Mohit Sewak

Diamonds in Data Mines

Data Mining Digs In

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Conceptualizing, Measuring, and Managing

Customer Based Brand Equity

Brand Awareness:

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Brand recognition relates to consumers’ ability to confirm prior exposure to the brand when given the brand as a cue. In other words, brand recognition requires that consumers conectly discriminate the brand as having been seen or heard previously. Brand recall relates to consumers’ ability to retrieve the brand when given the product category, the needs fulfilled by the category, or some other type of probe as a cue.

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Brand Image:

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Brand image is defined here as perceptions about a brand as reflected by the brand associations held in consumer memory. Along with level of abstraction, brand associations can be classified into three major categories of increasing scope: attributes, benefits, and attitudes.

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Attributes are those descriptive features that characterize a product or service—what a consumer thinks the product or service is or has and what is involved with its purchase or consumption.

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Brand attitudes are defined as consumers’ overall evaluations of a brand (Witkie 1986). Brand attitudes are important because they often form the basis for consumer behavior (e.g., brand choice).

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The different types of brand associations making up the brand image include product-related or non-product-related attributes; functional, experiential, or symbolic benefits; and overall brand attitudes.

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These associations can vary according to their favorability, strength, and uniqueness.

Customer-based brand equity is defined as the differential effect of brand knowledge on consumer response to the marketing of the brand. a brand is said to have positive (negative) customer-based brand equity if consumers react more (less) favorably to the product, price, promotion, or distribution of the brand than they do to the same marketing mix element when it is attributed to a fictitiously named or unnamed version of the product or service.

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Building Customer-Based Brand Equity:

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Building customer-based brand equity requires the creation of a familiar brand that has favorable, strong, and unique brand associations. This can be done both through the initial choice of the brand identities, such as the brand name, logo, or symbol, and through the integration of the brand identities into the supporting marketing program.

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Developing supporting marketing programs:

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Marketing programs are designed to enhance brand awareness and establish favorable, strong, and unique brand associations in memory so that consumers purchase the product or service. Brand awareness is related to brand familiarity.

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Measuring Customer-Based Brand Equity:

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There are two basic approaches to measuring customer based brand equity. The “indirect” approach attempts to assess potential sources of customer-based brand equity by measuring brand knowledge (i.e., brand awareness and brand image). The “direct” approach attempts to measure customer-based brand equity more directly by assessing the impact of brand knowledge on consumer response to different elements of the firm’s marketing program. The indirect and direct approaches to measuring customer-based brand equity are complementary and should be used together.

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Managing Customer-Based Brand Equity:

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• 1.  marketers should adopt a broad view of marketing decisions.
• 2. marketers should define the knowledge structures that they would like to create in the minds of consumers—that is, by specifying desired levels of awareness and favorability, strength, and uniqueness of product- and non-product-related attributes; functional, experiential, and symbolic benefits; and overall attitudes.
• 3. marketers should evaluate the increasingly large number of tactical options available to create these knowledge structures, especially in terms of various marketing communication alternatives.
• 4. marketers should take a long-term view of marketing decisions.
• 5. marketers should employ tracking studies to measure consumer knowledge structures over time to: -

• (1) detect any changes in the different dimensions of brand knowledge and
• (2) suggest how these changes might be related to the effectiveness of different marketing mix actions.

• 6. They  should evaluate potential extension candidates for their viability and possible feedback effects on core brand image.

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Conclusions:

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• 1. First, factors influencing the favorability, strength, and uniqueness of brand associations, a focus of much past
• research, should continue to be explored, but along several different lines.
• 2. the costs and benefits of leveraging secondary associations should be explored. For example, how and under what conditions should a firm increase the salience of source factors related to the brand (i.e.,  the company, country of origin, and distribution channel)?
• 3. One important research priority is to develop valid benchmarks for the direct approach to measuring customer-based brand equity—that is, plausible descriptions of the relevant activity (advertising, promotion, product, pricing, etc.) with no or fictitious brand identification.
• 4.  Finally, broader implications of customer-based brand equity should be explored by considering aggregation
• issues associated with brand knowledge effects on market segments or the customer franchise as a whole, as opposed to effects on an individual consumer.

