Customer Relationship Management

One of the most revered pieces of technology that has been talked much about in the recent past are – Customer Relationship Management (CRM) solutions. If we have to mention a few of the market leaders – Salesforce CRM, Oracle CRM, IBM CRM and Microsoft Dynamics CRM etc. shall come on top of our minds. But is a CRM solution only a customer database that works as a sales assistant tool or are they having any deeper impact? Let us examine.

The concept of customer relationship management comes from the idea that our customers do not simply undertake one-time transactions with our business; they are in fact in a relationship with us, and must be acquired and then considered an asset that will yield returns to the firm over a period of time in the future – in the same way as products/ brands, inventories and capital investments are considered assets.

There are two key analytical models that work on CRM data –

First one is focused on the acquisition question (Targeting or Prospects scoring models) – Targeting or scoring models attempt to find characteristics that predict whether a prospect is likely to become a customer, thereby significantly reducing the potential cost of customer acquisition. They help us sort prospects in order of attractiveness and help us decide who to acquire.

And, second one is focused more on the retention question (Valuation models) – The key insight emerging from the valuation models is something called “lifetime value of a customer.” In other words, we look out into the future and try to predict what will be the value of a customer over their lifetime contact with the brand. A customer who is more valuable should be managed differently than a customer who is less valuable to the firm. For instance, we might think carefully about retention strategies for the most valuable customers, and divestment strategies for the customers who have negative lifetime values.

Not recognizing that their customers have value in the future, has mislead many firms to focus on short-term profits that eventually eroded the equity of their customer database.

I’d like to talk about three retention strategies, and how digital technologies have casted deep impact here –

1. The most important strategy is customer satisfaction. Satisfied customers tend to stay with the firm quite longer. A plethora of digital technologies come to the rescue of the firm and help them build great products, customer experiences and grievance redressal mechanisms – leaving customers more satisfied.

2. Second strategy is to anticipate customer churn (customers who are likely to leave) and deal with them in a preemptive way. For instance, before raising prices a firm might try to identify the price sensitive customers, and potentially deal with these customers by offering them price discounts or any other ways of reducing its impact. There is no dearth of digital analytics solutions that work on advance data management platforms to identify potential churn and recommend next best action for the firm.

3. Third strategy is to build switching costs for customers. e.g. Reward programs that firms offer is an example of a switching cost for the customer. For instance, customers of airlines often have large numbers of miles that they have in their frequent-flyer account, which makes it more difficult for them to switch airlines and travel with a different airline. Digital technologies assist in building advanced multi-brand and multi faceted loyalty programs – that have been able to create this cross knitted network, that creates a switching cost just enough to prevent customers from switching brands.

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