Customer Relationship Management, Second Edition PDF

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Customer Relationship Management VSF This book is dedicated to my children Emma and Lewis of whom I am enormously proud. Customer Relationship Management Concepts and Technologies Second edition Francis Buttle AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRAN...

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Customer Relationship Management

VSF This book is dedicated to my children Emma and Lewis of whom I am enormously proud.

Customer Relationship Management Concepts and Technologies Second edition

Francis Buttle

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO Butterworth-Heinemann is an imprint of Elsevier

Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 30 Corporate Drive, Suite 400, Burlington, MA 01803, USA First edition 2009 Copyright © 2009, Francis Buttle Published by Elsevier Ltd. All rights reserved. The right of Francis Buttle to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone (44) (0) 1865 843830; fax: (44) (0) 1865 853333; email: [email protected]. Alternatively you can submit your request online by visiting the Elsevier web site at http://elsevier.com/locate/ permissions, and selecting Obtaining permission to use Elsevier material. Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. Because of rapid advances in the medical sciences, in particular, independent verification of diagnoses and drug dosages should be made. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress ISBN: 978-1-85617-522-7 For information on all Butterworth-Heinemann publications visit our web site at www.elsevierdirect.com Typeset by Charon Tec Ltd., A Macmillan Company. (www.macmillansolutions.com). Printed and bound in Hungary 09 10 11 12 13

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Contents

Foreword Preface Acknowledgements About the author

xi xiii xvii xxi

1 Introduction to customer relationship management Chapter objectives Introduction Strategic CRM Operational CRM Analytical CRM Collaborative CRM Misunderstandings about CRM Defining CRM CRM constituencies Commercial contexts of CRM The not-for-profit context Models of CRM Summary References

1 3 3 4 6 9 11 12 14 16 17 18 18 22 22

2 Understanding relationships Chapter objectives What is a relationship? Relationship quality Why companies want relationships with customers Why companies do NOT want relationships with customers Why customers want relationships with suppliers Why customers do NOT want relationships with suppliers Customer satisfaction, loyalty and business performance Researching the satisfaction–profit chain Relationship management theories Summary References

25 27 27 30 31 40 41 42 43 46 50 55 55

3 Planning and implementing customer relationship management projects Chapter objectives Introduction

61 63 63

vi Contents CRM implementation Phase 1: Develop the CRM strategy Phase 2: Build CRM project foundations Phase 3: Needs specification and partner selection Phase 4: Project implementation Phase 5: Evaluate performance Summary References

63 65 72 80 89 90 91 91

4 Developing, managing and using customer-related databases Chapter objectives Introduction What is a customer-related database? Developing a customer-related database Select the database technology and hardware platform Maintain the database Desirable data attributes Data integration Data warehousing Data marts Data access and interrogation Data mining Privacy issues Summary References

93 95 95 95 96 102 107 108 109 111 112 113 114 117 120 120

5 Customer portfolio management Chapter objectives What is a portfolio? Who is the customer? Basic disciplines for CPM Market segmentation Sales forecasting Activity-based costing Lifetime value estimation Data mining CPM in the business-to-business context Additional customer portfolio management tools Strategically significant customers The seven core customer management strategies Summary References

123 125 125 126 127 127 136 138 141 143 147 154 157 158 160 160

6 Customer relationship management and customer experience Chapter objectives Introduction What is meant by customer experience? Experiential marketing strategies and tactics Customer experience and the role of CRM

163 165 165 165 174 178

Contents vii Features of CRM software applications that influence customer experience Researching the link between customer experience and CRM Summary References

179 182 183 183

7 Creating value for customers Chapter objectives Introduction Understanding value Sources of customer value Customization Value from products Value from service Value from processes Value from people Value from physical evidence Value from customer communication Value from channels Summary References

185 187 187 187 191 193 197 201 210 213 214 216 218 219 220

8 Managing the customer lifecycle: customer acquisition Chapter objectives Introduction What is a new customer? Customer value estimates Prospecting Key performance indicators of customer acquisition programmes Making the right offer Operational CRM tools that help customer acquisition Support from CRM analytics Summary References

225 227 227 228 231 233 248 249 250 252 253 253

9 Managing the customer lifecycle: customer retention and development Chapter objectives Introduction What is customer retention? Manage customer retention or value retention? Economics of customer retention Which customers to retain? Strategies for customer retention Positive customer retention strategies Learning from research into customer commitment Context makes a difference Key performance indicators of customer retention programmes The role of research Strategies for customer development

255 257 257 258 260 261 262 263 263 277 280 281 282 283

viii Contents Strategies for terminating customer relationships Summary References

