Unit: 5

What is a relationship
Composed of a series of interactive episodes between two

parties over time.

Content of each interactive episode is a range of

communicative behaviours including speech, actions and body language

Essential to have emotional content resulting into a bond

Transactional ex

Value added ex

Collaborative ex

Automated purchasing

Shift from Acquiring to Retaining

Integration of Supplier with Buyer

Trans Ex

Coll Ex

Availability of alternatives Supply mkt dynamism

Imp of purchase
Complexity of Purchase Info exchange Operational linkages

CRM is a core business strategy that integrates internal processes and functions and external networks, to create and deliver value to targeted customers.
CRM is a systematic approach for serving customers so as to ensure that customer retention and profitability in marketing are achieved.

Helps
convert buyers into profitable customers Build enduring relations Customisation and one- to one marketing on mass scale Retain them as customers for life

Enables sharper customer selection / targeting, by identifying the differences in value needs of customers

Supports cross selling to existing customers

Manages customer interaction and customer service

Helps focus on profit and avoid mis-alignment b/w revenue and profit Gathers in-depth customer info, tracks customer behaviour and applies the knowledge to all marketing efforts.

Serves as a sustainable competitive advantage

Why retaining customers are profitable.

1. Cost of acquisition at the beginning of the relationship. Longer the relationship lower the amortised cost. 2. Account maintenance costs decline as a % of total costs 3. Long term customers tend to be less inclined to switch; less price sensitive 4. 5. 6. 7. Likely to purchase ancillary products Creates entry barrier to competition Less expensive to service Increased customer retention and loyalty makes the employees job easier and satisfying.

Do not sell to them; help them to buy instead

Put the customers interest above your own

Form trust teams. Also build trust among employees

Transactional Customers
Less loyalty and commitment Cost of switching is low Focus on price and service

Collaborative Customers
Lasting commitment Operational linkages & info sharing mechanisms Service offerings as per customers needs Cost of switching is high

ABC system provides a clear picture of the gross margins & cost to serve components that yield individual CP. Steps to calculate CP using ABC system
Identify activities that vary across customers sales, Mktg, service, Production

For each activity, identify the cost driver

CP -- revenue from Customer minus the cost

associated with serving it

Method to allocate and measure indirect costs called Time driven ABC. Has 2 components:
Identify cost per hr of each group of resources performing work ( R & D, Prodn, Services, etc ) Identify unit times spent on these resources by specific activities for products, services and customers
Ex: Customer services has a cost of Rs. 5000 per hr and a particular transaction has taken 30 min, a cost of Rs.2500 is the cost of transaction for that customer.

Rank the profitability from most to least and to plot the accumulated profit in a graph.
X axis list of customers Y axis -, the accumulated profit
Distribution of profits follows the 80 20 rule. Firm makes profit from one / two groups of customers and loses money from other groups of customers.

Net margin Vs. Cost to serve Profit

High Passive Product is crucial Net Margin Good supplier match Costly to serve but buyers pay

Loss

Aggressive Price sensitive Few special demands Leverage buying power Low price Customized features Low High

Cost to serve

Some people always throw stones in your path. It depends on you what you make with them; a wall or bridge. Remember, you are the architect of your life.