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The Mismanagement of Customer Loyalty

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Following Hypothesis were tested: –

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Claim 1: It costs less to serve loyal customers:

This is not true. In fact, the only strong correlation between customer longevity and costs that we found-in the high-tech corporate service provider-suggested those loyal and presumably experienced customers were actually more expensive to serve.

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Claim 2: Loyal customers pay higher prices for the same bundle of goods:

It was found that the customers regularly guarantee greater frequency of purchase in return for lower prices.

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Claim 3: Loyal customers market the company:

It has been proved that if managers are investing in a loyalty program for its supposed marketing benefits, then they are looking at a potentially misleading indicator.

Customers may well buy all their groceries at the same supermarket out of inertia and convenience.

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Knowing When to Lose a Customer

The most common way to sort customers is to score them according to how often they make purchases and how much they spend. Many tools do that; one of the most familiar is called RFM (Recency, Frequency, and Monetary Value Analysis).

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So just why is RFM such a poor way to measure loyalty?

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One problem is that patterns of buying behavior for frequently bought goods are quite different than those for infrequently bought goods.

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The second main drawback of scoring methods like RFM is that the monetary-value component is almost always based on revenue rather than profitability.

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From Measurement to Management

After analyzing your customers’ profitability and the projected duration of their relationships, you can place each of them into one of four categories, as shown in the matrix “Choosing a Loyalty Strategy.”

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Turning True Friends into True Believers:

In managing these true friends, the greatest trap is overkill. At the catalog company, for instance, we found that intensifying the level of contact through, for example, increased mailings were more likely to put off loyal and profitable customers than to increase sales. People flooded with mail may throw everything out without looking at it. Sent less mail, however, they are more likely to look at what they get.

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Enjoying Butterflies:

The classic mistake made in managing these accounts is continuing to invest in them after their activity drops off. Any such efforts are almost invariably wasted; our research shows that attempts to convert butterflies into loyal customers are seldom successful – the conversion rate was 10% or lower.

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How valuable is the word of mouth?

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The article “How valuable is the word of mouth?”, by Kumar, Peterson and Leone, talks about identifying the customers who bring in the most referrals., and then capitalize on that knowledge. It highlights the following points: -

1. What your customers feel about you and what they are prepared to tell others about you can influence your revenues and profits just as much as, or even more than, what your customers do themselves.

2. To estimate the value of a customer’s referrals, take the value of the business brought in by the customers she refers and subtract the marketing costs that prompted her to make the referral. You base your estimates of future referral behavior on past behavior.

3. Once you segment customers according to their referral value and the value of their purchases, you can see how those values relate. Often, it turns out that the customers who buy the most from you are not your best marketers. What’s more, your best marketers may be worth far more to your company than your most avid consumers.

4. Understanding how much value a customer brings in from purchases and how much from referrals can help companies target their marketing campaigns appropriately, enabling them to achieve superior marketing ROIs and reap the full value of all their customers.

Based on the research conducted, following were the four categories of customers that were formed called as the customer value matrix. This was based on the calculation of their CLV (Customer Lifetime Value) and CRVs (Customer Referral value)

1. Affluent – The customers with high CLVs but low referral values.
2. Champions – Customers with high CLVs and equally high referral values
3. Advocates – Customers with low lifetime values and high referral values
4. Misers – who scored low on both accounts

Implications to the marketer –

Now the job of the marketer with respective to the current findings is now to:

1. Make the affluent become champions by encouraging then to refer more new customers while maintaining their highly valuable purchasing behavior. Give them incentives so that they refer more customers.
2. Turn the advocates into champions by increasing their lifetime value without compromising their high referral value. Give them personal attention and send them personalized direct mails. Provide bundling of products for them to get attracted and purchase. Try to increase value specifically for them.
3. For misers try to offer incentives that will make them buy as well as refer. Do price/product bundling and send them personal mails.