284 287 287

10 Managing networks for customer relationship management performance Chapter objectives Introduction What is a network? Business networks Network position What is meant by ‘focal firm?’ Business networks and CRM The SCOPE of CRM Supplier networks Distribution networks Principles of network management Management of networks Management in networks Research into network competence Summary References

291 293 293 294 295 296 298 298 299 300 301 303 303 306 307 307 308

11 Managing supplier and partner relationships Chapter objectives Introduction Supplier relationships Product development Supplier accreditation programmes Process alignment Trends in supplier relationship management Product development alliances Electronic procurement Partners Partners in value creation Alliances between non-competing firms Alliances between competing firms Category teams Benchmarking partners Regulators Customer advocacy groups Sponsors Partners in value delivery Summary References

311 313 313 314 315 315 317 320 323 324 327 327 329 330 331 331 333 333 335 336 340 340

12 Managing investor and employee relationships Chapter objectives Introduction Owner/investor relationships

343 345 345 345

Contents ix Educate current investors Investor relations portals Employees Internal marketing Empowerment The service–profit chain Employee relationship management (ERM) software applications Summary References

349 351 351 353 354 355 357 359 360

13 Information technology for customer relationship management Chapter objectives Introduction Origins of CRM technology The CRM ecosystem CRM solutions CRM analytics CRM architecture Multichannel CRM Mobile and wireless solutions Integration Knowledge management Automated workflow Summary References

363 365 365 365 369 372 377 381 381 383 385 389 390 391 392

14 Sales-force automation Chapter objectives Introduction What is SFA? The SFA ecosystem SFA software functionality SFA adoption How SFA changes sales performance Summary References

393 395 395 396 396 398 406 408 409 410

15 Marketing automation Chapter objectives Introduction What is marketing automation? Benefits of marketing automation Software applications for marketing Summary References

413 415 415 415 416 417 439 440

16 Service automation Chapter objectives Introduction

443 445 445

x Contents What is customer service? What is service automation? Benefits from service automation Software applications for service Summary References

445 447 449 450 461 461

17 Organizational issues and customer relationship management Chapter objectives Introduction Organizational roles and CRM Strategic goals of CRM Conventional customer management structures Network and virtual organizations Person-to-person contacts Key account management Team selling Summary References

463 465 465 465 469 469 474 475 476 481 482 483

Index

485

Foreword Customer relationship management’s impact in the commercial marketplace cannot be undervalued. Despite traditional economic theory on market entry and pricing prescribing that enterprises should engage customers through prefabricated reactions and interactions given the customer event taking place, the nature, impact and reach of the power of enriching customer experiences has emerged in 2008. Yet, one of the most common mistakes made by global companies is to view CRM as solely a technology or business challenge. CRM is first and foremost a business strategy that can be effectively executed through the appropriate business process and technology management capabilities that best match to an organization’s customer-facing goals. Long gone are the views of CRM being applications or business process methodologies for engaging customers in contact centers in the customer service functional domains within an organization. Today, every interaction or ‘moment of truth’ with customers can help sustain, direct, implore or resuscitate desired outcomes by enterprises. These processes transcend functional departmental silos and extend their reach across the process network to include sales and distribution partners and channels. Technology, process and organizational architectures together in concert will determine the effectiveness of how these end-to-end business processes will align to customer intents and enrich their overall experience with an organization. The CRM strategic paradigm has gone through a three-phase generational shift over the last decade (1998–2008) with enterprises maturing from: 1) Marketing to customers the best products at the best prices, to 2) Marketing customers with the best services, to 3) Marketing customers with the dynamic services and products that they want and desire as measured by customer intent. Today, with the advent and proliferation of social communities across the internet world customers have channels for information-sharing on an enterprise’s services and products that is extremely powerful. This emergence has disrupted conventional approaches towards managing customer or product information. Paradoxically, customers no longer look towards an enterprise as the best source of data or information about their own commercial product or service offerings. This sense of brand promise and brand trust has deteriorated, and today customers place their confidence in the shared and communal experiences of others through social community networks which provide transparency on valued customer experiences in the marketplace. In fact, as this book is being printed a great number of CRM Application vendors in the marketplace are vying to provide technology solutions for enterprises to integrate and use these social networks as part of core enterprise ERP and CRM solutions.

xii Foreword It is with distinct pleasure that I introduce you to Francis Buttle’s comprehensive work on CRM. His passion for and grasp of the concepts, disruptors and application of CRM approaches will accelerate readers’ abilities to grasp these exciting topics. When considering CRM, there is no strategic alternative for enterprises but a relentless approach towards driving customer centricity in order to achieve current, future and lifetime profitability by creating customers for life. Isher Kaila Research Director, Global CRM Stratety Gartner Inc. San Jose, CA USA

