Article by KEMEL member Dimitris Paximadis
Customer Relationship Management (CRM)
Today everyone is talking about Customer Oriented Marketing and Customer Relationship Management but few apply it correctly despite the fact that it is the only way to increase a company’s profits.
The CRM Definition
Customer Relationship Management is a Marketing approach that enables businesses to attract and increase the loyalty of their significant customers, properly managing the relationship with them
CRM – in simple words
For a Business Customer, CRM is the “way” in which the Business:
- Locates him
- Gathers all the necessary information about him
- Maintains constant contact with him
- He tries to ensure that he offers him what he really wants
- Checks that what he finally offered him, is what he was initially “promised”
CRM – in simple words
For the Company itself, CRM is the “way” in which, by utilizing the data related to its customer, the company produces “knowledge” which is converted into sales: • Every time an individual customer comes in contact with it – anytime, anywhere, in any way, with any partner. • When the Company approaches specific groups of customers by implementing sales and marketing actions.
The promise of CRM
The great promise of CRM is its ability to meet the individual needs and desires of customers in a systematic and automated way.
From DBM to CRM
CRM is the logical evolution of Database Marketing, which is why Database is the driving force behind a CRM program.
CRM: Philosophy and Methodology
CRM is the philosophy, but also the process of profitably influencing the customer relationship, which allows us to:
- To identify and “approach” the most important customers
- To save the largest percentage of their expenses.
- Get rid of costly communication on the “wrong target”
- To create loyal customers over time
- To reduce the loss of our customers
Many of the basic “tools” of CRM, despite their widespread use internationally, are almost unknown in the Greek market. For example, two key CRM tools are Customer Value Analysis, LTV (Life Time Value), and the Analysis: “ Recent Purchase, Frequency, Purchase Value”, RFM (Recency, Frequency, Monetary). Proper use of them can “make the difference” between profitable and unprofitable course of a business .. Let’s look at some depth these two tools.
Time Value Analysis (LTV) “examines” the buying behavior of a group of customers and “extends” it to the future, by calculating and adding each year, the profits from the active customers of the group.
In the database, in addition to the personal data of the customer (gender, name, address, postal code, phone, e-mail), the history of purchases, the history of contacts (On or Offline), as well as any response in marketing activities should be recorded .
The value of LTV knowledge
Customer Value (Lifetime Value) is used to give us answers to important questions, such as:
- What is the value of Seasonal Customers (eg Christmas markets), in relation to regular customers?
- How are the Customers who buy with Discount Offers differentiated, in relation to the “Normal” Customers, in terms of financial results.
A few words about RFM
M (Recency, Frequency, Monetary) analysis, enables us to identify customers of a positive response to our offers, with a comparatively higher probability. It also allows us to identify specific groups of customers in order to carry out differentiated promotions and to budget how many and which customers we need to address in order for each action to be profitable.
The coding of the database
Each customer record should contain 3 pieces of information, as follows: o R (Recency) The latest purchase date. o F (Frequency) How many times has they bought. o M (Monetary) The total of its purchases in Euro.
The creation of the RFM Code
By entering-writing the 3 RFM codes, next to the customer code, we automatically have a coding from 555 to 111 (using code 5, for the most recent, most frequent and highest value markets and 1, for purchases that are older, sparser and of lower worth) . A total of 125 RFM “cells”, which now allows us to select and analyze the “behavior” of specific subgroups.
The Coding process
(Here you can see the figure from the presentation by Arthur Middleton Hughes by opening the file at the end of the paragraph)
The grouping of customers in separate departments, the RFM clusters, allows us to evaluate and manage our customers differently, depending on their value and loyalty. We know, for example, that the “515” are new customers and that the Converting the first “1” to “2” is important, because whoever buys for the second time, is more likely to become a regular / loyal customer. We can send a welcoming letter and a discount coupon to customers with the code “515”, which means that they are buying a high value product or service for the first time. We can also in group 155 which are obviously customers who in the past made both frequent and high value purchases, make them an offer they could not refuse. We can even “include” other parameters that will allow us to decide what different “proposal” or “reward” each team will have.
But for Loyalty Marketing, as well as for other important issues and tools of CRM, we will refer to the next specialized articles.