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There has been considerable hype on CRM solutions, the productivity, the information, the improved customer relationships, you name it. But everything has its flaws, and the seemingly perfect philosophy has its own too, both psychologically and financially.

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• Difficult to work with, complex, needs extra training to work with
• It is hard and time consuming to populate a database. The initial data entry takes a lot of time.
• Many processes involve human touch and dehumanizing such a process reduces its effectiveness.
• CRM systems require continuous maintenance, information updating, and system upgrading which adds to the costs.
• In some cases it might be difficult to integrate with other management information systems this would lead to extra costs or problems due to incompatibility.
• In the companies of smaller size, lack of formalization of the procedures and the lack of the employees’ interest in the importance of CRM may lead to problems.
• Sometimes, too much information is in the CRM system, and it simply frustrates users to find the information that they want.

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Content Courtesy: Abhishek Chauhan,  Abhishek Choubey.

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There are several benefits that businesses can derive from effectively using CRM. Some of them are:

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1. Improved customer service

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CRM enables organisations to understand their customer and customer’s needs. This helps organisations to offer a more focused value proposition that cater to customers’ needs.

Moreover, organisations can create customer profile and their specific needs and importance. Organization can adjust their offerings or level of service to match the customer’s importance and needs.

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2. Prospective customers

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CRM provides insights into your customer profiles and provide information about which customers are more profitable. It helps organisations in deciding their prospective customers and this increases customer retention.

Capital One increasingly uses CRM to create a profile of customer they want to focus on for a particular financial product. It enables them to capture customers that are going to be profitable for them in long or short run depending on the strategy.

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3. Enhance profitability of existing customers

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Understanding the existing customer helps organization understand their needs and change in their needs and demands over the time. CRM enables them to understand their customers better than the customer. Organisations can forecast what sort of products might a customer be interested in future and how his/her taste has changed over time. It gives organization an opportunity to Cross-sell and Up-sell their offerings which improve not only profitability but also customer satisfaction.

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4. Traditional marketing to One to One marketing

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CRM has given a fundamental shift to the marketing strategy of the organizations. Understanding your real customers, gives organization focus on whom to pursue. This reduces marketing and advertising cost. Also, conversion rate of customer is higher. This significantly reduces the operating costs for organisations.

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5. Understanding shift in the market place.

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CRM helps to a great extent the behavioral changes happening in the market place as far as the customers are concerned. Organization can quickly adapt to changing demands (latent) and come up with new products that cater customer’s needs.

For example, Lego was losing its toy market share as children became more and more occupied with computer games and TV. Lego realized this shift due to interactive technology and came up with a interactive product which included touch sensors and microprocessors. It increased Lego’s revenue significantly.

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Content Courtesy: Abhishek Chauhan,  Abhishek Choubey.

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Do companies pursue CRM because of a genuine interest in customers, or because of the fear of being upstaged by competitors that are already pursuing CRM?

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As per Gartner research, the worldwide CRM market revenue has grown to $9.15 billion in 2008, a 12.5% increase over 2007 revenue of $8.13 billion. The market growth was driven by enterprise investments in technologies, focused on customer retention, analytics and on-demand solutions. Interest in social networking and social software also escalated in 2008 as businesses were confronted with the sales, marketing, and serviceability impact of increasing consumer participation in online forums.