Preface

Welcome to the second edition of Customer Relationship Management: Concepts and Technologies. The book provides a comprehensive and balanced review of Customer Relationship Management. It explains what CRM is, the benefits it delivers, the contexts in which it is used, the technologies that are deployed, and how it can be implemented. It shows how CRM practices and technologies are used to enhance the achievement of marketing, sales and service objectives throughout the customer life-cycle stages of customer acquisition, retention and development, whilst simultaneously supporting broader organizational goals. The book has been written to meet the demand for an impartial, academically-sound, examination of CRM. It is a learning resource both for students of CRM and for managers wanting a better appreciation of the role that CRM can play in their own organizations. The first edition was entitled Customer Relationship Management: Concepts and Tools. The change to the new subtitle, Concepts and Technologies, reflects the requirements of readers. In true customeroriented manner, we surveyed readers and adopters of the first edition. They said they wanted more on CRM technologies. This book delivers it. However, although there are a number of chapters dedicated to CRM technologies, and technology matters are considered throughout the book, the book puts technology into a managerial context. This is not a book about technologies, but it is about how marketers, salespeople, service staff and their managers can use technologies to better understand and meet the requirements of customers, whilst also meeting organizational goals and objectives. Our survey of readers and adopters also discovered that they wanted more case illustrations and screenshots from CRM software applications. The book delivers them, too. The book draws on academic and independent research to ensure that it is both theoretically sound and managerially relevant. Research from a wide range of academic disciplines contributes to the book. These include marketing, sales, customer service, human resources,

xiv Preface technology management, strategy, change management, project management, leadership, operations, management accounting, finance and organizational behaviour. Supplementing these academic credentials, the book also makes use of research conducted by independent analysts such as Gartner and Forrester, two organizations that conduct leadingedge, state-of-the-art research into CRM and related areas.

Audience for the book This book has been written for a number of audiences, all of whom share an interest in improving their understanding of CRM. ●

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MBA and Masters students, and upper-level undergraduates studying CRM or related advanced courses, such as relationship marketing, database marketing, customer management, sales management, key account management, strategic management, customer value management and customer service management. Those pursuing professional qualifications or accreditation in marketing through international organizations, such as the Chartered Institute of Marketing and the Institute of Direct Marketing, or national bodies such as the Marketing Institute of Ireland or the Canadian Institute of Marketing. Senior and mid-level managers who are involved in CRM programmes and system implementations, whether in a marketing department, the sales-force or the service centre. Students pursuing professional qualifications or accreditation in sales management or key account management through international organizations such as the Institute of Sales and Marketing Management or the Association of International Marketing. CRM users who want a better understanding of this complex area. CRM tools are deployed across the customer-facing parts of organizations. Users includes sales representatives, account managers, marketing managers, market analysts, campaign managers, market managers, customer relationship managers and customer service managers. These users are exposed to just a fragment of the CRM universe. This book can put their role into broader context.

Key features of the book ●

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The book provides a helicopter view, an overview, of the domain of CRM. As an impartial review of the field, it is not tied to any particular perspective on CRM. Indeed, the book identifies a number of holistic models that provide different and competing overviews of CRM. Although CRM is in widespread use, there is still some misunderstanding about what CRM is. The book identifies four different types of CRM: strategic, operational, analytical and collaborative.

Preface xv

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Several chapters are dedicated to strategic CRM and others focus on operational CRM, whereas analytical CRM and collaborative CRM issues are addressed throughout the book. The book defines CRM as the core business strategy that integrates internal processes and functions, and external networks, to create and deliver value to targeted customers at a profit. CRM is grounded on high quality customer-related data and enabled by information technology. This definition serves as a central point-of-reference throughout the book. The book emphasizes a managerial perspective on CRM. Although there is plenty of content on technology, it is not a book about technology per se. The technology content of the book has been written so that readers who are unfamiliar with technology, or who are technophobes, can still understand what CRM technologies can deliver. Technology is secondary to management throughout the book. You don’t need a degree in information systems to benefit from the book! The book has a strong academic foundation provided by research from a number of disciplines. The book contains many examples of CRM technologies and their application to marketing, selling or service functions. Screenshots are a feature of the book. Every chapter contains case illustrations. These are not problem-based cases, but examples of CRM in practice so that readers can come to appreciate how CRM is deployed. All chapters follow a common format: learning objectives, text, case illustrations, summary and references.

Improvements over the first edition There are a number of important improvements to this edition which have been made largely as a result of input from readers and adopters. The book is significantly expanded. At seventeen chapters, this edition is seven chapters longer than the first edition. There are three new chapters dedicated to operational CRM applications: sales-force automation, marketing automation and service automation. The chapters define important terms, identify the main vendors and actors, and set out the benefits users can expect to experience and the functionality that is available. There is a new chapter entitled ‘Understanding relationships’. If CRM is about developing and maintaining relationships with customers, it is impor...