The need to better understand customer behavior and the interest of many managers to focus on those customers who can deliver long-term profits has changed how marketers view the world. Traditionally, marketers have been trained to acquire customers, either new ones who have not bought the product before or those who are currently competitors' customers. Today the tone of the conversation has changed from customer acquisition to retention.
Now, the question is: “What do managers need to know about their customers and how that information is used to develop a complete CRM perspective?” Market research can provide that information as it precedes most of the steps involved in building a CRM strategy as follows:
- creating a database of customer lifestyle & activity;
- analysis of the database;
- given the analysis, decisions about which customers to target;
- tools for targeting the customers;
- building relationships & measuring programs
i. Creating a customer database:
A necessary first step to a complete CRM solution is the construction of a customer database or information file.' This is the foundation for any customer relationship management activity. For Web-based businesses, constructing a database should be a relatively straightforward task, as the customer
transaction and contact information is accumulated as a natural part of the interaction with customers. For existing companies that have not previously collected much customer information, the task will involve seeking historical customer contact data from internal sources such as accounting and customer service.
What should be collected for the database? Ideally, the database should contain information about the following:
- Transactions: This should include a complete purchase history with accompanying details (price paid, SKU, delivery date).
- Customer Contacts: Today, there is an increasing number of customer contact points from multiple channels and contexts. This should not only include sales calls and service requests, but any customer- or company initialed contact.
- Descriptive Information: This is for segmentation and other data analysis purposes.
- Response to Marketing Stimuli: This part of the information file should contain whether or not the customer responded to a direct marketing initiative, a sales contact, or any other direct contact.
ii. Analyzing the Data
Traditionally, customer databases have been analyzed with the intent to define customer segments. A variety of multivariate statistical methods such as cluster and discriminant analysis have been used to group together customers with similar behavioral patterns and descriptive data which are then used to develop different product offerings or direct marketing campaigns.
However, given the range of marketing tools available that can reach customers one at a time using tailored messages designed for small groups of customers (what has been referred to as one-to-one marketing), there is lesser need to consider the usual market segmentation schemes that contain large groups of customers (e.g., women 18-24 years of age). Rather, there is increased attention being paid to understanding each ‘row’ of the database, that is, understanding each customer and what he or she can deliver to the company in terms of profits and then, depending on the nature of the product or service, addressing either customers individually or in small clusters.
iii. Customer Selection
Given the construction and analysis of the customer information contained in the database, the next step is to consider which customers to target with the firm's marketing programs. The results from the analysis can be of various types. If segmentation-type analysis is performed on purchasing or related behavior, the customers in the most desired segments (e.g., highest purchasing rates, greatest brand loyally) would normally be selected first for retention programs.
Other segments can also be chosen depending upon additional factors. For example, for promotions or other purchase-inducing tactical decisions, if the customers in the heaviest purchasing segment already buy at a good rate, that implies further purchasing is unlikely, a second-tier with more potential would also be attractive.
iv. Targeting the Customers
Mass marketing approaches such as television, radio, or print advertising are useful for generating awareness and achieving other communications objectives, but they are poorly-suited for CRM due to their impersonal nature. More conventional approaches for targeting segment customers include a portfolio of direct marketing methods such as telemarketing and personalized e-mails.
v. Relationship Programs
A comprehensive gamut of relationship programs includes customer service, frequency/loyalty programs, customization, rewards programs, and community building. The overall goal of relationship programs is to deliver a higher level of customer satisfaction than competing firms deliver. Thus, brands must engage into market research to constantly measure the satisfaction levels of relationship programs and identify program’s ROI by looking at customer acquisition costs, conversion rates (from prospects to buyers), retention/ churn rates, same customer sales rates and loyalty measures.