There are several key business drivers to pursue CRM. These could vary from Small and Medium Business(SMB) to large enterprises like banks. These could be classified as follows:

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1. As as a tool to push sales and build brand equity for SMBs
2. To reduce lead times and improve information flow.
3. To retain existing customers
4. To listen to customers
5. To respond to competition
6. Top management strategy
7. We had surplus IT budget

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Few examples of CRM Adoption by Indian companies:

• With stiff competition in banking sector, Indian banks such as ICICI and HDFC are deploying a CRM solution with the aim of increasing their customer base and retaining existing customers to offer higher service levels, while foreign and private banks have already adopted CRM solutions for expanding their customer base.
• Bharti, India’s no. 1 telecom operator adopted CRM as a tool to manage customer expectations and offer innovative products and services. Moreover, its ability to solve customer problems has gone up from 40 to 90% with CRM.
• Shoppers’s Stop, leading retail chain in India adopted CRM to improve customer relations and to increase merchandising response time by intergrating with their ERP system.
• ICICI Prudential AMC is an asset management company powered a major CRM drive, and has built a completely automated system, which will enable the customer to virtually ‘serve himself’.
• Tata Motors intergrated Siebel CRM with Dealer Management System to improve response time and customer service, to meet rising competition from global players and overcome the hurdles of a widely dispersed dealer network,

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From above we can that there are both types of companies, ones that genuinely pursue CRM and those that pursue to fight competition.

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Content Courtesy: Minil Singhai.

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References –

• http://www.infosysblogs.com/customer-relationshipmanagement/2009/08/why_do_companies_implement_crm_1.html#more
• http://www.cxotoday.com/India/News/CRM_Market_Registers_Double-digit_Growth/551-104418-908.html
• http://www.livemint.com/2007/08/30181534/Tata-Motors-widely-uses-Oracle.html
• http://www.expresscomputeronline.com/20040105/ebusiness01.shtml
• http://www.cxotoday.com/India/News/Prudential_ICICI_Powers_CRM_Drive_With_Talisma/551-1054-908.html
• http://www.collegeresearch.us/show_essay/8476.html
• http://www.cxotoday.com/India/News/Shoppers_Stop_Shops_For_Business_Objects_CRM/551-616-908.html

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Assessing the value created to the firm by a CRM program

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Cap Gemini Ernst & Young (CGEY) published a CRM Index based on a survey of nearly 200 European companies concluding that over 66% of companies cannot identify the ROI from their CRM investments. This is not that there is no ROI but that these companies have not put in place metrics to measure the ROI. Simply stated,

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ROI = Returns (cost savings, incremental revenues) * 100
Investment (total cost of ownership)

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The key steps in assessing ROI will be to breakdown Returns and Investment into smaller measurable elements and define a metric to assess each of them.

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Returns:

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Measuring Returns for CRM systems is most complex as there are many tangible/intangible benefits. One way to classify various benefit streams is to break it down into four main areas:

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a. Revenue Enhancements

CRM systems will deliver benefits, which will increase a company’s revenues. Actual line items will differ based on CRM systems’ scope but thinking on the following lines will make sure a comprehensive analysis is done to assess revenue enhancements.

• Increase in total sales (due to increased sales force productivity, sales force is able to visit more customers) Measure increase in close rates, increase in revenue per sale
• Improved customer retention (measure reduction in lost customers, or increase in re-order percentages)
• Increased cross-selling (measure number of products sold across product lines per customer)
• Reduced lost sales due to stock-outs (due to immediate ordering vs. lag time of x days)

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b. Margin Enhancements

Sales personnel will be able to up sell customers to more profitable items because the new CRM system can take syndicated demographic data sources for the local-store area and, using analytics, suggest specific items that appeal to the local consumer.
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c. Cost Reductions

Apart from raising top-line, most of the times CRM systems result in cost savings in various departments of the organization. Some items to consider are

• Reduced customer acquisition costs

• Decrease in cost of sales (by increase in sales force productivity, reduction in proposal generation time, improvement in order configuration accuracy etc… – measure these individual elements to assess decrease in cost of sales)
• Decreased cost to Retain and Serve customers.

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d. Other Intangible Benefits.

Apart from above returns there will be lot of intangible benefits in the long run (like increased customer satisfaction, better product designs etc) which are difficult to quantify but there are some suggested ways to quantify them approximately.

