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. 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Printed and bound in Hungary 09 10 11 12 13 10 9 8 7 6 5 4 3 2 1 Contents Foreword xi Preface xiii Acknowledgements xvii About the author xxi 1 Introduction to customer relationship management 1 Chapter objectives 3 Introduction 3 Strategic CRM 4 Operational CRM 6 Analytical CRM 9 Collaborative CRM 11 Misunderstandings about CRM 12 D e fi ning CRM 14 CRM constituencies 16 Commercial contexts of CRM 17 The not-for-profi t context 18 Models of CRM 18 Summary 22 References 22 2 Understanding relationships 25 Chapter objectives 27 What is a relationship? 27 Relationship quality 30 Why companies want relationships with customers 31 Why companies do NOT want relationships with customers 40 Why customers want relationships with suppliers 41 Why customers do NOT want relationships with suppliers 42 Customer satisfaction, loyalty and business performance 43 Researching the satisfaction–profi t chain 46 Relationship management theories 50 Summary 55 References 55 3 Planning and implementing customer relationship management projects 61 Chapter objectives 63 Introduction 63 vi Contents CRM implementation 63 Phase 1: Develop the CRM strategy 65 Phase 2: Build CRM project foundations 72 Phase 3: Needs specifi cation and partner selection 80 Phase 4: Project implementation 89 Phase 5: Evaluate performance 90 Summary 91 References 91 4 Developing, managing and using customer-related databases 93 Chapter objectives 95 Introduction 95 What is a customer-related database? 95 Developing a customer-related database 96 Select the database technology and hardware platform 102 Maintain the database 107 Desirable data attributes 108 Data integration 109 Data warehousing 111 Data marts 112 Data access and interrogation 113 Data mining 114 Privacy issues 117 Summary 120 References 120 5 Customer portfolio management 123 Chapter objectives 125 What is a portfolio? 125 Who is the customer? 126 Basic disciplines for CPM 127 Market segmentation 127 Sales forecasting 136 Activity-based costing 138 Lifetime value estimation 141 Data mining 143 CPM in the business-to-business context 147 Additional customer portfolio management tools 154 Strategically signifi cant customers 157 The seven core customer management strategies 158 Summary 160 References 160 6 Customer relationship management and customer experience 163 Chapter objectives 165 Introduction 165 What is meant by customer experience? 165 Experiential marketing strategies and tactics 174 Customer experience and the role of CRM 178 Contents vii Features of CRM software applications that infl uence customer experience 179 Researching the link between customer experience and CRM 182 Summary 183 References 183 7 Creating value for customers 185 Chapter objectives 187 Introduction 187 Understanding value 187 Sources of customer value 191 Customization 193 Value from products 197 Value from service 201 Value from processes 210 Value from people 213 Value from physical evidence 214 Value from customer communication 216 Value from channels 218 Summary 219 References 220 8 Managing the customer lifecycle: customer acquisition 225 Chapter objectives 227 Introduction 227 What is a new customer? 228 Customer value estimates 231 Prospecting 233 Key performance indicators of customer acquisition programmes 248 Making the right offer 249 Operational CRM tools that help customer acquisition 250 Support from CRM analytics 252 Summary 253 References 253 9 Managing the customer lifecycle: customer retention and development 255 Chapter objectives 257 Introduction 257 What is customer retention? 258 Manage customer retention or value retention? 260 Economics of customer retention 261 Which customers to retain? 262 Strategies for customer retention 263 Positive customer retention strategies 263 Learning from research into customer commitment 277 Context makes a difference 280 Key performance indicators of customer retention programmes 281 The role of research 282 Strategies for customer development 283 viii Contents Strategies for terminating customer relationships 284 Summary 287 References 287 10 Managing networks for customer relationship management performance 291 Chapter objectives 293 Introduction 293 What is a network? 294 Business networks 295 Network position 296 What is meant by ‘ focal fi rm? ’ 298 Business networks and CRM 298 The SCOPE of CRM 299 Supplier networks 300 Distribution networks 301 Principles of network management 303 Management of networks 303 Management in networks 306 Research into network competence 307 Summary 307 References 308 11 Managing supplier and partner relationships 311 Chapter objectives 313 Introduction 313 Supplier relationships 314 Product development 315 Supplier accreditation programmes 315 Process alignment 317 Trends in supplier relationship management 320 Product development alliances 323 Electronic procurement 324 Partners 327 Partners in value creation 327 Alliances between non-competing fi rms 329 Alliances between competing fi rms 330 Category teams 331 Benchmarking partners 331 Regulators 333 Customer advocacy groups 333 Sponsors 335 Partners in value delivery 336 Summary 340 References 340 12 Managing investor and employee relationships 343 Chapter objectives 345 Introduction 345 Owner/investor relationships 345 Contents ix Educate current investors 349 Investor relations portals 351 Employees 351 Internal marketing 353 Empowerment 354 The service–profi t chain 355 Employee relationship management (ERM) software applications 357 Summary 359 References 360 13 Information technology for customer relationship management 363 Chapter objectives 365 Introduction 365 Origins of CRM technology 365 The CRM ecosystem 369 CRM solutions 372 CRM analytics 377 CRM architecture 381 Multichannel CRM 381 Mobile and wireless solutions 383 Integration 385 Knowledge management 389 Automated workfl ow 390 Summary 391 References 392 14 Sales-force automation 393 Chapter objectives 395 Introduction 395 What is SFA? 396 The SFA ecosystem 396 SFA software functionality 398 SFA adoption 406 How SFA changes sales performance 408 Summary 409 References 410 15 Marketing automation 413 Chapter objectives 415 Introduction 415 What is marketing automation? 415 Benefi ts of marketing automation 416 Software applications for marketing 417 Summary 439 References 440 16 Service automation 443 Chapter objectives 445 Introduction 445 x Contents What is customer service? 445 What is service automation? 447 Benefi ts from service automation 449 Software applications for service 450 Summary 461 References 461 17 Organizational issues and customer relationship management 463 Chapter objectives 465 Introduction 465 Organizational roles and CRM 465 Strategic goals of CRM 469 Conventional customer management structures 469 Network and virtual organizations 474 Person-to-person contacts 475 Key account management 476 Team selling 481 Summary 482 References 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