Mohit Sewak

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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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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What can firms do to increase the degree to which customers care about long-term relationships?

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All businesses, irrespective of size, need customers for success. Attracting customers and retaining them for a long time is a biggest challenge that any company faces, however once it is accomplished there is no turning back. A satisfied long-term customer brings more transactions and also refers the company to others. The valuable testimonials that they receive from customers are the key to their success.

Customer also cares about such long term relationships. Firms which are in long term relationship can identify needs more effectively by understanding specific customer requirements. They can know customers current and future needs and can incorporate required changes into their strategy.  Customers get the customized products to meet their requirements. Firms get more involved with customers and enhance their efforts to create more value for the customer. Customers are benefitted in the form of improved products. In a long term relationship, firms find themselves better equipped to develop one-to-one marketing offers and product benefits. The result of long-term relationships is better quality and lower costs.

To make the customers care about such long term relationships, firms also need to establish a reputation for trust worthiness with the customer. The better you understand and meet your customers’ needs, the more trusted you become. Over a period of time, the barriers between firms and customers drop and firms become a partner whom customer can turn for help.

There is plethora of choices for the customers. Firms should not be focused on selling a specific product or service; they should be focused on how they can help the customer succeed in all the ways that are important to the customer. By tapping the many resources firms have at their disposal to help customers meet their goals and priorities, firms can add value. This ability to create value for customers will differentiate the firm in a crowded marketplace. If customer is also a firm, then firms need to think about customer’s customer, its decision making process, customer’s set of opportunities and goals and priorities in both short-term and long-term.  They need to have a deeper knowledge of customer’s company including costs and values and help the customer to improve margins and drive revenue growth.

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Content Courtesy: Pratik Tyagi, Rishi Unnikrishnan.

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CRM a passing fad or a powerful concept here to stay

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Customer Relationship Management (CRM) is a concept to identify the life time net worth of a customer so as to ensure that the right amount of investment goes into gaining the right amount of customer information to offer and serve the right customer in the right (customized and personalized) way. But the question is if it is just a passing fad or a powerful concept which would withstand the test of time.

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CRM a Time Proven Age Old Concept

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Business concepts like one-to-one relationships and direct marketing have been around since ages and though the people of yore did not know the jargon that they knew the importance of the concept which was then perhaps a bit abstract. It was a very common to practice CRM in its crude form among farmers and traders with their customers.

Twentieth century saw the concept of CRM cemented and become structured thanks to the advent of new technologies in especially in fields of information and communication which changed the way a person relates with others. The impact and implications of these technological changes however is not only on business relationships but also on the way we see and do businesses.

The advent of e-commerce shifted the balance of commercial relationship from the producers to consumers. The age old relationship marketing concept now sits on the platform of technology. Maintaining RFM value (Recency, Frequency and Monetary value) of customers in customer file has started being seen as cumbersome and obsolete. Customer Relationship Management (CRM) systems which are taking its place and are based on techniques such as data warehousing, data mining and marketing automation allowed marketers to know their customers, their value or worth and their needs, preferences and behavior inside out. More importantly customers have now tasted the blood and expect high levels of personalized care. CRM is the only way to pamper and meet the increasing expectations of the customers and to identify the customers who are worthy of all this care.

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CRM a Powerful Concept to Stay

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Research suggests that typically there can be 40 percent rise in profit by enhancing CRM capabilities by just 10 percent and pretax profit could even go up by 120% on ramping up the performance of CRM. Andersen says that CRM performance accounts for 28 percent to 60 plus percent of the variance in return on sales of a company (in his study, ‘How Much Are CRM Capabilities Really Worth? What Every CEO Should Know’). An article in Harvard Business Review by Frederick Reichheld and Earl Sasser shows that 5 percent increase customer retention rates increases profits by 25 to 95 percent through various channels like increase in price premiums, sales and referrals and decrease in operating costs. It’s not surprising therefore to see almost every businesses to fast-track its CRM implementation. Though there are risks as in case of any new venture, corporate can not afford competitors seizing this huge opportunity. No matter what the critics and detractors have to say on CRM being a passing fad, CRM is here to stay.

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References:

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Content Courtesy: Amitesh Das.

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