evaluation, and control. A strategic plan is effective only
when it is acted upon, so implementation guidelines should list specific action plans and a recommended time frame.
Evaluation is needed to see if actual marketing activities are resulting in expected objectives. If not, control measures
CASE STUDY
Petco.com: Turning Negative Reviews into Positive Sales
1. A customer-centric company builds long-lasting relationships by focusing on what satisfies and retains
valuable customers. Discuss how Petco follows this customer-centric philosophy.
Customer-centric companies like Petco follow an internal management philosophy that encourages the
Part 7 ♦ Technology-Driven Marketing – Solutions 21–13
2. Go to Petco.com and read some of the customer reviews for various types of products. Do the one– and
two-paw ratings tend to outnumber those with four and five paws, or the other way around? Can you
find a customer review that Petco could use to market a product in a company circular or e-mail ad?
3. Now that Petco has identified the type of customer most likely to write reviews of their products, discuss
the kinds of promotions that might encourage continued loyalty and response online from them in the
future. What could they do to appeal to these customers?
Student answers will vary. Customers most likely to write reviews on Web sites in general have been shown to
be empty nesters and “young transitionals” without children. On Petco.com, the reviewers have been further
4. Many mainstream retailers are still hesitant to post customer reviews on their Web sites. If you were
consulting with one of these companies, what arguments would you use to convince management to try
them?
Student answers will vary. They may choose to show management examples of other Web sites that have
LESSON PLAN FOR VIDEO
Company Clips
Segment Summary: Method – Spreading the News about Green Cleaning
It is not uncommon for companies to be a bit protective of their brands. As you read in Chapter 10, brand equity and
perception are indicators of marketing success. But in today’s fast-paced markets, much can be gained by turning
ownership of the brand over to consumers. Method is a company that understands the benefits to this risky proposition.
Founders Eric Ryan and Adam Lowry created a brand that its customers can take ownership of and have actually built a
customer feedback channel that most businesses dream of achieving. Brand advocates, or Method’s most enthusiastic
customers, are the company’s most vocal proponents and take an almost evangelical approach to sharing the benefits of
green cleaning with the market.
1. How has Method identified customer relationships with the organization? What does the company do to
nurture those relationships?
Advocates for method—consumers who promote their products—have access to the organization through email and
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2. Identify the touch points mentioned in the video and list the types of information Method could gather at
each one.
Touch points mentioned include a customer request online via email or comment section for a particular service (gift
3. What is the role of technology in Method’s CRM system?
Supplemental Exercise: Video
Company Clips
Pre-Class Prep for You:
• Preview the Company Clips video segment for Chapter 21. This exercise reviews concepts for LO1-LO7.
• Review your lesson plan.
• Make sure you have all of the equipment needed to show the video to the class, including the DVD and a way to
project the video.
• Have students bring written definitions of the above terms or concepts to class.
• Ask students to compose a list of three companies that treat them extraordinarily well. They should be prepared to
discuss why when they come to class.
Pre-Class Prep for Students:
Video Review Exercise Activity
• Warm-up
o Review the lists students composed for Pre-Class Prep. Discuss what their favorite companies do to
provide them with great service. Ask students to be specific. Ask students how important they consider
how they are treated by a company’s sales force, compared to the actual products or services that a
company sells.
• In-Class Preview
• Follow-up
o What is the cornerstone of Method’s customer care? Does method depend more on channel, transaction, or
product/service touch points to collect information from customers?
Part 7 ♦ Technology-Driven Marketing – Solutions 21–15
Supplemental Exercise: Class Activity
CRM in Internet-Bases Businesses
Internet-based businesses, or e-commerce, have been quick to adopt many concepts of customer relationship
management. A good example is Amazon.com, which gathers information about a customer each time the customer
inputs data or purchases products.
In this exercise, students should select an Internet-based business that it believes has a good CRM program. It will be
easier if at least one of the students is a current customer of that particular business (or has purchased something from
that business in the past.) Divide the class into teams of four or five students and have them do the following:
Students should prepare a short presentation to make to the class.