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ROI :

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The Total Cost of Ownership (one-time and ongoing costs) should be measured to understand the investment in the CRM system. For analyzing returns, a detailed benchmarking study should be carried out. Once the system is implemented, a study of benefits in all four domains (revenue enhancements, margin enhancements, reduction in costs and intangible benefits) would reveal the true quantifiable value add (ROI) of the CRM system.

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Content Courtesy: Bharath Kumar.

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What are unique contexts and opportunities for CRM applications in India?

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CRM has unique applications in a eastern country like India. The current state of the Industry and the culture of India impact the relevant applications of CRM. Travel and tourism, Telecom, Financial services, Insurance, Hi-tech, Aviation, Utilities, Education and Automobile sectors have been the adopters of CRM practices in India.

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Unique Context

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The significant growth of the IT industry has led to easy adoption of technology aspect of CRM in India. Still, the focus on the customer has not been fully developed in India. High power distance culture in India has led to requirements of a lot of structural and cultural changes. Hence, implementors of CRM have to take in account the unique power distance and other aspects of culture prevalent in organization.

In India, the marketing establishments are still in the developing stage and the infrastructure is also not fully .Hence Indian organizations need to focus on building customer databases and how to effectively use these databases using CRM. This aspect adds to the cost of implementing CRM in the short term.

CRM has to be aligned with the profile of the customer since it will impact their business. As India‘s 15-24 population evolves, CRM applications have to changed accordingly. This can only be done if the changes in Indian society are mapped and emerging cultural nuances accounted for.

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Unique Opportunities

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E-CRM & M-CRM:

In Inndia, emerging middle class and rural population access internet for the first time through mobile phones, as it is relatively cheaper .This trend opens up new opportunities for e-CRM and m-CRM changes and accelerates the use of internet channels.As the users of telecom and number of telecom providers grow, the need is of keeping these customers become very high. Mobile computing and other devices will likely increase the need for reaching out to the profitable customers.

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A survey of 70 CRM consultants provided a breakup of Global CRM Market as:

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Breakup of the Global CRM Market

The Indian CRM market can be approximated to size of Rs. 50-100 Crores

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Sizing the Indian CRM Market

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Best-fit sectors for CRM practices and packages

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Financial Sector seems to have best fit sector for CRM.

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Top-of-mind CRM Packages

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Siebel was the CRM package that came to mind of 64% of the consultants deployed in Indian projects and the competition is getting harsher as the number of competitors and software are increasing.

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Government Agencies: Citizen Relationship Management

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Citizen-centric tools aligned with the needs of government departments and provide services to the citizen in a timely structured manner. Everything will be put on record from a call to sms to requests. CRM will prioritize requests and direct to the right departments. This will address grievance of the citizen and give updates. Also considering India’s diversity, CRM application will need to have various languages also incorporated

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Content Courtesy: Aditi Yadav, Anuj Mittal.

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Does the value that customers perceive in CRM disappear if all firms in an industry offer CRM?

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The aim of CRM is to gain insights into the customer behaviour and offer customized offerings so that the customer perceives more value in your offerings vis-à-vis that offered by your competitors. In a given sector, all companies differ in their scope and scale and hence target different customers. Thus, even if all companies in an industry implement CRM, they will be looking for different patterns and insights from CRM to customize their products. For the given set of data they will extract what is relevant to their customers and in line with their core competency.

However, given that in a sector there can be competition for the same customer base, CRM implementation across competitors will help the customer perceive differences between companies. The main reasons are:

• For the same pattern, companies would come up with different solutions to the same problem based on their core competencies.
• Even if different companies come up with a similar solution or copy each others’ offerings, implementation of the same idea will differ.

For example, when Pizza hut and Dominos came to India, they set a new trend among the fast food restaurant business by providing personalised home delivery services. They maintained the preferences of the callers from their earlier calls and provided faster and better services. Later, the same concept is followed by other players in the business, while some local players haven’t still implemented such concept.

Thus, CRM should be used by companies to continuously look for newer insights into customer behaviour to come up with new offerings which differentiate them from the competitors.

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Content Courtesy: Pranit Dubey, Shobhit Verma.

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