The Basic Small Business Customer Relationship Management Model

1. A database for customer activity - Ideally the database should contain information about the following:
   • Transactions - including a complete purchasing history with accompanying details
   • Customer contacts from multiple channels and contexts
   • Descriptive information for segmentation and other data analysis purposes
   • Response to marketing stimuli - whether or not the customer responded to a direct marketing initiative, a sales contact, or any other direct contact
   • This data should also be collected over time.
   
   
2. Analyses of the database - For many years customer databases have been analyzed with the intent to define customer segments. However, taking a larger number of customers and forming groups or segments presumes a marketing effort towards an 'average' customer in the group. With the range of marketing tools available that can reach customers one at a time through personalized messages, there is less need to consider the usual market segmentation schemes. Instead there is an increase in attention being paid to understanding each "row", or customer, of the database, and what he or she can deliver to the company in terms of profit. The idea is that each row/customer of the database should be analyzed in terms if current and future profitability to the firm.
   
   
3. Given the analyses, decisions about which customers to target - Looking at past and current purchases a model of the profitability of a customer can be used by the marketing manager to target specific customers. The profit that a customer has produced for the firm is the sum of the margins of all products purchased over time less the cost of reaching that customer. These costs include any that can be broken down at the individual customer level such as direct mail, sales calls etc. Cross-selling is also becoming of interest to marketers, with complementary products being displayed on the same physical page in a hard-copy catalogue or virtual page on a Web site.
   
   
4. Tools for targeting the customers - Once the construction and analysis of the customer information contained in the database has been completed, the next step is to consider which customers to target depending on the firms marketing programs. This could be through segmentation, with the customers in the most desired segments targeted first. Individual customers could be targeted that are projected to be profitable for the company. The goal is to use the customer profitability analysis to separate customers that will provide the most long-term profits from those that are currently hurting profits. Mass marketing is useful for generating awareness, but is poorly-suited for CRM due to its impersonal nature. Rather than talking "at" customers companies are urged to talk "to" their customers. In particular, "1-to-1" marketing has come to mean using the Internet to facilitate individual relationship building with customers.
   
   
5. How to build relationships with the targeted customers - The overall goal of relationship programs is to deliver a higher level of customer satisfaction than competing firms deliver. Research has shown that there is a strong, positive relationship between customer satisfaction and profits. Relationship programs include:
   • Customer service: With more choices available for customers today, customer service must receive a high priority within the company. Any contact or "touch point" that a customer has with a firm is a customer service encounter and has the potential to gain repeat business and help CRM or have the opposite effect.
   • Loyalty/Frequency Programs: Loyalty programs provide rewards to customers for repeat purchasing. However, a recent McKisey study identified the three leading problems with these programs: they are expensive, mistakes can be difficult to correct as customers see the company as taking away benefits, and also there are large questions about whether they work to increase loyalty or average spending behavior. A further problem is that due to the ubiquity of these programs, it is increasingly difficult to gain competitive advantage.
   • Customization: This notion implies the creation of products and services for individual customers, and not simply communicating with them as with 1-to-1 marketing.
   • Community: The Internet is allowing both online and offline businesses to build a network for exchanging product-related information and to create relationships between the customers and company or brand. The goal is to take a prospective relationship with a product and turn it into something more personal. This allows the manager to build an environment which makes it more difficult for the customer to leave the "family" of other people who also purchased this product.
     
     
6. Privacy issues - A CRM strategy as described in this paper depends upon a database containing customer information and the analysis of this data to achieve more effective targeting of marketing communications and relationship-building activities. With the increase in the popularity of the Internet, many consumers and advocacy groups are concerned about the amount of personal information necessary to enable this delivery. The current debate about privacy centers around how much control Web surfers should have over their own information.
   
   
7. Metrics for measuring the success of the CRM process - As more attention is paid to CRM, the traditional metrics used by managers to measure the success of their products and services in the marketplace have to be updated. Some of the CRM-based measure in both Web and non-Web based businesses are as follows:
   • Customer acquisition costs
   • Conversion rates (from lookers to buyers)
   • Retention /churn rates
   • Same customer sales rates
   • Loyalty measures
   • Customer share or share of requirements (the share of a customer's purchases in a category devoted to a brand).