GREAT IDEAS FOR TEACHING CHAPTER 21
Keith Absher, University of North Alabama
DIRECT-MAIL MARKETING CONSULTANT
Instruct students to put themselves in the role of a “direct-mail marketing consultant.” They are to evaluate,
improve and rewrite each of the following direct mail letters. The instructor may want to review the following
characteristics of a good direct mail letter or ask the students to list their own key considerations. (1) It’s appeal is based
on knowledge of the prospect (2) It gets the reader’s attention (makes a connection with the prospect). (3) It must
Additional study questions that may be proposed to the students: How would you help these organizations in
developing or updating their mailing list? How should the envelope look to get the most readers? How should the
letterhead look for each of these organizations? What other forms of direct marketing may be appropriate for these
campaigns?
Save the Slugs, Inc.
Box 5176
Beverly Hills, CA 90210
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slugs are killed by the chemicals applied to gardens, yards, and crops. These chemicals are depleting the slug
population at alarming speeds. Mrs. Lester, you may wonder how this affects you. As an avid gardener you
probably realize how destructive aphids can be to your roses and other foliage. Did you know that slugs are the
major predator of these aphids? Not only do they control the aphid population, but they also control several other
put this off. Tomorrow could be too late.
Sincerely,
Joseph Liberal
Save the Slugs, Inc.
February 27, 1997
Ms. Linda Latchkey
1101 Market Street
Chattanooga, TN 27406-2981
Dear Ms. Latchkey
Every day in our neighborhoods in the Chattanooga area, children are left unprotected and uncared for
in their own homes. Many parents are in the situation that they must work and have no choice but to leave their
small children at home. Our research has found this is happening in an alarming number of homes.
Our Organization, with your help, can offer these families an alternative. We can provide the care and
The Society of Animal Protection
1951 Golden Ave.
Retriever, MO 88843
Mr. Bill Cash
1902 Treasury Lane
Dollar, CO 52341
Part 7 ♦ Technology-Driven Marketing – Solutions 21–17
then offered for adoption free-of-charge in exchange for a promise to provide the animals a good home. The
Society of Animal Protection has placed over 50,000 pets in the last ten years.
Mr. Cash, your contribution will help give the gift of life and freedom to an animal. Please show which of the
following amounts you could contribute and return this form to The Society of Animal Protection.
Dr. Rott Weiler, DVM
The Society of Animal Protection
Saul Haffner, Sacred Heart University
EVALUATING COMPUTER SIMULATIONS
Selecting the best simulation for your students is not an easy task. Of course, you will consider its realism, its
ease of learning/complexity, its administrative requirements, etc. But when you get down to the “final four,” how do you
pick the best? Here’s a simple procedure that can help.
Test each simulation by setting up four competing companies, each with the following “no-brain” strategies.
1. No change. Each quarter, or whatever period is used, just enter the same decisions as the last period.
Lastly, when you’re running these sample programs, if a simulation “locks up” or gives you a weird screen
message, it’s cause for disqualification. Imagine what would happen if you ran into a “glitch” halfway through your
course!
Judy Strauss, Central Connecticut State University
Raymond Frost, Central Connecticut State University
THE WEEKLY READER:
AN INTERNET BASED NEWSLETTER
Course Objectives:
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• To encourage the use of e-mail communication by providing an electronic forum for intellectual and social
discourse
Student Contribution:
Twice each semester every student is required to produce an original summary of an article he has found either
in print or on the Internet. The summary must be correctly attributed, including the URL if it is a Web article. The
Editor
One student is selected as the newsletter editor, perhaps in lieu of having to contribute summaries.
Student Evaluation:
Each week, the Weekly Reader is discussed in class. Students describe interesting findings and ask questions of
Side Benefit:
This project is helpful for enticing students to use their e-mail accounts. Because students are regularly checking
Trina Sego, Rensselaer at Hartford
EXPLORING PRODUCT MIX THROUGH VISITATION OF CORPORATE WEBSITES
The parent companies of many household brands maintain websites that describe all of the products in their
corporate family trees. A website assignment can provide students with an opportunity to apply their knowledge of
marketing as well as their computer skills.
Some sites worth visiting include www.conagra.com, www.general mills.corn, www.unilever.com, www.nestle.com,
Part 7 ♦ Technology-Driven Marketing – Solutions 21–19
• Are most of the brands distributed in the U.S., other countries or both? How does the marketer’s strategy
appear to differ from one country to another?
• Does the website present information about distribution to business markets (e.g., the food service industry)?
How would a product strategy differ for consumer vs. business markets?
Students should be advised to activate their computer accounts in advance of this assignment. They might also be
reminded that the World Wide Web (or the Worldwide Wait) can be tedious and slow, and that internet service